-----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, AyKsgSgCtdOqxDMCqmu4BRHEq96+j6NHZMth+2xxeJUpb6Bw4aIB5fL1sdfeOliM WBI2a5+tPPiD8u9VcmQoKA== /in/edgar/work/20001103/0000950159-00-000413/0000950159-00-000413.txt : 20001106 0000950159-00-000413.hdr.sgml : 20001106 ACCESSION NUMBER: 0000950159-00-000413 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001103 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PECO ENERGY CO CENTRAL INDEX KEY: 0000078100 STANDARD INDUSTRIAL CLASSIFICATION: [4931 ] IRS NUMBER: 230970240 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-16844 FILM NUMBER: 753094 BUSINESS ADDRESS: STREET 1: 2301 MARKET ST STREET 2: P O BOX 8699 CITY: PHILADELPHIA STATE: PA ZIP: 19101 BUSINESS PHONE: 2158414000 FORMER COMPANY: FORMER CONFORMED NAME: PHILADELPHIA ELECTRIC CO DATE OF NAME CHANGE: 19920703 10-Q 1 0001.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number: 1-1401 PECO Energy Company (Exact name of registrant as specified in its charter) Pennsylvania 23-0970240 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2301 Market Street, Philadelphia, PA 19101 (Address of principal executive offices) (Zip Code) (215) 841-4000 (Registrant's telephone number, including area code) Indicate by check mark whether the 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 the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date: The Company had 170,478,507 shares of common stock outstanding on October 20, 2000. At the close of business on October 20, 2000, each share of common stock of the Company was exchanged for one share of common stock of Exelon Corporation pursuant to the Agreement and Plan of Exchange and Merger among the Company, Exelon Corporation and Unicom Corporation. PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS
PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (In Millions, except per share data) Three Months Ended September 30, Nine Months Ended September 30, -------------------------------- ------------------------------- 2000 1999 2000 1999 ------- ------- ------- ------- OPERATING REVENUES Electric $ 1,370 $ 1,674 $ 3,540 $ 3,825 Gas 79 50 379 363 Infrastructure Services and Other 180 5 447 21 ------- ------- ------- ------- TOTAL OPERATING REVENUES 1,629 1,729 4,366 4,209 ------- ------- ------- ------- OPERATING EXPENSES Fuel and Energy Interchange 576 786 1,515 1,746 Operating and Maintenance 454 339 1,305 1,015 Depreciation and Amortization 83 57 244 171 Taxes Other Than Income Taxes 67 76 197 196 ------- ------- ------- ------- TOTAL OPERATING EXPENSES 1,180 1,258 3,261 3,128 ------- ------- ------- ------- OPERATING INCOME 449 471 1,105 1,081 ------- ------- ------- ------- OTHER INCOME AND DEDUCTIONS Interest Expense (113) (108) (333) (296) Company Obligated Mandatorily Redeemable Preferred Securities of a Partnership (2) (4) (7) (19) Allowance for Funds Used During Construction 1 -- 2 2 Equity in Earnings (Losses) of Unconsolidated Affiliates 23 (5) 26 (28) Other, Net 22 14 50 31 ------- ------- ------- ------- TOTAL OTHER INCOME AND DEDUCTIONS (69) (103) (262) (310) ------- ------- ------- ------- INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM 380 368 843 771 INCOME TAXES 142 137 316 287 ------- ------- ------- ------- INCOME BEFORE EXTRAORDINARY ITEM 238 231 527 484 EXTRAORDINARY ITEM - NET OF INCOME TAXES (1) -- (4) (27) ------- ------- ------- ------- NET INCOME 237 231 523 457 PREFERRED STOCK DIVIDENDS 3 3 8 9 ------- ------- ------- ------- EARNINGS APPLICABLE TO COMMON STOCK $ 234 $ 228 $ 515 $ 448 ======= ======= ======= ======= AVERAGE SHARES OF COMMON STOCK OUTSTANDING 170 187 175 201 ======= ======= ======= ======= EARNINGS PER AVERAGE COMMON SHARE: BASIC: Income Before Extraordinary Item $ 1.38 $ 1.22 $ 2.96 $ 2.36 Extraordinary Item -- -- (0.02) (0.13) ------- ------- ------- ------- Net Income $ 1.38 $ 1.22 $ 2.94 $ 2.23 ======= ======= ======= ======= DILUTED: Income Before Extraordinary Item $ 1.36 $ 1.21 $ 2.94 $ 2.34 Extraordinary Income -- -- (0.02) (0.13) ------- ------- ------- ------- Net Income $ 1.36 $ 1.21 $ 2.92 $ 2.21 ======= ======= ======= ======= DIVIDENDS PER AVERAGE COMMON SHARE $ 0.25 $ 0.25 $ 0.75 $ 0.75 ======= ======= ======= ======= See Notes to Condensed Consolidated Financial Statements
2 PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES CONDENSED CONSOLIDATED BALANCE SHEETS (In Millions)
September 30, December 31, 2000 1999 ------- ------- (Unaudited) ASSETS CURRENT ASSETS Cash and Cash Equivalents $ 169 $ 228 Accounts Receivable, Net 776 704 Inventories, at average cost 232 206 Other 180 87 ------- ------- Total Current Assets 1,357 1,225 ------- ------- PROPERTY, PLANT AND EQUIPMENT, NET 5,196 5,049 DEFERRED DEBITS AND OTHER ASSETS Competitive Transition Charge 5,232 5,275 Recoverable Deferred Income Taxes 638 638 Deferred Non-Pension Postretirement Benefits Costs 80 84 Investments 722 538 Loss on Reacquired Debt 66 71 Goodwill 192 121 Other 184 131 ------- ------- Total Deferred Debits and Other Assets 7,114 6,858 ------- ------- TOTAL ASSETS $13,667 $13,132 ======= =======
See Notes to Condensed Consolidated Financial Statements 3 PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES CONDENSED CONSOLIDATED BALANCE SHEETS (In Millions) (continued)
September 30, December 31, 2000 1999 -------- -------- (Unaudited) LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Notes Payable, Bank $ 284 $ 163 Long-Term Debt Due Within One Year 306 128 Accounts Payable 308 270 Accrued Expenses 489 616 Deferred Income Taxes 22 15 Other 121 94 -------- -------- Total Current Liabilities 1,530 1,286 -------- -------- LONG-TERM DEBT 6,252 5,969 DEFERRED CREDITS AND OTHER LIABILITIES Deferred Income Taxes 2,444 2,411 Unamortized Investment Tax Credits 275 286 Pension Obligation 213 213 Non-Pension Postretirement Benefits Obligation 457 443 Other 467 430 -------- -------- Total Deferred Credits and Other Liabilities 3,856 3,783 -------- -------- COMPANY OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF A PARTNERSHIP 128 128 MANDATORILY REDEEMABLE PREFERRED STOCK 37 56 COMMITMENTS AND CONTINGENCIES (NOTE 7) SHAREHOLDERS' EQUITY Common Stock (No Par) 3,576 3,576 Preferred Stock 137 137 Other Paid-In Capital 3 1 Retained Earnings (Accumulated Deficit) 301 (103) Treasury Stock, at cost (2,179) (1,705) Accumulated Other Comprehensive Income 26 4 -------- -------- Total Shareholders' Equity 1,864 1,910 -------- -------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 13,667 $ 13,132 ======== ========
See Notes to Condensed Consolidated Financial Statements 4 PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In Millions)
Nine Months Ended September 30, -------------------------------------------- 2000 1999 ------- ------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income $ 523 $ 457 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation and Amortization 335 246 Provision for Uncollectible Accounts 43 40 Extraordinary Item (net of income taxes) 4 27 Deferred Income Taxes 19 (15) Amortization of Investment Tax Credits (11) (11) Deferred Energy Costs 6 43 Equity in Earnings (Losses) of Unconsolidated Affiliates (26) 28 Other Items Affecting Operations (28) 86 Changes in Working Capital: Accounts Receivable (20) (186) Repurchase of Accounts Receivable (50) (150) Inventories (26) (6) Accounts Payable 19 15 Accrued Expenses (90) 156 Other Current Assets and Liabilities (93) (70) ------- ------- CASH FLOWS PROVIDED BY OPERATING ACTIVITIES 605 660 ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES Investment in Plant (435) (362) Exelon Infrastructure Services Acquisitions, net of cash acquired (91) -- Investments in and Advances to Joint Ventures -- (60) Increase in Other Investments (67) (68) ------- ------- NET CASH FLOWS USED IN INVESTING ACTIVITIES (593) (490) ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES Issuance of Long-Term Debt 1,017 3,997 Retirement of Long-Term Debt (545) (1,068) Common Stock Repurchase (496) (1,507) Change in Short-Term Debt 118 (403) Dividends on Preferred and Common Stock (139) (160) Retirement of Mandatorily Redeemable Preferred Stock (19) (37) Proceeds from Exercise of Stock Options 17 14 Retirement of Company Obligated Mandatorily Redeemable Preferred Securities of a Partnership -- (221) Repayment of Capital Lease Obligations -- (139) Other Items Affecting Financing (24) (30) ------- ------- NET CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES (71) 446 ------- ------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (59) 616 ------- ------- CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 228 48 ------- ------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 169 $ 664 ======= =======
See Notes to Condensed Consolidated Financial Statements 5 PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION The accompanying condensed consolidated financial statements as of September 30, 2000 and for the three and nine months then ended are unaudited, but include all adjustments that PECO Energy Company (Company) considers necessary for a fair presentation of such financial statements. All adjustments are of a normal, recurring nature. The year-end condensed consolidated balance sheet data were derived from audited financial statements but do not include all disclosures required by generally accepted accounting principles. Certain prior-year amounts have been reclassified for comparative purposes. These notes should be read in conjunction with the Notes to Consolidated Financial Statements in Item 8 of the Company's Annual Report on Form 10-K for the year ended December 31, 1999, as amended by Form 10-K/A filed on April 28, 2000. 2. MERGER WITH UNICOM CORPORATION On September 22, 1999, the Company and Unicom Corporation (Unicom) entered into an Agreement and Plan of Exchange and Merger providing for a merger of equals. On October 10, 2000, the Agreement and Plan of Exchange and Merger was amended and restated (Merger Agreement). On October 20, 2000, the merger was completed and all of the shares of the Company were exchanged on a one-for-one basis in accordance with the Merger Agreement. As a result of this share exchange, the Company became a wholly owned subsidiary of Exelon Corporation. The transaction is being accounted for as a purchase with the Company as acquiror. Under a comprehensive settlement agreement entered into by the Company in connection with the approval by the Pennsylvania Public Utility Commission (PUC) of the merger, the Company has agreed to $200 million in rate reductions for all customers over the period January 1, 2002 through 2005 and extended rate caps on the Company's retail electric distribution charges through December 31, 2006. The comprehensive settlement agreement also provides for electric reliability and customer service standards, mechanisms to enhance competition and customer choice, expanded assistance to low-income customers, extensive funding for wind and solar energy and community education, nuclear safety research funds, customer protection against nuclear costs outside of Pennsylvania, and maintenance of charitable and civic contributions and employment for the Company's headquarters in Philadelphia. 6 3. SERIES 2000-A TRANSITION BONDS On May 2, 2000, PECO Energy Transition Trust (PETT), an independent statutory business trust organized under the laws of Delaware and a wholly owned subsidiary of the Company, issued an additional $1 billion aggregate principal amount of transition bonds (Series 2000-A Transition Bonds) to securitize a portion of the Company's authorized stranded cost recovery. As a result of this transaction, the Company has securitized a total of $5 billion of its $5.26 billion of stranded cost recovery. The transition bonds issued by PETT, including the Series 2000-A Transition Bonds, are solely obligations of PETT, secured by intangible transition property sold by the Company to PETT concurrently with the issuance of the transition bonds and certain other related collateral. The terms of the Series 2000-A Transition Bonds are as follows:
Expected Approximate Final Series 2000-A Face Amount Interest Payment Termination Class (millions) Rate Date Date ------------- -------------- ---------- ------------------- -------------------- A-1 $110 7.18% September 1, 2001 September 1, 2003 A-2 $140 7.30% September 1, 2002 September 1, 2004 A-3 $399 7.63% March 1, 2009 March 1, 2010 A-4 $351 7.65% September 1, 2009 September 1, 2010
The Company has used the proceeds from the securitization to reduce the Company's stranded costs and related capitalization. On May 3, 2000, $502 million of the proceeds were used to settle a forward purchase agreement that was entered into in January 2000 resulting in the repurchase of 12 million shares of common stock. During May and June 2000, the Company used $463 million to purchase and/or redeem First and Refunding Mortgage Bonds, to reduce other debt, to repurchase accounts receivable and to pay transaction expenses. The remaining proceeds were used to redeem First and Refunding Mortgage Bonds on August 1, 2000. The Company incurred extraordinary charges aggregating $4 million, net of tax, consisting of prepayment premiums and the write-off of unamortized deferred financing costs associated with the early retirement of debt during the nine months ended September 30, 2000. In February 2000, the Company entered into forward starting interest rate swaps for a notional amount of $1 billion in anticipation of the issuance of the Series 2000-A Transition Bonds in the second quarter of 2000. On May 2, 2000, the Company settled these forward starting interest rate swaps and paid the counterparties approximately $12 million which was deferred and is being amortized over the life of the Series 2000-A Transition Bonds as an increase in interest expense consistent with the Company's hedge accounting policy. 7 4. SEGMENT INFORMATION The Company's segment information as of and for the three and nine months ended September 30, 2000 as compared to the same periods in 1999 is as follows (in millions):
Quarter Ended September 30, 2000 as compared to the Quarter Ended September 30, 1999 - ------------------------------------------------------------------------------------ Intersegment Distribution Generation Ventures Corporate Revenues Consolidated ------------ ----------- ---------- ---------- ------------ ------------- Revenues: 2000 $ 877 $ 901 $ 193 $ - $ (342) $ 1,629 1999 $ 882 $ 1,089 $ 7 $ - $ (249) $ 1,729 EBIT (a): 2000 $ 277 $ 267 $ (9) $ (41) $ 494 1999 $ 390 $ 140 $ (9) $ (41) $ 480 Nine Months Ended September 30, 2000 as compared to Nine Months Ended September 30, 1999 - ---------------------------------------------------------------------------------------- Revenues: 2000 $ 2,496 $2,125 $ 469 $ - $ (724) $ 4,366 1999 $ 2,535 $2,285 $ 16 $ - $ (627) $ 4,209 EBIT (a): 2000 $ 928 $ 412 $ (21) $ (138) $ 1,181 1999 $ 1,055 $ 197 $ (46) $ (122) $ 1,084 Total Assets: September 30, 2000 $ 10,629 $1,837 $ 781 $ 420 $13,667 December 31, 1999 $ 10,294 $1,779 $ 640 $ 419 $13,132 (a) EBIT - Earnings Before Interest and Income Taxes.
8 5. EARNINGS PER SHARE Diluted earnings per average common share is calculated by dividing earnings applicable to common stock by the average number of shares of common stock outstanding after giving effect to stock options issuable under the Company's stock option plans which are considered to be dilutive common stock equivalents. The following table shows the effect of the stock options issuable under the Company's stock option plans on the average number of shares used in calculating diluted earnings per average common share (in millions of shares):
Three Months Ended Nine Months Ended September 30, September 30, ------------- ------------- 2000 1999 2000 1999 ---- ---- ---- ---- Average Common Shares Outstanding 170 187 175 201 Assumed Exercise of Stock Options 2 1 1 1 ------ ------ ------ ----- Potential Average Dilutive Common Shares Outstanding 172 188 176 202 ======= ======= ======= =======
6. SALES OF ACCOUNTS RECEIVABLE The Company is party to an agreement with a financial institution under which it can sell or finance with limited recourse an undivided interest, adjusted daily, in designated accounts receivable until November 2000. In May 2000, the Company used a portion of the proceeds from the Series 2000-A Transition Bonds to repurchase $50 million of the interest in accounts receivable, including $10 million of special agreement accounts receivable (See Note 3 - Series 2000-A Transition Bonds). This repurchase reduced the amount of accounts receivable the Company could sell or finance under the agreement from $275 million to $225 million. At September 30, 2000, the Company had sold a $225 million interest in accounts receivable, consisting of a $187 million interest in accounts receivable which the Company accounts for as a sale under Statement of Financial Accounting Standards (SFAS) No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities," and a $38 million interest in special agreement accounts receivable which are accounted for as a long-term note payable. The Company retains the servicing responsibility for these receivables. The agreement requires the maintenance of a minimum level of eligible accounts receivable which, if not met, requires the Company to deposit cash with the financial institution. At September 30, 2000, these requirements were met. 9 7. COMMITMENTS AND CONTINGENCIES For information regarding the Company's capital commitments, nuclear insurance, nuclear decommissioning and spent fuel storage, energy commitments, environmental issues and litigation, see Note 6 of Notes to Consolidated Financial Statements for the year ended December 31, 1999. In July 2000, the Company signed an agreement with the Department of Energy (DOE) under which the Company will be reimbursed for costs resulting from the DOE's delay in accepting spent nuclear fuel. The agreement applies only to the Peach Bottom Atomic Power Station (Peach Bottom). The Company's portion of the reimbursement is approximately $16 million. The agreement allows the Company to reduce the charges paid to the Nuclear Waste Fund to reflect costs reasonably incurred by the Company due to the DOE's delay. In accordance with the Nuclear Waste Policy Act of 1982 (NWPA), the Company pays the DOE one mil ($.001) per kilowatthour of net nuclear generation for the cost of nuclear fuel disposal. Past and future costs associated with Peach Bottom's recently completed on-site dry storage facility are eligible for this reduction in future DOE fees. Negotiations of settlements relating to the Company's other nuclear plants will be conducted on a plant-by-plant basis. The Company has identified 28 sites where former manufactured gas plant (MGP) activities have or may have resulted in actual site contamination. As of September 30, 2000, the Company's accrual for environmental investigation and remediation costs was $55 million, including $30 million for MGP investigation and remediation that currently can be reasonably estimated. The Company cannot predict whether it will incur other significant liabilities for additional investigation and remediation costs at these or additional sites identified by the Company, environmental agencies or others, or whether all such costs will be recoverable from third parties. At December 31, 1998, the Company incurred a charge of $125 million ($74 million, net of income taxes) for its Early Retirement and Separation Program relating to 1,157 employees. The estimated cost of separation benefits was approximately $47 million. Retirement benefits of approximately $78 million are being paid to the retirees over their lives. All cash payments related to the Early Retirement and Separation Program were funded through the assets of the Company's Service Annuity Plan. The Early Retirement and Separation Program terminated on June 30, 2000. 10 At September 30, 2000, the Company had long-term commitments, in megawatt hours (MWhs) and dollars, relating to the purchase and sale of energy, capacity and transmission rights from unaffiliated utilities and others as expressed in the tables below (in millions): Power Only ------------------------------------------ Purchases Sales ------------------ ----------------- MWhs Dollars MWhs Dollars ----- ------- ---- ------- 2000 4 $ 27 7 $ 207 2001 19 195 16 627 2002 27 131 10 460 2003 28 138 6 233 2004 27 116 3 107 Thereafter 135 82 5 167 ------ ------- Total $ 689 $ 1,801 ====== ======= Transmission Capacity Capacity Rights Purchases Sales Purchases in Dollars in Dollars in Dollars ----------- ---------- ---------- 2000 $ 10 $ 5 $ 24 2001 83 32 60 2002 149 21 63 2003 176 16 22 2004 167 3 21 Thereafter 1,833 10 79 -------- ------ ------ Total $ 2,418 $ 87 $ 269 ======== ====== ====== In the first quarter of 2000, the Company restructured an existing power sales contract from a variable price with fixed capacity sales to a fixed price power only contract which decreased the Company's commitments for capacity sales and increased the Company's commitments for power only sales. 11 8. NEW ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities," (SFAS No. 133) to establish accounting and reporting standards for derivatives. The new standard requires recognizing all derivatives as either assets or liabilities on the balance sheet at their fair value and specifies the accounting for changes in fair value depending upon the intended use of the derivative. In June 2000, the FASB issued SFAS No. 138 "Accounting for Certain Derivative Instruments and Certain Hedging Activities, an amendment of FASB Statement No. 133" (SFAS No. 138). This standard amends the accounting and reporting standards of SFAS No. 133. The Company expects to adopt SFAS No. 133 and SFAS No. 138 on January 1, 2001. The Company initiated a process to implement SFAS No. 133 and SFAS No. 138 by evaluating all of the derivatives of the Company for SFAS No. 133 and SFAS No. 138 implications. This phase of implementation has been completed and the Company is in the process of evaluating the impact of SFAS No. 133 and SFAS No. 138 on its financial statements. 9. EXELON INFRASTRUCTURE SERVICES, INC. ACQUISITIONS In the second quarter of 2000, Exelon Infrastructure Services, Inc. (EIS), an unregulated subsidiary of the Company, acquired the stock or assets of four utility service contracting companies for an aggregate purchase price of approximately $91 million, net of cash acquired, including stock of EIS. The acquisitions were accounted for using the purchase method of accounting. The initial estimate of the excess of purchase price over the fair value of net assets acquired was approximately $77 million which is being amortized over 20 years. 10. SITHE ENERGIES ACQUISITION On August 14, 2000, the Company signed a definitive agreement to purchase 49.9% of Sithe Energies North America's (Sithe) outstanding common stock for $682 million, with an option to purchase the remaining common stock outstanding exercisable between two and five years after the date of closing, at a price to be determined based on prevailing market conditions. Sithe is an independent power generator in North America utilizing primarily fossil and hydro generation. The purchase involves approximately 10,000 megawatts (MW) of generation consisting of 3,800 MW of existing merchant generation, 2,500 MW under construction, and another 3,700 MW of generation in various stages of development, as well as Sithe's domestic marketing and development businesses. The generation assets are located primarily in Massachusetts and New York, but also include plants in Pennsylvania, California, Colorado and Idaho, as well as Canada and Mexico. 12 11. OYSTER CREEK ACQUISITION In August 2000, AmerGen Energy Company, LLC (AmerGen), the joint venture between the Company and British Energy, plc, completed the purchase of Oyster Creek Nuclear Generating Facility (Oyster Creek) from GPU, Inc. (GPU) for $10 million. Under the terms of the purchase agreement, GPU has agreed to fund outage costs not to exceed $89 million, including the cost of fuel, for a refueling outage scheduled for October 2000. AmerGen will repay these costs to GPU in nine equal annual installments beginning in August 2001. In addition, AmerGen assumed full responsibility for the ultimate decommissioning of Oyster Creek. At the closing of the sale, GPU provided funding for the decommissioning trust of $440 million. GPU is purchasing the electricity generated by Oyster Creek pursuant to a power purchase agreement. 13 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL On September 22, 1999, the Company and Unicom Corporation (Unicom) entered into an Agreement and Plan of Exchange and Merger providing for a merger of equals. On October 10, 2000, the Agreement and Plan of Exchange and Merger was amended and restated (Merger Agreement). For additional information, see "PART II, ITEM 7. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - General," in the Company's 1999 Annual Report on Form 10-K as amended by Form 10-K/A filed on April 28, 2000. On October 20, 2000, the merger was completed and all of the shares of the Company were exchanged on a one-for-one basis in accordance with the Merger Agreement. As a result of this share exchange, the Company became a wholly owned subsidiary of Exelon Corporation (Exelon). The transaction is being accounted for as a purchase with the Company as acquiror. In the fourth quarter of 2000, the Company expects to incur certain charges, including severance costs, stock compensation costs and settlement charges related to the merger. As of September 30, 2000, the Company is unable to estimate the aggregate financial statement impact of these charges. Under a comprehensive settlement agreement entered into by the Company in connection with the approval by the Pennsylvania Public Utility Commission (PUC) of the merger, the Company has agreed to $200 million in rate reductions for all customers over the period January 1, 2002 through 2005 and extended rate caps on the Company's retail electric distribution charges through December 31, 2006. The comprehensive settlement agreement also provides for electric reliability and customer service standards, mechanisms to enhance competition and customer choice, expanded assistance to low-income customers, extensive funding for wind and solar energy and community education, nuclear safety research funds, customer protection against nuclear costs outside of Pennsylvania, and maintenance of charitable and civic contributions and employment for the Company's headquarters in Philadelphia. In connection with the regulatory approvals of the merger, Exelon received authorization to restructure the operations of the Company and Unicom. Exelon is currently contemplating restructuring the Company's generation and ventures business units into newly formed subsidiaries of Exelon in 2001. Accordingly, the operations of the Company after the contemplated restructuring would essentially represent the Company's distribution business unit. Retail competition for electric generation services began in Pennsylvania on January 1, 1999. Effective January 1, 2000, all of the Company's retail electric customers in its traditional service territory have the right to choose their generation suppliers. At September 30, 2000, approximately 17% of the Company's residential load, 46% of its commercial load and 41% of its industrial load were purchasing generation service from an alternative electric generation supplier. As of that date, Exelon Energy, the Company's alternative energy supplier, was providing electric generation service to approximately 99,000 business and residential customers located throughout Pennsylvania. 14 On May 2, 2000, PECO Energy Transition Trust (PETT), an independent statutory business trust organized under the laws of Delaware and a wholly owned subsidiary of the Company, issued an additional $1 billion aggregate principal amount of transition bonds (Series 2000-A Transition Bonds) to securitize a portion of the Company's authorized stranded cost recovery. See Note 3 of Notes to Condensed Consolidated Financial Statements. In the second quarter of 2000, Exelon Infrastructure Services, Inc. (EIS) acquired four additional infrastructure services companies. These acquisitions combined with EIS' acquisitions in the fourth quarter of 1999 contributed to the growth in revenue, operating and maintenance (O&M) expenses and depreciation and amortization expenses in the three and nine month periods ended September 30, 2000 as compared to the same prior year periods. In the third quarter of 2000, the Company reclassified the results of operations for its non-utility businesses in its Condensed Consolidated Statements of Income from other income and deductions to revenue and O&M expense for the three and nine month periods ended September 30, 2000 and 1999. 15 RESULTS OF OPERATIONS
Revenue and Expense Items as a Percentage of Total Operating Revenues Percentage Dollar Changes 2000 vs. 1999 Quarter Nine Months Quarter Nine Months Ended Ended Ended Ended September 30, September 30, September 30, September 30, ------------- ------------- ------------- ------------- 2000 1999 2000 1999 ---- ---- ---- ---- 84% 97% 81% 91% Electric (18%) (7%) 5% 3% 9% 8% Gas 58% 4% 11% -- 10% 1% Infrastructure Services and Other 3,500% 2,029% ------ ------- ------ ------- 100% 100% 100% 100% Total Operating Revenues (6%) 4% ------ ------- ------ ------- 35% 46% 35% 41% Fuel and Energy Interchange (27%) (13%) 28% 20% 30% 24% Operating and Maintenance 34% 29% 5% 3% 6% 4% Depreciation and Amortization 46% 43% 4% 4% 4% 5% Taxes Other Than Income (12%) 1% ------ ------- ------ ------- 72% 73% 75% 74% Total Operating Expenses (6%) 4% ------ ------- ------ ------- 28% 27% 25% 26% Operating Income (5%) 2% ------ ------- ------ ------- (7%) (7%) (8%) (8%) Interest Charges 2% 8% Equity in Earnings (Losses) of 1% -- 1% (1%) Unconsolidated Affiliates 560% 193% 1% 1% 1% 1% Other, Net 57% 61% ------ ------- ------ ------- Income Before Income Taxes and 23% 21% 19% 18% Extraordinary Item 3% 9% 9% 8% 7% 6% Income Taxes 4% 10% ------ ------- ------ ------- 14% 13% 12% 12% Income Before Extraordinary Item 3% 9% -- -- -- (1%) Extraordinary Items (100%) (85%) ------ ------- ------ ------- 14% 13% 12% 11% Net Income 3% 14% ====== ======= ====== =======
Third Quarter 2000 Compared To Third Quarter 1999 Operating Revenues Electric revenues decreased $304 million, or 18%, to $1,370 million for the quarter ended September 30, 2000 compared to the same 1999 period. The decrease was attributable to lower revenues from the generation business unit of $280 million and lower revenues from the distribution business unit of $24 million. The decrease in electric revenues from the generation business unit was primarily attributable to lower wholesale revenues of $166 million as a result of $128 million associated with lower volume and $38 million associated with lower prices. The decrease was also attributable to reduced sales of competitive electric generation services by Exelon Energy of $65 16 million as a result of $74 million from decreased volume partially offset by $9 million as a result of increased prices. In addition, the termination of the operating agreement for the Clinton Nuclear Power Station (Clinton) resulted in lower revenues of $49 million. As a result of the acquisition by AmerGen Energy Company, LLC (AmerGen) of Clinton in December 1999, the operating agreement was terminated and, accordingly, the operations of Clinton have been included in Equity in Earnings (Losses) of Unconsolidated Affiliates on the Company's Statements of Income since that date. The decrease from the distribution business unit was primarily attributable to $103 million as a result of lower volume from the effects of weather conditions partially offset by an increase of $79 million attributable to customers selecting the distribution business unit as their electric generation supplier and rate adjustments. Gas revenues increased $29 million, or 58%, to $79 million for the quarter ended September 30, 2000 compared to the same 1999 period. The increase in gas revenues was primarily attributable to $11 million resulting from increased volume, $11 million from wholesale sales of natural gas and $7 million as a result of higher prices. Infrastructure services and other revenues increased $175 million, to $180 million primarily as a result of the EIS acquisitions in the fourth quarter of 1999 and the second quarter of 2000. Fuel and Energy Interchange Expense Fuel and energy interchange expense decreased $210 million, or 27%, to $576 million for the quarter ended September 30, 2000 compared to the same 1999 period. The decrease was attributable to lower fuel and energy interchange expenses associated with the generation business unit of $228 million partially offset by an increase in energy interchange expenses in the distribution business unit of $18 million. As a percentage of revenue, fuel and energy interchange expenses were 35% as compared to 46% in the comparable prior year period. The decrease in fuel and energy interchange expense from the generation business unit was primarily attributable to $153 million from Exelon Energy sales principally related to $162 million as a result of decreased volume partially offset by $9 million as a result of increased prices. The decrease was also attributable to $101 million from wholesale operations principally related to $73 million as a result of decreased volume and $28 million as a result of decreased prices. These decreases were partially offset by an increase of $32 million for the cost to supply the distribution business unit. The generation business unit is the primary source of supply for the distribution business unit. Accordingly, sales volume changes at the distribution business unit have a direct impact on fuel and energy interchange expense of the generation business unit. The increase from the distribution business unit was primarily attributable to $8 million principally related to wholesale sales of natural gas and $7 million in PJM Interconnection, LLC (PJM) ancillary charges. 17 Operating and Maintenance Expense O&M expense increased $115 million, or 34%, to $454 million for the quarter ended September 30, 2000 compared to the same 1999 period. As a percentage of revenue, O&M expenses were 28% as compared to 20% in the same 1999 period. The ventures business unit's O&M expenses increased $158 million related to the infrastructure services business as a result of the EIS acquisitions. The generation business unit's O&M expenses decreased $30 million primarily as a result of O&M expenses related to the operating agreement for Clinton of $19 million in 1999, $8 million related to the abandonment of an information system implementation in 1999, lower joint-owner expenses of $7 million and $5 million of lower administrative and general expenses related to the unregulated retail sales of electricity. These decreases were partially offset by higher compensation expense of $6 million and higher non-utility operations expense of $3 million. The distribution business unit's O&M expenses decreased $3 million primarily as a result of $11 million of expenses related to restoration activities as a result of Hurricane Floyd in 1999 partially offset by increases in miscellaneous O&M expenses. In addition, the Company experienced a decrease in general corporate expenses consisting of $12 million from lower pension expense as a result of the performance of the investments in the Company's pension plan and $5 million of lower Year 2000 (Y2K) remediation expenditures in 1999 partially offset by an increase of $7 million in incremental merger expenses. Depreciation and Amortization Expense Depreciation and amortization expense increased $26 million, or 46%, to $83 million for the quarter ended September 30, 2000 compared to the same 1999 period. As a percentage of revenue, depreciation and amortization expense was 5% as compared to 3% in the comparable prior year period. The increase was primarily attributable to $16 million associated with the commencement of the amortization of $5.26 billion of Competitive Transition Charges in 2000. The increase also included $9 million related to EIS depreciation and amortization expense and $1 million related to increased plant in service. Taxes Other Than Income Taxes other than income decreased $9 million, or 12%, to $67 million for the quarter ended September 30, 2000 compared to the same 1999 period. The decrease was primarily attributable to lower real estate taxes of $3 million relating to a change in tax laws for utility property in Pennsylvania and $3 million as a result of the elimination of the gross receipts tax on gas sales partially offset by a net increase in gross receipts tax on electric sales. Interest Charges Interest charges consist of interest expense, distributions on Company Obligated Mandatorily Redeemable Preferred Securities of a Partnership (COMRPS) and Allowance for Funds Used During Construction (AFUDC). Interest charges increased $2 million, or 2%, to $114 million for the quarter ended September 30, 2000 compared to the same 1999 period. The increase was primarily attributable to interest on the Series 2000-A Transition Bonds of $18 million partially offset by the Company's reduction of long-term debt with the proceeds of transition bonds which reduced interest charges by $15 million. 18 Equity in Earnings (Losses) of Unconsolidated Affiliates Equity in earnings (losses) of unconsolidated affiliates increased $28 million to earnings of $23 million for the quarter ended September 30, 2000 as compared to losses of $5 million in the same 1999 period. The increase was primarily attributable to $42 million of earnings from the Company's equity investment in AmerGen as a result of the acquisitions of Three Mile Island Unit No. 1 Nuclear Generating Facility (TMI) and Clinton in December 1999 partially offset by $12 million of increased losses from the Company's telecommunications equity investments principally as a result of costs associated with customer base growth. Other Income and Deductions Other income and deductions excluding interest charges and equity in earnings (losses) of unconsolidated affiliates increased $8 million to income of $22 million for the quarter ended September 30, 2000 as compared to $14 million in the same 1999 period. The increase in other income and deductions was primarily attributable to gains on sales of investments of $9 million partially offset by a decrease in interest income of $2 million. Income Taxes The effective tax rate was 37.4% for the quarter ended September 30, 2000 as compared to 37.2% in the same 1999 period. Extraordinary Items During the third quarter of 2000, the Company incurred an extraordinary charge of $1 million, net of tax, consisting of prepayment premiums and the write-off of unamortized deferred financing costs associated with the early retirement of debt with a portion of the proceeds from the issuance of Series 2000-A Transition Bonds in May 2000. Preferred Stock Dividends Preferred stock dividends for the quarter ended September 30, 2000 were consistent with the comparable prior year. In August 2000, the Company redeemed $19 million of Mandatorily Redeemable Preferred Stock. Earnings Earnings applicable to common stock increased $6 million, or 3%, to $234 million in the third quarter of 2000. Earnings per average common share on a fully diluted basis increased $0.15 per share or 12%, to $1.36 per share in the third quarter of 2000, reflecting the increase in net income and a decrease in the weighted average shares of common stock outstanding as a result of the use of proceeds from the Company's April 1999 and May 2000 stranded cost recovery securitizations. 19 Nine Months Ended September 30, 2000 Compared To Nine Months Ended September 30, 1999 Operating Revenues Electric revenues decreased $285 million, or 7%, to $3,540 million for the nine months ended September 30, 2000 compared to the same 1999 period. The decrease was attributable to lower revenues from the generation business unit of $240 million and lower revenues from the distribution business unit of $45 million. The decrease in electric revenues from the generation business unit was primarily attributable to $100 million from lower wholesale revenues as a result of $150 million associated with lower volume partially offset by $50 million associated with higher prices. In addition, the sale of competitive electric generation services by Exelon Energy decreased $72 million which was primarily attributable to $97 million as a result of decreased volume partially offset by $25 million from increased prices. In addition, the termination of the operating agreement for Clinton resulted in lower revenues of $62 million. The decrease from the distribution business unit was primarily attributable to a decrease of $83 million as a result of lower volume from the effects of weather conditions partially offset by an increase of $38 million attributable to customers selecting the distribution business unit as their electric generation supplier and rate adjustments. Gas revenues increased $16 million, or 4%, to $379 million for the nine months ended September 30, 2000 compared to the same 1999 period. The increase in gas revenues was primarily attributable to $22 million resulting from increased volume from new and existing customers, $11 million from wholesale sales of natural gas and $4 million resulting from increased volume related to weather conditions. These increases were partially offset by $15 million from the elimination of the gross receipts tax in connection with gas restructuring in Pennsylvania and $9 million as a result of lower prices. Infrastructure services and other revenues increased $426 million to $447 million primarily as a result of the EIS acquisitions in the fourth quarter of 1999 and the second quarter of 2000. Fuel and Energy Interchange Expense Fuel and energy interchange expense decreased $231 million, or 13%, to $1,515 million for the nine months ended September 30, 2000 compared to the same 1999 period. The decrease was attributable to lower fuel and energy interchange expenses associated with the generation business unit of $227 million and the distribution business unit of $4 million. As a percentage of revenue, fuel and energy interchange expenses were 35% as compared to 41% in the comparable prior year period. The decrease in fuel and energy interchange expense from the generation business unit was primarily attributable to $207 million from Exelon Energy sales principally related to $240 million as a result of decreased volume partially offset by $33 million as a result of increased prices. The decrease was also attributable to $93 million from wholesale operations principally related to $92 million as a result of decreased volume and $1 million as a result of decreased prices. These decreases were partially offset by an increase of $70 in the cost to supply the 20 distribution business unit. The decrease from the distribution business unit was primarily attributable to $24 million in lower PJM Interconnection, LLC (PJM) ancillary charges partially offset by an increase of $15 million principally related to wholesale sales of natural gas. Operating and Maintenance Expense O&M expense increased $290 million, or 29%, to $1,305 million for the nine months ended September 30, 2000 compared to the same 1999 period. As a percentage of revenue, O&M expenses were 30% as compared to 24% in the same 1999 period. The ventures business unit's O&M expenses increased $416 million related to the infrastructure services business as a result of the EIS acquisitions. The generation business unit's O&M expenses decreased $94 million primarily as a result of O&M expenses related to the operating agreement for Clinton of $44 million in 1999, lower non-utility operations expense of $21 million, $15 million related to the abandonment of two information systems implementations in 1999, $14 million related to lower administrative and general expenses related to the unregulated retail sales of electricity, $11 million related to lower joint-owner expenses and $8 million associated with the write-off of excess and obsolete inventory in 1999. These decreases were partially offset by higher compensation expense of $19 million in the comparable prior year period. The distribution business unit's O&M expenses increased $1 million primarily as a result of $7 million higher compensation expense partially offset by $11 million of additional expenses related to restoration activities as a result of Hurricane Floyd in 1999. In addition, the Company experienced a decrease in general corporate expenses of $35 million from lower pension expense as a result of the performance of the investments in the Company's pension plan and $23 million of lower Y2K remediation expenditures. These decreases were partially offset by an increase of $28 million in incremental merger expenses. Depreciation and Amortization Expense Depreciation and amortization expense increased $73 million, or 43%, to $244 million for the nine months ended September 30, 2000 compared to the same 1999 period. As a percentage of revenue, depreciation and amortization expense was 6% as compared to 4% in the comparable prior year period. The increase was primarily attributable to $43 million associated with the commencement of the amortization of $5.26 billion of Competitive Transition Charges in 2000. The increase also included $23 million related to EIS depreciation and amortization expense and $7 million related to increased plant in service. 21 Taxes Other Than Income Taxes other than income increased $1 million, or 1%, to $197 million for the nine months ended September 30, 2000 compared to the same 1999 period. As a percentage of revenue, taxes other than income were 4% as compared to 5% in the comparable prior year period. The increase was primarily attributable to a $22 million capital stock tax credit in 1999 related to an adjustment associated with the impact of the 1997 restructuring charge on the Company's equity value. This increase was partially offset by lower real estate taxes of $10 million relating to a change in tax laws for utility property in Pennsylvania and $7 million as a result of the elimination of the gross receipts tax on gas sales partially offset by a net increase in gross receipts tax on electric sales. Interest Charges Interest charges increased $25 million, or 8%, to $338 million for the nine months ended September 30, 2000 compared to the same 1999 period. The increase was primarily attributable to interest on the transition bonds of $86 million partially offset by the Company's reduction of long-term debt with the proceeds of transition bonds, which reduced interest charges by $65 million. Equity in Earnings (Losses) of Unconsolidated Affiliates Equity in earnings (losses) of unconsolidated affiliates increased $54 million to earnings of $26 million for the nine months ended September 30, 2000 as compared to losses of $28 million in the same 1999 period. The increase was primarily attributable to $61 million of earnings from the Company's equity investment in AmerGen as a result of the acquisitions of TMI and Clinton in December 1999 partially offset by $7 million of increased losses from the Company's telecommunications equity investments principally as a result of costs associated with customer base growth. Other Income and Deductions Other income and deductions excluding interest charges and equity in earnings (losses) of unconsolidated affiliates increased $19 million to income of $50 million for the nine months ended September 30, 2000 as compared to $31 million in the same 1999 period. The increase in other income and deductions was primarily attributable to a $15 million write-off in 1999 of the investment in Grays Ferry Cogeneration Partnership in connection with the settlement of litigation, gains on sales of investments of $8 million and $6 million from the favorable settlement of litigation. These increases were partially offset by a decrease in interest income of $9 million. Income Taxes The effective tax rate was 37.5% as compared to 37.2% in the comparable prior year period. 22 Extraordinary Items The Company incurred extraordinary charges aggregating $4 million, net of tax, consisting of prepayment premiums and the write-off of unamortized deferred financing costs associated with the early retirement of debt with a portion of the proceeds from the issuance of Series 2000-A Transition Bonds in May 2000 during the nine months ended September 30, 2000. During the second quarter of 1999, the Company incurred an extraordinary charge of $27 million, net of tax, consisting of prepayment premiums and the write-off of unamortized deferred financing costs associated with the early retirement of debt with a portion of the proceeds from the issuance of transition bonds in 1999. Preferred Stock Dividends Preferred stock dividends for the nine months ended September 30, 2000 decreased $1 million, or 11%, to $8 million as compared to the same 1999 period. The decrease was attributable to the retirement of $37 million of Mandatorily Redeemable Preferred Stock in August 1999 with a portion of the proceeds from the issuance of transition bonds. In addition, the Company redeemed $19 million of Mandatorily Redeemable Preferred Stock in August 2000. Earnings Earnings applicable to common stock increased $67 million, or 15%, to $515 million for the nine months ended September 30, 2000. Earnings per average common share on a fully diluted basis increased $0.71 per share or 32%, to $2.92 per share for the nine months ended September 30, 2000, reflecting the increase in net income and a decrease in the weighted average shares of common stock outstanding as a result of the use of proceeds from the Company's April 1999 and May 2000 stranded cost recovery securitizations. DISCUSSION OF LIQUIDITY AND CAPITAL RESOURCES Cash flows provided by operating activities decreased $55 million to $605 million for the nine months ended September 30, 2000 as compared to $660 million in the same 1999 period. The decrease was primarily attributable to a net decrease in changes in working capital of $19 million and less cash generated by operations of $36 million. The decrease in changes in working capital was principally related to improvement in cash collections of Exelon Energy accounts receivable and lower repurchases of accounts receivable with transition bond proceeds partially offset by the timing of cash payments for accrued expenses. Cash flows used by investing activities were $593 million for the nine months ended September 30, 2000 as compared to $490 million in the same 1999 period. The increase was attributable to capital expenditures and ventures business unit investments, including the acquisition by EIS of four infrastructure services companies partially offset by investments in and advances to joint ventures in 1999. Cash flows used in financing activities were $71 million for the nine months ended September 30, 2000, as compared to cash flows provided by financing activities of $446 million 23 in the same 1999 period. The decrease was primarily attributable to the securitization of $4 billion of stranded cost recovery in March 1999 and the use of a portion of the related proceeds partially offset by the securitization of $1 billion of stranded cost recovery in May 2000 and the use of related proceeds. At September 30, 2000, the Company had outstanding $284 million of notes payable which included $282 million of commercial paper and $2 million of lines of credit. At September 30, 2000, the Company had available formal and informal lines of bank credit aggregating $100 million and available revolving credit facilities aggregating $900 million, which support its commercial paper program. At September 30, 2000, the Company had $2 million in short-term investments. On May 2, 2000, PECO Energy Transition Trust (PETT), an independent statutory business trust organized under the laws of Delaware and a wholly owned subsidiary of the Company, issued an additional $1 billion aggregate principal amount of transition bonds (Series 2000-A Transition Bonds) to securitize a portion of the Company's authorized stranded cost recovery. As a result, the Company has securitized a total of $5 billion of its $5.26 billion of stranded cost recovery through the issuance by PETT of transition bonds. The transition bonds are solely obligations of PETT, secured by intangible transition property sold by the Company to PETT concurrently with the issuance of the transition bonds and certain other related collateral. The Company has used the proceeds from the securitizations to reduce the Company's stranded costs and related capitalization. The proceeds of the Series 2000-A Transition Bonds were used to repurchase 12 million share of common stock, to retire $422 million principal amount of debt, to repurchase $50 million of accounts receivable and to pay transaction expenses. In connection with the PUC's approval of the issuance of the Series 2000-A Transition Bonds, the Company, through its distribution business unit, agreed to provide its retail customers with rate reductions in the total amount of $60 million beginning on January 1, 2001. This rate reduction will be effective for calendar year 2001 only. In June 2000, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 138 "Accounting for Certain Derivative Instruments and Certain Hedging Activities, an amendment of FASB Statement No. 133" (SFAS No. 138). This standard amends the accounting and reporting standards of SFAS No. 133. The Company expects to adopt SFAS No. 133 and SFAS No. 138 on January 1, 2001. The Company initiated a process to implement SFAS No. 133 and SFAS No. 138 by evaluating all of the derivatives of the Company for SFAS No. 133 and SFAS No. 138 implications. This phase of implementation has been completed and the Company is in the process of evaluating the impact of SFAS No. 133 and SFAS No. 138 on its financial statements. 24 YEAR 2000 READINESS DISCLOSURE During 1999, the Company successfully addressed, through its Year 2000 Project (Y2K Project), the issue resulting from computer programs using two digits rather than four to define the applicable year and other programming techniques that constrain date calculations or assign special meanings to certain dates. The current estimated total cost of the Y2K Project is $61 million, the majority of which is attributable to testing. This estimate includes the Company's share of Y2K costs for jointly owned facilities. The total amount expended on the Y2K Project through September 30, 2000 was $58 million. The Company is funding the Y2K Project from operating cash flows. The Company's systems experienced no Y2K difficulties on December 31, 1999 or since that date. The Company's operations have not, to date, been adversely affected by any Y2K difficulties that suppliers or customers may have experienced. The Company will continue to monitor its systems for potential Y2K difficulties through the remainder of 2000. For additional information regarding the Y2K Readiness Disclosure see "PART II - ITEM 7. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Outlook" in the Company's Annual Report on Form 10-K for the year 1999, as amended by Form 10-K/A filed on April 28, 2000. FORWARD-LOOKING STATEMENTS Except for the historical information contained herein, certain of the matters discussed in this Report are forward-looking statements, including the application of the proceeds of the Series 2000-A Transition Bonds and the 2001 rate reduction, and accordingly, are subject to risks and uncertainties. The factors that could cause actual results to differ materially include those discussed herein as well as those listed in notes 7, 8 and 10 of Notes to Condensed Consolidated Financial Statements and other factors discussed in the Company's filings with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Report. The Company undertakes no obligation to publicly release any revision to these forward-looking statements to reflect events or circumstances after the date of this Report. 25 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK The Company uses a combination of fixed rate and variable rate debt to reduce interest rate exposure. Interest rate swaps are used to adjust exposure when deemed appropriate, based upon market conditions. These strategies attempt to provide and maintain the lowest cost of capital. In February 2000, the Company entered into forward starting interest rate swaps for a notional amount of $1 billion in anticipation of the issuance of the Series 2000-A Transition Bonds in the second quarter of 2000. On May 2, 2000, the Company settled these forward starting interest rate swaps and paid the counterparties approximately $12 million which was deferred and is being amortized over the life of the Series 2000-A Transition Bonds as an increase in interest expense consistent with the Company's hedge accounting policy. At September 30, 2000, the Company's interest rate swaps had a fair market value of $78 million which was based on the present value difference beween the contracted rate and the market rates at September 30, 2000. The aggregate fair value of the interest rate swaps that would have resulted from a hypothetical 50 basis point decrease in the spot yield at September 30, 2000 is estimated to be $43 million. If the interest rate swaps had been terminated at September 30, 2000, this estimated fair value represents the amount to be paid by the counterparties to the Company. The aggregate fair value of the interest rate swaps that would have resulted from a hypothetical 50 basis point increase in the spot yield at September 30, 2000 is estimated to be $112 million. If the interest rate swaps had been terminated at September 30, 2000, this estimated fair value represents the amount to be paid by the counterparties to the Company. There were no material changes in the nine months ended September 30, 2000 in the Company's quantitative and qualitative disclosures about market risk associated with commodity price risk, equity price risk and interest rate risk associated with variable rate debt from December 31, 1999. For information on Commodity Risk, Interest Rate Risk and Equity Price Risk, see "PART II, ITEM 7A. - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK," in the Company's 1999 Annual Report on Form 10-K as amended by Form 10-K/A filed on April 28, 2000. 26 PART II - OTHER INFORMATION ITEM 5. OTHER INFORMATION On October 18, 2000, the Company filed a Competitive Default Service (CDS) Coordination Agreement with the PUC, pursuant to which the Company will assign to NewPower Company (NewPower), 299,300 randomly selected residential non-shopping customers. Customers who have been assigned may chose not to participate in CDS or may, without charge or penalty, return to the Company's provider of last resort service or switch to another electric generation supplier (EGS). The Company and NewPower have filed a joint petition requesting PUC approval by November 1, 2000. The joint petition also requests PUC confirmation that all 299,300 customers assigned to CDS would be included in calculating the 35% market share threshold requirement contained in the Company's Final Restructuring Order. Under the market share threshold requirement, if less than 35% of the Company's residential and commercial customers have chosen an EGS by January 1, 2001, the number of customers sufficient to meet the required threshold level will be randomly selected and assigned to an EGS through a PUC-determined process. The Company does not expect that the CDS Coordination Agreement will have a material adverse effect on the Company's operations or financial condition. 27 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: 2-1 - Amended and Restated Agreement and Plan of Merger dated as of October 10, 2000, among PECO Energy Company, Exelon Corporation and Unicom Corporation. 10-1 - Stock Purchase Agreement among Exelon (Fossil) Holdings, Inc., as Buyer, and The Stockholders of Sithe Energies, Inc., as Sellers, and Sithe Energies, Inc. 27 - Financial Data Schedule. (b) During the quarter ended September 30, 2000, the Company filed the following Current Reports on Form 8-K: Date of earliest event reported: August 8, 2000 reporting information under "ITEM 5. OTHER EVENTS" regarding the sale of GPU, Inc.'s Oyster Creek Nuclear Generating Facility to AmerGen. Date of earliest event reported: August 14, 2000 reporting information under "ITEM 5. OTHER EVENTS" regarding the purchase of 49.9% of Sithe Energies North America's outstanding common stock. Date of earliest event reported: August 15, 2000 reporting information under "ITEM 5. OTHER EVENTS" regarding presentation/webcast to financial analysts and other interested parties on the Sithe Energies Investment. Subsequent to September 30, 2000, the Company filed the following Current Reports on Form 8-K: Date of earliest event reported: October 19, 2000 reporting information under "ITEM 5. OTHER EVENTS" regarding the approval by the Securities and Exchange Commission of the merger between the Company and Unicom into Exelon Corporation. Date of earliest event reported: October 20, 2000 reporting information under "ITEM 5. OTHER EVENTS" regarding the completion of the merger between the Company and Unicom into Exelon Corporation. Date of earliest event reported: October 24, 2000 reporting information under "ITEM 5. OTHER EVENTS" regarding the Company's earnings release for the third quarter of 2000. 28 Signatures Pursuant to requirements 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. PECO ENERGY COMPANY /s/ Thomas P. Hill, Jr. -------------------------------- THOMAS P. HILL, JR. Vice President and Chief Financial Officer (Chief Accounting Officer) Date: November 3, 2000 29 EX-2.1 2 0002.txt =============================================================================== SECOND AMENDED AND RESTATED AGREEMENT AND PLAN OF EXCHANGE AND MERGER Dated as of September 22, 1999, as Amended and Restated as of October 10, 2000, Among PECO ENERGY COMPANY, EXELON CORPORATION And UNICOM CORPORATION =============================================================================== SECOND AMENDED AND RESTATED AGREEMENT AND PLAN OF EXCHANGE AND MERGER dated as of September 22, 1999, as amended and restated as of October 10, 2000 (this "Agreement"), among PECO ENERGY COMPANY, a Pennsylvania corporation ("Parent"), EXELON CORPORATION, a Pennsylvania corporation and a wholly owned subsidiary of Parent ("Newco"), and UNICOM CORPORATION, an Illinois corporation (the "Company"). WHEREAS Parent, Newco and the Company entered into an Agreement and Plan of Exchange and Merger dated as of September 22, 1999 (the "Original Merger Agreement") and an amendment and restatement of the Original Merger Agreement dated as of January 7, 2000, and they now desire to amend and restate the Original Merger Agreement as previously amended and restated (it being understood that all references herein to this "Agreement" refer to the Original Merger Agreement as previously amended and restated and as amended and restated hereby and that all references herein to the "date hereof" or the "date of this Agreement" refer to September 22, 1999); WHEREAS the respective Boards of Directors of Parent, Newco and the Company have approved the consummation of the business combination provided for in this Agreement, pursuant to which (a) Parent and Newco will, on the terms and subject to the conditions set forth in this Agreement, effect a mandatory share exchange (the "First Step Exchange") whereby each outstanding share of common stock, no par value, of Parent (the "Parent Common Stock") shall be acquired by Newco in exchange for common stock, no par value, of Newco (the "Newco Common Stock"), as herein provided, (b) immediately thereafter, the Company will, on the terms and subject to the conditions set forth in this Agreement, merge with and into Newco (the "Second Step Merger" and, together with the First Step Exchange, the "Merger"), whereby each share of common stock, no par value, of the Company (the "Company Common Stock") will be converted into the right to receive Newco Common Stock and cash, as herein provided, (c) the holders of Parent Common Stock and Company Common Stock will together own all of the outstanding shares of Newco Common Stock and (d) each share of each other class of capital stock of Parent and the Company shall be unaffected and remain outstanding; WHEREAS for Federal income tax purposes it is intended that the Merger constitutes transactions described in Section 351 of the Internal Revenue Code of 1986, as 2 amended (the "Code"), and the Second Step Merger constitutes a transaction described in Section 368(a) of the Code; and WHEREAS Parent, Newco and the Company desire to make certain representations, warranties, covenants and agreements in connection with the Merger and also to prescribe various conditions to the Merger. NOW, THEREFORE, the parties hereto, intending to be legally bound hereby, agree as follows: ARTICLE I The Exchange and Merger SECTION 1.01. The Exchange and Merger. (a) On the terms and subject to the conditions set forth in this Agreement, in accordance with the Business Corporation Law of the Commonwealth of Pennsylvania ("PBCL"), Parent and Newco shall effect the First Step Exchange at the Exchange Effective Time (as defined in Section 1.03). As a result of the First Step Exchange, Parent shall become a wholly owned subsidiary of Newco. The effects and the consequences of the First Step Exchange and the Second Step Merger shall be as set forth in Section 1.04. (b) On the terms and subject to the conditions set forth in this Agreement, in accordance with the Illinois Business Corporation Act (the "IBCA") and the PBCL, the Company shall be merged with and into Newco at the Merger Effective Time (as defined in Section 1.03). At the Merger Effective Time, the separate corporate existence of the Company shall cease and Newco shall continue as the surviving corporation (the "Surviving Corporation"). (c) The First Step Exchange, the Second Step Merger, the issuance by Newco of Newco Common Stock in connection with the Merger (the "Share Issuance") and the other transactions contemplated by this Agreement are referred to in this Agreement collectively as the "Transactions". SECTION 1.02. Closing. The closing (the "Closing") of the Merger shall take place at such location as shall be determined by the parties at 10:00 a.m. on the second business day following the satisfaction (or, to the extent permitted by Applicable Law (as defined in Section 3.05), waiver by all parties) of the conditions set forth in Section 7.01, or, if on such day any condition set 3 forth in Section 7.02 or 7.03 has not been satisfied (or, to the extent permitted by Applicable Law, waived by the party or parties entitled to the benefits thereof), as soon as practicable after all the conditions set forth in Article VII have been satisfied (or, to the extent permitted by Applicable Law, waived by the parties entitled to the benefits thereof), or at such other place, time and date as shall be agreed in writing between Parent and the Company. The date on which the Closing occurs is referred to in this Agreement as the "Closing Date". SECTION 1.03. Merger Effective Time. (a) Prior to the Closing, Parent shall prepare, and on the Closing Date Parent shall file with the Department of State of the Commonwealth of Pennsylvania, articles of exchange or other appropriate documents (in any such case, the "Articles of Exchange") executed in accordance with the relevant provisions of the PBCL and shall make all other filings or recordings required under the PBCL to effect the First Step Exchange. The First Step Exchange shall become effective at such time as the Articles of Exchange are duly filed with such Department of State, or at such other time as Newco and Parent shall agree and specify in the Articles of Exchange (the time the First Step Exchange becomes effective being the "Exchange Effective Time"). (b) Prior to the Closing and after the Exchange Effective Time, Newco and the Company shall prepare, and on the Closing Date and after the Exchange Effective Time Newco and the Company shall (i) file with the Department of State of the Commonwealth of Pennsylvania, the articles of merger or other appropriate documents (in any such case, the "Pennsylvania Articles of Merger") executed in accordance with the relevant provisions of the PBCL and shall make all other filings or recordings required under the PBCL to effect the Second Step Merger and (ii) thereafter file with the Secretary of State of the State of Illinois, articles of merger or other appropriate documents (in any such case, the "Illinois Articles of Merger") executed in accordance with the relevant provisions of the IBCA and shall make all other filings or recordings required under the IBCA to effect the Second Step Merger. The Second Step Merger shall become effective at such time as the Illinois Articles of Merger are duly filed as provided by Applicable Law and the Secretary of State of the State of Illinois has issued a certificate of merger in respect of the Second Step Merger, or at such other time as Newco and the Company shall agree and specify as provided by Applicable Law (the time the Second Step Merger becomes effective being the "Merger Effective Time"). 4 SECTION 1.04. Effects. The First Step Exchange shall have the effects set forth in Section 1931 of the PBCL. The Second Step Merger shall have the effects set forth in Section 1929 of the PBCL and Section 11.50 of the IBCA. SECTION 1.05. Articles of Incorporation and By- laws. (a) At the Merger Effective Time, the Articles of Incorporation of Newco (the "Newco Articles") shall, until thereafter changed or amended as provided therein or by Applicable Law and as Parent and the Company shall have agreed prior to the Merger Effective Time, be the Articles of Incorporation of the Surviving Corporation and shall in any case be amended to provide that the name of Newco be changed to "Exelon Corporation". (b) At the Merger Effective Time, the By-laws of Newco (the "Newco By-laws") shall, until thereafter changed or amended as provided therein or by Applicable Law and as Parent and the Company shall have agreed prior to the Merger Effective Time, be the By-laws of the Surviving Corporation, and shall in any case be amended by inserting the provisions set forth in Exhibit A as Article X thereof. SECTION 1.06. Newco Board of Directors. (a) The directors of Parent immediately prior to the Exchange Effective Time shall be the directors of Newco as of the Exchange Effective Time, until the earlier of the Merger Effective Time or their resignation or removal or the due election and qualification of their respective successors, as the case may be. (b) In accordance with the Newco By-laws, as amended pursuant to Section 1.05(b), as of the Merger Effective Time, the Board of Directors of the Surviving Corporation (the "Newco Board") shall consist of 16 members, eight of whom shall be serving as members of the Board of Directors of Parent immediately prior to the Merger Effective Time who are recommended by the Board of Directors of Parent immediately prior to the Merger Effective Time, and eight of whom of whom shall be members of the Board of Directors of the Company immediately prior to the Merger Effective Time who are recommended by the Board of Directors of the Company immediately prior to the Merger Effective Time. SECTION 1.07. Newco Senior Officers. As of the Merger Effective Time the senior officers of Newco shall be as set forth in Exhibit B and shall hold office until their respective successors are duly elected and qualified, or 5 until their earlier death, resignation or removal in accordance with the Newco By-Laws. SECTION 1.08. Operations. (a) Corporate Offices. The Surviving Corporation shall maintain (i) in Chicago, Illinois offices serving as its corporate headquarters, (ii) in southeastern Pennsylvania offices serving as the headquarters of the generation and power marketing businesses of the Surviving Corporation and its subsidiaries, and (iii) offices in Chicago, Illinois and southeastern Pennsylvania as the headquarters of Commonwealth Edison Company, an Illinois corporation ("ComEd"), and Parent, respectively. The chief nuclear officer of the Surviving Corporation shall maintain offices in both Chicago, Illinois and southeastern Pennsylvania. (b) Charities. The parties agree that provision of charitable contribution and community support in the respective service areas of Parent and the Company and their respective subsidiaries serves a number of important goals. During the two-year period immediately following the Merger Effective Time, the Surviving Corporation shall provide, directly or indirectly, charitable contributions and traditional local community support within the respective service areas of Parent and the Company and each of their subsidiaries that are utilities at levels substantially comparable to and no less than the levels of charitable contributions and community support provided by Parent and the Company and such subsidiaries within their service areas within the two-year period immediately prior to the Merger Effective Time. ARTICLE II Effect on the Capital Stock of the Constituent Corporations; Exchange of Certificates SECTION 2.01. Effect on Capital Stock. (a) First Step Exchange. At the Exchange Effective Time, by virtue of the First Step Exchange and without any action on the part of the holder of any shares of Parent Common Stock or Newco Common Stock: (i) Cancelation of Treasury Stock. Each share of Parent Common Stock that is owned by Parent shall automatically be canceled and retired and shall cease to exist, and no Newco Common Stock or other consideration shall be delivered or deliverable in exchange therefor. 6 (ii) Exchange of Parent Common Stock. (A) Subject to Section 2.01(a)(i), each issued share of Parent Common Stock shall be exchanged for one fully paid and nonassessable share of Newco Common Stock (the "Parent Exchange Ratio"). (B) The shares of Newco Common Stock to be issued by Newco upon the exchange of shares of Parent Common Stock pursuant to this Section 2.01(a)(ii) are referred to collectively as "Exchange Consideration". As of the Exchange Effective Time, all such shares of Parent Common Stock shall be exchanged for Exchange Consideration and such shares of Parent Common Stock shall remain outstanding and shall be owned and held by Newco, and each certificate representing any such shares of Parent Common Stock shall thereafter represent a like number of shares of Newco Common Stock and, notwithstanding anything noted thereon, no holder shall have any rights pertaining to shares of Parent Common Stock except as specifically set forth in Section 2.02(d)(i) with respect to unpaid dividends and other distributions. (iii) Parent Preferred Stock. The Parent Preferred Stock (as defined in Section 4.03(a)) outstanding immediately prior to the Exchange Effective Time shall remain outstanding, without change, after the Exchange Effective Time, and no consideration shall be delivered or deliverable in exchange therefor. (b) Second Step Merger. At the Merger Effective Time, by virtue of the Second Step Merger and without any action on the part of the holder of any shares of Company Common Stock or Newco Common Stock: (i) Cancelation of Treasury Stock and Newco- Owned Stock. Each share of Company Common Stock that is owned by the Company or Newco shall no longer be outstanding and shall automatically be canceled and retired and shall cease to exist, and no Newco Common Stock or other consideration shall be delivered or deliverable in exchange therefor. (ii) Conversion of Company Common Stock. (A) Subject to Sections 2.01(b)(i) and 2.02(e), each issued share of Company Common Stock shall be converted into the right to receive (1) $3.00 in cash (the "Company Cash Consideration") and (2) 0.875 (the "Company Conversion Number") fully paid and 7 nonassessable shares of Newco Common Stock (the "Company Exchange Ratio"). (B) The Company Cash Consideration, shares of Newco Common Stock to be issued upon the conversion of shares of Company Common Stock pursuant to this Section 2.01(b)(ii) and cash in lieu of fractional shares of Newco Common Stock to the extent contemplated by Section 2.02(e) are referred to collectively as "Merger Consideration". As of the Merger Effective Time, all such shares of Company Common Stock shall no longer be outstanding and shall automatically be canceled and retired and shall cease to exist, and each holder of a certificate representing any such shares of Company Common Stock shall cease to have any rights with respect thereto, except the right to receive Merger Consideration upon surrender of such certificate in accordance with Section 2.02, without interest and as specifically set forth in Section 2.02(d)(ii) with respect to unpaid dividends and other distributions. (iii) Newco Common Stock. The Newco Common Stock outstanding immediately prior to the Merger Effective Time issued as contemplated by Section 2.01(a)(ii) shall remain outstanding, without change, after the Merger Effective Time, and no Merger Consideration shall be delivered or deliverable in exchange therefor. (iv) Dissent Rights. Notwithstanding anything in this Agreement to the contrary, shares ("Company Dissent Shares") of Company Common Stock that are outstanding immediately prior to the Merger Effective Time and that are held by any person who is entitled to demand and properly demands payment of the fair value of such Company Dissent Shares pursuant to, and who complies in all respects with, Sections 11.65 and 11.70 of the IBCA ("Sections 11.65 and 11.70") shall be converted into the right to receive Merger Consideration as provided in Section 2.01(b)(ii), and shall thereafter be subject to sale and purchase rights in accordance with Sections 11.65 and 11.70. SECTION 2.02. Exchange of Certificates. (a) Exchange Agent. Promptly following the Merger Effective Time, Newco shall deposit with such bank or trust company as may be designated by Newco and reasonably acceptable to Parent and the Company (the "Exchange Agent"), for the benefit of the holders of shares of Company Common Stock, for exchange in accordance with this Article II, 8 through the Exchange Agent, cash equal to the total aggregate Company Cash Consideration and certificates representing the shares of Newco Common Stock issuable pursuant to Section 2.01 in exchange for outstanding Company Certificates. Newco shall provide to the Exchange Agent on a timely basis, as and when needed after the Merger Effective Time, cash equal to the total aggregate Company Cash Consideration (such shares of Newco Common Stock and cash, together with any dividends or distributions with respect thereto, being hereinafter referred to as the "Exchange Fund"). For the purposes of such deposit, Newco shall assume that there will not be any fractional shares of Newco Common Stock. Newco shall make available to the Exchange Agent, for addition to the Exchange Fund, from time to time as needed, cash sufficient to pay cash in lieu of fractional shares to the extent provided in Section 2.02(e). (b) Exchange Procedures. As soon as reasonably practicable after the Merger Effective Time, the Exchange Agent shall mail to each holder of record of a certificate or certificates that immediately prior to the Merger Effective Time represented outstanding shares of Company Common Stock that were converted into the right to receive Merger Consideration (the "Company Certificates"), in each case, pursuant to Section 2.01, (i) a letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Company Certificates shall pass, only upon delivery of the Company Certificates to the Exchange Agent and shall be in such form and have such other provisions as the Company may reasonably specify) and (ii) instructions for use in effecting the surrender of the Company Certificates in exchange for Merger Consideration. Upon surrender of a Company Certificate for cancelation to the Exchange Agent, together with such letter of transmittal, duly executed, and such other documents as may reasonably be required by the Exchange Agent, the holder of such Company Certificate shall be entitled to receive in exchange therefor Company Cash Consideration and a certificate representing that number of whole shares of Newco Common Stock (together with cash in lieu of fractional shares) that such holder has the right to receive pursuant to the provisions of this Article II, and the Company Certificate so surrendered shall forthwith be canceled. Until such time as a certificate representing Newco Common Stock is issued to or at the direction of the holder of a surrendered Company Certificate, such Newco Common Stock shall be deemed not outstanding and shall not be entitled to vote on any matter. In the event of a transfer of ownership of Company Common Stock that is not registered in the transfer records of the Company, payment may be made and a certificate representing the appropriate number of shares of 9 Newco Common Stock may be issued to a person other than the person in whose name the Company Certificate so surrendered is registered, if such Company Certificate shall be properly endorsed or otherwise be in proper form for transfer and the person requesting such payment shall pay any transfer or other taxes required by reason of such payment or the issuance of shares of Newco Common Stock to a person other than the registered holder of such Company Certificate or establish to the satisfaction of Newco that such tax has been paid or is not applicable. Subject to Sections 11.65 and 11.70 of the IBCA, until surrendered as contemplated by this Section 2.02, each Company Certificate shall be deemed at any time after the Merger Effective Time to represent only the right to receive upon such surrender Merger Consideration, as contemplated by this Section 2.02. No interest shall be paid or accrue on any cash payable, whether in respect of Merger Consideration, dividends or otherwise, upon surrender of any Company Certificate. Any dividend reinvestment plan, employee stock ownership plan or similar plan of the Company may be treated as a single holder of Company Common Stock for the purposes of Section 2.02(e). Notwithstanding anything to the contrary contained herein, any shares of Newco Common Stock may be issued in book entry form and, for the purposes of this Agreement, such issuance shall have the same effect as the issuance of a certificate representing such shares. (c) Distributions with Respect to Unexchanged Shares. No dividends or other distributions with respect to Newco Common Stock with a record date after the Merger Effective Time shall be paid to the holder of any unsurrendered Company Certificate with respect to the shares of Newco Common Stock issuable upon surrender thereof, and no cash payment in lieu of fractional shares shall be paid to any such holder pursuant to Section 2.02(e), until the surrender of such certificate in accordance with this Article II. Subject to Applicable Law, following surrender of any such Company Certificate, there shall be paid to the holder of the certificate representing whole shares of Newco Common Stock issued in exchange therefor, without interest, (i) at the time of such surrender, the amount of any cash payable in lieu of a fractional share of Newco Common Stock to which such holder is entitled pursuant to Section 2.02(e) and the amount of dividends or other distributions with a record date after the Merger Effective Time theretofore paid with respect to such whole shares of Newco Common Stock, and (ii) at the appropriate payment date, the amount of dividends or other distributions with a record date after the Merger Effective Time but prior to such surrender and a payment date subsequent to such surrender payable with respect to such whole shares of Newco Common Stock. 10 (d) No Further Ownership Rights in Parent Common Stock or Company Common Stock. (i) All certificates which immediately prior to the Exchange Effective Time represented outstanding shares of Parent Common Stock shall thereafter represent a like number of shares of Newco Common Stock and, notwithstanding anything noted thereon, no holder thereof shall have any rights pertaining to shares of Parent Common Stock, subject, however, to the Surviving Corporation's obligation to pay any dividends or make any other distributions with a record date prior to the Exchange Effective Time that may have been declared or made by the Parent on such shares of Parent Common Stock, in accordance with the terms of this Agreement or prior to the date of this Agreement and which remain unpaid at the Exchange Effective Time. (ii) The Merger Consideration issued (and paid) in accordance with the terms of this Article II upon conversion and exchange of any shares of Company Common Stock, shall be deemed to have been issued (and paid) in full satisfaction of all rights pertaining to such shares of Company Common Stock, subject, however, to (i) the Surviving Corporation's obligations to pay or provide for the rights of dissenters and (ii) the Surviving Corporation's obligation to pay any dividends or make any other distributions with a record date prior to the Merger Effective Time that may have been declared or made by the Company on such shares of Company Common Stock, in accordance with the terms of this Agreement or prior to the date of this Agreement and which remain unpaid at the Merger Effective Time. (iii) After the Merger Effective Time there shall be no further registration of transfers on the stock transfer books of the Surviving Corporation of shares of Parent Common Stock or Company Common Stock that were outstanding immediately prior to the Merger Effective Time. If, after the Merger Effective Time, any certificates formerly representing shares of Company Common Stock, are presented to the Surviving Corporation or the Exchange Agent for any reason, they shall be canceled and exchanged as provided in this Article II. (e) No Fractional Shares. (i) Except as otherwise agreed to by the Company and Parent as provided in Section 2.02(e)(v), no certificates or scrip representing fractional shares of Newco Common Stock shall be issued upon the conversion of Company Common Stock pursuant to Section 2.01, and such fractional share interests shall not entitle the owner thereof to vote or to any rights of a holder of Newco Common Stock. For purposes of this Section 11 2.02(e), all fractional shares to which a single record holder would be entitled shall be aggregated and calculations shall be rounded to three decimal places. (ii) As promptly as practicable following the Merger Effective Time, the Exchange Agent shall determine the excess of (A) the number of shares of Newco Common Stock delivered to the Exchange Agent by Newco pursuant to Section 2.02(a) over (B) the aggregate number of whole shares of Newco Common Stock to be issued to holders of Company Common Stock pursuant to Section 2.02(b) (such excess being herein called the "Excess Shares"). As soon after the Merger Effective Time as practicable, the Exchange Agent, as agent for the holders of Company Common Stock, shall sell the Excess Shares at then prevailing prices on the New York Stock Exchange (the "NYSE"), all in the manner provided in Section 2.02(e)(iii). (iii) The sale of the Excess Shares by the Exchange Agent shall be executed on the NYSE through one or more member firms of the NYSE and shall be executed in round lots to the extent practicable. The proceeds from such sale or sales available for distribution to the holders of Company Common Stock shall be reduced by transfer taxes in connection with such sale or sales of the Excess Shares. Until the net proceeds of such sale or sales have been distributed to the holders of Company Common Stock entitled thereto, the Exchange Agent shall hold such proceeds in trust for such holders of Company Common Stock (the "Common Shares Trust"). The Exchange Agent shall determine the portion of the Common Shares Trust to which each holder of a Company Certificate shall be entitled, if any, by multiplying the amount of the aggregate net proceeds comprising the Common Shares Trust by a fraction, the numerator of which is the amount of the fractional share interest in a share of Newco Common Stock to which such holder is entitled under Section 2.01(b)(ii) (or would be entitled but for this Section 2.02(e)) and the denominator of which is the aggregate amount of fractional interests in a share of Newco Common Stock to which all holders of Company Common Stock are entitled. (iv) As soon as practicable after the determina tion of the amount of cash, if any, to be paid to holders of Company Common Stock in lieu of any fractional share interests in Newco Common Stock, the Exchange Agent shall make available such amounts, without interest, to such holders entitled to receive such cash. (v) Notwithstanding anything herein to the contrary, if the Company and Parent so agree prior to the 12 Closing, Newco may establish a common stock direct share registration program pursuant to which shareholders would receive a book entry credit for fractional shares of Newco Common Stock in lieu of cash as otherwise provided in this Section 2.02(e). If the Company and Parent agree to have Newco establish such a program, any reference herein to fractional shares shall refer to such book entry fractional shares and no cash will be issued for such shares except as may be provided by such program. In no event will Newco issue certificates or script representing fractional shares. (f) Termination of Exchange Fund. Any portion of the Exchange Fund that remains undistributed to the holders of Company Common Stock for six months after the Merger Effective Time shall be delivered to Newco, upon demand, and any holder of Company Common Stock who has not theretofore complied with this Article II shall thereafter look only to Newco for payment of its claim for Merger Consideration, and any dividends or distributions with respect to Newco Common Stock as contemplated by Section 2.02(c). (g) No Liability. None of Parent, Newco, the Company or the Exchange Agent shall be liable to any person in respect of any shares of Newco Common Stock (or dividends or distributions with respect thereto) or cash from the Exchange Fund delivered to a public official pursuant to any applicable abandoned property, escheat or similar Applicable Law. If any Company Certificate has not been surrendered prior to five years after the Merger Effective Time (or immediately prior to such earlier date on which Merger Consideration or any dividends or distributions with respect to Newco Common Stock as contemplated by Section 2.02(c)(i) in respect of such Company Certificate would otherwise escheat to or become the property of any Governmental Entity (as defined in Section 3.05)), any such shares, cash, divi dends or distributions in respect of such Company Certificate shall, to the extent permitted by Applicable Law, become the property of the Surviving Corporation, free and clear of all claims or interest of any person previously entitled thereto. (h) Investment of Exchange Fund. The Exchange Agent shall invest any cash included in the Exchange Fund, as directed by Newco, on a daily basis. Any interest and other income resulting from such investments shall be paid to Newco. (i) Withholding Rights. Newco shall be entitled to deduct and withhold from the consideration otherwise payable to any holder of Parent Common Stock or Company Common Stock pursuant to this Agreement such amounts as may 13 be required to be deducted and withheld with respect to the making of such payment under the Code, or under any provision of state, local or foreign tax law. To the extent that amounts are so withheld and paid over to the appropriate taxing authority, Newco will be treated as though it withheld an appropriate amount of the type of consideration otherwise payable pursuant to this Agreement to any holder of Parent Common Stock or Company Common Stock, sold such consideration for an amount of cash equal to the fair market value of such consideration at the time of such deemed sale and paid such cash proceeds to the appropriate taxing authority. Section 2.03. Certain Adjustments. If after the date hereof and on or prior to the Closing Date, the outstanding shares of Parent Common Stock or Company Common Stock shall be changed into a different number of shares by reason of any reclassification, recapitalization, split-up, combination or exchange of shares, or any dividend payable in stock or other securities is declared thereon with a record date within such period, or any similar event shall occur, the Exchange Consideration and the Merger Consideration will be adjusted accordingly to provide to the holders of Parent Common Stock and Company Common Stock, respectively, the same economic effect as contemplated by this Agreement prior to such reclassification, recapitalization, split-up, combination, exchange or dividend or similar event. This provision is not intended to affect the need for either party to obtain the other party's consent to take such an action under any other provision of this Agreement. ARTICLE III Representations and Warranties of the Company The Company represents and warrants to Parent and Newco as follows: SECTION 3.01. Organization, Standing and Power. Each of the Company and each of its subsidiaries (the "Company Subsidiaries") is duly organized, validly existing and in good standing (with respect to jurisdictions which recognize the concept of good standing) under the laws of the jurisdiction in which it is organized and has full corporate power and authority and possesses all governmental franchises, licenses, permits, authorizations and approvals necessary to enable it to own, lease or otherwise hold its properties and assets and to conduct its businesses as conducted as of the date of this Agreement, other than such 14 franchises, licenses, permits, authorizations and approvals the lack of which, individually or in the aggregate, has not had and could not reasonably be expected to have a Material Adverse Effect on the Company (a "Company Material Adverse Effect"). The Company and each Company Subsidiary is duly qualified to do business in each jurisdiction where the nature of its business or their ownership or leasing of its properties make such qualification necessary, other than such qualifications the lack of which, individually or in the aggregate, has not had and could not reasonably be expected to have a Company Material Adverse Effect. The Company has made available to Parent true and complete copies of the articles of incorporation of the Company, as amended to the date of this Agreement (as so amended, the "Company Charter"), and the By-laws of the Company, as amended to the date of this Agreement (as so amended, the "Company By-laws"), and the comparable charter or organizational documents of each Company Subsidiary, in each case as amended through the date of this Agreement. SECTION 3.02. Company Subsidiaries; Equity Interests. (a) The letter, dated as of the date of this Agreement, from the Company to Parent and Newco (the "Company Disclosure Letter") lists each Company Subsidiary and its jurisdiction of organization and specifies each of the Company Subsidiaries that is (i) a "public-utility company", a "holding company", a "subsidiary company", an "affiliate" of any public-utility company, an "exempt wholesale generator" or a "foreign utility company" within the meaning of Section 2(a)(5), 2(a)(7), 2(a)(8), 2(a)(11), 32(a)(1) or 33(a)(3) of the Public Utility Holding Company Act of 1935, as amended ("PUHCA"), respectively, (ii) a "public utility" within the meaning of Section 201(e) of the Federal Power Act (the "Power Act") or (iii) a "qualifying facility" within the meaning of the Public Utility Regulatory Policies Act of 1978, as amended ("PURPA"), or that owns such a qualifying facility. All the outstanding shares of capital stock of each Company Subsidiary have been validly issued and are fully paid and nonassessable and, except as set forth in the Company Disclosure Letter, are owned by the Company, by another Company Subsidiary or by the Company and another Company Subsidiary, free and clear of all pledges, liens, charges, mortgages, encumbrances and security interests of any kind or nature whatsoever (collectively, "Liens"). (b) Except for its interests in the Company Subsidiaries and except for the ownership interests set forth in the Company Disclosure Letter or interests acquired after the date of this Agreement without violating any covenant of this Agreement, the Company does not own, 15 directly or indirectly, any capital stock, membership interest, partnership interest, joint venture interest or other equity interest with a fair market value as of the date of this Agreement in excess of $500,000 in any person, as reasonably determined by the Company. SECTION 3.03. Capital Structure. (a) The authorized capital stock of the Company consists of 400,000,000 shares of Company Common Stock. At the close of business on August 31, 1999, (i) 217,411,003 shares of Company Common Stock were issued and outstanding, (ii) 264,406 shares of Company Common Stock were held by the Company in its treasury, (iii) 4,625,691 shares of Company Common Stock were subject to outstanding Company Employee Stock Options (as defined in Section 6.04) and 4,700,637 additional shares of Company Common Stock were reserved for issuance pursuant to the Company Stock Plans (as defined in Section 6.04), (iv) 368,171 shares of Company Common Stock were reserved for issuance pursuant to the Company's Employee Stock Purchase Plan, (v) 164,845 shares of Company Common Stock were reserved for issuance pursuant to the Company's 1996 Directors' Fee Plan, (vi) 88,526 shares of Company Common Stock were subject to exchange for the common stock, $12.50 par value of ComEd, and (vii) 400,000 shares of Company Common Stock were reserved for issuance in connection with the rights (the "Company Rights") issued pursuant to the Rights Agreement dated as of February 2, 1998 (as amended from time to time, the "Company Rights Agreement"), between the Company and First Chicago Trust Company of New York, as Rights Agent. (b) Except as set forth in clause (a) of this Section 3.03 or in the Company Disclosure Letter, at the close of business on August 31, 1999, no shares of capital stock or other voting securities of the Company were issued, reserved for issuance or outstanding. (c) All outstanding shares of Company Common Stock are, and all such shares that may be issued prior to the Merger Effective Time will be when issued, duly authorized, validly issued, fully paid and nonassessable and not subject to or issued in violation of any purchase option, call option, right of first refusal, preemptive right, subscription right or any similar right under any provision of the IBCA, the Company Charter, the Company By- laws or any Contract (as defined in Section 3.05) to which the Company is a party or otherwise bound. (d) There are not any bonds, debentures, notes or other indebtedness of the Company having the right to vote (or convertible into, or exchangeable for, securities having 16 the right to vote) on any matters on which holders of Company Common Stock may vote ("Voting Company Debt"). (e) Except as set forth in clause (a) of this Section 3.03 or in the Company Disclosure Letter, as of the date of this Agreement, there are not any options, warrants, rights, convertible or exchangeable securities, "phantom" stock rights, stock appreciation rights, stock-based performance units, commitments, Contracts, arrangements or undertakings of any kind to which the Company or any Company Subsidiary is a party or by which any of them is bound (i) obligating the Company or any Company Subsidiary to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of capital stock or other equity interests in, or any security convertible or exercisable for or exchangeable into any capital stock of or other equity interest in, the Company or of any Company Subsidiary or any Voting Company Debt or (ii) obligating the Company or any Company Subsidiary to issue, grant, extend or enter into any such option, warrant, call, right, security, commitment, Contract, arrangement or undertaking. (f) As of the date of this Agreement, except as described in the Company Disclosure Letter, there are not any outstanding contractual obligations of the Company or any Company Subsidiary to repurchase, redeem or otherwise acquire any shares of capital stock of the Company or any Company Subsidiary. (g) The Company has delivered to Parent a complete and correct copy of the Company Rights Agreement, as amended to the date of this Agreement. SECTION 3.04. Authority; Execution and Delivery; Enforceability. (a) The Company has all requisite corporate power and authority to execute and deliver this Agreement and to consummate the Transactions. The execution and delivery by the Company of this Agreement and the consummation by the Company of the Transactions have been duly authorized by all necessary corporate action on the part of the Company, subject, in the case of the Second Step Merger, to receipt of the Company Shareholder Approval (as defined in Section 3.04(c)). The Company has duly executed and delivered this Agreement, and this Agreement constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms. (b) The Board of Directors of the Company (the "Company Board"), at a meeting duly called and held, duly and unanimously adopted resolutions (i) approving this Agreement, the Merger and the other Transactions, 17 (ii) determining that the terms of the Second Step Merger and the other Transactions are fair to and in the best interests of the Company and its shareholders and (iii) directing that this Agreement be submitted to a vote of the Company's shareholders and recommending that they approve this Agreement. Such resolutions are sufficient to render inapplicable to Parent and Newco and this Agreement, to the extent otherwise applicable, the Merger and the other Transactions the provisions of Sections 7.85 and 11.75 of the IBCA. To the Company's knowledge, no other state takeover statute or similar statute or regulation applies or purports to apply to the Company with respect to this Agreement, the Second Step Merger or any other Transaction. (c) The only vote of holders of any class or series of Company securities necessary to approve and adopt this Agreement and the Second Step Merger is the approval of this Agreement by the holders of at least two-thirds of the shares of outstanding Company Common Stock entitled to vote (the "Company Shareholder Approval"). The affirmative vote of the holders of Company Common Stock, or any of them, is not necessary to consummate any Transaction other than the Second Step Merger. SECTION 3.05. No Conflicts; Consents. (a) Except as set forth in the Company Disclosure Letter, the execution and delivery by the Company of this Agreement does not, and the consummation of the Merger and the other Transactions and compliance with the terms hereof and thereof will not, conflict with, or result in any violation of or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, consent, approval, cancelation or acceleration of any obligation or to loss of a material benefit under, or to increased, additional, accelerated or guaranteed rights or entitlements of any person under, or result in the creation of any Lien upon any of the properties or assets of the Company or any Company Subsidiary under, any provision of (i) the Company Charter, the Company By-laws or the comparable charter or organizational documents of any Company Subsidiary, (ii) any loan or credit agreement, contract, lease, license, indenture, note, bond, agreement, permit, concession, franchise or other instrument (a "Contract") to which the Company or any Company Subsidiary is a party or by which any of their respective properties or assets is bound or (iii) subject to the filings and other matters referred to in Section 3.05(b), any judgment, order or decree ("Judgment") or statute, law, ordinance, rule or regulation ("Applicable Law") or writ, permit or license applicable to the Company or any Company Subsidiary or their respective properties or assets (other than immaterial 18 consents, approvals, licenses, permits, orders, authorizations, registrations, declarations or filings, including with respect to communications systems, zoning, name changes, occupancy and similar routine regulatory approvals), other than, in the case of clauses (ii) and (iii) above, any such items that, individually or in the aggregate, have not had and could not reasonably be expected to have a Company Material Adverse Effect. (b) No consent, approval, license, permit, order or authorization (other than immaterial consents, approvals, licenses, permits, orders, authorizations, registrations, declarations or filings, including with respect to communications systems, zoning, name changes, occupancy and similar routine regulatory approvals) ("Consent") of, action by or in respect of, or registration, declaration or filing with, or notice to, any Federal, state, local or foreign government or any court of competent jurisdiction, administrative or regulatory agency or commission or other governmental authority or instrumentality or any non- governmental self-regulatory agency, commission or authority, domestic or foreign (a "Governmental Entity") is required to be obtained or made by or with respect to the Company or any Company Subsidiary in connection with the execution, delivery and performance of this Agreement or the consummation of the Transactions, other than (i) compliance with and filings under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), (ii) the filing with the Securities and Exchange Commission (the "SEC") of (A) a proxy or information statement relating to the approval of this Agreement by the Company's shareholders (the "Proxy Statement"), and (B) such reports under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as may be required in connection with this Agreement, the Second Step Merger and the other Transactions, (iii) the filing of the Illinois Articles of Merger with, and the issuance of a certificate of merger by, the Secretary of State of the State of Illinois, the filing of the Pennsylvania Articles of Merger with the Department of State of Pennsylvania and the filing of appropriate documents with the relevant authorities of the other jurisdictions in which the Company is qualified to do business, (iv) notice to, and the consent and approval of, the Federal Energy Regulatory Commission ("FERC") under the Power Act, (v) notice to, and the consent and approval of, the Nuclear Regulatory Commission (the "NRC") under the Atomic Energy Act of 1954, as amended (the "Atomic Energy Act"), (vi) notice to the Illinois Commerce Commission (the "ICC"), (vii) the consents, filings and approvals required under PUHCA, (viii) compliance with and such filings as may be required under applicable Environmental Laws (as defined 19 in Section 3.17), (ix) such filings as may be required in connection with the taxes described in Section 6.09 and (x) such other items as are set forth in the Company Disclosure Letter (collectively, whether or not legally required to be obtained, the "Company Required Statutory Approvals"). (c) The Company and the Company Board have taken all action necessary to (i) render the Company Rights inapplicable to this Agreement, the Merger and the other Transactions and (ii) ensure that (A) neither Parent nor any of its affiliates or associates is or will become an "Acquiring Person" (as defined in the Company Rights Agreement) by reason of this Agreement, the Merger or any other Transaction, (B) a "Distribution Date" (as defined in the Company Rights Agreement) shall not occur by reason of this Agreement, the Merger or any other Transaction and (C) the Company Rights shall expire immediately prior to the Merger Effective Time. SECTION 3.06. SEC Documents; Undisclosed Liabilities. The Company and the Company Subsidiaries have filed all reports, schedules, forms, statements and other documents required to be filed by the Company or any Company Subsidiary with the SEC since January 1, 1998 (the "Company SEC Documents"). Each Company SEC Document complied in all material respects as of its respective date with the requirements of the Exchange Act or the Securities Act of 1933, as amended (the "Securities Act"), as the case may be, and the rules and regulations of the SEC promulgated thereunder applicable to such Company SEC Document, and except to the extent that information contained in any Company SEC Document has been revised or superseded by a later filed Company SEC Document, does not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The consolidated financial statements of the Company included in the Company SEC Documents comply as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto, have been prepared in accordance with generally accepted accounting principles ("GAAP") (except, in the case of unaudited statements, as permitted by Form 10-Q of the SEC) applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto) and fairly present the consolidated financial position of the Company and its consolidated subsidiaries as of the dates thereof and the consolidated results of their operations and cash flows for the periods 20 then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments). Except as set forth in the Filed Company SEC Documents (as defined in Section 3.08) or the Company Disclosure Letter or incurred after the date hereof in the usual, regular and ordinary course of business in substantially the same manner as previously conducted and not prohibited by this Agreement, neither the Company nor any Company Subsidiary has any liabilities or obligations of any nature (whether accrued, absolute, contingent or otherwise) required by GAAP to be set forth on a consolidated balance sheet of the Company and its consolidated subsidiaries or in the notes thereto and that, individually or in the aggregate, could reasonably be expected to have a Company Material Adverse Effect. SECTION 3.07. Information Supplied. None of the information supplied or to be supplied by the Company for inclusion or incorporation by reference in (i) the registration statement on Form S-4 to be filed with the SEC by Newco in connection with the Share Issuance (the "Form S- 4") will, at the time the Form S-4 is filed with the SEC, at any time it is amended or supplemented or at the time it becomes effective under the Securities Act, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, or (ii) the Proxy Statement will, at the date it is first mailed to the Company's shareholders or Parent's shareholders or at the time of the Company Shareholders Meeting (as defined in Section 6.01) or the Parent Shareholders Meeting (as defined in Section 6.01), contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. The Proxy Statement will comply as to form in all material respects with the requirements of the Exchange Act and the rules and regulations thereunder, except that no representation is made by the Company with respect to statements made or incorporated by reference therein based on information supplied by or on behalf of Parent or Newco for inclusion or incorporation by reference in the Proxy Statement. SECTION 3.08. Absence of Certain Changes or Events. Except as disclosed in the Company SEC Documents filed and publicly available prior to the date of this Agreement (the "Filed Company SEC Documents") or in the Company Disclosure Letter: (a) since December 31, 1998, there has not been any event, change, effect or development that, individually 21 or in the aggregate, has had or could reasonably be expected to have a Company Material Adverse Effect, other than events, changes, effects and developments relating to the economy in general or to the Company's industry in general and not specifically relating to the Company or any Company Subsidiary; and (b) from December 31, 1998 to the date of this Agreement, the Company has conducted its business only in the ordinary course, and during such period there has not been: (i) any declaration, setting aside or payment of any dividend or other distribution (whether in cash, stock or property) with respect to any Company Common Stock or any repurchase for value by the Company of any Company Common Stock; (ii) any split, combination or reclassification of any Company Common Stock or any issuance or the authorization of any issuance of any other securities in respect of, in lieu of or in substitution for shares of Company Common Stock; or (iii) any change in accounting methods, principles or practices by the Company or any Company Subsidiary materially affecting the consolidated assets, liabilities or results of operations of the Company, except insofar as may have been required by a change in GAAP. SECTION 3.09. Taxes. (a) Each of the Company and each Company Subsidiary has timely filed, or has caused to be timely filed on its behalf, all Tax Returns required to be filed by it (or requests for extensions to file such Tax Returns have been timely filed and granted and have not expired), and all such Tax Returns are true, complete and accurate, except to the extent any failure to file or any inaccuracies in any filed Tax Returns would not, individually or in the aggregate, have a Company Material Adverse Effect. All Taxes shown to be due on such Tax Returns, or otherwise owed by the Company or any Company Subsidiary, have been timely paid, except to the extent that any failure to pay, individually or in the aggregate, has not had and could not reasonably be expected to have a Company Material Adverse Effect. (b) Except as set forth in the Company Disclosure Letter, the most recent financial statements contained in the Filed Company SEC Documents reflect an adequate reserve for all current Taxes payable by the Company and the Company 22 Subsidiaries (in addition to any reserve for deferred Taxes established to reflect timing differences between book and Tax income) for all Taxable periods and portions thereof through the date of such financial statements. Except as set forth in the Company Disclosure Letter, no deficiency with respect to any Taxes has, to the best knowledge of the Company, been proposed, asserted or assessed against the Company or any Company Subsidiary, and no requests for waivers of the time to assess any such Taxes are pending, except to the extent any such deficiency or request for waiver, individually or in the aggregate, has not had and could not reasonably be expected to have a Company Material Adverse Effect. (c) The Federal income Tax Returns of the Company and each Company Subsidiary consolidated in such Returns have been examined by and settled with the United States Internal Revenue Service for all years through 1995. Except as set forth in the Company Disclosure Letter, all material assessments for Taxes due with respect to such completed and settled examinations or any concluded litigation have been fully paid. (d) There are no material Liens for Taxes (other than for current Taxes not yet due and payable) on the assets of the Company or any Company Subsidiary. Except as set forth in the Company Disclosure Letter, neither the Company nor any Company Subsidiary is bound by any agreement with respect to Taxes. (e) The Company and each Company Subsidiary have complied with all applicable statutes, laws, ordinances, rules and regulations relating to the payment and withholding of taxes (including withholding of taxes pursuant to Sections 1441, 1442, 3121 and 3402 of the Code or similar provisions under any Federal, state or local laws, domestic and foreign) and have, within the time and in the manner prescribed by law, withheld from and paid over to the proper governmental authorities all amounts required to be so withheld and paid over under applicable laws, except to the extent that any failure to withhold or to pay, individually or in the aggregate, has not had and could not reasonably be expected to have a Company Material Adverse Effect. (f) The Company knows of no fact and neither the Company nor any Company Subsidiary has taken or agreed to take any action that could reasonably be expected to prevent (i) the Merger from constituting transactions described in Section 351 of the Code or (ii) the Second Step Merger from 23 constituting a transaction described in Section 368(a) of the Code. (g) For purposes of this Agreement: "Taxes" includes all forms of taxation, whenever created or imposed, and whether of the United States or elsewhere, and whether imposed by a local, municipal, state, foreign, Federal or other Governmental Entity, or in connection with any agreement with respect to Taxes, including all interest, penalties and additions imposed with respect to such amounts. "Tax Return" means all Federal, state, local, provincial and foreign Tax returns, declarations, statements, reports, schedules, forms and information returns and any amended Tax return required to be filed with any taxing authority with respect to Taxes. SECTION 3.10. Absence of Changes in Benefit Plans. Except as disclosed in the Company Disclosure Letter, from December 31, 1998 to the date of this Agreement, there has not been any adoption or amendment in any material respect by the Company or any Company Subsidiary of (a) any collective bargaining agreements, (b) any bonus, pension, profit sharing, deferred compensation, incentive compensation, stock ownership, stock purchase, stock option, phantom stock, retirement, vacation, severance, disability, death benefit, hospitalization, medical or other plan, program, policy, arrangement or understanding (whether or not legally binding) providing benefits to any current or former employee, officer or director of the Company or any Company Subsidiary or any beneficiary or dependent thereof, that is sponsored or maintained by the Company or any Company Subsidiary or to which the Company or any Company Subsidiary contributes or is obligated to contribute (collectively, "Company Benefit Plans") or (c) any Company Employment Arrangements (as defined herein). Except as disclosed in the Company Disclosure Letter, as of the date of this Agreement there are not any employment, consulting, indemnification, change- of-control, severance or termination agreements or arrangements between the Company or any Company Subsidiary and any current or former employee, officer or director of the Company or any Company Subsidiary (collectively, the "Company Employment Arrangements"). SECTION 3.11. ERISA Compliance; Excess Parachute Payments. (a) The Company Disclosure Letter includes a complete list of all material Company Benefit Plans and Company Employment Arrangements as of the date of this 24 Agreement. With respect to each Company Benefit Plan (other than a multiemployer plan within the meaning of Section 4001(a)(3) of ERISA) and Company Employment Arrangement, the Company has delivered to Parent true, complete and correct copies of (i) each such Company Benefit Plan or Company Employment Arrangement (or, in the case of any unwritten plan or arrangement, a description thereof), (ii) the most recent annual report on the applicable Form 5500 series filed with the Internal Revenue Service (if any such report was required), including all schedules and attachments thereto, (iii) the most recent summary plan description (if a summary plan description is required) and all summaries of material modifications thereto, (iv) each trust agreement, group annuity contract or other funding vehicle relating to any such Company Benefit Plan or Company Employment Arrangement, (v) the most recent actuarial report or valuation relating thereto and (vi) the most recent determination letters issued by the Internal Revenue Service with respect to Company Benefit Plans that are intended to be qualified and exempt from Federal income taxes under Sections 401(a) and 501(a), respectively, of the Code ("Qualified Plans") and letters of recognition of exemption with respect to any Company Benefit Plan or related trust that is intended to meet the requirements of Section 501(c)(9) of the Code. (b) With respect to the Company Benefit Plans and Company Employment Arrangements, individually and in the aggregate, no event has occurred and, to the knowledge of the Company, there exists no condition or set of circumstances, in connection with which the Company or any Company Subsidiary could be subject to any liability that has had or could reasonably be expected to have a Company Material Adverse Effect (except liability for benefits claims and funding obligations payable in the ordinary course) under the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), the Code or any other applicable law. For purposes of this Section 3.11(b), the term "Company Benefit Plan" shall also include any employee benefit plan within the meaning of Section 3(3) of ERISA that, within the last six years, was sponsored or maintained by any entity which would be treated under Section 414 of the Code as a single employer with the Company or any Company Subsidiary or to which any such entity contributed or was obligated to contribute. (c) Each Company Benefit Plan and each Company Employment Arrangement has been administered in accordance with its terms except for any failures so to administer any Company Benefit Plan or Company Employment Arrangement as have not had and could not reasonably be expected to have, 25 individually or in the aggregate, a Company Material Adverse Effect. The Company, all Company Subsidiaries and all the Company Benefit Plans and Company Employment Arrangements are in compliance with the applicable provisions of ERISA, the Code and all other applicable laws and the rules and regulations thereunder and the terms of all applicable collective bargaining agreements, except for any failures to be in such compliance as have not had and could not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect. Except as disclosed in the Company Disclosure Letter, there are no pending or, to the knowledge of the Company, threatened or anticipated claims under or with respect to any Company Benefit Plan or Company Employment Arrangement by or on behalf of any current or former employee, officer or director, or dependent or beneficiary thereof, or otherwise (other than routine claims for benefits). (d) Except as disclosed in the Company Disclosure Letter, (i) no current or former employee, officer or director of the Company or any Company Subsidiary will be entitled to any additional rights or benefits or any acceleration of the time of payment or vesting of any benefits under any Company Benefit Plan or Company Employment Arrangement, and no trustee under any "rabbi trust", or similar arrangement maintained in connection with any Company Benefit Plan or Company Employment Arrangement will be entitled to any payment, as a result (either alone or upon the occurrence of any additional or further acts or events) of the execution of this Agreement or the consummation, announcement or other actions relating to the Transactions and (ii) no amount payable to any current or former employee, officer or director of the Company or any Company Subsidiary will fail to be deductible by reason of Section 280G of the Code. (e) Each Company Benefit Plan intended to be a Qualified Plan has received a favorable determination letter from the Internal Revenue Service that it is so qualified and nothing has occurred since the date of such letter that could reasonably be expected to affect the qualified status of such Company Benefit Plan. (f) The aggregate accumulated benefit obligations of each Company Benefit Plan subject to Title IV of ERISA (as of the date of the most recent actuarial valuation prepared for such Company Benefit Plan) do not exceed the fair market value of the assets of such plan (as of the date of such valuation). 26 (g) All contributions and other payments required to have been made for any completed historical period by the Company or any Company Subsidiary to any Company Benefit Plan or Company Employment Arrangement (or to any person pursuant to the terms thereof) have been timely made or paid in full, or, to the extent not required to be made or paid for such period, have been reflected in the consolidated financial statements of the Company. (h) Except as disclosed in the Company Disclosure Letter, no Company Benefit Plan is a multiemployer plan within the meaning of Section 4001(a)(3) of ERISA, and none of the Company or any Company Subsidiary has, at any time during the last six years, contributed to or been obligated to contribute to any such multiemployer plan. For purposes of the representations and warranties made in the last sentence of Section 3.11(c) and in Sections 3.11(e) and (f), the term "Company Benefit Plan" shall be deemed to exclude any such multiemployer plan. SECTION 3.12. Litigation. Except as disclosed in the Filed Company SEC Documents or in the Company Disclosure Letter, there is no suit, action or proceeding pending or, to the knowledge of the Company, threatened against the Company or any Company Subsidiary that, individually or in the aggregate, has had or could reasonably be expected to have a Company Material Adverse Effect, nor is there any Judgment outstanding against the Company or any Company Subsidiary that has had or could reasonably be expected to have a Company Material Adverse Effect. SECTION 3.13. Compliance with Applicable Laws; Permits. (a) Except as disclosed in the Filed Company SEC Documents or in the Company Disclosure Letter, the Company and the Company Subsidiaries are in compliance with the terms of all Company Permits (as defined in Section 3.13(b)) and all Applicable Laws, except for instances of noncompliance that, individually and in the aggregate, have not had and could not reasonably be expected to have a Company Material Adverse Effect. This Section 3.13 does not relate to matters with respect to Taxes, which are the subject of Section 3.09, Environmental Laws, which are the subject of Section 3.17, benefits plans, which are the subject of Section 3.11 and the operation of nuclear power plants, which are the subject of Section 3.19. (b) Except as disclosed in the Filed Company SEC Documents or in the Company Disclosure Letter, the Company and the Company Subsidiaries own or have sufficient rights and consents to use under existing franchises, permits, easements, leases, and license agreements (the "Company 27 Permits") all properties, rights and assets necessary for the conduct of their business and operations as currently conducted, except where the failure to own or have sufficient rights to such properties, rights and assets, individually or in the aggregate, have not had and could not reasonably be expected to have a Company Material Adverse Effect. Except as provided in the Illinois Electric Customer Choice and Rate Relief Law of 1997, to the knowledge of the Company, no other private corporation can commence electric public utility operations in any part of the respective territories now served by the Company or any Company Subsidiary, without obtaining a certificate of public convenience and necessity from the applicable state utility commission. SECTION 3.14. Brokers; Schedule of Fees and Expenses. No broker, investment banker, financial advisor or other person, other than Wasserstein Perella & Co. and Goldman Sachs & Co., the fees and expenses of which will be paid by the Company, is entitled to any broker's, finder's, financial advisor's or other similar fee or commission in connection with the Second Step Merger and the other Transactions based upon arrangements made by or on behalf of the Company. SECTION 3.15. Opinion of Financial Advisor. The Company has received the opinion of Wasserstein Perella & Co., dated as of January 6, 2000, to the effect that, as of such date, the Company Merger Consideration is fair to the holders of Company Common Stock from a financial point of view, a signed copy of which opinion has been delivered to Parent. SECTION 3.16. Year 2000. The Company SEC Documents fairly summarize the status of the Company's computer applications and components, modification or readiness plan, communications with suppliers and vendors, contingency plans and estimated cost of remediation as they relate to the Year 2000 issue. The Company has made available to Parent copies of all correspondence between the Company and its third party suppliers and vendors concerning their Year 2000 compliance. SECTION 3.17. Environmental Matters. (a) Compliance. Except as set forth in the Filed Company SEC Documents or in the Company Disclosure Letter, the Company and each of the Company Subsidiaries is and has been in compliance with all applicable Environmental Laws (as defined below), except where the failure to so comply, individually or in the aggregate, has not had and could not 28 reasonably be expected to have a Company Material Adverse Effect. (b) Environmental Permits. Except as set forth in the Filed Company SEC Documents or in the Company Disclosure Letter, (i) the Company and each of the Company Subsidiaries has obtained or has applied for all Environmental Permits (as defined below) necessary for the construction of their facilities or the conduct of their operations, except where the failure to so obtain, individually or in the aggregate, has not had and could not reasonably be expected to have a Company Material Adverse Effect and (ii) all such Environmental Permits are in good standing or, where applicable, a renewal application has been timely filed and is pending agency approval, except where the failure of such Environmental Permits to be in good standing or to have filed a renewal application on a timely basis has not had and could not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect. (c) Environmental Claims. Except as set forth in the Filed Company SEC Documents or in the Company Disclosure Letter, there are no Environmental Claims (as defined below) that have had or could reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect, pending or, to the knowledge of the Company, threatened against the Company or any of the Company Subsidiaries. (d) Releases. Except as set forth in the Filed Company SEC Documents or in the Company Disclosure Letter, there have been no Releases (as defined below) of any Hazardous Materials (as defined below) that could be reasonably likely to form the basis of any Environmental Claim against the Company or any of the Company Subsidiaries, except for any Environmental Claim which, individually or in the aggregate, has not had and could not reasonably be expected to have a Company Material Adverse Effect. (e) Assumed and Retained Liabilities. Except as disclosed in the Filed Company SEC Documents or in the Company Disclosure Letter, none of the Company or the Company Subsidiaries has retained or assumed either contractually or by operation of law any liabilities or obligations that could reasonably be likely to form the basis for any Environmental Claim, which has had and could reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect. 29 (f) Definitions. As used in this Agreement: (i) "Environmental Claims" means, in respect of any person, any and all administrative, regulatory or judicial actions, suits, orders, decrees, suits, demands, directives, claims, liens, investigations, proceedings or notices of noncompliance or violation by any person, alleging potential liability (including potential responsibility or liability for enforcement costs, investigatory costs, cleanup costs, governmental response costs, removal costs, remedial costs, mining restoration or rehabilitation costs, natural resources damages, property damages, personal injuries or penalties) arising out of, based on or resulting from (A) the presence or Release of any Hazardous Materials at any location, whether or not owned, operated, leased or managed by such person; or (B) circumstances forming the basis of any violation or alleged violation of any Environmental Law or (C) any and all claims by any third party seeking damages, contribution, indemni fication, cost recovery, compensation or injunctive relief resulting from the presence, Release of, or exposure to, any Hazardous Materials. (ii) "Environmental Laws" means all federal, state, local and foreign laws (including international conventions, protocols and treaties), common law, rules, regulations, orders, decrees, judgments, binding agreements or Environmental Permits issued, promulgated or entered into by or with any Governmental Entity, relating to pollution or the environment (including ambient air, surface water, groundwater, land surface or subsurface strata), including laws and regulations relating to noise levels, nuclear operations, Releases of Hazardous Materials, or otherwise relating to the generation, manufacture, processing, distribution, use, treatment, storage, transport or handling of Hazardous Materials. (iii) "Environmental Permits" means all permits, licenses, registrations and other governmental authorizations required under applicable Environmental Laws. (iv) "Hazardous Materials" means (A) any petroleum or petroleum products, radioactive materials or wastes, spent nuclear fuel, coal ash, asbestos in any form that is or could become friable, urea formaldehyde foam insulation and polychlorinated biphenyls ("PCBs"); (B) any chemicals, materials, substances or wastes which are defined as or included in the definition of 30 "hazardous substances," "hazardous wastes," "hazardous materials," "extremely hazardous wastes," "restricted hazardous wastes," "pollutant," "toxic substances," "source," "special nuclear," and "byproducts" or words of similar import under any Environmental Law; and (C) any chemical, material, substance or waste that is prohibited, limited or regulated pursuant to any Environmental Law. (v) "Release" means any actual or threatened release, spill, emission, leaking, dumping, injection, pouring, deposit, disposal, discharge, dispersal, leaching or migration into the environment (including ambient air, surface water, groundwater, land surface or subsurface strata) or within any building, structure, facility or fixture. SECTION 3.18. Labor and Employee Relations. (a) Except as set forth in the Company Disclosure Letter, (i) neither the Company nor any of the Company Subsidiaries is a party to any collective bargaining agreement or other labor agreement with any union or labor organization and (ii) to the knowledge of the Company, there is no current union representation question involving employees of the Company or any of the Company Subsidiaries, nor does the Company have knowledge of any activity or proceeding of any labor organization (or representative thereof) or employee group to organize any such employees, except to the extent it, individually or in the aggregate, has not had and could not reasonably be expected to have a Company Material Adverse Effect. (b) Except as set forth in the Company Disclosure Letter, or except to the extent the following, individually or in the aggregate, have not had and could not reasonably be expected to have a Company Material Adverse Effect, (A) there is no unfair labor practice, employment discrimination or other charge, claim, suit, action or proceeding against the Company or any of the Company Subsidiaries pending, or to the knowledge of the Company, threatened before any court, governmental department, commission, agency, instrumentality or authority or any arbitrator and (B) there is no strike, lockout or material dispute, slowdown or work stoppage pending or, to the knowledge of the Company, threatened against or involving the Company. SECTION 3.19. Operations of Nuclear Power Plants. Except as set forth in the Filed Company SEC Documents or in the Company Disclosure Letter, (a) the operations of the nuclear generation stations (collectively, the "Company 31 Nuclear Facilities") currently or formerly owned, in whole or part, by the Company or any of its affiliates are and have been conducted in compliance with all Applicable Laws and Company Permits, except for such failures to comply that, individually or in the aggregate, have not had and could not reasonably be expected to have a Company Material Adverse Effect, (b) each of the Company Nuclear Facilities maintains, and is in compliance with, (i) emergency plans designed to respond to an unplanned Release therefrom of radioactive materials, (ii) plans for the decommissioning of each of the Company Nuclear Facilities, (iii) plans for the storage and disposal of spent nuclear fuel, and each such plan enumerated in (i) through (iii) conform with the requirements of Applicable Law, and (c) the Company has funded consistent with reasonable budget projections the current or future decommissioning of each Company Nuclear Facility and the storage and disposal of spent nuclear fuel. SECTION 3.20. Parent Share Ownership. Neither the Company nor any Company Subsidiary owns any shares of Parent Capital Stock or other securities convertible into Parent Capital Stock. SECTION 3.21. Regulation as a Utility. ComEd is regulated as a public utility by the State of Illinois. Commonwealth Edison Company of Indiana, Inc., an Indiana corporation, is regulated as a public utility by the State of Indiana and by no other state. Except as set forth in the previous sentence, neither the Company nor any "subsidiary company" or "affiliate" of the Company is subject to regulation as a public utility or public service company (or similar designation) by any other state in the United States or any foreign country. The Company and ComEd are public utility holding companies as defined by PUHCA, but currently claim exemptions from registration under PUHCA under Sections 3(a)(1) and 3(a)(2), respectively, of PUHCA pursuant to orders of the SEC issued thereunder. SECTION 3.22. Contracts; No Default. Except as disclosed in the Filed Company SEC Documents or entered into after the date of this Agreement without violating any covenant of this Agreement, there are no contracts or agreements that are material to the business, properties, assets, condition (financial or otherwise), results of operations or prospects of the Company and the Company Subsidiaries taken as a whole. Neither the Company nor any of the Company Subsidiaries is in violation of or in default under (nor does there exist any condition which upon the passage of time or the giving of notice would cause such a violation of or default under) any loan or credit agreement, note, bond, mortgage, indenture, lease, permit, concession, 32 franchise, license or any other contract, agreement, arrangement or understanding, to which it is a party or by which it or any of its properties or assets is bound, except for violations or defaults that have not had and could not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect. SECTION 3.23. Title to Properties. Except as set forth in the Company Disclosure Letter each of the Company and each of the Company Subsidiaries has good and sufficient title to its physical properties and assets, or valid leasehold interests, easements or other appropriate interests therein or thereto sufficient to conduct its business as presently conducted or intended to be conducted, except for such as are no longer used or useful in the conduct of its businesses or as have been disposed of in the ordinary course of business and except for Liens, defects in title, easements, restrictive covenants and similar encumbrances or impediments set forth in the Company Disclosure Letter or that, in the aggregate, do not and will not materially interfere with its ability to conduct its business as currently conducted or intended to be conducted. SECTION 3.24. Intellectual Property. The Company and the Company Subsidiaries own, or are validly licensed or otherwise have the right to use, all patents, patent rights, trademarks, trademark rights, trade names, trade name rights, service marks, service mark rights, copyrights and other proprietary intellectual property rights and computer programs (collectively, "Intellectual Property Rights") which are material to the conduct of the business of the Company and the Company Subsidiaries, taken as a whole. Except as set forth in the Company Disclosure Letter, no claims are pending or, to the knowledge of the Company, threatened that the Company or any of the Company Subsidiaries is infringing or otherwise adversely affecting the rights of any person with regard to any Intellectual Property Right. To the knowledge of the Company, except as set forth in the Company Disclosure Letter, no person is infringing the rights of the Company or any of the Company Subsidiaries with respect to any Intellectual Property Right except as has not had and could not reasonably be expected to have a Company Material Adverse Effect. Section 3.25. Hedging. Except as set forth in the Company Disclosure Letter, none of the Company or the Company Subsidiaries engages in any natural gas, electricity or other futures or options trading or is a party to any price swaps, hedges, futures or similar instruments, except for transactions and agreements entered into, or hedge contracts, for the purchase or sale of electricity or 33 hydrocarbons to which the Company or any Company Subsidiary is a party that are in accordance with the general practices of other similarly situated companies in the industry. Section 3.26. Regulatory Proceedings. Except as set forth in the Company Disclosure Letter, and other than fuel adjustment or purchase gas adjustment or similar adjusting rate mechanisms, none of the Company or the Company Subsidiaries all or part of whose rates or services are regulated by a Governmental Entity (a) is a party to any rate proceeding before a Governmental Entity that would reasonably be expected to result in orders having a Company Material Adverse Effect or (b) has rates that have been or are being collected subject to refund, pending final resolution of any rate proceeding pending before a Governmental Entity or on appeal to a court. ARTICLE IV Representations and Warranties of Parent and Newco Parent and Newco, jointly and severally, represent and warrant to the Company as follows: SECTION 4.01. Organization, Standing and Power. Each of Parent and each of its subsidiaries, including Newco (the "Parent Subsidiaries"), is duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is organized and has full corporate power and authority and possesses all governmental franchises, licenses, permits, authorizations and approvals necessary to enable it to own, lease or otherwise hold its properties and assets and to conduct its businesses as conducted as of the date of this Agreement, other than such franchises, licenses, permits, authorizations and approvals the lack of which, individually or in the aggregate, has not had and could not reasonably be expected to have a Material Adverse Effect on Parent (a "Parent Material Adverse Effect"). Parent and each Parent Subsidiary is duly qualified to do business in each jurisdiction where the nature of its business or their ownership or leasing of its properties make such qualification necessary, other than such qualifications the lack of which, individually or in the aggregate, has not had and could not reasonably be expected to have a Parent Material Adverse Effect. Parent has made available to the Company true and complete copies of the amended and restated articles of incorporation of Parent, as amended to the date of this Agreement (as so amended, the "Parent Charter"), and the By-laws of Parent, as amended to the date of this Agreement (as so amended, the 34 "Parent By-laws"), and the comparable charter or organizational documents of Newco and each other Parent Subsidiary, in each case as amended through the date of this Agreement. SECTION 4.02. Parent Subsidiaries; Equity Interests. (a) The letter, dated as of the date of this Agreement, from Parent to the Company (the "Parent Disclosure Letter") lists each Parent Subsidiary and its jurisdiction of organization and specifies each of the Parent Subsidiaries that is, and as of the date of this Agreement AmerGen (as hereinafter defined is not), (i) a "public-utility company", a "holding company", a "subsidiary company", an "affiliate" of any public-utility company, an "exempt wholesale generator" or a "foreign utility company" within the meaning of Section 2(a)(5), 2(a)(7), 2(a)(8), 2(a)(11), 32(a)(1) or 33(a)(3) of PUHCA, respectively, (ii) a "public utility" within the meaning of Section 201(e) of the Power Act or (iii) a "qualifying facility" within the meaning of PURPA, or that owns such a qualifying facility. All the outstanding shares of capital stock of each Parent Subsidiary have been validly issued and are fully paid and nonassessable and, except as set forth in Parent Disclosure Letter, are owned by Parent, by another Parent Subsidiary or by Parent and another Parent Subsidiary, free and clear of all Liens. (b) Except for its interests in Parent Subsidiaries and except for the ownership interests set forth in Parent Disclosure Letter or interests acquired after the date of this Agreement without violating any covenant of this Agreement, Parent does not own, directly or indirectly, any capital stock, membership interest, partnership interest, joint venture interest or other equity interest with a fair market value as of the date of this Agreement in excess of $500,000 in any person, as reasonably determined by Parent. (c) Since the date of its incorporation, Newco has not carried on any business or conducted any operations other than the execution of this Agreement, the performance of its obligations hereunder and thereunder and matters ancillary thereto. As of the date of this Agreement, Newco has no material assets or liabilities. SECTION 4.03. Capital Structure. (a) The authorized capital stock of Parent consists of 500,000,000 shares of Parent Common Stock and shares of pre ferred stock as set forth in the Parent Disclosure Letter (the "Parent Preferred Stock" and, together with the Parent Common Stock, the "Parent Capital Stock"). At the close of 35 business on August 31, 1999, (i) 203,392,956 shares of Parent Common Stock were issued and outstanding and shares of Parent Preferred Stock were issued and outstanding as set forth in the Parent Disclosure Letter, (ii) 38,721,900 shares of Parent Common Stock were held by Parent in its treasury and (iii) 5,800,841 shares of Parent Common Stock were subject to outstanding Parent Employee Stock Options (as defined in Section 6.04) and 5,166,533 additional shares of the Parent Common Stock were reserved for issuance pursuant to Parent Stock Plans (as defined in Section 6.04). (b) Except as set forth in clause (a) of this Section 4.03 or in the Parent Disclosure Letter, at the close of business on August 31, 1999, no shares of capital stock or other voting securities of Parent were issued, reserved for issuance or outstanding. (c) All outstanding shares of Parent Capital Stock are, and all such shares that may be issued prior to the Merger Effective Time will be when issued, duly authorized, validly issued, fully paid and nonassessable and not subject to or issued in violation of any purchase option, call option, right of first refusal, preemptive right, subscription right or any similar right under any provision of the PBCL, the Parent Charter, the Parent By- laws or any Contract to which Parent is a party or otherwise bound. (d) There are not any bonds, debentures, notes or other indebtedness of Parent having the right to vote (or convertible into, or exchangeable for, securities having the right to vote) on any matters on which holders of Parent Common Stock may vote ("Voting Parent Debt"). (e) Except as set forth in clause (a) of this Section 4.03 or in the Parent Disclosure Letter, as of the date of this Agreement, there are not any options, warrants, rights, convertible or exchangeable securities, "phantom" stock rights, stock appreciation rights, stock-based performance units, commitments, Contracts, arrangements or undertakings of any kind to which Parent or any Parent Subsidiary is a party or by which any of them is bound (i) obligating Parent or any Parent Subsidiary to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of capital stock or other equity interests in, or any security convertible or exercisable for or exchangeable into any capital stock of or other equity interest in, Parent or of any Parent Subsidiary or any Voting Parent Debt or (ii) obligating Parent or any Parent Subsidiary to issue, grant, extend or enter into any such 36 option, warrant, call, right, security, commitment, Contract, arrangement or undertaking. (f) As of the date of this Agreement, except as described in the Parent Disclosure Letter, there are not any outstanding contractual obligations of Parent or any Parent Subsidiary to repurchase, redeem or otherwise acquire any shares of capital stock of Parent or any Parent Subsidiary. (g) The authorized capital stock of Newco consists of 500,000,000 shares of common stock, no par value, 100,000,000 shares of preferred stock, no par value, and 100,000,000 shares of series preference stock, no par value, of which only 100 shares of common stock have been validly issued, are fully paid and nonassessable and are owned by Parent free and clear of any Lien. SECTION 4.04. Authority; Execution and Delivery; Enforceability. (a) Each of Parent and Newco has all requisite corporate power and authority to execute and deliver this Agreement and to consummate the Transactions. The execution and delivery by each of Parent and Newco of this Agreement and the consummation by it of the Transactions have been duly authorized by all necessary corporate action on the part of Parent and Newco, subject (i) in the case of the Merger and the Share Issuance, to receipt of the Parent Shareholder Approval (as defined in Section 4.04(c)) and (ii) adoption by Parent, as sole shareholder of Newco, of this Agreement. Each of Parent and Newco has duly executed and delivered this Agreement, and this Agreement constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms. (b) The Board of Directors of Parent (the "Parent Board"), at a meeting duly called and held, duly and unanimously adopted resolutions (i) approving this Agreement, the Merger, the Share Issuance and the other Transactions, (ii) determining that the terms of the Merger, the Share Issuance and the other Transactions are fair to and in the best interests of Parent and its shareholders and (iii) directing that this Agreement be submitted to a vote of Parent's shareholders and recommending that they adopt this Agreement and approve the Share Issuance. Such resolutions are sufficient to render inapplicable to this Agreement, the Merger, the Share Issuance and the other Transactions, to the extent otherwise applicable, the provisions of Subchapters D (Section 2538), E, F, G, H, I and J of Chapter 25 of the PBCL and (ii) the provisions of Sections 508 and 509 of the Parent Charter. To Parent's knowledge, no other state takeover statute or similar 37 statute or regulation applies or purports to apply to Parent or Newco with respect to this Agreement, the Merger, the Share Issuance or any other Transaction. (c) The only vote of holders of any class or series of Parent securities necessary to approve and adopt this Agreement, the Merger, the Share Issuance and the other Transactions is the adoption of this Agreement by the affirmative vote of a majority of the votes cast by all holders of Parent Common Stock entitled to vote (collec tively, the "Parent Shareholder Approval"). The affirmative vote of the holders of Parent Capital Stock, or any of them, is not necessary to consummate any Transaction other than the Share Issuance and the Merger. SECTION 4.05. No Conflicts; Consents. (a) Except as set forth in the Parent Disclosure Letter, the execution and delivery by each of Parent and Newco of this Agreement does not, and the consummation of the Merger, the Share Issuance and the other Transactions and compliance with the terms hereof and thereof will not, conflict with, or result in any violation of or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, consent, approval, cancelation or acceleration of any obligation or to loss of a material benefit under, or to increased, additional, accelerated or guaranteed rights or entitlements of any person under, or result in the creation of any Lien upon any of the properties or assets of Parent or any Parent Subsidiary under, any provision of (i) Parent Charter, Parent By-laws or the comparable charter or organizational documents of any Parent Subsidiary, (ii) any Contract to which Parent or any Parent Subsidiary is a party or by which any of their respective properties or assets is bound or (iii) subject to the filings and other matters referred to in Section 4.05(b), any Judgment or Applicable Law or writ, permit or license applicable to Parent or any Parent Subsidiary or their respective properties or assets (other than immaterial consents, approvals, licenses, permits, orders, authorizations, registrations, declarations or filings, including with respect to communications systems, zoning, name changes, occupancy and similar routine regulatory approvals), other than, in the case of clauses (ii) and (iii) above, any such items that, individually or in the aggregate, have not had and could not reasonably be expected to have a Parent Material Adverse Effect. (b) No Consent of, action by or in respect of, or registration, declaration or filing with, or notice to, any Governmental Entity is required to be obtained or made by or with respect to Parent or any Parent Subsidiary in 38 connection with the execution, delivery and performance of this Agreement or the consummation of the Transactions, other than (i) compliance with and filings under the HSR Act, (ii) the filing with the SEC of (A) the Form S-4 and the Proxy Statement and (B) such reports under the Exchange Act, as may be required in connection with this Agreement, the Merger and the other Transactions, (iii) the filing of the Articles of Exchange, Pennsylvania Articles of Merger and the Charter Amendment with the Department of State of the Commonwealth of Pennsylvania, the filing of the Illinois Articles of Merger with, and issuance of a certificate of merger by, the Secretary of State of the State of Illinois and the filing of appropriate documents with the relevant authorities of the other jurisdictions in which the Company is qualified to do business, (iv) notice to, and the consent and approval of, FERC under the Power Act, (v) notice to, and the consent and approval of, the NRC under the Atomic Energy Act, (vi) notice to and the consent and approval of the Pennsylvania Public Utility Commission (the "PPUC"), (vii) the consents, filings and approvals required under PUHCA, (viii) compliance with and such filings as may be required under applicable Environmental Laws, (ix) such filings as may be required in connection with the taxes described in Section 6.09 and (x) such other items as are set forth in the Parent Disclosure Letter (collectively, whether or not legally required to be obtained, the "Parent Required Statutory Approvals"). SECTION 4.06. SEC Documents; Undisclosed Liabilities. Parent has filed all reports, schedules, forms, statements and other documents required to be filed by Parent with the SEC since January 1, 1998 (the "Parent SEC Documents"). Each Parent SEC Document complied in all material respects as of its respective date with the requirements of the Exchange Act or the Securities Act, as the case may be, and the rules and regulations of the SEC promulgated thereunder applicable to such Parent SEC Document, and except to the extent that information contained in any Parent SEC Document has been revised or superseded by a later filed Parent SEC Document, does not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The consolidated financial statements of Parent included in the Parent SEC Documents comply as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto, have been prepared in accordance with GAAP (except, in the case of unaudited statements, as permitted by Form 10-Q of the SEC) applied on a consistent 39 basis during the periods involved (except as may be indicated in the notes thereto) and fairly present the consolidated financial position of Parent and its consolidated subsidiaries as of the dates thereof and the consolidated results of their operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments). Except as set forth in the Filed Parent SEC Documents (as defined in Section 4.08) or the Parent Disclosure Letter or incurred after the date hereof in the usual, regular and ordinary course of business in substantially the same manner as previously conducted and not prohibited by this Agreement, neither Parent nor any Parent Subsidiary has any liabilities or obligations of any nature (whether accrued, absolute, contingent or otherwise) required by GAAP to be set forth on a consolidated balance sheet of Parent and its consolidated subsidiaries or in the notes thereto and that, individually or in the aggregate, could reasonably be expected to have a Parent Material Adverse Effect. None of the Parent Subsidiaries is, or has at any time since January 1, 1998 been, subject to the reporting requirements of Sections 13(a) and 15(d) of the Exchange Act. SECTION 4.07. Information Supplied. None of the information supplied or to be supplied by Parent or Newco for inclusion or incorporation by reference in (i) the Form S-4 will, at the time the Form S-4 is filed with the SEC, at any time it is amended or supplemented or at the time it becomes effective under the Securities Act, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, or (ii) the Proxy Statement will, at the date it is first mailed to the Company's shareholders or Parent's shareholders or at the time of the Company Shareholders Meeting or the Parent Shareholders Meeting, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. The Form S-4 will comply as to form in all material respects with the requirements of the Securities Act and the rules and regulations thereunder, except that no representation is made by Parent or Newco with respect to statements made or incorporated by reference therein based on information supplied by or on behalf of the Company for inclusion or incorporation by reference therein. SECTION 4.08. Absence of Certain Changes or Events. Except as disclosed in the Parent SEC Documents filed and publicly available prior to the date of this 40 Agreement (the "Filed Parent SEC Documents") or in the Parent Disclosure Letter: (a) since December 31, 1998, there has not been any event, change, effect or development that, individually or in the aggregate, has had or could reasonably be expected to have a Parent Material Adverse Effect, other than events, changes, effects and developments relating to the economy in general or to Parent's industry in general and not specifically relating to Parent or any Parent Subsidiary; and (b) from December 31, 1998 to the date of this Agreement, Parent has conducted its business only in the ordinary course, and during such period there has not been: (i) any declaration, setting aside or payment of any dividend or other distribution (whether in cash, stock or property) with respect to any Parent Capital Stock or any repurchase for value by Parent of any Parent Capital Stock; (ii) any split, combination or reclassification of any Parent Capital Stock or any issuance or the authorization of any issuance of any other securities in respect of, in lieu of or in substitution for shares of Parent Capital Stock; or (iii) any change in accounting methods, principles or practices by Parent or any Parent Subsidiary materi ally affecting the consolidated assets, liabilities or results of operations of Parent, except insofar as may have been required by a change in GAAP. SECTION 4.09. Taxes. (a) Each of Parent and each Parent Subsidiary has timely filed, or has caused to be timely filed on its behalf, all Tax Returns required to be filed by it (or requests for extensions to file such Tax Returns have been timely filed and granted and have not expired), and all such Tax Returns are true, complete and accurate, except to the extent any failure to file or any inaccuracies in any filed Tax Returns would not, individually or in the aggregate, have a Parent Material Adverse Effect. All Taxes shown to be due on such Tax Returns, or otherwise owed by Parent or any Parent Subsidiary, have been timely paid, except to the extent that any failure to pay, individually or in the aggregate, has not had and could not reasonably be expected to have a Parent Material Adverse Effect. 41 (b) Except as set forth in the Parent Disclosure Letter, the most recent financial statements contained in the Filed Parent SEC Documents reflect an adequate reserve for all current Taxes payable by Parent and the Parent Subsidiaries (in addition to any reserve for deferred Taxes established to reflect timing differences between book and Tax income) for all Taxable periods and portions thereof through the date of such financial statements. Except as set forth in the Parent Disclosure Letter, no deficiency with respect to any Taxes has, to the best knowledge of Parent, been proposed, asserted or assessed against Parent or any Parent Subsidiary, and no requests for waivers of the time to assess any such Taxes are pending, except to the extent any such deficiency or request for waiver, individually or in the aggregate, has not had and could not reasonably be expected to have a Parent Material Adverse Effect. (c) The Federal income Tax Returns of Parent and each Parent Subsidiary consolidated in such Returns have been examined by and settled with the United States Internal Revenue Service for all years through 1990. Except as set forth in the Parent Disclosure Letter, all material assessments for Taxes due with respect to such completed and settled examinations or any concluded litigation have been fully paid. (d) There are no material Liens for Taxes (other than for current Taxes not yet due and payable) on the assets of Parent or any Parent Subsidiary. Except as set forth in the Parent Disclosure Letter, neither Parent nor any Parent Subsidiary is bound by any agreement with respect to Taxes. (e) The Parent and each Parent Subsidiary have complied with all applicable statutes, laws, ordinances, rules and regulations relating to the payment and withholding of taxes (including withholding of taxes pursuant to Sections 1441, 1442, 3121 and 3402 of the Code or similar provisions under any Federal, state or local laws, domestic and foreign) and have, within the time and in the manner prescribed by law, withheld from and paid over to the proper governmental authorities all amounts required to be so withheld and paid over under applicable laws, except to the extent that any failure to withhold or to pay, individually or in the aggregate, has not had and could not reasonably be expected to have a Parent Material Adverse Effect. (f) Parent knows of no fact and neither Parent nor any Parent Subsidiary has taken or agreed to take any 42 action that could reasonably be expected to prevent (i) the Merger from constituting transactions described in Section 351 of the Code or (ii) the Second Step Merger from constituting a transaction described in Section 368(a) of the Code. SECTION 4.10. Absence of Changes in Benefit Plans. Except as disclosed in the Parent Disclosure Letter, from December 31, 1998 to the date of this Agreement, there has not been any adoption or amendment in any material respect by Parent or any Parent Subsidiary of (a) any collective bargaining agreements, (b) any bonus, pension, profit sharing, deferred compensation, incentive compensation, stock ownership, stock purchase, stock option, phantom stock, retirement, vacation, severance, disability, death benefit, hospitalization, medical or other plan, program, policy, arrangement or understanding (whether or not legally binding) providing benefits to any current or former employee, officer or director of Parent or any Parent Subsidiary or any beneficiary or dependent thereof, that is sponsored or maintained by Parent or any Parent Subsidiary or to which Parent or any Parent Subsidiary contributes or is obligated to contribute (collectively, "Parent Benefit Plans") or (c) any Parent Employment Arrangements (as defined herein). Except as disclosed in the Parent Disclosure Letter, as of the date of this Agreement there are not any employment, consulting, indemnification, change- of-control, severance or termination agreements or arrangements between Parent or any Parent Subsidiary and any current or former employee, officer or director of the Parent or any Parent Subsidiary (collectively, the "Parent Employment Arrangements"). SECTION 4.11. ERISA Compliance; Excess Parachute Payments. (a) The Parent Disclosure Letter includes a complete list of all material Parent Benefit Plans and Parent Employment Arrangements as of the date of this Agreement. With respect to each Parent Benefit Plan (other than a multiemployer plan within the meaning of Section 4001(a)(3) of ERISA) and Parent Employment Arrangement, Parent has delivered to the Company true, complete and correct copies of (i) each such Parent Benefit Plan or Parent Employment Arrangement (or, in the case of any unwritten plan or arrangement, a description thereof), (ii) the most recent annual report on the applicable Form 5500 series filed with the Internal Revenue Service (if any such report was required), including all schedules and attachments thereto, (iii) the most recent summary plan description (if a summary plan description is required) and all summaries of material modifications thereto, (iv) each trust agreement, group annuity contract or other funding 43 vehicle relating to any such Parent Benefit Plan or Parent Employment Arrangement, (v) the most recent actuarial report or valuation relating thereto and (vi) the most recent determination letters issued by the Internal Revenue Service with respect to Parent Benefit Plans that are intended to be Qualified Plans and letters of recognition of exemption with respect to any Parent Benefit Plan or related trust that is intended to meet the requirements of Section 501(c)(9) of the Code. (b) With respect to the Parent Benefit Plans and Parent Employment Arrangements, individually and in the aggregate, no event has occurred and, to the knowledge of Parent, there exists no condition or set of circumstances, in connection with which Parent or any Parent Subsidiary could be subject to any liability that has had or could reasonably be expected to have a Parent Material Adverse Effect (except liability for benefits claims and funding obligations payable in the ordinary course) under ERISA, the Code or any other applicable law. For purposes of this Section 4.11(b), the term "Parent Benefit Plan" shall also include any employee benefit plan within the meaning of Section 3(3) of ERISA that, within the last six years, was sponsored or maintained by any entity which would be treated under Section 414 of the Code as a single employer with Parent or any Parent Subsidiary or to which any such entity contributed or was obligated to contribute. (c) Each Parent Benefit Plan and each Parent Employment Arrangement has been administered in accordance with its terms except for any failures so to administer any Parent Benefit Plan or Parent Employment Arrangement as have not had and could not reasonably be expected to have, individually or in the aggregate, a Parent Material Adverse Effect. Parent, all Parent Subsidiaries and all the Parent Benefit Plans and Parent Employment Arrangements are in compliance with the applicable provisions of ERISA, the Code and all other applicable laws and the rules and regulations thereunder and the terms of all applicable collective bargaining agreements, except for any failures to be in such compliance as have not had and could not reasonably be expected to have, individually or in the aggregate, a Parent Material Adverse Effect. Except as disclosed in the Parent Disclosure Letter, there are no pending or, to the knowledge of Parent, threatened or anticipated claims under or with respect to any Parent Benefit Plan or Parent Employment Arrangement by or on behalf of any current or former employee, officer or director, or dependent or beneficiary thereof, or otherwise (other than routine claims for benefits). 44 (d) Except as disclosed in the Parent Disclosure Letter, (i) no current or former employee, officer or director of Parent or any Parent Subsidiary will be entitled to any additional rights or benefits or any acceleration of the time of payment or vesting of any benefits under any Parent Benefit Plan or Parent Employment Arrangement, and no trustee under any "rabbi trust", or similar arrangement maintained in connection with any Parent Benefit Plan or Parent Employment Arrangement will be entitled to any payment, as a result (either alone or upon the occurrence of any additional or further acts or events) of the execution of this Agreement or the consummation, announcement or other actions relating to the Transactions and (ii) no amount payable to any current or former employee, officer or director of Parent or any Parent Subsidiary will fail to be deductible by reason of Section 280G of the Code. (e) Each Parent Benefit Plan intended to be a Qualified Plan has received a favorable determination letter from the Internal Revenue Service that it is so qualified and nothing has occurred since the date of such letter that could reasonably be expected to affect the qualified status of such Parent Benefit Plan. (f) The aggregate accumulated benefit obligations of each Parent Benefit Plan subject to Title IV of ERISA (as of the date of the most recent actuarial valuation prepared for such Parent Benefit Plan) do not exceed the fair market value of the assets of such plan (as of the date of such valuation). (g) All contributions and other payments required to have been made for any completed historical period by Parent or any Parent Subsidiary to any Parent Benefit Plan or Parent Employment Arrangement (or to any person pursuant to the terms thereof) have been timely made or paid in full, or, to the extent not required to be made or paid for such period, have been reflected in the consolidated financial statements of Parent. (h) Except as disclosed in the Parent Disclosure Letter, no Parent Benefit Plan is a multiemployer plan within the meaning of Section 4001(a)(3) of ERISA, and none of Parent or any Parent Subsidiary has, at any time during the last six years, contributed to or been obligated to contribute to any such multiemployer plan. For purposes of the representations and warranties made in the last sentence of Section 4.11(c) and in Sections 4.11 (e) and (f), the term "Parent Benefit Plan" shall be deemed to exclude any such multiemployer plan. 45 SECTION 4.12. Litigation. Except as disclosed in the Filed Parent SEC Documents or in the Parent Disclosure Letter, there is no suit, action or proceeding pending or, to the knowledge of Parent, threatened against Parent or any Parent Subsidiary that, individually or in the aggregate, has had or could reasonably be expected to have a Parent Material Adverse Effect, nor is there any Judgment outstanding against Parent or any Parent Subsidiary that has had or could reasonably be expected to have a Parent Material Adverse Effect. SECTION 4.13. Compliance with Applicable Laws; Permits. (a) Except as disclosed in the Filed Parent SEC Documents or in the Parent Disclosure Letter, Parent and Parent Subsidiaries are in compliance with the terms of all applicable Parent Permits (as defined in Section 4.13(b)) and all Applicable Laws, except for instances of noncompliance that, individually and in the aggregate, have not had and could not reasonably be expected to have a Parent Material Adverse Effect. This Section 4.13 does not relate to matters with respect to Taxes, which are the subject of Section 4.09, Environmental Laws, which are the subject of Section 4.17, benefits plans, which are the subject of Section 4.11 and the operation of nuclear power plants which are the subject of Section 4.19. (b) Except as disclosed in the Filed Parent SEC Documents or in the Parent Disclosure Letter, Parent and the Parent Subsidiaries own or have sufficient rights and consents to use under existing franchises, permits, easements, leases, and license agreements (the "Parent Permits") all properties, rights and assets necessary for the conduct of their business and operations as currently conducted, except where the failure to own or have sufficient rights to such properties, rights and assets, individually or in the aggregate, have not had and could not reasonably be expected to have a Parent Material Adverse Effect. Except as provided in the Pennsylvania Electricity Generation Customer Choice and Competition Act of 1996 (the "Pennsylvania Competition Act"), to the knowledge of Parent, no other private corporation can commence electric public utility operations in any part of the respective territories now served by Parent or any Parent Subsidiary, without obtaining a certificate of public convenience and necessity from the applicable state utility commission. SECTION 4.14. Brokers; Schedule of Fees and Expenses. No broker, investment banker, financial advisor or other person, other than Salomon Smith Barney Inc. and Morgan Stanley & Company Incorporated, the fees and expenses of which will be paid by Parent, is entitled to any 46 broker's, finder's, financial advisor's or other similar fee or commission in connection with the Merger and the other Transactions based upon arrangements made by or on behalf of Parent or Newco. SECTION 4.15. Opinions of Financial Advisors. Parent has received the opinions of Salomon Smith Barney Inc. and Morgan Stanley & Company Incorporated, dated as of January 7, 2000, to the effect that, as of such date, the Exchange Consideration is fair to the holders of Parent Common Stock from a financial point of view, signed copies of which opinions have been delivered to the Company. SECTION 4.16. Year 2000. The Parent SEC Documents fairly summarize the status of Parent's computer applications and components, modification or readiness plan, communications with suppliers and vendors, contingency plans and estimated cost of remediation as they relate to the Year 2000 issue. Parent has made available to the Company copies of all correspondence between Parent and its third party suppliers and vendors concerning their Year 2000 compliance. SECTION 4.17. Environmental Matters. (a) Compliance. Except as set forth in the Filed Parent SEC Documents or in the Parent Disclosure Letter, Parent and each of the Parent Subsidiaries is and has been in compliance with all applicable Environmental Laws, except where the failure to so comply, individually or in the aggregate, has not had and could not reasonably be expected to have a Parent Material Adverse Effect. (b) Environmental Permits. Except as set forth in the Filed Parent SEC Documents or in the Parent Disclosure Letter, (i) Parent and each of the Parent Subsidiaries has obtained or has applied for all Environmental Permits necessary for the construction of their facilities or the conduct of their operations, except where the failure to so obtain, individually or in the aggregate, has not had and could not reasonably be expected to have a Parent Material Adverse Effect, and (ii) all such Environmental Permits are in good standing or, where applicable, a renewal application has been timely filed and is pending agency approval, except where the failure of such Environmental Permits to be in good standing or to have filed a renewal application on a timely basis has not had and could not reasonably be expected to have, individually or in the aggregate, a Parent Material Adverse Effect. (c) Environmental Claims. Except as set forth in the Filed Parent SEC Documents or in the Parent Disclosure Letter, there are no Environmental Claims that have had or 47 could reasonably be expected to have, individually or in the aggregate, a Parent Material Adverse Effect, pending or, to the knowledge of Parent, threatened against Parent or any of the Parent Subsidiaries. (d) Releases. Except as set forth in the Filed Parent SEC Documents or in the Parent Disclosure Letter, there have been no Releases of any Hazardous Materials that could be reasonably likely to form the basis of any Environ mental Claim against Parent or any of the Parent Subsidiaries, except for any Environmental Claim which, individually or in the aggregate, has not had and could not reasonably be expected to have a Parent Material Adverse Effect. (e) Assumed and Retained Liabilities. Except as disclosed in the Filed Parent SEC Documents or in the Parent Disclosure Letter, none of Parent or the Parent Subsidiaries has retained or assumed either contractually or by operation of law any liabilities or obligations that could reasonably be likely to form the basis for any Environmental Claim, which has had and could reasonably be expected to have, individually or in the aggregate, a Parent Material Adverse Effect. SECTION 4.18. Labor and Employee Relations. (a) Except as set forth in the Parent Disclosure Letter, (i) neither Parent nor any of the Parent Subsidiaries is a party to any collective bargaining agreement or other labor agreement with any union or labor organization and (ii) to the knowledge of Parent, there is no current union representation question involving employees of Parent or any of the Parent Subsidiaries, nor does Parent have knowledge of any activity or proceeding of any labor organization (or representative thereof) or employee group to organize any such employees, except to the extent it, individually or in the aggregate, has not had and could not reasonably be expected to have a Parent Material Adverse Effect. (b) Except as set forth in the Parent Disclosure Letter, or except to the extent the following, individually or in the aggregate, have not had and could not reasonably be expected to have a Parent Material Adverse Effect, (A) there is no unfair labor practice, employment discrimination or other charge, claim, suit, action or proceeding against Parent or any of the Parent Subsidiaries pending, or to the knowledge of Parent, threatened before any court, governmental department, commission, agency, instrumentality or authority or any arbitrator and (B) there is no strike, lockout or material dispute, slowdown or work 48 stoppage pending or, to the knowledge of Parent, threatened against or involving Parent. SECTION 4.19. Operations of Nuclear Power Plants. (a) Except as set forth in the Filed Parent SEC Documents or in the Parent Disclosure Letter, (a) the operations of the nuclear generation stations (collectively, the "Parent Nuclear Facilities") currently or formerly owned, in whole or part, by Parent or any of its affiliates are and have been conducted in compliance with all Applicable Laws and Parent Permits, except for such failures to comply that, individually or in the aggregate, have not had and could not reasonably be expected to have a Parent Material Adverse Effect, (b) each of the Parent Nuclear Facilities maintains, and is in compliance with, (i) emergency plans designed to respond to an unplanned Release therefrom of radioactive materials, (ii) plans for the decommissioning of each of the Parent Nuclear Facilities, (iii) plans for the storage and disposal of spent nuclear fuel, and each such plan enumerated in (i) through (iii) conform with the requirements of Applicable Law, and (c) Parent has funded consistent with reasonable budget projections the current or future decommissioning of each Parent Nuclear Facility and the storage and disposal of spent nuclear fuel. (b) To the best knowledge of Parent, recognizing that AmerGen does not as of the date of this Agreement, own, or hold any operating licenses for, nuclear generating stations, (i) the operations of the nuclear generation stations which are the subject of an existing purchase, operating or similar agreement by AmerGen or any of its affiliates or assignees (the "AmerGen Nuclear Facilities") are and have been conducted in compliance with all Applicable Laws and necessary permits of Governmental Entities, except for such failures to comply that, individually or in the aggregate, have not had and could not reasonably be expected to have a Parent Material Adverse Effect, (ii) each of the AmerGen Nuclear Facilities maintains, and is in compliance with, (A) emergency plans designed to respond to an unplanned Release therefrom of radioactive materials, (B) plans for the decommissioning of each of the AmerGen Nuclear Facilities and (C) plans for the storage and disposal of spent nuclear fuel, and each such plan enumerated in (A) through (C) conform with the requirements of Applicable Law, and (iii) the current owner has funded consistent with reasonable budget projections the current or future decommissioning of each AmerGen Nuclear Facility and the storage and disposal of spent nuclear fuel. (c) Parent hereby makes each of the representations and warranties contained in 49 Sections 4.05(a), 4.05(b), 4.12, 4.13 and 4.17 with respect to AmerGen, as if AmerGen were a Parent Subsidiary as defined in this Agreement, it being understood that the Company acknowledges and agrees that as of the date hereof AmerGen is not a subsidiary and therefore no representation or warranty is made concerning AmerGen or its business or operations except as expressly set forth in this Section 4.19(c) and the first sentence of Section 4.02(a) and Section 4.19(b), and each such representation and warranty pertaining to AmerGen is qualified to the best knowledge of Parent recognizing that AmerGen does not as of the date of this Agreement, own, or hold any operating licenses for, nuclear generating stations. SECTION 4.20. Company Share Ownership. Neither Parent nor any Parent Subsidiary owns any shares of Company Common Stock or other securities convertible into Company Common Stock. SECTION 4.21. Regulation as a Utility. Parent is regulated as a public utility by the Commonwealth of Pennsylvania and by no other state. Except as set forth in the previous sentence, neither Parent nor any "subsidiary company" or "affiliate" of Parent is subject to regulation as a public utility or public service company (or similar designation) by any other state in the United States or any foreign country. Parent is a public utility holding company as defined by PUHCA, but currently claims exemption under Section 3(a)(2) of PUHCA pursuant to orders of the SEC thereunder. SECTION 4.22. Contracts; No Default. Except as disclosed in the Filed Parent SEC Documents or entered into after the date of this Agreement without violating any covenant of this Agreement, there are no contracts or agreements that are material to the business, properties, assets, condition (financial or otherwise), results of operations or prospects of Parent and the Parent Subsidiaries taken as a whole. Neither Parent nor any of the Parent Subsidiaries is in violation of or in default under (nor does there exist any condition which upon the passage of time or the giving of notice would cause such a violation of or default under) any loan or credit agreement, note, bond, mortgage, indenture, lease, permit, concession, franchise, license or any other contract, agreement, arrangement or understanding, to which it is a party or by which it or any of its properties or assets is bound, except for violations or defaults that have not had and could not reasonably be expected to have, individually or in the aggregate, a Parent Material Adverse Effect. 50 SECTION 4.23. Title to Properties. Except as set forth in the Parent Disclosure Letter each of Parent and each of the Parent Subsidiaries has good and sufficient title to its physical properties and assets, or valid leasehold interests, easements or other appropriate interests therein or thereto sufficient to conduct its business as presently conducted or intended to be conducted, except for such as are no longer used or useful in the conduct of its businesses or as have been disposed of in the ordinary course of business and except for defects in title, easements, restrictive covenants and similar encumbrances or impediments set forth in the Parent Disclosure Letter or that, in the aggregate, do not and will not materially interfere with its ability to conduct its business as currently conducted or intended to be conducted. SECTION 4.24. Intellectual Property. Parent and the Parent Subsidiaries own, or are validly licensed or otherwise have the right to use, all Intellectual Property Rights which are material to the conduct of the business of Parent and the Parent Subsidiaries taken as a whole. Except as set forth in the Parent Disclosure Letter, no claims are pending or, to the knowledge of Parent, threatened that Parent or any of the Parent Subsidiaries is infringing or otherwise adversely affecting the rights of any person with regard to any Intellectual Property Right. To the knowledge of Parent, except as set forth in the Parent Disclosure Letter, no person is infringing the rights of Parent or any of the Parent Subsidiaries with respect to any Intellectual Property Right except as has not had and could not reasonably be expected to have a Parent Material Adverse Effect. Section 4.25. Hedging. Except as set forth in the Parent Disclosure Letter, none of Parent or the Parent Subsidiaries engages in any natural gas, electricity or other futures or options trading or is a party to any price swaps, hedges, futures or similar instruments, except for transactions and agreements entered into, or hedge contracts, for the purchase or sale of electricity or hydrocarbons to which Parent or any Parent Subsidiary is a party that are in accordance with the general practices of other similarly situated companies in the industry. Section 4.26. Regulatory Proceedings. Except as set forth in the Parent Disclosure Letter and other than fuel adjustment or purchase gas adjustment or similar adjusting rate mechanisms, none of Parent or the Parent Subsidiaries all or part of whose rates or services are regulated by a Governmental Entity (a) is a party to any rate proceeding before a Governmental Entity that would 51 reasonably be expected to result in orders having a Parent Material Adverse Effect or (b) has rates that have been or are being collected subject to refund, pending final resolution of any rate proceeding pending before a Governmental Entity or on appeal to a court. ARTICLE V Covenants Relating to Conduct of Business SECTION 5.01. Conduct of Business. (a) Conduct of Business by the Company. Except for matters set forth in the Company Disclosure Letter or otherwise expressly contemplated by this Agreement, from the date of this Agreement to the Merger Effective Time the Company shall, and shall cause each Company Subsidiary to, conduct its business in all material respects in the usual, regular and ordinary course in substantially the same manner as previously conducted and use reasonable best efforts to preserve intact its current business organization in all material respects, subject to prudent management of work force and business needs, keep available the services of its current officers and key employees and keep its relation ships with Governmental Entities, customers, suppliers, licensors, licensees, distributors and others having business dealings with them to the end that its goodwill and ongoing business shall be unimpaired in all material respects at the Merger Effective Time. In addition, and without limiting the generality of the foregoing, except for matters set forth in the Company Disclosure Letter or otherwise expressly contemplated by this Agreement, from the date of this Agreement to the Merger Effective Time, the Company shall not, and shall not permit any Company Subsidiary to, do any of the following without the prior written consent of Parent: (i) (A) declare, set aside or pay any dividends on, or make any other distributions in respect of, any of its capital stock, other than (1) dividends and distributions by a direct or indirect wholly owned subsidiary of the Company to its parent, (2) regular quarterly cash dividends with respect to the Company Common Stock, not in excess of $0.40 per share, in accordance with the Company's past dividend policy, and (3) regular cash dividends with respect to preferred stock of the Company or its subsidiaries in accordance with the current terms thereof, (B) split, combine or reclassify any of its capital stock or issue or author ize the issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital 52 stock, or (C) purchase, redeem or otherwise acquire any shares of capital stock of the Company or any Company Subsidiary or any other securities thereof or any rights, warrants or options to acquire any such shares or other securities; (ii) issue, deliver, sell or grant (A) any shares of its capital stock, (B) any Voting Company Debt or other voting securities, (C) any securities convertible into or exchangeable for, or any options, warrants or rights to acquire, any such shares, Voting Company Debt, voting securities or convertible or exchangeable securities or (D) any "phantom" stock, "phantom" stock rights, stock appreciation rights or stock-based performance units, other than (1) the issuance of Company Common Stock (and associated Company Rights) upon the exercise of Company Employee Stock Options outstanding on the date of this Agreement and in accordance with their present terms or pursuant to the terms of any Company Benefit Plan or Company Employment Arrangement as in effect on the date of this Agreement or as amended in accordance with or as permitted by its Agreement, (2) the issuance, subject to Section 5.01(a)(v), of up to an additional 5,000,000 Company Employee Stock Options pursuant to the Company Stock Plans in accordance with their present terms and the terms of the Company stock options issued in the ordinary course prior to the date of this Agreement and the issuance of Company Common Stock (and associated Company Rights) upon the exercise of such Company Employee Stock Options, (3) the issuance of "phantom" stock or "phantom" stock rights or, subject to Section 5.01(a)(v), stock appreciation rights or stock-based performance units, pursuant to the terms of any Company Benefit Plan or Company Employment Arrangement in effect on the date of this Agreement or as amended in accordance with or as permitted by this Agreement, and (4) the issuance of Company Common Stock upon the exercise of Company Rights; (iii) amend its certificate of incorporation, by- laws or other comparable charter or organizational documents, except for such amendments to its certificate of incorporation, by-laws and other comparable charter or organizational documents that do not have an adverse affect on the Merger and the other Transactions; (iv) acquire or agree to acquire (A) by merging or consolidating with, or by purchasing a substantial equity interest in or portion of the assets of, or by 53 any other manner, any business or any corporation, partnership, joint venture, association or other business organization or division thereof or (B) any assets that in either case are material, individually or in the aggregate, to the Company and the Company Subsidiaries, taken as a whole; (v) except to the extent required by Applicable Law or by the terms of any Company Benefit Plan, Company Employment Arrangement or collective bargaining agreement in effect as of the date of this Agreement, (A) grant to any current or former employee, officer or director of the Company or any Company Subsidiary any increase in compensation or benefits or new incentive compensation grants, except in the ordinary course of business consistent with prior practice, (B) grant to any current or former employee, officer or director of the Company or any Company Subsidiary any increase in severance, pay to stay or termination pay, except to the extent consistent with past practice and that, in the aggregate, does not result in a material increase in benefits or compensation expenses, (C) enter into or amend any Company Employment Arrangement with any such current or former employee, officer or director, except to the extent permitted in subsection (B) above, (D) establish, adopt, enter into or amend in any material respect any collective bargaining agreement or Company Benefit Plan, except, with respect to any Company Benefit Plan that is a Qualified Plan, as may be required to facilitate or obtain a determination from the Internal Revenue Service that such Company Benefit Plan is a Qualified Plan or (E) take or permit to be taken any action to accelerate any rights or benefits or the funding thereof, or make or permit to be made any material determinations not in the ordinary course of business consistent with prior practice, under any collective bargaining agreement, Company Benefit Plan or Company Employment Arrangement; provided, however, that notwithstanding anything herein to the contrary, the foregoing shall not restrict the Company or the Company Subsidiaries from (1) entering into or making available to newly hired officers and employees or to officers and employees in the context of promotions based on job performance or workplace requirements in the ordinary course of business consistent with past practice, plans, agreements, benefits and compensation arrangements (including incentive grants) that have, consistent with past practice, been made available to newly hired or promoted officers and employees, or (2) entering into or amending collective bargaining agreements with 54 existing collective bargaining representatives so as to increase compensation or benefits in a manner that does not materially increase the benefits or compensation expenses of the Company and the Company Subsidiaries; (vi) make any change in accounting methods, principles or practices materially affecting the reported consolidated assets, liabilities or results of operations of the Company, except as required by a change in GAAP; (vii) sell, lease (as lessor), license or otherwise dispose of or subject to any Lien any properties or assets that are material, individually or in the aggregate, to the Company and the Company Subsidiaries, taken as a whole, except sales of inventory and excess or obsolete assets in the ordinary course of business consistent with past practice; (viii) except in the ordinary course of business consistent with prior practice, (A) incur any indebtedness for borrowed money or guarantee any such indebtedness of another person, issue or sell any debt securities or warrants or other rights to acquire any debt securities of the Company or any Company Subsidiary, guarantee any debt securities of another person, enter into any "keep well" or other agreement to maintain any financial statement condition of another person or enter into any arrangement having the economic effect of any of the foregoing, in each case, other than in connection with a refinancing on commercially reasonable terms, or (B) make any loans, advances or capital contributions to, or investments in, any other person, other than to or in the Company or any direct or indirect wholly owned subsidiary of the Company; (ix) make or agree to make any new capital expenditure or expenditures other than as permitted under Section 5.01(a)(iv) that, individually, is in excess of $50,000,000 or, in the aggregate during such period, are in excess of $250,000,000, except to the extent made or agreed to be made in order to ensure compliance with the rules and regulations or an order of the NRC or any other Governmental Entity or to ensure compliance with the terms of any Permit; (x) make any material Tax election or settle or compromise any material Tax liability or refund; 55 (xi) engage in any activities which would cause a change in its status under PUHCA, or that would impair the ability of the Company or ComEd to claim an exemption as of right under Rule 2 of PUHCA prior to the Merger, other than the application to the SEC under PUHCA contemplated by this Agreement; (xii) enter into or commit to any agreement for the purchase of capacity and/or energy ("Power Purchase Agreement") except for any Power Purchase Agreement that, in the ordinary course of business, can be entered into without the prior approval of the Board of Directors or a committee thereof of the Company (the threshold for requiring submission to the board or a committee not to be made substantially higher than that in effect on the date hereof) unless the Company consults with Parent regarding such Power Purchase Agreement and the Company has obtained the prior written consent of Parent to such Power Purchase Agreement or such Power Purchase Agreement is fully compliant with criteria to which Parent has previously given a generic consent, in each case, which consent shall not be unreasonably withheld, it being understood that in such consultation process the Company and Parent shall comply with all Applicable Law and any applicable confidentiality or similar third party agreement; or (xiii) authorize any of, or commit or agree to take any of, the foregoing actions. (b) Conduct of Business by Parent. Except for matters set forth in Parent Disclosure Letter or otherwise expressly contemplated by this Agreement, from the date of this Agreement to the Merger Effective Time Parent shall, and shall cause each Parent Subsidiary to, conduct its business in all material respects in the usual, regular and ordinary course in substantially the same manner as previously conducted and use all reasonable efforts to preserve intact its current business organization in all material respects, subject to prudent management of work force and business needs, keep available the services of its current officers and employees and keep its relationships with Governmental Entities, customers, suppliers, licensors, licensees, distributors and others having business dealings with them to the end that its goodwill and ongoing business shall be unimpaired in all material respects at the Merger Effective Time. In addition, and without limiting the generality of the foregoing, except for matters set forth in the Parent Disclosure Letter or otherwise expressly contemplated by this Agreement, from the date of this 56 Agreement to the Merger Effective Time, Parent shall not, and shall not permit any Parent Subsidiary to, do any of the following without the prior written consent of the Company: (i) (A) declare, set aside or pay any dividends on, or make any other distributions in respect of, any of its capital stock, other than (1) dividends and distributions by a direct or indirect wholly owned subsidiary of Parent to its parent, (2) regular quarterly cash dividends with respect to the Parent Common Stock, not in excess of $0.25 per share, in accordance with Parent's past dividend policy and (3) regular cash dividends with respect to preferred stock of Parent or its subsidiaries in accordance with the current terms thereof, (B) split, combine or reclassify any of its capital stock or issue or author ize the issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock, or (C) purchase, redeem or otherwise acquire any shares of capital stock of Parent or any Parent Subsidiary or any other securities thereof or any rights, warrants or options to acquire any such shares or other securities; (ii) issue, deliver, sell or grant (A) any shares of its capital stock, (B) any Voting Parent Debt or other voting securities, (C) any securities convertible into or exchangeable for, or any options, warrants or rights to acquire, any such shares, Voting Parent Debt, voting securities or convertible or exchangeable securities or (D) any "phantom" stock, "phantom" stock rights, stock appreciation rights or stock-based performance units, other than (1) the issuance of Parent Common Stock upon the exercise of Parent Employee Stock Options outstanding on the date of this Agreement and in accordance with their present terms or pursuant to the terms of any Parent Benefit Plan or Parent Employment Arrangement as in effect on the date of this Agreement or as amended in accordance with or as permitted by this Agreement, (2) the issuance, subject to Section 5.01(b)(v), of up to an additional 4,900,000 Parent Employee Stock Options and 100,000 shares of restricted stock pursuant to the Parent Stock Plans in accordance with their present terms and the terms of the Parent stock options issued in the ordinary course prior to the date of this Agreement and the issuance of Parent Common Stock upon the exercise of such Parent Employee Stock Options and (3) the issuance of "phantom" stock or "phantom" stock rights or, subject to Section 5.01 (b)(v), stock appreciation rights or stock-based performance units, pursuant to 57 the terms of any Parent Benefit Plan or Parent Employment Arrangement in effect on the date of this Agreement or as amended in accordance with or as permitted by this Agreement; (iii) amend its certificate of incorporation, by- laws or other comparable charter or organizational documents, except for such amendments to its certificate of incorporation, by-laws and other comparable charter or organizational documents that do not have an adverse affect on the Merger and the other Transactions; (iv) acquire or agree to acquire (A) by merging or consolidating with, or by purchasing a substantial equity interest in or portion of the assets of, or by any other manner, any business or any corporation, partnership, joint venture, association or other business organization or division thereof, (B) any assets that are material, individually or in the aggregate, to Parent and the Parent Subsidiaries, taken as a whole, except Parent or a Parent Subsidiary may acquire or otherwise invest in any assets, other than nuclear plants, so long as Parent consults with the Company concerning any acquisition or investment that is not listed in the Parent Disclosure Letter and involves an expenditure that, individually, is the excess of $50,000,000, or in the aggregate during such period, are in excess of $250,000,000 or (C) any nuclear plants (whether through AmerGen Energy Company, LLC, a limited liability company organized under the laws of Delaware ("AmerGen"), or otherwise) other than those nuclear plants in respect of which Parent or AmerGen has made written offers or has signed agreements as of the date of this Agreement unless (1) Parent involves the Company in any review or consideration of such acquisition of additional nuclear plants, which involvement shall be for the purpose of ensuring that any such acquisition will be consistent with a rate of nuclear generation acquisitions and growth that will not impair Newco's ability to provide and maintain adequate resources and performance focus for the entire Newco fleet and (2) Parent has obtained the express written consent of the Company, which consent shall not be unreasonably withheld, prior to entering into, or permitting any Parent Subsidiary or AmerGen to enter into, the binding contract to acquire any such additional nuclear plant, or otherwise expanding its, or permitting any Parent Subsidiary or AmerGen to expand their, nuclear capacity; 58 (v) except to the extent required by Applicable Law or by the terms of any Parent Benefit Plan, Parent Employment Arrangement or collective bargaining agreement in effect as of the date of this Agreement, (A) grant to any current or former employee, officer or director of Parent or any Parent Subsidiary any increase in compensation or benefits or new incentive compensation grants, except in the ordinary course of business consistent with prior practice, (B) grant to any current or former employee, officer or director of Parent or any Parent Subsidiary any increase in severance, pay to stay or termination pay, except to the extent consistent with past practice and that, in the aggregate, does not result in a material increase in benefits or compensation expenses, (C) enter into or amend any Parent Employment Arrangement with any such current or former employee, officer or director, except to the extent permitted in subsection (B) above, (D) establish, adopt, enter into or amend in any material respect any collective bargaining agreement or Parent Benefit Plan, except, with respect to any Parent Benefit Plan that is a Qualified Plan, as may be required to facilitate or obtain a determination from the Internal Revenue Service that such Parent Benefit Plan is a Qualified Plan or (E) take or permit to be taken any action to accelerate any rights or benefits or the funding thereof, or make or permit to be made any material determinations not in the ordinary course of business consistent with prior practice, under any collective bargaining agreement, Parent Benefit Plan or Parent Employment Arrangement; provided, however, that notwithstanding anything herein to the contrary, the foregoing shall not restrict Parent or the Parent Subsidiaries from (1) entering into or making available to newly hired officers and employees or to officers and employees in the context of promotions based on job performance or workplace requirements in the ordinary course of business consistent with past practice, plans, agreements, benefits and compensation arrangements (including incentive grants) that have, consistent with past practice, been made available to newly hired or promoted officers and employees, or (2) entering into or amending collective bargaining agreements with existing collective bargaining representatives so as to increase compensation or benefits in a manner that does not materially increase the benefits or compensation expenses of Parent and the Parent Subsidiaries; (vi) make any change in accounting methods, principles or practices materially affecting the 59 reported consolidated assets, liabilities or results of operations of Parent, except as required by a change in GAAP; (vii) sell, lease (as lessor), license or otherwise dispose of or subject to any Lien any properties or assets that are material, individually or in the aggregate, to Parent and the Parent Subsidiaries, taken as a whole, except sales of inventory and excess or obsolete assets in the ordinary course of business consistent with past practice; (viii) except in the ordinary course of business consistent with prior practice, (A) incur any indebtedness for borrowed money or guarantee any such indebtedness of another person, issue or sell any debt securities or warrants or other rights to acquire any debt securities of Parent or any Parent Subsidiary, guarantee any debt securities of another person, enter into any "keep well" or other agreement to maintain any financial statement condition of another person or enter into any arrangement having the economic effect of any of the foregoing, in each case, other than in connection with a refinancing on commercially reasonable terms, or (B) make any loans, advances or capital contributions to, or investments in, any other person, other than to or in Parent or any direct or indirect wholly owned subsidiary of Parent; (ix) make or agree to make any new capital expenditure or expenditures other than as permitted by Section 5.01(b)(iv) that, individually, is in excess of $50,000,000 or, in the aggregate, are in excess of $250,000,000, except to the extent made or agreed to be made in order to ensure compliance with the rules and regulations or an order of the NRC or any other Governmental Entity or to ensure compliance with the terms of any Permit; (x) make any material Tax election or settle or compromise any material Tax liability or refund; (xi) engage in any activities which would cause a change in its status under PUHCA, or that would impair the ability of Parent to claim an exemption as of right under Rule 2 of PUHCA prior to the Merger, other than the application to the SEC under PUHCA contemplated by this Agreement; (xii) enter into or commit to any Power Purchase Agreement except for any Power Purchase Agreement that, 60 in the ordinary course of business, can be entered into without the prior approval of the Board of Directors or a committee thereof of Parent (the threshold for requiring submission to the board or a committee not to be made substantially higher than that in effect on the date hereof) unless Parent consults with the Company regarding such Power Purchase Agreement and Parent has obtained the prior written consent of the Company to such Power Purchase Agreement or such Power Purchase Agreement is fully compliant with criteria to which the Company has previously given a generic consent, in each case, which consent shall not be unreasonably withheld, it being understood that in such consultation process Parent and the Company shall comply with all Applicable Law and any applicable confidentiality or similar third party agreement; or (xiii) authorize any of, or commit or agree to take any of, the foregoing actions. (c) Conduct of Business by Newco. Parent shall cause Newco to perform its obligations under this Agreement and shall not permit Newco to take any action other than in furtherance of this Agreement and the Transactions. (d) Other Actions. The Company and Parent shall not, and shall not permit any of their respective subsidi aries to, take any action that would, or that could reason ably be expected to, result in (i) any of the representa tions and warranties of such party set forth in this Agreement that is qualified as to materiality becoming untrue, (ii) any of such representations and warranties that is not so qualified becoming untrue in any material respect or (iii) except as otherwise permitted by Section 5.02 or 5.03, any condition to the Merger set forth in Article VII not being satisfied. (e) Advice of Changes. The Company and Parent shall promptly advise the other orally and in writing of any change or event that has or could reasonably be expected to have a Company Material Adverse Effect or Parent Material Adverse Effect, as the case may be. (f) Coordination of Dividends. Each of Parent and the Company shall coordinate with the other regarding the declaration and payment of dividends in respect of Parent Common Stock and Company Common Stock and the record dates and payment dates relating thereto, it being the intention of Parent and the Company that no holder of Parent Common Stock, Company Common Stock or Newco Common Stock shall receive two dividends, or fail to receive one 61 dividend, for any single calendar quarter with respect to its shares of Parent Common Stock or Company Common Stock, as the case may be, and/or any shares of Newco Common Stock any such holder receives in exchange therefor pursuant to the Merger. (g) Reorganizations. The parties hereto agree that this Agreement shall not in any manner restrict (i) Parent from forming a holding company and such subsidiaries as Parent considers appropriate to separate its regulated and unregulated businesses (the "Parent Reorganization") and (ii) the Company from forming such subsidiaries as the Company considers appropriate to separate its regulated and unregulated businesses (the "Company Reorganization"). The parties to this Agreement acknowledge and agree that implementation by Parent of the Parent Reorganization or by the Company of the Company Reorganization shall not constitute (x) a breach of or failure to perform any of the representations, warranties or covenants in this Agreement or (y) otherwise result in the failure of any condition to the obligation of the Company or Parent, as applicable, to consummate the Merger to be satisfied. (h) Transition Bonds. Notwithstanding any provision herein to the contrary, this Agreement shall not restrict Parent from (i) issuing through PECO Energy Trust, a Delaware business trust and a Parent Subsidiary, or through any other special purpose entity which is a Parent Subsidiary, transition bonds in accordance with the Pennsylvania Competition Act in an aggregate principal amount not to exceed $1,000,000,000, (ii) selling, in connection with such issuance, all or any part of the "Intangible Transition Property" (as such term is defined in the Pennsylvania Competition Act) and any other property or rights necessary as collateral to secure such transition bonds and (iii) using the proceeds from such issuances of transition bonds to purchase Parent Common Stock for aggregate consideration of up to $500,000,000 as contemplated by Section 6.15(a), to repay outstanding debt of the Parent or to purchase Parent Preferred Stock. SECTION 5.02. No Solicitation by Company. (a) The Company agrees that, during the term of this Agreement, it shall not, and shall not authorize or permit any of its subsidiaries or any director, officer, employee, agent or representative (collectively, "Representatives") of the Company or any of its subsidiaries, directly or indirectly, to (i) solicit, initiate, encourage or facilitate, or furnish or disclose non-public information in furtherance of, any inquiries or the making of any proposal 62 with respect to a Company Competing Transaction (as defined herein) or (ii) negotiate, explore or otherwise engage in discussions with any person (other than Parent or Newco or their respective Representatives) with respect to any Company Competing Transaction. The term "Company Competing Transaction" means any recapitalization, merger, consolidation or other business combination involving the Company, or acquisition of any material portion of the capital stock or assets (except for (A) acquisitions of assets in the ordinary course of business, (B) acquisitions by the Company that do not and could not reasonably be expected to impede the consummation of the Merger and do not violate any other covenant in this Agreement, (C) transactions disclosed in the Company Disclosure Letter and (D) the Transactions) of the Company, or any combination of the foregoing. The Company will immediately cease all existing activities, discussions and negotiations with any parties conducted heretofore with respect to any of the foregoing and shall use its reasonable best efforts to enforce any confidentiality or similar agreement relating to a Company Competing Transaction. From and after the execution of this Agreement, the Company shall immediately advise Parent in writing of the receipt, directly or indirectly, of any inquiries, discussions, negotiations, or proposals relating to a Company Competing Transaction (including the specific terms thereof), and promptly furnish to Parent a copy of any such proposal or inquiry in addition to any information provided to or by any third party relating thereto and if such proposal or inquiry is not in writing, the identity of the person making such proposal or inquiry. Notwithstanding the foregoing, prior to receipt of the Company Shareholder Approval, the Company may, but only to the extent that the Board of Directors of the Company shall conclude in good faith, based upon the advice of its outside counsel, that failure to take such action could reasonably be expected to constitute a breach of the fiduciary obligations of such Board of Directors under Applicable Law, in response to a proposal for a Company Competing Transaction that constitutes a Qualifying Company Proposal (as defined in Section 5.02(d)) that did not result from the breach or a deemed breach of this Section 5.02, and subject to compliance with the notification provisions of this Section 5.02, (A) furnish non-public information with respect to the Company to the person proposing such Company Competing Transaction and its Representatives pursuant to a confidentiality agreement with terms no less restrictive of such person than those set forth in the Confidentiality Agreement (as defined in Section 6.02) and (B) participate in discussions or negotiations with such person and its Representatives regarding such Company Competing Transaction. Without limiting the foregoing, it is agreed 63 that any violation of the restrictions set forth in this Section 5.02(a) by any Representative or affiliate of the Company or any Company Subsidiary, whether or not such person is purporting to act on behalf of the Company or any Company Subsidiary or otherwise, shall be deemed to be a breach of this Section 5.02(a) by the Company. (b) Neither the Board of Directors of the Company nor any committee thereof shall (i) withdraw or modify, or propose to withdraw or modify, in a manner adverse to Parent, the approval or recommendation by the Board of Directors of the Company of this Agreement and the Transactions, (ii) approve, or permit or cause the Company to enter into, any definitive agreement providing for the implementation of any Company Competing Transaction (each a "Company Acquisition Agreement") or (iii) approve or recommend, or propose to approve or recommend, any Company Competing Transaction. Notwithstanding the foregoing, prior to receipt of the Company Shareholder Approval, and only to the extent that the Board of Directors of the Company shall conclude in good faith, based upon the advice of its outside counsel, that failure to take such action could reasonably be expected to constitute a breach of the fiduciary obligations of such Board of Directors under Applicable Law in response to a proposal for a Company Competing Transaction that constitutes a Qualifying Company Proposal that did not result from the breach or a deemed breach of this Section 5.02, (A) the Board of Directors of the Company may withdraw or modify its approval or recommendation of this Agreement and the Transactions and, in connection therewith, approve or recommend such Qualifying Company Proposal and (B) the Board of Directors of the Company may approve and the Company may enter into a Company Acquisition Agreement contemporaneously with its termination of this Agreement pursuant to Section 8.01(f). (c) Nothing contained in this Section 5.02 shall prohibit the Company from taking and disclosing to its shareholders a position contemplated by Rule 14e-2(a) promulgated under the Exchange Act or from making any disclosure to its shareholders if, in the good faith judgment of the Board of Directors of the Company after consultation with outside counsel, failure to so disclose would be inconsistent with its obligations under Applicable Law. (d) For purposes of this Agreement, "Qualifying Company Proposal" means any proposal made by a third party to acquire all of the equity securities or all or substantially all of the assets of the Company, pursuant to a tender offer, a merger, a consolidation, a 64 recapitalization, a sale of its assets or otherwise, that is (A) for consideration that is comprised solely of cash or marketable securities, or a combination thereof, and not conditioned on financing, (B) on terms which the Board of Directors of the Company determines in its good faith judgment (based on the advice of a nationally recognized independent investment banking firm) to be superior from a financial point of view to the holders of Company Common Stock to the Transactions (taking into account all of the terms of any proposal by Parent to amend or modify the terms of the Transactions) and to be more favorable generally to the Company's shareholders than the Transactions (taking into account all financial and strategic considerations, including relevant legal, financial, regulatory and other aspects of such proposal and the third party making such proposal and the conditions and prospects for completion of such proposal, the strategic direction of and benefits sought by the Company and all of the terms of any proposal by Parent to amend or modify the terms of the Transactions) and (C) reasonably capable of being completed within 18 months of the termination of this Agreement or by the Outside Date, whichever is later, taking into account all legal, financial, regulatory and other aspects of such proposal and the third party making such proposal. SECTION 5.03. No Solicitation by Parent. (a) Parent agrees that, during the term of this Agreement, it shall not, and shall not authorize or permit any of its subsidiaries or any of its or its subsidiaries' Representatives, directly or indirectly, to (i) solicit, initiate, encourage or facilitate, or furnish or disclose non-public information in furtherance of, any inquiries or the making of any proposal with respect to a Parent Competing Transaction (as defined herein) or (ii) negotiate, explore or otherwise engage in discussions with any person (other than Company or Newco or their respective Representatives) with respect to any Parent Competing Transaction. The term "Parent Competing Transaction" means any recapitalization, merger, consolidation or other business combination involving Parent, or acquisition of any material portion of the capital stock or assets (except for (A) acquisitions of assets in the ordinary course of business, (B) acquisitions by Parent that do not and could not reasonably be expected to impede the consummation of the Merger and do not violate any other covenant in this Agreement, (C) transactions disclosed in the Parent Disclosure Letter and (D) the Transactions) of Parent, or any combination of the foregoing. Parent will immediately cease all existing activities, discussions and negotiations with any parties conducted heretofore with respect to any of the foregoing and shall use its reasonable best efforts to 65 enforce any confidentiality or similar agreement relating to a Parent Competing Transaction. From and after the execution of this Agreement, Parent shall immediately advise the Company in writing of the receipt, directly or indirectly, of any inquiries, discussions, negotiations, or proposals relating to a Parent Competing Transaction (including the specific terms thereof), and promptly furnish to the Company a copy of any such proposal or inquiry in addition to any information provided to or by any third party relating thereto and if such proposal or inquiry is not in writing, the identity of the person making such proposal or inquiry. Notwithstanding the foregoing, prior to receipt of the Parent Shareholder Approval, Parent may, but only to the extent that the Board of Directors of Parent shall conclude in good faith, based upon the advice of its outside counsel, that failure to take such action could reasonably be expected to constitute a breach of the fiduciary obligations of such Board of Directors under Applicable Law, in response to a proposal for a Parent Competing Transaction that constitutes a Qualifying Parent Proposal (as defined in Section 5.03(d)) that did not result from the breach or a deemed breach of this Section 5.03, and subject to compliance with the notification provisions of this Section 5.03, (A) furnish non-public information with respect to Parent to the person proposing such Parent Competing Transaction and its Representatives pursuant to a confidentiality agreement with terms no less restrictive of such person than those set forth in the Confidentiality Agreement (as defined in Section 6.02) and (B) participate in discussions or negotiations with such person and its Representatives regarding such Parent Competing Transaction. Without limiting the foregoing, it is agreed that any violation of the restrictions set forth in this Section 5.03(a) by any Representative or affiliate of Parent or any Parent Subsidiary, whether or not such person is purporting to act on behalf of Parent or any Parent Subsidiary or otherwise, shall be deemed to be a breach of this Section 5.03(a) by Parent. (b) Neither the Board of Directors of Parent nor any committee thereof shall (i) withdraw or modify, or propose to withdraw or modify, in a manner adverse to the Company, the approval or recommendation by the Board of Directors of Parent of this Agreement and the Transactions, (ii) approve, or permit or cause Parent to enter into, any definitive agreement providing for the implementation of any Parent Competing Transaction (each a "Parent Acquisition Agreement") or (iii) approve or recommend, or propose to approve or recommend, any Parent Competing Transaction. Notwithstanding the foregoing, prior to receipt of the Parent Shareholder Approval, and only to the extent that the 66 Board of Directors of Parent shall conclude in good faith, based upon the advice of its outside counsel, that failure to take such action could reasonably be expected to constitute a breach of the fiduciary obligations of such Board of Directors under Applicable Law in response to a proposal for a Parent Competing Transaction that constitutes a Qualifying Parent Proposal that did not result from the breach or a deemed breach of this Section 5.03, (A) the Board of Directors of Parent may withdraw or modify its approval or recommendation of this Agreement and the Transactions and, in connection therewith, approve or recommend such Qualifying Parent Proposal and (B) the Board of Directors of Parent may approve and Parent may enter into a Parent Acquisition Agreement contemporaneously with its termination of this Agreement pursuant to Section 8.01(h). (c) Nothing contained in this Section 5.03 shall prohibit Parent from taking and disclosing to its shareholders a position contemplated by Rule 14e-2(a) promulgated under the Exchange Act or from making any disclosure to its shareholders if, in the good faith judgment of the Board of Directors of Parent after consultation with outside counsel, failure to so disclose would be inconsistent with its obligations under Applicable Law. (d) For purposes of this Agreement, "Qualifying Parent Proposal" means any proposal made by a third party to acquire all of the equity securities or all or substantially all of the assets of Parent, pursuant to a tender offer, a merger, a consolidation, a recapitalization, a sale of its assets of otherwise, that is (A) for consideration that is comprised solely of cash or marketable securities, or a combination thereof, and not conditioned on financing, (B) on terms which the Board of Directors of Parent determines in its good faith judgment (based on the advice of a nationally recognized independent investment banking firm) to be superior from a financial point of view to the holders of Parent Common Stock to the Transactions (taking into account all of the terms of any proposal by Company to amend or modify the terms of the Transactions) and to be more favorable generally to Parent's shareholders than the Transactions (taking into account all financial and strategic considerations, including relevant legal, financial, regulatory and other aspects of such proposal and the third party making such proposal and the conditions and prospects for completion of such proposal, the strategic direction of and benefits sought by Parent and all of the terms of any proposal by the Company to amend or modify the terms of the Transactions) and (C) reasonably capable of being completed within 18 months of the termination of this 67 Agreement or by the Outside Date, whichever is later, taking into account all legal, financial, regulatory and other aspects of such proposal and the third party making such proposal. ARTICLE VI Additional Agreements SECTION 6.01. Preparation of the Form S-4 and the Proxy Statement; Shareholders Meetings; Adoption by Sole Shareholder. (a) The Company, Parent and Newco shall prepare and file with the SEC the Proxy Statement in preliminary form and Parent, the Company and Newco shall prepare and file with the SEC the Form S-4, in which the Proxy Statement will be included as a prospectus. Each of the Company, Parent and Newco shall use its reasonable best efforts to have the Form S-4 declared effective under the Securities Act as promptly as practicable after such filing. Each of the Company, Parent and Newco shall use its reasonable best efforts to cause the Proxy Statement to be mailed to its respective shareholders as promptly as practicable after the Form S-4 is declared effective under the Securities Act. Newco shall also take any action (other than qualifying to do business in any jurisdiction in which it is not now so qualified) required to be taken under any applicable state securities laws in connection with the issuance of Newco Common Stock in the Merger and under the Company Stock Plans and the Parent Stock Plans, and the Company and Parent shall furnish all information concerning the Company or Parent, as applicable, and the holders of the Company Common Stock or Parent Common Stock and rights to acquire Company Common Stock or Parent Common Stock pursuant to the Company Stock Plans or the Parent Stock Plans as may be reasonably requested in connection with any such action. The parties shall notify each other promptly of the receipt of any comments from the SEC or its staff and of any request by the SEC or its staff for amendments or supplements to the Proxy Statement or the Form S-4 or for additional information and shall supply each other with copies of all correspondence between such party or any of its Representatives, on the one hand, and the SEC or its staff, on the other hand, with respect to the Proxy Statement, the Form S-4 or the Merger. (b) If prior to the Merger Effective Time any event occurs with respect to the Company or any Company Subsidiary or any change occurs with respect to information supplied by or on behalf of the Company for inclusion in the Proxy Statement or the Form S-4 which, in each case, is 68 required to be described in an amendment of, or a supplement to, the Proxy Statement or the Form S-4, the Company shall promptly notify Parent of such event, and the Company shall cooperate with Parent and Newco in the prompt filing with the SEC of any necessary amendment or supplement to the Proxy Statement and Form S-4 and, as required by law, in disseminating the information contained in such amendment or supplement to the Company's shareholders and to Parent's shareholders. (c) If prior to the Merger Effective Time any event occurs with respect to Parent or any Parent Subsidiary or any change occurs with respect to information supplied by or on behalf of Parent for inclusion in the Proxy Statement or the Form S-4 which, in each case, is required to be described in an amendment of, or a supplement to, the Proxy Statement or the Form S-4, Parent shall promptly notify the Company of such event, and Parent shall cooperate with Company in the prompt filing with the SEC of any necessary amendment or supplement to the Proxy Statement and the Form S-4 and, as required by law, in disseminating the information contained in such amendment or supplement to the Company's shareholders and to Parent's shareholders. (d) The Company shall, as soon as practicable following effectiveness of the Form S-4, duly call, give notice of, convene and hold a meeting of its shareholders (the "Company Shareholders Meeting") for the purpose of seeking the Company Shareholder Approval. The Company shall use its reasonable best efforts to cause the Proxy Statement to be mailed to the Company's shareholders as promptly as practicable after the Form S-4 is declared effective under the Securities Act. Subject to Section 5.02(b), the Company shall, through its Board of Directors, recommend to its shareholders that they give the Company Shareholder Approval. Without limiting the generality of the foregoing, the Company agrees that its obligations pursuant to the first two sentences of this Section 6.01(d) shall not be affected by the commencement, public proposal, public disclosure or communication to the Company of any Company Competing Transaction. (e) Parent shall, as soon as practicable following the date of this Agreement, duly call, give notice of, convene and hold a meeting of its shareholders (the "Parent Shareholders Meeting") for the purpose of seeking the Parent Shareholder Approval. The Parent shall use its reasonable best efforts to cause the Proxy Statement to be mailed to the Parent's shareholders as promptly as practicable after the Form S-4 is declared effective under the Securities Act. Subject to Section 5.03(b), Parent 69 shall, through its Board of Directors, recommend to its shareholders that they give the Parent Shareholder Approval. Without limiting the generality of the foregoing, Parent agrees that its obligations pursuant to the first two sentences of this Section 6.01(e) shall not be affected by the commencement, public proposal, public disclosure or communication to Parent of any Parent Competing Transaction. (f) The Company shall use its reasonable best efforts to cause to be delivered to Parent a letter of Arthur Andersen LLP, the Company's independent public accountants, dated a date within two business days before the date on which the Form S-4 shall become effective and addressed to Parent, in form and substance reasonably satisfactory to Parent and customary in scope and substance for letters delivered by independent public accountants in connection with registration statements similar to the Form S-4. (g) Parent shall use its reasonable best efforts to cause to be delivered to the Company a letter of PricewaterhouseCoopers LLP, Parent's independent public accountants, dated a date within two business days before the date on which the Form S-4 shall become effective and addressed to the Company, in form and substance reasonably satisfactory to the Company and customary in scope and substance for letters delivered by independent public accountants in connection with registration statements similar to the Form S-4. (h) Parent, as sole shareholder of Newco, shall adopt this Agreement. SECTION 6.02. Access to Information; Confidenti ality. Each of the Company and Parent after reasonable notice shall, and shall cause each of its respective subsidiaries to, afford to the other party and to the officers, employees, accountants, counsel, financial advisors and other representatives of such other party, reasonable access during normal business hours during the period prior to the Merger Effective Time to all their respective properties, books, contracts, commitments, personnel and records and, during such period, each of the Company and Parent shall, and shall cause each of its respective subsidiaries to, furnish promptly to the other party (a) a copy of each report, schedule, registration statement and other document filed by it during such period pursuant to the requirements of Federal or state securities laws and (b) all other information concerning its business, properties and personnel as such other party may reasonably request. Without limiting the generality of the foregoing, 70 each of the Company and Parent shall, within two business days of request therefor, provide to the other the information (x) described in Rule 14a-7(a)(2)(ii) under the Exchange Act, (y) to which a holder of Company Common Stock would be entitled under Section 7.75 of the IBCA (assuming such holder met the requirements of such Section) and (z) to which a holder of Parent Common Stock would be entitled under Section 1508 of the PBCL (assuming such holder met the requirements of such Section). All information exchanged pursuant to this Section 6.02 shall be subject to the confidentiality agreement dated July 15, 1999, between the Company and Parent (the "Confidentiality Agreement"), and this Agreement constitutes a Definitive Agreement as defined therein. SECTION 6.03. Regulatory Matters; Reasonable Best Efforts. (a) Regulatory Approvals. Upon the terms and subject to the conditions set forth in this Agreement, and subject to actions taken in compliance with Section 5.02(b) or 5.03(b), as the case may be, each of the parties hereto shall cooperate and promptly prepare and file all necessary documentation, to effect all necessary applications, notices, petitions, filings and other documents, and shall use reasonable best efforts to obtain all necessary Consents of all Governmental Entities necessary or advisable to consummate and make effective, in the most expeditious manner practicable, the Merger and the other Transactions, including the Parent Required Statutory Approvals and the Company Required Statutory Approvals. Parent shall have the right to review and approve in advance all characterizations of the information relating to the Company, on the one hand, and the Company shall have the right to review and approve in advance all characterizations of the information relating to Parent, on the other hand, in either case, which appear in any filing made in connection with the Merger or the other Transactions. Parent and the Company agree that they will consult with each other with respect to the obtaining of all such necessary Consents of Governmental Entities. (b) Further Actions. Upon the terms and subject to the conditions set forth in this Agreement, each of the parties agrees to use reasonable best efforts to take, or cause to be taken, all actions, and to do, or cause to be done, and to assist and cooperate with the other parties in doing, all things necessary, proper or advisable to consummate and make effective, in the most expeditious manner practicable, the Merger and the other Transactions, including (i) the obtaining of all necessary consents, approvals or waivers from third parties, (ii) the defending of any lawsuits or other legal proceedings, whether judicial or administrative, challenging this Agreement or the 71 consummation of the Transactions, including seeking to have any stay or temporary restraining order entered by any court or other Governmental Entity vacated or reversed, and (iii) the execution and delivery of any additional instruments necessary to consummate the Transactions and to fully carry out the purposes of this Agreement. Notwithstanding the foregoing, the Company and its Representatives and Parent and its Representatives shall not be prohibited under this Section 6.03(b) from taking any actions in compliance with Section 5.02(b) or 5.03(b), respectively. (c) State Anti-Takeover Statutes. In connection with and without limiting the generality of Section 6.03(b), Parent and the Company shall (i) take all action necessary to ensure that no state anti-takeover statute or similar statute or regulation is or becomes applicable to any Transaction or this Agreement and (ii) if any state anti- takeover statute or similar statute or regulation becomes applicable to any Transaction or this Agreement, take all action necessary to ensure that the Merger and the other Transactions may be consummated as promptly as practicable on the terms contemplated by this Agreement and otherwise to minimize the effect of such statute or regulation on the Merger and the other Transactions. Notwithstanding the foregoing, the Company and its Representatives and Parent and its Representatives shall not be prohibited under this Section 6.03(c) from taking any action permitted by Section 5.02(b) or 5.03(b), respectively. (d) Notices. The Company shall give prompt notice to Parent, and Parent or Newco shall give prompt notice to the Company, of (i) any representation or warranty made by it contained in this Agreement that is qualified as to materiality becoming untrue or inaccurate in any respect or any such representation or warranty that is not so qualified becoming untrue or inaccurate in any material respect or (ii) the failure by it to comply with or satisfy in any material respect any covenant, condition or agreement to be complied with or satisfied by it under this Agreement; provided, however, that no such notification shall affect the representations, warranties, covenants or agreements of the parties or the conditions to the obligations of the parties under this Agreement. SECTION 6.04. Company and Parent Stock Options and Other Stock Plans. (a) Prior to the Merger Effective Time, the Company Board (or, if appropriate, any committee administering the Company Stock Plans) shall adopt such 72 resolutions or take such other actions as may be required to effect the following: (i) adjust the terms of all outstanding Company Employee Stock Options to provide that, at the Merger Effective Time, each Company Employee Stock Option out standing immediately prior to the Merger Effective Time shall be deemed to constitute an option to acquire, on the same terms and conditions as were applicable under such Company Employee Stock Option, the same number of shares of Newco Common Stock as the holder of such Company Employee Stock Option would have been entitled to receive pursuant to the Merger had such holder exercised such Company Employee Stock Option in full immediately prior to the Merger Effective Time, at a price per share equal to (A) the aggregate exercise price for the shares of Company Common Stock otherwise purchasable pursuant to such Company Employee Stock Option immediately prior to the Merger Effective Time (whether or not exercisable) divided by (B) the number of shares of Newco Common Stock deemed purchasable pursuant to such Company Employee Stock Option; provided, however, that in the case of any qualified stock options under Sections 422-424 of the Code, the option price, the number of shares purchasable pursuant to such option and the terms and conditions of exercise of such option shall be determined in order to comply with Section 424(a) of the Code; provided, further, however, that solely for purposes of making the adjustments to Company Employee Stock Options required by this Section 6.04, the Company Conversion Number shall be 0.95 and the Company Cash Consideration shall be disregarded; (ii) make such other changes to the Company Stock Plans and the terms of any Company Employee Stock Options as it deems appropriate to give effect to the Merger (subject to the approval of Parent, which shall not be unreasonably withheld); and (iii) ensure that, after the Merger Effective Time, no Company Employee Stock Options may be granted under any Company Stock Plan. (b) Prior to the Exchange Effective Time, the Parent Board (or, if appropriate, any committee administering the Parent Stock Plans) shall adopt such 73 resolutions or take such other actions as may be required to effect the following: (i) adjust the terms of all outstanding Parent Employee Stock Options to provide that, at the Exchange Effective Time, each Parent Employee Stock Option out standing immediately prior to the Exchange Effective Time shall be deemed to constitute an option to acquire, on the same terms and conditions as were applicable under such Parent Employee Stock Option, the same number of shares of Newco Common Stock as the holder of such Parent Employee Stock Option would have been entitled to receive pursuant to the Merger had such holder exercised such Parent Employee Stock Option in full immediately prior to the Exchange Effective Time, at a price per share equal to (A) the aggregate exercise price for the shares of Parent Common Stock otherwise purchasable pursuant to such Parent Employee Stock Option immediately prior to the Exchange Effective Time (whether or not exercisable) divided by (B) the number of shares of Newco Common Stock deemed purchasable pursuant to such Parent Employee Stock Option; provided, however, that in the case of any qualified stock options under Sections 422-424 of the Code, the option price, the number of shares purchasable pursuant to such option and the terms and conditions of exercise of such option shall be determined in order to comply with Section 424(a) of the Code; (ii) make such other changes to the Parent Stock Plans and the terms of outstanding Parent Employee Stock Options as it deems appropriate to give effect to the Merger (subject to the approval of the Company, which shall not be unreasonably withheld); and (iii) ensure that, after the Exchange Effective Time, no Parent Employee Stock Options may be granted under any Parent Stock Plan. (c) At the Merger Effective Time, and subject to compliance by the Company with Section 6.04(a), Newco shall assume all the obligations of the Company under the Company Stock Plans, each outstanding Company Employee Stock Option and the agreements evidencing the grants thereof. As soon as practicable after the Merger Effective Time, Newco shall deliver to the holders of Company Employee Stock Options appropriate notices setting forth such holders' rights pursuant to the respective Company Stock Plans, and the agreements evidencing the grants of such Company Employee Stock Options shall continue in effect on the same terms and 74 conditions (subject to the adjustments required by this Section 6.04 after giving effect to the Merger). Newco shall comply with the terms of the Company Stock Plans and ensure, to the extent required by, and subject to the provisions of, such Company Stock Plans, that the Company Employee Stock Options that qualified as qualified stock options prior to the Merger Effective Time continue to qualify as qualified stock options after the Merger Effective Time. (d) At the Exchange Effective Time, and subject to compliance by Parent with Section 6.04(b), Newco shall assume all the obligations of Parent under the Parent Stock Plans, each outstanding Parent Employee Stock Option and Parent SAR the agreements evidencing the grants thereof. As soon as practicable after the Exchange Effective Time, Newco shall deliver to the holders of Parent Employee Stock Options and Parent SARs appropriate notices setting forth such holders' rights pursuant to the respective Parent Stock Plans, and the agreements evidencing the grants of such Parent Employee Stock Options and Parent SARs shall continue in effect on the same terms and conditions (subject to the adjustments required by this Section 6.04 after giving effect to the Merger). Newco shall comply with the terms of the Parent Stock Plans and ensure, to the extent required by, and subject to the provisions of, such Parent Stock Plans, that the Parent Employee Stock Options that qualified as qualified stock options prior to the Exchange Effective Time continue to qualify as qualified stock options after the Exchange Effective Time. (e) With respect to each employee or director benefit or compensation plan, program or arrangement, other than the Company Stock Plans and the Parent Stock Plans, under which Company Common Stock or Parent Common Stock is required to be used for purposes of the payment of benefits, grant of awards or exercise of options (each, a "Stock Plan"), (i) the Company and the Parent shall take such action as may be necessary so that, after the Merger Effective Time, such Stock Plan shall provide for issuance or purchase in the open market only of Newco Common Stock rather than Company Common Stock or Parent Common Stock, as the case may be, and otherwise to amend such Stock Plans to reflect this Agreement and the Merger, and (ii) Newco shall take all corporate action necessary or appropriate to obtain shareholder approval with respect to such Stock Plan to the extent such approval is required for purposes of the Code or other Applicable Law. Newco shall take all corporate action necessary to reserve for issuance a sufficient number of shares of Newco Common Stock for delivery upon exercise of the Company Employee Stock Options and Parent Employee Stock 75 Options assumed in accordance with this Section 6.04 or the payment of benefits, grant of awards or exercise of options under such Stock Plans. As soon as reasonably practicable after the Merger Effective Time, Newco shall file one or more registration statements on Form S-8 (or any successor or other appropriate form) with respect to the shares of Newco Common Stock subject to such Company Employee Stock Options and Parent Employee Stock Options or to such Stock Plans and shall use its reasonable best efforts to maintain the effectiveness of such registration statement or registration statements (and maintain the current status of the prospectus or prospectuses contained therein or related thereto) for so long as such Company Employee Stock Options and Parent Employee Stock Options or such benefits or grants of awards remain payable or such options remain outstanding. With respect to those individuals who subsequent to the Merger will be subject to the reporting requirements under Section 16(a) of the Exchange Act, where applicable, Newco shall administer the Company Stock Plans and Parent Stock Plans assumed pursuant to this Section 6.04 and the Stock Plans in a manner that complies with Rule 16b-3 of the SEC to the extent the applicable plan complied with such rule prior to the Merger. Prior to the Merger Effective Time, Parent and Newco shall take all actions as may be reasonably required to cause the acquisition of equity securities of Newco, as contemplated by this Section 6.04, by any person who is or will become a director or officer of Newco to be eligible for exemption under Rule 16b-3(d) of the SEC. (f) In this Agreement: "Company Employee Stock Option" means any option to purchase Company Common Stock granted under any Company Stock Plan. "Company Stock Plans" means the Long-Term Incentive Plan of the Company as amended from time to time. "Parent Employee Stock Option" means any option to purchase Parent Common Stock granted under any Parent Stock Plan. "Parent Stock Plans" means the PECO Energy Company 1989 Long-Term Incentive Plan and the PECO Energy Company 1998 Stock Option Plan. "Parent SAR" means any stock appreciation right linked to the price of Parent Common Stock and granted under any Parent Stock Plan. 76 SECTION 6.05. Benefit Plans; Workforce Matters. (a) From and after the Merger Effective Time, Newco and its subsidiaries shall honor and perform in accordance with their respective terms (as in effect on the date of this Agreement or as amended in accordance with or as permitted by this Agreement), all the collective bargaining agreements of the Company, Parent or any of their respective subsidiaries disclosed in the Company Disclosure Letter or the Parent Disclosure Letter, respectively; provided, however, that this Section 6.05(a) is not intended to prevent Newco from enforcing such agreements in accordance with their respective terms, including enforcement of any reserved right to amend, modify, suspend, revoke or terminate any such agreement. (b) Subject to Applicable Law and obligations under applicable collective bargaining agreements, it is the current intention of Parent and the Company that any reductions in workforce following the Merger Effective Time in respect of employees of Newco and its subsidiaries shall be made on a fair and equitable basis, in light of the circumstances and the objectives to be achieved, as determined by Newco, without regard to whether employment was with the Company or the Company Subsidiaries or Parent or the Parent Subsidiaries and with due consideration to the applicable employee's previous work history, prior experience and skills and Newco's business needs, and any employee whose employment is terminated or job is eliminated shall be entitled to participate on a fair and equitable basis as determined by Newco in the job opportunity and employment placement programs offered by Newco or any of its subsidiaries. (c) Subject to Applicable Law and obligations under applicable collective bargaining agreements, each Company Benefit Plan, Parent Benefit Plan, Company Employment Arrangement and Parent Employment Arrangement in effect on the date of this Agreement (or as amended or established in accordance with or as permitted by this Agreement) shall be maintained in effect by Newco and its subsidiaries, except as provided in Section 6.04, with respect to their current and former employees, officers or directors of the Company and Company Subsidiaries and Parent and Parent Subsidiaries, respectively, who are covered by such plans or arrangements immediately prior to the Merger Effective Time until Newco determines otherwise on or after the Merger Effective Time. Newco and its subsidiaries shall honor, perform and, with respect to each Company Benefit Plan and Parent Benefit Plan and Company Employment Arrangement and Parent Employment Arrangement that is not a multiemployer benefit plan within the meaning of 77 Section 4001(a)(3) of ERISA, sponsor and administer, each such Company Benefit Plan and Parent Benefit Plan and Company Employment Arrangement and Parent Employment Arrangement in accordance with their respective terms (as in effect on the date of this Agreement or as amended in accordance with or as permitted by this Agreement), and Newco shall (i) assume as of the Merger Effective Time each Company Benefit Plan and Company Employment Arrangement maintained by the Company immediately prior to the Merger Effective Time and as of the Exchange Effective Time each Parent Benefit Plan and Parent Employment Arrangement maintained by Parent immediately prior to the Exchange Effective Time and (ii) perform the obligations under, sponsor and administer such plan or arrangement in the same manner and to the same extent that the Company or Parent, as the case may be, would be required to perform, sponsor and administer thereunder; provided, however, that nothing contained herein shall limit any reserved right contained in any such Company Benefit Plan, Company Employment Arrangement, Parent Benefit Plan or Parent Employment Arrangement to amend, modify, suspend, revoke or terminate any such plan or arrangement. Without limiting the foregoing, (i) each participant in any Company Benefit Plan or Parent Benefit Plan shall receive credit for purposes of eligibility to participate, vesting and eligibility to receive benefits (but specifically excluding for benefit accrual purposes or where such crediting would result in a duplication of benefits) under any benefit plan of Newco or any of its subsidiaries or affiliates for service credited for the corresponding purpose under any such benefit plan; provided, however, that such crediting of service shall not operate to cause any such plan or arrangement to fail to comply with the applicable provisions of the Code or ERISA, (ii) each benefit plan of Newco or its subsidiaries which is a medical, dental or health benefit plan shall take into account for purposes of determining a participant's deductibles and out-of-pocket limits thereunder expenses previously incurred by the participant during the same year while participating in any other such Company Benefit Plan or Parent Benefit Plan and shall waive any restrictions and limitations for pre-existing conditions provided therein for any participant to the extent not applicable to the participant in any other such Company Benefit Plan or Parent Benefit Plan in which the participant participated immediately prior to participating in that benefit plan, and (iii) each benefit plan of Newco or its subsidiaries which is a cafeteria plan under Section 125 of the Code shall cause credits and debits in respect of any participant in any flexible spending account thereunder for a plan year to be transferred to and maintained in any such corresponding Company Benefit Plan or Parent Benefit Plan in which such 78 participant may subsequently participate during the same year. The Company and the Parent will cooperate on and after the date hereof to develop appropriate employee benefit plans, programs and arrangements, including but not limited to, executive and incentive compensation, stock option and supplemental executive retirement plans for employees and directors of Newco and its subsidiaries from and after the Merger Effective Time. However, no provision contained in this Section 6.05(c) shall be deemed to constitute an employment contract between Newco and any individual, or a waiver of Newco's right to discharge any employee at any time, with or without cause. SECTION 6.06. Indemnification. (a) Newco shall, to the fullest extent permitted by Applicable Law, honor all the Company's and Parent's respective obligations to indemnify (including any obligations to advance funds for expenses) the current and former directors and officers of the Company or Parent, as the case may be, for acts or omissions by such directors and officers occurring prior to the Merger Effective Time to the extent that such obligations to indemnify exist on the date of this Agreement, whether pursuant to the Company Charter or the Parent Charter, as the case may be, the Company By-laws or the Parent By-laws, as the case may be, individual indemnity agreements or otherwise, and such obligations shall survive the Merger and shall continue in full force and effect in accordance with the terms of the Company Charter or the Parent Charter, as the case may be, the Company By-laws or the Parent By-laws, as the case may be, and such individual indemnity agreements from the Merger Effective Time. (b) For a period of six years after the Merger Effective Time, Newco shall cause to be maintained in effect the current policies of directors' and officers' liability insurance maintained by the Company or Parent or such substantially comparable policies as in effect on the Closing Date, as the case may be, (provided that Newco may substitute therefor policies with reputable and financially sound carriers of at least the same coverage and amounts containing terms and conditions which are no less advantageous) with respect to claims arising from or related to facts or events which occurred at or before the Merger Effective Time. If such insurance coverage cannot be obtained at all, Newco shall maintain the most advantageous policies of directors' and officers' insurance reasonably obtainable. (c) From and after the Merger Effective Time, to the fullest extent permitted by Applicable Law, Newco shall indemnify, defend and hold harmless the present and former 79 officers and directors of the Company and Parent, as the case may be, and their respective subsidiaries and any of their respective employees who act as a fiduciary under any Company Benefit Plan (each an "Indemnified Party") against all losses, claims, damages, liabilities, fees and expenses (including attorneys' fees and disbursements), judgments, fines and amounts paid in settlement (in the case of settlements, with the approval of the indemnifying party (which approval shall not be unreasonably withheld)) (collectively, "Losses"), as incurred (payable monthly upon written request which request shall include reasonable evidence of the Losses set forth therein) to the extent arising from, relating to, or otherwise in respect of, any actual or threatened action, suit, proceeding or investigation, in respect of actions or omissions occurring at or prior to the Merger Effective Time in connection with such Indemnified Party's duties as an officer, director or employee as aforesaid, in each case, of the Company or Parent or any of their respective subsidiaries, including in respect of this Agreement, the Merger and the other Transactions. SECTION 6.07. Fees and Expenses. (a) Except as provided below, all fees and expenses incurred in connection with the Merger and the other Transactions shall be paid by the party incurring such fees or expenses, whether or not the Merger is consummated, except that expenses incurred in connection with filing, printing and mailing the Proxy Statement and the Form S-4 shall be shared equally by Parent and the Company. (b) The Company shall pay to Parent a fee of $250,000,000 if: (i) the Company terminates this Agreement pursuant to Section 8.01(f); (ii) Parent terminates this Agreement pursuant to Section 8.01(d); or (iii) any Company Competing Transaction was proposed to the Company or publicly disclosed and thereafter the Company terminates this Agreement pursuant to Section 8.01(b)(i) or either the Company or Parent terminates this Agreement pursuant to Section 8.01(b)(iv) or Parent terminates this Agreement pursuant to Section 8.01(c) (but in the case of termination pursuant to Section 8.01(c), only in the event of termination for a wilful breach of this Agreement or failure to perform this Agreement by the Company) and, in each case, within 18 months of such termination the Company enters into a definitive agreement to consummate or consummates any Company Competing Transaction. Any fee due under this Section 6.07(b) shall be paid by wire transfer of same-day funds on the date of termination of this Agreement (except that in the case of termination pursuant to clause (iii) above such payment shall be made on the date of execution of 80 such definitive agreement or, if earlier, consummation of such transaction or another transaction with the same party or its affiliates). (c) Parent shall pay to the Company a fee of $250,000,000 if: (i) Parent terminates this Agreement pursuant to Section 8.01(h); (ii) the Company terminates this Agreement pursuant to Section 8.01(g); (iii) any Parent Competing Transaction was proposed to Parent or publicly disclosed and thereafter the Parent terminates this Agreement pursuant to Section 8.01(b)(i) or either Parent or the Company terminates this Agreement pursuant to Section 8.01(b)(v) or the Company terminates this Agreement pursuant to Section 8.01(e) (but in the case of termination pursuant to Section 8.01(e), only in the event of termination for a wilful breach of this Agreement or failure to perform this Agreement by Parent) and, in each case, within 18 months of such termination Parent enters into a definitive agreement to consummate or consummates any Parent Competing Transaction. Any fee due under this Section 6.07(c) shall be paid by wire transfer of same-day funds on the date of termination of this Agreement (except that in the case of termination pursuant to clause (iii) above such payment shall be made on the date of execution of such definitive agreement or, if earlier, consummation of such transaction or another transaction with the same party or its affiliates). (d) The Company shall reimburse Parent and Newco for all its out-of-pocket expenses actually incurred in connection with this Agreement, the Merger and the other Transactions, up to a limit of $15,000,000, if a fee becomes payable pursuant to Section 6.07(b) or if this Agreement is otherwise terminated pursuant to Section 8.01(b)(iv) or 8.01(c). Such reimbursement shall be paid upon demand following such termination. (e) Parent shall reimburse the Company for all its out-of-pocket expenses actually incurred in connection with this Agreement, the Merger and the other Transactions, up to a limit of $15,000,000, if a fee becomes payable pursuant to Section 6.07(c) or if this Agreement is otherwise terminated pursuant to Section 8.01(b)(v) or 8.01(e). Such reimbursement shall be paid upon demand following such termination. SECTION 6.08. Public Announcements. Parent and Newco, on the one hand, and the Company, on the other hand, shall consult with each other before issuing, and provide each other the opportunity to review and comment upon, any press release or other public statements with respect to 81 this Agreement, the Merger and the other Transactions and shall not issue any such press release or make any such public statement prior to such consultation, except as may be required by Applicable Law, court process or by obligations pursuant to any listing agreement with any national securities exchange. SECTION 6.09. Transfer Taxes. All stock transfer, real estate transfer, documentary, stamp, recording and other similar Taxes (including interest, penalties and additions to any such Taxes) ("Transfer Taxes") incurred in connection with the Transactions shall be paid by the party incurring the Transfer Tax, and the parties hereto shall cooperate with each other in preparing, executing and filing any Tax Returns with respect to such Transfer Taxes. SECTION 6.10. Affiliates. (a) Promptly following the date of execution of this Agreement, the Company shall deliver to Parent and Newco a letter identify ing all persons who are expected by the Company to be on the Closing Date, or were as of the date of this Agreement, "affiliates" of the Company for purposes of Rule 145 under the Securities Act. The Company shall use its reasonable best efforts to cause each such person to deliver to Parent on or prior to the date of mailing of Proxy Statement a written agreement substantially in the form attached as Exhibit C. (b) Promptly following the date of execution of this Agreement, Parent shall deliver to the Company a letter indemnifying all persons who are expected by Parent to be, on the Closing Date, or were as of the date of this Agreement, "affiliates" of Parent for purposes of Rule 145 under the Securities Act. Parent shall use its reasonable best efforts to cause each such person to deliver to the Company on or prior to the date of mailing of the Proxy Statement a written agreement substantially in the form of Exhibit D. SECTION 6.11. Stock Exchange Listing. Parent and the Company shall use all reasonable efforts to cause the shares of Newco Common Stock to be issued in the Merger and under the Company Stock Plans and Parent Stock Plans to be approved for listing on the NYSE, subject to official notice of issuance, prior to the Closing Date. SECTION 6.12. Rights Agreements; Consequences if Rights Triggered. The Company Board shall take all action requested in writing by Parent in order to render the Company Rights inapplicable to the Merger and the other 82 Transactions. Except as approved in writing by Parent or as set forth in the Company Disclosure Letter, the Company Board shall not (i) amend the Company Rights Agreement, (ii) redeem the Company Rights or (iii) take any action with respect to, or make any determination under, the Company Rights Agreement. If any Distribution Date, Stock Acquisition Date or Triggering Event occurs under the Company Rights Agreement at any time during the period from the date of this Agreement to the Merger Effective Time, the Company and Parent shall make such adjustment to the Company Exchange Ratio and the Parent Exchange Ratio as the Company and Parent shall mutually agree so as to preserve the economic benefits that the Company and Parent each reasonably expected on the date of this Agreement to receive as a result of the consummation of the Merger and the other Transactions. SECTION 6.13. Tax Treatment. The parties intend (a) the Merger to constitute transactions described in Section 351 of the Code and (b) the Second Step Merger to constitute a transaction described in Section 368(a) of the Code. Each party and its affiliates shall use reasonable efforts to cause the Merger to so qualify and to obtain (i) the opinion of Cravath, Swaine & Moore to the effect that (A) the Merger will constitute transactions described in Section 351 of the Code and (B) the Second Step Merger will constitute a transaction described in Section 368(a) of the Code and (ii) the opinion of Jones, Day, Reavis & Pogue to the effect that the Second Step Merger will constitute a transaction described in Section 368(a) of the Code. For purposes of the tax opinions described in Sections 7.02(d) and 7.03(d) of this Agreement, each of Parent, Newco and the Company shall provide customary representation letters substantially in the form of Exhibits E, F and G, respectively, each dated on or about the date that is two business days prior to the date the Proxy Statement is mailed to the shareholders of Parent and the Company and reissued as of the Closing Date. Each of Parent, Newco and the Company and each of their respective affiliates shall not take any action and shall not fail to take any action or suffer to exist any condition which action or failure to act or condition would prevent, or would be reasonably likely to prevent, (i) the Merger from constituting transactions described in Section 351 of the Code or (ii) the Second Step Merger from constituting a transaction described in Section 368(a) of the Code. SECTION 6.14. Reorganization and Amendment. The parties to this Agreement acknowledge and agree that in the event Parent implements the Parent Reorganization prior to the Exchange Effective Time, certain changes to the 83 structure of the Merger and the other Transactions will be necessary in order for the Merger and the other Transactions to be consummated as contemplated hereby and for Newco and its subsidiaries to have, following the Merger Effective Time, the corporate structure as contemplated hereby, and the parties to this Agreement agree to negotiate in good faith and enter into an amendment to this Agreement to implement such necessary changes. SECTION 6.15. Common Stock Repurchases. (a) Subject to the last two sentences of this Section 6.15(a), the Company shall use commercially reasonable best efforts to purchase prior to the Closing at prevailing market prices to the extent possible shares of Company Common Stock for an aggregate consideration of $1,000,000,000, and Parent shall use commercially reasonable best efforts to purchase prior to the Closing at prevailing market prices to the extent possible shares of Parent Common Stock for an aggregate consideration of $500,000,000, which purchases shall, in each case, be in addition to all other purchases permitted by this Agreement (other than Section 6.15(b)) or contemplated in the Company Disclosure Letter or the Parent Disclosure Letter. The Company and Parent shall consult on a regular basis concerning the purchases described in the preceding sentence and cooperate in connection therewith. Neither the Company nor Parent shall purchase shares pursuant to this Section 6.15(a) if it is reasonably likely that such purchases would result in the failure of the closing conditions set forth in Sections 7.02(d) and 7.03(d) or the failure of the Merger and the other Transactions to be treated as a purchase of the Company by Parent under GAAP. (b) Prior to the Merger Effective Time, the Company shall purchase, at prevailing market prices to the extent possible, the minimum number of shares of Company Common Stock necessary in order that, after giving effect to the repurchases contemplated by Section 6.15(a), the Merger and the other Transactions are treated as a purchase of the Company by Parent under GAAP. (c) To the extent the purchases contemplated by this Section 6.15 are inconsistent with any other provision of this Agreement, the Company Disclosure Letter or the Parent Disclosure Letter, such provision shall be deemed to be amended to permit such purchases. SECTION 6.16. Parity of Compensation. At any time during the period from the Merger Effective Time until December 31, 2003 (the "Transition Period") when the Chairman of the Board of Directors, Chief Executive Officer 84 and President of Parent as of the date of this Agreement (the "Parent Chairman") and the Chairman of the Board of Directors, Chief Executive Officer and President of the Company (the "Company Chairman") as of the date of this Agreement are Co-Chief Executive Officers of Newco, each such Co-Chief Executive Officer shall receive the same salary, bonus and other compensation (including option grants and other incentive awards and all other forms of compensation) and enjoy the same other benefits and the same employment security arrangements as the other Co-Chief Executive Officer. SECTION 6.17. Board Seats. The Parent Chairman will retire as an executive of Newco at the end of the Transition Period and shall no longer serve as chairman of the executive committee of the Newco Board, but shall continue as a member of the Newco Board. The Company Chairman shall become the sole Chief Executive Officer of Newco immediately prior to the end of the Transition Period, and at such time shall be the Chairman of the Board of Directors of Newco, if immediately prior to such time he holds the position of Co-Chief Executive Officer. The Newco Board or the nominating committee thereof, as applicable, shall nominate for election the Parent Chairman and the Company Chairman as part of management's slate of candidates at each meeting of the shareholders (if at the time of such meeting the Parent Chairman or the Company Chairman, as applicable, is a member of the Newco Board) at which members of the Newco Board shall be elected as shall be necessary in order that the Parent Chairman or the Company Chairman, as applicable, serve as a director of Newco from the end of the Transition Period until the election of directors first following December 31, 2005. ARTICLE VII Conditions Precedent SECTION 7.01. Conditions to Each Party's Obligation To Effect The Merger. The respective obligation of each party to effect the Merger is subject to the satisfaction or waiver on or prior to the Closing Date of the following conditions: (a) Shareholder Approval. The Company shall have obtained the Company Shareholder Approval, and Parent shall have obtained the Parent Shareholder Approval. (b) Listing. The shares of Newco Company Stock issuable to the Company's and Parent's respective shareholders pursuant to this Agreement and under the 85 Company Stock Plans and Parent Stock Plans shall have been approved for listing on the NYSE, subject to official notice of issuance. (c) Statutory Approvals. The Parent Required Statutory Approvals and the Company Required Statutory Approvals shall have been obtained (including, in each case, the expiration or termination of the waiting periods (and any extensions thereof) under the HSR Act applicable to the Merger and the Transactions at or prior to the Merger Effective Time, such approvals shall have become Final Orders (as defined below) and such Final Orders shall not impose terms or conditions which, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect on Newco and its prospective subsidiaries taken as a whole or which would be materially inconsistent with the agreements of the parties contained herein. A "Final Order" means action by the relevant Governmental Entity which has not been reversed, stayed, enjoined, set aside, annulled or suspended, with respect to which any waiting period prescribed by law before the transactions contemplated hereby may be consummated has expired, and as to which all conditions to the consummation of such transactions prescribed by law, regulation or order have been satisfied. (d) No Injunctions or Restraints. No temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the Merger shall be in effect; provided, however, that prior to asserting this condition, subject to Section 6.03, each of the parties shall have used all reasonable efforts to prevent the entry of any such injunction or other order and to appeal as promptly as possible any such injunction or other order that may be entered. (e) Form S-4. The Form S-4 shall have become effective under the Securities Act and shall not be the subject of any stop order or proceedings seeking a stop order, and Newco shall have received all state securities or "blue sky" authorizations necessary to issue Newco Common Stock pursuant to the Merger. (f) Other Consents and Approvals. The consent or approval (other than Parent Required Statutory Approvals and Company Required Statutory Approvals) of each person whose consent or approval is required in order to consummate the Merger and the other Transactions shall have been obtained, except for those consents and approvals which, if not 86 obtained, could not reasonably be expected to have a Material Adverse Effect on Newco and its prospective subsidiaries taken as a whole or on the ability of Parent or the Company to consummate the Merger and the other Transactions. SECTION 7.02. Conditions to Obligations of Parent and Newco. The obligations of Parent and Newco to effect the Merger are further subject to the following conditions: (a) Representations and Warranties. The repre sentations and warranties of the Company in this Agreement shall be true and correct as of the date of this Agreement and as of the Closing Date as though made on the Closing Date, except to the extent such representations and warranties expressly relate to an earlier date (in which case such representations and warranties shall be true and correct on and as of such earlier date), other than for such failures to be true and correct that, individually and in the aggregate, have not had and could not reasonably be expected to have a Company Material Adverse Effect. Parent shall have received a certificate signed on behalf of the Company by the chief executive officer or the chief financial officer of the Company to such effect. For purposes of determining the satisfaction of this condition, the representations and warranties of the Company shall be deemed not qualified by any references therein to materiality generally or to whether or not any breach results or may result in a Company Material Adverse Effect. (b) Performance of Obligations of the Company. The Company shall have performed in all material respects all obligations required to be performed by it under this Agreement at or prior to the Closing Date, and Parent shall have received a certificate signed on behalf of the Company by the chief executive officer and the chief financial officer of the Company to such effect. (c) Letters from Company Affiliates. Parent shall have received from each person named in the letter referred to in Section 6.10(a) an executed copy of an agreement substantially in the form of Exhibit C. (d) Tax Opinion. Parent shall have received a written opinion, dated as of the Closing Date, from Cravath, Swaine & Moore, counsel to Parent, to the effect that (i) the Merger will constitute transactions described in Section 351 of the Code and (ii) the Second Step Merger will constitute a transaction described in Section 368(a) of the Code; it being understood that in rendering such opinion, such tax counsel shall be entitled to rely upon customary 87 representations provided by the parties hereto substantially in the form of Exhibits E, F and G. SECTION 7.03. Conditions to Obligations of the Company. The obligation of the Company to effect the Merger is further subject to the following conditions: (a) Representations and Warranties. The repre sentations and warranties of Parent and Newco in this Agreement shall be true and correct as of the date of this Agreement and on the Closing Date as though made on the Closing Date, except to the extent such representations and warranties expressly relate to an earlier date (in which case such representations and warranties shall be true and correct on and as of such earlier date), other than for such failures to be true and correct that, individually and in the aggregate, have not had and could not reasonably be expected to have a Parent Material Adverse Effect. The Company shall have received a certificate signed on behalf of Parent by the chief executive officer or the chief financial officer of Parent to such effect. For purposes of determining the satisfaction of this condition, the representations and warranties of Parent and Newco shall be deemed not qualified by any references therein to materiality generally or to whether or not any breach results or may result in a Parent Material Adverse Effect. (b) Performance of Obligations of Parent and Newco. Parent and Newco shall have performed in all material respects all obligations required to be performed by them under this Agreement at or prior to the Closing Date, and the Company shall have received a certificate signed on behalf of Parent by the chief executive officer and the chief financial officer of Parent to such effect. (c) Letters from Parent Affiliates. The Company shall have received from each person named in the letter referred to in Section 6.10(b) an executed copy of an agreement substantially in the form of Exhibit D. (d) Tax Opinion. The Company shall have received a written opinion, dated as of the Closing Date, from Jones, Day, Reavis & Pogue, counsel to the Company, to the effect that the Second Step Merger will constitute a transaction described in Section 368(a) of the Code; it being understood that in rendering such opinion, such tax counsel shall be entitled to rely upon customary representations provided by the parties hereto substantially in the form of Exhibits E, F and G. 88 (e) First Step Exchange. The First Step Exchange shall have been consummated. ARTICLE VIII Termination, Amendment and Waiver SECTION 8.01. Termination. This Agreement may be terminated at any time prior to the Exchange Effective Time, whether before or after receipt of the Company Shareholder Approval or the Parent Shareholder Approval: (a) by mutual written consent of Parent, Newco and the Company; (b) by either Parent or the Company: (i) if the Second Step Merger is not consum mated on or before March 31, 2001 (the "Outside Date"), unless the failure to consummate the Merger is the result of a breach of this Agreement by the party seeking to terminate this Agreement; provided, however, that the passage of such period shall be tolled for any part thereof during which any party shall be subject to a nonfinal order, decree, ruling or action restraining, enjoining or otherwise prohibiting the consummation of the Merger; (ii) if any Governmental Entity issues an order, decree or ruling or takes any other action permanently enjoining, restraining or otherwise prohibiting the Merger and such order, decree, ruling or other action shall have become final and nonappealable; (iii) if any condition to the obligation of such party to consummate the Merger set forth in Section 7.02 (in the case of Parent) or 7.03 (in the case of the Company) becomes incapable of satisfaction prior to the Outside Date; provided, however, that the failure of such condition to be met is not the result of a material breach of this Agreement by the party seeking to terminate this Agreement; (iv) if, upon a vote at a duly held meeting to obtain the Company Shareholder Approval, the Company Shareholder Approval is not obtained; or 89 (v) if, upon a vote at a duly held meeting of Parent to obtain the Parent Shareholder Approval, the Parent Shareholder Approval is not obtained; (c) by Parent, if the Company breaches or fails to perform in any material respect any of its representations, warranties or covenants contained in this Agreement, which breach or failure to perform (i) would give rise to the failure of a condition set forth in Section 7.02(a) or 7.02(b), and (ii) cannot be or has not been cured within 30 days after the giving of written notice to the Company of such breach (provided that Parent is not then in breach of any representation, warranty or covenant contained in this Agreement); (d) by Parent, if (i) the Company Board or any committee thereof withdraws or modifies, or publicly proposes to withdraw or modify, in a manner adverse to Parent or Newco, its approval or recommendation of this Agreement or the Transactions or approves or recommends, or publicly proposes to approve or recommend, any Company Competing Transaction or (ii) the Company otherwise breaches, or is deemed to be in breach of, any of its covenants in Section 5.02 in any material respect; (e) by the Company, if Parent breaches or fails to perform in any material respect of any of its representations, warranties or covenants contained in this Agreement, which breach or failure to perform (i) would give rise to the failure of a condition set forth in Section 7.03(a) or 7.03(b), and (ii) cannot be or has not been cured within 30 days after the giving of written notice to Parent of such breach (provided that the Company is not then in breach of any representation, warranty or covenant in this Agreement); (f) by the Company, if prior to receipt of the Company Shareholder Approval, (i) the Company has received a proposal for a Company Competing Transaction that constitutes a Qualifying Company Proposal that was not solicited or encouraged by the Company or its Representatives and that did not otherwise result from the breach or a deemed breach of Section 5.02, (ii) the Board of Directors of the Company has determined in good faith, based upon the advice of its outside counsel that failure to take such action could reasonably be expected to constitute a breach of the fiduciary obligations of such Board of Directors under 90 Applicable Law, that it is necessary to (A) withdraw or modify its approval or recommendation of this Agreement and the Transactions, (B) terminate this Agreement pursuant hereto and (C) enter into a Company Acquisition Agreement in connection with such Company Competing Transaction in order to comply with its fiduciary obligations under Applicable Law, (iii) the Company has notified Parent in writing of the determination described in clause (ii) above, (iv) at least ten business days following receipt by Parent of the notice referred to in clause (iii) above, and taking into account any proposal made by Parent since receipt of such notice to amend or modify the terms of the Transactions, such Qualifying Company Proposal remains a Qualifying Company Proposal and the Board of Directors of the Company has again made the determination referred to in clause (ii) above, (v) the Company is in compliance with Section 5.02, (vi) the Company has paid in advance the fee due under Section 6.07(b) to Parent, and (vii) the Board of Directors of the Company concurrently approves, and the Company concurrently enters into, a Company Acquisition Agreement providing for the implementation of such Qualifying Company Proposal; (g) by the Company, if (i) the Parent Board or any committee thereof withdraws or modifies, or publicly proposes to withdraw or modify, in a manner adverse to the Company, its approval of this Agreement or the Transactions or approves or recommends, or publicly proposes to approve or recommend, any Parent Competing Transaction or (ii) Parent otherwise breaches, or is deemed to be in breach of, any of its covenants in Section 5.03 in any material respect; or (h) by Parent, if prior to receipt of the Parent Shareholder Approval, (i) Parent has received a proposal for a Parent Competing Transaction that constitutes a Qualifying Parent Proposal that was not solicited or encouraged by Parent or its Representatives and that did not otherwise result from the breach or a deemed breach of the Section 5.03, (ii) the Board of Directors of Parent has determined in good faith, based upon the advice of its outside counsel that failure to take such action could reasonably be expected to constitute a breach of the fiduciary obligations of such Board of Directors under Applicable Law, that it is necessary to (A) withdraw or modify its approval or recommendation of this Agreement and the Transactions, (B) terminate this Agreement pursuant hereto and (C) enter into a Parent Acquisition 91 Agreement in connection with such Parent Competing Transaction in order to comply with its fiduciary obligations under Applicable Law, (iii) Parent has notified the Company in writing of the determination described in clause (ii) above, (iv) at least ten business days following receipt by the Company of the notice referred to in clause (iii) above, and taking into account any proposal made by the Company since receipt of such notice to amend or modify the terms of the Transactions, such Qualifying Parent Proposal remains a Qualifying Parent Proposal and the Board of Directors of Parent has again made the determination referred to in clause (ii) above, (v) Parent is in compliance with Section 5.03, (vi) Parent has paid in advance the fee due under Section 6.07(c) to the Company, and (vii) the Board of Directors of Parent concurrently approves, and Parent concurrently enters into, a Parent Acquisition Agreement providing for the implementation of such Qualifying Parent Proposal. SECTION 8.02. Effect of Termination. In the event of termination of this Agreement by either the Company or Parent as provided in Section 8.01, this Agreement shall forthwith become void and have no effect, without any liability or obligation on the part of Parent, Newco or the Company, other than Section 3.14, Section 4.14, the last two sentences of Section 6.02, Section 6.07, this Section 8.02 and Article IX, which provisions shall survive such termination, and except to the extent that such termination results from the wilful breach by a party of any representa tion, warranty or covenant set forth in this Agreement, in which case such termination shall not relieve any party of any liability or damages resulting from its wilful breach of this Agreement (including any such case in which a fee is payable by such party pursuant to Section 6.07(b) or (c), or any expenses of the other party are reimbursed by such party pursuant to Section 6.07(d) or (e), to the extent any such liability or damage suffered by such other party exceeds such amounts payable pursuant to Section 6.07(b), (c), (d) or (e)). The Confidentiality Agreement shall, in accordance with its terms, survive termination of this Agreement. SECTION 8.03. Amendment. This Agreement may be amended by the parties at any time before or after receipt of the Company Shareholder Approval or the Parent Shareholder Approval; provided, however, that after receipt of the Company Shareholder Approval or the Parent Shareholder Approval, there shall be made no amendment that by Applicable Law requires further approval by the shareholders of the Company or Parent without the further approval of such shareholders. This Agreement may not be 92 amended except by an instrument in writing signed on behalf of each of the parties. SECTION 8.04. Extension; Waiver. At any time prior to the Merger Effective Time, the parties may (a) extend the time for the performance of any of the obligations or other acts of the other parties, (b) waive any inaccuracies in the representations and warranties contained in this Agreement or in any document delivered pursuant to this Agreement or (c) subject to the proviso of Section 8.03, waive compliance with any of the agreements or conditions contained in this Agreement. Any agreement on the part of a party to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party. The failure of any party to this Agreement to assert any of its rights under this Agreement or otherwise shall not constitute a waiver of such rights. SECTION 8.05. Procedure for Termination, Amend ment, Extension or Waiver. A termination of this Agreement pursuant to Section 8.01, an amendment of this Agreement pursuant to Section 8.03 or an extension or waiver pursuant to Section 8.04 shall, in order to be effective, require in the case of Parent, Newco or the Company, action by its Board of Directors or the duly authorized designee of its Board of Directors. ARTICLE IX General Provisions SECTION 9.01. Nonsurvival of Representations and Warranties. None of the representations and warranties in this Agreement or in any instrument delivered pursuant to this Agreement shall survive the Merger Effective Time. This Section 9.01 shall not limit any covenant or agreement of the parties which by its terms contemplates performance after the Merger Effective Time. SECTION 9.02. Notices. All notices, requests, claims, demands and other communications under this Agree ment shall be in writing and shall be deemed given upon 93 receipt by the parties at the following addresses (or at such other address for a party as shall be specified by like notice): (a) if to Parent or Newco, to PECO Energy Company 2301 Market Street P.O. Box 8699 Philadelphia, PA 19101-8699 Telecopy No: (215) 841-4282 Attention: General Counsel with a copy to: Cravath, Swaine & Moore 825 Eighth Avenue New York, New York 10019 Telecopy No: (212) 474-3700 Attention: Philip A. Gelston (b) if to the Company, to Unicom Corporation 10 S. Dearborn, 37th Floor Chicago, IL 60603 Telecopy No: (312) 394-4488 Attention: General Counsel with a copy to: Jones, Day, Reavis & Pogue 77 West Walker Drive Chicago, Illinois 60001 Telecopy No: (312) 782-8585 Attention: Paul T. Ruxin Robert A. Yolles SECTION 9.03. Definitions. For purposes of this Agreement: An "affiliate" of any person means another person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such first person. 94 A "Material Adverse Effect" means, in respect of any person, a material adverse effect on (a) the business, assets, condition (financial or otherwise), prospects or results of operations of such person and its subsidiaries, taken as a whole or (b) the ability of such person to perform its obligations under this Agreement or on the ability of such person to consummate the Merger and the other Transactions. A "person" means any individual, firm, corporation, partnership, company, limited liability company, trust, joint venture, association, Governmental Entity or other entity. A "subsidiary" of any person means another person, an amount of the voting securities, other voting ownership or voting partnership interests of which is sufficient to elect a majority of its Board of Directors or other governing body (or, if there are no such voting interests, more than 50% of the equity interests of which) is owned directly or indirectly by such first person. SECTION 9.04. Interpretation; Disclosure Letters. When a reference is made in this Agreement to a Section, such reference shall be to a Section of this Agreement unless otherwise indicated. The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the words "include", "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation". Any matter disclosed in any section of either the Company Disclosure Letter or the Parent Disclosure Letter shall be deemed disclosed for all purposes and all sections of the Company Disclosure Letter or Parent Disclosure Letter, as applicable to the extent that it is reasonably apparent from a reading of such disclosure item that it would qualify or apply to such other sections, and otherwise shall be deemed disclosed only for the purposes of the specific Sections of this Agreement to which such section relates. Notwithstanding the amendment and restatement of this Agreement, as between September 22, 1999 and January 7, 2000, the representations and warranties of the Company set forth in Article III and of Parent and Newco set forth in Article IV will be deemed for purposes of Section 7.02(a) and Section 7.03(a), as applicable, and otherwise to have been made as of September 22, 1999, and not as of January 7, 2000, and such amendment and restatement will not otherwise affect the other requirements in Sections 7.02(a) and Section 7.03(a). 95 SECTION 9.05. Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule or Applicable Law, or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that transactions contemplated hereby are fulfilled to the extent possible. SECTION 9.06. Counterparts. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other parties. SECTION 9.07. Entire Agreement; No Third-Party Beneficiaries. This Agreement, taken together with the Company Disclosure Letter, the Parent Disclosure Letter and the Confidentiality Agreement, (a) constitute the entire agreement, and supersede all prior agreements and understandings, both written and oral, among the parties with respect to the Transactions and (b) except for the provisions of Article II and Sections 6.06, 6.16 and 6.17 are not intended to confer upon any person other than the parties any rights or remedies. SECTION 9.08. Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof, except to the extent the laws of Pennsylvania or Illinois are mandatorily applicable to the Merger. SECTION 9.09. Assignment. Neither this Agreement nor any of the rights, interests or obligations under this Agreement shall be assigned, in whole or in part, by opera tion of law or otherwise by any of the parties without the prior written consent of the other parties, except that Newco may assign, in its sole discretion, any of or all its rights, interests and obligations under this Agreement to Parent or to any direct or indirect wholly owned subsidiary of Parent, but no such assignment shall relieve Newco of any of its obligations under this Agreement. Any purported 96 assignment without such consent shall be void. Subject to the preceding sentences, this Agreement will be binding upon, inure to the benefit of, and be enforceable by, the parties and their respective successors and assigns. SECTION 9.10. Enforcement. The parties agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement in any New York state court or any Federal court located in the State of New York, this being in addition to any other remedy to which they are entitled at law or in equity. In addition, each of the parties hereto (a) consents to submit itself to the personal jurisdiction of any New York state court or any Federal court located in the State of New York in the event any dispute arises out of this Agreement or any Transaction, (b) agrees that it will not attempt to deny or defeat such personal jurisdiction by motion or other request for leave from any such court, (c) agrees that it will not bring any action relating to this Agreement or any Transaction in any court other than any New York state court or any Federal court sitting in the State of New York and (d) waives any right to trial by jury with respect to any action related to or arising out of this Agreement or any Transaction. SECTION 9.11. Newco Obligations. Parent and the Company hereby agree to take such actions as shall be necessary in order that Newco shall assume any obligation under this Agreement that by its terms is to be performed by Newco after the Closing. 97 IN WITNESS WHEREOF, Parent, Newco and the Company have duly executed this Agreement, all as of the date first written above. PECO ENERGY COMPANY, by /s/ Corbin A. McNeill, Jr. ------------------------------ Name: Corbin A. McNeill, Jr. Title: Chairman of the Board, President, and Chief Executive Officer EXELON CORPORATION, by /s/ Corbin A. McNeill, Jr. ---------------------------------- Name: Corbin A. McNeill, Jr. Title: Chairman of the Board, President, and Chief Executive Officer UNICOM CORPORATION, by /s/ John W. Rowe ------------------------------ Name: John W. Rowe Title: Chairman of the Board, President, and Chief Executive Officer 1
TABLE OF CONTENTS ARTICLE I The Exchange and Merger SECTION 1.01. The Exchange and Merger........................................................................2 SECTION 1.02. Closing........................................................................................2 SECTION 1.03. Merger Effective Time..........................................................................3 SECTION 1.04. Effects........................................................................................3 SECTION 1.05. Articles of Incorporation and By-laws..........................................................4 SECTION 1.06. Newco Board of Directors.......................................................................4 SECTION 1.07. Newco Senior Officers..........................................................................4 SECTION 1.08. Operations.....................................................................................5 ARTICLE II Effect on the Capital Stock of theConstituent Corporations SECTION 2.01. Effect on Capital Stock........................................................................5 SECTION 2.02. Exchange of Certificates.......................................................................7 Section 2.03. Certain Adjustments...........................................................................13 ARTICLE III Representations and Warranties of the Company SECTION 3.01. Organization, Standing and Power..............................................................13 SECTION 3.02. Company Subsidiaries; Equity Interests........................................................14 SECTION 3.03. Capital Structure.............................................................................14 SECTION 3.04. Authority; Execution and Delivery; Enforceability................................................................16 SECTION 3.05. No Conflicts; Consents........................................................................17 SECTION 3.06. SEC Documents; Undisclosed Liabilities........................................................19 SECTION 3.07. Information Supplied..........................................................................20 SECTION 3.08. Absence of Certain Changes or Events..........................................................20 SECTION 3.09. Taxes.........................................................................................21 SECTION 3.10. Absence of Changes in Benefit Plans...........................................................23 SECTION 3.11. ERISA Compliance; Excess Parachute Payments...................................................23 SECTION 3.12. Litigation....................................................................................26 SECTION 3.13. Compliance with Applicable Laws; Permits......................................................26 SECTION 3.14. Brokers; Schedule of Fees and Expenses........................................................27 SECTION 3.15. Opinion of Financial Advisor..................................................................27 SECTION 3.16. Year 2000.....................................................................................27 SECTION 3.17. Environmental Matters.........................................................................27 SECTION 3.18. Labor and Employee Relations..................................................................30 SECTION 3.19. Operations of Nuclear Power Plants............................................................30 SECTION 3.20. Parent Share Ownership........................................................................31 SECTION 3.21. Regulation as a Utility.......................................................................31 2 SECTION 3.22. Contracts; No Default.........................................................................31 SECTION 3.23. Title to Properties...........................................................................31 SECTION 3.24. Intellectual Property.........................................................................32 Section 3.25. Hedging.......................................................................................32 Section 3.26. Regulatory Proceedings........................................................................32 ARTICLE IV Representations and Warranties of Parent and Newco SECTION 4.01. Organization, Standing and Power..............................................................33 SECTION 4.02. Parent Subsidiaries; Equity Interests.........................................................33 SECTION 4.03. Capital Structure.............................................................................34 SECTION 4.04. Authority; Execution and Delivery; Enforceability................................................................36 SECTION 4.05. No Conflicts; Consents........................................................................37 SECTION 4.06. SEC Documents; Undisclosed Liabilities........................................................38 SECTION 4.07. Information Supplied..........................................................................39 SECTION 4.08. Absence of Certain Changes or Events..........................................................39 SECTION 4.09. Taxes.........................................................................................40 SECTION 4.10. Absence of Changes in Benefit Plans...........................................................41 SECTION 4.11. ERISA Compliance; Excess Parachute Payments...................................................42 SECTION 4.12. Litigation....................................................................................44 SECTION 4.13. Compliance with Applicable Laws; Permits......................................................44 SECTION 4.14. Brokers; Schedule of Fees and Expenses........................................................45 SECTION 4.15. Opinions of Financial Advisors................................................................45 SECTION 4.16. Year 2000.....................................................................................46 SECTION 4.17. Environmental Matters.........................................................................46 SECTION 4.18. Labor and Employee Relations..................................................................47 SECTION 4.19. Operations of Nuclear Power Plants............................................................47 SECTION 4.20. Company Share Ownership.......................................................................49 SECTION 4.21. Regulation as a Utility.......................................................................49 SECTION 4.22. Contracts; No Default.........................................................................49 SECTION 4.23. Title to Properties...........................................................................49 SECTION 4.24. Intellectual Property.........................................................................50 Section 4.25. Hedging.......................................................................................50 Section 4.26. Regulatory Proceedings........................................................................50 ARTICLE V Covenants Relating to Conduct of Business SECTION 5.01. Conduct of Business...........................................................................51 SECTION 5.02. No Solicitation by Company....................................................................61 SECTION 5.03. No Solicitation by Parent.....................................................................64 3 ARTICLE VI Additional Agreements SECTION 6.01. Preparation of the Form S-4 and the Proxy Statement; Shareholders Meetings..............................................67 SECTION 6.02. Access to Information; Confidentiality........................................................69 SECTION 6.03. Regulatory Matters; Reasonable Best Efforts...................................................70 SECTION 6.04. Company and Parent Stock Options and Other Stock Plans.............................................................71 SECTION 6.05. Benefit Plans; Workforce Matters..............................................................75 SECTION 6.06. Indemnification...............................................................................78 SECTION 6.07. Fees and Expenses.............................................................................79 SECTION 6.08. Public Announcements..........................................................................80 SECTION 6.09. Transfer Taxes................................................................................80 SECTION 6.10. Affiliates....................................................................................81 SECTION 6.11. Stock Exchange Listing........................................................................81 SECTION 6.12. Rights Agreements; Consequences if Rights Triggered.....................................................................81 SECTION 6.13. Tax Treatment.................................................................................82 SECTION 6.14. Reorganization and Amendment..................................................................82 SECTION 6.15. Common Stock Repurchase.......................................................................83 SECTION 6.16. Parity of Compensation........................................................................83 SECTION 6.17. Board Seats...................................................................................84 ARTICLE VII Conditions Precedent SECTION 7.01. Conditions to Each Party's Obligation To Effect The Merger.............................................................84 SECTION 7.02. Conditions to Obligations of Parent and Newco.....................................................................86 SECTION 7.03. Conditions to Obligations of the Company......................................................87 ARTICLE VIII Termination, Amendment and Waiver SECTION 8.01. Termination...................................................................................88 SECTION 8.02. Effect of Termination.........................................................................91 SECTION 8.03. Amendment.....................................................................................91 SECTION 8.04. Extension; Waiver.............................................................................92 SECTION 8.05. Procedure for Termination, Amendment, Extension or Waiver...........................................................92 4 ARTICLE IX General Provisions SECTION 9.01. Nonsurvival of Representations and Warranties....................................................................92 SECTION 9.02. Notices.......................................................................................92 SECTION 9.03. Definitions...................................................................................93 SECTION 9.04. Interpretation; Disclosure Letters............................................................94 SECTION 9.05. Severability..................................................................................95 SECTION 9.06. Counterparts..................................................................................95 SECTION 9.07. Entire Agreement; No Third-Party Beneficiaries.................................................................95 SECTION 9.08. Governing Law.................................................................................95 SECTION 9.09. Assignment....................................................................................95 SECTION 9.10. Enforcement...................................................................................96 SECTION 9.11. Newco Obligations.............................................................................96
5 INDEX OF DEFINED TERMS Defined Term Section "Affiliate" Section 9.03 "Agreement" Recitals "AmerGen" Section 5.01(b)(iv) "AmerGen Nuclear Facilities" Section 4.19(b) "Applicable Law" Section 3.05(a) "Articles of Exchange" Section 1.03(a) "Atomic Energy Act" Section 3.05(b) "Certificates" Section 2.02(b)(v) "Closing" Section 1.02 "Closing Date" Section 1.02 "Code" Recitals "ComEd" Section 1.08(a) "Common Shares Trust" Section 2.02(e)(ii) "Company" Recitals "Company Acquisition Agreement" Section 5.02(b) "Company Benefit Plans" Section 3.10 "Company Board" Section 3.04(b) "Company By-laws" Section 3.01 "Company Cash Consideration" Section 2.01(b)(ii) "Company Certificates" Section 2.02(b)(v) "Company Chairman" Section 6.16 "Company Charter" Section 3.01 "Company Common Stock" Recitals "Company Competing Transaction" Section 5.02(a) "Company Conversion Number" Section 2.01(b)(ii) "Company Disclosure Letter" Section 3.02(a) "Company Dissent Shares" Section 2.01(b)(iv) "Company Employee Stock Option" Section 6.04(f) "Company Employment Arrangements" Section 3.10 "Company Exchange Ratio" Section 2.01(b)(ii) "Company Material Adverse Effect" Section 3.01 "Company Nuclear Facilities" Section 3.19 "Company Permits" Section 3.13(b) "Company Reorganization" Section 5.01(g) "Company Required Statutory Approvals" Section 3.05(b) "Company Rights" Section 3.03(a) "Company Rights Agreement" Section 3.03(a) "Company SEC Documents" Section 3.06 "Company Shareholder Approval" Section 3.04(c) "Company Shareholders Meeting" Section 6.01(d) "Company Stock Plans" Section 6.04(f) "Company Subsidiaries" Section 3.01 "Confidentiality Agreement" Section 6.02 "Consent" Section 3.05(b) "Contract" Section 3.05(a) "ERISA" Section 3.11(b) 6 "Election Deadline" Section 2.02(b) "Environmental Claims" Section 3.17(f)(i) "Environmental Laws" Section 3.17(f)(ii) "Environmental Permits" Section 3.17(f)(iii) "Excess Shares" Section 2.02(e)(ii) "Exchange Act" Section 3.05(b) "Exchange Agent" Section 2.02(a) "Exchange Consideration" Section 2.01(a)(ii) "Exchange Effective Time" Section 1.03(a) "Exchange Fund" Section 2.02(a) "FERC" Section 3.05(b) "Filed Company SEC Documents" Section 3.08 "Filed Parent SEC Documents" Section 4.08 "Final Order" Section 7.01(c) "First Step Exchange" Recitals "Form S-4" Section 3.07 "Form of Election" Section 2.02(b) "GAAP" Section 3.06 "Governmental Entity" Section 3.05(b) "Hazardous Materials" Section 3.17(f)(iv) "HSR Act" Section 3.05(b) "IBCA" Section 1.01(b) "ICC" Section 3.05(b) "Illinois Articles of Merger" Section 1.03(b) "Indemnified Party" Section 6.06(c) "Intellectual Property Rights" Section 3.24 "Judgment" Section 3.05(a) "Liens" Section 3.02(a) "Losses" Section 6.06(c) "Material Adverse Effect" Section 9.03 "Merger" Recitals "Merger Consideration" Section 2.01(b)(ii) "Merger Effective Time" Section 1.03(b) "NRC" Section 3.05(b) "NYSE" Section 2.02(e)(ii) "Newco" Recitals "Newco Articles" Section 1.05(a) "Newco Board" Section 1.06(b) "Newco By-laws" Section 1.05(b) "Newco Common Stock" Recitals "Original Merger Agreement" Recitals "Outside Date" Section 8.01(b) "PBCL" Section 1.01(a) "PCBs" Section 3.17(f)(iv) "PPUC" Section 4.05(b) "PUHCA" Section 3.02(a) "PURPA" Section 3.02(a) "Parent" Recitals "Parent Acquisition Agreement" Section 5.03(b) "Parent Benefit Plans" Section 4.10 "Parent Board" Section 4.04(b) 7 "Parent By-laws" Section 4.01 "Parent Capital Stock" Section 4.03(a) "Parent Certificate" Section 2.02(b)(v) "Parent Chairman" Section 6.16 "Parent Charter" Section 4.01 "Parent Common Stock" Recitals "Parent Competing Transaction" Section 5.03(a) "Parent Disclosure Letter" Section 4.02(a) "Parent Employee Stock Option" Section 6.04(f) "Parent Employment Arrangements" Section 4.10 "Parent Exchange Ratio" Section 2.01(a)(ii) "Parent Material Adverse Effect" Section 4.01 "Parent Nuclear Facilities" Section 4.19(a) "Parent Permits" Section 4.13(b) "Parent Preferred Stock" Section 4.03(a) "Parent Reorganization" Section 5.01(g) "Parent Required Statutory Approvals" Section 4.05(b) "Parent SAR" Section 6.04(f) "Parent SEC Documents" Section 4.06 "Parent Shareholder Approval" Section 4.04(c) "Parent Shareholders Meeting" Section 6.01(e) "Parent Stock Plans" Section 6.04(f) "Parent Subsidiaries" Section 4.01 "Power Purchase Agreement" Section 5.01(a)(xii) "Pennsylvania Articles of Merger" Section 1.03(b) "Pennsylvania Competition Act" Section 4.13(b) "Person" Section 9.03 "Power Act" Section 3.02(a) "Proxy Statement" Section 3.05(b) "Qualified Plans" Section 3.11(a) "Qualifying Company Proposal" Section 5.02(d) "Qualifying Parent Proposal" Section 5.03(d) "Release" Section 3.17(f)(v) "Representatives" Section 5.02(a) "SEC" Section 3.05(b) "Second Step Merger" Recitals "Sections 11.65 and 11.70" Section 2.01(b)(iv) "Securities Act" Section 3.06 "Share Issuance" Section 1.01(c) "Stock Plan" Section 6.04(e) "Subsidiary" Section 9.03 "Surviving Corporation" Section 1.01(b) "Taxes" Section 3.09(g) "Tax Return" Section 3.09(g) "Transactions" Section 1.01(c) "Transition Period" Section 6.16 "Transfer Taxes" Section 6.09 "Voting Company Debt" Section 3.03(d) "Voting Parent Debt" Section 4.03(d) I.II.A.B.C.1.2.(a)(i)a.b.i.ii.a)b)c) EX-10.1 3 0003.txt STOCK PURCHASE AGREEMENT dated as of August 11, 2000 Among EXELON (FOSSIL) HOLDINGS, INC., as Buyer and THE STOCKHOLDERS OF SITHE ENERGIES, INC. NAMED HEREIN, as Sellers and SITHE ENERGIES, INC.
TABLE OF CONTENTS PAGE ARTICLE 1. CERTAIN DEFINITIONS.............................................................................2 ARTICLE 2. PURCHASE AND SALE OF STOCK.....................................................................15 Section 2.1 Purchase and Sale of Stock..............................................................15 Section 2.2 Initial Purchase Price Adjustment.......................................................17 Section 2.3 Additional Purchase Price Adjustments Related to International Sales....................20 Section 2.4 Distribution of International Entities on the Put/Call Date.............................26 Section 2.5 Payment of Amounts Due Pursuant to Section 2.3 and Section 2.4..........................27 Section 2.6 Certain Preliminary Transactions........................................................28 ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY..................................................30 Section 3.1 Organization, Qualification and Corporate Power.........................................30 Section 3.2 Authorization; Validity.................................................................31 Section 3.3 No Conflict.............................................................................32 Section 3.4 Capital Stock...........................................................................32 Section 3.5 Financial Statements....................................................................33 Section 3.6 Litigation; Compliance with Law.........................................................35 Section 3.7 Tax Matters.............................................................................36 Section 3.8 Material Contracts......................................................................39 Section 3.9 Consents and Approvals..................................................................40 Section 3.10 Brokers.................................................................................40 Section 3.11 Labor Matters...........................................................................40 Section 3.12 ERISA...................................................................................41 Section 3.13 Events Subsequent to March 31, 2000.....................................................44 Section 3.14 Title to Properties.....................................................................46 Section 3.15 Insurance...............................................................................47 Section 3.16 Transactions with Certain Persons.......................................................48 Section 3.17 Compliance With Environmental Laws......................................................48 Section 3.18 Real Property...........................................................................49 Section 3.19 Patents, Copyrights and Trademarks......................................................50 Section 3.20 Corporate Records.......................................................................50 Section 3.21 Qualifying Facilities...................................................................51 Section 3.22 Exempt Wholesale Generators and Foreign Utility Companies...............................51 ARTICLE 4. REPRESENTATIONS AND WARRANTIES OF EACH SELLER..................................................51 Section 4.1 Organization and Corporate Power........................................................52 Section 4.2 Authorization; Validity.................................................................52 Section 4.3 No Conflict.............................................................................53 Section 4.4 Ownership of Stock......................................................................53 Section 4.5 Public Utility..........................................................................54 ARTICLE 5. REPRESENTATIONS AND WARRANTIES OF BUYER........................................................54 Section 5.1 Organization and Corporate Power........................................................54 Section 5.2 Authorization of Agreement; Validity....................................................54 Section 5.3 No Conflict.............................................................................54 Section 5.4 Consents and Approvals..................................................................55 i Section 5.5 Brokers.................................................................................55 Section 5.6 Availability of Funds...................................................................55 Section 5.7 Investment Purpose; Restricted Securities...............................................55 Section 5.8 No Public Market........................................................................56 Section 5.9 Legends.................................................................................56 ARTICLE 6. ACCESS; ADDITIONAL AGREEMENTS..................................................................57 Section 6.1 Access to Information; Continuing Disclosure............................................57 Section 6.2 Regulatory Approvals....................................................................58 Section 6.3 Further Assurances......................................................................59 Section 6.4 Certain Tax Matters.....................................................................59 Section 6.5 Regular Course of Business..............................................................60 Section 6.6 Notice of Changes.......................................................................65 Section 6.7 Director and Officer Indemnification and Insurance......................................66 Section 6.8 Credit Facilities.......................................................................67 Section 6.9 No Solicitation.........................................................................67 Section 6.10 Interim Financial Statements............................................................69 Section 6.11 No Adverse Action.......................................................................69 Section 6.12 PUHCA Compliance........................................................................69 Section 6.13 Option Plans............................................................................70 Section 6.14 Development and Fuel Services Agreement and Power Purchase Agreement....................70 ARTICLE 7. CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS....................................................70 Section 7.1 No Injunction...........................................................................70 Section 7.2 Representations and Warranties..........................................................71 Section 7.3 Performance.............................................................................72 Section 7.4 Approvals and Filings...................................................................72 Section 7.5 Amended and Restated Stockholders' Agreement............................................72 Section 7.6 Opinion of Counsel......................................................................72 Section 7.7 No Material Adverse Effect..............................................................72 Section 7.8 Ownership Percentage....................................................................73 Section 7.9 Niagara Mohawk Shares...................................................................73 ARTICLE 8. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE SELLERs and the company.........................73 Section 8.1 No Injunction...........................................................................73 Section 8.2 Representations and Warranties..........................................................74 Section 8.3 Performance.............................................................................74 Section 8.4 Approvals and Filings...................................................................74 Section 8.5 Amended and Restated Stockholders' Agreement............................................75 Section 8.6 Opinion of Counsel......................................................................75 Section 8.7 No Material Adverse Effect..............................................................75 Section 8.8 Credit Support Letter...................................................................75 Section 8.9 Dividend................................................................................76 ARTICLE 9. CLOSING........................................................................................76 Section 9.1 Time and Place..........................................................................76 Section 9.2 Payment for Stock.......................................................................77 Section 9.3 Deliveries..............................................................................77 ii ARTICLE 10. TERMINATION AND ABANDONMENT....................................................................78 Section 10.1 Methods of Termination..................................................................78 Section 10.2 Procedure Upon Termination and Consequences.............................................79 ARTICLE 11. SURVIVAL.......................................................................................80 Section 11.1 Seller Representations and Warranties; Buyer Representations and Warranties.............80 Section 11.2 Covenants...............................................................................80 Section 11.3 Company Representations and Warranties..................................................80 Section 11.4 Survival Periods........................................................................81 ARTICLE 12. INDEMNIFICATION................................................................................81 Section 12.1 Seller Indemnification..................................................................81 Section 12.2 Buyer Indemnification...................................................................84 Section 12.3 Timing of Notice of Claim...............................................................84 Section 12.4 Limitations on Indemnification..........................................................85 Section 12.5 Procedure...............................................................................87 Section 12.6 Calculation.............................................................................88 Section 12.7 Characterization........................................................................90 ARTICLE 13. MISCELLANEOUS..................................................................................90 Section 13.1 Amendment and Modification..............................................................90 Section 13.2 Waiver of Compliance....................................................................91 Section 13.3 Notices.................................................................................91 Section 13.4 Binding Nature; Assignment..............................................................93 Section 13.5 Entire Agreement........................................................................95 Section 13.6 Expenses................................................................................96 Section 13.7 Press Releases and Announcements; Disclosure............................................96 Section 13.8 Acknowledgment..........................................................................96 Section 13.9 Disclaimer Regarding Assets.............................................................98 Section 13.10 Governing Law...........................................................................98 Section 13.11 Nonforeign Affidavit....................................................................99 Section 13.12 Counterparts............................................................................99 Section 13.13 Interpretation.........................................................................100 Section 13.14 Waiver of Right of First Refusal.......................................................100 Section 13.15 Matters Related to NEDC................................................................100
iii SCHEDULES Schedule 1 - Sellers Schedule 1A - Executive Officers Schedule 1B - International Entities Schedule 3.1.2 - Significant Subsidiaries Schedule 3.3 - Conflicts Schedule 3.4 - Capital Stock Schedule 3.5 - Financial Statements Schedule 3.6 - Litigation; Compliance with Law Schedule 3.7 - Tax Matters Schedule 3.8 - Contracts Schedule 3.9 - Company Consents and Approvals Schedule 3.11 - Labor Matters Schedule 3.12 - Employee Benefits Schedule 3.13 - Events Subsequent to March 31, 2000 Schedule 3.14 - Certain Dispositions and Transactions Schedule 3.15 - Insurance Schedule 3.16 - Transactions with Certain Persons Schedule 3.17 - Environmental Matters Schedule 3.18 - Real Property Schedule 5.4 - Buyer Consents and Approvals Schedule 6.5 - Exceptions to Ordinary Course of Business Schedule 7.4 - Consents and Approvals (Buyer's Condition) Schedule 7.6 - Opinion of Company's and Sellers' Counsel Schedule 8.4 - Consents and Approvals (Company's and Sellers' Condition) Schedule 8.6 - Opinion of Buyer's Counsel iv EXHIBITS Exhibit A - Form of Amended and Restated Stockholders' Agreement Exhibit B - Terms of Development and Fuel Services Agreement 2 STOCK PURCHASE AGREEMENT This Stock Purchase Agreement, dated as of August 11, 2000 (this "Agreement") among Exelon (Fossil) Holdings, Inc., a Delaware corporation ("Buyer"), the stockholders of Sithe Energies, Inc., a Delaware corporation (the "Company"), listed on Schedule 1 (each individually a "Seller" and collectively, the "Sellers") and the Company. R E C I T A L S A. The Sellers own shares of Common Stock (as defined herein). B. Buyer desires to purchase from each Seller, and each Seller desires to sell to Buyer, subject to the terms and conditions of this Agreement, that number of shares of Common Stock set forth beside the name of such Seller on Schedule 1 (the "Sithe Stock"). C. The Board of Directors of the Company has determined that the consummation of the transactions contemplated by this Agreement, upon the terms and conditions set forth in this Agreement, is in the best interests of the Company and its stockholders. NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: 1 ARTICLE 1. CERTAIN DEFINITIONS For the purposes of this Agreement, the following words and phrases shall have the following meanings: "1998 Plan" means the Company's Amended and Restated 1998 Employee Restricted Stock Ownership Plan, as amended, modified or supplemented. "1999 Stock Plan" means the Company's Amended and Restated 1999 Stock Retention Plan, as amended, modified or supplemented. "Act" has the meaning as set forth in Section 5.7. "Adjusted Seller" has the meaning as set forth in Section 2.3. "Adjustment Amount" means an amount (which may be positive or negative) equal to: (a) the result obtained by subtracting Reference Stockholders' Equity from Closing Stockholders' Equity; less (b) the amount of the after-tax gain (determined in accordance with GAAP) resulting from the closing of the transactions consummated pursuant to the Reliant Purchase Agreement; plus (c) $90.0 million related to dividends if declared and accrued prior to the Closing Date (whether or not paid prior to the Closing Date); plus (d) the amount of any payment by the Company pursuant to Section 2.1.2.2, to the extent such payment, or any accrual therefor, is reflected on the Closing Balance Sheet; as the amount determined pursuant to clauses (a) through (c) shall be adjusted to eliminate (i) any after-tax credits (but not charges) resulting from or relating to any restructuring, renegotiation, refinancing, buy-out or buy-down of the contractual rights and obligations of the Qualifying Facilities owned by the Company or any of its Subsidiaries or (ii) any after-tax non-cash charges or credits recorded prior to the Closing Date due to changes in accounting principles from the accounting principles utilized in preparing the Company's 1999 audited financial statements. 2 "Advisors" has the meaning as set forth in Section 13.8. "Affiliate" means any Person in control or under control of, or under common control with, another Person. For purposes of the foregoing, "control", with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through ownership of voting securities or by contract or otherwise. "After-Tax Gain or Loss" has the meaning as set forth in Section 2.3. "Agreement" has the meaning as set forth in the first paragraph of this Agreement. "Allegheny Entities" has the meaning as set forth in Section 12.1. "Amended and Restated Stockholders' Agreement" means the Amended and Restated Stockholders' Agreement, substantially in the form of Exhibit A hereto, to be entered into among Buyer, the Sellers and the Company upon the Closing. "Asian Assets" means the Company's common stock of, stock investments in and loans and advances to, in each case, Sithe Asia Holdings, Limited and its Affiliates. "Base Purchase Price" means $682.0 million. "BECO Facility" means that certain Credit Agreement, dated as of May 15, 1998, among Sithe New England Holdings, LLC, Bank of Montreal, as agent, and the financial institutions party thereto, as amended, modified and supplemented. "Benefit Arrangement" means any executive incentive arrangement consisting of (i) any employment or individual personal services agreement involving annual base salary of at least $250,000 (with respect to any such agreement that is an employment agreement) or annual compensation of at least $250,000 (with respect to any other such agreement), but excluding any agreement 3 of at-will employment, (ii) any equity compensation plan, (iii) any deferred compensation plan, and (iv) any other material employee benefit plans. "Benefit Plan" has the meaning as set forth in Section 3.12. "Book Value" means the net book value of any equity interests and/or assets sold (together with any liabilities assumed by the transferee) pursuant to an International Sale or a disposition of assets pursuant to Section 2.4, as determined in accordance with GAAP and reflected on the general ledgers of the Company and its consolidated subsidiaries, as of the date of such International Sale or disposition of assets pursuant to Section 2.4 . "Business Day" means any day other than a Saturday, a Sunday or a day on which commercial banking institutions in New York, New York are authorized or obligated by law or executive order to be closed. "Buyer" has the meaning as set forth in the first paragraph of this Agreement. "Buyer Indemnified Group" has the meaning as set forth in Section 12.1. "Buyer Representatives" has the meaning as set forth in Section 12.1. "Charter Documents" has the meaning as set forth in Section 3.3. "Claim" has the meaning as set forth in Section 12.3. "Closing" has the meaning as set forth in Section 9.1. "Closing Book Value" means the net book value as of the Closing Date of any equity interest and/or assets sold (together with any liabilities assumed by the transferee) after the Closing Date pursuant to an International Sale or a disposition of assets pursuant to Section 2.4, as determined in accordance with GAAP and reflected on the general ledgers of the Company and its consolidated subsidiaries, except that such net book value shall be adjusted to eliminate the 4 effect of non-cash write-ups or write-downs in the value of such assets during the period beginning March 31, 2000 and ending on the Closing Date. "Closing Date" has the meaning as set forth in Section 9.1. "Closing Balance Sheet" means a consolidated balance sheet at the Closing Date of the Company and its subsidiaries (including any International Entities) to be audited by the Company's auditors and prepared in accordance with GAAP. "Closing Statement" has the meaning as set forth in Section 2.2. "Closing Stockholders' Equity" means "Stockholders' Equity", as reflected on the Closing Balance Sheet. "Code" means the Internal Revenue Code of 1986, as amended. All citations to the Code or to the regulations promulgated thereunder shall include any amendments or any substitute or successor provisions thereto. "Collective Bargaining Agreements" has the meaning as set forth in Section 3.11. "Common Stock" means the common stock, par value $0.01 per share, of the Company. "Company" has the meaning as set forth in the first paragraph of this Agreement. "Confidentiality Agreement" has the meaning as set forth in Section 6.1. "Contract" means a contract, lease, license, note, bond, mortgage, indenture, instrument or other similar obligation. "Corporate Sellers" means the Sellers identified as "Corporate Sellers" on Schedule 1. "Credit Support Letter" means that certain letter, dated the date hereof, from PECO Energy Company. "Damages" has the meaning as set forth in Section 12.1. "D&O Claim" has the meaning as set forth in Section 6.7. 5 "Development and Fuel Services Agreement" shall mean a Development and Fuel Services Agreement, substantially in accordance with the terms attached hereto as Exhibit B. "Director Indemnified Party" has the meaning as set forth in Section 6.7. "Director Termination Date" means the last date on which any director nominated by any Seller shall serve on the board of directors of the Company. "Divestiture Committee" has the meaning as defined in the Amended and Restated Stockholders' Agreement. "Dividend" has the meaning as set forth in Section 2.6. "DOJ" has the meaning as set forth in Section 6.2. "Employee Benefit Plan" means any employee benefit plan, as defined in Section 3(3) of ERISA. "Environmental Laws" means all applicable Federal, state and local laws and regulations, relating to pollution or protection of the environment or natural resources, including laws relating to releases or threatened releases of hazardous substances (including, without limitation, releases to ambient air, surface water, groundwater, land and surface and subsurface strata) or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, release, transport, disposal or handling of hazardous substances. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "ERISA Affiliate" of the Company means any other person that, together with the Company as of the relevant measuring date under ERISA, is required to be treated as a single employer under Section 414 of the Code. "Estimated Adjustment Amount" has the meaning as set forth in Section 2.2. "Estimated Closing Statement" has the meaning as set forth in Section 2.2. 6 "EWG" has the meaning as set forth in Section 3.22. "Federal Power Act" means the Federal Power Act of 1920, as amended, and rules promulgated thereunder. "FERC" has the meaning as set forth in Section 6.2. "Financial Statements" has the meaning as set forth in Section 3.5. "FTC" has the meaning as set forth in Section 6.2. "FUCO" has the meaning as set forth in Section 3.22. "GAAP" means generally accepted accounting principles in the United States. "GPU Purchase Agreement" means the Purchase and Sale Agreement dated as of October 29, 1998, as amended by Amendments 1 through 9, among Jersey Central Power & Light Company, Metropolitan Edison Company, GPU, Inc. and the Company. "HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations promulgated thereunder. "Indemnified Party" has the meaning as set forth in Section 12.3. "Indemnifying Party" has the meaning as set forth in Section 12.3. "Independent Accounting Firm" means Ernst & Young, LLP; provided, that if Ernst & Young, LLP is not available (because of a conflict or otherwise), then "Independent Accounting Firm" shall mean KPMG LLP; and provided further, that if neither Ernst & Young, LLP nor KPMG LLP is available (because of a conflict or otherwise), then "Independent Accounting Firm" shall mean another independent accounting firm of national recognition that is mutually appointed by the Company (at the direction of the Sellers) and Buyer (other than the regular independent accounting firm of Buyer, the Company or any Seller). 7 "Interest Rate" means the published annual yield to maturity for two-year United States Government Treasury obligations on the Closing Date. "International Entities" shall mean the entities listed on Schedule 1B. "International Sale" means the sale of any assets (net of any retained liabilities) held, directly or indirectly, by any of the International Entities on the date hereof, whether by a sale of equity interests of any International Entities or otherwise, which results in the recognition of After-Tax Gain or Loss by the Company or any of its Subsidiaries. Without limiting the foregoing, the distribution to Marubeni of any net assets held by any of the International Entities pursuant to any Marubeni Transaction shall be deemed to be an International Sale. "International Survival Period" means the period commencing on the Closing Date and ending on the earlier of (a) the third anniversary of the occurrence of the first Put/Call Date that, together with any previous sales of Common Stock pursuant to the Put and Call Agreement, results in the sale of more than 662/3 percent of the shares of Common Stock subject to the Put and Call Agreement and (b) the fifth anniversary of the Closing Date; provided however, that with respect to any Claim arising out of any guarantee by the Company or any of its Subsidiaries of any obligations of any of the International Entities, or any indemnification obligation of the Company or any of its Subsidiaries pursuant to any purchase agreement, merger agreement or similar agreement pursuant to which any International Sale have been consummated, the "International Survival Period" with respect to any such Claim shall terminate on the date on which such guarantee or indemnification obligation terminates. "knowledge" or words to such effect means, (i) with respect to any Person that is an individual, the actual knowledge of such Person, (ii) in the case of any Person other than the Company that is not an individual, the actual knowledge of the executive officers of such Person, 8 or (iii) in the case of the Company, the actual knowledge of the executive officers of the Company listed on Part A of Schedule 1A after reasonable inquiry by one or more of such executive officers of the employees listed on Part B of Schedule 1A. "Liens" means liens, charges, restrictions, claims or encumbrances of any nature. "Marubeni" has the meaning as set forth in Section 2.6. "Marubeni America" has the meaning as set forth in Section 2.6. "Marubeni American Power" has the meaning as set forth in Section 2.6. "Marubeni MS Power" has the meaning as set forth in Section 2.6. "Marubeni Transaction" has the meaning as set forth in Section 2.6. "material" or "materially" means, when used with respect to the Company or any of its Subsidiaries, material to the Company and its Subsidiaries, taken as a whole. "Material Adverse Effect" means an effect that either individually or in the aggregate is materially adverse to the condition (financial or otherwise) or results of operations of the Company and its Subsidiaries, taken as a whole, excluding, in any case, (i) any changes, circumstances or effects resulting from or relating to changes in the economy, financial markets, commodity markets, laws, regulations or rules in the applicable electric power markets generally (including, without limitation, changes in laws or regulations affecting owners or providers of electric generation, transmission or distribution as a group and not the Company exclusively) and (ii) any changes in conditions generally applicable to the industries in which the Company or any of its Subsidiaries is involved, and, in the case of clause (i) or (ii), not affecting the Company or its Subsidiaries in any manner or degree significantly different from the industry as a whole. "Material Contracts" means each Contract to which any of the Company or any Subsidiary of the Company is a party or by which any of them or any of their respective property 9 may be bound and which, in each case, is material to the Company and its Subsidiaries taken as a whole, other than any Contract which relates primarily to (i) any assets or entities sold pursuant to the Reliant Purchase Agreement, or (ii) any assets or entities that constitute a part of the International Entities. "Material Encumbrances" means any liens, charges, restrictions, claims or encumbrances of any nature, material to the Company and its Subsidiaries taken as a whole, other than any liens, charges, restrictions, claims or encumbrances which relate primarily to (i) any assets or entities sold pursuant to the Reliant Purchase Agreement, or (ii) any assets or entities that constitute a part of the International Entities. "Multiemployer Plan" means a multiemployer plan, as defined in Sections 3(37) and 4001(a)(3) of ERISA. "NEDC" means National Energy Development Corporation. "NYSEG" has the meaning as set forth in Section 12.1. "Opening Balance Sheet" means the audited consolidated balance sheet of the Company and its subsidiaries at December 31, 1999 included in the Financial Statements. "Outstanding Stock" means all of the issued and outstanding Common Stock of the Company. "Permitted Assignees" has the meaning as set forth in Section 13.4. "Permitted Liens" has the meaning as set forth in Section 3.14. "Person" means and includes an individual, a partnership, a joint venture, a corporation, a limited liability company, a trust, an unincorporated organization or a government or any department or agency thereof. "Plan Restructuring" has the meaning as set forth in Section 2.6. 10 "Power Purchase Agreement" means the proposed Power Purchase Agreement between the Company and Buyer related to the purchase of electric output by Buyer or its Affiliate from the Company or any of its Subsidiaries. "Principal Sellers" means those Sellers identified with an asterisk ("*") on Schedule 1. "PUHCA" means the Public Utility Holding Company Act of 1935, as amended, and rules promulgated thereunder. "PURPA" means the Public Utility Regulatory Policies Act of 1978 and rules promulgated thereunder. "Put and Call Agreement" means that certain Put and Call Agreement, dated the date hereof among the Company, the Sellers and Buyer. "Put/Call Closing Date" means, with respect to any Seller, the earlier of (i) the date of the closing, if any, of the sale of shares of Common Stock held by such Seller immediately after the Closing, as contemplated by the Put and Call Agreement or (ii) the date of a payment by Buyer to such Seller pursuant to Section 6.10 of the Put and Call Agreement. "Put/Call Date" means, with respect to any Seller, either (i) the Put/Call Closing Date applicable to such Seller or (ii) if neither the Put Right nor the Call Right (each as defined in the Put and Call Agreement) is exercised pursuant to the Put and Call Agreement, the tenth Business Day following the date of the termination of the Exercise Period (as defined in the Put and Call Agreement). "Qualifying Facilities" means generation facilities that satisfy the requirements of Section 210 of PURPA and the rules set forth in 18 C.F.R. Part 292. "Rades Project" means the 471 megawatt gas-fueled project in Tunisia in which the Company has a 32.5% interest. 11 "Real Property" has the meaning as set forth in Section 3.18. "reasonable efforts" means commercially reasonable efforts. "Reference Stockholders' Equity" means "Stockholders' Equity", as reflected on the Opening Balance Sheet. "Reliant Purchase Agreement" means the Purchase Agreement, dated as of February 19, 2000, among Reliant Energy Power Generation, Inc., Reliant Energy, Incorporated, the Company and Sithe Northeast Generating Company, Inc., as amended, modified and supplemented. "Reliant Survival Period" means the period commencing on the Closing Date and ending on the earlier of (a) the first anniversary of the occurrence of the first Put/Call Date that, together with any previous sales of Common Stock pursuant to the Put and Call Agreement, results in the sale of more than 662/3 percent of the shares of Common Stock subject to the Put and Call Agreement, and (b) the third anniversary of the Closing Date. "Sale Adjustment Period" has the meaning as set forth in Section 2.3. "Sale Notice" has the meaning as set forth in Section 2.3. "SEC" has the meaning as set forth in Section 5.7. "Seller" has the meaning as set forth in the first paragraph of this Agreement. "Sellers' Indemnified Group" has the meaning as set forth in Section 12.2. "Sellers' Representatives" has the meaning as set forth in Section 12.2. "Senior Credit Facility" means that certain Amended and Restated Senior Secured Revolving Credit Agreement, dated as of December 19, 1997, as amended and restated, among the Company, certain Subsidiaries of the Company, Bank of Montreal, as agent, and the financial institutions party thereto, as amended, modified and supplemented. 12 "Significant Subsidiary" shall mean a Subsidiary of the Company having total consolidated assets with a value equal to at least five percent of the total consolidated assets of the Company and its subsidiaries as reflected on the consolidated unaudited balance sheet of the Company and its subsidiaries at March 31, 2000, determined on a pro forma basis after giving effect to the disposition of the assets sold pursuant to the Reliant Purchase Agreement and the assets owned by any International Entities. "Sithe Stock" has the meaning as set forth in the Recitals. "Smithfield Project" means the Company's 162 megawatt gas-fueled project in Sydney, Australia. "Subsidiary" of a Person means (i) any corporation, association or other business entity of which more than 50 percent of the total voting power of shares or other voting securities outstanding thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person (or a combination thereof) and (ii) any partnership or limited liability company (a) the sole general partner or the managing general partner or managing member of which is such Person or one or more of the other Subsidiaries of such Person (or any combination thereof) or (b) the only general partners or members of which are such Person or one or more of the other Subsidiaries of such Person (or any combination thereof). Without limiting the generality of the foregoing and for avoidance of ambiguity, except as otherwise expressly provided herein, none of the International Entities shall be deemed to be a Subsidiary of the Company. "Survival Period" has the meaning as set forth in Section 11.4. "Target Date" means September 30, 2000. 13 "Tax Returns" means all returns, declarations, reports, statements, estimates, declarations of estimated Tax, claims for refund, information return or other document required to be filed in respect of Taxes, including any schedule or attachment thereto, and the term "Tax Return" means any one of the foregoing Tax Returns, including any amendments thereof made or required to be made. "Taxes" mean all federal, state, local, foreign and other net income, gross income, gross receipts, sales, use, ad valorem, transfer, franchise, capital stock, profits, license, lease, service, service use, withholding, payroll, employment, social security (or similar), unemployment, disability, workmen's compensation, excise, severance, stamp, occupation, premium, real property, personal property, realty transfer and realty transfer gains taxes, registration, alternative or add-on minimum, windfall profits, environmental (including taxes under Code Section 59A), fuel, gas import, customs, duties or other taxes, fees, assessments or charges of any kind whatsoever imposed by any governmental entity, together with any interest and any penalties, additions to tax or additional amounts with respect thereto, whether disputed or not, and the term "Tax" means any one of the foregoing Taxes. "Transfer Taxes" shall have the meaning as set forth in Section 6.4. "Vivendi" means Vivendi, S.A. "Vivendi Loan Agreement" means that certain Loan Agreement, dated as of November 9, 1999, between the Company and Vivendi. ARTICLE 2. PURCHASE AND SALE OF STOCK Section 2.1 Purchase and Sale of Stock. 2.1.1 Transfer of Sithe Stock. Upon the terms and subject to the conditions set forth in Articles 7 and 8, on the Closing Date each Seller shall sell, convey, transfer, assign, and 14 deliver to Buyer, free and clear of all Liens, other than Liens created by or through Buyer, and Buyer shall purchase from each Seller, in the manner set forth in Article 9, the Sithe Stock owned by such Seller and set forth opposite such Seller's name on Schedule 1. 2.1.2 Purchase Price. Upon the terms and subject to the conditions set forth in Articles 7 and 8, on the Closing Date, the payments set forth in this Section 2.1.2 shall be made. 2.1.2.1 Buyer shall pay to the Sellers, in the manner set forth in Article 9, an amount equal to the Base Purchase Price. 2.1.2.2 If the Estimated Adjusted Amount is positive, Buyer shall pay to the Sellers, in the manner set forth in Article 9, an amount equal to 49.9 percent of the Estimated Adjustment Amount; provided that, at Buyer's election, in lieu of such payment, the Company shall pay to the Sellers, in the manner set forth in Article 9, an amount equal to the Estimated Adjustment Amount by delivery of written notice of such election not more than ten (10) Business Days prior to the Closing; provided further, however, that Buyer shall have no right to make such an election if (a) the payment from the Company described immediately above would have any cost or other adverse financial impact to any Seller (other than as a result of any change in the tax liability of any Seller resulting from the transactions contemplated hereby), or (b) such payment would result in a violation of applicable law or a breach of the terms of any Contract to which the Company or any of its subsidiaries (including any International Entities) is a party. Each Seller agrees to use reasonable efforts to cause each director of the Company nominated by such Seller to approve any action of the Company taken in accordance with this Section 2.1.2.2, including, without limitation, the execution of any resolution in 15 connection with any such election, subject to the second proviso of the immediately preceding sentence. The Company shall use reasonable efforts to obtain any third-party consents needed to satisfy the requirements of clause (b) of this Section 2.1.2.2. 2.1.2.3 If the Estimated Adjustment Amount is negative, the Sellers shall pay to Buyer, as an offset to the payment by Buyer of the Base Purchase Price pursuant to Section 2.1.2.1, an amount equal to 49.9 percent of the Estimated Adjustment Amount. 2.1.2.4 The net amounts payable to the Sellers pursuant to this Section 2.1.2 shall be allocated and paid to each of the Sellers based on a fraction, the numerator of which is the number of shares of Sithe Stock set forth beside such Seller's name on Schedule 1 and the denominator of which is the total number of shares of Sithe Stock set forth on Schedule 1. Section 2.2 Initial Purchase Price Adjustment. 2.2.1 At least fifteen (15) Business Days prior to the Closing Date, the Company shall prepare and deliver to Buyer an estimated closing statement (the "Estimated Closing Statement") that shall set forth the Sellers' best estimate of the Adjustment Amount (the "Estimated Adjustment Amount"), if any, including a calculation of such Estimated Adjustment Amount in reasonable detail. 2.2.2 Within ninety (90) days following the Closing Date, the Sellers shall direct the Company in the preparation and delivery to Buyer of a final closing statement (the "Closing Statement") that shall include the Closing Balance Sheet and set forth the amount of the 16 Adjustment Amount. Buyer and Buyer's independent auditors shall be provided with copies of, or access to, records and other information that Buyer may reasonably request with respect to the information set forth on the Closing Statement. 2.2.3 Within thirty (30) days following the delivery of the Closing Statement by the Company to Buyer, Buyer may object to the Adjustment Amount in writing. If Buyer does not so object to the Adjustment Amount, the Adjustment Amount as set forth in the Closing Statement shall be binding on the parties hereto. If Buyer so objects to the Adjustment Amount, 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, and shall instruct such firm, at the Company's expense, to review the calculation of the Adjustment Amount and determine the appropriate amount of the Adjustment Amount, in accordance with this Agreement, 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. 2.2.4 Upon final determination of the Adjustment Amount pursuant to this Section 2.2, whether by agreement of the parties or as otherwise provided above: (a) if the Adjustment Amount is higher than the Estimated Adjustment Amount, Buyer shall pay to each Seller, no later than five (5) Business Days after such determination, by wire transfer of immediately available funds to an account designated by the payee, an amount equal to (i) 49.9 percent of the difference between the Adjustment Amount and the Estimated Adjustment Amount multiplied by (ii) a fraction, the numerator of which is the number of shares of Sithe 17 Stock sold by such Seller and the denominator of which is the total number of shares of Sithe Stock sold by all of the Sellers; and (b) if the Adjustment Amount is less than the Estimated Adjustment Amount, each Seller shall pay to Buyer, no later than five (5) Business days after such determination, by wire transfer of immediately available funds to an account designated by Buyer, an amount equal to (i) 49.9 percent of the difference between the Adjustment Amount and the Estimated Adjustment Amount multiplied by (ii) a fraction, the numerator of which is the number of shares of Sithe Stock sold by such Seller and the denominator of which is the total number of shares of Sithe Stock sold by all of the Sellers. Notwithstanding the foregoing, if on the Closing Date, the Company made the payment referred to in Section 2.1.2.2, then: (1) except as may be prohibited by applicable law or by the terms of any Contract to which the Company or any of its subsidiaries (including the International Entities) is a party, in lieu of any payment from Buyer required pursuant to clause (a) of the immediately preceding sentence, at Buyer's election, the Company shall pay to each Seller, at the time and in the manner set forth in clause (a) of the immediately preceding sentence, an amount equal to: (y) the difference between the Adjustment Amount and the Estimated Adjustment Amount; multiplied by (z) a fraction, the numerator of which is the number of shares of Sithe Stock sold by such Seller and the denominator of which is the total number of shares of Sithe Stock sold by all of the Sellers; and (2) in lieu of any payment to Buyer pursuant to clause (b) of the immediately preceding sentence, each Seller shall pay to the Company, at the time and in the manner set forth in clause (b) of the immediately preceding sentence, an amount equal to (y)(i) the difference between the Estimated Adjustment Amount and the Adjustment Amount; multiplied by (z) a fraction, the numerator of which is the number of shares of Sithe Stock sold by such Seller and the denominator of which is the total number of shares of Sithe Stock sold by all the Sellers. Each Seller agrees to use reasonable efforts to cause each director nominated by such Seller to approve any action of the Company taken in 18 accordance with clause (1) of the immediately preceding sentence, including, without limitation, the execution of any resolution in connection with any such payment, subject to the exception set forth in such clause (1). The Company shall use reasonable efforts to obtain any third-party consents needed to satisfy the requirements of such clause (1). For purposes of determining whether the Adjustment Amount is "higher" than or "less" than the Estimated Adjustment Amount pursuant to this Section 2.2.4, a positive amount shall be deemed to be "higher" than a negative amount, and a negative amount shall be deemed to be "higher" than a larger negative amount. 2.2.5 The Company shall, and Buyer and the Sellers shall use reasonable efforts to cause the Company to, reasonably cooperate with the Sellers in the preparation of the Closing Statement. Section 2.3 Additional Purchase Price Adjustments Related to International Sales. 2.3.1 In the event of the occurrence of any International Sale which occurs during the period starting on the Closing Date and ending on the Put/Call Date applicable to any Seller (the "Sale Adjustment Period"), the Company shall provide written notice (a "Sale Notice") to each Seller with respect to which the Put/Call Date shall not have occurred as of the date of such International Sale (each an "Adjusted Seller," and together, the "Adjusted Sellers") and to Buyer within thirty Business Days after such International Sale, which shall set forth the amount and calculation of any after-Tax gain or loss recognized by the Company as a result of any such International Sale (the "After-Tax Gain or Loss"). The After-Tax Gain or Loss shall be equal to: (a) the gross sales price of such International Sale (including the fair market value of any non-cash consideration received, which shall be equal to the "fair market value" of such non-cash consideration for purposes of determining the amount of the consideration payable by each 19 Adjusted Seller pursuant to Section 2.3.3(ii)); less (b) the amount of any retained liabilities related to such assets, as reflected on the books and records of the Company and its consolidated subsidiaries; less (c) the Book Value of the assets sold; less (d) Tax effects applicable to such International Sale, determined in accordance with GAAP; and the amount determined pursuant to clauses (a) through (d) shall be adjusted to eliminate changes in the book value of the assets sold pursuant to such International Sale from March 31, 2000 (when the book value of the Asian Assets and the Company's investment in the Rades Project and the Smithfield Project was $277,202,000, $8,714,000 and $19,128,000, respectively) through the date of such International Sale that are attributable to (y) the results of operations of such assets during such period or (z) non-cash write-ups or write-downs in the value of any such assets during such period in accordance with GAAP. 2.3.2 Within thirty (30) days following delivery of a Sale Notice, Buyer or the Adjusted Sellers may object to the amount of After-Tax Gain or Loss set forth in the Sale Notice in writing. If a party objects to the amount of After-Tax Gain or Loss included in the Sale Notice, 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, the parties shall appoint the Independent Accounting Firm, and shall instruct such firm, at the Company's expense, to determine the amount of After-Tax Gain or Loss pursuant to this Section 2.3, in accordance with this Agreement, 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. 20 2.3.3 No later than five (5) Business Days after the later of (a) the final determination of the amount of After-Tax Gain or Loss with respect to any International Sale, whether by agreement of the parties or as otherwise provided above or (b) the Put/Call Date applicable to each Adjusted Seller: (i) the Company shall transfer to each Adjusted Seller such Adjusted Seller's pro-rata share (based on the number of shares of Common Stock held by each such Adjusted Seller immediately prior to the Closing as a percentage of the number of shares of Common Stock held by all Adjusted Sellers immediately prior to the Closing) of any non-cash consideration received by the Company in connection with such International Sale; (ii) as consideration for such transfer, each Adjusted Seller shall pay to the Company, in the manner contemplated by and subject to the provisions of Section 2.5, an amount equal to such Adjusted Seller's pro-rata share (based on the number of shares of Common Stock held by each such Adjusted Seller immediately prior to the Closing as a percentage of the number of shares of Common Stock held by all Adjusted Sellers immediately prior to the Closing) of the fair market value of such non-cash consideration, plus interest on such pro-rata amount accrued from the date of such International Sale through the payment date at an annual rate equal to the Interest Rate; (iii) (A) if the After-Tax Gain or Loss with respect to such International Sale is a negative number, each Adjusted Seller shall pay to Buyer an amount equal to such Adjusted Seller's pro-rata share (based on the number of shares of Common Stock held by such Adjusted Seller immediately prior to the Closing as a percentage of the number of shares of Common Stock held by all Adjusted Sellers immediately prior to the Closing) of such After-Tax Gain or Loss, plus interest on such pro-rata amount accrued from the date of such International Sale through the payment date at an annual rate equal to the Interest Rate and (B) if the After-Tax Gain or Loss with respect to such International Sale is a positive number, Buyer shall pay to each Adjusted 21 Seller an amount equal to: (1) such Adjusted Seller's pro-rata share (based on the number of shares of Common Stock held by such Adjusted Seller immediately prior to the Closing as a percentage of the number of shares of Common Stock held by all Adjusted Sellers immediately prior to the Closing) of such After-Tax Gain or Loss, plus interest on such pro-rata amount accrued from the date of such International Sale through the payment date at an annual rate equal to the Interest Rate; multiplied by (2) a fraction, the numerator of which is the number of shares of Common Stock held by Buyer on the date of such payment (after giving effect to any one or more purchases of Common Stock by Buyer pursuant to the Put and Call Agreement through and including the Put/Call Date on which such payment is being made) and the denominator of which is the total number of shares of Common Stock held by Buyer and all of the Sellers immediately following the Closing; and (iv) each Adjusted Seller shall pay to Buyer an amount equal to such Adjusted Seller's pro-rata share (based on the number of shares of Common Stock held by such Adjusted Seller immediately prior to the Closing as a percentage of the number of shares of Common Stock held by all Adjusted Sellers immediately prior to the Closing) of (A) the interest on the Closing Book Value of the assets sold pursuant to such International Sale (as such Closing Book Value may be adjusted from time to time after the Closing Date, but only to reflect additional investment by the Company or any of its Subsidiaries in such assets, or cash distributions to the Company or any of its Subsidiaries related to such assets), accrued from the Closing Date until the date on which such International Sale is completed at an annual rate equal to (x) the Interest Rate multiplied by (y) (1) one minus (2) the average of the annual United States combined federal, state and local effective income tax rate (expressed as a decimal) of the Company and its Subsidiaries for all completed tax years between the Closing Date and the date of such payment, plus (B) interest on the amount of accrued interest determined pursuant to 22 clause (A) above, accrued at an annual rate equal to the Interest Rate from the date of such International Sale through the payment date. Each Adjusted Seller shall also pay to Buyer an amount equal to such Adjusted Seller's pro-rata share (based on the number of shares of Common Stock held by such Adjusted Seller immediately prior to the Closing as a percentage of the number of shares of Common Stock held by all Adjusted Sellers immediately prior to the Closing) of any Taxes of the Company or any of its Subsidiaries resulting from any International Sale (except for Taxes reflected in the calculation of the After-Tax Gain or Loss resulting from such International Sale) or from the purchase by such Adjusted Seller of any non-cash consideration received by the Company in connection with any International Sale. 2.3.4 In the event any International Sale occurs after the date hereof and prior to the termination of the Sale Adjustment Period, and any payment is made by or to the Company or any of its Subsidiaries after the later of (x) the closing date with respect to such International Sale and (y) the Closing Date, pursuant to any purchase price adjustment or similar provisions set forth in any purchase agreement, merger agreement or similar agreement pursuant to which any International Sale shall have been consummated, then, on the later of (i) the final determination of the After-Tax Gain or Loss pursuant to this Section 2.3, whether by agreement of the parties or as otherwise provided above or (ii) the Put/Call Date applicable to each Adjusted Seller: (a) in the case of any such payment to the Company or any of its Subsidiaries, Buyer shall pay to each Adjusted Seller, in the manner contemplated by, and subject to the provisions of Section 2.5: (1) (A) such Adjusted Seller's pro-rata share (based on the number of shares of 23 Common Stock held by such Adjusted Seller immediately prior to the Closing as a percentage of the number of shares of Common Stock held by all of the Sellers immediately prior to the Closing) of the amount of such payment; multiplied by (B) a fraction, the numerator of which is the number of shares of Common Stock held by Buyer on the date of such payment (after giving effect to any one or more purchases of Common Stock by Buyer pursuant to the Put and Call Agreement through and including the Put/Call Date on which such payment is being made) and the denominator of which is the total number of shares of Common Stock held by Buyer and all of the Sellers immediately following the Closing, plus (2) interest on such pro-rata amount accrued from the date of such International Sale through the payment date at an annual rate equal to the Interest Rate; and (b) in the case of any such payment by the Company or any of its Subsidiaries, each Adjusted Seller shall make a payment of an amount equal to such Adjusted Seller's pro-rata share (based on the number of shares of Common Stock held by such Adjusted Seller immediately prior to the Closing as a percentage of the number of shares of Common Stock held by all of the Sellers immediately prior to the Closing) of the amount of such payment, plus interest on such pro-rata amount accrued from the date of such International Sale through the payment date at an annual rate equal to the Interest Rate. The procedures with respect to the resolution of disputes set forth elsewhere in this Section 2.3, mutatis mutandis, shall apply to the resolution of disputes pursuant to this Section 2.3.4. 2.3.5 In the event that after the date of any payment pursuant to Section 2.3.3(iii), Section 2.3.3(iv), the last sentence of Section 2.3.3, Section 2.3.4 or the last sentence of Section 2.4, the Put/Call Date occurs with respect to any other Adjusted Seller, then on such subsequent Put/Call Date, Buyer shall pay to each Adjusted Seller: (a) the difference between (1) the amount of each prior payment by Buyer to such Adjusted Seller pursuant to Section 2.3.3(iii)(B) or 2.3.4(a) (including all prior adjustments pursuant to this Section 2.3.5) and (2) the amount that Buyer would have paid to such Adjusted Seller pursuant to Section 2.3.3(iii)(B) or 2.3.4(a), as the case may be, had Buyer held on the date of such prior payment the number of 24 shares of Common Stock held by Buyer on such subsequent Put/Call Date after giving effect to any purchases of Common Stock pursuant to the Put and Call Agreement; and (b) the difference, if any, between (1) the amount of each prior payment by such Adjusted Seller to Buyer pursuant to Section 2.3.3(iii)(A), Section 2.3.3(iv), the last sentence of Section 2.3.3, Section 2.3.4(b) or the last sentence of Section 2.4 and (2) the amount represented by the percentage of each such payment referred to in the immediately preceding clause 2.3.5(b) (1) which equals the percentage of the outstanding Common Stock held by Buyer on the date of such payment pursuant to this Section 2.3.5 (after giving effect to any one or more purchases of Common Stock by Buyer pursuant to the Put and Call Agreement through and including the Put/Call Date on which such payment pursuant to this Section 2.3.5 is being made); provided that no payment shall be made pursuant to this clause (b) until the final Put/Call Date pursuant to the Put and Call Agreement. In addition to any payment by Buyer pursuant to this Section 2.3.5, Buyer shall also pay interest on the amount of such payment, accrued at an annual rate equal to the Interest Rate from the date of the corresponding payment pursuant to Section 2.3.3(iii), Section 2.3.3(iv), the last sentence of Section 2.3.3, Section 2.3.4 or the last sentence of Section 2.4, as applicable, through the date of the payment pursuant to this Section 2.3.5. Section 2.4 Distribution of International Entities on the Put/Call Date. In the event that on the Put/Call Date with respect to any Seller, an International Sale shall not have occurred with respect to any of the assets held by the International Entities on the date hereof, the Company shall distribute to such Seller on such Put/Call Date a pro-rata portion (based on the number of shares of Common Stock held by such Seller immediately prior to the Closing as a percentage of the total number of shares of Common Stock held by all Sellers immediately prior to the Closing) of the remaining assets held by the International Entities (whether through a 25 distribution of equity interests in the entity or entities which hold such assets or otherwise) and as consideration for such distribution such Seller shall make a payment, in the manner contemplated by and subject to the provisions of Section 2.5, of an amount equal to (a) the Book Value of the assets so distributed plus (b) an amount equal to the interest on the Closing Book Value of the assets so distributed (as such Closing Book Value may be adjusted from time to time after the Closing Date, but only to reflect additional investment by the Company or any of its Subsidiaries in such assets, or cash distributions to the Company or any of its Subsidiaries related to such assets), accrued from the Closing Date through the date of such distribution at an annual rate equal to (x) the Interest Rate multiplied by (y) (1) one minus (2) the average of the annual United States combined federal, state and local effective income tax rate (expressed as a decimal) of the Company and its Subsidiaries for all completed tax years between the Closing Date and the date of such payment. Each acquiring Seller shall pay to Buyer an amount equal to such Seller's pro-rata share (based on the number of shares of Common Stock held by such Seller immediately prior to the Closing as a percentage of the number of shares of Common Stock held by all Sellers immediately prior to the Closing) of any Taxes of the Company or any Subsidiary of the Company resulting from the distribution of assets held by the International Entities to such Seller pursuant to this Section 2.4. Section 2.5 Payment of Amounts Due Pursuant to Section 2.3 and Section 2.4. With respect to payments required to be made pursuant to Section 2.3 or Section 2.4: 2.5.1 The parties shall use reasonable efforts to permit offsetting of payments where applicable, and otherwise provide for an efficient settlement of funds on the date of any such payments. 26 2.5.2 With respect to any amount payable by Buyer to any Seller, Buyer may, in lieu of making such payment, elect to cause the Company to make such payment to such Seller in the manner provided by, and subject to the limitations set forth in, Section 2.1.2.2. 2.5.3 Any amounts payable by Buyer or the Company to any Seller following the application of Section 2.5.1 and 2.5.2 shall be paid by wire transfer of immediately available funds to an account specified by such Seller. 2.5.4 Any amounts payable by any Seller shall be paid by wire transfer of immediately available funds to an account specified by the Company or Buyer, as applicable; provided, that, after the second anniversary of the Closing Date, such Seller may elect to make such payment in the form of shares of Common Stock by so notifying the Company or Buyer, as applicable, not later than five Business Days prior to the date on which such payment is due. For purposes of any such election, the Common Stock shall be valued at the price that would have been applicable had such Seller sold such Common Stock to Buyer on such date pursuant to a "put" exercise under the terms of the Put and Call Agreement. Section 2.6 Certain Preliminary Transactions. 2.6.1 The Company has declared a dividend payable to its stockholders in the aggregate amount of $90.0 million (the "Dividend") pursuant to a resolution of the Board of Directors of the Company dated August 11, 2000. The Company expects to pay the Dividend on or prior to the Closing Date. 2.6.2 The parties anticipate that prior to the Closing, the Company may restructure, amend or otherwise modify the 1998 Plan and the 1999 Stock Plan (the "Plan Restructuring"). In connection with such restructuring, the Company may take actions related to the Trust under the 1998 Plan and/or Sithe Employee Stock Ownership, L.P., which may cause 27 the shares of Common Stock held by either or both of such entities to be held by another Seller or by the Company. The parties agree that in any such event and, provided that the Company and each Seller has complied with Section 6.5.3(b) in all respects: if the Trust under the 1998 Plan and/or Sithe Employee Stock Ownership, L.P. ceases to hold shares of Common Stock, then (a) such entity will cease to be a party to this Agreement, (b) the Seller transferee of such shares of Common Stock will be bound by the terms hereof with respect to such shares and (c) the Schedules to this Agreement will be updated to the extent necessary to reflect the foregoing. 2.6.3 The parties anticipate that Marubeni America Corporation ("Marubeni America"), Marubeni MS Power, Inc. ("Marubeni MS Power") and/or S Marubeni American Power, Inc. ("Marubeni American Power," and collectively, "Marubeni") may enter into arrangements with the Company and/or Vivendi which may involve a change in ownership with respect to the shares of Common Stock held by Marubeni on the date hereof (any such transaction, a "Marubeni Transaction"). The parties agree that in any such event, and provided that the Company and each Seller has complied with Section 6.5.3(b) in all respects: if Marubeni America, Marubeni MS Power or Marubeni American Power ceases to hold shares of Common Stock, then (a) such entity will cease to be a party to this Agreement, (b) any Seller transferee of such shares of Common Stock will be bound by the terms hereof with respect to such shares and (c) the Schedules to this Agreement will be updated to the extent necessary to reflect the foregoing. Notwithstanding the immediately preceding sentence, but subject to Section 6.5.3(b), in the event that the Company acquires shares of Sithe Stock held by Marubeni on the date hereof in connection with a Marubeni Transaction, such shares of Sithe Stock shall be considered outstanding for all purposes of this Agreement and the Company shall be bound as a Seller with respect to the obligation to sell such shares of Sithe Stock and the right to receive payment in 28 consideration for the sale of such shares of Sithe Stock at the Closing, and Schedule 1 shall be deemed to have been amended solely for such purpose; provided that for purposes of each other provision of this Agreement (including without limitation the provisions of Article 2 as applicable to any payments required to be made by or paid to any Seller after the Closing, the representations and warranties relating to ownership of such shares of Sithe Stock set forth in Article 3 and Article 4 relating to the period prior to the transfer of such shares of Sithe Stock to the Company, and the indemnification provisions set forth in Article 12), Marubeni shall be deemed to be the Seller with respect to all such shares of Sithe Stock. ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY Except as otherwise disclosed in this Agreement, or in any Schedule, the Company hereby represents and warrants to Buyer, as of the date hereof (except where such representation or warranty is expressly made as of another specific date), as follows: Section 3.1 Organization, Qualification and Corporate Power. 3.1.1 The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, and is duly licensed or qualified to transact business as a foreign corporation in each jurisdiction in which the nature of the business transacted by it or the character of the properties owned or leased by it requires such licensing or qualification, except where the failure to be so licensed or qualified would not have a Material Adverse Effect. The Company has full corporate power and authority to own, lease or otherwise hold its properties and assets and to carry on its business as now conducted and to execute, deliver and perform this Agreement. 3.1.2 Each Significant Subsidiary of the Company is listed on Schedule 3.1.2. Each Significant Subsidiary which is a corporation is duly organized, validly existing and in good 29 standing under the laws of the jurisdiction of its incorporation, and each Significant Subsidiary which is a partnership or limited liability company is duly formed, validly existing and in good standing under the laws of the jurisdiction of its organization. Each Significant Subsidiary is duly licensed or qualified to transact business as a foreign corporation, limited liability company or partnership, as applicable, in each jurisdiction in which the nature of the business transacted by it or the character of the properties owned or leased by it requires such licensing or qualification, except where the failure to be so licensed or qualified would not have a Material Adverse Effect. Each Significant Subsidiary has the requisite corporate or organizational power and authority to own, lease or otherwise hold its properties and assets and to carry on its business as now conducted. Section 3.2 Authorization; Validity. 3.2.1 The execution, delivery and performance by the Company of this Agreement have been duly authorized by all requisite corporate action on the part of the Company. 3.2.2 This Agreement has been duly executed and delivered by the Company and constitutes the valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereinafter in effect relating to creditors' rights generally, and general equitable principles (whether considered in a proceeding in equity or at law). Section 3.3 No Conflict. Except as set forth in Schedule 3.3, the execution, delivery and performance by the Company of this Agreement and the consummation by the Company of the transactions contemplated hereby will not (i) violate, conflict with or result in a breach of any 30 provisions of the certificate of incorporation, by-laws, articles of organization, partnership agreement, limited liability company agreement, formation agreement or other similar organizational documents (the "Charter Documents") of the Company or any Significant Subsidiary, (ii) violate any law or regulation applicable to the Company or any Subsidiary of the Company, or any order of any court or governmental agency or authority having jurisdiction over the Company or any Subsidiary of the Company, (iii) violate or conflict with, or constitute (with due notice or lapse of time or both) a default under, or require the consent or approval of any party to, any Material Contract or (iv) result in the creation or imposition of any Material Encumbrance, except, in the case of clauses (ii), (iii) and (iv), as would not have a Material Adverse Effect. Section 3.4 Capital Stock. 3.4.1 The authorized, issued and outstanding capital stock of the Company and each Significant Subsidiary are as set forth in Schedule 3.4. The stockholders of record of the Company and each Significant Subsidiary are as set forth in Schedule 3.4. Except as set forth in Schedule 3.4, (i) there is no authorized or outstanding subscription, warrant, option, convertible security or other right (contingent or other) to purchase or otherwise acquire from the Company or from any Significant Subsidiary equity interests of the Company or any Significant Subsidiary, (ii) there is no commitment on the part of the Company or on the part of any Significant Subsidiary to issue shares, subscriptions, warrants, options, convertible securities, partnership interests or other similar rights, and (iii) no equity securities or partnership interests of the Company or of any Significant Subsidiary are reserved for issuance for any such purpose. Except as set forth in Schedule 3.4, neither the Company, nor any Significant Subsidiary, has any obligation (contingent or other) to purchase, redeem or otherwise acquire any of its equity 31 securities. Except for the Charter Documents of the Company and certain Significant Subsidiaries, and except as set forth in Schedule 3.4, this Agreement, the Put and Call Agreement and the Amended and Restated Stockholders' Agreement, there is no voting trust or agreement, stockholders agreement, pledge agreement, buy-sell agreement, right of first refusal, preemptive right or proxy relating to any equity securities of the Company or to any equity securities of any Significant Subsidiary. 3.4.2 Except as set forth in Schedule 3.4, all shares of Outstanding Stock have been or at the Closing will be duly authorized, validly issued, fully paid and nonassessable and free and clear of all Liens, other than Liens on Sithe Stock created by or through Buyer. Section 3.5 Financial Statements. Attached as Schedule 3.5 are (i) a consolidated audited balance sheet of the Company and its subsidiaries (including the International Entities) at December 31, 1998 and 1999 and related audited consolidated statements of income and cash flows of the Company and its subsidiaries for the years then ended and (ii) a consolidated unaudited balance sheet of the Company and its subsidiaries at March 31, 2000 and related consolidated statements of income and cash flows of the Company and its subsidiaries for the three month period then ended (such statements specified in clauses (i) and (ii), together with the related notes thereto, collectively, the "Financial Statements"). The Financial Statements have been prepared in accordance with GAAP consistently applied, and fairly present in all material respects the financial condition of the Company and its consolidated subsidiaries as of the dates thereof and the results of their consolidated operations for the periods covered thereby except, that the financial statements at and for the three months ended March 31, 2000 are delivered without notes and are subject to normal recurring year-end adjustments. Neither the Company nor any Subsidiary thereof has any liability or obligation of the type that would be required by 32 GAAP to be disclosed in the Financial Statements of the Company and its subsidiaries (whether accrued, absolute, contingent or otherwise) which, individually or in the aggregate, is material to the Company and its consolidated subsidiaries, taken as a whole, other than (i) liabilities reflected (but only to the extent so reflected) or reserved against in the Financial Statements, (ii) liabilities or obligations that have arisen since March 31, 2000 in the ordinary course of business consistent with past practice, none of which, individually or in the aggregate, would have a Material Adverse Effect, (iii) liabilities or obligations disclosed in Schedule 3.5, or (iv) liabilities or obligations incurred in accordance with the terms of this Agreement or any Material Contract. The books of account of the Company and subsidiaries of the Company fairly reflect in all material respects in accordance with GAAP consistently applied (a) all material transactions relating to the Company and subsidiaries of the Company and (b) all material items of income and expense, assets and liabilities and accruals relating to the Company and subsidiaries of the Company. Neither the Company nor any subsidiary of the Company has engaged in any material transaction, maintained any material bank account or used any material corporate funds except for transactions, bank accounts and funds that have been and are reflected in the normally maintained books and records of the Company and subsidiaries of the Company. Section 3.6 Litigation; Compliance with Law. 3.6.1 Schedule 3.6 lists (a) each material action, suit, claim or proceeding (including, but not limited to, any arbitration proceeding) pending or, to the Company's knowledge, threatened, (b) each material investigation which, to the Company's knowledge, is pending or threatened, against any of the Company or any Subsidiary of the Company, at law or in equity, or before or by any Federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign and (c) certain other 33 actions, suits, claims, proceedings or investigations that are listed for the information of Buyer. For purposes of the preceding sentence, no representation is made with respect to (i) any proceeding before any regulatory authority initiated by the Company or any Subsidiary of the Company in which the Company or such Subsidiary of the Company is an applicant for any governmental permit, approval, certificate, authorization or license, to the extent the matters considered in such proceeding are limited to the approval or authority requested in such application, or (ii) proceedings initiated by a third party in which the Company or any Subsidiary of the Company is an intervener, and the subject matter of such intervention is of general applicability to similarly-situated parties. Neither the Company nor any Subsidiary of the Company is in default with respect to any material order, writ, injunction or decree known to or served upon such entity of any court or of any Federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign. 3.6.2 Except as set forth on Schedule 3.6, the Company and each Subsidiary of the Company is in compliance with all laws, rules, regulations and orders applicable to its business (other than labor laws, which are addressed in Section 3.11, and other than Environmental Laws, which are addressed in Section 3.17), except where the failure to so comply would not have, individually or in the aggregate, a Material Adverse Effect. Except as set forth on Schedule 3.6, the Company and each Significant Subsidiary has all permits, licenses and other governmental authorizations necessary to own, lease or otherwise hold its properties and assets and to conduct its business as currently conducted, except where the failure to obtain the same would not have, individually or in the aggregate, a Material Adverse Effect. 34 Section 3.7 Tax Matters. 3.7.1 Each of the Company and its Subsidiaries (for purposes of this Section 3.7 "Subsidiaries" shall include all International Entities) has filed on a timely basis all material Tax Returns that it was required to file and all such Tax Returns were correct and complete in all material respects. Except as set forth in Schedule 3.7, all Taxes of the Company and its Subsidiaries (whether or not shown on any Tax Return) have been paid or, if not paid, a liability for such Taxes has been accrued on the financial statements of the Company in accordance with GAAP. Except as set forth in Schedule 3.7, no claim has been made by an authority in a jurisdiction where any of the Company and its Subsidiaries does not file Tax Returns that it is or may be subject to taxation by that jurisdiction. Except as set forth in Schedule 3.7, there are no Liens on any of the assets of any of the Company and its Subsidiaries that arose in connection with any failure (or alleged failure) to pay any Tax (other than Taxes not yet due). 3.7.2 Each of the Company and its Subsidiaries has withheld and paid all material Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, independent contractor, creditor, stockholder, or other third party. 3.7.3 Except as set forth in Schedule 3.7, there is no outstanding dispute or claim concerning any material Tax liability of any of the Company and its Subsidiaries, either (A) claimed or raised by any taxing authority in writing or (B) as to which the Company or any of its Subsidiaries has knowledge. 3.7.4 Except as set forth in Schedule 3.7, none of the Company and its Subsidiaries has waived any statute of limitations in respect of Taxes or agreed to any extension of time with respect to a Tax assessment or deficiency, including those deficiencies proposed but not yet assessed, except with respect to waivers or extensions of time which have since expired. 35 3.7.5 Except as set forth in Schedule 3.7, there are no outstanding rulings of, or requests for rulings with, any Tax authority addressed to the Company or its Subsidiaries that are, or if issued would be, binding on the Company and any of its Subsidiaries. 3.7.6 None of the Company and its Subsidiaries has filed a consent under Section 341(f) of the Code concerning collapsible corporations. None of the Company and its Subsidiaries has made any payments, is obligated to make any payments, or is a party to any agreement that would obligate it to make any payments that will not be deductible under Section 280G of the Code (assuming the shareholder approval requirements of Code Section 280G(b)(5)(B) are satisfied). None of the Company and its Subsidiaries has agreed to, nor is it required to make, any adjustment under Section 481(a) of the Code by reason of a change of accounting method or otherwise. None of the Company and its Subsidiaries has been a United States real property holding corporation within the meaning of Section 897(c)(2) of the Code during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code. None of the assets of the Company or its Subsidiaries directly or indirectly secures any debt the interest on which is tax exempt under Section 103 of the Code nor are they "tax-exempt use property" within the meaning of Section 168(h) of the Code. Each of the Company and its Subsidiaries has disclosed on its federal income Tax Returns all positions taken therein that could give rise to a substantial understatement of federal income Tax within the meaning of Section 6662 of the Code. None of the Company or its Subsidiaries has participated in, or cooperated in (or has been asked to cooperate in) an international boycott as defined in Section 999 of the Code. 3.7.7 Except as set forth on Schedule 3.7, and except for "intertie gross-up provisions" in the Company's and Subsidiaries' electricity supply and interconnection agreements, none of the Company and its Subsidiaries is a party to any Tax indemnity, allocation 36 or sharing agreement. None of the Company and its Subsidiaries (A) was a member of an affiliated group within the meaning of Section 1504(a) of the Code filing a consolidated federal income Tax Return (other than a group the common parent of which was the Company) during any tax year for which the federal income tax statute of limitations has not expired or (B) has any liability for the Taxes of any Person (other than any of the Company and its Subsidiaries) under Treasury Regulation Section 1.1502-6 (or any similar provision of state, local or foreign law), as a transferee or successor, by contract, or otherwise for any tax year for which the federal income tax statute of limitations has not expired. 3.7.8 The Company and its Subsidiaries have filed all reports and have created and/or retained all records required under Section 6038A of the Code with respect to its ownership by and transactions with related parties. Each related foreign person that is controlled by the Company and that is required to maintain records under Section 6038A of the Code with respect to transactions between the Company or any of its Subsidiaries and the related foreign person has maintained such records. All documents that are required to be created and/or preserved by such related foreign person with respect to transactions with the Company or any of its Subsidiaries are either maintained in the United States or the Company and its Subsidiaries are exempt from the record maintenance requirements of Section 6038A of the Code with respect to such transactions under Treasury Regulation Section 1.6038A-1. The Company and its Subsidiaries are not a party to any record maintenance agreement with the Internal Revenue Service with respect to Section 6038A of the Code. Section 3.8 Material Contracts. The Contracts listed in Schedule 3.8 include all of the Material Contracts and certain other Contracts that are listed for the information of Buyer, provided, however, that no Contract shall be deemed a Material Contract solely by reason of the 37 fact that it is listed on Schedule 3.8. Except as otherwise set forth in Schedule 3.8: (i) each Material Contract is valid, binding and in full force and effect in all material respects, and is enforceable in all material respects by the Company or its Subsidiary, as applicable, in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereinafter in effect relating to creditors' rights generally, and general equitable principles (whether considered in a proceeding in equity or at law), (ii) the Company and each Subsidiary thereof that is a party to a Material Contract has performed in all material respects the obligations required to be performed by it to date under such Material Contract, and (iii) neither the Company nor any Subsidiary thereof has received any notice of default under any Material Contract to which it is a party, except as would not have a Material Adverse Effect. To the knowledge of the Company, neither the Company nor any Subsidiary of the Company has given or received any notice of cancellation or termination of any Material Contract. To the knowledge of the Company, no party to any Material Contract is in material default under any such Material Contract. Except as set forth in Schedule 3.8, there are no existing Material Contracts with, or material rights in, any third party to acquire any of the assets of the Company or any Subsidiaries of the Company, other than in the ordinary course of business consistent with past practice. Section 3.9 Consents and Approvals. Except as set forth in Schedule 3.9, no material registration or filing with, or material consent or approval of or other action by, any Federal, state or other governmental agency or instrumentality or any other Person is or will be necessary for the valid execution, delivery and performance by the Company of this Agreement or the consummation of the transactions contemplated hereby, other than filings required pursuant to the HSR Act. 38 Section 3.10 Brokers. Neither the Company nor any Subsidiary or Affiliate thereof has any contract, arrangement or understanding with any investment banking firm, broker or finder with respect to the transactions contemplated by this Agreement, except for Goldman, Sachs & Co., whose fees shall be borne by the Company and paid in full as of the Closing Date (or, to the extent unpaid at Closing, shall be reflected as a liability on the Closing Balance Sheet). Section 3.11 Labor Matters. The Company has delivered to Buyer true and correct copies of the collective bargaining agreements listed on Schedule 3.11 (the "Collective Bargaining Agreements"). The Collective Bargaining Agreements constitute all collective bargaining agreements to which the Company or any Subsidiary of the Company is a party or is subject and which relate to the business and operations of the Company or any Subsidiary of the Company. Other than as set forth in Schedule 3.11, to the Company's knowledge, the Company or the applicable Subsidiary of the Company (a) is in compliance with all applicable laws regarding 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) has no arbitration proceeding pending against it that arises out of or under any collective bargaining agreement which relates to the business or operations of the Company, and (d) is not currently experiencing, and has received no current threat of, any work stoppage, in each case, except as would not have a Material Adverse Effect. Section 3.12 ERISA. 3.12.1 Schedule 3.12 lists all Employee Benefit Plans and Benefit Arrangements that are sponsored or contributed to by the Company or any of its ERISA Affiliates or to which 39 the Company or any of its ERISA Affiliates has an obligation to contribute covering the employees or former employees of the Company and its Subsidiaries ("Benefit Plans"). 3.12.2 All Benefit Plans subject to ERISA or the Code covering employees or former employees of the Company and its Subsidiaries comply in all material respects with their respective terms and the applicable provisions of ERISA and the Code. 3.12.3 Except as set forth in Schedule 3.12, all Employee Benefit Plans intended to be qualified under Code Section 401 maintained by the Company and its Subsidiaries have received favorable determinations with respect to such qualified status from the Internal Revenue Service or will be amended as requested by the Internal Revenue Service covering all currently applicable requirements of Code Section 401 within the remedial amendment period prescribed under Section 401(b) of the Code so as to obtain such favorable determination. 3.12.4 No Employee Benefit Plan that is subject to Title IV of ERISA and is sponsored by the Company or an ERISA Affiliate of the Company has (i) incurred an accumulated funding deficiency, whether or nor waived, within the meaning of Section 412 of the Code or Section 302 of ERISA, (ii) been terminated or (iii) been a plan with respect to which a reportable event, as defined in Section 4043 of ERISA, to the extent that the reporting of such event to the Pension Benefit Guaranty Corporation has not been waived, has occurred and is continuing. 3.12.5 Except as set forth in Schedule 3.12, neither the Company nor any of its ERISA Affiliates sponsors or has previously sponsored, maintained, contributed to or incurred an obligation to contribute to any Multiemployer Plan. 3.12.6 Except as set forth in Schedule 3.12, to the Company's knowledge, no fiduciary or party in interest with respect to any of the Employee Benefit Plans covering 40 employees or former employees of the Company and its Subsidiaries has engaged in or been a party to a transaction that is prohibited under Section 4975 of the Code or Section 406 of ERISA and not exempt under Section 4975 of the Code or Section 408 of ERISA, respectively. 3.12.7 Except as set forth in Schedule 3.12, no employee or former employee of the Company or any Subsidiary of the Company shall accrue or receive additional benefits, service or accelerated rights to payment of benefits under any Employee Benefit Plan or Benefit Arrangement covering employees or former employees of the Company or any Subsidiary of the Company or become entitled to severance, termination allowance or similar payments as a result of the transactions contemplated by this Agreement. 3.12.8 Except as set forth in Schedule 3.12 and other than claims for benefits in the ordinary course, there is no material claim pending, or, to the Company's knowledge, threatened, involving any Employee Benefit Plan or Benefit Arrangement covering employees or former employees of the Company or any Subsidiary of the Company by any person against such Employee Benefit Plan, Benefit Arrangement, the Company or any ERISA Affiliate. 3.12.9 Except as set forth in Schedule 3.12, the Company and its ERISA Affiliates have made full and timely payment of all amounts required to be contributed under applicable law and the terms of each Employee Benefit Plan and Benefit Arrangement covering employees or former employees of the Company and its Subsidiaries. 3.12.10 Except as set forth in Schedule 3.12, no Benefit Plan provides material health care coverage beyond termination of employment except as required by Sections 601-608 of ERISA or Section 4980B of the Code or death benefits coverage beyond termination of employment. 41 3.12.11 Neither the execution and delivery of this Agreement, the Put and Call Agreement or the Amended and Restated Stockholders' Agreement by the trustees under any Benefit Plan, acting as a stockholder of the Company, nor the performance and consummation by any such Benefit Plan of the transaction contemplated hereby and thereby violates or will violate any of the terms and conditions of such Benefit Plan, ERISA or the Code. Section 3.13 Events Subsequent to March 31, 2000. Except (a) as set forth in Schedule 3.13, (b) as specifically provided for by this Agreement or consented to or approved by Buyer or (c) for transactions between or among the Company and one or more of its Subsidiaries, or between or among Subsidiaries of the Company, or involving the International Entities, from March 31, 2000 until the date hereof, neither the Company nor any Significant Subsidiary, has: 3.13.1 incurred or guaranteed any indebtedness for borrowed money (not including accounts payable and trade payables incurred in the ordinary course of business consistent with past practice), other than (i) indebtedness incurred in accordance with any Material Contract or (ii) indebtedness incurred in the ordinary course of business consistent with past practice, none of which, individually or in the aggregate, has a Material Adverse Effect; 3.13.2 acquired or disposed of, in either case in any manner, any material assets or properties, other than (i) acquisitions and dispositions in the ordinary course of business consistent with past practice, (ii) dispositions of obsolete or surplus assets, (iii) acquisitions and dispositions in connection with the normal repair and/or replacement of assets or properties, or property losses covered by insurance, (iv) acquisitions or dispositions in accordance with any Material Contract or (v) dispositions of equity interests or assets pursuant to the Reliant Purchase Agreement or related to any of the International Entities; 42 3.13.3 amended its Certificate of Incorporation, By-Laws or governing documents, other than amendments which do not have, individually or in the aggregate, a Material Adverse Effect; 3.13.4 failed to pay and discharge on a timely basis consistent with past practices any liabilities which constitute current liabilities under generally accepted accounting principles, except for (i) liabilities not yet due, (ii) liabilities which are subject to good faith contest for which appropriate reserves have been established or (iii) liabilities for which the failure to pay would not, individually or in the aggregate, have a Material Adverse Effect; 3.13.5 cancelled any material indebtedness owed to the Company or any Subsidiary thereof or waived in an enforceable manner any rights of substantial value to the Company or any Subsidiary thereof, except for any such cancellations or waivers of intercompany indebtedness or which, individually or in the aggregate, do not have a Material Adverse Effect; 3.13.6 declared or paid any dividend or distribution, except for any dividend or distribution paid or payable by a Subsidiary of the Company to another Subsidiary of the Company or to the Company; 3.13.7 made or agreed to make any advance (excluding advances for ordinary and necessary business expenses and for tax payments under the Company's tax equalization program) or loan to any of its directors or officers or employees, or to the Sellers, or made any increase in, or any addition to, other benefits to which any of its directors or officers, or any Seller may be entitled, except in the ordinary course of business consistent with past practice and except for such additional benefits which, in the judgment of the board of directors or the senior 43 management of the Company, are reasonably necessary or appropriate to retain the services of directors, officers or employees; 3.13.8 suffered any Material Adverse Effect; or 3.13.9 entered into any agreement or commitment to take any of the actions described in Sections 3.13.1 to 3.13.7. Section 3.14 Title to Properties. The Company and the Significant Subsidiaries have good and valid title to the material properties and assets (other than Real Property) reflected on the March 31, 2000 consolidated balance sheet included in the Financial Statements or thereafter acquired (other than material properties and assets disposed of in the ordinary course of business since such date and dispositions that would not result in a breach of the representations set forth in Section 3.13), free and clear of any Material Encumbrances, except for: (i) Liens and encumbrances set forth in Schedule 3.14; (ii) Liens for current taxes not yet due and payable or being contested in good faith through appropriate proceedings, Liens to lenders incurred on deposits made in the ordinary course of business consistent with past practice in connection with maintaining bank accounts, Liens in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security, or to secure the performance of tenders, statutory obligations, surety and appeal bonds, bids, leases, government contracts, governmental permits, licenses and approvals, performance and return-of-money bonds and other similar obligations, and (iii) materialmen's, warehousemen's and mechanics Liens and other Liens arising by operation of law in the ordinary course of business for sums not yet due, none of which, individually or in the aggregate, materially interferes with or otherwise materially impairs the present use or operation of such properties or assets. The Liens described in the foregoing clauses (i), (ii) and (iii) are collectively referred to as "Permitted Liens". The 44 Company and the Significant Subsidiaries currently own, lease or otherwise have a right to use all of the property necessary for the conduct of their respective businesses as currently conducted in all material respects. Section 3.15 Insurance. Schedule 3.15 contains a list of the material insurance coverage applicable to the Company and Significant Subsidiaries and certain other insurance coverage that is listed for the information of Buyer. To the Company's knowledge, the insurance coverage listed on Schedule 3.15 is in full force and effect, is valid, binding and enforceable in accordance with its terms against the respective insurers, except that policies relating to director and officer insurance will terminate in accordance with their terms on the Closing Date. There is no material default by the Company or any Significant Subsidiary (or to the Company's knowledge by any insurer) under any such coverage and there has been no material failure by the Company or any Significant Subsidiary to give notice or present any material claim under any such coverage in a due and timely fashion. No notice of cancellation or nonrenewal of any such material coverage has been received except as is customary during the expiration and renewal process for those policies listed on Schedule 3.15 which expire within 30 days. During the one-year period ending on the date of the Opening Balance Sheet, there have been no retroactive or retrospective premium adjustments that have not been reflected on the Opening Balance Sheet. Except as set forth in Schedule 3.15, there are no material outstanding performance bonds covering or issued for the benefit of the Company. Section 3.16 Transactions with Certain Persons. Except (i) for liabilities and obligations arising out of employment relationships of any officer, director or employee of the Company or any Significant Subsidiary thereof with the Company and its Affiliates, (ii) for 45 liabilities or obligations relating to, or arising out of, any International Entities and (iii) as set forth in Schedules 3.8, 3.12 or 3.16; the Company has no outstanding liabilities or obligations owing to or from any Seller, officer, director or employee of the Company or any Significant Subsidiary thereof nor any member of any such person's immediate family. Section 3.17 Compliance With Environmental Laws. Except as set forth in Schedule 3.17, (i) the Company and its Subsidiaries are in compliance with the applicable Environmental Laws in all material respects and (ii) neither the Company nor any of its Subsidiaries has any material liability under the applicable Environmental Laws. Except as set forth in Schedule 3.17, (i) no written notice of any material violation of the applicable Environmental Laws or material claims or demands by third parties relating to the operations or properties of the Company or any Subsidiary thereof has been received by, and is pending against, the Company or any Subsidiary thereof and (ii) there are no writs, injunctions, decrees, orders or judgments outstanding, or any actions, suits, claims, proceedings or investigations pending or, to the knowledge of the Company, threatened, relating to compliance by the Company or any of its Subsidiaries with or liability of any of them under the applicable Environmental Laws, except where any such instance of non-compliance or liability would not, individually or in the aggregate, have a Material Adverse Effect. Section 3.18 Real Property. Except as set forth in Schedule 3.18: 3.18.1 The Company or a Subsidiary of the Company, as applicable, has valid and insurable title to all material real property owned by it and valid leasehold interests in all material real property leased by it (collectively, the "Real Property"). 3.18.2 To the Company's knowledge, the current use of the Real Property is in material compliance with all applicable zoning regulations or permitted as a grandfathered non- 46 conforming use. To the Company's knowledge, the completion of the transactions contemplated hereby will not prevent the Company or any Subsidiary of the Company from utilizing, in accordance with such zoning ordinances and regulations, any or all of the Real Property following the Closing in the same manner in all material respects as the Company or Subsidiary of the Company has utilized such Real Property prior to the Closing. 3.18.3 The electric, gas and sewer utility services and the septic tank and storm drainage facilities currently available to the Real Property are adequate in all material respects for the present use of the Real Property by the Company and Subsidiaries of the Company, and the Company has no knowledge of any condition that will result in the termination of the present access from the Real Property to any such material utility services and other facilities. 3.18.4 The Company or Subsidiaries of the Company have all materially necessary vehicular and pedestrian ingress and egress rights to and from the Real Property. There are no restrictions on entrance to or exit from the Real Property that materially interfere with the current use of the Real Property and the Company has no knowledge of any condition that might reasonably be expected to result in the termination of any material present access from the Real Property to existing highways and roads. 3.18.5 The Company has received no written notices, and has no knowledge of facts or circumstances that should reasonably cause it to believe, that any governmental body having jurisdiction over the Real Property intends to exercise the power of eminent domain or a similar power with respect to all or any part of the Real Property except for any such exercise that would not materially adversely affect the present use of any Real Property by the Company or any of its Subsidiaries. 47 3.18.6 The Company has not received written notice of any proposed public improvements that might result in any material charge being levied or assessed against any of the Real Property or of any proposed regulation (including, but not limited to, zoning regulations) that might reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect. Section 3.19 Patents, Copyrights and Trademarks. To the knowledge of the Company, the business as formerly and presently conducted by the Company and Subsidiaries of the Company does not conflict with or infringe upon any patents, copyrights, trademarks, service marks or applications that are owned or claimed by any third party, except for such conflicts or infringements that would not, individually or in the aggregate, have a Material Adverse Effect. Section 3.20 Corporate Records. The corporate record books of the Company and Significant Subsidiaries are current and contain correct and complete, in all material respects, copies of minutes of meetings, resolutions and other actions and proceedings of its stockholders and board of directors, and the stock records of the Company and Significant Subsidiaries are also current, correct and complete and reflect the issuance of all shares of capital stock of such entities. Section 3.21 Qualifying Facilities. All of the Company's Qualifying Facilities are in compliance in all material respects with Section 210 of PURPA and the regulations promulgated thereunder. The Company has not received any notice from FERC or other regulatory authority that any of the Company's Qualifying Facilities are in material violation of PURPA or the regulations promulgated thereunder or otherwise fail to satisfy any material legal requirements applicable to Qualifying Facilities. 48 Section 3.22 Exempt Wholesale Generators and Foreign Utility Companies. All of the Company's Subsidiaries and Affiliates that have received Exempt Wholesale Generator ("EWG") determination from FERC or provided Foreign Utility Company ("FUCO") notices with the SEC are in compliance in all material respects with the requirements imposed under PUHCA with respect to EWG's and FUCO's. The Company and its respective EWG/FUCO Subsidiaries and Affiliates have not received any notice from FERC, SEC or any other regulatory authority that any EWG/FUCO is in material violation of PUHCA or otherwise fails to satisfy any material legal requirement applicable EWGs or FUCOs. ARTICLE 4. REPRESENTATIONS AND WARRANTIES OF EACH SELLER. Except as otherwise disclosed in this Agreement or in any Schedule, each Seller, severally and not jointly, represents and warrants, only with respect to itself, to Buyer, as of the date hereof (except where such representation or warranty is expressly made as of another specific date), as follows: Section 4.1 Organization and Corporate Power. If such Seller is a Corporate Seller, it is a corporation, a partnership or a trust, as indicated on Schedule 1, and if it is a corporation it is duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation and has full corporate power and authority to own the Sithe Stock it is agreeing to transfer pursuant to this Agreement and to execute, deliver and perform this Agreement. If such Corporate Seller is a partnership or a trust, it has full power and authority to own the Sithe Stock it is agreeing to transfer pursuant to this Agreement and to execute, deliver and perform this Agreement. If such Seller is an individual, he has the legal capacity to execute, deliver and perform this Agreement. 49 Section 4.2 Authorization; Validity. The execution, delivery and performance of this Agreement by such Seller, if it is a Corporate Seller, have been duly authorized by all requisite action on the part of such Seller. If such Seller is a Corporate Seller, this Agreement has been duly executed and delivered by such Seller and constitutes the valid and binding obligation of such Seller, enforceable against such Seller in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereinafter in effect relating to creditors' rights generally, and general equitable principles (whether considered in a proceeding in equity or at law). If such Seller is an individual, this Agreement constitutes the valid and binding obligation of such Seller, enforceable against such Seller in accordance its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereinafter in effect relating to creditors' rights generally, and general equitable principles (whether considered in a proceeding in equity or at law). Section 4.3 No Conflict. If such Seller is a Corporate Seller, except as would not materially adversely affect such Seller's ability to consummate the transactions contemplated hereby, the execution, delivery and performance by such Seller of this Agreement and the consummation by such Seller of the transactions contemplated hereby will not (i) violate the Charter Documents of such Seller, (ii) violate any law or regulation applicable to such Seller, or (iii) violate or conflict with, or constitute (with due notice or lapse of time or both) a default under, any material note, bond, mortgage, indenture, license, lease, contract, agreement or other instrument or obligation by which such Seller or any of its assets its bound. Section 4.4 Ownership of Stock. Such Seller owns, of record and beneficially, the number of shares of Sithe Stock set forth opposite such Seller's name on Schedule 3.4, free and 50 clear of any Liens, except as set forth in Schedule 3.4. Except as set forth in Schedule 3.4 and except as contemplated hereby, there is no voting trust or agreement, stockholders' agreement, pledge agreement, buy-sell agreement, right of first refusal, preemptive right, proxy or agreement or commitment to sell relating to such Seller's shares of Sithe Stock. On the Closing Date, upon the consummation of the transactions contemplated by this Agreement, Buyer will own the Sithe Stock to be sold by such Seller to Buyer pursuant to this Agreement free and clear of any Liens, except for any Liens created by or through Buyer. Section 4.5 Public Utility. No Seller is a "holding company," a "public-utility company," an "electric utility company," or a "subsidiary company," an "associate company," or an "affiliate" of a holding company within the meaning of PUHCA, a "public utility" within the meaning of Part II of the Federal Power Act, or otherwise subject to regulation as a public utility or public service company (or similar designation) by the United States or any state of the United States. ARTICLE 5. REPRESENTATIONS AND WARRANTIES OF BUYER Buyer represents and warrants to the Company and the Sellers that, as of the date hereof (except where such representation or warranty is expressly made only as of a specific date) as follows: Section 5.1 Organization and Corporate Power. Buyer is a corporation duly organized, validly existing and in good standing under the laws of Delaware. Buyer has full corporate power and authority to execute, deliver and perform this Agreement. Section 5.2 Authorization of Agreement; Validity. The execution, delivery and performance by Buyer of this Agreement have been duly authorized by all requisite corporate action on the part of Buyer. This Agreement has been duly executed and delivered by Buyer and 51 constitutes the valid and binding obligation of Buyer, enforceable against Buyer in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to creditors rights generally, and general equitable principles (whether considered in a proceeding in equity or at law). Section 5.3 No Conflict. The execution, delivery and performance by Buyer of this Agreement and the consummation of the transactions contemplated hereby will not (i) violate the Charter Documents of Buyer; (ii) violate any law or regulation applicable to Buyer, or any order of any court or governmental agency or authority having jurisdiction over Buyer, or (iii) violate or conflict with, or constitute (with due notice or lapse of time or both) a default under, any material note, bond, mortgage, indenture, license, lease, contract, agreement or other instrument or obligation by which Buyer or any of its assets is bound. Section 5.4 Consents and Approvals. Except as set forth in Schedule 5.4, no registration or filing with, or consent or approval of or other action by, any Federal, state or other governmental agency or instrumentality or any other Person is or will be necessary for the valid execution, delivery and performance by Buyer of this Agreement and the consummation of the transactions contemplated hereby, other than filings required pursuant to the HSR Act. Section 5.5 Brokers. Neither Buyer nor any Subsidiary or Affiliate of Buyer has any contract, arrangement or understanding with any investment banking firm, broker, finder or similar agent with respect to the transactions contemplated by this Agreement, except for Credit Suisse First Boston, whose fees shall be borne by Buyer. Section 5.6 Availability of Funds. At the Closing, Buyer will have sufficient funds to pay the Estimated Aggregate Purchase Price and to consummate the transactions contemplated hereby. 52 Section 5.7 Investment Purpose; Restricted Securities. Buyer is purchasing the Sithe Stock for Buyer's own account, for investment purposes only and not with a view towards public sale or distribution thereof. Buyer understands that the Sithe Stock has not been, will not be, and is not required to be registered under the Securities Act of 1933 as amended (the "Act"), by reason of a specific exemption from the registration provisions of the Act, which depends upon, among other things, the bona fide nature of the investment intent and the accuracy of Buyer's representations as expressed herein. Buyer understands that the shares of Sithe Stock are "restricted securities" under applicable U.S. federal and state securities laws and that, pursuant to these laws, Buyer may be required to hold the Sithe Stock indefinitely unless the sale of the Sithe Stock by Buyer is registered with the Securities and Exchange Commission ("SEC") and qualified by state authorities, or an exemption from such registration and qualification requirements is available. Buyer further acknowledges that if an exemption from registration or qualification is available, it may be conditioned on various requirements including, but not limited to, the time and manner of sale, the holding period for the Sithe Stock, and on requirements relating to the Company which are outside of Buyer's control, and which the Company is under no obligation to, and may not be able to, satisfy. Section 5.8 No Public Market. Buyer understands that no public market now exists for any of the securities issued by the Company and that the Company has made no assurances that a public market will ever exist for the Sithe Stock. Section 5.9 Legends. Buyer understands that the Sithe Stock, and any securities issued in respect of or in exchange for the Sithe Stock, may bear legends as may be set forth in the Amended and Restated Stockholders' Agreement. 53 ARTICLE 6. ACCESS; ADDITIONAL AGREEMENTS Section 6.1 Access to Information; Continuing Disclosure. The Company agrees that from the date hereof until the Closing Date, and subject to the terms of the Confidentiality Agreement and for purposes of transition, (i) upon reasonable notice from Buyer, the Company shall provide to Buyer reasonable access, at reasonable times during normal business hours, to the employees, properties, books and records of the Company and each Subsidiary thereof and shall promptly furnish to Buyer information as Buyer may reasonably request; provided, that such access shall be afforded to Buyer after no less than two Business Days' prior notice, and only in such manner so as not to unreasonably disturb or interfere with the normal operations of the Company or such Subsidiary; and provided further, that the Company shall not be required to take any action that would constitute a waiver of the attorney-client privilege and the Company need not supply to Buyer any information that the Company is under a legal obligation not to supply, and (ii) at regular intervals prior to the Closing Date, or at such other times as Buyer or its representatives shall reasonably request, the Company shall consult with Buyer regarding the conduct of the business of the Company and its Subsidiaries. All information furnished by or on behalf of the Company hereunder shall be subject to the terms of the Confidentiality Agreement dated as of November 11, 1999 between the Company and Buyer (the "Confidentiality Agreement"). Section 6.2 Regulatory Approvals. 6.2.1 Antitrust Notification. Buyer shall cause its ultimate parent entity to, and the Company and Vivendi, S.A. will, as promptly as practical, but in no event later than thirty (30) days following the execution and delivery of this Agreement, each file with the United States Federal Trade Commission (the "FTC") and the United States Department of Justice (the 54 "DOJ") the Notification and Report Form under the HSR Act, if any, required in connection with the transactions contemplated hereby and as promptly as practicable supply any additional information, if any, requested in connection herewith pursuant to the HSR Act. Any such Notification and Report Form and additional information, if any, submitted to the FTC or the DOJ shall be in substantial compliance with the requirements of the HSR Act. Each of Buyer and the Company shall furnish to the other such information and assistance as the other may reasonably request in connection with its preparation of any filing or submission which is necessary under the HSR Act. Each of Buyer and the Company shall keep the other apprised in a prompt manner of the status and substance of any communications with, and inquiries or requests for additional information from, the FTC and the DOJ and shall comply promptly with any such inquiry or request. Each of Buyer and the Company will use its reasonable efforts to obtain the termination or expiration of any applicable waiting period required under the HSR Act for the consummation of the transactions contemplated hereby. 6.2.2 Regulatory Approval Process. Buyer, the Company and, to the extent required, the Sellers, shall as promptly as practical, but in no event later than thirty days following the execution and delivery of this Agreement, submit to the appropriate agency/ies or third party/ies all declarations, filings and registrations listed on Schedules 7.4 and 8.4. With respect to any such filings and registrations, including, without limitation, filings that will be submitted to the Federal Energy Regulatory Commission ("FERC") and or the SEC, Buyer and the Company shall cooperate to share and develop information necessary for such filing(s) and drafts of such filing(s) within fifteen days following execution and delivery of this Agreement and shall give each other reasonable opportunity to comment on and to revise such draft filings(s) before such filing(s) are submitted to the appropriate governmental or regulatory agency. Buyer and 55 Sellers agree to the retention of the Company's choice of expert to support any such filing(s) submitted to FERC. Section 6.3 Further Assurances. From time to time from the date hereof until the Closing Date, as and when requested by any party hereto, the requested party shall use reasonable efforts to execute and deliver, or cause to be executed and delivered, all such documents and instruments and shall take, or cause to be taken, all such further or other actions as such other party may reasonably deem necessary to consummate the transactions contemplated by this Agreement, including, without limitation, such actions as are reasonably necessary in connection with obtaining any third party consent identified on Schedules 7.4 or 8.4 or any regulatory filings as any party may undertake in connection herewith. Section 6.4 Certain Tax Matters. 6.4.1 Transfer Taxes. Payments for all stamp, documentary, recording, transfer and sales and use taxes ("Transfer Taxes") incurred in connection with this Agreement and the transactions contemplated hereby (which for purposes of this Section expressly exclude any sale contemplated by the Reliant Purchase Agreement or any International Sale, as to which all Transfer Taxes shall be borne by the Sellers) shall be shared equally between Buyer and the Sellers, and Buyer at its own expense shall file, to the extent required by applicable law, all necessary Tax Returns and other documentation with respect to all such transfer or sales and use taxes, and, if required by applicable law, the Company shall join the execution of any such Tax Returns or other documentation. Section 6.5 Regular Course of Business. 56 6.5.1 Prior to the Closing, except (a) as set forth on Schedule 6.5, and (b) as otherwise contemplated by this Agreement or consented to in writing by Buyer the Company shall, and shall cause its Subsidiaries to: 6.5.1.1 operate in the ordinary course of business consistent with past practices; 6.5.1.2 use reasonable efforts to preserve substantially intact their business organization, retain the services of their key employees (subject to work force requirements) and maintain their relationships with their material customers and suppliers; 6.5.1.3 use reasonable efforts to maintain and to keep their material properties and assets in good repair and condition, ordinary wear and tear and insured casualty excepted; 6.5.1.4 use reasonable efforts to keep in full force and effect material insurance and bonds substantially comparable in amount and scope of coverage to that currently maintained; and 6.5.1.5 comply in all material respects with the covenants set forth in any loan, debt or other agreements with its lenders; in each case, except for any matters that, individually or in the aggregate, would not have a Material Adverse Effect. 6.5.2 Prior to the Closing, except as set forth in Schedule 6.5, and except as otherwise contemplated by this Agreement or as otherwise consented to in writing by Buyer, which consent shall not to be unreasonably withheld or delayed, the Company shall not, and shall cause its Subsidiaries not to: 57 6.5.2.1 (a) increase significantly the compensation payable to or to become payable to any director or executive officer, (b) grant any material severance or termination pay award that would become due as a result of the transactions contemplated hereby, (c) amend or take any other actions to increase materially the amount of, or accelerate the payment or vesting of, any benefit under any Benefit Plan or (d) contribute, transfer or otherwise provide any material amount of cash, securities or other property to any grantee, trust, escrow or other arrangement that has the effect of providing or setting aside assets for benefits payable pursuant to any termination, severance or other change in control agreement; except, in the case of each of clause (a) through (d), (x) pursuant to any Contract of the Company or any of its Subsidiaries existing on the date hereof or (y) in the case of severance, termination or retention payments, pursuant to a policy of the Company or any of its Subsidiaries existing on the date hereof. 6.5.2.2 (a) enter into any material employment or severance agreement with any director or executive officer, either, individually or as part of a class of similarly situated persons, or (b) establish, adopt or enter into any material new Benefit Plan, except, in the case of (a) or (b), (w) for employment and severance agreements and Benefit Plans for the benefit of any newly employed or promoted officers or employees, in which case the terms of such agreements and Benefit Plans shall be reasonably consistent with those existing on the date hereof, (x) for Benefit Plans relating to welfare insurance benefits established or adopted in the ordinary course of business consistent with past practice or (y) for Benefit Plans as required by the terms of any Collective Bargaining Agreement; 58 6.5.2.3 (a) offer, sell, issue or grant, or authorize the offering, sale, issuance or grant, of any material amount of equity securities of the Company or any of its Subsidiaries or (b) grant any Lien with respect to any equity securities of the Company or any Subsidiary, other than with respect to shares of Common Stock held by William Kriegel in accordance with the terms and conditions set forth in the form of Amended and Restated Stockholders' Agreement attached as Exhibit A hereto; 6.5.2.4 acquire, whether by merger or consolidation, by purchasing any equity interest or otherwise, any business or any corporation, partnership, association or other business organization or division thereof except for any such acquisition transaction that is not material; 6.5.2.5 acquire or construct any material assets or properties other than the acquisition of assets from suppliers or vendors in the ordinary course of business and consistent with past practice; 6.5.2.6 sell, lease, exchange or otherwise dispose of, or grant any Lien with respect to, any material assets of the Company or any of its Subsidiaries, except for dispositions of assets and inventories in the ordinary course of business consistent with past practice and purchase money Liens incurred in connection with the acquisition of assets secured by such assets; 6.5.2.7 adopt any amendments to its Charter Documents, except as contemplated by the form of Amended and Restated Stockholders' Agreement attached as Exhibit A hereto; 6.5.2.8 (A) make any change in any of its methods of accounting in effect at December 31, 1999, except as may be required to comply with 59 GAAP, (B) make or rescind any election relating to any Taxes (other than any election that must be made periodically and that is made consistent with past practice or that the Company is contractually required to make pursuant to the Reliant Purchase Agreement or the GPU Purchase Agreement in effect as of the date hereof or that is an entity classification election made in the ordinary course of business) or (C) settle or compromise any claim, action, suit, litigation, proceeding, arbitration, investigation, audit or controversy relating to Taxes, except, in each case, as may be required by applicable law or as would not have a Material Adverse Effect; 6.5.2.9 enter into any Contracts, or make any commitments, for the sale of energy or capacity to any third party relating to any period after the third anniversary of the Closing Date; 6.5.2.10 incur any obligations for borrowed money or purchase money indebtedness that are material, whether or not evidenced by a note, bond, debenture or similar instrument, except purchase money indebtedness as to which Liens may be granted pursuant to Section 6.5.2.6, drawings or other incurrences of indebtedness under credit lines or other financing agreements existing at the date of this Agreement and borrowings evidenced by obligations having a term of up to five years issued in the ordinary course of business consistent with past practice; or 6.5.2.11 agree in writing or otherwise to do any of the foregoing. 6.5.3 Notwithstanding anything herein to the contrary, the Company shall be permitted to: (a) declare and pay dividends in an aggregate amount not to exceed $90.0 million (plus any dividends to be paid at the election of Buyer pursuant to Article 2); (b) consummate any one or more of (i) any Marubeni Transaction and (ii) the Plan Restructuring, provided, in the 60 case of any action described in this clause (b), that the consummation of such action would have no cost or other adverse financial impact to the Company that is not fully reflected in the Adjustment Amount or to Buyer; (c) take any action in connection with the International Entities to the extent permitted to be taken by the Divestiture Committee in the form of Amended and Restated Stockholders' Agreement attached hereto as Exhibit A; (d) consummate any International Sale; and (e) consummate the transactions contemplated by, and subject to the terms and conditions of, the Letter of Intent, dated the date hereof, between the Company and William V. Kriegel. 6.5.4 Notwithstanding anything herein to the contrary, the Company shall be permitted to take any action which in the good faith belief of the Board of Directors of the Company or its Chairman is in, or not opposed to, the best interests of the Company, in connection with (i) the litigation matters set forth in item 1 of Schedule 3.6 and item 4 of Schedule 3.6, including, without limitation, entering into any settlement of, and otherwise managing such litigation and (ii) any of the Allegheny Entities (as hereinafter defined). Any action or inaction taken by the Company in connection with any matters described in the foregoing sentence shall not be deemed to cause a breach by the Company or any Seller of this Agreement or the failure of any condition set forth in Article 7 to be satisfied. Section 6.6 Notice of Changes. Prior to the Closing, Buyer and each Seller shall, and the Sellers shall cause the Company to, promptly disclose to each other party in writing any information set forth in the Schedules hereto which no longer obtains and any information of the nature of that set forth in the Schedules which arises after the date hereof and which would have been required to be included in the Schedules if such information had obtained on the date hereof. Such disclosure shall not limit or affect any party's rights hereunder for or with respect 61 to any misrepresentation or breach of warranty by any other party or the failure of any other party to fulfill any covenant, agreement or condition contained in this Agreement and shall not limit or affect any of the rights of any party hereunder to require any other party to consummate the transactions contemplated by this Agreement. Section 6.7 Director and Officer Indemnification and Insurance. 6.7.1 From and after the Closing Date until the sixth anniversary of the Director Termination Date, the Company shall indemnify, defend, and hold harmless to the fullest extent permitted under applicable law and the Company's certificate of incorporation and by-laws each person who is now, or has been at any time prior to the date hereof, an officer or director of the Company (individually, a "Director Indemnified Party," and collectively, the "Director Indemnified Parties"), against all losses, claims, damages, liabilities, costs or expenses (including attorney's fees), judgments, fines, penalties, and amounts paid in settlement of or otherwise in connection with any claim, action, suit, proceeding, or investigation arising out of or pertaining to acts or omissions, or alleged acts or omissions, by them in their capacities as such occurring at or prior to the Closing (including, without limitation, the transactions contemplated by this Agreement) (a "D&O Claim"). In the event of any such D&O Claim, the Company shall pay expenses in advance of the final disposition of any such action or proceeding to each Director Indemnified Party to the fullest extent permitted under applicable law. 6.7.2 The Company shall keep in effect provisions in its certificate of incorporation and bylaws with respect to indemnification and director and officer exculpation from liability identical to, or at least as favorable to the Director Indemnified Parties as, such provisions contained in the articles of incorporation and bylaws of the Company on the date hereof, which provisions shall not be amended, repealed, or otherwise modified for a period of 62 six years from the Director Termination Date in any manner that would adversely affect the rights thereunder of individuals who at any time prior to the Director Termination Date were directors or officers of the Company in respect of actions or omissions at or prior to the Director Termination Date (including, without limitation, the transactions contemplated by this Agreement), except as required by applicable law or except to make changes permitted by law that would not materially diminish the Director Indemnified Parties' right of indemnification. 6.7.3 For a period of six years after the Director Termination Date, the Company shall maintain in effect officers' and directors' liability insurance policies covering the Director Indemnified Parties that are on terms no less advantageous to the Director Indemnified Parties than the insurance maintained by the Company on the date hereof (without regard to excess liability layers) with respect to D&O Claims arising from facts or events that occurred prior to the Director Termination Date. 6.7.4 This Section 6.7 shall survive the Closing, is intended to benefit each of the Director Indemnified Parties and their respective heirs and personal representatives (each of which shall be entitled to enforce this Section 6.7 against the Company, as a third party beneficiary of this Agreement), and shall be binding on all successors and assigns of the Company. Section 6.8 Credit Facilities. The Company shall use reasonable efforts to repay, or cause its Subsidiaries to repay, the amounts outstanding under the BECO Facility and the Vivendi Loan Agreement prior to, or simultaneously with, the Closing. On or prior to the Closing Date, the Company shall obtain consent of the lenders under the BECO Facility (to the extent such facility is not repaid) and under the Senior Credit Facility to the consummation of the transactions contemplated by this Agreement. 63 Section 6.9 No Solicitation. Prior to Closing, other than with respect to any International Sale, and other than with respect to non-binding discussions regarding Qualifying Facilities, the Sellers and Company shall not, and shall not permit any Subsidiary of the Company to, directly or indirectly, make, solicit, initiate or encourage submission of proposals or offers from any Person relating to any liquidation, dissolution, recapitalization, merger, consolidation or acquisition or purchase of all or substantially all of the assets of, or equity interest in, the Company or any Significant Subsidiary or any other similar transaction or business combination. Other than with respect to any International Sale, and other than with respect to any non-binding discussions regarding Qualifying Facilities, prior to the Closing, the Sellers and Company shall, and shall cause its Subsidiaries to, immediately cease and cause to be terminated all contracts, negotiations and communications with third parties with respect to the foregoing, if any, existing on the date hereof. Should the Sellers, the Company or any Company Subsidiary receive any such proposal, inquiry or contact prior to Closing, the Sellers and Company shall within three (3) Business Days give written notice thereof to Buyer and also shall promptly provide Buyer with such information regarding such proposal, inquiry or contact as Buyer may reasonably request. Notwithstanding the provisions of this Section 6.9, any Seller, the Company or any Subsidiary of the Company may conduct non-binding discussions or any of the activities described in this Section 6.9 that relate to the disposition or restructuring of all or any part of any individual Qualifying Facilities, provided that neither any Seller, the Company nor any Subsidiary of the Company shall enter into a binding agreement to consummate any such disposition or restructuring. For avoidance of ambiguity, a confidentiality agreement, standstill agreement or similar arrangement which does not include a binding commitment to consummate the disposition or restructuring of an individual Qualifying Facility shall not be deemed a 64 "binding agreement to consummate" such disposition or restructuring for purposes of the immediately preceding sentence. Section 6.10 Interim Financial Statements. Within 30 days after the end of each month prior to the Closing, the Company shall deliver to Buyer a consolidated balance sheet of the Company and subsidiaries of the Company as at the end of such month and the related consolidated statements of income and cash flows for the period then ended, together with a certificate of the chief accounting officer of the Company to the effect that all such financial statements have been prepared in accordance with GAAP consistently applied, except for the omission of footnote information, and fairly present in all material respects the financial condition of the Company and its consolidated subsidiaries as of the dates thereof and the results of their consolidated operations for the periods covered thereby. Section 6.11 No Adverse Action. Prior to the Closing Date, neither the Company nor any of the Sellers shall take any action which results in the loss of Qualifying Facility status under PURPA, or EWG or FUCO status under PUHCA, of any project, Subsidiary or Affiliate of the Company that holds such status as of the effective date of this Agreement. Section 6.12 PUHCA Compliance. Neither the Buyer nor any of its associate companies shall directly or indirectly provide guarantees and other forms of credit support for and/or acquire any securities, or interest in the business, of any entity, including, but not limited to, exempt wholesale generators, foreign utility companies, energy-related companies and/or exempt telecommunications companies, prior to the Closing Date that would materially impair the ability of the Buyer to consummate the transactions contemplated by this Agreement and the Put and Call Agreement under PUHCA. For purposes of this Section 6.12, the terms "associate 65 companies," "exempt wholesale generators," "energy-related companies" and "exempt telecommunications companies" shall have the meanings set forth in PUHCA. Section 6.13 Option Plans. The Company shall use good-faith efforts to complete the Plan Restructuring. Section 6.14 Development and Fuel Services Agreement and Power Purchase Agreement. The Company and Buyer shall use reasonable efforts to negotiate and enter into, or to cause their respective Affiliates to negotiate and enter into, the Development and Fuel Services Agreement and the Power Purchase Agreement on or prior to the Closing Date. ARTICLE 7. CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS The obligations of Buyer under this Agreement shall be subject to the satisfaction (or waiver by Buyer), at or before the Closing, of each of the following conditions, and each Seller and the Company shall use reasonable efforts to cause each of such conditions to be satisfied on or before the Target Date and, in any event, as promptly as practicable: Section 7.1 No Injunction. No Federal or state governmental agency or authority or political subdivision thereof or Federal or state court of competent jurisdiction shall have issued any injunction or other order (whether temporary, preliminary or permanent) which prohibits the consummation of the transactions contemplated hereby; provided, that if there is an injunction or such other order, the applicable parties shall use their reasonable efforts to litigate against, and obtain the lifting of, any such injunction or order. Section 7.2 Representations and Warranties. The representations and warranties of the Company contained in Article 3 and of each Seller contained in Article 4 that are qualified by materiality shall be true and correct as of the date hereof and as of the Closing Date (in each case except where such representation or warranty is expressly made only as of another specific date) 66 and all other representations and warranties shall be true and correct in all material respects, in each case as though such representations and warranties were made at and as of the Closing Date, except as otherwise contemplated by this Agreement or as may be specified in amendments to any of the Schedules provided at the Closing to reflect changes occurring after the date hereof, other than changes that result from the breach of any covenant of the Company or any Seller set forth in Article 6; and Buyer shall have received at the Closing (i) a certificate of the Company dated the Closing Date and signed on behalf of the Company by an executive officer of the Company to such effect, but only insofar as it is applicable to the Company, (ii) a certificate of each Seller with respect to the matters set forth in Article 4 (other than Section 4.5) dated the Closing Date and signed, in the case of an individual by such Seller, and in the case of a Corporate Seller by an executive officer of such Seller, to such effect, but only insofar as it is applicable to such Seller and (iii) a certificate of each Seller with respect to the matters set forth in Section 4.5 dated the Closing Date and signed, in the case of an individual by such Seller, and in the case of a Corporate Seller by an executive officer of such Seller, to such effect, but only insofar as it is applicable to such Seller. Section 7.3 Performance. Each Seller and the Company shall have performed and complied with all agreements and covenants required by this Agreement to be performed or complied with by them at or prior to the Closing in all material respects; and Buyer shall have received at the Closing (i) a certificate of the Company dated the Closing Date and signed on behalf of the Company by an executive officer of the Company to such effect, but only insofar as it is applicable to the Company, and (ii) a certificate of each Seller, dated the Closing Date and signed, in the case of an individual by such Seller, and in the case of a Corporate Seller by an executive officer of such Seller, to such effect, but only insofar as it is applicable to such Seller. 67 Section 7.4 Approvals and Filings. All consents, authorizations and approvals from, and all declarations, filings and registrations with, governmental agencies or third parties that are listed on Schedule 7.4 shall have been obtained or made unless the failure to obtain or make the same is the result of a breach of this Agreement by Buyer. All waiting periods under the HSR Act shall have expired or been properly terminated. Section 7.5 Amended and Restated Stockholders' Agreement. The Sellers and the Company shall have executed and delivered the Amended and Restated Stockholders' Agreement. Section 7.6 Opinion of Counsel. Buyer shall have received an opinion or opinions dated the Closing Date of counsel to the Company and/or the Sellers, to the effect set forth on Schedule 7.6. Section 7.7 No Material Adverse Effect. No Material Adverse Effect shall have occurred and be continuing and Buyer shall have received a certificate of the Company dated as of the Closing Date as to such effect. Section 7.8 Ownership Percentage. Consummation of the transactions contemplated hereby shall not result in Buyer owning more than 49.9 percent of the shares of Common Stock outstanding as of the Closing Date. Section 7.9 Niagara Mohawk Shares. The Company shall have sold or otherwise disposed of its equity interests in Niagara Mohawk Power Corporation. ARTICLE 8. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE SELLERS AND THE COMPANY The obligations of each of the Sellers under this Agreement shall be subject to the satisfaction (or waiver by each of the Principal Sellers and the Company) on or before the 68 Closing of each of the following conditions, and Buyer shall use reasonable efforts to cause each of such conditions to be satisfied on or before the Target Date and, in any event, as promptly as practicable: Section 8.1 No Injunction. No Federal or state governmental agency or authority or political subdivision thereof or Federal or state court of competent jurisdiction shall have issued any injunction or other order (whether temporary, preliminary or permanent) which prohibits the consummation of the transactions contemplated hereby; provided, that if there is an injunction or such other order, the applicable parties shall use their reasonable efforts to litigate against, and obtain the lifting of, any such injunction or order. Section 8.2 Representations and Warranties. The representations and warranties of Buyer contained herein that are qualified by materiality shall be true and correct as of the date hereof and as of the Closing Date (in each case except where such representation or warranty is expressly made only as of another specific date) and all other representations and warranties shall be true and in all material respects, in each case, as though such representations and warranties were made at and as of the Closing Date, except as otherwise contemplated by this Agreement; and the Sellers and the Company shall have received at the Closing a certificate, dated the Closing Date, signed on behalf of Buyer by an executive officer of Buyer to such effect. Section 8.3 Performance. Buyer shall have performed and complied with, in all material respects, all agreements and covenants required by this Agreement to be performed or complied with by it on or prior to the Closing; and the Sellers and the Company shall have received at the Closing a certificate, dated the Closing Date, signed on behalf of Buyer by an executive officer of Buyer to such effect. 69 Section 8.4 Approvals and Filings. All consents, authorizations and approvals from, and all declarations, filings and registrations with, governmental agencies or third parties that are listed on Schedule 8.4 and any other material consents, authorizations, approvals, declarations and filings that are required to consummate the transactions contemplated hereby shall have been obtained or made unless the failure to obtain or make the same is the result of a breach of this Agreement the Company or any Seller. All waiting periods under the HSR Act shall have expired or been properly terminated. Section 8.5 Amended and Restated Stockholders' Agreement. Buyer shall have executed and delivered the Amended and Restated Stockholders' Agreement. Section 8.6 Opinion of Counsel. The Sellers and the Company shall have received an opinion or opinions dated the Closing Date from counsel to Buyer, to the effect set forth in Schedule 8.6. Section 8.7 No Material Adverse Effect. No effect shall have occurred and be continuing that either individually or in the aggregate is materially adverse to the condition (financial or otherwise) or results of operations of Buyer and its Subsidiaries, taken as a whole, excluding, in any case, (i) any changes, circumstances or effects resulting from or relating to changes in the economy, financial markets, commodity markets, laws, regulations or rules in the applicable electric power markets generally (including, without limitation, changes in laws or regulations affecting owners or providers of electric generation, transmission or distribution as a group and not Buyer exclusively) and (ii) any changes in conditions generally applicable to the industries in which Buyer or any of its Subsidiaries is involved, and, in the case of clause (i) or (ii), not affecting Buyer or its Subsidiaries in any manner or degree significantly different from 70 the industry as a whole; and Principal Sellers shall have received a certificate of the Buyer dated as of the Closing Date as to such effect. Section 8.8 Credit Support Letter. The Credit Support Letter shall not have been amended, modified or rescinded, in whole or in part. Section 8.9 Dividend. The Dividend shall have been paid by the Company and received by the Sellers in accordance with the terms of the resolution of the Board of Directors of the Company declaring the Dividend. ARTICLE 9. CLOSING Section 9.1 Time and Place. Subject to the provisions of Articles 7 and 8, the closing of the sale by the Sellers and the purchase by Buyer of the Sithe Stock and the consummation of the transactions contemplated by Article 2 (the "Closing") shall take place at the offices of Latham & Watkins, 885 Third Avenue, New York, New York 10022 on the Target Date; provided, however, that if all of the conditions contained in Articles 7 and 8 are satisfied or waived prior to the Target Date then the Closing shall take place on the fifth Business Day after the date on which such conditions are satisfied (other than those conditions that by their nature are to be satisfied at the Closing, but subject to the fulfillment or waiver of those conditions); and provided, further that, if all of the conditions in Articles 7 and 8 are not satisfied by the Target Date, then, subject to Article 10, the Closing shall take place on the fifth Business Day after the date on which such conditions are satisfied (other than those conditions that by their nature are to be satisfied at the Closing, but subject to the fulfillment or waiver of those conditions); and provided, further that, notwithstanding the foregoing, the Closing may take place at such other 71 place, at such other time, or on such other date as the parties hereto may mutually agree (the date on which the Closing occurs being herein referred to as the "Closing Date"). Section 9.2 Payment for Stock. At the Closing, upon the terms and subject to the conditions set forth herein, (a) Buyer shall pay to each Seller, by wire transfer of immediately available funds to an account designated by such Seller the amount determined pursuant to Section 2.1.2.1 (as such amount may be adjusted pursuant to Section 2.1.2.3) and (b) Buyer or the Company, as applicable, shall pay to each Seller, by wire transfer of immediately available funds to an account designated by such Seller, the amount determined pursuant to Section 2.1.2.2. Section 9.3 Deliveries. 9.3.1 Stock Certificates. Each Seller shall deliver to the Company certificate(s) evidencing the number of shares of Sithe Stock set forth opposite such Seller's name on Schedule 1, duly endorsed in blank for transfer or accompanied by stock power duly executed in blank. The Company shall deliver to Buyer certificate(s) evidencing the aggregate number of shares of Sithe Stock, in such denominations as reasonably requested by Buyer not later than five Business Days prior to the Closing. 9.3.2 Certificates; Opinions. Buyer, the Company and the Sellers shall deliver to each other the certificates, opinions of counsel and other items described in Articles 7 and 8. 9.3.3 Other Closing Transactions. Each of the parties shall take such other actions required hereby to be performed by it prior to or on the Closing Date, including, without limitation, satisfying the conditions set forth in Articles 7 and 8. 9.3.4 Additional Documents. Each party shall execute and deliver to the other parties all documents which the other reasonably determines are necessary to consummate the 72 transactions contemplated hereby or to demonstrate or evidence compliance with the terms or the accuracy of any representation and warranty set forth herein. ARTICLE 10. TERMINATION AND ABANDONMENT Section 10.1 Methods of Termination. This Agreement may be terminated and the transactions herein contemplated may be abandoned at any time prior to the Closing Date: 10.1.1 by mutual consent of the Company, the Principal Sellers and Buyer; or 10.1.2 by Buyer at any time after December 31, 2000 if any of the conditions provided for in Article 7 of this Agreement shall not have been satisfied or waived in writing by Buyer prior to such date; provided, that if any approval, authorization or consent of any governmental agency listed on Schedule 7.4 has not been obtained and diligent efforts are being undertaken to obtain such approval, authorization or consent, then the references to December 31, 2000 in this Section 10.1.2 shall be extended for up to 90 days and Buyer may not terminate this Agreement during that extended period so long as such diligent efforts continue; or 10.1.3 by the Principal Sellers or the Company at any time after December 31, 2000 if any of the conditions provided for in Article 8 of this Agreement shall not have been satisfied or waived in writing by the Principal Sellers or the Company prior to such date; provided, that if any approval, authorization or consent of any governmental agency listed on Schedule 8.4 has not been obtained and diligent efforts are being undertaken to obtain such approval, authorization or consent, then the references to December 31, 2000 in this Section 10.1.3 shall be extended for up to 90 days and the Principal Sellers may not terminate this Agreement during that extended period so long as such diligent efforts continue; or 10.1.4 (a) by Buyer, upon not less than 30 days prior written notice, if there has been a violation or breach by the Company or the Sellers of their agreements, representations or 73 warranties contained in this Agreement which would have a Material Adverse Effect and which is not susceptible to cure (or if so susceptible is not the subject of diligent efforts on the part of the breaching party to cure), provided, that Buyer is not in material violation or breach of its agreements, representations or warranties contained in this Agreement, or (b) by the Principal Sellers, upon not less than 30 days prior written notice, if there has been a material violation or breach by Buyer of its agreements, representations or warranties contained in this Agreement and which is not susceptible to cure (or if so susceptible is not the subject of diligent efforts on the part of the breaching party to cure), provided, that such Sellers are not in material violation or breach of their agreements, representations or warranties contained in this Agreement. Section 10.2 Procedure Upon Termination and Consequences. Buyer, the Company or the Principal Sellers, as the case may be, may terminate this Agreement when permitted pursuant to Section 10.1 by delivering written notice of such termination, and such termination shall be effective on the date specified in such notice in accordance with Section 13.3. If this Agreement is terminated as provided herein: 10.2.1 each party will redeliver all documents, work papers and other material of any other party relating to the transactions contemplated hereby, whether obtained before or after the execution hereof, to the parties furnishing the same; and 10.2.2 no party hereto shall have any liability or further obligation to any other party to this Agreement (i) except with respect to the Confidentiality Agreement, which shall survive the termination of this Agreement, including with respect to information that is subject to the Confidentiality Agreement pursuant to Section 6.1, and (ii) except for such legal and equitable rights and remedies which any party may have by reason of any breach or violation of this Agreement by any other party prior to such termination. 74 ARTICLE 11. SURVIVAL Section 11.1 Seller Representations and Warranties; Buyer Representations and Warranties. The several representations and warranties of each Seller contained in Sections 4.1, 4.2, 4.3 and 4.4 (and in the certificates delivered pursuant to Section 7.2(ii)) and the representations and warranties of Buyer contained in Article 5 (and the certificate delivered pursuant to Section 8.2) shall survive the Closing. The several representations and warranties of each Seller contained in Section 4.5 (and the certificates delivered pursuant to Section 7.2(iii)) shall survive the Closing for a period of one (1) year. Section 11.2 Covenants. The covenants and agreements of the parties that by their terms are to be performed after the Closing (including, without limitation, all such covenants contained in Sections 2.2, 2.3, 2.4, 2.5, 6.7, 6.11 and 6.12 and in Article 12) shall survive the Closing indefinitely unless a specific termination date is set forth therein. Section 11.3 Company Representations and Warranties. The representations and warranties of the Company contained in Article 3 (other than the representations and warranties contained in Sections 3.7 and 3.17) shall survive the Closing for a period of one (1) year. The representations and warranties of the Company contained in Section 3.7 shall survive the Closing until the termination of the applicable statutes of limitations. The representations and warranties of the Company contained in Sections 3.17 shall survive the Closing for a period of two (2) years. Section 11.4 Survival Periods. Each such survival period referred to in Sections 11.1 through 11.3 shall be referred to, with respect to the applicable representations, warranties or covenants, as a "Survival Period". 75 ARTICLE 12. INDEMNIFICATION Section 12.1 Seller Indemnification 12.1.1 Subject to the limitations, qualifications and other provisions of this Article 12, from and after the Closing, each Corporate Seller shall indemnify and hold harmless the Company, Buyer and each of Buyer's directors, officers and employees ("Buyer Representatives", and together with the Company and Buyer, the "Buyer Indemnified Group"), from and against any costs or expenses (including reasonable attorneys' fees), judgments, fines, losses, claims and damages (collectively, "Damages"), incurred by any member of the Buyer Indemnified Group which result from (i) any breach of any representation or warranty of the Company contained in Article 3 or (ii) the failure of the Company to perform any covenant or agreement made by or on behalf of the Company under this Agreement that is required to be performed prior to the Closing. 12.1.2 Subject to the limitations, qualifications and other provisions of this Article 12, from and after the Closing, each Seller shall, severally and not jointly, indemnify and hold harmless each member of the Buyer Indemnified Group from and against any Damages incurred by any member of the Buyer Indemnified Group which result from (i) any breach of any representation or warranty of such Seller contained in Article 4 or (ii) the failure of such Seller to perform any covenant or agreement made by such Seller under this Agreement. 12.1.3 Subject to the limitations, qualifications and other provisions of this Article 12, from and after the Closing, each Corporate Seller shall indemnify and hold harmless each member of the Buyer Indemnified Group from and against Damages incurred by such member of the Buyer Indemnified Group which result from the ownership or operation of any assets or any entities sold by the Company pursuant to the Reliant Purchase Agreement. 76 12.1.4 Subject to the limitations, qualifications and other provisions of this Article 12, from and after the Closing, each Corporate Seller shall indemnify and hold harmless the Buyer Indemnified Group from and against Damages incurred by any member of the Buyer Indemnified Group which result from the ownership or operation of any assets or any entities that constitute a part of any International Entity (excluding (i) any retained liabilities related to any assets or entities that constitute a part of any International Entity, to the extent such retained liabilities are reflected in the calculation of the After-Tax Gain or Loss resulting from any International Sale and (ii) discrepancies between the Closing Book Value of such assets and the Book Value of such assets); including, without limitation, any payment made by the Company or any Subsidiary of the Company pursuant to any indemnification provisions set forth in any purchase agreement, merger agreement or similar agreement pursuant to which any International Sale shall have been consummated, other than the payment obligations described in Section 2.3.4. 12.1.5 Subject to the limitations, qualifications and other provisions of this Article 12, from and after the Closing, each Corporate Seller shall indemnify and hold harmless each member of the Buyer Indemnified Group (other than Penn Hydroelectric, Inc. and its direct and indirect Subsidiaries, Allegheny Hydro No. 8, Inc., Allegheny Hydroelectric, Inc., Allegheny Hydro No. 9, Inc., Allegheny Hydro No. 8, L.P. and Allegheny Hydro No. 9, L.P. (collectively, the "Allegheny Entities")) from and against Damages incurred by such member of the Buyer Indemnified Group resulting from claims by New York State Electric and Gas Corporation ("NYSEG") against the Company or any of its Subsidiaries (other than the Allegheny Entities) with respect to the obligations of the Allegheny Entities under the Power Purchase Agreements 77 between Allegheny and NYSEG, but excluding any litigation costs incurred by the Company or any of its Subsidiaries in connection with the matters set forth in item 1 of Schedule 3.6. 12.1.6 Subject to the limitations, qualifications and other provisions of this Article 12, each Corporate Seller shall indemnify and hold harmless each member of the Buyer Indemnified Group from and against Damages incurred by such member of the Buyer Indemnified Group which result from the consummation of one or more transactions described in Section 2.6.2 and 2.6.3. 12.1.7 Subject to the limitations, qualifications and other provisions of this Article 12, Vivendi shall indemnify and hold harmless each member of the Buyer Indemnified Group from and against Damages incurred by such member of the Buyer Indemnified Group which result from the consummation of the transactions described in Section 2.6.1. 12.1.8 Subject to the limitations, qualifications and other provisions of this Article 12, each Corporate Seller shall indemnify and hold harmless each member of the Buyer Indemnified Group any Damages incurred by such member of the Buyer Indemnified Group in any year that are directly related to the matters set forth in item 4 of Schedule 3.6, including, without limitation, any other investigation, action or proceeding initiated by any Person relating to the conduct referred to in such item 4 of the Company or any of its Subsidiaries, if and to the extent that such Damages exceed $1,000,000 in such year. For purposes of this Section 12.1.8, a "year" shall mean any period commencing on the Closing Date or any anniversary thereof and ending on the date immediately prior to the next succeeding anniversary of the Closing Date. Section 12.2 Buyer Indemnification. Subject to the limitation, qualifications and other provisions of this Article 12, Buyer shall indemnify and hold harmless the Sellers and each of the directors, officers and employees of each Seller ("Sellers' Representatives", and, together with 78 the Sellers, the "Sellers' Indemnified Group"), from and against any Damages incurred by any member of the Seller Indemnified Group which result from (i) any breach of any representation or warranty of the Buyer contained in Article 5 or (ii) failure to perform any covenant or agreement made by or on behalf of Buyer under this Agreement. Section 12.3 Timing of Notice of Claim. Notwithstanding anything herein to the contrary, no person shall be entitled to indemnification pursuant to this Article 12 unless the person seeking indemnification shall have delivered notice of a claim for Damages (a "Claim") in writing to Buyer (in the case of any such Claim by the Seller Indemnified Group), the Corporate Sellers (in the case of any such Claim by the Buyer Indemnified Group) or any Seller (in the case of any such Claim against the Seller pursuant to Section 12.1.2), (a) during the applicable Survival Period, in the case of any Claim pursuant to Section 12.1.1, 12.1.2 or 12.2, (b) during the Reliant Survival Period, in the case of any Claim pursuant to Section 12.1.3, (c) during the International Survival Period, in the case of Section 12.1.4, or (d) at any time, in the case of Section 12.1.5, 12.1.6, 12.1.7 or 12.1.8. The termination of any applicable Survival Period, Reliant Survival Period or International Survival Period, as the case may be, shall not affect the rights of any member of the Buyer Indemnified Group or the Seller Indemnified Group (in either case, an "Indemnified Party") in respect of any Claim made by such person in writing received by the indemnifying person or persons (the "Indemnifying Party") during the applicable Survival Period, Reliant Survival Period or International Survival Period, as the case may be. Section 12.4 Limitations on Indemnification 12.4.1 Notwithstanding anything herein to the contrary, but subject to the other provisions of this Section 12.4, (a) no Seller other than the Corporate Sellers shall have any obligation to indemnify any other Person pursuant to this Article 12, except as provided pursuant 79 to Section 12.1.2, (b) subject to Section 12.4.2, the obligation of any Corporate Seller to indemnify any Indemnified Party with respect to any Claim pursuant to Section 12.1.1, 12.1.3, 12.1.4, 12.1.5, 12.1.6 or 12.1.8 shall be limited (x) with respect to Vivendi to an amount equal to 70.33% of the aggregate amount of Damages that are the subject of such Claim incurred by all members of the Buyer Indemnified Group and (y) with respect to Marubeni to an amount equal to 29.67% of the aggregate amount of Damages that are the subject of such Claim incurred by all members of the Buyer Indemnified Group and (c) the obligation of any Seller other than a Corporate Seller to indemnify any Indemnified Party pursuant to Section 12.1.2 shall be limited to the aggregate consideration received by such Seller under this Agreement and the Put and Call Agreement 12.4.2 Notwithstanding anything herein to the contrary, but subject to the other provisions of this Section 12.4, the Corporate Sellers shall have no liability to indemnify any member of the Buyer Indemnified Group pursuant to Section 12.1.1 and 12.1.8 for any Damages which directly or indirectly arise out of or are a result of or relate to any breach of representations or warranties of the Company contained in Article 3 to the extent such Damages would exceed, in the aggregate for all Corporate Sellers, $682.0 million. 12.4.3 Notwithstanding anything herein to the contrary, but subject to the other provisions of this Section 12.4, no Indemnifying Party shall have any liability to indemnify any Indemnified Party for Damages pursuant to: (i) Section 12.1.1(i); (ii) Section 12.1.2(i) insofar as it relates to the representation and warranties contained in Sections 4.1, 4.2, 4.3 and 4.5; or (iii) Section 12.1.5; unless and until, in the case of clauses (i) through (iii), the amount of all such Damages in the aggregate exceeds $15.0 million, in which case the Indemnifying Parties shall be liable in the aggregate only for the amount of such excess. 80 12.4.4 This Article 12 shall be effective as of the Closing. Notwithstanding anything herein to the contrary, but subject to the other provisions of this Section 12.4, after the Closing no person shall have any right to indemnification or other right to recovery with respect to this Agreement and the transactions contemplated hereby except pursuant to this Article 12. 12.4.5 Notwithstanding anything herein to the contrary, but subject to the other provisions of this Section 12.4, no party shall have any indemnification obligation to any other Person with respect to any Damages (a) to the extent that a reserve or allowance for such Damages is recorded on the Closing Balance Sheet or (b) consisting of incidental, indirect, consequential or punitive damages, or damages for lost profits, other than Damages consisting of incidental, indirect, consequential or punitive damages, or damages for lost profits, payable by an Indemnified Party to a third party that is not an Indemnified Party. Section 12.5 Procedure. 12.5.1 If any Indemnified Party intends to seek indemnification pursuant to this Article 12, such Indemnified Party shall promptly notify the Indemnifying Party in writing of such Claim describing such Claim in reasonable detail; provided, that the failure to provide such notice shall not affect the obligation of the Indemnifying Party unless it is actually prejudiced thereby. In the event that such Claim involves a Claim by a third party against any Indemnified Party, the Indemnifying Party may elect to assume the defense of such third-party Claim by delivering a written notice to the Indemnified Party, not more than 30 days after the receipt by the Indemnifying Party of the notice of such third-party Claim, stating that the Indemnifying Party will undertake, conduct and control, through counsel of its own choosing (which shall be reasonably satisfactory to the Indemnified Party) and at its own expense, the settlement or defense thereof, and if it so decides, the Indemnified Party may consult with the Indemnifying 81 Party in such settlement or defense at such Indemnified Party's sole cost and expense through counsel chosen by the Indemnified Party. Notwithstanding anything in this Article 12 to the contrary, the Indemnifying Party may, without the consent of the Indemnified Party, settle or compromise any action or consent to the entry of any judgment which includes as an unconditional term thereof the delivery by the claimant or plaintiff to the Indemnified Party of a duly executed and legally effective written release of the Indemnified Group from all liability in respect of such action without imposing any covenants or agreements on any Indemnified Party other than to grant a reciprocal release. The Indemnifying Party shall not be liable for any settlement of any such action or proceeding effected without its written consent, but if settled with its written consent (which shall not be unreasonably withheld) or if there be a final judgment for the plaintiff in any such action or proceeding, the Indemnifying Party agrees to indemnify and hold harmless such Indemnified Party from and against any loss or liability by reason of such settlement or judgment. 12.5.2 The Indemnified Party and the Indemnifying Party shall cooperate fully in all aspects of any investigation, defense, pre-trial activities, trial, compromise, settlement or discharge of any Claim in respect of which indemnity is sought pursuant to this Article 12, including, but not limited to, by providing the other party with reasonable access to employees and officers (including as witnesses) and other information. Except as otherwise provided in Section 12.5.1, the Indemnifying Party shall reimburse the Indemnified Party for any out-of-pocket costs of the Indemnified Party resulting from such cooperation. Section 12.6 Calculation. 12.6.1 Insurance and Indemnity Proceeds. To the extent that any of the indemnification obligations of any Indemnifying Party pursuant to this Article 12 are covered by 82 insurance or any right to indemnification (other than pursuant to this Article 12) held by any Indemnified Party, such Indemnified Party shall be entitled to indemnification pursuant to this Article 12 only with respect to the amount of Damages that is in excess of the cash proceeds actually received by such Indemnified Party pursuant to such insurance or right to indemnification. Such Indemnified Party shall use reasonable efforts to collect all amounts due to such Indemnified Party pursuant to any such insurance or right to indemnification. If such Indemnified Party receives such cash insurance or indemnification proceeds prior to the time a Claim is paid, then the amount payable by the Indemnifying Party pursuant to such Claim shall be reduced by the amount of such proceeds. If such Indemnified Party receives such cash insurance or indemnification proceeds after such Claim has been paid, then upon the receipt by the Indemnified Party of any such cash proceeds, up to the amount of Damages incurred by such Indemnified Party with respect to such Claim, such Indemnified Party shall remit to the Indemnifying Party an amount equal to the lesser of (a) the amount of such cash proceeds or (b) the amount which was previously paid by the Indemnifying Party to such Indemnified Party in satisfaction of such Claim. 12.6.2 Effect of Taxes. The amount of any Damages under this Article 12 shall be calculated giving effect to actual Tax savings, if any, to the Indemnified Party resulting from the payments (or adjustments) giving rise to the payment of such Damages, after giving effect to the additional Taxes, if any, incurred by reason of such indemnification payments (other than Taxes incurred by Buyer as a result of a reduction in Buyer's tax basis in Sithe Stock or otherwise incurred as a result of Buyer's treatment of such payment as a purchase price adjustment in accordance with Section 12.7). The amount shall be reasonably determined by the Indemnified Party taking into account actual Tax savings and actual additional Taxes realized or 83 incurred or to be realized or incurred during the taxable period in which such payment of Damages accrues and during prior periods. All such calculations shall be subject to the reasonable review of the Indemnifying Party. Upon request by the Indemnifying Party, the Indemnified Party shall provide a certificate prepared by an Independent Accounting Firm regarding actual Tax savings and/or actual additional Taxes incurred or realized in any given year. If a payment of Damages is made prior to the filing of relevant Tax Returns, the amount shall be determined on an estimated basis. Proper adjustments shall be made if the actual Tax savings or actual additional Taxes differ from the estimated amount. Section 12.7 Characterization. The parties agree to report any payment made pursuant to this Article 12 as an adjustment to the purchase price for the Sithe Stock for federal income tax reporting purposes, unless otherwise required by applicable law. ARTICLE 13. MISCELLANEOUS Section 13.1 Amendment and Modification. Subject to Section 2.4 and Section 7.2, this Agreement may be amended, modified and supplemented only by written agreement of Buyer, the Company and each of the Principal Sellers; provided, however, that the number of shares of Sithe Stock set forth opposite each Seller's name on Schedule 1 hereto may be amended in writing by William Kriegel, so long as the total number of shares of Sithe Stock sold by all Sellers is not changed solely as a result of such amendment; provided, further, however, that any change in the number of shares of Sithe Stock to be sold by any of the Corporate Sellers shall also require the written consent of such Corporate Seller. Notwithstanding the foregoing or any other provision of this Agreement or the Put and Call Agreement, the aggregate percentage interest represented by the shares of Sithe Stock to be sold by Marubeni as set forth on Schedule 1 shall not be reduced in any manner that would cause the percentage interest represented by the 84 shares set forth beside the names of Marubeni America Corporation, Marubeni MS Power and Marubeni American Power, collectively, on Schedule A to the Put and Call Agreement as in effect on the date hereof to be increased. Section 13.2 Waiver of Compliance. Any failure of Buyer, on the one hand, or the Company or any Seller, on the other hand, to comply with any obligation, covenant, agreement or condition contained herein may be expressly waived in writing by the Company and the Principal Sellers, in the event of any such failure by Buyer, or by Buyer, in the event of any such failure by the Company or any Seller, but such waiver or failure to insist upon strict compliance shall not operate as a waiver of, or estoppel with respect to, any subsequent or other failure. Section 13.3 Notices. All notices, requests, demands, waivers and other communications required or permitted to be given under this Agreement shall be in writing and may be given by any of the following methods: (a) personal delivery, (b) facsimile transmission, (c) registered or certified mail, postage prepaid, return receipt requested, or (d) air courier service. Notices shall be sent to the appropriate party at its address or facsimile number given below (or at such other address or facsimile number for such party as shall be specified by notice given hereunder). If to a Seller, to: such Seller c/o Sithe Energies, Inc. 335 Madison Avenue, 28th Floor New York, New York 10017 Attn: Chief Executive Officer Telecopy: (212) 351-0015 General Counsel Telecopy: (212) 351-0019 85 with copies to: Latham & Watkins 885 Third Avenue, Suite 1000 New York, New York 10022-4802 Attn: Roger H. Kimmel, Esq. Samuel A. Fishman, Esq. Telecopy: (212) 751-4864 with copies to: Harsha Murthy 301 East 45th Street, 6-C New York, New York 10017 Attn: Harsha Murthy, Esq. Telecopy: 509-691-5659 If to the Company, to: Sithe Energies, Inc. 335 Madison Avenue, 28th Floor New York, New York 10017 Attn: Chief Executive Officer Telecopy: (212) 351-0015 General Counsel Telecopy: (212) 351-0019 with copies to: Latham & Watkins 885 Third Avenue, Suite 1000 New York, New York 10022-4802 Attn: Roger H. Kimmel, Esq. Samuel A. Fishman, Esq. Telecopy: (212) 751-4864 or to such other Person or address as the Company shall designate in writing. If to Buyer to: Exelon (Fossil) Holdings, Inc. c/o PECO Energy Company 86 2301 Market Street Philadelphia, PA 19103 Attn: Corbin A. McNeill, Jr., Chief Executive Officer Telecopy: (215) 841-4513 with copies to: Morgan, Lewis and Bockius LLP 1701 Market Street Philadelphia, PA 19103 Attn: Howard L. Meyers, Esq. Telecopy: (215) 963-5299 or to such other Person or address as Buyer shall designate in writing. All such notices, requests, demands, waivers and communications shall be deemed received upon (i) actual receipt thereof by the addressee, (ii) actual delivery thereof to the appropriate address or (iii) in the case of a facsimile transmission, transmission thereof by the sender and issuance by the transmitting machine of a confirmation slip that the number of pages constituting the notice have been transmitted without error. In the case of notices sent by facsimile transmission, the sender shall contemporaneously mail a copy of the notice to the addressee at the address provided for above by first class mail or by an air courier service, postage prepaid. However, such mailing shall in no way alter the time at which the facsimile notice is deemed received. Section 13.4 Binding Nature; Assignment. This Agreement 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 of the parties hereto without prior written consent of (i) in the case of an assignment by Buyer, the Principal Sellers or (ii) in the case of an assignment by any Seller or the Company, Buyer and the Principal Sellers; provided, that (x) any Seller may assign (including an 87 assignment by operation of law) such Seller's rights, interests and obligations hereunder with respect to any shares of Sithe Stock held by such Seller without the consent of Buyer or the Principal Sellers as provided in clause (ii) above to any transferee of such shares in a transfer made in accordance with the form of the Amended and Restated Stockholders' Agreement attached hereto as Exhibit A (including an assignment by operation of law) where such transferee agrees in writing to be bound by the terms hereof (in which case (1) such Seller shall remain liable for all of its obligations under this Agreement (including any breach of the obligations of the assignee to deliver at the Closing the shares of Sithe Stock so assigned) and the assignee shall, together with such Seller, be jointly and severally liable for such obligations and (2) the Schedules hereto shall automatically be deemed to be updated to reflect the addition of the assignee as a "Seller" as applicable, with respect to the shares of Sithe Stock held by such assignee and all resulting changes in ownership of the shares of Sithe Stock) and (y) Buyer may assign and delegate its rights, interests and obligations hereunder to one or more wholly-owned direct or indirect Subsidiaries of (a) PECO Energy Company, at any time prior to the merger of PECO Energy Company and Unicom Corporation with or into Exelon Corporation and (b) Exelon Corporation, at any time thereafter (the entities in clauses (a) and (b) collectively the "Permitted Assignees"), upon written notice to the Sellers (which shall contain a representation that the assignee is a Permitted Assignee) at or before the Closing Date, in which event Buyer shall remain liable for all of its obligations under this Agreement and such Permitted Assignee shall, together with Buyer, be jointly and severally liable for such obligations. Notwithstanding the foregoing, no party hereto may assign or delegate its rights, interests and obligations hereunder if such assignment or delegation could reasonably be expected to result in a delay or impediment to consummating the transactions contemplated hereby, including, without 88 limitation, due to the need to obtain the consent of any third party, including any Governmental Authority, not otherwise required for such party to consummate the transactions contemplated hereby. Except as set forth in Section 6.7.4, nothing contained herein, express or implied, is intended to confer on any Person other than the parties hereto or their successors and assigns, any rights, remedies, obligations or liabilities under or by reason of this Agreement. Section 13.5 Entire Agreement. This Agreement, including the Exhibits, the Schedules and the Confidentiality Agreement, embodies the entire agreement and understanding of the parties hereto in respect of the subject matter contained herein. This Agreement and the Confidentiality Agreement supersede all prior agreements and understandings among the parties with respect to such subject matter and supersede any letters, memoranda or other documents or communications, whether oral, written or electronic, submitted or made by (i) Buyer or its agents or representatives to the Sellers, the Company, Goldman, Sachs & Co. or any of their respective agents or representatives, or (ii) the Sellers, the Company, Goldman, Sachs & Co. or their respective agents or representatives to Buyer or any of its agents or representatives, in connection with the bidding process which occurred prior to the execution of this Agreement or otherwise in connection with the negotiation and execution of this Agreement. No communications by or on behalf of the Company, including responses to any questions or inquiries, whether orally, in writing or electronically, and no information provided in any data room or any copies of any information from any data room provided to Buyer or any other information shall be deemed to (i) constitute a representation, warranty or an agreement of the Company, or (ii) be part of this Agreement. 89 Section 13.6 Expenses. Each party to this Agreement will pay its own expenses in connection with the negotiation of this Agreement, the performance of its obligations hereunder, and the consummation of the transactions contemplated herein. Section 13.7 Press Releases and Announcements; Disclosure. No press release or other public announcement or disclosure related to this Agreement or the transactions contemplated herein (including but not limited to the terms and conditions of this Agreement) shall be issued or made without the prior approval of Buyer, on the one hand, and the Company and the Principal Sellers, on the other hand. The foregoing shall not prohibit any disclosure required by law, provided such disclosure is made pursuant to the Confidentiality Agreement and that the disclosing party shall consult with the other parties in advance of such disclosure. Section 13.8 Acknowledgment. 13.8.1 Buyer acknowledges that neither any of the Sellers, the Company nor any other Person has made any representation or warranty, expressed or implied, as to the accuracy or completeness of any information regarding the Sellers, the Company or any of their respective Subsidiaries not included in this Agreement and the Schedules. Without limiting the generality of the foregoing, no representation or warranty is made with respect to any information in the Confidential Offering Memorandum dated November 1999 or any supplement or amendment thereto provided in connection with the solicitation of proposals to enter into the transactions contemplated by this Agreement, such information having been provided for the convenience of Buyer in order to assist Buyer in framing its due diligence efforts. Buyer further acknowledges that, except as otherwise expressly provided in Article 3, no Person makes any representation or warranty with respect to any of the International Entities or any Contract, arrangement, encumbrance, liability or other obligation which relates to any of the International Entities. 90 13.8.2 Buyer further acknowledges that (i) Buyer, either alone or together with any Persons Buyer has retained to advise it with respect to the transactions contemplated hereby ("Advisors"), has knowledge and experience in transactions of this type and in the business of the Company, and is therefore capable of evaluating the risks and merits of acquiring the Sithe Stock, (ii) in determining to enter into this Agreement, it has relied on its own independent investigation, and has not relied on any information or representations furnished by any of the Sellers, the Company or any representative or agent thereof or any other Person, except as set forth in this Agreement, (iii) neither any of the Sellers, the Company nor any representative or agent thereof or any other Person (other than Advisors of Buyer) has given any investment, legal or other advice or rendered any opinion as to whether the purchase of the Sithe Stock is prudent, and Buyer is not relying on any representation or warranty by any of the Sellers or the Company or any representative or agent thereof except as set forth in this Agreement, (iv) Buyer has conducted extensive due diligence, including a review of the documents contained in a data room prepared by or on behalf of the Sellers and the Company, and (v) Buyer has had the opportunity to visit the Company and its Subsidiaries and certain of their facilities, plants, development sites, offices and other properties, and to ask questions and receive answers concerning the Company, its Subsidiaries and the terms and conditions of this Agreement. Section 13.9 Disclaimer Regarding Assets. Except as otherwise expressly provided herein, each of the Sellers and the Company expressly disclaim any representations or warranties of any kind or nature, express or implied, as to the condition, value or quality of the assets or operations of the Company or its Subsidiaries or the prospects (financial and otherwise), risks and other incidents of the Company or its Subsidiaries and, except as set forth herein, each of the Sellers and the Company specifically disclaim any representation or warranty of merchantability, 91 usage, suitability or fitness for any particular purpose with respect to such 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 as to the condition of, or the rights of the Company or any of its Subsidiaries in, or their title to, any of their assets, or any part thereof, or whether the Company or any of its Subsidiaries possess sufficient real property or personal property interests to own or operate such assets. Except as expressly provided herein, no Schedule or exhibit to this Agreement, nor any other material or information provided by or communications made by any of the Sellers or the Company or any of their respective representatives will cause or create any warranty, express or implied, as to the condition, value or quality of such assets. Without limiting the generality of the foregoing, no representation or warranty is made with respect to the accuracy of any information provided in any site tours or on any web site, or in any meetings with management or other personnel of the Company, its Subsidiaries or their respective representatives, except as expressly set forth herein. Section 13.10 Governing Law. This Agreement shall be construed and enforced in accordance with the laws of the State of New York without giving effect to the choice of law principles thereof which would require the application of the laws of a jurisdiction other than New York. Each party consents to personal jurisdiction in any action arising out of or relating to this Agreement brought in the U.S. District Court for the Southern District of New York, or any New York court within the County and State of New York having subject matter jurisdiction as to a matter arising out of or relating to this Agreement (and the appropriate appellate courts), and each of the parties hereto agrees that any action instituted by either of them against the other with respect to this Agreement will be instituted exclusively in one of the above-specified courts. 92 Section 13.11 Nonforeign Affidavit. At or prior to the Closing, the Company shall furnish Buyer an affidavit, stating, under penalty of perjury, that the Company is not and has not been a United States real property holding corporation during the applicable period specified in accordance with Section 897(c)(1)(A)(ii) of the Code, as required by Section 1445(b)(3) of the Code. In the event that the Company fails to furnish such affidavit to Buyer, Buyer shall be entitled to deduct and withhold from the Estimated Aggregate Purchase Price federal income taxes to the extent required to be withheld pursuant to Section 1445(a) of the Code. Section 13.12 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. Delivery of an executed counterpart of a signature page of this Agreement by facsimile transmission shall be effective as delivery of a manually executed counterpart of this Agreement. Section 13.13 Interpretation. The article and section headings contained in this Agreement are inserted for convenience only and shall not constitute a part hereof. Section 13.14 Waiver of Right of First Refusal. With respect to the transactions contemplated by this Agreement and the Put and Call Agreement, the Company and each Seller hereby waives all of their respective rights pursuant to Sections 4.3 and 4.4 of the Stockholders' Agreement, dated as of April 3, 1996, among William Kriegel, Compagnie Generale des Eaux, National Energy Development Corporation, Marubeni Corporation, Paris Mouratoglou, IES Acquisition, Inc. and the Company, as amended. Section 13.15 Matters Related to NEDC. Buyer shall negotiate in good faith with Vivendi to enter into an agreement for the purchase from Energies USA, S.A., of an interest in NEDC in lieu of the purchase of the shares of Common Stock owned by NEDC prior to the 93 Closing Date, such sale to be effected on comparable terms to those provided for hereunder. However, nothing in this Section 13.15 shall require Buyer to take any action or agree to any proposal that would adversely affect Buyer in Buyer's reasonable judgment. Vivendi agrees to reimburse Buyer for its reasonable out-of-pocket costs and expenses (including attorneys' and accountants' fees) in connection with the foregoing negotiation, regardless of whether an agreement is entered into pursuant to the preceding sentence. Each Seller agrees to cooperate in good faith with Vivendi and Buyer to the extent necessary to permit the purchase by Buyer of an interest in NEDC; provided that no Seller shall be required to take any action or agree to any proposal that would adversely affect such Seller in such Seller's reasonable judgment. 94 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed on the day and year first above written. SITHE ENERGIES, INC By: /s/ William Kriegel ----------------------------------------- Name: William Kriegel Title: Chairman and Chief Executive Officer VIVENDI, S.A. By: /s/ Jean-Marie Messier ----------------------------------------- Name: Jean-Marie Messier Title: Chairman and Chief Executive Officer NATIONAL ENERGY DEVELOPMENT CORPORATION By: /s/ Michael Avenas ----------------------------------------- Name: Michael Avenas Title: 95 MARUBENI AMERICA CORPORATION By: /s/ Yoshiya Toyoda ----------------------------------------- Name: Yoshiya Toyoda Title: President and Chief Executive Officer MARUBENI MS POWER, INC. By: /s/ Kiyoshi Yoshimitsu ----------------------------------------- Name: Kiyoshi Yoshimitsu Title: Director S MARUBENI AMERICAN POWER, INC. By: /s/ Kiyoshi Yoshimitsu ------------------------------------------ Name: Kiyoshi Yoshimitsu Title: Director 96 WILLIAM V. KRIEGEL an individual By: /s/ William V. Kriegel ----------------------------------------- BARRY F. SULLIVAN an individual By: /s/ Barry F. Sullivan ----------------------------------------- 97 SITHE EMPLOYEE STOCK OWNERSHIP, L.P. By: Sithe Energies, Inc. its General Partner By: /s/ William Kriegel ----------------------------------------- Name: William Kriegel Title: Chairman and Chief Executive Officer TRUST UNDER THE 1998 PLAN By: /s/ Gregory M. Thomson ----------------------------------------- Name: Gregory M. Thomson Title: Trustee EXELON (FOSSIL) HOLDINGS, INC. By: /s/ Corbin A. McNeill, Jr. ----------------------------------------- Name: Corbin A. McNeill, Jr. Title: President 98 EX-27 4 0004.txt
UT 1,000,000 9-MOS DEC-31-2000 SEP-30-2000 PER-BOOK 4,991 927 1,357 6,208 184 13,667 1,397 3 301 1,727 37 137 6,252 0 0 284 306 0 0 0 4,924 13,667 4,366 316 3,261 3,577 789 71 860 333 523 8 515 130 330 605 2.94 2.92
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