AGREEMENT AND PLAN
                          OF REORGANIZATION AND MERGER

                                  BY AND AMONG

                           U.S. ENERGY SYSTEMS, INC.,
                              USE ACQUISITION CORP.
                                       and
                      ZAHREN ALTERNATIVE POWER CORPORATION




                          Dated as of November 28, 2000


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                                TABLE OF CONTENTS
                                                                                                 Page
                                    ARTICLE I

                        PLAN OF REORGANIZATION AND MERGER

SECTION 1.01.         The Merger ..............................................................   3
SECTION 1.02.         Effective Time ..........................................................   3
SECTION 1.03.         Effect of the Merger.....................................................   3
SECTION 1.04.         Certificate of Incorporation; By-Laws....................................   3
SECTION 1.05.         Directors and Officers...................................................   4

                                            ARTICLE II

               CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES

SECTION 2.01.         Conversion of Securities.................................................   4
SECTION 2.02.         Exchange of Certificates.................................................   7
SECTION 2.03          Stock Options............................................................   7
SECTION 2.04          Closing..................................................................   8
SECTION 2.05          Working Capital Adjustment...............................................   8
SECTION 2.06          Procedure for Non-Ordinary Course Liabilities............................  12

                                   ARTICLE III

                         REPRESENTATIONS AND WARRANTIES

                                 OF THE COMPANY

SECTION 3.01.         Organization; Business and Qualification.................................  13
SECTION 3.02.         Certificate of Incorporation and By-Laws.................................  13
SECTION 3.03.         Company Capital Structure................................................  14
SECTION 3.04.         Power and Authorization..................................................  15
SECTION 3.05.         Organization and Ownership of Shares of
                      Subsidiaries;Affiliates..................................................  15
SECTION 3.06.         Financial Statements.....................................................  16
SECTION 3.07.         Compliance with Laws.....................................................  17
SECTION 3.08          Permits..................................................................  17
SECTION 3.09.         Litigation; No Default...................................................  17
SECTION 3.10.         Taxes....................................................................  18
SECTION 3.11.         Assets; Title; Liens; Etc................................................  18
SECTION 3.12.         Books and Records; Bank Accounts, etc....................................  19
SECTION 3.13.         Powers of Attorney.......................................................  19
SECTION 3.14.         Conduct in the Ordinary Course; Absence of Certain
                      Changes, Events and Conditions...........................................  19
SECTION 3.15.         No Undisclosed Liabilities...............................................  21
SECTION 3.16.         Intellectual Property....................................................  21
SECTION 3.17.         Employee Benefit Plans; Labor Matters....................................  21
SECTION 3.18.         Employees................................................................  23
SECTION 3.19.         Projects.................................................................  23
SECTION 3.20.         Environmental Matters....................................................  23
SECTION 3.21.         Material Contracts.......................................................  26
SECTION 3.22.         Brokers..................................................................  29
SECTION 3.23.         Insurance................................................................  29
SECTION 3.24.         Related Party Transactions...............................................  29
SECTION 3.25.         Vote Required ...........................................................  30
SECTION 3.26.         Tax Credits..............................................................  30
SECTION 3.27.         Illinois Subsidy Program.................................................  30
SECTION 3.28.         Hancock Payment..........................................................  31
SECTION 3.29.         Status Under Certain Statutes............................................  31

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                                   ARTICLE IV

                        REPRESENTATIONS AND WARRANTIES OF

                              PARENT AND MERGER SUB

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SECTION 4.01.         Organization; Business and Qualification.................................  32
SECTION 4.02.         Certification of Incorporation and By-Laws...............................  32
SECTION 4.03.         Parent Capital Structure.................................................  32
SECTION 4.04.         Power and Authorization..................................................  34
SECTION 4.05.         Organization and Ownership of Shares of Subsidiaries;
                      Affiliates...............................................................  35
SECTION 4.06.         Compliance with Laws.....................................................  35
SECTION 4.07          Permits..................................................................  36
SECTION 4.08.         Litigation; No Default...................................................  36
SECTION 4.09.         Taxes....................................................................  36
SECTION 4.10.         Assets; Title; Liens; etc................................................  37
SECTION 4.11.         Books and Records; Bank Accounts, etc....................................  37
SECTION 4.12.         Powers of Attorney.......................................................  38
SECTION 4.13.         Conduct in the Ordinary Course; Absence of Certain
                      Changes, Events and Conditions...........................................  38
SECTION 4.14.         Intellectual Property....................................................  40
SECTION 4.15.         Employee Benefit Plans; Labor Matters....................................  40
SECTION 4.16.         Employees................................................................  42
SECTION 4.17.         Parent Projects..........................................................  42
SECTION 4.18.         Environmental Matters....................................................  42
SECTION 4.19.         Parent Material Contracts................................................  44
SECTION 4.20.         Brokers..................................................................  46
SECTION 4.21.         Insurance................................................................  46
SECTION 4.22.         Related Party Transactions...............................................  46
SECTION 4.23.         Vote Required ...........................................................  47
SECTION 4.24.         SEC Filings; Parent Financial Statements.................................  47
SECTION 4.25.         Ownership of Merger Sub; No Prior Activities.............................  48
SECTION 4.26.         Status Under Certain Statutes............................................  48


                                    ARTICLE V

                                    COVENANTS

SECTION 5.01.         Conduct of Business by the Company Pending the Closing...................  49
SECTION 5.02.         Conduct of Business by Parent Pending the Closing........................  52
SECTION 5.03.         Cooperation..............................................................  54
SECTION 5.04.         Notices of Certain Events................................................  54
SECTION 5.05.         Contractual Consents.....................................................  55


                                   ARTICLE VI

                              ADDITIONAL AGREEMENTS


SECTION 6.01.         Proxy Statement and other SEC Filings....................................  55
SECTION 6.02.         Stockholders' Meetings...................................................  56
SECTION 6.03.         Access to Information....................................................  57
SECTION 6.04.         Appropriate Action; Consents; Filings....................................  57
SECTION 6.05.         Update Disclosure; Breaches..............................................  60
SECTION 6.06.         Public Announcements.....................................................  60
SECTION 6.07.         Employee Matters.........................................................  60
SECTION 6.08.         Assumption of Agreements.................................................  61
SECTION 6.09.         Indemnification of Directors and Officers................................  61
SECTION 6.10.         Obligations of Merger Sub................................................  63
SECTION 6.11          Audited Financial Statements.............................................  63
SECTION 6.12          Representation Letters ..................................................  63
SECTION 6.13          ESI Options..............................................................  63
SECTION 6.14          AJG Gasco Transaction....................................................  64
SECTION 6.15          Plan of Recapitalization.................................................  64

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                                   ARTICLE VII

                               CLOSING CONDITIONS

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SECTION 7.01.         Conditions to Obligations of Each Party Under This
                      Agreement................................................................  64
SECTION 7.02.         Additional Conditions to Obligations of Parent...........................  64
SECTION 7.03.         Additional Conditions to Obligations of the Company......................  67


                                  ARTICLE VIII

                        TERMINATION, AMENDMENT AND WAIVER

SECTION 8.01.         Termination..............................................................  69
SECTION 8.02.         Effect of Termination....................................................  70
SECTION 8.03.         Amendment................................................................  71
SECTION 8.04.         Waiver...................................................................  71
SECTION 8.05.         Fees and Expenses........................................................  71


                                   ARTICLE IX

                               GENERAL PROVISIONS

SECTION 9.01.         Nonsurvival of Representations, Warranties and Agreements................  71
SECTION 9.02.         Notices..................................................................  71
SECTION 9.03          Headings.................................................................  73
SECTION 9.04.         Severability.............................................................  73
SECTION 9.05.         Entire Agreement.........................................................  73
SECTION 9.06.         Assignment...............................................................  73
SECTION 9.07.         Parties in Interest......................................................  73
SECTION 9.08.         Mutual Drafting..........................................................  73
SECTION 9.09.         Governing Law............................................................  73
SECTION 9.10.         Jurisdiction.............................................................  74
SECTION 9.11.         Counterparts.............................................................  74
SECTION 9.12          Appointment of Agent.....................................................  74
EXHIBITS
EXHIBIT 2.01(a-1)                   PARENT WARRANTS
EXHIBIT 2.01(a-2)                   GUARANTEE OF USE
EXHIBIT 2.01(a-3)                   GUARANTEE OF CINERGY
EXHIBIT 6.07(b)                     LEASE EXTENSION
EXHIBIT 6.13                        FORM OF ESI OPTION AGREEMENT TERM SHEET
EXHIBIT 6.15                        CERTIFICATE OF DESIGNATION

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EXHIBIT 7.01(d)                     YESCO AGREEMENT

EXHIBIT 7.01(e-1)                   FORM OF CINERGY SUBSCRIPTION AGREEMENT
EXHIBIT 7.01(e-2)                   FORM OF CINERGY GASCO PURCHASE AND SALE
                                    AGREEMENT
EXHIBIT 7.01(e-3)                   FORM OF MERGER SUB STOCKHOLDERS AGREEMENT

EXHIBIT 7.01(f-1)                   FORM OF AJG AGREEMENT
EXHIBIT 7.02(c-1)                   FORM OF ZAHREN EMPLOYMENT AGREEMENT
EXHIBIT 7.02(c-2)                   FORM OF REGISTRATION RIGHTS AGREEMENT
EXHIBIT 7.02(c-3)                   FORM OF INDEMNIFICATION AGREEMENT
EXHIBIT 7.02(c-4)                   FORM OF ESCROW AGREEMENT
EXHIBIT 7.02(c-5)                   FORM OF VOTING AGREEMENT
EXHIBIT 7.02(c-6)                   FORM OF TERMINATION FEE AGREEMENT
EXHIBIT 7.02(d)                     FORM OF COMPANY COUNSEL OPINION LETTER
EXHIBIT 7.02(i)                     FORM OF REPRESENTATION LETTER
EXHIBIT 7.03(d)                     FORM OF PARENT COUNSEL OPINION LETTER
EXHIBIT 7.03(k)                     FORM OF PARENT BY-LAWS

ANNEXES
ANNEX 1                             DEFINED TERMS
ANNEX 2                             FORM OF CERTIFICATE OF DESIGNATION FOR
                                     PARENT SERIES C PREFERRED STOCK
ANNEX 3                             FORM OF SIGNING OPTION
ANNEX 4                             COMPANY AGREEMENT WITH EWING MONROE
                                     BEMIS & CO
ANNEX 5                             CERTIFICATE OF INCORPORATION OF THE
                                     SURVIVING CORPORATION

SCHEDULES
SCHEDULE 2.01(a)                    MERGER CONSIDERATION
SCHEDULE 2.03                       CERTAIN EMPLOYEES OF SURVIVING CORPORATION

                                    COMPANY DISCLOSURE SCHEDULE
                                    PARENT DISCLOSURE SCHEDULE

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                  AGREEMENT AND PLAN OF REORGANIZATION  AND MERGER,  dated as of
November  28,  2000 (this  "Agreement"),  among U.S.  ENERGY  SYSTEMS,  INC.,  a
Delaware corporation  ("Parent"),  USE ACQUISITION CORP., a Delaware corporation
("Merger Sub") and a wholly owned subsidiary of Parent,  and ZAHREN  ALTERNATIVE
POWER CORPORATION, a Delaware corporation (the "Company").

                  WHEREAS, the respective Boards of Directors of Parent,  Merger
Sub and the Company have  approved and declared  advisable  the merger of Merger
Sub with and into the Company (the  "Merger")  upon the terms and subject to the
conditions of this Agreement and in accordance with the General  Corporation Law
of the State of Delaware (the "DGCL");

                  WHEREAS,  the Board of Directors of the Company has determined
that the Merger is fair to the  stockholders  of the  Company and is in the best
interests of such stockholders;

                  WHEREAS,  the Board of Directors of Parent has determined that
the Merger is fair to the stockholders of Parent and is in the best interests of
such stockholders;

                  WHEREAS,   certain   stockholders  of  the  Company,   certain
stockholders of Parent,  and Parent have entered into a stockholders  and voting
agreement  in the  form  attached  hereto  as  Exhibit  7.02(c-5)  (the  "Voting
Agreement") in which such stockholders have agreed to vote their shares in favor
of the Merger;

                  WHEREAS, Energy Systems Investor LLC ("ESI") has exercised its
option (the "ESI  Option") to purchase  861,110  shares of Series A Preferred of
Parent for an aggregate purchase price of $7,750,000;

                  WHEREAS,  the Company and Yankee Energy Gas Company  ("YESCO")
will  enter  into an  agreement  (the  "YESCO  Agreement"),  a draft of which is
attached  hereto as Exhibit  7.01(e04)  provided to Parent,  whereby the Company
shall purchase  interests in certain operating projects and equipment from YESCO
prior to the Effective Time on terms and conditions substantially in conformance
with the YESCO  Agreement or on such other terms as the Company and Parent shall
agree (the "YESCO Transaction");

                  WHEREAS,  the Company and AJG Financial  Services Inc. ("AJG")
have entered into an agreement (the "AJG Agreement") in the form attached hereto
as Exhibit 7.01(f)  whereby AJG has agreed,  prior to the Effective Time, to (i)
maintain certain limited  partnership or limited  liability company interests in
electrical  generating  projects  held by the Company and (ii)  acquire  certain
limited  partnership  or  limited  liability  company  interests  in  electrical
generating  projects to be  purchased  by the Company from YESCO (the "AJG Genco
Transaction");

                 WHEREAS, the Company will transfer to AJG, prior to the
Effective Time, (i) certain  limited partnership  or  limited  liability company
interests  in gas  operating projects  held by the  Company, and (ii)  certain
limited  partnership  or limited  liability company  interests  in gas operating
projects  to  be purchased  by  the  Company  from  YESCO (the "AJG  Gasco
Transaction");

                  WHEREAS, concurrently herewith, Cinergy Energy Solutions, Inc.
("CES"),  an indirect,  wholly-owned  subsidiary  of Cinergy  Solutions  Holding
Company,  Inc. ("CSHC"),  Parent and Merger Sub have entered into a subscription
agreement  in the form  attached  hereto  as  Exhibit  7.01(e-1)  (the  "Cinergy
Subscription  Agreement")  which shall become effective as of the Effective Time
and whereby CES shall make an investment of $11,500,000 in Merger Sub;

                  WHEREAS,  the Company will,  on or after the  Effective  Time,
arrange for the transfer from AJG to Cinergy Gasco  Solutions,  LLP ("CGS"),  an
indirect,  wholly-owned  subsidiary  of CSHC,  of the  limited  partnership  and
limited liability company interests in gas operating projects transferred to AJG
pursuant to the AJG Gasco Transaction,  on terms and conditions substantially in
conformance  with the  Gasco  Purchase  and Sale  Agreement  attached  hereto as
Exhibit  7.01(f-2)  (the  "Cinergy  Gasco  Purchase  and Sale  Agreement")  (the
transactions  pursuant to the  Cinergy  Subscription  Agreement  and the Cinergy
Gasco   Purchase   and  Sale   Agreement   are   referred  to  as  the  "Cinergy
Transactions");

                 WHEREAS, concurrently herewith,    CES, Parent  and  Merger Sub
have  entered  into a stockholders' agreement in the  form  attached  hereto  as
Exhibit 7.01(e) (the "Merger  Sub Stockholders' Agreement") which  shall  become
effective as of the Effective Time; and

                  WHEREAS, concurrently herewith, Bernard Zahren and Parent have
entered  into an  employment  agreement in the form  attached  hereto as Exhibit
7.02(c-1) (the "Zahren Employment Agreement") which shall become effective as of
the Effective Time;

                  WHEREAS, concurrently  herewith, the  Major  Shareholders  and
Parent have entered into a registration rights agreement in  the  form  attached
hereto as  Exhibit  7.02(c-2) (the "Registration  Rights Agreement") which shall
become effective as of the Effective Time;

                  WHEREAS, concurrently  herewith, the  Major Shareholders, CES,
Parent and Merger Sub have entered into an indemnification agreement in the form
attached  hereto  as Exhibit  7.02(c-3) (the "Indemnification  Agreement") which
shall become effective as of the Effective Time;

                   WHEREAS, concurrently herewith, the Major Shareholders,  CES,
Merger Sub and Parent have entered into an escrow agreement in the form attached
hereto  as  Exhibit 7.02(c-4) (the "Escrow  Agreement") which  shall  become
effective as of the Effective Time;

                  WHEREAS,  concurrently  herewith the  Company,  Parent and CES
have entered into a termination  fee  agreement in the form  attached  hereto as
Exhibit 7.02(c-6) (the "Termination Fee Agreement");

                  WHEREAS, certain  terms  used  in this  Agreement  have  the
respective meanings set forth in Annex 1 hereto.

                  NOW,  THEREFORE,  in  consideration  of the  foregoing and the
respective  representations,  warranties,  covenants and agreements set forth in
this Agreement, the parties hereto agree as follows:

                                    ARTICLE I

                        PLAN OF REORGANIZATION AND MERGER

                  SECTION  1.01.  The Merger.  Upon the terms and subject to the
conditions set forth in this Agreement,  and in accordance with the DGCL, at the
Effective  Time (as defined in Section 1.02) Merger Sub shall be merged with and
into the Company. As a result of the Merger, the separate corporate existence of
Merger  Sub  shall  cease  and  the  Company  shall  continue  as the  surviving
corporation of the Merger (the "Surviving Corporation")

                  SECTION 1.02. Effective Time. As promptly as practicable after
the  satisfaction of the conditions set forth in Article VII, the parties hereto
shall  cause the  Merger to be  consummated  by filing a  certificate  of merger
required by the DGCL (the "Certificate of Merger"),  with the Secretary of State
of the State of  Delaware  (the date and time  such  filing is deemed  effective
pursuant  to the DGCL  being  referred  to  herein as the  "Effective  Date" and
"Effective Time", respectively).

                  SECTION 1.03. Effect of the Merger. At the Effective Time, the
effect of the Merger shall be as provided in the  applicable  provisions  of the
DGCL. Without limiting the generality of the foregoing,  and subject thereto, at
the  Effective  Time,  except as otherwise  provided  herein,  all the property,
rights,  privileges,  powers and  franchises of the Company and Merger Sub shall
vest in the Surviving Corporation, and all debts, liabilities and duties of each
of the Company and Merger Sub shall become the debts,  liabilities and duties of
the Surviving Corporation.

                  SECTION 1.04.  Certificate of Incorporation;  By-Laws.  At the
Effective Time, the Certificate of Incorporation of the Company shall be amended
and  restated as set forth in Annex 5 hereto and the By-laws of Merger Sub shall
be the  By-Laws of the  Surviving  Corporation,  in each case  until  thereafter
amended as provided by Law.

                  SECTION 1.05. Directors and Officers.  The directors of Merger
Sub  immediately  prior to the Effective Time shall be the initial  directors of
the  Surviving  Corporation,   each  to  hold  office  in  accordance  with  the
Certificate of Incorporation and By-Laws of the Surviving  Corporation,  and the
officers of the Merger Sub immediately  prior to the Effective Time shall be the
initial  officers  of the  Surviving  Corporation,  in  each  case  until  their
respective successors are duly elected or appointed and qualified. Promptly upon
consummation  of the  Merger,  those  directors  and  officers  of  the  Company
requested  by Parent to resign  shall  resign in order to  effectuate  the prior
sentence.

                                   ARTICLE II

             CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES

                  SECTION 2.01.  Conversion  of Securities.  At  the Effective
Time, by virtue of the Merger and without any action on the part of  Merger Sub,
the Company or the holders of any of the following securities:

                  (a) The shares of Series A preferred  stock,  par value $1,000
per share, of the Company (the "Series A Stock"),  Series B preferred stock, par
value  $1,000 per share,  of the  Company  (the  "Series B Stock")  and Series C
preferred  stock,  par value  $1,000 per share,  of the Company  (the  "Series C
Stock" and together with the Series A Stock and the Series B Stock, the "Company
Preferred  Stock"),  and the shares of common stock,  no par value per share, of
the Company ("Company Common Stock"),  issued and outstanding  immediately prior
to the Effective Time shall be converted,  subject to Section 2.02(c),  into the
right to receive  the  merger  consideration  (the  "Merger  Consideration")  in
accordance with Schedule 2.01(a) hereto.  Schedule 2.01(a) shall (i) not provide
for the receipt of any consideration other than cash by any Special Shareholder,
and (ii)  provide  for an  aggregate  Merger  Consideration  (assuming  no Zapco
Stockholder  exercises  rights  pursuant  to Section  262 of the DGCL) of (A) an
amount of cash equal to  $12,000,000  (the  "Cash  Payment"),  (B) a  contingent
obligation  of Merger Sub to pay  $800,000 in cash on the date which is eighteen
months after the  Effective  Date (the  "Contingent  Merger  Payment") (of which
Contingent  Merger Payment 62.5% of the payment is guaranteed  severally but not
jointly by USE and 37.5% of the payment is guaranteed  severally but not jointly
by CSHCpursuant to guarantees of USE and CSHC,  respectively (the "Guarantees"),
substantially  in the form of Exhibits  2.01(a-2)  and  2.01(a-3)),  (C) 100,000
shares of Series C  Preferred  Stock,  par value $.01 per share,  of Parent (the
"Parent Series C Preferred  Stock"),  (D) 1,666,667  shares of Common Stock, par
value $.01 per share, of Parent  ("Parent Common Stock")  (subject to adjustment
pursuant  to  Section  2.01(b)),  and (E)  warrants,  substantially  in the form
attached hereto as Exhibit 2.01(a) (the "Parent Warrants"),  to purchase 500,000
shares of Parent  Common Stock (the  "Warrant  Shares")  (subject to  adjustment
pursuant  to  Section  2.01(b)).   Of  the  Merger  Consideration  (i)  (a)  the
Indemnification  Escrow  Shares and (b)  $400,000 in cash shall upon  receipt be
delivered  by the Major  Shareholders  to the  Escrow  Agent (as  defined in the
Escrow Agreement) to be held in the  Indemnification  Escrow Fund (as defined in
the Escrow Agreement)  pursuant to the Escrow Agreement and (II) (a) the Working
Capital Escrow Shares and (b) $1,200,000 in cash upon receipt shall be delivered
by the Shareholders to the Escrow Agent to be held in the Working Capital Escrow
Fund (as defined in the Escrow Agreement) pursuant to the Escrow Agreement.  The
"Indemnification  Escrow Shares" mean (a) such number of shares of Parent Series
C Preferred  Stock,  and Parent  Common  Stock as (i) shall have a value of $1.3
million (with each share of Parent Series C Preferred Stock valued at $30.00 and
each share of Parent Common Stock valued  according to the Average  Parent Share
Price)  and (ii)  shall  be in the  same  ratio of  shares  of  Parent  Series C
Preferred  Stock:  Parent Common Stock as the ratio of shares of Parent Series C
Preferred Stock to be delivered to the Major  Shareholders  pursuant to Schedule
2.01(a): shares of Parent Common Stock to be delivered to the Major Shareholders
pursuant to Schedule  2.01(a).  The "Working  Capital  Escrow  Shares" mean such
number of shares of Parent  Series C Preferred  Stock and Parent Common Stock as
(i)  shall  have a value of  $1,200,000  (with  each  share of  Parent  Series C
Preferred  Stock  valued at $30.00 and each share of Parent  Common Stock valued
according to the Average Parent Share Price) and (ii) shall be in the same ratio
of shares of Parent Series C Preferred  Stock:  Parent Common Stock as the ratio
of shares of Parent Series C Preferred Stock to be delivered to the Shareholders
pursuant to Schedule  2.01(a):  shares of Parent Common Stock to be delivered to
the Shareholders pursuant to Schedule 2.01(a). The rights, privileges, terms and
conditions  of the  Parent  Series C  Preferred  Stock  are set forth on Annex 2
attached hereto.  All such shares of Company  Preferred Stock and Company Common
Stock shall no longer be outstanding  and shall  automatically  be cancelled and
retired and shall cease to exist, and the certificates  previously  representing
such  shares  shall  thereafter  represent  only the right to receive the Merger
Consideration  into which such Company  Preferred Stock and Company Common Stock
was converted in the Merger  immediately  at the  Effective  Time, if all of the
certificates  representing  shares of Company Preferred Stock and Company Common
Stock are delivered to Parent at the Closing,  or, if all such  certificates are
not so delivered, upon the delivery of a properly executed letter of transmittal
accompanied by such certificates. Certificates previously representing shares of
Company  Preferred  Stock and Company  Common Stock shall be  exchanged  for the
Merger  Consideration  in accordance with Schedule 2.01(a) upon the surrender of
such  certificates  in accordance  with the provisions of Section 2.02,  without
interest.  No  fractional  share  of  Parent  Common  Stock or  Parent  Series C
Preferred Stock shall be issued,  and, in lieu thereof,  a cash payment shall be
made pursuant to Section 2.02(c) hereof.

                  (b) If the Average  Parent  Share Price is less than $5.75 and
not less than $4.25 then the Merger  Consideration  shall be  adjusted by adding
such number of  additional  shares of Parent Common Stock as shall equal 500,000
multiplied  by a  fraction,  the  numerator  of which is $5.75 less the  Average
Parent Share  Price,  and the  denominator  of which is $1.50 and if the Average
Parent  Share  Price is $4.25 or less  then the  Merger  Consideration  shall be
adjusted by adding 500,000  additional  shares of Parent Common Stock (in either
case, the "Additional Parent Common Stock") and, in any such case, the number of
Warrant  Shares  shall be reduced by the number equal to the number of shares of
Additional  Parent Common Stock,  provided that (i) if the Average  Parent Share
Price is less than $4.00 then either  Parent or the Company may  terminate  this
Agreement  without  liability  pursuant  to Section  8.01 hereof and (ii) in any
event,  if  between  the  date of this  Agreement  and the  Effective  Time  the
outstanding  shares of Parent  Common  Stock or Company  Common Stock shall have
been changed into a different  number of shares or a different  class, by reason
of any stock dividend, subdivision,  reclassification,  recapitalization, split,
combination or exchange of shares,  the number of shares of Parent Common Stock,
the terms of the  Parent  Series C  Preferred  Stock and the  number of  Warrant
Shares  shall be  correspondingly  adjusted  to  reflect  such  stock  dividend,
subdivision, reclassification,  recapitalization, split, combination or exchange
of shares.

                  (c) The "Average  Parent Share Price" means the average of the
closing  price per share of Parent  Common Stock on the Nasdaq  National  Market
System, and if the Parent Common Stock is not listed on such System, the average
of the last  reported  sale price per share of Parent Common Stock on the Nasdaq
Small Cap Market (in either case as reported in the Wall Street Journal) for the
twenty (20) consecutive  trading days ending on the trading day which is two (2)
Business Days prior to the Effective Time.

                   (d) Each share of Company  Common Stock or Company  Preferred
Stock held in the treasury of the Company and each share of Company Common Stock
or Company  Preferred  Stock  owned by Parent or any direct or  indirect  wholly
owned subsidiary of Parent or of the Company  immediately prior to the Effective
Time shall be cancelled and extinguished  without any conversion  thereof and no
payment shall be made with respect thereto.

                  (e) Each  share of Class A common  stock,  par value  $.01 per
  share,  and Class B Common  Stock,  par value  $.01 per  share,  of Merger Sub
  (collectively,  "Merger Sub Common Stock") issued and outstanding  immediately
  prior to the  Effective  Time shall be converted  into and  exchanged  for one
  newly and validly issued, fully paid and nonassessable share of Class A common
  stock and Class B common stock, respectively, of the Surviving Corporation.

                  (f) At the  later  of (i)  the  time  that  the  Escrow  Agent
releases  all  remaining  amounts,  shares of Parent  Common Stock and shares of
Parent  Series C Preferred  Stock in the Escrow  Fund to the Major  Shareholders
pursuant to Section 3 (d) of the Indemnification  Escrow Agreement and (ii) such
time  following  the Release  Date that all Claims (as such terms are defined in
the Escrow  Agreement)  that have been set forth in notices  provided in Section
3(c) of the Escrow  Agreement have been settled and paid in accordance  with the
provisions of such Section 3(c) and no Claims remain outstanding, the Merger Sub
shall  make  the  Contingent   Merger  Payment  (as  reduced   pursuant  to  the
Indemnification Agreement ) to the Shareholder Representative for the benefit of
the Shareholders in accordance with Schedule 2.01(a) hereto; provided,  however,
that at such time as the Escrow Agent shall release the Non-Disputed Portion (as
defined  in the  Escrow  Agreement),  the Merger Sub shall make a payment to the
Shareholder  Representative  for the benefit of the  Shareholders  in accordance
with Schedule 2.01(a) of that portion of the Contingent  Merger Payment equal to
the Contingent Merger Payment less the product of (i) a fraction,  the numerator
of which is (A) the Contingent  Merger  Payment and the  denominator of which is
(B) the value of the USE Shares in the  Indemnification  Escrow Fund  (valued in
accordance  with the  definition  of USE Shares)  plus the amount of cash in the
Indemnification  Escrow Fund plus the  Contingent  Merger  Payment,  as adjusted
through  such  time and (ii) the  Amount  at Issue  (as  defined  in the  Escrow
Agreement).

                  SECTION 2.02. Exchange of Certificates.  (a) Exchange.  At the
Closing,  upon  surrender by a Company  Shareholder  to Parent of a  certificate
representing   shares  of  Company  Common  Stock  or  Company  Preferred  Stock
("Certificates"),   Parent  shall  deliver  to  such   Shareholder   the  Merger
Consideration in accordance with Schedule  2.01(a),  in exchange for such shares
of  Company  Common  Stock  or  Company  Preferred  Stock,  and  cash in lieu of
fractional  shares of Parent Common Stock or Parent Series C Preferred  Stock to
which  such  Shareholder  is  entitled  pursuant  to Section  2.02(c),  less any
applicable  stock transfer  taxes.  It shall be a condition of exchange that the
certificates  representing  shares of Company Common Stock or Company  Preferred
Stock so surrendered  shall be properly endorsed or otherwise in proper form for
transfer.

                  (b)  No   Further   Rights  in  Company   Stock.   All  Merger
Consideration  issued upon  conversion of the shares of Company  Common Stock or
Company  Preferred Stock in accordance with the terms hereof (including any cash
paid  pursuant to Section  2.02(c))  shall be deemed to have been issued in full
satisfaction of all rights  pertaining to such shares of Company Common Stock or
Company Preferred Stock (including,  without limitation,  any rights to accrued,
unpaid dividends), which shall be cancelled upon surrender to Parent.

                  (c) No  Fractional  Shares.  Subject to the last  sentence  of
Section 2.01 (a), no certificates  or scrip  representing  fractional  shares of
Parent Common Stock, Parent Warrants or Parent Series C Preferred Stock shall be
issued upon the  surrender  for exchange of  Certificates,  and such  fractional
share interests will not entitle the owner thereof to vote or to any rights of a
stockholder of Parent.  In lieu of the issuance of such interests,  Parent shall
deliver the Merger Value Consideration of such interests. As soon as practicable
after the determination of the amount of cash, if any, to be paid to the Company
Shareholders  with  respect to any  fractional  share  interests,  Parent  shall
promptly pay such amounts to such Shareholders subject to and in accordance with
the terms of Section 2.02(a).

                  (d) Lost  Certificates.  If any  Certificate  shall  have been
lost,  stolen or destroyed,  upon the making of an affidavit of that fact by the
person  claiming such  Certificate to be lost,  stolen or destroyed  Parent will
issue in exchange  for such lost,  stolen or destroyed  Certificate,  the Merger
Consideration  and any cash in lieu of fractional  shares of Parent Common Stock
or Parent  Series C Preferred  Stock to which the holders  thereof are  entitled
pursuant to Section 2.02(c).

                  SECTION 2.03. Stock Options.  Prior to the Effective Time, the
Company  and Parent  shall take such  action as may be  necessary  to cause each
unexpired and  unexercised  option to purchase shares of Company Common Stock or
Company  Preferred  Stock (each, a "Company  Option"),  under the Company's 1995
Employee and Director  Stock Option Plan and the  Company's  Third  Employee and
Director Stock Option Plan (collectively,  the "Company Stock Option Plans"), or
otherwise  granted  outside of any stock option or other plan  (including  those
options  held by AJG and Raymond  Kuroki),  and any  unexercised  warrants to be
exercised prior to the Effective Time or cancelled. At the Effective Time Parent
shall issue stock  options  (the  "Signing  Options")  to the  employees  of the
Company (who shall  become  employees of the  Surviving  Corporation)  listed on
Schedule 2.03 with the terms and  conditions set forth on Annex 3 if and only if
such employees  accept  employment  with the Surviving  Corporation.  As soon as
practicable  after the Effective  Time,  to the extent  necessary to provide for
registration  of shares of Parent Common Stock subject to such Signing  Options,
Parent shall file a registration  statement on Form S-8 (or any successor  form)
with  respect  to such  shares of Parent  Common  Stock and any shares of Parent
Common Stock  underlying  other  outstanding  employees'  and  directors'  stock
options  granted  by Parent  to Parent  employees  and  directors  which are not
currently covered by a registration statement.

                  SECTION 2.04. Closing. The closing (the "Closing") shall occur
at the offices of Robinson  Brog  Leinwand  Greene  Genovese & Gluck P.C.,  1345
Avenue of the  Americas,  New York,  New York on the first  Business  Day of the
month  following  the  month in  which  the  Parent's  Stockholder  Approval  is
obtained,  but no later than February 1, 2001,  (the "Closing  Date");  provided
that such Closing Date shall be extended by a number of days equal to the number
of days,  measured  inclusively,  contained in the period commencing on December
20, 2000 and ending on the date on which Parent receives written notice from the
SEC that the Proxy  Statement  referred to in Section 6.01 has been approved for
delivery  to the  Parent's  shareholders;  provided,  further,  that (i) if such
extended  Closing Date is not a Business  Day then the closing  shall be further
extended to the next  Business  Day.  Notwithstanding  anything to the  contrary
herein,  the closing date shall not be extended beyond April 2, 2001 except that
such Closing Date shall be extended by the number of days, measured inclusively,
contained in the period  commencing  on December 31, 2000 and ending on the date
on which the Company notifies Parent in writing that Company  Shareholders  have
approved the Merger by the  requisite  vote, or at such other time as Parent and
the  Company may  mutually  agree (the  "Termination  Date").  The parties  will
proceed diligently and use their respective diligent efforts,  exercised in good
faith,  to effect the Closing on or before the Closing  Date.  The Closing shall
constitute  the  acts  which  take  place  on the  Closing  Date  by  which  the
transactions contemplated by this Agreement are consummated.

                  SECTION 2.05.     Working Capital Adjustment.

                  (a)      Preparation  of  Effective Date  Balance Sheet  And
          Construction Report.

                           (i) On or before the earlier of (i) 60 days after the
         Effective  Date and (ii) (if the  Effective  Date is prior to March 31,
         2001) March 31, 2001, the Company's shareholders  ("Shareholders") will
         cause Kostin, Ruffkess & Company LLC ("KR&C") to prepare and deliver to
         Parent the  consolidated  balance  sheet of the Company and the Company
         Subsidiaries as of December 31, 2000 and the related income  statement,
         cash flow statement and statement of  Stockholders  equity for the year
         ended December 31, 2000 (the "Audited 2000 Financial  Statements")  and
         KR&C's related audit opinion.  The Surviving  Corporation  will prepare
         and deliver to the Shareholders within 60 days after the Effective Date
         a   consolidated   balance   sheet  of  the  Company  and  the  Company
         Subsidiaries  as of the  Effective  Date which shall include line items
         for or permit (if need be with a supporting  report, in which case such
         report shall be delivered with such balance sheet) the  calculations of
         Ordinary  Course Working  Capital,  Extraordinary  Working  Capital and
         Indebtedness  ("Draft Effective Date Balance Sheet") and KR&C's related
         compilation and report (the  "Effective  Date Report").  Parent and the
         Surviving Corporation are entitled, for an additional thirty days after
         the delivery of the Draft  Effective Date Balance Sheet, to revise such
         Balance  Sheet to reflect any  applicable  bills that were not received
         prior  to the  date  of  delivery  of such  Balance  Sheet.  The  Draft
         Effective  Date  Balance  Sheet shall  exclude  any equity  provided by
         Parent  or  Merger  Sub to  the  Surviving  Corporation  and  shall  be
         determined  on  a  pro-forma  basis  as  though  the  parties  had  not
         consummated  the   transactions   described  in  this  Agreement.   The
         Shareholders  will cause KR&C to prepare  the  Audited  2000  Financial
         Statements  and  the  Surviving  Corporation  will  prepare  the  Draft
         Effective  Date  Balance  Sheet  in  accordance  with  GAAP  on a basis
         consistent with the preparation of the Financial  Statements,  provided
         however that GAAP shall prevail over any inconsistency  with procedures
         used to prepare the Financial  Statements;  provided,  further however,
         that assets,  liabilities,  gains,  losses,  revenues,  and expenses in
         interim  periods or as of dates other than year-end (which normally are
         determined  through the  application  of so-called  interim  accounting
         conventions  or  procedures)  will be  determined,  for purposes of the
         Draft  Effective Date Balance  Sheet,  by application of the procedures
         used in preparing the most recent audited balance sheet included within
         the  Financial  Statements  provided  that GAAP shall  prevail over any
         inconsistency with such procedures.

                           (ii) If Parent has any objections to the Audited 2000
         Financial  Statements and/or if the Shareholders have any objections to
         the Draft Effective Date Balance Sheet, Parent or the Shareholders,  as
         the case may be, will deliver a detailed  statement  describing  its or
         their  objections to the  Shareholders  or Parent,  as the case may be,
         within  thirty (30) days after  receiving  the Audited  2000  Financial
         Statements or the Draft  Effective Date Balance  Sheet,  as applicable,
         and all of the papers and  materials  described  in  subparagraph  (iv)
         hereof.  Parent and Shareholders will use reasonable efforts to resolve
         any such  objections  themselves.  If the  parties do not reach a final
         resolution of the item(s) in dispute  within thirty (30) days after the
         Shareholders or Parent, as the case may be, have received the statement
         of objections,  Parent and Shareholders  will select an accounting firm
         mutually acceptable to them to resolve any remaining objections. If the
         Parent  and  Shareholders  are  unable  to  agree on the  choice  of an
         accounting  firm, they will select a  nationally-recognized  accounting
         firm  by  lot  (after  excluding  their   respective   regular  outside
         accounting firms). The determination of any accounting firm so selected
         will be set forth in writing and will be  conclusive  and binding  upon
         the parties. Parent will cause the Surviving  Corporation's  accounting
         firm to revise the Draft Effective Date Balance Sheet as appropriate to
         reflect  the  resolution  of any  objections  thereto  pursuant to this
         Section 2.05(a)(ii).  The "Effective Date Balance Sheet" shall mean the
         Draft Effective Date Balance Sheet together with any revisions  thereto
         pursuant to this Section 2.05(a)(ii).

                           (iii) In the event the parties  submit any unresolved
         objections to an accounting  firm for resolution as provided in Section
         2.05(a)(ii) above, the fees and expenses of the accounting firm will be
         paid  equally  by  Parent on the one hand and the  Shareholders  on the
         other hand.

                           (iv) The  Shareholders  will make the work papers and
         back-up   materials  used  in  preparing  the  Audited  2000  Financial
         Statements   available  to  Parent  and  its   accountants   and  other
         representatives and the Surviving Corporation will make work papers and
         back-up  materials  used in preparing the Effective  Date Balance Sheet
         available  to  the  Shareholders   and  their   accountants  and  other
         representatives  at reasonable times and upon reasonable  notice at any
         time  during  (A)  the   preparation  of  the  Audited  2000  Financial
         Statements  and  Effective  Date Balance  Sheet,  (B) the review by the
         Parent of the Audited 2000  Financial  Statements and the review by the
         Shareholders  of  the  Effective  Date  Balance  Sheet,   and  (c)  the
         resolution by the parties of any objections thereto.

                  (b)  Adjustment  to Merger  Consideration.  (i) The  aggregate
Merger Consideration due to the Company's Shareholders under Section 2.01 hereof
will be subject to adjustment as follows:

                           (A) If the Ordinary Course Working Capital  reflected
                  on the Effective  Date Balance Sheet is less than zero by more
                  than $1,200,000 (any such amount by which such Ordinary Course
                  Working  Capital  is less than  zero by more  than  $1,200,000
                  being the "Ordinary Course Working Capital Deficit"), then the
                  Merger  Consideration  shall be  reduced  in  accordance  with
                  Section  2.05(b)(ii)  below by an amount equal to the Ordinary
                  Course Working Capital Deficit; or

                           (B) If the Extraordinary Working Capital reflected on
                  the Effective Date Balance Sheet is less than zero (any amount
                  by which such Extraordinary  Working Capital is less than zero
                  being the  "Extraordinary  Working Capital  Deficit") then the
                  Merger  Consideration  shall be  reduced  in  accordance  with
                  Section   2.05(b)(ii)   below  by  an  amount   equal  to  the
                  Extraordinary Working Capital Deficit; or

                           (C) If the long term debt and current portion of long
                  term debt  (collectively,  "Long  Term  Debt") of the  Company
                  reflected on the  Effective  Date  Balance  Sheet is more than
                  $72,579,499  (any such  amount by which such Long Term Debt is
                  more than $72,579,499  being the "Excess Long Term Debt") then
                  the Merger  Consideration  shall be reduced in accordance with
                  Section  2.05  (b)(ii)  below by an amount equal to the Excess
                  Long Term Debt;

                           (D) If (i) the  budgeted  cost of the  portion of any
                  Construction  Project  which has not been  completed as of the
                  Effective Date ("Outstanding  Construction Cost") exceeds (ii)
                  the  restricted  cash  reflected on the Effective Date Balance
                  Sheet and held and set  aside by the  Company  solely  for the
                  completion  of any such  Construction  Project  ("Construction
                  Reserve")   (any  such   amount  by  which  such   Outstanding
                  Construction Cost exceeds such Construction  Reserve being the
                  "Construction   Deficit")   then  the  amount   equal  to  the
                  Construction  Project  Deficit  shall be treated as a "current
                  liability"  in the  calculation  of  Ordinary  Course  Working
                  Capital. For purpose of this paragraph  Construction  Projects
                  shall include, without limitation,  Devonshire Power Partners,
                  LLC,  Garland  Energy   Development,   LLC,  Roxanna  Resource
                  Recovery,   LLC,   Streator  Energy  Partners,   LLC,  Suffolk
                  Transmission  Partners,  LP, Upper Rock Energy Partners,  LLC.
                  The  Outstanding  Construction  Cost  shall be  determined  by
                  Harris   Group,   Inc.   ("Harris")   with   respect   to  the
                  determinations  under the Note Purchase Agreement,  if Hancock
                  consents to using  Harris,  in which case Harris shall utilize
                  the reports it has prepared for Hancock, if appropriate and if
                  Hancock,  consents  to using  such  reports,  or if Hancock or
                  Harris  does  not  consent  to the  use  of  Harris,  then  an
                  independent nationally recognized engineering firm approved by
                  Parent and the  Company  with  experience  involving  projects
                  similar to the  Construction  Projects (the  "Engineer").  The
                  Engineer  shall  render a report  respecting  the  Outstanding
                  Construction Cost within 60 days of the Effective Date. Absent
                  manifest error, the Engineer's  determination shall be binding
                  on the parties.  The Surviving  Corporation shall pay the fees
                  and expenses of the Engineer.

              (ii)  In the  event  the  Merger  Consideration  is to be  reduced
pursuant to Section  2.05(b)(i) such reduction shall first be effected by making
disbursements  from the  Working  Capital  Escrow  Fund and the  Indemnification
Escrow Fund in  accordance  with  Section 3(a) of the Escrow  Agreement.  If the
Merger  Consideration  is to be reduced  pursuant  to Section  2.05(b)(i)  by an
amount in excess of the Merger  Consideration held in the Working Capital Escrow
Fund and the  Indemnification  Escrow Fund (the "Excess  Reduction"),  then each
Major  Shareholder  shall pay to the Surviving  Corporation  an amount (of which
amount 50.5% of the value of such amount shall be paid by  delivering  shares of
Parent  Common Stock and Parent  Series C Preferred  Stock valued in  accordance
with the definition of USE Shares set forth in Section 1 of the  Indemnification
Agreement,  and  49.5%  of the  value  of such  amount  shall  be paid in  cash;
provided,  however that each such Major Shareholder may, at his option, pay such
amount  solely in cash) equal to (A) the Excess  Reduction  multiplied  by (B) a
fraction  the  numerator  of which is the  Scheduled  Merger  Consideration  (as
defined in the  Indemnification  Agreement ) for such Major  Shareholder and the
denominator  of  which  is the  Scheduled  Merger  Consideration  for all  Major
Shareholders,  provided that in no event shall any Major Shareholder's aggregate
liability under this Section 2.02(b)(ii) and under the Indemnification Agreement
exceed the Scheduled Merger Consideration respecting such Shareholder.

              (iii)  Notwithstanding  anything to the contrary set forth herein,
in the event the Merger Consideration is decreased due to a fact or circumstance
that  would  provide  the  basis  for a  claim  for  indemnification  under  the
Indemnification  Agreement after the Closing,  there shall not be a claim for an
indemnity  under  the  Indemnification  Agreement  in  respect  of such  fact or
circumstance  to the extent that the Merger  Consideration  is  decreased  under
Section 2.05 to account for such fact or circumstance and the Shareholders  have
made or shall be deemed to have made the payments,  if any,  required by Section
2.05(b)(i) and (ii).

              (iv) For  purposes of Section  2.01 and this  Section  2.05,  AJG,
acting   through  its  Vice   President   General   Counsel  (the   "Shareholder
Representative"),  shall act as the duly authorized  agent for all  Shareholders
with power and authority to act on behalf of and bind all  Shareholders.  Parent
shall  have the right to deliver to  Shareholder  Representative  any notice and
such delivery to Shareholder  Representative  shall satisfy Parent's obligations
as to all Shareholders. No Shareholder shall have any power or authority to take
any action with respect to Section 2.05 (other than to make any payment required
by Section  2.05(b)(ii))  other than to make  recommendations to the Shareholder
Representative.

                  SECTION 2.06.     Procedure for Non-Ordinary Course
Liabilities.

                  (a) If, at any time between the date hereof and the  Effective
Time, the Company wishes to incur one or more  liabilities that (i) individually
or, if relating to the same activity in the  aggregate  (with regard to a series
of related items) exceeds $50,000,  (ii) is not the ordinary course of business,
and (iii) does not relate to a project,  asset or  activity  that is  operating,
under construction or in-house  development,  as of the date hereof, the Company
shall  promptly  provide a written  notice to Parent  describing  such  proposed
liability in reasonable detail.

                  (b) Not more than ten  Business  Days  after  receipt  of such
notice, Parent shall notify the Company in writing whether Parent has elected to
treat such proposed  liability as a current  payable  incurred by the Company in
the  ordinary  course  of  business  or to  treat it as a  payable  that was not
incurred in the  ordinary  course of  business.  Failure of Parent to respond in
writing within ten Business Days after its receipt of the Company's notice shall
be deemed to be an  election  by Parent to treat such  proposed  liability  as a
current  payable that was not incurred by the Company in the ordinary  course of
business.

                  (c) In the event Parent  notifies the Company  within such ten
Business  Day period that it has elected to treat such  proposed  liability as a
payable that was incurred in the  ordinary  course of business,  and the Company
incurs such liability, then such liability shall be treated as a current payable
incurred by the Company in the ordinary course of business on the Effective Date
Balance Sheet.  Failure of Parent to respond in writing within ten Business Days
after its receipt of the  Company's  notice shall be deemed to be an election by
Parent  to treat  such  proposed  liability  as a current  payable  that was not
incurred by the Company in the ordinary course of business.

                  (d) In the event Parent  notifies the Company  within such ten
Business  Day period that it has elected to treat such  proposed  liability as a
payable that was not incurred in the  ordinary  course of business,  the Company
shall not be prohibited from incurring such liability,  but such liability shall
be treated as a payable that was not incurred in the ordinary course of business
on the Effective Date Balance Sheet (a "Nonqualifying Current Payable").


                                   ARTICLE III

                  REPRESENTATIONS AND WARRANTIES OF THE COMPANY

                  Except  as  set  forth  in  the  Company  Disclosure  Schedule
delivered by the Company to Parent and Merger Sub prior to the execution of this
Agreement (the "Company Disclosure Schedule"), the Company hereby represents and
warrants to Parent and Merger Sub that:

                  SECTION 3.01.  Organization;  Business and Qualification.  The
Company is a corporation  duly organized,  validly existing and in good standing
under the laws of Delaware and is duly qualified as a foreign corporation and in
good  standing  under the laws of each other  jurisdiction  in which (i) it owns
properties  or (ii) the conduct of its  business  requires  such  qualification,
other than those  jurisdictions  where the failure to be so qualified or in good
standing would not, individually or in the aggregate,  reasonably be expected to
have a Company Material Adverse Effect. For purposes of this Agreement, "Company
Material  Adverse  Effect"  means any change in or effect on the business of the
Company  or any  Company  Subsidiary  that is,  or is  reasonably  likely to be,
materially  adverse to the assets  (including  intangible  assets),  liabilities
(contingent  or  otherwise),  condition  (financial  or otherwise) or results of
operations of the Company and the Company  Subsidiaries  taken as a whole.  Each
jurisdiction  in which the  Company  is  required  to be  qualified  and in good
standing is set forth in Section 3.01 of the Company Disclosure Schedule.

                  SECTION 3.02.  Certificate of Incorporation  and By-Laws.  The
Company has  heretofore  furnished  to Parent a complete and correct copy of (i)
the Company's Certificate of Incorporation, as amended to date, certified by the
Secretary of State of the State of Delaware,  and (ii) the Company's By-Laws, as
amended to date,  certified by the  Secretary  or an Assistant  Secretary of the
Company.  The Company's  Certificate  of  Incorporation  and By-Laws are in full
force and effect,  and the Company is not in violation of any of the  provisions
thereof.

                  SECTION 3.03.  Company Capital Structure.

                  (a) The  authorized  capital stock of the Company  consists of
50,000  shares of Company  Common Stock and 20,000  shares of Company  Preferred
Stock. As of the date hereof,  (i) 22,060.998 shares of Company Common Stock are
issued and  outstanding,  (ii) 1,918 shares of Company  Common Stock are held in
the treasury of the Company,  (iii) 4,644.940 shares of Company  Preferred Stock
are issued and outstanding;  and (iv) 100 shares of Company  Preferred Stock are
held in the treasury of the Company.  Section 3.03(a) of the Company  Disclosure
Schedule  shows the number of Company  options  and  warrants  and the number of
shares of Company  Common Stock reserved for future  issuance  pursuant to stock
options  and  warrants  granted  and  outstanding  as of the date hereof and the
Company  Stock Option Plans,  which are the  Company's  only stock option plans.
Except as set forth in Section 3.03(a) of the Company Disclosure  Schedule there
are no unexercised  Company Options or warrants  exercisable to purchase Company
Common  Stock or Company  Preferred  Stock.  All shares of Company  Common Stock
subject to issuance as specified above are duly authorized and, upon issuance on
the terms and conditions specified in the instruments pursuant to which they are
issuable,  shall be validly issued, fully paid and nonassessable.  Except as set
forth on  Section  3.03(a)  of the  Company  Disclosure  Schedule,  there are no
obligations,  contingent or otherwise,  of the Company to repurchase,  redeem or
otherwise  acquire any shares or other units of Company  Common Stock or Company
Preferred Stock. The shares of Company Common Stock and Company  Preferred Stock
issued and  outstanding  are duly  authorized,  validly  issued,  fully paid and
nonassessable and have not been issued in violation of any preemptive rights. In
the event of the exercise of warrants and stock  options and the  conversion  of
shares of Company  Preferred Stock in accordance  with their terms,  the Company
shall update this representation and warranty,  it being agreed that such events
shall not affect the aggregate Merger Consideration.

                  (b) Except as set forth in this  Section  3.03 or as  reserved
for future  grants of options and warrants  under  Company  Stock Option  Plans,
there  are no  equity  securities  of any class of the  Company  or any  Company
Subsidiary,  or any security  exchangeable  into or exercisable  for such equity
securities,  issued,  reserved for issuance or outstanding or any phantom equity
respecting  the  Company or any  Company  Subsidiary,  and there are no options,
warrants, equity securities,  calls, puts by other parties, rights,  commitments
or agreements of any character to which the Company or any Company Subsidiary is
a party or by which such  entity is bound  (including  under  letters of intent,
whether binding or nonbinding)  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 of the Company or any Company
Subsidiary or obligating the Company or any Company Subsidiary to grant, extend,
accelerate  the  vesting  of,  otherwise  modify or amend or enter into any such
option,  warrant,  equity security,  call, puts, right, commitment or agreement.
Except as set forth on Section  3.03(b) of the Company  Disclosure  Schedule and
the Voting Agreement, and except for the Voting Trust Agreement,  dated June 15,
1998,  among certain  stockholders of the Company and Bernard J. Zahren,  to the
Knowledge of the Company,  there are no voting  trusts,  proxies or other voting
agreements,  limitations or understandings with respect to the shares of capital
stock or other equity interests of the Company or any Company Subsidiary.

                  SECTION 3.04. Power and Authorization. Each of the Company and
each Company  Subsidiary  has the corporate,  partnership  or limited  liability
company  power  and  authority,  as  applicable,  to own,  license  or lease the
properties  and assets it purports  to own,  license or lease and to conduct its
business as now  conducted.  The  execution,  delivery  and  performance  by the
Company of this Agreement and any exhibit, schedule, annex or ancillary document
hereto (i) have been duly  authorized , (ii) do not require any  approval  which
has not been  obtained  except where the failure to obtain such  approval  would
not,  individually or in the aggregate,  have a Company Material Adverse Effect,
and do not,  and will not,  contravene  any  foreign or domestic  law,  statute,
ordinance,  rule,  regulation,  order, judgment or decree ("Law"), the Company's
Certificate of Incorporation or any other corporation  document and (iii) do not
constitute  a  default  under any  indenture,  mortgage,  deed of  trust,  loan,
purchase or credit  agreement,  lease or any other  agreement or  instrument  to
which the Company or any Company  Subsidiary  is a party or by which the Company
or any Company Subsidiary or any of the properties of the Company or any Company
Subsidiary  may be bound or affected.  The  Agreement has been duly executed and
constitutes,  and upon  execution  each  exhibit,  schedule,  annex or ancillary
document  to be executed by the Company  will  constitute,  a valid  obligation,
legally binding upon it and enforceable in accordance with its terms,  except as
enforcement may be limited by applicable bankruptcy, insolvency,  reorganization
and  moratorium  laws  or  by  equitable  principles  relating  to  or  limiting
creditors' rights generally.  Except as set forth in Section 3.04 of the Company
Disclosure  Schedule,  no consent of any other  Person and no  consent,  permit,
license, approval or authorization of, or giving notice to, filing, registration
or  declaration  with,  any  domestic  or  foreign  governmental  or  regulatory
authority  ("Governmental  Entity") is required in connection with the Company's
execution,  delivery or performance  of, or the validity or  enforceability  of,
this Agreement or any such ancillary document.

                  SECTION 3.05.  Organization and Ownership of Shares of
Subsidiaries; Affiliates.

                  (a) Section 3.05 of the Company  Disclosure  Schedule contains
(except as noted therein)  complete and correct lists of each  subsidiary of the
Company (each, a "Company Subsidiary"),  showing, as to each Company Subsidiary,
the correct name thereof,  the jurisdiction of its organization,  the status and
the  percentage of shares of each class of its capital  stock or similar  equity
interests outstanding owned by the Company and each other Company Subsidiary.

                  (b) All of the outstanding  shares of capital stock or similar
equity interests of each Company Subsidiary shown in Section 3.05 of the Company
Disclosure Schedule as being owned by the Company and the Company  Subsidiaries,
as applicable,  have been validly issued,  are fully paid and  nonassessable and
are owned by the applicable  Company or Company Subsidiary free and clear of all
security interests,  liens, claims,  pledges,  options, rights of first refusal,
agreements,  limitations on Company's or such other Company  Subsidiary's voting
rights,  charges and other encumbrances of any nature  whatsoever,  except where
failure to own such  shares  free and clear  would not,  individually  or in the
aggregate,  have a  Company  Material  Adverse  Effect.  Except  as set forth in
Section  3.05  of  the  Company  Disclosure  Schedule,  there  are  no  material
outstanding  contractual obligations of the Company or any Company Subsidiary to
provide  funds  to,  or make  any  investment  (in the  form of a loan,  capital
contribution or otherwise) in, any Company Subsidiary or any other Person, other
than  guarantees by the Company of any  indebtedness  of any Company  Subsidiary
identified in Section 3.21(a) of the Company Disclosure Schedule.

                  (c) Each Company Subsidiary  identified in Section 3.05 of the
Company  Disclosure  Schedule  is a  corporation  or  other  legal  entity  duly
organized,  validly  existing  and  in  good  standing  under  the  laws  of its
jurisdiction of organization,  and is duly qualified as a foreign corporation or
other legal entity and is in good  standing in each  jurisdiction  in which such
qualification is required by law, other than those jurisdictions as to which the
failure to be so qualified or in good standing would not, individually or in the
aggregate,  reasonably be expected to have a Company  Material  Adverse  Effect.
Each  such  Company  Subsidiary  has the  corporate  or other  entity  power and
authority to own or hold under lease the  properties  it purports to own or hold
under lease and to transact the business it transacts and proposes to transact.

         SECTION 3.06. Financial Statements. The Company has delivered to Parent
true and correct  copies of the  consolidated  financial  statements,  including
consolidated  balance  sheets of the Company and  Company  Subsidiaries  and the
related statements of income,  shareholder's equity and cash flow for the fiscal
year and fiscal  quarter then ended  together with the notes  thereto  listed on
Section 3.06 of the Company  Disclosure  Schedule (the  "Financial  Statements")
accompanied  by the audit report of Kostin,  Ruffkess & Company LLC  independent
certified public accountants listed on such Schedule.  All financial  statements
including  the  Financial  Statements,  reports,  records and other  information
(including in each case the related  schedules and notes) furnished to Parent by
the Company have been  prepared in  accordance  with GAAP  consistently  applied
throughout the periods involved (except as disclosed therein) and present fairly
in all material respects the financial  condition of the Persons covered thereby
as at the dates thereof and the results of their operations for the periods then
ended, subject, in the case of unaudited quarterly financial statements provided
for the Company's 2000 fiscal year, to year-end  adjustments  and the absence of
footnotes  which were not and are not expected  individually or in the aggregate
to have a Company Material Adverse Effect.

                  SECTION  3.07.  Compliance  with  Laws.  Section  3.07  of the
Company Disclosure Schedule lists all Governmental Orders, if any, applicable to
the Company or any  Company  Subsidiary  and each  notice of a violation  of Law
applicable to the Company or any Company  Subsidiary  issued since  September 1,
1997. To the Company's Knowledge, neither the Company nor any Company Subsidiary
is  under  a  pending  investigation  with  respect  to a  violation  of  Law or
Governmental  Order which would  reasonably be expected  individually  or in the
aggregate to have a Company Material  Adverse Effect.  The Company has disclosed
all  violations  by the  Company  and  the  Company  Subsidiaries  of  Laws  and
Governmental  Orders  applicable to the Company or a Company  Subsidiary  and no
condition  exists  which  would give rise to a  violation  by the Company or any
Company Subsidiary of any Law or Governmental  Order, in either case which would
reasonably  be expected,  individually  or in the  aggregate,  to have a Company
Material Adverse Effect.

                  SECTION 3.08. Permits.  Section 3.08 of the Company Disclosure
Schedule   lists  all   health  and   safety   and  other   permits,   licenses,
authorizations,  certificates, exemptions and approvals of Governmental Entities
(collectively,  the  "Permits")  necessary  or  proper  for the  conduct  of the
business of the Company  and all  Company  Subsidiaries.  Except as set forth on
Section 3.08 of the Company Disclosure Schedule, each of such Permits is in full
force and effect, is final, and, based on current regulations, is not subject to
appeal or judicial, governmental or other review. The consummation of the Merger
will not  terminate or invalidate  any of the Permits  listed in Section 3.08 of
the Company  Disclosure  Schedule  nor  require the consent of any  Governmental
Entity  to  maintain  the  effectiveness  of  such  Permit  as a  result  of the
consummation of the Merger. The Company has no reason to believe that any of the
Permits  listed in Section 3.08 of the Company  Disclosure  Schedule,  which the
Company has applied or will apply for, will not be obtained in the normal course
of business and without any conditions or limitations  that would  reasonably be
expected,  individually or in the aggregate,  to have a Company Material Adverse
Effect.

                  SECTION 3.09.  Litigation; No Default.

                  (a)  There  is  no  judgment,  action,  investigation,  claim,
complaint, notice of violation,  injunction,  order, decree, directive,  action,
suit,  arbitration or proceeding or labor dispute  pending or threatened  either
pursuant to written  notification  or to the Knowledge of Company or any Company
Subsidiary  in any court or before or by any  Governmental  Entity,  arbitrator,
board or authority  against or affecting the Company or any Company  Subsidiary;
and

                  (b)  Neither the  Company  nor any  Company  Subsidiary  is in
default or has  Knowledge of any event that,  with the passage of time or giving
notice,  may constitute a default under any agreement,  bond,  note,  indenture,
mortgage,  loan  agreement,  order or judgment or any  ordinance,  resolution or
decree to which it is a party or by which it is bound, or any other agreement or
other  instrument by which it or any of the  properties or assets owned by it or
used in the conduct of its business is affected, except where such default would
not, individually or in the aggregate, have a Company Material Adverse Effect.

                  SECTION 3.10. Taxes. The Company, each Company Subsidiary, and
each Benefit Plan (as defined in Section  3.17(a))  have filed all United States
federal  and state tax returns and reports and all other tax returns and reports
with each  appropriate  Governmental  Entity in all  jurisdictions in which such
returns and reports are  required to be filed for all fiscal  years  through the
fiscal year ended  December  31, 1999,  and such returns and reports  accurately
reflect in all  respects the taxes,  assessments  and charges of the Company and
each Company  Subsidiary  for the periods  covered  thereby.  The Company,  each
Company  Subsidiary and each Benefit Plan have paid all Taxes,  assessments  and
other  charges  which  have  become  due  to  any  Governmental   Entity  having
jurisdiction  over the Company or Company  Subsidiary or any of their properties
and no Tax Liens have been filed and no claims are being  asserted  against  the
Company or a Company  Subsidiary  or any  properties of the Company or a Company
Subsidiary or any Benefit Plan.  None of the federal or state income tax returns
of the Company or a Company  Subsidiary are under audit.  Except as set forth on
Section  3.10 of the Company  Disclosure  Schedule,  neither the Company nor any
Company  Subsidiary  has any  Knowledge  of any income  events or unpaid  Taxes,
assessments  or charges  which may be due and  payable  against it or any of its
properties  or any Benefit  Plan,  or any basis for any other Tax or  assessment
attributable  to any period (or partial  period) ending on or before the Closing
Date.  The  charges,  accruals and reserves on the books of the Company and each
Company  Subsidiary  in respect of Federal,  state or other Taxes for all fiscal
periods (or partial periods), up to and including the Closing Date, are adequate
in all material respects.

                  SECTION 3.11. Assets, Title; Liens; Etc. (a) The assets of the
Company  and each  Company  Subsidiary,  including  real,  personal  and  mixed,
tangible and  intangible,  necessary or useful to the  operation of its business
(the "Assets") are in good working order, and suitable for the uses intended. To
the Company's  Knowledge,  the Assets comply with and are operated in conformity
with all  applicable  Laws,  Permits  and other  requirements  relating  thereto
adopted or currently in effect. No default or event of default by the Company or
a Company Subsidiary exists, and no event which, with notice or lapse of time or
both,  would  constitute a default by the Company or a Company  Subsidiary,  has
occurred and is continuing,  under terms or provisions,  express or implied,  of
any such lease,  agreement or other  instrument or under the terms or provisions
of any agreement to which any of such Assets is subject,  nor has the Company or
a Company Subsidiary received notice of any claim of such default,  except where
such default or event of default would not,  individually  or in the  aggregate,
have a Company Material Adverse Effect.

                  (b)  Except  as set  forth  in  Section  3.11  of the  Company
Disclosure  Schedule,  the Company and each of the Company Subsidiaries has good
title to all of the Assets  currently used or proposed to be used by the Company
or such Company Subsidiary in the conduct of its business as currently conducted
and proposed to be conducted, free and clear of any liens and encumbrances.

                  SECTION 3.12. Books and Records;  Bank Accounts,  etc. (a) The
books of account and other  financial and  corporate  records of the Company and
the Company  Subsidiaries  are  complete  and  accurate  and are  maintained  in
accordance with good business practices. The minute books of the Company and the
Company  Subsidiaries  as  previously  made  available to Parent and its counsel
contain  accurate  records of all  meetings  and  accurately  reflect  all other
corporate action of the  shareholders and directors (and committees  thereof) of
the Company and the Company Subsidiaries.

                  (b) Section  3.12(b) of the Company  Disclosure  Schedule sets
forth a complete  list of (i) the name and  address  of each bank and  brokerage
firm with which the Company or any Company  Subsidiary  has any  accounts,  safe
deposit boxes, lock boxes or vaults,  (ii) the account numbers relating thereto,
and (iii) the names of all persons  authorized  to deal with such accounts or to
have access to such boxes or vaults.

                  SECTION 3.13.  Powers of Attorney.  No person has any power of
attorney to act on behalf of the Company or any Company Subsidiary in connection
with any of its properties or business  affairs other than such powers to so act
as normally pertain to the officers of such entity.

                  SECTION  3.14.  Conduct  in the  Ordinary  Course;  Absence of
Certain  Changes,  Events and  Conditions.  Since  December 31, 1999 , except as
disclosed in Section 3.14 of the Company  Disclosure  Schedule,  the business of
the Company and the Company  Subsidiaries  has been  conducted only in, and they
have not engaged in any transaction other than according to, the ordinary course
and consistent with past practice.  As  amplification  and not limitation of the
foregoing,  except  as  disclosed  in  Section  3.14 of the  Company  Disclosure
Schedule, since December 31, 1999 , there has not been:

                  (i) any adverse  change in the financial  condition,  business
         condition,  assets, liabilities or results of operations of the Company
         or the  Company  Subsidiaries  or any  development  or  combination  of
         developments  of which the  Company or the  Company  Subsidiaries  have
         Knowledge,   individually  or  in  the  aggregate,   which  changes  or
         developments  have  had or are  reasonably  likely  to  have a  Company
         Material Adverse Effect;

                  (ii) any damage,  destruction or loss in excess of $150,000 in
         the aggregate (whether or not covered by insurance) adversely affecting
         any of the  Assets  or any  damage,  destruction  or loss in  excess of
         $50,000 in the aggregate (which is not covered by insurance)  adversely
         affecting any of the Assets;

                  (iii) any  obligation  or liability  undertaken or incurred by
         the  Company or any  Company  Subsidiary  (whether  absolute,  accrued,
         contingent  or  otherwise  and  whether due or to become  due),  or any
         transaction,  contract or commitment entered into by the Company or any
         Company Subsidiary in excess of $100,000;

                  (iv) any  payment,  discharge  or  satisfaction  of any claim,
         lien, encumbrance or liability of the Company or any Company Subsidiary
         outside the ordinary course of business;

                  (v)  any  sale,  transfer,   conveyance,   assignment,  lease,
         license,  pledge,  mortgage or other  disposition or encumbrance by the
         Company or any Company  Subsidiary  of any assets of the Company or any
         Company  Subsidiary having a value of $75,000  individually or $150,000
         in the aggregate,  or more,  except in the ordinary  course of business
         and consistent with past practices of the Company;

                  (vi) any modification,  amendment, cancellation,  termination,
         revocation,  rescission,  or  waiver  of  any  rights  pursuant  to any
         Material Contract;

                  (vii)  any  change  in the  accounting  methods  or  practices
         followed by the Company or any Company  Subsidiary or any change in the
         depreciation or amortization  policies or rates theretofore adopted and
         applied;

                  (viii) any  increase  in the  compensation  of the  directors,
         officers and employees of the Company or any Company Subsidiary,  other
         than any increase  pursuant to any bonus,  pension,  profit-sharing  or
         other  plan or  commitment  described  in Section  3.14 of the  Company
         Disclosure Schedule, the formulae or commission rates of which have not
         been amended or changed since December 31, 1999;

                  (ix) declared, paid or set aside for payment by the Company or
         any Company Subsidiary any dividend or other distribution in respect to
         its  capital  stock or other  securities,  or  redeemed,  purchased  or
         otherwise acquired any of its capital stock or other securities;

                  (x) issued,  authorized  for  issuance,  nor entered  into any
         commitment to issue by the Company or any Company Subsidiary any equity
         security,  stock option,  warrant or any other security  convertible or
         exercisable  into an equity  security,  bond, note or other security of
         the Company or any Company Subsidiary;

                  (xi) any extraordinary transaction or payments between (i) any
         of the  officers,  directors  or  shareholders  of the  Company  or any
         Company Subsidiary or any affiliate or other related party or entity on
         the one hand and (ii) the  Company  or any  Company  Subsidiary  on the
         other hand;

                  (xii) the termination,  whether  voluntarily or involuntarily,
         of  any  management-level  employee  of  the  Company  or  any  Company
         Subsidiary; or

                  (xiii) any  agreement  or  understanding  entered  into by the
         Company or any Company Subsidiary, whether in writing or otherwise, for
         the  Company  or any  Company  Subsidiary  to take  any of the  actions
         specified in this Section 3.14.

                  SECTION 3.15. No Undisclosed Liabilities.  There are no debts,
liabilities and obligations,  whether accrued or fixed,  absolute or contingent,
matured  or  unmatured  or  determined  or  determinable,   including,   without
limitation,  those arising under any Law  (including,  without  limitation,  any
Environmental  Law),  action or  Governmental  Order and those arising under any
contract,  agreement,  arrangement,  commitment  or  undertaking  whether or not
required  to  be  recorded  or   reflected   on  a  balance   sheet  under  GAAP
("Liabilities")  of the  Company  or any  Company  Subsidiary  and  there  is no
existing condition or set of circumstances which could reasonably be expected to
result in such a  Liability,  other  than  Liabilities  of the  Company  and the
Company  Subsidiaries  (a)  reflected  or  reserved  against  on  the  Financial
Statements  or (b) which do not and could not  reasonably  be  expected to have,
individually or in the aggregate,  a Company Material  Adverse Effect.  Reserves
are reflected on the Financial Statements against all Liabilities of the Company
and the Company  Subsidiaries  in amounts that have been  established on a basis
consistent  with the past practices of the Company and the Company  Subsidiaries
and in accordance with GAAP.

                  SECTION 3.16.  Intellectual Property.  Except in instances
where individually or  in the  aggregate there  would  be  no  Company  Material
Adverse Effect:

                  (a) the Company and each Company  Subsidiary owns or possesses
all licenses, permits, franchises,  authorizations,  know-how, trade secrets, or
other proprietary rights and technology or rights thereto,  that individually or
in the  aggregate  are material to operate its business as now  conducted and as
presently  proposed to be conducted,  without any known conflict with the rights
of others;

                  (b) no  product  of the  Company  or  any  Company  Subsidiary
infringes in any material respect any license, permit, franchise, authorization,
patent, copyright,  service mark, trademark,  trade name or other right owned by
any other Person; and

                  (c) there is no material  violation by any Person of any right
of the Company or any Company Subsidiary with respect to any patent,  copyright,
service mark, trademark,  trade name or other right owned or used by the Company
or such Company Subsidiary.

                  SECTION 3.17.  Employee  Benefit  Plans;  Labor  Matters.  (a)
Section  3.17(a) of the Company  Disclosure  Schedule sets forth a list of every
bonus,  incentive,  deferred or current  compensation,  excess benefits,  profit
sharing,  pension,  thrift,  stock  option,  savings,   retirement,   severance,
sickness, accident, medical, disability, hospitalization, vacation, insurance or
other  plan,  agreement,  or  arrangement,  whether  written or oral,  formal or
informal  which  provides  benefits  to or for or on  behalf  of any one or more
employees  of  the  Company  and  Company   Subsidiaries   (including,   without
limitation,  any  "employee  benefit  plan",  as defined in section  3(3) of the
Employee  Retirement Income Security Act of 1974, as amended ("ERISA")) and each
other plan or program maintained,  sponsored or contributed to by the Company or
any  Company  Subsidiary,  or with  respect to which the  Company or any Company
Subsidiary  could incur liability  under section 4069,  4212(c) or 4204 of ERISA
(the  "Benefit  Plans").  With  respect  to the  Benefits  Plans,  to the extent
applicable,  the Company and the Company  Subsidiaries  have made  available  to
Parent a true and complete copy of (i) the most recent annual report (Form 5500)
filed with the Internal  Revenue  Service (the "IRS") or the U.S.  Department of
Labor  ("DOL"),  (ii) such Benefit  Plan  document,  (iii) each trust  agreement
relating to such Benefit Plan, (iv) the most recent summary plan description for
each Benefit Plan for which a summary plan description is required, (v) the most
recent actuarial report or valuation relating to a Benefit Plan subject to Title
IV of ERISA and (vi) the most recent determination letter issued by the IRS with
respect to any Benefit Plan qualified under section 401(a) of the Code.

                  (b) With respect to the Benefit  Plans,  no event has occurred
and, to the Knowledge of the Company and Company  Subsidiaries,  there exists no
condition or set of  circumstances  in connection  with which the Company or any
Company  Subsidiary  could be subject to any  liability  under the terms of such
Benefit Plans, ERISA, the Code or any other applicable Law.

                  (c)  Except as set forth in  Section  3.17(c)  of the  Company
Disclosure  Schedule,  neither the Company nor any Company Subsidiary is a party
to any collective bargaining or other labor union contract applicable to persons
employed by the Company or any Company  Subsidiary and no collective  bargaining
agreement or other labor union  contract is being  negotiated  by the Company or
any  Company  Subsidiary.  As of the date of this  Agreement,  there is no labor
dispute,  strike or work stoppage against the Company or any Company  Subsidiary
pending  or  threatened  in  writing  which may  interfere  with the  respective
business activities of the Company or any Company Subsidiary.  As of the date of
this Agreement, to the Knowledge of the Company or Company Subsidiaries, none of
the Company, the Company  Subsidiaries,  or their respective  representatives or
employees,  has  committed  any unfair labor  practices in  connection  with the
operation  of  the  respective   businesses  of  the  Company  and  any  Company
Subsidiary.  There is no charge or complaint  against the Company or any Company
Subsidiary by the National  Labor  Relations  Board or any  comparable  state or
foreign agency  pending or threatened in writing or to their  Knowledge any fact
or circumstance  that would reasonably likely serve as the basis for such charge
or complaint.

                  (d) Each of the  Company  and the  Company  Subsidiaries  have
complied with all applicable federal,  state and local laws,  ordinances,  rules
and regulations and requirements relating to the employment of labor, including,
but not limited to, the provisions thereof relative to wages, hours,  collective
bargaining, payment of Social Security,  unemployment and withholding taxes, and
ensuring  equality of opportunity  for employment and  advancement of minorities
and women.  Neither the Company  nor any  Company  Subsidiary  is liable for any
arrears of wages or for any unpaid,  accrued bonuses or benefits or any taxes or
penalties for failure to comply with any of the foregoing.

                  (e) Section 3.17(e) of the Company  Disclosure  Schedule lists
and the Company and the Company  Subsidiaries have made available to Parent true
and  complete  copies  of (i) all  severance,  employment,  and  non-competition
agreements with employees of the Company and the Company Subsidiaries;  (ii) all
severance programs and policies,  whether oral or writing, formal or informal of
the  Company  and the  Company  Subsidiaries  (if any) with or  relating  to its
employees;  (iii) all plans, programs,  agreements and other arrangements of the
Company and the Company  Subsidiaries  with or relating to its  employees  which
contain change of control provisions; and (iv) all employee handbooks,  manuals,
policies,  whether  written or oral,  setting forth the terms and  conditions or
employment  including,  but  not  limited  to,  hiring,  promotion,   transfers,
termination, performance reviews and evaluation.

                  (f)  Except  as  provided  in  Section  3.17  of  the  Company
Disclosure  Schedule or as otherwise  required by Law, no Benefit Plan  provides
retiree medical or retiree life insurance benefits to any person.

                  (g)   The   expected    postretirement   benefit   obligations
(determined  as  of the last day of the  Company and each  Company  Subsidiary's
 most recently  ended  fiscal  year in  accordance with  Financial  Accounting
Standards Board Statement No. 106, without regard to liabilities attributable to
continuation coverage mandated by section 4980B of the Code) of the Company  and
the Company Subsidiaries are not material.

                  (h)  Except as  provided  in Section  3.17(h)  of the  Company
Disclosure Schedule,  the execution and delivery of this Agreement and the other
Transaction  Documents and the  consummation  of the  transactions  contemplated
hereby and thereby  will not  involve,  any  transaction  that is subject to the
prohibitions  of section 406 of ERISA or in connection with which a tax could be
imposed pursuant to section 4975(c)(1)(A)(D) of the Code.

                  SECTION   3.18.   Employees.   Section  3.18  of  the  Company
Disclosure  Schedule  lists the name,  place of  employment,  the current annual
salary rates, bonuses,  deferred or contingent  compensation,  pension,  accrued
vacation,  "golden parachute" and other like benefits currently payable (in cash
or  otherwise),  the date of employment  and a  description  of position and job
function of each current salaried  employee,  officer,  director,  consultant or
agent of the Company or any Company Subsidiary.

                  SECTION  3.19.  Company  Projects.  The  descriptions  of  the
Company  Projects set forth on Section 3.19 of the Company  Disclosure  Schedule
are true and  accurate,  contain no misleading  information  and do not omit any
information the omission of which would be misleading.

                  SECTION 3.20.  Environmental  Matters. (a) All representations
and  warranties  (except in instances  where there would be no Company  Material
Adverse  Effect) made by the Company or any Company  Subsidiary  in the Material
Contracts with respect to Environmental  Claims,  compliance with  Environmental
Laws  and any  other  matter  generally  relating  to any  actual  or  potential
liability  of, or the  production,  handling  and  disposal  by, any Person with
respect to Hazardous Materials, are true and correct;

                  (b) (i) all facilities and property owned,  operated or leased
         by the Company or a Company Subsidiary are owned, operated or leased by
         the  Company  or  a  Company   Subsidiary   in   compliance   with  all
         Environmental  Laws,  except for such violations that, singly or in the
         aggregate,  would not reasonably be expected to have a Company Material
         Adverse Effect;

                           (ii) there are no pending and, to the  Company's  and
         Company  Subsidiaries'  Knowledge,  threatened (x) claims,  complaints,
         notices  or  requests  for  information  received  by the  Company or a
         Company  Subsidiary  with  respect  to  any  alleged  violation  of any
         Environmental  Law which would reasonably be expected to have a Company
         Material Adverse Effect; or (y) claims, complaints, notices or requests
         for  information  received  by  the  Company  or a  Company  Subsidiary
         regarding  potential  liability under any Environmental Law which would
         reasonably be expected to have a Company Material Adverse Effect;

                               (iii)        there have been no releases of
         Hazardous  Materials  in  violation of any Environmental Law or which
         would, singly or  in  the aggregate, reasonably be expected to have  a
         Company Material Adverse Effect;

                               (iv)         the Company and each Company
         Subsidiary  has  been issued and  is  in compliance  with  all Permits
         relating  to environmental matters  and necessary for their businesses,
         except when the failure to have or comply with the foregoing would not,
         singly or in the aggregate, reasonably be  expected to  have a  Company
         Material  Adverse Effect;

                               (v)          except as set forth on  Section 3.20
         of  the  Company  Disclosure Schedule, no property  owned, operated  or
         leased by the Company or any Company Subsidiary is  listed or (to their
         Knowledge) proposed  for  listing  on  the   National Priorities  List
         pursuant to CERCLA, on  the  CERCLIS or  on any similar state  list  of
         sites  requiring  investigation or clean-up;

                               (vi)         neither  the Company nor any Company
         Subsidiary  has transported or arranged for the transportation  of  any
         Hazardous  Material  other  than in  accordance  with  Governmental
         Regulations or, to their Knowledge, to any location  which is listed on
         the  National  Priorities  List pursuant  to CERCLA,  on the CERCLIS or
         on any  similar  state list or which is the subject  of  federal, state
         or  local  enforcement  actions  or other investigations which may lead
         to claims against the Company  or a Company Subsidiary for any remedial
         work,  damage to natural resources or personal injury (including claims
         under CERCLA);

                               (vii)  each   Company   Project  is  exempt  from
         liability under  CERCLA  to the  extent provided  in  Section 42 U.S.C.
         Section 9624 thereof, and  with  respect  to  any  property  now  or
         previously  owned, leased  or  operated by the  Company or  a  Company
         Subsidiary that is not exempt under such statute to the extent provided
         therein, to the Company's or any Company Subsidiary's Knowledge,  there
         are  no  polychlorinated  biphenyls  or friable asbestos present at any
         such properties in violation of Environmental  Law which would,  singly
         or in the  aggregate, reasonably be expected to have a Company Material
         Adverse Effect;

                               (viii)       no conditions exist at, on  or under
         any property now or  previously owned (as of  the  date of  disposition
         thereof),  leased or operated by the  Company or  a Company  Subsidiary
         which, with the passage of time, or the giving of notice or both, would
         give  rise  to liability  under  any  Environmental Law  which  would
         reasonably be expected to have a Company Material Adverse Effect.

                   (c)  If, as  a result  of a change  to the Environmental Laws
     between the date hereof and the Effective  Time any of the  representations
     set forth in Section 3.20(a) and 3.20(b) are no longer accurate, Parent may
     terminate  this  Agreement  without  liability  pursuant  to Section  8.01;
     however,  if the  Merger  is  effectuated,  Parent is not  entitled  to any
     indemnification  for any breach of the representations set forth in Section
     3.20(a)  and  3.20(b) to the extent  such  breach is  attributable  to such
     change of an Environmental Law.

                  (d)  For purposes of this Agreement:


                  "CERCLA"  means  the  Comprehensive   Environmental  Response,
Compensation and Liability Act of 1980, as amended from time to time through the
Effective Time.

                 "CERCLIS"  means  the  Comprehensive   Environmental  Response,
Compensation  and  Liability  Information  System,  as updated from time to time
through the Effective Time.

                  "Environmental  Claims"  means  any  and  all  administrative,
regulatory or judicial actions, suits, demands,  demand letters,  claims, liens,
notices of non-compliance  or violation,  investigations,  proceedings,  consent
orders or consent agreements relating in any way to any Environmental Law or any
Environmental Permit (hereafter "Claims"),  including,  without limitation,  (a)
any and all Claims by Governmental Entities for enforcement,  cleanup,  removal,
response,  remedial  or other  actions or  damages  pursuant  to any  applicable
Environmental  Law and (b) any and all  Claims by any  person  seeking  damages,
contribution,  indemnification, cost recovery, compensation or injunctive relief
resulting from  Hazardous  Materials or arising from alleged injury or threat of
injury to health, safety or the environment.

                  "Environmental  Laws"  means  any  federal,  state,  local  or
foreign  statute,  law,  ordinance,  regulation,  rule,  code or  order  and any
enforceable  judicial or administrative  interpretation  thereof,  including any
judicial  or  administrative  order,  consent  decree or  judgment,  relating to
pollution or protection of the environment or natural  resources,  and any other
Law,  now or hereafter  in effect and as amended,  relating to the  environment,
health,  safety or Hazardous Materials  (including,  without  limitation,  those
relating to the use, handling,  transportation,  treatment,  storage,  disposal,
release or discharge thereof),  including,  without limitation,  the CERCLA; the
Resource  Conservation  and Recovery  Act, 42 U.S.C.  ss.ss.  6901 et seq.;  the
Hazardous Materials Transportation Act, 49 U.S.C. ss.ss. 6901 et seq.; the Clean
Water Act, 33 U.S.C.  ss.ss. 1251 et seq.; the Toxic Substances  Control Act, 15
U.S.C.  ss.ss.  2601 et seq.; the Clean Air Act, 42 U.S.C.  ss.ss. 7401 et seq.;
the Safe Drinking  Water Act, 42 U.S.C.  ss.ss.  300f et seq.; the Atomic Energy
Act, 42 U.S.C.  ss.ss.  2011 et seq.;  the Federal  Insecticide,  Fungicide  and
Rodenticide  Act, 7 U.S.C.  ss.ss.  136 et seq.; and the Federal Food,  Drug and
Cosmetic Act, 21 U.S.C. ss.ss. 301 et seq.

                  "Environmental   Permits"   means   any   permit,    approval,
identification  number,  license  or  other  authorization  required  under  any
applicable Environmental Law.

                  "Hazardous  Materials"  means  (a)  any  petroleum,  petroleum
products,    by-products   or   breakdown   products,   radioactive   materials,
asbestos-containing  materials or polychlorinated biphenyls or (b) any chemical,
material  or  substance  defined  or  regulated  as toxic or  hazardous  or as a
pollutant or contaminant or waste under any applicable Environmental Law.

                  SECTION 3.21.  Material Contracts.  (a) Section 3.21(a) of the
Company Disclosure Schedule lists all of the following obligations, commitments,
agreements, contracts and leases of  the  Company or a  Company Subsidiary  in
effect (collectively, the "Material Contracts"):

                  (i)  any  agreement  or plan  evidencing  rights  to  purchase
         securities  of the Company or any Company  Subsidiary  or any agreement
         among  shareholders  of the Company or among equity  interest owners of
         any Company Subsidiary;

                  (ii)  any  loan  or  other  agreement,   note,   indenture  or
         instrument relating to, or evidencing, indebtedness for borrowed money,
         or  mortgaging,  pledging  or  granting  or creating a lien or security
         interest  or other  encumbrance  on any  property  of the  Company or a
         Company  Subsidiary  or any  agreement  or  instrument  evidencing  any
         guaranty  by  the  Company  or  a  Company  Subsidiary  of  payment  or
         performance by any other party ("Loan Agreements");

                  (iii)  all  commitments   with  customers  and  utility  power
         purchasers  involving a dollar amount in excess of $150,000  ("Customer
         Contracts");

                  (iv) any  contract  involving  a dollar  amount  in  excess of
         $150,000 for the furnishing or purchase of machinery, equipment, goods,
         fuel or services  (including,  without  limitation,  any agreement with
         processors and subcontractors);

                  (v) any  agreement,  license or lease relating to real estate,
         licensing,  gas rights or mineral  rights  involving a dollar amount in
         excess of $150,000;

                  (vi) any  joint  venture,  partnership  or  limited  liability
         company contract or arrangement or other agreement  involving a sharing
         of profits or expenses;

                  (vii) any agreement limiting the freedom of the Company or any
         Company  Subsidiary  to  compete  in any  line  of  business  or in any
         geographic area or with any party;

                  (viii) any agreement  providing for disposition of any line of
         business,   assets  or   securities  of  the  Company  or  any  Company
         Subsidiary,  or any agreement  with respect to the  acquisition  of any
         line of  business,  assets or shares  of any  other  business,  and any
         agreement of merger or  consolidation  or letter of intent with respect
         to the foregoing;

                  (ix) any agreement  relating to any Company  Project listed in
         Section 3.19 of the Company Disclosure Schedule with a dollar amount in
         excess of $150,000;

                  (x) all  contracts  and  agreements  that  contain (A) clauses
         prohibiting,  or requiring  the giving of notice to, or the consent of,
         any other  person in the event of, a merger with or into the Company or
         a change in control over the Company, or (B) clauses that deem any such
         occurrence  to be a default  (or an event that with the passage of time
         or the giving of notice  may  constitute  a  default)  or an event that
         gives any other person the right to  terminate or modify such  contract
         or agreement;

                  (xi) the YESCO  Agreement  when  executed and delivered by all
         parties thereto on terms and conditions reasonably acceptable to Parent
         and CES, such consent not to be unreasonably withheld or delayed; and

                  (xii) the  Cinergy  Gasco  Purchase  and Sale  Agreement  when
         executed and delivered by all parties thereto; and

                           (xiii)  the ABB Loan  Agreement,  when  executed  and
         delivered by all parties thereto on terms and conditions  acceptable to
         Parent  and  CES,  such  consent  not to be  unreasonably  withheld  or
         delayed.

                  (b)  Except as set forth on  Section  3.21(b)  of the  Company
Disclosure Schedule, (i) the Company and each Company Subsidiary has complied in
all material  respects with,  and the Company and that the Company  Subsidiaries
are not in default under any of the Material Contracts, (ii) neither the Company
nor any  Company  Subsidiary  has  granted,  nor been  granted,  any  waiver  or
forbearance with respect to any Material Contract,  (iii) the Material Contracts
are valid and are in full  force and  effect as to the  Company  or any  Company
Subsidiary, as applicable, and, to the Knowledge of the Company, as to the other
parties  thereto as of the date hereof,  and (iv) except as otherwise  noted and
reserved against in the Financial  Statements,  none of such Material  Contracts
would  reasonably be expected to result in the successful  assertion or claim of
any  liability  against the Company or any Company  Subsidiary in excess of that
anticipated  by the  Material  Contract.  Neither  the  Company  nor any Company
Subsidiary has received a notice of default under any Material Contract,  and no
event has occurred or, to the Company's and any Company Subsidiary's  Knowledge,
would  reasonably  be expected to occur which (after notice and lapse of time or
both) would become a breach or default  under any Material  Contract,  or permit
modification, cancellation, acceleration or termination of any Material Contract
(other  than  termination  solely  as the  result  of the  expiration,  absent a
default, of the term of the Material Contract).

                  (c) True copies of all such Material Contracts,  including any
amendments thereto and modifications thereof, have been delivered to Parent.

                  (d) Section  3.21(d) of the Company  Disclosure  Schedule sets
forth  a list of each  proposal  made in  connection  with  the  conduct  of the
Business  by the  Company  and the  Company  Subsidiaries  pursuant  to  written
requests for proposals or otherwise  which neither has resulted in the execution
of a Material  Contract as of the date hereof nor has been rejected by the party
or parties to whom the proposal  was  delivered  (provided if such  proposal was
accepted such  resulting  contract  would  constitute a Material  Contract) (the
"Company  Outstanding  Proposals").   To  the  Knowledge  of  the  Company,  all
Outstanding  Proposals  were  made in  accordance  with  applicable  Law and the
directions of any written  request for proposal,  if applicable.  A copy of each
Outstanding   Proposal   has  been   delivered   by  the   Company   to  Parent.
Notwithstanding anything herein to the contrary,  except as set forth in Section
3.22 hereof no third party (other than the Company or the Surviving Corporation)
shall be entitled to any fee, commission, expense or other amount arising out of
the  acceptance  of any  Outstanding  Proposal  and/or the  consummation  of the
transaction(s) contemplated thereby. The Company's obligation to make disclosure
under this Section 3.21(d) is subject to any confidentiality agreements relating
to any  Company  Outstanding  Proposals,  provided  that the  Company  shall use
commercially  reasonable  efforts  to obtain  any  consent  necessary  to permit
disclosure under this Section 3.21(d).

                  (e) The Company and the Company  Subsidiaries  are not a party
to any contract, commitment or agreement (including the Material Contracts), and
none of their  properties  and assets is subject to or bound or  affected by any
charter, by-law or other corporate restriction,  or any order, judgment, decree,
law, statute,  ordinance,  rule, regulation,  Permit or other restriction of any
kind or  character,  which would (i) prevent the Company from entering into this
Agreement and other  agreements  contemplated  hereby or from  consummating  the
transactions  contemplated  hereby and thereby,  or (ii) have a Company Material
Adverse Effect.

                  (f)  Except as set forth in  Section  3.21(a)  of the  Company
Disclosure  Schedule,  neither the Company  nor any Company  Subsidiary  has any
obligation  for money  borrowed  or under any  guarantee  nor any  agreement  or
arrangement to borrow money or to enter into any such guarantee.

                  SECTION  3.22.  Brokers.  Except as set forth in the Agreement
between the Company and Ewing Monroe Bemis & Co.  annexed  hereto as Annex 4, no
broker,  finder, or investment banker is entitled to any brokerage,  finder's or
other fee or commission in  connection  with the Merger based upon  arrangements
made by or on behalf of the Company.

                  SECTION   3.23.   Insurance.   Section  3.23  of  the  Company
Disclosure  Schedule  sets  forth  the  carrier,  coverage  and  limits  of each
insurance policy in effect relating to the Company, or any Company Subsidiary or
any Benefit Plan which coverage  reflects all insurance which is required by Law
to be  maintained  by the  Company  and the  Company  Subsidiaries.  All of such
policies,  agreements and arrangements are in full force and effect, neither the
Company nor any Company  Subsidiary  is  delinquent  with respect to any premium
payments thereon,  no notice of cancellation has been received,  and there is no
existing  default or event which,  with the giving of notice or lapse of time or
both,  would  constitute  a default  thereunder.  The  Company  and the  Company
Subsidiaries  maintain  the type and amount of  insurance  which is  adequate to
protect them and their  financial  condition  against the risks  involved in the
conduct  of  their  businesses.  Except  as set  forth  in  Section  3.23 of the
Disclosure  Schedule,  neither  Company  nor  any  Company  Subsidiary  has  any
performance  bonds  or  letters  of  credit  which  are  required  by law or any
agreement,  contract or  commitment,  including  the Material  Contracts,  to be
maintained or entered into by the Company or the Company  Subsidiaries.  None of
the policies may be terminated or invalidated as a result of consummation of the
Merger  or  require  the  consent  of any  third  party to  remain  effect  upon
consummation of the Merger.

                  SECTION 3.24. Related Party Transactions.  Section 3.24 of the
Company  Disclosure  Schedule  sets  forth  the  amounts  and  certain  terms of
indebtedness  or other  obligations,  Liabilities or  commitments  arising on or
after September 30, 1998 (contingent or otherwise) of the Company or any Company
Subsidiary  to or from any  present  or former  officer,  director,  partner  or
shareholder or any person related to, controlling, controlled by or under common
control with any of the foregoing (other than for employment  services performed
within  the past  month the  payment  for  which is not yet due),  and all other
transactions  between  such  persons and the Company or any Company  Subsidiary.
Without limiting the generality of the foregoing, except as set forth on Section
3.24 of the Company Disclosure Schedule,  as of the date hereof, there is (i) no
indebtedness  outstanding  from the  Company or any  Company  Subsidiary  to any
present or former shareholder,  officer,  director, or partner of the Company or
any Company  Subsidiary  and there is no guarantee by the Company or any Company
Subsidiary of the  indebtedness of any present or former  shareholder,  officer,
director or partner of the Company or any Company Subsidiary to any other person
or  entity  and (ii) no  indebtedness  outstanding  from any  present  or former
officer,  director,  shareholder  or  partner  of the  Company  or  any  Company
Subsidiary to the Company or any Company Subsidiary and there is no guarantee by
any present or former officer,  director,  shareholder or partner of the Company
or any  Company  Subsidiary  of the  indebtedness  of the Company or any Company
Subsidiary.

                  SECTION 3.25. Vote Required.  The affirmative  vote of (i) the
holders of a majority of the  outstanding  shares of Company  Common Stock,  and
(ii) the  holders  of a majority  of the  outstanding  shares of each  series of
Company  Preferred  Stock,  are the only  votes of the  holders  of any class or
series of capital stock of the Company necessary to approve the Merger.


                  SECTION 3.26. Tax Credits. Each Company Project is a Qualified
Project.  Each Project  included in the YESCO  Transaction  shall be a Qualified
Project after giving effect to the consummation of such YESCO  Transaction.  The
Company's  representations  and  warranties  contained  in  Section  3.21 of the
Purchase and Sale Agreement  (the  "Purchase  Agreement") by and between AJG and
the  Company  dated as of  December  30,  1999 are  deemed  to be  restated  and
incorporated  herein as if fully set forth here and were true and  correct as of
the Effective Date (as defined in the Purchase Agreement),  are true and current
as of the date hereof and will be true and correct as of the Effective Date. The
consummation  of the Merger will not adversely  affect the status of any Company
Project or YESCO Project as a Qualified  Project or otherwise  adversely  affect
the  availability  of tax credits  under  Section 29 of the Code with respect to
such Projects assuming that USE or Cinergy Corp. or any of its Affiliates (other
than Parent and its subsidiaries) (collectively,  the "Cinergy Entities") do not
take any action which would cause the Seller and Purchaser of any qualified fuel
respecting any Project to be treated as a "related  persons" under Section 29 of
the Code.


                  SECTION 3.27.     Illinois Subsidy Program.

         (a) Each of the  Illinois  Projects  (as  defined in the Note  Purchase
Agreement)  is  qualified  for and is in  material  compliance  with  all  legal
requirements  respecting the benefits of Section 8-403.1 of the Illinois Revised
Statutes and the regulations thereunder (the "Illinois Retail Rate Law") and has
made all filings required thereby.

         (b) Upon the  consummation of the  transactions  described in the Yesco
Agreement, each of the YESCO Illinois Projects (as defined in the AJG Agreement)
will be  qualified  for and will be in  material  compliance  with the  Illinois
Retail Rate Law and will have made all filings required thereby.

         (c) The  amounts  currently  on deposit  in the  Illinois  Account  (as
defined in the Note  Purchase  Agreement)  established  pursuant to that certain
Indenture  of Trust and Security  Agreement  dated as of November 30, 1999 among
the Issuers named  therein and The Chase  Manhattan  Bank,  as Trustee,  for the
benefit of, inter alia,  John Hancock Life  Insurance  Company  ("Hancock")  are
reasonably  expected  to  be  sufficient,  after  giving  effect  to  reasonably
projected earnings thereon, to fund the Illinois  Reimbursement  Obligations (as
defined in the Note Purchase  Agreement)  that have accrued  through the Date of
this Agreement. The Illinois Reimbursement Obligations accrued through September
30, 2000 does not exceed approximately $8,122,000, subject to final verification
by the utilities.

         (d) Provided that (i) no Cinergy Entity  directly or indirectly owns in
the aggregate  more than 50% of the economic or voting  interests in the Company
as a result of the Merger,  and (ii) USE does not own more than 9  megawatts  of
electrical  generating  capacity  at  projects  located  outside of the State of
Illinois,  and (iii) the  transactions  contemplated  by the YESCO Agreement are
consummated  prior to the Effective  Time or, if they are not, AJG shall not, at
or prior to the Effective  Time,  have disposed of any of the interests owned by
AJG in the Illinois  Projects on the date of this Agreement,  and (iv) notice is
given as required by the orders  governing  the rights of the Illinois  Projects
and the YESCO  Illinois  Projects  under the Illinois  Retail Rate Law, then the
Company has no reason to believe that any rights to receive  benefits  under the
Illinois Retail Rate Law now held by the Illinois Projects or the YESCO Illinois
Projects may be terminated or invalidated by the  consummation  of the Merger by
itself.

                  SECTION 3.28. Hancock Payment Condition.  On each Amortization
Date (as defined in the Note Purchase  Agreement) prior to the date hereof,  all
conditions  set  forth  in  the  Indenture  of  Trust  and  Security  Agreement,
including,  without  limitation,  conditions set forth in Section  3.03(b)(viii)
thereof (and any successor provisions thereto) for the payment of amounts in the
Revenue Account (as defined in the Indenture of Trust and Security Agreement) to
the Company and  Company  Subsidiaries  have been  satisfied.  To the  Company's
knowledge no conditions  exist which would  reasonably be expected to cause such
conditions not to be satisfied on any  Amortization  Date  occurring  within the
Surviving Corporation's first full quarter after the Effective Date.

                  SECTION 3.29.  Status under Certain  Statutes.  Except for the
Company Projects set forth in Section 3.29 of the Company  Disclosure  Schedule,
(i) the Company or the respective Company Subsidiary has duly  self-certified or
obtained  certification from the Federal Energy Regulatory  Commission  ("FERC")
that each  Company  Project is a qualifying  facility  within the meaning of the
Public Utility Regulatory  Policies Act of 1978 ("PURPA") and 18 C.F.R. Part 292
("Qualifying  Facility"),  (ii) each  currently  operating  Company  Project  as
constructed and operated in accordance with the applicable Material Contracts is
a  Qualifying  Facility,  (iii) each Company  Project  that is  currently  under
construction  will,  when  constructed  and  operated  in  accordance  with  the
applicable Material Contracts,  be a Qualifying Facility,  (iv) the ownership of
the equity interests in each Company Project satisfy the ownership  criteria set
forth in 18 C.F.R.  Section  292.206,  and no  equity  interest  in any  Company
Project is held by an electric  utility or utilities  or by an electric  utility
holding  company or companies or any  combination  thereof,  and (v) neither the
Company nor any Company  Subsidiary or Company Project is engaged in the sale of
any gas or electricity to retail or end-user  customers.  Except as set forth in
Section 3.29 of the Company Disclosure Schedule, neither Company nor any Company
Subsidiary is (a) an "electric  utility  company",  a "gas utility  company",  a
"holding  company",  a  "subsidiary  company" of a "holding  company" or "public
utility  company",  or an "affiliate" of a "holding  company" or "public utility
company" as such terms are defined by the Public Utility  Holding Company Act of
1935  ("PUHCA"),  (b) subject to the Federal Power Act ("FPA") (other than those
sections referred to in 16 U.S.C.  Sections 799-803,  808, 813, 824a-3(e),  824d
and 18 C.F.R. Section 292.601(c)) or the Natural Gas Act ("NGA"), or (c) subject
to  regulation  as a  "public  utility",  a  "local  distribution  company",  an
"electrical load serving entity" or a similar entity under the laws of any state
in which any Company Project is organized or located.

                                   ARTICLE IV

                        REPRESENTATIONS AND WARRANTIES OF
                              PARENT AND MERGER SUB

                  Except  as  set  forth  in  the  Parent  Disclosure   Schedule
delivered by Parent and Merger Sub to the Company prior to the execution of this
Agreement  (the  "Parent  Disclosure  Schedule"),  Parent  and Merger Sub hereby
jointly and severally represent and warrant to the Company that:

                  SECTION 4.01. Organization;  Business and Qualification.  Each
of Parent and Merger Sub is a corporation  duly organized,  validly existing and
in good  standing  under the laws of Delaware  and each is duly  qualified  as a
foreign  corporation  and  in  good  standing  under  the  laws  of  each  other
jurisdiction in which (i) it owns properties or (ii) the conduct of its business
requires such qualification, other than those jurisdictions where the failure to
be so qualified or in good standing would not, individually or in the aggregate,
reasonably be expected to have a Parent Material Adverse Effect. For purposes of
this Agreement,  "Parent  Material Adverse Effect" means any change in or effect
on the business of Parent,  Merger Sub or any Parent  Subsidiary  that is, or is
reasonably likely to be, materially adverse to the assets (including  intangible
assets),   liabilities  (contingent  or  otherwise),   condition  (financial  or
otherwise)  or  results  of  operations  of  Parent,  Merger  Sub and the Parent
Subsidiaries  taken as a whole. Each jurisdiction in which the Parent and Merger
Sub is required  to be  qualified  and in good  standing is set forth in Section
4.01 of the Parent Disclosure Schedule.

                  SECTION 4.02. Certificate of Incorporation and By-Laws. Parent
and Merger Sub have  heretofore  furnished to the Company a complete and correct
copy of (i) Parent and Merger Sub's Certificates of Incorporation, as amended to
date,  certified by the  Secretary  of State of the State of Delaware,  and (ii)
Parent and Merger Sub's By-Laws, as amended to date,  certified by the Secretary
or an Assistant  Secretary of Parent and Merger Sub, as  applicable.  Parent and
Merger Sub's  Certificates  of  Incorporation  and By-Laws are in full force and
effect,  and  neither  Parent  nor  Merger  Sub  is in  violation  of any of the
provisions thereof.

                  SECTION 4.03.  Parent  Capital  Structure.  (a) The authorized
capital stock of Parent consists of 50,000,000 shares of Parent Common Stock and
10,000,000  shares of preferred  stock, of which 1,138,888 shares are designated
Series A Preferred Stock and 875 shares are designated  Series B Preferred Stock
(the Series A Preferred Stock and the Series B Preferred Stock being referred to
collectively as the "Authorized Parent Preferred Stock").  As of the date hereof
or such other time specified herein, (i) 7,681,709 shares of Parent Common Stock
are issued and  outstanding  (ii) 1,138,888  shares of Parent Series A Preferred
Stock are issued and  outstanding,  (iii) 398 as of October  31,  2000 shares of
Parent  Series B  Preferred  Stock are issued and  outstanding,  (iv)  3,114,350
warrants  to purchase  3,114,350  shares of Parent  Common  Stock are issued and
outstanding,  (v) 7,600 as of October 31, 2000 shares of Parent Common Stock are
held in the treasury of Parent or by the Parent  Subsidiaries,  (vi) 0 shares of
Authorized  Parent  Preferred Stock are held in the treasury of Parent or by the
Parent  Subsidiaries,  and (vii)  7,228,675  shares of Parent Common Stock and 0
shares of  Authorized  Parent  Preferred  Stock are reserved  for issuance  upon
exercise of (A) current stock options ("Parent Options") granted pursuant to the
2000  Executive  Incentive  Compensation  Plan,  the  1998  Executive  Incentive
Compensation  Plan,  the 1997 Stock  Option Plan and the 1996 Stock  Option Plan
("Parent  Stock Option  Plans") and otherwise or (B) 6,282,500  shares of Parent
Common Stock and 0 shares of Authorized  Parent Preferred Stock are reserved for
issuance upon  exercise of future  grants of stock options and warrants.  Except
for Parent  Options  granted  pursuant to the Parent  Stock  Option  Plans,  the
Cinergy  Subscription  Agreement  or  pursuant  to  agreements  or  arrangements
described in Section 4.03(a) of the Parent Disclosure  Schedule,  as of the date
hereof there are no options, warrants or other rights, agreements,  arrangements
or commitments of any character to which Parent is a party or by which Parent is
bound  relating to the issued or unissued  capital stock of Parent or any Parent
Subsidiary  or obligating  Parent or any Parent  Subsidiary to issue or sell any
shares of capital  stock of, or other equity  interests in, Parent or any Parent
Subsidiary. All shares of Parent Common Stock and Parent Preferred Stock subject
to issuance as aforesaid, upon issuance prior to the Effective Time on the terms
and conditions specified in the instruments pursuant to which they are issuable,
will be duly  authorized,  validly  issued,  fully paid and  nonassessable.  The
shares  of  Parent  Common  Stock  and  Parent  Preferred  Stock to be issued in
connection  with the Merger,  when issued as contemplated  herein,  will be duly
authorized,  validly issued, fully paid and nonassessable and will not be issued
in violation of any preemptive rights. Except as set forth in Section 4.03(a) of
the Parent  Disclosure  Schedule and the  Transaction  Documents  there,  are no
outstanding  contractual  obligations  of Parent  or any  Parent  Subsidiary  to
repurchase,  redeem or  otherwise  acquire  any shares of Parent  Common  Stock,
Authorized  Preferred Stock or any capital stock of any Parent Subsidiary.  Each
outstanding  share of capital stock of Parent and each Parent Subsidiary is duly
authorized,  validly issued,  fully paid and nonassessable and was not issued in
violation of any preemptive rights and each such share of the capital stock of a
Parent Subsidiary owned by Parent or another Parent Subsidiary is free and clear
of all security interests,  liens,  claims,  pledges,  options,  rights of first
refusal,  agreements,  limitations on Parent's or such other Parent Subsidiary's
voting rights,  charges and other encumbrances of any nature whatsoever,  except
where  failure to own such shares free and clear would not,  individually  or in
the aggregate,  have a Parent Material  Adverse  Effect.  Except as set forth in
Section  4.03(b)  of the  Parent  Disclosure  Schedule,  there  are no  material
outstanding  contractual  obligations  of Parent  or any  Parent  Subsidiary  to
provide  funds  to,  or make  any  investment  (in the  form of a loan,  capital
contribution or otherwise) in, any Parent Subsidiary or any other Person,  other
than guarantees by Company of any indebtedness of any Parent Subsidiary.

                  (b) Except as set forth in this  Section  4.03 or as  reserved
for future grants of options and warrants under Parent Stock Option Plans, there
are no equity  securities  of any class of  Parent or Merger  Sub or any  Parent
Subsidiary,  or any security  exchangeable  into or exercisable  for such equity
securities,   issued,  reserved  for  issuance  or  outstanding  phantom  equity
respecting  the Parent,  Merger Sub or any Parent  Subsidiary,  and there are no
options,  warrants,  equity  securities,  calls, puts by other parties,  rights,
commitments  or agreements of any character to which Parent or Merger Sub or any
Parent  Subsidiary is a party or by which such entity is bound  (including under
letters of intent,  whether binding or nonbinding)  obligating  Parent or Merger
Sub 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
of Parent or Merger Sub or any Parent  Subsidiary or obligating Parent or Merger
Sub or any Parent  Subsidiary  to grant,  extend,  accelerate  the  vesting  of,
otherwise  modify  or amend or enter  into  any  such  option,  warrant,  equity
security,  call, puts,  right,  commitment or agreement.  Except as set forth on
Section 4.03(b) of the Parent Disclosure  Schedule,  the Voting  Agreement,  the
Pledge Agreement and the Cinergy Stock Purchase Agreement],  to the Knowledge of
Parent  or Merger  Sub,  there are no voting  trusts,  proxies  or other  voting
agreements,  limitations or understandings with respect to the shares of capital
stock  or  other  equity  interests  of  Parent  or  Merger  Sub or  any  Parent
Subsidiary.

                  SECTION  4.04.  Power and  Authorization.  Each of Parent  and
Merger Sub and each Parent Subsidiary has the respective corporate,  partnership
or limited liability company power and authority, as applicable, to own, license
or lease the properties  and assets it purports to own,  license or lease and to
conduct its business as now conducted.  The execution,  delivery and performance
by Parent and Merger Sub of this Agreement and any exhibit,  schedule,  annex or
ancillary document hereto (i) has been duly authorized,  (ii) do not require any
approval  which has not been  obtained  except  where the failure to obtain such
approval  would not  individually  or in the  aggregate  have a Parent  Material
Adverse Effect and do not, and will not,  contravene  any Law,  Parent or Merger
Sub's Certificates of Incorporation or any other corporation document other than
with respect to the federal and state securities laws,  including the Securities
Act, and (iii) do not constitute a default under any indenture,  mortgage,  deed
of trust,  loan,  purchase or credit agreement,  lease or any other agreement or
instrument to which Parent, Merger Sub or any Parent Subsidiary is a party or by
which the Parent,  Merger Sub or any Parent  Subsidiary or any of its properties
of the Parent, Merger Sub or any Parent Subsidiary may be bound or affected. The
Agreement has been duly executed and  constitutes,  and upon execution each such
exhibit,  schedule,  annex or  ancillary  document to be executed by the Company
will  constitute  valid  obligation,  legally binding upon it and enforceable in
accordance  with its terms,  except as enforcement  may be limited by applicable
bankruptcy,  insolvency,  reorganization  and  moratorium  laws or by  equitable
principles  relating to or limiting  creditors' rights generally.  Except as set
forth in Section  4.04 of the  Parent  Disclosure  Schedule  and other than with
respect to the federal and state securities laws,  including the Securities Act,
no consent of any other  Person and no  consent,  permit,  license,  approval or
authorization of, or giving notice to, filing, registration or declaration with,
any  Governmental  Entity is required in connection with Parent and Merger Sub's
execution,  delivery or performance  of, or the validity or  enforceability  of,
this Agreement or any such ancillary document.

                  SECTION 4.05.  Organization and Ownership of Shares of
Subsidiaries; Affiliates.

                  (a) Section 4.05(a) of the Parent Disclosure Schedule contains
(except as noted  therein)  complete  and correct  lists of each  subsidiary  of
Parent and Merger Sub (each, a "Parent Subsidiary"),  showing, as to each Parent
Subsidiary, the correct name thereof, the jurisdiction of its organization,  the
status,  and the  percentage  of shares of each  class of its  capital  stock or
similar  equity  interests  outstanding  owned by Parent and Merger Sub and each
other Parent Subsidiary.

                  (b) All of the outstanding  shares of capital stock or similar
equity  interests  of each  Parent  Subsidiary  shown in Section  4.05(b) of the
Parent  Disclosure  Schedule  as being  owned by Parent  and  Merger Sub and the
Parent Subsidiaries, as applicable, have been validly issued, are fully paid and
nonassessable  and are  owned by the  applicable  Parent,  Merger  Sub or Parent
Subsidiary  free and clear of all  security,  liens,  claims,  pledges,  options
rights of first refusal,  agreements,  limitations on Parent's,  Merger Sub's or
such other Parent Subsidiary's voting rights,  charges and other encumbrances of
any nature  whatsoever,  except where  failure to own such shares free and clear
would not,  individually  or in the aggregate,  have a Parent  Material  Adverse
Effect.  Except  as set  forth  in  Section  4.05(b)  of the  Parent  Disclosure
Schedule,  there are no material outstanding  contractual obligations of Parent,
Merger Sub or any Parent  Subsidiary to provide funds to, or make any investment
(in the form of a loan,  capital  contribution  or  otherwise)  in,  any  Parent
Subsidiary  or  any  other  Person,  other  than  guarantees  by  Parent  of any
indebtedness  of any Parent  Subsidiary  identified  in  Section  4.19(a) of the
Parent Disclosure Schedule.

                  (c) Each Parent  Subsidiary  identified in Section 4.05 of the
Parent  Disclosure  Schedule  is  a  corporation  or  other  legal  entity  duly
organized,  validly  existing  and  in  good  standing  under  the  laws  of its
jurisdiction of organization,  and is duly qualified as a foreign corporation or
other legal entity and is in good  standing in each  jurisdiction  in which such
qualification is required by law, other than those jurisdictions as to which the
failure to be so qualified or in good standing would not, individually or in the
aggregate, reasonably be expected to have a Parent Material Adverse Effect. Each
such Parent  Subsidiary has the corporate or other entity power and authority to
own or hold under  lease the  properties  it purports to own or hold under lease
and to transact the business it transacts and proposes to transact.

                  SECTION 4.06. Compliance with Laws. Section 4.06 of the Parent
Disclosure  Schedule lists all Governmental  Orders,  if any,  applicable to the
Parent,  Merger Sub or any Parent  Subsidiary  and each notice of a violation of
Law applicable to the Parent,  Merger Sub or any Parent  Subsidiary issued since
September 1, 1997. To the Parent's Knowledge, neither the Parent, Merger Sub nor
any  Parent  Subsidiary  is under a  pending  investigation  with  respect  to a
violation of Law or Governmental  Order. The Parent has disclosed all violations
by the Parent,  Merger Sub and the Parent  Subsidiaries of Laws and Governmental
Orders  applicable to the Parent,  Merger Sub or a Parent Subsidiary which would
reasonably  be  expected,  individually  or in the  aggregate,  to have a Parent
Material Effect and no condition  exists which would give rise to a violation by
the  Parent,  Merger Sub or any  Parent  Subsidiary  of any Law or  Governmental
Order, in either case which would reasonably be expected, individually or in the
aggregate, to have a Parent Material Effect.

                  SECTION 4.07.  Permits.  Section 4.07 of the Parent Disclosure
Schedule   lists  all   health  and   safety   and  other   permits,   licenses,
authorizations,  certificates, exemptions and approvals of Governmental Entities
(collectively,  the "Parent Permits") necessary or proper for the conduct of the
business  of Parent and Merger Sub.  Except as set forth on Section  4.07 of the
Parent  Disclosure  Schedule,  each of such Parent  Permits is in full force and
effect, is final, and, based on current regulations, is not subject to appeal or
judicial,  governmental or other review. Parent and Merger Sub have no reason to
believe  that any of the Parent  Permits  listed in  Section  4.07 of the Parent
Disclosure Schedule, which Parent and Merger Sub have applied or will apply for,
will not be obtained in the normal course of business and without any conditions
or  limitations  that  would  reasonably  be  expected,  individually  or in the
aggregate, to have a Parent Material Adverse Effect.

                  SECTION 4.08.  Litigation; No Default.

                  (a)  Except  as set  forth  in  Section  4.08  of  the  Parent
Disclosure  Schedule,  there  is  no  judgment,  action,  investigation,  claim,
complaint, notice of violation,  injunction,  order, decree, directive,  action,
suit,  arbitration or proceeding or labor dispute  pending or threatened  either
pursuant to written  notification  or to the Knowledge of Parent,  Merger Sub or
Parent  Subsidiary  in  any  court  or  before  or by any  Governmental  Entity,
arbitrator,  board or authority against or affecting Parent or Merger Sub or any
Parent Subsidiary; and

                  (b)  Except  as set  forth  in  Section  4.08  of  the  Parent
Disclosure Schedule,  neither Parent nor Merger Sub nor any Parent Subsidiary is
in default  or has  Knowledge  of any event  that,  with the  passage of time or
giving  notice,  may  constitute  a default  under any  agreement,  bond,  note,
indenture,   mortgage,  loan  agreement,  order  or  judgment  or  any  material
ordinance,  resolution or decree to which it is a party or by which it is bound,
or any other agreement or other  instrument by which it or any of the properties
or assets owned by it or used in the conduct of its business is affected, except
where such default or event would not, individually or in the aggregate,  have a
Parent Material Adverse Effect.

                  SECTION  4.09.   Taxes.   Parent,   Merger  Sub,  each  Parent
Subsidiary and each Parent Benefit Plan have filed all United States federal and
state tax returns  and  reports and all other tax returns and reports  with each
appropriate  Governmental  Entity in all jurisdictions in which such returns and
reports are  required to be filed for all fiscal  years  through the fiscal year
ended January 31, 2000, and such returns and reports  accurately  reflect in all
respects  the taxes,  assessments  and charges of Parent and Merger Sub and each
Parent  Subsidiary for the periods  covered  thereby.  Parent,  Merger Sub, each
Parent Subsidiary and each Parent Benefit Plan have paid all Taxes,  assessments
and other  charges  which have  become  due to any  Governmental  Entity  having
jurisdiction  over  Parent or Merger  Sub or Parent  Subsidiary  or any of their
properties  and no Tax Liens have been  filed and no claims  are being  asserted
against Parent or Merger Sub or a Parent  Subsidiary or any properties of Parent
or Merger Sub or a Parent  Subsidiary or any Parent  Benefit  Plan.  None of the
federal  or state  income  tax  returns  of Parent  and  Merger  Sub or a Parent
Subsidiary  are under  audit.  Except as set forth on Section 4.09 of the Parent
Disclosure Schedule, neither Parent nor Merger Sub nor any Parent Subsidiary has
any Knowledge of any income events or unpaid Taxes, assessments or charges which
may be due  and  payable  against  it or any of its  properties,  or any  Parent
Benefit Plan or any basis for any other Tax or  assessment  attributable  to any
period (or partial  period)  ending on or before the Closing Date.  The charges,
accruals  and  reserves  on the books of Parent and  Merger Sub and each  Parent
Subsidiary  in respect of Federal,  state or other Taxes for all fiscal  periods
(or partial  periods) up to and  including  the Closing Date are adequate in all
material respects.

                  SECTION 4.10.  Assets,  Title;  Liens;  Etc. (a) The assets of
Parent and Merger Sub and each Parent Subsidiary,  including real,  personal and
mixed,  tangible and  intangible,  necessary  or useful to the  operation of its
business (the "Parent  Assets") are in working order,  and suitable for the uses
intended.  The Parent Assets comply with and are operated in conformity with all
applicable Laws, Parent Permits and other requirements  relating thereto adopted
or currently  in effect.  No default or event of default by Parent or Merger Sub
or a Parent Subsidiary  exists, and no event which, with notice or lapse of time
or both,  would  constitute  a  default  by  Parent  or  Merger  Sub or a Parent
Subsidiary, has occurred and is continuing,  under terms or provisions,  express
or implied, of any such lease,  agreement or other instrument or under the terms
or  provisions  of any  agreement to which any of such Parent Assets is subject,
nor has Parent or Merger Sub or a Parent Subsidiary received notice of any claim
of such  default,  except  where such  default  or event of  default  would not,
individually or in the aggregate, have a Parent Material Adverse Effect.

                           (b)      Except as set forth  in Section 4.10(b) of
the Parent Disclosure Schedule, the Parent,  Merger Sub and each of  the  Parent
Subsidiaries has  good  title  to all of  the  Parent Assets  currently  used or
proposed to be used by the Parent, Merger Sub or such  Parent  Subsidiary in the
conduct of its  business  as  currently conducted and  proposed to be conducted,
free  and  clear of any  liens  and encumbrances.

                  SECTION 4.11. Books and Records;  Bank Accounts,  etc. (a) The
books of account and other financial and corporate  records of Parent and Merger
Sub and the Parent  Subsidiaries are complete and accurate and are maintained in
accordance with good business practices.  The minute books of Parent, Merger Sub
and the Parent  Subsidiaries as previously made available to the Company and its
counsel  contain  accurate  records of all meetings and  accurately  reflect all
other  corporate  action  of the  shareholders  and  directors  (and  committees
thereof) of Parent, Merger Sub and the Parent Subsidiaries.

                  (b) Section  4.11(b) of the Parent  Disclosure  Schedule  sets
forth a complete  list of (i) the name and  address  of each bank and  brokerage
firm with which Parent or Merger Sub or any Parent  Subsidiary has any accounts,
safe deposit  boxes,  lock boxes or vaults,  (ii) the account  numbers  relating
thereto,  and  (iii)  the  names of all  persons  authorized  to deal  with such
accounts or to have access to such boxes or vaults.

                  SECTION 4.12.  Powers of Attorney.  No person has any power of
attorney  to act on behalf of Parent,  Merger Sub or any  Parent  Subsidiary  in
connection with any of its properties or business affairs other than such powers
to so act as normally pertain to the officers of such entity.

                  SECTION  4.13.  Conduct  in the  Ordinary  Course;  Absence of
Certain  Changes,  Events and  Conditions.  Since  January 31,  2000,  except as
disclosed  in Section 4.13 of the Parent  Disclosure  Schedule or the Parent SEC
Reports, the business of Parent, Merger Sub and the Parent Subsidiaries has been
conducted  only in (and they have not  engaged  in any  transaction  other  than
according  to) the  ordinary  course  and  consistent  with  past  practice.  As
amplification  and not  limitation  of the  foregoing,  except as  disclosed  in
Section 4.13 of the Parent  Disclosure  Schedule,  since January 31, 2000, there
has not been:

                  (i) any adverse  change in the financial  condition,  business
         condition,  assets or  liabilities  or results of operations of Parent,
         Parent  Subsidiary and Merger Sub or any  development or combination of
         developments of which the Parent, Parent Subsidiaries or the Merger Sub
         have  Knowledge,  individually  or in the  aggregate  which  changes or
         developments  have  had or  are  reasonably  likely  to  have a  Parent
         Material Adverse Effect;

                  (ii) any damage,  destruction or loss in excess of $150,000 in
         the aggregate (whether or not covered by insurance) adversely affecting
         any of the Parent Assets or any damage,  destruction  or loss in excess
         of  $50,000  in the  aggregate  (which  is not  covered  by  insurance)
         adversely affecting any of the Parent Assets;

                  (iii) any  obligation  or liability  undertaken or incurred by
         Parent  or  Merger  Sub or any  Parent  Subsidiary  (whether  absolute,
         accrued,  contingent or otherwise and whether due or to become due), or
         any  transaction,  contract  or  commitment  entered  into by Parent or
         Merger Sub or any Parent Subsidiary in excess of $100,000;

                  (iv) any  payment,  discharge  or  satisfaction  of any claim,
         lien,  encumbrance  or  liability  of Parent,  Merger Sub or any Parent
         Subsidiary outside the ordinary course of business;

                  (v)  any  sale,  transfer,   conveyance,   assignment,  lease,
         license,  pledge,  mortgage  or other  disposition  or  encumbrance  by
         Parent,  Merger Sub or any Parent  Subsidiary  of any assets of Parent,
         Merger  Sub  or  any  Parent  Subsidiary  having  a  value  of  $75,000
         individually  or  $150,000  in the  aggregate,  or more,  except in the
         ordinary  course of business  and  consistent  with past  practices  of
         Parent or Merger Sub;

                  (vi) any modification,  amendment, cancellation,  termination,
         revocation, rescission, or waiver of any rights, pursuant to any Parent
         Material Contract;

                  (vii)  any  change  in the  accounting  methods  or  practices
         followed by Parent or Merger Sub or any Parent Subsidiary or any change
         in the  depreciation  or  amortization  policies  or rates  theretofore
         adopted and applied;

                  (viii) any  increase  in the  compensation  of the  directors,
         officers and employees of Parent,  Merger Sub or any Parent Subsidiary,
         other than any increase pursuant to any bonus, pension,  profit-sharing
         or other plan or  commitment  described  in Section  4.13 of the Parent
         Disclosure Schedule, the formulae or commission rates of which have not
         been amended or changed since January 31, 2000;

                  (ix) declared, paid or set aside for payment by Parent, Merger
         Sub or any Parent  Subsidiary  any  dividend or other  distribution  in
         respect  to  its  capital  stock  or  other  securities,  or  redeemed,
         purchased  or  otherwise  acquired  any of its  capital  stock or other
         securities;

                  (x) issued,  authorized  for  issuance,  nor entered  into any
         commitment to issue by Parent,  Merger Sub or any Parent Subsidiary any
         equity   security,   stock  option,   warrant  or  any  other  security
         convertible or exercisable into an equity security, bond, note or other
         security of Parent, Merger Sub or any Parent Subsidiary;

                  (xi) any extraordinary transaction or payments between (i) any
         of the officers, directors or shareholders of Parent, Merger Sub or any
         Parent  Subsidiary or any affiliate or other related party or entity on
         the one hand and (ii) Parent,  Merger Sub or any Parent  Subsidiary  on
         the other hand;

                  (xii) the termination,  whether  voluntarily or involuntarily,
         of any  management-level  employee  of  Parent,  Merger  Sub or  Parent
         Subsidiary; or

                  (xiii) any agreement or  understanding  entered into by Parent
         or Merger Sub or any Parent Subsidiary whether in writing or otherwise,
         for  Parent,  Merger  Sub or any Parent  Subsidiary  to take any of the
         actions specified in this Section 4.13.

                  SECTION 4.14.  Intellectual Property.  Except in instances
where there would be no Parent Material Adverse Effect:

                  (a)  Parent,  Merger Sub and each  Parent  Subsidiary  owns or
possesses all licenses,  permits,  franchises,  authorizations,  know-how, trade
secrets,  or other  proprietary  rights and technology or rights  thereto,  that
individually  or in the  aggregate  are  material to operate its business as now
conducted and as presently proposed to be conducted,  without any known conflict
with the rights of others;

                  (b)  no  product  of  Parent  or  Merger  Sub  or  any  Parent
Subsidiary  infringes in any material  respect any license,  permit,  franchise,
authorization,  patent, copyright,  service mark, trademark, trade name or other
right owned by any other Person; and

                  (c) there is no material  violation by any Person of any right
of Parent or Merger Sub or any Parent  Subsidiary  with  respect to any  patent,
copyright,  service mark, trademark,  trade name or other right owned or used by
Parent or Merger Sub or such Parent Subsidiary.

                  SECTION 4.15.  Employee  Benefit  Plans;  Labor  Matters.  (a)
Section  4.15(a) of the Parent  Disclosure  Schedule  sets forth a list of every
bonus,  incentive,  deferred or current  compensation,  excess benefits,  profit
sharing,  pension,  thrift,  stock  option,  savings,   retirement,   severance,
sickness, accident, medical, disability, hospitalization, vacation, insurance or
other  plan,  agreement,  or  arrangement,  whether  written or oral,  formal or
informal,  which  provides  benefits  to or for or on  behalf of any one or more
employees  of Parent,  Merger Sub and Parent  Subsidiaries  (including,  without
limitation, any "employee benefit plan", as defined in section 3(3) of ERISA and
each other plan or program maintained,  sponsored,  or contributed to by Parent,
Merger Sub or any Parent  Subsidiary,  or with respect to which Parent or Merger
Sub or any Parent  Subsidiary could incur liability under section 4069,  4212(c)
or 4204 global of ERISA (the "Parent Benefit Plans"). With respect to the Parent
Benefits  Plans,  to the  extent  applicable,  Parent  and  Merger Sub have made
available to the Company a true and complete  copy of (i) the most recent annual
report  (Form 5500) filed with the IRS or DOL,  (ii) such  Parent  Benefit  Plan
document,  (iii) each trust agreement relating to such Parent Benefit Plan, (iv)
the most recent summary plan  description for each Parent Benefit Plan for which
a summary plan description is required,  (v) the most recent actuarial report or
valuation  relating to a Parent  Benefit  Plan  subject to Title IV of ERISA and
(vi) the most recent  determination letter issued by the IRS with respect to any
Parent Benefit Plan qualified under section 401(a) of the Code.

                  (b) With  respect to the Parent  Benefit  Plans,  no event has
occurred and, to the Knowledge of Parent,  Merger Sub and any Parent Subsidiary,
there exists no  condition  or set of  circumstances  in  connection  with which
Parent or Merger Sub or any Parent  Subsidiary could be subject to any liability
under the  terms of such  Parent  Benefit  Plans,  ERISA,  the Code or any other
applicable Law.

                  (c)  Except  as set forth in  Section  4.15(c)  of the  Parent
Disclosure Schedule,  neither Parent nor Merger Sub nor any Parent Subsidiary is
a party to any collective bargaining or other labor union contract applicable to
persons  employed  by Parent  or  Merger  Sub or any  Parent  Subsidiary  and no
collective   bargaining  agreement  or  other  labor  union  contract  is  being
negotiated by Parent or Merger Sub or any Parent  Subsidiary.  As of the date of
this  Agreement,  there is no labor  dispute,  strike or work  stoppage  against
Parent or Merger Sub or any Parent  Subsidiary  pending or threatened in writing
which may interfere with the respective  business activities of Parent or Merger
Sub or any Parent Subsidiary. As of the date of this Agreement, to the Knowledge
of Parent, Merger Sub or Parent Subsidiaries,  none of Parent or Merger Sub, the
Parent  Subsidiaries,  or their  respective  representatives  or employees,  has
committed  any unfair labor  practices in  connection  with the operation of the
respective businesses of Parent and Merger Sub and any Parent Subsidiary.  There
is no charge or complaint  against Parent or Merger Sub or any Parent Subsidiary
by the National Labor Relations Board or any comparable  state or foreign agency
pending or threatened in writing or to their  Knowledge any fact or circumstance
that would reasonably likely serve as the basis for such charge or complaint.

                  (d) Each of Parent and Merger Sub and the Parent  Subsidiaries
have complied with all  applicable  federal,  state and local laws,  ordinances,
rules and  regulations  and  requirements  relating to the  employment of labor,
including,  but not limited to, the provisions thereof relative to wages, hours,
collective bargaining, payment of Social Security,  unemployment and withholding
taxes,  and ensuring  equality of opportunity  for employment and advancement of
minorities and women. Neither Parent nor Merger Sub nor any Parent Subsidiary is
liable for any arrears of wages or any taxes or penalties  for failure to comply
with any of the foregoing.

                  (e) Section  4.15(e) of the Parent  Disclosure  Schedule lists
and Parent,  Merger Sub and the Parent  Subsidiaries  have made available to the
Company  true  and  complete  copies  of  (i)  all  severance,   employment  and
non-competition  agreements  with  employees  of Parent  and  Merger Sub and the
Parent Subsidiaries;  (ii) all severance programs and policies,  whether oral or
in  writing,  formal  or  informal  of  Parent  and  Merger  Sub and the  Parent
Subsidiaries  (if any) with or  relating  to its  employees;  (iii)  all  plans,
programs,  agreements  and other  arrangements  of Parent and Merger Sub and the
Parent  Subsidiaries  with or relating to its employees  which contain change of
control provisions; and (iv) all employee handbooks,  manuals, policies, whether
written or oral, setting forth the terms and conditions of employment including,
but not limited  to,  hiring,  promotion,  transfers,  termination,  performance
reviews and evaluations.

                  (f)  Except as  provided  in  Section  4.15(f)  of the  Parent
Disclosure  Schedule or as  otherwise  required by Law, no Parent  Benefit  Plan
provides retiree medical or retiree life insurance benefits to any person.

                  (g)   The   expected    postretirement   benefit   obligations
(determined as of the last day of the Parent and each Parent  Subsidiary's  most
recently  ended fiscal year in accordance  with Financial  Accounting  Standards
Board  Statement  No.  106,  without  regard  to  liabilities   attributable  to
continuation  coverage  mandated by section 4980B of the Code) of the Parent and
the Parent Subsidiaries are not material.

                  (h)  Except as  provided  in  Section  4.15(h)  of the  Parent
Disclosure Schedule,  the execution and delivery of this Agreement and the other
Transaction  Documents and the  consummation  of the  transactions  contemplated
hereby and  thereby  will not  involve  any  transaction  that is subject to the
prohibitions  of section 406 of ERISA or in connection with which a tax could be
imposed pursuant to section 4975(c)(1)(A)(D) of the Code.

                  SECTION 4.16. Employees. Section 4.16 of the Parent Disclosure
Schedule lists the name,  place of employment,  the current annual salary rates,
bonuses, deferred or contingent compensation, pension, accrued vacation, "golden
parachute" and other like benefits currently payable (in cash or otherwise), the
date of  employment  and a  description  of  position  and job  function of each
current salaried employee, officer, director,  consultant or agent of the Parent
or any Parent Subsidiary whose annual base salary equals or exceeds $100,000.

                  SECTION  4.17.  Parent  Projects.   The  descriptions  of  the
Parent's  Projects set forth on Section 4.17 of the Parent  Disclosure  Schedule
are true and  accurate,  contain no misleading  information  and do not omit any
information the omission of which would be misleading.

                  SECTION 4.18.  Environmental Matters.

                  (a) All  representations  and warranties  (except in instances
where there would be no Parent  Material  Adverse  Effect) made by Parent or any
Parent Subsidiary in the Parent Material Contracts with respect to Environmental
Claims,  compliance  with  Environmental  Laws and any  other  matter  generally
relating to any actual or potential  liability of, or the  production,  handling
and disposal by, any Person with  respect to Hazardous  Materials,  are true and
correct;

                  (b) (i) all facilities and property owned,  operated or leased
by Parent or Merger Sub or a Parent Subsidiary are owned,  operated or leased by
Parent or Merger Sub or a Parent Subsidiary in compliance with all Environmental
Laws,  except for such violations  that,  singly or in the aggregate,  would not
reasonably be expected to have a Parent Material Adverse Effect;

                               (ii)        there are no pending and to Parent's,
         Merger Sub's and Parent Subsidiaries' Knowledge, threatened (x) claims,
         complaints, notices or requests for information received by Parent or a
         Parent  Subsidiary with  respect to  any alleged  violation of  any
         Environmental Law which would reasonably be expected  to have  a Parent
         Material Adverse Effect; or (y) claims, complaints, notices or requests
         for  information  received by Parent or a Parent  Subsidiary  regarding
         potential liability under any  Environmental Law which would reasonably
         be expected to have a Parent Material Adverse Effect;

                               (iii)        there have been no releases of
         Hazardous  Materials in  violation of  any Environmental  Law or  which
         would,  singly or  in the aggregate, reasonably be  expected to  have a
         Parent Material Adverse Effect;

                               (iv)         Parent  and each  Parent  Subsidiary
         has  been issued  and is in compliance  with all  Permits  relating  to
         environmental  matters and necessary for their businesses,  except when
         the  failure to have or comply with the  foregoing  would  not,  singly
         or in the  aggregate, reasonably be expected  to have a Parent Material
         Adverse Effect;

                               (v)          except  as set  forth on  Section
         4.18(b) of the Parent Disclosure Schedule, no property  owned, operated
         or leased  by Parent  or any Parent Subsidiary   is listed or (to their
         Knowledge)  proposed  for  listing on  the National Priorities  List
         pursuant to CERCLA, on  the CERCLIS or  on any  similar state  list  of
         sites requiring investigation or clean-up;

                               (vi)         neither  Parent  nor any  Parent
         Subsidiary has transported or arranged for  the  transportation of  any
         Hazardous  Material  other  than  in accordance  with  Governmental
         Regulations or, to their Knowledge, to any location  which is listed on
         the National  Priorities  List pursuant to CERCLA, on the CERCLIS or on
         any  similar  state list or which is the subject  of federal,  state or
         local  enforcement  actions  or other investigations which  may lead to
         claims  against  Parent or a Parent Subsidiary  for any  remedial work,
         damage to natural  resources or personal injury (including claims under
         CERCLA);

                               (vii)       to Parent and any Parent Subsidiary's
         Knowledge, there are no polychlorinated  biphenyls or friable  asbestos
         present at any property now or  previously  owned,  leased  or operated
         by Parent or a Parent Subsidiary in violation of Environmental  Law  or
         which would, singly or in the aggregate, reasonably be expected to have
         a Parent  Material Adverse Effect;

                               (viii)       no conditions exist  at, on or under
         any property now or  previously owned (as of  the date  of  disposition
         thereof),  leased  or  operated by Parent  or  Merger Sub  or  a Parent
         Subsidiary which, with the passage of time,  or the giving of notice or
         both, would  give rise to  liability under any  Environmental Law which
         would reasonably be expected to have a Parent Material Adverse Effect.

                           (c) If, as a result of a change to the  Environmental
         Laws  between  the  date  hereof  and  the  Effective  Time  any of the
         representations  set forth in Section 4.18(a) and 4.18(b) are no longer
         accurate,  the Company may terminate this Agreement  without  liability
         pursuant to Section 8.01;  however,  if Merger is effectuated,  neither
         the Company nor any Shareholder is entitled to any  indemnification for
         any  breach of the  representations  set forth in Section  4.18(a)  and
         4.18(b) to the extent such breach is  attributable to such change of an
         Environmental Law.

                  SECTION 4.19.  Parent Material Contracts.  (a) Section 4.19(a)
of  the  Parent  Disclosure Schedule lists  all of  the following  obligations,
commitments, agreements, contracts  and  leases of Parent  or Merger  Sub or  a
Parent Subsidiary in effect (collectively, the "Parent Material Contracts"):

                  (i)  any  agreement  or plan  evidencing  rights  to  purchase
         securities  of  Parent,  Merger  Sub or any  Parent  Subsidiary  or any
         agreement  among  shareholders  of Parent or Merger Sub or among equity
         interest owners of any Parent Subsidiary;

                  (ii)  any  loan  or  other  agreement,   note,   indenture  or
         instrument relating to, or evidencing, indebtedness for borrowed money,
         or  mortgaging,  pledging  or  granting  or creating a lien or security
         interest or other  encumbrance  on any property of Parent or Merger Sub
         or a Parent  Subsidiary or any agreement or instrument  evidencing  any
         guaranty by Parent or Merger Sub or a Parent  Subsidiary  of payment or
         performance by any other party ("Parent Loan Agreements");

                  (iii)  all  commitments   with  customers  and  utility  power
         purchasers  involving a dollar  amount in excess of  $150,000  ("Parent
         Customer Contracts");

                  (iv) any  contract  involving  a dollar  amount  in  excess of
         $150,000 for the furnishing or purchase of machinery, equipment, goods,
         fuel or services  (including,  without  limitation,  any agreement with
         processors and subcontractors);

                  (v) any  agreement  license or lease  relating to real estate,
         licensing or geothermal  rights  involving a dollar amount in excess of
         $150,000;

                  (vi) any  joint  venture,  partnership  or  limited  liability
         company contract or arrangement or other agreement  involving a sharing
         of profits or expenses;

                  (vii) any agreement limiting the freedom of Parent, Merger Sub
         or any Parent  Subsidiary  to compete in any line of business or in any
         geographic area or with any party;

                  (viii) any agreement  providing for disposition of any line of
         business,  assets or  securities  of  Parent,  Merger Sub or any Parent
         Subsidiary,  or any agreement  with respect to the  acquisition  of any
         line of  business,  assets or shares  of any  other  business,  and any
         agreement of merger or  consolidation  or letter of intent with respect
         to the foregoing;

                  (ix) all  contracts  and  agreements  that contain (A) clauses
         prohibiting,  or requiring  the giving of notice to, or the consent of,
         any other person in the event of, a merger with or into Merger Sub , or
         (B) clauses that deem any such  occurrence to be a default (or an event
         that with the passage of time or the giving of notice may  constitute a
         default) or an event that gives any other person the right to terminate
         or modify such contract or agreement; and

                  (x) any  agreement  relating to any Parent  Project  listed in
         Section 4.17 of the Parent  Disclosure  Schedule with a dollar value in
         excess of $150,000.

                  (b)  Except  as set forth on  Section  4.19(b)  of the  Parent
Disclosure Schedule,  (i) the Parent,  Merger Sub and each Parent Subsidiary has
complied in all  material  respects  with,  and the Parent,  Merger Sub and each
Parent Subsidiary is not in default under, any of the Parent Material Contracts,
(ii) neither Parent nor Merger Sub nor any Parent  Subsidiary  has granted,  nor
been  granted,  any waiver or  forbearance  with respect to any Parent  Material
Contract,  (iii) the Parent  Material  Contracts are valid and are in full force
and effect as to Parent or Merger Sub or any Parent  Subsidiary,  as  applicable
(and,  to the  Knowledge  of Parent  and  Merger  Sub,  as to the other  parties
thereto) as of the date hereof,  and (iv) except as otherwise noted and reserved
against  in the  Parent  Financial  Statements,  none  of such  Parent  Material
Contracts would reasonably be expected to result in the successful  assertion or
claim of any liability  against Parent or Merger Sub or any Parent Subsidiary in
excess of that anticipated by the Parent Material  Contract.  Neither Parent nor
Merger Sub nor any Parent  Subsidiary has received a notice of default under any
Parent Material Contract,  and no event has occurred or, to Parent, Merger Sub's
and any Parent  Subsidiary's  Knowledge,  would  reasonably be expected to occur
which (after  notice and lapse of time or both) would become a breach or default
under  any  Parent  Material  Contract,  or permit  modification,  cancellation,
acceleration  or  termination  of  any  Parent  Material  Contract  (other  than
termination  solely as the result of the  expiration,  absent a default,  of the
term of the Parent Material Contract).

                  (c)  True  copies  of  all  such  Parent  Material  Contracts,
including any amendments thereto and modifications  thereof, have been delivered
to the Company.

                  (d) Section  4.19(d) of the Parent  Disclosure  Schedule  sets
forth  a list of each  proposal  made in  connection  with  the  conduct  of the
Business by Parent and Merger Sub and any Parent Subsidiary  pursuant to written
requests for proposals or otherwise  which neither has resulted in the execution
of a Parent Material Contract as of the date hereof nor has been rejected by the
party or parties to whom the proposal was  delivered  (provided if such proposal
was  accepted  such  resulting  contract  would  constitute  a  Parent  Material
Contract) (the "Parent Outstanding  Proposals").  To the Knowledge of Parent and
Merger  Sub,  all Parent  Outstanding  Proposals  were made in  accordance  with
applicable  Law and the  directions  of any  written  request for  proposal,  if
applicable.  A copy of each Parent  Outstanding  Proposal has been  delivered by
Parent and Merger Sub to the  Company.  Notwithstanding  anything  herein to the
contrary,  except as provided in Section 3.22 hereof, no third party (other than
Parent or Merger Sub or the Surviving Corporation) shall be entitled to any fee,
commission,  expense or other amount arising out of the acceptance of any Parent
Outstanding Proposal and/or the consummation of the transaction(s)  contemplated
thereby.  Parent and  Merger  Sub's  obligation  to make  disclosure  under this
Section  4.19(d) is subject to any  confidentiality  agreements  relating to any
Parent  Outstanding  Proposals  provided  that  Parent  shall  use  commercially
reasonable  any efforts to obtain any  consent  necessary  to permit  disclosure
under this Section 4.19(d).

                  (e) The Parent, Merger Sub and the Parent Subsidiaries are not
a party to any contract,  commitment or agreement (including the Parent Material
Contracts),  and none of their  properties  and assets is subject to or bound or
affected by any charter,  by-law or other corporate  restriction,  or any order,
judgment, decree, law, statute,  ordinance,  rule, regulation,  Parent Permit or
other  restriction  of any kind or character,  which would (i) prevent Parent or
Merger Sub from entering into this Agreement and other  agreements  contemplated
hereby or from consummating the transactions contemplated hereby and thereby, or
(ii) have a Parent Material Adverse Effect.

                  (f)  Except  as set forth in  Section  4.19(f)  of the  Parent
Disclosure Schedule, neither Parent nor Merger Sub nor any Parent Subsidiary has
any  obligation  for money  borrowed or under any guarantee nor any agreement or
arrangement to borrow money or to enter into any such guarantee.

                  SECTION 4.20. Brokers. No broker, finder, or investment banker
is entitled to any brokerage,  finder's or other fee or commission in connection
with the Merger based upon arrangements made by or on behalf of Parent or Merger
Sub.

                  SECTION 4.21. Insurance. Parent and Merger Sub and each Parent
Subsidiary  is  in  compliance  with  all  requirements  to  maintain  insurance
contained in any Parent Material Contract. All insurance policies held by Parent
or Merger  Sub or any  Parent  Subsidiary  are in full  force and effect and all
premium payments required by such policies are current.

                  SECTION 4.22. Related Party Transactions.  Section 4.22 of the
Parent  Disclosure  Schedule  sets  forth  the  amounts  and  certain  terms  of
indebtedness  or other  obligations,  Liabilities  of the Parent or  commitments
arising on or after September 30, 1998 were  (contingent or otherwise) of Parent
or Merger Sub or any Parent Subsidiary to or from any present or former officer,
director,  partner  or  shareholder  or  any  person  related  to,  controlling,
controlled by or under common control with any of the foregoing  (other than for
employment services performed within the past month the payment for which is not
yet due), and all other  transactions  between such persons and Parent or Merger
Sub or any Parent  Subsidiary  within the last two years.  Without  limiting the
generality of the  foregoing,  except as set forth on Section 4.22 of the Parent
Disclosure  Schedule,  as of the  date  hereof,  there  is  (i) no  indebtedness
outstanding from Parent or Merger Sub or any Parent Subsidiary to any present or
former shareholder,  officer, director or partner of Parent or Merger Sub or any
Parent  Subsidiary  and there is no  guarantee  by  Parent or Merger  Sub or any
Parent  Subsidiary  of the  indebtedness  of any present or former  shareholder,
officer,  director or partner of Parent,  Merger Sub or any Parent Subsidiary to
any other person or entity and (ii) no indebtedness outstanding from any present
or former officer,  director,  shareholder or partner of the Parent, Merger Sub,
or any Parent Subsidiary to the Parent,  Merger Sub or any Parent Subsidiary and
there is no guarantee by any present or former officer, director, shareholder or
partner of the Parent,  Merger Sub or any Parent  Subsidiary of the indebtedness
of the Parent, Merger Sub or any Parent Subsidiary.

                  SECTION 4.23. Vote Required.  The affirmative  vote of (i) the
holders of a majority of the  outstanding  shares of Parent Common Stock and the
Parent's Series A Preferred Stock voting together as a single class and (ii) the
holders  of Merger Sub  Common  Stock are the only  votes of the  holders of any
class or series of capital  stock of Parent and Merger Sub  necessary to approve
the Merger.

                  SECTION 4.24. SEC Filings;  Parent Financial  Statements.  (a)
Parent has made all filings  required to be filed by it under the  Exchange  Act
since  January 31, 1997 through the date of this  Agreement  (collectively,  the
"Parent SEC  Reports").  The Parent SEC Reports  were  prepared in all  material
respects in accordance  with the  requirements  of the Exchange Act. None of the
Parent SEC Reports, as of their respective dates, contained any untrue statement
of a material  fact or omitted to state a material  fact  required  to be stated
therein or necessary in order to make the statements made therein,  in the light
of the circumstances under which they were made, not misleading.  No security of
any Parent Subsidiary is required to be registered  pursuant to Section 12(b) or
12(g) of the Exchange Act. A complete listing of all Parent SEC Reports filed by
Parent on form 10K,  form 10Q, form 8-K or Schedule 14A since January 1, 1997 is
annexed hereto as Section 4.24 of the Parent Disclosure Schedule.

                  (b) Each of the consolidated  financial  statements  including
consolidated  balance  sheets of the Parent and any  Parent  Subsidiary  and the
related statements of income,  shareholders  equity and cash flow for the fiscal
year and fiscal quarter then ended together with notes thereto  contained in the
Parent  SEC  Reports  (the  "Parent  Financial   Statements")  was  prepared  in
accordance  with GAAP  applied on a  consistent  basis  throughout  the  periods
indicated  (except as may be indicated in the notes  thereto) and each presented
fairly the consolidated financial position of Parent and the consolidated Parent
Subsidiaries as at the respective  dates thereof and for the respective  periods
indicated  therein,  except as otherwise noted therein (subject,  in the case of
unaudited statements,  to normal year-end adjustments which were not and are not
expected,  individually or in the aggregate,  to have a Parent Material  Adverse
Effect).

                  (c) No  Undisclosed  Liabilities.  There are no Liabilities of
the Parent or any Parent Subsidiary and there is no existing condition or set of
circumstances  which could reasonably be expected to result in such a Liability,
other than  Liabilities of the Parent and the Parent  Subsidiaries (a) reflected
or reserved  against on the  Financial  Statements or (b) which do not and could
not reasonably be expected to have,  individually or in the aggregate,  a Parent
Material  Adverse  Effect.  Reserves  are  reflected  on  the  Parent  Financial
Statements  against all  Liabilities  of Parent and the Parent  Subsidiaries  in
amounts that have been established on a basis consistent with the past practices
of the Parent and the Parent Subsidiaries and in accordance with GAAP.

                  SECTION 4.25.  Ownership of Merger Sub; No Prior Activities.

                  (a) Merger Sub was formed  solely for the  purpose of engaging
in the transactions contemplated by this Agreement.

                  (b) As of the Effective  Time,  Parent and CSI will own all of
the capital stock of Merger Sub. As of the Effective Time, except for the Merger
Sub  Stockholders  Agreement there will be no options,  warrants or other rights
(including  registration  rights),  agreements,  arrangements  or commitments to
which Merger Sub is a party of any character  relating to the issued or unissued
capital stock of, or other equity interests in, Merger Sub or obligating  Merger
Sub to grant,  issue or sell any shares of the capital stock of, or other equity
interests in, Merger Sub, by sale, lease,  license or otherwise.  Except for the
Merger  Sub  Stockholder  Agreement,  there are no  obligations,  contingent  or
otherwise,  of Merger Sub to repurchase,  redeem or otherwise acquire any shares
of the capital stock of Merger Sub.

                  (c) As of the date hereof and the Effective  Time,  except for
obligations  or liabilities  incurred in connection  with its  incorporation  or
organization and the transactions contemplated by this Agreement, Merger Sub has
not and will not have incurred,  directly or indirectly,  through any subsidiary
or  affiliate,  any  obligations  or  liabilities  or  engaged  in any  business
activities  of any type or kind  whatsoever  or entered into any  agreements  or
arrangements with any person.

                  SECTION 4.26.  Status under Certain  Statutes.  (a) Except for
the  Parent's  Projects  set  forth in  Section  4.26 of the  Parent  Disclosure
Schedule, (i) Parent or the respective Parent Subsidiary has duly self-certified
or obtained certification from the FERC that each Parent Project is a Qualifying
Facility,  (ii) each  currently  operating  Parent  Project as  constructed  and
operated in  accordance  with the  applicable  Parent  Material  Contracts  is a
Qualifying  Facility,  (iii)  there  are  no  Parent  Projects  currently  under
construction  and (iv) the  ownership  of the equity  interests  in each  Parent
Project satisfy the ownership  criteria set forth in 18 C.F.R.  Section 292.206.
Except as set forth in Section 4.26 of the Parent Disclosure  Schedule,  neither
Parent,  Merger  Sub nor  any  Parent  Subsidiary  is (a) an  "electric  utility
company", a "gas utility company", a "holding company" or, to their Knowledge, a
"subsidiary  company" or an  "affiliate" of a "public  utility  company" as such
terms are defined by PUHCA,  (b)  subject to the FPA (other than those  sections
referred to in 16 U.S.C.  Sections  799-803,  808, 813,  824a-3(e),  824d and 18
C.F.R. Section 292.601(c)) or the NGA, or (c) subject to regulation as a "public
utility", a "local distribution company", an "electrical load serving entity" or
a similar  entity  under the laws of any state in which any Parent  Projects  is
organized or located.

                  (b) The Cinergy  Entities will not directly or indirectly  own
in the  aggregate  more  than 50% of the  economic  or voting  interests  in the
Company as a result of the Merger,  and, as of the Effective  Date, USE will not
own more than 9 megawatts of electrical  generating capacity at projects located
outside of the State of Illinois.



                                    ARTICLE V

                                    COVENANTS

                  SECTION 5.01.  Conduct of Business by the Company  Pending the
Closing.  The Company  agrees that,  between the date of this  Agreement and the
Effective Time, except as contemplated by any other provision of this Agreement,
unless Parent shall  otherwise  agree in writing,  which  agreement shall not be
unreasonably  withheld  or  delayed,  (i) the  business  of the  Company and the
Company Subsidiaries shall be conducted only in, and the Company and the Company
Subsidiaries  shall  not take any  action  except  in,  the  ordinary  course of
business  consistent  with  past  practice  and (ii) the  Company  shall use its
reasonable  best efforts to keep  available  the services of such of the current
officers,  significant  employees and consultants of the Company and the Company
Subsidiaries  and to preserve the current  relationships  of the Company and the
Company  Subsidiaries  with such of the  customers,  suppliers and other persons
with which the  Company  or any  Company  Subsidiary  has  significant  business
relations  as the  Company  deems  reasonably  necessary  in order  to  preserve
substantially intact its business organization.  By way of amplification and not
limitation,  except  as set  forth in  Section  5.01 of the  Company  Disclosure
Schedule or as contemplated by any other provision of this Agreement,  the Board
of Directors of the Company  shall not (unless  required by  applicable  Laws or
stock  exchange  regulations)  cause  or  permit  the  Company  or  any  Company
Subsidiary  to,  and  shall  neither  cause  nor  permit  any of  the  Company's
affiliates  (over  which  it  exercises  control),  or  any of  their  officers,
directors,  employees and agents to,  between the date of this Agreement and the
Effective Time, directly or indirectly, do, or agree to do, any of the following
without  the  prior  written  consent  of  Parent,  which  consent  shall not be
unreasonably withheld or delayed:

                  (a)    amend or otherwise  change its  Certificate  of
Incorporation or By-laws or equivalent organizational documents;

                  (b) issue, sell, pledge, dispose of, grant,  transfer,  lease,
         license, guarantee,  encumber, or authorize the issuance, sale, pledge,
         disposition,  grant, transfer, lease, license, guarantee or encumbrance
         of,  (i) any  shares of capital  stock of the  Company  or any  Company
         Subsidiary of any class,  or securities  convertible or exchangeable or
         exercisable  for any  shares of such  capital  stock,  or any  options,
         warrants  or other  rights of any kind to  acquire  any  shares of such
         capital stock,  or any other  ownership  interest  (including,  without
         limitation,  any  phantom  interest),  of the  Company  or any  Company
         Subsidiary  (other than the issuance of shares issued upon the exercise
         of options  set forth in  Section  3.03(a)  of the  Company  Disclosure
         Schedule  and the  issuance of shares of Company  Common Stock upon the
         exercise of options or conversions of shares of Company Preferred Stock
         in  accordance  with their terms if such  issuance  will not affect the
         aggregate Merger  Consideration)  or (ii) any property or assets of the
         Company or any Company  Subsidiary,  except in the  ordinary  course of
         business and in a manner consistent with past practice;

                  (c)  declare,  set aside,  make or pay any  dividend  or other
         distribution,  payable in cash,  stock,  property  or  otherwise,  with
         respect to any of its capital stock;

                  (d) reclassify,  combine, split, subdivide or redeem, purchase
         or otherwise acquire, directly or indirectly, any of its capital stock;

                  (e) (i) acquire  (including,  without  limitation,  by merger,
         consolidation,  or  acquisition of stock or assets) any interest in any
         corporation,  partnership,  other business organization,  person or any
         division  thereof or any assets,  other than  acquisitions of assets in
         the  ordinary  course of business  consistent  with past  practice  for
         consideration  that are not, in the  aggregate,  in excess of $250,000;
         (ii)  incur  any  indebtedness  for  borrowed  money or issue  any debt
         securities  or  assume,  guarantee  or  endorse,  or  otherwise  as  an
         accommodation become responsible for, the obligations of any person for
         borrowed  money in excess of  $250,000  in the  aggregate,  except  for
         indebtedness  for borrowed  money  incurred in the  ordinary  course of
         business  and  consistent  with past  practice or incurred to refinance
         outstanding  indebtedness  for borrowed  money  existing on the date of
         this  Agreement,  it being  agreed that in the event the Company or any
         Company   Subsidiaries  incur  any  indebtedness  which  restricts  the
         Company's or Company  Subsidiaries'  use or rights to Company revenues,
         the  Company,  Parent  and Merger Sub shall  amend  this  Agreement  to
         include a warranty and representation  substantially similar to Section
         3.28 hereof, respecting the Company's right to receive Company revenues
         under such new indebtedness; (iii) except for extending the term of the
         Company's real property lease for its headquarters in Avon, Connecticut
         by no more than five  years in  substantial  conformance  with  Exhibit
         6.07(b) hereto, terminate, cancel or request any material change in, or
         agree to any material change in any Company Material  Contract or enter
         into any contract or  agreement  material to the  business,  results of
         operations  or  financial  condition  of the  Company  and the  Company
         Subsidiaries  taken  as a  whole,  in  either  case  other  than in the
         ordinary course of business,  consistent with past practice;  (iv) make
         or authorize any capital  expenditure,  other than capital expenditures
         that are not, in the  aggregate,  in excess of $100,000 for the Company
         and the  Company  Subsidiaries  taken as a whole;  or (v) enter into or
         amend any contract, agreement, commitment or arrangement that, if fully
         performed, would not be permitted under this Section 5.01(e);

                  (f) increase the compensation  payable or to become payable to
         its officers or employees, except for increases in accordance with past
         practices  in  salaries  or wages of  employees  of the  Company or any
         Company  Subsidiary  who are not officers of the Company,  or grant any
         rights to severance or termination pay to, or enter into any employment
         or severance agreement with, any director, officer or other employee of
         the Company or any Company Subsidiary, or establish,  adopt, enter into
         or amend any collective  bargaining,  bonus,  profit  sharing,  thrift,
         compensation,  stock option,  restricted  stock,  pension,  retirement,
         deferred  compensation,  employment,  termination,  severance  or other
         plan, agreement,  trust, fund, policy or arrangement for the benefit of
         any  director,  officer or employee,  except to the extent  required by
         applicable  Law or the terms of any Benefit Plan currently in effect or
         the terms of a collective bargaining agreement; provided, however, that
         the Company may pay 1998  bonuses,  and increased  salaries,  effective
         December 1, 1999, to Messrs. Zahren, Carolan, Augustine and Laughlin in
         an aggregate  amount of no more than  $200,000  subject to Section 2.05
         hereof;

                  (g) take any action  with  respect to  accounting  policies or
         procedures,  other than actions in the ordinary  course of business and
         consistent with past practice;

                  (h) waive, release,  assign, settle or compromise any material
claims or litigation;

                  (i) make any tax election or settle or compromise any material
         federal, state, local or foreign income tax liability;

                  (j) enter into or amend any  agreement  with, or make any loan
         or advance to any  affiliates,  officers,  directors  or  employees  of
         Company or a Company Subsidiary;

                  (k) amend,  terminate  or waive any  material  right under any
Material Contract;

                  (l) execute any  definitive  documentation  or consummate  any
         transaction respecting any Company Outstanding Proposal except on terms
         substantially  in accordance  with the  disclosure  made by the Company
         pursuant to Section 3.21(d) hereof; or

                  (m)  authorize or enter into any formal or informal  agreement
         or otherwise make any commitment to do any of the foregoing.

         To the extent that the Company,  after the date hereof, does any of the
foregoing or enters into any agreement which would be a Material  Contract if it
were entered into prior to the date hereof,  the Company's  representations  and
warranties shall apply to such actions, instruments, agreements and Contracts as
if they had  occurred  prior to the date  hereof and the Company  will  promptly
amend any Disclosure Schedule which no longer is accurate.

         The  Company  prior  to  the  Effective  Time  shall  use  commercially
reasonable  efforts to consummate the YESCO  Transaction,  those portions of the
AJG Genco  Transaction that are required to be consummated  prior to the Closing
Date, the AJG Gasco  Transaction  and the  transactions  contemplated by the ABB
Loan Agreement;  provided,  however, that the final form of the YESCO Agreement,
the ABB Loan Agreement and the agreement for the AJG Gasco  Transaction shall be
subject to the prior written  approval of Parent,  which  approval  shall not be
unreasonably withheld or delayed.

                  SECTION  5.02.  Conduct  of  Business  by Parent  Pending  the
Closing.  Parent  agrees  that,  between  the  date  of this  Agreement  and the
Effective Time,  except as contemplated by any other provision of this Agreement
and  the  other  Transaction  Documents,  and  the  filing  by  Merger  Sub of a
Certificate of Amendment  unless the Company shall  otherwise  agree in writing,
which agreement shall not be unreasonably withheld or delayed (1) the businesses
of Parent and the Parent Subsidiaries shall be conducted only in, and Parent and
the Parent Subsidiaries shall not take any action except in, the ordinary course
of  business  consistent  with  past  practice  and  (2)  Parent  shall  use its
reasonable  best efforts to keep  available  the services of such of the current
officers,  significant  employees  and  consultants  of  Parent  and the  Parent
Subsidiaries and to preserve the current  relationships of Parent and the Parent
Subsidiaries with such of the customers,  suppliers and other persons with which
Parent or any Parent  Subsidiary has  significant  business  relations as Parent
deems  reasonably  necessary  in  order to  preserve  substantially  intact  its
business organization. By way of amplification and not limitation, except as set
forth in Section 5.02 of the Parent  Disclosure  Schedule or as  contemplated by
any other  provision of this  Agreement,  the Board of Directors of Parent shall
not (unless required by applicable Laws or stock exchange  regulations) cause or
permit  Parent or any Parent  Subsidiary  to, and shall neither cause nor permit
any of Parent's  affiliates (over which it exercises  control),  or any of their
officers, directors, employees and agents to, between the date of this Agreement
and the Effective Time,  directly or indirectly,  do, or agree to do, any of the
following, without the prior written consent of the Company, which consent shall
not be unreasonably withheld or delayed:

                  (a) amend or otherwise change its Certificate of Incorporation
         (other  than by  filing a  certificate  of  correction)  or  Bylaws  or
         equivalent organizational documents;

                  (b) issue, sell, pledge, dispose of, grant,  transfer,  lease,
         license, guarantee,  encumber, or authorize the issuance, sale, pledge,
         disposition,  grant, transfer, lease, license, guarantee or encumbrance
         of, (i) any shares of capital stock of Parent or any Parent  Subsidiary
         of any class, or securities  convertible or exchangeable or exercisable
         for any shares of such capital stock, or any options, warrants or other
         rights of any kind to acquire any shares of such capital stock,  or any
         other ownership interest of Parent or any Parent Subsidiary (other than
         the issuance of shares issued upon the exercise of options and warrants
         set forth in Section 4.03(a) of the Parent Disclosure Schedule; or (ii)
         any  property or assets of Parent or any Parent  Subsidiary,  except in
         the ordinary  course of business and in a manner  consistent  with past
         practice;

                  (c)  declare,  set aside,  make or pay any  dividend  or other
         distribution,  payable in cash,  stock,  property  or  otherwise,  with
         respect to any of its capital stock;

                  (d) reclassify,  combine, split, subdivide or redeem, purchase
         or otherwise acquire, directly or indirectly, any of its capital stock;

                  (e) (i) acquire  (including,  without  limitation,  by merger,
         consolidation,  or  acquisition of stock or assets) any interest in any
         corporation,  partnership,  other business organization,  person or any
         division  thereof or any assets,  other than  acquisitions of assets in
         the  ordinary  course of business  consistent  with past  practice  for
         consideration  that are not, in the  aggregate,  in excess of $250,000;
         (ii)  incur  any  indebtedness  for  borrowed  money or issue  any debt
         securities  or  assume,  guarantee  or  endorse,  or  otherwise  as  an
         accommodation become responsible for, the obligations of any person for
         borrowed money,  except for indebtedness for borrowed money incurred in
         the ordinary  course of business and  consistent  with past practice or
         incurred to  refinance  outstanding  indebtedness  for  borrowed  money
         existing  on the  date of this  Agreement  or  other  indebtedness  for
         borrowed money with a maturity of not more than one year in a principal
         amount not, in the aggregate,  in excess of $250,000;  (iii) terminate,
         cancel or request  any  material  change  in, or agree to any  material
         change in any Parent  Material  Contract or enter into any  contract or
         agreement material to the business,  results of operations or financial
         condition of Parent and the Parent  Subsidiaries  taken as a whole,  in
         either case other than in the ordinary  course of business,  consistent
         with past  practice;  (iv) make or authorize  any capital  expenditure,
         other than  capital  expenditures  that are not, in the  aggregate,  in
         excess of $ 100,000 for Parent and the Parent  Subsidiaries  taken as a
         whole; or (v) enter into or amend any contract,  agreement,  commitment
         or arrangement  that, if fully performed,  would not be permitted under
         this Section 5.02(e);

                  (f) increase the compensation  payable or to become payable to
         its officers or employees, except for increases in accordance with past
         practices  in  salaries or wages of  employees  of Parent or any Parent
         Subsidiary  who are not  officers  of  Parent,  or grant any  rights to
         severance  or  termination  pay to,  or enter  into any  employment  or
         severance  agreement  with, any director,  officer or other employee of
         Parent or any Parent  Subsidiary,  or establish,  adopt,  enter into or
         amend  any  collective  bargaining,   bonus,  profit  sharing,  thrift,
         compensation,  stock option,  restricted  stock,  pension,  retirement,
         deferred  compensation,  employment,  termination,  severance  or other
         plan, agreement,  trust, fund, policy or arrangement for the benefit of
         any  director,  officer or  employee,  except as  contemplated  by this
         Agreement or to the extent  required by applicable Law, or the terms of
         any  Benefit  Plan  currently  in effect  or the terms of a  collective
         bargaining agreement;

                  (g) take any action  with  respect to  accounting  policies or
         procedures,  other than (i) actions in the ordinary  course of business
         and  consistent  with  past  practice  and (ii)  actions  otherwise  in
         compliance with GAAP;

                  (h) waive, release,  assign, settle or compromise any material
claims or litigation;

                  (i) make any tax election or settle or compromise any material
         federal, state, local or foreign income tax liability;

                  (j) enter into or amend any  agreement  with, or make any loan
         or advance to any affiliates,  officers,  directors or employees of the
         Parent or a Parent Subsidiary;

                  (k) amend,  terminate  or waive any  material  right under any
Material Contract;

                  (l) execute any  definitive  documentation  or consummate  any
         transaction  respecting any Parent Outstanding Proposal except on terms
         substantially  in  accordance  with the  disclosure  made by the Parent
         pursuant to Section 4.19(d) hereof; or

                  (m)  authorize or enter into any formal or informal  agreement
         or otherwise make any commitment to do any of the foregoing.

         To the  extent  that  Parent,  after the date  hereof,  does any of the
foregoing or enters into any agreement which would be a Material  Contract if it
were  entered  into  prior to the date  hereof,  Parent 's  representations  and
warranties shall apply to such actions, instruments, agreements and Contracts as
if they had occurred prior to the date hereof and Parent will promptly amend any
Disclosure Schedule which no longer is accurate.

                  SECTION  5.03.  Cooperation.  The  Company  and  Parent  shall
coordinate and cooperate in connection with (i)  determining  whether any action
by or in respect of, or filing with, any Governmental Entity is required, or any
actions, consents, approvals or waivers are required to be obtained from parties
to any Parent Material  Contracts or Company Material  Contracts,  in connection
with the  consummation  of the  Merger,  and  (ii)  seeking  any  such  actions,
consents,   approvals  or  waivers  or  making  any  such  filings,   furnishing
information  required in connection  therewith and timely  seeking to obtain any
such actions, consents, approvals or waivers.

                  SECTION 5.04.  Notices of Certain Events.  Each of the Company
and  Parent  shall  give  prompt  notice to the other of (i) any notice or other
communication from any person alleging that the consent of such person is or may
be  required  in  connection   with  the  Merger,   (ii)  any  notice  or  other
communication from any Governmental Entity in connection with the Merger,  (iii)
any actions,  suits, claims,  investigations or proceedings commenced or, to the
best of its Knowledge,  threatened in writing against,  relating to or involving
or otherwise  affecting  the Company,  Parent or their  subsidiaries  ; (iv) the
occurrence  of a default or event  that,  with  notice or lapse of time or both,
will become a default  under any Parent  Material  Contract or Company  Material
Contract;  (v) any  change  that is  reasonably  likely  to  result  in a Parent
Material  Adverse  Effect or a Company  Material  Adverse Effect or is likely to
delay or impede the ability of either  Parent or the Company to  consummate  the
transactions  contemplated  by this Agreement or to fulfill its  obligations set
forth  herein  and (vi) any  inaccuracy  in or  inability  to  perform a party's
representations,  warranties,  or  covenants.  No such notice shall be deemed to
constitute  a cure  of any  breach  of  representation,  warranty,  covenant  or
agreement.

                  SECTION  5.05.  Contractual  Consents.  Prior  to  or  at  the
Effective  Time,  each of the Company and Parent shall use its  reasonable  best
efforts to prevent the occurrence, as a result of the Merger, of any event which
constitutes  a default  (or an event  which with notice or lapse of time or both
would become a default) under any material contract,  agreement, lease, license,
permit,  franchise or other  instrument  or obligation to which it or any of its
subsidiaries is a party.


                                   ARTICLE VI

                              ADDITIONAL AGREEMENTS

                  SECTION 6.01. Proxy Statement and other SEC Filings.  (a) With
reasonable and practicable promptness after the execution of this Agreement, and
after  receiving  from  the  Company  all   information,   including   financial
information,  required of the Company,  necessary to prepare  required pro forma
financial  statements and after all pro forma financial statements required have
been  prepared,  Parent  shall  prepare and file with the SEC a proxy  statement
relating to the meetings of the Parent's  stockholders  to be held in connection
with the Merger  (together with any amendments  thereof or supplements  thereto,
the "Proxy Statement").  Notwithstanding the previous sentence, the Parent shall
not file the Proxy  Statement  with the SEC unless and until the  Company  shall
have notified the Parent in writing that the Company  Shareholders have approved
the Merger by the  requisite  vote.  Parent  shall  provide  copies of the Proxy
Statement to the Company  prior to filing with the SEC and Parent will  consider
the  Company's  reasonable  requests  to modify the Proxy  Statement.  The Proxy
Statement  will include the Board of Directors of Parent's  recommendation  that
Parent's stockholders approve the Plan of Merger;  provided,  however, that such
Board of Directors will be entitled to withdraw such recommendation,  and notify
Parent's  stockholders  of such  withdrawal,  if such Board  determines that its
fiduciary obligations to Parent and its stockholders require such withdrawal. As
promptly as  practicable  thereafter  and  subject to  receiving  all  requisite
approvals  from all  Governmental  Entities and NASDAQ (if  applicable),  Parent
shall mail the Proxy  Statement to its  stockholders.  The Proxy Statement shall
not seek a shareholder  vote  respecting the acquisition by Parent of the assets
or  equity   securities  of  any  company  (other  than  the  Company,   Company
Subsidiaries or any company in connection with the Cinergy  Transaction) without
the  prior  written  approval  of  the  Company,  which  approval  shall  not be
unreasonably withheld.

                  (b)  Subject  to  Section   6.01(c)  hereof  the   information
regarding  Parent in the Proxy  Statement  shall not,  at (i) the time the Proxy
Statement  (or any amendment  thereof or supplement  thereto) is first mailed to
the stockholders of Parent, (ii) the time of the Parent's  Stockholders' Meeting
(as  hereinafter  defined),  and (iii) the  Effective  Time,  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  not
misleading. If at any time prior to the Effective Time any event or circumstance
relating to Parent or any Parent Subsidiary should be discovered by Parent which
should be set forth in an  amendment  or a  supplement  to the Proxy  Statement,
Parent shall  promptly  inform the  Company.  All  documents  that the Parent is
responsible  for  filing  with  the  SEC in  connection  with  the  transactions
contemplated hereby will comply as to form and substance in all material aspects
with  the  applicable  requirements  of the  Securities  Act and the  rules  and
regulations  thereunder  and the  Exchange  Act and the  rules  and  regulations
thereunder.

                  (c) The  Company  shall  provide  to Parent  all  information,
including  all  financial  information  to  prepare  the  portion  of the  Proxy
Statement respecting the Company, the Company  Subsidiaries  including,  without
limitation,  pro forma financials. The Company shall ensure that the information
regarding the Company and Company Subsidiaries  provided to Parent for inclusion
in the Proxy  Statement  shall not, at (i) the time the Proxy  Statement (or any
amendment thereof or supplement  thereto) is first mailed to the stockholders of
Parent,  (ii) the time of the  Parent's  Stockholders'  Meeting,  and  (iii) the
Effective Time, 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 not  misleading.  If at any time prior to the Effective
Time any event or  circumstance  relating to Company or any  Company  Subsidiary
should be discovered by the Company which should be set forth in an amendment or
a supplement to the Proxy Statement, Company shall promptly inform Parent.

                  (d) Parent will make all filings (collectively the "Future SEC
Reports")  with the SEC that it is  required  to make  between  the date of this
Agreement  and the Closing Date under the Exchange  Act.  Each of the Future SEC
Reports  will comply with the  requirements  of the Exchange Act in all material
respects.

                  SECTION 6.02.  Stockholders'  Meetings. The Company shall call
and hold a meeting of its  stockholders  (or, if applicable,  may take action of
the  stockholders  of the Company by consent in lieu of a meeting) no later than
10 Business  Days after the full  execution of this  Agreement  and Parent shall
call and hold a meeting of its stockholders  (collectively,  the  "Stockholders'
Meetings")  within 30 Business Days  following the date when the SEC  authorizes
Parent to distribute  definitive  proxy materials as promptly as practicable for
the purpose of voting upon the  approval of the Merger and the matters  relating
thereto.  Parent and the  Company  shall use their  reasonable  best  efforts to
solicit from their  stockholders  proxies in favor of the approval of the Merger
unless  the  board  of  directors  of  Parent  or the  Company,  as  applicable,
determines in reasonable good faith that its fiduciary duties require otherwise.

                  SECTION 6.03.  Access to  Information.  (a) Subject to Section
6.03(b) hereof, except as required pursuant to any confidentiality  agreement or
similar  agreement or arrangement to which the Company or Parent or any of their
respective  subsidiaries  is a  party  or  pursuant  to  applicable  Law  or the
regulations  or  requirements   of  any  stock  exchange  or  other   regulatory
organization with whose rules the parties are required to comply,  from the date
of this Agreement to the Effective Time, the Company and Parent shall (and shall
cause  their  respective  subsidiaries  to):  (i)  provide to the other (and its
officers, directors, employees, accountants,  consultants, legal counsel, agents
and other representatives, collectively, "Representatives") access at reasonable
times upon prior notice to the officers, employees, agents, properties,  offices
and other  facilities  of the other  and its  subsidiaries  and to the books and
records  thereof,  and (ii) furnish  promptly such  information  concerning  the
business,  properties,  contracts,  assets,  liabilities,  personnel  and  other
aspects  of the other  party  and its  subsidiaries  as the  other  party or its
Representatives may reasonably  request. No investigation  conducted pursuant to
this  Section  6.03 shall  affect or be deemed to modify any  representation  or
warranty made in this Agreement.

                  (b) Each party  hereto shall keep  confidential  and shall not
disclose any  confidential or proprietary  information  furnished or provided by
the other Party hereunder and shall exercise reasonable precautions to safeguard
and protect the confidentiality  and integrity of such information,  except that
Parent and  Company may make  disclosures  to their  advisors,  representatives,
directors,   officers,   shareholders,   employees  and  present  and  potential
investors,  lenders and their  respective  counsel and advisors who need to know
such  information to effectuate  the intention of this  Agreement  provided such
parties agree in writing to be bound by the confidentiality provisions contained
in this  Agreement.  Disclosure  will be  permitted  where (i) the party who has
provided such  confidential  or proprietary  information to the party seeking to
disclose  consents  to such  disclosure,  (ii) such  information  is or  becomes
generally  available to the public through no action of the disclosing  party or
its representatives,  (iii) such information is received by the disclosing party
from an independent  third party whose  disclosure of such  information  did not
constitute a breach by that third party of any duty of  confidentiality  owed to
the parties  hereunder,  or (iv) such disclosure shall be required by applicable
Law or the  rules of any  exchange  on which  shares of Parent is listed or in a
judicial, governmental or administrative proceeding.

                  SECTION 6.04. Appropriate Action;  Consents;  Filings. (a) The
Company and Parent shall use all reasonable  efforts to (i) take, or cause to be
taken,  all  appropriate  action,  and do,  or  cause  to be  done,  all  things
necessary,  proper or advisable under  applicable Law or otherwise to consummate
and make effective the  transactions  contemplated by this Agreement as promptly
as  practicable,  (ii)  obtain  from any  Governmental  Entities  any  consents,
licenses, permits, waivers,  approvals,  authorizations or orders required to be
obtained  or made by  Parent  or the  Company  or any of their  subsidiaries  in
connection with the authorization,  execution and delivery of this Agreement and
the consummation of the transactions  contemplated  herein,  including,  without
limitation,  the Merger,  and (iii) make all necessary  filings,  and thereafter
make any other  required  submissions,  with respect to this  Agreement  and the
Merger required under (A) the Securities Act and the Exchange Act, and any other
applicable  federal or state  securities Laws, (B) the HSR Act and (C) any other
applicable  Law;  provided that Parent and the Company shall cooperate with each
other in  connection  with the making of all such filings,  including  providing
copies of all such documents to the  non-filing  party and its advisors prior to
filing and considering all reasonable additions,  deletions or changes suggested
in connection therewith.  The Company and Parent shall furnish to each other all
information  required for any application or other filing to be made pursuant to
the  rules  and  regulations  of any  applicable  Law  in  connection  with  the
transactions contemplated by this Agreement.

                  (b) (i) The  Company  and Parent  shall give (and shall  cause
their  respective  subsidiaries to give) any notices to third parties,  and use,
and cause their respective subsidiaries to use, all reasonable efforts to obtain
any third party consents,  (A) necessary,  proper or advisable to consummate the
transactions  contemplated  in this  Agreement,  (B) disclosed or required to be
disclosed in the Company Disclosure Schedule or the Parent Disclosure  Schedule,
as the case may be, or (C) required to prevent a Company Material Adverse Effect
from occurring prior to or after the Effective Time or a Parent Material Adverse
Effect from occurring after the Effective Time.

                           (ii) In the event  that  either  party  shall fail to
obtain any third party consent escribed  in  subsection (b)(i) above, such party
shall use all  reasonable efforts, and shall take  any  such  actions reasonably
requested by the other party hereto  which  do not entail increased cost or risk
to  such  party  or its shareholders,  officers or  directors,  to minimize  any
adverse  effect upon the Company  and  Parent,  their  respective  subsidiaries,
and their respective businesses resulting, or which could reasonably be expected
to result after the Effective Time, from the failure to obtain such consent.

                  (c) From the date of this Agreement  until the Effective Time,
the Company  shall  promptly  notify Parent in writing of any pending or, to the
Knowledge of the Company,  threatened action, proceeding or investigation by any
Governmental  Entity or any other person (i)  challenging or seeking  damages in
connection  with the Merger or the conversion of Company Common Stock and Common
Preferred Stock into the Merger  Consideration  pursuant to the Merger,  or (ii)
seeking to restrain  or prohibit  the  consummation  of the Merger or  otherwise
limit the right of Parent or, to the Knowledge of the Company,  its subsidiaries
to own or operate all or any portion of the  businesses or assets of the Company
or its  subsidiaries,  or (iii)  asserting or to its  Knowledge  threatening  to
assert dissenter's rights under DGCL ss.262.

                  (d) (i) The Company shall use all reasonable efforts to obtain
prior to the Effective  Date  consents,  in form and substance  satisfactory  to
Parent and Merger Sub,  from each of Hancock,  with respect to the  transactions
contemplated  by the Note Purchase  Agreement and the related  documents and ABB
Energy Capital LLC ("ABB"),  with respect to that certain  Construction and Term
Loan Agreement by and among ABB, BMC Energy LLC, Brookhaven Energy, LLC, Country
Side Genco, L.L.C.,  Countryside  Landfill Gasco, L.L.C.,  Morris Genco, LLC and
Morris  Gasco,  L.L.C.  (the "ABB Loan  Agreement")  and Parent  shall  provide,
subject to the execution of standard confidentiality agreements, such reasonable
information as is required by the consenting  parties (the "Specific Third Party
Consents").

                           (ii)     As part of the Company's reasonable  efforts
to  obtain the consent  of  Hancock  to the  transactions contemplated  by  this
Agreement,  the Company shall propose the following  arrangement  to  Hancock to
take effect upon  consummation  of the Merger:

                  (A) The  Letter of Credit  (as  defined  in the Note  Purchase
         Agreement) would be replaced by a guaranty or comparable arrangement by
         Cinergy Corp. of $2 million (the "Cinergy  Guaranty") and a guaranty or
         comparable  arrangement  by AJG for the  remaining  amount  of the Debt
         Service Reserve Minimum (as defined in the Security  Agreement referred
         to in the Note Purchase Agreement) (the "AJG Guaranty"),  each of which
         would (i) serve the purposes set forth in Section 3.04 of such Security
         Agreement (ii) otherwise meet the  requirements  for replacement of the
         Letter  of  Credit  under  the  Note  Purchase  Agreement  and  related
         documents and (iii) be acceptable in form and substance to AJG, Cinergy
         Corp., the Company and Parent;

                  (B) The AJG  Guaranty  would  provide  that a  condition  of a
         drawing would be that it would secure  amounts in excess of the Cinergy
         Guaranty, not to exceed $2 million. If the required aggregate amount of
         such guaranties  under the Note Purchase  Agreement is reduced due to a
         reduction in the Debt Service Reserve Minimum or otherwise,  the amount
         of the AJG Guaranty  shall be first reduced  dollar for dollar until it
         has been  eliminated  before  the  amount of the  Cinergy  Guaranty  is
         reduced; and

                  (C) The Parent  would issue a corporate  guarantee in favor of
         AJG in form and substance satisfactory to AJG and the Parent respecting
         any amounts drawn under the AJG LC.

The foregoing arrangement or an alternative  arrangement  acceptable in form and
substance to AJG, Cinergy Corp., the Company and USE shall be referred to herein
as the "Hancock Debt Service Reserve Arrangement".

         (e) The  Parent  shall  take all  actions  and  deliver  all  documents
necessary  to  effectuate  all  parts  of  the  Hancock  Debt  Service   Reserve
Arrangement applicable to the Parent in a timely manner.

         (f) From the date of this Agreement  until the Effective  Time,  Parent
shall promptly notify the Company in writing of any pending or, to the Knowledge
of Parent,  threatened  action,  proceeding or investigation by any Governmental
Entity or any other person (i) challenging or seeking damages in connection with
the Merger or the conversion of Company Common Stock and Common  Preferred Stock
into the  Merger  Consideration  pursuant  to the  Merger,  or (ii)  seeking  to
restrain or prohibit the consummation of the Merger or otherwise limit the right
of Parent or, to the Knowledge of the Parent, its subsidiaries to own or operate
all  or  any  portion  of  the  businesses  or  assets  of  the  Company  or its
subsidiaries.

                  SECTION 6.05. Update Disclosure;  Breaches. From and after the
date of this  Agreement  until the  Effective  Time,  each  party  hereto  shall
promptly  notify  the other  party  hereto by written  update to its  Disclosure
Schedule of (i) the occurrence, or non-occurrence,  of any event the occurrence,
or  non-occurrence,  of which  would be  likely to cause  any  condition  to the
obligations  of any  party to  effect  the  Merger  and the  other  transactions
contemplated  by this  Agreement  not to be  satisfied  or which would cause any
representation  and  warranty  made in this  Agreement to be  inaccurate  in any
material respect,  or (ii) the failure of the Company or Parent, as the case may
be, to comply  with or  satisfy  any  covenant,  condition  or  agreement  to be
complied  with or  satisfied  by it  pursuant to this  Agreement  which would be
likely to result in any condition to the  obligations of any party to effect the
Merger  and the other  transactions  contemplated  by this  Agreement  not to be
satisfied;  provided,  however, that the delivery of any notice pursuant to this
Section  6.05  shall  not cure any  breach  of any  representation  or  warranty
requiring  disclosure  of such  matter  prior to the date of this  Agreement  or
otherwise  limit  or  affect  the  remedies  available  hereunder  to the  party
receiving such notice.

                  SECTION  6.06.  Public  Announcements.  Parent and the Company
shall  consult  with each other  before  issuing any press  release or otherwise
making any public  statements with respect to the Merger and shall not issue any
such press  release or make any such public  statement  prior to  receiving  the
consent of the non-disclosing  parties,  except as may be required by Law or any
listing  agreement  with the  NASDAQ.  Any party  seeking  to make a  disclosure
pursuant to Law or any listing  agreement  with the NASDAQ shall,  prior to such
disclosure,  demonstrate to the reasonable  satisfaction  of the  non-disclosing
parties that such disclosure is required.

                  SECTION 6.07.  Employee Matters.  (a) Employees.  Prior to the
Effective  Time, the Company shall  terminate the ZAPCO Senior  Management  Exit
Plan at no cost to the  Company in  exchange  for Parent  agreeing  to issue the
benefits set forth in Section 6.07, with respect to Martin Laughlin, and Section
2.03,  with  respect  to the  other  parties  covered  thereby,  of  the  Parent
Disclosure  Schedule.  As of the Effective Time the Surviving  Corporation shall
assume  all  obligations  of  the  Company  under  all  Company  Benefit  Plans,
employment  contracts and all other  agreements with any employee of the Company
which relate to employment,  compensation  or benefits and that are set forth in
Section 3.17(a) of the Company  Disclosure  Schedule.  As of the Effective Time,
Parent  shall  offer  employment  to Bernard  Zahren and Merger Sub shall  offer
employment to each of the other then current  employees of the Company set forth
in  Section  6.07(b) of the Parent  Disclosure  Schedule,  in each case with the
compensation  packages as set forth on Section 6.07(b) of the Parent  Disclosure
Schedule   attached  hereto.   Senior   executive   positions  will  be  offered
compensation packages that will include salary, cash bonus, stock options, 401-K
and  retirement  savings  plans,  health and other types of insurance  and other
benefits,  subject to the  approval of the Board of  Directors  of the Parent or
Surviving Corporation,  as applicable.  Stock options in Parent shall be granted
to non-executive  employees of the Company who accept  employment with Parent or
Surviving  Corporation  as part of their  compensation  package  as set forth in
Schedule  2.03 hereto,  subject to the approval of the Board of Directors of the
Parent, or a committee thereof.

                  (b) Use of Company's  Headquarters.  As of the Effective  Time
the Company's and Parent's support and administrative staff shall be combined to
provide the support and administrative staff to the Surviving Corporation. As of
the Effective  Time,  the Company's  headquarters  located in Avon,  Connecticut
shall  serve as the  accounting,  administrative  and support  location  for the
Surviving  Corporation  and  Parent as of the  Effective  Time,  and USE and the
Surviving  Corporation shall comply with the lease for such headquarters and the
lease  extension  which is attached  hereto as Exhibit  6.07(b).  The  corporate
headquarters  for Parent and the Surviving  Corporation  shall be located in the
New York metropolitan area.

                  SECTION  6.08.   Assumption  of   Agreements.   The  Surviving
Corporation  shall  execute  written  consents,  where  required,  to assume the
obligations  of the Company  and its  subsidiaries  pursuant  to the  agreements
listed in Section 6.08 of the Company Disclosure Schedule,  which consents shall
be in form and substance reasonably satisfactory to the Company.

                  SECTION 6.09.  Indemnification of Directors and Officers.  (a)
Subject to the Company's compliance with Section 6.09(c) hereof,  Parent and the
Surviving  Corporation agree that the  indemnification  obligations set forth in
the Company's  Certificate of Incorporation and the Company's  By-Laws,  in each
case  as of the  date  of  this  Agreement,  shall  survive  the  Merger  as the
indemnification  obligations  of the Surviving  Corporation  (and,  prior to the
Effective Time,  Parent shall cause the Certificate of Incorporation and By-Laws
of Merger Sub to reflect such provisions) and shall not be amended,  repealed or
otherwise  modified  for a period of six years after the  Effective  Time in any
manner that would adversely affect the rights  thereunder of the individuals who
on or prior to the Effective Time were directors,  officers, employees or agents
of the Company or its subsidiaries.

                  (b) Subject to the Company's  compliance  with Section 6.09(c)
hereof,  the Company shall, to the fullest extent permitted under applicable Law
and  regardless  of whether the Merger  becomes  effective,  indemnify  and hold
harmless, and, after the Effective Time, the Surviving Corporation shall, to the
fullest extent permitted under applicable Law, indemnify and hold harmless, each
present and former director or officer of the Company and each subsidiary of the
Company  and each such  person who served at the  request of the  Company or any
subsidiary of the Company as a director,  officer, trustee, partner,  fiduciary,
employee or agent of another  corporation,  partnership,  joint venture,  trust,
pension  or  other  employee  benefit  plan  or  enterprise  (collectively,  the
"Indemnified  Parties")  against all costs and  expenses  (including  reasonable
attorneys' fees),  judgments,  fines, losses, claims,  damages,  liabilities and
settlement amounts paid in connection with any claim, action,  suit,  proceeding
or investigation  (whether arising before or after the Effective Time),  whether
civil,  administrative  or  investigative,  arising out of or  pertaining to any
action or omission in their  capacity  as an officer or  director,  in each case
occurring before the Effective Time (including the transactions  contemplated by
this Agreement). Without limiting the foregoing, in the event of any such claim,
action,  suit,  proceeding  or  investigation,  (i) the Company or the Surviving
Corporation,  as the case may be,  shall pay the fees and  expenses  of  counsel
selected  by  any   Indemnified   Party,   which  counsel  shall  be  reasonably
satisfactory to the Company or to the Surviving Corporation, as the case may be,
promptly  after   statements   therefor  are  received   (unless  the  Surviving
Corporation  shall  elect  to  defend  such  action),  and  (ii)  the  Surviving
Corporation  shall make all  decisions  with  respect to the defense of any such
matter.

                  (c) Prior to the Effective  Time, the Company shall obtain for
the Company's current directors and officers liability insurance protection (the
"D&O  Insurance") for a period ending on the sixth  anniversary of the Effective
Date of the same kind and scope as that  provided  as of the date  hereof by the
Company's directors' and officers' liability insurance policies (copies of which
have been made available to Parent),  which insurance  policy and provider shall
be reasonably  acceptable  to Parent and which policy will provide,  among other
things,  that such policy shall remain  effective after the  consummation of the
Merger and contain a  deductible  per  occurrence  of no more than $50,000 and a
coverage  limit  per  occurrence  of  $1,000,000;  provided,  however,  that any
provider recommended by AJG shall be reasonably acceptable to Parent;  provided,
further,  that the  obligations  pursuant  to Section  6.09(a) and (b) shall not
extend beyond the term of such D&O Insurance,  shall not cover matters which are
not covered by such D&O Insurance,  shall not require  indemnification in excess
of the coverage  limit in such D&O Insurance  but shall require  indemnification
with  respect  to  amounts  not  covered  by such D&O  Insurance  on  account of
deductibles.

                  (d) In  the  event  the  Surviving  Corporation  or any of its
successors or assigns (i)  consolidates  with or merges into any other person or
shall  not  be the  continuing  or  surviving  corporation  or  entity  in  such
consolidation  or  merger,  or  (ii)  transfers  all or  substantially  all  its
properties and assets to any person, then, and in each case, all reasonable best
efforts  shall be made so that  the  successors  and  assigns  of the  Surviving
Corporation  honor the  indemnification  obligations  set forth in this  Section
6.09.

                  (e) The obligations of the Surviving  Corporation,  and Parent
under this Section 6.09 shall not be  terminated or modified in such a manner as
to adversely affect any director,  officer,  employee,  agent or other person to
whom this Section 6.09 applies  without the consent of such  affected  director,
officer, employees, agents or other persons (it being expressly agreed that each
such  director,  officer,  employee,  agent or other person to whom this Section
6.09 applies shall be express third-party beneficiaries of this Section 6.09).

                  (f)   Notwithstanding   anything  to  the  contrary  under  no
circumstances   shall  the  Surviving   Corporation   or  the  Parent  have  any
indemnification  obligation  as to  officers,  directors  of the  Company or any
Company Subsidiary with respect to acts or omissions relating to or arising from
any breaches of  representations,  warranties  or covenants  with respect to any
Transaction  Document  and  any  other  agreement  and  instrument  executed  in
connection with the transactions  contemplated  thereby,  including in each case
the  exhibits,  schedules  and  annexes  thereto,  by the Company or any Company
Subsidiary.

                  SECTION 6.10. Obligations of Merger Sub. Parent shall take all
action  necessary  to cause  Merger Sub to perform  its  obligations  under this
Agreement and to consummate  the Merger on the terms and conditions set forth in
this Agreement.

                  SECTION 6.11 Audited Financial Statements.
                  (a)      The Company shall deliver or cause to be delivered to
          Parent:

                           (i)      Not  later  than November  30, 2000  an
unaudited, consolidated balance sheet statement of income, change of stockholder
equity and cash flow for the Company and Company Subsidiaries for the  ten month
period ending October 31, 2000.

                            (ii) As soon as practicable,  complete detail of all
amounts paid to related parties
by the Company and Company Subsidiaries in the fiscal periods referenced above.

                  (b) The financial statement  referenced in paragraph (a) shall
be addressed to the Company,  Merger Sub and Parent,  shall  present  fairly the
financial  condition  of the  Company  and  its  Subsidiaries  covered  by  such
financial  statement  as of such  date and the  results  of  operations  of such
Company and Company Subsidiaries for such period will be correct and complete in
all material  respects,  will be prepared in accordance  with GAAP  consistently
applied  and in a  manner  consistent  with the most  recent  audited  financial
statements  contained in the Financial  Statements (it being  understood that in
the event of an  inconsistency  between GAAP and the procedures  used to prepare
the  most  recent  audited  financial  statements  contained  in  the  Financial
Statement  GAAP shall prevail) and shall be in a form that would comply with the
requirements of Section 13 of the Exchange Act if the Company's  securities were
registered under Section 12 of the Exchange Act.

                   SECTION 6.12 Representation  Letters.  The Company shall take
all  reasonable  action  to  obtain  the  Representation  Letters  from  Company
Shareholders who are receiving  Parent Common Stock,  Parent Preferred Stock and
Parent Warrants.

                  SECTION  6.13  ESI  Option.  ESI and the  Company  anticipates
entering into a purchase option agreement substantially consistent with the term
sheet  attached  hereto as Exhibit 6.13 (the "ESI Option  Agreement Term Sheet)"
providing  certain of the Company's  stockholders  (the "Company  Shareholders")
with the right, but not the obligation,  to purchase membership interests in ESI
and certain of Parent's Series B Warrants (the "ESI Warrants") .

                  SECTION 6.14 AJG Gasco Transaction. The Company agrees that as
of the Effective Time, the AJG Gasco  Transaction shall have been consummated on
terms and conditions  substantially in conformance with the terms and conditions
contained  in the  Cinergy  Gasco  Purchase  and  Sale  Agreement.  The  parties
acknowledge and agree that the Company will structure the AJG Gasco Transaction,
as it shall be in effect at and after the  Effective  Time, in order to maximize
tax and other financial benefits to the Company,  and as such, payments from AJG
will be reasonably  similar (but not  identical)  in each payment  period to the
payments  to be made by CGS  pursuant  to the Cinergy  Gasco  Purchase  and Sale
Agreement,  provided  that the total  payments  through 2007 and the net present
value (at an 11% after-tax  discount  rate) of such payments to the Company will
differ from the payments and the net present value (at an 11% after-tax discount
rate) of such  payments  made by CGS  pursuant  to the  Cinergy  Gasco  Purchase
Agreement by no more than 1%. The Company  agrees that the terms and  conditions
of the AJG Gasco  Transaction  shall be subject  to the  consent of USE and CGS,
which consent shall not be unreasonably withheld or delayed.


                  SECTION 6.15. Plan of Recapitalization.  If Parent effectuates
a plan of recapitalization it shall, as a part of such recapitalization,  file a
Certificate of Designation (the  "Certificate of Designation")  for its Series D
Preferred Stock (the "Parent Series D Preferred  Stock"),  which  Certificate of
Designation  shall be  substantially  in the form of  Exhibit  6.15  hereto  and
thereafter the Parent Series A Preferred  Stock shall be exchanged for shares of
the Parent Series D Preferred Stock.

                                   ARTICLE VII

                               CLOSING CONDITIONS

                  SECTION 7.01.  Conditions to  Obligations  of Each Party Under
This  Agreement.  The respective  obligations of each party to effect the Merger
and  the  other  transactions  contemplated  herein  shall  be  subject  to  the
satisfaction at or prior to the Effective Time of the following conditions,  any
or all of which may be waived,  in whole or in part, to the extent  permitted by
applicable Law:

                  (a) Stockholder Approval.  This Agreement and the Merger shall
         have  been  approved  and  adopted  by  the   requisite   vote  of  the
         stockholders   of  the   Company   and  the   stockholders   of  Parent
         (collectively, the "Stockholder Approvals").

                  (b) No Order. No Governmental Entity or federal or state court
         of competent  jurisdiction  shall have  enacted,  issued,  promulgated,
         enforced or entered any statute,  rule,  regulation,  executive  order,
         decree,  judgment,   injunction  or  other  order  (whether  temporary,
         preliminary  or  permanent),  in any case  which is in effect and which
         prevents  or  prohibits   consummation  of  the  Merger  or  any  other
         transactions  contemplated in this Agreement;  provided,  however, that
         the  parties  shall use their best  efforts  to cause any such  decree,
         judgment, injunction or other order to be vacated or lifted.

                  (c)  Consents  and  Approvals.  All  consents,  approvals  and
         authorizations  legally  required  to be  obtained  to  consummate  the
         Merger,  including,  but not  limited  to,  NASDAQ,  Hancock and ABB if
         required,  the approval of the Company's lenders and, if required,  the
         majority  owner of the Company's  interests in gas operating  projects,
         shall have been obtained in form and substance  satisfactory  to Parent
         and Merger Sub.

                  (d) YESCO Acquisition.  The Company shall have consummated its
         acquisition of certain assets of YESCO pursuant to the YESCO Agreement.

                  (e)  Cinergy  Investment.   CES  shall  have  consummated  the
         transactions  described in the Cinergy  Subscription  Agreement and CGS
         and AJG shall have  entered  into the Cinergy  Gasco  Purchase and Sale
         Agreement.

                  (f)      Reserved.

                  (g) AJG.  The  Company  shall have  consummated  the AJG Gasco
         Transaction  and those  aspects of the AJG Genco  Transaction  that are
         required to be consummated  prior to the Effective Time pursuant to the
         AJG Agreement.

                  SECTION 7.02.  Additional Conditions to Obligations of Parent.
The  obligations  of Parent  to effect  the  Merger  and the other  transactions
contemplated herein are also subject to the following conditions:

                  (a)    Representations    and   Warranties.    Each   of   the
         representations  and  warranties  of  the  Company  contained  in  this
         Agreement shall be true and correct in all material  respects as of the
         Effective Time, except that those  representations and warranties which
         address  matters  only as of a  particular  date shall  remain true and
         correct in all  material  respects as of such date.  Parent  shall have
         received a certificate of the  President,  Chief  Executive  Officer or
         Chief Financial Officer of the Company to that effect.

                  (b) Agreements and Covenants. The Company shall have performed
         or complied in all material  respects with all agreements and covenants
         required by this Agreement to be performed or complied with by it on or
         prior to the Effective  Time.  Parent shall have received a certificate
         of the President, Chief Executive Officer or Chief Financial Officer of
         the Company to that effect.

                  (c) Transaction  Documents.  None of the Cinergy  Subscription
         Agreement,   the  Cinergy  Gasco  Purchase  and  Sale  Agreement,   the
         Guarantees,  the AJG Agreement,  the Merger Sub Stockholder  Agreement,
         the Zahren Employment Agreement, the Registration Rights Agreement, the
         Escrow Agreement,  the Indemnification  Agreement, the Voting Agreement
         and the Termination Fee Agreement  (these  documents  together with the
         Agreement are referred to as the  "Transaction  Documents")  shall have
         been modified or terminated or challenged in a court.

                  (d) Opinion of  Counsel.  At or prior to the  Effective  Time,
         Tannenbaum  Helpern Syracuse & Hirschtritt LLP, counsel to the Company,
         shall have  delivered  to Parent an opinion  substantially  in the form
         attached hereto as Exhibit 7.02(d).

                  (e)  Securities Law  Compliance.  At or prior to the Effective
         Time, all filings  necessary under federal and state securities laws to
         permit the issuance and delivery of the shares of Parent  Common Stock,
         Parent  Preferred  Stock and Parent  Warrants  in  connection  with the
         Merger in  compliance  with such laws  shall  have been  made,  and any
         authorizations in connection  therewith from all applicable  securities
         regulatory authorities shall have been obtained.

                  (f) Additional  Deliveries by the Company.  At or prior to the
         Effective  Time,  the Company shall deliver or cause to be delivered to
         Parent:

                           (i)  With  respect  to the  Company  and the  Company
                  Subsidiaries,  a complete and correct copy of their respective
                  (i)  Certificates  of  Incorporation  or  other   organization
                  agreement  or document,  as amended to date,  certified by the
                  Secretary of State of their state or country of  organization,
                  and  (ii)   By-Laws,   operating   agreement  or   partnership
                  agreement,  as amended to date,  certified by their respective
                  Secretary or Assistant Secretary.

                           (ii)  Certificates  of  good  standing  as of a  date
                  within thirty (30) days prior to the Effective  Time issued by
                  (i) the  Secretary  of State of the  State of  Delaware,  with
                  respect to the  Company,  and (ii) the  Secretary  of State of
                  each  state in which the  Company or a Company  Subsidiary  is
                  authorized to transact  business as a foreign  corporation  to
                  the effect  that the  Company is duly  qualified  as a foreign
                  corporation in such state.

                           (iii) Such other certificates and  representations as
                  are  reasonably  requested by  Tannenbaum  Helpern  Syracuse &
                  Hirschtritt  LLP in  order  to  render  the  opinion  required
                  pursuant to Sections 7.02(d) hereof.

                           (iv) Such further  instruments or documents as Parent
                  or its counsel may  reasonably  request to assure the full and
                  effective completion of the Merger and to assure the effective
                  completion of the transactions contemplated hereby.

                  (g) No Material  Adverse  Effect.  As of the  Effective  Time,
         there shall not have been a Company Material Adverse Effect.

                   (h) Specific  Third Party  Consents.  The Company  shall have
         obtained  the  Specific  Third  Party  Consents  in form and  substance
         satisfactory to Parent and Merger Sub.

                  (i)  Representation   Letter.  Company  shareholders  who  are
         receiving  Parent  Common  Stock,  Parent  Preferred  Stock and  Parent
         Warrants shall execute a private placement  "representation  letter" in
         the  form  annexed  as  Exhibit  7.02(i)  hereto  (the  "Representation
         Letter").

                  (j) AJG. The Company shall have formalized in writing its loan
         indebtedness to AJG in the form of a subordinated secured note (i) with
         a principal amount not in excess of $3,800,000,  (ii) with interest not
         in excess of 8% per annum,  (iii) with a payment schedule providing for
         no principal or interest  payments due for the year ending December 31,
         2001  and  thereafter  quarterly   self-amortizing  payments  over  the
         following  five years,  (iv) which is  pre-payable  at any time without
         penalty,  but which shall not be accelerated  due to the Merger and the
         transactions  contemplated by this Merger Agreement,  and (v) with such
         other terms as shall be reasonably acceptable to Parent.

                  (k)  Guarantee.  CES shall have  executed  and  delivered  the
Guarantee.

                  (l) Hancock Debt Service Reserve Arrangement.  Each of AJG and
         Cinergy Corp.  shall have taken all actions and delivered all documents
         necessary to effectuate  all parts of the Hancock Debt Service  Reserve
         Arrangement  applicable to it, and Hancock shall have  consented to the
         Hancock Debt Service Reserve Arrangement.

                  SECTION  7.03.  Additional  Conditions to  Obligations  of the
Company.  The  obligation  of the  Company  to effect  the  Merger and the other
transactions  contemplated  in this  Agreement is also subject to the  following
conditions:

                  (a)    Representations    and   Warranties.    Each   of   the
         representations   and  warranties  of  the  Parent  contained  in  this
         Agreement, shall be true and correct in all material respects as of the
         Effective Time, except that those  representations and warranties which
         address  matters  only as of a  particular  date shall  remain true and
         correct in all  material  respects as of such date.  The Company  shall
         have received a certificate of the President,  Chief Executive  Officer
         or Chief Financial Officer of Parent to that effect.

                  (b) Agreements  and Covenants.  Parent shall have performed or
         complied in all material  respects  with all  agreements  and covenants
         required by this Agreement to be performed or complied with by it on or
         prior  to the  Effective  Time.  The  Company  shall  have  received  a
         certificate  of  the  President,   Chief  Executive  Officer  or  Chief
         Financial Officer of Parent to that effect.

                  (c) Transaction  Documents.  None of the Transaction Documents
         shall have been modified or terminated or challenged in a court.

                  (d) Opinion of  Counsel.  At or prior to the  Effective  Time,
         Robinson Brog  Leinwand  Greene  Genovese & Gluck P.C.,  counsel to the
         Parent and Merger Sub,  shall have  delivered to the Company an opinion
         substantially in the form attached hereto as Exhibit 7.03(d).

                  (e)  Securities Law  Compliance.  At or prior to the Effective
         Time, all filings  necessary under federal and state securities laws to
         permit the issuance  and delivery of the shares of Parent  Common Stock
         in connection  with the Merger in compliance  with such laws shall have
         been made,  and any  authorizations  in connection  therewith  from all
         applicable securities regulatory authorities shall have been obtained.

                  (f) No Material  Adverse  Effect.  As of the  Effective  Time,
         there shall not have been a Parent Material Adverse Effect.

                  (g) Board of  Directors;  Executive  Management.  Parent shall
         have agreed that Bernard  Zahren and one other former  stockholder  (or
         officer of such  stockholder) of the Company  reasonably  acceptable to
         Parent and the Company  shall become  members of the board of directors
         of Parent (the  "Board") as of the  Effective  Time.  Parent shall have
         established  a three (3) person  executive  committee  to be  composed,
         after the Closing, of Goran Mornhed,  Lawrence I. Schneider and Bernard
         Zahren, to govern the day-to-day  business and operations of Parent and
         to provide strategy and policy recommendations to the Board.

                   (h) Parent Series C Preferred Stock; Parent Warrants.  Parent
         shall have amended its  Certificate of  Incorporation  to authorize the
         Parent  Series C  Preferred  Stock and  Parent  shall  have  reserved a
         sufficient  number of shares of Parent  Common Stock for issuance  upon
         the  conversion of the Parent  Preferred  Stock and the exercise of the
         Parent Warrants.

                   (i) ESI Note.  ESI shall  have  paid the  entire  outstanding
         principal  amount of the ESI Note less any  amounts  which the  Company
         Shareholders  agreed in writing to pay to ESI to acquire  interests  in
         ESI pursuant to subscription agreements but did not pay.

                  (j) Change of  Control.  There shall not have been a Change of
         Control of Parent and Parent shall not have entered into a  transaction
         that would result in such a Change of Control.

                  (k)  By-laws.   The  Parent  shall  have  in  effect   by-laws
         substantially in the form of Exhibit 7.03(k).

                  (l) Guarantees.  USE and CES shall have executed and delivered
the Guarantees.

                  (m) ESI Offer. ESI shall have made an offer in accordance with
         the terms set forth in the ESI Option Agreement Term Sheet to the Zapco
         Accredited Stockholders (as defined therein).

                  (n) Hancock  Debt  Service  Reserve  Arrangement.  Each of the
         Parent and Cinergy Corp. shall have taken all actions and delivered all
         documents necessary to effectuate all parts of the Hancock Debt Service
         Reserve Arrangement  applicable to it, and Hancock shall have consented
         to the Hancock Debt Service Reserve Arrangement.


                                  ARTICLE VIII

                           TERMINATION, AMENDMENT AND WAIVER

                  SECTION 8.01.  Termination.  This Agreement may  be terminated
at  any time prior  to the  Effective Time, whether before or after  approval of
this Agreement and the Merger by the stockholders of the Company and Parent:

                  (a)      by mutual consent of Parent and the Company;

                  (b) (i) by Parent,  if there has been a breach by the  Company
         of any of its  representations,  warranties,  covenants  or  agreements
         contained in this Agreement,  or any such  representation  and warranty
         shall have become untrue, in any such case such that Section 7.02(a) or
         Section  7.02(b) will not be satisfied and such breach or condition has
         not been promptly cured within 20 days following receipt by the Company
         of written notice of such breach;

                           (ii) by the  Company,  if there  has been a breach by
         Parent  of  any  of  its  representations,   warranties,  covenants  or
         agreements contained in this Agreement,  or any such representation and
         warranty shall have become  untrue,  in any such case such that Section
         7.03(a) or Section  7.03(b)  will not be  satisfied  and such breach or
         condition has not been promptly cured within 20 days following  receipt
         by Parent of written notice of such breach;

                  (c) by either  Parent or the Company if any decree,  permanent
         injunction,  judgment,  order or other action by any court of competent
         jurisdiction  or any  Governmental  Entity  preventing  or  prohibiting
         consummation of the Merger shall have become final and nonappealable;

                  (d) by either  Parent or the  Company if the Merger  shall not
         have been  consummated  before the earlier of (i) the Termination  Date
         and (ii) the  sixtieth  day  after the date of the last to occur of the
         Stockholders'  Meetings  if  and  only  if no  willful  breach  of  any
         representation,  warranty or covenant by the party seeking to terminate
         is a substantial  cause of the failure of the Merger to be  consummated
         by such date;

                  (e) by (1) either Parent or the Company if the Agreement shall
         fail to receive the  requisite  vote for  approval  and adoption by the
         stockholders  of the  Company  or the  stockholders  of  Parent  at the
         Stockholders'  Meetings or any adjournment or postponement  thereof and
         (2) Parent in the event it has not received written  notification  from
         Company on or before December 11, 2000 that the Company's  Shareholders
         have  approved  the  Merger  by the  requisite  vote if and  only if no
         willful breach of any representation, warranty or covenant by the party
         seeking to terminate is a  substantial  cause of the failure to receive
         the required vote;

                  (f) by Parent in accordance  with clause (i) of the proviso of
         the first sentence of Section 2.01(b), and Section 3.20(c) hereof;

                  (g)  by the  Company  in  accordance  with  clause  (i) of the
         proviso of the first sentence of Section  2.01(b),  and Section 4.18(c)
         hereof;

                  (h)  in  accordance  with  Section  2 of the  Termination  Fee
Agreement.

                  This Agreement will be terminated and be void and of no effect
         in the event  Hancock  does not consent in writing  within ten Business
         Days (it being  understood  that neither  Thanksgiving  Day nor the day
         following  Thanksgiving  Day shall be deemed to be a Business Day) from
         the date hereof to the Company's entering into the Merger Agreement and
         the Exhibits hereto to which the Company is a party and which are to be
         entered into as of the date hereof;  provided,  however, that the terms
         of the consent  are subject to the prior  approval of Parent and Merger
         Sub.

                  SECTION  8.02.  Effect  of  Termination.  In the  event of the
termination  of this  Agreement  by either  the  Company or Parent  pursuant  to
Section 8.01,  this Agreement  shall  forthwith  become void,  there shall be no
liability under this Agreement on the part of Parent, Merger Sub or the Company,
other than the  provisions of this Section  8.02,  and except to the extent that
such   termination   results   from  the  breach  by  a  party  of  any  of  its
representations,   warranties,   covenants  or  agreements  set  forth  in  this
Agreement;  provided,  however,  that such  termination  shall not  terminate or
otherwise affect the Termination Fee Agreement.

                  SECTION 8.03. Amendment.  This Agreement may be amended by the
parties  hereto by action  taken by or on behalf of their  respective  Boards of
Directors at any time prior to the  Effective  Time;  provided,  however,  that,
after approval of the Merger by the  stockholders  of the Company,  no amendment
may be made  which  would be  prohibited  by  Section  251(d) of the DGCL.  This
Agreement may not be amended  except by an  instrument in writing  signed by the
parties hereto.

                  SECTION 8.04. Waiver. At any time prior to the Effective Time,
any party  hereto  may (a)  extend  the time for the  performance  of any of the
obligations  or  other  acts  of  the  other  parties  hereto,   (b)  waive  any
inaccuracies  in  the  representations  and  warranties  of  the  other  parties
contained  herein or in any  document  delivered  pursuant  hereto and (c) waive
compliance  by the  other  parties  with  any of the  agreements  or  conditions
contained herein. Any such extension or waiver shall be valid if set forth in an
instrument in writing signed by the party or parties to be bound thereby.

                  SECTION 8.05. Fees and Expenses.  All expenses incurred by the
parties  hereto  shall be borne  solely  and  entirely  by the  party  which has
incurred the same;  provided,  however,  that in the event that the transactions
contemplated  by this Agreement are  consummated,  all expenses  related to this
Agreement  and  the  transactions  contemplated  hereby  shall  be  paid  by the
Surviving Corporation at Closing.


                                   ARTICLE IX

GENERAL PROVISIONS

                  SECTION 9.01.  Nonsurvival of Representations,  Warranties and
Agreements.  None  of the  representations,  warranties  and  covenants  in this
Agreement  or in any  instrument  delivered  pursuant  to this  Agreement  shall
survive the Effective Time, except for the agreements contained in Section 6.06,
Article II and Article IX and except as  otherwise  provided  herein or in other
agreements   delivered   herewith,    including,    without   limitation,    the
Indemnification Agreement and the Voting Agreement.

                  SECTION 9.02.  Notices.  All notices and other  communications
given or made pursuant hereto shall be sent by reputable  overnight courier next
day  delivery and shall be deemed to have been duly given or made as of the date
delivered,  if delivered  personally,  to the parties at the following addresses
(or at such other  address for a party as shall be  specified by like changes of
address):

                  (a)      If to Parent or Merger Sub:
                           U.S. Energy Systems, Inc.
                           One North Lexington Avenue, 4th Floor
                           White Plains, New York, 10601
                           Facsimile No.:  914-271-5315
                           Attention: Goran Mornhed, President and Chief
                           Operating Officer

                           With a copy to:
                           Robinson Brog Leinwand
                           Greene Genovese & Gluck P.C.
                           1345 Avenue of the Americas
                           New York, New York 10105
                           Facsimile No.: 212-956-2164
                           Attention:  Allen J. Rothman, Esq.

                           and to CES:
                           Cinergy Corp.
                           221 East Fourth Street
                           Cincinatti, Ohio  45201
                           Attention: Jerome Vennemann, Esq.
                           Facsimile:  513-287-1362


                           with a copy to:
                           Cinergy Energy Solutions, Inc.
                           1000 East Main Street
                           Plainfield, IN  46168
                           Attention: M. Stephen Harkness, President & COO
                           Facsimile: 317-838-2090
                           and


                   (b)     If to the Company:
                           Zahren Alternative Power Corporation
                           40 Tower Lane
                           Avon, CT 06001
                           Facsimile No.: (860) 677-6054
                           Attention: Bernard J. Zahren, President

                           With a copy to:
                           Shipman & Goodwin LLP
                           One American Row
                           Hartford, CT 06103-2819
                           Facsimile No.:  (860) 251-5999
                           Attention:  John H. Lawrence Jr., Esq.
                                       Marcus D. Wilkinson, Esq.
                           and

                           Tannenbaum Helpern Syracuse & Hirschtritt LLP
                           900 Third Avenue
                           New York, NY 10022
                           Facsimile No.:  (212) 826-0773
                           Attention:  Stephen Rosenberg, Esq.

                  SECTION 9.03.  Headings.  The headings contained in this
Agreement are  for reference  purposes only and  shall not affect in any way the
meaning or interpretation of this Agreement.

                  SECTION 9.04. Severability.  If any term or other provision of
this Agreement is invalid, illegal or incapable of being enforced by any rule of
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 9.05. Entire Agreement.  This Agreement (together with
the Exhibits,  Disclosure  Schedules and the other documents  delivered pursuant
hereto)  constitutes the entire agreement of the parties and supersede all prior
agreements and undertakings,  both written and oral, between the parties, or any
of them, with respect to the subject matter hereof including without  limitation
the Letter of Intent by and among the Company, the Parent and Cinergy Solutions,
Inc. dated July 27, 2000 and, except as otherwise expressly provided herein, are
not intended to confer upon any other person any rights or remedies hereunder.

                  SECTION 9.06.  Assignment.  This  Agreement shall  not be
assigned by operation of law or otherwise.

                  SECTION 9.07.  Parties in Interest.  This  Agreement  shall be
binding upon and inure solely to the benefit of each party  hereto,  and nothing
in  this  Agreement  (other  than  Sections  6.07  and  6.09 to the  extent  the
obligations described therein run to the benefit of any third party), express or
implied, is intended to or shall confer upon any other person any right, benefit
or remedy of any nature whatsoever under or by reason of this Agreement.

                  SECTION 9.08.  Mutual Drafting.  Each  party hereto  has
participated in the drafting of this Agreement, which each party acknowledges is
the result of extensive negotiations between the parties.

                  SECTION 9.09.  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 law.

                  SECTION 9.10. Jurisdiction. Each party hereby irrevocably: (1)
agrees  that any suit,  action,  or other legal  proceeding  arising out of this
Agreement or out of any of the transactions  contemplated hereby or thereby, may
be brought in any New York court or United  States  federal court located in the
County of New York; (2) consents to the  jurisdiction  of each such court in any
such suit,  action,  or legal  proceeding;  (3) waives any objection  which such
party  may  have to the  laying  of venue of any  such  suit,  action,  or legal
proceeding  in any of  such  courts;  (4)  agrees  that  New  York  is the  most
convenient forum for litigation of any such suit,  action,  or legal proceeding;
and (5)  designates  the  Secretary  of State  of the  State of New York as such
party's  agent to accept and  acknowledge  on its behalf  service of any and all
process in any such suit, action or legal proceeding  brought in any such court,
and agrees and  consents  that any such service of process upon such agent shall
be taken and held to be valid personal service upon such party and that any such
service of process  shall be of the same force and  validity as if service  were
made  upon  such  party  according  to  the  laws  governing  the  validity  and
requirements  of such service in the State of New York,  and waives all claim of
error by reason of any such service.

                  SECTION 9.11. Counterparts.  This Agreement may be executed in
one or more  counterparts,  and by the  different  parties  hereto  in  separate
counterparts,  each of which when executed shall be deemed to be an original but
all of which taken together shall constitute one and the same agreement.

                  SECTION 9.12 Appointment of Agent. The Major Shareholder Agent
(as defined in the Indemnification Agreement) is appointed as the representative
of Zapco's  shareholders  to take any action and receive any notice on behalf of
such  shareholders  following  the Effective  Time under any of the  Transaction
Documents as set forth herein and therein.



<PAGE>



                  IN WITNESS  WHEREOF,  Parent,  Merger Sub and the Company have
caused this Agreement to be executed as of the date first written above.


                                      U.S. ENERGY SYSTEMS, INC.


                                      By:/s/    Goran Mornhed
                                         ---------------------------------
                                         Name:  Goran Mornhed
                                         Title: President and
                                         Chief  Operating Officer


                                      USE ACQUISITION CORP.


                                      By: /s/   Goran Mornhed
                                          ---------------------------------
                                          Name:
                                          Title:


                                      ZAHREN ALTERNATIVE POWER CORPORATION

                                      By: /s/   Bernard J. Zahren
                                          ----------------------------------
                                          Name:  Bernard J. Zahren
                                          Title: President




<PAGE>




                                     ANNEX 1

                                  DEFINED TERMS

                  (a) Certain  Terms  Defined.  As used in this  Agreement,  the
following  terms have the  respective  meanings  set forth  below in the Section
hereof following such term:

                  "affiliate"  means  a  person  that  directly  or  indirectly,
through one or more  intermediaries,  controls,  is  controlled  by, or is under
common control with, the first-mentioned person;

                  "Business" means (i) with respect to the Company, the business
of the Company and the Company's Subsidiaries,  and (ii) with respect to Parent,
the business of Parent, Merger Sub and the Parent's Subsidiaries;

                  "Business Day" means any day other than a day  on which  banks
in the State of New York are authorized or obligated to be closed;

                  "Change  of  Control"  means  the  occurrence  of  any  of the
  following  events with  respect to any  specified  Person:  (a) there shall be
  consummated  (i) any  merger,  consolidation  or  combination  (excluding  the
  transactions  contemplated  by the Merger  Agreement)  (any, a  "Combination")
  involving  such Person in which such Person is not the continuing or surviving
  corporation,  or pursuant to which shares of such Person's  voting stock would
  be  converted  in  whole  or in part  into  cash,  other  securities  or other
  property,  other than a Combination involving such Person in which the holders
  of such  Person's  voting  stock  immediately  prior to the  Combination  have
  substantially  the  same  proportionate  ownership  of  voting  stock  of  the
  surviving  corporation  immediately  after the Combination,  or (ii) any sale,
  lease,  exchange  or  transfer  (in one  transaction  or a series  of  related
  transactions) of all or substantially all of the assets of such Person, or (b)
  any  other  Person  or a  subsidiary  thereof  or any  employee  benefit  plan
  sponsored  by such  Person or a  subsidiary  thereof or a  corporation  owned,
  directly or indirectly,  by the  stockholders of such Person in  substantially
  the same proportions as their ownership of stock of such Person,  other than a
  party hereto or any Affiliate of any such party,  shall become the  Beneficial
  Owner of  securities of such Person  representing  50% or more of the combined
  voting power of the then  outstanding  securities  ordinarily  (and apart from
  rights  accruing  in  special  circumstances)  having the right to vote in the
  election  of  directors  of such  Person,  as a result of a tender or exchange
  offer,  open market purchase or purchases,  privately  negotiated  purchase or
  otherwise or (ii) any other Person (other than any Person that is an affiliate
  of any party hereto) (the "Offeror") shall formally  announce its intention to
  commence a tender offer or exchange  offer for 50% or more of the  outstanding
  voting  securities of such  specified  Person if the Offeror has the financial
  means of consummating such tender offer or exchange offer.

                  "Code" means the Internal Revenue Code of 1986, as amended.

                  "Company Project or Projects" means the projects identified on
Section 3.19 of the Company Disclosure Schedule.

                  "control"  (including  the terms  "controlled  by" and  "under
common control with") means the possession, directly or indirectly or as trustee
or executor,  of the power to direct or cause the direction of the management or
policies of a person,  whether  through the  ownership of stock or as trustee or
executor, by contract or credit arrangement or otherwise;

                  "Exchange Act" means the  Securities  Exchange Act of 1934, as
amended, together with the rules and regulations promulgated thereunder;

                  "Extraordinary  Working  Capital" means the net result,  as of
the Effective  Time, of (A) the sum of all current  receivables  incurred by the
Company other than in the ordinary course of business,  minus (B) the sum of all
current  payables  incurred by the Company other than in the ordinary  course of
business,  including any Nonqualifying Current Payables (as such term is defined
in Section 2.06), in each case as reflected on the Effective Date Balance Sheet;

                  "GAAP" means United States generally accepted accounting
principles;

                  "Governmental   Order"  means  any  order,   writ,   judgment,
injunction,  decree, stipulation,  determination or award entered by or with any
Governmental Entity;

                  "HSR Act" means the Hart-Scott-Rodino Anti-Trust Improvement
Act of 1976, as amended, and the rules and regulations promulgated thereunder;

                  "Indebtedness"  means  (i) all  indebtedness,  whether  or not
represented by bonds, debentures,  notes or other securities,  for the repayment
of money  borrowed,  (ii)  all  deferred  indebtedness  for the  payment  of the
purchase  price  of  properties  or  assets  purchased,  (iii)  all  guaranties,
endorsements  (other than  endorsements  in the  ordinary  course of  business),
assumptions,  and other contingent obligations, in respect of, or to purchase or
to otherwise acquire,  indebtedness of others, (iv) all indebtedness  secured by
mortgage, pledge, security interest, or lien existing on property owned which is
subject to such mortgage, pledge, security interest, or lien, whether or not the
indebtedness  secured  thereby shall have been assumed,  and (v) all capitalized
lease obligations  (excluding  obligations under operating leases) including but
not  limited to all long term  debt,  including  the  current  portion  thereof,
including all notes payable,  long term accounts payable,  debts associated with
minority interests and the Illinois subsidy liability.

                  "Indenture  of Trust and Security  Agreement"  shall mean that
Indenture of Trust and Security  Agreement  dated as of November 30, 1999 by and
among the Company and certain  Company  Subsidiaries  described  therein and the
Chase  Manhattan  Bank, as trustee,  respecting the Hancock Notes,  as it may be
amended from time to time (including  without  limitation the First Amendment to
Indenture of Trust and Security Agreement dated as of March 14, 2000.)

                  "Knowledge" shall mean in the case of the Company,  the actual
knowledge of Bernard J. Zahren,  Martin Laughlin,  Richard Augustine and Michael
Carolan  after  reasonable  inquiry  and in the case of the  Parent,  the actual
knowledge of Goren Mornhed,  Sy Beder,  Howard Nevins and Larry  Schneider after
reasonable inquiry.

                  "lease" means and includes any and all leases, subleases,
sale/leaseback agreements or similar arrangements;

                  "Major Shareholders" means Bernard J. Zahren, Finova Mezzanine
Capital  Corp., AJG, Environmental Opportunities  Fund, Environmental
Opportunities Fund  Cayman, Frederic  Rose, M&R Associates, Martin  Laughlin,
Richard Augustine and Michael Carolan and their heirs, successors and assigns;

                  "Merger  Consideration  Value"  shall mean the sum of (i) Cash
Payment  which the  recipient(s)  in  question  are  entitled  to receive at the
Closing pursuant to Schedule 2.01(a) hereto,  (ii) the product of (A) the number
of shares of Parent Series C Preferred Stock which the  recipient(s) in question
are entitled to receive at the Closing  pursuant to Schedule  2.01(a) hereto and
(B) $30,  (iii) the product of (A) the number of shares of Parent  Common  Stock
which the recipients in question are entitled to receive at the Closing pursuant
to Schedule 2.01(a) hereto and (B) Average Parent Share Price,  (iv) the product
of the number of Parent Warrants which the recipient(s) in question are entitled
to  receive at the  Closing  pursuant  to  Schedule  2.01(a)  hereto and (B) the
greater of (i) $0.00 and (ii) the Average  Parent  Share Price less the exercise
price, and (v) the Contingent Merger Payment.

                  "Note  Purchase  Agreement"  shall  mean  that  Note  Purchase
Agreement  dated as of November  30, 1999  respecting  $42,300,000  9.47% Senior
Secured  Notes  Series A due December 31, 2014 and  $10,000,000  Senior  Secured
Notes Series B due December 31, 2014  (collectively  the "Hancock Notes") by and
among the Company and certain  Company  Subsidiaries  described  therein and the
parties described on Exhibit A thereto as it may be amended from time to time.

                  "Ordinary Course Working Capital" means the net result,  as of
the Effective Time, of (A) the sum of all current assets incurred by the Company
in the ordinary course of business, minus (B) the sum of all current liabilities
(including  without  limitation  accounts  payable and accrued)  incurred by the
Company in the  ordinary  course of  business,  in each case as reflected on the
Effective  Date Balance Sheet plus  (Company)  unrestricted  cash,  shown on the
Effective  Date Balance  Sheet as an asset of the Company which has not been set
aside or reserved for Construction  Projects. In calculating the Ordinary Course
Working Capital, current assets shall include, among other items, any receivable
originating  from the sale of the Company's  property at 40 Tower Lane, Avon and
exclude (i) restricted cash associated with Construction Projects, (ii) Illinois
subsidy  cash and  (iii)  payments  made by AJG prior to the  Effective  Time in
connection  with  the  YESCO  Transaction  and  the  Cinergy   Transaction.   In
calculating the Ordinary Course Working Capital, current payables shall include,
among other  items,  (i) the accrued  bonuses and  deferred  salaries of Company
personnel in an aggregate  amount not to exceed  $200,000,  (ii) all transaction
costs including the professional fees and expenses of the Company's accountants,
investment bank and counsel  incurred in connection with the negotiation of this
Agreement and agreements related hereto and the consummation of the transactions
contemplated  hereby and thereby in an amount not to exceed  $700,000  and (iii)
any premiums for the D&O Insurance  incurred prior to the Effective Time. In the
event the  Ordinary  Course  Working  Capital  reflected on the  Effective  Date
Balance Sheet is less than zero,  the Effective Date Balance Sheet shall include
a footnote  confirming that the current payables reflected on the Effective Date
Balance  Sheet do not  include any  amounts  declared  or paid to the  Company's
stockholders  other than the accrued  bonuses and  deferred  salaries of Company
personnel in an aggregate  amount not to exceed  $200,000.  For purposes of this
definition of Ordinary  Course  Working  Capital  "ordinary  course of business"
shall  consist of the  operation  of the  existing  project  portfolio,  ongoing
Construction  Projects  (including  outlays for such  Projects),  in-house costs
associated  with  ongoing  development  efforts  and costs  associated  with the
consummation of the Merger, the YESCO Acquisition and the ABB Loan Agreement.

                  "Parent's  Disclosure  Documents" means Parent's Form 10-K for
the year ended  January 31,  2000,  2000 Annual  Report to  Stockholders,  Proxy
Statement for the annual  meeting of the Parent's  shareholders  on November 16,
1999, Form 10-Q for the period ended April 30, 2000 and Form 10-Q for the period
ended July 31, 2000.

                  "Parent Project or Projects" means the projects  identified in
Section 4.17 of the Parent Disclosure Schedule.

                  "person"  means  an  individual,   corporation,   partnership,
limited liability  company,  association,  trust,  unincorporated  organization,
other entity or group (as defined in Section 13(d) of the Exchange Act);

                  "Qualified  Project" means a Project that satisfies all of the
following  criteria:  (a) the Company Project produces qualified fuel within the
meaning of Section  29(c)(1)(B)(ii)  of the Code;  (b) the  Company  Project was
originally  placed in service no earlier than January 1, 1980, and no later than
June 30, 1998,  within the meaning of Sections 29(f) and (g) of the Code; (c) if
the Company Project was originally placed in service after December 31, 1996, it
was placed in service  pursuant to a binding  written  contract in effect before
January 1, 1997, within the meaning of Section  29(g)(1)(A) of the Code; and (d)
no  federal,  state or local  grants,  tax-exempt  bonds  or  subsidized  energy
financing was used to pay any part of the cost of the Project within the meaning
of Section 29(b) (3) of the Code, and no energy credits or enhanced oil recovery
credits  were  claimed by Seller or any prior owner with respect to the Project,
unless  already  recaptured  (as  described in Sections  29(b)(4) and (5) of the
Code).

                  "SEC" means the Securities and Exchange Commission.

                  "Securities Act" means the Securities Act of 1933, as amended,
together with the rules and regulations promulgated thereunder;

                  "Shareholder's  Percentage  Share"  shall mean the  percentage
derived by dividing  (i) the Merger  Consideration  Value which the  Shareholder
whose  Percentage  Share is being  measured is entitled to receive under Section
2.01 hereof and (ii) the aggregate Merger  Consideration  Value which all of the
Shareholders are entitled to receive under Section 2.01 hereof.

                  "Special  Shareholders"  mean those holders of Company  Common
Stock  identified as such on a certificate  provided by the Company to Parent at
least 5 business days prior to the Closing Date; provided,  however,  that if no
such   certificate   is  provided  by  such  time  there  shall  be  no  Special
Shareholders.  Such  certificate  shall  state the  number of shares of  Company
Common Stock held by such Special Shareholders.

                  "subsidiary" or  "subsidiaries"  of Parent,  the Company,  the
Surviving  Corporation or any other person, means any corporation,  partnership,
joint venture or other legal entity of which Parent, the Company,  the Surviving
Corporation or such other person, as the case may be (either alone or through or
together with any other subsidiary),  either owns, directly or indirectly, fifty
percent  (50%) or more of the stock or other  equity  interests  the  holders of
which are  generally  entitled  to vote for the  election,  or has the  ability,
directly or indirectly,  to cause the  appointment of a majority of the board of
directors or other governing body of such corporation or other legal entity; and

                  "Taxes"  means  any  and  all  taxes,  fees,  levies,  duties,
tariffs,  imposts,  and other  charges  of any kind  (together  with any and all
interest,  penalties,  additions  to tax and  additional  amounts  imposed  with
respect  thereto)  imposed by any  government  or taxing  authority,  including,
without  limitation:  taxes or  other  charges  on or with  respect  to  income,
franchises,  windfall or other profits,  gross receipts,  property,  sales, use,
capital stock,  payroll,  employment,  social security,  workers'  compensation,
unemployment compensation, or net worth; taxes or other charges in the nature of
excise,  withholding,  ad valorem, stamp, transfer, value added, or gains taxes;
license,  registration and documentation  fees; and customers' duties,  tariffs,
and similar charges.


                  (b) Index of Certain Additional Defined Terms. As used in this
Agreement,  the following  terms have the  respective  meanings set forth in the
Section hereof following such term:

<TABLE>
<CAPTION>
<S>
                                                                                   <C>

Term                                                                                Section

Additional Parent Common Stock .................................................    Section 2.01(b)
Agreement ......................................................................    Preamble
AJG ............................................................................    Recitals
AJG Agreement...................................................................    Recitals
AJG Gasco Transaction ..........................................................
AJG Genco Transaction...........................................................    Recitals
Assets..........................................................................    Section 3.11(a)
Audited 2000 Financial Statements...............................................    Section 2.05(a)
Authorized Parent Preferred Stock ..............................................    Section 4.03
Average Parent Share Price......................................................    Section 2.01(c)
Benefit Plans ..................................................................    Section 3.17(a)
Board...........................................................................    Section 7.03(g)
Cash Payment ...................................................................    Section  2.01(a)
CERCLA .........................................................................    Section 3.20(d)
CERCLIS.........................................................................    Section 3.20(d)
Certificate.....................................................................    Section 2.02
Certificates of Merger .........................................................    Section 1.02
CES.............................................................................    Recitals
CGS.............................................................................    Recitals
Cinergy Gasco Purchase and Sale Agreement.......................................    Recitals
Cinergy Subscription Agreement..................................................    Recitals
Cinergy Transactions............................................................    Recitals
Claims..........................................................................    Section 3.20(d)
Closing.........................................................................    Section 2.04
Closing Date....................................................................    Section 2.04
Code ...........................................................................    Recitals
Company ........................................................................    Preamble
Company Common Stock ...........................................................    Section 2.01(a)
Company Disclosure Schedule ....................................................    Article III
Company Material Adverse Effect.................................................    Section 3.01
Company Option..................................................................    Section 2.03
Company Outstanding Proposals ..................................................    Section 3.21(d)
Company Preferred Stock ........................................................    Section 2.01(a)
Company Project ................................................................    Section 3.19
Company Shareholder.............................................................    Section  6.14
Company Stock Option Plans......................................................    Section 2.03
Company Subsidiary .............................................................    Section 3.05(a)
Competing Transaction...........................................................    Section 6.01(c)
Construction Deficit............................................................    Section 2.05(b)
Construction Reserve............................................................    Section 2.05(b)
Contingent Merger Payment.......................................................    Section 2.01(a)
CSHC............................................................................    Recitals
CSHC Guarantee..................................................................    Recitals
Customer Contracts..............................................................    Section 3.21(a)(iii)
D&O Insurance ..................................................................    Section 6.09
DGCL ...........................................................................    Recitals
DOL ............................................................................    Section 3.17(a)
Draft Effective Date Balance Sheet..............................................    Section 2.05(a)
Effective Date Balance Sheet....................................................    Section 2.05(a)
Effective Date..................................................................    Section 1.02
Effective Date Report...........................................................    Section 2.05(a)
Effective Time .................................................................    Section 1.02
Engineer........................................................................    Section 2.05(b)
Environmental Claims............................................................    Section 3.20(d)
Environmental Laws .............................................................    Section 3.20(d)
Environmental Permits ..........................................................    Section 3.20(d)
ERISA ..........................................................................    Section 3.17(a)
Escrow Agreement ...............................................................    Recitals
ESI.............................................................................    Recitals
ESI Option......................................................................    Recitals
ESI Option Agreement............................................................    Section 6.14
ESI Warrants....................................................................    Section 6.14
Excess Reduction................................................................    Section 2.05(b)
Extraordinary Working Capital Deficit...........................................    Section 2.05(b)
FERC ...........................................................................    Section 3.29
FPA ............................................................................    Section 3.29
Financial Statements............................................................    Section 3.06
Future SEC Reports..............................................................    Section 6.01(d)
Governmental Entity ............................................................    Section 3.04
Guarantee ......................................................................    Section 2.01(a)
Hancock ........................................................................    Section 3.27
Hazardous Materials ............................................................    Section 3.20(d)
Indemnified Parties.............................................................    Section 6.09(b)
Indemnification Escrow Shares...................................................    Section 2.01(a)
Indemnification Agreement ......................................................    Recitals
IRS ............................................................................    Section 3.17(a)
KRC.............................................................................    Section 2.05(a)
Law ............................................................................    Section 3.04
Liabilities ....................................................................    Section 3.15
Loan Agreements ................................................................    Section 3.21(a)(ii)
Material Contracts .............................................................    Section 3.21(a)
Merger .........................................................................    Recitals
Merger Consideration............................................................    Section 2.01(a)
Merger Sub .....................................................................    Preamble
Merger Sub Common Stock ........................................................    Section 2.01(e)
Merger Sub Stockholders Agreement  .............................................    Recitals
Most Recent Audited Balance Sheet...............................................    Section 2.05(a)
NGA ............................................................................    Section 3.29
Nonqualifying Current Payable...................................................    Section 2.06(d)
Ordinary Course Working Capital Deficit.........................................    Section 2.05(b)
Outstanding Construction Cost...................................................    Section 2.05(b)
Parent .........................................................................    Preamble
Parent Assets...................................................................    Section 4.10(a)
Parent Benefit Plans............................................................    Section 4.15(a)
Parent Common Stock ............................................................    Section 2.01(a)
Parent Customer Contracts.......................................................    Section 4.19(iii)
Parent Disclosure Schedule......................................................    Article IV
Parent Financial Statements.....................................................    Section 4.24(b)
Parent Loan Agreements..........................................................    Section 4.19(a)(ii)
Parent Material Adverse Effect..................................................    Section 4.01
Parent Material Contracts.......................................................    Section 4.19(a)
Parent Option...................................................................    Section 4.03(a)
Parent Outstanding Proposals....................................................    Section 4.19(d)
Parent Permits..................................................................    Section 4.07
Parent Projects.................................................................    Section 4.17
Parent SEC Reports .............................................................    Section 4.24(a)
Parent Series C Preferred Stock.................................................    Section 2.01(a)
Parent  Stock Option Plans......................................................    Section  4.03(a)
Parent Subsidiary...............................................................    Section 4.05(a)
Parent Warrants.................................................................    Section 2.01(a)
Permits ........................................................................    Section 3.08
Proxy Statement.................................................................    Section 6.01(a)
PUHCA...........................................................................    Section 3.29
PURPA ..........................................................................    Section 3.29
Qualifying Facility.............................................................    Section 3.29
Registration Rights Agreement...................................................    Recitals
Representation Letter ..........................................................    Section  7.02(i)
Representatives.................................................................    Section 6.03(a)
Series A Stock..................................................................    Section 2.01(a)
Series B Stock..................................................................    Section 2.01(a)
Series C Stock..................................................................    Section 2.01(a)
Shareholder Representative .....................................................    Section 2.05(b)
Shareholders....................................................................    Section 2.05(a)
Shortfall.......................................................................    Section 2.05(b)
Signing Options.................................................................    Section 2.03
Specific Third Party Consents...................................................    Section 6.04(d)
Stockholders' Approvals.........................................................    Section 7.01(a)
Stockholders' Meetings..........................................................    Section 6.02
Surviving Corporation ..........................................................    Section 1.01
Termination Date................................................................    Section 2.04
Transaction Documents...........................................................    Section 7.02(c)
Voting Agreement ...............................................................    Recitals
Warrant Shares..................................................................    Section 2.01(a)
Working Capital Escrow Shares...................................................    Section 2.01(a)
YESCO...........................................................................    Recitals
YESCO Agreement.................................................................    Recitals
YESCO Transaction...............................................................    Recitals
Zahren Employment Agreement ....................................................    Recitals
</TABLE>

<PAGE>


                                     ANNEX 2
                         PARENT SERIES C PREFERRED STOCK
                           CERTIFICATE OF DESIGNATION
                                 TO BE ATTACHED