Document:

EXHIBIT 10.10

                              EMPLOYMENT AGREEMENT

This employment agreement ("Agreement") is made and entered into as of this date
by and between ELGIN TECHNOLOGIES, INC. ("Corporation"), and JONATHAN SCOTT
HARRIS ("Employee").

WHEREAS, Employer and Employee desire that the term of this Agreement begin on
February 21, 2000 ("Effective Date").

WHEREAS, Employer desires to employ Employee as its President and Chief
Executive Officer and Employee is willing to accept such employment by Employer,
on the terms and subject to the conditions set forth in this Agreement.

NOW THEREFORE, IT IS AGREED AS FOLLOWS:

Section 1. Duties. During the term of this Agreement, Employee agrees to be
employed by and to serve Employer as its President and Chief Executive Officer,
and Employer agrees to employ and retain Employee in such capacities. Employee
shall devote the substantial portion of his business time, energy, and skill to
the affairs of the Employer as Employee shall report to the Employer's Board of
Directors and at all times during the term of this Agreement shall have powers
and duties at least commensurate with his position as President and Chief
Executive Officer.

Section 2. Term of Employment.

2.1 Definitions. For the purposes of this Agreement the following terms shall
have the following meanings:

      A. "Termination For Cause" shall mean termination by Employer of
Employee's employment by Employer by reason of Employee's willful dishonesty
towards, fraud upon, or deliberate injury or attempted injury to, Employer or by
reason of Employee's willful material breach of this Agreement that has resulted
in material injury to Employer.

      B. "Termination Other Than For Cause" shall mean termination by Employer
of Employee's employment by Employer (other than in a Termination for Cause) and
shall include constructive termination of Employee's employment by reason of
material breach of this Agreement by Employer, such constructive termination to
be effective upon notice from Employee to Employer of such constructive
termination.

      C. "Voluntary Termination" shall mean termination by Employee of
Employee's employment by Employer other than (i) constructive termination as
described in subsection 2.1(b), (ii) "Termination Upon a Change in Control," and
(iii) termination by reason of Employee's death or disability as described in
Sections 2.5 and 2.6.

      D. "Termination Upon a Change in Control" shall mean a termination by
Employee of Employee's employment with Employer within 120 days following a
"Change in Control."

<PAGE>

      E. "Change in Control" shall mean (i) the time that Employer first
determines that any person and all other persons who constitute a group (within
the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934
("Exchange Act")) have acquired direct or indirect beneficial ownership (within
the meaning of Rule 13d-3 under the Exchange Act) of twenty percent (20%) or
more of Employer's outstanding securities, unless a majority of the "Continuing
Directors" approves the acquisition not later than ten (10) business days after
Employer makes that determination, or (ii) the first day on which a majority of
the members of the Employer's Board of Directors are not "Continuing Directors."

      F. "Continuing Directors" shall mean, as of any date of determination, any
member of the Board of Directors of Employer who (i) was a member of that Board
of Directors on February 21, 2000, (ii) has been a member of that Board of
Directors for the two years immediately preceding such date of determination, or
(iii) was nominated for election or elected to the Board of Directors with the
affirmative vote of the greater of (x) a majority of the Continuing Directors
who were members of the Board at the time of such nomination or election or (y)
at least four Continuing Directors.

2.2 Initial Term. The term of employment of Employee by Employer shall be for a
period of two (2) years beginning on the Effective Date ("Initial Term"), unless
terminated earlier pursuant to this Section. At any time prior to the expiration
of the Initial Term, Employer and Employee may by mutual written agreement
extend Employee's employment under the terms of this Agreement for such
additional periods as they may agree.

2.3 Termination For Cause. Termination For Cause may be effected by Employer at
any time during the term of this Agreement and shall be effected by written
notification to Employee. Upon Termination For Cause, Employee shall promptly be
paid all accrued salary, bonus compensation to the extent earned, vested
deferred compensation (other than pension plan or profit sharing plan benefits
which will be paid in accordance with the applicable plan), any benefits under
any plans of the Employer in which Employee is a participant to the full extent
of Employee's rights under such plans, accrued vacation pay and any appropriate
business expenses incurred by Employee in connection with his duties hereunder,
all to the date of termination, but Employee shall not be paid any other
compensation or reimbursement of any kind, including without limitation,
severance compensation.

2.4 Termination Other Than For Cause. Notwithstanding anything else in this
Agreement, Employer may effect a Termination Other Than For Cause at any time
upon giving written notice to Employee of such termination. Upon any Termination
Other Than For Cause, Employee shall promptly be paid all accrued salary, bonus
compensation to the extent earned, vested deferred compensation (other than
pension plan or profit sharing plan benefits which will be paid in accordance
with the applicable plan), any benefits under any plans of the Employer in which
Employee is a participant to the full extent of Employee's rights under such
plans (including accelerated vesting, if any, of awards granted to Employee
under the Employer's stock option plan), accrued vacation pay and any
appropriate business expenses incurred by Employee in connection with his duties
hereunder, all to the date of termination, and all severance

                                       2
<PAGE>

compensation provided in Section 4.2, but no other compensation or reimbursement
of any kind.

2.5 Termination by Reason of Disability. If, during the term of this Agreement,
Employee, in the reasonable judgment of the Board of Directors of Employer, has
failed to perform his duties under this Agreement on account of illness or
physical or mental incapacity, and such illness or incapacity continues for a
period of more than six (6) consecutive months, Employer shall have the right to
terminate Employee's employment hereunder by written notification to Employee
and payment to Employee of all accrued salary, bonus compensation to the extent
earned, vested deferred compensation (other than pension plan or profit sharing
plan benefits which will be paid in accordance with the applicable plan), any
benefits under any plans of the Employer in which Employee is a participant to
the full extent of Employee's rights under such plans, accrued vacation pay and
any appropriate business expenses incurred by Employee in connection with his
duties hereunder, all to the date of termination, with the exception of medical
and dental benefits which shall continue through the expiration of the Initial
Term, but Employee shall not be paid any other compensation or reimbursement of
any kind, including without limitation, severance compensation.

2.6 Death. In the event of Employee's death during the term of this Agreement,
Employee's employment shall be deemed to have terminated as of the last day of
the month during which his death occurs and Employer shall promptly pay to his
estate or such beneficiaries as Employee may from time to time designate all
accrued salary, bonus compensation to the extent earned, vested deferred
compensation (other than pension plan or profit sharing plan benefits which will
be paid in accordance with the applicable plan), any benefits under any plans of
the Employer in which Employee is a participant to the full extent of Employee's
rights under such plans, accrued vacation pay and any appropriate business
expenses incurred by Employee in connection with his duties hereunder, all to
the date of termination, but Employee's estate shall not be paid any other
compensation or reimbursement of any kind, including without limitation,
severance compensation.

2.7 Voluntary Termination. In the event of a Voluntary Termination, Employer
shall promptly pay all accrued salary, bonus compensation to the extent earned,
vested deferred compensation (other than pension plan or profit sharing plan
benefits which will be paid in accordance with the applicable plan), any
benefits under any plans of the Employer in which Employee is a participant to
the full extent of Employee's rights under such plans, accrued vacation pay and
any appropriate business expenses incurred by Employee in connection with his
duties hereunder, all to the date of termination, but no other compensation or
reimbursement of any kind, including without limitation, severance compensation.

2.8 Termination Upon a Change in Control. In the event of a Termination Upon a
Change in Control, Employee shall immediately be paid all accrued salary, bonus
compensation to the extent earned, vested deferred compensation (other than
pension plan or profit sharing plan benefits which will be paid in accordance
with the applicable plan), any benefits under any plans of the Employer in which
Employee is a participant to the full extent of Employee's rights under such
plans (including accelerated vesting, if any, of any awards granted to Employee
under Employer's Stock Option Plan), accrued vacation pay and any appropriate
business expenses

                                       3
<PAGE>

incurred by Employee in connection with his duties hereunder, all to the date of
termination, and all severance compensation provided in Section 4.1, but no
other compensation or reimbursement of any kind.

2.9 Notice of Termination. Employer may effect a termination of this Agreement
pursuant to the provisions of this Section upon giving thirty (30) days' written
notice to Employee of such termination. Employee may effect a termination of
this Agreement pursuant to the provisions of this Section upon giving thirty
(30) days' written notice to Employer of such termination.

Section 3. Salary, Benefits and Bonus Compensation.

3.1 Base Salary. As payment for the services to be rendered by Employee as
provided in Section 1 and subject to the terms and conditions of Section 2,
Employer agrees to pay to Employee a "Base Salary" during the Initial Term and
any extensions thereof in the amount of ONE HUNDRED AND FIFTY THOUSAND DOLLARS
$150,000 per annum payable in equal monthly installments of TWELVE THOUSAND FIVE
HUNDRED DOLLARS ($12,500).

3.2 Bonuses. Employee shall be eligible to receive a bonus for each year (or
portion thereof) during the Initial Term and any extensions thereof this
Agreement and any extensions thereof, based upon the financial performance of
the Employer during such year, as follows:

(a) TWENTY FIVE THOUSAND DOLLARS ($25,000), if the Employer attains annual sales
of at least TWELVE MILLION DOLLARS (($12,000,000), plus

(b) TWENTY FIVE THOUSAND DOLLARS ($25,000) if the Employer attains annual EBITDA
of at least FIVE HUNDRED THOUSAND DOLLARS ($500,000)

3.3 Additional Benefits. During the term of this Agreement, Employee shall be
entitled to the following additional benefits:

      A. Employee Benefits. Employee shall be eligible to participate in such of
Employer's benefits and deferred compensation plans as are now generally
available or later made generally available to executive officers of the
Employer, including, without limitation, Employer's Stock Option Plan, profit
sharing plans, annual physical examinations, dental and medical plans, personal
catastrophe and disability insurance, financial planning, retirement plans and
supplementary executive retirement plans, if any. For purposes of establishing
the length of service under any benefit plans or programs of Employer,
Employee's employment with the Employer will be deemed to have commenced on the
Effective Date. Notwithstanding the general availability of the foregoing
benefit plans to the Employers's executive officers, Employer will in any event
provide to Employee during the Initial Term and any extensions therof:

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            (i) Major Medical Insurance coverage for the Employee, his wife and
his children; and

            (ii) Non-statutory options to purchase TWO HUNDRED THOUSAND
(200,000) shares of the Employer's common stock for each year that this
agreement is in effect, at an exercise price equal to the average market bid
price for the thirty (30) day period preceding the date of such options, to be
granted by the Employer on or about the forty-fifth day following the end of
each year of the term hereof Each such option will vest over the three (3) year
period commencing on the date that it is granted at the rate of thirty-three and
thirty-three one-hundredths percent (33.33%) per year.

      D. Vacation. Employee shall be entitled to four (4) weeks of vacation
during each year during the term of this Agreement and any extensions thereof,
prorated for partial years.

      C. Moving and Temporary Housing Costs. The Employer will reimburse
Employee for fifty percent (50%) of his reasonable moving costs associated with
his relocation and one hundred percent (100%) of a temporary furnished executive
residence for a reasonable period of time until he has secured permanent
housing.

      D. Automobile Allowance. For the Initial Term and any extensions thereof,
the corporation shall provide Employee with a reasonable annual automobile
allowance.

      E. Reimbursement for Expenses. During the Initial Term and any extensions
thereof, Employer shall reimburse Employee for reasonable and properly
documented out-of-pocket business and/or entertainment expenses incurred by
Employee in connection with his duties under this Agreement.

Section 4. Severance Compensation.

4.1 Severance Compensation in the Event of a Termination Upon a Change in
Control. In the event Employee's employment is terminated in a Termination Upon
a Change in Control, Employee shall be paid as severance compensation his Base
Salary (at the rate payable at the time of such termination), for a period of
the lesser of the remaining portion of the Initial Term or four (4) months from
the date of such termination provided, however, that if Employee is employed by
a new employer during such period, the severance compensation payable to
Employee during such period will be reduced by the amount of compensation that
Employee actually receives from the new employer. However, Employee is under no
obligation to mitigate the amount owed Employee pursuant to this Section by
seeking other employment or otherwise. Notwithstanding anything in this Section
to the contrary, Employee may in Employee's sole discretion, by delivery of a
notice to Employer within thirty (30) days following a Termination Upon a Change
in Control, elect to receive Compensation in the form of a lump sum severance
payment by bank cashier's check equal to the present value of the flow of cash
payments that would otherwise be paid to Employee pursuant to this Section.
Employee shall also be entitled

                                       5
<PAGE>

to an accelerated vesting of any awards granted to Employee under the Employer's
Stock Option Plan to the extent provided in the stock option agreement entered
into at the time of grant, if any. Employee shall continue to accrue retirement
benefits and shall continue to enjoy any benefits under any plans of the
Employer in which Employee is a participant to the full extent of Employee's
rights under such plans, including any perquisites provided under this
Agreement, though the remaining term of this Agreement; provided, however, that
the benefits under any such plans of the Employer in which Employee is a
participant, including any such perquisites, shall cease upon re-employment by a
new employer.

4.2 Severance Compensation in the Event of a Termination Other Than for Cause.
In the event Employee's employment is terminated in a Termination Other Than for
Cause, Employee shall be paid as severance compensation his Base Salary (at the
rate payable at the time of such termination), for a period of the lesser of the
remaining portion of the Initial Term or four (4) months from the date of such
termination, on the dates specified in Section 3.1; provided, however, that if
Employee is employed by a new employer during such period, the severance
compensation payable to Employee during such period will be reduced by the
amount of compensation that Employee is receiving from the new employer.
Employee is under no obligation to mitigate the amount owed to the Employee
pursuant to this Section by seeking employment or other compensation. Employee
shall be entitled to an accelerated vesting of any awards granted to Employee
under Employer's Stock Option Plan to the extent provided in the stock option
agreement entered into at the time of grant, if any.

4.3 No Severance Compensation Upon Other Termination. In the event of a
Voluntary Termination, Termination For Cause, termination by reason of
Employee's disability pursuant to Section 2.6, Employee or his estate shall not
be paid any severance compensation.

4.4 Limit on Aggregate Compensation Upon a Change in Control. Notwithstanding
anything else in this Agreement, solely in the event of a Termination Upon a
Change in Control pursuant to Section 2.8, the amount of severance compensation
paid to Employee under Section 2 and 4 or otherwise, but exclusive of any
payments to Employee in respect of any stock options then held by Employee (or
any compensation deemed to be received by Employee in connection with the
exercise of any stock options at any time) or by virtue of Employee's exercise
of a Limited Right under the Option Plan upon a Change in Control, shall not
include any amount that Employer is prohibited from deducting for federal income
tax purposes by virtue of Section 280G of the Internal Revenue Code or any
successor provision.

Section 5. Payment Obligations. Employer's obligation to pay Employee the
compensation and to make the arrangements provided herein shall be
unconditional, and Employee shall have no obligation whatsoever to mitigate
damages hereunder. If litigation after a Change in Control shall be brought to
enforce or interpret any provision contained herein, Employer, to the extent
permitted by applicable law and the Employers' Articles of Incorporation and
Bylaws, hereby

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<PAGE>

indemnifies Employee for Employee's reasonable attorneys' fees and disbursements
incurred in such litigation.

Section 6. Confidentiality. Employee agrees that all confidential and
proprietary information relating to the business of Employer shall be kept and
treated as confidential both during and after the term of this Agreement, except
as may be permitted in writing by Employer's Board of Directors or as such
information is within the public domain or comes within the public domain
without any breach of this Agreement.

Section 7. Withholdings. All compensation and benefits to Employee hereunder
shall be reduced by all federal, state, local and other withholdings and similar
taxes and payments required by applicable law.

Section 8. Indemnification. In addition to any rights to indemnification to
which Employee is entitled to under the Employer's Articles of Incorporation and
Bylaws, Employer shall indemnify Employee at all times during and after the term
of this Agreement to the maximum extent permitted under any applicable state
law, and shall pay Employee's expenses in defending any civil or criminal
action, suit, or proceeding in advance of the final disposition of such action,
suit or proceeding, to the maximum extent permitted under such applicable state
laws.

Section 9. Notices. Notice under this Agreement shall be in writing, sent by
mail, national overnight delivery service or facsimile and shall be effective
when actually delivered. If mailed, notice shall be deemed effective 48 hours
after mailing as registered or certified mail, postage prepaid, directed to the
other party at the address set forth below or such other address as the party
may indicate by written notice to the other:

            To Employer:

                  Elgin Technologies
                  12 Executive Drive
                  Hudson, NH 03051
                  Attention: Chairman of the Board

            With a copy to:

                  Duane L. Berlin, Esq.
                  Lev & Berlin, P.C.
                  535 Connecticut Avenue
                  Norwalk, CT. 06854

            To Employee:

                  Mr. Jonathon Scott Harris

                                       7
<PAGE>

Section 10. Waiver. Failure of either party at any time to require performance
of any provision of this Agreement shall not limit the party's right to enforce
the provision, nor shall any waiver of any breach of any provision be a waiver
of any succeeding breach of any provision or a waiver of the provision itself
for any other provision.

Section 11. Assignment. Except as otherwise provided within this Agreement,
neither party hereto may transfer or assign this Agreement without prior written
consent of the other party.

Section 12. Law Governing. This Agreement shall be governed by and construed in
accordance with the laws of the State of New Hampshire.

Section 13. Arbitration. If at any time during the term of this Agreement any
dispute, difference, or disagreement shall arise upon or in respect of the
Agreement, and the meaning and construction hereof every such dispute,
difference, and disagreement shall be referred to a single arbiter agreed upon
by the parties, or if no single arbiter can be agreed upon, an arbiter or
arbiters shall be selected in accordance with the rules of the American
Arbitration Association and such dispute, difference, or disagreement shall be
settled by arbitration in accordance with the then prevailing commercial rules
of the American Arbitration Association, and judgment upon the award rendered by
the arbiter may be entered in any court having jurisdiction thereof.

Section 14. Attorney Fees. In the event an arbitration, suit or action is
brought by any party under this Agreement to enforce any of its terms, or in any
appeal therefrom, it is agreed that the prevailing party shall be entitled to
reasonable attorneys fees to be fixed by the arbitrator, trial court, and/or
appellate court.

Section 15. Titles and Captions. All article, section and paragraph titles or
captions contained in this Agreement are for convenience only and shall not be
deemed part of the context nor affect the interpretation of this Agreement.

Section 16. Entire Agreement. This Agreement contains the entire understanding
between and among the parties and supersedes any prior understandings and
agreements among them respecting the subject matter of this Agreement.

Section 17. Agreement Binding. This Agreement shall be binding upon the heirs,
executors, administrators, successors and assigns of the parties hereto.

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<PAGE>

Section 18. Further Action. The parties hereto shall execute and deliver all
documents, provide all information and take or forbear from all such action as
may be necessary or appropriate to achieve the purposes of this Agreement.

Section 19. Counterparts. This Agreement may be executed in several counterparts
and all so executed shall constitute one Agreement, binding on all the parties
hereto even though all the parties are not signatories to the original or the
same counterpart.

N WITNESS WHEREOF, the parties have executed this agreement as of the date first
set forth above.

EMPLOYER
ELGIN TECHNOLGIES, INC.

/s/ Michael Smith
-------------------------------------
By: Michael Smith
Its: Interim Chief Executive Officer

EMPLOYEE
JONATHAN SCOTT HARRIS

/s/ Jonathan Scott Harris
-------------------------------------

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<PAGE>

                                                                     EXHIBIT A-1

                      The Elgin Master Light Ballast System
                    Market Potential and Economic Uncertainty

                                                                       Henry Lee
                                                                    Joe Cavicchi

                                                                    June 8, 1998

                                              ----------------------------------

                                              THE ECONOMICS RESOURCE GROUP, INC.

                                                               One Mifflin Place
                                                             Cambridge, MA 02138
                                                                  (617) 491-4900

<PAGE>

Elgin MLBS                                                                     2
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I     INTRODUCTION

The Elgin Master Light Ballast System (MLBS) is a highly efficient fluorescent
lighting ballast system that delivers considerable operating cost savings and
high quality features when compared against any currently available fluorescent
light ballast. In conjunction with the imminent introduction of the MLBS in the
marketplace, Mason Cabot and Elgin Corporation have asked The Economics Resource
Group, Inc. to evaluate three critical questions: i) What is the size of the
market that the MLBS could potentially capture both nationally as well as within
selected states?(1), ii) What is the value of the MLBS in light of the size and
location of the markets?, and iii) What will be the effects of electric industry
restructuring on the MLBS markets?

These questions are of significance to Elgin because the markets in which the
MLBS will be introduced have historically been heavily influenced by both
federal and state government. Heretofore, a substantial portion of the demand
for efficient fluorescent lighting ballasts has been driven by government and
state mandated demand side management (DSM) and energy efficiency programs. The
proliferation of these programs has resulted in the investment of substantial
monies directed toward the replacement of antiquated, inefficient fluorescent
lighting and ballast systems, as well as incandescent lighting systems.

At the same time, electricity industry restructuring is creating an exciting new
opportunity for the MLBS. Although many federal and state programs will
continue, the introduction of competition amongst suppliers of electricity is
establishing a landscape where the savvy electricity marketer or utility
subsidiary is bundling a variety of products in order to offer the lowest costs
to a consumer. An important component of such an "electricity package" will be
simple, easy to install, energy efficient products that allow a marketer to
boast energy savings for the consumer and as a result offer the consumer a lower
energy price.

The following three sections of this report examine respectively the size of the
current and future markets available to the MLBS, the potential MLBS sales
volume and value, and how electricity industry restructuring is changing
electricity

----------
(1) The states of New Jersey, Pennsylvania, Maryland, Ohio, Wisconsin and
California are studied in detail in this report.

                                                                           DRAFT
                                              THE ECONOMICS RESOURCE GROUP, INC.

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Elgin MLBS                                                                     3
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markets in states and regions. First we analyze the potential market share that
the MLBS could capture in the commercial lighting retrofit and new commercial
building construction markets. We have purposely biased our analysis to err on
the conservative size by focussing only on the commercial lighting sector.
Second we evaluate, from the perspective of a potential purchaser of the MLBS,
the financial performance of the product. Within this framework the potential
sales value of the MLBS to its patent holders is established. Finally we discuss
the current state of electricity industry restructuring, and how it will impact
the introduction of the MLBS, with a particular focus on New Jersey,
Pennsylvania, Maryland, Ohio, Wisconsin and California.

                                                                           DRAFT
                                              THE ECONOMICS RESOURCE GROUP, INC.
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Elgin MLBS                                                                     4
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II    MAGNITUDE OF THE MASTER LIGHT BALLAST SYSTEM MARKET

The market potential for the MLBS is enormous. Since 1985, shipments of
electronic ballasts have grown to more than 35 million units or greater than 45%
of the total domestically produced ballasts shipped to the U.S. commercial
sector. Possessed with a finely tuned strategy, the MLBS stands poised to
capture some of this vast market.

Two markets are of most interest to distributors of the MLBS: 1) the fluorescent
lighting retrofit market, and 2) the new construction market. The retrofit
lighting market, driven by state and federal energy conservation programs,
offers substantial distribution potential. Nationally half of the existing
commercial buildings illuminated with fluorescent lights, or some 23 billion
square feet, employ ballasts that are less efficient than the MLBS. Of these 23
billion square feet, more than 40% continue to use the least efficient ballast
systems, sold in the U.S. prior to 1991.

The new commercial building construction market also offers substantial market
opportunity for the MLBS. Each year some 2 billion square feet of new commercial
building space is constructed, and most of this space will be lighted with
fluorescent lamps. The combination of these two markets provide a sales
potential of 150 million MLBS units.(2)

II.A  Background

The MLBS is a new technology for providing the power and control required to
properly and efficiently illuminate fluorescent light bulbs. The MLBS replaces
the conventional fixture configuration--where one ballast is necessary for every
two fluorescent bulbs--with an electronic ballast system that combines a 16 or
32 fixture power supply with individual fixture "drivers".(3) Although
electronic ballasts have

----------
(2) Although the MLBS is a "system," in order to simplify our discussion we have
chosen to express sales potential in number of units where a unit corresponds to
a single ballast.
(3) See Logic Laboratories, Inc., June 13, 1997, "Background and Technology
Primer" for a detailed discussion of fluorescent lights, ballast technologies
and the MLBS.

                                                                           DRAFT
                                              THE ECONOMICS RESOURCE GROUP, INC.
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Elgin MLBS                                                                     5
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been manufactured for more than ten years, the MLBS is more efficient than any
other electronic ballast system on the market.

The difference between the high efficiency magnetic and electronic ballasts is
described by their names: Electronic ballasts eliminate the need for a magnet by
using electronic circuitry to control the voltage and electrical current, while
high efficiency magnetic ballasts are optimally designed core-coil type
ballasts. Electronic ballasts reduce electricity consumption 20-25% when
compared with the older core-coil design, and high efficiency magnetic ballasts
reduce electricity consumption 10-15%. The MLBS represents a major improvement
over existing electronic ballasts, using as much as 40% less energy than the
core-coil design (see Table 1).(4)

                                    Table 1:
       Modern Ballast Electricity Savings in Comparison to Core-Coil Type
                                    Ballasts

================================================================================
      Ballast Type                 Savings Compared to Core-Coil Type Ballast
--------------------------------------------------------------------------------
High-Efficiency Magnetic                               10-15%
Electronic                                             20-25%
MLBS                                                   35-40%
================================================================================

Source: LBNL Lighting Report; Logic Laboratories, Inc., 6/13/97 "Background and
Technology Primer"

Currently there are three types of fluorescent light ballast technologies
available in the market: 1) high efficiency magnetic, 2) hybrid, and 3)
electronic. Hybrid ballasts account for a very small share of the market, and we
have ignored them in our analysis. Figure 1 shows the quantities and types of
ballasts shipped to the U.S. commercial sector since 1977.(5) Sales of magnetic
core-coil ballasts to the U.S. Commercial sector declined precipitously over the
three year period 1988-1991, primarily as a result of the implementation of
federal and state efficiency standards. Both high efficiency magnetic and
electronic ballast sales skyrocketed during this period, but as Figure 1 shows
electronic ballasts have begun to capture

----------
(4) See Logic Laboratories, Inc., June 13, 1997, "Background and Technology
Primer."
(5) The Bureau of the Census reports the shipments of ballasts to the U.S.
commercial sector. We assume that these shipments represent total sales and that
the majority of ballasts are installed in the year they are shipped.

                                                                           DRAFT
                                              THE ECONOMICS RESOURCE GROUP, INC.
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Elgin MLBS                                                                     6
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an ever increasing larger share of the market. Today electronic ballasts control
over 45% percent of the U.S. commercial market.

                                    Figure 1:
       Shipments of Domestically Produced Ballasts to the U.S. Commercial
                                     Sector

                               [GRAPHIC OMITTED]

Source: Bureau of the Census MQ36C; Lawrence Berkeley National Laboratory
Lighting Market Sourcebook for the U.S., December 1997.

II.B  MLBS Markets

The primary target market considered in this report for the MLBS is the
commercial building sector. More than 77% of existing US commercial floorspace
is lit by fluorescent light fixtures and commercial buildings are the dominant
users of fluorescent lighting (see Figure 2).(6)

----------
(6) Although industrial facilities rely on fluorescent lamps, the total
floorspace attributed to industrial facilities is approximately 25% of that of
commercial buildings. Further, numerous detailed data sources are available
describing commercial building characteristics, as opposed to industrial
building characteristics. Therefore, this analysis has not incorporated
industrial facilities and as a

                                                                           DRAFT
                                              THE ECONOMICS RESOURCE GROUP, INC.
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Elgin MLBS                                                                     7
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                                    Figure 2:
            Percent of Commercial Floorspace by Lighting Type in 1995

                               [GRAPHIC OMITTED]

Source: EIA, 1995 Commercial Building Energy Consumption Survey.

With the focus narrowed to commercial buildings two significant potential
outlets for the MLBS emerge; new commercial building construction or
rehabilitation and retrofitting of existing fluorescent lighting systems. Each
of these markets holds substantial potential for the MLBS, but each has unique
characteristics that require separate analysis. In the case of new construction,
the MLBS will be competing against existing electronic ballast technology. In
this situation an investor will apply an up-front cost test that may or may not
adequately take into account long term operational savings. In the case of
retrofits the MLBS will be competing in a market where a significant proportion
of existing buildings have already been retrofitted, narrowing the potential
breadth of this market. These two

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result our findings should be viewed as very conservative estimates. We have
also not studied the potential for the MLBS to serve the residential lighting
market.

                                                                           DRAFT
                                              THE ECONOMICS RESOURCE GROUP, INC.
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Elgin MLBS                                                                     8
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market opportunities have different attributes over both the short and long
term. The following sections develop an estimate of the potential magnitude of
each of these markets.

      II.B.1 Energy Conservation Retrofits

Lighting retrofits associated with energy conservation projects represent the
largest market opportunity for the MLBS. Energy conservation projects have
driven the adoption of newer, more efficient ballast technologies during the
previous ten years.

Figure 3 shows nationwide trends in investor owned utilities' expenditures for
demand side management and energy conservation programs. This figure

                                    Figure 3:
         Demand Side Management/Energy Conservation Program Expenditures

                               [GRAPHIC OMITTED]

Source: EIA Annual Energy Review and Personal Communication with the EIA.

clearly explains why high efficiency magnetic and electronic ballast sales took
off in the early 90s: Growth in energy conservation program expenditures
coincides exactly with the increase in ballast sales. Prior to these programs,
the majority of

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Elgin MLBS                                                                     9
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ballast sales were driven by new building construction and rehabilitation. Once
the DSM programs commenced in earnest, ballast sales boomed as existing
commercial and industrial building stock began to retrofit its lighting.

The prominent role that energy conservation programs have played in driving the
demand for efficient ballasts is of major importance when analyzing the future
retrofit market for the MLBS. Energy conservation programs target existing
inefficient buildings and typically use incentives to persuade building owners
to implement conservation measures. Given that the stock of existing buildings
was finite when these programs were conceived, it is imperative to consider how
many commercial buildings have been retrofitted since the programs' inception in
order to determine the remaining size of the retrofit market.

Figure 4 shows the percentage of commercial floorspace with energy efficient
ballasts by census division as reported in the ETA Commercial Building Energy
Consumption Survey (CBECS).(7) These data show that the Northeast and the
Pacific currently have more floorspace with energy efficient ballasts than other
parts of the country and that 48% of the total floorspace in the United States
is lighted by these ballasts. Figure 4 clearly demonstrates the importance of
recognizing the extent to which existing commercial building floorspace
currently uses energy efficient ballasts. Unfortunately these data reveal
percentages by census division, and we are looking for data at the state level.
To overcome this problem we developed a methodology to estimate the extent to
which energy conservation programs have penetrated the existing stock of
commercial buildings in specific states.(8) This methodology was used to
estimate the square footage of commercial buildings with energy efficient
ballasts in the states of interest.

----------
(7) These percentages are subject to a +/- 10-15% error.
(8) See Appendix A-1 for a detailed description of the methodology.

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Elgin MLBS                                                                    10
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                                    Figure 4:
       Percent of Commercial Floorspace with Energy Efficient Ballasts by
                                Census Division

                               [GRAPHIC OMITTED]

Source: EIA, 1995 Commercial Building Consumption Survey.

The results of the application of the methodology described above are shown in
Tables 2 and 3 for each of the states considered in this study. These tables
present an estimate of the quantity of commercial floorspace in each of the
states, quantities of floorspace that use fluorescent lights, incandescent
lights and other lights (derived from Figure 1), the percentage distributions of
ballasts for the square footage lit with fluorescent lights and estimates of the
potential size of the MLBS market in each of the six states analyzed.

Table 2 shows the extent to which electronic and high efficiency ballasts have
already been installed in existing commercial buildings. This is important when
evaluating the market potential of the MLBS because the largest energy savings
occur when the MLBS replaces a core-coil ballast. Those buildings where
core-coil ballasts still are utilized represent the greatest market potential
for the MLBS in

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Elgin MLBS                                                                    11
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the short term, while efficient magnetic ballasts are the next logical target
retrofit market. The potential for the MLBS to supplant recently installed
electronic ballasts is minimal as the resulting energy savings are not large
enough to justify the investment.

                                    Table 2:
              Commercial Sector Lighting and Ballast Type by State

<TABLE>
<CAPTION>
===========================================================================================================================
                                         Lighting Type (millions ft(2))                      Ballast Type
State                             Total    Incandescent   Fluorescent  Other    Standard   Efficient-Magnetic    Electronic
---------------------------------------------------------------------------------------------------------------------------
<S>                               <C>           <C>          <C>         <C>      <C>             <C>                <C>
Pennsylvania                      2,625         368          2,021       236      44.3%           49.7%              5.9%

New Jersey                        2,225         312          1,713       200      44.3%           49.7%              5.9%

Maryland                          1,751         245          1,348       158      48.8%           45.3%              5.9%

Ohio                              2,955         414          2,275       266      55.9%           38.9%              5.2%

Wisconsin                         1,153         161            887       104      55.9%           38.2%              5.9%

California                        6,346         888          4,887       571      45.1%           31.3%             23.6%
---------------------------------------------------------------------------------------------------------------------------
Total                            17,055       2,388         13,132     1,535      47.8%           39.8%             12.4%
===========================================================================================================================
</TABLE>

Note: 1)    Commercial floorspace is estimated by multiplying the total
            commercial consumption of electricity (EIA, Electric Power Annual,
            1997) by the average percentage of electricity consumed by lighting
            (28%, commercial Building Energy Consumption Survey", EIA, 1995, see
            also LBNL "Lighting Market Sourcebook," p.22) and dividing by 3.6
            kwh/sq. ft/yr which is the average lighting density of commercial
            buildings weighted by commercial building type. (LBNL at p.25).
      2)    Ballast type total percentages are weighted by fluorescent lighting
            square footage.

Source: EIA, 1995 Commercial Building Energy Consumption Survey: Lighting
        Efficiency Technology Report, California Energy Commission, 1997.

                                    Table 3:

                           Potential MLBS Market Size

<TABLE>
<CAPTION>
==========================================================================================
                     Commercial Building Square Footage by       Potential to Retrofit
                          Ballast Type (millions ft(2))       Standard, Efficient Magnetic
                                                                   & Electronic Units

State              Standard    Efficient Magnetic   Electronic   (Millions of Units(1))
------------------------------------------------------------------------------------------
<S>                    <C>            <C>                <C>               <C>
Pennsylvania           896            1,005              120               20
New Jersey             759              852              102               17
Maryland               658              610               80               13
Ohio                 1,272              886              117               23
Wisconsin              496              339               53                9
California           2,202            1,529            1,155               49
------------------------------------------------------------------------------------------
Total                6,283            5,222            1,628              131
==========================================================================================
</TABLE>

Note: 1) One unit is equivalent to a single ballast used to drive one two lamp
fixture.

Source: EIA, 1995 Commercial Building Energy Consumption Survey: Lighting
        Efficiency Technology Report, California Energy Commission, 1997.

Table 3 is developed by expanding a subset of the data in Table 2. For example,
in the state of Ohio, it is estimated that 43% of the 1995 quantity of
floorspace or

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Elgin MLBS                                                                    12
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1,271 million ft(2), are illuminated with fluorescent lights that use magnetic
core-coil ballasts. Similarly, Table 3 presents the amount of floorspace that
might potentially be upgraded from existing high efficiency ballasts to the
MLBS. Table 3 also shows the potential MLBS sales volumes in terms of single
ballasts. If the MLBS were to replace all the core-coil ballasts in the six
states shown, sales of 62.8 million units would be expected, assuming that 100
square feet can be effectively illuminated by a two lamp fixture.

Although this report provides estimates of the total potential retrofit market
size available for the MLBS, the actual amount of retrofit penetration that
could be achieved by the MLBS is dependent upon numerous factors. A subset of
these factors--electricity industry competition and future energy conservation
programs--are considered in this report. Other factors such as existing
competitor market penetration and name recognition, consumer knowledge of the
product and confidence in the product, marketing technique, most appropriate
production plans, etc. have not been evaluated in this report, but are also
important.

      II.B.2 New Commercial Building Construction

The Energy Information Agency (ETA) indicates in its 1998 Annual Energy Outlook
that commercial building construction increased dramatically in the mid-90s,
especially in the southeast part of the country.(9) This growth is forecasted to
decline slightly between 1999-2002 and then level off. On a floorspace basis
these forecasted additions are almost 2 billion square feet in the year 1998 and
correspond to ballast sales of between 20 and 30 million units.(10) Furthermore,
these data do not include those buildings that are rehabilitated each year which
would represent an additional source of new construction. Figure 5 depicts the
EIA forecasts by census region.

----------
(9) To estimate the yearly square footage of new commercial building space
additions requires the collection of data on commercial building additions.
These data are collected and compiled by the Energy Information Administration
(EIA), aggregated by census divisions, and encompass both historically observed
building additions and forecasts of future additions.
(10) The amount of square footage illuminated with one 2 bulb fluorescent light
fixture can vary from 70-100ft(2)/fixture where each fixture requires one
ballast.

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Elgin MLBS                                                                    13
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                                    Figure 5:
                 New Commercial Construction by Census Division

                               [GRAPHIC OMITTED]

Source:  EIA Annual Energy Outlook 1998, National Energy Modeling System.

We have focussed particular attention on the states of Pennsylvania, New Jersey,
Maryland, Ohio, Wisconsin and California. Therefore, estimates of new commercial
building construction by state were developed and are shown in Figure 6.(11)
California clearly projects significant commercial building additions during the
next ten years with a year 2000 market of 160 million square feet, or in terms
of potential ballast sales, approximately 2 million new ballasts. Using these
ratios, new construction in Ohio could demand as many as 500,000 new ballasts
per year while Pennsylvania may demand around 750,000 new ballasts. The
approximately

----------
(11) To extend the analysis of new commercial floor space additions to
individual states required an understanding of construction activity in one
state versus another in order to disaggregate the data from the census division
level to individual state level. Because the level of construction activity is a
good measure of building construction, the ratio of state to census division
construction gross domestic product (GDP) was used to infer each state's level
of commercial building additions.

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                                              THE ECONOMICS RESOURCE GROUP, INC.
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Elgin MLBS                                                                    14
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400 million square feet of building space assumed under construction in these
six states in 1998 translates to potential sales of between 4-6 million
ballasts. New commercial building construction represents an excellent market
opportunity for the MLBS.

                                    Figure 6:
                      New Commercial Construction By State

                               [GRAPHIC OMITTED]

Source: EIA Annual Energy Outlook 1998, National Energy Modeling System.

II.C  Summary

The magnitude of the potential new construction market and the retrofit markets
for the MLBS is considerable. Clearly in the short term, both markets should be
targeted. The extent to which new construction markets will be penetrated will
depend upon how much value is placed upon attributes of the MLBS that
differentiate it from other available products. The growth in the retrofit
market is presently very large and will remain so for most of the next decade,
but the growth in this market will decrease over tine.

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Elgin MLBS                                                                    15
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In the following sections of the report, we provide an economic analysis, which
in turn allows us to value the MLBS based on the perspective of an investor
considering whether or not to install it. We also explore the potential
volatility of both the retrofit and new construction markets in conjunction with
electric industry restructuring.

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Elgin MLBS                                                                    16
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III   MLBS NEW CONSTRUCTION AND RETROFIT PROJECT ECONOMIC ANALYSIS AND PRODUCT
      VALUE

Our analysis finds that installation of the MLBS is desirable for either a
retrofit or new construction application. Standard project financial performance
indicators are favorable for each of the states examined. For example, project
internal rates of return are consistently 20-30 percent, even when sensitized to
incorporate pessimistic assumptions. In states such as California and New
Jersey, where commercial electricity rates are among the highest in the nation,
internal rates of return are between 30-60 percent. In all cases,
straightforward project financial analysis clearly shows that an investment in
the MLBS will pay for itself by virtue of the energy savings it provides.

At the same time it is important to recognize that competing electronic ballasts
will also produce favorable project financial results. The MLBS must be
differentiable by more than just energy savings in order to capture a
significant market share. Since the current first cost estimates of the MLBS are
higher than standard electronic ballasts manufactured by companies such as
Motorola or Advance, the MLBS features such as dimming and energy harvesting
must be exploited. The electronic ballast industry is fiercely competitive, and
the MLBS will have to overcome several barriers to gain market acceptance,
including the possibility of pricing the MLBS to match its competitors in order
to stimulate initial sales.

The MLBS offers its consumers a near term potential value of more than $250
million with the retrofit market providing the source of greatest value. The
value is simply the calculated net present value that the MLBS provides if it
were ultimately to penetrate the new construction and retrofit markets 10%. If
the penetration reached 25 percent, the value would be greater than $600
million. When marketing the MLBS, these value estimates can be used to validate
the potential worth of the product to an organization purchasing the right to
distribute the MLBS.

A simple spreadsheet economic analysis was created to evaluate the MLBS project
economics for new construction and retrofit projects as well as to estimate
product value. The primary emphasis of the analysis is to examine the economic
performance of the MLBS compared against; a probable competitor in the case of
new construction and an inefficient magnetic core-coil ballast in the case of a

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Elgin MLBS                                                                    17
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retrofit. The economics of both of these cases are sensitized for assumed
variations in the commercial price of electricity, the number of hours that
lights are assumed illuminated per year and the discount rate.(12) In each of
these sensitivity analyzes the internal rates of return (IRR), the net present
value (NPV), and the simple payback period are calculated for each type of
project and for each of our states. The results are then presented visually
through the use of tornado diagrams.(13)

The following sections describe our economic model, present the results of the
sensitivity analysis performed for each of the cases and finally show the
potential value of the MLBS.

III.A MLBS Project Economic Spreadsheet

Our simple spreadsheet employs conventional net cash flow analysis to evaluate a
proposed installation of the MLBS for a 20,000 square foot commercial building.
It can be used to study the economics of both new construction and retrofit.
The spreadsheet calculates the cost to operate a lighting system which employs
the MLBS and similarly calculates the cost to operate a competing lighting
system and then determines the operational savings achieved by installing the
MLBS. The costs are subtracted from the savings, and the resultant cash flows
are used to determine the financial indices. Using the net cash flow analysis
technique allows the later year savings realized through the installation of the
MLBS to be incorporated into a financial indicator.

As with any analysis of this type a base case must be defined and reasonable
starting assumptions must be established. The base case and primary assumptions
for our project analyses are shown in Table 4. The two most critical assumptions
in this analysis are the electricity price forecast and the number of hours that
the

----------
(12) In the retrofit project additional sensitivities are explored to quantify
the extent to which MLBS electricity savings over an existing, installed ballast
affect the results, while in the new construction case additional sensitivities
are explored to quantify the extent to which higher MLBS initial installation
costs affect the results.
(13) A tornado diagram is used to capture the effects of changes in assumptions
on the attributes of interest. (in this case the attributes are IRR, NPV and
simple payback period) The diagram received its name as a result of how it is
constructed. Attribute variations resulting from changes in input assumptions
are depicted graphically as horizontal bars. The attribute value that varies the
greatest is plotted as the top horizontal bar while other horizontal bars that
depict smaller changes in the attributes are plotted beneath it to form the
shape of a tornado. See, for example, Figure 9.

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Elgin MLBS                                                                    18
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lights are illuminated. The number of hours the lights are on drives the
quantity of kilowatt hours that are saved by installing the MLBS while the
electricity price forecast defines the monetary value of the realized savings.
The number of "burn" hours for the lights was assumed to be 3400 hours in the
base case. This value is obtained from the Lawrence Berkeley National Laboratory
(LBNL) Lighting Market Sourcebook for the U.S. and represents the average
lighting hours weighted by types of commercial building floorspace. Electricity
price forecasts shown in Table 5 were developed by taking EIA Electric Power
Annual 1997 reported average state commercial electricity prices and then
decreasing them 1% per annum to account for potential price reductions
attributable to electricity industry competition.

                                    Table 4:

           Elgin MLBS Project Economic Analysis Base Case Assumptions

====================================================
                  New Construction
----------------------------------------------------
State: (CA, PA, NJ, OH, MD, WI)                   OH
Project Life (yrs)                                10
Project Size (ft(2))                          20,000
Discount Rate (%)                                 10%
Installation Cost Premium ($/1000 ft(2))        $ 16
MLBS Cost Premium ($/1000 ft(2))                $ 59
MLBS Electricity Demand (W/ft(2))               0.73
Competitors Electricity Demand (W/ft(2))        0.86
Hours of Operation                              3400
====================================================

====================================================
                      Retrofit
----------------------------------------------------
State: (CA, PA, NJ, OH, MD, WI)                   OH
Project Life (yrs)                                10
Project Size (ft(2))                          20,000
Discount Rate (%)                                 10%
Installation Cost ($/1000 ft(2))                $158
MLBS Cost ($/1000 ft(2))                        $259
MLBS Electricity Demand (W/ft(2))               0.73
Existing Ballast Electricity Demand (W/ft(2))   1.24
Hours of Operation                              3400
====================================================

Source: Elgin System Comparison and Lawrence Berkeley National Laboratory

The remaining critical assumptions are the MLBS equipment and installation
costs, electricity demanded by the lighting fixtures, quantity of fixtures
required per square foot and the discount rate. The discount rate in all cases
has been assumed to be 10%. This value is a reasonable estimate of the weighted
average cost of capital that would be faced by an organization considering
investing in a lighting system upgrade. MLBS equipment and installation costs,
square footage illuminated per fixture (100 ft(2)/fixture), and electricity
demand were obtained from Elgin Warren Power Systems.(14)

----------
(14) Mark Backer, April 7, 1998, "System Comparison" Spreadsheet, Elgin Warren
Power Systems.

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Elgin MLBS                                                                    19
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                                    Table 5:
       Various State Commercial Sector Average Electricity Price Forecasts
                                   (cents/kWh)

=================================================================
Year  1999   2000  2001  2002  2003  2004  2005  2006  2007  2008
-----------------------------------------------------------------
CA     9.7    9.6   9.5   9.4   9.3   9.2   9.1   9.0   9 0   8.9
PA     8.1    8.1   8.0   7.9   7.8   7.7   7.7   7.6   7.5   7.4
NJ    10.2   10.1  10.0   9.9   9.8   9.7   9.6   9.5   9.4   9.3
MD     6.8    6.7   6.6   6.6   6.5   6.4   6.4   6.3   6.2   6.2
OH     7.4    7.4   7.3   7.2   7.2   7.1   7.0   6.9   6.9   6.8
WI     5.5    5.4   5.4   5.3   5.3   5.2   5.2   5.1   5.1   5.0
=================================================================

Note: 1)    Prices calculated by taking the ratio of average commercial sector
            utility revenues to kilowatt hours sold.
      2)    Starting values Based on EIA Electric Power Annual 1997

The assumed electricity demand for the fixtures against which the MLBS is
compared is critical as this value drives the electricity savings. In the case
of new construction, the competitive fixture is assumed to be 18% less efficient
than the MLBS and thus demands .86 W/ft(2) where the MLBS fixture demands .73
W/ft(2). In the retrofit base case the MLBS is assumed to be 59% more efficient
than an existing, antiquated inefficient magnetic core-coil ballast and in this
instance the older ballast is assumed to demand 1.24 W/ft(2).(15)

Considerable difficulty is encountered when defining the electricity demand
associated with the different fluorescent lighting systems currently in
operation. Therefore we varied the demand, using a range between 1.1 W/ft(2) and
1.35 W/ft(2). This recognizes that the MLBS will not only target the most
inefficient systems that remain in operation, but also lighting systems
installed in buildings built after the widespread availability of high
efficiency magnetic ballasts, although before electronic ballasts were widely
available. As was discussed earlier in this report, numerous older inefficient
ballast systems have already been replaced, and the MLBS will eventually be
considered as a cost effective retrofit for a building built during the 1970s or
1980s.

The new construction and retrofit case spreadsheets described above are shown in
Figures 7 and 8. The upper two bordered boxes on the spreadsheets contain the
input assumptions and the financial indices. The input assumptions are used to
calculate the electricity consumption and the lighting system costs and savings

----------
(15) Given that the average weighted commercial building lighting electricity
demand calculated by the LBNL is 1.1 W/ft(2), our retrofit base case demand of
1.24 W/ft(2) assumes that the initial target market for the MLBS will be the
most inefficient lighting systems currently in operation.

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Elgin MLBS                                                                    20
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                                    Figure 7
           Project Economics for the Installation of the Elgin Master
                  Light Ballast System -- Retrofit California

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
Input Assumptions
<S>                                     <C>
State                                           CA, OH, PA, CA, WI, NJ, MD
                                                    -- Selects Proper Electricity Price Forecast
Project Life (yrs)                              10
Project Size (ft(2))                        20,000
Inflation Rate (%)                              3%
Discount Rate (%)                              10%
Installation Cost ($/1,000 ft(2))       $      158
MLBS Cost ($/1,000 ft(2))               $      259
Bulb Costs ($/20,000 ft(2))             $      680
Type of Building                             C      "C" for Commercial or "I" for Industrial
MLBS Electricity Demand (W/ft(2))             0.73
Competitors Electricity Demand (w/ft(2))      1.28  Note: Weighted average commercial building ballast
                                                    electricity demand is 1.1 W/ft(2) -- LBL
Hours of Operation                            3400
------------------------------------------------------------------------------------------------------
</TABLE>

--------------------------------------------------
Financial Performance Indices
IRR                                            38%
Net Present Value                           12,462
Simple Payback Period                         2.51
--------------------------------------------------

<TABLE>
<CAPTION>
===================================================================================================================================
Year                                                        1999    2000     2001    2002    2003     2004    2005     2006    2007
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                       <C>     <C>      <C>     <C>     <C>      <C>     <C>      <C>     <C>
Average Annual Electricity Price (cents/kwh)                9.70    9.61     9.51    9.41    9.32     9.23    9.14     9.04    8.95
MLBS Annual Electricity Consumption (kwh)                 49,640  49,640   49,640  49,640  49,640   49,640  49,640   49,640  49,640
Competitor Annual Electricity Consumption                 87,040  87,040   87,040  87,040  87,040   87,040  87,040   87,040  87,040
Annual Electricity Saved (kwh)                            37,400  37,400   37,400  37,400  37,400   37,400  37,400   37,400  37,400

-----------------------------------------------------------------------------------------------------------------------------------
Costs($)
-----------------------------------------------
Installation Cost                                 3,165
MLBS Cost                                         5,180
Bulb Cost                                           680
Electricity Cost                                           4,817   4,768    4,721   4,674   4,627    4,581   4,535    4,489   4,444

-----------------------------------------------------------------------------------------------------------------------------------
                                          Total   9,025    4,817   4,768    4,721   4,674   4,627    4,581   4,535    4,489   4,444
Benefits ($)
-----------------------------------------------
Electricity Savings                                        3,629   3,593    3,557   3,521   3,486    3,451   3,417    3,382   3,349

-----------------------------------------------------------------------------------------------------------------------------------
                                          Total            3,629   3,593    3,557   3,521   3,486    3,451   3,417    3,382   3,349
Net Cash Flows                                   (9,025)   3,629   3,593    3,557   3,521   3,486    3,451   3,417    3,382   3,349
===================================================================================================================================

<CAPTION>
================================================================
Year                                                        2008
----------------------------------------------------------------
<S>                                                       <C>
Average Annual Electricity Price (cents/kwh)                8.86
MLBS Annual Electricity Consumption (kwh)                 49,640
Competitor Annual Electricity Consumption                 87,040
Annual Electricity Saved (kwh)                            37,400

----------------------------------------------------------------
Costs($)
-----------------------------------------------
Installation Cost                                 3,165
MLBS Cost                                         5,180
Bulb Cost                                           680
Electricity Cost                                           4,400

----------------------------------------------------------------
                                          Total   9,025    4,400
Benefits ($)
-----------------------------------------------
Electricity Savings                                        3,315

----------------------------------------------------------------
                                          Total            3,315
Net Cash Flows                                   (9,025)   3,315
================================================================
</TABLE>

                                                                           DRAFT
                                              THE ECONOMICS RESOURCE GROUP, INC.
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Elgin MLBS                                                                    21
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                                    Figure 8
           Project Economics for the Installation of the Elgin Master
               Light Ballast System--New Construction California

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
Input Assumptions
<S>                                     <C>
State                                           CA, OH, PA, CA, WI, NJ, MD
                                                    -- Selects Proper Electricity Price Forecast
Project Life (yrs)                              10
Project Size (ft(2))                        20,000
Inflation Rate (%)                              3%
Discount Rate (%)                              10%
Installation Cost ($/1,000 ft(2))       $       16  Premium over currently available electronic
                                                    ballast; no harvesting.
MLBS Cost ($/1,000 ft(2))               $       59  Premium over currently available electronic
                                                    ballast.
Type of Building                             C      "C" for Commercial or "I" for Industrial
MLBS Electricity Demand (W/ft(2))             0.73
Competitors Electricity Demand (w/ft(2))      0.86  Note: Electronic ballast with ballast factor
                                                    equal to 1.28.
Hours of Operation                            3400
------------------------------------------------------------------------------------------------------
</TABLE>

--------------------------------------------------
Financial Performance Indices
IRR                                            56%
Net Present Value                           $3,585
Simple Payback Period                         1.75
--------------------------------------------------

<TABLE>
<CAPTION>
===================================================================================================================================
Year                                                        1999    2000     2001    2002    2003     2004    2005     2006    2007
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                       <C>     <C>      <C>     <C>     <C>      <C>     <C>      <C>     <C>
Average Annual Commercial Electricity Price (cents/kwh)     9.70    9.61     9.51    9.41    9.32     9.23    9.14     9.04    8.95
MLBS Annual Electricity Consumption (kwh)                 49,640  49,640   49,640  49,640  49,640   49,640  49,640   49,640  49,640
Competitor Annual Electricity Consumption (kwh)           58,480  58,480   58,480  58,480  58,480   58,480  58,480   58,480  58,480
Annual Electricity Saved (kwh)                             8,840   8,840    8,840   8,840   8,840    8,840   8,840    8,840   8,840

-----------------------------------------------------------------------------------------------------------------------------------
Costs($)
-----------------------------------------------
Installation Cost                                   314
MLBS Cost                                         1,180
Electricity Cost                                           4,817   4,768    4,721   4,674   4,627    4,581   4,535    4,489   4,444

-----------------------------------------------------------------------------------------------------------------------------------
                                          Total   1,494    4,817   4,768    4,721   4,674   4,627    4,581   4,535    4,489   4,444
Benefits ($)
-----------------------------------------------
Electricity Savings                                          858     849      841     832     824      816     808      799     791

-----------------------------------------------------------------------------------------------------------------------------------
                                          Total              858     849      841     832     824      816     808      799     791
Net Cash Flows                                   (1,494)     858     849      841     832     824      816     808      799     791
===================================================================================================================================

<CAPTION>
================================================================
Year                                                        2008
----------------------------------------------------------------
<S>                                                       <C>
Average Annual Commercial Electricity Price (cents/kwh)     8.86
MLBS Annual Electricity Consumption (kwh)                 49,640
Competitor Annual Electricity Consumption (kwh)           58,480
Annual Electricity Saved (kwh)                             6,340

----------------------------------------------------------------
Costs($)
-----------------------------------------------
Installation Cost                                   314
MLBS Cost                                         1,180
Electricity Cost                                           4,400

----------------------------------------------------------------
                                          Total   1,494    4,400
Benefits ($)
-----------------------------------------------
Electricity Savings                                          784

----------------------------------------------------------------
                                          Total              784
Net Cash Flows                                   (1,494)     784
================================================================
</TABLE>

Note: 1) The costs shown as premiums represent the additional initial costs
associated with the installation of the MLBS when compared with a competing
electronic ballast supplier. See Warren Power Systems 4/7/98 Memorandum.
<PAGE>

Elgin MLBS                                                                    22
--------------------------------------------------------------------------------

shown in the lower portion of the spreadsheet. The net cash flows are then
utilized to calculate the financial indices used to evaluate the attractiveness
of an investment in the MLBS.

There are two significant differences between Figures 7 and 8 related to whether
or not new construction or retrofit projects are being analyzed. First, the
competitor's electricity demand is different in order to account for the fact
that in a retrofit analysis the existing fixture electricity demand is large.
(see above) Second, the equipment and installation costs are different because
in the case of new construction an initial expenditure for a complete system is
required whether the investor installs the MLBS or a competitor's system. In
this instance we use the additional cost of the MLBS when compared with a
competitor and compare it with the additional electricity savings the MLBS
offers over a competing electronic ballast manufacturer. Otherwise the basic
construction of the two spreadsheets is identical. These two spreadsheets were
used to generate the results and valuation presented in the following sections.

III.B Results

The project economic analysis for both the retrofit and new construction cases
was run numerous times for each of states specifically examined in this report.
In all the cases analyzed the IRRs, NPVs and simple payback periods were
calculated. For each of the analyses the results were sensitized to potential
variations in the electricity price forecasts, the number of lamp burn hours,
and the discount rate. Additionally, when analyzing the retrofit case, the
sensitivity of the economic analysis to variations in existing ballasts'
electricity demand was investigated and when analyzing the new construction
cases, the sensitivity of the economic analysis to MLBS initial costs was
investigated. The economic indices calculated in all of the cases analyzed
indicate that the MLBS is an excellent investment. The base case results, and
the results for all the sensitivities analyses defined previously, are presented
in Figures 9-14 (tornado diagrams), where each figure shows all the results for
a single state.(16)

----------
(16) The tabular results used to construct the tornado diagrams are compiled in
Appendix A-2.

                                                                           DRAFT
                                              THE ECONOMICS RESOURCE GROUP, INC.
<PAGE>

Elgin MLBS                                                                    23
--------------------------------------------------------------------------------

The interpretation of a tornado diagram may seem somewhat difficult at first,
but is in fact quite simple. The objective is to convey in a compact format how
the MLBS project financial indices change when input assumptions are varied. In
both of the cases analyzed--new construction and retrofit--four different input
assumptions were varied in order to quantify the variations' impact on project
financial performance. In both cases, electricity price forecast, discount rate,
and number of hours lights are energized were varied. In the case of new
construction we looked at different initial MLBS cost estimates and in the
retrofit case different demand projections for electricity ballasts. In total
four assumptions are varied for both new construction projects and retrofit
projects.

Figure 9 shows the results of these analyses for the state of Pennsylvania in
six tornado diagrams; the three diagrams on the left are for the retrofit case
and the three diagrams on the right are for the new construction case. In each
case we have examined how IRRs, NPVs and simple payback periods vary when input
assumptions are modified. For example, the top left diagram depicts how net
present value changes for the retrofit case when input assumptions are varied.
The center point of the diagram represents the results obtained for the base
case while the variations are presented through the use of horizontal bars. The
Case C horizontal bar shows how a +/-10% change in the number of hours the
lights in a building are energized affects the NPV. The left hand side of the
bar shows the reduction in NPV that occurs when burn hours are decreased by 10%,
while the right hand side of the bar shows how the NPV increases as the number
of burn hours is increased 10%. Each of the remaining three bars is interpreted
in exactly the same fashion where the left hand bars represent decreases in
financial performance and right hand bars represent improvements in financial
performance.

The tornado diagram not only presents the effects of variations in single
assumptions, but also permits the display of the effects of changes in several
assumptions. For example, referring once again to Figure 9, it is possible to
ascertain how much net present value will decrease if burn hours decrease and
electricity prices fall. The compounded effect of variations in each of these
two assumptions is represented by the addition of the two bars shown on the
diagram. Therefore, the NPV in this instance decreases to approximately $4,000
from an

                                                                           DRAFT
                                              THE ECONOMICS RESOURCE GROUP, INC.
<PAGE>

Elgin MLBS                                                                    24
--------------------------------------------------------------------------------

                          Pennsylvania Tornado Diagrams

                             Four Sensitivity Cases

--------------------------------------------------------------------------------
Case A: Variation in Existing Ballasts' Electricity Demand (Retrofit).
        Variation in New Construction Installation Premium (New Construction).

Case B: Variation in Discount Rate (from 6% to 20%, base case 10%).

Case C: +/- 10% Variation in Number of Hours of Building Light Operation.

Case D: +/- 10% Variation in State's Electricity Price Forecast.
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                Base Case

----------------------------------------------------------------------------------------------------------
<S>                <C>                         <C>                            <C>
Retrofit:          Net Present Value = $8,990  Internal Rate of Return = 31%  Simple Payback Period = 3
New Construction:  Net Present Value = $2,764  Internal Rate of Return = 46%  Simple Payback Period = 2.09
----------------------------------------------------------------------------------------------------------
</TABLE>

     Retrofits                                            New Construction

                         Variation in Net Present Value

  [GRAPHIC OMITTED]                                       [GRAPHIC OMITTED]

                      Variation in Internal Rate of Return

  [GRAPHIC OMITTED]                                       [GRAPHIC OMITTED]

                           Variation in Payback Period

  [GRAPHIC OMITTED]                                       [GRAPHIC OMITTED]

Note: For new construction, Case A only affects the calculation of net present
value and simple payback period. For both new construction and retrofits, Case B
only affects the net present value.

<PAGE>

Elgin MLBS                                                                    25
--------------------------------------------------------------------------------

                            Maryland Tornado Diagrams

                             Four Sensitivity Cases

--------------------------------------------------------------------------------
Case A: Variation in Existing Ballasts' Electricity Demand (Retrofit).
        Variation in New Construction Installation Premium (New Construction).

Case B: Variation in Discount Rate (from 6% to 20%, base case 10%).

Case C: +/- 10% Variation in Number of Hours of Building Light Operation.

Case D: +/- 10% Variation in State's Electricity Price Forecast.
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                Base Case

----------------------------------------------------------------------------------------------------------
<S>                <C>                         <C>                            <C>
Retrofit:          Net Present Value = $5,951  Internal Rate of Return = 24%  Simple Payback Period = 3.62
New Construction:  Net Present Value = $2,046  Internal Rate of Return = 38%  Simple Payback Period = 2.52
----------------------------------------------------------------------------------------------------------
</TABLE>

     Retrofits                                            New Construction

                         Variation in Net Present Value

  [GRAPHIC OMITTED]                                       [GRAPHIC OMITTED]

                      Variation in Internal Rate of Return

  [GRAPHIC OMITTED]                                       [GRAPHIC OMITTED]

                           Variation in Payback Period

  [GRAPHIC OMITTED]                                       [GRAPHIC OMITTED]

Note: For new construction, Case A only affects the calculation of net present
value and simple payback period. For both new construction and retrofits, Case B
only affects the net present value.
<PAGE>

Elgin MLBS                                                                    26
--------------------------------------------------------------------------------

                           New Jersey Tornado Diagrams

                             Four Sensitivity Cases

--------------------------------------------------------------------------------
Case A: Variation in Existing Ballasts' Electricity Demand (Retrofit).
        Variation in New Construction Installation Premium (New Construction).

Case B: Variation in Discount Rate (from 6% to 20%, base case 10%).

Case C: +/- 10% Variation in Number of Hours of Building Light Operation.

Case D: +/- 10% Variation in State's Electricity Price Forecast.
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                Base Case

----------------------------------------------------------------------------------------------------------
<S>                <C>                          <C>                            <C>
Retrofit:          Net Present Value = $13,547  Internal Rate of Return = 40%  Simple Payback Period = 2.39
New Construction:  Net Present Value = $ 3,841  Internal Rate of Return = 59%  Simple Payback Period = 1.66
----------------------------------------------------------------------------------------------------------
</TABLE>

     Retrofits                                            New Construction

                         Variation in Net Present Value

  [GRAPHIC OMITTED]                                       [GRAPHIC OMITTED]

                      Variation in Internal Rate of Return

  [GRAPHIC OMITTED]                                       [GRAPHIC OMITTED]

                           Variation in Payback Period

  [GRAPHIC OMITTED]                                       [GRAPHIC OMITTED]

Note: For new construction, Case A only affects the calculation of net present
value and simple payback period. For both new construction and retrofits, Case B
only affects the net present value.
<PAGE>

Elgin MLBS                                                                    27
--------------------------------------------------------------------------------

                             Ohio Tornado Diagrams

                             Four Sensitivity Cases

--------------------------------------------------------------------------------
Case A: Variation in Existing Ballasts' Electricity Demand (Retrofit).
        Variation in New Construction Installation Premium (New Construction).

Case B: Variation in Discount Rate (from 6% to 20%, base case 10%).

Case C: +/- 10% Variation in Number of Hours of Building Light Operation.

Case D: +/- 10% Variation in State's Electricity Price Forecast.
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                Base Case

----------------------------------------------------------------------------------------------------------
<S>                <C>                          <C>                            <C>
Retrofit:          Net Present Value = $7,470  Internal Rate of Return = 27%  Simple Payback Period = 3.28
New Construction:  Net Present Value = $2,405  Internal Rate of Return = 42%  Simple Payback Period = 2.28
----------------------------------------------------------------------------------------------------------
</TABLE>

     Retrofits                                            New Construction

                         Variation in Net Present Value

  [GRAPHIC OMITTED]                                       [GRAPHIC OMITTED]

                      Variation in Internal Rate of Return

  [GRAPHIC OMITTED]                                       [GRAPHIC OMITTED]

                           Variation in Payback Period

  [GRAPHIC OMITTED]                                       [GRAPHIC OMITTED]

Note: For new construction, Case A only affects the calculation of net present
value and simple payback period. For both new construction and retrofits, Case B
only affects the net present value.
<PAGE>

Elgin MLBS                                                                    28
--------------------------------------------------------------------------------

                          California Tornado Diagrams

                             Four Sensitivity Cases

--------------------------------------------------------------------------------
Case A: Variation in Existing Ballasts' Electricity Demand (Retrofit).
        Variation in New Construction Installation Premium (New Construction).

Case B: Variation in Discount Rate (from 6% to 20%, base case 10%).

Case C: +/- 10% Variation in Number of Hours of Building Light Operation.

Case D: +/- 10% Variation in State's Electricity Price Forecast.
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                Base Case

----------------------------------------------------------------------------------------------------------
<S>                <C>                          <C>                            <C>
Retrofit:          Net Present Value = $12,462  Internal Rate of Return = 38%  Simple Payback Period = 2.51
New Construction:  Net Present Value = $ 3,585  Internal Rate of Return = 56%  Simple Payback Period = 1.75
----------------------------------------------------------------------------------------------------------
</TABLE>

     Retrofits                                            New Construction

                         Variation in Net Present Value

  [GRAPHIC OMITTED]                                       [GRAPHIC OMITTED]

                      Variation in Internal Rate of Return

  [GRAPHIC OMITTED]                                       [GRAPHIC OMITTED]

                           Variation in Payback Period

  [GRAPHIC OMITTED]                                       [GRAPHIC OMITTED]

Note: For new construction, Case A only affects the calculation of net present
value and simple payback period. For both new construction and retrofits, Case B
only affects the net present value.
<PAGE>

Elgin MLBS                                                                    29
--------------------------------------------------------------------------------

                           Wisconsin Tornado Diagrams

                             Four Sensitivity Cases

--------------------------------------------------------------------------------
Case A: Variation in Existing Ballasts' Electricity Demand (Retrofit).
        Variation in New Construction Installation Premium (New Construction).

Case B: Variation in Discount Rate (from 6% to 20%, base case 10%).

Case C: +/- 10% Variation in Number of Hours of Building Light Operation.

Case D: +/- 10% Variation in State's Electricity Price Forecast.
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                Base Case

----------------------------------------------------------------------------------------------------------
<S>                <C>                          <C>                            <C>
Retrofit:          Net Present Value = $3,129  Internal Rate of Return = 18%  Simple Payback Period = 4.47
New Construction:  Net Present Value = $1,379  Internal Rate of Return = 29%  Simple Payback Period = 3.11
----------------------------------------------------------------------------------------------------------
</TABLE>

     Retrofits                                            New Construction

                         Variation in Net Present Value

  [GRAPHIC OMITTED]                                       [GRAPHIC OMITTED]

                      Variation in Internal Rate of Return

  [GRAPHIC OMITTED]                                       [GRAPHIC OMITTED]

                           Variation in Payback Period

  [GRAPHIC OMITTED]                                       [GRAPHIC OMITTED]

Note: For new construction, Case A only affects the calculation of net present
value and simple payback period. For both new construction and retrofits, Case B
only affects the net present value.
<PAGE>

Elgin MLBS                                                                    30
--------------------------------------------------------------------------------

initial value of $8,990 when the effects of variations in both assumptions are
evaluated.

For both the new construction and retrofit cases there are three tornado
diagrams for each state (total of six per state) that show the effects of
assumption variations on the NPV, IRR and simple payback period. In all cases,
even when one considers assumptions that reduce the financial performance of the
MLBS, the financial indicators are favorable.

The most significant difference that emerges when one examines the six states
together is the fact that the effect of the prevailing average commercial
electricity price on the financial performance is substantial. For example, NPVs
and IRRs are much higher for the states of California and New Jersey as opposed
to Ohio and Wisconsin. This difference in financial performance is critical as
it ultimately impacts the value of the MLBS to potential owners of distribution
rights.

III.C Potential MLBS Market Share and Product Value

We have estimated the potential value of the MLBS based upon the estimated size
of the new construction and retrofit markets presented in Section II, and the
simple financial model presented in Section III.A. In both cases we have assumed
that the MLBS will achieve a market penetration of 10 percent.(17) In both cases
the financial spreadsheets shown in Figures 7 and 8 are used to calculate the
net present value of the MLBS.

The results are shown in Tables 6 and 7. The potential value of the MLBS if
adopted for use in the retrofit market is astounding. In California alone, if 10
percent of the existing commercial floorspace can be captured, the value of the
MLBS is 113 million dollars. Similar results, showing a product value of tens of
millions of dollars, are obtained for other states as well. The new construction
market also promises significant value, although the values are lower due to the
fact that the analysis compares the MLBS against a competing high efficiency

----------
(17) In the case of new construction a five year period is examined, while in
the case of retrofits we assume that by 2001 the MLBS will supplant inefficient
existing ballasts currently in service in 20 percent of the floorspace that
relies on fluorescent lighting.

                                                                           DRAFT
                                              THE ECONOMICS RESOURCE GROUP, INC.
<PAGE>

Elgin MLBS                                                                    31
--------------------------------------------------------------------------------

electronic ballast. In total, the potential value of the MLBS given our
assumptions is as high as 281 million dollars for [ILLEGIBLE] states examined.

These product valuations can be used to estimate what the value of the MLBS is
to a purchaser. In simple terms, an entity evaluating the purchase of rights to
the MLBS will make an estimate of how many MLBS units it can sell. The
distributor will then assess how the energy savings will be distributed between
the entity installing the MLBS and itself. For example, in the case of new
construction projects in California the MLBS has a net present value of
approximately 14 million dollars over a five year period, if it is installed in
ten percent of the floorspace constructed. In the early years a distributor
might provide an installation incentive by offering a building owner a reduced
cost or by negotiating some type of shared savings arrangement. By using MLBS
value estimates the distributor can determine what types of contractual
arrangements are most sensible.

                                     Table 6
      New Construction Market Size and MLBS Value Over a Five Year Period

                ==================================================
                                   Market Size             NPV
                State            (Millions ft^2)       (1999 $000)
                --------------------------------------------------
                California                77.54            13,916
                Maryland                  23.84             2,439
                New Jersey                25.38             4,875
                Ohio                      31.72             3,814
                Pennsylvania              32.78             4,530
                Wisconsin                 16.55             1,141
                ==================================================

                  Notes: 1) Market size estimates are developed assuming a 10%
                            penetration rate.
                         2) MLBS value is NPV calculated using new construction
                            base case assumptions.

                                                                           DRAFT
                                              THE ECONOMICS RESOURCE GROUP. INC.
<PAGE>

Elgin MLBS                                                                    32
--------------------------------------------------------------------------------

                                    Table 7

                       Retrofit Market Size and MLBS Value

                ==================================================
                                   Market Size             NPV
                State            (Millions ft^2)       (1999 $000)
                --------------------------------------------------
                California               220.20           113,396
                Maryland                  65.78            16,176
                New Jersey                75.92            42,501
                Ohio                     127.19            39,262
                Pennsylvania              89.57            33,273
                Wisconsin                 49.61             6,415
                ==================================================

                  Notes: 1) 10% penetration rate assumed and inefficient
                            ballasts are targeted.
                         2) MLBS value is NPV calculated using retrofit base
                            case assumptions.

Distributors of the MLBS can use these and other marketing strategies. For
example, they could set a higher up-front cost for the ballast and then
guarantee the savings over a period of time. That is the seller assumes the
operating risk. Marketers who are utility subsidiaries might have to adopt
whatever arrangement is required by their state public utility commission under
a mandated demand side management program. It may be that significant
expenditures will be required in order to gain a foothold in the market prior to
having an opportunity to realize significant profits. Therefore, the potential
product values calculated in this report should be considered as upper bounds.

                                                                           DRAFT
                                              THE ECONOMICS RESOURCE GROUP, INC.
<PAGE>

Elgin MLBS                                                                    33
--------------------------------------------------------------------------------

IV. ELECTRICITY INDUSTRY RESTRUCTURING AND MLBS MARKET POTENTIAL

Electricity industry restructuring can both positively and negatively impact the
potential sales of the MLBS. On the one hand, competition should lead to lower
prices and lower prices will erode the electricity savings benefits associated
with the installation of the MLBS. On the other hand, power marketers and
utilities will see the MLBS as an element of a total energy supply package that
can be used to capture customers. Furthermore, there is no indication that state
demand side management and energy conservation programs are going to be
eliminated. While they may receive less emphasis, some type of government
mandated program will continue in most states for the next 5-7 years. Given
these facts, we predict that electricity industry restructuring will have a net
positive impact on the marketability of the MLBS in the near term, but will
require a marketing strategy that can adapt and adjust as state and federal
regulation continue to change.

The electric industry transition from a completely regulated vertically
integrated industry, to a structure where electricity is supplied competitively,
is turning out to be slower than anticipated and somewhat disjointed. While in
48 states regulators have or are currently considering moving to retail
competition, only 12 have formerly enacted competition, and of these, nine have
built in delay mechanisms that provide significant advantages to the existing
utilities. In fact only California will have a truly competitive retail market
by the close of this year, but others are likely to emerge.(18) The pace though
is uncertain.

The profits from the retail sale of electricity to the residential and small
commercial markets are likely to be small and there is no barrier-to-entry.
Anyone with two or three computers can be a marketer. In many states, the
existing utility distribution company will still be the dominant retail marketer
three years hence. Competition is more likely to emerge in the large commercial
and industrial sectors, but the profit margins for retailing electrons is not
large. Where the money will be made is in the delivery of ancillary services,
such as energy efficiency equipment, micro-turbines, and advanced cable and
communication technologies. Some experts are

----------
(18) Massachusetts and Rhode Island have retail markets, but incumbent utilities
are favored in the early years. Pennsylvania currently permits retail choice for
some customers, although full retail choice will not be available until the year
2000.

                                                                           DRAFT
                                              THE ECONOMICS RESOURCE GROUP, [NC.
<PAGE>

Elgin MLBS                                                                    34
--------------------------------------------------------------------------------

predicting that the profit margins in these ancillary areas may be 4-5 times
greater than the sale of the electricity.

Government intervention in energy conservation programs is continuing in two
guises: i) Mandated utility DSM--these mandates can stem from regulation or they
can stem from restructuring legislation or ii) Federal environmental programs
such as EPA's Green Lights. Mandated DSM dropped precipitously between 1994-1996
and will continue to fall, albeit at a slower rate. (see Figure 3) However,
overall, state and federal government mandated DSM is still a $2 billion per
year program and plays an important role in about one-third of the states. Most
states that have restructured have included provisions in their legislation
establishing a fee on the distribution wires. The proceeds from this fee are to
be used to support DSM investments.

In the next three-four years, the electric distribution companies will still be
the dominate deliverer of energy-efficient equipment, either through mandated
DSM or through marketing strategies driven by competitive pressures--with the
latter likely to get stronger over time. Even in the states which are proceeding
with retail competition, new utility subsidiaries will retain a significant
proportion of the new market. Utility subsidiaries that are, or will be
marketing electrons, will respond to the threat and onset of competition in
order to retain existing market share. However, these utility subsidiaries will
face competition for customers, and this competition will raise the value of
ancillary technologies, such as the MLBS.

The reason why is simple. Initially marketers will try to offer the lowest
priced electrons by doing a better job of buying low, but everyone is
subscribing to the same data services and will have the same electricity
purchasing options. In the next stage--which is what we see now--marketers will
try to differentiate themselves by offering more complex pricing packages. Some
will offer to take less money now and more later, others will offer different
prices at different times of the day and still others will guarantee certain
prices. But since all the players will become aware of each other's strategy,
this too will result in margins being bid down and differences eliminated.
Therefore, the only remaining source of profits is to sell ancillary
services--such as energy-savings. That is compete not on price, but on the
ability to lower bills. Hence a growing market for the MLBS.

                                                                           DRAFT
                                              THE ECONOMICS RESOURCE GROUP, INC.
<PAGE>

Elgin MLBS                                                                    35
--------------------------------------------------------------------------------

Important conclusions that should be drawn from the current electricity industry
restructuring are first that markets are in transition, but are transitioning to
a world that should be more favorable, as opposed co less favorable, for the
MLBS. Second, the value of the MLBS system to a retail electricity company is
positive except in those states that have limited growth, low electricity
prices, no state mandated DSM and no likelihood of retail competition in the
next five years. We believe that the subset of states that may fit this
definition is very small. Finally, there is likely to be a stronger market in
those states that adopt competition and thus ELGIN can demand more profitable
contracts in those areas than in states without competition. (while electricity
prices will go down faster in those states. this trend will be offset by the
added value of having exclusive rights to technologies, such as the MLBS)

IV.A Energy Conservation and Demand Side Management (DSM)(19)

DSM became popular as a component of state regulatory board mandated Integrated
Resource Planning (IRP) undertaken by utilities during the most recent 20 years.
As a function of this process. DSM expenditures that resulted in the reduction
of future demand faced by an electric utility, would be weighed against
investments in expensive new electricity plant capacity. In many cases it was
relatively easy to identify numerous ways in which electricity demand and
consumption could be reduced by making modest invests in energy conservation
measures and load management strategies. Table 8 provides examples of the
numerous programs available in a subset of U.S. states and identifies the
mechanisms used to encourage customers to take advantage of these programs. As
can be seen in Table 8, rebates and loans have been the primary incentive
devices employed to induce customers to make an effort to save energy. These
programs became ubiquitous during the late 1980s and continued receiving strong
support through the early 1990s.

DSM programs continue to play a role in shaping the demand for electricity, but
in recent years significant declines in program expenditures have occurred that
some attribute to the move toward electricity industry competition.(20) The EIA
has

----------
(19) In this report energy conservation pro grams and load management are
collectively referred to as DSM.

                                                                           DRAFT
                                              THE ECONOMICS RESOURCE GROUP, INC.
<PAGE>

Elgin MLBS                                                                    36
--------------------------------------------------------------------------------

                                    Table 8:
    Examples of State Energy Conservation and Demand Side Management Programs

<TABLE>
<CAPTION>
=====================================================================================================
                                            Demand Side Management Programs
                  -----------------------------------------------------------------------------------
State             Load Management   Fuel Switching    Other
-----------------------------------------------------------------------------------------------------
<S>               <C>               <C>               <C>
California        A, E, T           A, C, P           Off peak cooling
Maryland          A, T, X, U, Z                       Curtailable rates, cool storage, custom rebates
New Jersey        A, T              A                 Cool storage
Ohio              T
Pennsylvania      A, T
Wisconsin         W, A, R, T, Z, U  W, A, C, P, G     Statewide motor discounts
-----------------------------------------------------------------------------------------------------

<CAPTION>
-----------------------------------------------------------------------------------------------------
                                            Demand Side Management Programs
                  -----------------------------------------------------------------------------------
State             Rebates                  Loans             Shared Savings       Grants or Giveaways
-----------------------------------------------------------------------------------------------------
<S>               <C>                      <C>               <C>                  <C>
California        H, W, L, C, P, M
Maryland          H, W, L, C, P, M, X      H, L, P, M                             X
New Jersey        H, W, L, P, M
Ohio              H, W, L, M               L, P, M
Pennsylvania
Wisconsin         H, W, L, C, P, M, Y, X   H, W, L, C, P, M   H, W, L, C, P, M    X
-----------------------------------------------------------------------------------------------------
Key:
      A  Air Conditioning        R  Irrigation
      C  Cooking                 T  Interruptible rates
      E  EMS                     U  Time of use rates
      C  Gas Engines             W  Water heating
      H  HVAC                    X  Energy audits
      L  Lighting                Y  Energy-efficient appliances
      M  Motors                  Z  Energy efficient new construction/design
      P  Industrial Process
-----------------------------------------------------------------------------------------------------
</TABLE>

Source: Utility Regulatory Policy in the United States and Canada, NARUC, 1996.

recently reported that: "In the search of cost savings, utilities are
reassessing approaches to energy conservation and peak load reduction. In many
cases, they are opting to discontinue or reduce the emphasis on these
programs."(21) Given that the peak demand for ballasts occurred just after the
peak spending on DSM programs was recorded, it is clear that DSM program
spending played a significant role in establishing the demand for new, high
efficiency lighting ballasts. Although

----------
(20) This finding is investigated in detail in an April 10, 1998 "Report on
Electronic Ballast DSM Rebate Research," Lawrence Berkeley National Laboratory.
(21) EIA Press Release, January 7, 1998, "Demand-Side Management Programs:
Utilities Shift Focus, Reduce Spending."

                                                                           DRAFT
                                              THE ECONOMICS RESOURCE GROUP, INC.
<PAGE>

Elgin MLBS                                                                    37
--------------------------------------------------------------------------------

recently spending has decreased, it is likely that these reductions will level
off and we may see this trend reversed in the next decade.

For example, in the states of California, Pennsylvania and Massachusetts the new
legislation that paved the road to electricity industry restructuring includes a
non-bypassable "wires" charge that will be collected and used to establish a
fund for continued DSM. In Massachusetts and California either existing agencies
or newly formed entities will be granted the authority to administer these funds
in order to preserve the benefits associated with DSM. In most states, the
proposed restructuring legislation has many references to collecting funds to
continue DSM programs. The delivery or decision institutions will change, and
the role of government may change still further, but utility DSM programs will
still play a major role for the next 5-7 years.

Even if DSM programs continued to be scaled back this would not reduce many
utilities' interest in DSM. As mentioned earlier, utilities that continue to
distribute electricity can use DSM as a marketing tool to differentiate
themselves as a more comprehensive provider of services. At the same time, power
marketers will see DSM as an equally attractive means of luring customers away
from incumbent utilities by similarly offering comprehensive supply packages
that capitalize on DSM as a means of reducing customer load and creating
electricity savings that can be to some extent "shared" with the customer. DSM
will become part of a total energy offering where the most savvy supplier will
recognize that the name of the game will be lowering energy costs as opposed to
offering the lowest price for electrons.

IV.A.1 Other Energy Conservation Programs

The U.S. EPA launched its Green Lights Program in 1991 with the goal of
establishing a voluntary energy-efficiency program that identified opportunities
where an organization could save money while simultaneously improving the
environment. During the past 6 years the program has grown considerably, and as
of 1996, 1.3 billion square feet of building space had undergone lighting
upgrades. (retrofits) In addition more than 6 billion additional building square
footage has been dedicated to the program. Table 9 shows the impact of Green
Lights in the states considered in this report and clearly shows California has
been a leader of the Green Lights program. Given that the majority of Green
Lights participants own commercial buildings, the total quantity committed to
the program represents

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more than 10% of the CBECS recorded 1995 commercial building stock of 53.7
billion square feet. Green Lights brochures indicate that more than 10 million
energy efficient ballasts have been installed as a result of the program or more
than 12% of the yearly quantity of ballasts shipped in recent years.

                                     Table 9
      Selected State Building Square Footage Committed and Upgraded for the
                            EPA Green Lights Program

                ==================================================
                                Building Square Footage (millions)
                State               Recruited         Upgraded
                --------------------------------------------------
                Maryland                187               42
                New Jersey              186               48
                Ohio                    205               60
                Pennsylvania            384               56
                Wisconsin               122               77
                California              570              166
                ==================================================

Also at the federal level Executive Order #12902, Energy Efficiency and Water
Conservation at Federal Facilities, has led to increased efforts at federal
facilities to reduce energy consumption by 30%.(22) The Department of Energy has
led the implementation of this program through the Federal Energy Management
Program This program is implemented by using a performance shared savings
contract where energy service companies contract with the government to reduce
energy use at federal facilities. The companies are then permitted to recover
their capital costs through the energy savings and share with the government
additional savings. This pro gram is less specific than the Green Lights
program, and there is little detailed data on its impacts to date.

IV.B Electricity Industry Restructuring

Retail electricity competition is slowly becoming a reality in the United
States. Although federal efforts to introduce an acceptable bill mandating
competition have been lethargic, many states are taking action independent of
the federal

----------
(22) The Energy Policy Act of 1992 established an required energy use reduction
at federal facilities of 20%, Executive Order #12902 increased the value to 30%.

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government.(23) Of the states considered for this report, Pennsylvania,
California and Maryland have taken significant action. California is now using a
market based system for the buying and selling of electricity for all customers,
while Pennsylvania began phasing in retail choice this year. Maryland has
written regulations, but awaits the passage of enabling legislation. The other
states have been evaluating competition, but have yet to put in place the
legislation or regulations required to begin the transition process. A brief
synopsis of the electricity industry restructuring activities underway for each
of our six states is presented below.

      IV.B.1 Ohio

Retail electricity competition is not coming quickly to Ohio and in the near
term markets for the MLBS are limited to existing energy conservation product
distribution channels such as energy service companies or utilities. DSM has
been declining in recent years in Ohio and an existing formal state run program
is no longer being actively implemented. Although Ohio offers a sizable retrofit
market for the MLBS, the current lack of emphasis on these programs, coupled
with the slow move toward retail competition, may hamper the rate of penetration
by the MLBS. Off-setting this trend is a recognition by some utilities that it
makes good business sense to tie up their customers before restructuring becomes
a reality and energy efficiency investment is one way to develop more robust
ties to their customers. The threat of future competition is driving utilities
to carefully evaluate how to maintain their customer base.

As of this date comprehensive restructuring legislation has been introduced, but
its prospects for approval in 1998 are limited. The primary basis for the bill
that has currently been introduced is a draft study produced by a Ohio
legislative study committee late in 1997. The co-chairs of the Joint Select
Committee on Electric Utility Deregulation, Senator Johnson and Representative
Mead, formally presented the report to committee members on January 6, 1998 and
subsequently introduced companion bills based on the findings of the report. It
is expected that the legislature will hold hearings on the bill during this
year's legislative session.

----------
(23) During May of 1998 the White House Administration released comprehensive
draft legislation that includes a not to exceed one mil per kwh charge to be
collected from generators and partly utilized to fund energy efficiency and
conservation. Although, there continues to be no expectation that legislation
will be passed in 1998.

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but because 1998 is an election year, other issues are expected to come to the
forefront preventing action on restructuring this year. If the legislature does
not act this year, retail competition will be delayed beyond the January 1, 2000
date.

The proposed measures set a five year transition period that would close on
December 31, 2004 and during which utilities would recover any stranded costs.
During the transition period generation prices would be capped and be precluded
from rising above the current price level for firm power. There has been no
indication that a mandated rate reduction will be prescribed. New electricity
marketers will thus be able to capture market share if they can supply electrons
at a lower cost than the current firm power price. This should stimulate
marketer and utility subsidiary interest in the MLBS.

There have been no concrete indications that restructuring legislation will
mandate DSM. It appears that an organization wishing to take advantage of energy
conservation opportunities will have to independently identify potential
retrofits and approach building owners and industrial businesses outside the
purview of a state run program. Although there is significant MLBS retrofit
potential in Ohio, in the near term capturing market share will be arduous.

      IV.B.2 Wisconsin

Although Wisconsin is not moving rapidly to restructure its electricity
industry, the state Public Service Commission historically has aggressively
implemented DSM programs. Given that currently there is an electricity supply
shortage in Wisconsin, DSM programs continue to figure prominently in the state
and as a result the retrofit market will be an attractive outlet for the MLBS.

Wisconsin has most recently been pre-occupied with electricity supply shortages
leading to electric system reliability concerns. The Wisconsin Public Service
Commission, as well as the state legislature, have been focussing on increasing
a generation capacity and easing transmission constraints in order to solve the
current crisis. Against this backdrop, electricity industry restructuring
legislation has been shelved and the Wisconsin Governor subsequently signed a
reliability law on April 28, 1998.

Of interest is the fact that bills restricting utility and utility affiliate
activities were debated and died in committee, although it is thought that
similar measures will be

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introduced when the next legislative session commences in 1999. These bills
would have narrowed the restricitions placed upon public utilities who engage in
activities related to the sale and service of appliances. Additionally, these
bills would have only permitted utilities to carry-out energy conservation
services on property owned by the utility or its affiliates. Ensuring that any
entity, including utility subsidiaries, that desires to deliver these services
can do so is important for the MLBS.

At the same time Wisconsin Public Service Commission staff have issued an
Enunciation of Policy and Principles focussed on maintaining or enhancing
existing levels of energy efficiency. This policy enunciation identifies an
overall initial need of $100 million per year for energy efficiency market
development efforts. This level of funding is commensurate with current levels
of expenditures made by Wisconsin utilities. This policy reaffirms the
Commission's emphasis on energy efficiency, but many of the suggestions outlined
in the enunciation will require legislative approval. The extent to which the
proposed policies are adopted has yet to be determined although we believe that
Wisconsin will continue to push DSM investments

      IV.B.3 California

California is a very promising market for the MLBS. The state has completely
implemented retail competition and at the same time has preserved energy
efficiency programs. Electricity marketers have been competing for the state's
largest retail loads and a new energy conservation fund has been in place since
the beginning of 1998. In short the MLBS can be distributed through existing
energy service companies as well as become an ancillary offering that marketers
(including utility subsidiaries) can package to provide a lower cost supply. Of
the six states considered in this report, California holds the largest market
potential for the MLBS.

The California competitive electricity market began operation on April 1, 1998.
The propensity for existing residential customers to switch electricity
suppliers has been minimal at this early stage. As of March 31, 1998, utilities
had processed more than 60,000 direct service access requests filed by customers
wishing to change their electricity supplier. The exact quantity that have
switched is unknown, although various sources have indicated that only around
25,000 customers opted for a new supplier when the retail market began
operation. California Public

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Utility Commissioner Gregory Conlon has been quoted saying that on a revenue
basis customers responsible for about 13% of the total market revenues have
switched suppliers. Large commercial and industrial customers have been targeted
initially by marketers because large volumes of sales are required to ensure
reasonable profits.

In these early stages, Enron, New Energy Ventures and PG&E Energy Services have
been the most active energy service providers in California. The California
Public Utility Commission (PUC) has issued hundreds of licenses that allow
energy service providers to operate in the state, but the PUC has estimated that
currently only around 40 alternative suppliers are able to actually supply
retail electricity service. Given that under the California restructuring law
existing customers have received a 10% reduction in their electricity bills
effective January 1, 1998, and that additional reductions are envisioned once
stranded costs have been collected, it may be several years before large numbers
of smaller consumers consider switching supplier. It is likely that the numbers
of marketers and distributors that remain after 3-5 years will be on the order
of 10-12 entities, not 40-50.

In spite of the fact that customers may only sluggishly start to change
suppliers, California has put in place a system that will allow energy service
companies to provide metering, billing and information services. Creating
competition in the delivery of these services is important for an alternative
provider that wants to offer a bundle of services. Allowing energy marketers to
offer metering services will be beneficial to a marketer that hopes to package
energy conservation with electricity supply; it permits the marketer to make
savings guarantees that can be verified using the marketer's own metering
equipment. The more flexibility that exists to demonstrate the impact of
installing an energy conservation measure like the MLBS, the more easily the
product can be marketed.

Even though marketers will be free to offer any variety of energy supply,
California will continue to gather funds to support energy efficiency and
conservation efforts. The California restructuring law established a schedule of
mandatory Investor Owned Utility (IOU) contributions in order to collect a
pre-specified sum that will go to an energy conversation fund. This fund will
be administered by the California Energy Resources Commission in accordance
with legal regulations established by the state legislature. As of January 1,
1998, IOUs began collecting monies from

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customers to supply this fund. It is expected that energy conservation programs
similar to those that have existed previously will continue in the future.

      IV.B.4 Pennsylvania

Pennsylvania offers the MLBS considerable market potential, DSM programs are
continuing and hearty retail electricity competition is currently unfolding.
Electricity marketers are actively vying for existing utilities' loads, as
retail pilot programs begin in earnest. DSM programs will continue and in the
future electric distribution companies (existing local utilities that retain
ownership of transmission and distribution) will design and implement programs
funding them with monies collected pursuant to the statutorily mandated
non-bypassable charge. Therefore, Pennsylvania is a desirable state in which to
focus MLBS marketing efforts.

Pennsylvania has fully embraced electricity industry restructuring and continues
to actively review IOU transition plans and determine stranded cost recovery
levels. Prior to opening up the retail market to all customers, Pennsylvania has
chosen to use extensive retail pilot programs in the early transition years.
These programs initially allow limited amounts of customers to choose an
alternative supplier. Initial response to the pilot programs has been robust and
the programs established by the IOUs have been oversubscribed. By January 1,
2000, all customers will have the Option to switch electricity supplier.

Of particular interest in Pennsylvania is the so called "shopping credit." As
part of approving individual IOU restructuring plans, the Pennsylvania Public
Utility Commission has been establishing credits that are meant to ensure that
the electricity supply market will be competitive from day one. The credit is
essentially an amount, expressed in cents/kWh that is used as a benchmark
against which alternative suppliers can base their supply offerings. If the
supplier can provide electricity at a price below the shopping credit amount,
the customer is ensured savings. The shopping credit is set high enough so that
new electricity marketers can enter the market and profit. This mechanism
benefits new entrants at the expense of existing IOUs, although it will hasten
the advent of real competition.

Pennsylvania will continue to assess a non-bypassable renewable energy
development and energy conservation program charge of 0.23 cents/kwh for the
five years starting January 1, 1998. Electric distribution companies will
collect this

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charge. Each individual Pennsylvania is required to submit a plan outlining
the types of future programs that will be implemented using the funds. After the
first five years the PUC will evaluate whether or not to continue assessing the
charge as many believe that the demand for energy efficient products will
develop without incentive programs.

      IV.B.5 New Jersey

New Jersey is moving to implement electricity restructuring, but has yet to pass
legislation. Historically the state has emphasized DSM programs, and in the
short term the MLBS could target these existing programs. Once restructuring is
completed, the existing high electricity prices will create an incentive for
marketers to attempt to cut consumer prices and offer innovative services.

Comprehensive restructuring legislation has been drafted, but has yet to be
introduced as of this date. It is expected that this legislation will be debated
during the current legislative session. The New Jersey Board of Public Utilities
(BPL) has been actively reviewing restructuring issues and issued a report in
early 1997 with specific recommendations. Since that time the BPU put in place
working groups to continue evaluating restructuring issues and to review utility
filings. Initial timetables called for complete customer choice by the year
2000. Much of the groundwork to establish competition has been laid in New
Jersey, and legislative action would finalize the implementation timetable.

The BPU has proposed to continue existing incentives for and funding of
conservation, efficiency and load management programs via a non-bypassable
distribution charge placed on all customers during the transition period. The
BPU hopes to rely more on market forces to provide energy conservation services,
but in the interim will continue to monitor developments and consider
intervention as needed to ensure continuation of these programs. Continuation of
these programs ensures an outlet for the MLBS.

      IV.B.6 Maryland

Maryland has been actively pursuing electricity industry restructuring, but has
yet to put in place the legislation necessary to make it reality. Maryland has
an extensive history of supporting DSM programs and plans to continue support
for these programs as part of its electricity industry restructuring. As with
the

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majority of states examined in this report, the MLBS will find that existing and
future DSM programs offer an excellent distribution outlet while impending
electricity industry restructuring will ultimately strengthen marketing
opportunities.

In late 1997, the Maryland Public Service Commission (PSC) ordered the
introduction of retail competition beginning on July 1, 2000. As part of its
order the PSC outlined a comprehensive list of restructuring issues and
proposals directed at addressing these issues. The PSC also requested that the
legislature provide guidance on legal technicalities and provide any additional
authority the PSC may require to facilitate the transition to retail
competition. Although the PSC has actively supported competition, the Maryland
legislature adjourned in April 1998 without passing any electricity reform
legislation. Thus, the actual implementation schedule is currently uncertain,
but it is expected that restructuring legislation will pass in the next
legislative session. The PSC requires additional authorization to carry out any
program of electric industry restructuring.

As is the case with the other states examined in this report, initial PSC
restructuring proposals call for continued energy conservation programs funded
through non-bypassable charges assessed upon customers by electricity
distribution companies. The collection of these monies and their subsequent
dissemination ensure a short and long term distribution opportunity for the
MLBS.

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      V. CONCLUSIONS

The MLBS is poised to enter and capture a significant share of the U.S.
commercial sector ballast market throughout the United States. Existing DSM
progams continue to emphasize the replacement of old, inefficient fluorescent
lighting systems while electricity industry restructuring is only beginning to
open-up new supply outlets for energy conservation technologies. In this report
we have established that: 1) the potential MLBS market size is very large, 2)
the MLBS represents an excellent investment under most conceivable sets of
circumstances, and 3) future uncertainties associated with electricity industry
restructuring should serve to strengthen the MLBS marketing potential,not
lessen it.

We have considered the two specific markets that will be of most interest to
distributors of the MLBS: 1) the commercial fluorescent lighting retrofit
market, and 2) the commercial building new construction market. The combination
of these two markets represent sales opportunities of more than 150 million MLBS
units. We have shown that the retrofit lighting market, driven by state and
federal energy conservation programs, offers substantial distribution potential.
Nationally half of the existing commercial buildings illuminated with
fluorescent lights, or some 23 billion square feet, employ ballasts that are
considerably less efficient than the MLBS. Of these 23 billion square feet, more
than 40% continue to use the least efficient ballast systems that were
commercially available in the U.S. prior to 1991. At the same time, the new
commercial building construction market also owners substantial market
opportunity for the MLBS. Each year some 2 billion square feet of new commercial
building space is constructed, and most of this space will be lighted with
fluorescent lights.

Through the use of economic analyses, we have established the attractiveness of
an investment in the MLBS. In each of the states examined, base case internal
rates of return are in all cases higher than 18%, and in the majority of cases
are between 20 and 50%. These results demonstrate conclusively that the MLBS is
a cost effective investment. Furthermore, when these analyses are sensitized,
the MLBS continues to be an excellent investment. We have also shown that the
potential value of the MLBS to consumers, based on its energy savings potential,
is on the order of hundreds of millions of dollars nationwide with only modest
market penetration. These types of economic results will help drive the demand
for the MLBS.

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Electricity industry restructuring is leading to shifts in who will demand
energy conserving products and how business arrangements to purchase these
products will be defined. The entrenched investor owned utility DSM program
offerings have declined recently as utilities sought to trim their costs and the
shifts in the electricity supply marketplace resulting from state restructuring
legislation take root. In the short term, these trends are reducing the demand
for energy efficient ballasts, but in the longer term there are clearly
significant quantities of fluorescent lamps that use inefficient magnetic
core-coil ballasts that are desirable retrofit targets for the MLBS. Once the
new state level energy conservation programs associated with electricity
industry restructuring take hold, demand for products like the MLBS will
increase.

The new energy supply packages that marketers, including distribution utilities
are beginning to offer will serve to enhance MLBS distribution opportunities.
The ease in which electricity marketers can enter the market will place downward
pressure on the prices of electricity and will push creative marketers to
develop energy supply packages that focus on lowering costs by combining energy
efficiency services with low cost electrons. These new developments will lead to
greater demand for the MLBS. Given that the ultimate number of electricity
marketers will decrease as the restructured electricity industry matures, Elgin
should attempt to form partnerships with those marketers who are likely to
survive, thus securing a long term outlet for its product.

Therefore we conclude that the optimal way to bring the MLBS to market is to
focus simultaneously on two outlets: In states that retain some form of
government mandated DSM--the existing electric utilities, and in those that have
committed to retail competition--electriciry marketers (we include utility
subsidiaries as well as new competitors in this category). The combination of
these two distribution outlets will maximize the visibility of the MLBS. In
other words, Elgin should develop a portfolio of customers as opposed to selling
distribution rights to one or two utilities. In all likelihood, the most
effective marketers may turn out to be utility subsidiaries, but Elgin should
attempt to stimulate competition for the right to distribute the MLBS and not
award such rights on a first come-first serve basis.

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                                  Bibliography

Backer, Mark, April 7, 1998, System Comparison Spreadsheet, Elgin Warren
Power Systems

California Energy Commission, May 30, 1997. Lighting Efficiency Technology
Report.

California Energy Resources Conservation and Development Commission, Proposed
Strategic Plan for Implementing the Research, Development and Demonstration
Provisions of AB1890. 96-RDD-1890, California Energy Resources Conservation and
Development Commission, May 16, 1997.

California Legislature, Assembly Bill 1890, signed into law on September 23,
1996.

EEI Online, 1998. Retail Wheeling and Restructuring Report. Available
Www.eei.org.

Electric Power Research Institute, January 1993. 1991 Survey of
Commercial-Sector Demand-Side Management Programs.

Electric Power Research Institute, November 1995. 1994 Survey of Utility
Demand-Side Management Programs and Services.

Energy Information Administration 1995, 1995 Commercial Building Energy
Consumption Survey.

Energy Information Administration; 1998, Electric Power Annual 1997.

Energy Information Administration March 1992. Energy Consumption Series:
Lighting in Commercial Buildings.

Environmental Protection Agency, July 1992. Survey and Forecast of Marketplace
Supply and Demand for Energy-Efficient Lighting Products.

Environmental Protection Agency, May 1997. Building on Our Success: Green Lights
and Energy Star Buildings, 1996 Year in Review.

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Ernest Orlando Lawrence Berkeley National Laboratory, April 10, 1998. Report on
Electronic Ballast DSM Rebate Research.

Koomey, J.G., A. H. Sanstad, and L.J. Shown, Ernest Orlando Lawrence Berkeley
National Laboratory, December 1995. Magnetic Fluorescent Ballasts: Market Data,
Market Imperfections, and Policy Success.

Lee, H. and N. Darani, December 1995. Electricity Restructuring and the
Environment, Belfer Center for Science and International Affairs, John F.
Kennedy School of Government, Harvard University.

Logic Laboratories, Inc., June 13, 1997, Background and Technology Primer.

National Association of Regulatory Utility Commissioners, 1996. Utility
Regulatory Policy in the United States and Canada: Compilation 1995-1996.

National Association of Regulatory Utility Commissioners, October 1993.
Incentives for Demand-Side Management.

Pennsylvania Public Utility Commission. 1994-1995 Conservation Activities.

Pennsylvania Legislature H.B. 1509, The Electric Generation Customer Choice and
Competition Act, signed into law on December 3, 1996.

Pennsylvania Public Utility Commission, Order Re: Electric Utility
Restructuring, PPUC, February 13, 1997.

U. S. Code of Federal Regulations, 59 F.R. 11471, March 8, 1994. Executive Order
#12902, Energy Efficiency and Water Conservation at Federal Facilities.

Vorsatz D., L. Shown, J. Koomey, M. Moezzi, A. Denver and B. Atkinson, Ernest
Orlando Lawrence Berkeley National Laboratory, December 1997. Lighting Market
Sourcebook for the US.

Wisconsin Center for Demand-Side Research, 1995. Wisconsin's Statewide
Technical & Economic Potential.

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                                    APPENDIX

                                       A-1

         Methodology Used to Estimate the Impact of Energy Conservation
             Programs on the Fluorescent Lighting Retrofit Market

A methodology was developed to estimate the extent to which energy conservation
programs have penetrated the existing stock of commercial buildings. There are
four steps that were carried out to establish a reasonable estimate of the
extent to which existing energy conservation programs have penetrated the
existing stock of commercial buildings during the past 20 years: i) total square
footage of existing commercial buildings is determined, ii) the percentage of
square footage that currently have energy efficient ballasts is determined, iii)
an estimate of the distribution of energy efficient ballasts in existing
buildings--both electronic and high efficiency magnetic--is made, and iv) square
footage remaining to be retrofitted is estimated. In order to insure that the
results were reasonable this analysis relied on several data sources and, where
possible, the calculations were executed two different ways in order to ensure
accuracy of the results.

The primary data source for this analysis is the EIA's 1995 Commercial Buildings
Energy Consumption Survey (CBECS). This survey collects information on the
physical characteristics of commercial buildings, equipment use, conservation
features and practices, building use and occupancy patterns, and types and uses
of energy in buildings. This survey specifically asks building owners if energy
efficient ballasts are used in their building and compiles the responses in
order to create an extensive data base. Additional critical data sources are: i)
commercial building lighting use statistics compiled by the Lawrence Berkeley
National Laboratory (LBNL), ii) commercial building energy use by state compiled
by the EJA, iii) EIA's Electric Power Annual for 1997 iv) the Environmental
Protection Agency's (EPA) Green Light Program data, and v) specific energy
conservation program data compiled by individual state public utility
commissions and national organizations such as the Electric Power Research
Institute (EPRI) and the National Association of Regulatory Utility
Commissioners.

The ultimate goal of this analysis was to estimate the square footage of
commercial buildings in the states of interest that have yet to be retrofitted.
The CBECS does

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not collect data at the state Level, but instead evaluates by census division.
Figure 4 (see Section II) shows the percentage of commercial floorspace with
energy efficient ballasts by census division. In order to evaluate square
footage available in each state, additional analysis was required.

In the case of each state, commercial building square footage data was not
readily available. To surmount this problem the analysis used electricity
consumption in the commercial sector for the state as a starting point for
determining commercial building square footage in a particular state. The amount
of electricity consumed for lighting purposes is estimated by the CBECS to be
28%. This percentage multiplied by the total commercial building sector
electricity uses yields an estimate of electricity consumed for lighting only.
The LBL has calculated an average weighted energy intensity (KWh/ft^2/yr) for
lighting in commercial buildings that accounts for the different types of
commercial buildings in existence. This value of 3.6 KWh/ft^2/yr is divided into
the electricity consumption attributable to lighting to arrive at an estimate of
commercial building square footage in a particular state as of 1995. This
methodology works quite well; in the cases of California and Wisconsin
independent estimates of commercial building square footage were obtained and
differed from the calculated value by only a few percentage points.

Once the building square footage is determined it is straightforward to apply
the CBECS energy efficient ballast percentages to the square footage figures to
determine square footage yet to be retrofitted. Although this technique is
simple it does not provide any information about what the distribution of
energy efficient ballasts is in existing facilities. To estimate the percentage
of energy efficient ballasts that is electronic and the percentage that is high
efficiency magnetic required using data presented in Figure 1 which depicts how
the types of ballasts sold has varied over the last 20 years. Using these data,
and CBECS data on what percentage of existing building square footage has been
built since 1977, an estimate of percentages of magnetic core-coil, high
efficiency magnetic and electronic ballasts currently installed was developed.
In addition to this methodology, actual data on state energy conservation
programs in Wisconsin and California and EPA Green Lights data were used to both
check and attenuate the results.

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                                       A-2

                   Project Financial Analyses: Tabular Results

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        Project Sensitivity to Variation in Electricity Price Forecast

<TABLE>
<CAPTION>
                                                                      Price Forecast Variation
<S>                                   <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>       <C>
                                      ----------------------------------------------------------------------------------------------
New Construction                          90%        95%        98%        99%       100%       101%       102%       105%      110%
                                      ----------------------------------------------------------------------------------------------
Internal Rate          California         50%        53%        55%        55%        56%        56%        57%        59%       62%
of Return              Maryland           33%        35%        37%        37%        38%        38%        38%        40%       42%
                       New Jersey         53%        56%        58%        58%        59%        59%        60%        62%       55%
                       Ohio               37%        40%        41%        41%        42%        42%        43%        44%       47%
                       Pennsylvania       41%        44%        45%        46%        46%        47%        47%        49%       51%
                       Wisconsin          26%        27%        28%        29%        29%        30%        30%        31%       33%

Net Present Value      California     $ 3,077    $ 3,331    $ 3,483    $ 3,534    $ 3,585    $ 3,636    $ 3,686    $ 3,839   $ 4,093
                       Maryland       $ 1,692    $ 1,869    $ 1,975    $ 2,010    $ 2,046    $ 2,081    $ 2,117    $ 2,223   $ 2,400
                       New Jersey     $ 3,308    $ 3,575    $ 3,735    $ 3,788    $ 3,841    $ 3,895    $ 3,948    $ 4,108   $ 4,375
                       Ohio           $ 2,015    $ 2,210    $ 2,327    $ 2,366    $ 2,405    $ 2,444    $ 2,483    $ 2,600   $ 2,795
                       Pennsylvania   $ 2,338    $ 2,551    $ 2,679    $ 2,721    $ 2,764    $ 2,807    $ 2,849    $ 2,977   $ 3,190
                       Wisconsin      $ 1,092    $ 1,235    $ 1,321    $ 1,350    $ 1,379    $ 1,408    $ 1,436    $ 1,522   $ 1,666

Payback Period         California        1.94       1.84       1.79       1.77       1.75       1.73       1.71       1.37      1.59
                       Maryland          2.80       2.65       2.57       2.55       2.52       2.49       2.47       2.40      2.29
                       New Jersey        1.85       1.75       1.70       1.68       1.66       1.65       1.63       1.58      1.51
                       Ohio              2.54       2.41       2.33       2.31       2.28       2.26       2.24       2.17      2.07
                       Pennsylvania      2.32       2.20       2.13       2.11       2.09       2.07       2.05       1.99      1.90
                       Wisconsin         3.47       3.28       3.18       3.14       3.11       3.08       3.05       2.96      2.83

Retrofits
Inernal Rate of Return California         33%        36%        37%        37%        30%        38%        39%        40%       42%
                       Maryland           21%        22%        23%        24%        24%        24%        25%        26%       27%
                       New Jersey         35%        38%        39%        39%        40%        40%        41%        42%       44%
                       Ohio               24%        26%        27%        27%        27%        28%        28%        29%       31%
                       Pennsylvania       27%        29%        30%        30%        31%        31%        31%        32%       34%
                       Wisconsin          15%        16%        17%        17%        18%        18%        18%        19%       21%

Net Present Value      California     $10,313    $11,388    $12,032    $12,247    $12,462    $12,577    $12,892    $13,537   $14,611
                       Maryland       $ 4,453    $ 5,202    $ 5,651    $ 5,801    $ 5,951    $ 6,101    $ 6,250    $ 6,700   $ 7,449
                       New Jersey     $11,290    $12,419    $13,096    $13,322    $13,547    $13,773    $13,999    $14,676   $15,805
                       Ohio           $ 5,821    $ 6,645    $ 7,140    $ 7,305    $ 7,470    $ 7,635    $ 7,800    $ 8,295   $ 9,120
                       Pennsylvania   $ 7,188    $ 8,089    $ 8,629    $ 8,809    $ 8,990    $ 9,170    $ 9,350    $ 9,890   $10,791
                       Wisconsin      $ 1,914    $ 2,522    $ 2,886    $ 3,008    $ 3,129    $ 3,251    $ 3,372    $ 3,737   $ 4,345

Payback Period         California        2.79       2.64       2.56       2.53       2.51       2.48       2.45       2.39      2.28
                       Maryland          4.03       3.81       3.69       3.65       3.62       3.58       3.54       3.44      3.28
                       New Jersey        2.65       2.51       2.43       2.41       2.39       2.36       2.34       2.27      2.17
                       Ohio              3.65       3.45       3.35       3.31       3.28       3.24       3.21       3.12      2.97
                       Pennsylvania      3.34       3.16       3.06       3.03       3.00       2.97       2.94       2.85      2.72
                       Wisconsin         4.98       4.72       4.57       4.52       4.47       4.43       4.39       4.26      4.06
</TABLE>

                                                                           DRAFT
                                              THE ECONOMICS RESOURCE GROUP, INC.

<PAGE>

Elgin MLBS                                                                    53
--------------------------------------------------------------------------------

         Project Sensitivity to Variation in Building Hours of Operation

<TABLE>
<CAPTION>
                                                                               Hours of Operation
                                      ----------------------------------------------------------------------------------------------
<S>                                   <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>       <C>
New Construction                         3060       3230       3332       3366       3400       3434       3468       3570      3740
                                      ----------------------------------------------------------------------------------------------
Internal Rate          California         50%        53%        55%        55%        56%        56%        57%        59%       62%
of Return              Maryland           33%        35%        37%        37%        38%        38%        38%        40%       42%
                       New Jersey         53%        56%        58%        58%        59%        59%        60%        62%       65%
                       Ohio               37%        40%        41%        41%        42%        42%        43%        44%       47%
                       Pennsylvania       41%        44%        45%        46%        46%        47%        47%        49%       51%
                       Wisconsin          26%        27%        28%        29%        29%        30%        30%        31%       33%

Net Present Value      California     $ 3,077    $ 3,331    $ 3,483    $ 3,534    $ 3,585    $ 3,636    $ 3,686    $ 3,839   $ 4,093
                       Maryland       $ 1,692    $ 1,869    $ 1,975    $ 2,010    $ 2,046    $ 2,081    $ 2,117    $ 2,223   $ 2,400
                       New Jersey     $ 3,308    $ 3,575    $ 3,735    $ 3,788    $ 3,841    $ 3,895    $ 3,948    $ 4,108   $ 4,375
                       Ohio           $ 2,015    $ 2,210    $ 2,327    $ 2,366    $ 2,405    $ 2,444    $ 2,483    $ 2,600   $ 2,795
                       Pennsylvania   $ 2,338    $ 2,551    $ 2,679    $ 2,721    $ 2,764    $ 2,807    $ 2,849    $ 2,977   $ 3,190
                       Wisconsin      $ 1,092    $ 1,235    $ 1,321    $ 1,350    $ 1,379    $ 1,408    $ 1,436    $ 1,522   $ 1,666

Payback Period         California        1.94       1.84       1.79       1.77       1.75       1.73       1.71       1.67      1.59
                       Maryland          2.80       2.65       2.57       2.55       2.52       2.49       2.47       2.40      2.29
                       New Jersey        1.85       1.75       1.70       1.68       1.66       1.65       1.63       1.58      1.51
                       Ohio              2.54       2.41       2.33       2.31       2.28       2.26       2.24       2.17      2.07
                       Pennsylvania      2.32       2.20       2.13       2.11       2.09       2.07       2.05       1.99      1.90
                       Wisconsin         3.47       3.28       3.18       3.14       3.11       3.08       3.05       2.96      2.83

Retrofits
Internal Rate          California         33%        36%        37%        37%        38%        38%        39%        40%       42%
of Return              Maryland           21%        22%        23%        24%        24%        24%        25%        26%       27%
                       New Jersey         35%        38%        39%        39%        40%        40%        41%        42%       44%
                       Ohio               24%        26%        27%        27%        27%        28%        28%        29%       31%
                       Pennsylvania       27%        29%        30%        30%        31%        31%        31%        32%       34%
                       Wisconsin          15%        16%        17%        17%        18%        18%        18%        19%       21%

Net Present Value      California     $10,313    $11,388    $12,032    $12,247    $12,462    $12,677    $12,892    $13,537   $ 4,611
                       Maryland       $ 4,453    $ 5,202    $ 5,651    $ 5,801    $ 5,951    $ 6,101    $ 6,250    $ 6,700   $ 7,449
                       New Jersey     $11,290    $12,419    $13,096    $13,322    $13,547    $13,773    $13,999    $14,676   $15,805
                       Ohio           $ 5,821    $ 6,645    $ 7,140    $ 7,305    $ 7,470    $ 7,635    $ 7,800    $ 8,295   $ 9,120
                       Pennsylvania   $ 7,188    $ 8,089    $ 8,629    $ 8,809    $ 8,990    $ 9,170    $ 9,350    $ 9,890   $10,791
                       Wisconsin      $ 1,914    $ 2,522    $ 2,886    $ 3,008    $ 3,129    $ 3,251    $ 3,372    $ 3,737   $ 4,345

Payback Period         California        2.79       2.64       2.56       2.53       2.51       2.48       2.46       2.39      2.28
                       Maryland          4.03       3.81       3.69       3.65       3.62       3.58       3.54       3.44      3.28
                       New Jersey        2.65       2.51       2.43       2.41       2.39       2.36       2.34       2.27      2.17
                       Ohio              3.65       3.45       3.35       3.31       3.28       3.24       3.21       3.12      2.97
                       Pennsylvania      3.34       3.16       3.06       3.03       3.00       2.97       2.94       2.85      2.72
                       Wisconsin         4.98       4.72       4.57       4.52       4.47       4.43       4.39       4.26      4.06
</TABLE>

                                                                           DRAFT
                                              THE ECONOMICS RESOURCE GROUP, INC.

<PAGE>

Elgin MLBS                                                                    55
--------------------------------------------------------------------------------

                Project Sensitivity to Variation in Discount Rate

                                                   Discount Rate Variation
                                         ---------------------------------------
New Construction                             20%       15%        10%         6%
                                         ---------------------------------------
Internal Rate of Return   California         56%       55%        56%        56%
                          Maryland           38%       38%        38%        38%
                          New Jersey         59%       59%        59%        59%
                          Ohio               42%       42%        42%        42%
                          Pennsylvania       46%       46%        46%        46%
                          Wisconsin          29%       29%        29%        29%

Net Present Value         California     $ 1,994    $2,668    $ 3,585    $ 4,571
                          Maryland       $   937    $1,407    $ 2,046    $ 2,733
                          New Jersey     $ 2,170    $2,379    $ 3,841    $ 4,878
                          Ohio           $ 1,184    $1,701    $ 2,405    $ 3,162
                          Pennsylvania   $ 1,430    $1,996    $ 2,764    $ 3,591
                          Wisconsin      $   479    $  861    $ 1,379    $ 1,937

Payback Period            California        1.75      1.75       1.75       1.75
                          Maryland          2.52      2.52       2.52       2.52
                          New Jersey        1.66      1.66       1.66       1.66
                          Ohio              2.28      2.28       2.28       2.28
                          Pennsylvania      2.09      2.09       2.09       2.09
                          Wisconsin         3.11      3.11       3.11       3.11

Retrofits
Internal Rate of Return   California         38%       38%        38%        38%
                          Maryland           24%       24%        24%        24%
                          New Jersey         40%       40%        40%        40%
                          Ohio               27%       27%        27%        27%
                          Pennsylvania       31%       31%        31%        31%
                          Wisconsin          18%       18%        18%        18%

Net Present Value         California     $ 5,732    $8,585    $12,462    $16,637
                          Maryland       $ 1,260    $3,249    $ 5,951    $ 8,860
                          New Jersey     $ 6,477    $9,475    $13,547    $17,933
                          Ohio           $ 2,303    $4,494    $ 7,470    $10,675
                          Pennsylvania   $ 3,347    $5,739    $ 8,990    $12,489
                          Wisconsin      $   678    $  936    $ 3,129    $ 5,491

Payback Period            California        2.51      2.51       2.51       2.51
                          Maryland          3.52      3.62       3.62       3.62
                          New Jersey        2.39      2.39       2.39       2.39
                          Ohio              3.28      3.28       3.28       3.28
                          Pennsylvania      3.00      3.00       3.00       3.00
                          Wisconsin         4.47      4.47       4.47       4.47

                                                                           DRAFT
                                              THE ECONOMICS RESOURCE GROUP, INC.

<PAGE>

Elgin MLBS                                                                    56
--------------------------------------------------------------------------------

    Project Sensitivity to Variation in Existing Ballasts' Electricity Demand

<TABLE>
<CAPTION>
                                                             Variation in Existing Ballasts' Electricity Demand
<S>                                   <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>       <C>
                                       ---------------------------------------------------------------------------------------------
Retrofits                                1.15       1.22       1.25       1.27       1.28       1.29       1.31       1.34      1.41
                                       ---------------------------------------------------------------------------------------------
Internal Rate of Reform California        27%        33%        36%        37%        38%        39%        40%        43%       48%
                        Maryland          16%        20%        23%        23%        24%        25%        26%        28%       32%
                        New Jersey        29%        25%        38%        39%        40%        41%        42%        45%       53%
                        Ohio              19%        23%        26%        27%        27%        28%        29%        31%       35%
                        Pennsylvania      22%        26%        29%        30%        31%        31%        32%        35%       39%
                        Wisconsin         11%        14%        16%        17%        18%        18%        19%        21%       24%

Net Present Value       California     $7,462    $ 9,962    $11,462    $11,962    $12,462    $12,962    $13,462    $14,963   $17,463
                        Maryland       $2,466    $ 4,208    $ 5,254    $ 5,602    $ 5,951    $ 6,299    $ 6,648    $ 7,694   $ 9,436
                        New Jersey     $8,294    $10,921    $12,497    $13,022    $13,547    $14,073    $14,598    $16,174   $18,801
                        Ohio           $3,631    $ 5,551    $ 6,702    $ 7,086    $ 7,470    $ 7,854    $ 8,238    $ 9,390   $11,309
                        Pennsylvania   $4,797    $ 6,893    $ 8,151    $ 8,570    $ 8,990    $ 9,409    $ 9,828    $11,086   $13,182
                        Wisconsin      $  301    $ 1,715    $ 2,564    $ 2,847    $ 3,129    $ 3,412    $ 3,695    $ 4,544   $ 5,958

Payback Period          California       3.28       2.84       2.63       2.57       2.51       2.45       2.39       2.24      2.03
                        Maryland         4.74       4.10       3.80       3.70       3.62       3.53       3.45       3.23      2.92
                        New Jersey       3.12       2.70       2.50       2.44       2.39       2.33       2.28       2.13      1.93
                        Ohio             4.29       3.72       3.44       3.36       3.28       3.20       3.13       2.93      2.55
                        Pennsylvania     3.92       3.40       3.15       3.07       3.00       2.93       2.86       2.68      2.42
                        Wisconsin        5.87       5.08       4.70       4.58       4.47       4.37       4.27       4.00      3.61
</TABLE>

                                                                           DRAFT
                                              THE ECONOMICS RESOURCE GROUP, INC.DYNEGY INVESTMENT PLUS

              (As Amended and Restated Effective February 2, 2000)
<PAGE>

                                TABLE OF CONTENTS

ARTICLE I. Definitions.........................................................1
  1.1  Account.................................................................1
  1.2  Account Shares..........................................................1
  1.3  Administrator...........................................................2
  1.4  Common Stock............................................................2
  1.5  Company.................................................................2
  1.6  Company Purchase Price..................................................2
  1.7  Dividend................................................................2
  1.8  Dividend Payment Date...................................................2
  1.9  Effective Date..........................................................2
  1.10 Eligible Securities.....................................................2
  1.11 Enrollment Form.........................................................3
  1.12 Illinois Power..........................................................3
  1.13 Independent Agent.......................................................3
  1.14 Investment Date.........................................................3
  1.15 Market Purchase Price...................................................4
  1.16 NYSE....................................................................4
  1.17 Participant.............................................................4
  1.18 Person..................................................................4
  1.19 Plan....................................................................4
  1.20 Pricing Period..........................................................4
  1.21 Prior Plan..............................................................4
  1.22 Reinvestment Eligible Securities........................................4
  1.23 Sale/Withdrawal Request Form............................................5
  1.24 Statement of Account....................................................5
  1.25 Threshold Price.........................................................5
  1.26 Trading Day.............................................................5
  1.27 Waiver Discount.........................................................5

ARTICLE II. Participation......................................................5
  2.1  Participation...........................................................5
  2.2  Initial Cash Investment.................................................6
  2.3  Dividend Reinvestment...................................................7
  2.4  Optional Cash Investments...............................................8
  2.5  Optional Cash Investments in Excess of the Maximum Amount...............9

ARTICLE III. Dividend Reinvestment and Stock Purchase.........................12
  3.1  Dividend Reinvestment..................................................12
  3.2  Investment of Initial Cash Payments and Optional Cash Payments.........14

ARTICLE IV. Safekeeping Services for Deposited Common Stock...................16
  4.1  Deposited Common Stock.................................................16
  4.2  Withdrawal of Deposited Common Stock...................................16

                                       i
<PAGE>

ARTICLE V. Sale of Account Shares; Gift or Transfer of Account Shares.........16
  5.1  Sale of Account Shares.................................................16
  5.2  Gift or Transfer of Account Shares.....................................18
  5.3  Reinvestment of Dividends on Remaining Account Shares..................19

ARTICLE VI. Eligible Securities...............................................19
  6.1  Eligible Securities....................................................19
  6.2  Additional Eligible Securities.........................................20

ARTICLE VII. Treatment of Accounts............................................20
  7.1  Changing Plan Options..................................................20
  7.2  Right of Withdrawal....................................................21
  7.3  Right of Termination of Participation..................................22
  7.4  Termination of Participation by Company................................22
  7.5  Stock Splits, Stock Dividends and Rights Offerings.....................23
  7.6  Shareholder Materials; Voting Rights...................................23
  7.7  Statement of Account...................................................24

ARTICLE VIII. Certificates and Fractions of Shares............................24
  8.1  Certificates...........................................................24
  8.2  Fractional Shares......................................................25

ARTICLE IX. Amendment and Termination of this Plan............................25
  9.1  Suspension, Modification and Termination...............................25

ARTICLE X. Administration of this Plan........................................26
  10.1 Rules and Regulations..................................................26
  10.2 Selection of an Administrator..........................................26
  10.3 Authority and Duties of Administrator..................................26
  10.4 Compensation...........................................................26
  10.5 Costs..................................................................27
  10.6 Liability of the Company, the Administrator and Any Independent Agent..27
  10.7 Records and Reports....................................................27
  10.8 Selection of Independent Agent.........................................27
  10.9 Source of Shares of Common Stock.....................................  28
                                                                            ..
ARTICLE XI. Miscellaneous Provisions..........................................28
  11.1 Controlling Law........................................................28
  11.2 Acceptance of Terms and Conditions of Plans by Participants............28

                                       ii
<PAGE>

                             DYNEGY INVESTMENT PLUS

      Dynegy Inc., an Illinois corporation (the "Company"), hereby adopts and
establishes as its own Dynegy Investment Plus (the "Plan"), effective as of
February 2, 2000. This Plan constitutes an assumption and an amendment and
restatement of Illinova Investment Plus.

      The purpose of this Plan is to provide investors and holders of certain
equity securities of the Company and Illinois Power Company, the Company's
indirect wholly owned subsidiary ("Illinois Power"), with a convenient and
economical opportunity to commence or increase their investment in Class A
common stock of the Company through (i) cash purchases of Class A common stock
of the Company; and/or (ii) regular reinvestment of cash dividends made with
respect to such equity securities, including Class A common stock.

                                   ARTICLE I.

                                   Definitions

      The terms defined in this Article I shall have the following respective
meanings:

      1.1 "Account" means the account maintained by the Administrator for a
Participant evidencing (i) the shares (including any fraction of a share) of
Common Stock either purchased through this Plan on behalf of the Participant or
deposited by such Participant into this Plan pursuant to Section 4.1; and (ii)
cash held in this Plan pending investment in Common Stock for such Participant.

      1.2 "Account Shares" means all shares (including any fraction of a share)
of Common Stock credited to the Account of a Participant.

                                       1
<PAGE>

      1.3 "Administrator" means the individual (who may be an employee of the
Company), bank, trust company or other entity (including the Company) appointed
from time to time by the Company to act as Administrator hereunder.

      1.4 "Common Stock" means the Company's Class A common stock, without par
value.

      1.5 "Company" means Dynegy Inc., an Illinois corporation.

      1.6 "Company Purchase Price", when used with respect to newly issued
shares of Common Stock or shares of Common Stock held in the Company's treasury,
means the average of the high and low sales prices of Common Stock on a given
trading day as reported on NYSE composite tape as published in The Wall Street
Journal. If no trading is so reported for a trading day, the Company Purchase
Price for such shares shall be determined on the basis of the average of the
high and low sales prices of Common Stock on the next preceding trading day. Any
fraction of a cent of a Company Purchase Price shall be rounded up.

      1.7 "Dividend" means cash dividends paid on Reinvestment Eligible
Securities.

      1.8 "Dividend Payment Date" means a date on which a cash dividend on
shares of Common Stock is paid.

      1.9 "Effective Date" means the date as of which this Plan is effective, or
February 2, 2000.

                                       2
<PAGE>

      1.10 "Eligible Securities" means the equity securities of the Company and
Illinois Power, whether issued prior to, on or after, the Effective Date as
described in Sections 6.1 and 6.2.

      1.11 "Enrollment Form" means the documentation that the Administrator
shall require to be completed and received prior to (i) an investor's enrollment
in this Plan pursuant to Section 2.2; (ii) a Participant's election to have
Dividends reinvested in this Plan pursuant to Section 2.3; (iii) a Participant's
optional cash investment pursuant to Section 2.4; (iv) a Participant's deposit
of shares of Common Stock into this Plan pursuant to Section 4.1; or (v) a
Participant's change to his or her elections under this Plan pursuant to Section
7.1.

      1.12 "Illinois Power" means the Illinois Power Company, an Illinois
corporation.

      1.13 "Independent Agent" means an agent independent of the Company who
satisfies applicable legal requirements (including the requirements of
Regulation M promulgated under the Securities Act of 1933, the Securities
Exchange Act of 1934 and the Investment Company Act of 1940) and who has been
selected by the Company pursuant to Section 10.8 to serve as an independent
agent for purposes of making open market purchases and sales of Common Stock
under this Plan.

      1.14 "Investment Date" means (i) in any month in which a Dividend Payment
Date occurs, such Dividend Payment Date and the 15th day of the month or, if
either day is not a business day, the business day immediately following that
day; and (ii) in any month in which no Dividend Payment Date occurs, the first
and 15th day of the month or, if either day is not a business day, the business
day immediately following that day.

                                       3
<PAGE>

      1.15 "Market Purchase Price," when used with respect to shares of Common
Stock purchased in the open market, means the weighted average purchase price
per share (disregarding any brokerage commissions and any applicable taxes and
service charges) of the aggregate number of shares purchased in the open market
for an Investment Date.

      1.16 "NYSE" means the New York Stock Exchange, Inc.

      1.17 "Participant" means any Person who has satisfied the requirements of
Section 2.1.

      1.18 "Person" means any individual, corporation, partnership, limited
liability company, joint venture, association, joint-stock company, trust,
estate or unincorporated organization.

      1.19 "Plan" means this Dynegy Investment Plus, as effective on the
Effective Date.

      1.20 "Pricing Period" is defined in Section 2.5(b).

      1.21 "Prior Plan" means Illinova Investment Plus as amended and restated
effective July 1, 1996.

      1.22 "Reinvestment Eligible Securities" means (i) a Participant's Account
Shares with respect to which the Participant has elected to have dividends
reinvested in Common Stock; and (ii) any other Eligible Securities of which a
Participant is the record holder and with respect to which such Participant has
elected to have all or a portion of the dividends reinvested in Common Stock.

                                       4
<PAGE>

      1.23 "Sale/Withdrawal Request Form" means the documentation that the
Administrator shall require to be completed and received prior to a
Participant's (i) sale of Account Shares pursuant to Article V; (ii) withdrawal
of whole Account Shares pursuant to Section 7.2 (unless such Participant will be
the record holder of such Account Shares after withdrawal); and (iii)
termination of participation in this Plan pursuant to Section 7.3.

      1.24 "Statement of Account" means a written statement prepared by the
Administrator and sent to each Participant pursuant to Section 7.7 which
reflects (i) all transactions completed under this Plan on behalf of such
Participant during a month; (ii) the number of shares of Common Stock credited
to such Participant's Account at the date of such statement; and (iii) any
additional information that the Administrator determines to be pertinent.

      1.25 "Threshold Price" is defined in Section 2.5(c).

      1.26 "Trading Day" means a day on which trades are reported by the NYSE.

      1.27 "Waiver Discount" is defined in Section 2.5(g).

      A pronoun or adjective in the masculine gender includes the feminine
gender, and the singular includes the plural, unless the context clearly
indicates otherwise.

                                  ARTICLE II.

                                  Participation

      2.1 Participation.

      (a) Any Person, whether or not a record holder of Common Stock, may elect
to participate in this Plan. Notwithstanding the foregoing, however, (i) if
required by the laws of

                                       5
<PAGE>

the jurisdiction in which the Person resides, such Person shall be a current
record holder of Common Stock to participate; (ii) if such Person is a citizen
or resident of, or is organized or incorporated under, or has its principal
place of business in, a country other than the United States, its territories or
possessions, they must provide evidence satisfactory to the Administrator that
their participation in this Plan wou1d not violate local laws applicable to the
Company, this Plan or such Person; and (iii) participation in this Plan is
subject to approval by the Administrator, which approval shall not be
unreasonably withheld.

      (b) An election by a Person to participate in this Plan shall be made by
completing and returning an Enrollment Form to the Administrator, which shall
evidence the following: (i) an initial cash investment pursuant to Section 2.2;
(ii) the election to have Dividends on all or a specified number of shares of
Eligible Securities of which such Person is the record holder invested in Common
Stock pursuant to Section 2.3; and/or (iii) the deposit into this Plan of
certificates representing Common Stock of which such Person is the record holder
pursuant to Section 4.1.

      (c) Notwithstanding the foregoing, each Person who is a participant in a
Prior Plan on the Effective Date shall continue to be a Participant without
submitting a new Enrollment Form; provided, however, that any such Participant
who wishes to change their current participation in any way must submit a new
Enrollment Form to the Administrator.

      2.2 Initial Cash Investment.

      (a) A Person not already a Participant who has met the eligibility
requirements of Section 2.1(a), and who is not a current holder of record of an
Eligible Security may become a

                                       6
<PAGE>

Participant by making an initial cash investment of at least $250 to be invested
in Common Stock pursuant to Section 3.2.

      (b) A Person not already a Participant who has met the eligibility
requirements of Section 2.1(a), and who is not a current holder of record of an
Eligible Security, but who is an active employee of the Company or its
subsidiaries, may become a Participant by making an initial cash investment of
at least $100 to be invested in Common Stock pursuant to Section 3.2.

      (c) Payment must be by personal check or money order made payable to
Dynegy Investment Plus, or by direct debit, and must be accompanied by a
completed Enrollment Form. A Person who is an active employee of the Company may
make an initial cash investment through payroll deductions, authorized on a
payroll deduction authorization form. After the Administrator has received the
payroll deduction authorization form and the authority for the payroll deduction
has been noted on the Company's payroll records, the Company will withhold each
month the amount authorized. The withholding will be made each month from the
paycheck for the pay period ending in that month. The amount withheld will be
forwarded to the Administrator, and the Administrator will invest the funds in
Common Stock beginning on the first Investment Date following the
Administrator's receipt of the funds. The amount of payroll deduction can be
revised, changed or terminated at any time by written notice to the
Administrator. Commencement, revision or termination of payroll deductions will
become effective as soon as practicable after the Administrator receives an
employee's request.

      2.3 Dividend Reinvestment. A Person not already a Participant who has met
the eligibility requirements of Section 2.1(a) may become a Participant by
electing to have all or a portion of any Dividends invested in shares (including
any fraction of a share) of Common Stock

                                       7
<PAGE>

to be credited to his Account in lieu of receiving such Dividends directly by
completing an Enrollment Form. A current Participant may also elect reinvestment
of Dividends in accordance with the preceding sentence. If a Participant elects
to reinvest only a portion of the Dividends, that portion of such Dividends not
reinvested in Common Stock shall be sent to the Participant by check in the
manner otherwise associated with payment of such Dividends. The amount
reinvested will be reduced by any amount which is required to be withheld under
any applicable tax or other statutes.

      2.4 Optional Cash Investments.

      (a) A Participant may elect to make optional cash investments at any time
or from time to time to this Plan for investment in Common Stock pursuant to
Section 3.2. Optional cash investments must be at least $100 for any single
investment. Payment must be by personal check or money order made payable to
Dynegy Investment Plus, or by direct debit, and must be accompanied by a
completed Enrollment Form. A Participant who is an active employee of the
Company may make optional cash investments through payroll deductions,
authorized on a payroll deduction authorization form submitted to the Company
and in even multiples of $1, but not less than $5 per pay period.

      (b) The Company in its sole discretion reserves the right to refuse or
limit any optional cash investments in excess of $10,000 per month. In certain
instances, however, the Company may permit greater optional cash purchases. For
the purposes of determining whether such maximum annual amount has been reached,
an initial cash investment made pursuant to Section 2.2 and dividend
reinvestments made pursuant to Section 2.3 shall be counted as an optional cash
investment.

                                       8
<PAGE>

      2.5 Optional Cash Investments in Excess of the Maximum Amount.

      (a) Optional cash purchases in excess of $10,000 per month may be made
only pursuant to a request for waiver accepted by the Company. If a Participant
wishes to make an optional cash purchase in excess of $10,000 for any month,
they must obtain the prior written approval of the Company and a copy of such
written approval must accompany any such optional cash purchase. A Participant
must contact the Administrator to determine whether the Company is accepting
such requests for waiver of the maximum monthly investment, and to obtain a form
for requesting a waiver. Each Participant then must submit to the Administrator
a request for waiver on the form provided by the Administrator. THE COMPANY HAS
SOLE DISCRETION TO GRANT ANY APPROVAL OF A WAIVER FOR OPTIONAL CASH PURCHASES IN
EXCESS OF THE ALLOWABLE MAXIMUM AMOUNT. The Administrator will notify each
Participant requesting a waiver if the Company has accepted its request. In
deciding whether to approve a request for waiver, the Company will consider
relevant factors including, (i) whether this Plan is then acquiring newly issued
shares directly from the Company or acquiring shares in the open market or in
privately negotiated transactions from third parties; (ii) the Company's need
for additional funds; (iii) the attractiveness of obtaining such additional
funds through the sale of Common Stock as compared to other sources of funds;
(iv) the purchase price likely to apply to any sale of Common Stock; (v) the
Participant submitting the request; (vi) the extent and nature of such
Participant's prior participation in this Plan; (vii) the number of shares of
Common Stock held of record by such Participant and (viii) the aggregate number
of optional cash purchases in excess of $10,000 for which requests for waiver
have been submitted by all Participants. If requests for waiver are submitted
for any month for an aggregate amount in excess of the amount the Company is
then willing to accept,

                                       9
<PAGE>

the Company may honor such requests in order of receipt, pro rata or by any
other method that the Company determines in its sole discretion to be
appropriate. There is no predetermined maximum limit on the amount that a
Participant may invest or on the number of shares that may be purchased with
regard to optional cash purchases made pursuant to a request for waiver.

      (b) Optional cash purchases made pursuant to a request for waiver will be
applied to the purchase of shares of Common Stock as soon as practicable on or
after an Investment Date. Optional cash purchases made pursuant to a request for
waiver will be acquired at a price equal to the average of the daily high and
low sales prices computed up to seven decimal places, if necessary, of the
Common Stock as reported on the NYSE for the five Trading Days immediately
preceding the applicable Investment Date. The period encompassing the first five
Trading Days immediately preceding the next following Investment Date
constitutes the relevant "Pricing Period." The Administrator will apply all
optional cash purchases for which good funds are received on or before the first
business day before the Pricing Period to the purchase of shares of Common Stock
as soon as practicable on or after the next following Investment Date.

      (c) The Company may establish for a Pricing Period a minimum price (the
"Threshold Price") applicable to optional cash purchases made pursuant to a
request for waiver. At least three business days prior to the first day of the
applicable Pricing Period, the Company will determine whether to establish a
Threshold Price, and if the Threshold Price is established, its amount, and will
so notify the Administrator. This determination will be made by the Company in
its sole discretion after, among other things, a review of current market
conditions, the level of participation in this Plan, and current and projected
capital needs. A Participant must contact the Administrator to determine whether
the Company has established a Threshold Price and the amount of the Threshold
Price.

                                       10
<PAGE>

      (d) If a Threshold Price is established for any Pricing Period, it will be
stated as a dollar amount that the average of the high and low sale prices of
the Common Stock on the NYSE for each Trading Day of the relevant Pricing Period
must equal or exceed. If the Threshold Price is not satisfied for a Trading Day
in the Pricing Period, then that Trading Day will be excluded from the Pricing
Period and all trading prices for that day will be excluded from the
determination of the purchase price. A day will also be excluded if no trades of
Common Stock are made on the NYSE for that day. For example, if the Threshold
Price is not satisfied for one of the five Trading Days in a Pricing Period,
then the purchase price will be based upon the remaining four Trading Days in
which the Threshold Price was satisfied.

      (e) In addition, a portion of each optional cash purchase will be returned
for each Trading Day of a Pricing Period in which the Threshold Price is not
satisfied or for each day in which no trades of Common Stock are reported on the
NYSE. The returned amount will equal one-fifth of the total amount of such
optional cash purchase (not just the amount exceeding $10,000) for each Trading
Day that the Threshold Price is not satisfied. For example, if the Threshold
Price is not satisfied or no such sales are reported for one of the five Trading
Days in a Pricing Period, 1/5 (or 20%) of such optional cash purchase will be
returned without interest.

      (f) The establishment of the Threshold Price and the possible return of a
portion of the investment apply only to optional cash purchases made pursuant to
a request for waiver. Setting a Threshold Price for a Pricing Period shall not
affect the setting of a Threshold Price for any subsequent Pricing Period. For
any Investment Date, the Company may waive its right to set a Threshold Price.
Neither the Company nor the Administrator shall be required to provide any
written notice as to the Threshold Price for any Pricing Period.

                                       11
<PAGE>

      (g) Each Investment Date, at the same time the Threshold Price is
determined, the Company may establish discounts from the market price applicable
to optional cash purchases made pursuant to a request for waiver. Such discount
(the "Waiver Discount") may be between 0% and 3% of the purchase price and may
vary each Investment Date. The Waiver Discount will be established at the
Company's sole discretion after, among other things, a review of current market
conditions, the level of participation in this Plan, discounts requested by
investors, the attractiveness of obtaining such additional funds through the
sale of Common Stock as compared to other sources of funds and current and
projected capital needs. Setting a Waiver Discount for a particular Investment
Date shall not affect the setting of a Waiver Discount for any subsequent
Investment Date. The Waiver Discount will apply only to optional cash purchases
of more than $10,000. The Waiver Discount will apply to the entire optional cash
purchase and not just the portion of the optional cash purchase that exceeds
$10,000. The Company reserves the right to establish in the future a discount
from the market price for optional cash purchases of $10,000 or less.

                                  ARTICLE III.

                    Dividend Reinvestment and Stock Purchase

      3.1 Dividend Reinvestment.

      (a) A Participant's Dividends shall be paid to the Administrator or its
nominee on behalf of such Participant. Such Dividends shall be reinvested, at
the Company's election, in (i) either newly issued shares of Common Stock or
shares of Common Stock held in the Company's treasury purchased from the
Company; or (ii) shares of Common Stock purchased in the open market.

                                       12
<PAGE>

      (b) On an Investment Date with respect to which the Company elects to
invest Dividends in newly issued shares or shares of Common Stock held in the
Company's treasury, the Administrator shall remit to the Company the amount of
Dividends paid to the Administrator on such Investment Date and since the
preceding Investment Date. Upon receipt of such Dividends, the Company shall
issue to the Administrator for crediting to the Account of a Participant, a
number of shares (including any fraction of a share) of Common Stock equal to
the amount of such Dividends received from the Administrator, divided by the
Company Purchase Price on such Investment Date. Such shares shall be issued or
sold to, and registered in the name of, the Administrator or its nominee as
custodian for such Participants.

      (c) On an Investment Date with respect to which the Company elects to
invest Dividends in shares of Common Stock purchased in the open market, the
Administrator shall cause an Independent Agent to apply the amount of any
Dividends paid to the Administrator on behalf of a Participant on such
Investment Date and since the preceding Investment Date to the purchase of
shares of Common Stock in the open market. Such purchases in the open market
pursuant to this Section 3.1(c) may begin on the applicable Investment Date and
shall be completed no later than 15 days from such date, unless completion at a
later date is necessary or advisable under applicable law, including any federal
securities laws. The number of shares (including any fraction of a share rounded
to four decimal places) of Common Stock credited to a Participant's Account
shall be equal to the amount of such Dividends received by the Administrator
divided by the Market Purchase Price on such Investment Date. Such shares shall
be registered in the name of the Administrator or its nominee as custodian for
the Participants.

      (d) Open market purchases pursuant to Section 3.1(c) may be made on any
securities exchange on which the Common Stock is traded or by negotiated
transactions, and may be upon

                                       13
<PAGE>

such terms and subject to such conditions with respect to price and delivery to
which the Independent Agent may agree. With regard to such open market purchases
of Common Stock, none of the Company, the Administrator or any Participant shall
have any authority or power to direct the time or price at which shares of
Common Stock may be purchased, the markets in which such shares are to be
purchased (including on any securities exchange or in negotiated transactions)
or the selection of the broker or dealer (other than the Independent Agent)
through or from whom purchases may be made, except that the timing of such
purchases must be made in accordance with the terms and conditions of this Plan.

      (e) Notwithstanding the foregoing, any Dividends to be reinvested in
shares of Common Stock purchased in the open market pursuant to Section 3.1(c)
not reinvested in shares of Common Stock within 30 days of receipt by the
Administrator shall be promptly returned to the Participant at his address of
record by first class mail.

      3.2 Investment of Initial Cash Payments and Optional Cash Payments.

      (a) Subject to Section 2.5, any initial cash investments and optional cash
investments received by the Administrator from or with respect to a Participant
at least one business day prior to an Investment Date shall be invested,
beginning on such Investment Date, in (i) either newly issued shares or shares
of Common Stock held in the Company's treasury; or (ii) Common Stock purchased
in the open market. Initial cash investments and optional cash investments not
received by the Administrator at least one business day prior to an Investment
Date shall not be invested on such Investment Date but shall be invested
beginning on the next succeeding Investment Date. The Participant shall not earn
interest on initial or optional cash investments for the period before the
shares are purchased.

                                       14
<PAGE>

      (b) On an Investment Date with respect to which the Company elects to
invest initial cash investments or optional cash investments in newly issued
shares or shares of Common Stock held in the Company's treasury, the
Administrator shall remit to the Company the amount of such investments (as
determined in Section 3.2(a)). Upon receipt of such funds, the Company shall
issue to the Administrator for crediting to the Account of a Participant, a
number of shares (including any fraction of a share) of Common Stock equal to
the amount received from the Administrator, divided by the Company Purchase
Price applicable to such Investment Date. Such shares shall be issued or sold to
and registered in the name of, the Administrator or its nominee as custodian for
the Participant.

      (c) On an Investment Date with respect to which the Company elects to
invest initial cash investments or optional cash investments in shares of Common
Stock purchased in the open market, the Administrator shall remit to the
Independent Agent the amount of such investments (as determined in Section
3.2(a)). Upon receipt of such amounts, the Independent Agent shall purchase for
crediting to the Account of a Participant a number of shares (including any
fractions of a share) of Common Stock equal to the amount paid to the
Independent Agent, divided by the Market Purchase Price applicable to such
Investment Date. Such purchases shall be made in the manner set forth in Section
3.1(c) and (d) and such shares shall be registered in the name of the
Administrator or its nominee as custodian for the Participants.

      (d) Notwithstanding the foregoing, any initial cash investments and
optional cash investments to be invested in shares of Common Stock purchased in
the open market pursuant to Section 3.2(c) that are not so invested within 30
days of receipt by the Administrator shall be promptly returned to the
Participant at his address of record by first class mail.

                                       15
<PAGE>

      (e) If a written request to stop investment of an initial cash investment
or optional cash investment is received by the Administrator from or on behalf
of a Participant at least one business day before the next Investment Date, any
such investment then held by the Administrator shall not be invested in Common
Stock and shall be returned to such Participant. If such a request is not
received by the Administrator at least one business day prior to an Investment
Date, any such investment shall be invested in shares of Common Stock for such
Participant's Account.

                                   ARTICLE IV.

                 Safekeeping Services for Deposited Common Stock

      4.1 Deposited Common Stock. A Participant may elect to have certificates
of shares of Common Stock of which the Participant is the record holder
deposited into this Plan by delivering such certificates and a completed
Enrollment Form to the Administrator. Shares of Common Stock so deposited shall
be transferred into the name of the Administrator or its nominee and credited to
the depositing Participant's Account. Dividends paid on shares of Common Stock
deposited into this Plan pursuant to this Section 4.1 shall be reinvested in
Common Stock in accordance with the Participant's Enrollment Form.

      4.2 Withdrawal of Deposited Common Stock. Shares of Common Stock deposited
by a Participant pursuant to Section 4.1 may be withdrawn from this Plan
pursuant to Section 7.2.

                                   ARTICLE V.

           Sale of Account Shares; Gift or Transfer of Account Shares

      5.1 Sale of Account Shares.

                                       16
<PAGE>

      (a) A Participant may at any time request that all or a portion of his
whole Account Shares be sold by delivering a completed Sale/Withdrawal Request
Form to the Administrator. The Administrator shall forward such sale
instructions to the Independent Agent within five business days after receipt
thereof (except as described in (b) and (c) below). The Independent Agent shall
make such sales as soon as practicable (in accordance with stock transfer
requirements and federal and state securities laws) after processing such sale
instructions. As soon as practicable following the receipt of proceeds (less any
brokerage commissions and any applicable transfer taxes and service charges),
the Administrator shall mail by first class mail to such Participant at his
address of the record a check in an amount equal to the number of his Account
Shares sold multiplied by the weighted average sales price per share (less any
brokerage commissions and any applicable transfer taxes and service charges) of
such Account Shares sold.

      (b) If a Sale/Withdrawal Request Form directing the sale of Account Shares
that are not Reinvestment Eligible Securities is received on or after the record
date but prior to the related Dividend Payment Date, the sale shall be processed
as described in (a), and as soon as practicable following receipt of Dividends
paid on such Account Shares, the Administrator shall mail a check for such
Dividends by first class mail to the Participant at his address of record.

      (c) Notwithstanding the foregoing, if a Sale/Withdrawal Request Form
directing the sale of Account Shares which are also Reinvestment Eligible
Securities is not received by the Administrator on or before the record date
prior to the related Dividend Payment Date, such sale shall not be effected
until after such Dividend Payment Date (except in the case of instructions to
sell all whole Account Shares, in which case such sale shall not be effected
until after such Dividend has been reinvested pursuant to this Plan and the
shares of Common Stock purchased therewith are credited to the Participant's
Account). The shares of Common Stock purchased

                                       17
<PAGE>

with the reinvestment of such Dividends shall be credited to the Participant's
Account. Following such Dividend Payment Date, the Administrator shall forward
the sale instructions to the Independent Agent, who shall effectuate the sale as
described in (a) above.

      (d) With regard to open market sales of Account Shares pursuant to this
Section 5.1, none of the Company, the Administrator or any Participant shall
have any authority or power to direct the time or price at which shares of
Common Stock may be sold, the markets on which such shares are to be sold
(including on any securities exchange or in negotiated transactions) or the
selection of the broker or dealer (other than the Independent Agent) through or
from whom sales may be made, except that the timing of such sales must be made
in accordance with the terms and conditions of this Plan.

      5.2 Gift or Transfer of Account Shares.

      (a) A Participant may give or transfer Common Stock to anyone they choose
by: (i) making an initial $250 cash investment to establish an account in the
recipient's name; (ii) submitting an optional cash investment on behalf of
another Participant in an amount not less than $100 nor more than $10,000; or
(iii) transferring Account Shares from their Account to the recipient.

      (b) A Participant must transfer a whole number of shares unless they elect
to transfer the entire account. A Participant may transfer shares to new or
existing Participants. To transfer the ownership of all or part of the whole
shares of Common Stock held in their Plan account, a Participant must mail the
Administrator a transfer request along with a properly signed stock power. A
Participant must have his signature guaranteed by a financial institution
participating in the medallion guarantee program. The Administrator will
automatically place such new

                                       18
<PAGE>

accounts in full dividend reinvestment status. The recipients of gifts or
transfers, at their discretion, may then elect to change participation but, to
do so, they must submit a new Enrollment Form to the Administrator. The
Administrator will send recipients of gifts or transfers a notice of such
transfer.

      (c) If a Participant requests to either transfer all of their shares or
make a partial sale and transfer the balance of their shares and such request is
received during the three business days prior to a Dividend Payment Date, the
processing of their request may be held until after their account is credited
with reinvested dividends. This hold period shall last no longer than four
weeks.

      5.3 Reinvestment of Dividends on Remaining Account Shares. If only a
portion of a Participant's Account Shares are Reinvestment Eligible Securities
and the Participant elects to (i) sell a portion of his Account Shares pursuant
to Section 5.1; (ii) transfer a portion of his Account Shares pursuant to
Section 5.2; or (iii) withdraw a portion of his Account Shares pursuant to
Section 7.2, all of the shares held in his Account which are not Reinvestment
Eligible Securities shall be sold, transferred or withdrawn, as the case may be,
before any shares in his Account which are also Reinvestment Eligible Securities
are sold, transferred or withdrawn, unless the Participant gives specific
instructions to the contrary in connection with such sale, transfer or
withdrawal.

                                  ARTICLE VI.

                               Eligible Securities

      6.1 Eligible Securities. The following equity securities of the Company
and Illinois Power shall be Eligible Securities:

                                       19
<PAGE>

      (a)   Common Stock;

      (b)   Illinois Power Serial Preferred Stock, $50 par value:

            (i)   4.08% Series Preferred Stock,

            (ii)  4.26% Series Preferred Stock;

            (iii) 4.70% Series Preferred Stock;

            (iv)  4.42% Series Preferred Stock;

            (v)   4.20% Series Preferred Stock; and

            (vi)  7.75% Series Preferred Stock.

      6.2 Additional Eligible Securities. The Company may from time to time or
at any time designate other equity or debt securities of the Company or its
subsidiaries as Eligible Securities by giving written notification thereof to
the Administrator.

                                  ARTICLE VII.

                              Treatment of Accounts

      7.1 Changing Plan Options. A Participant may elect to change (i) his
reinvestment levels (i.e., full, partial or none) of Dividends on Reinvestment
Eligible Securities; and (ii) the designation of Reinvestment Eligible
Securities, by delivering a new Enrollment Form to the Administrator. To be
effective with respect to any Dividend payment, the Enrollment Form must be
received by the Administrator on or before the record date relating to such
Dividend Payment

                                       20
<PAGE>

Date. If the Enrollment Form is not received by the Administrator before such
record date, such Enrollment Form shall not become effective until after such
Dividend Payment Date.

      7.2 Right of Withdrawal.

      (a) A Participant may, at any time or from time to time, withdraw all or
any of his whole Account Shares from this Plan by delivering to the
Administrator a completed Sale/Withdrawal Request Form and, if the Participant
will not be the record holder of such Account Shares after withdrawal, a stock
assignment (stock power). Subject to the limitations described below, as soon as
practicable following the Administrator's receipt of the withdraw instructions,
and a stock assignment (stock power), if applicable, the Administrator shall
mail certificates representing the withdrawn Account Shares by first class mail
to the Participant at his address of record, or to the address of any person
designated by the Participant.

      (b) If a completed Sale/Withdrawal Request Form with regard to Account
Shares is received by the Administrator on or after the record date but prior to
the related Dividend Payment Date, the withdrawal shall be processed as
described in (a) above and the Administrator shall as soon as practicable
following the receipt of Dividends paid on the withdrawn Account Shares, mail a
check for such Dividends by first class mail to the Participant at his address
of record. Notwithstanding the foregoing, if a completed Sale/Withdrawal Request
Form that relates to the withdrawal of Account Shares which are also
Reinvestment Eligible Securities is received by the Administrator on or after
the record date but prior to the related Dividend Payment Date, such withdrawal
shall not become effective until after such Dividend Payment Date (except in the
case of instructions to withdraw all of the whole Account Accounts of such
Participant, in which case such withdrawal shall not be effected until after
such Dividend has

                                       21
<PAGE>

been reinvested pursuant to this Plan and the shares of Common Stock purchased
therewith are credited to his Account). As soon as practicable following such
Dividend Payment Date, the Administrator shall mail certificates representing
the withdrawn Account Shares by first class mail to the Participant at his
address of record, or to the address of any person designated by the
Participant.

      (c) Withdrawal of Account Shares shall not affect reinvestment of
Dividends on the Account Shares not withdrawn unless (i) the Participant is no
longer the record holder of such Account Shares; (ii) such reinvestment is
changed by the Participant by delivering a completed Enrollment Form to the
Administrator; or (iii) the Participant has terminated his participation in this
Plan.

      7.3 Right of Termination of Participation. If a Participant's
Sale/Withdrawal Request Form indicates the Participant's desire to terminate his
participation in this Plan, the Administrator shall treat such request as a
withdrawal of all of such Participant's whole Account Shares pursuant to Section
7.2. The Administrator, in addition to mailing certificates representing all
whole Account Shares, if any, pursuant to Section 7.2, shall mail by first class
mail to the Participant at his address of record a check for an amount equal to
the sum of (i) the amount of cash credited to such Participant's Account pending
investment in Common Stock; and (ii) the cash value of any fraction of a share
of Common Stock credited to his Account. Such fraction of a share shall be
valued at the Company Purchase Price for the trading day immediately preceding
the date of receipt of the completed Sale/Withdrawal Form.

      7.4 Termination of Participation by Company. If a Participant does not
have at least one whole Account Share or own or hold any other Reinvestment
Eligible Securities, the

                                       22
<PAGE>

Participant's participation in this Plan may be terminated by the Company in its
sole discretion after written notice is mailed by first class mail to such
Participant at his address of record. Additionally, the Company in its sole
discretion may terminate any Participant's participation in this Plan after
written notice mailed in advance by first class mail to such Participant at his
address of record. Upon such termination of participation, the Account of such
Participant shall be treated as if he had elected to terminate his participation
in this Plan pursuant to Section 7.3, except that any fraction of a share of
Common Stock shall be valued as of the Company Purchase Price for the trading
date immediately preceding the date on which such Participant's participation is
terminated.

      7.5 Stock Splits, Stock Dividends and Rights Offerings. Any shares or
other securities representing stock splits or other noncash distributions on
Account Shares shall be credited to such Participant's Account. Stock splits,
combinations, recapitalizations and similar events affecting Account Shares
shall be credited to such Participant's Accounts on a pro rata basis. In the
event of a rights offering, a Participant shall receive rights based upon the
total number of his whole Account Shares.

      7.6 Shareholder Materials; Voting Rights.

      (a) The Administrator shall send or forward to each Participant all
applicable proxy solicitation materials, other shareholder materials or consent
solicitation materials. Participants shall have the exclusive right to exercise
all voting rights respecting their Account Shares. A Participant may vote any of
his whole Account Shares in person or by proxy. A Participant's proxy card shall
include all whole shares of Common Stock of which he is the record holder,

                                       23
<PAGE>

including those held in his Account. Account Shares shall not be voted unless a
Participant or his proxy votes them. Fractions of shares of Common Stock shall
not be voted.

      (b) Solicitation of the exercise of Participants' voting rights by the
management of the Company and others under a proxy or consent provision
applicable to all holders of Common Stock shall be permitted. Solicitation of
the exercise of Participants' tender or exchange offer rights by management of
the Company and others shall also be permitted. The Administrator shall notify
the Participants of each occasion for the exercise of their voting rights or
rights with respect to a tender offer or exchange offer within a reasonable time
before such rights are to be exercised. Such notification shall include all
information distributed to the shareholders of the Company by the Company
regarding the exercise of such rights.

      7.7 Statement of Account. The Administrator shall send a Statement of
Account to each Participant for each month in which such Participant (i) made an
initial investment or optional cash investment; (ii) deposited Common Stock into
this Plan; (iii) transferred or withdrew Account Shares; (iv) had Dividends
reinvested in Common Stock; or (v) entered into any other transaction under this
Plan. As soon as practicable following a sale of Account Shares by a
Participant, the Administrator shall deliver a confirmation to such Participant.

                                 ARTICLE VIII.

                      Certificates and Fractions of Shares

      8.1 Certificates. A Participant may at any time request a certificate for
all or a portion of his whole Account Shares and upon such request the
Administrator shall promptly mail such certificate (in any event, within at
least two business days of the receipt of such written request) by first class
mail to such Participant at his address of record; provided, however, that upon
the

                                       24
<PAGE>

mailing of such certificate, the shares of Common Stock represented by such
certificate shall no longer be Account Shares but shall remain Reinvestment
Eligible Securities (except to the extent such Participant delivers to the
Administrator an Enrollment Form electing not to have Dividends on such Account
Shares reinvested in Common Stock).

      8.2 Fractional Shares. Fractions of shares of Common Stock shall be
credited to Participants' Accounts as provided in Section 3.1(b), provided,
however, that (i) no certificate for a fraction of a share shall be distributed
to any Participant at any time; and (ii) the Company shall issue and sell only
whole shares of Common Stock to the Administrator in respect of Dividends
reinvested in, and purchases of, newly issued shares or shares of Common Stock
held in the Company's treasury.

                                  ARTICLE IX.

                     Amendment and Termination of this Plan

      9.1 Suspension, Modification and Termination. The Company may at any time
and in its sole discretion suspend, modify, amend or terminate this Plan, in
whole, in part or in respect of Participants in one or more jurisdictions;
provided, however, that no such amendment shall decrease the Account of any
Participant or result in a distribution to the Company of any amount credited to
the Account of any Participant. Upon complete termination of this Plan, the
Accounts of all Participants (or in the case of partial termination of this
Plan, the Accounts of all affected Participants) shall be treated as if each
such Participant had elected to terminate his participation in this Plan
pursuant to Section 7.3, except that any fraction of a share of Common Stock
shall be valued as of the trading date immediately preceding the date on which
this Plan is

                                       25
<PAGE>

terminated. The Administrator shall promptly send each affected Participant
notice of such suspension, modification or termination.

                                   ARTICLE X.

                           Administration of this Plan

      10.1 Rules and Regulations. The Company may from time to time adopt such
administrative rules and regulations concerning this Plan as it deems necessary
or desirable for the administration of this Plan. The Company shall have the
power and authority to interpret the terms and the provisions of this Plan and
shall interpret and construe this Plan and reconcile any inconsistency or supply
any omitted detail in a manner consistent with the general terms of this Plan
and applicable law.

      10.2 Selection of an Administrator. The Administrator shall be appointed
by the Company. The Administrator's appointment to serve as such may be revoked
by the Company at any time. The Administrator may resign at any time upon
reasonable notice to the Company. If no Administrator is appointed, the Company
shall be deemed to be the Administrator for purposes of this Plan. The Company
has appointed Chase Manhattan Bank as the Administrator.

      10.3 Authority and Duties of Administrator. The Administrator shall have
the authority to undertake any act necessary to fulfill its duties as set forth
in the various provisions of this Plan. The Administrator shall maintain
appropriate records of the Accounts of Participants.

      10.4 Compensation. The officers of the Company shall make such
arrangements regarding compensation, reimbursement of expenses and
indemnification of the Administrator

                                       26
<PAGE>

and any Independent Agent as they from time to time deem reasonable and
appropriate.

      10.5 Costs. All costs of administration of this Plan shall be paid by the
Company; provided, however, that any brokerage commissions and any applicable
transfer taxes and service charges incurred in connection with open market sales
of Common Stock made under this Plan shall be borne by the Participants.

      10.6 Liability of the Company, the Administrator and Any Independent
Agent. The Company, the Administrator and any Independent Agent shall not be
liable for any act done in good faith, or for the good faith omission to act in
administering or performing their duties with respect to this Plan, including
any claim of liability arising out of failure to terminate a Participant's
Account upon such Participant's death prior to receipt of notice in writing of
such death, or with respect to the prices at which shares are purchased or sold
for a Participant's Account and the times when such purchases and sales are
made, or with respect to any loss or fluctuation in the market value after the
purchase or sale of such shares.

      10.7 Records and Reports. The Administrator shall keep appropriate records
concerning this Plan, Accounts of Participants, purchases and sales of Common
Stock made under this Plan and Participants' addresses of record and shall send
Statements of Account and confirmation to each Participant in accordance with
the provisions of Section 7.7.

      10.8 Selection of Independent Agent. Any Independent Agent serving in such
capacity pursuant to this Plan shall be selected by the Company, and the
Administrator and the Company, or either of them, shall, subject to the
provisions of Section 3.3, make such arrangements and enter into such agreements
with the Independent Agent in connection with the activities

                                       27
<PAGE>

contemplated by this Plan as the Administrator and the Company, or either of
them, deem reasonable and appropriate.

      10.9 Source of Shares of Common Stock. The Company shall not change the
source of shares of Common Stock purchased by Participants in this Plan (i.e.,
either (i) newly issued shares of Common Stock or shares of Common Stock held in
the Company's treasury purchased from the Company or (ii) shares of Common Stock
purchased in the open market) more than once in any three-month period. At any
time that the source of shares of Common Stock purchased in this Plan are shares
purchased in the open market, the Company shall not exercise its right to change
the source of shares absent a determination by the Company's Board of Directors
or Chief Financial Officer that the Company has a need to raise additional
capital or there is another valid reason for a change.

                                  ARTICLE XI.

                            Miscellaneous Provisions

      11.1 Controlling Law. This Plan shall be construed, regulated and
administered under the laws of the State of Illinois.

      11.2 Acceptance of Terms and Conditions of Plans by Participants. Each
Participant, by completing an Enrollment Form and as a condition of
participation herein, for himself, his heirs, executors, administrators, legal
representatives, and assigns, approves and agrees to be bound by the provisions
of this Plan and any subsequent amendments hereto, and all actions of the
Company and the Administrator hereunder.

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