Document:

Exhibit
10.1

 

SETTLEMENT AGREEMENT AND RELEASE

 

This
Settlement Agreement and Release (this “Agreement”) is dated as of May
30, 2006, by and among (i) Potomac Electric Power Company (“Pepco”);
Conectiv Energy Supply, Inc.; Pepco Energy Services, Inc.; Pepco Gas Services,
Inc.; Pepco Holdings, Inc.; and Potomac Capital Investment Corporation (Pepco
and the other entities identified in this clause (i) are referred to herein
collectively as the “Pepco Settling Parties”) and (ii) Mirant
Corporation (“New Mirant”); Mirant Power Purchase, LLC, f/k/a Mirant
Oregon, LLC (“MPP”); MC 2005, LLC, f/k/a Mirant Corporation (“Old
Mirant”); Mirant Mid-Atlantic, LLC; Mirant Potomac River, LLC; Mirant Chalk
Point, LLC; Mirant Piney Point, LLC; Mirant MD Ash Management, LLC;  Mirant Energy Trading, LLC; Mirant Services,
LLC; and the MC Plan Trust (as defined in Schedule 1) (New Mirant and the other
entities identified in this clause (ii) are referred to herein collectively as
the “Mirant Settling Parties”).

 

WHEREAS,
on June 7, 2000, Old Mirant, f/k/a Southern Energy, Inc., and Pepco executed
and delivered an Asset Purchase and Sale Agreement for Generating Plants and
Related Assets (collectively, with its attachments, schedules and exhibits, as
amended from time to time, the “APSA”);

 

WHEREAS,
under the terms of the APSA, Pepco and Old Mirant entered into a back-to-back
arrangement (the “Back-to-Back Arrangement”) under which, among other
rights and obligations as set out in Section II of Schedule 2.4 to the APSA,
Pepco was to sell to Old Mirant and Old Mirant was to purchase, at Pepco’s
cost, all capacity, energy, ancillary services and other benefits Pepco was
entitled to receive under certain existing power purchase agreements that Pepco
had entered into with third parties, as identified in a letter dated December
19, 2000, between Pepco and Old Mirant;

 

WHEREAS,
as of the date of this Agreement, the only power purchase agreements subject to
the Back-to-Back Arrangement that remain in effect are the Co-Generation and
Small Plant Production Services Agreement by and between Pepco and Prince
George’s County, Maryland, dated June 1, 1990, and the Power Purchase Agreement
by and between Pepco and Panda-Brandywine L.P., effective October 24, 1997 (the
“Panda PPA”);

 

WHEREAS,
under the terms of the APSA, certain of the Mirant Settling Parties entered
into Ancillary Agreements or other contracts or leases with Pepco or other
Pepco Settling Parties;

 

WHEREAS,
on December 11, 2000, Old Mirant and certain affiliates of Old Mirant (including
Mirant Mid-Atlantic, LLC, f/k/a Southern Energy Mid-Atlantic, Inc.; Mirant
Potomac River, LLC, f/k/a Southern Energy Potomac River, LLC; Mirant Chalk
Point, LLC, f/k/a Southern Energy Chalk Point, LLC, and the successor in
interest to Mirant Peaker, LLC, f/k/a Southern Energy Peaker, LLC; Mirant Piney
Point, LLC, f/k/a Southern Energy Piney Point, LLC, and f/k/a/ Southern Energy
Dickerson, LLC; Mirant MD Ash Management, LLC, f/k/a Southern Energy MD Ash
Management, LLC, and the successor in interest to Mirant D.C. O&M, LLC,
f/k/a Southern Energy D.C. O&M, LLC, and f/k/a Southern Energy Morgantown,
LLC; and Mirant Mid-Atlantic Services, LLC, f/k/a Southern Energy PJM
Management, LLC, which affiliates of Old Mirant are collectively referred to
herein as the “Other Mirant Entities”)) executed and delivered an
Assignment and Assumption Agreement under which Old Mirant 

 

 

assigned its rights to certain Auctioned
Assets to specified Other Mirant Entities and the specified Other Mirant
Entities assumed Old Mirant’s Assumed Obligations pertaining to the assets
assigned to them (the “December 11, 2000 Agreement”);

 

WHEREAS,
pursuant to the December 11, 2000 Agreement, Old Mirant assigned its rights and
obligations under the APSA with respect to a Facility and Capacity Credit
Agreement, dated March 21, 1989, by and between Southern Maryland Electric
Cooperative, Inc. (“SMECO”) and Pepco (“FCC Agreement”) to Mirant
Chalk Point, LLC, successor in interest to Mirant Peaker, LLC, f/k/a Southern
Energy Peaker, LLC, and assigned its rights and obligations under the APSA with
respect to a Site Lease Agreement, dated March 21, 1989, by and between SMECO
and Pepco (“Site Lease,” and together with the FCC Agreement, the “SMECO
Agreements”), to Mirant Chalk Point, LLC, f/k/a Southern Energy Chalk
Point, LLC.

 

WHEREAS,
on December 18, 2000, Old Mirant and MRAEM, LP, f/k/a Mirant Americas Energy
Marketing, LP (“MRAEM”) executed and delivered a PPA and TPA Assignment
and Assumption Agreement under which, among other things, Old Mirant assigned
to MRAEM, and MRAEM assumed, all of Old Mirant’s rights and obligations with
respect to the Back-to-Back Arrangement;

 

WHEREAS,
on December 19, 2000, SMECO, Pepco, and Old Mirant executed and delivered an
Agreement and Consent under which SMECO consented to Pepco’s assignment of the
SMECO Agreements to Old Mirant or Old Mirant’s permitted assigns;

 

WHEREAS,
on December 19, 2000, Pepco, the Other Mirant Entities, and MRAEM (MRAEM and
the Other Mirant Entities are referred to herein collectively as the “Mirant
Entities”) executed and delivered an Assignment and Assumption Agreement
under which the Mirant Entities assumed liability for Old Mirant’s Assumed
Obligations under the APSA on the terms set forth therein, and disputes exist
between Pepco and the Mirant Entities regarding the interpretation of those
terms, including disputes as to whether those terms create joint and severable
liability and as to what obligations fall within the Assumed Obligations;

 

WHEREAS,
on December 19, 2000, Old Mirant executed and delivered to Pepco a Guarantee
Agreement under which Old Mirant absolutely guaranteed the payment and
performance of the obligations of the Mirant Entities under the APSA, the
Ancillary Agreements, and any other agreement or instrument related thereto;

 

WHEREAS,
Old Mirant and certain of its subsidiaries and affiliates (the “Debtors”)
filed, on July 14-15, 2003, and certain dates thereafter, for protection
under chapter 11 of the Bankruptcy Code, which cases are jointly administered
as In re Mirant Corporation, et. al. in the United States Bankruptcy
Court for the Northern District of Texas, Fort Worth Division (the “Bankruptcy
Court”), Case No. 03-46590 (DML) (the “Case”);

 

WHEREAS,
Pepco filed claims in the Case seeking, in part, the following: $24,699,336.07
under the Back-to-Back Arrangement for power delivered under a power purchase
agreement with Ohio Edison Company for the periods June 2003 and July 1-14,
2003; $2,697,271.00 under the Back-to-Back Arrangement for power delivered
under the Panda PPA for periods prior to July 14, 2003; $670,028.84 under the
FCC Agreement for the periods of June 2003 and July 1-14, 2003; $68,476.45
under various service level agreements provided pre-petition; 

 

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and $37,769.90 under Pepco’s General Terms
and Conditions for Furnishing Electric Service in Maryland provided
pre-petition (collectively, the “Pre-Petition Claim”);

 

WHEREAS,
on December 9, 2004, the United States District Court for the Northern District
of Texas, Fort Worth Division (the “District Court”), found that the
Back-to-Back Arrangement was not severable from the APSA, which decision has
been appealed by the Debtors to the United States Court of Appeals for the
Fifth Circuit and is not yet a Final Order;

 

WHEREAS,
on December 9, 2005, the Bankruptcy Court entered an order in the Case
confirming the Debtors’ Amended and Restated Second Amended Joint Chapter 11
Plan of Reorganization for Mirant Corporation and Its Affiliated Debtors (the “Debtors’
Plan”);

 

WHEREAS,
on December 14, 2004, Mirant Mid Atlantic Services, LLC, was dissolved and
Mirant D.C. O&M, LLC, f/k/a Southern Energy D.C. O&M, LLC, and f/k/a
Southern Energy Morgantown, LLC, merged into Mirant MD Ash Management, LLC;

 

WHEREAS,
on December 16, 2005, Mirant Peaker, LLC, f/k/a Southern Energy Peaker, LLC,
merged into Mirant Chalk Point, LLC;

 

WHEREAS,
the Debtors’ Plan became effective on January 3, 2006;

 

WHEREAS,
Section 10.14 of the Debtors’ Plan and paragraph 123 of the Bankruptcy Court’s
order approving the Debtors’ Plan provide for the accrual of interest on Pepco’s
Pre-Petition Claim and on any other Claims (as defined in the Debtors’ Plan) of
Pepco as set forth therein;

 

WHEREAS,
pursuant to Section 8.3 of the Debtors’ Plan, the MC Plan Trust has become the
sole member of Old Mirant and, through various wholly-owned subsidiaries, the
successor in interest to MRAEM and MRAREM, LP, f/k/a Mirant Americas Retail
Energy Marketing, LP (“MRAREM”), both of which were dissolved on March 2,
2006;

 

WHEREAS,
Section 14.5 of the Debtors’ Plan provides that, pending a determination by
Final Order of the disputes regarding the Debtors’ right to reject the
Back-to-Back Arrangement and the APSA and the claims of Pepco thereunder, (i)
the Debtors’ obligations under the Back-to-Back Arrangement, the APSA, and the
Assumption/Assignment Agreements shall be interim obligations of MPP and
unconditionally guaranteed by New Mirant, and no other subsidiary of New Mirant
shall have any liability with respect to such interim performance, and (ii) any
Debtor’s obligations under any other agreement with Pepco or its subsidiaries
(including, without limitation, the Ancillary Agreements) shall be interim
obligations of such Debtor and unconditionally guaranteed by New Mirant, and no
other subsidiary of New Mirant shall have any liability with respect to such
interim performance;

 

WHEREAS,
the Pepco Settling Parties and the Mirant Settling Parties have certain
disputes with respect to the foregoing matters, including disputes which are
currently the subject of litigation, and the Pepco Settling Parties and the
Mirant Settling Parties desire to settle, on the terms and conditions described
herein, such disputes.

 

3

 

NOW
THEREFORE, for good and valuable consideration, the sufficiency of which is
hereby acknowledged, the Pepco Settling Parties and the Mirant Settling Parties
hereby agree as follows:

 

1.             DEFINITIONS. Unless otherwise defined herein,
capitalized terms used in this Agreement shall have the meanings set forth for
such terms in Schedule 1 attached hereto.

 

2.                                       SETTLEMENT OBLIGATIONS
GENERALLY.

 

(a)           Mirant Obligations Regarding Certain Contracts. On (or prior to but effective as of) the
Effective Date:

 

(i)            Assumed APSA. Pursuant to Section 365 of the Bankruptcy
Code, Old Mirant hereby assumes the APSA, excepting the Back-to-Back
Arrangement, which is not assumed (the “Assumed APSA”), and assigns the
Assumed APSA to MPP. The Assumed APSA shall not include any Other Assumed
Agreement or SMECO Agreement. MPP hereby accepts the assignment of the Assumed
APSA, agrees to cure all defaults under the Assumed APSA (other than defaults
that constitute Released Claims Against Mirant) and agrees to discharge and
otherwise perform when due, without recourse against Pepco, all obligations and
liabilities due to or for the benefit of Pepco thereunder (other than
obligations that constitute Released Claims Against Mirant), provided
that MPP shall have no liability under any Other Assumed Agreement or SMECO
Agreement that is assumed pursuant to Section 2(a)(v) or Section 2(a)(vii) or
for any Assumed Obligation that arises under any Other Assumed Agreement or
SMECO Agreement that is assumed pursuant to Section 2(a)(v) or Section 2(a)(vii).

 

(ii)           Panda PPA Consent. Old Mirant and MPP hereby acknowledge and
agree that, by execution of this Agreement, each of Old Mirant and MPP are
deemed to have provided each of the consents contemplated by paragraphs
3(a)(2), 3(a)(3), 3(a)(4) and 5(a) of the January 8, 2004, letter agreement by
and between Panda-Brandywine L.P. and Pepco. Notwithstanding the foregoing,
none of the Mirant Settling Parties shall be liable to Pepco for any of the
sums paid or payable by Pepco to Panda-Brandywine, L.P. pursuant to paragraphs
1, 4 or 8 of the letter agreement.

 

(iii)          Unwind Agreement. The parties hereto agree and acknowledge
that the Unwind Agreement for the Panda PPA, as set out in paragraph 3 of the
December 19, 2000, letter agreement by and between Pepco and Old Mirant
regarding “Settlement of Outstanding Issues,” as subsequently modified, has
expired and that no purchase price adjustment is owed.

 

(iv)          Guaranty of Assumed APSA. New Mirant shall unconditionally guarantee
MPP’s performance of all obligations due to or for the benefit of Pepco under
the Assumed APSA pursuant to, and on or prior to the Effective Date shall enter
into, a guaranty agreement substantially in the form attached hereto as Exhibit
2(a)(iv).

 

(v)           Other Assumed Agreements. Pursuant to Section 365 of the Bankruptcy
Code, each Mirant Settling Party that is a party to an Ancillary Agreement or
other executory contract or unexpired lease identified on Schedule 2(a)(v)
attached hereto (collectively, the “Other Assumed Agreements”) hereby
assumes each Other Assumed Agreement to which it is a party and, unless such
Mirant Settling Party is identified next to the name of such agreement on 

 

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Schedule 2(a)(v) as the Mirant Settling Party that will remain
liable under such Other Assumed Agreement, hereby assigns such Other Assumed
Agreement to the Mirant Settling Party that is named on Schedule 2(a)(v)
as the assignee thereof. For purposes of this Agreement, each of MRAEM, MRAREM
and Mirant Mid-Atlantic Services, LLC, is deemed, pursuant to Section 365 of
the Bankruptcy Code, to have assumed each Other Assumed Agreement to which it
was a party and to have assigned each such Other Assumed Agreement to the
Mirant Settling Party that is named on Schedule 2(a)(v) as the assignee
thereof. Each Mirant Settling Party that is identified as an assignee of an
Other Assumed Agreement on Schedule 2(a)(v) (1) accepts the assignment
of the Other Assumed Agreement to be assigned to it in accordance herewith, (2)
agrees to cure all defaults (other than defaults that constitute Released
Claims Against Mirant) under such Other Assumed Agreement, (3) agrees to
discharge and otherwise perform when due, without recourse against Pepco, all
obligations and liabilities due to or for the benefit of the Pepco Settling
Parties under such Other Assumed Agreement (other than obligations that
constitute Released Claims Against Mirant) and (4) assumes all Assumed
Obligations arising under such Other Assumed Agreement (other than obligations
that constitute Released Claims Against Mirant). Each Mirant Settling Party
that assumes an Other Assumed Agreement and is identified next to the name of
such agreement on Schedule 2(a)(v) as the Mirant Settling Party that
will remain liable for the obligations under such Other Assumed Agreement (A)
agrees to cure all defaults (other than defaults that constitute Released
Claims Against Mirant) under such Other Assumed Agreement, (B) agrees to
discharge and otherwise perform when due, without recourse against Pepco, all
obligations and liabilities due to or for the benefit of the Pepco Settling
Parties under such Other Assumed Agreement (other than obligations that
constitute Released Claims Against Mirant) and (C) assumes all Assumed
Obligations arising under such Other Assumed Agreement (other than obligations
that constitute Released Claims Against Mirant).

 

(vi)          Guaranty of Other Assumed
Agreements. New Mirant shall
unconditionally guarantee the Mirant Settling Parties’ performance of all
obligations and liabilities due to or for the benefit of the Pepco Settling
Parties under the Other Assumed Agreements pursuant to, and on or prior to the
Effective Date shall enter into, a guaranty agreement substantially in the form
attached hereto as Exhibit 2(a)(iv).

 

(vii)         SMECO Agreements. Pursuant to Section 365 of the Bankruptcy
Code, Mirant Chalk Point, LLC, hereby assumes and agrees to cure all defaults
under the SMECO Agreements (other than defaults that constitute Released Claims
Against Mirant, which include defaults arising from the failure to pay amounts
accrued under the FCC Agreement prior to July 15, 2003), and agrees to
discharge and otherwise perform when due, without recourse against Pepco or
SMECO, all obligations and liabilities due to or for the benefit of SMECO
thereunder (other than obligations that constitute Released Claims Against
Mirant), provided that Mirant Chalk Point, LLC, need not cure any
defaults or assume any obligations or liabilities waived by SMECO pursuant to
the SMECO Settlement (provided that the SMECO Settlement becomes effective),
and provided further that Pepco shall hold harmless and indemnify the
Mirant Settling Parties from and against any claim by SMECO for legal fees that
SMECO has incurred related to the Case or any proceeding initiated by the
Mirant Settling Parties or SMECO in the Bankruptcy Court or the District Court
related to the SMECO Agreements.

 

(viii)        Guaranty of SMECO
Agreements. New Mirant shall
unconditionally guarantee Mirant Chalk Point, LLC’s performance of all
obligations and liabilities due to or for the benefit of SMECO under the SMECO
Agreements pursuant to, and on or prior to the Effective Date 

 

5

 

shall enter into, a guaranty agreement
substantially in the form attached hereto as Exhibit 2(a)(iv).

 

(ix)           Back-to-Back Arrangement. Subject to the provisions of Sections 5(c)
and 5(d), pursuant to Section 365 of the Bankruptcy Code, Old Mirant rejects
the Back-to-Back Arrangement as of midnight on May 31, 2006 (the “Rejection
Time”), and the Back-to-Back Arrangement shall be deemed terminated as of
the Rejection Time, provided that the rejection and termination of the
Back-to-Back Arrangement shall not be deemed to effect or permit the avoidance,
revocation or rescission of any transfers of assets that were made pursuant to
the Back-to-Back Arrangement prior to the Rejection Time. Notwithstanding the
rejection and termination of the Back-to-Back Arrangement, but subject to the
provisions of Sections 3(a) and 4(a) providing for the release of claims with
respect to any default or failure to perform that exists as of the date of this
Agreement and is within the Knowledge of the Pepco Settling Parties or the
Mirant Settling Parties, respectively, (1) Pepco, MPP and New Mirant, as
guarantor, shall remain obligated under the Back-to-Back Arrangement with
respect to energy, capacity or other services delivered during the period after
July 14, 2003, and before the Rejection Time and (2) the Mirant Settling
Parties at their own cost and expense may continue to act on behalf of Pepco in
seeking recovery from Ohio Edison Company of disputed amounts relating to the
dispute regarding whether Ohio Edison Company is required to provide credits
against certain reservation charges that Pepco paid from April through December
2005.

 

(x)            Allocation of Liability
Under Assumed Agreements and for Assumed Obligations. Pursuant to Section 365 of the Bankruptcy
Code, (1) the Other Mirant Entities (excluding Mirant Mid-Atlantic Services, LLC)
reject the Assignment and Assumption Agreement, dated December 19, 2000, by and
between Pepco and the Mirant Entities, (2) Old Mirant and the Other Mirant
Entities (excluding Mirant Mid-Atlantic Services, LLC) reject the December 11,
2000 Agreement, and (3) Old Mirant rejects the PPA and TPA Assignment and
Assumption Agreement, dated December 19, 2000, by and between Old Mirant and
MRAEM (collectively the “Assumption/Assignment Agreements”). For
purposes of this Agreement, each of MRAEM and Mirant Mid-Atlantic Services,
LLC, is deemed to have rejected the Assumption/Assignment Agreements to which
it was a party. The parties hereto agree and acknowledge that the
Assumption/Assignment Agreements are rejected and terminated as of the
Effective Date, provided that neither the rejection nor the termination
of the Assumption/Assignment Agreements shall be deemed to effect or permit the
avoidance, revocation or rescission of any transfers of assets that were made
pursuant to the Assumption/Assignment Agreements. Upon the Effective Date and
notwithstanding any provision herein or in the Assumed APSA, the Other Assumed
Agreements, or the Assumption/Assignment Agreements to the contrary, (A) only
MPP, and New Mirant as guarantor, shall have any obligations under the Assumed
APSA, and the other Mirant Settling Parties will have no liability with respect
to the Assumed APSA, (B) only a Mirant Settling Party that assumes but does not
assign, or to whom is assigned, an Other Assumed Agreement, and New Mirant as
guarantor, shall have any obligations under such Other Assumed Agreement or for
any Assumed Obligation arising under such Other Assumed Agreement, and the
other Mirant Settling Parties will have no liability with respect to such Other
Assumed Agreement or for any Assumed Obligation arising under such Other
Assumed Agreement, (C) only Mirant Chalk Point, LLC, and New Mirant as
guarantor, shall have any obligations under the SMECO Agreements or for any
Assumed Obligations arising under the SMECO Agreements, and the other Mirant
Settling Parties will have no liability with respect to the SMECO Agreements or
for any Assumed Obligations arising under the SMECO

 

6

 

Agreements, and (D) any Assumed Obligation
that exists separate from an Other Assumed Agreement or a SMECO Agreement is
and will be the sole obligation of MPP and guaranteed by New Mirant.

 

(b)           Settlement of the Released Claims Against
Mirant. Subject to the
provisions of Section 5(c):

 

(i)            Pepco’s Class 3 Claim. On the Effective Date, the Mirant Settling
Parties shall cause Pepco to receive, on account of (1) the claims released by
Pepco on the Effective Date pursuant to Section 3(a), (2) the rejection and
termination of the Back-to-Back Arrangement, and (3) the rejection and
termination of the Assignment and Assumption Agreement, dated December 19,
2000, by and between Pepco and the Mirant Entities, an allowed Mirant Debtor
Class 3 – Unsecured Claim (as defined in the Debtors’ Plan) (“Pepco’s Class
3 Claim”) against Old Mirant in such amount as will result in a total
aggregate distribution to Pepco (the “Pepco Distribution”), net of any
reasonable actual transaction commissions, fees and expenses incurred by Pepco
under the Liquidation Agreement, having a value of Five Hundred Twenty Million
Dollars ($520,000,000.00) (subject to adjustment as provided in Sections 5(c)
and 5(f), the “Pepco Distribution Amount”). The Pepco Distribution shall
be paid in up to Eighteen Million (18,000,000) shares of common stock of New Mirant
(the “Pepco Shares”) and/or in cash as provided in Sections 2(b)(ii) and
2(b)(iii). Pepco’s Class 3 Claim shall not be disallowed, reduced or
subordinated for any reason whatsoever, and is accordingly not subject to any
offset or reduction for any reason, including, but not limited to, under
Section 502(d) of the Bankruptcy Code, and none of the Mirant Settling Parties
shall take any action that is inconsistent with the foregoing. Pepco shall not
sell, assign, hypothecate or otherwise transfer Pepco’s Class 3 Claim without
New Mirant’s prior written consent.

 

(ii)           Liquidation of the Pepco
Shares. The Pepco Shares
will be delivered by New Mirant to Pepco as an initial distribution of 13.5
million shares of common stock of New Mirant (the “First Distribution”)
followed by a second distribution of shares of common stock of New Mirant (the “Second
Distribution”) after the liquidation of the First Distribution. New Mirant
shall notify Pepco within two (2) business days after the Effective Date of the
number of shares to be distributed as part of the Second Distribution, with the
number of shares to be determined by New Mirant so as to be reasonably likely
to minimize any Shortfall Payment (as hereinafter defined) or Excess Payment
(as hereinafter defined) when liquidated and combined with the proceeds from
the liquidation of the First Distribution. No later than twenty (20) business
days following the Effective Date, Pepco shall negotiate with at least four
reputable banks, two of which will be banks identified by New Mirant, to
develop a form of agreement for the liquidation of the Pepco Shares (the “Liquidation
Agreement”) that is acceptable to Pepco and at least two of the banks, at
least one of which is a bank identified by New Mirant, and shall provide a copy
of the form of Liquidation Agreement to New Mirant, provided that Pepco
shall use commercially reasonable efforts to promptly provide New Mirant with
drafts of any proposed or suggested Liquidation Agreement as such drafts are
exchanged during the course of negotiations between Pepco and a proposed
counterparty bank. The Liquidation Agreement shall provide for the Pepco Shares
to be sold by Pepco to the counterparty bank or banks as a block trade of the
Pepco Shares, with the objective of maximizing the net proceeds received by
Pepco from the liquidation of the Pepco Shares. The Liquidation Agreement shall
further provide that the 13.5 million shares that comprise the First
Distribution shall be transferred from Pepco to the counterparty bank or banks
on or before a specified settlement date set forth in the 

 

7

 

executed Liquidation Agreement and that the
shares comprising the Second Distribution shall be sold from Pepco to a
counterparty bank or banks as a forward sale with delivery to occur upon Pepco’s
receipt of the Second Distribution from New Mirant. Within one business day
following New Mirant’s receipt of the form of Liquidation Agreement acceptable
to Pepco and at least two of the banks, at least one of which is a bank
identified by New Mirant, New Mirant shall instruct its transfer agent to cause
Pepco to receive the First Distribution as soon as reasonably possible
thereafter. As soon as reasonably possible after receiving the First
Distribution, Pepco shall obtain competitive bids from the banks that found the
form of Liquidation Agreement acceptable, select the bank or banks with whom it
will enter into the Liquidation Agreement on the basis of the competitive bids,
enter into the Liquidation Agreement and liquidate the First Distribution
pursuant to the Liquidation Agreement. Within one business day after Pepco
informs New Mirant in writing that Pepco has liquidated the First Distribution
and that the bank or banks purchasing the Pepco Shares that comprised the First
Distribution have represented to Pepco that it or they can receive the shares
comprising the Second Distribution without any such bank holding five percent
or more of the common stock of New Mirant, New Mirant shall instruct its transfer
agent to cause Pepco to receive the Second Distribution as soon as reasonably
possible thereafter, which Second Distribution Pepco shall also liquidate
pursuant to the Liquidation Agreement. Prior to Pepco’s receipt from
Mirant of and after Pepco’s liquidation of any Pepco Shares, Pepco shall not
directly or indirectly exercise or control the exercise of any voting or other
shareholder rights with respect to such Pepco Shares, and, upon Pepco’s transfer
of the Pepco Shares comprising the First Distribution and the Second
Distribution to the bank or banks pursuant to the Liquidation Agreement,
Pepco shall not hold or control any shares of common stock of New Mirant.

 

(iii)          Excess Payment; Shortfall
Payment. If the sum of the
proceeds that Pepco receives from the bank or banks under the Liquidation
Agreement as a result of the liquidation of the Pepco Shares, net of any
reasonable actual transaction commissions, fees and expenses incurred by Pepco
under the Liquidation Agreement, plus the amount of any cash payments made to
Pepco pursuant to Section 5(e) of this Agreement is less than the Pepco
Distribution Amount or more than the Pepco Distribution Amount, Pepco shall
immediately inform New Mirant of the amount of the difference between such sum
and the Pepco Distribution Amount. Within two (2) business days of Pepco’s
informing New Mirant of the difference between such sum and the Pepco
Distribution Amount, (1) if the sum of the net proceeds that Pepco receives
from the liquidation of the Pepco Shares plus the amount of any cash payments
made to Pepco pursuant to Section 5(e) of this Agreement is greater than the
Pepco Distribution Amount, Pepco shall provide New Mirant with an amount of
cash equal to the difference between such sum and the Pepco Distribution Amount
(the “Excess Payment”), or (2) if the sum of the net proceeds that Pepco
receives from the liquidation of the Pepco Shares plus the amount of any cash
payments made to Pepco pursuant to Section 5(e) of this Agreement is less than
the Pepco Distribution Amount, New Mirant shall provide Pepco with an amount of
cash equal to the difference between such sum and the Pepco Distribution Amount
(the “Shortfall Payment”), provided that the Shortfall Payment
shall be credited with and reduced by such portion of any payment that
otherwise would be due to MPP under Section 5(g) as does not exceed the
Shortfall Payment. Notwithstanding anything else in this Agreement, in no event
shall New Mirant be obligated to distribute in excess of 18 million shares of
New Mirant common stock to Pepco on account of Pepco’s Class 3 Claim; provided
that any shortfall between (A) the sum of the net proceeds received by Pepco
from the liquidation of the Pepco Shares actually distributed to Pepco plus the
amount of any cash payments made to Pepco pursuant to Section 5(e) of this
Agreement and 

 

8

 

(B) the Pepco Distribution Amount shall be
paid as a Shortfall Payment pursuant this Section 2(b)(iii); and provided
further that the total number of Pepco Shares as well as the number of shares
of common stock of New Mirant to be distributed as part of the First
Distribution and the Second Distribution shall be appropriately adjusted for
any stock splits occurring after the date of this Agreement. Pepco and New
Mirant may modify the procedures for the liquidation of the Pepco Shares by
written agreement. Except for the Pepco Distribution, Pepco shall not be
entitled to any distribution under the Debtors’ Plan with respect to Pepco’s
Class 3 Claim.

 

(iv)          Allocation of the Pepco
Distribution Amount. Of the
Pepco Distribution Amount, (1) Four Hundred Fifty Million Dollars
($450,000,000.00) shall be allocated to Pepco’s damages resulting from Old
Mirant’s rejection of the Back-to-Back Arrangement, and (2) Seventy Million
Dollars ($70,000,000.00) shall be allocated as follows: (A) Fifteen Million
Dollars ($15,000,000.00) shall be allocated to claims asserted by Pepco in
connection with the Local Area Support Agreement by and between Pepco and Mirant
Potomac River, LLC, f/k/a Southern Energy Mirant Potomac River, LLC (“Mirant
Potomac”), dated December 19, 2000 (the “LASA”), occasioned by
Mirant Potomac’s suspension of operations of the Potomac River Plant in 2005,
(B) One Hundred Thousand Dollars ($100,000.00) shall be allocated to the
Bankruptcy Court’s award of that amount to Pepco resulting from Old Mirant’s
objection to Pepco’s receiving a distribution on its allowed claim under the
TPA Settlement prior to resolution of claims filed by Old Mirant against Pepco,
and (C) the remainder of the $70,000,000.00 shall satisfy the Pre-Petition
Claim, claims arising from the rejection of the Assumption/Assignment
Agreements, the administrative claim related to execution of certificates in
connection with pollution control bonds pursuant to Section 7.12 of the APSA,
internal and external legal fees and expenses incurred in connection with the
Case, including the legal fees and expenses incurred by SMECO, other additional
internal and external expenses incurred in connection with the Case, Pepco’s
economic costs and losses incurred as a result of and/or in connection with the
Case, and all Released Claims Against Mirant not otherwise listed in this
Section 2(b)(iv).

 

(v)           Certain Representations and
Warranties by New Mirant. New
Mirant represents and warrants to each of the Pepco Settling Parties that:

 

(1)  the Pepco Shares delivered by New Mirant to
Pepco pursuant to Section 2(b)(ii) will be duly authorized, validly issued,
fully paid and nonassessable and will be free and clear of any liens or
encumbrances of any kind except as may be created by the Pepco Settling
Parties;

 

(2)  the issuance of the Pepco Shares will not
result in the violation of any federal or state law except for such violations
as would not, individually or in the aggregate, have a material adverse affect
on the business or results of operations of New Mirant and that would not
materially hinder or impair the ability of New Mirant to issue the Pepco Shares
pursuant hereto; and

 

(3)  the reports filed with or furnished to the
Securities and Exchange Commission by New Mirant pursuant to the Securities
Exchange Act of 1934, as amended, (A) since January 1, 2006, through the date
of this Agreement, did not, as of their respective dates, contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, and (B) subsequent to
the date of this Agreement through the date on which the sales of the Pepco
Shares by the Pepco Settling Parties pursuant to the Liquidation 

 

9

 

Agreement are completed, will not, as of
their respective dates, contain any untrue statement of a material fact nor
omit to state a material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading;

 

provided that New Mirant makes the representations
and warranties in Sections 2(b)(v)(2) and 2(b)(v)(3) solely for purposes of
facilitating Pepco’s liquidation of the Pepco Shares pursuant to the
Liquidation Agreement, and none of the Pepco Settling Parties may rely upon
such representations or warranties for any other purpose or assert any claims
arising out of the inaccuracy of such representations and warranties in any
other context.

 

(c)           Dismissal of Actions. As soon as practicable following the
Effective Date, each of the Pepco Settling Parties and the Mirant Settling
Parties shall cause all pending appeals, adversary actions or other contested
matters between or among the parties hereto relating to any claim, demand,
action or cause of action released pursuant to Section 3(a) or Section 4(a),
including without limitation those listed on Schedule 2(c), to be
dismissed with prejudice. The form of each of the dismissals shall be
acceptable to the Pepco Settling Parties and the Mirant Settling Parties.

 

(d)           Stay of Actions. Immediately upon execution of this
Settlement Agreement by each of the Pepco Settling Parties and the Mirant
Settling Parties, each of the Pepco Settling Parties and the Mirant Settling
Parties shall jointly request, pursuant to a Request for Stay substantially in
the form attached hereto as Exhibit 2(d), that the United States Court
of Appeals for the Fifth Circuit (“Fifth Circuit”) stay consideration of
the cases captioned Mirant Corp., et al. v.
Potomac Electric Power Co., et
al., No. 05-10038 (5th Cir.), and Potomac
Electric Power Co. v. Mirant Corp., et al., No. 05-10419 (5th Cir.),
pending the entry of a Final Order approving this Settlement Agreement, which
Final Order will result in the dismissal of those cases pursuant to Section
2(c) herein. If the Fifth Circuit does not enter the requested stay and rules
on one or both of the cases identified in this Section 2(d), the Pepco Settling
Parties and the Mirant Settling Parties further agree, regardless of the ruling
or rulings of the Fifth Circuit, that they shall each be bound by the terms of
this Settlement Agreement.

 

(e)           Future Treatment of this Agreement, the
Assumed APSA, and the Other Assumed Agreements. The Mirant Settling Parties and the Pepco
Settling Parties agree and acknowledge that:

 

(i)            the standard of review for any termination of
or changes to any portion of the Assumed APSA, the Back-to-Back Arrangement (if
assumed pursuant to Section 5(c)), the Other Assumed Agreements or the SMECO
Agreements over which the Federal Energy Regulatory Commission (“FERC”)
has jurisdiction, whether such changes are proposed by Pepco, MPP, any of the
other Mirant Settling Parties, a non-party, or FERC acting sua sponte, shall be the “public interest”
standard of review set forth in United Gas
Pipe Line Co. v. Mobile Gas Service Corp., 350 U.S. 332 (1956), and Federal Power Commission v. Sierra Pacific Power Co.,
350 U.S. 348 (1956);

 

(ii)           the standard of review for any proposed
rejection of the Assumed APSA, the Back-to-Back Arrangement (if assumed
pursuant to Section 5(c)), the Other Assumed Agreements, or the SMECO
Agreements, or any portion of those agreements, by any of the 

 

10

 

Pepco Settling Parties or any of the Mirant
Settling Parties in bankruptcy proceedings shall be the “balancing of the
equities” test suggested in In re Mirant
Corp., 378 F.3d 511 (5th Cir. 2004);

 

(iii)          As a result of the releases provided by the
Pepco Settling Parties herein, Mirant Potomac shall have no obligation under
the LASA to fund the transmission facilities upgrades being implemented by
Pepco as a result of the suspension of operations at the Potomac River Plant
that began in August 2005, including the transmission facilities upgrades
approved by the DC Public Service Commission in March 2006. Pepco and Mirant
Potomac further agree that Pepco shall (1) give Mirant Potomac 30 days’ prior
written notice of any planned outage of transmission facilities that would
cause an Abnormal Condition (as defined in the LASA) to occur, and (2) give
Mirant Potomac prompt written notice upon the occurrence of any unplanned
outages of such transmission facilities. Pepco shall comply with the
notification requirements under the Department of Energy Order EO-05-01; and

 

(iv)          Notwithstanding anything to the contrary
herein (1) if Old Mirant rejects the Back-to-Back Arrangement pursuant to this
Agreement, a breach of any of the Assumed APSA, the Back-to-Back Arrangement,
the Other Assumed Agreements or the SMECO Agreements, respectively, shall not
entitle the non-defaulting party to terminate, suspend performance under, or
exercise any other right or remedy under or with respect to any of the other
such agreements, and (2) if, however, New Mirant elects to have the
Back-to-Back Arrangement assumed and assigned by Old Mirant pursuant to Section
5(c), nothing in this Agreement shall prejudice any claim or argument by the
Pepco Settling Parties that the Assumed APSA, the Back-to-Back Arrangement, and
the Other Assumed Agreements constitute a single non-severable agreement, the
material breach of which would entitle the Pepco Settling Parties to suspend or
terminate all performance by the Pepco Settling Parties thereunder, or any
defense of the Mirant Settling Parties to any such claim or argument.

 

3.             RELEASE IN FAVOR OF THE
MIRANT SETTLING PARTIES.
The Pepco Settling Parties execute the following release in favor of the Mirant
Settling Parties and their subsidiaries, affiliates, shareholders, officers,
directors and employees (collectively, the “Mirant Releasees”):

 

(a)           Except as otherwise provided in Section 3(b),
effective as of the Effective Date and for and in consideration of the terms of
this Agreement, the Pepco Settling Parties, acting for themselves and each of
their predecessors, assigns, and successors, do hereby compromise, settle and
fully release and forever discharge the Mirant Releasees of and from any and
all claims, demands, actions, or causes of action which the Pepco Settling
Parties had, or may now have, own, or hold for relief, compensation, damages,
losses, or remedy of any kind or character, arising from the following: (i) the
Pre-Petition Claim (other than claims for contingent liabilities based on the
Debtors’ potential failure to perform under executory contracts or unexpired
leases after the date of this Agreement), (ii) the administrative claim related
to execution of certificates in connection with pollution control bonds
pursuant to Section 7.12 of the APSA, (iii) the claims asserted by Pepco in
connection with the LASA occasioned by the suspension of operations of the
Potomac River Plant in 2005, (iv) internal and external legal fees and expenses
incurred in connection with the Case, including the legal fees and expenses
incurred by SMECO, and other additional internal and external expenses incurred
in connection with the Case, (v) the Bankruptcy Court’s award of One Hundred
Thousand Dollars ($100,000.00) to Pepco resulting from Old Mirant’s objection
to Pepco’s receiving a distribution on its allowed claim under the 

 

11

 

TPA Settlement prior to resolution of claims
filed by Old Mirant against Pepco, (vi) any other claims filed by the Pepco
Settling Parties in the Case and/or in any litigation related to, resulting
from or arising out of the Case (other than claims for contingent liabilities
based on the Debtors’ potential failure to perform under executory contracts or
unexpired leases in the future), (vii) claims arising from the rejection of the
Assumption/Assignment Agreements, (viii) if the Back-to-Back Arrangement is
rejected, claims arising from the rejection of the Back-to-Back Arrangement
(other than claims with respect to energy, capacity or other services delivered
during periods after July 14, 2003, and before the Rejection Time, which claims
shall survive the termination and rejection of the Back-to-Back Arrangement as
provided in Section 2(a)(ix)), and (ix) claims arising under the Assumed APSA,
the Back-to-Back Arrangement, the Other Assumed Agreements or the SMECO
Agreements with respect to any default or failure to perform by any of the
Mirant Settling Parties that (1) exists as of the date of this Agreement and
(2) is within the Knowledge of the Pepco Settling Parties (such claims,
demands, actions or causes of action collectively, and except as otherwise
provided in Section 3(b), the “Released Claims Against Mirant”).

 

(b)           Section 3(a) only releases the specific
claims, demands, actions, and causes of action described therein, and does not
release any other claim, demand, action or cause of action against the Mirant
Releasees or any other person or entity. For further clarity, Section 3(a) does
not release (i) any Mirant Settling Party that assumes but does not assign, or
to whom is assigned, the Assumed APSA, the Back-to-Back Arrangement (if assumed
pursuant to Section 5(c)), an Other Assumed Agreement, or a SMECO Agreement
from breaches of such agreement occurring after the date of this Agreement,
(ii) existing claims under the Assumed APSA, the Back-to-Back Arrangement, an
Other Assumed Agreement, or a SMECO Agreement that are not within the Knowledge
of the Pepco Settling Parties, (iii) existing obligations under the Assumed
APSA, the Back-to-Back Arrangement (if assumed pursuant to Section 5(c)), an
Other Assumed Agreement, or a SMECO Agreement for which the Mirant Settling
Parties are not in default (or which the Mirant Settling Parties have not
failed to perform when due) as of the date of this Agreement or (iv) if the
Back-to-Back Arrangement is rejected, obligations arising under the
Back-to-Back Arrangement prior to the Rejection Time or with respect to energy,
capacity or other services delivered during periods after July 14, 2003, and
before the Rejection Time, for which the Mirant Settling Parties are not in
default (or which the Mirant Settling Parties have not failed to perform when
due) as of the date of this Agreement. The Released Claims Against Mirant shall
not include any claim for breach of this Agreement or the New Mirant Guaranty.

 

(c)           The Pepco Settling Parties represent and
warrant that, to their Knowledge and as of the date of this Agreement, one or
more of the Pepco Settling Parties is the only owner of the Released Claims
Against Mirant, that such Released Claims Against Mirant have not been
assigned, encumbered or transferred, and that such Pepco Settling Parties have
unqualified authority, by the signatories immediately below, to release the
same.

 

(d)           Each of the Pepco Settling Parties represents
and warrants that, to its Knowledge and as of the date of this Agreement, no
Affiliate of any Pepco Settling Party, other than another Pepco Settling Party,
holds any claims, demands, actions, or causes of action against any Mirant
Settling Party or any of their respective Affiliates.

 

12

 

(e)           The Pepco Settling Parties represent and
warrant that, upon the Effective Date, this Agreement effects a full, complete
and final settlement, satisfaction and extinguishment of the Released Claims
Against Mirant.

 

(f)            In entering into and executing this
Agreement, the Pepco Settling Parties have not relied upon any statement or
representation pertaining to this matter made by any representative, agent or
employee of the Mirant Releasees, or any person, firm, organization or corporation
hereby released, or by any person or persons representing them that is not set
forth herein; but the Pepco Settling Parties have consulted with attorneys of
their own independent choosing and have determined this settlement is in their
best interest.

 

(g)           The Pepco Settling Parties represent and
warrant that, except for the approvals described in Section 5(a):  they have full power to execute, deliver and
perform this Agreement; this Agreement has been duly authorized, executed and
delivered by the Pepco Settling Parties and constitutes the valid and binding
obligation of the Pepco Settling Parties; and the execution, delivery and
performance of this Agreement by the Pepco Settling Parties requires no
consent, approval or authorization by or filing with any third party or
governmental authority (other than any of the foregoing which has been obtained
or made) and does not and will not (with notice, the passage of time or both)
contravene or violate any agreement or commitment binding upon the Pepco Settling
Parties or any provision of applicable law.

 

(h)           Except for such defaults or failures to
perform that are Released Claims Against Mirant or postpetition amounts
incurred and payable in the ordinary course of business that are not past due,
the Pepco Settling Parties represent and warrant that, to their Knowledge and
as of the date of this Agreement, the Mirant Settling Parties are not in
default of and have not failed to perform (i) any obligation owed to any Pepco
Settling Party under the Assumed APSA, (ii) any obligation owed to any Pepco
Settling Party under the Back-to-Back Arrangement, (iii) any obligation owed to
any Pepco Settling Party under any Other Assumed Agreement or any obligation
arising under such Other Assumed Agreement, or (iv) any obligation owed to
SMECO under the SMECO Agreements or any obligation arising under the SMECO
Agreements. The Pepco Settling Parties further represent and warrant that, to
their Knowledge and as of the date of this Agreement, the Pepco Settling
Parties are not aware of any claim, defense or other matter that could have
been asserted by the Pepco Settling Parties in the Case and/or in any
litigation related to, resulting from, or arising out of the Case that was not
so asserted.

 

(i)            Except for such defaults or failures to
perform that are Released Claims Against Pepco or postpetition amounts incurred
and payable in the ordinary course of business that are not past due, the Pepco
Settling Parties represent and warrant that, to their Knowledge and as of the
date of this Agreement, the Pepco Settling Parties are not in default of and
have not failed to perform (i) any material obligation owed to any Mirant
Settling Party under the Assumed APSA, (ii) any material obligation owed to any
Mirant Settling Party under the Back-to-Back Arrangement, (iii) any material
obligation owed to any Mirant Settling Party under any Other Assumed Agreement
or any material obligation arising under such Other Assumed Agreement, or (iv)
any material obligation owed to any Mirant Settling Party under the SMECO
Agreements or any material obligation arising under the SMECO Agreements. The
Pepco Settling Parties further represent and warrant that, to their Knowledge
and as of the date of this Agreement, the Pepco Settling Parties are not aware
of any claim, defense or other matter that could have been 

 

13

 

asserted by the Mirant Settling Parties in
the Case and/or in any litigation related to, resulting from, or arising out of
the Case that was not so asserted.

 

(j)            Based on the Mirant Settling Parties’
representation that Old Mirant, MRAEM, MRAREM, Mirant Mid-Atlantic Services,
LLC, the Plan Trustees, the MC Plan Trust, and the estate of the MC Plan Trust
(i) will not be party to or performing the Assumed APSA,  the Back-to-Back Arrangement (if assumed
pursuant to Section 5(c)), any of the SMECO Agreements, or any of the Other
Assumed Agreements, (ii) are not affiliated with New Mirant and (iii) have been
or at some point in the future will be dissolved (or, in the case of the Plan
Trustees, have their trusteeships terminated), effective as of the Effective
Date and for and in consideration of the terms of this Agreement, the Pepco
Settling Parties, acting for themselves and each of their predecessors,
assigns, and successors, do hereby compromise, settle and fully release and
forever discharge Old Mirant, MRAEM, MRAREM, Mirant Mid-Atlantic Services, LLC,
the Plan Trustees, the MC Plan Trust, and the estate of the MC Plan Trust of
and from any and all claims, demands, actions, or causes of action which the
Pepco Settling Parties had, or may now have, own, or hold for relief,
compensation, damages, losses, or remedy of any kind or character against those
parties. This release shall not affect in any way the treatment of Pepco’s
Class 3 Claim in accordance with the other provisions of this Agreement or the
obligations of the Mirant Settling Parties under the other provisions of this
Agreement.

 

4.             RELEASE IN FAVOR OF PEPCO. The Mirant Settling Parties execute the
following release in favor of Pepco and its subsidiaries, affiliates,
shareholders, officers, directors and employees (collectively, the “Pepco
Releasees”):

 

(a)           Except as otherwise provided in Section 4(b),
effective as of the Effective Date and for and in consideration of the terms of
this Agreement, the Mirant Settling Parties, acting for themselves and each of
their predecessors, assigns, and successors, do hereby compromise, settle and
fully release and forever discharge the Pepco Releasees of and from any and all
claims, demands, actions, or causes of action which the Mirant Settling Parties
had, or may now have, own, or hold for relief, compensation, damages, losses,
or remedy of any kind or character, arising from or related to any of the following:  (i) any claim, defense or other matter that
was asserted in the Case and/or in any litigation related to, resulting from,
or arising out of the Case (other than claims for contingent liabilities based
on any of the Pepco Settling Parties’ potential failure to perform under
executory contracts or unexpired leases after the date of this Agreement),
including without limitation the cases styled Mirant
Corporation, et al. v. Potomac Electric Power Company,  Civil Action No. 4:03-CV-00944 (N.D. Tex.); Mirant Corporation, Mirant Peaker, LLC, and Mirant
Chalk Point, LLC v. Southern Maryland Electric Cooperative, Inc., and Potomac
Electric Power Company, Adv. Case No. 04-4073 (Bankr. N.D. Tex.); Mirant Corporation, et al. v. Potomac Electric Power
Company, Civil Action No. 4:05-CV-00095 (N.D. Tex.); Mirant Corporation v. Potomac Electric Power Company,
et al., Civil Action No.
4:05-CV-00606 (N.D. Tex.); Mirant
Corporation et al. v. Southern Maryland Electric Cooperative, Inc., and Potomac
Electric Power Company, Adv. Case No. 05-04258 (Bankr. N.D. Tex.); Mirant Corporation et al. v. Potomac Electric Power
Company, Adv. Case No. 05-04259 (Bankr. N.D. Tex.); and Mirant Corporation, et al. v. Potomac Electric Power
Company, Civil Action No. 4:05-CV-00810 (N.D. Tex.), (ii) any right
to avoid or recover under Sections 544, 545, 547, 548, 549, 550, 551 and/or 553
of the Bankruptcy Code, or under any similar state statutes, any payments
received by or on behalf of Pepco or SMECO, respectively, prior to the Effective
Date, and (iii) claims arising under the Assumed APSA, the Back-to-Back 

 

14

 

Arrangement, the Other Assumed Agreements or
the SMECO Agreements with respect to any default or failure to perform by any
of the Pepco Settling Parties that (1) exists as of the date of this Agreement
and (2) is within the Knowledge of the Mirant Settling Parties (such claims,
demands, actions or causes of action collectively, and except as otherwise
provided in Section 4(b), the “Released Claims Against Pepco”).

 

(b)           Section 4(a) only releases the specific
claims, demands, actions, and causes of action described therein, and does not
release any other claim, demand, action or cause of action against the Pepco
Releasees or any other person or entity. For further clarity, Section 4(a) does
not release (i) any Pepco Settling Party from breaches of the Assumed
APSA,  the Back-to-Back Arrangement (if
assumed pursuant to Section 5(c)), or an Other Assumed Agreement occurring
after the date of this Agreement, (ii) existing claims under the Assumed APSA,
the Back-to-Back Arrangement, or an Other Assumed Agreement that are not within
the Knowledge of the Mirant Settling Parties, (iii) existing obligations under
the Assumed APSA, the Back-to-Back Arrangement (if assumed pursuant to Section
5(c)), or an Other Assumed Agreement for which the Pepco Settling Parties are
not in default (or which the Pepco Settling Parties have not failed to perform
when due) as of the date of this Agreement or (iv) if the Back-to-Back
Arrangement is rejected, obligations arising under the Back-to-Back Arrangement
prior to the Rejection Time or with respect to energy, capacity or other
services delivered during periods after July 14, 2003, and before the Rejection
Time for which the Pepco Settling Parties are not in default (or which the
Pepco Settling Parties have not failed to perform when due) as of the date of
this Agreement, which obligations shall survive the rejection and termination
of the Back-to-Back Arrangement as provided in Section 2(a)(ix), including
Pepco’s obligation to remit to MPP any payments that Pepco may recover from
Ohio Edison Company upon resolution of the dispute regarding whether Ohio
Edison Company is required to provide credits against certain reservation
charges that Pepco paid from April through December 2005. The Released Claims
Against Pepco shall not include any claim for breach of this Agreement.

 

(c)           The Mirant Settling Parties represent and
warrant that, to their Knowledge and as of the date of this Agreement, one or
more of the Mirant Settling Parties is the only owner of the Released Claims
Against Pepco, that such Released Claims Against Pepco have not been assigned,
encumbered or transferred, and that the Mirant Settling Parties have
unqualified authority, by the signatories immediately below, to release the
same.

 

(d)           Each of the Mirant Settling Parties
represents and warrants that, to its Knowledge and as of the date of this
Agreement, no Affiliate of any Mirant Settling Party, other than another Mirant
Settling Party, holds any claims, demands, actions, or causes of action against
any Pepco Settling Party or any of their respective Affiliates.

 

(e)           The Mirant Settling Parties represent and
warrant that, upon the Effective Date, this Agreement effects a full, complete
and final settlement, satisfaction and extinguishment of the Released Claims
Against Pepco.

 

(f)            In entering into and executing this
Agreement, the Mirant Settling Parties have not relied upon any statement or
representation pertaining to this matter made by any representative, agent or
employee of the Pepco Releasees, or any person, firm, organization or
corporation hereby released, or by any person or persons representing them that
is not set forth 

 

15

 

herein; but the Mirant Settling Parties have
consulted with attorneys of their own independent choosing and have determined
this settlement is in their best interest.

 

(g)           The Mirant Settling Parties represent and
warrant that, except for the approvals described in Section 5(a): they have
full power to execute, deliver and perform this Agreement; this Agreement has
been duly authorized, executed and delivered by or on behalf of the Mirant
Settling Parties and constitutes the valid and binding obligation of the Mirant
Settling Parties; and the execution, delivery and performance of this Agreement
by or on behalf of the Mirant Settling Parties requires no consent, approval or
authorization by or filing with any third party or governmental authority
(other than any of the foregoing which has been obtained or made) and does not
and will not (with notice, the passage of time or both) contravene or violate
any agreement or commitment binding upon the Mirant Settling Parties or any provision
of applicable law.

 

(h)           Except for such defaults or failures to
perform that are Released Claims Against Pepco or postpetition amounts incurred
and payable in the ordinary course of business that are not past due, the
Mirant Settling Parties represent and warrant that, to their Knowledge and as
of the date of this Agreement, the Pepco Settling Parties are not in default of
and have not failed to perform (i) any obligation owed to any Mirant Settling
Party under the Assumed APSA, (ii) any obligation owed to any Mirant Settling
Party under the Back-to-Back Arrangement, (iii) any obligation owed to any
Mirant Settling Party under any Other Assumed Agreement or any obligation
arising under such Other Assumed Agreement, or (iv) any obligation owed to any
Mirant Settling Party under the SMECO Agreements or any obligation arising
under the SMECO Agreements. The Mirant Settling Parties further represent and
warrant that, to their Knowledge and as of the date of this Agreement, the
Mirant Settling Parties are not aware of any claim, defense or other matter
that could have been asserted by the Mirant Settling Parties in the Case and/or
in any litigation related to, resulting from, or arising out of the Case that
was not so asserted.

 

(i)            Except for such defaults or failures to
perform that are Released Claims Against Mirant or postpetition amounts
incurred and payable in the ordinary course of business that are not past due,
the Mirant Settling Parties represent and warrant that, to their Knowledge and
as of the date of this Agreement, the Mirant Settling Parties are not in
default of and have not failed to perform (i) any material obligation owed to
any Pepco Settling Party under the APSA, (ii) any material obligation owed to
any Pepco Settling Party under the Back-to-Back Arrangement, (iii) any material
obligation owed to any Pepco Settling Party under any Other Assumed Agreement
or any material obligation arising under such Other Assumed Agreement, or (iv)
any material obligation owed to SMECO under the SMECO Agreements or any
material obligation arising under the SMECO Agreements. The Mirant Settling
Parties further represent and warrant that, to their Knowledge and as of the
date of this Agreement, the Mirant Settling Parties are not aware of any claim,
defense or other matter that could have been asserted by the Pepco Settling
Parties in the Case and/or in any litigation related to, resulting from, or
arising out of the Case that was not so asserted.

 

(j)            Effective as of the Effective Date and for
and in consideration of the terms of this Agreement, Old Mirant, the Plan
Trustees, the MC Plan Trust, and the estate of the MC Plan Trust do hereby
compromise, settle and fully release and forever discharge the Pepco Settling
Parties of and from any and all claims, demands, actions, or causes of action
which Old Mirant,

 

16

 

the Plan Trustees, the MC Plan Trust, and the
estate of the MC Plan Trust may now have, own, or hold for relief,
compensation, damages, losses, or remedy of any kind or character against the
Pepco Settling Parties. This release shall not affect in any way the treatment
of Pepco’s Class 3 Claim in accordance with the other provisions of this
Agreement or the obligations of the Pepco Settling Parties under the other
provisions of this Agreement.

 

5.             CONDITIONS PRECEDENT TO THE
EFFECTIVE DATE; EFFORTS TO CAUSE THE EFFECTIVE DATE TO OCCUR; SHARE PRICE
TRIGGER; PERFORMANCE PENDING APPEAL.

 

(a)           The “Effective Date” means and shall
be the date as of which, and shall be conditioned upon, each of the following
having occurred: the Applicable Court shall have entered an order or orders pursuant to Rule 9019 of the Federal Rules
of Bankruptcy Procedure approving this Agreement, all Exhibits and Schedules
attached hereto, the SMECO Settlement, and all transactions contemplated hereby
and thereby, and such order or orders shall not materially modify or amend the
transactions contemplated by this Agreement and the Exhibits and Schedules
hereto or the SMECO Settlement (such orders, collectively, the “Approval
Order”), each of which Approval Order, as proposed to the Applicable Court
and entered by the Applicable Court, shall be satisfactory to Pepco and New
Mirant and entered pursuant to a motion acceptable to Pepco and New Mirant and
shall have become a Final Order.

 

(b)           Each of the Mirant Settling Parties and the
Pepco Settling Parties shall use commercially reasonable efforts to cause the
Effective Date to occur promptly, including using commercially reasonable efforts
to obtain, on an expedited basis, approval of this Agreement pursuant to Rule
9019 of the Federal Rules of Bankruptcy Procedure by the Applicable Court. In
addition, each of the Pepco Settling Parties and the Mirant Settling Parties
shall support this Agreement in any communications, whether oral or written, as
to the matters that are the subject of this Agreement with any court of
competent jurisdiction, FERC, the Public Service Commission of Maryland, the
Public Service Commission of the District of Columbia, the People’s Counsel for
the State of Maryland, the People’s Counsel for the District of Columbia, and
all other applicable regulatory agencies.

 

(c)           Notwithstanding anything herein to the
contrary, prior to the Election Termination Date, if a Share Price Trigger
occurs, New Mirant may elect, by giving Pepco written notice by the tenth
business day after the first occurrence of a Share Price Trigger, that the
Back-to-Back Arrangement not be rejected and terminated. If New Mirant so
elects, then (i) Section 2(a)(ix) will be void and of no effect, (ii) pursuant
to Section 365 of the Bankruptcy Code and Section 14.5 of the Debtors’ Plan,
Old Mirant will assume the Back-to-Back Arrangement and assign the Back-to-Back
Arrangement to MPP effective as of the Effective Date, (iii) MPP will accept
the assignment of the Back-to-Back Arrangement, cure all defaults under the
Back-to-Back Arrangement (other than defaults that constitute Released Claims
Against Mirant) and agree to discharge and otherwise perform when due, without
recourse against Pepco, all obligations and liabilities due to or for the
benefit of Pepco thereunder (other than obligations that constitute Released
Claims Against Mirant), (iv) New Mirant shall unconditionally guaranty MPP’s
performance of all obligations due to or for the benefit of Pepco under the
Back-to-Back Arrangement pursuant to, and on or prior to the Effective Date
shall enter into, a guaranty agreement substantially in the form attached
hereto as Exhibit 2(a)(iv), (v) only MPP, and New Mirant as guarantor,
shall have any obligations under the Back-to-Back Arrangement, and the other
Mirant Settling Parties will have no liability with respect to the Back-to-Back

 

17

 

Arrangement, (vi) the Pepco Distribution
Amount shall be reduced to Seventy Million Dollars ($70,000,000), (vii) only
the portion of the Pepco Distribution Amount allocable to the Pre-Petition
Claim and any interest payable pursuant to Section 5(f) shall be paid in Pepco
Shares and the balance of the Pepco Distribution Amount shall be paid in cash,
(viii) the provisions of Sections 2(b)(ii) and 2(b)(iii) shall apply to the
liquidation of the Pepco Shares distributed on account of Pepco’s Class 3
Claim, provided that there shall be only a single distribution of Pepco
Shares, in an amount reasonably anticipated to produce aggregate proceeds equal
to the Pepco Distribution Amount when liquidated and combined with the cash
payment, unless the Pepco Shares to be distributed on account of the Pepco
Distribution would equal or exceed a five percent (5%) voting interest in New
Mirant, in which case there shall be two distributions of Pepco Shares as
provided in Section 2(b)(ii), (ix) the Pepco Distribution Amount shall be
allocated to claims asserted by Pepco in accordance with Section 2(b)(iv)(2),
(x) except for the Pepco Distribution, as modified pursuant to this Section
5(c), Pepco shall not be entitled to any distribution under the Debtors’ Plan
with respect to Pepco’s Class 3 Claim and (xi) in all other respects, this
Agreement shall remain in full force and effect. If New Mirant does not timely
elect that the Back-to-Back Arrangement not be rejected and terminated as
provided in the first sentence of this Section 5(c) following the first
occurrence of a Share Price Trigger, then Mirant shall be deemed to have waived
any right to make such election and this Section 5(c) will be void and of no
effect.

 

(d)           If the Approval Order is appealed, the Mirant
Settling Parties shall continue to perform all of their obligations under the
APSA, the Back-to-Back Arrangement, the Other Assumed Agreements, the SMECO
Agreements, and the Assumption/Assignment Agreements in accordance with the
provisions of Sections 14.5 and 14.8 of the Debtors’ Plan until the Approval
Order becomes a Final Order or there is a Final Order allowing the Mirant
Settling Parties to cease performance of those obligations.

 

(e)           If the Approval Order is appealed, New Mirant
shall pay to Pepco the sum of Seventy Million Dollars ($70,000,000) on account
of the Pepco Distribution, which payment (i) shall be made on the third
business day after the ninth day after the entry of the Approval Order if the
Approval Order is not stayed pending appeal, or within five (5) business days
after the expiration of the stay if the Approval Order is stayed pending
appeal, and (ii) shall be allocated to claims asserted by Pepco in accordance
with Section 2(b)(iv)(2) (the “Advance Payment”). If the Approval Order
becomes a Final Order, (1) New Mirant shall distribute Pepco Shares to Pepco in
accordance with the provisions of Section 2(b)(ii) as if the Advance Payment
had not been made, (2) Pepco shall liquidate the Pepco Shares in accordance
with the provisions of Section 2(b)(ii), and (iii) the Advance Payment shall be
included as a cash payment made to Pepco on account of the Pepco Distribution
in the calculation of any Shortfall Payment or Excess Payment.

 

(f)            If (i) the Approval Order is appealed and is
stayed pending appeal and (ii) the Advance Payment is not made by the third
business day after the ninth day after entry of the Approval Order, the Pepco
Distribution Amount shall be increased by an amount equal to four percent (4%)
per annum simple interest on $70,000,000.00, calculated from the date of entry
of the Approval Order to the date of Pepco’s receipt of $70,000,000 pursuant to
Section 5(e).

 

(g)           Further, if (i) the Approval Order becomes a
Final Order, either after an appeal or otherwise and (ii) the Back-to-Back
Arrangement is not assumed pursuant to Section 5(c), 

 

18

 

Pepco, within two (2) business days after
receiving the full consideration due to Pepco under this Agreement on account
of the Pepco Distribution, shall pay MPP an amount equal to the aggregate
amount of any payments made by the Mirant Settling Parties on account of the
Back-to-Back Arrangement for energy, capacity or other services delivered after
May 31, 2006, less any portion of such amount credited against the Shortfall
Payment pursuant to Section 2(b)(iii)(2).

 

6.             PREVIOUSLY SETTLED CLAIMS
AND OTHER AGREEMENTS. Nothing in this Agreement affects
previously settled claims between the Pepco Settling Parties and their
subsidiaries and affiliates and the Mirant Settling Parties and their
respective subsidiaries and affiliates, including, but not limited to, (a) the
Amended Settlement Agreement and Release among Pepco, MRAEM, and Old Mirant,
dated as of October 24, 2003, and approved by the Bankruptcy Court on November
19, 2003, or any agreement entered into in connection therewith or contemplated
thereby (the “TPA Settlement”), (b) the Settlement Agreement and Release
among Pepco and Old Mirant, dated as of October 14, 2005, and approved by the
Bankruptcy Court on November 23, 2005, or any agreement entered into in
connection therewith or contemplated thereby, (c) the Stipulation for Allowance
of General Unsecured Claim of Substation Test Company, dated June 15, 2005, or
any agreement entered into in connection therewith or contemplated thereby, and
(d) the Stipulation for Allowance of General Unsecured Claim of W.A. Chester,
LLC, dated July 15, 2005, or any agreement entered into in connection therewith
or contemplated thereby. Further, nothing in this Agreement modifies other
executory contracts or unexpired leases that were not executed in connection
with or as a result of the APSA, including, but not limited to, any agreements
between Potomac Energy Services, Inc. and a Mirant Settling Party or an
Affiliate of a Mirant Settling Party, provided that each such other
executory contract or unexpired lease shall be assumed, or assumed and
assigned, and performed by the Mirant Settling Party identified next to the
name of such agreement in Schedule 2(a)(v) as the Mirant Settling Party
that will remain liable for the obligations under the agreement, as specified
in Section 2(a)(v).

 

7.             TERMINATION. 

 

(a)           Notwithstanding anything in this Agreement to the contrary, this Agreement may be
terminated (or shall terminate, in the case of clause (iii) below) as follows:

 

(i)            at any time prior to entry
of the Approval Order, by the mutual written consent of each of Pepco and New
Mirant;

 

(ii)           by Pepco, if on or before
the fourteenth day after the Pepco Settling Parties’ execution of this Agreement,
Pepco gives New Mirant written notice that it believes, in its sole discretion,
that any applicable regulatory agency opposes Pepco’s consummating the
transactions contemplated by this Agreement and/or the agreements to be entered
into pursuant hereto;

 

(iii)          prior to the Effective Date, automatically if any material term or provision
of this Agreement is found by a final, non-appealable judicial order in any
proceeding in any jurisdiction to be invalid or unenforceable;

 

(iv)          prior to the Effective Date, by Pepco, in the event of any material breach by any 

 

19

 

of the
Mirant Settling Parties of any of their covenants, representations or
warranties contained herein and the failure of such Mirant Settling Party to
cure such breach within five days after receipt of written notice from Pepco
requesting such breach to be cured; or

 

(v)           prior to the Effective Date, by New Mirant, in the event of
any material breach by any of the Pepco Settling Parties of any of their
covenants, representations or warranties contained herein and the failure of
such Pepco Settling Party to cure such breach within five days after receipt of
written notice from New Mirant requesting such breach to be cured.

 

(b)  If either
Pepco or New Mirant desires to terminate this Agreement under Section 7(a), the
party so desiring such termination shall give written notice of such
termination to each of the other parties to this Agreement.

 

(c)  In the event that
this Agreement shall be terminated pursuant to this Section 7, Pepco shall
repay any Advance Payment made to Pepco, with simple interest at four percent
(4%) per annum from the date the Advance Payment was paid to the date of
repayment, within five (5) business days of the termination, and all other
obligations under this Agreement shall be terminated and of no further force or
effect without further action by any party hereto and without liability of any
party hereto to the others, provided that (i) the foregoing shall not
relieve any party in breach of this Agreement at the time of such termination
from liability in respect of such breach, and (ii) the following Sections shall
survive termination of this Agreement: Section 6 (excluding the the proviso
in the last sentence thereof), this Section 7(c), Section 8, Section 10(b),
Section 10(c) and Section 10(g) through 10(i). In addition, upon termination of
this Agreement, no rights or obligations, nor any claims or defenses, of the Pepco Settling Parties or the Mirant Settling
Parties existing prior to the date of this Agreement, including, without
limitation, the obligations of any of the Mirant Settling Parties or the Pepco
Settling Parties under the APSA, the Back-to-Back Arrangement, the Other
Assumed Agreements, or the SMECO Agreements, will be prejudiced, compromised,
discharged or otherwise affected in any way, and all shall exist as if this
Agreement had never been executed, and, in such event, neither this Agreement
nor any negotiations or writings in connection with this Agreement shall in any
way be construed as or deemed to be evidence of or an admission on behalf of
any party hereto regarding any claim or right that such party may have against
another party hereto.

 

8.             INDEMNIFICATION.

 

(a)           In addition to any other rights and remedies
the Mirant Releasees may have at law or by agreement, Pepco shall hold harmless
and indemnify the Mirant Releasees from and against, and shall compensate and
reimburse the Mirant Releasees on demand for, any and all loss, damage, injury,
claim, demand, settlement, judgment, award, fine, penalty, fee (including any
reasonable legal fee, reasonable expert fee, reasonable accounting fee or
reasonable advisory fee), charge, cost (including any reasonable cost of
investigation) and/or expense, which is suffered or incurred by any of the
Mirant Releasees or to which any of the Mirant Releasees may otherwise become
subject at any time and which arises directly from or directly as a result of:
(i) the breach of any representation or warranty made by the Pepco Settling
Parties in this Agreement, or (ii) the breach of any covenant or agreement of
the Pepco Settling Parties contained in this Agreement; provided that
nothing in this Section 8(a) shall be construed as imposing upon Pepco any
obligation to hold harmless or indemnify the Mirant Releasees with 

 

20

 

respect to rights or obligations arising
under the APSA, the Back-to-Back Arrangement, an Other Assumed Agreement or a
SMECO Agreement.

 

(b)           In addition to any other rights and remedies
the Pepco Releasees may have at law or by agreement, New Mirant shall hold
harmless and indemnify the Pepco Releasees from and against, and shall
compensate and reimburse the Pepco Releasees on demand for, any and all loss,
damage, injury, claim, demand, settlement, judgment, award, fine, penalty, fee
(including any reasonable legal fee, reasonable expert fee, reasonable
accounting fee or reasonable advisory fee), charge, cost (including any
reasonable cost of investigation), and/or expense, which is suffered or
incurred by any of the Pepco Releasees or to which any of the Pepco Releasees
may otherwise become subject at any time and which arises directly from or
directly as a result of: (i) the breach of any representation or warranty made
by any of the Mirant Settling Parties in this Agreement or the New Mirant
Guaranty, or (ii) the breach of any covenant or agreement of the Mirant
Settling Parties contained in this Agreement or the New Mirant Guaranty; provided
that nothing in this Section 8(b) shall be construed as imposing upon New
Mirant any obligation to hold harmless or indemnify the Pepco Releasees with
respect to rights or obligations arising under the APSA, the Back-to-Back
Arrangement, an Other Assumed Agreement or a SMECO Agreement.

 

9.             RELATIONSHIP TO DEBTORS’
PLAN.
This Agreement is intended
to resolve disputes existing between the parties regarding the assumption or
rejection of the APSA, the Back-to-Back Arrangement, and certain other
agreements. These disputes resulted in the inclusion of Sections 14.5 and 14.8
in the Debtors’ Plan. The parties intend this Agreement to resolve fully those
disputes, and, therefore, as of the Effective Date, all portions of the Debtors’
Plan and the Bankruptcy Court’s December 9, 2005, order confirming the Debtors’
Plan relating to or concerning the matters addressed by this Agreement,
including Sections 14.5 and 14.8 of the Debtors’ Plan, are moot and no longer
have any application. To the extent that there are any inconsistencies or discrepancies
between this Agreement and the Debtors’ Plan, or the Bankruptcy Court order
approving the Debtors’ Plan, the terms of this Agreement shall control.

 

10.           MISCELLANEOUS.

 

(a)           This Agreement may be amended, assigned,
modified or supplemented only by written agreement executed by the Mirant
Settling Parties and the Pepco Settling Parties.

 

(b)           All disputes relating to or arising out of
this Agreement shall be governed by the laws of the District of Columbia,
excluding its choice-of-law rules. The United States District Court for the
District of Columbia shall have jurisdiction over any suit, action, or other
proceeding pertaining to or arising out of the terms and application of this
Agreement or, if any such suit, action or proceeding may not be brought in the
United States District Court for the District of Columbia for jurisdictional
reasons, the Superior Court for the District of Columbia shall have
jurisdiction over any such suit, action or proceeding.

 

(c)           Except as expressly provided herein, this
Agreement shall not create any third party beneficiary rights in any person and
shall not confer any rights or remedies upon any person other than the parties
and their respective successors and permitted assigns.

 

21

 

(d)           Except as expressly set forth herein, none of
the provisions of the Assumed APSA, the Back-to-Back Arrangement (if assumed
pursuant to Section 5(c)), any Other Assumed Agreement or any SMECO Agreement,
including, without limitation, the Assumed Obligations of New Mirant, MPP, or
each Mirant Settling Party that is a party to the Assumed APSA, an Other
Assumed Agreement or a SMECO Agreement and the Retained Liabilities of Pepco as
set forth in the Assumed APSA, shall be deemed to be amended, modified or
otherwise changed by this Agreement or the transactions contemplated
hereby.

 

(e)           This Agreement (including the Schedules and
Exhibits hereto) constitutes the entire agreement and understanding of the
parties with respect to the settlement and releases contemplated herein and
supersedes all prior agreements and understandings, written or oral, between
the parties with respect to such settlement and releases.

 

(f)            The recitals in this Agreement constitute an
integral part of the agreement of the parties and are legally binding to the
same extent as if the same were set forth in a section of this Agreement.

 

(g)           This Agreement uses the words “herein,” “hereof,”
and “hereunder” and words of similar import to refer to this Agreement as a
whole and not to any provision of this Agreement, and the words “Section,” “Schedule,”
and “Exhibit” refer to Sections of, and Schedules and Exhibits to, this
Agreement unless otherwise specified.

 

(h)           Whenever the context so requires, the
singular number includes the plural and vice versa, and a reference to one
gender includes the other gender and the neuter.

 

(i)            Except where the context otherwise requires,
the word “including” (and, with correlative meaning, the word “include”) means
including without limiting the generality of any description preceding that
word, and the words “shall” and “will” are used interchangeably and have the
same meaning.

 

(j)            All references to “$” or “dollars” are to
U.S. dollars.

 

(k)           All notices required or permitted under this
Agreement must be in writing and will be deemed to be delivered and received
(i) when actually received by the party to whom notice is sent if
personally delivered, (ii) when sent by facsimile (with electronic confirmation
of successful transmission) before 5:00 p.m. Eastern Prevailing Time on a
business day with a copy of such facsimile sent to the recipient by reputable
overnight courier service (charges prepaid) on the same day, or (iii) one
business day after being sent to the recipient by reputable overnight courier
service (charges prepaid), in each case addressed to the appropriate party or
parties, at the address of such party or parties set forth below (or at such
other address as such party may designate by written notice to all other
parties in accordance with this Section 10(k)):

 

If
to Pepco or any of the other Pepco Settling Parties:

 

Pepco
Holdings, Inc.

701
Ninth Street NW

Suite
1100

Washington,
DC  20068

 

22

 

Attn:  General Counsel

 

With
a copy, which shall not constitute notice, to:

 

Jonathan
P. Guy

Orrick,
Herrington & Sutcliffe LLP

3050
K Street, NW

Washington,
DC 20007

 

If
to New Mirant or any of the other Mirant Settling Parties:

 

Mirant
Corporation

1155 Perimeter Center West

Suite 100

Atlanta, GA 30338-5416

Attn:  General Counsel

 

With
a copy, which shall not constitute notice, to

 

Craig
Averch

White & Case LLP

633 W. 5th Street, Suite 1900

Los Angeles, CA 90071-2007

 

(l)            The claims and distribution rights provided
for in this Agreement shall not be subject to reconsideration under Section
502(j) of the Bankruptcy Code, Rule 3008 of the Federal Rules of Bankruptcy
Procedure or any other applicable law. Except as provided in the Agreement, any
and all Released Claims Against Mirant are expunged and disallowed in their
entirety and shall not be asserted in any forum, and such disallowed claims
shall not be subject to reconsideration under Section 502(j) of the Bankruptcy
Code, Rule 3008 of the Federal Rules of Bankruptcy Procedure or any other
applicable law.

 

(m)          This Agreement may be executed in any number
of counterparts, each of which, when executed, will be deemed an original and
all of which together will be deemed to be one and the same instrument. This
Agreement may be executed by a signature delivered electronically by facsimile
or by the use of Adobe portable document format, which shall be deemed the same
as an original signature.

 

(n)           From time to time after the date of this
Agreement until the completion of the transactions contemplated by this
Agreement, each of the parties hereto (other than Old Mirant and the MC Plan
Trust) shall execute and deliver such documents and provide such assurances and
take such actions, as any other party may reasonably request in order to
consummate or more effectively to consummate the transactions contemplated
hereby, including without limitation the entry by Pepco into the Liquidation
Agreement and the consummation of the transactions contemplated thereby.

 

(o)           Each of the Pepco Settling Parties and the
Mirant Settling Parties acknowledges that (i) this Agreement is the result of
negotiations among the parties, and has been reviewed by 

 

23

 

each party and its counsel, and (ii) all
parties contributed to the drafting of this Agreement. Accordingly, this
Agreement shall be deemed the product of each party, and no ambiguity shall be
construed in favor of or against any party on the basis that it was the drafter
of the Agreement.

 

(p)           This Agreement is a settlement of disputed
claims and other matters. In executing this Agreement, no party is admitting
any liability with respect to any of the claims against it released in this
Agreement or any other matter addressed herein. Neither this Agreement, nor any
act performed or document executed pursuant to this Agreement is or may be
deemed to be, or may be used by a Mirant Settling Party or a Pepco Settling
Party as, an admission of, or evidence of, the validity of any released claim.

 

(q)           This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the parties to this
Agreement and their respective successors and permitted assigns, but neither
this Agreement nor any of the rights, interests or obligations hereunder shall
be assigned by any Mirant Settling Party without the prior written consent of
Pepco or by any Pepco Settling Party without the prior written consent of New
Mirant.

 

24

 

IN
WITNESS WHEREOF, the Mirant Settling Parties and the Pepco Settling Parties
have caused this Settlement Agreement and Release to be signed by their
respective duly authorized officers or representatives as of the date set forth
above.

 

 

	
   

  	
  POTOMAC
  ELECTRIC POWER

  COMPANY

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/
  Kirk J. Emge

  	
   

  
	
   

  	
   

  
	
   

  	
  Name: Kirk
  J. Emge

  
	
   

  	
  Title: General Counsel

  
	
   

  	
   

  
	
   

  	
  CONECTIV
  ENERGY SUPPLY, INC.

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/
  W.H. Spence

  	
   

  
	
   

  	
   

  
	
   

  	
  Name: W.H.
  Spence

  
	
   

  	
  Title: President

  
	
   

  	
   

  
	
   

  	
  PEPCO
  ENERGY SERVICES, INC.

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/
  John Huffman

  	
   

  
	
   

  	
   

  
	
   

  	
  Name: John
  Huffman

  
	
   

  	
  Title: Chief Operating Officer

  
	
   

  	
   

  
	
   

  	
  PEPCO
  GAS SERVICES, INC.

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/
  John Huffman

  	
   

  
	
   

  	
   

  
	
   

  	
  Name: John
  Huffman

  
	
   

  	
  Title: Chief Operating Officer

  
	
   

  	
   

  
	
   

  	
  PEPCO
  HOLDINGS, INC.

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/
  Kirk J. Emge

  	
   

  
	
   

  	
   

  
	
   

  	
  Name: Kirk
  J. Emge

  
	
   

  	
  Title: Vice President

  

 

25

 

	
   

  	
  POTOMAC
  CAPITAL INVESTMENT

  CORPORATION

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/
  Kevin McGowan

  	
   

  
	
   

  	
   

  
	
   

  	
  Name: Kevin
  McGowan

  
	
   

  	
  Title: President and Chief Executive Officer

  
	
   

  	
   

  
	
   

  	
  MIRANT
  CORPORATION

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/
  Hugh Davenport

  	
   

  
	
   

  	
   

  
	
   

  	
  Name: Hugh
  Davenport

  
	
   

  	
  Title: Senior Vice President

  
	
   

  	
   

  
	
   

  	
  MIRANT
  POWER PURCHASE, LLC

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/
  Robert Driscoll

  	
   

  
	
   

  	
   

  
	
   

  	
  Name: Robert
  Driscoll

  
	
   

  	
  Title: Chief Operating Officer

  
	
   

  	
   

  
	
   

  	
  MC
  2005, LLC

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/
  Joseph A. Pardo

  	
   

  
	
   

  	
   

  
	
   

  	
  Name: Joseph
  A. Pardo

  
	
   

  	
  Title: Co-Trustee for MC Plan Trust as Sole
  Member of MC 2005, LLC

  
	
   

  	
   

  
	
   

  	
  MIRANT
  MID-ATLANTIC, LLC

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/
  Robert Driscoll

  	
   

  
	
   

  	
   

  
	
   

  	
  Name: Robert
  Driscoll

  
	
   

  	
  Title: President and Chief Executive Officer

  
	
   

  	
   

  
	
   

  	
  MIRANT
  POTOMAC RIVER, LLC

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/
  Robert Driscoll

  	
   

  
	
   

  	
   

  
	
   

  	
  Name: Robert
  Driscoll

  
	
   

  	
  Title: President and Chief Executive Officer

  

 

26

 

	
   

  	
  MIRANT
  CHALK POINT, LLC

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/
  Robert Driscoll

  	
   

  
	
   

  	
   

  
	
   

  	
  Name: Robert
  Driscoll

  
	
   

  	
  Title: President and Chief Executive Officer

  
	
   

  	
   

  
	
   

  	
  MIRANT
  PINEY POINT, LLC

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/
  Robert Driscoll

  	
   

  
	
   

  	
   

  
	
   

  	
  Name: Robert
  Driscoll

  
	
   

  	
  Title: President and Chief Executive Officer

  
	
   

  	
   

  
	
   

  	
  MIRANT
  MD ASH MANAGEMENT, LLC

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/
  Robert Driscoll

  	
   

  
	
   

  	
   

  
	
   

  	
  Name: Robert
  Driscoll

  
	
   

  	
  Title: President and Chief Executive Officer

  
	
   

  	
   

  
	
   

  	
  MIRANT
  ENERGY TRADING, LLC

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/
  Robert Driscoll

  	
   

  
	
   

  	
   

  
	
   

  	
  Name: Robert
  Driscoll

  
	
   

  	
  Title: Chief Operating Officer

  
	
   

  	
   

  
	
   

  	
  MIRANT
  SERVICES, LLC

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/
  Hugh Davenport

  	
   

  
	
   

  	
   

  
	
   

  	
  Name: Hugh
  Davenport

  
	
   

  	
  Title: Vice President

  
	
   

  	
   

  
	
   

  	
  “MC
  PLAN TRUST”

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/
  Joseph A. Pardo

  	
   

  
	
   

  	
   

  
	
   

  	
  Name: Joseph
  A. Pardo

  
	
   

  	
  Title: Co-Trustee

  

 

27

 

LIST OF SCHEDULES AND EXHIBITS

 

	
  Schedules

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Schedule
  1

  	
   

  	
  Definitions

  
	
   

  	
   

  	
   

  
	
  Schedule
  2(a)(v)

  	
   

  	
  Other
  Assumed Agreements

  
	
   

  	
   

  	
   

  
	
  Schedule
  2(c)

  	
   

  	
  Adversary
  Proceedings and Contested Matters

  
	
   

  	
   

  	
   

  
	
  Exhibits

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Exhibit
  2(a)(iv)

  	
   

  	
  Form
  of New Mirant Guaranty

  
	
   

  	
   

  	
   

  
	
  Exhibit
  2(d)

  	
   

  	
  Form
  of Request for Stay

  

 

 

Schedule 1

 

When used in the Agreement, the following terms shall have the
following meanings.

 

1.             “Advance Payment” has
the meaning set forth in Section 5(e).

 

2.             “Affiliate” means,
with respect to any Person, all Persons that would fall within the definition
assigned to such term in Section 101(2) of the Bankruptcy Code, if such Person
was a debtor in a case under the Bankruptcy Code.

 

3.             “Agreement” has the
meaning set forth in the first paragraph.

 

4.             “Ancillary Agreements”
has the meaning set forth for such term in the APSA.

 

5.             “Applicable Court”
means such court of competent jurisdiction, as determined, designated or agreed
to by the United States District Court for the Northern District of Texas.

 

6.             “Approval Order” has
the meaning set forth in Section 5(a).

 

7.             “APSA” has the
meaning set forth in the first Whereas provision.

 

8.             “Assumed APSA” has
the meaning set forth in Section 2(a)(i).

 

9.             “Assumed Obligations”
has the meaning set forth for such term in the APSA.

 

10.           “Auctioned Assets” has
the meaning set forth for such term in the APSA.

 

11.           “Assumption/Assignment
Agreements” has the meaning set forth for such term in Section 2(a)(x).

 

12.           “Back-to-Back
Arrangement” has the meaning set forth in the second Whereas provision.

 

13.           “Bankruptcy Code” means
title 11 of the United States Code.

 

14.           “Bankruptcy Court “ has
the meaning set forth in the eleventh Whereas provision.

 

15.           “Case” has the meaning
set forth in the eleventh Whereas provision.

 

16.           “Debtors” has the
meaning set forth in the eleventh Whereas provision.

 

17.           “Debtors’ Plan” has the
meaning set forth in the fourteenth Whereas provision.

 

18.           “December 11, 2000
Agreement” has the meaning set forth in the fifth Whereas provision.

 

 

19.           “District Court” has
the meaning set forth in the thirteenth Whereas provision.

 

20.           “Effective Date” has
the meaning set forth in Section 5(a).

 

21.           “Election Termination
Date” means the date that New Mirant instructs its transfer agent, pursuant to
Section 2(b)(ii), to cause Pepco to receive the First Distribution.

 

22.           “Excess Payment” has
the meaning set forth in Section 2(b)(iii).

 

23.           “FCC Agreement” has the
meaning set forth in the sixth Whereas provision.

 

24.           “FERC” has the meaning
set forth in Section 2(e)(i).

 

25.           “Fifth Circuit” has the
meaning set forth in Section 2(d).

 

26.           “Final Order” means (a)
an order or judgment of the Bankruptcy Court or any other court or adjudicative
body as to which the time to appeal, petition for certiorari, or move for
reargument or rehearing has expired and as to which no appeal, petition for
certiorari, or other proceedings for reargument or rehearing shall then be
pending, or (b) in the event that an appeal, writ of certiorari, reargument, or
rehearing thereof has been sought, such order of the Bankruptcy Court or any
other court or adjudicative body shall have been affirmed by the highest court
to which such order was appealed, or certiorari has been denied, or from which
reargument or rehearing was sought, and the time to take any further appeal,
petition for certiorari or move for reargument or rehearing shall have expired;
provided, that no order shall fail to be a Final Order solely because of
the possibility that a motion pursuant to Section 502(j) of the Bankruptcy
Code, Rule 59 or Rule 60 of the Federal Rules of Civil Procedure or Bankruptcy
Rule 9024 may be filed with respect to such order.

 

27.           “First Distribution”
has the meaning set forth in Section 2(b)(ii).

 

28.           “Knowledge,” when used
with respect to any party hereto, means the actual knowledge, as of or before
the date of the Agreement, of a member of senior management of such party,
including any officer at the Vice President or higher level.

 

29.           “LASA” has the meaning
set forth in Section 2(b)(iv).

 

30.           “Liquidation Agreement”
has the meaning set forth in Section 2(b)(ii).

 

31.           “MC Plan Trust” means
the trust established pursuant to the terms of that certain Plan Trust
Declaration dated as of January 3, 2006, by and among the Debtors and the Plan
Trustees.

 

32.           “Mirant Entities” has
the meaning set forth in the ninth Whereas provision.

 

33.           “Mirant Potomac” has
the meaning set forth in Section 2(b)(iv).

 

 

34.           “Mirant Releasees” has
the meaning set forth in Section 3.

 

35.           “Mirant Settling
Parties” has the meaning set forth in the first paragraph.

 

36.           “MPP” has the meaning
set forth in the first paragraph.

 

37.           “MRAEM” has the meaning
set forth in the seventh Whereas provision.

 

38.           “MRAREM” has the
meaning set forth in the nineteenth Whereas provision.

 

39.           “New Mirant” has the
meaning set forth in the first paragraph.

 

40.           “New Mirant Guaranty”
means the guaranty executed by New Mirant pursuant to Sections 2(a)(iv),
2(a)(vi) and 2(a)(viii).

 

41.           “Other Assumed
Agreements” has the meaning set forth in Section 2(a)(v).

 

42.           “Old Mirant” has the meaning
set forth in the first paragraph.

 

43.           “Other Mirant Entities”
has the meaning set forth in the fifth Whereas provision.

 

44.           “Panda PPA” has the
meaning set forth in the third Whereas provision.

 

45.           “Pepco” has the meaning
set forth in the first paragraph.

 

46.           “Pepco Distribution”
has the meaning set forth in Section 2(b)(i).

 

47.           “Pepco Distribution
Amount” has the meaning set forth in Section 2(b)(i).

 

48.           “Pepco Releasees” has
the meaning set forth in Section 4.

 

49.           “Pepco’s Class 3 Claim”
has the meaning set forth in Section 2(b)(i).

 

50.           “Pepco Settling Parties”
has the meaning set forth in the first paragraph.

 

51.           “Pepco Shares” has the
meaning set forth in Section 2(b)(i).

 

52.           “Person” means an
individual, corporation, partnership, limited liability company, joint venture,
trust, estate, unincorporated association, unincorporated organization,
governmental entity, or political subdivision thereof, or any other entity.

 

53.           “Plan Trustees” means
Mr. Auren Primack, Phoenix Advisors, LLC, and Kurtzman Carson Consultants LLC
in their capacity as trustees of the MC Plan Trust.

 

54.           “Pre-Petition Claim”
has the meaning set forth in the twelfth Whereas provision.

 

 

55.           “Rejection Time” has
the meaning set forth in Section 2(a)(ix).

 

56.           “Released Claims
Against Mirant” has the meaning set forth in Section 3(a).

 

57.           “Released Claims
Against Pepco” has the meaning set forth in Section 4(a).

 

58.           “Retained Liabilities”
has the meaning set forth for such term in the APSA.

 

59.           “Second Distribution” has
the meaning set forth in Section 2(b)(ii).

 

60.           “Share Price Trigger”
means that, for four business days in a twenty consecutive business day period,
the closing price of shares of New Mirant common stock (adjusted for any stock
splits occurring after the date of the Agreement), as reported by the New York
Stock Exchange, is less than Sixteen Dollars ($16.00) per share.

 

61.           “Shortfall Payment” has
the meaning set forth in Section 2(b)(iii).

 

62.           “Site Lease” has the
meaning set forth in the sixth Whereas provision.

 

63.           “SMECO” has the meaning
set forth in the sixth Whereas provision.

 

64.           “SMECO Agreements” has
the meaning set forth in the sixth Whereas provision.

 

65.           “SMECO Settlement”
shall mean a settlement agreement and release between (a) SMECO and (b) New
Mirant, Old Mirant, Mirant Mid-Atlantic, LLC, Mirant Potomac, Mirant Chalk
Point, LLC, Mirant Piney Point, LLC, Mirant MD Ash Management, LLC, and the MC
Plan Trust with respect to the SMECO Agreements.

 

66.           “TPA Settlement” has
the meaning set forth in Section 6.

 

 

Schedule
2(a)(v)

 

Schedule
of Assumed, or Assumed and Assigned, Executory Contracts and Unexpired Leases

 

	
  Original Mirant Party

  	
   

  	
  Counterparty

  	
   

  	
  Contract Name/Description

  	
   

  	
  Mirant Settling Party to

  Remain or Become Liable

  for Obligations of Original

  Mirant Party

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Mirant Potomac River, LLC

  	
   

  	
  The Bank of New York, as trustee

  	
   

  	
  Non-Disturbance and Attornment Agreement by and
  between The Bank of New York, as trustee, and Southern Energy Potomac River,
  LLC dated 12/19/2000

  	
   

  	
  Mirant Potomac River, LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  MRAEM, LP

  	
   

  	
  Conectiv Energy Supply, Inc.

  	
   

  	
  Incoming Parent Guaranty by and between Mirant
  Americas Energy Marketing, LP, Conectiv Energy Supply, Inc. (Counterparty),
  and Pepco Holdings, Inc. (Guarantor) in
  the amount of $15,000,000 effective 5/16/2003

  	
   

  	
  Mirant Energy Trading, LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  MRAEM, LP

  	
   

  	
  Pepco Energy Services, Inc.

  	
   

  	
  Incoming Parent Guaranty by and between Mirant
  Americas Energy Marketing, LP, Pepco Energy Services, Inc. (Counterparty),
  and Pepco Holdings, Inc. (Guarantor) in the amount of $5,000,000 effective
  12/20/2004

  	
   

  	
  Mirant Energy Trading, LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  MRAREM, LP

  	
   

  	
  Pepco

  	
   

  	
  Electronic Data Interchange Trading Partner
  Agreement by and between Pepco and Mirant Americas Retail Energy Marketing,
  LP, dated 1/22/03

  	
   

  	
  Mirant Energy Trading, LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Old Mirant

  	
   

  	
  Pepco

  	
   

  	
  Entitlements/Benefits Agreement by and between
  Pepco and Southern Energy, Inc. dated 12/19/2000

  	
   

  	
  Mirant Power Purchase, LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Mirant Potomac River, LLC

  	
   

  	
  Pepco

  	
   

  	
  Interconnection Agreement (Potomac River) by and between
  Pepco and Southern Energy Potomac River, LLC dated 12/19/2000

  	
   

  	
  Mirant Potomac River, LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Mirant Chalk Point, LLC (as successor to Mirant
  Peaker, LLC)

  	
   

  	
  Pepco

  	
   

  	
  Interconnection Agreement (Chalk Point) by and
  among Pepco, Southern Energy Chalk Point, LLC, and Southern Energy Peaker,
  LLC dated 12/19/2000

  	
   

  	
  Mirant Chalk Point, LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Mirant Mid-Atlantic, LLC

  	
   

  	
  Pepco

  	
   

  	
  Interconnection Agreement (Dickerson) by and
  between Pepco and Southern Energy Mid-Atlantic, LLC dated 12/19/2000

  	
   

  	
  Mirant Mid-Atlantic, LLC

  

 

 

	
  Mirant Mid-Atlantic, LLC

  	
   

  	
  Pepco

  	
   

  	
  Interconnection Agreement (Morgantown) by and
  between Pepco and Southern Energy Mid-Atlantic, LLC dated 12/19/2000

  	
   

  	
  Mirant Mid-Atlantic, LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Mirant Potomac River, LLC

  	
   

  	
  Pepco

  	
   

  	
  Local Area Support Agreement by and between Pepco
  and Southern Energy Potomac River, LLC dated 12/19/2000

  	
   

  	
  Mirant Potomac River, LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Mirant Potomac River, LLC

  	
   

  	
  Pepco

  	
   

  	
  Site Lease Agreement by and between Pepco and
  Southern Energy Potomac River, LLC dated 12/19/2000

  	
   

  	
  Mirant Potomac River, LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  MRAREM, LP

  	
   

  	
  Pepco

  	
   

  	
  Supplier Coordination Agreement by and between
  Pepco and Mirant Americas Retail Energy Marketing, LP, dated 1/22/2003

  	
   

  	
  Mirant Energy Trading, LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Mirant Chalk Point, LLC; Mirant Piney Point, LLC

  	
   

  	
  Pepco

  	
   

  	
  Easement, License and Attachment Agreement (Chalk
  Point Station) by and between Southern Energy Chalk Point, LLC, Southern
  Energy Piney Point, LLC and Pepco dated 12/19/2000

  	
   

  	
  Mirant Chalk Point, LLC; Mirant Piney Point, LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Mirant MD Ash Management; Mirant Mid-Atlantic, LLC

  	
   

  	
  Pepco

  	
   

  	
  Easement, License and Attachment Agreement
  (Dickerson Station) by and between Southern Energy Mid-Atlantic, LLC,
  Southern Energy MD Ash Management, LLC, and Pepco dated 12/19/2000

  	
   

  	
  Mirant MD Ash Management, LLC; Mirant
  Mid-Atlantic, LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Mirant Mid-Atlantic, LLC; Mirant Piney Point, LLC

  	
   

  	
  Pepco

  	
   

  	
  Easement, License and Attachment Agreement
  (Morgantown Station) by and between Southern Energy Mid-Atlantic, LLC,
  Southern Energy Piney Point, LLC, and Pepco dated 12/19/2000

  	
   

  	
  Mirant Mid-Atlantic, LLC; Mirant Piney Point, LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Mirant Potomac River, LLC

  	
   

  	
  Pepco

  	
   

  	
  Easement, License and Attachment Agreement
  (Potomac River) by and between Southern Energy Potomac River, LLC and Pepco
  dated 12/19/2000

  	
   

  	
  Mirant Potomac River, LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Mirant Mid-Atlantic, LLC

  	
   

  	
  Pepco

  	
   

  	
  License Agreement by and between Southern Energy
  Mid-Atlantic, LLC and Pepco dated 12/19/2000

  	
   

  	
  Mirant Mid-Atlantic, LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Old Mirant

  	
   

  	
  Pepco

  	
   

  	
  Stormwater Discharge Agreement by and between
  Pepco and Southern Energy, Inc. dated 12/19/2000

  	
   

  	
  Mirant Power Purchase, LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Mirant MD Ash Management, LLC (as successor to
  Mirant D.C. O&M, LLC)

  	
   

  	
  Pepco

  	
   

  	
  Operation and Maintenance Agreement for Buzzard
  Point and Benning Facilities Located in Washington D.C. by and between Pepco
  and Southern Energy D.C. O&M, LLC dated 12/19/2000

  	
   

  	
  Mirant MD Ash Management, LLC

  

 

 

	
  Mirant Mid-Atlantic, LLC

  	
   

  	
  Pepco

  	
   

  	
  Assignment and Assumption Agreement (SEMA;
  Bowling; Calvert; FBI; Charles County at Morgantown) by and between Pepco and
  Southern Energy Mid-Atlantic, LLC dated 12/19/2000

  	
   

  	
  Mirant Mid-Atlantic, LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Mirant Mid-Atlantic, LLC

  	
   

  	
  Pepco

  	
   

  	
  Assignment and Assumption Agreement (SEMA: Samuel
  and Julia Gough (2 leases)) by and between Pepco and Southern Energy
  Mid-Atlantic, LLC dated 12/19/2000

  	
   

  	
  Mirant Mid-Atlantic, LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Mirant MD Ash Management, LLC

  	
   

  	
  Pepco

  	
   

  	
  Assignment and Assumption Agreement (SEAM: Jamison
  at Westland) by and between Pepco and Southern Energy MD Ash Management, LLC
  dated 12/19/2000

  	
   

  	
  Mirant MD Ash Management, LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Mirant Chalk Point, LLC

  	
   

  	
  Pepco

  	
   

  	
  Assignment and Assumption Agreement (SECP: State
  of Maryland Dept. of Natural Resources and Maryland Bd. of Public Works) by
  and between Pepco and Southern Energy Chalk Point, LLC dated 12/19/2000

  	
   

  	
  Mirant Chalk Point, LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Mirant Potomac River, LLC

  	
   

  	
  Pepco

  	
   

  	
  Assignment and Assumption Agreement (SEPR:
  Metricom at Potomac River) by and between Pepco and Southern Energy Potomac
  River, LLC dated 12/19/2000

  	
   

  	
  Mirant Potomac River, LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Mirant Mid-Atlantic, LLC

  	
   

  	
  Pepco

  	
   

  	
  Assignment and Assumption Agreement (SEMA: CNG at
  Dickerson) by and between Pepco and Southern Energy Mid-Atlantic, LLC dated
  12/19/2000

  	
   

  	
  Mirant Mid-Atlantic, LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Mirant Piney Point, LLC

  	
   

  	
  Pepco;The Bank of New York

  	
   

  	
  Assignment and Assumption of License Agreement and
  Easement Agreements (SEPP: Oil Pipeline) by and among Pepco, The Bank of New
  York and Southern Energy Piney Point, LLC dated 12/19/2000

  	
   

  	
  Mirant Piney Point, LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Mirant Piney Point, LLC

  	
   

  	
  Pepco

  	
   

  	
  Assignment and Assumption Agreement (SEPP:
  Pipeline Permits) by and between Pepco and Southern Energy Piney Point, LLC
  dated 12/19/2000

  	
   

  	
  Mirant Piney Point, LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Mirant Mid-Atlantic, LLC

  	
   

  	
  Pepco

  	
   

  	
  Assignment and Assumption Agreement (SEMA:
  Railroad Permits) by and between Pepco and Southern Energy Mid-Atlantic, LLC
  dated 12/19/2000

  	
   

  	
  Mirant Mid-Atlantic, LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Mirant Chalk Point, LLC

  	
   

  	
  Pepco

  	
   

  	
  Assignment and Assumption Agreement (SECP: SMECO
  and Washington Gas Light at Chalk Point) by and between Pepco and Southern
  Energy Chalk Point, LLC dated 12/19/2000

  	
   

  	
  Mirant Chalk Point, LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Old Mirant

  	
   

  	
  Pepco

  	
   

  	
  Three Letter Agreements between Pepco and Southern
  Energy, Inc. dated 10/23/2000 and 11/21/2000 (relating to the Ryceville-Piney
  Point Pipeline)

  	
   

  	
  Mirant Power Purchase, LLC

  

 

 

	
  Mirant Services, LLC (as successor to Southern
  Energy Resources, Inc.) and affiliates of Southern Energy Resources, Inc. as
  of 12/8/2000

  	
   

  	
  Pepco

  	
   

  	
  Transfer of Assets and Indemnification Agreement
  by and between Pepco and its affiliates and Southern Energy Resources, Inc.
  and its affiliates dated 12/8/2000

  	
   

  	
  Mirant Services, LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Mirant Mid-Atlantic, LLC

  	
   

  	
  Pepco

  	
   

  	
  Agreement for Continued Availability of Coverage
  Under Pepco Health Benefits by and between Pepco and Southern Energy
  Mid-Atlantic, LLC dated 11/2/2000

  	
   

  	
  Mirant Power Purchase, LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Old Mirant

  	
   

  	
  Pepco

  	
   

  	
  Letter Agreement between Pepco and Southern
  Energy, Inc., dated 12/19/2000 (relating to SO2 and NO2 allowances)

  	
   

  	
  Mirant Power Purchase, LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Various Mirant Settling Parties, MRAEM or Mirant
  Mid-Atlantic Services, LLC

  	
   

  	
  Pepco and/or its subsidiaries

  	
   

  	
  Any other executory contract or unexpired lease
  entered into by a Mirant Settling Party, MRAEM or Mirant Mid-Atlantic
  Services, LLC with Pepco and/or its subsidiaries, but not including the
  Assumed APSA, the Back-to-Back Arrangement, the FCC Agreement, the Site
  Lease, the Assumption/Assignment Agreements, the Guarantee Agreement dated
  December 19, 2000, or the letter agreement dated December 19, 2000, relating to
  the unwind agreement for the Panda PPA

  	
   

  	
  Postpetition executory contracts or unexpired
  leases will be performed by the Mirant Settling Parties party thereto or
  their successors in interest in accordance with the terms of the contracts or
  leases.  Prepetition executory contracts or unexpired leases will be
  performed by the Mirant Settling Party that, after the effective date of the
  Debtors’ Plan, owns or leases the assets or facilities to which the executory
  contract or unexpired lease relates, or, if such contract or lease does not
  relate to any specific assets or facilities, Mirant Power Purchase, LLC.

  

 

 

Schedule 2(c)

 

Upon the occurrence of the Effective Date, the Pepco Settling Parties
and the Mirant Settling Parties shall cause all pending appeals, adversary
actions or other contested matters between or among the parties hereto relating
to any claim, demand, action or cause of action released pursuant to Sections
3(a) or 4(a) to be dismissed with prejudice, including, without limitation, the
following causes of action:

 

1.             Mirant
Corporation, et al. v. Potomac Electric Power Company,

Civil Action No. 4:03-CV-00944 (N.D. Tex.)

 

2.             Mirant
Corporation, Mirant Peaker, LLC, and Mirant Chalk Point, LLC v. Southern Maryland
Electric Cooperative, Inc., and Potomac Electric Power Company,

Adv. Case No. 04-04073 (Bankr. N.D. Tex.)

 

3.             Potomac Electric
Power Company v. Mirant Corporation, et al.,

Civil Action No. 4:05-CV-00095 (N.D. Tex.)

 

4.             Mirant Corporation
v. Potomac Electric Power Company, et al.,

Civil Action No. 4:05-CV-00606 (N.D. Tex.)

 

5.             Mirant
Corporation, et al. v. Southern Maryland Electric Cooperative, Inc., and
Potomac Electric Power Company,

Adv. Case No. 05-04258 (Bankr. N.D. Tex.)

 

6.             Mirant
Corporation, et al. v. Potomac Electric Power Company,

Adv. Case No. 05-04259 (Bankr. N.D. Tex.)

 

7.             Debtor’s
Motion (I) Pursuant to 11 U.S.C. § 365 to Assume, Assume and Assign, or Reject
Certain Agreements with Potomac Electric Power Company; and (II) For Disgorgement
of Funds Paid Postpetition Under the Back-to-Back Agreement Pursuant to 11
U.S.C. §§ 105, 503, and 549, Bankr. N.D. Tex., Doc. No. 12405

 

8.             Motion
of Debtors (I) to Reject the Facility and Capacity Credit Agreement and the
Site Lease with Southern Maryland Electric Cooperative, Inc.; and (II) for
Disgorgement of Funds Paid Postpetition Pursuant to 11 U.S.C. §§ 105, 503, and
549,

Bankr. N.D. Tex., Doc. No. 12406

 

9.             Mirant
Corporation, et al. v. Potomac Electric Power Company,

Civil Action No. 4:05-CV-00810 (N.D. Tex.)

 

10.           Southern
Maryland Electric Cooperative, Inc., and Potomac Electric Power Company v.
Mirant Peaker, LLC, Mirant Chalk Point, LLC, and Mirant Corporation,

No. 4:06-CV-00041 (N.D. Tex.)

 

 

11.           Mirant Corp., et al.
v. Potomac Electric Power Co., et al.,

No. 05-10038 (5th Cir.)

 

12.           Potomac Electric
Power Co. v. Mirant Corp., et al.,

No. 05-10419 (5th Cir.)

 

 

Exhibit 2(a)(iv) -
Form of New Mirant Guaranty

 

GUARANTEE
AGREEMENT

 

THIS GUARANTEE AGREEMENT (this “Agreement”), dated as of                  ,
2006, by and between Mirant Corporation, a Delaware corporation (“Guarantor”), and Potomac Electric Power
Company, a District of Columbia
and Virginia corporation (together
with its successors and permitted endorsees, transferees and assigns, “Pepco”). Guarantor and Pepco are referred
to herein individually as a “Party”
and collectively as the “Parties.”  Capitalized terms used herein and defined in
the Settlement Agreement (as defined below) have the meanings set forth for
such terms in the Settlement Agreement.

 

WHEREAS, Mirant and Pepco, among others, are
parties to that certain Settlement Agreement and Release dated as of May 30,
2006 (the “Settlement Agreement”)
pursuant to which the parties thereto agreed to settle, on the terms and
conditions contained therein, certain disputes, including disputes with respect
to the APSA, the Back-to-Back Arrangement, the Other Assumed Agreements, the
SMECO Agreements and the Assumed Obligations.

 

WHEREAS, pursuant to and subject to the terms
and provisions of the Settlement Agreement, MPP has assumed the Assumed APSA
[and the Back-to-Back Arrangement](1), certain Mirant Settling Parties have
assumed or accepted the assignment of the Other Assumed Agreements and have
assumed the Assumed Obligations arising under the Other Assumed Agreements,
Mirant Chalk Point, LLC has assumed the SMECO Agreements and assumed the
Assumed Obligations arising under the SMECO Agreements, and MPP has assumed the
Assumed Obligations not arising under the Other Assumed Agreements or the SMECO
Agreements.

 

WHEREAS, pursuant to the Settlement
Agreement, Mirant has agreed to guarantee the payment and performance of the
obligations of the other Mirant Settling Parties under the Assumed APSA, [the
Back to Back Arrangement],(2) the Other Assumed Agreements, the SMECO
Agreements and the Assumed Obligations (collectively, the “Underlying Agreements”) pursuant to this
Agreement.

 

NOW,
THEREFORE, the Parties agree, effective as of the Effective Date, as follows:

 

SECTION 1. Purpose and Intent. IT IS THE PURPOSE AND INTENT OF
THIS AGREEMENT THAT THE OBLIGATIONS OF GUARANTOR UNDER THIS AGREEMENT ARE
IRREVOCABLE, ABSOLUTE AND UNCONDITIONAL, PRESENT AND CONTINUING UNDER ANY AND
ALL CIRCUMSTANCES UNTIL TERMINATED IN ACCORDANCE WITH THE TERMS OF THIS
AGREEMENT.

 

SECTION 2. Guarantee. Guarantor absolutely, irrevocably and
unconditionally guarantees, as a primary obligor and not merely as a surety,
(a) the due and punctual payment to Pepco of (i) each payment required to
be made by the other Mirant Settling Parties under the

 

(1)   If applicable.

(2)   Id.

 

 

Underlying Agreements when and
as due, whether at maturity or by reason of acceleration or otherwise and at
all times thereafter, including payments in respect of reimbursement of
disbursements and interest thereon and (ii) all other monetary
obligations, including indemnities, fees, costs and expenses, whether primary,
secondary, direct, contingent, fixed or otherwise (including monetary
obligations incurred during the pendency of any bankruptcy, insolvency,
receivership or other similar proceeding, regardless of whether allowed or
allowable in such proceeding), of the other Mirant Settling Parties under the
Underlying Agreements (all such obligations referred to in this clause
(a) being collectively referred to as the “Monetary Obligations”) and (b) the due and punctual
performance and observance of, and compliance with, all covenants, agreements,
obligations and liabilities of the other Mirant Settling Parties under the
Underlying Agreements or the Settlement Agreement (all such obligations
referred to in the preceding clauses (a) and (b) and any extensions,
renewals or replacements thereof being collectively referred to as the “Obligations”).

 

SECTION 3. Payment of Costs. Guarantor agrees to pay and
reimburse Pepco for all reasonable costs, legal expenses and attorneys’ and
paralegals’ fees of every kind (excluding those costs, expenses and fees of
attorneys and paralegals who may be employees of Pepco), paid by, or incurred
by or on behalf of, Pepco in enforcing its rights under this Agreement, provided
that the Guarantor shall not be liable for any expenses of Pepco if no payment
or performance is determined to be due from Guarantor under this Agreement.

 

SECTION 4. Waiver of Notice and Defenses. To the fullest extent
permitted by applicable law, Guarantor hereby expressly, absolutely,
unconditionally and irrevocably waives all notices whatsoever with respect to
this Agreement, with respect to the Underlying Agreements, with respect to the
Settlement Agreement or with respect to the Obligations, including, without
limitation, presentment to, demand of payment from and protest, dishonor,
default or nonpayment to the other Mirant Settling Parties or any other person
of any of the Obligations, and notice of acceptance of its guarantee. To the fullest
extent permitted by applicable law, the obligations of Guarantor hereunder
shall not be affected by (a) the failure of Pepco to assert any claim or
demand or to enforce or exercise any right or remedy against the other Mirant
Settling Parties in respect of the Obligations or any delay in connection
therewith, or (b) any rescission, waiver, amendment or modification of, or
any release from any of the terms or provisions of, this Agreement not made in
accordance with Section 13 of this Agreement.

 

SECTION 5. Continuing Guarantee of Payment and Performance.
Guarantor further agrees that its guarantee contained herein constitutes a
continuing guarantee of payment and performance when due, and not of
collection, and therefore Pepco shall not be required (although it is entitled,
at its option) to prosecute collection, enforcement or other remedies against
the other Mirant Settling Parties, any other guarantor or any other person,
before calling on Guarantor for payment and performance of the Obligations. Guarantor
further waives any right to require that any resort be had by Pepco (although
it is entitled, at its option) to any security.

 

 

SECTION 6. Discharge or Diminishment of Guarantee.

 

(a)           The obligations of
Guarantor hereunder shall not be subject to any reduction, limitation,
impairment or termination, or be subject to any defense or setoff,
counterclaim, recoupment or termination whatsoever, or otherwise be affected,
for any reason (other than the performance in full of all Obligations,
including the indefeasible payment in full in cash of all Monetary Obligations,
and the termination of all the Obligations), including, without limitation:

 

(i)            any claim of waiver,
release, surrender, alteration or compromise of any of the Obligations;

 

(ii)           any claim or defense of
statute of limitations, statute of frauds, fraud, incapacity, minority or
usury;

 

(iii)          the invalidity,
illegality or unenforceability of the Obligations or the genuineness, validity
or regularity of the Underlying Agreements or the Settlement Agreement;

 

(iv)          the occurrence or
continuance of any event of bankruptcy, reorganization, insolvency,
receivership or other similar proceeding with respect to the other Mirant
Settling Parties or any other person (for purposes hereof, “person” means any
individual, partnership, limited liability company, joint venture, corporation,
trust, unincorporated organization or Governmental Authority), or the
dissolution, liquidation or winding up of the other Mirant Settling Parties or
any other person;

 

(v)           any permitted
assignment or other permitted transfer of this Agreement or any rights
hereunder by Pepco;

 

(vi)          any sale, transfer or
other disposition by Guarantor of any direct or indirect interest it may have
in the other Mirant Settling Parties or any other change in ownership or
control of the other Mirant Settling Parties;

 

(vii)         the absence of any notice
to, or knowledge on behalf of, Guarantor of the existence or occurrence of any
of the matters or events set forth in the foregoing clauses; or

 

(viii)        any other action or
circumstance that might otherwise constitute a legal or equitable discharge or
defense of Guarantor from performance of the obligations set forth herein
(other than the performance in full of all Obligations, including the
indefeasible payment in full in cash of all Monetary Obligations, and the
termination of all the Obligations).

 

(b)           Without limiting the
generality of the foregoing, the obligations of Guarantor hereunder shall not
be discharged or impaired or otherwise affected by the failure of Pepco to
assert any claim or demand or to enforce its rights under this Agreement, the
Underlying Agreements or the Settlement Agreement, by any waiver or
modification of any

 

 

provision thereof (except a
waiver or modification made in accordance with Section 13 hereof), by any
default, failure or delay, willful or otherwise, in the performance of the
Obligations, or by any other act or omission that may or might in any manner or
to any extent vary the risk of Guarantor or that would otherwise operate as a
discharge of Guarantor as a matter of law or equity (other than the performance
in full of all Obligations, including the indefeasible payment in full in cash
of all Monetary Obligations, and the termination of all the Obligations).

 

(c)           In furtherance and not
in limitation of the foregoing, Guarantor authorizes Pepco, without notice,
demand or additional reservation of rights against Guarantor and without
affecting Guarantor’s obligations hereunder, from time to time:  (1) to renew, refinance, modify, subordinate,
extend, increase, accelerate, or otherwise change the time for payment of, the
terms of or the interest on the Obligations or any part thereof; (2) to accept
collateral from any person or entity and hold collateral for the payment of the
Obligations or any part thereof, and to exchange, enforce, refrain from
enforcing or release such collateral or any part thereof; (3) to accept and
hold any indorsement or guarantee of payment of the Obligations or any part
thereof or any negotiable instrument or other writing intended by any party to
create an accord and satisfaction with respect to the Obligations or any part
thereof, and to discharge, terminate, release, substitute, replace or modify
any such obligation of any such indorser or guarantor, or any person or entity
who has given any security interest in any collateral as security for the
payment of the Obligations or any part thereof, or any other person or entity
in any way obligated to pay the Obligations or any part thereof, and to enforce,
or refrain from enforcing, compromise or modify, the terms of any obligation of
such indorser, guarantor, person or entity; (4) to dispose of any and all
collateral securing the Obligations in any commercially reasonable manner as
Pepco, in its sole discretion, may deem appropriate, and to direct the order or
manner of such disposition and the enforcement of any and all indorsements and
guarantees relating to the Obligations or any part thereof as Pepco, in its
sole discretion, may determine; (5) subject to the terms and provisions of the
Underlying Agreements and the Settlement Agreement, to determine the manner,
amount and time of application of payments and credits, if any, to be made on
all or any part of any component or components of the Obligations (whether
principal, interest, costs and expenses, or otherwise); (6) to take
advantage or refrain from taking advantage of any security or accept or make or
refrain from accepting or making any compositions or arrangements when and in
such manner as Pepco, in its sole discretion, may deem appropriate; and
(7) to generally do or refrain from doing any act or thing which might
otherwise, at law or in equity, release the liability of Guarantor as a
guarantor or surety in whole or in part, and in no case shall Pepco be
responsible, or shall the Guarantor be released in whole or in part, for any
act or omission in connection with Pepco having sold any collateral at less
than its value, providing that the collateral is sold in a commercially
reasonable manner.

 

SECTION 7. Defenses Waived. To the fullest extent permitted by
applicable law, Guarantor waives any defense based on or arising out of the
unenforceability of the Obligations or any part thereof from any cause. Pepco
may compromise or adjust any part of the Obligations, make any other
accommodation with the other Mirant Settling Parties or exercise any other
right or remedy available to it against the other Mirant Settling Parties,
without affecting or impairing in any way the liability of Guarantor hereunder
except to the extent that all the Obligations have been fully and finally
performed, including the indefeasible payment in full of all Monetary
Obligations, and terminated. To the fullest extent permitted by applicable law,

 

 

Guarantor waives any defense
arising out of any such election even though such election operates, pursuant
to applicable law, to impair or to extinguish any right of reimbursement or
subrogation or other right or remedy of Guarantor against the other Mirant
Settling Parties or any security. Guarantor waives each right and all defenses
to which it may be entitled under applicable law as in effect or construed from
time to time.

 

SECTION 8. Representations and Warranties of Guarantor.
Guarantor represents and warrants to Pepco as follows:

 

(a)           Organization.
Guarantor is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and has all requisite
corporate power and authority to own, lease and operate its properties and to
carry on its business as is now being conducted.

 

(b)           Authority Relative
to this Agreement. Guarantor has all necessary corporate power and
authority to execute and deliver this Agreement and to perform its obligations
hereunder. The execution and delivery by Guarantor of this Agreement and
performance by Guarantor of its obligations hereunder have been duly and
validly authorized and no other corporate proceedings on the part of Guarantor
are necessary to authorize this Agreement and the performance by Guarantor of
its obligations hereunder. This Agreement has been duly and validly executed
and delivered by Guarantor and this Agreement constitutes a valid and binding
agreement of Guarantor, enforceable against Guarantor in accordance with its
terms.

 

(c)           Consents and
Approvals; No Violation.

 

(i)            Neither the execution
and delivery of this Agreement by Guarantor nor performance by Guarantor of its
obligations hereunder will (i) conflict with or result in any breach of
any provision of the organizational or governing documents or instruments of
Guarantor, (ii) result in a default (or give rise to any right of
termination, cancellation or acceleration) under any of the terms, conditions
or provisions of any note, bond, mortgage, indenture, license, agreement, lease
or other instrument or obligation to which Guarantor or any of its subsidiaries
is a party or by which any of their respective assets may be bound, or
(iii) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to Guarantor, or any of its assets, except in the case of
clauses (ii) and (iii) for such failures to obtain a necessary
consent, defaults and violations which would not, individually or in the
aggregate, have a material adverse effect on the ability of Guarantor to discharge
its obligations under this Agreement (a “Guarantor
Material Adverse Effect”).

 

(ii)           No declaration, filing
or registration with, or notice to, or authorization, consent or approval of
any governmental authority is necessary for performance by Guarantor of its
obligations hereunder, other than such declarations, filings, registrations,
notices, authorizations, consents or approvals which, if not obtained or made
would not, individually or in the aggregate, have a Guarantor Material Adverse
Effect.

 

 

SECTION 9. Agreement to Perform and Pay; Subordination. In
furtherance of the foregoing and not in limitation of any other right that
Pepco has at law or in equity against Guarantor by virtue hereof, upon the
failure of any of the other Mirant Settling Parties to perform or pay any
Obligation when and as the same shall become due, Guarantor hereby promises to
and will forthwith, as the case may be, (a) perform, or cause to be performed,
such unperformed Obligations and (b) pay, or cause to be paid, to Pepco in
cash the amount of such unpaid Monetary Obligations. Upon payment by Guarantor
of any sums to Pepco as provided above, all rights of Guarantor against the
other Mirant Settling Parties arising as a result thereof by way of right of
subrogation, contribution, reimbursement, indemnity or otherwise shall in all
respects be subordinate and junior in right of payment to the prior
indefeasible payment in full in cash of all the Monetary Obligations. If any
amount shall erroneously be paid to Guarantor on account of (i) such
subrogation, contribution, reimbursement, indemnity or similar right or (ii)
any such indebtedness of the other Mirant Settling Parties ̧ such amount shall
be held in trust for the benefit of Pepco and shall forthwith be paid to Pepco
to be credited against the payment of the Monetary Obligations.

 

SECTION 10. Information. Guarantor assumes all responsibility
for being and keeping itself informed of the other Mirant Settling Parties’
financial condition and assets, and of all other circumstances bearing upon the
risk of nonperformance of the Obligations (including the nonpayment of Monetary
Obligations) and the nature, scope and extent of the risks that Guarantor
assumes and incurs hereunder, and agrees that Pepco does not have any duty to
advise Guarantor of information known to it regarding such circumstances or
risks.

 

SECTION 11. Termination and Reinstatement.

 

(a)           Notwithstanding any
provision to the contrary herein, this Agreement and the guarantee made
hereunder shall terminate for all purposes upon the termination of the
Settlement Agreement pursuant to Section 7 of the Settlement Agreement.

 

(b)           Subject to Section
11(a) above and Section 11(c) below, the guarantee made hereunder shall remain
in full force and effect until, and shall terminate when, all the Obligations
have been (i) finally and irrevocably performed in full, including the
indefeasible payment in full in cash of the Monetary Obligations, and (ii)
terminated.

 

(c)           Notwithstanding Section
11(b), if at any time any payment, or any part thereof, of any Obligation is
subsequently recovered from, rescinded or is restored by Pepco, whether upon
the bankruptcy, dissolution, reorganization, arrangement, or liquidation
proceedings (or proceedings similar thereto) of the other Mirant Settling
Parties or Guarantor or for any other reason, this Agreement and all of
Guarantor’s obligations under this Agreement shall continue to be effective or
shall be reinstated, as the case may be, as though such payment had not been
made. Except in the case of a termination pursuant to Section 11(a) above, the
provisions of this Section 11(c) shall survive termination of the guarantee
made hereunder or this Agreement.

 

SECTION 12. Assignment; No Third Party Beneficiaries. This
Agreement and all of the provisions hereunder shall be binding upon and inure
to the benefit of the Parties and their

 

 

respective successors
(including, without limitation, any entity to which all or a substantial part
of the business or assets of such Party shall have been transferred, including
a debtor in possession under the Bankruptcy Code, and any entity into or with
which such Party shall have been merged, consolidated, reorganized, or
absorbed) and permitted assigns. Nothing herein express or implied will give or
be construed to give any person other than the Parties any legal or equitable
rights hereunder. Neither this Agreement nor any of the rights, interests and
obligations hereunder shall be assigned by Guarantor, including by operation of
law, without the prior written consent of Pepco; provided, however,
that no assignment or transfer of rights or obligations by Guarantor shall
relieve it from the full liabilities and the full financial responsibility set
forth in this Agreement, unless and until the transferee or assignee shall
agree in writing to assume such obligations and duties and Pepco has consented
in writing to such assumption. Pepco may assign any of (including a portion of)
its rights hereunder to any assignee or transferee of the Underlying Agreements
without the consent of Guarantor; provided that such assignment or
transfer of the Underlying Agreements is not effected in violation of the terms
of the Underlying Agreements.

 

SECTION 13. Amendment and Modification; Extension; Waiver.
Except with respect to assignments effected in accordance with Section 12, this
Agreement may be amended, modified or supplemented only by an instrument in
writing signed on behalf of each of the Parties. Any agreement on the part of a
Party to any extension or waiver in respect of this Agreement shall be valid
only if set forth in an instrument in writing signed on behalf of such Party.
The failure of a Party to this Agreement to assert any of its rights under this
Agreement or otherwise shall not constitute a waiver of such rights.

 

SECTION 14. Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the District of Columbia
(regardless of the laws that might otherwise govern under applicable principles
of conflicts of law).

 

SECTION 15. Notices. All notices and other communications
hereunder shall be in writing and shall be deemed given (as of the time of
delivery or, in the case of a telecopied communication, of the times of
confirmation) if delivered personally, telecopied (which is confirmed) or sent
by overnight courier (providing proof of delivery) to the Parties at the
following addresses (or at such other address for a Party as shall be specified
by like notice):

 

if to Pepco, to:

 

Potomac Electric Power Company

701 Ninth Street NW

Suite 1100

Washington, DC 20068  

Telecopy No.:  202-872-6484

Attention: General Counsel

 

with a copy to:

 

Jonathan P. Guy

 

 

Orrick, Herrington & Sutcliffe LLP

3050 K Street, NW

Washington, DC 20007

 

if to Guarantor, to:

 

Mirant Corporation

1155 Perimeter Center West 

Atlanta, Georgia 30338-5416

Telecopy No.:  678-579-6767

Attn: General Counsel

 

with a copy to:

 

Craig Averch

White & Case LLP

633 W. 5th Street, Suite 1900

Los Angeles, CA 90071-2007

 

SECTION 16. Jurisdiction and Enforcement.

 

(a)           Each of the Parties
irrevocably submits to the exclusive jurisdiction of (i) the Superior
Court of the District of Columbia and (ii) the United States District
Court for the District of Columbia for the purposes of any suit, action or
other proceeding arising out of this Agreement or any transaction contemplated
hereby. Each of the Parties agrees to commence any action, suit or proceeding
relating hereto either in the United States District Court for the District of
Columbia or, if such suit, action or proceeding may not be brought in such
court for jurisdictional reasons, in the Superior Court of the District of
Columbia. Each of the Parties further agrees that service of process, summons,
notice or document by hand delivery or U.S. registered mail at the address
specified for such Party in Section 15 (or such other address specified by
such Party from time to time pursuant to Section 15) shall be effective
service of process for any action, suit or proceeding brought against such
Party in any such court. Each of the Parties irrevocably and unconditionally
waives any objection to the laying of venue of any action, suit or proceeding
arising out of this Agreement or the transactions contemplated hereby in
(i) the Superior Court of the District of Columbia and (ii) the United
States District Court for the District of Columbia and hereby further
irrevocably and unconditionally waives and agrees not to plead or claim in any
such court that any such action, suit or proceeding brought in any such court
has been brought in an inconvenient forum.

 

(b)           The Parties agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the Parties shall be entitled
to equitable relief, including without limitation, an injunction or injunctions
to prevent breaches of this Agreement and to specifically enforce the terms and
provisions of this Agreement, this being in addition to any other remedy to
which they are justly entitled to, whether at law or in equity.

 

 

SECTION 17. Effectiveness; Counterparts. This Agreement shall
become effective as of the Effective Date. This Agreement may be executed in
two counterparts, each of which shall be deemed an original, but both of which
together shall constitute one and the same instrument.

 

SECTION 18. Rules of Interpretation. When a reference is made in
this Agreement to a Section, such reference shall be to a Section of this
Agreement unless otherwise indicated. Whenever the words “include”, “includes”
or “including” are used in this Agreement, they shall be deemed to be followed
by the words “without limitation” or equivalent words. The words “hereof”,
“herein” and “hereunder” and words of similar import when used in this
Agreement shall refer to this Agreement as a whole and not to any particular
provision of this Agreement. All terms defined in this Agreement shall have the
defined meanings when used in any certificate or other document made or delivered
pursuant hereto or thereto unless otherwise defined therein. The definitions
contained in this Agreement are applicable to the singular as well as the
plural forms of such terms and to the masculine as well as to the feminine and
neuter genders of such term. Any agreement, instrument, statute, regulation,
rule or order defined or referred to herein or in any agreement or instrument
that is referred to herein means such agreement, instrument, statute,
regulation, rule or order as from time to time amended, modified or
supplemented, including (in the case of agreements or instruments) by waiver or
consent and (in the case of statutes, regulations, rules or orders) by
succession of comparable successor statutes, regulations, rules or orders and
references to all attachments thereto and instruments incorporated therein.
References to a person are also to its permitted successors and assigns. Each
Party acknowledges that it has been represented by counsel in connection with
the review and execution of this Agreement and, accordingly, there shall be no
presumption that this Agreement or any provision hereof be construed against
the Party that drafted this Agreement.

 

SECTION 19. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
remain in full force and effect. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the Parties shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the Parties as closely as possible to the fullest extent permitted by
applicable law in an acceptable manner to the end that the transactions
contemplated hereby are fulfilled to the extent possible.

 

SECTION 20. Entire Agreement. This Agreement is intended by the
Parties to be the final, complete and exclusive expression of the agreement
between Guarantor and Pepco with respect to the guarantee of the Obligations.
Guarantor expressly disclaims any reliance on any course of dealing or usage of
trade or oral representations of Pepco, including, without limitation,
representations to enter into any other agreement with the other Mirant Settling
Parties or Guarantor.

 

 

IN WITNESS
WHEREOF, this Guarantee Agreement has been duly executed and delivered by the
Parties as of the date first above written and is effective as of the Effective
Date.

 

	
   

  	
  POTOMAC ELECTRIC POWER COMPANY

  
	
   

  	
   

  	
   

  
	
   

  	
  By

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
  MIRANT CORPORATION

  
	
   

  	
   

  	
   

  
	
   

  	
  By

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

 

Exhibit 2(d) -
Form of Request for Stay

 

IN THE UNITED
STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

 

NO. 05-10038

 

IN THE MATTER OF:  MIRANT CORPORATION, Debtor

 

MIRANT CORPORATION; MLW
DEVELOPMENT LLC; MIRANT 

AMERICAS ENERGY MARKETING LP; MIRANT AMERICAS 

GENERAL LLC; MIRANT MID-ATLANTIC LLC; ET AL., Appellants

 

vs.

 

POTOMAC ELECTRIC POWER COMPANY,
FEDERAL ENERGY 

REGULATORY COMMISSION, Appellees

 

NO. 05-10419

 

IN THE MATTER OF:  MIRANT CORPORATION, Debtor

 

POTOMAC ELECTRIC POWER COMPANY,
Appellee

 

vs.

 

MIRANT CORPORATION; MLW
DEVELOPMENT LLC; MIRANT 

AMERICAS ENERGY MARKETING LP; MIRANT AMERICAS 

GENERAL LLC; MIRANT MID-ATLANTIC LLC; ET AL., Appellants

 

On Appeal from the United
States District Court for the Northern District of Texas,

Fort Worth Division, Civil
Action Nos. 4-05-CV-095-A and 4-03-CV-1242-A

 

JOINT
MOTION FOR STAY OF PENDING APPEALS

 

 

	
  ATTORNEYS FOR APPELLANTS MIRANT 

  CORPORATION, ET  AL.:

  	
   

  	
  ATTORNEYS FOR APPELLEE 

  POTOMAC ELECTRIC POWER 

  COMPANY:

  
	
   

  	
   

  	
   

  
	
  Thomas E Lauria

  J. Christopher Shore

  WHITE & CASE LLP

  Wachovia Financial Center

  200 South Biscayne Blvd.

  Miami, Florida 33131

  305-371-2700 (Telephone)

  305-358-5744 (Facsimile)

  	
   

  	
  Robin Phelan

  W. Alan Wright

  Benjamin L. Mesches

  HAYNES AND BOONE, LLP

  901 Main Street, Suite 3100

  Dallas, Texas 75202-3789

  214-651-5000 (Telephone)

  214-651-5940 (Facsimile)

  	
   

  	
  Roger Frankel

  Jonathan Guy

  ORRICK, HERRINGTON &

  SUTCLIFFE LLP

  3050 K Street, NW

  Washington, D.C. 20007

  202-339-8400 (Telephone)

  202-339-8500 (Facsimile)

  
					

 

 

TO
THE HONORABLE COURT OF APPEALS:

 

Appellants Mirant Corporation, et al.
(“Mirant”), and Appellee Potomac Electric Power Company (“PEPCO”) file this
joint motion to stay the above-styled and numbered appeals (the “Appeals”)
pending anticipated court approval of a settlement of all outstanding disputes
between them, and respectfully state as follows:

 

1.             The Appeals are currently
pending before the Court.

 

2.             The Court heard oral
argument in the Appeals on February 9, 2006.

 

3.             In addition to the Appeals,
the parties are involved in the following litigation pending in the United
States District Court for the Northern District of Texas and the United States
Bankruptcy Court for the Northern District of Texas:

 

a.             Mirant Corporation, et al. v.
Potomac Electric Power Company,
Civil Action No. 4:03-CV-00944 (N.D. Tex.);

 

b.             Mirant Corporation, Mirant
Peaker, LLC, and Mirant Chalk Point, LLC v. Southern Maryland Electric
Cooperative, Inc., and Potomac Electric Power Company, Adv. Case No. 04-04073 (Bankr. N.D.
Tex.);

 

c.             Potomac Electric Power Company v.
Mirant Corporation, et al.,
Civil Action No. 4:05-CV-00095 (N.D. Tex.);

 

d.             Mirant Corporation v. Potomac
Electric Power Company, et al.,
Civil Action No. 4:05-CV-00606 (N.D. Tex.);

 

e.             Mirant Corporation, et al. v.
Southern Maryland Electric Cooperative, Inc., and Potomac Electric Power
Company, Adv. Case No. 05-04258
(Bankr. N.D. Tex.);

 

f.              Mirant Corporation, et al. v.
Potomac Electric Power Company,
Adv. Case No. 05-04259 (Bankr. N.D. Tex.);

 

 

g.             Debtor’s Motion (I) Pursuant to 11 U.S.C. § 365
to Assume, Assume and Assign, or Reject Certain Agreements with Potomac
Electric Power Company; and (II) For Disgorgement of Funds Paid Postpetition
Under the Back-to-Back Agreement Pursuant to 11 U.S.C. §§ 105, 503, and
549, In re Mirant Corporation, et al., Case No. 03-46590 (Bankr. N.D. Tex.);

 

h.             Motion of Debtors (I) to Reject the Facility
and Capacity Credit Agreement and the Site      Lease with Southern Maryland Electric
Cooperative, Inc.; and (II) for Disgorgement of Funds Paid Postpetition
Pursuant to 11 U.S.C. §§ 105, 503, and 549, In re Mirant
Corporation, et al., Case No. 03-46590
(Bankr. N.D. Tex.);

 

i.              Mirant Corporation, et al. v.
Potomac Electric Power Company,
Civil Action No. 4:05-CV-00810 (N.D. Tex.); and

 

j.              Southern Maryland Electric
Cooperative, Inc., and Potomac Electric Power Company v. Mirant Peaker,
LLC, Mirant Chalk Point, LLC, and Mirant Corporation, No. 4:06-CV-00041 (N.D. Tex.).

 

4.             Mirant and PEPCO have
entered into a settlement agreement resolving all outstanding disputes between
them (the “Settlement Agreement”).  The
Settlement Agreement must be approved by the Bankruptcy Court and/or the
District Court in Mirant’s bankruptcy proceedings by final order or orders to
become effective.(3)  On May 30, 2006, the parties filed motions in
the Bankruptcy Court and District Court, pursuant to Federal Rule of
Bankruptcy Procedure 9019, seeking such approval.  The parties are hopeful that the lower courts
will approve the Settlement Agreement.

 

(3)           The district court has
withdrawn the reference to the bankruptcy court for a number of the pending
disputes between the parties.  

 

 

5.             As part of the Settlement
Agreement, the parties agreed to request that the Court stay further action in
the Appeals pending the required judicial approval of their Settlement
Agreement.

 

6.             Accordingly, Mirant and
PEPCO file this Joint Motion for Stay of Pending Appeals and request that the
Court stay further action on the Appeals pending approval of the Settlement
Agreement by the Bankruptcy Court and/or the District Court by final order or
orders.  In the interim, the parties will
keep the Court apprised regarding the status of the Rule 9019
motions.  Once the order or orders
approving the Settlement Agreement become final, the parties will file a joint
motion to dismiss the Appeals.

 

7.             Counsel for Mirant and PEPCO
have conferred with counsel for FERC regarding the relief requested in this
joint motion.  Counsel for FERC has
indicated that FERC does/does not oppose such relief.

 

CONCLUSION AND REQUEST FOR RELIEF

 

Mirant and PEPCO jointly request that the Court stay
further action in the Appeals pending approval of the Settlement Agreement by
final order or orders and award them any other relief to which they are justly
entitled.

 

 

	
   

  	
  Respectfully submitted,

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Robin Phelan

  
	
   

  	
  W. Alan Wright

  
	
   

  	
  Benjamin L. Mesches

  
	
   

  	
  HAYNES AND BOONE, LLP

  
	
   

  	
  901 Main Street, Suite 3100

  
	
   

  	
  Dallas, Texas 75202-3789

  
	
   

  	
  214-651-5000 (Telephone)

  
	
   

  	
  214-651-5940 (Facsimile)

  
	
   

  	
   

  
	
   

  	
   and

  
	
   

  	
   

  
	
   

  	
  Thomas E Lauria

  
	
   

  	
  J. Christopher Shore

  
	
   

  	
  WHITE & CASE LLP

  
	
   

  	
  Wachovia Financial Center

  
	
   

  	
  200 South Biscayne Blvd.

  
	
   

  	
  Miami, Florida 33131

  
	
   

  	
  305-371-2700 (Telephone)

  
	
   

  	
  305-358-5744 (Facsimile)

  
	
   

  	
   

  
	
   

  	
  ATTORNEYS FOR APPELLANTS

  MIRANT CORPORATION, ET AL.

  

 

 

	
   

  	
   

  
	
   

  	
  Roger Frankel

  
	
   

  	
  Jonathan Guy

  
	
   

  	
  ORRICK, HERRINGTON &
  SUTCLIFFE LLP

  
	
   

  	
  3050 K Street, NW

  
	
   

  	
  Washington, D.C. 20007

  
	
   

  	
  202-339-8400 (Telephone)

  
	
   

  	
  202-339-8500 (Facsimile)

  
	
   

  	
   

  
	
   

  	
  ATTORNEYS FOR APPELLEE 

  POTOMAC ELECTRIC POWER 

  COMPANY

  

 

 

CERTIFICATE
OF CONFERENCE

 

On May   ,
2006, the undersigned counsel for Appellants Mirant Corporation et al. conferred with counsel for FERC, Carol J. Banta,
regarding the relief requested in the foregoing motion.   Ms. Banta stated that FERC does/does
not oppose the relief requested.

 

	
   

  	
   

  	
   

  
	
   

  	
  W. Alan Wright

  

 

 

CERTIFICATE
OF SERVICE

 

The undersigned hereby certifies that a true and
correct copy of the foregoing Joint Motion for Stay of
Pending Appeals has been served on the following counsel of record
by Federal Express and in accordance with the Federal Rules of Appellate
Procedure on this        day of May, 2006.

 

	
  Sander L. Esserman

  Jo E. Hartwick

  Stutzman Bromberg Esserman & Plifka

  2323 Bryan Street, Suite 2200

  Dallas, Texas 75201

  	
   

  	
  Roger Frankel

  Jonathan Guy

  Orrick, Herrington & Sutcliffe LLP

  3050 K Street, NW

  Washington, D.C. 20007

  
	
  Jason Brookner

  Andrews & Kurth L.L.P.

  1717 Main Street

  Suite 3700

  Dallas, Texas 75201

  	
   

  	
  Donald E. Herrmann

  Lars L. Berg

  Kelly, Hart & Hallman

  201 Main Street, Suite 2500

  Fort Worth, Texas 76102-3194

  
	
  Carol J. Banta

  Federal Energy Regulatory Commission

  888 First Street, N.E.
Washington, DC 20426

  	
   

  	
  Stephen L. Tatum

  Cantey & Hanger

  801 Cherry Street, Suite 2100

  Fort Worth, Texas 76102

  

 

 

	
  James Bradford Ramsay

  Grace D. Soderberg

  National Association of Regulatory

  Utility Commissioners

  1101 Vermont Avenue NW

  Washington, DC 20005

  	
   

  	
  Peter J. Kadzik

  Dickstein, Shapiro, Morin &

  Oshinsky

  2101 L Street NW, 10th Floor

  Washington, DC 20037-1526

  
	
  Daniel M. Lewis

  Arnold & Porter

  555 12th Street NW

  Washington, DC 20004

  	
   

  	
  Frederick Sosnick

  Shearman & Sterling

  599 Lexington Avenue

  New York, NY 10022-6069

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  W. Alan
  WrightExhibit 4.1

EXECUTION COPY

 

 

 

HUMANA INC.,

Issuer

 

THE BANK OF NEW YORK TRUST COMPANY, N.A.,

Trustee

 

SECOND SUPPLEMENTAL INDENTURE

Dated as of May 31, 2006

 

6.450% Senior Notes due 2016

 

 

Supplemental to Indenture dated as of August 5,
2003

THIS SECOND SUPPLEMENTAL INDENTURE (the “Second
Supplemental Indenture”) is made the 31st day of May, 2006, between HUMANA
INC., a corporation duly incorporated and existing under the laws of Delaware
and having its principal executive office at 500 West Main Street, Louisville,
Kentucky 40202 (hereinafter called “the Company”), and THE BANK OF NEW YORK
TRUST COMPANY, N.A. (as successor to The Bank of New York), a national banking
association, as Trustee (hereinafter called the “Trustee”).

RECITALS OF THE COMPANY

WHEREAS, the Company entered into an Indenture, dated
as of August 5, 2003 with the Trustee (the “Original Indenture,” and
together with this Second Supplemental Indenture, referred to herein as the “Indenture”)
(all capitalized terms used in this Second Supplemental Indenture and not
otherwise defined herein have the meanings assigned to such terms in the
Original Indenture), for the purposes of issuing its Securities, evidencing its
senior unsecured indebtedness, unlimited as to principal amount, to bear such
rates of interest, to mature at such time or times, to be issued in one or more
series and to have such other provisions as authorized by or pursuant to the
authority granted in one or more resolutions of the Board of Directors of the
Company; and

WHEREAS, Section 901 of the Original Indenture
provides that without the consent of the Holders of the Securities of any
series issued under the Original Indenture, the Company, when authorized by a
Board Resolution, and the Trustee may, in certain circumstances, enter into one
or more indentures supplemental to the Original Indenture; and

WHEREAS, the Company proposes to issue a series of
Securities designated as its 6.450% Senior Notes due 2016, the terms of which
shall be set forth in, or determined in the manner provided in, an Officers’
Certificate of the Company as provided in Section 301 of the Original
Indenture (such senior notes being referred to herein as the “2006 Senior Notes”
and all references to Securities in the Original Indenture shall be deemed to
refer also to the 2006 Senior Notes unless the context otherwise provides); and

WHEREAS, the entry into this Second Supplemental
Indenture by the parties hereto is in all respect authorized by the provisions
of the Original Indenture; and

WHEREAS, all conditions necessary to authorize the
execution and delivery of this Second Supplemental Indenture and to make it a
valid and binding obligation of the Company have been done or performed; and

NOW, THEREFORE, THIS SECOND SUPPLEMENTAL INDENTURE WITNESSETH:

For and in consideration of the premises and the
purchase of the 2006 Senior Notes by the Holders thereof, it is mutually
covenanted and agreed, for the equal and proportionate benefit of all Holders
of the 2006 Senior Notes, as follows:

Section 1.   The
Original Indenture is hereby amended solely with respect to the 2006 Senior
Notes as follows:

 

(A)                              By
amending Section 101 to insert the following definitions in their entirety
in the appropriate alphabetical order as follows:

“Common Stock” means, with respect to any Principal
Subsidiary, Capital Stock of any class, however designated, except Capital
Stock which is non-participating beyond fixed dividend and liquidation
preferences and the holders of which have either no voting rights or limited
voting rights entitling them, only in the case of certain contingencies, to
elect less than a majority of the directors (or persons performing similar
functions) of such Principal Subsidiary, and also includes securities of any
class, however designated, which are convertible into Common Stock.

“Indebtedness” means, with respect to any Person
(without duplication):

(1)           any liability of that Person (A) for
borrowed money, or under any reimbursement obligation relating to a letter of
credit or similar instrument; (B) evidenced by a bond, note, debenture or
similar instrument; (C) to pay the deferred purchase price of property or
services, except trade accounts payable arising in the ordinary course of
business; or (D) for the payment of money relating to any obligations
under any capital lease of real or personal property which has been recorded as
a capitalized lease obligation;

(2)           any liability of others described in
the preceding clause (1) that the Person has guaranteed or that is
otherwise its legal liability or which is secured by a lien on that Person’s
Property; and

(3)           any amendment, supplement,
modification, deferral, renewal, extension or refunding of any liability of the
types referred to in clauses (1) or (2) above.

“Principal Subsidiary” means a consolidated subsidiary
of the Company that, as of the relevant time of determination, is a “significant
subsidiary” as defined under Rule 405 under the Securities Act of 1933, as
amended (as that Rule is in effect on May 25, 2006, without giving
effect to any further amendment of that Rule).

(B)                                By
replacing the definition of “Notice of Default” in Section 101 of the
Original Indenture in its entirety as follows:

“Notice of Default” has the meaning specified in
Sections 501(3) and 501(4).

(C)                                By
replacing Section 105(2) of the Original Indenture in its entirety as
follows:

(2)           the
Company by such Trustee or by any Holder shall be sufficient for every purpose
hereunder (except as provided in paragraphs (3) and (4) of Section 501)
if furnished in writing and mailed, first class postage prepaid, addressed to
it, to the attention of the Chief Financial Officer, at the address of its
principal office

 2
 

 

specified in the first paragraph of this instrument or
at any other address previously furnished in writing to such Trustee by the
Company, or if sent by facsimile transmission, to a facsimile number provided
to the Trustee by the Company, with a copy mailed, first class postage prepaid,
to the Company addressed to it as provided above.

(D)                               By
replacing Section 403 of the Original Indenture in its entirety as
follows:

Section 403.   Covenant Defeasance

Upon the Company’s exercise under Section 401 of
the option applicable to this Section 403, the Company shall be released
from any obligations under the covenants contained in Sections 704, 801 and
1007 hereof with respect to the Outstanding 2006 Senior Notes, on and after the
date the conditions set forth in Section 404 are satisfied (hereinafter, “Covenant
Defeasance”), and the 2006 Senior Notes and any coupons appertaining thereto
shall thereafter be deemed not “Outstanding” for the purposes of any direction,
waiver, consent or declaration or act of Holders (and the consequences of any
thereof) in connection with such covenants, but shall continue to be deemed “Outstanding”
for all other purposes hereunder (it being understood that such 2006 Senior
Notes shall not be deemed outstanding for accounting purposes). For this
purpose, such Covenant Defeasance means that, with respect to the Outstanding
2006 Senior Notes and any coupons appertaining thereto, the Company may omit to
comply with and shall have no liability in respect of any term, condition or
limitation set forth in any such covenant, whether directly or indirectly, by
reason of any reference elsewhere herein to any such covenant or by reason of
any reference in any such covenant to any other provision herein or in any
other document and such omission to comply shall not constitute a default or
Event of Default under subsection 501(3) but, except as specified above,
the remainder of this Indenture and the 2006 Senior Notes shall be unaffected
thereby.

(E)                                 By
replacing Section 404(d) of the Original Indenture in its entirety as
follows:

(d)           no
Event of Default or event which with the giving of notice or the lapse of time,
or both, would become an Event of Default with respect to the 2006 Senior Notes
shall have occurred and be continuing on the date of such deposit and no Event
of Default under Section 501(5) or Section 501(6) shall
have occurred and be continuing on the 123rd day after such date;

(F)                                 By
replacing Section 405(ii)(B) of the Original Indenture in its
entirety as follows:

(B)           no
Event of Default or event which with the giving of notice or the lapse of time,
or both, would become an Event of Default shall have occurred and be continuing
on the date of such deposit and no Event of Default under Section 501(5) or
Section 501(6) shall have occurred and be continuing on the 123rd day
after such date;

 3
 

 

(G)                                By
replacing Section 501 of the Original Indenture in its entirety as
follows:

“Event of Default” wherever used herein with respect
to the 2006 Senior Notes means any one of the following events (whatever the
reason for such Event of Default and whether it shall be voluntary or
involuntary or be effected by operation of law pursuant to any judgment, decree
or order of any court or any order, rule or regulation of any
administrative or governmental body):

(1)           default in the
payment of any installment of interest upon any 2006 Senior Note and any
related coupon when it becomes due and payable, and continuance of such default
for a period of 30 days; or

(2)           default in the
payment of the principal of (or premium, if any, on) any 2006 Senior Note at
its Maturity; or

(3)           default in the
performance of, or breach of, any covenant or warranty of the Company in
respect of any 2006 Senior Note contained in this Indenture or in such 2006
Senior Notes (other than a covenant or warranty a default in whose performance
or whose breach is elsewhere in this Section specifically dealt with) and
continuance of such default or breach for a period of 60 days after there has
been given, by registered or certified mail, to the Company by the Trustee for
the 2006 Senior Notes or to the Company and such Trustee by the Holders of at
least 25% in principal amount of the Outstanding 2006 Senior Notes a written
notice specifying such default or breach and requiring it to be remedied and
stating that such notice is a “Notice of
Default” hereunder; or

(4)           (A) the Company
or any of its Subsidiaries fails to pay indebtedness for money borrowed by the
Company or any of its Subsidiaries in an aggregate principal amount of at least
$40,000,000, at the later of final maturity or the expiration of any related
applicable grace period and such payment shall not have been made, waived or
extended within 30 days after written notice from the Trustee or the Holders of
at least 25% in principal amount of the Outstanding 2006 Senior Notes as
provided below or (B) acceleration of maturity of Securities of another
series or any other indebtedness for borrowed money of the Company or any of
its Subsidiaries, in an aggregate principal amount exceeding $40,000,000, under
the terms of the instrument or instruments under which such indebtedness arises
or is secured, if such indebtedness has not been discharged in full or such
acceleration is not rescinded or annulled within 30 days after there has been
given, by registered or certified mail, to the Company by the Trustee or to the
Company and such Trustee by the Holders of at least 25% in principal amount of
the Outstanding 2006 Senior Notes a written notice specifying such default and
requiring it to be remedied and stating that such notice is a “Notice of Default” hereunder; or

 4
 

 

(5)           the Company or any
of its Principal Subsidiaries shall commence any case or proceeding seeking to
have an order for relief entered on its behalf as debtor or to adjudicate it as
bankrupt or insolvent or seeking reorganization, liquidation, dissolution,
winding-up, arrangement, composition or readjustment of its debts or any other
relief under any bankruptcy, insolvency, reorganization, liquidation,
dissolution, arrangement, composition, readjustment of debt or other similar
act or law of any jurisdiction, domestic or foreign, now or hereafter existing;
or the Company or any of its Principal Subsidiaries shall apply for a receiver,
custodian or trustee (other than any trustee appointed as a mortgagee or
secured party in connection with the issuance of indebtedness for borrowed
money of the Company) of it or for all or a substantial part of its property;
or the Company or any of its Principal Subsidiaries shall make a general
assignment for the benefit of creditors; or the Company or any of its Principal
Subsidiaries shall take any corporate action in furtherance of any of the
foregoing; or

(6)           an involuntary case
or other proceeding shall be commenced against the Company or any of its
Principal Subsidiaries with respect to it or its debts under any bankruptcy,
insolvency or other similar law now or hereafter in effect seeking the
appointment of a trustee, receiver, liquidator, custodian or similar official
of the Company or any of its Principal Subsidiaries or any substantial part of
either’s property; and such case or other proceeding (A) results in the
entry of an order for relief or a similar order against either the Company or
any of its Principal Subsidiaries or (B) shall continue unstayed and in
effect for a period of 60 consecutive days.

(H)                               By replacing the first
and second paragraphs of Section 502 of the Original Indenture in their
entirety as follows:

If an Event of Default with respect to the 2006 Senior
Notes and any related coupons occurs and is continuing (other than an Event of
Default described in Section 501(5) or 501(6) with respect to
the Company), then and in every such case either the Trustee for the 2006
Senior Notes or the Holders of not less than 25% in principal amount of the
Outstanding 2006 Senior Notes may declare the entire principal amount of all
the 2006 Senior Notes, to be due and payable immediately, by a notice in
writing to the Company (and to such Trustee if given by Holders), and upon any
such declaration of acceleration such principal, together with accrued interest
and all other amounts owing hereunder, shall become immediately due and
payable, without presentment, demand, protest or notice of any kind, all of
which are hereby expressly waived.

If any Event of Default specified in Section 501(5) or
501(6) occurs with respect to the Company, all of the unpaid principal
amount and accrued interest on all Securities of each series then outstanding
shall ipso facto become and be

 5
 

 

immediately due and
payable without any declaration or other act by the Trustee or any Holder.

(I)                                    By replacing the
last paragraph of Section 607 of the Original Indenture in its entirety as
follows:

When the Trustee incurs expenses or renders services
in connection with an Event of Default specified in Section 501(5) or
Section 501(6) the expenses (including the reasonable charges and
expenses of its counsel) and the compensation for the services are intended to
constitute expenses of administration under any applicable Federal or state
bankruptcy, insolvency or other similar law.

(J)                                   By replacing Section 1007
of the Original Indenture in its entirety as follows:

Section 1007.   Limitation on Liens

The Company shall not, and shall not permit any of its
Principal Subsidiaries to, issue, assume, Incur or guarantee any Indebtedness
secured by a mortgage, pledge, lien or other encumbrance, directly or
indirectly, on any of the Common Stock of a Principal Subsidiary owned by the
Company or any of its Principal Subsidiaries, unless the Company’s obligations
under the 2006 Senior Notes and, if the Company so elects, any other
Indebtedness of the Company ranking on a parity with, or prior to, the 2006
Senior Notes, shall be secured equally and ratably with, or prior to, such
secured Indebtedness so long as it is outstanding and is so secured.

(K)                               By replacing Section 1008
of the Original Indenture in its entirety as follows:

Section 1008.   Waiver of Certain Covenants.

The Company may omit in any particular instance to
comply with any covenant or condition set forth in Sections 1005 to 1007,
inclusive, if before or after the time for such compliance the Holders of more
than 50% in principal amount of the Outstanding Securities of each series of
Securities affected by the omission shall, in each case by Act of such Holders,
either waive such compliance in such instance or generally waive compliance
with such covenant or condition, but no such waiver shall extend to or affect
such covenant or condition except to the extent so expressly waived, and, until
such waiver shall become effective, the obligations of the Company and the
duties of the Trustee for the Securities of each series with respect to any
such covenant or condition shall remain in full force and effect.

Section 2.   The recitals and statements in
this Second Supplemental Indenture are made by the Company only and not by the
Trustee, and the Trustee makes no representation as to the validity or
sufficiency of this Second Supplemental Indenture (other than with respect to
the due authorization, execution and delivery of this Second Supplemental
Indenture by the Trustee). All of the provisions contained in the Original
Indenture in respect of the rights, privileges,

 6
 

 

immunities, powers
and duties of the Trustee shall be applicable in respect of the 2006 Senior
Notes and of this Second Supplemental Indenture as fully and with like effect
as if set forth herein in full.

Section 3.   As supplemented hereby, the
Original Indenture is in all respects ratified and confirmed, and the Original
Indenture and this Second Supplemental Indenture shall be read, taken and
construed as one and the same instrument and all references to Securities in
the Original Indenture shall be deemed to refer also to the 2006 Senior Notes
unless the context otherwise provides.

Section 4.   This Second Supplemental
Indenture shall be governed by, and construed in accordance with, the laws of
the State of New York.

Section 5.   In the event of a conflict
between the terms and conditions of the Original Indenture and the terms and
conditions of this Second Supplemental Indenture, then the terms and conditions
of this Second Supplemental Indenture shall prevail; provided that if and to
the extent that any provision of this Second Supplemental Indenture limits,
qualifies or conflicts with another provision which is required to be included
herein or in the Original Indenture by the Trust Indenture Act of 1939, as
amended, such required provision shall control.

Section 6.   All covenants and agreements in
this Second Supplemental Indenture by the Company shall bind its successors and
assigns, whether so expressed or not.

Section 7.   In case any provision in this
Second Supplemental Indenture shall be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions shall not in
any way be affected or impaired hereby.

Section 8.   Nothing in this Second
Supplemental Indenture, expressed or implied, shall give to any Person, other
than the parties hereto and any Paying Agent, any Security Registrar and any
Authenticating Agent for the 2006 Senior Notes and their successors under the
Indenture, and the Holders of the 2006 Senior Notes any benefit or any legal or
equitable right, remedy or claim under this Second Supplemental Indenture.

Section 9.   This Second Supplemental Indenture may be
simultaneously executed in several counterparts, each of which shall be deemed
to be an original, and such counterparts shall together constitute but one and
the same instrument.

(signature page follows)

 7
 

 

IN WITNESS WHEREOF, the parties hereto have caused
this Second Supplemental Indenture dated as of May 31, 2006 to be duly
executed, all as of May 31, 2006.

HUMANA INC.,

Issuer

By:  /s/ James H. Bloem_________________

Name:               James
H. Bloem

Title:       Senior Vice President and
                Chief Financial Officer

THE BANK OF NEW YORK
TRUST COMPANY, N.A.,

Trustee

By:  /s/ L.
Garcia_______________________

Name: L. Garcia                                      

Title:   Assistant Vice President

 

 8

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