Edgar Filing: ENERGY EAST CORP

Filed Pursuant to Rule 424(b)(3)
Registration No. 333-59300

[ENERGY EAST LOGO] [RGS ENERGY GROUP LOGO]

PROPOSED MERGER--YOUR VOTE IS VERY IMPORTANT

The boards of directors of Energy East Corporation and RGS Energy
Group, Inc. have approved and adopted a merger agreement that contemplates the
merger of RGS Energy with and into Eagle Merger Corp., which will be a wholly
owned subsidiary of Energy East at the effective time of the merger. Eagle
Merger Corp. will be the corporation surviving the merger and, at the effective
time, will change its name to "RGS Energy Group, Inc."

In exchange for each RGS Energy share, RGS Energy shareholders may elect to
receive $39.50 in cash, a number of Energy East shares valued at $39.50, subject
to restrictions on the maximum and minimum number of Energy East shares to be
issued, or a combination of cash and Energy East shares. The number of Energy
East shares to be exchanged for each RGS Energy share will be between 1.7626 and
2.3838, based on the average closing price of Energy East shares during the
20-trading-day period ending two trading days before the effective time of the
merger. If the average closing price of an Energy East share over such period is
more than $22.41, then the value of the Energy East shares delivered to RGS
Energy shareholders in exchange for each RGS Energy share will be more than
$39.50, and if the average closing price of an Energy East share over such
period is less than $16.57, then the value of the Energy East shares delivered
to RGS Energy shareholders in exchange for each RGS Energy share will be less
than $39.50.

Under the merger agreement, 55% of the RGS Energy shares must be exchanged
for cash, and 45% must be exchanged for Energy East shares, subject to possible
adjustments for tax reasons. Therefore, if shareholders owning more than 55% of
the RGS Energy shares elect to receive cash, the number of RGS Energy shares
that will be converted into cash will be less than the number elected.
Similarly, if shareholders owning more than 45% of the RGS Energy shares elect
to receive Energy East shares, the number of RGS Energy shares that will be
converted into Energy East shares will be less than the number elected.

We cannot complete the merger unless we receive the necessary approvals from
our shareholders at our respective annual meetings. At the RGS Energy annual
meeting, RGS Energy shareholders will consider and vote on the merger proposal
and a proposal to elect directors set forth in this joint proxy
statement/prospectus. At the Energy East annual meeting, Energy East
shareholders will consider and vote on the proposal to issue Energy East shares
in connection with the merger and a proposal to elect directors set forth in
this joint proxy statement/prospectus.

YOUR VOTE IS VERY IMPORTANT. APPROVAL AND ADOPTION OF THE MERGER AGREEMENT
BY THE RGS ENERGY SHAREHOLDERS REQUIRES THE AFFIRMATIVE VOTE OF A MAJORITY OF
THE OUTSTANDING RGS ENERGY SHARES. THEREFORE, AN RGS ENERGY SHAREHOLDER NOT
VOTING (WHETHER BY ABSTENTION, FAILURE TO VOTE OR BROKER NON-VOTE) HAS THE SAME
EFFECT AS A VOTE AGAINST THE MERGER AGREEMENT. APPROVAL BY ENERGY EAST
SHAREHOLDERS OF THE ISSUANCE OF ENERGY EAST SHARES IN CONNECTION WITH THE MERGER
REQUIRES THE AFFIRMATIVE VOTE OF A MAJORITY OF VOTES CAST, SO LONG AS THE
HOLDERS OF A MAJORITY OF THE OUTSTANDING ENERGY EAST SHARES HAVE VOTED. AN
ENERGY EAST SHAREHOLDER'S ABSTENTION HAS THE SAME EFFECT AS A VOTE AGAINST THE
ISSUANCE OF ENERGY EAST SHARES IN CONNECTION WITH THE MERGER. IF YOU ARE AN
ENERGY EAST SHAREHOLDER AND YOU FAIL TO VOTE OR DO NOT INSTRUCT YOUR BROKER ON
HOW TO VOTE, THIS WILL HAVE NO EFFECT ON THE OUTCOME OF THE VOTE TO APPROVE THE
ISSUANCE OF ENERGY EAST SHARES IN CONNECTION WITH THE MERGER, EXCEPT THAT IT
WILL BE COUNTED AS A VOTE NOT CAST FOR THE PURPOSES OF DETERMINING WHETHER THE
HOLDERS OF A MAJORITY OF THE OUTSTANDING ENERGY EAST SHARES HAVE VOTED.

The dates, times and places of the annual meetings are as follows:

ENERGY EAST SHAREHOLDERS RGS ENERGY SHAREHOLDERS

June 15, 2001 June 15, 2001
9:30 a.m. local time 11:00 a.m. local time
Citicorp/Citibank Auditorium, 12th Floor Rochester Riverside Convention Center
399 Park Avenue, New York, New York 123 East Main Street, Rochester, New York

This joint proxy statement/prospectus contains answers to frequently asked
questions and a summary description of the merger and other related matters,
followed by a more detailed discussion of the merger and these matters. Because
these answers and this summary are not, by their nature, detailed, we urge you
to read this joint proxy statement/prospectus carefully and in its entirety. WE
ESPECIALLY ENCOURAGE YOU TO READ THE SECTION ON "RISK FACTORS" BEGINNING ON
PAGE 18 FOR A DESCRIPTION OF VARIOUS RISKS YOU SHOULD CONSIDER IN EVALUATING THE
PROPOSED TRANSACTION. In addition, you may obtain additional information about
the two companies from documents they have filed with the Securities and
Exchange Commission.

We enthusiastically support this combination of our companies, and we join
with our boards of directors in recommending that you vote FOR the approval and
adoption of the merger agreement, FOR the issuance of Energy East shares in
connection with the merger and FOR the other proposals described in the Notices
of Meetings that follow.

ENERGY EAST CORPORATION RGS ENERGY GROUP, INC.

/s/ Wesley W. von Schack /s/ Thomas S. Richards
Wesley W. von Schack Thomas S. Richards
Chairman, President and Chairman, President and
Chief Executive Officer Chief Executive Officer

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
REGULATOR HAS APPROVED OR DISAPPROVED THE MERGER OR THE ISSUANCE OF ENERGY EAST
SHARES, OR DETERMINED WHETHER THE INFORMATION CONTAINED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS IS ACCURATE OR ADEQUATE. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.

This document is also the prospectus of Energy East for the shares that it
will issue in connection with the merger. Energy East shares are traded on the
New York Stock Exchange under the symbol "EAS." On April 19, 2001, the last full
trading day for which information was available prior to the printing of this
joint proxy statement/prospectus, the closing sales price for Energy East
shares, as reported in THE WALL STREET JOURNAL's New York Stock Exchange
Composite Transactions Report, was $19.43 per share.

Energy East has furnished all the information in this joint proxy
statement/prospectus concerning Energy East, and RGS Energy has furnished all
the information concerning RGS Energy.

THIS JOINT PROXY STATEMENT/PROSPECTUS IS DATED APRIL 27, 2001 AND IS BEING
FIRST MAILED TO RGS ENERGY AND ENERGY EAST SHAREHOLDERS ON OR ABOUT APRIL 28,
2001.

THIS DOCUMENT INCORPORATES BY REFERENCE IMPORTANT BUSINESS AND FINANCIAL
INFORMATION ABOUT RGS ENERGY AND ENERGY EAST THAT IS NOT INCLUDED IN OR
DELIVERED WITH THIS DOCUMENT. THIS INFORMATION IS AVAILABLE WITHOUT CHARGE TO
SHAREHOLDERS UPON WRITTEN OR ORAL REQUEST AT THE APPLICABLE COMPANY'S ADDRESS
AND TELEPHONE NUMBER LISTED ON PAGE 121. TO OBTAIN TIMELY DELIVERY, A REQUESTING
SHAREHOLDER MUST REQUEST THE INFORMATION NO LATER THAN JUNE 7, 2001.

RGS ENERGY GROUP, INC.
89 EAST AVENUE
ROCHESTER, NY 14649-0001

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 15, 2001

To the Shareholders of RGS Energy Group, Inc.:

The RGS Energy board of directors is pleased to provide you with notice of
and cordially invites you to attend in person or by proxy the annual meeting of
RGS Energy shareholders, which will be held at the Rochester Riverside
Convention Center, 123 East Main Street, Rochester, New York, on June 15, 2001,
at 11:00 a.m. local time, to consider and vote upon the following matters:

(1) a proposal to approve and adopt the agreement and plan of merger,
dated as of February 16, 2001, by and among RGS Energy, Energy East
Corporation and Eagle Merger Corp., which will be a wholly owned
subsidiary of Energy East at the effective time of the merger,
pursuant to which RGS Energy will be merged with and into Eagle Merger
Corp.;

(2) the election of 3 directors (described beginning on page 87); and

(3) to take action on such other business as may properly come before the
meeting.

Additional information about the proposals set forth above may be found in
the accompanying joint proxy statement/prospectus. Please carefully review the
accompanying joint proxy statement/prospectus and the merger agreement attached
to it as Appendix A.

Only RGS Energy shareholders as of the close of business on April 26, 2001
are entitled to notice of and to vote at the annual meeting or any postponements
or adjournments thereof.

THE RGS ENERGY BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER IS IN THE
BEST INTERESTS OF RGS ENERGY SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS THAT RGS
ENERGY SHAREHOLDERS VOTE TO APPROVE AND ADOPT THE MERGER AGREEMENT DESCRIBED
BEGINNING ON PAGE 56 OF THE ACCOMPANYING JOINT PROXY STATEMENT/PROSPECTUS AT THE
ANNUAL MEETING.

In connection with the annual meeting, RGS Energy shareholders have three
ways to vote by proxy: (a) by mail, (b) by telephone and (c) over the Internet.
To vote by telephone or over the Internet, RGS Energy shareholders should follow
the instructions on the enclosed proxy form. To vote by mail, RGS Energy
shareholders should complete and return the enclosed proxy card in the envelope
provided, which requires no postage if mailed in the United States. You may
revoke your proxy at any time before the vote is taken by voting again by
telephone or over the Internet, by delivering to the Secretary of RGS Energy a
written revocation or a proxy with a later date or by oral revocation in person
to any of the persons named on the enclosed proxy card at the annual meeting.

By Order of the Board of Directors,

David C. Heiligman
Secretary

Rochester, NY
April 27, 2001

IT IS IMPORTANT THAT YOU SIGN, DATE AND PROMPTLY RETURN THE PROXY CARD IN
THE ENCLOSED ENVELOPE OR FOLLOW THE INSTRUCTIONS ON THE ENCLOSED PROXY FORM TO
VOTE BY TELEPHONE OR OVER THE INTERNET SO THAT YOUR SHARES WILL BE REPRESENTED
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING. FAILURE TO SECURE A QUORUM
ON THE DATE SET FOR THE ANNUAL MEETING WOULD REQUIRE AN ADJOURNMENT THAT WOULD
CAUSE US TO INCUR CONSIDERABLE ADDITIONAL EXPENSE.

PLEASE DO NOT SEND STOCK CERTIFICATES WITH YOUR PROXY CARD.

REGARDLESS OF THE NUMBER OF SHARES YOU HOLD, YOUR VOTE IS VERY IMPORTANT.

ENERGY EAST CORPORATION
P.O. BOX 12904
ALBANY, NY 12212-2904

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 15, 2001

To the Shareholders of Energy East Corporation:

The Energy East board of directors is pleased to provide you with notice of
and cordially invites you to attend in person or by proxy the annual meeting of
Energy East shareholders, which will be held at the Citicorp/Citibank
Auditorium, 12th Floor, 399 Park Avenue, New York, New York, on June 15, 2001,
at 9:30 a.m. local time, for the following purposes:

(1) to approve the issuance of shares in connection with the agreement and
plan of merger by and among RGS Energy Group, Inc., Energy East and
Eagle Merger Corp., which will be a wholly owned subsidiary of Energy
East at the effective time of the merger, pursuant to which RGS Energy
will be merged with and into Eagle Merger Corp.;

(2) to elect six directors (described beginning on page 103); and

(3) to take action on such other business as may properly come before the
meeting.

Only Energy East shareholders as of the close of business on April 26, 2001
are entitled to notice of and to vote at the annual meeting or any postponements
or adjournments thereof.

THE ENERGY EAST BOARD OF DIRECTORS HAS DETERMINED THAT THE ISSUANCE OF
ENERGY EAST SHARES IN CONNECTION WITH THE MERGER IS IN THE BEST INTERESTS OF
ENERGY EAST SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS THAT ENERGY EAST
SHAREHOLDERS VOTE TO APPROVE THE ISSUANCE OF ENERGY EAST SHARES IN CONNECTION
WITH THE MERGER DESCRIBED BEGINNING ON PAGE 56 OF THE ACCOMPANYING JOINT PROXY
STATEMENT/PROSPECTUS AT THE ANNUAL MEETING.

In connection with the annual meeting, Energy East shareholders have three
ways to vote by proxy: (a) by mail, (b) by telephone and (c) over the Internet.
To vote by telephone or over the Internet, Energy East shareholders should
follow the instructions on the enclosed proxy form. To vote by mail, Energy East
shareholders should complete and return the enclosed proxy card in the envelope
provided, which requires no postage if mailed in the United States. You may
revoke your proxy at any time before the vote is taken by voting again by
telephone or over the Internet, by delivering to the Secretary of Energy East a
written revocation or a proxy with a later date or by oral revocation in person
to any of the persons named on the enclosed proxy card at the annual meeting.

By Order of the Board of Directors,

Kenneth M. Jasinski
Executive Vice President, General
Counsel and Secretary

Albany, NY
April 27, 2001

REGARDLESS OF THE NUMBER OF SHARES YOU HOLD, YOUR VOTE IS VERY IMPORTANT.

TO FIND ANY ONE OF THE PRINCIPAL SECTIONS OF THIS DOCUMENT IDENTIFIED BELOW,
SIMPLY BEND THE DOCUMENT SLIGHTLY TO EXPOSE THE BLACK TABS AND OPEN THE DOCUMENT
TO THE TAB THAT CORRESPONDS TO THE TITLE OF THE SECTION YOU WISH TO READ.

TABLE OF CONTENTS
QUESTIONS AND ANSWERS ABOUT THE MERGER
SUMMARY
RISK FACTORS
THE COMPANIES
THE MERGER
THE MERGER AGREEMENT
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
COMPARATIVE RIGHTS OF RGS ENERGY SHAREHOLDERS AND ENERGY EAST SHAREHOLDERS
THE RGS ENERGY ANNUAL MEETING
THE ENERGY EAST ANNUAL MEETING
WHERE YOU CAN FIND MORE INFORMATION
APPENDICES

TABLE OF CONTENTS

PAGE
--------

QUESTIONS AND ANSWERS ABOUT THE
MERGER............................. 1
CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING STATEMENTS......... 5
SUMMARY
The Companies...................... 6
The Annual Meetings................ 6
Vote Required to Approve and Adopt
the Merger Agreement and the
Issuance of Energy East Shares in
Connection with the Merger....... 7
Security Ownership of Management... 7
The Merger......................... 7
The Merger Agreement............... 9
Comparative Rights of RGS Energy
Shareholders and Energy East
Shareholders..................... 11
Comparative Per Share Market Price
and Dividend Information......... 12
Unaudited Pro Forma Comparative Per
Share Data....................... 14
Selected Financial Information..... 15
RISK FACTORS
The Amount of Consideration RGS
Energy Shareholders Receive May
Vary as a Result of Stock-Price
Fluctuations Prior to the
Completion of the Merger......... 18
Regulatory Agencies Could Delay or
Refuse to Approve the Merger or
Impose Conditions That Could Have
an Adverse Effect................ 19
Uncertainties in Integrating Our
Companies........................ 19
Competitive and Regulatory
Conditions....................... 19
THE COMPANIES
RGS Energy Group, Inc.............. 20
Energy East Corporation............ 21
Eagle Merger Corp.................. 22
THE ANNUAL MEETINGS.................. 22
THE MERGER
General Description of the
Merger........................... 23

PAGE
--------

Background......................... 23
RGS Energy Reasons for the Merger;
Recommendation of the RGS Energy
Board of Directors............... 27
Energy East Reasons for the Merger;
Recommendation of the Energy East
Board of Directors............... 30
Opinion of the Financial Advisor to
the RGS Energy Board............. 31
Opinion of the Financial Advisor to
the Energy East Board............ 38
Effective Time of the Merger....... 43
Certificate of Incorporation and
Bylaws........................... 43
Accounting Treatment............... 44
Regulatory Approvals............... 44
No Dissenters' Rights of
Appraisal........................ 46
Listing of the Energy East Shares
on the New York Stock Exchange... 46
Resale of the Energy East Shares
Issued in the Merger; RGS Energy
Affiliates....................... 46
Merger Financing................... 46
Interests of Certain Persons in the
Merger........................... 46
Material Federal Income Tax
Consequences of the Merger....... 51
THE MERGER AGREEMENT
General............................ 56
Corporate Governance Matters....... 56
Conversion of RGS Energy Shares.... 56
Representations and Warranties..... 59
Covenants.......................... 60
Additional Agreements.............. 62
Conditions......................... 67
Termination, Amendment and Waiver.. 68
SECURITY OWNERSHIP OF MANAGEMENT..... 71
UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL STATEMENTS..... 72
COMPARATIVE RIGHTS OF RGS ENERGY
SHAREHOLDERS AND ENERGY EAST
SHAREHOLDERS
Authorized Capital Stock........... 79

PAGE
--------

Voting Rights...................... 79
Dividends.......................... 80
Election and Classification of the
Board of Directors............... 80
Size of the Board of Directors..... 80
Removal of Directors; Filling of
Vacancies........................ 81
Special Meetings of Shareholders... 81
Advance Notice Provisions.......... 81
Indemnification of Directors and
Officers......................... 82
Amendment of Certificate of
Incorporation.................... 82
Amendment of Bylaws................ 83
Duty of Directors.................. 83
Business Combinations.............. 84
Fair Price Provisions.............. 84
State Law Takeover Restrictions.... 84
LEGAL MATTERS........................ 85
EXPERTS.............................. 85
THE RGS ENERGY ANNUAL MEETING
Annual Report...................... 86
Outstanding Voting Securities and
Voting Rights.................... 86
PROPOSAL 1--THE MERGER PROPOSAL.... 87
PROPOSAL 2--ELECTION OF
DIRECTORS........................ 87
Security Ownership of
Management..................... 89
Section 16(a) Beneficial
Ownership Reporting
Compliance..................... 91
Stock Performance Graph.......... 91
Executive Compensation........... 92
Retirement Plans................. 93
Severance Agreements............. 94
Directors' Compensation.......... 95
Meetings and Standing Committees
of the Board of Directors...... 95
Report of Audit Committee........ 96
Report of the RGS Energy
Committee on Management on
Executive Compensation......... 97
Independent Accountants............ 99

PAGE
--------

Deadline for Shareholder
Proposals........................ 100
Other Matters...................... 100
Cost of Solicitation............... 101
THE ENERGY EAST ANNUAL MEETING
Annual Report...................... 102
Outstanding Voting Securities and
Voting Rights.................... 102
PROPOSAL 1--THE MERGER PROPOSAL.... 103
PROPOSAL 2--ELECTION OF
DIRECTORS........................ 103
Security Ownership of
Management..................... 107
Section 16(a) Beneficial
Ownership Reporting
Compliance..................... 108
Stock Performance Graph.......... 108
Executive Compensation........... 109
Pension Plan Table............... 112
Employment, Change in Control and
Other Arrangements............. 113
Directors' Compensation.......... 114
Committees....................... 115
Report of Audit Committee........ 115
Report of Executive Compensation
and Succession Committee....... 116
Independent Accountants............ 118
Deadline for Shareholder
Proposals........................ 118
Other Matters...................... 119
Cost of Solicitation............... 119
WHERE YOU CAN FIND MORE
INFORMATION........................ 120
INDEX OF DEFINED TERMS............... 122
APPENDIX A AGREEMENT AND PLAN OF
MERGER............................. A-i
APPENDIX B FAIRNESS OPINION OF
MORGAN STANLEY & CO.
INCORPORATED....................... B-1
APPENDIX C FAIRNESS OPINION OF UBS
WARBURG LLC........................ C-1
APPENDIX D RGS ENERGY GROUP, INC.
AUDIT COMMITTEE CHARTER............ D-1
APPENDIX E ENERGY EAST CORPORATION
AUDIT COMMITTEE CHARTER............ E-1

QUESTIONS AND ANSWERS ABOUT THE MERGER

Q. WHAT WILL HAPPEN IN THE PROPOSED
TRANSACTION?

A. RGS Energy will become a direct, wholly
owned subsidiary of Energy East by
merging with and into Eagle Merger
Corp., which will be a wholly owned
subsidiary of Energy East at the
effective time of the merger. Eagle
Merger Corp. will be the corporation
surviving the merger and, at the
effective time, will change its name to
"RGS Energy Group, Inc."

Q. WHY HAVE RGS ENERGY AND ENERGY EAST
DECIDED TO MERGE?

A. Our companies are proposing the merger,
which will create the premier electric
utility in upstate New York, because we
expect that the complementary
operations of our companies and their
common vision for upstate New York will
lead to attractive returns for our
shareholders and a stable energy supply
and excellent service for our
customers. We expect the merger to
result in annual cost savings of
approximately $50 million, and to be
accretive to Energy East's earnings in
the first full year after we complete
the merger, assuming anticipated
synergies can be obtained and retained.
Another benefit of the merger will be
combining the proven management teams
of each of our companies. We believe
that the combined company, by
increasing its scale and scope of
operations, will be better equipped
than either company alone to handle the
challenging times in the energy
marketplace.

Please read the more detailed
description of RGS Energy's reasons for
the merger on pages 27 to 30 and Energy
East's reasons for the merger on
pages 30 to 31.

Q. WHAT WILL RGS ENERGY SHAREHOLDERS
RECEIVE?

A. RGS Energy shareholders may elect to
receive, in exchange for each of their
RGS Energy shares, $39.50 in cash, a
number of Energy East shares valued at
$39.50, subject to limitations on the
maximum and minimum number of Energy
East shares to be issued, or a
combination of cash and Energy East
shares. The number of Energy East
shares to be exchanged for each RGS
Energy share will be between 1.7626 and
2.3838, based on the average closing
price of Energy East shares during the
20-trading-day period ending two
trading days before the effective time
of the merger. If the average closing
price of an Energy East share over such
period is more than $22.41, then the
value of the Energy East shares
delivered to RGS Energy shareholders in
exchange for each RGS Energy share will
be more than $39.50, and if the average
closing price of an Energy East share
over such period is less than $16.57,
then the value of the Energy East
shares delivered to RGS Energy
shareholders in exchange for each RGS
Energy share will be less than $39.50.

Please read the more detailed
description of the consideration to be
issued in the merger on page 23.

Q. WILL EACH RGS ENERGY SHAREHOLDER
RECEIVE THE SPECIFIC AMOUNTS OF CASH
AND STOCK THAT HE OR SHE ELECTS?

A. Not necessarily. Due to a requirement
contained in the merger agreement that
55% of the RGS Energy shares must be
converted into cash and 45% must be
converted into Energy East shares, the
amounts of cash and stock that an RGS
shareholder will receive may be
different from the amounts that such
RGS Energy shareholder elects. For
example, if RGS Energy shareholders
owning more than 55% of RGS Energy
shares elect to receive cash, then the
number of RGS Energy shares converted
into cash will be less than the number
elected. Similarly, if RGS Energy
shareholders owning more than 45% of
RGS Energy shares elect to receive
Energy East shares, then the number of
RGS Energy shares converted into Energy
East shares will be less than the
number elected.

For tax reasons that are explained on
page 54, Energy East may have to
increase the number of RGS Energy
shares converted into Energy East
shares and decrease the number of RGS
Energy shares converted

into cash. In the alternative, under
certain circumstances, RGS Energy may
elect to have the transaction
restructured so that it would be fully
taxable. For a description and
explanation of RGS Energy's option to
restructure the merger as a taxable
transaction, see "The Merger
Agreement--Conversion of RGS Energy
Shares--Tax Adjustment" on pages 57 to
58.

Energy East will not issue any
fractional shares in the merger.
Instead, RGS Energy shareholders will
receive cash instead of any fractional
shares that they would otherwise
receive.

Please read the more detailed
description of the allocation
procedures on page 57.

Q. HOW AND WHEN DO RGS ENERGY SHAREHOLDERS
MAKE THEIR ELECTION?

A. Not less than 30 days before the
effective time of the merger, written
instructions will be sent to RGS Energy
shareholders along with a form of
election for making their elections to
receive cash or Energy East shares or a
combination of cash and Energy East
shares.

Q. ASSUMING THAT AN RGS ENERGY SHAREHOLDER
RECEIVES ENERGY EAST SHARES IN THE
MERGER, WILL HIS OR HER RIGHTS AS A
SHAREHOLDER CHANGE AS A RESULT OF THE
MERGER?

A. Yes, they will change, even though both
of our companies are incorporated in
New York. For a summary of material
differences between the rights of RGS
Energy shareholders and the rights of
Energy East shareholders, see pages 79
to 84 of this document.

Q. WHAT HAPPENS TO MY FUTURE DIVIDENDS?

A. Prior to the effective time of the
merger, Energy East and RGS Energy will
coordinate their respective dividend
policies so that neither Energy East
shareholders nor RGS Energy
shareholders will be adversely affected
by the timing of record, declaration or
payment dates of dividends. While
Energy East and RGS Energy anticipate
that they will continue to pay
quarterly cash dividends prior to the
completion of the merger, the Energy
East and RGS Energy boards will
continue to evaluate their respective
dividend policies in light of business,
financial and regulatory
considerations.

After the completion of the merger,
Energy East anticipates that it will
continue to pay quarterly cash
dividends. The payment of dividends by
Energy East, however, will be subject
to approval and declaration by the
Energy East board of directors, and
will depend on a variety of factors,
including business, financial and
regulatory considerations.

Q. WHAT WILL HAPPEN TO ENERGY EAST SHARES
IN THE MERGER?

A. Nothing. Each Energy East share will
remain outstanding as an Energy East
share.

Q. WHEN AND WHERE ARE THE ANNUAL MEETINGS?

A. The RGS Energy annual meeting will take
place at 11:00 a.m on June 15, 2001, at
the Rochester Riverside Convention
Center, 123 East Main Street,
Rochester, New York. The Energy East
annual meeting will take place at
9:30 a.m on June 15, 2001, at the
Citicorp/Citibank Auditorium, 12th
Floor, 399 Park Avenue, New York, New
York.

Q. WHAT PROPOSALS ARE RGS ENERGY
SHAREHOLDERS VOTING ON?

A. The RGS Energy shareholders are voting
on two proposals. The first is to
approve and adopt the merger agreement.
The second is to elect directors. For a
more detailed description of the merger
proposal, see "The Merger--General
Description of the Merger" on page 23.
For a more detailed description of the
proposal relating to the election of
directors, see "The RGS Energy Annual
Meeting--Proposal 2--Election of
Directors" on page 87.

Q. WHAT PROPOSALS ARE ENERGY EAST
SHAREHOLDERS VOTING ON?

A. The Energy East shareholders are voting
on two proposals. The first is to
approve the issuance of Energy East
shares in connection with the merger.
The second is to elect directors. For a
more detailed description of the share
issuance proposal, see "The
Merger--General Description of

the Merger" on page 23. For a more
detailed description of the proposal
relating to the election of directors,
see "The Energy East Annual
Meeting--Proposal 2--Election of
Directors" on page 103.

Q. WHAT DO I NEED TO DO NOW?

A. As soon as possible after you have
carefully read this document, please
complete, sign, date and mail your
proxy card in the enclosed return
envelope or follow the instructions on
the enclosed proxy form if voting by
telephone or over the Internet. By
doing so, your shares will be
represented at the RGS Energy annual
meeting or the Energy East annual
meeting. Your proxy card covers both
certificated shares and plan shares
unless the registrations are different.
If you have registrations in different
names, you will receive a separate
proxy card for each name registration.
Accordingly, if you vote by telephone
or over the Internet, you will need to
do so for each registration. If you are
one of our employees, or an employee of
any of our respective subsidiaries, and
you participate in one of our savings
and investment plans, the proxy will
instruct the trustees of the plan to
vote the whole shares in your account.
If a broker holds your shares as
nominee, you will receive a
voter-information form from your
broker.

THE RGS ENERGY BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS VOTING "FOR"
APPROVAL AND ADOPTION OF THE MERGER
AGREEMENT, AND THE ENERGY EAST BOARD OF
DIRECTORS UNANIMOUSLY RECOMMENDS VOTING
"FOR" APPROVAL OF THE ISSUANCE OF
ENERGY EAST SHARES IN CONNECTION WITH
THE MERGER.

Q. AS AN RGS ENERGY SHAREHOLDER, SHOULD I
SEND IN MY SHARE CERTIFICATES NOW?

A. No. You should continue to hold your
RGS Energy share certificates until we
send you a form of election that you
can use to indicate your preference as
to the type of payment you would like
to receive in the merger. At that time,
you will be given instructions for
sending in your certificates. If you
currently hold plan shares, or if a
broker holds your shares as nominee,
you do not need to request that
certificates be issued. After the
merger is completed, you will receive
written information on the exchange of
these shares.

Q. WHAT VOTE IS REQUIRED TO APPROVE AND
ADOPT THE MERGER AGREEMENT AND THE
ISSUANCE OF ENERGY EAST SHARES?

A. The merger agreement must be approved
and adopted by the holders of a
majority of the outstanding RGS Energy
shares. The issuance of Energy East
shares in connection with the merger
must be approved by a majority of votes
cast by Energy East shareholders, so
long as the holders of a majority of
the outstanding Energy East shares have
voted. YOUR VOTE IS VERY IMPORTANT.

Q. WHO ELSE MUST APPROVE THE MERGER AND
THE ISSUANCE OF ENERGY EAST SHARES IN
CONNECTION WITH THE MERGER?

A. In addition to the approvals of RGS
Energy and Energy East shareholders, we
must also obtain regulatory approvals
for the merger. Please read the more
detailed description of the regulatory
approvals on pages 44 to 45.

Q. WHEN DO YOU EXPECT TO COMPLETE THE
MERGER?

A. We are working to complete all steps
necessary to consummate the merger as
quickly as possible. Currently, we
expect to complete the merger in the
first quarter of 2002.

Q. WHAT HAPPENS IF I DO NOT INSTRUCT A
BROKER HANDLING MY SHARES ON HOW TO
VOTE ON THE MERGER OR IF I FAIL TO VOTE
OR ABSTAIN FROM VOTING?

A. If you are an RGS Energy or Energy East
shareholder and a broker holds your RGS
Energy or Energy East shares as
nominee, he will not be able to vote
them with respect to the merger
agreement (if you are an RGS Energy
shareholder) or the issuance of Energy
East shares in connection with the
merger (if you are an Energy East
shareholder) without instructions from
you. Your broker will contact you
regarding the procedures necessary for
him or her to vote your shares.

If you are an RGS Energy shareholder
and you fail to vote, mark your proxy
"Abstain" or fail to instruct your
broker on how to vote, this will have
the effect of a vote against the merger
agreement.

If you are an Energy East shareholder,
and you mark your proxy "Abstain," this
will have the effect of a vote against
the issuance of Energy East shares in
connection with the merger. If you are
an Energy East shareholder and you fail
to vote or fail to instruct your broker
on how to vote, this will have no
effect on the outcome of the vote to
approve the issuance of Energy East
shares in connection with the merger,
except that it will be counted as a
vote not cast for the purposes of
determining whether the holders of a
majority of the outstanding Energy East
shares have voted.

Q. CAN I CHANGE MY VOTE AFTER I HAVE
MAILED IN MY SIGNED AND DATED PROXY
CARD OR VOTED BY TELEPHONE OR OVER THE
INTERNET?

A. Yes. If you are an RGS Energy
shareholder, you may revoke your proxy
at any time before the RGS Energy
annual meeting by delivering a written
revocation or a proxy card with a later
date to the Secretary of RGS Energy at
the following address:

RGS Energy Group, Inc.
89 East Avenue
Rochester, NY 14649-0001
Attention: Secretary

In the alternative, you may revoke your
proxy by telephone or over the
Internet, or by voting in person at the
RGS Energy annual meeting. You may
change your vote by using any one of
these methods regardless of the method
used to cast your previous vote.

If you are an Energy East shareholder,
you may revoke your proxy at any time
before the Energy East annual meeting
by delivering a written revocation or a
proxy card with a later date to the
Secretary of Energy East at the
following address:

Energy East Corporation
P.O. Box 12904
Albany, NY 12212-2904
Attention: Secretary

In the alternative, you may revoke your
proxy by voting again by telephone or
over the Internet, or by voting in
person at the Energy East annual
meeting. You may change your vote by
using any one of these methods
regardless of the method used to cast
your previous vote.

Q. DO I HAVE DISSENTERS' OR APPRAISAL
RIGHTS?

A. No. Neither the holders of Energy East
shares nor the holders of RGS Energy
shares will have dissenters' or
appraisal rights under New York law as
a result of the merger.

Q. WHOM SHOULD I CALL IF I HAVE ANY
ADDITIONAL QUESTIONS REGARDING VOTING
OR WANT TO REQUEST A COPY OF THIS
DOCUMENT?

A. If you are an RGS Energy shareholder,
you may call Morrow & Co., RGS Energy's
proxy solicitor, at (800) 607-0088 with
respect to questions regarding voting
or to request a copy of this document.
If you are a bank or a broker, you may
call Morrow & Co. at (800) 654-2468. If
you are an Energy East shareholder, you
may call Innisfree M&A, Energy East's
proxy solicitor, at (877) 750-5837 with
respect to questions regarding voting
or to request a copy of this document.

Q. WHERE CAN I FIND MORE INFORMATION ABOUT
ENERGY EAST AND RGS ENERGY?

A. Various sources described under "Where
You Can Find More Information" on
page 120 of this document provide
further information about RGS Energy
and Energy East.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This document contains forward-looking statements about Energy East and RGS
Energy that involve risks and uncertainties. We may make these statements about
the financial condition, results of operations and business of Energy East and
RGS Energy. These statements may be made directly in this document referring to
Energy East or RGS Energy, or may be "incorporated by reference" from other
documents filed with the Securities and Exchange Commission. This document may
also include statements relating to the period following the completion of the
merger. You can find many of these statements by looking for words such as
"believes," "expects," "anticipates," "estimates" or similar expressions in this
document or in the documents incorporated by reference.

These forward-looking statements are subject to numerous assumptions, risks
and uncertainties. Factors that may cause actual results to differ materially
from those indicated by such forward-looking statements include, among others,
the following:

- the fact that these forward-looking statements are based on information of
a preliminary nature which may be subject to further and continuing review
and adjustment;

- the risk of a significant delay in the expected completion of, and
unexpected consequences resulting from, the merger;

- the highly competitive nature of the electric, natural gas and energy
marketing industries, including the speed and degree to which competition
enters these industries and the risk that other companies will further
expand into markets in which we operate;

- the risk that fluctuating wholesale energy prices may affect earnings;

- the risk that government authorities may impose unfavorable terms as a
condition of merger;

- the risk of favorable customer contracts expiring or being renewed on less
attractive terms;

- the risks associated with future weather conditions;

- the risks associated with changes in customer demographics in our service
territories and the pursuit of new markets;

- complications arising from the integration of RGS Energy with Energy East;

- the risk that expected synergies from this merger and prior Energy East
mergers may not be obtained and retained;

- changes in terms of regulation by state public service commissions;

- regulatory issues, including the pace of deregulation of the retail
natural gas and electricity markets in the United States;

- the availability and cost of capital;

- inflation;

- exposure to environmental issues and liabilities, as well as potential
changes in environmental regulations; and

- other considerations that may be disclosed from time to time in Energy
East's or RGS Energy's publicly disseminated documents or filings.

You should not place undue reliance on these forward-looking statements,
which speak only as of the date of this document or, in the case of a document
incorporated by reference, the date of that document.

The cautionary statements in this section expressly qualify, in their
entirety, all subsequent forward-looking statements attributable to Energy East,
RGS Energy or any person acting on our behalf. Neither Energy East nor RGS
Energy undertakes any obligation to release publicly any revisions to the
forward-looking statements to reflect events or circumstances occurring after
the date of this document.

SUMMARY

THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION IN THIS DOCUMENT AND MAY NOT
CONTAIN ALL OF THE INFORMATION THAT IS IMPORTANT TO YOU. TO UNDERSTAND THE
MERGER FULLY, AND FOR A MORE COMPLETE DESCRIPTION OF THE LEGAL TERMS OF THE
MERGER, YOU SHOULD READ CAREFULLY THIS ENTIRE DOCUMENT AND THE DOCUMENTS TO
WHICH WE HAVE REFERRED YOU. SEE "WHERE YOU CAN FIND MORE INFORMATION" ON PAGE
120. EACH ITEM IN THIS SUMMARY INCLUDES A PAGE REFERENCE DIRECTING YOU TO A MORE
COMPLETE DESCRIPTION OF THAT ITEM.

THE COMPANIES

RGS ENERGY (SEE PAGE 20)
RGS Energy Group, Inc.
89 East Avenue
Rochester, New York 14649-0001
(716) 771-4444

RGS Energy, a New York holding company incorporated in 1998, became the
parent of Rochester Gas and Electric Corporation on August 2, 1999. RGS Energy,
through its regulated subsidiary Rochester Gas and Electric Corporation, engages
in generating, purchasing and delivering electricity and purchasing and
delivering natural gas in an area centered around the city of Rochester, New
York. Through its unregulated subsidiary, Energetix, Inc., RGS Energy pursues
retail electric, gas and liquid fuel businesses throughout upstate New York.

ENERGY EAST (SEE PAGES 21 TO 22)
Energy East Corporation
P.O. Box 12904
Albany, New York 12212-2904
(518) 434-3049

Energy East, a New York holding company incorporated in 1997, is a
super-regional energy services and delivery company with operations in New York,
Connecticut, Massachusetts, Maine, New Hampshire and New Jersey, and corporate
offices in New York and Maine. Energy East is the parent of New York State
Electric & Gas Corporation, Central Maine Power Company, Connecticut Natural Gas
Corporation, The Southern Connecticut Gas Company and The Berkshire Gas Company,
which are each regulated public utility companies operating in the northeastern
United States. Energy East's non-utility subsidiaries include The Energy
Network, Inc. and Energy East Enterprises, Inc.

EAGLE MERGER CORP. (SEE PAGE 22)
c/o Energy East Corporation
P.O. Box 12904
Albany, New York 12212-2904
(518) 434-3049

Eagle Merger Corp., which will be a wholly owned subsidiary of Energy East
at the effective time of the merger, was formed under the laws of the State of
New York solely for the purpose of completing the merger with RGS Energy.

THE ANNUAL MEETINGS (SEE PAGE 22)

The RGS Energy annual meeting will be held at the Rochester Riverside
Convention Center, 123 East Main Street, Rochester, New York on June 15, 2001,
at 11:00 a.m. RGS Energy shareholders at the close of business on the record
date, April 26, 2001, will be entitled to notice of and to vote at the RGS
Energy annual meeting. Each RGS Energy share carries one vote. As of the close
of business on April 26, 2001, 34,577,426 RGS Energy shares were outstanding.

The Energy East annual meeting will be held at the Citicorp/Citibank
Auditorium, 12th Floor, 399 Park Avenue, New York, New York on June 15, 2001, at
9:30 a.m. Energy East shareholders at the close of business on the record date,
April 26, 2001, will be entitled to notice of and to vote at the Energy East
annual meeting. Energy East shareholders have cumulative voting rights in the
election of directors and one vote per share for all other purposes. As of the
close of business on April 26, 2001, 116,549,598 Energy East shares were
outstanding.

VOTE REQUIRED TO APPROVE AND ADOPT THE MERGER AGREEMENT AND THE ISSUANCE OF
ENERGY EAST SHARES IN CONNECTION WITH THE MERGER

RGS ENERGY SHAREHOLDERS (SEE PAGE 86)

RGS Energy shareholders will vote on a proposal to approve and adopt the
merger agreement. Approval and adoption of the merger agreement requires the
affirmative vote of the holders of a majority of all outstanding RGS Energy
shares entitled to vote. IF AN RGS ENERGY SHAREHOLDER DOES NOT VOTE, WHETHER BY
ABSTENTION, FAILURE TO VOTE OR BROKER NON-VOTE, IT WILL HAVE THE SAME EFFECT AS
A VOTE AGAINST THE MERGER AND THE OTHER TRANSACTIONS DESCRIBED IN THE MERGER
AGREEMENT.

ENERGY EAST SHAREHOLDERS (SEE PAGE 102)

Energy East shareholders will vote on a proposal to approve the issuance of
Energy East shares in connection with the merger. Approval of the issuance of
Energy East shares in connection with the merger requires the affirmative vote
of a majority of the votes cast by holders of Energy East shares, so long as a
majority of the outstanding Energy East shares entitled to vote has cast a vote.
AN ABSTENTION BY AN ENERGY EAST SHAREHOLDER WILL HAVE THE SAME EFFECT AS A VOTE
AGAINST THE ISSUANCE OF ENERGY EAST SHARES IN CONNECTION WITH THE MERGER. A
FAILURE TO VOTE OR BROKER NON-VOTE WILL HAVE NO EFFECT ON THE VOTE TO APPROVE
THE ISSUANCE OF ENERGY EAST SHARES IN CONNECTION WITH THE MERGER, EXCEPT THAT IT
WILL BE COUNTED AS A VOTE NOT CAST FOR THE PURPOSES OF DETERMINING WHETHER THE
HOLDERS OF A MAJORITY OF THE OUTSTANDING ENERGY EAST SHARES ENTITLED TO VOTE
CAST A VOTE.

SECURITY OWNERSHIP OF MANAGEMENT (SEE PAGE 89
FOR RGS ENERGY AND PAGE 107 FOR ENERGY EAST)

Executive officers and directors of RGS Energy and their affiliates owned,
as of March 31, 2001, less than 1.0% of the total outstanding RGS Energy shares.
It is expected that, at the RGS annual meeting, all of these executive officers
and directors will vote their shares FOR the approval and adoption of the merger
agreement.

Executive officers and directors of Energy East and their affiliates owned,
as of March 31, 2001, less than 2.0% of the total outstanding Energy East
shares. It is expected that, at the Energy East annual meeting, all of these
executive officers and directors will vote their shares FOR the approval of the
issuance of Energy East shares in the merger.

THE MERGER

REASONS FOR AND BACKGROUND OF THE MERGER (SEE PAGES 23 TO 31)

You should review the factors that the Energy East board of directors and
the RGS Energy board of directors considered when deciding whether to approve
the merger.

RECOMMENDATION TO SHAREHOLDERS (SEE PAGES 27 TO 31)

The RGS Energy board of directors has determined that the merger is in the
best interests of the RGS Energy shareholders and unanimously recommends that
RGS Energy shareholders vote FOR the approval and adoption of the merger
agreement at the RGS Energy annual meeting.

The Energy East board of directors has determined that the merger is in the
best interests of the Energy East shareholders and unanimously recommends that
Energy East shareholders vote FOR the issuance of Energy East shares in
connection with the merger at the Energy East annual meeting.

FAIRNESS OPINIONS OF FINANCIAL ADVISORS (SEE PAGES B-1 AND C-1)

In deciding to approve the merger, the RGS Energy board of directors
considered, among other things, the opinion of Morgan Stanley & Co.
Incorporated, its financial advisor, as to the fairness, from a financial point
of view, of the consideration that RGS Energy shareholders will receive in the
merger. This opinion is attached as Appendix B to this document and is also
discussed on pages 31 to 37. In deciding to approve the merger, the Energy East
board of directors considered, among other things, the opinion of UBS Warburg
LLC, its financial advisor, as to the fairness, from a financial point of view,
to Energy East of the consideration to be paid to RGS Energy shareholders in the
merger. This opinion is attached as Appendix C to this document and is also
discussed on pages 38 to 43. We encourage you to read these opinions in their
entirety.

ACCOUNTING TREATMENT (SEE PAGE 44)

The merger will be accounted for as an acquisition of RGS Energy by Energy
East under the purchase method of accounting in accordance with generally
accepted accounting principles. A portion of the purchase price will be
allocated to non-utility assets and liabilities of RGS Energy based on their
estimated fair market values at the date of acquisition. The assets and
liabilities of the regulated utility will not be revalued. The difference
between the purchase price, representing fair value, and the recorded amounts
will be shown as goodwill on the balance sheet.

REGULATORY APPROVALS (SEE PAGES 44 TO 45)

In order to complete the merger, we must receive approvals from and/or make
filings with various federal and state regulatory agencies. At the federal
level, these approvals include approvals of the Securities and Exchange
Commission, the Nuclear Regulatory Commission and the Federal Energy Regulatory
Commission. In addition, the waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act must have expired or been terminated. At the state
level, regulatory approval must be obtained from the New York State Public
Service Commission prior to completion of the merger.

INTERESTS OF CERTAIN PERSONS IN THE MERGER (SEE PAGES 46 TO 51)

In considering the recommendation of the RGS Energy board of directors to
approve the merger, RGS Energy shareholders should be aware that some members of
the RGS Energy board of directors and RGS Energy management may have interests
in the merger that will be in addition to, or different from, interests of other
RGS Energy shareholders. For example, Mr. Thomas S. Richards, the current
chairman, president and chief executive officer of RGS Energy, has entered into
an employment agreement with Energy East and RGS Energy under which he will
become chairman, president and chief executive officer of the surviving company
(which will be a subsidiary of Energy East) and will hold officer positions in
other Energy East subsidiaries and Energy East. In addition, Mr. Richards and
two non-management directors of RGS Energy will become directors of Energy East.
Further, certain employees, including the executive officers, of RGS Energy and
its subsidiaries will receive cash payments under an employee retention program
permitted to be established by RGS Energy, and may receive cash payments and
other benefits under severance agreements with RGS Energy. Also, RGS Energy's
executive incentive plan will terminate upon completion of the merger and
participants in the plan, including the executive officers of RGS Energy, will
receive a cash payment at that time. The grantor trust maintained in connection
with supplemental retirement plans of RGS Energy will be fully funded in
anticipation of the completion of the merger.

All unvested options granted under RGS Energy's performance stock option
plan will vest upon completion of the merger, option holders will receive cash
payments in exchange for their outstanding and unexercised options, and option
holders will receive cash payments equal to the aggregate dividend equivalents
held with respect to their options. RGS Energy directors will also receive cash
payments in exchange for stock units they hold. In addition, all transfer
restrictions on RGS Energy shares owned by officers, directors or employees of
RGS Energy will lapse.

The members of the RGS Energy board of directors knew about these additional
interests and the others discussed in "The Merger--Interests of Certain Persons
in the Merger" on pages 46 to 51 and considered them when they approved the
merger.

MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER (SEE PAGES 51 TO 55)

The U.S. federal income tax consequences of the merger to RGS Energy
shareholders will depend on the form of consideration they receive in the
merger. If you are an RGS Energy shareholder who receives solely Energy East
shares for your RGS Energy shares, you will not recognize any gain or loss for
U.S. federal income tax purposes (except with respect to cash received instead
of fractional shares). If you are an RGS Energy shareholder who receives part
cash and part Energy East shares, and your adjusted basis in an RGS Energy share
is less than the sum of the amount of cash and the fair market value (as of the
date of the merger) of

the Energy East shares you receive for the RGS Energy share, you will recognize
a gain. However, if you realize a loss because your adjusted basis in an RGS
Energy share is greater than the sum of the amount of cash and the fair market
value, as of the date of the merger, of the Energy East shares you receive for
the RGS Energy share, the loss will not currently be allowed. If you are an RGS
Energy shareholder who receives solely cash, gain or loss will generally be
recognized by you to the extent of the difference between the amount of cash you
receive and your adjusted basis in your RGS Energy shares.

The consequences described above assume, as expected, that the merger will
qualify as a reorganization within the meaning of Section 368(a) of the Internal
Revenue Code. In order to achieve reorganization status, the number of RGS
Energy shares converted into Energy East shares may need to be increased and the
number of RGS Energy shares converted into cash may need to be decreased.
Instead of increasing the number of RGS Energy shares converted into Energy East
shares and decreasing the number of RGS Energy shares converted into cash, RGS
Energy may elect to change the form of the merger. If RGS Energy elects to
change the form of the merger, the transaction will not qualify as a
reorganization and generally will be fully taxable to RGS Energy shareholders.
In that event, gain or loss generally will be recognized by each RGS Energy
shareholder to the extent of the difference between (1) the sum of the amount of
cash and the fair market value (as of the date of the merger) of the Energy East
shares received and (2) the RGS Energy shareholder's adjusted basis in such RGS
Energy shares.

THE TAX CONSEQUENCES OF THE MERGER TO YOU AS AN RGS ENERGY SHAREHOLDER WILL
DEPEND ON YOUR OWN SITUATION. YOU SHOULD CONSULT YOUR TAX ADVISOR FOR A FULL
UNDERSTANDING OF THE TAX CONSEQUENCES OF THE MERGER TO YOU.

DISSENTERS' RIGHTS OF APPRAISAL OF RGS ENERGY OR ENERGY EAST SHAREHOLDERS
(SEE PAGE 46)

There are no dissenters' rights of appraisal for either RGS Energy
shareholders or Energy East shareholders under New York law.

THE MERGER AGREEMENT
The merger agreement is the legal document that governs the merger. The
merger agreement is attached as Appendix A to this document, and we encourage
you to read it carefully.

CONVERSION OF RGS ENERGY SHARES (SEE PAGES 56 TO 59)

In exchange for each of their RGS Energy shares, RGS Energy shareholders may
elect to receive $39.50 in cash, a number of Energy East shares valued at
$39.50, subject to restrictions on the maximum and minimum number of Energy East
shares to be issued, or a combination of cash and Energy East shares. The number
of Energy East shares to be exchanged for each RGS Energy share will be between
1.7626 and 2.3838, based on the average closing price of Energy East shares
during the 20-trading-day period ending two trading days before the effective
time of the merger. If the average closing price of an Energy East share over
such period is more than $22.41, then the value of the Energy East shares
delivered to RGS Energy shareholders in exchange for each RGS Energy share will
be more than $39.50, and if the average closing price of an Energy East share
over such period is less than $16.57, then the value of the Energy East shares
delivered to RGS Energy shareholders in exchange for each RGS Energy share will
be less than $39.50.

Under the merger agreement, 55% of the RGS Energy shares must be exchanged
for cash and 45% must be exchanged for Energy East shares, subject to possible
adjustments for tax reasons. Therefore, if RGS Energy shareholders owning more
than 55% of the RGS Energy shares elect to receive cash, the number of RGS
Energy shares that will be converted into cash will be less than the number
elected. Similarly, if RGS Energy shareholders owning more than 45% of the RGS
Energy shares elect to receive Energy East shares, the number of RGS Energy
shares that will be converted into Energy East shares will be less than the
number elected.

CERTAIN COVENANTS (SEE PAGES 60 TO 62)

RGS Energy has agreed not to solicit or encourage any proposal from any
person to acquire RGS Energy or its assets, but it may

respond, in certain circumstances, to unsolicited proposals that it receives.

CONDITIONS TO THE MERGER (SEE PAGES 67 TO 68)

Completion of the merger depends upon satisfaction of a number of
conditions. In addition to customary conditions relating to each of the parties
complying with the merger agreement, these conditions include the following:

- approval and adoption of the merger agreement by RGS Energy shareholders;

- approval of the issuance of Energy East shares in connection with the
merger by Energy East shareholders;

- absence of any injunction or other legal restraint blocking the merger, or
of any applicable federal or state law or regulation prohibiting the
merger;

- the SEC declaring effective, and the absence of a suspension by the SEC of
the effectiveness of, the registration statement with respect to the
Energy East shares to be issued in the merger;

- the New York Stock Exchange approving for listing the Energy East shares
to be issued in the merger;

- all regulatory approvals being obtained on terms that would not be
reasonably expected to have a material adverse effect on Energy East or
RGS Energy;

- the absence of any material adverse event with respect to Energy East or
RGS Energy; and

- Wachtell, Lipton, Rosen & Katz furnishing to Energy East, and Shearman &
Sterling furnishing to RGS Energy, opinions to the effect that the merger
will be treated as a reorganization within the meaning of Section 368(a)
of the Internal Revenue Code. However, this condition will be waived if
RGS Energy elects, as it may do under certain circumstances, to have the
merger restructured so that RGS Energy will be the surviving company (see
"The Merger Agreement--Conversion of RGS Energy Shares--Tax Adjustment" on
pages 57 to 58).

The merger will occur, and if you are an RGS Energy shareholder your RGS
Energy shares will be converted into the right to receive cash, Energy East
shares or a combination of cash and Energy East shares, on the second business
day after all of the conditions in the merger agreement are satisfied or waived.

TERMINATION (SEE PAGES 68 TO 71)

The merger agreement may be terminated, and the merger abandoned, in the
following circumstances:

- if we mutually agree to terminate the merger agreement;

- by either of us, if the merger is not completed by February 16, 2002 (or
November 16, 2002, if the only condition to closing not satisfied by
February 16, 2002 is that the requisite regulatory approvals have not been
obtained);

- by either of us if either the RGS Energy shareholders do not approve and
adopt the merger agreement or Energy East shareholders do not approve the
issuance of Energy East shares in connection with the merger, in either
case by February 16, 2002;

- by either of us if any law or regulation prohibits the merger, or if a
court issues a final, non-appealable order blocking the merger;

- by RGS Energy, prior to its shareholders' approval of the merger
agreement, upon three days' notice to Energy East, if RGS Energy receives
a competing acquisition proposal, in response to which the RGS Energy
board of directors determines, after consultation with outside counsel,
that failure to accept the competing acquisition proposal would likely
result in a breach of its directors' fiduciary duties, and concludes in
good faith that the person making the competing acquisition proposal has
obtained or can obtain any necessary financing and that such proposal
would be financially superior to the merger. However, before RGS Energy
can terminate the merger agreement, it must consider in good faith any
proposal made by Energy East to enable RGS Energy to proceed with the
merger.

- by either of us, if the other party materially breaches the merger
agreement and fails to cure the breach;

- by RGS Energy, if the Energy East board of directors withdraws its
approval or recommendation of the issuance of Energy East shares in
connection with the merger; or

- by Energy East, if the RGS Energy board of directors withdraws its
approval or recommendation of the merger agreement, fails to reaffirm its
approval or recommendation of the merger agreement within seven days of
Energy East's request, approves a competing acquisition proposal or
resolves to take any of these actions.

If either Energy East or RGS Energy materially breaches the merger agreement
and the other party consequently terminates the agreement, the breaching party
must pay the other party up to $10 million in expenses and fees. Moreover, if
the merger agreement is terminated for any of the following reasons:

- the RGS Energy board of directors decides to pursue an alternative
acquisition proposal;

- (1) RGS Energy shareholders fail to approve the merger agreement,
(2) there is an alternative acquisition proposal outstanding at the time
of the RGS Energy shareholder meeting and (3) RGS Energy enters into a
definitive agreement to complete or actually does complete a business
combination within twelve months after the termination of the merger
agreement; or

- (1) the RGS Energy board of directors withdraws its approval or
recommendation of the merger agreement or fails to reaffirm its approval
or recommendation within seven days of Energy East's request, or approves
or recommends any alternative acquisition proposal, or resolves to take
any of the above actions, (2) there is an alternative acquisition proposal
outstanding at the time of the termination of the merger agreement and
(3) RGS Energy enters into a definitive agreement to complete or actually
does complete a business combination within twelve months of the
termination,

then RGS Energy must pay Energy East $50 million in addition to fees and
expenses of up to $10 million.

Furthermore, if

(1) Energy East shareholders fail to approve the issuance of Energy East
shares in connection with the merger, (2) there is an alternative
acquisition proposal with respect to Energy East outstanding at the time of
the Energy East shareholders meeting, (3) the person or persons that made
the alternative acquisition proposal conditioned it on Energy East
shareholders failing to approve the issuance of Energy East shares in
connection with the merger, and (4) Energy East enters into a definitive
agreement to complete or actually does complete a business combination
within twelve months of the termination of the merger agreement,

then Energy East must pay RGS Energy $50 million in addition to fees and
expenses of up to $10 million.

If a breach by either party is willful, the merger agreement does not limit
the amount of damages, expenses and fees a nonbreaching party who terminates the
merger agreement may seek.

COMPARATIVE RIGHTS OF RGS ENERGY
SHAREHOLDERS AND ENERGY EAST SHAREHOLDERS
(SEE PAGES 79 TO 84)

Energy East and RGS Energy are both organized under the laws of the State of
New York. Any differences, therefore, in the rights of holders of RGS Energy
shares and Energy East shares arise exclusively from the differences in their
respective certificates of incorporation and bylaws. If you receive Energy East
shares in the merger, your rights as an Energy East shareholder will be governed
by Energy East's certificate of incorporation and bylaws. These rights differ in
certain respects from the current rights of RGS Energy shareholders, which are
governed by RGS Energy's certificate of incorporation and bylaws.

COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION

Energy East shares are listed and traded on the New York Stock Exchange
under the symbol "EAS." RGS Energy shares are listed and traded on the New York
Stock Exchange under the symbol "RGS."

The following table provides trading and dividend information for Energy
East shares and RGS Energy shares for the periods indicated, based on a calendar
year. All of the prices set forth in this section and the next section are as
reported on the New York Stock Exchange Composite Transaction Tape, based on
published financial sources.

ENERGY EAST SHARES RGS ENERGY SHARES
------------------------------------ ------------------------------------
CASH DIVIDENDS CASH DIVIDENDS
HIGH LOW PER SHARE HIGH LOW PER SHARE
-------- -------- -------------- -------- -------- --------------

1999
First Quarter...................... $28.63 $24.56 $.21 $31.56 $25.44 $.45
Second Quarter..................... 28.13 24.75 .21 28.44 25.25 .45
Third Quarter...................... 27.06 22.63 .21 27.31 24.06 .45
Fourth Quarter..................... 25.75 20.56 .21 25.50 20.00 .45

2000
First Quarter...................... $23.63 $18.81 $.22 $21.88 $18.69 $.45
Second Quarter..................... 22.94 19.00 .22 24.50 20.50 .45
Third Quarter...................... 23.50 17.94 .22 28.38 22.25 .45
Fourth Quarter..................... 22.63 18.44 .22 33.31 27.38 .45

2001
First Quarter...................... $20.31 $16.96 $.23 $37.48 $27.75 $.45
Second Quarter (through April 19,
2001)............................ 20.42 17.41 .23 37.30 36.05 .45

Per share amounts for Energy East have been restated to reflect Energy East's
two-for-one stock split, effective April 1, 1999.

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

The following table shows the closing prices for Energy East shares and RGS
Energy shares on February 16, 2001, the last full trading day before the public
announcement of the proposed transactions, and on April 19, 2001, the most
recent date for which quotations were available prior to the printing of this
document.

ENERGY EAST SHARES RGS ENERGY SHARES
------------------------------ ------------------------------
DATE HIGH LOW CLOSE HIGH LOW CLOSE
---- -------- -------- -------- -------- -------- --------

February 16, 2001........................... $19.74 $19.07 $19.14 $33.26 $32.30 $33.10
April 19, 2001.............................. $19.55 $19.00 $19.43 $36.77 $36.50 $36.77

The number of Energy East shares to be exchanged for each RGS Energy share
in the merger will depend on the value of Energy East shares during the
20-trading-day period ending two trading days before the effective time of the
merger. Based on the closing price of Energy East shares on February 16, 2001,
each RGS Energy share convertible into the right to receive Energy East shares
would be converted into the right to receive 2.0637 Energy East shares. Based on
the closing price of Energy East shares on April 19, 2001, each RGS Energy share
convertible into the right to receive Energy East shares would be converted into
the right to receive 2.0329 Energy East shares.

We urge you to obtain current market quotations for Energy East shares and
RGS Energy shares.

Energy East will file an application with the New York Stock Exchange to
list on that exchange the Energy East shares that RGS Energy shareholders will
receive in the merger.

On April 12, 2001, the Energy East board of directors declared a quarterly
dividend on Energy East shares of $.23 per share, payable on May 15, 2001 to
holders of record on April 23, 2001. Energy East anticipates that it will
continue to pay quarterly cash dividends. The Energy East board of directors,
however, has discretion to decide upon the timing and amount of any future
dividends. Whether or not Energy East will pay dividends, and, if so, how much
these dividends will be, will depend on Energy East's future earnings, financial
condition, capital requirements and other factors.

On March 21, 2001, the RGS Energy board of directors declared a quarterly
dividend on RGS Energy shares of $.45 per share, payable on April 25, 2001 to
holders of record on April 2, 2001. As part of the merger agreement, RGS Energy
has agreed that it will not make, declare or pay any dividend or distribution on
RGS Energy shares, other than regular quarterly dividends on RGS Energy shares
that do not materially exceed the current regular dividends on RGS Energy shares
and with record and payment dates consistent with past practice.

Prior to completing the merger, we will coordinate our respective dividend
policies so that neither RGS Energy shareholders nor Energy East shareholders
will be adversely affected because of the timing of record, declaration or
payment dates.

UNAUDITED PRO FORMA COMPARATIVE PER SHARE DATA

We have summarized below information concerning earnings, cash dividends and
book value per share for:

- each of Energy East and RGS Energy on a historical basis;

- the combination of Energy East and RGS Energy on a pro forma basis; and

- RGS Energy on a per share equivalent pro forma basis based on the
combination of Energy East and RGS Energy.

We have derived the pro forma combined earnings per share from the unaudited
pro forma combined financial statements presented elsewhere in this document.
Book value per share for the pro forma combined presentation is based upon
outstanding Energy East shares at December 31, 2000, adjusted to include the
estimated number of Energy East shares to be issued in the merger.

The pro forma data are based on the assumed conversion of 45% of the RGS
Energy shares into 2.0637 Energy East shares per RGS Energy share and 55% into
$39.50 in cash per RGS Energy share. We calculated the exchange ratio for RGS
Energy shares by dividing $39.50 by $19.14, the closing price of Energy East
shares on February 16, 2001.

You should read the information set forth below together with the audited
financial statements of Energy East and RGS Energy incorporated by reference in
this document and the unaudited pro forma combined financial statements and
related notes presented elsewhere in this document. See "Where You Can Find More
Information" on page 120.

FISCAL YEAR ENDED
DECEMBER 31, 2000
------------------

ENERGY EAST -- HISTORICAL
Earnings per share, basic and diluted..................... $2.06
Cash dividends declared per share......................... $.88
Book value per share at period end........................ $14.59

FISCAL YEAR ENDED
DECEMBER 31, 2000
------------------

RGS ENERGY -- HISTORICAL
Earnings per share:
Basic................................................... $2.61
Diluted................................................. $2.60
Cash dividends declared per share......................... $1.80
Book value per share at period end........................ $22.19

FISCAL YEAR ENDED
DECEMBER 31, 2000
------------------

COMBINATION OF ENERGY EAST & RGS ENERGY -- PRO FORMA
Earnings per share, basic and diluted..................... $2.03
Cash dividends declared per share......................... $.88
Book value per share at period end........................ $15.57

FISCAL YEAR ENDED
DECEMBER 31, 2000
------------------

RGS ENERGY -- PER SHARE EQUIVALENT PRO FORMA BASIS BASED ON
COMBINATION OF ENERGY EAST & RGS ENERGY
Earnings per share, basic and diluted..................... $4.18
Cash dividends declared per share......................... $1.82
Book value per share at period end........................ $32.12

SELECTED FINANCIAL INFORMATION

The following tables present (1) selected consolidated financial information
for each of Energy East (which includes the effect of its merger with
Connecticut Energy as of February 2000 and the effect of its mergers with CMP
Group, CTG Resources and Berkshire Energy as of September 2000), and RGS Energy
on a historical basis; and (2) selected unaudited pro forma financial data for
Energy East reflecting the effect of the mergers completed in 2000 and the
merger with RGS Energy.

We prepared the selected unaudited pro forma financial data by accounting
for the merger with RGS Energy under the purchase method of accounting. See "The
Merger--Accounting Treatment" on page 44. The selected unaudited pro forma
financial data reflect the merger with RGS Energy based upon preliminary
purchase accounting adjustments. Actual amounts may differ from those reflected
below.

The selected historical financial data for Energy East and RGS Energy as of
December 31, 2000, 1999, 1998, 1997 and 1996 and for each of the years in the
five-year period ended December 31, 2000, set forth below, have been derived
from Energy East's and RGS Energy's audited financial statements and, in the
opinion of their managements, include all adjustments, consisting of normal
recurring adjustments, necessary for fair presentations of the data of these
periods. You should read the information set forth below in conjunction with the
respective audited financial statements of Energy East and RGS Energy
incorporated by reference in this document and the unaudited pro forma combined
financial statements and related notes presented elsewhere in this document. See
"Where You Can Find More Information" on page 120 and "Unaudited Pro Forma
Combined Condensed Financial Statements" on pages 72 to 78.

The pro forma balance sheet data give effect to the RGS Energy merger as if
this event occurred as of the balance sheet date and the pro forma statement of
income data give effect to the mergers completed in 2000 and the RGS Energy
merger as if those events occurred on January 1, 2000. The pro forma financial
data are not, however, necessarily indicative of the financial position or
operating results that would have occurred had the merger been completed on
those dates, nor is the information necessarily indicative of future financial
position or operating results.

ENERGY EAST SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION

FISCAL YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
2000 1999 1998 1997 1996
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

STATEMENT OF OPERATIONS:
Operating revenues....................... $2,959,520 $2,278,608 $2,499,568 $2,170,102 $2,108,865
Net income............................... $235,034 $218,751 $194,205 $175,211 $168,711
Earnings per share, basic and diluted.... $2.06 $1.88 $1.51 $1.29 $1.19
Cash dividends declared per
common share........................... $.88 $.84 $.78 $.70 $.70

DECEMBER 31,
--------------------------------------------------------------
2000 1999 1998 1997 1996
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

BALANCE SHEET DATA:
Total assets............................. $7,003,633 $3,773,171 $4,902,085 $5,044,914 $5,064,816
Long-term debt, capital leases and
redeemable preferred stock (excluding
current portion)....................... $2,346,814 $1,235,089 $1,460,120 $1,475,224 $1,505,814
Common stock equity...................... $1,716,522 $1,403,954 $1,713,486 $1,803,295 $1,769,982
Book value per share..................... $14.59 $12.84 $13.61 $13.36 $12.70

RGS ENERGY SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION

STATEMENT OF OPERATIONS:
Operating revenues....................... $1,448,119 $1,207,537 $1,033,491 $1,036,638 $1,054,047
Net income............................... $91,859 $89,497 $89,296 $89,555 $90,046
Earnings per share, basic................ $2.61 $2.44 $2.32 $2.30 $2.32
Earnings per share, diluted.............. $2.60 $2.44 $2.31 $2.30 $2.32
Cash dividends declared per
common share........................... $1.80 $1.80 $1.80 $1.80 $1.80

DECEMBER 31,
--------------------------------------------------------------
2000 1999 1998 1997 1996
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

BALANCE SHEET DATA:
Total assets............................. $2,565,798 $2,462,874 $2,452,935 $2,268,289 $2,361,476
Long-term debt, capital leases and
redeemable preferred stock (excluding
current portion)....................... $848,860 $840,465 $783,226 $622,334 $691,954
Common stock equity...................... $767,115 $770,202 $782,781 $808,344 $786,559
Book value per share..................... $22.19 $21.43 $20.94 $20.80 $20.24

ENERGY EAST AND RGS ENERGY SELECTED UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL INFORMATION

The pro forma earnings per share are based on 146,324,191 average shares
outstanding for the fiscal year ended December 31, 2000, assuming the conversion
of 45% of all RGS Energy shares into 2.0637 Energy East shares per RGS Energy
share and 55% into cash.

FISCAL YEAR
ENDED DECEMBER 31, 2000
-------------------------
(IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS)

STATEMENT OF OPERATIONS:
Operating revenues........................................ $5,360,594
Net income................................................ $296,622
Earnings per share, basic and diluted..................... $2.03
Cash dividends declared per common share.................. $.88

FISCAL YEAR
ENDED DECEMBER 31, 2000
-------------------------
(IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS)

BALANCE SHEET DATA:
Total assets.............................................. $10,447,117
Long-term debt, capital leases and redeemable preferred
stock (excluding current portion)....................... $3,945,674
Common stock equity....................................... $2,331,123
Book value per share...................................... $15.57

RISK FACTORS

IN CONSIDERING WHETHER TO VOTE IN FAVOR OF THE APPROVAL AND ADOPTION OF THE
MERGER AGREEMENT AND WHETHER TO ELECT TO RECEIVE CASH, ENERGY EAST SHARES OR A
COMBINATION OF CASH AND ENERGY EAST SHARES FOR YOUR RGS ENERGY SHARES IF YOU ARE
AN RGS ENERGY SHAREHOLDER, OR WHETHER TO VOTE IN FAVOR OF THE ISSUANCE OF ENERGY
EAST SHARES IN CONNECTION WITH THE MERGER IF YOU ARE AN ENERGY EAST SHAREHOLDER,
YOU SHOULD CONSIDER ALL THE INFORMATION WE HAVE INCLUDED IN THIS DOCUMENT,
INCLUDING ITS APPENDICES, AND ALL THE INFORMATION INCLUDED IN THE DOCUMENTS WE
HAVE INCORPORATED BY REFERENCE. IN ADDITION, YOU SHOULD PAY PARTICULAR ATTENTION
TO THE FOLLOWING RISK FACTORS RELATED TO THE MERGER AND TO OUR COMPANIES. THESE
FACTORS ARE IMPORTANT, AND WE HAVE NOT BEEN ABLE TO QUANTIFY THEIR POTENTIAL
EFFECTS ON THE COMBINED COMPANY THAT WILL RESULT FROM THE MERGER.

THE AMOUNT OF CONSIDERATION RGS ENERGY SHAREHOLDERS RECEIVE MAY VARY AS A RESULT
OF STOCK-PRICE FLUCTUATIONS PRIOR TO THE COMPLETION OF THE MERGER

Although RGS Energy shareholders will be able to elect to exchange their RGS
Energy shares for either cash or Energy East shares (or a combination of cash
and Energy East shares), subject to proration, the opportunity to make that
election will not occur at the time of the shareholder vote on the merger.
Instead, it will occur from shortly before to shortly after the effective time
of the merger (as described further in this document), after all necessary
regulatory approvals have been obtained. The cash price per share to be paid for
RGS Energy shares is fixed at $39.50. This cash price will not be adjusted based
on changes in market prices. The value of Energy East shares delivered to RGS
Energy shareholders will equal $39.50 if the average closing price of an Energy
East share over the 20-trading-day period ending two trading days before the
effective time of the merger is between $16.57 and $22.41. However, if the
average closing price of an Energy East share over such period is more than
$22.41, then the value of the Energy East shares delivered to RGS Energy
shareholders in exchange for each RGS Energy share will be more than $39.50, and
if the average closing price of an Energy East share over such period is less
than $16.57, then the value of the Energy East shares delivered to RGS Energy
shareholders in exchange for each RGS Energy share will be less than $39.50.

There may be a significant time delay between the date when RGS Energy
shareholders vote on the merger transaction at the RGS Energy annual meeting and
the deadline for RGS Energy shareholders to make their elections, which is three
days after the effective time of the merger. The market value of Energy East
shares may fluctuate during that period. As a result, the relative prices of our
respective shares may vary significantly from the date of this document, to the
date of the annual meeting, to the date on which RGS Energy shareholders will
have the opportunity to make their elections. These variations may be caused by
changes in the businesses, operations, results and prospects of both companies,
market expectations of the likelihood that the merger will be completed and the
timing of completion, the effect of any conditions or restrictions imposed on or
proposed with respect to the combined company by regulatory agencies, general
market and economic conditions, or other factors.

For example, between February 16, 2000 and February 16, 2001 the closing
sales price of an Energy East share ranged from a high of $23.19 to a low of
$18.00 per share, and the closing sales price of an RGS Energy share during the
same period ranged from a high of $33.10 to a low of $18.94 per share. On
April 19, 2001, the most recent date for which it was practicable to obtain
market price data, (1) the closing sales price of Energy East shares was $19.43
per share, and (2) the closing sales price of RGS Energy shares was $36.77 per
share, as reported in THE WALL STREET JOURNAL's New York Stock Exchange
Composite Transactions. We urge you to obtain current market quotations for our
shares. In addition, the stock market generally has experienced significant
price and volume fluctuations. These market fluctuations could have a material
adverse effect on the market for, or liquidity of, our shares.

It is impossible to predict accurately the market price of Energy East
shares immediately after the effective time of the merger and, therefore,
impossible to predict accurately the value of the stock consideration that RGS
Energy shareholders will receive. The value of the stock consideration may be
significantly higher or lower than the value of the cash consideration. See
"Summary--Unaudited Pro Forma Comparative Per Share Data" and "--Comparative Per
Share Market Price and Dividend Information."

If shareholders owning more than 45% of the RGS Energy shares elect to
receive Energy East shares, the number of RGS Energy shares that will be
converted into Energy East shares will be less than the number elected.
Similarly, if shareholders owning more than 55% of the RGS Energy shares elect
to receive cash, the number of RGS Energy shares that will be converted into
cash will be less than the number elected. Because the number of Energy East
shares to be exchanged for each RGS Energy share will be between 1.7626 and
2.3838, one possible result of this proration is that RGS Energy shareholders
subject to this proration could receive consideration that is less than the
consideration they would have otherwise received in the absence of such
proration.

REGULATORY AGENCIES COULD DELAY OR REFUSE TO APPROVE THE MERGER OR IMPOSE
CONDITIONS THAT COULD HAVE AN ADVERSE EFFECT

To complete the merger, we must obtain approvals or consents from state and
federal regulatory agencies, including the New York State Public Service
Commission, the Federal Energy Regulatory Commission, the SEC and the Nuclear
Regulatory Commission. These state or federal regulatory agencies may impose
conditions that could have an adverse effect on the business or financial
position of either of our companies or the combined company. If these conditions
would cause a material adverse effect on RGS Energy or Energy East, Energy East
could choose to terminate the merger agreement.

We cannot be certain that any or all of the required regulatory approvals
will be obtained, or that they will be obtained within the time frame
contemplated by the merger agreement, or that they will be obtained without
burdensome conditions. For additional information on the required regulatory
approvals, see "The Merger--Regulatory Approvals."

UNCERTAINTIES IN INTEGRATING OUR COMPANIES

The merger of our companies will require the integration of two companies
that have previously operated independently. No assurance can be given that
Energy East will be able to integrate successfully the operations of RGS Energy
and its subsidiaries without, among other things, encountering difficulties or
experiencing the loss of key employees, customers or suppliers. Also, the
management of each of our companies will have to dedicate substantial time and
effort to ensure that this integration proceeds successfully, which may result
in distraction from regular business concerns.

COMPETITIVE AND REGULATORY CONDITIONS

The merger will combine companies that to a large extent share a common
regulatory environment and currently are affected by a number of similar
factors, including deregulation and increased competition. The utility industry
has been undergoing dramatic structural change for several years, resulting in
increasing competitive pressures faced by electric and natural gas utility
companies. Increased competition may create greater risks to the stability of
utility earnings generally and may in the future reduce Energy East's earnings
from retail electric and natural gas sales. In a deregulated environment,
formerly regulated utility companies that are not responsive to a competitive
energy marketplace may suffer erosion in market share, revenues and profits as
competitors gain access to their service territories.

THE COMPANIES

RGS ENERGY GROUP, INC.

RGS Energy Group, Inc.
89 East Avenue
Rochester, New York 14649-0001
(716) 771-4444

RGS Energy, a New York holding company incorporated in 1998, became the
parent of Rochester Gas and Electric Corporation ("RG&E") on August 2, 1999. RGS
Energy has no significant business operations other than through its
subsidiaries, as described below.

Internet users can obtain information about RGS Energy and its services by
visiting HTTP://WWW.RGE.COM.

UTILITY OPERATIONS

RG&E. RG&E, incorporated in 1904 in the State of New York, is engaged
principally in the business of generating, purchasing and distributing
electricity and purchasing and distributing natural gas. RG&E produces and
distributes electricity and distributes natural gas in parts of nine counties
including and surrounding the city of Rochester. At December 31, 2000, RG&E had
2,022 employees.

RG&E's service area covers 2,700 square miles, has a population of
approximately 1,000,000 and is well diversified among residential, commercial
and industrial consumers. In addition to the City of Rochester, which is the
third largest city and a major industrial center in New York State, it includes
a substantial suburban area with a large and prosperous farming area. A majority
of the industrial firms in RG&E's service area manufacture consumer goods. Many
of RG&E's industrial customers are nationally known, such as Xerox Corporation,
Eastman Kodak Company, Bausch & Lomb Incorporated and Delphi Automotive
Systems, Inc.

OTHER OPERATIONS

ENERGETIX, INC. Energetix was formed to pursue retail electric, gas and
liquid fuel businesses throughout upstate New York. Energetix and its
subsidiary, Griffith Oil Co., Inc., serve a combined total of over 200,000
customers. Griffith Oil's growth has been accomplished primarily through
acquisitions. Griffith Oil's most recent acquisitions were Burnwell Gas and
AllEnergy--New York Fuels Division Companies, both of which were completed in
mid-November 2000. Energetix's acquisitions have provided it with access to
123,000 customers, 100,000 of whom reside outside RG&E's regulated franchise
territory. Excluding customers gained through its acquisitions, Energetix has
over 83,000 customers for natural gas and electricity service.

In total, Energetix and Griffith Oil had approximately 651 employees and 28
customer service centers as of December 31, 2000.

RGS DEVELOPMENT CORPORATION. In 1998, RGS Energy formed RGS Development
Corporation to pursue unregulated business opportunities in the energy
marketplace. Through December 31, 2000, RGS Development Corporation's operations
have not been material to RGS Energy's results of operations or its financial
condition.

ENERGY EAST CORPORATION

Energy East Corporation
P.O. Box 12904
Albany, New York 12212-2904
(518) 434-3049

Energy East, a New York public utility holding company organized in 1997, is
a super-regional energy services and delivery company with operations in New
York, Connecticut, Massachusetts, Maine, New Hampshire and New Jersey and
corporate offices in New York and Maine. On February 8, 2000, Energy East
completed its merger with Connecticut Energy Corporation, which is a holding
company primarily engaged in the retail distribution of natural gas in
Connecticut through its wholly owned subsidiary, The Southern Connecticut Gas
Company. On September 1, 2000, Energy East completed its mergers with CMP
Group, Inc., CTG Resources, Inc. and Berkshire Energy Resources. CMP Group is a
holding company and its principal operating subsidiary, Central Maine Power
Company, is primarily engaged in transmitting and distributing electricity
generated by others to retail customers in Maine. CTG Resources, also a holding
company, is the parent company of Connecticut Natural Gas Corporation, a
regulated natural gas distribution company in Connecticut. Berkshire Energy is a
holding company and the parent company of The Berkshire Gas Company, a regulated
local natural gas distribution company that operates in western Massachusetts.

Energy East's principal energy delivery business is transmitting and
distributing electricity in New York and Maine and transporting, storing and
distributing natural gas in New York, Connecticut, Maine, Massachusetts and New
Hampshire. Energy East also generates electricity from its share of a nuclear
plant and its several hydroelectric stations and serves approximately
1.4 million electricity customers and 600,000 natural gas customers. Its service
territories reflect diversified economies, including high-tech firms, insurance,
light industry, pulp and paper industry, ship building, colleges and
universities, agriculture, fishing and recreational facilities. No customer
accounts for 1% or more of either electric or natural gas revenues.

Internet users can obtain information about Energy East and its services by
visiting HTTP://WWW.ENERGYEAST.COM.

UTILITY OPERATIONS

NEW YORK STATE ELECTRIC & GAS CORPORATION. New York State Electric & Gas
Corporation ("NYSEG") is a public utility company engaged in transmitting and
distributing electricity and transporting, storing and distributing natural gas.
NYSEG also generates electricity from its share of a nuclear plant and its
several hydroelectric stations. NYSEG's service territory, 99% of which is
located outside the corporate limits of cities, is in the central, eastern and
western parts of the State of New York. NYSEG's service territory has an area of
approximately 20,000 square miles and a population of 2,500,000. The larger
cities in New York in which NYSEG serves both electricity and natural gas
customers are Binghamton, Elmira, Auburn, Geneva, Ithaca and Lockport. NYSEG
provides delivery service to approximately 824,000 electricity customers and
248,000 natural gas customers.

CENTRAL MAINE POWER COMPANY. Central Maine Power is the largest electric
utility in Maine and functions as an electric transmission and distribution
utility. Central Maine Power serves over 544,000 customers in its 11,000
square-mile service area in the southern and central areas of Maine. Central
Maine Power's service area contains most of Maine's industrial and commercial
centers, including the city of Portland (Maine's largest city), and the
Lewiston-Auburn, Augusta-Waterville and Bath-Brunswick areas. These areas
encompass approximately 1,000,000 people, representing about 80% of the total
population of Maine.

THE SOUTHERN CONNECTICUT GAS COMPANY. Southern Connecticut Gas is engaged
in the retail distribution of natural gas for residential, commercial and
industrial users and the transportation of natural gas for commercial and
industrial users. Southern Connecticut Gas serves approximately 167,000
customers in the State of Connecticut, in primarily 22 towns along the southern
Connecticut coast from Westport to Old Saybrook, which include the urban
communities of Bridgeport and New Haven. Southern Connecticut Gas is the sole
distributor of natural gas other than bottled gas in its service area.

CONNECTICUT NATURAL GAS CORPORATION. Connecticut Natural Gas is engaged in
the retail distribution of natural gas for residential, commercial and
industrial users and the transportation of natural gas for commercial and
industrial users. Connecticut Natural Gas currently serves approximately 147,000
customers in 22 Connecticut communities, principally in the Hartford-New Britain
area and Greenwich, covering an area of approximately 533 square miles with a
population of approximately 679,000.

THE BERKSHIRE GAS COMPANY. Berkshire Gas sells and distributes natural gas
to approximately 35,000 retail customers in 19 communities in western
Massachusetts. The population of the area served is approximately 190,000 and is
primarily residential in character, but the territory also includes industrial,
agricultural, educational, cultural and resort facilities. Berkshire Gas
operates a natural gas distribution system comprising some 694 miles of natural
gas distribution mains.

OTHER OPERATIONS

Energy East has operationally organized its non-utility businesses under THE
ENERGY NETWORK, INC. Those businesses own assets and operate facilities in
peaking electric generation, peaking gas storage, energy services, district
heating and cooling, gas transmission, propane distribution and
telecommunications. ENERGY EAST ENTERPRISES, INC. owns two small natural gas
delivery companies and is developing high deliverability gas storage in upstate
New York.

EAGLE MERGER CORP.

c/o Energy East Corporation
P.O. Box 12904
Albany, New York 12212-2904
(518) 434-3049

Eagle Merger Corp. is a New York corporation formed in February 2001 solely
for the purpose of completing the merger with RGS Energy. Eagle Merger Corp.
will be a wholly owned subsidiary of Energy East at the effective time of the
merger.

THE ANNUAL MEETINGS

We will each hold an annual meeting of our shareholders. Each of our boards
of directors has provided you with this document in order to solicit your proxy
for use at our respective annual meetings. For a description of the RGS Energy
annual meeting and the proposals to be voted upon at the RGS Energy annual
meeting, see "The RGS Energy Annual Meeting" on pages 86 to 101. For a
description of the Energy East annual meeting and the proposals to be voted upon
at the Energy East annual meeting, see "The Energy East Annual Meeting" on
pages 102 to 119.

THE MERGER

GENERAL DESCRIPTION OF THE MERGER

The merger agreement provides that RGS Energy will merge with and into Eagle
Merger Corp., which will be a wholly owned subsidiary of Energy East at the
effective time of the merger. Eagle Merger Corp. will be the surviving company
and will continue to conduct RGS Energy's businesses under the name "RGS Energy
Group, Inc." as a direct, wholly owned subsidiary of Energy East. In the merger,
each outstanding RGS Energy share (other than those shares that are held by RGS
Energy as treasury stock) will be converted into the right to receive cash or
Energy East shares, or a combination of cash and Energy East shares.

Each RGS Energy shareholder can elect the form of consideration he or she
would like to receive, but this election is subject to proration as well as an
adjustment driven by tax considerations. See "The Merger Agreement--Conversion
of RGS Energy Shares." Under the merger agreement, 55% of all issued and
outstanding RGS Energy shares must be exchanged for cash, and 45% must be
exchanged for Energy East shares. If RGS Energy shareholders owning more than
55% of RGS Energy shares elect to receive cash, the number of RGS Energy shares
converted into cash will be less than the number elected. Similarly, if RGS
Energy shareholders owning more than of 45% of RGS Energy shares elect to
receive Energy East shares, the number of RGS Energy shares converted into stock
will be less than the number elected.

For tax reasons that are explained below, the number of RGS Energy shares
converted into Energy East shares may have to be increased and the number of RGS
Energy shares converted into cash may have to be decreased. In the alternative,
RGS Energy may elect under some circumstances to have the merger restructured so
that Eagle Merger Corp. would merge with and into RGS Energy and RGS Energy
would be the surviving company. In that case, the parties would no longer intend
for the merger to qualify as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code, and the conditions to the merger
requiring each party's counsel to furnish an opinion to that effect would be
waived.

The per share cash consideration is $39.50, without interest. The per share
stock consideration is a number of Energy East shares that will vary depending
on the "AVERAGE MARKET PRICE," which is the average of the closing prices of
Energy East shares on the New York Stock Exchange during the 20-trading-day
period ending two trading days prior to the effective time of the merger. If the
Average Market Price is between $16.57 per share and $22.41 per share, then each
RGS Energy share converted into stock will be exchanged for $39.50 worth of
Energy East shares. If the Average Market Price is less than or equal to $16.57,
then each RGS Energy share converted into stock will be exchanged for 2.3838
Energy East shares, irrespective of the value of the Energy East shares.
Finally, if the Average Market Price is greater than or equal to $22.41 per
share, then each RGS Energy share will be exchanged for 1.7626 Energy East
shares, again irrespective of the value of the Energy East shares.

The total value of the consideration that RGS Energy shareholders will
receive in the merger, based on the number of RGS Energy shares outstanding on
February 15, 2001 and assuming that the Average Market Price of Energy East
shares is between $16.57 per share and $22.41 per share, is approximately $1.4
billion.

BACKGROUND

Prior to entering into merger discussions with Energy East, RGS Energy had
carefully followed the developments in the electric and natural gas industries
in the northeastern United States and, in particular, the deregulation and
restructuring of the electric and natural gas industries in New York State. In
response, RGS Energy's management and board of directors from time to time
consulted with Morgan Stanley & Co. Incorporated, RGS Energy's financial
advisor, and reviewed various strategic

alternatives, including remaining an independent public company, the possibility
of acquisitions or mergers with other companies and other transactions.

In mid-August 2000, Wesley W. von Schack, Energy East's Chairman, President
and Chief Executive Officer, contacted Thomas S. Richards, RGS Energy's
Chairman, President and Chief Executive Officer, by telephone to discuss
informally the merits of a possible transaction between Energy East and RGS
Energy. Mr. von Schack and Mr. Richards broadly discussed the potential value
and strategic benefits that could be recognized by the shareholders of Energy
East and RGS Energy as a result of the combination of the two companies.

On August 16, 2000, the RGS Energy board met for its annual strategy
meeting. Prior to that meeting, Mr. Richards reviewed with certain members of
the RGS Energy board his discussion with Mr. von Schack.

Throughout September 2000, additional discussions of a preliminary nature
between Mr. von Schack and Mr. Richards periodically took place by telephone.
Such discussions generally explored the interest of each company in a possible
transaction.

On September 8, 2000, Energy East and RGS Energy executed a confidentiality
agreement to facilitate the exchange of information. The confidentiality
agreement included a standstill provision that precluded each company from
acquiring any shares of the other or making an offer to acquire the other
company other than pursuant to a negotiated transaction.

On September 20, 2000, at a regularly scheduled meeting of the RGS Energy
board, Mr. Richards briefed the RGS Energy board on his discussions with
Mr. von Schack. Although the RGS Energy board considered Mr. Richards'
conversations with Mr. von Schack to be at that time very preliminary, it
authorized Mr. Richards to continue exploratory discussions with Energy East.

On September 25, 2000, Mr. von Schack and Mr. Richards met in Rochester, New
York to discuss in more detail the potential benefits that could be realized as
a result of the combination of Energy East and RGS Energy, including
post-transaction competitive positioning, the possibility of achieving potential
cost savings and the potential regulatory treatment of a business combination.
At that time, Mr. von Schack and Mr. Richards determined that Kenneth M.
Jasinski, Energy East's Executive Vice President, General Counsel and Secretary,
and Michael T. Tomaino, RGS Energy's Senior Vice President and General Counsel,
would coordinate the exchange of confidential financial and other information.

Throughout October and November 2000, Mr. von Schack and Mr. Richards
communicated from time to time by telephone to discuss issues related to the
electric and gas utilities industries in general and in New York State in
particular, the possibility of a transaction between Energy East and RGS Energy
and various preliminary concerns related to such a transaction. Additionally,
Mr. Jasinski and Mr. Tomaino spoke periodically by telephone to discuss the
types of information that would be required by their respective senior
management teams and financial and legal advisors in order to prepare
operational, financial and legal analyses, the process related to the exchange
of such information and the conduct of full-scale due diligence reviews.

On October 13, 2000, at a regularly scheduled meeting of the Energy East
board, Mr. von Schack reported to the Energy East directors that he was having
discussions with Mr. Richards regarding a possible transaction with RGS Energy.

On October 18, 2000, at a regularly scheduled meeting of the RGS Energy
board, Mr. Richards updated the RGS Energy directors on the status of his
discussions with Energy East. At that meeting, Morgan Stanley and Shearman &
Sterling, RGS Energy's outside legal counsel, advised the RGS Energy board with
respect to the financial aspects of, and their legal duties regarding, a
possible transaction with Energy East.

On November 7, 2000, Mr. von Schack and Mr. Richards met in New York City to
continue their discussion related to the mutual benefits that potentially could
be realized as a result of a combination of Energy East and RGS Energy.

On November 15, 2000, at a regularly scheduled meeting of the executive
committee of the RGS Energy board, Mr. Richards updated the members of the
executive committee on the status of his discussions with Energy East.

On November 30, 2000, members of the senior management teams of Energy East
and RGS Energy and Morgan Stanley met in New York City to exchange and discuss
the information previously requested through Mr. Jasinski and Mr. Tomaino and to
determine whether a basis existed for proceeding with discussions. Later that
evening, Messrs. von Schack, Richards, Jasinski and Tomaino met in New York City
and, based upon discussions with their respective senior management teams,
agreed to continue discussions with respect to a possible transaction.

On December 6, 2000, at a special meeting of the Energy East board held for
other purposes, Mr. von Schack updated the Energy East directors on the status
of his discussions with RGS Energy.

On December 13, 2000, Mr. von Schack and Mr. Richards met in Rochester, New
York to discuss more specifically the terms of a possible transaction, including
the type of consideration, structure of the transaction, organizational issues,
regulatory issues and approvals, historical events and the transaction process.
At that meeting, Mr. von Schack indicated that Energy East would consider
offering a price per share of RGS Energy common stock of $35.00.

On December 19, 2000, members of the senior management teams of Energy East
and RGS Energy met in New York City with Morgan Stanley to discuss general
regulatory matters, including the regulatory approvals required in connection
with a possible transaction between Energy East and RGS Energy, and,
specifically, to discuss issues related to the New York regulated operations of
Energy East.

On December 20, 2000, at a regularly scheduled meeting of the RGS Energy
board of directors, the possibility of a transaction between Energy East and RGS
Energy was again presented by Mr. Richards. After discussing the potential
transaction in general terms, the RGS Energy board of directors agreed that it
would be in the best interest of RGS Energy and its shareholders to continue
pursuing discussions with Energy East.

On December 21, 2000, Mr. Richards telephoned Mr. von Schack to advise him
that the RGS Energy board had approved further discussions with Energy East and
to discuss further the terms of the potential transaction. During that call,
Mr. Richards also stated that the RGS Energy board had indicated that a value of
$35.00 per share of RGS Energy common stock was unsatisfactory.

On January 6, 2001, at a regularly scheduled meeting of the Energy East
board, Mr. von Schack updated the Energy East directors on the status of his
discussions with RGS Energy.

On January 8, 2001, members of the senior management team of Energy East,
together with Wachtell, Lipton, Rosen & Katz, Energy East's outside legal
counsel, and members of the senior management team of RGS Energy, together with
Morgan Stanley and Shearman & Sterling, met in New York City to discuss further
the terms of the transaction, financial forecasts, the necessary regulatory
approvals, the continued exchange of information and the benefits of engaging a
synergy consultant. Deloitte Consulting L.P. was then retained to assist the
management of each company in evaluating the potential cost savings that could
result from the proposed transaction.

On January 17, 2001, at a regularly scheduled meeting of the RGS Energy
board of directors, Mr. Richards updated the RGS Energy board of directors on
the status of discussions with Energy East. After discussion, the RGS Energy
board authorized Mr. Richards to continue pursuing discussions with Energy East.

On January 20, 2001, senior officers of Energy East, including Mr. von
Schack, and senior officers of RGS Energy, including Mr. Richards, and their
legal advisors, together with Morgan Stanley, met in New York City to discuss
the terms of a possible transaction, including post-transaction corporate
governance and management, the location of headquarters and operations, the
consolidation of New York regulated operations, the effect on employees and
other constituencies and other issues. Following that meeting, Mr. von Schack
and Mr. Richards met separately to discuss valuation.

From January 29 through February 4, 2001, Energy East's senior management,
its financial advisor, UBS Warburg LLC, and its legal advisors conducted legal
and financial due diligence with respect to RGS Energy in Rochester, New York.

On January 30, 2001, Mr. von Schack and Mr. Richards met in New York City to
discuss the status of the proposed transaction. At that meeting, Mr. von Schack
and Mr. Richards discussed the potential strategic benefits of the proposed
transaction, the related regulatory plan, Energy East's preliminary views of its
due diligence review of RGS Energy and the scheduling of RGS Energy's due
diligence review of Energy East. Mr. von Schack and Mr. Richards also discussed
the timing of the proposed transaction and continued their discussion with
respect to dividend policy, location of headquarters and operations and the
effect on employees and other constituencies.

On February 7, 2001, at a special meeting of the RGS Energy board of
directors, Mr. Richards updated the RGS Energy board of directors on the status
of discussions with Energy East. Morgan Stanley and Shearman & Sterling made
presentations to the RGS Energy board of directors concerning various financial
and legal aspects of the transaction and the RGS Energy board of directors
discussed the business, financial and legal issues that would be presented by a
transaction with Energy East. After discussion, the RGS Energy board of
directors authorized Mr. Richards to continue discussions with Energy East.

On February 8, 2001, the senior managements of Energy East and RGS Energy,
together with Morgan Stanley, met with Deloitte Consulting in New York City to
review a preliminary analysis with respect to potential cost savings.

During the period from February 8 to February 16, 2001, representatives of
Energy East and RGS Energy and their respective legal counsel negotiated the
specific terms of the merger agreement, including the conditions to the offer,
the interim covenants, the circumstances under which termination fees would be
payable, the non-solicitation provisions, the efforts required to obtain
regulatory approvals and the circumstances in which the parties could terminate
the merger agreement.

On February 9, 2001, at a regularly scheduled meeting of the Energy East
board, presentations by Energy East's senior management and its legal and
financial advisors were made concerning various legal and financial aspects of
the transaction.

During the period from February 9 to February 14, 2001, the senior
management team of RGS Energy, together with its legal, accounting and financial
advisors, conducted legal, accounting and financial due diligence with respect
to Energy East in New York City.

On February 13, 2001, representatives of Energy East and RGS Energy met in
New York City to discuss financial and operational information about both
companies and to continue their due diligence examination of the business and
operations of both companies. Representatives of UBS Warburg were present at
that meeting. Also on February 13, 2001, the senior management for Energy East
and the senior management of RGS Energy met with Deloitte Consulting in New York
City to discuss a final analysis with respect to potential cost savings.

On February 14, 2001, representatives of UBS Warburg spoke with
representatives of Morgan Stanley. In that conversation, UBS Warburg, on behalf
of Energy East, made a final proposal of $39.50 per share of RGS Energy common
stock, with the stock portion subject to a 15% collar (based upon the closing
price of Energy East common stock on February 15, 2001).

On February 16, 2001, Energy East held a special meeting of its board of
directors. After discussion, which included updates regarding the financial and
legal aspects of the proposed transaction from UBS Warburg and Wachtell, Lipton,
UBS Warburg delivered its opinion to the effect that as of that date the
consideration to be paid by Energy East pursuant to the merger agreement was
fair from a financial point of view to Energy East and the Energy East board of
directors unanimously approved and adopted the merger agreement.

Also on February 16, 2001, RGS Energy held a special meeting of its board of
directors. After discussion, which included updates regarding the financial and
legal aspects of the proposed transaction from Morgan Stanley and Shearman &
Sterling, Morgan Stanley delivered its opinion to the effect that as of that
date the consideration to be received by holders of shares of RGS Energy common
stock pursuant to the merger agreement was fair from a financial point of view
to those holders and the RGS Energy board of directors unanimously approved and
adopted the merger agreement.

Later that day, Energy East and RGS Energy executed the merger agreement and
Mr. Richards' employment agreement. On February 20, 2001, the companies issued a
joint press release announcing the merger.

RGS ENERGY REASONS FOR THE MERGER; RECOMMENDATION OF THE RGS ENERGY BOARD OF
DIRECTORS

At its special meeting on February 16, 2001, after due consideration, the
RGS Energy board unanimously determined that the terms of the merger are fair
to, and in the best interests of, RGS Energy and its shareholders. The RGS
Energy board unanimously approved and adopted the merger agreement, the merger
and the other transactions contemplated by the merger agreement. Accordingly,
the RGS Energy board of directors unanimously recommends that RGS Energy
shareholders vote to approve and adopt the merger agreement.

In reaching its recommendation, the RGS Energy board of directors considered
a number of factors, including the following:

- TRANSACTION FINANCIAL TERMS/PREMIUM TO MARKET PRICE. The RGS Energy board
considered the relationship of the consideration to be paid in the merger
to recent and historical market prices of RGS Energy shares. The
consideration of $39.50 per RGS Energy share represents a 19.3% premium
over the $33.10 closing price of RGS Energy shares on February 16, 2001
(the last trading day prior to the announcement of the merger agreement),
a 34.2% premium over the $29.44 closing price of RGS Energy shares on
January 18, 2001 and a 57.6% premium over the $25.06 average closing price
of RGS Energy shares for the 12 months ending on February 16, 2001. The
RGS Energy board believed that $39.50 was the highest per share
consideration that could be negotiated with Energy East.

The RGS Energy board also considered the form of consideration to be
received by the holders of RGS Energy shares in the merger. Since,
pursuant to the terms of the merger agreement, each holder of RGS Energy
shares has the right to elect to receive either cash and/or Energy East
shares in the merger (subject to proration), the RGS Energy board
considered the certainty of the value of the cash component of the
consideration as well as the ability of holders of RGS Energy shares to
become holders of Energy East shares and participate in the future
prospects of the combined businesses of Energy East and RGS Energy.
Additionally, the RGS Energy board considered the fact that the stock
component of the consideration is subject to a collar, which, depending
upon the value of Energy East shares, could be beneficial or detrimental
to holders of RGS Energy common stock.

The RGS Energy board also considered that the merger is intended to be
treated as a reorganization pursuant to the Internal Revenue Code and, if
the merger were treated as a reorganization, RGS Energy shareholders who
exchange their RGS Energy shares solely for

Energy East shares generally would recognize no gain or loss for U.S.
federal income tax purposes as a result of the merger. The RGS Energy
Board also considered that RGS Energy may elect, under certain
circumstances, to have the merger restructured so that RGS Energy, rather
than Eagle Merger Corp., will be the company surviving the merger. In that
case, the parties would no longer intend for the merger to be treated as a
reorganization and the transaction would be fully taxable to RGS Energy
shareholders.

- STRATEGIC ALTERNATIVES. The RGS Energy board considered the presentations
of RGS Energy's management, Morgan Stanley and the RGS Energy board of
directors' review with respect to trends in the industries in which RGS
Energy's businesses operate and the strategic alternatives available to
RGS Energy, including RGS Energy's remaining an independent public
company, the possibility of acquisitions or mergers with other companies
in these industries and other transactions, as well as the risks and
uncertainties associated with the strategic alternatives available to RGS
Energy. The RGS Energy board of directors considered management's belief
that RGS Energy and Energy East have similar corporate cultures, the
complementary nature of the two companies' operations and operating
regions, and the experience, reputation and financial strength of Energy
East.

- COMPETITIVE POSITION AND INCREASED FINANCIAL STRENGTH. The merger is
intended to establish a combined company that is able to compete more
effectively in unregulated markets and serve customers more effectively in
regulated markets. The combination of the companies' complementary
expertise and infrastructure, including Energy East's diversified electric
and natural gas businesses throughout the northeastern United States,
should provide the combined company with the size and scope to be an
effective competitor in the emerging and increasingly competitive markets
for transporting and distributing energy and energy services. The combined
company will be financially stronger and will have a broader customer base
than RGS Energy as an independent entity. Also, the combined company will
be one of the largest, most diversified energy providers in the Northeast,
serving nearly 3 million customers, including approximately 1.8 million
electric customers, almost 1 million natural gas customers and
approximately 200,000 other retail energy customers. The combined company
will have annual revenues of over $5 billion and approximately
$10 billion in assets.

- CORPORATE GOVERNANCE. The RGS Energy board considered the corporate
governance aspects of the merger, including that (a) Mr. Richards and two
non-management directors of RGS Energy will be appointed to the Energy
East board of directors, (b) pursuant to an employment agreement,
Mr. Richards will be the chairman, president and chief executive officer
of the surviving corporation (which will be a subsidiary of Energy East),
an executive vice president of Energy East and will hold board and officer
positions in other subsidiaries of Energy East, including RG&E and NYSEG,
which is expected to become a subsidiary of RGS Energy, and (c) the
surviving corporation will create an advisory board, whose members will be
the same individuals who were the directors of RGS Energy immediately
prior to the merger (other than those members of the RGS Energy board that
become directors of Energy East).

- COMMUNITY PRESENCE AND INVOLVEMENT. The expanded RGS Energy will be
headquartered in Rochester, New York. RG&E will remain a subsidiary of RGS
Energy. The communities served by the expanded company will benefit from a
combined company that is expected to compete more effectively in providing
regulated and deregulated natural gas and electricity and energy related
products and services. Additionally, the RGS Energy board considered
Energy East's commitment to have approximately 40 Energy East Management
Corporation employees in Rochester as of the effective date of the merger
as well as to increase the level of charitable contributions to, and
community involvement with, Rochester, New York to reflect the increase in
size of the company based there.

- IMPACT ON RGS ENERGY EMPLOYEES. The RGS Energy board considered the
potential benefits to RGS Energy employees from the expanded opportunities
available as part of a larger organization. Also, no layoffs are planned
as a result of the merger. Additionally, employees of RGS Energy and its
subsidiaries will not be disadvantaged with respect to layoffs because
some Energy East employees have union contracts.

- TERMS OF THE MERGER AGREEMENT. In addition to the financial terms
discussed above, the RGS Energy board considered the negotiated terms of
the merger agreement, which the RGS Energy board and RGS Energy management
viewed as fair to, and in the best interests of, RGS Energy and the RGS
Energy shareholders, including the following:

- CONDITIONS TO CONSUMMATION. The RGS Energy board considered the fact
that each of Energy East's and RGS Energy's obligation to complete the
merger is subject to customary terms. The RGS Energy board also
considered Energy East's and RGS Energy's commitment in the merger
agreement to use their best efforts to obtain the required regulatory
approvals for the merger.

- UNSOLICITED ACQUISITION PROPOSALS. RGS may terminate the merger
agreement in response to an unsolicited acquisition proposal under
certain limited circumstances, which include the payment of a
$50 million termination fee plus expenses of up to $10 million.
Further, RGS Energy would be entitled to a termination fee from Energy
East of $50 million plus expenses of up to $10 million, under certain
limited circumstances, if the merger agreement were to be terminated as
a result of the required Energy East shareholder approval not being
obtained.

- SYNERGIES OF THE COMBINATION. It is expected that the combination of the
businesses of RGS Energy with those of Energy East would lead to potential
cost savings and other benefits of approximately $50 million on an annual
basis, largely derived from the joint management of Energy East and RGS
Energy subsidiaries in areas such as procurement, information systems and
other administrative and general areas.

- MORGAN STANLEY ANALYSES. The RGS Energy board considered presentations
from and the opinion delivered by Morgan Stanley, dated February 16, 2001,
as to the fairness, from a financial point of view, of the consideration
to be received by holders of shares of RGS Energy common stock pursuant to
the merger agreement, as more fully described in "Opinion of the Financial
Advisor to the RGS Energy Board."

- RGS ENERGY OPERATING AND FINANCIAL CONDITION. The RGS Energy board
considered the current and historical financial condition and results of
operations of RGS Energy, as well as the prospects and strategic
objectives of RGS Energy, including the risk involved in achieving those
prospects and objectives, and the current and expected conditions in the
industries in which RGS Energy's businesses operate.

- ENERGY EAST OPERATING AND FINANCIAL CONDITION. The RGS Energy board
considered the current and historical financial condition and results of
operations of Energy East, as well as the prospects and strategic
objectives of Energy East, including the risks involved in achieving those
prospects and objectives, and the current and expected conditions in the
industries in which Energy East's businesses operate.

- REGULATORY MATTERS AND OTHER CONDITIONS TO COMPLETION OF THE MERGER. The
RGS Energy board considered the risks associated with satisfying all
conditions to completion of the merger, including obtaining the necessary
regulatory approvals, and the possibility that, as a result of such risks,
the consummation of the merger may be significantly delayed or,
notwithstanding shareholder approval, that the merger may not be
completed.

- POTENTIAL CONFLICTS OF INTEREST. The interests that certain executive
officers, directors and employees of RGS Energy may have with respect to
the merger in addition to their interests as shareholders of RGS Energy,
as more fully described under "The Merger--Interests of Certain Persons in
the Merger."

The RGS Energy board of directors also considered (1) the risk that the
benefits sought in the merger would not be obtained, (2) the effect of the
public announcement of the merger on RGS Energy's sales, customer, supplier and
creditor relationships, operating results and ability to retain employees and
the trading price of RGS Energy shares, (3) the substantial management time and
effort that will be required to complete the merger and integrate the operations
of the two companies, (4) the possibility that various provisions of the merger
agreement might have the effect of discouraging other persons potentially
interested in a combination with RGS Energy from pursuing such an opportunity,
(5) the risk that the value of Energy East shares might decline and (6) other
matters described under "Risk Factors" and "Cautionary Statement Regarding
Forward-Looking Statements."

The RGS Energy board of directors believed and continues to believe that any
potential risks and disadvantages of the merger are greatly outweighed by the
potential benefits anticipated to result from the merger.

The foregoing discussion of the information and factors considered by the
RGS Energy board is not intended to be exhaustive. In view of the variety of
factors considered in connection with its evaluation of the merger and the
complexity of these matters, the RGS Energy board did not find it practicable
to, and did not, quantify, rank or otherwise assign relative weights to the
specific factors considered in reaching its determination and recommendation.
The RGS Energy board relied on the experience and expertise of Morgan Stanley,
its financial advisor, for quantitative analysis of the financial terms of the
merger. In addition, the RGS Energy board did not undertake to make any specific
determination as to whether any particular factor, or any aspect of any
particular factor, was favorable or unfavorable to its ultimate determination,
but rather the RGS Energy board of directors conducted an overall analysis of
the factors described above, including through discussions with and questioning
of RGS Energy's management and legal and financial advisors. In addition,
individual members of the RGS Energy board may have given differing weights to
different factors.

FOR THE REASONS DISCUSSED ABOVE, THE RGS ENERGY BOARD OF DIRECTORS HAS
DETERMINED THAT THE TERMS OF THE MERGER ARE FAIR TO, AND IN THE BEST INTERESTS
OF, THE RGS ENERGY SHAREHOLDERS. ACCORDINGLY, THE RGS ENERGY BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS THAT RGS ENERGY SHAREHOLDERS VOTE FOR THE APPROVAL OF THE
MERGER AGREEMENT.

ENERGY EAST REASONS FOR THE MERGER; RECOMMENDATION OF THE ENERGY EAST BOARD OF
DIRECTORS

The Energy East board unanimously determined that the terms of the merger
are fair to, and in the best interests of, Energy East and its shareholders.
Accordingly, the Energy East board of directors unanimously recommends that
Energy East shareholders vote for the approval of the issuance of Energy East
shares in connection with the merger.

In reaching its decision to approve the merger, the Energy East board of
directors consulted with Energy East's legal and financial advisors as well as
with Energy East's management. The Energy East board of directors considered a
number of factors, including, without limitation, the following:

- ACCRETIVE TO EARNINGS IN THE FIRST FULL YEAR AFTER CLOSING. The Energy
East board and Energy East management believe that the merger would be
accretive to earnings in the first full year after completion of the
merger if anticipated synergies can be obtained and retained;

- SYNERGIES. It is expected that the merger would generate annual cost
savings of approximately $50 million, resulting from joint management of
procurement, information technology and other administrative and general
areas;

- COMPLEMENTARY OPERATIONS. Over 200 miles of contiguous territory between
the NYSEG and RG&E service territories would provide an excellent
opportunity for operational efficiencies, and peak usage in each territory
is complementary, with NYSEG peaking in the winter and RG&E peaking in the
summer;

- ENHANCEMENT OF MANAGEMENT TEAM. The Energy East board and Energy East
management believe that the RGS Energy management team will fortify the
Energy East management team;

- OPPORTUNITY TO PROFITABLY GROW DISTRIBUTION SYSTEM IN NORTHEAST. The
merger would create the premier upstate utility, serving half of upstate
New York, and, consistent with the strategy Energy East has been pursuing
over the last several years, would enhance Energy East's position as a
super-regional energy services and delivery company in the Northeast;

- SUPPLY WILL BE INCREASED AND STABILIZED. The merger would increase Energy
East's generation portfolio, and would further Energy East's goal of
providing its customers with a reliable supply of electricity;

- PRESENTATION OF FINANCIAL ADVISOR. The Energy East board considered the
financial presentation and opinion of UBS Warburg, Energy East's financial
advisor, as to the fairness, from a financial point of view, to Energy
East of the consideration to be paid to RGS Energy shareholders in the
merger, as more fully described in "Opinion of the Financial Advisor to
the Energy East Board"; and

- TERMS AND CONDITIONS OF THE MERGER. The Energy East board considered the
terms and conditions of the merger, which the Energy East board and Energy
East management viewed as fair to, and in the best interests of, Energy
East and the Energy East shareholders.

All combinations, including the merger, also include certain risks and
disadvantages. The material potential risks and disadvantages to Energy East
shareholders identified by the Energy East board and management in considering
the merger include the following:

- the time and resources required to complete the merger, with the
completion of the merger being subject to various conditions (see "The
Merger Agreement--Conditions");

- the difficulties inherent in combining the two companies and the potential
distraction to management caused by a transaction of this magnitude; and

- the risk that the benefits sought from the merger, due to the matters
described under "Risk Factors" and "Cautionary Statement Regarding
Forward-Looking Statements" and other matters, might not fully be
achieved.

The Energy East board of directors believed and continues to believe that
these potential risks and disadvantages are greatly outweighed by the potential
benefits anticipated to result from the merger.

This discussion of the information and factors considered by the Energy East
board of directors is not intended to be exhaustive. In view of the wide variety
of factors considered, the Energy East board of directors did not find it
practicable to, and did not, quantify or otherwise attempt to assign relative
weights to the specific factors considered in reaching its conclusion. In
addition, individual directors may have given different weights to different
factors.

FOR THE REASONS DISCUSSED ABOVE, THE ENERGY EAST BOARD OF DIRECTORS HAS
DETERMINED THAT THE TERMS OF THE MERGER ARE FAIR TO, AND IN THE BEST INTERESTS
OF, THE ENERGY EAST SHAREHOLDERS. ACCORDINGLY, THE ENERGY EAST BOARD OF
DIRECTORS UNANIMOUSLY RECOMMENDS THAT ENERGY EAST SHAREHOLDERS VOTE FOR THE
APPROVAL OF THE ISSUANCE OF ENERGY EAST SHARES IN CONNECTION WITH THE MERGER.

OPINION OF THE FINANCIAL ADVISOR TO THE RGS ENERGY BOARD

RGS Energy retained Morgan Stanley as its exclusive financial advisor in
connection with the merger. The RGS Energy board selected Morgan Stanley to act
as RGS Energy's financial advisor based on Morgan Stanley's qualifications,
expertise and reputation and its knowledge of the business and affairs of RGS
Energy. At the meeting of the RGS Energy board on February 16, 2001, Morgan
Stanley rendered its oral opinion, subsequently confirmed in writing, that as of
February 16, 2001, and

subject to and based on the considerations in its opinion, the consideration to
be received by the RGS Energy shareholders pursuant to the merger agreement was
fair from a financial point of view to those holders.

The full text of the Morgan Stanley opinion, dated February 16, 2001, which
sets forth, among other things, the assumptions made, procedures followed,
matters considered and limitations on the review undertaken, is attached as
Appendix B to this document. RGS Energy shareholders are urged to read this
opinion carefully and in its entirety. Morgan Stanley's opinion is directed to
the board of directors of RGS Energy, addresses only the fairness from a
financial point of view of the consideration to be received by the RGS Energy
shareholders, and does not address any other aspect of the merger or constitute
a recommendation to any RGS Energy shareholder as to how to vote at the RGS
Energy annual meeting. The summary of the Morgan Stanley opinion set forth in
this document is qualified in its entirety by reference to the full text of this
opinion.

In arriving at its opinion, Morgan Stanley, among other things:

- reviewed certain publicly available financial statements and other
information of RGS Energy and Energy East;

- reviewed certain internal financial statements and other financial and
operating data concerning RGS Energy and Energy East prepared by the
management of RGS Energy and Energy East, respectively;

- reviewed certain financial projections prepared by the management of RGS
Energy and Energy East, respectively;

- discussed the past and current operations and financial condition and the
prospects of RGS Energy and Energy East, including information relating to
certain strategic, financial and operational benefits anticipated from the
merger, with senior executives of RGS Energy and Energy East,
respectively;

- reviewed the pro forma impact of the merger on Energy East's earnings per
share, credit ratios and consolidated capitalization;

- reviewed the reported prices and trading activity for the RGS Energy
shares and the Energy East shares;

- compared the financial performance of RGS Energy and Energy East and the
prices and trading activity of the RGS Energy shares and the Energy East
shares with that of certain other publicly-traded companies comparable
with RGS Energy and Energy East, respectively, and their securities;

- reviewed the financial terms, to the extent publicly available, of certain
comparable acquisition transactions;

- participated in discussions and negotiations among representatives of RGS
Energy and Energy East and their financial and legal advisors;

- reviewed the merger agreement, and certain related documents; and

- performed such other analyses and considered such other factors as Morgan
Stanley deemed appropriate.

Morgan Stanley assumed and relied upon without independent verification the
accuracy and completeness of the information reviewed by it for the purposes of
its opinion. With respect to the financial projections, including information
relating to certain strategic, financial and operational benefits anticipated
from the merger, Morgan Stanley assumed that they were reasonably prepared on
bases reflecting the best currently available estimates and judgments of the
future financial performance of RGS Energy and Energy East. Morgan Stanley
relied upon, without independent verification, the assessment by the management
of RGS Energy and Energy East, respectively, of the future competitive and
regulatory environment for RGS Energy and Energy East and their ability to
achieve the strategic, financial and operational benefits anticipated from the
merger. Morgan Stanley

assumed that in connection with the receipt of all the necessary regulatory
approvals for the merger, no restrictions will be imposed that would have a
material adverse effect on the contemplated benefits expected to be derived in
the merger. In addition, Morgan Stanley assumed that the merger will be
consummated in accordance with the terms set forth in the merger agreement,
including, among other things, that the merger is intended to be treated as a
reorganization pursuant to the Internal Revenue Code. Morgan Stanley did not
make any independent valuation or appraisal of the assets or liabilities of
Energy East, nor was it furnished with any such appraisals. Morgan Stanley's
opinion is necessarily based on financial, economic, market and other conditions
as in effect on, and the information made available to Morgan Stanley as of, the
date of its opinion.

The following is a summary of the material financial analyses performed by
Morgan Stanley in connection with its oral opinion and the preparation of its
written opinion. These summaries of financial analyses include information
presented in tabular format. In order to fully understand the financial analyses
used by Morgan Stanley, the tables must be read together with the text of each
summary. The tables alone do not constitute a complete description of the
financial analyses.

STOCK TRADING HISTORY. Morgan Stanley reviewed the history of the trading
prices for RGS Energy shares and Energy East shares, both separately and in
relation to a market index for a period ending February 14, 2001. The market
index used was the Standard and Poor's Electric Companies index. Energy East
underperformed the Standard and Poor's Electric Companies index during the
twelve months prior to the transaction, while RGS Energy outperformed the
Standard and Poor's Electric Companies index. Morgan Stanley also reviewed the
implied exchange ratio, defined as the RGS Energy closing price divided by the
Energy East closing price, during the twelve months prior to the transaction.
The implied exchange ratio as defined above over varying time periods was as
follows:

- 12 months prior to February 14, 2001........................ 1.26x
- 6 months prior to February 14, 2001......................... 1.42x
- 3 months prior to February 14, 2001......................... 1.58x
- 1 month prior to February 14, 2001.......................... 1.66x

SELECTED COMPARABLE PUBLIC COMPANY ANALYSIS. Using publicly available
information, Morgan Stanley compared selected historical and projected
financial, operating and stock market performance data of RGS Energy and Energy
East to the corresponding data of companies that share similar characteristics
with RGS Energy and Energy East.

The RGS Energy comparable companies consisted of:

- FirstEnergy Corporation

- DTE Energy Company

- UIL Holdings Corporation

- CH Energy Group Inc.

The Energy East comparable companies consisted of:

- NSTAR

- Conectiv

- UIL Holdings Corporation

- CH Energy Group Inc.

With respect to RGS Energy and its comparable companies, Morgan Stanley
calculated multiples of total enterprise value (market value, as defined later,
plus preferred stock and debt less cash and cash equivalents) to latest twelve
months ("LTM") earnings before interest, taxes and depreciation and amortization
("EBITDA"). Morgan Stanley also calculated multiples of market value (share
price multiplied by shares outstanding) to (1) projected fiscal year 2001 net
income, (2) projected fiscal year 2002 net income, (3) LTM cash flow from
operations and (4) book value of equity. The comparable companies' projected
fiscal year 2001 and 2002 earnings results were based on publicly available
median

earnings per share ("EPS") estimates from I/B/E/S, a data service that monitors
and publishes a compilation of earnings estimates produced by selected research
analysts on companies of interest to investors, and shares outstanding as of a
company's latest 10-Q or 10-K. The RGS Energy comparable companies analysis
resulted in the following ranges of multiples as of February 14, 2001:

ANALYSIS
MULTIPLE RANGES

- LTM EBITDA.................................................. 6.0x to 7.3x
- Projected fiscal year 2001 net income....................... 10.2x to 11.5x
- Projected fiscal year 2002 net income....................... 9.7x to 11.0x
- LTM cash flow from operations............................... 3.7x to 4.2x
- Book value of equity........................................ 1.35x to 1.45x

Applying these multiples to RGS Energy resulted in equity values for RGS
Energy of $26.50 to $31.25 per share. The closing price for RGS Energy shares on
February 15, 2001 was $32.85 per share. As of February 15, 2001, the offer price
for each RGS Energy share was $39.50 per share.

With respect to Energy East and its comparable companies, Morgan Stanley
calculated multiples of total enterprise value to LTM EBITDA. Morgan Stanley
also calculated multiples of market value to (1) projected fiscal year 2001 net
income, (2) projected fiscal year 2002 net income, (3) LTM cash flow from
operations plus dividends and (4) book value of equity. The comparable
companies' projected fiscal year 2001 and 2002 earnings results were based on
publicly available median EPS estimates from I/B/E/S and shares outstanding as
of a company's latest 10-Q or 10-K. The Energy East comparable companies
analysis resulted in the following ranges of multiples as of February 14, 2001:

ANALYSIS
MULTIPLE RANGES

- LTM EBITDA.................................................. 7.0x to 8.0x
- Projected fiscal year 2001 net income....................... 11.0x to 12.0x
- Projected fiscal year 2002 net income....................... 10.3x to 11.5x
- LTM cash flow from operations............................... 4.5x to 7.5x
- Book value of equity........................................ 1.50x to 1.60x

Applying these multiples to Energy East resulted in equity values for Energy
East of $18.75 to $23.00 per share. The closing price for Energy East shares on
February 15, 2001 was $19.49 per share.

No company utilized in the comparable company analysis is identical to RGS
Energy or Energy East. In evaluating the comparable company groups, Morgan
Stanley made judgments and assumptions with regard to industry performance,
general business, economic, market and financial conditions and other matters,
many of which are beyond the control of RGS Energy or Energy East. These other
matters include the impact of competition on the business of RGS Energy or
Energy East and the industry generally, industry growth and the absence of any
adverse material change in the financial condition and prospects of RGS Energy
or Energy East or in the industry or financial markets in general. Mathematical
analysis, such as determining the average or median, is not in itself a
meaningful method of using comparable company data.

SELECTED COMPARABLE MERGERS AND ACQUISITIONS ANALYSIS. Morgan Stanley
reviewed publicly available financial information for selected completed and
pending mergers and acquisitions involving companies in the integrated electric
and gas utility business. The selected mergers and acquisitions included
(target/acquiror):

- Niagara Mohawk Holdings Inc./National Grid Group PLC

- GPU Inc./FirstEnergy Corp.

- IPALCO Enterprises Inc./AES Corp.

- Bangor Hydro-Electric Co./NS Power Holdings

- LG&E Energy Corp./PowerGen PLC

- MidAmerican Energy Co./Berkshire Hathaway Inc.

- Northeast Utilities/Consolidated Edison Inc.

- Florida Progress Corp./Carolina Power & Light Co.

- CMP Group Inc./Energy East Corp.

- Empire District Electric Co./UtiliCorp United Inc.

- St. Joseph Light & Power Co./UtiliCorp United Inc.

- New England Electric System/National Grid Group PLC

- PacifiCorp/ScottishPower PLC

- Commonwealth Energy System/BEC Energy

- CILCORP Inc./AES Corp.

- MidAmerican Energy Co./CalEnergy

- Orange & Rockland Utilities Inc./Consolidated Edison Inc.

- Central & South West Corp./American Electric Power Co.

- KU Energy Corp./LG&E Energy Corp.

Morgan Stanley reviewed the consideration paid, or market value, (for stock
deals, based on acquiror stock prices on the day prior to the announcement of
the transaction) in the comparable transactions and calculated multiples of
total enterprise value to the targets' LTM (latest twelve months prior to the
announcement of the transaction) EBITDA. Morgan Stanley also calculated
multiples of the consideration paid to the targets' (1) LTM net income, (2) LTM
cash flow from operations, (3) forward year earnings and (4) book value of
equity. The comparable transactions analysis resulted in the following ranges:

ANALYSIS
MULTIPLE RANGES

- LTM EBITDA.................................................. 6.5x to 8.0x
- LTM net income.............................................. 15.0x to 17.0x
- Projected fiscal year 2001 net income....................... 14.0x to 16.0x
- LTM cash flow from operations............................... 4.5x to 6.5x
- Book value of equity........................................ 1.5x to 1.7x

Applying these multiples to RGS Energy resulted in equity values for RGS
Energy of $34.00 to $42.00 per share. The closing price for RGS Energy shares on
February 15, 2001 was $32.85 per share. As of February 15, 2001, the offer price
for each RGS Energy share was $39.50 per share.

No transaction utilized as a comparison in the precedent transactions
analysis is identical to the merger. In evaluating the precedent transactions,
Morgan Stanley made judgments and assumptions with regard to industry
performance, general business, economic, market and financial conditions and
other matters, many of which are beyond the control of RGS Energy. These other
matters include the impact of competition on RGS Energy and the industry
generally, industry growth and the absence of any adverse material change in the
financial condition and prospects of RGS Energy or in the industry or financial
markets in general. Mathematical analysis, such as determining the average or
median, is not in itself a meaningful method of using precedent transaction
data.

PREMIUM ANALYSIS. Morgan Stanley analyzed RGS Energy based on a premium
range to the "unaffected price," defined as the midpoint of the comparable
public company analysis ($28.88). Morgan Stanley applied a 25% to 40% premium to
the unaffected price, which resulted in equity values for RGS Energy of $36.00
to $40.50 per share. The closing price for RGS Energy shares on February 15,
2001 was $32.85 per share. As of February 15, 2001, the offer price for each RGS
Energy share was $39.50 per share.

DISCOUNTED CASH FLOW ANALYSIS. Morgan Stanley analyzed RGS Energy based on
an unleveraged discounted cash flow analysis of the projected financial
performance of RGS Energy. This projected financial performance was based upon a
five-year forecast for RGS Energy provided by RGS Energy management. The
discounted cash flow analysis determined the discounted present value of the
unleveraged after-tax cash flows generated over the five-year period and then
added a terminal value based upon a range of EBITDA multiples of 6.25x to 7.25x.
The unleveraged after-tax cash flows and terminal value were discounted using a
range of discount rates (7.5% to 8.5%) that represented an estimate of the
weighted average cost of capital of RGS Energy. The discounted cash flow
analysis of RGS Energy financials as provided by RGS Energy management resulted
in equity values for RGS Energy of $30.25 to $40.50 per share.

Morgan Stanley analyzed Energy East based on an unleveraged discounted cash
flow analysis of the projected financial performance of Energy East. This
projected financial performance was based upon a five-year forecast for Energy
East provided by Energy East management. The discounted cash flow analysis
determined the discounted present value of the unleveraged after-tax cash flows
generated over the five-year period and then added a terminal value based upon a
range of EBITDA multiples of 7.00x to 8.00x. The unleveraged after-tax cash
flows and terminal value were discounted using a range of discount rates (7.5%
to 8.5%) that represented an estimate of the weighted average cost of capital of
Energy East. The discounted cash flow analysis of Energy East financials as
provided by Energy East management resulted in equity values for Energy East of
$21.25 to $27.50.

PRO FORMA MERGER ANALYSIS. Morgan Stanley performed an analysis of the
potential pro forma effect of the merger on Energy East's EPS for the fiscal
years 2001 through 2005. Morgan Stanley combined the projected operating results
of RGS Energy with the corresponding projected operating results of Energy East,
each provided by each company's respective management, to arrive at the combined
company projected net income. Morgan Stanley divided the combined company
projected net income by the pro forma shares outstanding to arrive at the
combined company projected EPS. Morgan Stanley then compared the combined
company projected EPS to Energy East's projected stand-alone results provided by
Energy East management to determine the projected pro forma impact on Energy
East. This analysis suggested that, without assuming any cost savings due to the
merger, the merger would result in dilution to Energy East's EPS post goodwill
for years 2001-2005 and would result in dilution to Energy East's EPS
pre-goodwill in years 2001 and 2003 and accretion to Energy East's EPS
pre-goodwill in years 2002, 2004 and 2005.

In connection with the review of the merger by the RGS Energy board, Morgan
Stanley performed a variety of financial and comparative analyses for purposes
of its opinion given in connection therewith. The preparation of a fairness
opinion is a complex process and is not necessarily susceptible to partial
analysis or summary description. In arriving at its opinion, Morgan Stanley
considered the results of all of its analyses as a whole and did not attribute
any particular weight to any particular analysis or factor considered by it.
Furthermore, Morgan Stanley believes that selecting any portion of its analyses
or factors considered by it, without considering all analyses and factors as a
whole, would create an incomplete view of the process underlying its opinion. In
addition, Morgan Stanley may have given various analyses and factors more or
less weight than other assumptions, so that the ranges of valuations resulting
from any particular analysis described above should therefore not be taken to be
Morgan Stanley's view of the actual value of RGS Energy or Energy East.

In performing its analyses, Morgan Stanley made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of RGS Energy or Energy
East. Any estimates contained in Morgan Stanley's analysis are not necessarily
indicative of future results or actual values, which may be significantly more
or less favorable than those suggested by such estimates. The analyses were
prepared solely as part of Morgan Stanley's analysis of the fairness from a
financial point of view of the common share exchange ratio, pursuant to the
merger agreement, to the holders of RGS Energy common shares and were conducted
in connection with the delivery by Morgan Stanley of its opinion dated
February 16, 2001 to the RGS Energy board of directors. The analyses do not
purport to be appraisals or to reflect the prices at which RGS Energy common
shares or Energy East ordinary shares actually may be valued or the prices at
which their shares may actually trade in the marketplace. Accordingly, such
analyses and estimates are inherently subject to substantial uncertainty.

In addition, as described above, Morgan Stanley's opinion and presentation
to the RGS Energy board of directors was one of many factors taken into
consideration by the RGS Energy board of directors in making its decision to
approve the merger. Consequently, the Morgan Stanley analyses as described above
should not be viewed as determinative of the opinion of the RGS Energy board of
directors with respect to the value of RGS Energy or of whether the RGS Energy
board of directors would have been willing to agree to a different exchange
ratio. The common stock exchange ratio pursuant to the merger agreement and
other terms of the merger agreement were determined through arm's-length
negotiations between RGS Energy and Energy East and were approved by the RGS
Energy board of directors. Morgan Stanley did not recommend any specific
exchange ratio to RGS Energy or that any given exchange ratio constituted the
only appropriate exchange ratio for the merger.

Morgan Stanley is an internationally recognized investment banking and
advisory firm. Morgan Stanley, as part of its investment banking and financial
advisory business, is continuously engaged in the valuation of businesses and
securities in connection with the mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements and valuations for corporate and other
purposes. In the ordinary course of Morgan Stanley's trading, brokerage and
financing activities, Morgan Stanley or its affiliates may at any time hold long
or short positions, trade or otherwise effect transactions, for its own account
or for the account of customers in the equity or debt securities or senior loans
of RGS Energy or Energy East.

Pursuant to an engagement letter between RGS Energy and Morgan Stanley dated
January 18, 2001, Morgan Stanley has earned a fee of $3,058,965 for the
rendering of the Morgan Stanley opinion and the public announcement of the
merger. In addition, Morgan Stanley will receive a fee of $3,058,965, payable
upon the approval of the transaction by RGS Energy's shareholders, and another
$3,058,965 upon completion of the merger. In addition, Morgan Stanley will be
reimbursed for certain of its related expenses. Morgan Stanley will not be
entitled to any additional fees or compensation in the event the merger is not
approved or otherwise completed. RGS Energy also agreed, under separate
agreement, to indemnify Morgan Stanley, its affiliates and each of its
directors, officers, agents and employees and each person, if any, controlling
Morgan Stanley or any of its affiliates against certain liabilities, including
liabilities under federal securities laws.

In the past, Morgan Stanley and its affiliates have provided investment
banking and other financial services to RGS Energy and Energy East and have
received fees for the rendering of these services. Morgan Stanley may provide
financial advisory services to, and may act as underwriter or placement agent
for, the combined company in the future. In the ordinary course of Morgan
Stanley's business, Morgan Stanley may actively trade the securities of RGS
Energy and Energy East for its own account and for the accounts of its customers
and, accordingly, may at any time hold long or short positions in such
securities.

OPINION OF THE FINANCIAL ADVISOR TO THE ENERGY EAST BOARD

On February 16, 2001, the Energy East board of directors received UBS
Warburg's oral opinion, which was subsequently followed by a written opinion as
of the same date that, as of that date and subject to the various
considerations, assumptions, limitations and qualifications described in the
opinion, the consideration to be paid by Energy East to shareholders of RGS
Energy is fair, from a financial point of view, to Energy East.

Each Energy East shareholder is urged to read the actual UBS Warburg
opinion, dated February 16, 2001, which is attached as Appendix C to this
document.

In arriving at its opinion, UBS Warburg, among other things:

- reviewed certain publicly available business and historical financial
information relating to Energy East and RGS Energy;

- reviewed certain internal financial information and other data relating to
the business and financial prospects of RGS Energy, including estimates
and financial forecasts prepared by management of RGS Energy that were
provided to UBS Warburg by RGS Energy and not publicly available;

- reviewed certain internal financial information and other data relating to
the business and financial prospects of Energy East, including estimates
and financial forecasts prepared by the management of Energy East and not
publicly available;

- conducted discussions with members of the senior management of Energy East
and RGS Energy, respectively, concerning the businesses and financial
prospects of Energy East and RGS Energy;

- reviewed publicly available financial and stock market data with respect
to certain other companies in lines of business UBS Warburg believed to be
generally comparable to those of RGS Energy;

- reviewed publicly available financial and stock market data with respect
to certain other companies in lines of business UBS Warburg believed to be
generally comparable to those of Energy East;

- compared the financial terms of the merger with the publicly available
financial terms of certain other transactions which UBS Warburg believed
to be generally relevant;

- considered certain pro forma effects of the merger on Energy East's
financial statements;

- reviewed the merger agreement;

- considered the strategic advantages of the merger; and

- conducted such other financial studies, analyses and investigations, and
considered such other information as UBS Warburg deemed necessary or
appropriate.

In connection with their review, UBS Warburg, at Energy East's direction,
did not assume any responsibility for independent verification of any of the
information reviewed by UBS Warburg for the purpose of this opinion, and relied,
with Energy East's consent, on such information being complete and accurate in
all material respects. At Energy East's direction, UBS Warburg has not made any
independent evaluation or appraisal of any of the assets or liabilities
(contingent or otherwise) of RGS Energy or Energy East, nor was UBS Warburg
furnished with any such evaluation or appraisal. With respect to the financial
forecasts, estimates and pro forma effects referred to above, UBS Warburg
assumed, at Energy East's direction, that they had been reasonably prepared on a
basis reflecting the best currently available estimates and judgments of the
managements of the companies as to the future performance of their respective
companies. In addition, UBS Warburg also assumed, with Energy East's

approval, that the future financial results referred to above would be achieved
at the times and in the amounts projected by management. UBS Warburg also
assumed, with Energy East's consent, that the merger will be accounted for under
the purchase method of accounting and that all governmental, regulatory or other
approvals necessary for the consummation of the merger will be obtained without
any material adverse effect on Energy East and/or RGS Energy. Energy East did
not limit UBS Warburg regarding the procedures to be followed or factors to be
considered in rendering its opinion.

UBS Warburg's opinion was necessarily based on economic, monetary, market
and other conditions in effect on, and the information made available to UBS
Warburg as of, the date thereof.

The UBS Warburg opinion did not address Energy East's underlying business
decision to effect the merger or constitute a recommendation to any shareholder
of Energy East as to how such shareholder should vote with respect to the
issuance of shares of Energy East common stock to effect the merger. Other than
as set forth in its opinion, UBS Warburg had not been asked to, nor did UBS
Warburg offer any opinion as to the material terms of the merger agreement or
the form of the merger. UBS Warburg expressed no opinion as to what the value of
Energy East common stock will be when issued pursuant to the merger or the
prices at which it will trade in the future. In rendering its opinion, UBS
Warburg assumed, with Energy East's consent, that Energy East and RGS Energy
will comply with all the material terms of the merger agreement.

No company, transaction or business used in the analysis described below
under "RGS Energy Comparable Company Trading Analysis," "Energy East Comparable
Company Trading Analysis" and "Comparable Company Acquisition Analysis" is
identical to RGS Energy, Energy East or the proposed merger. Accordingly, the
analysis of the results necessarily involves complex considerations and
judgments concerning differences in financial and operating characteristics and
other factors.

In connection with rendering its opinion, UBS Warburg considered a variety
of valuation methods. The following discussion summarizes the material valuation
methods considered by UBS Warburg.

RGS ENERGY COMPARABLE COMPANY TRADING ANALYSIS. Using publicly available
information, UBS Warburg compared multiples of certain financial criteria for
RGS Energy to multiples based upon market trading values at the time for certain
other companies which, in UBS Warburg's judgment, were generally comparable to
RGS Energy for the purpose of this analysis. The factors UBS Warburg considered
in selecting companies for comparison included size, geographic location,
financial condition and scope of business operations. The companies used in the
comparison were Alliant Energy Corporation; CH Energy Group, Inc.; Consolidated
Edison, Inc.; UIL Holdings Corporation; Vectren Corporation; Wisconsin Energy
Corporation; and WPS Resources Corporation.

In evaluating the current market value of RGS Energy common stock, UBS
Warburg determined ranges of multiples for selected measures of financial
performance for the comparable companies, including the market value per share
of outstanding common stock as a multiple of:

- Net income per share of common stock ("EPS") for the latest 12-month
period ("LTM"); and

- Estimated EPS for the current and the following fiscal years as projected
by I/B/E/S, a data service that monitors and publishes a compilation of
earnings estimates produced by selected research analysts on companies of
interest to investors.

In addition, UBS Warburg determined ranges of multiples for selected
measures of financial performance for the comparable companies, including the
adjusted market value of RGS Energy (defined as the market value of outstanding
common stock plus total debt, preferred and minority interests, less cash and
equivalents) as a multiple of:

- LTM operating income, or earnings before interest and taxes ("EBIT"); and

- LTM operating cash flow, or earnings before interest, taxes, depreciation
and amortization ("EBITDA").

UBS Warburg then compared such multiples to the corresponding data for RGS
Energy and developed an indicative trading range for RGS Energy. This analysis
produced a range of multiples for RGS Energy in the indicative trading value
range. The results are summarized in the following table, which shows the range
of multiples produced for each of the measures of RGS Energy's financial
performance in the indicative trading value range:

RGS RGS
COMPARABLE ENERGY AT ENERGY AT
MEASURE OF FINANCIAL PERFORMANCE COMPANY MULTIPLES $29/SHARE $35/SHARE
-------------------------------- ------------------ --------- ---------

LTM EPS............................ 12.0x--14.0x 11.2x 13.5x
2001 Estimated EPS................. 11.0x--13.5x 11.5x 13.9x
2002 Estimated EPS................. 11.0x--12.5x 11.0x 13.3x
LTM EBIT........................... 10.0x--12.0x 9.7x 10.7x
LTM EBITDA......................... 7.0x--8.0x 5.9x 6.6x

As shown above, this analysis produced values of $29.00 to $35.00 per share
for RGS Energy. RGS Energy's closing price of $33.10 on February 16, 2001, was
somewhat above the middle of this range.

COMPARABLE COMPANY ACQUISITION ANALYSIS. UBS Warburg reviewed comparable
transactions that have been announced since 1998, excluding mergers of equals,
involving acquisitions of regulated gas and electric companies or holding
companies for regulated gas and electric companies based in the United States.
Fifteen comparable transactions were selected in which the target's equity value
exceeded $500 million.

The comparable transactions included the following announced and completed
transactions:

- Potomac Electric Power Company and Conectiv;

- National Grid Group plc and Niagara Mohawk Power Corporation;

- The AES Corporation and IPALCO Enterprises, Inc.;

- PowerGen plc and LG&E Energy Corporation;

- Sierra Pacific Resources and Portland General Electric Company (Enron
Corporation);

- an investor group and MidAmerican Energy Holdings Company;

- Consolidated Edison, Inc. and Northeast Utilities;

- Carolina Power & Light Company and Florida Progress Corporation;

- Energy East Corporation and CMP Group, Inc.;

- Dynegy, Inc. and Illinova Corporation;

- an investor group and TNP Enterprises, Inc.;

- ScottishPower plc and PacifiCorp;

- The AES Corporation and CILCORP Inc.;

- CalEnergy Company, Inc. and MidAmerican Energy Holdings Company; and

- Consolidated Edison, Inc. and Orange and Rockland Utilities, Inc.

UBS Warburg calculated the equity consideration per share to be paid to the
second company's shareholders for each of the comparable transactions as a
multiple of various measures of financial performance for that company
including:

- LTM EPS as of the date of each respective transaction announcement;

- Estimated EPS for the then current and the following fiscal years as
projected by I/B/E/S; and

- Premium to the closing price per share of common stock for one day and one
month prior to the date of each respective transaction announcement.

In addition, UBS Warburg calculated the adjusted acquisition value for each
of the comparable transactions as a multiple of each acquired company's:

- LTM EBIT as of the date of each respective transaction announcement; and

- LTM EBITDA as of the date of each respective transaction announcement.

UBS Warburg then compared such multiples to the corresponding data for RGS
Energy and developed an indicative acquisition value range for RGS Energy. This
analysis produced a range of multiples for RGS Energy in the indicative
acquisition value range. The results are summarized in the following table,
which shows the range of multiples produced in the indicative acquisition value
range for each of the selected measures of RGS Energy financial performance:

RGS RGS
COMPARABLE ENERGY AT ENERGY AT
MEASURE OF FINANCIAL PERFORMANCE COMPANY MULTIPLES $37/SHARE $45/SHARE
-------------------------------- ------------------ --------- ---------

LTM EPS............................ 14.0x--18.0x 14.2x 17.3x
2001 Estimated EPS................. 14.0x--18.0x 14.7x 17.9x
2002 Estimated EPS................. 14.0x--18.0x 14.1x 17.1x
LTM EBIT........................... 10.0x--13.5x 11.1x 12.4x
LTM EBITDA......................... 7.0x--8.0x 6.8x 7.6x
One-Day Premium (%)................ 20.0--35.0 12.1 36.4
One-Month Premium (%).............. 25.0--40.0 26.8 54.2

As shown above, this analysis produced values of $37.00 to $45.00 per share
for RGS Energy. The transaction price of $39.50 per share is somewhat below the
midpoint of this range.

UBS Warburg also performed a discounted cash flow analysis of RGS Energy
based upon projections furnished by RGS Energy that were reviewed by Energy East
management. Utilizing these projections, UBS Warburg discounted to present
value, under assumed discount rates ranging from 7.00% to 8.00%, the unlevered
free cash flows through the year 2005 for RGS Energy. Terminal values were
determined utilizing multiples of EBITDA of 7.0x to 8.0x, based on the EBITDA
multiples of public companies deemed comparable to RGS Energy. These were the
same companies used by UBS Warburg in its comparable company trading analysis of
RGS Energy summarized above. As an alternative measure, the terminal value was
calculated using perpetuity growth rates of 0.5% to 1.0%. The present value of
the discounted cash flow of RGS Energy ranged from $36.00 to $44.00. The
transaction price of $39.50 per share is at approximately the midpoint of this
range.

The valuation analysis of RGS Energy can be summarized as shown in the
following table:

VALUATION METHODOLOGY LOW END OF RANGE HIGH END OF RANGE
--------------------- ---------------- -----------------

Comparable Company Trading Analysis......... $29.00 $35.00
Comparable Acquisition Analysis............. $37.00 $45.00
Discounted Cash Flow Analysis............... $36.00 $44.00

ENERGY EAST COMPARABLE COMPANY TRADING ANALYSIS. Using publicly available
information, UBS Warburg compared multiples of certain financial criteria for
Energy East to multiples based upon market trading values at the time for
certain other electric utilities or holding companies for electric utilities
which, in UBS Warburg's judgment, were generally comparable to Energy East for
the purpose of this analysis. The factors UBS Warburg considered in selecting
companies for comparison included size, geographic location, financial condition
and scope of business operations. The companies used in the comparison were
Consolidated Edison, Inc.; NSTAR; Potomac Electric Power Company; Sempra Energy
and UIL Holdings Corporation.

In evaluating the current market value per share of Energy East common
stock, UBS Warburg determined ranges of multiples for selected measures of
financial performance for the comparable companies including the market value
per share of outstanding common stock as a multiple of:

- LTM EPS; and

- Estimated EPS for the current and the following fiscal years as projected
by I/B/E/S.

In addition, UBS Warburg determined ranges of multiples for selected
measures of financial performance for the comparable companies, including the
adjusted market value as a multiple of:

- LTM EBIT; and

- LTM EBITDA.

The Energy East comparable company trading analysis resulted in the
following range of multiples:

MEASURE OF FINANCIAL PERFORMANCE COMPARABLE COMPANY MULTIPLES
-------------------------------- ----------------------------

LTM EPS........................................... 10.5x -- 13.0x
2001 Estimated EPS................................ 10.0x -- 11.5x
2002 Estimated EPS................................ 9.5x -- 11.0x
LTM EBIT.......................................... 9.0x -- 10.0x
LTM EBITDA........................................ 6.0x -- 7.0x

UBS Warburg then applied such multiples to the corresponding data for Energy
East, resulting in a range of equity values of $18.00 to $21.00 per share.
Energy East's closing price on February 16, 2001, was $19.14. This analysis was
performed by UBS Warburg to determine if the Energy East common stock comprising
45% of the total consideration of the merger was appropriately valued. Based on
this analysis, UBS Warburg determined that Energy East common stock was
appropriately valued.

ACCRETION/DILUTION ANALYSIS. UBS Warburg analyzed certain pro forma effects
of the transaction on the estimated earnings per share of Energy East for 2002,
2003 and 2004. This analysis was performed based upon forecasts provided by
Energy East management for Energy East's estimated earnings and upon RGS Energy
forecasts provided by RGS Energy management, with adjustments deemed appropriate
by Energy East management, and did not take into account any synergies that may
be realized as a result of the merger. This resulted in dilution to Energy
East's earnings per share in each of the years analyzed, including the
amortization of goodwill. However, assuming that the estimated synergies could
be obtained and retained, the transaction is accretive to Energy East's earnings
per share in each of the years analyzed, including the amortization of goodwill.

The preparation of a fairness opinion involves various determinations as to
the most appropriate and relevant methods of financial analysis and the
application of these methods to particular circumstances. Therefore, the opinion
and analysis are not readily susceptible to summary description. Accordingly,
notwithstanding the separate factors and analyses summarized above, UBS Warburg
believes that its analysis must be considered as a whole and that selecting only
portions of its analysis and the factors it considered, without considering all
factors and analyses, could create a misleading

view of the evaluation process underlying the opinions. UBS Warburg did not
assign any particular weight to any analyses or factors it considered. Rather,
UBS Warburg made qualitative judgments based on its experience in rendering
these opinions and on economic, monetary and market conditions then present as
to the significance and relevance of each analysis and factor. In its analyses,
UBS Warburg assumed relatively stable industry performance, regulatory
environments and general business and economic conditions, all of which are
beyond Energy East's control. Any estimates contained in UBS Warburg's analyses
do not necessarily indicate actual value, which may be significantly more or
less favorable than those suggested by such estimates. Estimates of the
financial value of companies do not purport to be appraisals or to reflect
necessarily the prices at which companies or their securities actually may be
sold.

UBS Warburg is an internationally recognized investment banking firm. As
part of its investment banking business, UBS Warburg is regularly engaged in
evaluating businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive bids, secondary
distributions of listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes. Energy East's board of
directors selected UBS Warburg on the basis of the firm's expertise and
reputation.

Pursuant to the engagement letter between Energy East and UBS Warburg,
Energy East paid UBS Warburg $2.0 million upon the rendering of UBS Warburg's
fairness opinion. In addition, UBS Warburg will receive a $1.0 million payment
at the time of the Energy East shareholder approval of the issuance of Energy
East shares in connection with the merger. At the completion of the merger, UBS
Warburg will receive a fee of $0.8 million. Energy East has agreed to indemnify
UBS Warburg against certain liabilities, including liabilities under federal
securities laws, relating to or arising out of its engagement. In the past, UBS
Warburg and its predecessors have provided investment banking services to Energy
East and received customary compensation for rendering such services.

In the ordinary course of business, UBS Warburg, its successors and
affiliates, have traded or may trade securities of Energy East and RGS Energy
for their own accounts and the accounts of their customers and, accordingly, may
at any time hold a long or short position in such securities.

EFFECTIVE TIME OF THE MERGER

The merger will become effective when the parties to the merger agreement
file a certificate of merger with the Department of State of the State of New
York in accordance with the New York Business Corporation Law, or at a later
time that Energy East and RGS Energy may specify in the certificate of merger.

If the merger agreement is approved at the RGS Energy annual meeting, and
the issuance of Energy East shares in connection with the merger is approved at
the Energy East annual meeting, the effective time will occur two days after
satisfaction or waiver of the remaining conditions to the merger contained in
the merger agreement, including the receipt of all required regulatory
approvals.

CERTIFICATE OF INCORPORATION AND BYLAWS

The certificate of incorporation of Eagle Merger Corp., in effect
immediately prior to the effective time of the merger, will become the
certificate of incorporation of the surviving company, except that the name of
the surviving company will be "RGS Energy Group, Inc." The bylaws of Eagle
Merger Corp. in effect immediately prior to the effective time will be the
bylaws of the surviving company.

ACCOUNTING TREATMENT

The merger will be accounted for as an acquisition of RGS Energy by Energy
East under the purchase method of accounting in accordance with generally
accepted accounting principles. A portion of the purchase price will be
allocated to non-utility assets and liabilities of RGS Energy based on their
estimated fair market value at the date of acquisition. The assets and
liabilities of the regulated utility will not be revalued. The difference
between the purchase price, representing fair value, and the recorded amounts
will be shown as goodwill on the balance sheet.

REGULATORY APPROVALS

We must comply with state and federal regulatory approval requirements
before we can complete the merger and the other transactions described in the
merger agreement. Although there can be no guarantee that we will obtain the
requisite consents or approvals on a satisfactory or timely basis, or at all, we
currently believe that the necessary approvals can be obtained in sufficient
time to allow the merger to be completed in the first quarter of 2002. If any of
the regulatory approvals include conditions or restrictions that would have a
material adverse effect on Energy East or RGS Energy, Energy East would have the
right to terminate the merger.

NEW YORK STATE PUBLIC SERVICE COMMISSION. Under New York law, the New York
State Public Service Commission has jurisdiction over the transfer of the stock
of RG&E. In deciding whether to approve the proposed transfer of stock, the
standard applied by the New York State Public Service Commission is whether the
transfer is in the public interest. Factors which may be considered in
determining whether a merger is in the public interest include, but are not
limited to, ratepayer benefits, service quality and reliability, market power
issues, environmental impacts, affiliate transactions and the financial
integrity of the resulting corporation. We have made the appropriate filings
seeking the consent of the New York State Public Service Commission to the
transfer of stock.

THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935. Energy East has registered
with the SEC as a holding company under the Public Utility Holding Company Act.
RGS Energy is a holding company that is exempt from most provisions of the
Public Utility Holding Company Act.

The SEC must approve the merger under the Public Utility Holding Company Act
of 1935, unless it finds that:

- the merger would tend toward detrimental interlocking relations or
detrimental concentration of control of public utilities;

- the consideration to be paid in connection with the merger is not
reasonable; or

- the merger would unduly complicate the capital structure or be detrimental
to the proper functioning of Energy East's holding company system after
the merger.

The SEC must also find that the merger complies with applicable state law,
tends toward the development of an integrated public utility system and
otherwise conforms to the Public Utility Holding Company Act's integration and
corporate simplification standards. Under the integration provisions of the
Public Utility Holding Company Act, to approve the merger, the SEC must also
find that the merger would serve the public interest, because it would tend
toward the development of an integrated public utility system (in this case
consisting of the electric properties of the Energy East and RGS Energy
systems). Section 10(c)(1) of the Public Utility Holding Company Act prevents
the SEC from approving an acquisition that "would be detrimental to the carrying
out of the provisions of Section 11." Section 11(b)(1) of the Public Utility
Holding Company Act generally confines the utility properties of a registered
holding company to a "single integrated public-utility system," either gas or
electric. An exception to the requirement of a "single system" is provided in
section 11(b)(1)(A) through (C), the so-called "ABC clauses." Under this
exception, a registered holding company may control one or more additional
integrated public utility systems if the SEC affirmatively finds that

(A) each of these additional systems cannot be operated as an independent system
without the loss of substantial economies; (B) all of these additional systems
are located in one state, adjoining states, or a contiguous foreign country; and
(C) the continued combination of these systems under the control of such holding
company is not so large as to impair the advantages of localized management,
efficient operation, or the effectiveness of regulation.

Although there can be no assurance, we believe that the combination of our
electric utility systems will constitute an "integrated" electric utility
system. In addition, we believe that the SEC will make affirmative findings
under the ABC clauses that will permit Energy East to retain the gas utility
properties of Energy East and RGS Energy as an additional integrated gas utility
system.

FEDERAL ENERGY REGULATORY COMMISSION. Under Section 203 of the Federal
Power Act, the Federal Energy Regulatory Commission has jurisdiction when a
public utility sells or otherwise disposes of facilities that are subject to its
jurisdiction. A disposition is deemed made when there is a change of control of
the public utility that owns the facilities. RG&E's transmission facilities are
subject to the jurisdiction of the Federal Energy Regulatory Commission. For
this reason, prior approval of the Federal Energy Regulatory Commission is
required in order to complete the merger. In reviewing a merger, the Federal
Energy Regulatory Commission generally evaluates the effect of a proposed merger
on competition and on rates and whether the proposed merger will impair the
effectiveness of regulation.

NUCLEAR REGULATORY COMMISSION. RG&E holds a Nuclear Regulatory Commission
operating license for its Ginna Nuclear Plant, authorizing RG&E to own and
operate the Ginna facility. RG&E also is a co-licensee for its 14% interest in
Nine Mile Point Nuclear Plant Unit No. 2, but has no operating authority under
that license. The Atomic Energy Act provides that a license may not be
transferred or in any manner disposed of, directly or indirectly, through
transfer of control unless the Nuclear Regulatory Commission finds that the
transfer complies with the Atomic Energy Act and consents to the transfer.

HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS ACT. The merger is subject to the
requirements of the Hart-Scott-Rodino Antitrust Improvements Act, and the rules
and regulations thereunder, which provide that certain acquisition transactions
may not be completed until specified information has been furnished to the
Antitrust Division of the Department of Justice and the Federal Trade Commission
and until certain waiting periods have been terminated or have expired. The
expiration or earlier termination of the Hart-Scott Act waiting period would not
preclude the Antitrust Division or the Federal Trade Commission from later
challenging the merger on antitrust grounds. We do not believe that the merger
will violate federal antitrust laws. If we do not complete the merger within
12 months after the expiration or earlier termination of the initial Hart-Scott
Act waiting period, we would be required to submit new information to the
Antitrust Division and the Federal Trade Commission, and a new waiting period
would have to expire or be earlier terminated before the merger could be
completed.

OBLIGATIONS TO OBTAIN REGULATORY APPROVALS. Under the merger agreement, we
have agreed to cooperate and use our best efforts to obtain all regulatory and
governmental approvals necessary or advisable to complete the merger and the
other transactions contemplated by the merger agreement. All of these approvals
must not impose terms or conditions that, individually or in the aggregate,
would have or would reasonably be expected to have a material adverse effect
with respect to RGS Energy or Energy East.

INJUNCTIONS. Our obligation to complete the merger is subject to the
condition that there be no law, regulation or injunction in effect that would
prohibit the completion of the merger.

NO DISSENTERS' RIGHTS OF APPRAISAL

Under the laws of the State of New York, where both of our companies are
incorporated, neither Energy East shareholders nor RGS Energy shareholders are
entitled to appraisal rights in connection with the merger.

LISTING OF THE ENERGY EAST SHARES ON THE NEW YORK STOCK EXCHANGE

In the merger agreement, Energy East, Eagle Merger Corp. and RGS Energy have
agreed to use reasonable efforts to cause Energy East shares that are to be
issued in connection with the merger to be listed for trading on the New York
Stock Exchange. Approval for listing is a condition to the obligations of Energy
East, Eagle Merger Corp. and RGS Energy to complete the merger.

RESALE OF THE ENERGY EAST SHARES ISSUED IN THE MERGER; RGS ENERGY AFFILIATES

Energy East shares to be issued to RGS Energy shareholders in connection
with the merger will be freely transferable under the Securities Act of 1933,
except for Energy East shares issued to any person deemed to be an affiliate of
RGS Energy for purposes of Rule 145 promulgated under the Securities Act at the
time of the annual meeting. Persons deemed affiliates may not sell their Energy
East shares acquired in connection with the merger, except pursuant to an
effective registration statement under the Securities Act covering such Energy
East shares, or in compliance with Rule 145 promulgated under the Securities Act
or another applicable exemption from the registration requirements of the
Securities Act. Pursuant to the merger agreement, RGS Energy has delivered to
Energy East a letter identifying all persons who are, and to such person's best
knowledge who will be at the closing, affiliates of RGS Energy. The merger
agreement also requires RGS Energy to use all reasonable efforts to cause
shareholders who are, or are expected to be, affiliates to enter into an
agreement to comply with Rule 145 and certain other restrictions on the resale
of the affiliates' Energy East shares received in connection with the merger.

MERGER FINANCING

In the merger, Energy East expects to pay RGS Energy shareholders
approximately $750 million in cash consideration. Energy East anticipates
funding the cash consideration with the proceeds from the issuance of long-term
debt and preferred stock.

INTERESTS OF CERTAIN PERSONS IN THE MERGER

Some of the members of RGS Energy's management and the RGS Energy board of
directors have interests in the merger that are in addition to their interests
as RGS Energy shareholders generally. As described below, Mr. Richards of RGS
Energy entered into an agreement with Energy East that will, effective upon
completion of the merger, provide for his employment with Energy East and for
certain severance benefits. In addition, prior to the effective time of the
merger, RGS Energy is permitted to establish, subject to certain guidelines, a
retention program described in more detail below, pursuant to which certain
employees, including executive officers, will receive cash bonuses equal to a
percentage of their annual base salary. Completion of the merger will constitute
a change in control of RGS Energy for purposes of determining the entitlement of
the executive officers of RGS Energy to certain severance and other benefits
described below. Furthermore, Mr. Richards and two non-management directors of
RGS Energy will join the Energy East board of directors and Energy East will
extend offers to all individuals who are members of the RGS Energy board (other
than Mr. Richards and the two non-management directors of RGS Energy who will
join the Energy East board of directors) to become members of an advisory board
of the surviving company following the merger. The members of the advisory board
will provide advice to the board of directors of the surviving company with
respect to various matters and will receive remuneration for their services
equivalent to remuneration currently provided to non-employee directors of RGS
Energy.

The RGS Energy board of directors was aware of these interests and
considered them, among many other matters, in approving the merger agreement and
the transactions contemplated by the merger agreement.

MR. RICHARDS' EMPLOYMENT AGREEMENT WITH ENERGY EAST. Mr. Richards, chairman
of the board, president and chief executive officer of RGS Energy, has entered
into an agreement relating to his employment with Energy East following
completion of the merger. Mr. Richards' employment agreement will supersede his
existing severance agreement with RGS Energy upon completion of the merger.

The term of Mr. Richards' agreement will begin upon completion of the
merger, with an initial term ending on the third anniversary of that date, and
automatic extensions of the term by an additional year on each anniversary of
the completion of the merger unless either party provides 90 days' prior written
notice to the other not to extend the term. Under the agreement, Mr. Richards
will serve as (i) chairman, president and chief executive officer of RGS Energy,
(ii) chairman and chief executive officer of RG&E and NYSEG and (iii) a member
of the board of directors and an executive vice president of Energy East. During
the employment term, Mr. Richards will be paid an annual base salary of not less
than $475,000, subject to certain increases, and his salary will be reviewed for
possible further increases at least annually during the employment term. During
the employment term, Mr. Richards will also be eligible to receive an annual
bonus under Energy East's Annual Executive Incentive Plan or any successor bonus
plan, with a threshold bonus opportunity of 70% of his annual base salary and a
maximum bonus opportunity of 140% of his annual base salary.

Under his employment agreement, on the date the merger is completed, Energy
East will grant Mr. Richards an option to purchase 150,000 Energy East shares
with an exercise price equal to the fair market value of the stock on the date
of grant. The options will vest one-third on the first anniversary of the date
of grant, one-third on the second anniversary of the date of grant, and
one-third on the third anniversary of the date of grant, or if earlier, upon a
change of control of Energy East, as defined in Energy East's 2000 Stock Option
Plan.

Mr. Richards' agreement also provides that he will be entitled to
participate in the incentive compensation and employee benefit plans that are
made available to executives and key management employees of Energy East, RGS
Energy, RG&E and NYSEG on terms and conditions no less favorable than those
applicable to executives and key management employees. In addition,
Mr. Richards' employee benefits will not be less favorable in the aggregate than
those provided to Mr. Richards by RGS Energy as of February 16, 2001.

Mr. Richards' agreement further provides that if his employment is
terminated during the employment term by Mr. Richards for "good reason," or by
Energy East or RGS Energy for reasons other than "cause," death, or disability,
Mr. Richards will be entitled to:

- a lump sum cash payment equal to three times the sum of Mr. Richards' base
salary and incentive compensation equal to the higher of (1) the annual
bonus (if any) earned by Mr. Richards under his agreement for the most
recent fiscal year ended before the date of termination and (2) the
average of the annual bonuses earned by Mr. Richards for the lesser of the
number of years that he has been eligible to earn an annual bonus under
his agreement and the three most recently completed fiscal years that
ended before the date of termination (except that if the performance
period for his first annual bonus has not been completed by the date of
termination, his incentive compensation will equal the target annual
bonus);

- any unpaid portion of his base salary through the date of termination at
the rate in effect immediately before the notice of termination is given;

- a pro rata target annual bonus for the fiscal year of termination;

- a lump sum cash payment representing the value of the additional pension
benefits Mr. Richards would have received, had he remained employed for
three additional years;

- continuation of health, life insurance and accidental death and
dismemberment benefits for three years following the date of termination,
or, in the event that such participation is not permitted by the terms of
the plans, substantially equivalent alternative coverage, or in the case
of health plans only, a cash amount equal, on a net after-tax basis, to
the premiums charged to persons electing to receive such coverage under
COBRA;

- all other compensation and benefits, other than severance compensation and
benefits, to which Mr. Richards is entitled under the terms of any
compensation or benefit plan, program or arrangement maintained by Energy
East, RGS Energy, RG&E or NYSEG as then in effect; and

- any unreimbursed business expenses that would ordinarily be reimbursed by
Energy East or RGS Energy.

In addition, the options granted to Mr. Richards upon completion of the
merger, as described above, will vest and remain exercisable for one year
following the date of termination.

If any payments or benefits that Mr. Richards receives are subjected to the
excise tax imposed under Section 4999 of the Internal Revenue Code, his
agreement provides for an additional payment to him to restore him to the
after-tax position that he would have been in, if the excise tax had not been
imposed.

The agreement also provides that, during his employment with Energy East and
its subsidiaries and affiliates, and for a period of one year after the
termination of his employment for any reason other than a termination of
employment by Energy East or RGS Energy without "cause" or a resignation by
Mr. Richards for "good reason," Mr. Richards may not compete with Energy East
and its affiliates or subsidiaries in Connecticut, Maine, Maryland,
Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island
and Vermont.

Under the terms of the employment agreement, Energy East is responsible for
paying all reasonable legal fees and expenses incurred by Mr. Richards in any
dispute concerning the interpretation or enforcement of the agreement.

RETENTION PROGRAM. Under the terms of the merger agreement, RGS Energy will
be permitted to establish a retention program for employees of RGS Energy and
its subsidiaries prior to completion of the merger, subject to review, comment
and final approval by Energy East. The retention program will provide 22
employees (including each of the executive officers other than Mr. Richards) of
RGS Energy with a cash award equal to 100%, 50%, or 25% of each employee's
annual base salary. The retention award will be payable 50% upon completion of
the merger and 50% on the six-month anniversary thereof. In the event that the
merger is abandoned without being completed, the retention awards will become
immediately payable in full. In the event that the merger is not completed by
November 16, 2002, the first 50% of each retention award will be payable on that
date.

Upon termination of a participating employee's employment by Energy East or
RGS Energy without "cause" or upon such employee's resignation for "good
reason," such employee will be entitled to immediate payment of the retention
award. Upon termination of a participating employee's employment by Energy East
or RGS Energy for "cause" or if such employee resigns without "good reason," any
unpaid portion of the retention award will be forfeited.

If the merger were completed on April 1, 2002, and based on certain
assumptions and currently available information, the executive officers would
receive the following retention bonuses: $249,637 for Mr. Tomaino; $249,637 for
Mr. Bovalino; $249,637 for Mr. Wilkens; and $1,251,089 for all remaining
employees as a group. The total of all retention bonuses paid to all employees
will not exceed $2 million. Mr. Richards has entered into a new employment
agreement with Energy East, described above, and, therefore, will not be
eligible to participate in the retention program.

SEVERANCE AGREEMENTS. RGS Energy has severance agreements with 20 of its
employees (including each of the executive officers). These severance agreements
provide for certain severance benefits in the event of an involuntary
termination of employment within three years after a change in control of RGS
Energy. The completion of the merger will be a change in control for purposes of
those agreements. Under the severance agreements, an "involuntary termination"
means a resignation by the executive that results from a "change in duties" or a
termination of employment by the surviving company or its subsidiaries except a
termination for "cause," or by reason of death, disability, or normal retirement
under a retirement plan to which the executive was subject before completion of
the merger. The severance benefits under each of these severance agreements,
which are based on three years' pay and benefits for the RGS Energy executive
officers and one or two years' pay and benefits for the other RGS Energy
executives, consist of:

- a lump sum payment equal to one, two or three times the greater of
(1) the highest annual base salary paid or payable to the executive with
respect to any twelve consecutive month period, as selected by the
executive, during the three years ending with the termination date, and
(2) his or her base salary as in effect on or before the date of
termination, without regard to any reduction giving rise to an involuntary
termination under the agreement;

- a lump sum payment equal to one, two or three times the greater of
(i) the executive's bonus earned for the final year of employment and
(ii) the average of his or her bonuses for the three years before the
termination date;

- a pro rata share of his or her unpaid annual bonus for the year of
termination, based on actual performance for such year and payable at the
same time as bonuses are generally paid to other executives of RGS Energy;

- continuation of health, dental, life, accident, and disability insurance
coverage for one, two or three years after the date of termination;

- one, two or three years' credit under retirement plans, assuming annual
compensation increases for purposes of the retirement plans equal to the
highest base salary increase received by the executive in the three years
before the date of termination and annual bonus payouts at target; and

- reimbursement of relocation costs or the cost of outplacement services
incurred during the two-year period following termination that are not
reimbursed by another employer.

In addition, upon an involuntary termination occurring within three years
after completion of the merger, all outstanding options and other equity awards
held by executives who are party to a severance agreement will vest.

RGS Energy also must pay any legal fees and costs that an executive incurs
in any litigation brought to enforce or interpret any provision of the severance
agreements.

If the merger were completed on April 1, 2002 and the employment of each
executive officer who is a party to a severance agreement were involuntarily
terminated immediately thereafter, the estimated cash severance that would be
payable under the severance agreements, based on certain assumptions and
currently available information, would be: $944,782 for Mr. Tomaino; $941,791
for Mr. Bovalino; $938,011 for Mr. Wilkens; and $4,175,745 for all remaining
officers as a group. Mr. Richards will not be eligible to receive any severance
benefits under his agreement because it will be superseded by his new employment
agreement with Energy East, described above.

In addition, if any payments or benefits received by an executive who is a
party to a severance agreement are subjected to the excise tax imposed under
Section 4999 of the Internal Revenue Code, the agreements provide for a payment
to the executive to restore such executive to the after-tax position that he or
she would have been in, if the excise tax had not been imposed.

EXECUTIVE INCENTIVE PLAN. RGS Energy maintains an Executive Incentive Plan
pursuant to which participating employees are eligible for annual cash awards
based on the achievement of certain performance targets. The merger agreement
provides that upon completion of the merger, the Executive Incentive Plan will
terminate and each participating employee, including the executive officers,
will be paid a pro rata portion of his or her target bonus. If the merger were
completed on April 1, 2002 and based on certain assumptions and currently
available information, the executive officers would receive the following
payments under this provision of the Executive Incentive Plan: $35,880 for
Mr. Richards; $15,602 for Mr. Tomaino; $15,602 for Mr. Bovalino; $15,602 for
Mr. Wilkens; and $125,483 for all remaining officers as a group.

DEFERRED STOCK UNIT PLAN FOR NON-EMPLOYEE DIRECTORS AND DEFERRED
COMPENSATION PLAN. Any benefits or rights accrued and unpaid to a director,
whether or not retired from the board, and which each director would have
otherwise received for those years of service preceding the completion of the
merger, will be paid at the time and in the manner set out in the relevant
plans. The aggregate amount payable to the directors under these plans is
expected to be approximately $4.5 million.

SUPPLEMENTAL RETIREMENT BENEFIT PROGRAM AND THE SUPPLEMENTAL EXECUTIVE
RETIREMENT PROGRAM AND RELATED TRUSTS. RGS Energy maintains both a Supplemental
Retirement Benefit Program and a Supplemental Executive Retirement Program. The
Supplemental Retirement Benefit Program provides monthly defined benefit
payments to participants whose benefits cannot be fully provided by RGS Energy's
defined benefit pension plan because of the limitations imposed under the
Internal Revenue Code. The Supplemental Executive Retirement Program provides
participants with a targeted level of retirement benefits based on years of
service. Upon completion of the merger, the grantor trust maintained in
connection with the Supplemental Retirement Benefit Program and the Supplemental
Executive Retirement Program must be fully and immediately funded. It is
therefore expected that in anticipation of the completion of the merger, an
aggregate of $12 million will be contributed to this trust to fund benefits of
executive officers.

STOCK-BASED RIGHTS. All unvested options to purchase shares of RGS Energy
stock then held by executive officers and employees (including certain former
employees) will vest upon completion of the merger. In addition, the merger
agreement provides that all transfer restrictions applicable to any share of RGS
Energy common stock owned by an executive officer or employee of RGS Energy will
lapse upon completion of the merger. The merger agreement also provides that,
upon completion of the merger, each outstanding and unexercised stock option to
acquire shares of RGS Energy common stock granted under the RGS Energy stock
plans will cease to represent the right to acquire shares of RGS Energy common
stock and will be converted into, and become a right, to receive a cash payment
equal to the product of (i) the excess, if any, of $39.50 over the exercise
price of such option and (ii) the number of shares of RGS Energy subject to such
option. In addition, the merger agreement provides that each holder of a stock
option will be paid upon completion of the merger an amount in cash equal to the
aggregate dividend equivalents credited to the account of such holder. See "The
Merger Agreement--Additional Agreements--RGS Energy's Stock and Other Plans."

If the merger were completed on April 1, 2002, and the RGS Energy executive
officers and employees (including certain former employees) did not exercise any
of their RGS Energy stock options before completion of the merger, they would
receive the following amounts with respect to their options that will be
exercisable before completion of the merger and with respect to options that
will become exercisable upon completion of the merger: Mr. Richards, $1,291,198
and $1,122,503; Mr. Tomaino, $489,607 and $560,425; Mr. Bovalino, $762,093 and
$405,126; Mr. Wilkens, $430,618 and $468,569; and all remaining officers and
employees (including certain former employees), as a group, $6,142,479 and
$4,338,143. In addition, they would receive a cash payment equal to the
following for all dividend equivalents held with respect to their vested and
unvested options: Mr. Richards, $670,603 and $377,379; Mr. Tomaino, $276,031 and
$161,578; Mr. Bovalino, $368,737 and $87,265; Mr. Wilkens, $226,311 and
$162,023; and all remaining officers and employees (including certain former
employees),

as a group, $3,126,476 and $911,112. In the aggregate, shares held by executive
officers and employees (including certain former employees) that were subject to
restriction before the merger will no longer be subject to restriction as a
result of completion of the merger.

INDEMNIFICATION. Pursuant to the merger agreement, from and after the
effective time of the merger, Energy East and the surviving company will, to the
fullest extent permitted by applicable law, indemnify, defend and hold harmless
each individual who is at the effective time of the merger, or was prior to the
effective time of the merger, an officer, director or employee of RGS Energy or
any of its subsidiaries against all losses, expenses (including reasonable
attorneys' fees and expenses), claims, damages or liabilities or, subject to
certain restrictions, amounts paid in settlement, arising out of actions or
omissions occurring at or prior to the effective time of the merger that are at
least in part (1) based on the fact that that individual was a director, officer
or employee of such entity or (2) based on the transactions contemplated by the
merger agreement.

In addition, for six years after the effective time, Energy East will either
(1) maintain policies of directors' and officers' liability insurance for the
benefit of those persons who currently are covered by RGS Energy's existing
directors' and officers' liability insurance policies or (2) provide tail
coverage for those persons, which provides for coverage for a period of six
years for acts prior to the effective time of the merger. In either case, the
terms of the coverage will be at least as favorable as the terms of the current
insurance coverage. Energy East will not, however, be required to expend in any
year more than 200% of the annual aggregate premiums that RGS Energy currently
pays.

MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER

The following discussion is a summary description of the material U.S.
federal income tax consequences of the merger applicable to RGS Energy
shareholders. This discussion is for general information only and does not
purport to consider all aspects of U.S. federal income taxation that may be
relevant to an RGS Energy shareholder. For example, this discussion does not
address the effect, if any, of the Foreign Investment in Real Property Tax Act
on non-U.S. persons who hold RGS Energy shares. This discussion is based upon
the provisions of the Internal Revenue Code, existing regulations, and
administrative and judicial interpretations of the Internal Revenue Code, all as
in effect as of the date hereof and all of which are subject to change (possibly
with retroactive effect). This discussion applies only to RGS Energy
shareholders who hold their RGS Energy shares as capital assets within the
meaning of Section 1221 of the Internal Revenue Code and does not apply to the
following:

- shareholders who received their RGS Energy shares pursuant to the exercise
of employee stock options or similar securities or otherwise as
compensation;

- shareholders who hold their RGS Energy shares as part of a "straddle,"
"hedge," "conversion transaction," "synthetic security" or other
integrated investment;

- shareholders (including, without limitation, financial institutions,
insurance companies, tax-exempt organizations, dealers or traders in
securities and shareholders subject to the alternative minimum tax) who
may be subject to special rules;

- shareholders whose functional currency is not the U.S. dollar; or

- shareholders who, for U.S. federal income tax purposes, are non-resident
alien individuals, foreign corporations, foreign partnerships, or foreign
estates or trusts.

This discussion also does not consider the effect of any foreign, state or
local laws or any U.S. federal laws other than U.S. federal laws pertaining to
the income tax.

THE INDIVIDUAL CIRCUMSTANCES OF EACH RGS ENERGY SHAREHOLDER MAY AFFECT THE
TAX CONSEQUENCES OF THE MERGER TO SUCH RGS ENERGY SHAREHOLDER. THE PARTICULAR
FACTS OR CIRCUMSTANCES OF AN RGS ENERGY SHAREHOLDER THAT MAY SO AFFECT THE
CONSEQUENCES ARE NOT DISCUSSED HERE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX
ADVISOR TO DETERMINE THE TAX EFFECT TO YOU OF THE MERGER, INCLUDING THE
APPLICATION AND EFFECT OF FOREIGN, OR U.S. FEDERAL, STATE, LOCAL OR OTHER TAX
LAWS. NON-U.S. SHAREHOLDERS, IF ANY, WHO HOLD OR HAVE HELD (DIRECTLY,
CONSTRUCTIVELY, OR BY ATTRIBUTION) MORE THAN 5% OF THE OUTSTANDING RGS ENERGY
SHARES SHOULD CONSULT THEIR TAX ADVISORS REGARDING THE CONSEQUENCES TO THEM OF
THE MERGER UNDER THE FOREIGN INVESTMENT IN REAL PROPERTY TAX ACT, INCLUDING ANY
TAX FILING REQUIREMENTS THAT MAY APPLY.

Except as described below under "--Effect of Restructuring the Merger," the
completion of the merger is contingent upon the receipt by:

- Energy East of an opinion from its attorneys to the effect that the merger
will be treated as a reorganization within the meaning of Section 368(a)
of the Internal Revenue Code; and

- RGS Energy of an opinion from its attorneys to the effect that the merger
will be treated as a reorganization within the meaning of Section 368(a)
of the Internal Revenue Code.

The opinions will be based upon certain customary assumptions and
representations, including representations contained in certificates of officers
of Energy East, RGS Energy and others. No ruling has been or will be sought from
the Internal Revenue Service as to the U.S. federal income tax consequences of
the merger, and the opinions of counsel are not binding upon the Internal
Revenue Service or any court. Accordingly, there can be no assurances that the
Internal Revenue Service will not contest the conclusions expressed in the
opinions or that a court will not sustain such contest.

Except for the discussion below under "--Effect of Restructuring the
Merger," the following discussion of U.S. federal income tax consequences of the
merger to RGS Energy shareholders assumes that the merger will qualify as a
"reorganization" within the meaning of Section 368(a) of the Internal Revenue
Code. As discussed below, the U.S. federal income tax consequences of the merger
to an RGS Energy shareholder depend on the form of consideration received by the
shareholder, and may further depend on whether (1) the shareholder is deemed to
constructively own RGS Energy shares under Section 318 of the Internal Revenue
Code (which generally deems a person to own stock that is owned by certain
family members or related entities or that is the subject of an option or
options owned or deemed owned by such person), and (2) the shareholder actually
or constructively owns any Energy East shares.

SHAREHOLDERS WHO RECEIVE SOLELY ENERGY EAST SHARES. An RGS Energy
shareholder who exchanges RGS Energy shares solely for Energy East shares will
not recognize any gain or loss on that exchange, except to the extent the
shareholder receives cash in lieu of fractional shares of Energy East (as
discussed below). The aggregate adjusted tax basis of Energy East shares
received will equal the RGS Energy shareholder's aggregate adjusted tax basis in
the RGS Energy shares surrendered (reduced by the tax basis allocable to any
fractional shares of Energy East received in the merger). The holding period of
the Energy East shares received pursuant to the merger will include the holding
period of the RGS Energy shares surrendered.

SHAREHOLDERS WHO RECEIVE CASH AND ENERGY EAST SHARES. If the consideration
received in the merger by an RGS Energy shareholder consists of part cash and
part Energy East shares and the shareholder's adjusted basis in the RGS Energy
shares surrendered in the transaction is less than the sum of the fair market
value, as of the date of the merger, of the Energy East shares and the amount of
cash received by the shareholder, then the shareholder will recognize a gain.
This recognized gain will equal the lesser of (1) the sum of the amount of cash
and the fair market value, as of the date of the merger, of the Energy East
shares received, minus the adjusted basis of the RGS Energy shares surrendered
in exchange therefor, and (2) the amount of cash received by the shareholder in
the

exchange. However, if an RGS Energy shareholder's adjusted basis in the RGS
Energy shares surrendered in the transaction is greater than the sum of the
amount of cash and the fair market value of the Energy East shares received, the
RGS Energy shareholder's loss will not be currently allowed or recognized for
U.S. federal income tax purposes. The rules set forth above assume that the
basis in each share held by the RGS Energy shareholder is equal. RGS Energy
shareholders who bought shares of RGS Energy at different prices, or otherwise
own shares with unequal bases, must make the above calculations separately for
each RGS Energy share surrendered, taking into account the shareholder's basis
in each share and a pro rata portion of the aggregate consideration received by
the shareholder. A loss realized on one RGS Energy share may not be used to
offset a gain realized on another share.

In the case of an RGS Energy shareholder who recognizes gain on the
exchange, if the exchange sufficiently reduces the shareholder's proportionate
stock interest (as discussed below), the gain will be characterized as a capital
gain. Such gain will be long-term capital gain if the shareholder's holding
period for the RGS Energy shares surrendered exceeds one year. If the exchange
does not sufficiently reduce the shareholder's proportionate stock interest,
such gain will be taxable as a dividend to the extent of the shareholder's
ratable share of available earnings and profits (and the remainder, if any, of
such recognized gain will be capital gain).

The determination of whether the exchange sufficiently reduces an RGS Energy
shareholder's proportionate stock interest will be made in accordance with
Section 302 of the Internal Revenue Code, taking into account the stock
ownership attribution rules of Section 318 of the Internal Revenue Code. Under
those rules, for purposes of determining whether the exchange sufficiently
reduces a shareholder's proportionate stock interest, an RGS Energy shareholder
is treated as if (1) all such shareholder's RGS Energy shares were first
exchanged in the merger for Energy East shares and (2) a portion of those Energy
East shares were then redeemed for the cash actually received in the merger. The
RGS Energy shareholder's hypothetical stock interest in Energy East (both actual
and constructive) after hypothetical step (2) is compared to such RGS Energy
shareholder's hypothetical stock interest in Energy East (both actual and
constructive) after hypothetical step (1). Dividend treatment will apply unless
the shareholder's stock interest in Energy East has been completely terminated,
there has been a "substantially disproportionate" reduction in the shareholder's
stock interest in Energy East (I.E., such interest after hypothetical step
(2) is less than 80% of the interest after hypothetical step (1)), or the
exchange is not "essentially equivalent to a dividend." While the determination
is based on an RGS Energy shareholder's particular facts and circumstances, the
Internal Revenue Service has indicated in published rulings that a distribution
is not "essentially equivalent to a dividend" and will therefore result in
capital gain treatment if the distribution results in any actual reduction in
the stock interest of an extremely small minority shareholder in a publicly held
corporation and the shareholder exercises no control with respect to corporate
affairs.

BECAUSE THE DETERMINATION OF WHETHER A PAYMENT WILL BE TREATED AS HAVING THE
EFFECT OF THE DISTRIBUTION OF A DIVIDEND GENERALLY WILL DEPEND UPON THE FACTS
AND CIRCUMSTANCES OF EACH RGS ENERGY SHAREHOLDER, RGS ENERGY SHAREHOLDERS ARE
STRONGLY ADVISED TO CONSULT THEIR OWN TAX ADVISORS REGARDING THE TAX TREATMENT
OF CASH RECEIVED IN THE MERGER, INCLUDING THE APPLICATION OF THE CONSTRUCTIVE
OWNERSHIP RULES OF THE INTERNAL REVENUE CODE AND THE EFFECT OF ANY TRANSACTIONS
IN ENERGY EAST SHARES OR RGS ENERGY SHARES BY THE RGS ENERGY SHAREHOLDER.

The basis of an RGS Energy shareholder who receives cash and Energy East
shares in the merger in the Energy East shares received will equal such
shareholder's adjusted basis in the shareholder's RGS Energy shares increased by
any gain recognized as a result of the merger and reduced by the amount of cash
received in the merger. The holding period of the Energy East shares received
will include the holding period of the RGS Energy shares surrendered.

SHAREHOLDERS WHO RECEIVE SOLELY CASH. The exchange of RGS Energy shares
solely for cash generally will result in recognition of gain or loss by the
shareholder in an amount equal to the difference between the amount of cash
received and the shareholder's adjusted tax basis in the RGS Energy shares
surrendered. The gain or loss recognized will be long-term capital gain or loss
if the shareholder's holding period for the RGS Energy shares surrendered
exceeds one year. An RGS Energy shareholder who receives only cash in exchange
for all such shareholder's RGS Energy shares and actually or constructively owns
Energy East shares after the merger should, however, consult the shareholder's
tax advisor to determine the amount and character of any income recognized in
connection with the merger. Furthermore, there are limitations on the extent to
which any shareholder may deduct capital losses from ordinary income.

CASH RECEIVED IN LIEU OF FRACTIONAL SHARES. An RGS Energy shareholder who
receives cash in lieu of a fractional Energy East share will be treated as
having first received such fractional Energy East share in the merger and then
as having received cash in exchange for the fractional share interest. Thus,
such an RGS Energy shareholder generally will recognize gain or loss in an
amount equal to the difference between the amount of cash received in lieu of
the fractional Energy East share and the portion of the basis in the RGS Energy
shares allocable to that fractional interest.

SPECIAL RULES FOR SHAREHOLDERS THAT ARE CORPORATIONS. To the extent that
cash received in exchange for RGS Energy shares is taxable as a dividend (as
described above) to an RGS Energy shareholder that is a corporation, that
shareholder will be (1) eligible for a dividends received deduction (subject to
applicable limitations) and (2) subject to the "extraordinary dividend"
provisions of the Internal Revenue Code. Under those provisions, any such cash
that is taxable as a dividend to a corporate shareholder will constitute an
extraordinary dividend. Consequently, the nontaxed portion of any such dividend
will reduce the adjusted tax basis of an RGS Energy shareholder that is a
corporation in the Energy East shares received in the merger, but not below
zero, and will thereafter be taxable as capital gain.

EFFECT OF RESTRUCTURING THE MERGER. Energy East may, for tax reasons, have
to increase the number of RGS Energy shares converted into Energy East shares
and decrease the number of RGS Energy shares converted into cash. In that event,
RGS Energy may elect instead to change the form of the merger. If RGS Energy
elects to change the form of the merger, Eagle Merger Corp. will merge into RGS
Energy in a transaction that is fully taxable to RGS Energy shareholders and the
requirement that Energy East and RGS Energy receive the opinions referred to
above regarding reorganization status will not apply. For each RGS Energy share
surrendered, an RGS Energy shareholder will recognize gain equal to the excess,
if any, of (1) the sum of the amount of cash and the fair market value (as of
the date of the merger) of the Energy East shares received for the RGS Energy
share surrendered over (2) the shareholder's adjusted tax basis in the RGS
Energy share surrendered. If the RGS Energy shareholder's basis in the RGS
Energy share surrendered exceeds the sum of the amount of cash and the fair
market value (as of the date of the merger) of the Energy East shares received
for the RGS Energy share surrendered, then the RGS Energy shareholder should
recognize a loss equal to such excess. RGS Energy shareholders that will realize
a loss in the merger should consult their own tax advisor regarding allowance of
the loss in their particular circumstances. The gain or loss recognized will be
long-term capital gain or loss if the shareholder's holding period of the RGS
Energy shares surrendered exceeds one year. The tax basis of the Energy East
shares received in the merger will generally be the fair market value of such
shares as of the date of the merger, and the holding period of such shares will
not include the holding period of the RGS Energy shares surrendered.

MATERIAL FEDERAL INCOME TAX CONSEQUENCES TO ENERGY EAST, RGS ENERGY AND
EAGLE MERGER CORP. Assuming that the merger is treated as a reorganization, none
of Energy East, RGS Energy or Eagle Merger Corp. will recognize gain or loss as
a result of the merger. The same result would apply if the merger were
restructured as described above under "--Effect of Restructuring the Merger."

BACKUP WITHHOLDING. Payments in connection with the merger may be subject
to "backup withholding" at a rate of 31%, unless an RGS Energy shareholder
(1) provides a correct taxpayer identification number (which, for an individual
shareholder, is the shareholder's social security number) and any other required
information to the paying agent, or (2) is a corporation or comes within certain
exempt categories and, when required, demonstrates that fact and otherwise
complies with applicable requirements of the backup withholding rules. An RGS
Energy shareholder who does not provide a correct taxpayer identification number
may be subject to penalties imposed by the Internal Revenue Service. Any amount
paid as backup withholding does not constitute an additional tax and will be
creditable against the shareholder's U.S. federal income tax liability. Each RGS
Energy shareholder should consult with his or her own tax advisor as to his or
her qualification for exemption from backup withholding and the procedure for
obtaining such exemption. RGS ENERGY SHAREHOLDERS MAY PREVENT BACKUP WITHHOLDING
BY COMPLETING A SUBSTITUTE FORM W-9 (WHICH WILL BE INCLUDED WITH THEIR LETTER OF
TRANSMITTAL) AND SUBMITTING IT TO THE PAYING AGENT FOR THE MERGER WHEN THEY
SUBMIT THEIR RGS ENERGY SHARE CERTIFICATES.

THE MERGER AGREEMENT

THE FOLLOWING DESCRIPTION OF THE MATERIAL TERMS OF THE MERGER AGREEMENT IS
ONLY A SUMMARY AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE ACTUAL
MERGER AGREEMENT, A COPY OF WHICH IS ATTACHED AS APPENDIX A TO THIS DOCUMENT. WE
URGE YOU TO READ CAREFULLY THE MERGER AGREEMENT BECAUSE IT, AND NOT THIS
DOCUMENT, IS THE LEGAL DOCUMENT THAT GOVERNS THE MERGER.

GENERAL

The closing of the merger will occur on the second business day immediately
following the date upon which all conditions to the merger have been satisfied
or waived, or at such other time as the parties agree. At the closing of the
merger, the parties will file a certificate of merger with the Department of
State of the State of New York. The merger will become effective upon the filing
of this certificate or at such later time as may be set forth in the
certificate. We currently expect that the closing of the merger will take place
in the first quarter of 2002.

CORPORATE GOVERNANCE MATTERS

DIRECTORS. After the merger becomes effective, the board of directors of
the surviving company will consist of two directors appointed by Energy East and
one director appointed by RGS Energy. Energy East intends to nominate Mr. von
Schack and Mr. Jasinski, while RGS Energy intends to nominate Mr. Richards.
These directors will hold office until their successors are duly elected or
appointed and qualified. In addition, pursuant to the merger agreement, Energy
East will add three members to its board of directors. These additional seats
will be filled by Mr. Richards and two current non-management directors of RGS
Energy.

OFFICERS. After the merger becomes effective, RGS Energy will nominate one
person who will serve as president and chief executive officer of the surviving
company. RGS Energy intends to nominate Mr. Richards to hold these offices.
Energy East will nominate the other officer of the surviving company, who will
serve as vice president, general counsel and secretary. Energy East intends to
nominate Mr. Jasinski to hold these offices. All officers will hold their
positions until their successors are duly elected or appointed and qualified.
Mr. Richards will also serve as chairman of the surviving company, and will hold
other positions as specified in an employment agreement that he, RGS Energy and
Energy East have executed.

CONVERSION OF RGS ENERGY SHARES

MERGER CONSIDERATION. At the effective time of the merger, all outstanding
RGS Energy shares (other than those that are held by RGS Energy as treasury
stock) will be converted into the right to receive the merger consideration.
Each RGS Energy shareholder has a right to make an election as to the form in
which he or she would like to receive the merger consideration, which may be
subject to proration or adjustment based on tax considerations as explained
below. RGS Energy shareholders can elect to receive cash, Energy East shares or
a combination of cash and Energy East shares. The cash consideration is $39.50,
without interest, per RGS Energy share. The stock consideration is a number of
Energy East shares per RGS Energy share that will vary depending on the Average
Market Price. If the Average Market Price is equal to or more than $16.57 per
share and equal to or less than $22.41 per share, then each RGS Energy share
will be exchanged for $39.50 worth of Energy East shares. If the Average Market
Price is less than $16.57, then each RGS Energy share will be exchanged for
2.3838 Energy East shares, irrespective of the value of those shares. Finally,
if the Average Market

Price is greater than $22.41 per share, then each RGS Energy share will be
exchanged for 1.7626 Energy East shares, again irrespective of the value of
those shares. If an RGS Energy shareholder wants a combination of cash and
Energy East shares, he or she must designate how many of his or her RGS Energy
shares he or she would like to convert into the $39.50 in cash and how many he
or she would like to convert into Energy East shares.

As of the effective time of the merger, no RGS Energy shares will be
outstanding; they will all be automatically canceled and retired. Each RGS
Energy shareholder will cease to have any shareholder rights, except the right
to receive the merger consideration of cash, Energy East shares or a combination
of cash and Energy East shares.

OVERSUBSCRIPTION OF CASH OR STOCK. Subject to an adjustment for tax reasons
(as described below), 55% of all outstanding RGS Energy shares will be converted
into cash and 45% will be converted into Energy East shares.

RGS Energy shareholders, as a group, may submit elections to convert more
than 55% of the outstanding RGS Energy shares into cash or more than 45% into
Energy East shares. If either cash or Energy East shares is oversubscribed, then
an equitable pro rata adjustment will be made to ensure that 55% of the
outstanding RGS Energy shares are converted into cash and 45% are converted into
Energy East shares. For example, if cash is oversubscribed, each RGS Energy
share as to which an election was submitted to be converted into $39.50 in cash
will, instead, be converted into an amount of cash that is less than $39.50 and
a number of Energy East shares calculated in accordance with the formula set
forth in section 2.1(e) of the merger agreement. Similarly, if Energy East
shares are oversubscribed, each RGS Energy share as to which an election was
submitted to be converted into Energy East shares will, instead, be converted
into a lower number of Energy East shares and an amount of cash calculated in
accordance with the formula set forth in section 2.1(g) of the merger agreement.

NO FRACTIONAL SHARES. No fractional Energy East shares will be issued in
the merger. RGS Energy shareholders will receive a cash payment in lieu of
fractional Energy East shares. This cash will come from an exchange agent's
open-market sales of the aggregate fractional Energy East shares.

ADJUSTMENT TO PER SHARE ENERGY EAST SHARE AMOUNT. If, prior to the
effective time of the merger, Energy East pays an extraordinary dividend, enters
into a merger or consolidation, or changes the number of outstanding Energy East
shares through a stock split, stock dividend or similar transaction, then the
calculation of the number of Energy East shares to be received in the merger
will be adjusted to reflect this transaction.

TAX ADJUSTMENT. We intend that the merger qualify as a "reorganization"
within the meaning of the Internal Revenue Code and, therefore, be tax free for
those RGS Energy shareholders who receive only Energy East shares in the
transaction. Under the Internal Revenue Code, however, the merger might not be a
reorganization if, on the closing date of the merger, the total value of the
Energy East shares that RGS Energy shareholders receive does not represent a
minimum percentage of the value of the total consideration--including Energy
East shares, cash and any other amounts treated as consideration in connection
with the merger for purposes of the Internal Revenue Code--that RGS Energy
shareholders receive in connection with the merger. To prevent this from
happening, if the value of the Energy East shares received would otherwise be
less than 42.5% of the value of the total consideration, the number of RGS
Energy shares that will be converted into Energy East shares will be increased,
and the number of RGS Energy shares converted into cash will be correspondingly
decreased. For the shares subject to this adjustment, RGS Energy shareholders
will receive Energy East shares worth less than the cash they would have
received. In lieu of this adjustment, RGS Energy may elect to have the merger
agreement amended so that Eagle Merger Corp. would merge with and into RGS
Energy, with RGS Energy as the surviving company. If RGS Energy so elects, the
parties would

no longer intend for the merger to qualify as a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code, and the condition on
each party's obligations to complete the merger that relate to its receiving a
legal opinion to that effect would be waived.

EXCHANGE AGENT. Promptly after the effective time of the merger, Energy
East will deposit with an exchange agent cash and certificates evidencing the
Energy East shares sufficient to effect the conversion of RGS Energy shares into
cash and Energy East shares pursuant to the merger agreement.

ELECTION PROCEDURES; EXCHANGE OF CERTIFICATES. Copies of the form of
election will be mailed to record holders of RGS Energy shares not less than
30 days prior to the effective time of the merger and made available to persons
who become record holders after this mailing but not later than seven business
days prior to the effective time of the merger. To be effective, a form of
election must be:

- properly completed, signed and submitted to the exchange agent;

- accompanied by the RGS Energy share certificates as to which the election
is being made (or an appropriate guarantee of delivery of such
certificates as provided in the merger agreement); and

- received by the exchange agent before the election deadline, which is
5:00 p.m., New York City time, on the third day after the effective time
of the merger.

Energy East has the discretion to determine whether an RGS Energy
shareholder has properly completed, signed, and submitted (or revoked) a form of
election and to disregard immaterial defects in the form of election. Energy
East may delegate this right to the exchange agent. Neither Energy East nor the
exchange agent is under any obligation to notify any person of any defect in a
form of election submitted to the exchange agent. The exchange agent will also
make all computations in respect of the conversion of RGS Energy shares into
cash and Energy East shares, and all such computations will be conclusive and
binding on RGS Energy shareholders. Any RGS shareholder may revoke his or her
form of election in writing prior to the deadline for submitting elections.

An RGS Energy shareholder who submits an untimely or improperly completed
form of election will be deemed not to have made an election. That shareholder's
RGS Energy shares may be treated as shares that the shareholder elected to
exchange for cash or Energy East shares.

EXCHANGE AND PAYMENT PROCEDURES. Promptly after the effective time of the
merger, the exchange agent will mail to each record holder of a certificate
representing RGS Energy shares that have been converted into the right to
receive the merger consideration:

- a letter of transmittal for use in submitting share certificates to the
exchange agent; and

- instructions explaining what RGS Energy shareholders must do to effect the
surrender of the RGS Energy share certificates and receive the merger
consideration.

After an RGS Energy shareholder submits his or her RGS Energy share
certificates, a letter of transmittal and other documents that may be required,
the RGS Energy shareholder will be entitled to receive cash, a certificate
representing Energy East shares, or a combination of cash and Energy East
shares. The merger consideration may be delivered to someone who is not listed
in RGS Energy's transfer records if he or she presents an RGS Energy share
certificate to the exchange agent along with all documents required to evidence
that a transfer of the RGS Energy share certificate has been made to him or her
and that any applicable stock transfer taxes have been paid. Until surrender,
each RGS Energy share certificate will be deemed at any time after the effective
time of the merger to represent only the right to receive the merger
consideration upon surrender.

PAYMENTS FOLLOWING SURRENDER. Until they have surrendered their RGS Energy
share certificates, holders of RGS Energy share certificates who elect to
receive Energy East shares will not receive:

- dividends and other distributions with respect to Energy East shares that
they are entitled to pursuant to the merger and that are declared or made
with a record date after the effective time; or

- cash instead of fractional Energy East shares payable pursuant to the
merger agreement.

At the time of surrender, RGS Energy shareholders will receive the cash
payable in place of fractional Energy East shares to which the RGS Energy
shareholders are entitled under the merger agreement and the dividends or other
distributions that have been paid to Energy East shareholders if such
distributions had a record date after the effective time. These RGS Energy
shareholders will also be paid on the appropriate payment date the amount of
dividends or other distributions with a record date after the effective time
(but prior to surrender) and a payment date subsequent to surrender.

SHAREHOLDERS SHOULD NOT FORWARD CERTIFICATES TO THE EXCHANGE AGENT, ENERGY
EAST OR RGS ENERGY UNTIL THEY HAVE RECEIVED A FORM OF ELECTION. SHAREHOLDERS
SHOULD NOT RETURN CERTIFICATES WITH THE ENCLOSED PROXY. A FORM OF ELECTION AND
COMPLETE INSTRUCTIONS FOR PROPERLY MAKING AN ELECTION TO RECEIVE CASH, ENERGY
EAST SHARES OR A COMBINATION OF CASH AND ENERGY EAST SHARES WILL BE MAILED TO
RGS ENERGY SHAREHOLDERS UNDER SEPARATE COVER BEFORE THE ANTICIPATED DAY OF THE
CLOSING OF THE MERGER, WHICH IS CURRENTLY EXPECTED TO BE IN THE FIRST QUARTER OF
2002.

REPRESENTATIONS AND WARRANTIES

In the merger agreement, we make representations and warranties about
ourselves and our businesses, including the following:

by RGS Energy as to:

- its proper organization, good - validity of its subsidiaries' stock
standing and qualification to do and the ownership rights of RGS
business in various states; Energy with respect to that stock;

- capital structure; - authority to enter into and
enforceability of the merger
agreement;

- filing of all required reports and - absence of certain adverse changes
financial statements and the or events;
accuracy of information used in
their preparation;

- litigation; - accuracy of information used in the
registration statement and joint
proxy statement that the parties to
the merger agreement must file with
the SEC;

- tax matters, including Section - employee matters and the Employee
368(a) of the Internal Revenue Code; Retirement Income Security Act of
1974;

- environmental compliance and - regulation as a utility;
liability;

- RGS Energy shareholder vote - opinion of financial advisor;
required;

- ownership of Energy East shares; - non-applicability of takeover laws;
and

- compliance of the operations of its
nuclear power generation plant with
applicable laws and regulations.

and by Energy East as to:

- its proper organization, good - validity of its subsidiaries' stock
standing and qualification to do and the ownership rights of Energy
business in various states; East with respect to that stock;

- capital structure; - authority to enter into and
enforceability of the merger
agreement;

- filing of all required reports and - absence of certain adverse changes
financial statements and the or events;
accuracy of information used in
their preparation;

- litigation; - accuracy of information used in the
registration statement and joint
proxy statement;

- environmental compliance and - regulation as a utility;
liability;

- Energy East shareholder vote - ownership of RGS Energy shares; and
required;

- Section 368(a) of the Internal
Revenue Code.

The representations and warranties made by us will not survive the merger,
but they form the basis of conditions to the obligations of our companies to
effect the merger.

COVENANTS

MUTUAL COVENANTS. Under the merger agreement, we agreed that, during the
period from the date of the merger agreement until the effective time of the
merger, except as otherwise permitted in the merger agreement or by written
consent of the parties, we will each comply with the following covenants:

- we will coordinate our dividend policies prior to the closing date of the
merger, so that differences in the timing of record, declaration or
payment dates will not adversely affect either RGS Energy shareholders or
Energy East shareholders. Also, neither of us will declare or pay any
dividends except (1) dividends by a wholly owned subsidiary to its parent
or to another wholly owned subsidiary of its parent, (2) dividends payable
by a less than wholly owned subsidiary consistent with past practice,
(3) regular dividends that do not materially exceed regular dividends in
effect as of the date of the merger agreement and have usual record and
payment dates or (4) in the case of Energy East, increases in regular
quarterly dividends consistent with past practice;

- we and our subsidiaries will not amend our certificates of incorporation,
bylaws or other organizational documents, or take or fail to take any
other action, in such a way that would reasonably be expected to prevent,
impede or interfere with the merger;

- we each will confer on a regular and frequent basis with representatives
of the other party to discuss, subject to applicable law, material
operational matters and the general status of their ongoing operations;
promptly notify the other party of any significant changes in their
business, properties, assets, condition, results of operations or
prospects; advise the other party of any change or event that have had, or
would reasonably be expected to have, a material adverse effect on us; and
promptly provide the other party with copies of all filings with
governmental authorities in connection with the merger agreement;

- each of us and our subsidiaries will use all commercially reasonable
efforts to obtain all necessary consents to complete the merger, promptly
notify the other party of any failure or

prospective failure to obtain these consents, and, if requested by the
other party, will provide copies of all the consents that have been
obtained;

- we and our subsidiaries will not willfully take any action that is
reasonably likely to result in a material breach of the merger agreement
or in any of their representations and warranties being untrue on and as
of the closing date of the merger;

- we and our subsidiaries will maintain insurance policies that are
customary for companies engaged in the electric and gas utility industry
with financially responsible insurance companies; and

- each of us will take all necessary steps within our control to exempt the
merger from, or, if necessary, challenge the validity or applicability of,
any applicable takeover law.

COVENANTS OF ENERGY EAST. Energy East agreed that it would not enter into,
or agree to enter into

- any transaction that would cause Energy East to become not primarily
engaged in the gas and electric utilities businesses, or

- any acquisition or disposition of assets or securities that would delay,
or would be reasonably expected to delay, the completion of the merger.

COVENANTS OF RGS ENERGY. RGS Energy agreed that, until the effective time
of the merger or the termination of the merger agreement, RGS Energy and its
subsidiaries will:

- carry on their businesses in the ordinary course;

- preserve intact their business organizations, goodwill and relationships
with customers, suppliers and others having business dealings with them,
keep available the services of their present officers and employees as a
group (subject to prudent management of workforce needs and ongoing
programs currently in force), maintain properties and assets in good
repair, and maintain supplies and inventories in quantities consistent
with past practice;

- abide by certain customary restrictions on the conduct of their businesses
regarding: (1) dividends, (2) stock splits and issuances of RGS Energy
shares, (3) redemptions of RGS Energy shares, (4) substantial equity and
asset acquisitions, (5) capital expenditures, (6) substantial asset
dispositions, (7) indebtedness, (8) employee benefit plans and other
employment arrangements, (9) tax and accounting matters, (10) discharge of
liabilities and (11) amendment, termination and renewal of material
contracts;

- not engage in any activities that would cause a change in their status
under the Public Utility Holding Company Act;

- use reasonable efforts to maintain in effect all existing governmental
permits pursuant to which they operate; and

- not amend or waive any rights that would materially and adversely affect
the benefits of the merger to either of us or our ability to complete the
merger.

NO SOLICITATION OF ALTERNATIVE PROPOSALS. RGS Energy also agreed to certain
restrictions concerning "ALTERNATIVE PROPOSALS," which are defined in the merger
agreement as mergers, consolidations or similar transactions between a third
party and RGS Energy or any of its subsidiaries, or any third-party proposals or
offers to acquire in any manner, directly or indirectly, a substantial equity
interest in or a

substantial portion of the assets of RGS Energy or any of its subsidiaries.
Specifically, RGS Energy agreed that:

- neither it nor its subsidiaries will encourage, initiate, solicit or take
any other action to facilitate knowingly any inquiries, proposals or
offers that constitute or may reasonably be expected to lead to an
Alternative Proposal from any person;

- neither it nor its subsidiaries will engage in any discussion or
negotiations concerning, or provide any nonpublic information or data to
make or implement, an Alternative Proposal;

- it will immediately cease and cause to be terminated any existing
solicitation, initiation, encouragement, activity, discussions or
negotiations with any parties conducted with a view of formulating an
Alternative Proposal; and

- it will notify Energy East of any of these inquiries, offers or proposals
within 48 hours of receipt and keep Energy East informed of their status,
and it will give Energy East 48 hours' advance notice of its intent to
enter into any confidentiality or similar agreement or to provide
information to any person making the inquiry, offer or proposal.

Nonetheless, RGS Energy may:

- at any time before approval of the merger agreement by RGS Energy
shareholders, engage in discussions or negotiations with a third party
that seeks to initiate these discussions or negotiations, and may furnish
such third party information concerning RGS Energy and its business,
properties and assets, but only if:

- the RGS Energy board of directors determines in good faith that the
third party has made an Alternative Proposal that is financially
superior to the merger and has demonstrated that any necessary
financing has been obtained or, in the reasonable judgment of RGS
Energy's financial advisor, is obtainable, and the RGS Energy board of
directors concludes in good faith, after consultation with its
financial advisor and outside counsel and consideration of other
relevant matters, that failure to take the above-mentioned actions
would likely result in a breach of its fiduciary duties under
applicable law; and

- before RGS Energy provides information to, or enters into discussions
or negotiations with, the third party, RGS Energy receives from the
third party an executed confidentiality agreement;

- comply with Rule 14e-2 under the Securities Exchange Act of 1934
regulating tender or exchange offers; and/or

- accept an Alternative Proposal from a third party, so long as it first
terminates the merger agreement with Energy East.

ADDITIONAL AGREEMENTS

In addition to the covenants above, we have also agreed on the following
matters.

ACCESS TO INFORMATION. Upon reasonable notice and during normal business
hours until the effective time of the merger, each of us will provide the other
with reasonable access to all of our properties, books, contracts, commitments
and records. In addition, each of us will provide to the other party (1) access
to all reports, schedules and other documents that we or our subsidiaries filed
or received under federal or state securities laws or filed with or sent to the
SEC, the Federal Energy Regulatory Commission, the Nuclear Regulatory
Commission, the Antitrust Division of the Department of Justice, the Federal
Trade Commission, or any other U.S. federal or state regulatory agency or
commission, and (2) access to all information concerning ourselves, our
subsidiaries, directors, officers and shareholders, and other matters that the
other party may reasonably request in connection with any

filings, applications, or approvals required under the merger agreement. Each of
us will hold in strict confidence all information furnished to us in connection
with the merger. Also, each of us will permit the other party to conduct any
environmental inspections of our properties that the other party may reasonably
require, and will furnish the other party with records, reports and data
concerning the existence of hazardous materials at properties presently or
formerly owned, operated, leased or used by one of us or our subsidiaries and
the compliance with environmental laws.

JOINT PROXY STATEMENT AND REGISTRATION STATEMENT. We agreed to prepare and
file this document as soon as reasonably practicable after February 16, 2001 and
to each use reasonable efforts to cause the registration statement with respect
to the Energy East shares to be issued in connection with the merger to be
declared effective as promptly as practicable after the filing of this document.
We agreed to take any actions reasonably required to have these Energy East
shares registered under or exempted from state securities laws, except that
neither of us is required to register or qualify as a foreign corporation or
otherwise subject ourselves to service of process to which we would not
otherwise be subject following the completion of the merger. We will use
reasonable efforts to cause the Energy East shares to be issued in connection
with the merger to be approved for listing on the New York Stock Exchange.

FURTHER ASSURANCES; REGULATORY MATTERS. Each of us and our subsidiaries
will cooperate with one another and use our best efforts

- to prepare and file promptly all necessary documentation required or
advisable with respect to the merger or the other transactions
contemplated by the merger agreement with the appropriate governmental
authorities,

- to comply with any request for information or documents from a
governmental authority relating to, and appropriate in the light of,
matters within the jurisdiction of the governmental authority, so long as
each of us uses our best efforts to keep the information provided by us
confidential, to the extent it is required by the party providing the
information, and takes appropriate legal action within our discretion to
avoid providing trade secrets, privileged information or other information
which reasonably should be treated as confidential,

- to take all actions necessary or advisable to obtain required governmental
consents by November 16, 2002, and

- to oppose vigorously any litigation that would impede or delay the
completion of the merger, which includes promptly appealing any adverse
court order.

Each of us and our subsidiaries will execute all additional documents and
instruments and take all other actions that the other party may reasonably
request in order to complete the merger. Each of us also agreed that, although
it is our intent for the merger to be structured as set out in the merger
agreement, if one or more required regulatory approvals is the only condition to
the completion of the merger that has not been satisfied, and a different
structure for the merger could result in this condition being satisfied or
waived, each of us will use our best efforts to enter into a differently
structured merger. Before an alternative structure is used, however, all
conditions to the completion of the newly restructured merger must be satisfied
or waived.

Our cooperation in obtaining regulatory approvals includes obtaining the
approval of the New York State Public Service Commission. Mr. Richards will have
primary responsibility for coordinating strategy and communication with the New
York State Public Service Commission.

SHAREHOLDER APPROVAL. RGS Energy will take all steps necessary to convene
and hold a meeting of RGS Energy shareholders to obtain the necessary majority
vote to approve the merger. Subject to their fiduciary duties, the RGS Energy
board of directors will recommend to the RGS Energy shareholders the approval of
the merger agreement. Energy East will take all steps necessary to convene and
hold a

meeting of Energy East shareholders to obtain the necessary majority vote to
approve the issuance of Energy East shares in connection with the merger.
Subject to their fiduciary duties, the Energy East board of directors will
recommend to the Energy East shareholders the approval of the issuance of Energy
East shares in connection with the merger.

INDEMNIFICATION OF DIRECTORS AND OFFICERS. To the extent these individuals
are not otherwise indemnified, Energy East and the surviving company have agreed
to indemnify, after the effective time of the merger, each individual who has
ever been an officer, director or employee of RGS Energy or any of its
subsidiaries. This indemnification will cover all losses, expenses (including
reasonable attorneys' fees and expenses), claims, damages, liabilities or
amounts paid in settlement (if Energy East provided written consent to the
settlement) arising out of actions or omissions occurring at or before the
effective time of the merger that are at least in part (1) based on the fact
that such individual served as a director, officer or employee of RGS Energy or
one of its subsidiaries or (2) based on the transactions contemplated by the
merger agreement. Energy East will advance to the indemnified party, upon
request, reimbursement of documented expenses reasonably incurred. Independent
counsel mutually acceptable to Energy East and the indemnified individual will
make all necessary determinations to decide whether an indemnified individual's
conduct complies with the standards for indemnification established by New York
law and the governing certificate of incorporation and bylaws. These rights to
indemnification will continue for at least six years after the effective time of
the merger.

INSURANCE. For six years after the effective time of the merger, Energy
East will either maintain liability insurance policies for the benefit of those
directors and officers of RGS Energy and its subsidiaries who are currently
covered or provide tail coverage for those directors and officers. In either
case, the terms of the coverage will be at least as favorable as the terms of
the current insurance coverage. Energy East will not, however, be required to
expend in any year more than 200% of the annual aggregate premiums that RGS
Energy currently pays.

PUBLIC ANNOUNCEMENTS. Subject to our legal obligations to disclose
information, we will cooperate with each other in the development and
distribution of all news releases and other public information disclosures about
the merger agreement and the merger. In addition, each of us will not issue any
public announcement or statement without the consent of the other party (the
consent cannot be withheld unreasonably).

RULE 145 AFFILIATES. Within 30 days of the date of the merger agreement,
RGS Energy will identify in a letter to Energy East all persons who are, and to
the person's best knowledge who will be at the completion date of the merger,
affiliates of RGS Energy according to Rule 145 under the Securities Act of 1933.
Also, RGS Energy will use all reasonable efforts to cause its affiliates
(including any who were not named in the letter sent by RGS Energy to Energy
East) to deliver to Energy East by the date of the completion of the merger a
letter in which, among other things, the person recognizes his or her possible
status as an affiliate and agrees to comply with Rule 145 and certain
restrictions on selling his or her Energy East shares that the person will
receive in connection with the merger.

EMPLOYEE AGREEMENTS. Except as provided below, Energy East and its
subsidiaries will honor all existing contracts, agreements and commitments of
RGS Energy that were entered into before February 16, 2001, and apply to current
or former employees and directors of RGS Energy.

We intend to continue our present strategy of achieving workforce reductions
through attrition, instead of through involuntary layoffs. If any reductions in
workforce of the surviving company become necessary in the future, they will be
made in consultation with the chairman of the surviving company and on a fair
and equitable basis, giving consideration to previous work history, job
experience, qualifications, and business needs without regard to whether
employment before the merger was with RGS Energy or its subsidiaries or Energy
East or its subsidiaries. In addition, each employee of RG&E will be protected
from any involuntary workforce reduction to the same extent a similarly situated

NYSEG employee is so protected due to a NYSEG collective bargaining agreement.
Any employees whose employment is terminated or whose jobs are eliminated will
have a right to participate, on a fair and equitable basis, in the job
opportunity and employment placement programs offered by Energy East, the
surviving company or any of its subsidiaries. Any workforce reductions carried
out after the effective time of the merger will be done in accordance with all
relevant laws and regulations, including the Worker Adjustment and Retraining
Notification Act and any similar state or local law.

EMPLOYEE BENEFIT PLANS. For at least 18 months after the merger becomes
effective, Energy East and the surviving company must provide all employees of
RGS Energy and its subsidiaries who are covered by benefit plans with benefits
that are at least as favorable as the benefits they receive immediately before
the merger, except to the extent that changes are required by applicable law.
Also, to the extent that service is relevant for determining eligibility or
participation in any Energy East or surviving company benefit plans, Energy East
and the surviving company will credit service of former RGS Energy employees for
their employment with RGS Energy prior to the effective time of the merger, so
long as this credit does not result in an unintended windfall to these
employees. Further, the surviving company will provide each RGS Energy employee
with credit for co-payments and deductibles paid prior to the effective time of
the merger, in satisfying any deductible or out-of-pocket payment requirements
under any welfare plans that these employees are eligible to participate in
after the effective time.

RGS ENERGY'S STOCK AND OTHER PLANS. At the effective time of the merger,
each outstanding option to purchase RGS Energy shares granted under RGS Energy's
1996 Performance Stock Option Plan will be cancelled, whether or not the option
has vested, in exchange for a cash payment equal to (a) the excess, if any, of
$39.50 over the exercise price of the option, multiplied by (b) the number of
shares covered by the option, less applicable tax and withholding. Each option
holder will also receive an amount in cash equal to the aggregate dividend
equivalents credited to the account of the option holder, less applicable tax
and withholding. Also at the effective time of the merger, RGS Energy's
Executive Incentive Plan will terminate and each participant will be entitled to
the product of (a) the target award set out in the plan and (b) the number of
days from the start of the calendar year to the effective time of the merger
divided by 365. Prior to the effective time of the merger, RGS Energy may
establish an employee retention plan, as described above in "The
Merger--Interests of Certain Persons in the Merger," but all of the terms and
conditions of this plan are subject to the review and comment and final approval
of Energy East. In addition, each stock unit received by RGS Energy directors
under RGS Energy benefit plans will be exchanged for a cash payment of $39.50,
payable at the appropriate time and in the manner set out in the plans, and the
transfer restrictions on RGS Energy shares owned by any officer, director or
employee of RGS Energy will lapse. RGS Energy will use its best efforts to cause
each RGS Energy employee who has a severance agreement with RGS Energy to enter
into a related letter agreement with Energy East. With respect to RGS Energy's
stock and other plans, see "The Merger--Interests of Certain Persons in the
Merger."

MR. RICHARDS' EMPLOYMENT AGREEMENT. We and Mr. Richards have entered into
an employment agreement that will become effective when the merger is completed.

EXPENSES. Except for those expenses incurred in connection with the
printing and filing of this document (which expenses are being shared equally by
us) and except as described under "--Termination, Amendment and Waiver," both
parties will pay their own costs and expenses incurred in connection with the
merger.

CORPORATE OFFICES. At and subsequent to the effective time of the merger,
the corporate headquarters of the surviving company, RG&E, NYSEG and Energy East
Management Corporation, a wholly owned subsidiary of Energy East, will be
located in Rochester, New York. Energy East Management will have approximately
forty employees in Rochester as of the effective time of the merger. The
operating headquarters of NYSEG will remain in Binghamton, New York.

ENERGY EAST BOARD. The size of Energy East's board will increase by three
members at the effective time of the merger. These three new members will be
Mr. Richards and two non-management directors of RGS Energy.

COMMUNITY INVOLVEMENT. After the effective time of the merger, Energy East
or the surviving company will increase its level of charitable giving and
community involvement in Rochester to reflect the increased size of the
surviving company based in Rochester.

ADVISORY BOARD. The surviving company will set up an advisory board
comprised of those individuals who were directors of RGS Energy immediately
before the effective time of the merger, excluding Mr. Richards and the two
non-management directors who will be added to the Energy East board of directors
at the effective time of the merger. The advisory board will meet at least
quarterly and will provide advice to the surviving company's board of directors
as requested. The members of the advisory board, who will serve at the
discretion of the surviving company, will receive remuneration for their
services equivalent to that currently provided to non-employee directors of RGS
Energy.

TAX FREE STATUS. Each of us and our subsidiaries will not take any action
that would be reasonably likely to affect adversely the status of the merger as
a reorganization within the meaning of Section 368(a) of the Internal Revenue
Code, and each of us will use all reasonable efforts to obtain this status.

TRANSITION MANAGEMENT. The parties will create a special task force,
jointly chaired by Mr. Richards and Mr. Jasinski, with an equal number of
members appointed by RGS Energy and Energy East. This task force will assist in
transition management of the surviving company and its subsidiaries.

ROCHESTER GAS AND ELECTRIC. Following the completion of the merger, there
will be four members of the board of directors of RG&E. Each of Energy East and
RGS Energy will appoint two members. Energy East intends to appoint Mr. von
Schack and Mr. Jasinski, and RGS Energy intends to appoint Mr. Richards and one
other person. The officers of RG&E will be those in office immediately prior to
the effective time of the merger, plus new officers recommended by the
transition management task force. Each of the officers and directors will
continue to serve until his or her successor is duly appointed or elected.

NYSEG. Following the completion of the merger, there will be four members
of the board of directors of NYSEG. Energy East will appoint three members and
RGS Energy will appoint one member. Energy East intends to appoint Mr. von
Schack, Mr. Jasinski and Mr. Ralph R. Tedesco, and RGS Energy intends to appoint
Mr. Richards. The officers of NYSEG will be those in office immediately prior to
the effective time of the merger, Mr. Richards and new officers recommended by
the transition management task force. Each of the officers and directors will
continue to serve until his or her successor is duly appointed or elected.

SHARE CONTRIBUTION. Energy East will contribute its shares of NYSEG to the
surviving company within five days of the effective time of the merger, and
NYSEG will become a wholly owned subsidiary of the surviving company, unless
Energy East believes this contribution would materially impede or delay the
completion of the merger, in which case Energy East may choose not to contribute
these shares. Whether or not Energy East contributes the NYSEG shares to the
surviving company, Mr. Richards will serve as chairman of the board and chief
executive officer of NYSEG following the effective time of the merger.

CONDITIONS

MUTUAL CONDITIONS. Our obligations to complete the merger are subject to
satisfaction of the following conditions:

- RGS Energy shareholders must have approved the merger agreement and the
merger, and Energy East shareholders must have approved the issuance of
Energy East shares in connection with the merger;

- no U.S. federal or state court has issued a temporary restraining order or
preliminary or permanent injunction that prevents completion of the
merger, and there is no U.S. federal or state law or regulation
prohibiting the merger;

- the SEC must have declared effective the registration statement pertaining
to the Energy East shares to be issued in connection with the merger;

- the New York Stock Exchange must have approved for listing the Energy East
shares to be issued in connection with the merger; and

- we must have obtained the requisite governmental approvals by the
effective time of the merger and all applicable waiting periods must have
expired.

CONDITIONS TO OBLIGATIONS OF ENERGY EAST. The obligations of Energy East to
complete the merger are contingent on the satisfaction of, or waiver by Energy
East of, the following conditions:

- RGS Energy must have performed in all material respects the agreements and
covenants required by the merger agreement;

- the representations and warranties of RGS Energy contained in the merger
agreement must be materially accurate on the date of the merger agreement
and on the closing date of the merger (except for representations and
warranties made as of a specified date, the accuracy of which will be
determined as of the specified date);

- RGS Energy must have provided Energy East with a certificate, dated the
closing date of the merger, signed by RGS Energy's senior vice president
and general counsel regarding satisfaction of the two preceding
conditions;

- RGS Energy must not have suffered a material adverse effect, and there
must not be any fact or circumstance, unless it was disclosed in RGS
Energy's public documents prior to February 16, 2001, that would be
reasonably likely to have a material adverse effect on RGS Energy. An
adverse change in economic, financial or industry conditions, generally
accepted accounting principles or generally applicable laws and
regulations that does not specifically relate to either of our companies
and that does not affect either of our companies in a materially
disproportionate manner relative to each other, to the extent
disproportionate, is not a material adverse effect for the purposes of
this condition;

- RGS Energy must have obtained the requisite third-party consents, unless
the failure to obtain those consents would not have a material adverse
effect on RGS Energy;

- each affiliate of RGS Energy must have signed an agreement stating that
the affiliate will not sell the Energy East shares that he or she receives
in the merger, except in accordance with Rule 145 promulgated under the
Securities Act of 1933;

- attorneys for Energy East must have furnished to Energy East an opinion to
the effect that the merger will be treated as a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code. This condition
will be waived if RGS Energy elects, as it may do under certain
circumstances, to have the merger agreement amended so that RGS Energy
will be the surviving company (see "--Conversion of RGS Energy Shares--Tax
Adjustment"); and

- the governmental approvals obtained by the parties must not impose terms
that, individually or in the aggregate, would have or would reasonably be
expected to have a material adverse effect on either of our companies. We
have agreed that a requirement that Energy East divest its ownership of
any of the gas or electric utility operations of Energy East or RGS Energy
would have a material adverse effect.

CONDITIONS TO OBLIGATIONS OF RGS ENERGY. The obligations of RGS Energy to
complete the merger agreement and the merger are contingent on the satisfaction
of, or waiver by RGS Energy of, the following conditions:

- Energy East must have performed in all material respects the agreements
and covenants required by the merger agreement;

- the representations and warranties of Energy East contained in the merger
agreement must be materially accurate on the date of the merger agreement
and on the closing date of the merger (except for representations and
warranties made as of a specified date, the accuracy of which will be
determined as of the specified date);

- Energy East must have provided RGS Energy with a certificate, dated the
closing date of the merger, signed by Energy East's executive vice
president, general counsel and secretary regarding satisfaction of the two
preceding conditions;

- Energy East must not have suffered a material adverse effect, and there
must not be any fact or circumstance, unless it was disclosed in Energy
East's public documents prior to February 16, 2001, that would be
reasonably likely to have a material adverse effect on Energy East. An
adverse change in economic, financial or industry conditions, generally
accepted accounting principles or generally applicable laws and
regulations that does not specifically relate to either of our companies
and that does not affect either of our companies in a materially
disproportionate manner relative to each other to the extent
disproportionate is not a material adverse effect for the purposes of this
condition;

- Energy East must have obtained the requisite third-party consents, unless
the failure to obtain those consents would not have a material adverse
effect on Energy East; and

- attorneys for RGS Energy must have furnished to RGS Energy an opinion to
the effect that the merger will be treated as a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code. This condition
will be waived if RGS Energy elects, as it may do under certain
circumstances, to have the merger agreement amended so that RGS Energy
will be the surviving company (see "--Conversion of RGS Energy Shares--Tax
Adjustment").

TERMINATION, AMENDMENT AND WAIVER

TERMINATION. The merger agreement may be terminated at any time before the
effective time of the merger:

- by mutual written consent of both of our boards of directors;

- by either of us if the merger has not been completed by February 16, 2002
(or November 16, 2002, if the only condition to the closing of the merger
not satisfied is the inability to obtain the requisite governmental
approvals), so long as the delay has not been caused by a failure of the
party seeking termination to fulfill its obligations under the merger
agreement;

- by either of us if any state or federal law prohibits the merger (and this
determination is supported by the written opinion of outside counsel) or
if any state or federal court of competent jurisdiction issues a final and
nonappealable decision that permanently enjoins the merger;

- by RGS Energy, before its shareholders approve the merger agreement, if
RGS Energy is not in breach of the merger agreement and, as a result of an
Alternative Proposal, the RGS Energy board of directors determines in good
faith that:

- the Alternative Proposal is financially superior to the merger and the
third party making the Alternative Proposal has obtained or, in the
reasonable judgment of RGS Energy's financial advisor, can obtain the
necessary financing; and

- after consultation with its financial advisor and outside counsel and
consideration of other relevant matters, that failure to do so would
likely result in a breach of its fiduciary duties under applicable law;
however, before RGS Energy may terminate the merger agreement:

(1) RGS Energy must give Energy East three days' prior notice of its
intent to accept the alternative acquisition proposal; and

(2) RGS Energy and its financial and legal advisors must consider in
good faith any proposal made by Energy East;

- by RGS Energy if:

- Energy East has breached any of its representations or warranties in
the merger agreement, the breach would be reasonably likely to result
in a material adverse effect on Energy East, and Energy East does not
cure the breach within 20 days of receiving written notice of the
breach from RGS Energy;

- Energy East (or its appropriate subsidiaries) has materially breached
any of its covenants or agreements under the merger agreement, and
Energy East does not cure the breach within 20 days of receiving
written notice of the breach from RGS Energy; or

- Energy East's board of directors or a committee of the board of the
directors has withdrawn or modified to RGS Energy's detriment, or
resolved to do either, its recommendation of the issuance of Energy
East shares in connection with the merger; or

- by Energy East if:

- RGS Energy has breached any of its representations or warranties in the
merger agreement, the breach would be reasonably likely to result in a
material adverse effect on RGS Energy, and RGS Energy does not cure the
breach within 20 days of receiving written notice of the breach from
Energy East;

- RGS Energy (or its appropriate subsidiaries) has breached in any
respect its covenants and agreements with respect to dividends and
share issuance, or has materially breached any of its other covenants
or agreements under the merger agreement, and RGS Energy does not cure
the breach within 20 days of receiving written notice of the breach
from Energy East; or

- the RGS Energy board of directors or any committee thereof
(1) withdraws or modifies in any manner adverse to Energy East its
approval or recommendation of the merger agreement or the merger,
(2) fails to reaffirm its approval or recommendation upon Energy East's
request within seven days of that request, (3) approves or recommends
any acquisition of RGS Energy or a material portion of its assets or
any tender offer for the

shares of capital stock of RGS Energy by someone other than Energy East
or any of its affiliates, or (4) resolves to take any of these actions.

EFFECT OF TERMINATION. RGS Energy and Energy East have agreed that, if
either of them terminates the merger agreement for any reason outlined above,
the merger agreement--except for the provisions concerning expenses, termination
fees, confidentiality of information subject to the terms of a confidentiality
agreement, waiver of a jury trial and certain damages and enforcement of the
agreement--will become void and have no effect, without any liability on the
part of any party, their officers or their directors. Nonetheless, if either
party materially breaches any provision of the merger agreement and the other
party consequently terminates the agreement, then the breaching party will have
to pay to the other party an amount in cash equal to all documented
out-of-pocket expenses and fees incurred by the other party not in excess of
$10 million. However, if the breach is willful, the merger agreement does not
limit the amount of damages that the nonbreaching party may seek.

RGS Energy must pay Energy East a termination fee of $50 million plus fees
and expenses up to $10 million if the merger agreement is terminated for any of
the following reasons:

- the RGS Energy board of directors decides to pursue an Alternative
Proposal;

- RGS Energy shareholders fail to approve the merger by February 16, 2002,
but only if there was an Alternative Proposal outstanding at the time of
the RGS Energy annual meeting and if, within twelve months of such
termination, RGS Energy enters into a definitive agreement to complete or
actually does complete a "BUSINESS COMBINATION," which is (1) a merger,
consolidation, share exchange, business combination or other similar
transaction involving either party that results in its shareholders prior
to the transaction owning in the aggregate less than 70% of the voting
securities of the company surviving the transaction or of the parent of
the surviving company, (2) a sale, lease, exchange, transfer or other
disposition of more than 30% of the assets of a party and its
subsidiaries, taken together, in a single transaction or series of related
transactions, or (3) the acquisition, through any means, by a third party
of beneficial ownership (as that term is defined in Rule 13d-3 under the
Securities Exchange Act of 1934) of more than 30% of the common stock of a
party; or

- the RGS Energy board of directors withdraws, modifies to Energy East's
detriment, or fails to reaffirm, within seven days of Energy East's
request, its approval or recommendation of the merger to RGS Energy
shareholders, or the RGS Energy board of directors approves or recommends
any acquisition of RGS Energy or a material portion of its assets or a
tender offer for RGS Energy's capital stock by any third party, but only
if there was an Alternative Proposal outstanding at the time of the
termination and if, within twelve months of such termination, RGS Energy
enters into a definitive agreement to complete or actually does complete a
Business Combination.

Energy East must pay RGS Energy a termination fee of $50 million plus fees
and expenses up to $10 million if the merger agreement is terminated for the
following reason:

- Energy East shareholders fail to approve the issuance of Energy East
shares in connection with the merger by February 16, 2002, but only if
there was an Alternative Proposal outstanding at the time of the annual
meeting, the person or persons that made the Alternative Proposal
conditioned it on Energy East shareholders failing to approve the issuance
of Energy East shares in connection with the merger, and if, within twelve
months of the termination, Energy East enters into a definitive agreement
to complete or actually does complete a Business Combination.

AMENDMENT. The parties' boards of directors may amend the merger agreement
at any time before the effective time of the merger, whether or not the RGS
Energy shareholders have already approved the agreement. After RGS Energy
shareholder approval, however, no such amendment can

(1) alter the merger consideration or the mechanics of the share exchange or
(2) change any of the terms and conditions of the merger agreement if any of the
changes would materially adversely affect the rights of RGS Energy shareholders
(except for changes that could otherwise be adopted by the RGS Energy board of
directors without the further approval of the RGS Energy shareholders).

WAIVER. At any time before the effective time of the merger, to the extent
permitted by applicable law, the parties may extend the time for the performance
of any of the obligations or other acts required by the merger agreement, waive
any inaccuracies in the representations and warranties contained in the merger
agreement, and waive compliance with any of the agreements or conditions
contained in the merger agreement. To be valid, a waiver or extension by a party
must take the form of a written instrument signed by the waiving party.

SECURITY OWNERSHIP OF MANAGEMENT

For the security ownership of management of Energy East, see "The Energy
East Annual Meeting--Security Ownership of Management," on page 107. For the
security ownership of management of RGS Energy, see "The RGS Energy Annual
Meeting--Security Ownership of Management," on page 89.

UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS

The following unaudited pro forma combined condensed financial statements
have been prepared to reflect the mergers of Energy East with Connecticut
Energy, CMP Group, CTG Resources and Berkshire Energy, all of which were
completed in 2000, and the merger of Energy East with RGS Energy. The RGS Energy
merger will be accounted for as a purchase. The non-utility assets and
liabilities of RGS Energy will be recorded in Energy East's consolidated
financial statements at their estimated fair values at the closing date. The
assets and liabilities of the regulated utility will not be revalued. See "The
Merger--Accounting Treatment" on page 44.

The unaudited pro forma combined condensed financial statements reflect
preliminary purchase accounting adjustments in compliance with generally
accepted accounting principles. Estimates relating to the fair value of some
assets and liabilities and other events, such as the proposed sales of Energy
East's 18% interest and RGS Energy's 14% interest in the Nine Mile Point 2
nuclear generating station that have not been reflected in the financial
statements, have been more fully described in the notes to the financial
statements. Actual adjustments will be made on the basis of actual assets,
liabilities and other items as of the closing date of the merger on the basis of
appraisals and evaluations. Also, goodwill related to the mergers with
Connecticut Energy, CMP Group, CTG Resources and Berkshire Energy that were
completed in 2000 may be adjusted as actual amounts for estimated liabilities
become known. Therefore, actual amounts may differ from those reflected in the
pro forma financial statements.

The unaudited pro forma combined condensed balance sheet assumes that the
RGS Energy merger occurred on December 31, 2000. The unaudited pro forma
combined condensed statement of income for the year ended December 31, 2000,
assumes that the mergers completed in 2000 and the RGS Energy merger were
completed on January 1, 2000.

The accompanying pro forma financial statements should be read in
conjunction with the consolidated historical financial statements and the
related notes of Energy East and RGS Energy, which are incorporated by
reference. See "Where You Can Find More Information" on page 120.

The accompanying pro forma financial statements are for illustrative
purposes only. They are not necessarily indicative of the financial position or
operating results that would have occurred had the mergers been completed on
January 1, 2000, as assumed above; nor is the information necessarily indicative
of future financial position, operating results or operating synergies.

55% of the RGS Energy shares outstanding immediately prior to the effective
time of the merger will be converted into the right to receive $39.50 per share
in cash, and 45% will be converted into, on a per share basis, a number of
Energy East shares valued at $39.50, subject to restrictions on the maximum and
minimum number of Energy East shares to be issued, discussed under "The Merger
Agreement--Conversion of RGS Energy Shares" on pages 56 to 59. The number of
Energy East shares to be exchanged for each RGS Energy share will be between
1.7626 and 2.3838, based on the average closing price of Energy East shares on
the New York Stock Exchange during the 20-trading-day period ending two trading
days before the effective time of the merger.

Energy East expects to issue long-term debt and preferred stock, the
proceeds of which will be used to fund the cash portion of the consideration in
the merger. For illustrative purposes, the unaudited pro forma financial
statements reflect the issuance of the long-term debt and the use of all of the
proceeds to fund the consideration paid to RGS Energy shareholders.

UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
GIVING EFFECT TO THE MERGERS COMPLETED IN 2000 AND THE RGS ENERGY MERGER

ENERGY EAST CORPORATION COMBINED CONDENSED BALANCE SHEET
GIVING EFFECT TO THE RGS ENERGY MERGER
AT DECEMBER 31, 2000

ACTUAL AND PRO FORMA
(UNAUDITED)

ENERGY EAST RGS ENERGY PRO FORMA PRO FORMA
ACTUAL ACTUAL ADJUSTMENTS ENERGY EAST
----------- ---------- ----------- -----------
(IN THOUSANDS)

ASSETS

Current Assets
Cash and cash equivalents............... $33,239 $16,258 $(1,207)(5) $48,290
Special deposits........................ 21,516 21,516
Temporary investments................... 100,292 100,292
Accounts receivable, net................ 536,280 207,494 743,774
Other................................... 156,556 83,615 240,171
---------- ---------- -------- -----------
Total Current Assets.................. 847,883 307,367 (1,207) 1,154,043

Utility Plant, at Original Cost........... 6,669,822 3,395,800 10,065,622
Less accumulated depreciation........... 3,096,283 2,004,928 5,101,211
---------- ---------- -------- -----------
Net utility plant in service.......... 3,573,539 1,390,872 4,964,411

Construction work in progress........... 59,389 111,486 170,875
---------- ---------- -------- -----------
Total Utility Plant................... 3,632,928 1,502,358 5,135,286

Other Property and Investments, Net....... 259,708 244,514 504,222
Regulatory Assets......................... 841,504 411,212 30,800(6) 1,283,516
Other Assets.............................. 469,252 72,376 239,900(7) 781,528
Goodwill.................................. 952,358 27,971 608,193(8)(9) 1,588,522
---------- ---------- -------- -----------
Total Assets.......................... $7,003,633 $2,565,798 $877,686 $10,447,117
========== ========== ======== ===========

The notes on pages 76 to 78 are an integral part
of the pro forma combined condensed financial statements.

ENERGY EAST CORPORATION COMBINED CONDENSED BALANCE SHEET
GIVING EFFECT TO THE RGS ENERGY MERGER
AT DECEMBER 31, 2000

ACTUAL AND PRO FORMA
(UNAUDITED)

ENERGY EAST RGS ENERGY PRO FORMA PRO FORMA
ACTUAL ACTUAL ADJUSTMENTS ENERGY EAST
----------- ---------- ----------- -----------
(IN THOUSANDS)

LIABILITIES

Current Liabilities
Current portion of long-term debt....... $25,285 $12,095 $37,380
Notes payable........................... 418,995 122,400 541,395
Other................................... 582,422 182,624 $9,500(9) 774,546
---------- ---------- ---------- -----------
Total Current Liabilities............. 1,026,702 317,119 9,500 1,353,321

Regulatory Liabilities
Gain on sale of generation assets....... 232,041 232,041
Other................................... 340,221 239,900(7) 580,121
---------- ---------- ---------- -----------
Total Regulatory Liabilities.......... 572,262 239,900 812,162

Deferred income taxes..................... 457,495 277,787 735,282
Nuclear waste disposal.................... 97,291 97,291
Other..................................... 840,514 210,626 30,800(6) 1,081,940
Long-term debt............................ 2,346,814 823,860 750,000(10) 3,920,674
---------- ---------- ---------- -----------
Total Liabilities..................... 5,243,787 1,726,683 1,030,200 8,000,670

Commitments............................... -- -- --
Preferred stock redeemable solely at the
option of subsidiaries.................. 43,324 47,000 90,324
Preferred stock subject to mandatory
redemption requirements................. 25,000 25,000
Common Stock Equity
Energy East common stock ($.01 par value,
300,000 shares authorized and 117,656
shares outstanding at December 31,
2000)................................... 1,191 321(11) 1,512
Common Stock Equity
RGS Energy common stock ($.01 par value,
100,000 shares authorized and 38,957
shares outstanding at December 31,
2000)................................... 390 (390)(11) --
Capital in excess of par value............ 871,078 702,417 (88,137)(11) 1,485,358
Retained earnings......................... 918,016 181,546 (181,546) 918,016
Accumulated other comprehensive income.... (34,823) (34,823)
Treasury stock, at cost (1,418 Energy East
shares, and 4,379 RGS Energy shares, at
December 31, 2000)...................... (38,940) (117,238) 117,238 (38,940)
---------- ---------- ---------- -----------
Total Common Stock Equity............. 1,716,522 767,115 (152,514) 2,331,123
---------- ---------- ---------- -----------
Total Liabilities and Stockholders'
Equity.............................. $7,003,633 $2,565,798 $877,686 $10,447,117
========== ========== ========== ===========

The notes on pages 76 to 78 are an integral part
of the pro forma combined condensed financial statements.

ENERGY EAST CORPORATION COMBINED CONDENSED STATEMENT OF INCOME
GIVING EFFECT TO THE MERGERS COMPLETED IN 2000 AND THE RGS ENERGY MERGER
YEAR ENDED DECEMBER 31, 2000

ACTUAL AND PRO FORMA
(UNAUDITED)

SUB TOTAL
2000 PRO FORMA
MERGERS ENERGY EAST
ENERGY EAST PRO FORMA AND 2000 RGS ENERGY PRO FORMA PRO FORMA
ACTUAL ADJUSTMENTS MERGERS ACTUAL ADJUSTMENTS ENERGY EAST
----------- ----------- ----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

Operating Revenues
Sales and services................... $2,959,520 $952,955 $3,912,475 $1,448,119 $5,360,594

Operating Expenses
Electricity purchased and fuel used
in generation...................... 1,073,728 350,542 1,424,270 134,709 1,558,979
Natural gas purchased................ 496,509 156,749 653,258 208,588 861,846
Gasoline, propane and oil
purchased.......................... -- -- -- 340,306 340,306
Other operating expenses............. 435,965 230,539 666,504 288,691 955,195
Maintenance.......................... 108,106 31,057 139,163 56,155 195,318
Depreciation and amortization........ 165,524 62,088 227,612 116,184 $15,205(12) 359,001
Other taxes.......................... 165,767 30,201 195,968 94,576 290,544
---------- ---------- ---------- ---------- -------- ----------
Total Operating Expenses........... 2,445,599 861,176 3,306,775 1,239,209 15,205 4,561,189
---------- ---------- ---------- ---------- -------- ----------

Operating Income....................... 513,921 91,779 605,700 208,910 (15,205) 799,405
Other (Income) and Deductions.......... (32,906) (96,043) (128,949) (10,346) (139,295)
Interest Charges, Net.................. 152,503 84,247 236,750 62,720 56,250(10) 355,720
Preferred Stock Dividends of
Subsidiaries......................... 963 1,546 2,509 3,700 6,209
---------- ---------- ---------- ---------- -------- ----------

Income Before Income Taxes............. 393,361 102,029 495,390 152,836 (71,455) 576,771

Income Taxes........................... 156,682 83,345 240,027 60,977 (22,500)(13) 278,504
---------- ---------- ---------- ---------- -------- ----------

Income Before Extraordinary Item....... 236,679 18,684 255,363 91,859 (48,955) 298,267

Extraordinary Loss on Early
Extinguishment of Debt, Net of Income
Tax Benefit of $1,121................ 1,645 -- 1,645 -- -- 1,645
---------- ---------- ---------- ---------- -------- ----------

Net Income............................. $235,034 $18,684 $253,718 $91,859 $(48,955) $296,622
========== ========== ========== ========== ======== ==========

Earnings Per Share, basic and
diluted.............................. $2.06 $2.03

Average Common Shares Outstanding...... 114,213 32,111(14) 146,324

The notes on pages 76 to 78 are an integral part
of the pro forma combined condensed financial statements.

NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
GIVING EFFECT TO THE RGS ENERGY MERGER

NOTE 1. UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS.

The unaudited pro forma combined condensed statement of income for the year
ended December 31, 2000, gives effect to the mergers completed in 2000 and the
RGS Energy merger as if these events occurred on January 1, 2000. The unaudited
pro forma combined condensed balance sheet gives effect to the RGS Energy merger
as if it occurred December 31, 2000.

The 2000 Mergers Pro Forma Adjustments include: (1) amounts for the period
from January 1, 2000, to the respective companies' acquisition dates to reflect
income statement activity; (2) additional goodwill of $11.7 million, and
additional interest expense of $37.8 million on the debt issued to finance a
portion of the mergers; (3) the elimination of merger related costs of
$19.5 million included in other operating expenses and a decrease in interest
income of $26.2 million; and (4) a decrease in income taxes of $16.9 million due
to items 2 and 3 previously mentioned.

The unaudited pro forma combined financial statements presented have not
been adjusted to give effect to the proposed sales of Energy East's 18% interest
and RGS Energy's 14% interest in the Nine Mile Point 2 nuclear generating
station to Constellation Energy, which is expected to be completed in 2001. A
detailed discussion of the sales is presented in each company's Form 10-K for
the year ended December 31, 2000, incorporated by reference in this document.
Certain effects of the sales are presented in the following table, assuming the
sales are completed by July 1, 2001:

ENERGY EAST RGS ENERGY
----------- -----------
(THOUSANDS) (THOUSANDS)

(Decrease) in net utility plant, including nuclear fuel..... $(12,451) $(370,004)
Deferred gain (loss)(1)..................................... $ 71,368 $(326,647)
Investment tax credit benefit............................... $ -- $ 13,124

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

(1) The amounts of the deferred gain and the deferred loss will be amortized
subject to approval by the New York State Public Service Commission.

NOTE 2. ACCOUNTING METHOD.

The RGS Energy merger will be accounted for as an acquisition of RGS Energy
by Energy East under the purchase method of accounting in accordance with
generally accepted accounting principles. The amount of goodwill recorded will
reflect the excess of the purchase price over the estimated net fair value of
assets and liabilities of RGS Energy's utility and non-utility businesses at the
time of closing, plus Energy East's estimated transaction costs related to the
merger. The assets and liabilities of RGS Energy's non-utility businesses will
be revalued to fair value, including an allocation to goodwill, if appropriate.

NOTE 3. RGS ENERGY MERGER.

The historical consolidated financial statements of Energy East and RGS
Energy for the year ended December 31, 2000, have been adjusted to give effect
to the merger.

NOTE 4. EARNINGS PER SHARE AND AVERAGE SHARES OUTSTANDING.

The pro forma earnings per share and number of average shares outstanding
have been restated to reflect the average number of shares that would have been
outstanding if the merger occurred at the beginning of the periods presented
assuming a conversion of 45% of the RGS Energy shares into 2.0637 Energy East
shares per RGS Energy share. The exchange ratio of 2.0637 is based on a value of
$39.50 per RGS Energy share and a market price of $19.14 per Energy East share.
If the Average Market Price is between $16.57 per share and $22.41 per share,
then each RGS Energy share converted

NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
GIVING EFFECT TO THE RGS ENERGY MERGER (CONTINUED)

NOTE 4. EARNINGS PER SHARE AND AVERAGE SHARES OUTSTANDING. (CONTINUED)
into stock will be exchanged for $39.50 worth of Energy East shares. If the
Average Market Price is less than or equal to $16.57, then each RGS Energy share
converted into stock will be exchanged for 2.3838 Energy East shares,
irrespective of the value of the Energy East shares. Finally, if the Average
Market Price is greater than or equal to $22.41 per share, then each RGS Energy
share will be exchanged for 1.7626 Energy East shares, again irrespective of the
value of Energy East shares. The following table presents the range of shares
that could be issued based on various potential conversion ratios provided under
the merger agreement:

Conversion ratio.................................... 1.7626 2.0637 2.3838
Number of shares (thousands)........................ 27,426 32,111 37,092

NOTE 5. CASH CONSIDERATION.

This amount reflects the cash consideration paid to RGS Energy shareholders
based on a purchase price per share of $39.50 for 55% of the shares outstanding
as of December 31, 2000, and the cash received from the issuance of the
long-term debt.

NOTE 6. REGULATORY ASSET AND RELATED LIABILITY.

This amount reflects the recognition of a regulatory asset and a liability
for the estimated difference between RGS Energy's net other postretirement
benefit obligation and the previously recognized liability.

NOTE 7. OTHER ASSET AND RELATED REGULATORY LIABILITY.

This amount reflects the recognition of an other asset and a regulatory
liability for the estimated difference between RGS Energy's net pension benefit
and the previously recognized liability.

NOTE 8. GOODWILL.

This amount reflects the recognition of goodwill equal to the excess of the
estimated purchase price of $1,365.8 million over the estimated net fair value
of the assets and liabilities of RGS Energy acquired of $767.1 million, plus
estimated transaction costs of $9.5 million related to the merger. For every one
dollar increase in the Average Market Price above $22.41 per share, the purchase
price will increase by approximately $27 million. For every one dollar decrease
in the Average Market Price below $16.57, the purchase price will decrease by
approximately $37 million.

NOTE 9. MERGER-RELATED COSTS.

Energy East and RGS Energy will incur direct expenses related to the merger,
including financial advisor, legal and accounting fees. The pro forma
adjustments include an estimate for Energy East's merger-related costs of
$9.5 million, which is included in goodwill. RGS Energy expects to incur
approximately $12.5 million of merger-related costs, which it will expense as
incurred. The actual amount of merger-related costs may differ from the amounts
reflected in the unaudited pro forma combined condensed financial statements.

NOTE 10. LONG-TERM DEBT.

This amount reflects the issuance of $750 million principal amount of notes
payable with an assumed fixed interest rate of 7.5%, the proceeds of which will
be used to fund the consideration paid to RGS Energy shareholders. A 1/8 of 1%
change in interest rate will increase or decrease interest expense by $0.9
million.

NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
GIVING EFFECT TO THE RGS ENERGY MERGER (CONTINUED)

NOTE 11. COMMON STOCK.

This amount reflects the Energy East shares to be issued to RGS Energy
shareholders in exchange for 45% of their RGS Energy shares, assuming a
conversion ratio of 2.0637 Energy East shares per RGS Energy share, and the
exchange of 55% of their RGS Energy shares for cash.

NOTE 12. AMORTIZATION OF GOODWILL.

This amount represents the amortization of goodwill for financial accounting
purposes over a 40-year period. The goodwill is not amortizable for tax
purposes.

NOTE 13. INCOME TAXES.

Income taxes on the pro forma combined condensed income statement have been
based on the statutory rate and adjusted for goodwill, which is not tax
deductible.

NOTE 14. ENERGY EAST SHARES ISSUED.

This amount reflects the number of Energy East shares to be issued in the
merger assuming a conversion of 45% of the RGS Energy shares into 2.0637 Energy
East shares per RGS Energy share.

COMPARATIVE RIGHTS OF RGS ENERGY
SHAREHOLDERS AND ENERGY EAST SHAREHOLDERS

As a result of the merger, some or all of the RGS Energy shareholders will
become Energy East shareholders. The rights of both Energy East shareholders and
RGS Energy shareholders are presently governed by the New York Business
Corporation Law. Any differences, therefore, in the rights of Energy East
shareholders and RGS Energy shareholders arise exclusively from the differences
in their respective certificates of incorporation and bylaws. The following is a
summary comparison of the material differences between the rights of RGS Energy
shareholders and the rights of Energy East shareholders.

This summary does not purport to be a complete discussion of, and is
qualified in its entirety by reference to, the New York Business Corporation Law
and the certificates of incorporation and bylaws of the two companies, copies of
which are on file with the SEC.

ENERGY EAST RGS ENERGY

AUTHORIZED CAPITAL STOCK

Energy East's authorized capital stock RGS Energy's authorized capital stock
consists of 300,000,000 shares of common consists of 100,000,000 shares of common
stock, par value $.01 per share, of which stock, par value $.01 per share, of which
116,549,598 were outstanding at the close of 34,577,426 were outstanding at the close of
business on April 26, 2001, and 10,000,000 business on April 26, 2001, and 10,000,000
shares of preferred stock, par value $.01 per shares of preferred stock, par value $.01 per
share, none of which was outstanding at the share, none of which was outstanding at the
close of business on April 26, 2001. close of business on April 26, 2001.

VOTING RIGHTS

Each Energy East shareholder generally is Each RGS Energy shareholder is entitled to
entitled to one vote per share. In elections one vote per share. RGS Energy shareholders
of directors, however, Energy East may not cumulate their votes.
shareholders are entitled to "cumulate" their
votes. Under "cumulative voting," the total
number of votes that a shareholder may cast
in an election of directors in a given class
equals the number of directors in such class
to be elected multiplied by the number of
shares held; the shareholder may cast all of
his or her votes for a single director, or he
or she may distribute the votes among two or
more directors in such class.

DIVIDENDS

Under the New York Business Corporation RGS Energy is subject to the same legal
Law, Energy East may declare and pay restrictions regarding dividends as Energy
dividends or make other distributions to its East.
shareholders (subject to the rights of
preferred stock, none of which is
outstanding), unless, after doing so, they
would be unable to pay their debts as they
become due in the ordinary course of its
business, or when doing so would be contrary
to any restrictions contained in its
certificate of incorporation. Moreover, the
net assets of Energy East remaining after a
declaration, payment or distribution by
Energy East must be at least as much as its
stated capital.

ELECTION AND CLASSIFICATION OF THE BOARD OF DIRECTORS

The Energy East board of directors is The RGS Energy board of directors is composed
composed of three classes. One class is of three classes. One class is elected each
elected each year for a three-year term. year for a three-year term.

SIZE OF THE BOARD OF DIRECTORS

The Energy East board of directors may The RGS Energy board of directors may fix the
fix the number of directors by a vote of a number of directors by a vote of a majority
majority of the directors then in office. In of the directors then in office. In the event
the event that the Energy East board of that the RGS Energy board of directors
directors increases the number of directors, increases the number of directors, it may
it may elect the additional directors. The elect the additional directors. The RGS
Energy East board of directors currently Energy board of directors currently consists
consists of thirteen directors. After the of twelve directors.
merger with RGS Energy, the Energy East board
of directors will consist of fifteen
directors.

REMOVAL OF DIRECTORS; FILLING OF VACANCIES

Under the Energy East bylaws, except as Under the RGS Energy bylaws, a director may
otherwise provided by the New York Business be removed only for cause, by a majority of
Corporation Law, a director may be removed votes cast at a meeting of the RGS Energy
only for cause and only at a meeting of board of directors or by a majority of votes
shareholders by the holders of a majority of cast at an RGS Energy shareholders' meeting.
the votes of Energy East shares issued and Any vacancy on the RGS Energy board of
outstanding. The New York Business directors will be filled solely by the
Corporation Law provides that, when a affirmative vote of a majority of the
corporation has cumulative voting, no remaining directors, even though less than a
director may be removed when the votes cast quorum, and not by the shareholders.
against his removal would be sufficient to
elect him if voted cumulatively. Any
vacancies on the Energy East board of
directors will be filled solely by the
affirmative vote of a majority of the
remaining directors, even though less than a
quorum, and not by the shareholders.

SPECIAL MEETINGS OF SHAREHOLDERS

Under the Energy East bylaws, special Under the RGS Energy bylaws, special meetings
meetings of shareholders may be called by the of shareholders may be called by the
chairman, the president or at the request of chairman, the president or at the request of
a majority of the board of directors or of a a majority of the board of directors. RGS
majority of the outstanding Energy East Energy shareholders may act without a meeting
shares. Energy East shareholders may act but only by unanimous written consent. Under
without a meeting but only by unanimous the New York Business Corporation Law, the
written consent. Under the New York Business only business that may be conducted at a
Corporation Law, the only business that may special meeting of shareholders is that which
be conducted at a special meeting of is related to the purposes set forth in the
shareholders is that which is related to the notice of the meeting.
purposes set forth in the notice of the
meeting.

ADVANCE NOTICE PROVISIONS

For an Energy East shareholder to For an RGS Energy shareholder to bring a
nominate individuals for election as matter before an annual meeting, the
directors or to bring a matter before an secretary of RGS Energy must receive written
annual meeting, the secretary of Energy East notice of the shareholder's intent,
must receive written notice of the containing certain required information. With
shareholder's intent, containing certain respect to a matter to be considered at an
required information. With respect to an annual meeting, the secretary must receive
election at, or a matter to be brought the notice at least 90 days before the date
before, an annual meeting, the secretary must of the annual meeting.
receive the notice between 90 and 120 days
before the anniversary of the preceding
annual meeting. With respect to an election
at a special meeting, the secretary must
receive the notice at least ten days before
the earlier of (1) the date notice of the
special meeting was mailed and (2) the date
that the special meeting date was publicly
disclosed.

INDEMNIFICATION OF DIRECTORS AND OFFICERS

The New York Business Corporation Law RGS Energy's bylaws generally provide for
generally provides that a corporation may indemnification, as described in the Energy
indemnify an officer or director made a party East column, of directors and officers of RGS
or threatened to be made a party to any type Energy or any subsidiary of RGS Energy and of
of proceeding against judgments, fines, other companies which such persons were
amounts paid in settlement and expenses serving at the request of RGS Energy, to the
(including attorneys' fees) actually and extent not prohibited by law. Under RGS
necessarily incurred in connection with the Energy's bylaws, a director or officer may be
proceedings: entitled to additional indemnification rights
- if he acted in good faith for a purpose arising under applicable law, by agreement or
he reasonably believed to be in or not otherwise.
opposed to the best interests of the
corporation; and
- in the case of a criminal proceeding,
if he had no reasonable cause to
believe that his conduct was unlawful.
The New York Business Corporation Law
sets specific standards only for
indemnification of officers and directors,
but it permits corporations to indemnify
corporate personnel other than officers and
directors.
Energy East's bylaws generally provide
for indemnification of directors and
officers, as well as employees, of Energy
East and of other companies which such
persons were serving at the request of Energy
East, to the extent not prohibited by law.
Under Energy East's bylaws, a director,
officer or employee may be entitled to
additional indemnification rights arising
under any statute, certificate of
incorporation, bylaw or agreement.

AMENDMENT OF CERTIFICATE OF INCORPORATION

The Energy East certificate of The RGS Energy certificate of incorporation
incorporation generally may be amended by a generally may be amended by a majority of the
majority of the outstanding Energy East outstanding RGS Energy shares, but the
shares, but the provision relating to provision relating to the manner of electing
amendments to certain bylaws may be amended directors may be amended only by two-thirds
only by two-thirds of the votes of the of the votes of outstanding RGS Energy shares
outstanding Energy East shares. entitled to vote. Amendments to the
provisions relating to preemptive rights,
amendments to the RGS Energy certificate of
incorporation and amendments to certain bylaw
provisions must be authorized by seventy-five
percent of the votes of the outstanding RGS
Energy shares entitled to vote.

AMENDMENT OF BYLAWS

The Energy East bylaws may be amended by The RGS Energy bylaws may be amended by a
a majority of the outstanding Energy East majority of votes cast at a shareholder
shares, or by a majority vote at a meeting of meeting, or by a majority vote at a meeting
the Energy East board of directors. However, of the RGS Energy board of directors.
an amendment of some bylaws, if by action of However, an amendment of some bylaws, if by
Energy East shareholders, must be by action of RGS Energy shareholders, must be by
two-thirds of the outstanding Energy East seventy-five percent of the outstanding RGS
shares. The bylaws that may not be amended Energy shares. The bylaws that may not be
without a supermajority vote generally relate amended without a supermajority vote
to the advance notice procedures, special generally relate to the advance notice
meetings of shareholders, structure of the procedures, special meetings of shareholders,
Energy East board of directors and amendment structure of the RGS Energy board of
of the supermajority requirements. directors and amendment of the supermajority
requirements. If the RGS Energy board of
directors adopts, amends or repeals any bylaw
relating to an upcoming election of
directors, this change, and a summary of the
change, must be included in the notice for
the next RGS Energy shareholder meeting at
which directors will be elected.

DUTY OF DIRECTORS

Under the New York Business Corporation RGS Energy directors are under the same
Law, in performing his or her duties, a duties as Energy East directors.
director is required to act in good faith and
to use that degree of care that an ordinarily
prudent person in a similar position would
use under similar circumstances.
In taking action, including action that
may involve or relate to a change or
potential change in control, a director may
consider the long-term and short-term
interests of Energy East shareholders and the
effects that the companies' actions may have
in the short term or in the long term upon
their respective:
- prospects for growth and development;
- current employees;
- retired employees and others receiving
retirement, welfare or similar benefits
from or pursuant to any plan or
agreement of Energy East;
- customers and creditors; and
- ability to provide, as a going concern,
goods, services, employment
opportunities and employment benefits
and otherwise to contribute to the
communities in which it does business.

BUSINESS COMBINATIONS

Under the Energy East certificate of Under the New York Business Corporation Law,
incorporation, a majority of the outstanding a majority of the outstanding RGS Energy
Energy East shares are needed to adopt a plan shares are needed to adopt a plan of merger
of merger or consolidation. Section 912 of or consolidation. This statutory requirement
the New York Business Corporation Law applicable to RGS Energy is the same as the
prohibits a New York corporation from vote requirement provided in Energy East's
engaging in certain business combinations certificate of incorporation. Section 912 of
with an interested shareholder (generally, the New York Business Corporation Law also
the beneficial owner of 20% or more of a applies to RGS Energy.
corporation's voting stock) for five years
following the time the shareholder became an
interested shareholder, unless, prior to that
time, the corporation's board of directors
approved the business combination or the
transaction that resulted in the shareholder
becoming an interested shareholder. After
five years, these business combinations may
occur if approved by a majority vote of
shares not owned by the interested
shareholder, or if specific fair price
requirements are met.

FAIR PRICE PROVISIONS

Under the New York Business Corporation The fair price provisions of the New York
Law, a corporation may engage in a business Business Corporation Law also apply to RGS
combination with any interested shareholder Energy.
when the cash and other consideration to be
received by the other shareholders is at
least equal to the higher of:
- the highest per share price paid by the
interested shareholder at a time when
he or she beneficially owned at least
five percent of the outstanding voting
stock and within the five years
immediately prior to the date the
business combination is first
announced;
- the highest price paid by the
interested shareholder within the five
years immediately prior to, or in, the
transaction in which he or she became
an interested shareholder; and
- the market value per share of common
stock on the date the business
combination is first announced or on
the interested shareholder's stock
acquisition date, whichever is higher;
plus, in each case, any accrued interest, and
less, in each case, any paid dividends.

STATE LAW TAKEOVER RESTRICTIONS

The New York Security Takeover Disclosure The New York Security Takeover Disclosure Act
Act does not apply to Energy East because it also does not apply to RGS Energy.
is a public utility holding company as
defined in the Public Utility Holding Company
Act and any takeover bid would be subject to
SEC approval.

LEGAL MATTERS

The validity of the Energy East shares to be issued in the merger will be
passed upon for Energy East by Huber Lawrence & Abell. As of April 26, 2001,
members of Huber Lawrence & Abell owned 4,808 Energy East shares.

EXPERTS

The consolidated financial statements of RGS Energy incorporated in this
document by reference to RGS Energy's Annual Report on Form 10-K for the year
ended December 31, 2000 have been so incorporated in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on authority of that
firm as experts in auditing and accounting.

The consolidated financial statements of Energy East incorporated in this
document by reference to Energy East's Annual Report on Form 10-K for the year
ended December 31, 2000 have been so incorporated in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on authority of that
firm as experts in auditing and accounting.

THE RGS ENERGY ANNUAL MEETING

This document is furnished in connection with the solicitation of proxies by
the board of directors of RGS Energy for its 2001 Annual Meeting of Shareholders
to be held June 15, 2001, at the Rochester Riverside Convention Center, 123 East
Main Street, Rochester, New York. The mailing address of RGS Energy's principal
executive office is 89 East Avenue, Rochester, New York 14649-0001. You should
read this document carefully before voting your shares.

ANNUAL REPORT

An Annual Report to shareholders for the year ended December 31, 2000,
including consolidated financial statements, has been mailed to all shareholders
of record. The Annual Report is not part of this document.

OUTSTANDING VOTING SECURITIES AND VOTING RIGHTS

GENERAL. The close of business on April 26, 2001 has been fixed as the
record date for determining the holders of RGS Energy common stock entitled to
vote at the 2001 annual meeting. As of April 26, 2001, RGS Energy had
outstanding 34,577,426 shares of common stock. Shareholders of record are
entitled to one vote per share.

In voting on the merger agreement, holders of RGS Energy common stock may
vote for, against or abstain from voting their shares. The affirmative vote of a
majority of outstanding RGS Energy shares is required to approve and adopt the
merger agreement. Accordingly, an abstention, a failure to vote or a broker
non-vote has the effect of a vote against the merger proposal. In voting in the
election of directors, holders of RGS Energy common stock may vote for all of
the nominees or may withhold their votes as to all or specific nominees. The
three nominees who receive the highest number of affirmative votes, in person or
by proxy, will be elected. As a result, in accordance with New York law,
abstentions will have no effect on the election of directors.

In connection with the annual meeting, holders of RGS Energy common stock
have three ways to vote by proxy: (a) by mail, (b) by telephone and (c) over the
Internet. To vote electronically, by telephone or over the Internet, holders of
RGS Energy common stock should follow the instructions on the enclosed proxy
form. To vote by mail, holders of RGS Energy common stock should complete and
return the enclosed proxy form in the envelope provided.

If a holder of RGS Energy common stock completes and returns a proxy by
mail, telephone or Internet, the proxies will vote such holder's shares in
accordance with the instructions in the proxy. If a holder signs and returns the
proxy form without checking any boxes, the proxies will vote such holder's
shares for the merger agreement and for the election of all of the nominees for
director.

HOLDERS OF RGS ENERGY COMMON STOCK MAY REVOKE THEIR PROXY AT ANY TIME BEFORE
ITS EXERCISE AT THE ANNUAL MEETING, REGARDLESS OF HOW IT IS SUBMITTED.
THEREFORE, VOTING BY PROXY NOW WILL NOT AFFECT SUCH HOLDERS' RIGHT TO VOTE IN
PERSON AT THE MEETING.

RGS ENERGY EMPLOYEE SHAREHOLDERS. In the case of an employee of RGS Energy
or any of its subsidiaries, the proxy is for shares of RGS Energy common stock
registered in such employee's name as well as any shares held for such employee
shareholder under the RGS Energy Automatic Dividend Reinvestment and Stock
Purchase Plan, the RG&E Savings Plus Plan and/or the RG&E Employee Stock
Ownership Plan.

If a participant in the RG&E Savings Plus Plan does not return the proxy
form or otherwise vote by telephone or over the Internet, the trustee of the
RG&E Savings Plus Plan may nonetheless instruct the proxies to vote any Savings
Plus Plan shares held by such participant (but not such participant's other
shares) in the same proportion as shares voted by other participants in such
plan.

NON-EMPLOYEE RGS ENERGY SHAREHOLDERS. In the case of holders of RGS Energy
common stock who are not employees of RGS Energy or any of its subsidiaries, the
proxy is for shares of RGS Energy common stock registered in such holder's name
as well as any shares held for such holder under the RGS Energy Automatic
Dividend Reinvestment and Stock Purchase Plan.

SHARES HELD IN STREET NAME. Whether or not a holder of RGS Energy common
stock is an employee of RGS Energy or any of its subsidiaries, if such holder
beneficially owns shares which a broker holds in street name on such holder's
behalf, such holder will be provided with a form of proxy instructing the broker
how to vote the shares. If a holder does not provide voting instructions to a
broker, the broker may, in accordance with the rules of the New York Stock
Exchange, vote such shares in the broker's discretion with respect to
"discretionary" matters. However, Proposal 1, the merger proposal, is considered
a "non-discretionary item," and the broker may not vote shares for which no
voting instructions have been received on Proposal 1. As a result, if you do not
instruct your broker on how to vote your shares, this will have the effect of a
vote against the merger proposal.

PROPOSAL 1--THE MERGER PROPOSAL

Proposal 1 is a proposal to approve and adopt the merger agreement. For
summary and detailed information regarding the proposed merger with Energy East,
see "The Merger--General Description of the Merger" on page 23.

PROPOSAL 2--ELECTION OF DIRECTORS

The board of directors of RGS Energy currently consists of twelve directors
divided into three classes. One class of directors is elected at each annual
meeting of shareholders for a term expiring at the third succeeding annual
meeting. The Board intends to reduce the number of directors to eleven,
following the retirement of Mr. Cornelius J. Murphy as a Class III director at
the annual meeting on June 15, 2001. Mr. Murphy has been a director since 1981
and has served as Chairman of the Committee on Management and of the Executive
and Finance Committee of the Board. Management and the Board appreciate his many
contributions to RGS Energy over the years.

The following individuals, all of whom are incumbent directors of RGS
Energy, have been nominated for election at the 2001 annual meeting to serve as
directors for a term expiring at the 2004 annual meeting and thereafter until
their successors are elected and qualify:

- Angelo J. Chiarella,

- Mark B. Grier, and

- Jay T. Holmes.

Unless holders of RGS Energy common stock specify otherwise on their proxy,
the proxies will vote shares represented by proxies for the election of the
nominees listed above. While it is anticipated that the nominees will be able to
qualify or accept office, if one or more should be unable to do so, the proxies
reserve the right to vote for any substitute nominee or nominees designated by
the board of directors.

The following paragraphs identify the nominees standing for election and the
continuing directors, including their principal occupations and business
experience for the past five years.

NOMINEES--CLASS III (TERM EXPIRING IN 2004)

ANGELO J. CHIARELLA. (age 67) Mr. Chiarella has been Director of Planning
at FJF Architects, LLP since March 1999. He served as Vice President, Rochester
Midtown L.L.C., a real estate development and leasing company, from
November 1997 until January 1999. Mr. Chiarella was previously President and
Chief Executive Officer of Midtown Holdings Corp. He is a director of

Transmation, Inc. Mr. Chiarella has been a director of RGS Energy since
August 2, 1999 and a director of RG&E since 1992.

MARK B. GRIER. (age 48) Mr. Grier has been Executive Vice President,
Financial Management of The Prudential Insurance Company of America since
June 1997. He served as Chief Financial Officer of The Prudential from May 1995
to June 1997 and as Executive Vice President, The Chase Manhattan Bank, N.A.
from 1991 to May 1995. He is a director of Annuity & Life Reinsurance, Ltd.
Mr. Grier has been a director of RGS Energy since August 2, 1999 and a director
of RG&E since 1997.

JAY T. HOLMES. (age 58) Mr. Holmes has been an attorney and business
consultant since May 1996. He served as Executive Vice President and Chief
Administrative Officer of Bausch & Lomb Incorporated from March 1995 until his
retirement in May 1996. Mr. Holmes previously held numerous executive positions
at Bausch & Lomb, serving as Senior Vice President and Chief Administrative
Officer from November 1994 to March 1995 and as Senior Vice President--Corporate
Affairs and Secretary from 1983 until November 1994. He is a director of VISX,
Incorporated. Mr. Holmes has been a director of RGS Energy since August 2, 1999
and a director of RG&E since 1992.

CONTINUING DIRECTORS--CLASS I (TERM EXPIRING IN 2002)

G. JEAN HOWARD. (age 57) Ms. Howard has served as Executive Director of
Wilson Commencement Park, a human services and housing management agency
empowering low-income, single-parent families to become socially and
economically self-sufficient, since 1990. Prior to joining WCP, Ms. Howard
served in management capacities at several human services agencies nationwide.
Ms. Howard serves as a board member or trustee of numerous civic and
philanthropic organizations, including Bennett College, WXXI Public
Broadcasting, Inc., Monroe Community College, Center for Governmental
Research, Inc. and the Otetiana Council, Boy Scouts of America, Inc. Ms. Howard
has been a director of RGS Energy since August 2, 1999 and a director of RG&E
since April 29, 1999.

SAMUEL T. HUBBARD, JR. (age 51) Mr. Hubbard has served as President and
Chief Executive Officer of High Falls Brewing Company, LLC, a producer of malt
beverages, since January 2001. He previously served as President and Chief
Executive Officer from March 2000 until January 2001 and as President and Chief
Operating Officer from June 1999 to March 2000 of the Genesee Corporation, which
conducted business in the areas of malt beverages, dry-food processing and
packaging, equipment and real estate investment. Mr. Hubbard served as President
and Chief Executive Officer of the Alling and Cory Company, a wholesale
distributor of fine printing paper, industrial and business products, from 1986
until November 1998. He is a director of M&T Bank Corporation and the Genesee
Corporation. Mr. Hubbard has been a director of RGS Energy since August 2, 1999
and a director of RG&E since 1996.

CLEVE L. KILLINGSWORTH, JR. (age 48) Mr. Killingsworth has served as
President and Chief Executive Officer of Health Alliance Plan, a corporate
affiliate of the Henry Ford Health System, since January 1998. He served as
President of several Kaiser Foundation Health Plans from 1994 to 1997 and in
senior executive positions at Blue Cross/Blue Shield of the Rochester Area from
1986 to 1994. Mr. Killingsworth is a director of the Reynolds and Reynolds
Company. He has been a director of RGS Energy since August 2, 1999 and a
director of RG&E since July 1998.

ROGER W. KOBER. (age 67) Mr. Kober served as Chairman of the Board and
Chief Executive Officer of RG&E from March 1996 until his retirement in
January 1998. Mr. Kober served as Chairman of the Board, President and Chief
Executive Officer of RG&E from January 1992 to March 1996. Mr. Kober is a
director of Home Properties of New York, Inc. He has been a director of RGS
Energy since August 2, 1999 and a director of RG&E since 1988.

CONTINUING DIRECTORS--CLASS II (TERM EXPIRING IN 2003)

ALLAN E. DUGAN. (age 61) Mr. Dugan has served as Executive Vice President
and President, Worldwide Business Services of Xerox Corporation since
January 2000. Prior to assuming his current position, Mr. Dugan was Executive
Vice President, Business Group Operations, Senior Vice President, Corporate
Strategic Services and Senior Vice President and General Manager, Manufacturing
Operations Worldwide. Mr. Dugan has been a director of RGS Energy since
August 2, 1999 and a director of RG&E since 1991.

SUSAN R. HOLLIDAY. (age 45) Ms. Holliday has been President and Publisher
of the Rochester Business Journal since 1988. She serves as a board member or
trustee of several civic and philanthropic organizations including the United
Way of Greater Rochester, Rochester Museum and Science Center, George Eastman
House, University of Rochester Medical Center and Rochester Institute of
Technology. Ms. Holliday has been a director of RGS Energy since August 2, 1999
and a director of RG&E since 1997.

CHARLES I. PLOSSER. (age 52) Dean Plosser has served since 1991 as the John
M. Olin Distinguished Professor of Economics and Public Policy, and as Dean
since July 1993, of the William E. Simon Graduate School of Business
Administration, University of Rochester. He has been a director of RGS Energy
since August 2, 1999 and a director of RG&E since 1996.

THOMAS S. RICHARDS. (age 57) Mr. Richards has been Chairman of the Board,
President and Chief Executive Officer of RGS Energy since August 2, 1999 and
Chairman of the Board, President and Chief Executive Officer of RG&E since
January 1998. Mr. Richards was President and Chief Operating Officer of RG&E
from March 1996 to January 1998, and has served in numerous senior executive
capacities since joining RG&E as General Counsel in October 1991. Prior to
joining RG&E, Mr. Richards was an attorney with the law firm of Nixon Hargrave
Devans & Doyle, now Nixon Peabody LLP. He has been a director of RGS Energy
since August 2, 1999 and a director of RG&E since 1996.

SECURITY OWNERSHIP OF MANAGEMENT

In order to ensure that the interests of each executive officer and each
member of the board of directors are directly tied to the continuing success of
RGS Energy and the performance of RGS Energy's common stock, a target level of
stock ownership is recommended to be held by each executive officer and Board
member. For executive officers, the target level is three times base salary for
the Chairman of the Board, President and Chief Executive Officer, and two and
one-half times base salary for the other executive officers, exclusive of
exercisable stock options but including common stock equivalent units accrued
under RGS Energy's 401(k) Restoration Plan. A target level of stock ownership of
$150,000 is recommended to be held directly by each Board member who has been on
the Board a minimum of five years, including common stock equivalent units held
in the director's deferred stock plans.

The following table indicates the number of shares of RGS Energy common
stock and equivalent units beneficially owned as of March 31, 2001 by (a) each
RGS Energy director and nominee, (b) each of the RGS Energy executive officers
named in the Summary Compensation Table, and (c) the RGS Energy executive
officers and directors as a group. As of March 31, 2001, each of the individuals
listed in the table, as well as the RGS Energy directors, nominees and executive
officers as a group, beneficially owned less than 1.0% of the total shares
outstanding. The following persons disclaim beneficial ownership with respect to
shares of RGS Energy common stock held by their spouses: Mr. Bovalino,
16,607 shares; Mr. Chiarella, 319 shares; Ms. Holliday, 396 shares; Mr. Kober,
7,969

shares; Mr. Wilkens, 2,586 shares; and all RGS Energy directors, nominees and
executive officers as a group, including the aforementioned, 32,443 shares.

RGS ENERGY TOTAL RGS ENERGY
RGS ENERGY COMMON STOCK COMMON STOCK AND
COMMON STOCK EQUIVALENT UNITS COMMON STOCK
BENEFICIALLY BENEFICIALLY EQUIVALENT UNITS
NAME OF BENEFICIAL OWNER OWNED(1)(2) OWNED(3) BENEFICIALLY OWNED
------------------------ ------------- ---------------- ------------------

Michael J. Bovalino........................... 49,243 250 49,493
Angelo J. Chiarella........................... 3,154 17,698 20,852
Allan E. Dugan................................ 1,728 9,153 10,881
Mark B. Grier................................. 2,298 2,518 4,816
Susan R. Holliday............................. 2,781 3,401 6,182
Jay T. Holmes................................. 4,138 18,183 22,321
G. Jean Howard................................ 1,188 1,943 3,131
Samuel T. Hubbard, Jr......................... 1,698 4,165 5,863
Cleve L. Killingsworth, Jr.................... 898 2,500 3,398
Roger W. Kober................................ 13,887 3,470 17,357
Cornelius J. Murphy........................... 4,033 20,427 24,460
Charles I. Plosser............................ 1,486 4,121 5,607
Thomas S. Richards............................ 86,788 2,613 89,401
J. Burt Stokes................................ 52,484 526 53,010
Michael T. Tomaino............................ 45,313 374 45,687
Paul C. Wilkens............................... 28,751 144 28,895
All Directors, Nominees and Executive Officers
as
a group (17 Individuals)...................... 323,989 91,486 415,475

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

(1) Includes shares of RGS Energy common stock over which the named person has
direct or indirect voting or investment power.

(2) Includes shares of RGS Energy common stock which may be acquired through the
exercise of stock options as follows: Mr. Bovalino, 31,785 shares;
Mr. Richards, 55,423 shares; Mr. Stokes, 31,785 shares; Mr. Tomaino, 24,914
shares; Mr. Wilkens, 18,300 shares; and all directors, nominees and
executive officers as a group, including the aforementioned, 178,541 shares.

(3) Includes RGS Energy common stock equivalent units accrued under RGS Energy
and RG&E employee and director benefit plans for which the named person does
not have voting rights.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934 requires RGS Energy's
directors and executive officers, as well as persons holding 10% or more of RGS
Energy's equity securities, to file reports of ownership and changes in
ownership with the SEC and the New York Stock Exchange. These reporting persons
are also required to provide RGS Energy with copies of all such Section 16(a)
forms they file. Based solely on RGS Energy's review of the copies of the
reports received by RGS Energy, and on the written representations of certain
reporting persons, RGS Energy believes that during 2000 all filing requirements
were timely satisfied by the directors and executive officers of RGS Energy.

STOCK PERFORMANCE GRAPH

The following graph compares the cumulative total shareholder return on RGS
Energy's common stock with the EEI Index of investor-owned electric utilities
and the Standard & Poor's 500 Index for the past five years. Total return was
calculated assuming investment of $100 on December 31, 1995 and reinvestment of
all dividends.

FIVE-YEAR CUMULATIVE TOTAL RETURN COMPARISON
(RGS ENERGY, EEI INDEX, AND S&P 500 INDEX)

[EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC]

12/31/95 12/31/96 12/31/97 12/31/98 12/31/99 12/31/00
-------- -------- -------- -------- -------- --------

RGS Energy................................. $100 $ 92 $177 $172 $122 $207
EEI Index.................................. $100 $101 $129 $147 $119 $177
Standard & Poor's 500...................... $100 $123 $164 $211 $255 $232

EXECUTIVE COMPENSATION

The following tables show the compensation RGS Energy and its subsidiaries
paid for services of the chief executive officer and the next four most highly
compensated executive officers for each of the last three fiscal years:

SUMMARY COMPENSATION TABLE

LONG-TERM
COMPENSATION
---------------------
ANNUAL COMPENSATION SECURITIES LTIP ALL OTHER
------------------------- UNDERLYING PAYOUTS COMPENSATION
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY ($) BONUS ($)(1) OPTIONS(2) ($)(3) ($)(4)
--------------------------- ----------- ---------- ------------ ---------- -------- ------------

THOMAS S. RICHARDS................... 2000 379,174 153,133 42,683 415,985 11,375
Chairman of the Board, President and 1999 345,954 122,422 27,256 176,094 9,524
Chief Executive Officer, RGS Energy 1998 325,704 136,859 27,984 338,641 8,143
and RG&E

J. BURT STOKES....................... 2000 223,476 62,232 20,290 210,310 6,704
Senior Vice President and Chief 1999 217,512 55,471 13,387 119,619 5,985
Financial Officer, RGS Energy 1998 208,820 47,651 0 249,464 5,221
and RG&E (5)

MICHAEL T. TOMAINO................... 2000 214,412 65,290 19,231 210,567 6,432
Senior Vice President and General 1999 206,162 57,355 12,689 119,872 5,673
Counsel, RGS Energy and RG&E 1998 197,928 47,651 0 249,510 4,948

MICHAEL J. BOVALINO.................. 2000 201,852 64,293 17,713 210,936 6,056
Senior Vice President, RGS Energy 1999 189,886 55,029 11,687 120,345 5,225
and President and Chief Executive 1998 182,297 47,651 0 249,686 4,557
Officer, Energetix, Inc.

PAUL C. WILKENS...................... 2000 195,510 63,033 16,038 183,219 5,865
Senior Vice President, RGS Energy 1999 171,930 47,832 10,581 32,794 4,731
and RG&E 1998 157,990 47,651 15,157 64,152 3,950

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

(1) Under the Executive Incentive Plan, the amount of annual awards depends upon
the level of achievement of one-year goals. If performance is below a
minimal level, no award is earned. Actual amounts of annual awards earned
under the Plan are shown.

(2) Options granted between 1998-2000.

(3) Under the Long Term Incentive Plan, the amount of annual awards depends upon
the total shareholder return over a three-year period ending in December of
such year, as compared to the companies which comprise the EEI Index of
investor-owned electric utilities. The Plan also includes a financial
performance measurement which compares RGS Energy's cash flow return on net
assets against a pre-established target goal identified in RGS Energy's
corporate business plan. The table reports actual amounts earned at the end
of each performance cycle, grossed up to cover federal and state income
taxes. Awards granted under the Plan are paid in cash. Participants are
required to invest the after-tax proceeds in shares of RGS Energy's common
stock and to retain the shares for a period of at least three years.

(4) Amounts represent contributions to the RG&E Savings Plus Plan (401(k) Plan)
and the 401(k) Restoration Plan.

(5) Mr. Stokes retired from RGS Energy and RG&E effective February 1, 2001.

OPTION GRANTS IN LAST FISCAL YEAR (2000)

INDIVIDUAL GRANTS(1)
-------------------------------------------------------------
PERCENT OF
NUMBER OF TOTAL OPTIONS
SECURITIES GRANTED TO EXERCISE OR GRANT DATE
UNDERLYING OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION PRESENT VALUE
NAME GRANTED (#) FISCAL YEAR ($/SHARE) DATE ($)(2)
---- ------------------ ------------- ----------- ---------- -------------

Thomas S. Richards............. 42,683 15.9 $20.50 1/19/10 288,878
J. Burt Stokes................. 20,290 7.6 $20.50 1/19/10 51,862
Michael T. Tomaino............. 19,231 7.2 $20.50 1/19/10 76,154
Michael J. Bovalino............ 17,713 6.6 $20.50 1/19/10 119,882
Paul C. Wilkens................ 16,038 6.0 $20.50 1/19/10 108,545

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

(1) The options shown in this table were granted in January 2000 under the 1996
Performance Stock Option Plan. All options are vested as of the date of
grant; however, they may not be exercised for a minimum of three years.
Options carry dividend rights which provide for a cash payment upon exercise
of an option in an amount equal to the quarterly dividend payments per share
of RGS Energy common stock paid to RGS Energy's shareholders from the date
the option was granted until the date of exercise.

(2) The grant date valuation was calculated using the Black-Scholes option
pricing model assuming stock price volatility of 18.0%, a risk-free rate of
return of 6.86% and an annual dividend yield of 8.78%. The weighted average
fair value of an option as of the grant date is $5.96.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR (2000)
AND FISCAL YEAR-END OPTION VALUES

NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS
ACQUIRED ON FISCAL YEAR END (#) AT FISCAL YEAR END ($)(1)
EXERCISE VALUE --------------------------- ---------------------------
NAME (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- ------------- ----------- -------------

Thomas S. Richards.............. 0 0 36,320 110,030 485,798 741,344
J. Burt Stokes.................. 0 0 23,838 41,624 318,845 382,828
Michael T. Tomaino.............. 0 0 16,609 48,529 127,690 389,792
Michael J. Bovalino............. 0 0 23,838 37,347 318,845 347,707
Paul C. Wilkens................. 0 0 10,883 45,404 145,566 288,895

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

(1) Based on the market value of the stock at fiscal year-end less exercise
price. For exercisable options, does not include the value of dividend
equivalent rights from the date the options were granted to December 31,
2000 as follows: Mr. Richards, $261,504; Mr. Stokes, $171,634; Mr. Tomaino,
$97,163; Mr. Bovalino, $171,634; and Mr. Wilkens, $78,358.

RETIREMENT PLANS

RGS Energy has a non-contributory, tax qualified, defined benefit pension
plan known as the RG&E Retirement Plan. RGS Energy also has an unfunded,
non-qualified plan known as the RG&E Unfunded Retirement Income Plan. All
employees of RGS Energy and certain of its subsidiaries, including executive
officers, are eligible to participate in these plans. The benefit provided by
the RG&E Retirement Plan and the RG&E Unfunded Retirement Income Plan is based
upon one of the two following formulas depending on age and service on
December 31, 1999:

- a pension equity plan formula; or

- final average pay (highest 36 month average of the last 120 months prior
to retirement).

The pension equity plan formula was introduced effective July 1, 1999.
Employees whose age and service equaled 75 or who were age 55 with 10 years of
service on December 31, 1999 receive the most valuable of these two formulas.
All other employees' benefits will be based on the pension equity plan formula
only. The pension equity plan provides a lump sum payment option as well as
monthly annuity options.

RGS Energy also has an unfunded supplemental executive retirement plan,
known as the RG&E Unfunded Supplemental Executive Retirement Plan, in which
executive officers participate. The annual pension benefit under these plans,
taken together, is determined by the employee's years of service and annual
compensation (salary and bonus). Under the Internal Revenue Code of 1986, the
annual benefit payable by the funded plan was limited to $135,000 for 2000. The
unfunded plans will provide those benefits which cannot be fully provided by the
funded plan. The table below may be used to calculate the approximate annual
benefits payable as a straight-life annuity to executive officers at normal
retirement age (65) under these plans in specified remuneration and
years-of-service classifications.

RETIREMENT BENEFITS BASED ON YEARS OF SERVICE ($) (2)
--------------------------------------------------------------------------
AVERAGE ANNUAL SALARY($)(1) 5 10 15 20 25 30 40
--------------------------- -------- -------- -------- -------- -------- -------- --------

150,000...................... 30,000 56,250 78,750 97,500 97,500 97,500 106,000
200,000...................... 40,000 75,000 105,000 130,000 130,000 130,000 143,500
250,000...................... 50,000 93,750 131,250 162,500 162,500 162,500 178,000
300,000...................... 60,000 112,500 157,500 195,000 195,000 195,000 216,500
350,000...................... 70,000 131,250 183,750 227,500 227,500 227,500 253,000
400,000...................... 80,000 150,000 210,000 260,000 260,000 260,000 289,500
450,000...................... 90,000 168,750 236,250 292,500 292,500 292,500 326,000
500,000...................... 100,000 187,500 262,500 325,000 325,000 325,000 362,500
550,000...................... 110,000 206,250 288,750 357,500 357,500 357,500 399,100

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

(1) Average annual salary includes base pay (three highest consecutive years)
and annual bonus (three highest years) during the last ten years before
retirement. The amounts shown in the salary and bonus columns in the Summary
Compensation Table constitute qualifying compensation under the plans.

(2) Messrs. Richards, Stokes, Tomaino, Bovalino and Wilkens have been credited
with 17, 5, 11, 4 and 27 years of service, respectively, under the plans.

SEVERANCE AGREEMENTS

RGS Energy has entered into severance agreements for an indefinite term with
Messrs. Richards, Tomaino, Bovalino and Wilkens. The agreements provide that
each of the officers that is a party to the agreements is obligated, in the
event of an attempted change of control (as defined in the agreements), not to
leave RGS Energy and to render certain services to RGS Energy for a designated
period. The agreements also provide that the officer is entitled to specified
compensation and benefits if, within three years after a change in control, the
officer's employment is involuntarily terminated, other than for cause (as
defined in the agreements) or by reason of death, disability or normal
retirement. Involuntary termination also includes the officer's resignation
following a change in duties (as defined in the agreements). If an involuntary
termination occurs within the three-year covered period, the officer will
receive a lump sum payment equal to three times his annual salary (as defined in
the agreements) and certain other benefits including health and death benefits
and outplacement and relocation expense reimbursement. The agreements also
provide for a gross-up for any excise taxes that may apply under Section 4999 of
the Internal Revenue Code.

DIRECTORS' COMPENSATION

RGS Energy pays its directors an annual retainer of $22,000, $11,000 in cash
and $11,000 to be applied to the purchase of shares of RGS Energy common stock.
RGS Energy pays committee chairmen an additional annual cash retainer of $3,000.
Directors receive $900 for each Board or committee meeting attended and $600 for
each additional Board or committee meeting attended the same day.

RGS Energy does not pay its officers any fees for their services as
directors. The total amount of compensation RGS Energy pays to its directors is
comparable to the total compensation paid to directors of similar sized
combination electric and gas utility companies.

RGS Energy has deferral plans under which a director's fees and the cash
portion of his or her retainer may either be deferred with interest in a cash
account or deferred and converted to common stock equivalent units which earn
dividends equal to dividends declared on RGS Energy common stock. In either
case, deferred amounts are paid in cash, in a lump sum or over a period of up to
ten years commencing no later than the director's 70th birthday.

RGS Energy has a Deferred Stock Unit Plan for Non-Employee Directors which
also serves to align the directors' financial interests with those of the
shareholders. Each director's deferred stock account is based on the amount of
the annual retainer, the number of years of Board service, and the price of RGS
Energy's common stock. Under the Plan, each non-employee director is credited
annually with deferred stock units equal to 75% of his or her annual retainer.
Benefits under the Plan become partially vested after five years of service and
are fully vested after ten years. Upon cessation of membership on the Board,
deferred amounts will be payable in cash in a lump sum or in up to ten annual
installments as determined by each director.

MEETINGS AND STANDING COMMITTEES OF THE BOARD OF DIRECTORS

The RGS Energy board of directors met eleven times during 2000. All of the
directors attended 75% or more of the total number of meetings of the board of
directors and the Committees of the Board on which they served, which Committees
are described below.

EXECUTIVE AND FINANCE COMMITTEE. The RGS Energy Executive and Finance
Committee, with certain exceptions, possesses all of the authority of the board
of directors. During 2000, the Committee met four times. Messrs. Dugan, Holmes,
Kober, Murphy (Chairman), Plosser and Richards are currently members of the
Committee.

COMMITTEE ON MANAGEMENT. The RGS Energy Committee on Management reviews RGS
Energy's executive compensation and benefits program, including awards under RGS
Energy's annual Executive Incentive Plan, Long Term Incentive Plan and
Performance Stock Option Plan. The Committee sets the compensation of the Chief
Executive Officer and reviews the compensation levels of members of management
proposed by the Chief Executive Officer. The Committee oversees RGS Energy's
organizational structure, corporate goals and objectives and management
development, including management succession. During 2000, the Committee met
four times. Messrs. Dugan (Chairman), Grier, Murphy and Plosser are currently
members of the Committee.

COMMITTEE ON DIRECTORS. The RGS Energy Committee on Directors is
responsible for evaluation of director performance, director compensation,
director succession, committee membership and corporate governance issues. The
Committee recommends to the board of directors candidates to be nominated for
election as directors. During 2000, the Committee met two times.
Messrs. Chiarella, Holmes (Chairman) and Killingsworth, Ms. Holliday and
Ms. Howard are currently members of the Committee.

RGS Energy shareholders wishing to recommend candidates for nomination to
the Board should submit in writing to the Secretary of RGS Energy the name of
the nominee, a statement of the

nominee's qualifications and the written consent of the person so named.
Suggestions received prior to October 1, 2001, will be considered by the
Committee when recommending nominees for election at the RGS Energy 2002 annual
meeting of shareholders.

AUDIT COMMITTEE. (See Report of Audit Committee which follows this
section.)

REPORT OF AUDIT COMMITTEE

The RGS Energy Audit Committee is composed of independent directors and
operates under a written charter adopted by the Committee and the Board. A copy
of the Committee's charter is attached to this joint proxy statement/prospectus
as Appendix E.

During 2000, the Committee met four times. The members of the Committee are
identified at the end of this report.

RGS Energy management has the primary responsibility for RGS Energy's
financial statements and the reporting process, including the system of internal
controls. RGS Energy's independent accountants are responsible for performing an
independent audit of RGS Energy's consolidated financial statements in
accordance with generally accepted auditing standards and to issue a report
thereon. The Committee's responsibility is to monitor and oversee these
processes.

In this context, the Committee has met and held discussions with management
and the independent accountants. Management represented to the Committee that
RGS Energy's consolidated financial statements were prepared in accordance with
generally accepted accounting principles, and the Committee has reviewed and
discussed the consolidated financial statements with management and the
independent accountants. The Committee discussed with the independent
accountants the matters required to be discussed by Statement on Auditing
Standards No. 61 (Communication With Audit Committees).

The independent accountants provided to the Committee the written
disclosures and the letter required by Independence Standards Board Standard
No. 1 (Independence Discussion With Audit Committees). The Committee discussed
with the independent accountants their independence. All audit and non-audit
services provided by PricewaterhouseCoopers LLP are reviewed by the Committee,
which has considered whether the provision of non-audit services is compatible
with maintaining the independent accountants' independence.

The Committee discussed with RGS Energy's internal auditors and independent
accountants the scope and plans for their respective audits. The Committee met
with the internal auditors and independent accountants, with and without
management present, and discussed the results of their examinations, their
evaluations of RGS Energy's internal controls, and the quality of RGS Energy's
financial reporting.

In reliance on the reviews and discussions referred to above, the Committee
recommended to the board of directors, and the Board has approved, that the
audited financial statements be included in RGS Energy's Annual Report on
Form 10-K for the year ended December 31, 2000, for filing with the SEC.

Audit Committee

Samuel T. Hubbard, Jr., CHAIRMAN
Angelo J. Chiarella
Mark B. Grier
G. Jean Howard
Cleve L. Killingsworth, Jr.

REPORT OF THE RGS ENERGY COMMITTEE ON MANAGEMENT ON EXECUTIVE COMPENSATION

The RGS Energy Committee on Management is appointed by the board of
directors of RGS Energy. The Committee's objective is to assure that executive
compensation is fair and reasonable to customers, shareholders and employees by
providing competitive compensation linked to the achievement of RGS Energy's
goals. The Committee provides to the Board a detailed review of all aspects of
compensation for the senior officer positions.

The Committee has used the services of a compensation consulting firm to
advise it on the reasonableness of compensation paid to senior officers as
compared to other companies, including both utility companies and general
industry companies. The Committee has commissioned several consultant studies on
executive compensation in recent years. The studies indicated that RGS Energy's
executive compensation levels were below the average for comparable utility and
general industry companies, and based on these results, the Committee has
adjusted RGS Energy's compensation objectives to the targets discussed below.
The studies also provided competitive benchmarks for establishment of short- and
long-term incentive programs.

COMPONENTS OF COMPENSATION. The executive compensation program consists of
three components: base salary, annual incentive compensation and long-term
incentive compensation.

BASE SALARY. The first component of executive compensation is base salary,
which is predicated on competitive market conditions, level of responsibility
and individual performance. RGS Energy's target base salary objective for its
top five executive positions is to be competitive with utility companies in the
Edison Electric Institute (EEI) revenue class of $1 billion to $3 billion (30
companies) at the median of this class. The average base pay for RGS Energy's
five highest paid executives in 2000 was 36.3% below the median base pay of
those companies.

EXECUTIVE INCENTIVE PLAN. The second component of executive compensation is
annual incentive compensation. A substantial portion of the annual compensation
of each officer relates to, and is contingent upon, the performance of RGS
Energy, as well as the individual contribution of each officer. As a result, a
portion of each officer's total potential compensation is variable.

RGS Energy has an Executive Incentive Plan which provides for annual
performance bonus awards for key employees that are paid upon meeting corporate
performance objectives established annually by the Committee on Management and
approved by the board of directors and individual performance objectives
established annually by the key employees and approved by Senior Management.
Awards range from 0% to 60% of a participant's annual base salary. The
individual portion of the total eligible award ranges up to 20% for the CEO, 40%
for senior officers and 50% for Vice President-level participants. The annual
award will be paid in cash in the year following the year in which it was
earned.

The Executive Incentive Plan corporate annual performance objectives for
2000 consisted of three categories: (1) shareholder satisfaction, (2) customer
satisfaction, and (3) employee satisfaction. The weighting of importance and
value for each of these categories was 50%, 30% and 20%, respectively. The
Committee monitored RGS Energy's performance regarding the Plan's objectives
throughout the year. Based upon 2000 performance results, the Board granted an
Executive Incentive Plan payout for achieving the following measures of the
categories discussed above: (1) cash flow return on net assets, (2) customer
satisfaction measurements in the business segment areas of Deliver Energy,
Supply Wholesale Electric Power and Establish and Maintain Regulated Retail
Customer Relationships, and (3) employee satisfaction index. Members of the
executive management team (5 employees) and selected leadership team members (15
employees) participated in the 2000 Plan. The bonus awards for 2000, as reported
below in the Summary Compensation Table, reflect the achievement of
Mr. Richards' earning 39.8% of his 2000 annualized salary and the other
executive officers earning between 27.7%

and 31.5% of their annualized salary, as determined by the Committee and as
approved by the board of directors.

LONG TERM INCENTIVE PLAN. The third component of executive compensation is
long-term incentive compensation, which is designed to ensure the continuing
success of RGS Energy and is directly tied to RGS Energy's common stock
performance.

The sixth and last Long Term Incentive Plan performance cycle concluded in
December 2000. The total shareholder return during the three-year performance
cycle, as compared to the EEI Index, placed RGS Energy in the 44th position out
of 89 companies. During the previous three-year performance cycle concluded in
December 1999, RGS Energy ranked 30th out of 96 companies. Based upon RGS
Energy's relative performance compared to the EEI Index, and cash flow return on
net assets of 9.78%, which was above the target goal established in the
corporate business plan, the board of directors approved a 125.77% payout for
2000 for performance shares granted in January 1998. These awards were grossed
up to cover federal and state income taxes, as reported above in the Summary
Compensation Table. Awards granted under the Long Term Incentive Plan are paid
in cash. Participants are required to invest the after-tax proceeds in shares of
RGS Energy common stock and to retain the shares for a period of at least three
years.

The previous Long Term Incentive Plan grants, based upon a three-year
performance cycle, were made in January of 1998. The 1998 performance cycle
(1998-2000) concludes this Plan. Effective January 1999, performance shares
previously granted under the Long Term Incentive Plan were replaced with annual
stock options as approved by the Committee on Management and the Board effective
January 1, 1999.

PERFORMANCE STOCK OPTION PLAN. The Performance Stock Option Plan was
established and approved by the shareholders of RG&E in 1996 and was assumed by
RGS Energy in connection with its formation. The Performance Stock Option Plan
is designed to motivate management to increase shareholder value over the long
term. Under the Plan, officers and other key executives may be awarded stock
options over a ten-year period. The stock options are intended to more closely
align the interests of management with those of shareholders by giving
management a greater interest in significant stock price appreciation. The full
benefit of the compensation package of each executive cannot be realized unless
stock price appreciation occurs over a number of years. Option grants include
dividend equivalent rights from the date of grant. Annually, the Committee may
recommend to the board of directors the granting of options based upon a
participant's positional responsibilities. The number of options is determined
by RGS Energy's performance as compared to an industry performance measure (EEI
Index), which can increase or decrease the number of options granted in any
given year. Options granted are vested immediately, but cannot be exercised for
a minimum of three years. Quarterly dividends granted will be paid at the time
of exercise.

Under the annual stock option program, the granting of options is based upon
RGS Energy's three-year total shareholder return performance as compared to the
performance of the EEI Index. Top third, middle third and bottom third
performance by RGS Energy will result in a varying number of stock option
grants. As RGS Energy's total shareholder return performance for the period
1997-1999 was in the top third of the comparative group, annual options were
granted on January 19, 2000 at an exercise price of $20.50 per share as follows:
Mr. Richards, 42,683 options; Mr. Stokes, 20,290 options; Mr. Tomaino, 19,231
options; Mr. Bovalino, 17,713 options; and Mr. Wilkens, 16,038 options. These
options cannot be exercised for three years from the date of grant and include
dividend equivalent rights from the date the option was granted to the date of
exercise.

Under the provisions of the Stock Option Plan, the Committee may grant
additional options in the future.

RGS Energy's total compensation objective for its top five executive
positions is to be fully competitive with a utility industry comparison group.
Total compensation is defined as the combination of base salary and short-term
and long-term incentives.

CHIEF EXECUTIVE OFFICER COMPENSATION. The Board, upon recommendation of the
Committee, increased Mr. Richards' base salary to $385,008 effective March 1,
2000 and awarded short-term and long-term incentives based on performance
against established metrics and the subjective judgment of the Board. The
Committee benchmarked Mr. Richards' total compensation against CEO compensation
in similarly sized energy utilities. Mr. Richards' total compensation is
slightly below the 25th percentile of similar benchmarked positions. The
Committee determined that Mr. Richards' total compensation is consistent with
Mr. Richards' performance, RGS Energy's relative performance to similar
companies, and Mr. Richards' tenure as CEO. The Committee was favorably
impressed with Mr. Richards' leadership which has resulted in excellent
operating performance, expense control and improved earnings. He continues to
effectively manage the transition of the regulated business in the competitive
deregulated environment while overseeing the successful expansion of the
unregulated business through RGS Energy's subsidiary, Energetix, Inc.

With the above increase in salary level, Mr. Richards' base pay for 2000 was
49.3% below the median of the EEI salary comparison group. As a result of the
awards paid to Mr. Richards for the positive performance achieved under the
Executive Incentive Plan and Long Term Incentive Plan for 2000, his total direct
compensation is 52.5% below the median of the EEI salary comparison group.

Mr. Richards was granted 4,000 performance shares in January 1998 under the
Long Term Incentive Plan. The performance cycle for these shares ended on
December 31, 2000 and Mr. Richards received $415,985 in compensation from these
performance shares in January 2001.

Mr. Richards was granted an additional 42,683 performance stock options on
January 19, 2000 at an exercise price of $20.50 per share. These options will
vest immediately, but cannot be exercised for a minimum of three years.

Performance shares under the Long Term Incentive Plan and the Performance
Stock Option Plan link executive compensation directly with shareholder
interests since both the targets and the payouts are measured in terms of
shareholder value.

Committee on Management
Allan E. Dugan, CHAIRMAN
Mark B. Grier
Cornelius J. Murphy
Charles I. Plosser

INDEPENDENT ACCOUNTANTS

RGS Energy has appointed PricewaterhouseCoopers LLP, a firm of independent
certified public accountants, to continue as its auditors for the year 2001. RGS
Energy expects representatives of PricewaterhouseCoopers to be present at the
RGS Energy annual meeting and available to answer appropriate questions from RGS
Energy shareholders. The representatives of PricewaterhouseCoopers will also
have the opportunity to make a statement if they desire to do so. From time to
time, PricewaterhouseCoopers LLP performs certain management advisory services
for RGS Energy.

AUDIT FEES

RGS Energy paid to PricewaterhouseCoopers audit fees of $267,000 for
professional services rendered for the audit of RGS Energy's annual financial
statements for the year ended December 31, 2000 and the reviews of the financial
statements included in RGS Energy's quarterly reports on Form 10-Q for such
year.

FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES

RGS Energy did not engage PricewaterhouseCoopers to provide advice regarding
its financial information systems design and implementation during the fiscal
year ended December 31, 2000.

OTHER NON-AUDIT FEES

Fees billed to RGS Energy by PricewaterhouseCoopers during RGS Energy's 2000
fiscal year for all other non-audit services rendered to RGS Energy, including
tax related services, totaled $250,000.

DEADLINE FOR SHAREHOLDER PROPOSALS

The deadline for submitting shareholder proposals for inclusion in RGS
Energy's proxy statement for its year 2002 annual meeting is December 31, 2001.
These proposals must be received by the Secretary of RGS Energy at 89 East
Avenue, Rochester, New York 14649 no later than December 31, 2001 in order to be
eligible for inclusion in RGS Energy's proxy materials relating to the 2002
meeting.

Rule 14a-4(c) of the SEC's proxy rules allows RGS Energy to use
discretionary voting authority to vote on a matter coming before an annual
meeting of shareholders which is not included in its proxy statement if RGS
Energy does not have notice of the matter at least 90 days before the date of
the annual meeting. In addition, discretionary voting authority may generally
also be used if RGS Energy receives timely notice of such matter (as described
in the preceding sentence) and if RGS Energy describes the nature of such matter
in its proxy statement. Accordingly, for RGS Energy's year 2002 annual meeting
of shareholders, any such notice must be received by RGS Energy's Secretary at
89 East Avenue, Rochester, New York 14649, on or before January 25, 2002.

RGS Energy's bylaws provide that any shareholder who wishes to submit a
proposal must notify RGS Energy 90 days in advance of a meeting and must submit
the following: (a) a brief description of the business desired to be brought
before the annual meeting and the reasons for conducting the business at that
meeting, (b) the shareholder's name and address as they appear on RGS Energy's
books, (c) the class and number of shares of RGS Energy that are owned by the
shareholder, and (d) any material interest of such shareholder in such business.

OTHER MATTERS

The RGS Energy board of directors does not know of any other business
matters to be presented for action at the RGS Energy 2001 annual meeting.
However, the enclosed proxy will confer discretionary authority for the
transacting of any such business properly brought before the RGS Energy annual
meeting or any adjournment thereof. If any such business is so brought before
the meeting, the persons named in the enclosed proxy form, or their substitutes,
will vote according to their discretion.

New York State law requires RGS Energy to inform its shareholders of the
initiation or renewal of insurance indemnifying itself and its officers and
directors. This insurance, which is carried with Associated Electric and Gas
Insurance Services Limited, has been renewed for a one-year term, effective
January 1, 2001. The policy insures RGS Energy against any obligations it may
incur as a result of the indemnification of its directors and officers. The
effective cost of the insurance will be zero for 2001 as RGS Energy received a
member's continuity credit which fully offset the premium for the policy. In
addition, RGS Energy has a policy with Energy Insurance Mutual Limited that
provides excess coverage for such insurance for a three-year term, effective
January 1, 2001. RGS Energy also expects that the effective cost of this policy
will be zero for 2001 as it anticipates receiving a dividend from the insurance
carrier in 2001. RGS Energy also renewed a fiduciary liability insurance policy
carried with Associated Electric and Gas Insurance Services Limited, effective
May 1, 2000. The premium cost for this policy was $41,428 for a one-year term.

100

COST OF SOLICITATION

The accompanying proxy is being solicited by the board of directors of RGS
Energy. RGS Energy will pay the costs of this solicitation, including
reimbursing brokerage firms and others for their expenses in forwarding proxy
material to beneficial owners of stock. However, RGS Energy and Energy East will
share equally the cost of printing this document. Directors, officers and
employees of RGS Energy and its subsidiaries may solicit proxies by telephone,
other electronic means or in person without additional compensation. In
addition, RGS Energy has retained Morrow & Co. to assist in soliciting proxies
at an anticipated fee of approximately $17,500, plus out-of-pocket expenses.

101

THE ENERGY EAST ANNUAL MEETING

This document is being furnished in connection with the solicitation of
proxies on behalf of the board of directors of Energy East for use at the Energy
East Annual Meeting of Stockholders to be held on June 15, 2001, at the
Citicorp/Citibank Auditorium, 12th Floor, 399 Park Avenue, New York, New York.
This document is also a prospectus for the Energy East shares to be issued in
the merger. The mailing address of Energy East's principal executive office is
P.O. Box 12904, Albany, New York 12212-2904. You should read this document
carefully before voting your shares.

ANNUAL REPORT

An Annual Report to Stockholders for the year ended December 31, 2000,
including consolidated financial statements, has been mailed to all shareholders
of record. The Annual Report is not a part of this document.

OUTSTANDING VOTING SECURITIES AND VOTING RIGHTS

The close of business on April 26, 2001 has been fixed as the record date
for determining the Energy East shareholders entitled to vote at the meeting. As
of the record date, Energy East had outstanding 116,549,598 shares of common
stock. Energy East shareholders have cumulative voting rights for the election
of directors and one vote per share for all other purposes. Cumulative voting
means that the total number of votes which you may cast for the election of
directors of a given class shall equal the number of directors in such class to
be elected multiplied by the number of shares held, and you may cast all of such
votes for a single nominee for director or you may distribute them among all or
several nominees in such class, as you see fit.

The proxy represents the number of shares registered in your name as well as
the number of whole shares credited to your account under Energy East's Dividend
Reinvestment and Stock Purchase Plan. If you are an employee of Energy East or
any subsidiary and participate in the Tax Deferred Savings Plans of NYSEG, The
Southern Connecticut Gas Company Target Plan, the Central Maine Power Company
Savings and Investment Plans, the Connecticut Natural Gas Corporation Savings
Plans or the Berkshire Energy Resources Retirement Savings Plans, the proxy
constitutes an instruction for the trustees of such plans to vote the whole
shares in your account in such plans in the manner specified on the proxy.

In voting for Proposal 1 (the issuance of Energy East shares in connection
with the merger), you may vote in favor of, or against, or may abstain from
voting on such proposal. The vote required to approve Proposal 1 is the
affirmative vote of a majority of the votes cast by holders of Energy East
shares entitled to vote, so long as a majority of the outstanding Energy East
shares has cast a vote. Abstentions will be counted as votes cast and will
therefore have the same effect as a vote against the issuance of Energy East
shares in connection with the merger. Under the rules of the New York Stock
Exchange, member brokerage firms that hold shares in street name for beneficial
owners may, to the extent that such beneficial owners do not furnish voting
instructions with respect to any or all proposals submitted for stockholder
action, vote in their discretion upon proposals which are considered
"discretionary" proposals under the rules of the New York Stock Exchange. Member
brokerage firms that have received no instructions from their clients as to
"non-discretionary" proposals do not have discretion to vote on these proposals.
Under the rules of the New York Stock Exchange, Proposal 1 is considered to be a
"non-discretionary item" whereby brokerage firms may not vote in their
discretion on behalf of their clients if such clients have not furnished voting
instructions. Therefore, broker non-votes will be voted neither "for" nor
"against" and will have no effect on the vote in connection with Proposal 1,
except that they will be counted as votes not cast for the purposes of
determining whether a majority of outstanding Energy East shares voted on
Proposal 1.

102

In voting for Proposal 2 (the election of directors), you may vote in favor
of all nominees or withhold your votes as to all, or as to specific, nominees.
The six nominees receiving the highest number of affirmative votes cast, in
person or by proxy, by holders of Energy East shares entitled to vote shall be
elected to serve as directors. As a result, votes that are withheld will not be
counted and will have no effect on the vote in connection with the election of
directors.

In determining whether a quorum is present, all duly executed proxies
(including those marked "abstain" or "withhold") will be counted. Broker
non-votes will not be counted for purposes of determining whether a quorum is
present.

PROPOSAL 1--THE MERGER PROPOSAL

Proposal 1 is a proposal to approve the issuance of Energy East shares in
connection with the merger. For summary and detailed information regarding the
proposed merger with RGS Energy, see "The Merger--General Description of the
Merger" on page 23.

PROPOSAL 2--ELECTION OF DIRECTORS

Your board of directors currently consists of thirteen directors divided
into three classes. One class of directors is elected at each annual meeting of
shareholders for a term expiring at the third succeeding annual meeting of
shareholders. In addition to electing four directors to serve in Class III, two
directors will be elected to serve in Class I.

The nominees for election at this Annual Meeting to serve as directors in
Class III for a term expiring at the 2004 Annual Meeting of Stockholders and
thereafter until their successors shall be elected and shall qualify are:
Richard Aurelio, James A. Carrigg, David M. Jagger and Ben E. Lynch.
Messrs. Aurelio, Carrigg, Jagger and Lynch were elected directors of Energy East
for terms expiring at the 2001 Annual Meeting of Stockholders. The nominees for
election at this Annual Meeting to serve as directors in Class I for a term
expiring at the 2002 Annual Meeting of Stockholders and thereafter until their
successors shall be elected and shall qualify are: Paul L. Gioia and Peter J.
Moynihan. Messrs. Gioia and Moynihan were elected directors of Energy East for
terms expiring at the 2001 Annual Meeting of Stockholders. Mr. Tomasso is not
standing for re-election to the board of directors because he is retiring as a
director of Energy East effective at the 2001 Annual Meeting of Stockholders.

Unless otherwise specified on the proxy, shares represented by proxies in
the accompanying form received on behalf of the board of directors will be voted
for the election of Richard Aurelio, James A. Carrigg, David M. Jagger, Ben E.
Lynch, Paul L. Gioia and Peter J. Moynihan. Proxy holders reserve the right to
exercise cumulative voting rights and to cast the votes at the meeting in such
manner, and for such lesser number of said nominees, as they may deem best, in
order, so far as possible, to secure the election of said nominees. While it is
not anticipated that any of the nominees will be unable to qualify or accept
office, if one or more should be unable to do so, the proxy holders reserve the
right to vote for any substitute nominee or nominees designated by the board of
directors.

During 2000, there were nine meetings of the board of directors. All of the
directors attended 75% or more of the total number of meetings of the board of
directors and the committees of the board on which they served, except for
Mr. Tomasso who attended two of the three board meetings held in 2000 since he
became a member of the board of directors.

The following sets forth information for each nominee for election at this
annual meeting and for each director continuing in office.

103

CLASS III
DIRECTORS NOMINATED FOR TERMS EXPIRING IN 2004

RICHARD AURELIO
[PHOTO]

FORMER PRESIDENT OF TIME WARNER CABLE GROUP, NYC, AND NYI
NEWS AND SENIOR ADVISOR TO THE CHAIRMAN AND CEO OF TIME
WARNER, INC., NEW YORK, NY. Director of: The Citizens
Committee for New York City, Inc., New York, NY; the Javits
Foundation, New York, NY; and City University Television,
New York, NY. Mr. Aurelio was a Time Warner executive from
1979 through 1998. Prior to that time, he served as deputy
mayor of New York City during the Lindsay administration, as
an administrative assistant to U. S. Senator Jacob K.
Javits, as news editor of Newsday and a public relations
executive. Mr. Aurelio, 72, has been a director of Energy
East (including its predecessor company) since 1997.

JAMES A. CARRIGG
[PHOTO]

FORMER CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER OF
NYSEG, ITHACA, NY. Director of: Security Mutual Life
Insurance Company of New York, Binghamton, NY. Trustee of:
Dr. G. Clifford & Florence B. Decker Foundation, Binghamton,
NY; and the Public Policy Institute of the Business Council
of New York State, Albany, NY. Mr. Carrigg was Chairman,
President and Chief Executive Officer of NYSEG from January
1991 to September 1996, and was Chairman and Chief Executive
Officer of NYSEG from May 1988 to December 1990. Prior to
that time, he was President and Chief Operating Officer of
NYSEG. Mr. Carrigg, 67, has been a director of Energy East
(including its predecessor company) since 1983.

DAVID M. JAGGER
[PHOTO]

PRESIDENT AND TREASURER OF JAGGER BROTHERS, INC.,
SPRINGVALE, ME. Trustee of: Industrial Development
Corporation, Sanford, ME; Springvale Public Library
Association, Springvale, ME; and Springvale Redevelopment
Corporation, Springvale, ME. Mr. Jagger was Chairman of the
Board of CMP Group and Central Maine Power Company from
January 1996 to September 2000. Mr. Jagger, 59, has been a
director of Energy East since September 2000 and was a
director of CMP Group for 13 years prior to its merger with
Energy East.

BEN E. LYNCH
[PHOTO]

PRESIDENT OF WINCHESTER OPTICAL COMPANY, ELMIRA, NY. Past
Chairman of Arnot-Ogden Medical Center, Elmira, NY; Past
President of Horseheads Board of Education, Horseheads, NY.
Former Trustee of the Pennsylvania College of Optometry,
Philadelphia, PA; and of the Optometric Center of New York
Foundation, New York, NY. Mr. Lynch, 63, has been President
of Winchester Optical Company since 1965, and has been a
director of Energy East (including its predecessor company)
since 1987.

104

CLASS I
DIRECTORS NOMINATED FOR TERMS EXPIRING IN 2002

PETER J. MOYNIHAN
[PHOTO]

FORMER SENIOR VICE PRESIDENT AND CHIEF INVESTMENT OFFICER OF
UNUM CORPORATION, PORTLAND, ME. Director of: Maine Yankee
Atomic Power Company, Wiscasset, ME. Mr. Moynihan was Senior
Vice President and Chief Investment Officer with UNUM
Corporation from 1987 until his retirement in July 1999.
Mr. Moynihan, 57, has been a director of Energy East since
September 2000 and was a director of CMP Group for 6 years
prior to its merger with Energy East.
PAUL L. GIOIA
[PHOTO]

OF COUNSEL, LEBOEUF, LAMB, GREENE & MACRAE,(1) ALBANY, NY;
ATTORNEYS AT LAW. Mr. Gioia was a Senior Vice President of
First Albany Corporation from May 1987 to October 1993.
Prior to that time, he served as a member and was Chairman
of the Public Service Commission of the State of New York
and also served as a member of the New York State Energy
Research and Development Authority. Mr. Gioia, 58, has been
a director of Energy East (including its predecessor
company) since 1991.

CLASS II

DIRECTORS WHOSE TERMS EXPIRE IN 2003

JOSEPH J. CASTIGLIA
[PHOTO]

FORMER VICE CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
OF PRATT & LAMBERT UNITED, INC., BUFFALO, NY. Business
Consultant and Private Investor, JBC Enterprises, East
Aurora, NY. Chairman, Catholic Health System of Western New
York, Buffalo, NY; Chairman, HealthNow New York, Inc., DBA
Blue Cross & Blue Shield of Western New York, Buffalo, NY
and Blue Shield of Northeastern New York, Albany, NY.
Director of: Vision Group of Funds and Vision Fiduciary
Funds, Inc., Buffalo, NY; Sevenson Environmental Services,
Inc., Niagara Falls, NY; and Community Foundation for
Greater Buffalo, Buffalo, NY. Mr. Castiglia was Vice
Chairman, President and Chief Executive Officer of Pratt &
Lambert United, Inc. from August 1994 until his retirement
in January 1996. Prior to that time, he was President and
Chief Executive Officer of Pratt & Lambert, Inc. from 1989
until July 1994, at which time the company was merged with
United Coatings, Inc. Mr. Castiglia, 66, has been a director
of Energy East (including its predecessor company) since
1995.
LOIS B. DEFLEUR
[PHOTO]

PRESIDENT OF THE STATE UNIVERSITY OF NEW YORK AT BINGHAMTON,
BINGHAMTON, NY. Director of: Broome County Chamber of
Commerce, Binghamton, NY; and WSKG Public Television and
Radio, Binghamton, NY; Director's Advisory Council, M&T
Bank-Southern Division, Endicott and Ithaca, NY. Dr.
DeFleur, 64, has been President of the State University of
New York at Binghamton since 1990, and has been a director
of Energy East (including its predecessor company) since
1995.

105

WALTER G. RICH
[PHOTO]

CHAIRMAN, PRESIDENT, CHIEF EXECUTIVE OFFICER AND A DIRECTOR
OF DELAWARE OTSEGO CORPORATION, COOPERSTOWN, NY, AND ITS
SUBSIDIARY, THE NEW YORK, SUSQUEHANNA & WESTERN RAILWAY
CORPORATION. Director of: Security Mutual Life Insurance
Company of New York, Binghamton, NY; and New York Business
Development Corporation, Albany, NY. He is a member of the
Franklin Industrial Advisory Board of the Syracuse
University School of Management, Syracuse, NY; and appointed
by the Governor as a member of the New York State Public
Transportation Safety Board, Albany, NY. Mr. Rich, 55, has
been a director of Energy East (including its predecessor
company) since 1997.

WESLEY W. VON SCHACK
[PHOTO]

CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER OF ENERGY
EAST, ALBANY, NY. Chairman of the Board of Directors of
NYSEG, Ithaca, NY. Director of: Mellon Financial Corporation
and Mellon Bank, N.A., Pittsburgh, PA; RTI International
Metals, Inc., Niles, OH; AEGIS Insurance Services, Inc.,
Jersey City, NJ; and Business Council of New York State,
Albany, NY. Vice Chairman of Peconic Land Trust, Inc., Long
Island, NY. Mr. von Schack was Chairman, President and Chief
Executive Officer of NYSEG from September 1996 to April
1999. Prior to August 1996, he was Chairman, President,
Chief Executive Officer and a director of DQE, Inc. and
Duquesne Light Company. Mr. von Schack, 56, has been
Chairman, President, Chief Executive Officer and a director
of Energy East (including its predecessor company) since
1996.

CLASS I

DIRECTORS WHOSE TERMS EXPIRE IN 2002

ALISON P. CASARETT
[PHOTO]

DEAN EMERITUS, CORNELL UNIVERSITY, ITHACA, NY. Emeritus
Professor of Radiation Biology, New York State College of
Veterinary Medicine, Cornell University. Dr. Casarett was
Special Assistant to the President of Cornell University
from August 1993 to June 1995. Prior to that time, she was
the Dean of The Graduate School at Cornell University. Dr.
Casarett, 70, has been a director of Energy East (including
its predecessor company) since 1979.

JOHN M. KEELER
[PHOTO]

OF COUNSEL, HINMAN, HOWARD & KATTELL, LLP,(1) BINGHAMTON,
NY; ATTORNEYS AT LAW. Director of: Security Mutual Life
Insurance Company of New York, Binghamton, NY; the Stuart
and Willma Hoyt Foundation, Binghamton, NY; and the Harriet
L. Dickenson Foundation, Binghamton, NY. Chairman, The
Binghamton University Foundation, Binghamton, NY; Past
President of Broome County Bar Association and of Broome
County United Way, both of Binghamton, NY. Mr. Keeler, 67,
has been a director of Energy East (including its
predecessor company) since 1989.

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

(1) The law firms of which Mr. Gioia and Mr. Keeler are of counsel provided
legal services to Energy East in 2000 and are expected to provide legal
services to Energy East in 2001.

106

SECURITY OWNERSHIP OF MANAGEMENT

The following table indicates the number of Energy East shares and Energy
East common stock equivalent units beneficially owned as of March 31, 2001 by
each director and nominee, each of the executive officers named in the Summary
Compensation Table included elsewhere herein, and by the 17 current directors
and executive officers as a group and the percent of the outstanding securities
so owned.

TOTAL COMMON
STOCK AND
COMMON STOCK COMMON STOCK COMMON STOCK
BENEFICIALLY EQUIVALENT EQUIVALENT PERCENT
NAME OWNED(1) UNITS(2) UNITS OF CLASS
---- ------------ ------------ ------------ --------

Richard Aurelio............................. 2,000 5,173 7,173 (3)
James A. Carrigg............................ 32,827 20,642 53,469 (3)
Alison P. Casarett.......................... 1,179 25,967 27,146 (3)
Joseph J. Castiglia......................... 10,000 8,436 18,436 (3)
Lois B. DeFleur............................. 600 8,436 9,036 (3)
Michael I. German........................... 360,359 20,697 381,056 (3)
Paul L. Gioia............................... 5,769 10,323 16,092 (3)
David M. Jagger............................. 3,000 814 3,814 (3)
Kenneth M. Jasinski......................... 304,399 15,747 320,146 (3)
John M. Keeler.............................. 2,822 16,869 19,691 (3)
Robert D. Kump.............................. 134,928 3,958 138,886 (3)
Ben E. Lynch................................ 2,438 16,425 18,863 (3)
Peter J. Moynihan........................... 4,000 814 4,814 (3)
Walter G. Rich.............................. 2,000 5,173 7,173 (3)
Robert E. Rude.............................. 131,908 3,907 135,815 (3)
Michael D. Tomasso.......................... 843 4,820 5,663 (3)
Wesley W. von Schack........................ 733,309 37,900 771,209 (3)
17 current directors and executive officers
as a group................................ 1,732,381 206,101 1,938,482 (3)

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

(1) Includes Energy East shares which may be acquired through the exercise of
stock options, which are exercisable currently. The persons who have such
options and the number of shares which may be acquired are as follows:
Mr. German, 334,250; Mr. Jasinski, 299,999; Mr. Kump, 130,000; Mr. Rude,
125,000; Mr. von Schack, 699,999; and all executive officers as a group,
1,589,248.

(2) Includes Energy East common stock equivalent units granted under the
Long-Term Executive Incentive Share Plan and the Director Share Plan for
non-employee directors for which the director, nominee or executive officer
does not have voting rights.

(3) Less than 2% of the outstanding Energy East shares.

107

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934 requires Energy East's
directors and executive officers, and persons holding ten percent or more of
Energy East's equity securities to file reports of ownership and changes in
ownership with the SEC and the New York Stock Exchange. Such reporting persons
are also required to provide Energy East with copies of all Section 16(a) forms
they file. Specific due dates for these reports have been established by SEC
regulations. Based solely on its review of the copies of the reports received by
it and certain written representations from certain reporting persons, Energy
East believes that during 2000 all filing requirements were satisfied by its
directors and executive officers.

STOCK PERFORMANCE GRAPH

The yearly change in the cumulative total shareholder return on Energy East
shares during the five years ending December 31, 2000, compared with the
cumulative total return on the Standard & Poor's Utilities Index and Standard &
Poor's 500 Index, assuming $100 was invested on December 31, 1995, and assuming
reinvestment of dividends, is shown by the following:

COMPARISON OF FIVE-YEAR CUMULATIVE RETURN
ENERGY EAST CORPORATION, S&P UTILITIES, AND S&P 500

[EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC]

12/31/95 12/31/96 12/31/97 12/31/98 12/31/99 12/31/00
-------- -------- -------- -------- -------- --------

Energy East Corporation.................... $100 $ 89 $155 $256 $195 $192
Standard & Poor's Utilities................ $100 $103 $129 $148 $134 $215
Standard & Poor's 500...................... $100 $123 $164 $211 $255 $232

108

EXECUTIVE COMPENSATION

Compensation for services to Energy East and its subsidiaries for each of
the last three fiscal years of the chief executive officer and the next four
highest compensated executive officers of Energy East who served in such
capacities on December 31, 2000, is shown by the following:

SUMMARY COMPENSATION TABLE

LONG-TERM COMPENSATION
-------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
--------------------- OPTIONS/ LONG-TERM ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS SARS (#) INCENTIVE PLAN COMPENSATION(1)
--------------------------- -------- -------- ---------- -------- -------------- ---------------

Wesley W. von Schack ...... 2000 $700,000 $1,489,497 200,000 $762,866 $50,695
Chairman, President and 1999 661,218 1,764,400 200,000 617,616 55,819
Chief Executive Officer 1998 575,000 283,475 200,000 0 47,006

Kenneth M. Jasinski ....... 2000 425,000 664,409 100,000 0 0
Executive Vice President, 1999 409,487 371,875 100,000 0 0
General Counsel and 1998(2) 252,885 111,750 100,000 0 0
Secretary

Michael I. German ......... 2000 425,000 310,567 100,000 227,251 6,800
Senior Vice President 1999 409,487 256,222 100,000 245,786 6,150
1998 323,878 120,750 110,918 0 5,000

Robert D. Kump ............ 2000 178,958 128,710 60,000 0 2,835
Vice President and 1999 151,939 78,375 40,000 0 2,460
Treasurer 1998 132,223 31,500 30,000 0 2,177

Robert E. Rude............. 2000 178,333 128,710 60,000 0 2,580
Vice President and 1999 149,551 76,000 40,000 0 2,280
Controller 1998 127,580 42,000 30,000 0 1,905

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

(1) In 2000, Energy East contributed for Messrs. von Schack, German, Kump, and
Rude, $2,550, $2,550, $2,475, and $2,400, respectively, under the Tax
Deferred Savings Plan. Energy East contributed for Messrs. German, Kump and
Rude, $4,250, $360 and $180, respectively, under the Employees' Stock
Purchase Plan. For Mr. von Schack, $3,737 represents the dollar value of the
term portion, and $48,145 represents the benefit, projected on an actuarial
basis, of the whole-life portion of a premium paid for a life insurance
policy.

(2) Compensation data for Mr. Jasinski is provided only for a portion of 1998
because his employment commenced April 29, 1998.

109

LONG-TERM INCENTIVE PLAN AWARDS(1) IN LAST FISCAL YEAR (2000)

PERFORMANCE OR ESTIMATED FUTURE PAYOUT UNDER
OTHER PERIOD NON-STOCK PRICE-BASED PLANS
NUMBER OF UNTIL ---------------------------------
PERFORMANCE MATURATION THRESHOLD TARGET MAXIMUM
NAME SHARES OR PAYOUT SHARES(#) SHARES(#) SHARES(#)
---- ----------- -------------- --------- --------- ---------

Wesley W. von Schack................ 13,957 2000-2002 3,489 13,957 20,936
Kenneth M. Jasinski................. 6,356 2000-2002 1,589 6,356 9,354
Michael I. German................... 8,474 2000-2002 2,119 8,474 12,711
Robert D. Kump...................... 1,645 2000-2002 411 1,645 2,468
Robert E. Rude...................... 1,595 2000-2002 399 1,595 2,393

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

(1) Pursuant to the Long-Term Executive Incentive Share Plan, participants,
including executive officers of Energy East, were granted a certain number
of performance shares in 2000 depending upon their position. Performance
shares granted earn dividend equivalents in the form of additional
performance shares. Payments representing the cash value of a certain
percentage of the performance shares are made at the end of each three-year
performance cycle and are based on Energy East's ranking with respect to its
three-year average total shareholder return as compared to the top 100
utilities by revenue. A new performance cycle begins on January 1 of each
year. Achievement of a ranking of 65th will result in the payment of the
cash value of 25% (threshold amount) of the performance shares. Achievement
of a ranking of 50th will result in the payment of the cash value of 100%
(target amount) of the performance shares. Achievement of a ranking of 20th
will result in the payment of the cash value of 150% (maximum amount) of the
performance shares. There will be no payments, however, if Energy East's
ranking is below 65th. The value of the performance shares will be measured
by reference to the average of the daily closing prices of an Energy East
share for the last five trading days of the performance cycle.

OPTION/SAR GRANTS IN LAST FISCAL YEAR (2000)

INDIVIDUAL GRANTS
-----------------------------------------------------------------------------
PERCENTAGE OF
NUMBER OF TOTAL OPTIONS/
SECURITIES SARS GRANTED TO EXERCISE OR GRANT DATE
UNDERLYING OPTIONS/ EMPLOYEES IN BASE PRICE EXPIRATION PRESENT
NAME SARS GRANTED #(1) FISCAL YEAR ($/SH) DATE VALUE(2)
---- ------------------- --------------- ----------- ---------- ----------

Wesley W. von Schack......... 200,000 18.68% $23.0625 2/11/10 $1,074,000
Kenneth M. Jasinski.......... 100,000 9.34% $23.0625 2/11/10 537,000
Michael I. German............ 100,000 9.34% $23.0625 2/11/10 537,000
Robert D. Kump............... 60,000 5.60% $23.0625 2/11/10 322,200
Robert E. Rude............... 60,000 5.60% $23.0625 2/11/10 322,200

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

(1) Pursuant to the 1997 Stock Option Plan, participants were granted options to
purchase a specified number of Energy East shares at specified exercise
prices. These options were granted in tandem with stock appreciation rights
and are for a term of ten years from the date of grant. The exercise price
of an option or tandem stock appreciation right may not be less than 100% of
the closing price of an Energy East share determined on the last trading
date before such option and tandem stock appreciation right are granted. The
exercise of an option or a tandem stock appreciation right will result in a
corresponding cancellation of the related stock appreciation right or option
to the extent of the number of Energy East shares as to which the option or
the stock appreciation right was exercised. Replacement options are granted
to participants at the time of an exercise of an option to the extent that
all or any portion of the option exercise price or taxes incurred in
connection with the exercise of the option are paid for by using other
Energy East shares or by the

110

withholding of Energy East shares. The replacement option is granted for the
number of shares the participant tenders to pay the exercise price or taxes
incurred. Replacement options will first be exercisable no earlier than six
months from the date of their grant and will have an expiration date equal
to the expiration date of the original option. The options are transferable
to family members and certain entities under certain circumstances. The
options and tandem stock appreciation rights were granted on February 11,
2000 and are exercisable in three installments regarding the original number
of options granted as follows: (a) in aggregate as to no more than 33 1/3%
on their grant date, February 11, 2000; (b) in aggregate as to no more than
66 2/3% on January 1, 2001; and (c) on January 1, 2002 as to 100% of all
options which have not been previously exercised.

(2) There is no assurance the value realized will be at or near the value
estimated by the Black-Scholes option-pricing model. The current value is
zero. The actual value, if any, will depend on the excess of the stock price
over the exercise price on the date the option is exercised. In determining
the "Grant Date Present Value," the following common assumptions were used:
stock price volatility, 25.33%; risk-free interest rate, 6.81%; and an
expected term before exercise of 10 years. Should Energy East's shares
double in value over the ten-year option term (from $23.0625 per share to
$46.1250 per share), shareholder value would increase an estimated
$2,713,450,679, while the value of grants to individuals listed in the
Option/SAR Grants table would increase an estimated $11,992,500 or 0.44% of
the total gain realized by all shareholders.

AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR (2000)
AND FISCAL YEAR-END OPTION/SAR VALUES

NUMBER OF SHARES UNDERLYING VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS/SARS IN-THE-MONEY OPTIONS/SARS
ACQUIRED ON AT FISCAL YEAR-END (#) AT FISCAL YEAR-END(2)
EXERCISE VALUE ------------------------------ ------------------------------
NAME (#) REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------

Wesley W. von
Schack............. 0 $0 433,332 266,668 $1,114,583 $ 116,667
Kenneth M.
Jasinski........... 0 0 166,665 133,335 0 0
Michael I. German.... 0 0 207,583 133,335 381,041 58,335
Robert D. Kump....... 0 0 66,666 63,334 35,000 17,500
Robert E. Rude....... 0 0 61,666 63,334 26,250 17,500

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

(1) The "Value Realized" is equal to the difference between the option exercise
price and the closing price of an Energy East share on the New York Stock
Exchange on the date of exercise.

(2) The "Value of Unexercised In-the-Money Options/SARs at Fiscal Year-End" is
equal to the difference between the option exercise price and the closing
price of $19.6875 per Energy East share on the New York Stock Exchange on
December 31, 2000.

111

PENSION PLAN TABLE

The following table sets forth the maximum retirement benefits payable to
executive officers who retire at age 60 or later, in specified compensation and
years of service classifications, pursuant to the Retirement Benefit Plan and
the Supplemental Executive Retirement Plan as they presently exist, and assuming
no optional payment form is elected. The amounts listed below reflect the
deduction for Social Security benefits. There are no other offset amounts.

YEARS OF SERVICE
--------------------------------------------------------------------------
AVERAGE ANNUAL SALARY* 10 15 20 25 30 35 40**
---------------------- -------- -------- -------- -------- -------- -------- --------

$850,000..................... 383,200 427,800 472,400 517,100 561,700 606,300 650,900
800,000...................... 359,600 401,600 443,600 485,600 527,600 569,600 611,600
750,000...................... 335,900 375,300 414,700 454,100 493,400 532,800 572,200
700,000...................... 312,300 349,100 385,800 422,600 459,300 496,100 532,800
650,000...................... 288,700 322,800 356,900 391,100 425,200 459,300 493,400
600,000...................... 265,100 296,600 328,100 359,600 391,100 422,600 454,100
550,000...................... 241,400 270,300 299,200 328,100 356,900 385,800 414,700
500,000...................... 217,800 244,100 270,300 296,600 322,800 349,100 375,300
450,000...................... 194,200 217,800 241,400 265,100 288,700 312,300 335,900
400,000...................... 170,600 191,600 212,600 233,600 254,600 275,600 296,600
350,000...................... 146,900 165,300 183,700 202,100 220,400 238,800 257,200
300,000...................... 123,300 139,100 154,800 170,600 186,300 202,100 217,800
250,000...................... 99,700 112,800 125,900 139,100 152,200 165,300 178,400
200,000...................... 76,100 86,600 97,100 107,600 118,100 128,600 139,100
150,000...................... 52,400 60,300 68,200 76,100 83,900 91,800 99,700

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

* Average of the salaries (not including amounts listed under "Bonus,"
"Long-Term Compensation Awards, Options/SARs," "Long-Term Compensation
Payouts, Long-Term Incentive Plan," and "All Other Compensation" in the
Summary Compensation Table) for the five highest paid consecutive years
during the last ten years of employment service. The average of the highest
three years of salary within the last ten years of employment for the SERP
was assumed to be 5% higher than each salary shown.

** Maximum years of employment service for Retirement Benefit Plan and
Supplemental Executive Retirement Plan purposes.

The Retirement Benefit Plan provides retirement benefits for hourly and
salaried employees, including executive officers of Energy East and certain
subsidiaries, based on length of service and the average for the five highest
paid consecutive years during the last ten years of employment service. The
Retirement Benefit Plan is non-contributory and is funded under a trust
arrangement and an insurance contract. Amounts paid into the Retirement Benefit
Plan are computed on an actuarial basis. The Retirement Benefit Plan provides
for normal or early retirement benefits.

The Supplemental Executive Retirement Plan provides that all salaried
employees, including executive officers of Energy East and certain subsidiaries,
shall receive the full benefits of the Retirement Benefit Plan without regard to
any limitations imposed by the federal tax law and by including certain amounts
deferred under the Deferred Compensation Plan for Salaried Employees. In
addition, it provides that officers and certain other key employees of Energy
East and certain subsidiaries, who have at least ten years of service, who have
served in key capacities for at least five years and who retire at age 60 or
later, shall receive a total retirement benefit (including benefits under the
Retirement Benefit Plan and Social Security), based on years of service, of up
to 75% of the average of their highest three years of salary within the last ten
years of employment.

112

Messrs. von Schack, Jasinski and German each have an agreement with Energy
East which provides that, for purposes of the Retirement Benefit Plan and the
Supplemental Executive Retirement Plan, they each will be credited with three
years of service for each year actually worked, so long as they each are
employed by Energy East or NYSEG for at least five years. If, however, they
retire from Energy East after their sixtieth birthday, they will be credited
with the maximum years of employment service for Retirement Benefit Plan and
Supplemental Executive Retirement Plan purposes. Mr. von Schack was employed
commencing September 9, 1996, Mr. Jasinski was employed commencing April 29,
1998 and Mr. German was employed commencing December 5, 1994.

Messrs. von Schack, Jasinski, German, Kump and Rude have 4, 3, 18, 14, and
24 credited years of service, respectively, under the Retirement Benefit Plan
and Supplemental Executive Retirement Plan.

EMPLOYMENT, CHANGE IN CONTROL AND OTHER ARRANGEMENTS

Energy East has entered into employment agreements with Messrs. von Schack,
Jasinski and German, each for a term ending May 18, 2004. Mr. von Schack's
agreement provides for his employment as Chairman, President and Chief Executive
Officer of Energy East, Mr. Jasinski's agreement provides for his employment as
Executive Vice President and General Counsel of Energy East and Mr. German's
agreement provides for his employment as Senior Vice President of Energy East.
Each agreement provides for automatic one-year extensions unless either party to
an agreement gives notice that such agreement is not to be extended. Each
agreement was unanimously approved by the board of directors and provides for,
among other things, a base salary of $700,000 for Mr. von Schack, $425,000 for
Mr. Jasinski and $425,000 for Mr. German, subject to increase by the board of
directors, and in the case of Mr. von Schack, the payment of the annual premium
on a life insurance policy (the "Life Insurance Policy") on his life and a
special bonus of $700,000 payable in 2001. The agreements also provide for
eligibility for participation in Energy East's or NYSEG's other compensation and
benefit plans and for certain payments in the event of the termination of
employment due to disability.

The agreements provide that, if the officer's employment is terminated
either by Energy East without cause or by the officer for good reason, he will
receive a lump-sum payment equal to three times the sum of (i) his then-annual
base salary and (ii) the average of the three most recent awards earned under
the Annual Executive Incentive Plan. In the event of such termination, the
officer's life (other than the Life Insurance Policy), disability, accident and
health insurance benefits will continue for a period of thirty-six months, and,
in the case of Mr. von Schack, Energy East will make a lump-sum premium payment
so that no future premiums are due on the Life Insurance Policy. In addition,
the executive will receive an amount equal to all earned but unpaid awards under
the Annual Executive Incentive Plan and a pro rata portion of any award under
the Annual Executive Incentive Plan with respect to the year in which the
termination occurs, provided, however, that payments made pursuant to the
agreements will be reduced by any payments made under the Annual Executive
Incentive Plan in the event a change in control occurs during such year. Also,
in the event of such termination, the officer will be given additional age
credit and maximum service credit under the Supplemental Executive Retirement
Plan and the present value of any Supplemental Executive Retirement Plan
benefits will be paid in a lump sum to the officer, unless the officer elects to
receive such Supplemental Executive Retirement Plan benefits in the manner
provided in the Supplemental Executive Retirement Plan. In the event that any
payments made under the agreement or otherwise would subject the officer to
federal excise tax or interest or penalties with respect to such federal excise
tax, he will be entitled to be made whole for the payment of any such taxes,
interest or penalties.

Messrs. Kump and Rude each have a severance agreement in order to provide
for certain payments if, generally, within two years following a change in
control of Energy East, the individual's employment is terminated either by his
employer without cause or by the individual for good reason. The severance
agreements have terms ending on December 31, 2002 with automatic one-year

113

extensions unless either party to an agreement gives notice that the agreement
is not to be extended. The benefits consist of a lump-sum severance payment
equal to two times the sum of (i) the individual's then-annual base salary, and
(ii) any award under the Annual Executive Incentive Plan with respect to the
year immediately preceding the year in which the termination occurs. In the
event of such termination, the individual's life, disability, accident and
health insurance benefits will continue for a period of twenty-four months and
the individual will receive an amount equal to all earned but unpaid awards
under the Annual Executive Incentive Plan and a pro rata portion of any award
under the Annual Executive Incentive Plan with respect to the year in which the
termination occurs, provided, however, that there shall be no duplication of
payments made pursuant to his agreement and the Annual Executive Incentive Plan.
Also, in the event of such termination, the individual will be given additional
age and service credit under the Supplemental Executive Retirement Plan. In the
event that any payments made on account of a change in control of Energy East,
whether under the agreement or otherwise, would subject the individual to
federal excise tax or interest or penalties with respect to such federal excise
tax, the individual will be entitled to be made whole for the payment of any
such taxes, interest or penalties. Messrs. Kump and Rude also have entered into
Employee Invention and Confidentiality Agreements. The agreements provide for,
among other things, payments (up to one year's salary) and certain health
insurance premiums in the event that their employment is terminated whether
voluntarily or involuntarily, and the noncompetition and nonsolicitation
provisions of the agreement prevent them from obtaining other appropriate
employment, so long as they are not entitled to receive payments under their
severance agreements.

In the event of a change in control of Energy East, participants in the
Annual Executive Incentive Plan will be paid an amount which includes all earned
but unpaid awards, a pro rata portion of any award with respect to the year in
which such change in control occurs and an additional payment at the end of the
year in which such change in control occurs, to the extent that the award earned
under the normal terms of the Annual Executive Incentive Plan exceeds the amount
paid upon such change in control. In addition, participants in the Long Term
Executive Incentive Share Plan will be paid an amount which includes (i) the
payment of awards for all cycles in progress at the time of such change in
control, computed and paid out in full (rather than pro rata) and based on the
assumption that Energy East's performance was at the 50th percentile; and
(ii) any amounts earned under the normal terms of the Long Term Executive
Incentive Share Plan through the end of each performance cycle, to the extent
those amounts exceed the amounts paid at the time of such change in control. All
change in control payments under the Long Term Executive Incentive Share Plan
are to be valued based on the change in control price of Energy East's common
stock. After a change in control of Energy East, officers and certain key
employees of Energy East and certain subsidiaries who qualify, and whose
employment is terminated at age 55 or later, other than for cause, shall receive
a total retirement benefit as determined under the Supplemental Executive
Retirement Plan.

The Executive Compensation and Succession Committee of the board of
directors in its discretion may take certain actions in order to preserve, in
the event of a change in control of Energy East, a participant's rights under an
award issued pursuant to the 1997 Stock Option Plan, the 2000 Stock Option Plan
or the Restricted Stock Plan.

Grantor trusts have been established to provide for the payment of certain
employee and director benefits, including severance benefits that might become
payable after a change in control of Energy East.

DIRECTORS' COMPENSATION

Directors of Energy East, other than officers of Energy East or officers of
any subsidiary of Energy East, receive an annual retainer of $22,000, plus
$1,000 for each directors' and committee meeting attended. The chairperson of
each standing committee receives additional compensation of $2,500 for serving
as chairperson of such committee. Under the terms of the Deferred Compensation
Plan for

114

Directors, directors can elect to defer a portion or all of their compensation.
Such deferred compensation, together with interest thereon, is payable in a lump
sum or over a period of years following retirement as a director.

Pursuant to the Director Share Plan for Directors, persons who are
non-employee directors are eligible for certain benefits to be paid upon their
ceasing to serve as directors of Energy East. On each January 1, April 1,
July 1, and October 1, all non-employee directors receive 400 phantom shares
pursuant to the Director Share Plan. Phantom shares granted earn dividend
equivalents in the form of additional phantom shares. Upon a director ceasing to
serve as a director of Energy East, cash payments representing the value of the
phantom shares held by the director are to be made to the director. The value of
the phantom shares is to be determined by multiplying the number of phantom
shares by the average of the daily closing prices of Energy East shares for the
five trading days preceding the date the director ceases to serve as a director.
Under the terms of the Deferred Compensation Plan for the Director Share Plan, a
director may defer a portion or all of the cash payment to be made under the
Director Share Plan over a period of years following the director's ceasing to
serve as a director.

COMMITTEES

Energy East's board of directors has an Audit Committee, a Nominating
Committee and an Executive Compensation and Succession Committee.

The Nominating Committee, which consists of Richard Aurelio, Chairman, Lois
B. DeFleur and John M. Keeler, had six meetings in 2000. The Nominating
Committee is responsible for recommending to the board the slate of persons to
be nominated to the board, appointment of directors as members of committees of
the board and candidates to fill vacancies on the board of directors. The
committee makes recommendations to the board of directors regarding criteria for
nomination as a candidate to the board of directors. Shareholders wishing to
recommend candidates for consideration by the Nominating Committee should submit
to the Secretary of Energy East the name, a statement of qualifications and the
written consent of any candidate. Recommendations will be brought to the
attention of the Nominating Committee.

The Executive Compensation and Succession Committee, which consists of
Joseph J. Castiglia, Chairman, Richard Aurelio and Ben E. Lynch, had three
meetings in 2000. That committee, among other things, recommends compensation
for officers, awards under the Annual Executive Incentive Plan and the Long-Term
Executive Incentive Share Plan, and candidates for election as officers.

REPORT OF AUDIT COMMITTEE

The Audit Committee, which consists of Ben E. Lynch, Chairman, Lois B.
DeFleur, Paul L. Gioia and Walter G. Rich, is composed entirely of independent,
outside directors and had four meetings in 2000. Each member of the Audit
Committee is financially literate and meets the independence requirements of the
New York Stock Exchange. At least one of the members has accounting or financial
management expertise. The board of directors has adopted a written charter for
the Audit Committee, which is included as Appendix E to this document. The Audit
Committee recommends the appointment of the independent accountants and reviews
with them the audit plan and results of the audit. It also meets with the
independent accountants, internal auditor and management to discuss the adequacy
of Energy East's system of internal controls and the annual and quarterly
financial reporting process, meets with the internal auditor to discuss the
results of completed internal audits and oversees Energy East's Corporate
Compliance Program.

The Audit Committee has reviewed and discussed the consolidated financial
statements with management and the independent auditors. The Audit Committee
discussed with the independent auditors the matters required to be discussed by
Statement on Auditing Standards No. 61

115

(Communication With Audit Committees). In addition, the Committee received the
letter from the independent auditors required by the Independence Standards
Board Standard No. 1 (Independence Discussions With Audit Committees) and
discussed with the independent auditors the auditor's independence from Energy
East and its management.

In reliance on the reviews and discussions referred to in the prior
paragraph, the Audit Committee recommended to the board of directors that the
audited financial statements be included in Energy East's Annual Report on
Form 10-K for the year ended December 31, 2000, for filing with the SEC.

AUDIT COMMITTEE

Ben E. Lynch, Chairman Paul L. Gioia
Lois B. DeFleur Walter G. Rich

REPORT OF EXECUTIVE COMPENSATION AND SUCCESSION COMMITTEE

The Executive Compensation and Succession Committee is composed entirely of
independent outside directors. Under the guidance of the Committee, Energy
East's general compensation policies are designed to manage Energy East toward
overall enhanced profitability and increased shareholder value. Accordingly, two
principles underlying Energy East's compensation policy for all senior managers,
including Mr. von Schack and the other named executive officers, are
(i) aligning the financial interests of senior managers with those of Energy
East's shareholders, and (ii) rewarding senior management for corporate and
individual performance. These principles are reflected in the structure of
Energy East's compensation program for senior managers, which consists of three
basic components: base salary, short-term incentive compensation awards and
long-term incentive compensation awards. In creating and further refining this
structure, the Committee has deliberately placed an increased emphasis on the at
risk elements of compensation. The Committee believes that placing compensation
at risk and linking such compensation to performance better aligns senior
management's financial interests with those of the shareholders, which in turn
supports Energy East's overall objective of enhancing long-term shareholder
value.

In general, base salaries are targeted at competitive levels, subject to
adjustment by the Committee depending on the individual's performance, based on
the Committee's general policy that senior management compensation should be
competitive so as to attract and retain talented executives. The Committee has
in the past retained independent consultants to review executive compensation
data and has also reviewed certain salary surveys to assist in its
decision-making. The Committee has also considered a number of quantitative and
qualitative factors, including Energy East's financial and operational
achievements, the individual's experience, responsibilities and effectiveness in
performing those responsibilities and in leading or helping Energy East respond
to the rapidly changing utility industry by developing and implementing
effective short- and long-term strategies.

The year 2000 featured the completion of mergers with three gas companies
and one electric company and the transformation of Energy East from a vertically
integrated upstate New York utility into a super-regional energy services and
delivery company. As a result of those mergers, Energy East is a dominant
presence in five Northeastern states and now serves over two million
residential, commercial and industrial natural gas and electric customers in
upstate New York and New England, doubling its customer base. This strategic
expansion into neighboring states has allowed Energy East to increase customer
choice in the Northeast energy markets without sacrificing price stability for
its customers. The completed mergers illustrate Energy East's continued
excellent progress in restructuring and repositioning itself as a competitive
energy industry continues to evolve. Energy East began implementing a number of
strategies to help manage energy price volatility by acquiring or developing gas
and electric peaking assets. Energy East also entered into an agreement to sell
its 18% interest in a nuclear generating facility at a net gain and no stranded
costs for customers or shareholders.

116

In determining each officer's performance, including Mr. von Schack's, the
Committee evaluated them within the context of the year experienced by Energy
East in terms of achieving the objectives of its 2000 operating plan, as well as
their leadership in planning and implementing strategic and operating
initiatives designed to increase the long-term value of Energy East. In New York
State, Energy East is widely acclaimed for its superior service and reliability.
Its customer complaint rate continues to be the lowest of any electricity and
natural gas company in New York State and the customer call center is among the
best in the industry. In Maine and Connecticut, multi-year performance
agreements with state regulatory bodies and cost reduction efforts have enabled
Energy East to share operating efficiencies and synergies with both customers
and shareholders. In addition, Energy East expects the mergers to enhance growth
opportunities both in the development of new service franchises and increased
penetration in existing markets. These results and individual performances are
reflected in the at risk portion of senior management compensation for 2000.
Since joining Energy East in September 1996, Mr. von Schack has provided the
strong leadership and strategic focus necessary to prepare Energy East to meet
the challenges of a competitive energy industry. Under Mr. von Schack's watch,
Energy East successfully repelled a hostile takeover attempt which would have
harmed customers, employees and shareholders, has grown into a super-regional
energy services and delivery company, and strengthened the long-term earnings
potential of Energy East by positioning it to take advantage of emerging
opportunities as the energy industry deregulates. Mr. von Schack's total
compensation reflects the Committee's evaluation of his effective leadership and
Energy East's performance with him at the helm.

The Annual Executive Incentive Plan provides for short-term cash performance
incentive awards if certain annual goals are achieved. For 2000, annual
performance incentive awards were based on earnings targets and individual
performance objectives. Awards ranged from approximately 64% to 113% of the
participant's base salary, depending upon the participant's position, and the
performance levels achieved. See the Bonus column in the Summary Compensation
Table, which includes performance incentive awards earned for 2000. The
Long-Term Executive Incentive Share Plan provides for cash incentive awards
based on Energy East's long-term financial performance relative to the long-term
financial performance of companies in the same industry. See the Long-Term
Incentive Plan Awards table for a description of the Long-Term Executive
Incentive Share Plan and performance share grants made in 2000 under the
Long-Term Executive Incentive Share Plan. See the Long-Term Compensation Payouts
Long-Term Incentive Plan column in the Summary Compensation Table for cash
incentive payouts under the Long-Term Executive Incentive Share Plan in 2000.
Awards under the 2000 Stock Option Plan, the 1997 Stock Option Plan and the
Restricted Stock Plan are intended to more closely align the long-term financial
interests of management with those of Energy East's shareholders by providing
long-term incentives to those individuals who can significantly affect the
future growth and success of Energy East. For example, should Energy East's
shares double in value over the ten-year option term (from $23.0625 per share to
$46.1250 per share), shareholder value would increase an estimated
$2,713,450,679, while the value of the grants to the individuals listed in the
Option/SAR Grants Table would increase an estimated $11,992,500 or 0.44% of the
total gain realized by all shareholders. See the Option/SAR Grants Table for a
description of the 1997 Stock Option Plan and awards made under the 1997 Stock
Option Plan. No awards were made under the 2000 Stock Option Plan or under the
Restricted Stock Plan in 2000.

Section 162(m) of the Internal Revenue Code generally disallows a tax
deduction to a company for compensation in excess of $1 million paid to a
company's chief executive officer and each of the next four most highly
compensated executive officers, except that qualifying performance-based
compensation that meets certain specified criteria is not subject to
Section 162(m). The Committee believes, based on information currently
available, that Section 162(m) limitations do not apply to awards made under the
2000 Stock Option Plan and the 1997 Stock Option Plan because the 2000 Stock
Option Plan and the 1997 Stock Option Plan satisfy the requirements of
Section 162(m) and were approved by Energy East's shareholders. The Committee
has reviewed, and will continue to

117

review, tax consequences as well as other relevant considerations when making
compensation decisions within the context of the overall operation of Energy
East's compensation program and will consider what actions should be taken, if
any, to continue to operate the compensation program in a tax-effective manner.

EXECUTIVE COMPENSATION AND SUCCESSION COMMITTEE

Joseph J. Castiglia, Chairman Richard Aurelio Ben E. Lynch

INDEPENDENT ACCOUNTANTS

Energy East has appointed PricewaterhouseCoopers LLP, a firm of independent
certified public accountants, as auditors for the year 2001. Representatives of
PricewaterhouseCoopers are expected to be present at the meeting and will have
an opportunity to make a statement if they desire to do so. They will also be
available to answer questions that you may have. From time to time
PricewaterhouseCoopers performs certain management advisory services for Energy
East. The Audit Committee has considered whether the provision of other
non-audit services is compatible with maintaining PricewaterhouseCoopers'
independence.

AUDIT FEES

Aggregate fees billed for professional services rendered for the audit of
Energy East's consolidated annual financial statements for the year ended
December 31, 2000 and the reviews of the financial statements included in Energy
East's Forms 10-Q for the year 2000 were $1,061,920.

FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES

Energy East did not engage PricewaterhouseCoopers to provide advice
regarding its financial information systems design and implementation during
2000.

ALL OTHER FEES

Aggregate fees billed for professional services rendered by
PricewaterhouseCoopers, other than services covered above, for the year 2000
were $626,945.

DEADLINE FOR SHAREHOLDER PROPOSALS

For a shareholder proposal to be considered for inclusion in Energy East's
proxy statement and form of proxy for the 2002 Annual Meeting, it must be
received by Energy East's Secretary at P.O. Box 12904, Albany, New York
12212-2904 by December 31, 2001. Under the Energy East bylaws, if you wish to
nominate candidates for election to the board of directors or if you wish to
bring any matter before the 2002 Annual Meeting (other than those matters
included in our proxy material), you must notify Energy East's Secretary in
writing no later than March 17, 2002 and no earlier than February 15, 2002. The
notice must also contain: (a) in the case of a nomination for election to the
board of directors, certain information concerning the proposed nominee, or, in
the case of business to be brought before the meeting, a brief description of
such business and the reasons for conducting the business at the meeting,
(b) the shareholder's name and record address, (c) the class and number of
Energy East shares that are owned by the shareholder, (d) a description of any
arrangement between the shareholder, the proposed nominee and any other person
or any arrangement between the shareholder and any other person in connection
with the proposal of such business by the shareholder, and a description of any
material interest of such shareholder in the business to be brought before the
meeting, and (e) a representation that the shareholder intends to appear in
person or by proxy to nominate such person or present such business before the
meeting.

118

SEC regulations permit Energy East to exercise discretionary voting
authority to vote on a matter brought before the annual meeting which is not
included in Energy East's proxy statement if Energy East does not have notice of
the matter between 90 days and 120 days prior to the anniversary date of the
prior year's annual meeting. In addition, Energy East may exercise discretionary
voting authority if Energy East receives timely notice of a matter (as described
in the preceding sentence) and if Energy East describes the nature of such
matter in its proxy statement. Accordingly, any such notice must be received by
Energy East's Secretary in writing no later than March 17, 2002 and no earlier
than February 15, 2002.

OTHER MATTERS

We do not know of any other matters of business to be presented for action
at the meeting. However, the enclosed form of proxy will confer discretionary
authority for the transacting of any such other and further business if properly
brought before the meeting or any adjournment thereof. If any such business is
so brought before the meeting, the persons named in the enclosed form of proxy,
or their substitutes, will vote according to their discretion.

The proxy is revocable by you at any time before the exercise thereof, and
the giving of such proxy will not affect your right to vote in person, should
you later find it convenient to attend the meeting.

Energy East recognizes that, during this period of rapid change in the
energy industry, it is essential that it retain directors who can provide the
continuity in knowledge and experience necessary to contribute to the stability
and overall success of Energy East. Therefore, the Energy East board amended
By-Law No. 10 to provide that the 70-year age limitation does not apply in
connection with the election of directors at the 2001 Annual Meeting. The third
paragraph of By-Law No. 10 was amended to read as follows: "No director who
shall have attained the age of 70 shall stand for re-election as a director;
provided, however, that such age limitation shall not apply in connection with
the election of directors at the 2001 Annual Meeting of Stockholders."

State law requires Energy East to inform shareholders of the initiation or
renewal of insurance indemnifying itself and its officers and directors. This
insurance, which is carried with Associated Electric & Gas Insurance Services
Limited (AEGIS), Energy Insurance Mutual Limited, and CNA Insurance Company, has
been renewed for one year beginning October 28, 2000, at a premium of $343,237.
In addition, the Pension Trust Liability Insurance, which is carried with Chubb
Insurance Company and AEGIS, covering Energy East, its subsidiaries, and its
directors and those officers considered fiduciaries under the Employee
Retirement Income Security Act, has been renewed for one year beginning
September 1, 2000 at a premium of $187,500.

COST OF SOLICITATION

The accompanying proxy is solicited on behalf of the board of directors. The
costs of this solicitation, including reimbursement of charges of brokerage
houses and others for their expenses in forwarding proxy materials to beneficial
owners of stock, will be paid by Energy East. However, Energy East and RGS
Energy will share equally the cost of printing this document. In addition,
directors, officers, and employees of Energy East or of its subsidiaries may
solicit proxies by telephone, telegram or in person, without additional
compensation. Energy East has retained Innisfree M&A to aid in the solicitation
of proxies at an anticipated fee of approximately $20,000, plus reimbursement of
out-of-pocket expenses incurred by that firm on behalf of Energy East.

119

WHERE YOU CAN FIND MORE INFORMATION

We file annual, quarterly and current reports, proxy statements, and other
information with the SEC. Anything we file may be read and copied at the
following locations at the SEC:

Public Reference Room New York Regional Office Chicago Regional Office
Room 1024, Judiciary Plaza Suite 1300 Citicorp Center
450 Fifth Street, N.W. 7 World Trade Center Suite 1400
Washington, DC 20549 New York, New York 10048 500 West Madison Street
Chicago, Illinois 60661-2511

Please call the SEC at 1-800-732-0330 for further information on the public
reference rooms. Our SEC filings should also be available to the public from
commercial document retrieval services and at the Internet world wide web site
that the SEC maintains at HTTP://WWW.SEC.GOV. In addition, materials and
information concerning RGS Energy and Energy East can be inspected at the New
York Stock Exchange, 20 Broad Street, 7th Floor, New York, New York 10005, where
RGS Energy shares and Energy East shares are listed.

The SEC allows us to "incorporate by reference" information into this
document, which means that we can disclose important information to you by
referring you to another document filed separately with the SEC. The information
incorporated by reference is deemed to be part of this document, except for any
information superseded by information contained directly in, or incorporated by
reference in, this document. This document incorporates by reference the
documents set forth below that were previously filed with the SEC by RGS Energy
(SEC File No. 0-3338) or Energy East (SEC File No. 1-14766). These documents
contain important information about RGS Energy and Energy East.

REGARDING RGS ENERGY

- RGS Energy's Annual Report on Form 10-K for the fiscal year ended
December 31, 2000.

- RGS Energy's Current Report on Form 8-K filed February 20, 2001.

REGARDING ENERGY EAST

- Energy East's Annual Report on Form 10-K for the fiscal year ended
December 31, 2000.

- Energy East's Current Report on Form 8-K filed February 20, 2001.

- Energy East's S-8 dated March 19, 2001 (for a description of Energy East
capital stock).

The SEC may require us to file other documents pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act between the time this document is sent
and the effective time of the merger. These other documents will be deemed to be
incorporated by reference in this document and to be a part of it from the date
they are filed with the SEC.

We may have already sent you some of the documents incorporated by
reference. Nevertheless, you may obtain any of them through us, the SEC, or the
SEC's Internet world wide web site as previously described. Documents
incorporated by reference are available from us without charge, excluding all
exhibits unless we have specifically incorporated by reference an exhibit in
this document.

120

You may obtain documents incorporated by reference in this document by
requesting them in writing or by telephone from the appropriate company at the
following addresses:

ENERGY EAST CORPORATION RGS ENERGY GROUP, INC.
Shareholder Services Shareholder Services
P.O. Box 3200 89 East Avenue
Ithaca, New York 14852-3200 Rochester, New York 14649
(800) 225-5643 (800) 724-8833

If you would like to request documents from us, please do so promptly in
order to receive them before the annual meeting. If you request any incorporated
documents from us, we will mail them to you by first class mail, or another
equally prompt means, within one business day after we receive your request.

RGS Energy has provided all information contained in or incorporated by
reference in this document with respect to RGS Energy. Energy East has provided
all information contained in or incorporated by reference in this document with
respect to Energy East. Neither Energy East nor RGS Energy assumes any
responsibility for the accuracy or completeness of the information provided by
the other party.

YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS DOCUMENT TO VOTE ON THE MERGER AGREEMENT OR THE ISSUANCE OF
ENERGY EAST SHARES IN CONNECTION WITH THE MERGER. WE HAVE NOT AUTHORIZED ANYONE
TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT FROM WHAT IS CONTAINED IN THIS
DOCUMENT. THIS DOCUMENT IS DATED APRIL 27, 2001. YOU SHOULD NOT ASSUME THAT THE
INFORMATION CONTAINED IN THIS DOCUMENT IS ACCURATE AS OF ANY DATE OTHER THAN
SUCH DATE. NEITHER THE MAILING OF THIS DOCUMENT TO SHAREHOLDERS NOR THE
COMPLETION OF THE MERGER WILL CREATE ANY IMPLICATION TO THE CONTRARY.

121

INDEX OF DEFINED TERMS

PAGE NO.
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Alternative Proposals....................................... 61
Average Market Price........................................ 23
Business Combination........................................ 70
EBIT........................................................ 39
EBITDA...................................................... 33, 39
EPS......................................................... 34, 39
LTM......................................................... 33, 39
NYSEG....................................................... 21
RG&E........................................................ 20

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APPENDIX A

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AGREEMENT AND PLAN OF MERGER

BY AND AMONG

RGS ENERGY GROUP, INC.,

ENERGY EAST CORPORATION

AND

EAGLE MERGER CORP.

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DATED AS OF FEBRUARY 16, 2001

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TABLE OF CONTENTS

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ARTICLE I

THE MERGER

Section 1.1 The Merger.................................................. A-1

Section 1.2 Effects of the Merger....................................... A-1

Section 1.3 Effective Time of the Merger................................ A-1

Section 1.4 Directors................................................... A-2

Section 1.5 Officers.................................................... A-2

ARTICLE II

TREATMENT OF SHARES

Section 2.1 Effect of the Merger on Capital Stock....................... A-2

Section 2.2 Exchange of Certificates.................................... A-5

ARTICLE III

THE CLOSING

Section 3.1 Closing..................................................... A-7

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

Section 4.1 Organization and Qualification.............................. A-7

Section 4.2 Subsidiaries................................................ A-8

Section 4.3 Capitalization.............................................. A-8

Section 4.4 Authority; Non-Contravention; Statutory Approvals;
Compliance.................................................. A-9

Section 4.5 Reports and Financial Statements............................ A-10

Section 4.6 Absence of Certain Changes or Events........................ A-11

Section 4.7 Litigation.................................................. A-11

Section 4.8 Registration Statement and Joint Proxy Statement............ A-11

Section 4.9 Tax Matters................................................. A-11

Section 4.10 Employee Matters; ERISA..................................... A-12

Section 4.11 Environmental Protection.................................... A-16

Section 4.12 Regulation as a Utility..................................... A-18

Section 4.13 Vote Required............................................... A-18

Section 4.14 Opinion of Financial Advisor................................ A-18

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Section 4.15 Ownership of Parent Common Stock............................ A-18

Section 4.16 Takeover Laws............................................... A-18

Section 4.17 Operations of Nuclear Power Plant........................... A-18

ARTICLE V

REPRESENTATIONS AND WARRANTIES OF PARENT

Section 5.1 Organization and Qualification.............................. A-19

Section 5.2 Subsidiaries................................................ A-19

Section 5.3 Capitalization.............................................. A-19

Section 5.4 Authority; Non-Contravention; Statutory Approvals;
Compliance.................................................. A-20

Section 5.5 Reports and Financial Statements............................ A-21

Section 5.6 Absence of Certain Changes or Events........................ A-21

Section 5.7 Litigation.................................................. A-21

Section 5.8 Registration Statement and Joint Proxy Statement............ A-21

Section 5.9 Environmental Protection.................................... A-22

Section 5.10 Regulation as a Utility..................................... A-22

Section 5.11 Vote Required............................................... A-22

Section 5.12 Ownership of the Company Common Stock....................... A-22

Section 5.13 Code Section 368(a)......................................... A-22

ARTICLE VI

CONDUCT OF BUSINESS PENDING THE MERGER

Section 6.1 Covenants of the Parties.................................... A-23

Section 6.2 Covenant of the Company; Alternative Proposals.............. A-26

Section 6.3 Employment Agreement........................................ A-27

ARTICLE VII

ADDITIONAL AGREEMENTS

Section 7.1 Access to Information....................................... A-28

Section 7.2 Joint Proxy Statement and Registration Statement............ A-28

Section 7.3 Further Assurances; Regulatory Matters...................... A-29

Section 7.4 Shareholders' Approval...................................... A-30

Section 7.5 Directors' and Officers' Indemnification.................... A-31

Section 7.6 Disclosure Schedules........................................ A-32

Section 7.7 Public Announcements........................................ A-32

Section 7.8 Rule 145 Affiliates......................................... A-32

Section 7.9 Certain Employee Agreements................................. A-32

Section 7.10 Employee Benefit Plans...................................... A-33

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Section 7.11 Company Stock and Other Plans............................... A-33

Section 7.12 Expenses.................................................... A-34

Section 7.13 Corporate Offices........................................... A-34

Section 7.14 Parent Board of Directors................................... A-34

Section 7.15 Community Involvement....................................... A-34

Section 7.16 Advisory Board.............................................. A-34

Section 7.17 Tax-Free Status............................................. A-35

Section 7.18 Transition Management....................................... A-35

Section 7.19 Rochester Gas and Electric Corporation...................... A-35

Section 7.20 New York State Electric & Gas Corporation................... A-36

Section 7.21 Share Contribution.......................................... A-36

ARTICLE VIII

CONDITIONS

Section 8.1 Conditions to Each Party's Obligation to Effect the
Merger...................................................... A-36

Section 8.2 Conditions to Obligation of Parent to Effect the Merger..... A-37

Section 8.3 Conditions to Obligation of the Company to Effect the
Merger...................................................... A-38

ARTICLE IX

TERMINATION, AMENDMENT AND WAIVER

Section 9.1 Termination................................................. A-39

Section 9.2 Effect of Termination....................................... A-40

Section 9.3 Termination Fee; Expenses................................... A-40

Section 9.4 Amendment................................................... A-41

Section 9.5 Waiver...................................................... A-42

ARTICLE X

GENERAL PROVISIONS

Section 10.1 Non-Survival; Effect of Representations and Warranties...... A-42

Section 10.2 Brokers..................................................... A-42

Section 10.3 Notices..................................................... A-42

Section 10.4 Miscellaneous............................................... A-43

Section 10.5 Interpretation.............................................. A-43

Section 10.6 Counterparts; Effect........................................ A-43

Section 10.7 Parties in Interest......................................... A-43

Section 10.8 Waiver of Jury Trial and Certain Damages.................... A-43

Section 10.9 Enforcement................................................. A-44

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INDEX OF DEFINED TERMS

TERM PAGE
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1935 Act......................... A-8

Advisory Board................... A-34

Affiliate Letter................. A-32

Agreement........................ A-1

Alternative Proposal............. A-27

Atomic Energy Act................ A-10

Business Combination............. A-41

Cash Consideration............... A-2

Cash Election.................... A-3

Cash Election Number............. A-3

Cash Election Shares............. A-3

Cash Fraction.................... A-3

CERCLA........................... A-17

Certificate of Merger............ A-1

Closing.......................... A-7

Closing Date..................... A-7

Code............................. A-1

Company.......................... A-1

Company Certificates............. A-4

Company Common Stock............. A-2

Company Disclosure Schedule...... A-32

Company Financial Statements..... A-10

Company Material Adverse
Effect......................... A-8

Company Material Contract........ A-26

Company Option................... A-33

Company Preferred Stock.......... A-8

Company Required Consents........ A-9

Company Required Statutory
Approvals...................... A-9

Company SEC Reports.............. A-10

Company Shareholders' Approval... A-18

Company Shareholders' Meeting.... A-30

Company Stock Plan............... A-33

Confidentiality Agreement........ A-28

Controlled Group Liability....... A-12

TERM PAGE
---- ---------

Disclosure Schedules............. A-32

Effective Time................... A-2

Election......................... A-4

Election Deadline................ A-4

Employee Benefit Plan............ A-12

Employment Agreement............. A-13

Environmental Claim.............. A-17

Environmental Laws............... A-17

Environmental Permits............ A-16

ERISA............................ A-13

ERISA Affiliate.................. A-13

Excess Parent Common Shares...... A-7

Exchange Act..................... A-10

Exchange Agent................... A-5

Exchange Ratio................... A-3

Expenses......................... A-41

FERC............................. A-10

Final Order...................... A-37

Form of Election................. A-3

GAAP............................. A-10

Governmental Authority........... A-9

Hazardous Materials.............. A-17

Indemnified Liabilities.......... A-31

Indemnified Party................ A-31

Initial Termination Date......... A-47

Inspected Party.................. A-28

IRS.............................. A-13

Joint Proxy Statement............ A-11

Joint Proxy/Registration
Statement...................... A-28

joint venture.................... A-8

Liens............................ A-9

Merger........................... A-1

Merger Consideration............. A-6

Merger Sub....................... A-1

Merger Sub Common Stock.......... A-2

Mixed Consideration.............. A-2

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TERM PAGE
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Mixed Election................... A-4

Multiemployer Plan............... A-13

Multiple Employer Plan........... A-14

No Election Shares............... A-4

NRC.............................. A-10

Nuclear Facility................. A-18

NYBCL............................ A-1

NYSE............................. A-3

obtaining........................ A-9, A-20

Parent........................... A-1

Parent Business Combination...... A-5

Parent Common Stock.............. A-2

Parent Disclosure Schedule....... A-32

Parent Financial Statements...... A-21

Parent Material Adverse Effect... A-19

Parent Preferred Stock........... A-19

Parent Required Consents......... A-20

Parent Required Statutory
Approvals...................... A-20

Parent SEC Reports............... A-21

Parent Share Price............... A-3

Parent Shareholders' Approval.... A-22

Parent Shareholders' Meeting..... A-30

Parent Shares.................... A-6

Paying Agent..................... A-4

PBGC............................. A-14

PCBs............................. A-17

Plan............................. A-13

Power Act........................ A-10

TERM PAGE
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PSC.............................. A-30

Qualified Plans.................. A-13

Registration Statement........... A-11

Release.......................... A-17

Representative................... A-3

Representatives.................. A-28

Reverse Merger................... A-5

Richards Employment Agreement.... A-27

SEC.............................. A-10

Securities Act................... A-10

Severance Agreement.............. A-16

Stock Consideration.............. A-2

Stock Election................... A-3

Stock Election Number............ A-3

Stock Election Shares............ A-3

Stock Fraction................... A-3

subsidiary....................... A-8

Subsidiary Reports............... A-20

Surviving Corporation............ A-1

Takeover Laws.................... A-18

Task Force....................... A-35

Task Force Chairpersons.......... A-35

Tax Return....................... A-11

Taxes............................ A-11

Termination Fee.................. A-41

VEBA............................. A-13

Violation........................ A-9

Withdrawal Liability............. A-13

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AGREEMENT AND PLAN OF MERGER, dated as of February 16, 2001 (this
"AGREEMENT"), by and among RGS Energy Group, Inc., a New York corporation (the
"COMPANY"), Energy East Corporation, a New York corporation ("PARENT"), and
Eagle Merger Corp., a New York corporation ("MERGER SUB").

WHEREAS, the respective Boards of Directors of the Company and Parent have
determined to engage in a business combination transaction on the terms stated
herein;

WHEREAS, the respective Boards of Directors of the Company, Parent and
Merger Sub have approved and adopted this Agreement and deemed it in the best
interests of their respective shareholders to consummate the transactions
contemplated herein under which the businesses of the Company and Parent would
be combined by means of the merger of the Company with and into Merger Sub,
which as of the Effective Time shall be a wholly owned subsidiary of Parent; and

WHEREAS, it is intended that the Merger (as defined below) shall constitute
a "reorganization" within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended (the "CODE"), and that this Agreement shall constitute
a plan of reorganization;

NOW THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements contained herein, the parties hereto,
intending to be legally bound hereby, agree as follows:

ARTICLE I

THE MERGER

Section 1.1 THE MERGER. Upon the terms and subject to the conditions of
this Agreement, at the Effective Time (as defined in Section 1.3), the Company
shall be merged with and into Merger Sub (the "MERGER") in accordance with the
laws of the State of New York, whereupon the separate corporate existence of the
Company shall cease, and Merger Sub shall continue as the surviving corporation
in the Merger and shall continue to be governed under the laws of the State of
New York. The effects and the consequences of the Merger shall be as set forth
in Section 1.2. Throughout this Agreement, the term "Merger Sub" shall refer to
Merger Sub prior to the Merger and the term "Surviving Corporation" shall refer
to Merger Sub in its capacity as the surviving corporation in the Merger.

Section 1.2 EFFECTS OF THE MERGER. At the Effective Time, (i) the
certificate of incorporation of Merger Sub, as in effect immediately prior to
the Effective Time, shall be the certificate of incorporation of the Surviving
Corporation until thereafter amended as provided by law and such certificate of
incorporation, except that the name of the Surviving Corporation shall be "RGS
Energy Group, Inc.," and (ii) the by-laws of Merger Sub, as in effect
immediately prior to the Effective Time, shall be the by-laws of the Surviving
Corporation until thereafter amended as provided by law, the certificate of
incorporation of the Surviving Corporation and such by-laws. Subject to the
foregoing, the additional effects of the Merger shall be as provided in
Section 906 of the New York Business Corporation Law (the "NYBCL").

Section 1.3 EFFECTIVE TIME OF THE MERGER. On the Closing Date (as defined
in Section 3.1), with respect to the Merger, a certificate of merger (and, if
required, any consent or approval endorsed thereon) complying with Section 904
of the NYBCL (the "CERTIFICATE OF MERGER") shall be delivered to the Department
of State of the State of New York for filing and the Surviving Corporation shall
thereafter cause a copy of such certificate, certified by the Department of
State, to be filed in the office of the clerk of each county, and in the office
of the official who is the recording officer of each county, in which such
certificate is required to be filed pursuant to Section 904(b) of the NYBCL. The
Merger shall become effective upon the filing of the Certificate of Merger with
the Department of State of the

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State of New York, or at such later date and time as may be set forth in the
Certificate of Merger (the "EFFECTIVE TIME").

Section 1.4 DIRECTORS. Commencing at the Effective Time, the directors of
the Surviving Corporation shall consist of two persons nominated by Parent and
one person nominated by the Company (who shall be Chairman of the Board of the
Surviving Corporation), and such directors shall hold office from the Effective
Time until their respective successors are duly elected or appointed and
qualified in the manner provided in the certificate of incorporation and by-laws
of the Surviving Corporation, or as otherwise provided by the NYBCL. Parent
hereby confirms that it intends to nominate Mr. von Schack and Mr. Jasinski as
directors of the Surviving Corporation. The Company hereby confirms that it
intends to nominate Mr. Richards as a director of the Surviving Corporation.

Section 1.5 OFFICERS. Commencing at the Effective Time, the officers of
the Surviving Corporation shall consist of one person nominated by Parent (who
shall be Vice President, General Counsel and Secretary of the Surviving
Corporation) and one person nominated by the Company (who shall be President and
Chief Executive Officer of the Surviving Corporation), and such officers shall
hold office from the Effective Time until their respective successors are duly
elected or appointed and qualified in the manner provided in the certificate of
incorporation and by-laws of the Surviving Corporation, or as otherwise provided
by the NYBCL. Parent hereby confirms that it intends to nominate Mr. Jasinski as
an officer of the Surviving Corporation. The Company hereby confirms that it
intends to nominate Mr. Richards as an officer of the Surviving Corporation.
Mr. Richards shall hold other positions in other subsidiary corporations of
Parent as specified in the Richards Employment Agreement (as defined in
Section 6.3) subject to the terms and conditions therein contained.

ARTICLE II

TREATMENT OF SHARES

Section 2.1 EFFECT OF THE MERGER ON CAPITAL STOCK. At the Effective Time,
by virtue of the Merger and without any action on the part of any holder of any
capital stock of the Company or Merger Sub:

(a) SHARES OF MERGER SUB STOCK. Each share of common stock, without
par value, of Merger Sub (the "MERGER SUB COMMON STOCK") that is issued and
outstanding immediately prior to the Effective Time shall remain outstanding
and unchanged by reason of the Merger as one fully paid and nonassessable
share of common stock, without par value, of the Surviving Corporation.

(b) CANCELLATION OF CERTAIN COMPANY COMMON STOCK. Each share of common
stock, par value $.01 per share, of the Company (the "COMPANY COMMON STOCK")
that is owned by the Company as treasury stock and all shares of Company
Common Stock that are owned by Parent shall be canceled and shall cease to
exist, and no stock of Parent or other consideration shall be delivered in
exchange therefor.

(c) CONVERSION OF COMPANY COMMON STOCK. Subject to the provisions of
this Section 2.1, each share of Company Common Stock, other than shares
canceled pursuant to Section 2.1(b), issued and outstanding immediately
prior to the Effective Time shall by virtue of the Merger and without any
action on the part of the holder thereof, be converted into the right to
receive (i) $39.50 in cash (the "CASH CONSIDERATION") or (ii) a number of
validly issued, fully paid and nonassessable shares of Common Stock, par
value $.01 per share, of Parent ("PARENT COMMON STOCK") equal to the
Exchange Ratio (as defined below) (the "STOCK CONSIDERATION") or (iii) the
right to receive a combination of cash and shares of Parent Common Stock
determined in accordance with this Section (the "MIXED CONSIDERATION"). The
"Exchange Ratio" shall be equal to the Cash Consideration divided by either
(i) the Parent Share Price (as defined below) if the Parent Share Price is
equal to or less than $22.41 and equal to or more than $16.57, (ii) $22.41
if the Parent Share Price is greater than $22.41, in which case the Exchange
Ratio shall equal 1.7626,

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or (iii) $16.57 if the Parent Share Price is less than $16.57, in which case
the Exchange Ratio shall equal 2.3838. The "PARENT SHARE PRICE" shall be
equal to the average of the closing prices of the shares of Parent Common
Stock on the New York Stock Exchange ("NYSE") Composite Transactions
Reporting System, as reported in The Wall Street Journal, for the 20 trading
days immediately preceding the second trading day prior to the Effective
Time.

(d) CASH ELECTION. Subject to the immediately following sentence, each
record holder of shares of Company Common Stock immediately prior to the
Effective Time shall be entitled to elect to receive cash for all or any
part of such holder's shares of Company Common Stock (a "CASH ELECTION").
Notwithstanding the foregoing and subject to Section 2.1(l), the aggregate
number of shares of Company Common Stock that may be converted into the
right to receive cash in the Merger (the "CASH ELECTION NUMBER") shall be
55% of the total number of shares of Company Common Stock issued and
outstanding as of the Effective Time. Cash Elections shall be made on a form
designed for that purpose (a "FORM OF ELECTION"). A holder of record of
shares of Company Common Stock who holds such shares as nominee, trustee or
in another representative capacity (a "REPRESENTATIVE") may submit multiple
Forms of Election, provided that such Representative certifies that each
such Form of Election covers all the shares of Company Common Stock held by
such Representative for a particular beneficial owner.

(e) CASH ELECTION SHARES. If the aggregate number of shares of Company
Common Stock covered by Cash Elections (the "CASH ELECTION SHARES") exceeds
the Cash Election Number, each Cash Election Share shall be converted into
(i) the right to receive an amount in cash, without interest, equal to the
product of (A) the Cash Consideration and (B) a fraction (the "CASH
FRACTION"), the numerator of which shall be the Cash Election Number and the
denominator of which shall be the total number of Cash Election Shares, and
(ii) a number of shares of Parent Common Stock equal to the product of
(A) the Exchange Ratio and (B) a fraction equal to one minus the Cash
Fraction.

(f) STOCK ELECTION. Subject to the immediately following sentence,
each record holder of shares of Company Common Stock immediately prior to
the Effective Time shall be entitled to elect to receive shares of Parent
Common Stock for all or any part of such holder's shares of Company Common
Stock (a "STOCK ELECTION"). Notwithstanding the foregoing and subject to
Section 2.1(l), the aggregate number of shares of Company Common Stock that
may be converted into the right to receive shares of Parent Common Stock in
the Merger (the "STOCK ELECTION NUMBER") shall be 45% of the total number of
shares of Company Common Stock issued and outstanding as of the Effective
Time. Stock Elections shall be made on a Form of Election. A Representative
may submit multiple Forms of Election, provided that such Representative
certifies that each such Form of Election covers all the shares of Company
Common Stock held by such Representative for a particular beneficial owner.

(g) STOCK ELECTION SHARES. If the aggregate number of shares of
Company Common Stock covered by Stock Elections (the "STOCK ELECTION
SHARES") exceeds the Stock Election Number, each Stock Election Share shall
be converted into (i) the right to receive a number of shares of Parent
Common Stock, equal to the product of (A) the Exchange Ratio and (B) a
fraction (the "STOCK FRACTION"), the numerator of which shall be the Stock
Election Number and the denominator of which shall be the total number of
Stock Election Shares, and (ii) an amount in cash, without interest, equal
to the product of (A) the Cash Consideration and (B) a fraction equal to one
minus the Stock Fraction.

(h) MIXED ELECTION. Subject to the immediately following sentence,
each record holder of shares of Company Common Stock immediately prior to
the Effective Time shall be entitled to elect to receive shares of Parent
Common Stock for part of such holder's shares of Company Common Stock and
cash for the remaining part of such holder's shares of Company Common

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Stock (the "MIXED ELECTION" and, collectively with Stock Election and Cash
Election, the "ELECTION"). Notwithstanding the foregoing and subject to
Section 2.1(l), the aggregate number of shares of Company Common Stock that
may be converted into the right to receive the Cash Consideration shall be
55%, and the aggregate number of shares of Company Common Stock that may be
converted into the right to receive shares of Parent Common Stock in the
Merger shall be 45%, in each case, of the total number of shares of Company
Common Stock issued and outstanding as of the Effective Time. Mixed
Elections shall be made on a Form of Election. A Representative may submit
multiple Forms of Election, provided that such Representative certifies that
each such Form of Election covers all the shares of Company Common Stock
held by such Representative for a particular beneficial owner. With respect
to each holder of Company Common Stock who makes a Mixed Election, the
shares of Company Common Stock such holder elects to be converted into the
right to receive Cash Consideration shall be treated as Cash Election Shares
for purposes of the provisions contained in Sections 2.1(d), (e) and (l),
and the shares such holder elects to be converted into the right to receive
shares of Parent Common Stock shall be treated as Stock Election Shares for
purposes of the provisions contained in Sections 2.1(f), (g) and (l).

(i) FORM OF ELECTION. To be effective, a Form of Election must be
properly completed, signed and submitted to Parent's transfer agent and
registrar, as paying agent (the "PAYING AGENT"), and accompanied by the
certificates representing the shares of Company Common Stock ("COMPANY
CERTIFICATES") as to which the election is being made (or by an appropriate
guarantee of delivery of such Company Certificate signed by a firm that is a
member of any registered national securities exchange or a member of the
National Association of Securities Dealers, Inc. or a bank, broker, dealer,
credit union, savings association or other entity that is a member in good
standing of the Securities Transfer Agent's Medallion Program, the New York
Stock Exchange Medallion Signature Guarantee Program or the Stock Exchange
Medallion Program). Parent shall have the discretion, which it may delegate
in whole or in part to the Paying Agent, to determine whether Forms of
Election have been properly completed, signed and submitted or revoked and
to disregard immaterial defects in Forms of Election. The decision of Parent
(or the Paying Agent) in such matters shall be conclusive and binding.
Neither Parent nor the Paying Agent shall be under any obligation to notify
any person of any defect in a Form of Election submitted to the Paying
Agent. The Paying Agent shall also make all computations contemplated by
this Section 2.1, and all such computations shall be conclusive and binding
on the holders of shares of Company Common Stock.

(j) DEEMED NON-ELECTION. For the purposes hereof, a holder of shares
of Company Common Stock who does not submit a Form of Election that is
received by the Paying Agent prior to the Election Deadline (as defined in
Section 2.1(k)) (the "NO ELECTION SHARES") shall be deemed not to have made
a Cash Election, Stock Election or Mixed Election. If Parent or the Paying
Agent shall determine that any purported Election was not properly made, the
shares subject to such improperly made Election shall be treated as No
Election Shares. No Election Shares may be treated as Cash Election Shares
or Stock Election Shares.

(k) ELECTION DEADLINE. Parent and the Company shall each use its best
efforts to cause copies of the Form of Election to be mailed to the record
holders of the shares of Company Common Stock not less than thirty days
prior to the Effective Time and to make the Form of Election available to
all persons who become record holders of shares of Company Common Stock
subsequent to the date of such mailing and no later than the close of
business on the seventh business day prior to the Effective Time. A Form of
Election must be received by the Paying Agent by 5:00 p.m., New York City
time, on the third day after the Effective Time (the "ELECTION DEADLINE") in
order to be effective. All elections may be revoked until the Election
Deadline in writing by the record holders submitting Forms of Election.

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(l) ADJUSTMENT PER TAX OPINION. Notwithstanding anything in this
Article II to the contrary (other than the last sentence of
Section 2.1(m)), unless the Company elects to change the form of the Merger
in accordance with this Section 2.1(l), the number of shares of Company
Common Stock to be converted into the right to receive the Stock
Consideration in the Merger shall be not less than that number which would
cause the ratio of (i) the value, for federal income tax purposes, per share
of Parent Common Stock on the Closing Date times the aggregate number of
shares of Parent Common Stock to be paid as Stock Consideration pursuant to
Section 2.1(c), to (ii) the sum of (A) the amount set forth in the preceding
clause (i) plus (B) the aggregate Cash Consideration to be issued pursuant
to Section 2.1(c) plus (C) any other amounts paid by Parent or the Company
(or any affiliate thereof) to, or on behalf of, any Company shareholder in
connection with the sale, redemption or other disposition of any Company
stock in connection with the Merger for purposes of Treasury Regulation
Sections 1.368-1(e) plus (D) any extraordinary dividend distributed by the
Company prior to and in connection with the Merger for purposes of Treasury
Regulation Sections 1.368-1(e), to be 42.5%. To the extent the application
of this Section 2.1(l) would reasonably be expected to result in the number
of shares of Company Common Stock to be converted into the right to receive
the Stock Consideration in the Merger being increased, the Company may elect
by written notice received by Parent no later than two business days prior
to the Effective Time to change the form of the Merger in lieu of such an
increase; PROVIDED, HOWEVER, that any such election does not delay the
consummation of the Merger. If the Company so elects, this Agreement shall
be amended to provide for the payment of the Merger Consideration (without
adjustment under this Section 2.1(l)) pursuant to a merger of Merger Sub
with and into the Company, with the Company being the Surviving Corporation
(the "REVERSE MERGER"). The Reverse Merger would not be intended to qualify
as a reorganization within the meaning of Section 368(a) of the Code, and
the conditions of Sections 8.2(g) and 8.3(f) hereof would be waived. If the
Company does not make such election, then the number of shares of Company
Common Stock to be converted into the right to receive the Stock
Consideration shall be increased to the extent required by this
Section 2.1(l), and the number of such shares to be converted into the right
to receive the Cash Consideration will be reduced to the same extent.

(m) ANTI-DILUTION PROVISIONS. In the event Parent (i) changes (or
establishes a record date for changing) the number of shares of Parent
Common Stock issued and outstanding prior to the Effective Time as a result
of a stock split, stock dividend, stock combination, recapitalization,
reclassification, reorganization or similar transaction with respect to the
outstanding Parent Common Stock or (ii) pays or makes an extraordinary
dividend or distribution in respect of Parent Common Stock (other than a
distribution referred to in clause (i) of this sentence) and, in either
case, the record date therefor shall be prior to the Effective Time, the
Merger Consideration (as defined in Section 2.2(b)) shall be proportionately
adjusted. Regular quarterly cash dividends and increases thereon shall not
be considered extraordinary for purposes of the preceding sentence. If,
between the date hereof and the Effective Time, Parent shall merge or
consolidate with or into any other corporation (a "PARENT BUSINESS
COMBINATION") and the terms thereof shall provide that Parent Common Stock
shall be converted into or exchanged for the shares of any other corporation
or entity, then provision shall be made so that shareholders of the Company
who would be entitled to receive shares of Parent Common Stock pursuant to
this Agreement shall be entitled to receive, in lieu of each share of Parent
Common Stock issuable to such shareholders as provided herein, the same kind
and amount of securities or assets as shall be distributable upon such
Parent Business Combination with respect to one share of Parent Common Stock
and the parties hereto shall agree on an appropriate restructuring of the
transactions contemplated herein.

Section 2.2 EXCHANGE OF CERTIFICATES.

(a) DEPOSIT WITH EXCHANGE AGENT. As soon as practicable after the
Effective Time, Parent shall deposit with a bank or trust company mutually
agreeable to Parent and the Company (the "EXCHANGE

A-5

AGENT"), pursuant to an agreement in form and substance reasonably acceptable to
Parent and the Company, an amount of cash and certificates representing shares
of Parent Common Stock required to effect the conversion of Company Common Stock
into Parent Common Stock and cash in accordance with Section 2.1(c).

(b) EXCHANGE AND PAYMENT PROCEDURES. As soon as practicable after the
Effective Time, Parent shall cause the Paying Agent to mail to each holder of
record as of the Effective Time of a Certificate or Certificates that have been
converted pursuant to Section 2.1: (i) a letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon actual delivery of the Certificates to the
Paying Agent) and (ii) instructions for effecting the surrender of the
Certificates and receiving the Merger Consideration (as defined below) to which
such holder shall be entitled therefor pursuant to Section 2.1. Upon surrender
of a Certificate to the Paying Agent for cancellation, together with a duly
executed letter of transmittal and such other documents as the Paying Agent may
require, the holder of such Certificate shall be entitled to receive in exchange
therefor (i) a certificate representing that number of shares of Parent Common
Stock (the "PARENT SHARES") into which the shares of Company Common Stock
previously represented by such Certificate are converted in accordance with
Section 2.1(c), (ii) the cash to which such holder is entitled in accordance
with Section 2.1(c), and (iii) the cash in lieu of fractional Parent Shares to
which such holder has the right to receive pursuant to Section 2.2(d) (the
shares of Parent Common Stock and cash described in clauses (i), (ii) and
(iii) above being referred to collectively as the "MERGER CONSIDERATION"). In
the event the Merger Consideration is to be delivered to any person who is not
the person in whose name the Certificate surrendered in exchange therefor is
registered in the transfer records of the Company, the Merger Consideration may
be delivered to a transferee if the Certificate is presented to the Paying
Agent, accompanied by all documents required to evidence and effect such
transfer and by evidence satisfactory to the Paying Agent that any applicable
stock transfer taxes have been paid. Until surrendered as contemplated by this
Section 2.2, each Certificate (other than a certificate representing shares of
Company Common Stock to be canceled in accordance with Section 2.1(b)) shall be
deemed at any time after the Effective Time to represent only the right to
receive upon such surrender the Merger Consideration contemplated by this
Section 2.2. No interest will be paid or will accrue on any cash payable to
holders of Certificates pursuant to provisions of this Article II.

(c) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No dividends or
other distributions declared or made after the Effective Time with respect to
Parent Shares with a record date after the Effective Time shall be paid to the
holder of any unsurrendered Certificate with respect to Parent Shares
represented thereby and no cash payment in lieu of fractional shares shall be
paid to any such holder pursuant to Section 2.2(d) until the holder of record of
such Certificate shall surrender such Certificate. Subject to the effect of
unclaimed property, escheat and other applicable laws, following surrender of
any such Certificate, there shall be paid to the record holder of the
certificates representing whole Parent Shares issued in exchange therefor,
without interest, (i) at the time of such surrender, the amount of any cash
payable in lieu of a fractional share of Parent Common Stock to which such
holder is entitled pursuant to Section 2.2(d) and the amount of dividends or
other distributions with a record date after the Effective Time theretofore paid
with respect to such whole Parent Shares and (ii) at the appropriate payment
date, the amount of dividends or other distributions with a record date after
the Effective Time but prior to surrender and a payment date subsequent to
surrender payable with respect to such whole Parent Shares.

(d) NO FRACTIONAL SECURITIES. In lieu of any such fractional securities,
each holder of Company Common Stock who would otherwise have been entitled to a
fraction of a share of Parent Common Stock upon surrender of Certificates for
exchange pursuant to this Article II will be paid an amount in cash (without
interest) equal to such holder's proportionate interest in the net proceeds from
the sale or sales in the open market by the Exchange Agent, on behalf of all
such holders, of the aggregate

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fractional shares of Parent Common Stock issued pursuant to this Article II. As
soon as practicable following the Effective Time, the Exchange Agent shall
determine the excess of (i) the number of full shares of Parent Common Stock
delivered to the Exchange Agent by Parent over (ii) the aggregate number of full
shares of Parent Common Stock to be distributed to holders of Company Common
Stock (such excess being herein called the "EXCESS PARENT COMMON SHARES"). The
Exchange Agent, as agent for the former holders of Company Common Stock, shall
sell the Excess Parent Common Shares at the prevailing prices on the NYSE. The
sales of the Excess Parent Common Shares by the Exchange Agent shall be executed
on the NYSE through one or more member firms of the NYSE and shall be executed
in round lots to the extent practicable. Parent shall pay all commissions,
transfer taxes and other out-of-pocket transaction costs, including the expenses
and compensation of the Exchange Agent, incurred in connection with such sale of
Excess Parent Common Shares. Until the net proceeds of such sale have been
distributed to the former holders of Company Common Stock, the Exchange Agent
will hold such proceeds in trust for such former holders. As soon as practicable
after the determination of the amount of cash to be paid to former holders of
Company Common Stock in lieu of any fractional interests, the Exchange Agent
shall make available in accordance with this Agreement such amounts to such
former holders.

(e) CLOSING OF TRANSFER BOOKS. If, after the Effective Time, Certificates
are presented to the Surviving Corporation, they shall be canceled and exchanged
for certificates representing the appropriate number of Parent Shares and the
appropriate amount of cash as provided in Section 2.1 and in this Section 2.2.

(f) TERMINATION OF EXCHANGE AGENT. Any certificates representing Parent
Shares deposited with the Exchange Agent pursuant to Section 2.2(a) and not
exchanged within six months after the Effective Time pursuant to this
Section 2.2 shall be returned by the Exchange Agent to Parent, which shall
thereafter act as Exchange Agent. All funds held by the Exchange Agent for
payment to the holders of unsurrendered Certificates and unclaimed at the end of
one year from the Effective Time shall be returned to Parent, after which time
any holder of unsurrendered Certificates shall look as a general creditor only
to Parent for payment of such funds to which such holder may be due, subject to
applicable law.

(g) ESCHEAT. The Company shall not be liable to any person for such shares
or funds delivered to a public official pursuant to any applicable abandoned
property, escheat or similar law.

ARTICLE III

THE CLOSING

Section 3.1 CLOSING. The closing of the Merger (the "CLOSING") shall take
place at the offices of Wachtell, Lipton, Rosen & Katz, at 10:00 a.m., Eastern
time, on the second business day immediately following the date on which the
last of the conditions set forth in Article VIII hereof is fulfilled or waived
(other than conditions that by their nature are required to be performed on the
Closing Date, but subject to satisfaction of such conditions), or at such other
time and date and place as the Company and Parent shall mutually agree (the
"CLOSING DATE").

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

The Company represents and warrants to Parent as follows:

Section 4.1 ORGANIZATION AND QUALIFICATION. Except as set forth in
Section 4.1 of the Company Disclosure Schedule (as defined in Section 7.6), the
Company and each of its subsidiaries (as defined below) is a corporation duly
organized, validly existing and in good standing under the laws of its

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jurisdiction of incorporation or organization, has all requisite corporate power
and authority, and has been duly authorized by all necessary approvals and
orders, to own, lease and operate its assets and properties to the extent owned,
leased and operated and to carry on its business as it is now being conducted
and is duly qualified and in good standing to do business in each jurisdiction
in which the nature of its business or the ownership or leasing of its assets
and properties makes such qualification necessary, other than in such
jurisdictions where the failure to be so qualified and in good standing would
not, when taken together with all other such failures, reasonably be expected to
have a material adverse effect on the business, properties, financial condition
or results of operations of the Company and its subsidiaries taken as a whole or
on the consummation of this Agreement (any such material adverse effect being
hereafter referred to as a "COMPANY MATERIAL ADVERSE EFFECT"). As used in this
Agreement, the term "subsidiary" of a person shall mean any corporation or other
entity (including partnerships and other business associations) of which a
majority of the outstanding capital stock or other voting securities having
voting power under ordinary circumstances to elect directors or similar members
of the governing body of such corporation or entity shall at the time be held,
directly or indirectly, by such person.

Section 4.2 SUBSIDIARIES. Section 4.2 of the Company Disclosure Schedule
sets forth a description, as of the date hereof, of each material "subsidiary
company," as such term is defined in the Public Utility Holding Company Act of
1935, as amended (the "1935 ACT"), and joint venture of the Company, including
the name of each such entity, the state or jurisdiction of its incorporation or
organization, the Company's interest therein and a brief description of the
principal line or lines of business conducted by each such entity. Except as set
forth in Section 4.2 of the Company Disclosure Schedule, all of the issued and
outstanding shares of capital stock owned by the Company of each Company
subsidiary are validly issued, fully paid, nonassessable and free of preemptive
rights, and are owned, directly or indirectly, by the Company free and clear of
any liens, claims, encumbrances, security interests, equities, charges and
options of any nature whatsoever, and there are no outstanding subscriptions,
options, calls, contracts, voting trusts, proxies or other commitments,
understandings, restrictions, arrangements, rights or warrants, including any
right of conversion or exchange under any outstanding security, instrument or
other agreement, obligating any such subsidiary to issue, deliver or sell, or
cause to be issued, delivered or sold, additional shares of its capital stock or
obligating it to grant, extend or enter into any such agreement or commitment,
except for any of the foregoing that would not reasonably be expected to have a
Company Material Adverse Effect. As used in this Agreement, the term "joint
venture" of a person shall mean any corporation or other entity (including
partnerships and other business associations) that is not a subsidiary of such
person, in which such person or one or more of its subsidiaries owns an equity
interest, other than equity interests held for passive investment purposes which
are less than 10% of any class of the outstanding voting securities or equity of
any such entity.

Section 4.3 CAPITALIZATION. The authorized capital stock of the Company
consists of 100,000,000 shares of Company Common Stock and 10,000,000 shares of
preferred stock, par value $.01 per share, of the Company ("COMPANY PREFERRED
STOCK"). As of the close of business on February 15, 2001, there were issued and
outstanding 34,577,426 shares of Company Common Stock and no shares of Company
Preferred Stock. As of the close of business on February 15, 2001, 1,010,198
shares of Company Common Stock were reserved for issuance upon exercise of
outstanding Company stock options. All of the issued and outstanding shares of
the capital stock of the Company are validly issued, fully paid, nonassessable
and free of preemptive rights. Except as set forth in Section 4.3 of the Company
Disclosure Schedule, as of the date hereof, there are no outstanding
subscriptions, options, stock appreciation rights, calls, contracts, voting
trusts, proxies or other commitments, understandings, restrictions,
arrangements, rights or warrants, including any right of conversion or exchange
under any outstanding security, instrument or other agreement, obligating the
Company or any of the subsidiaries of the Company to issue, deliver or sell, or
cause to be issued, delivered or sold, additional shares of

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the capital stock of the Company, or obligating the Company to grant, extend or
enter into any such agreement or commitment.

Section 4.4 AUTHORITY; NON-CONTRAVENTION; STATUTORY APPROVALS; COMPLIANCE.

(a) AUTHORITY. The Company has all requisite corporate power and authority
to enter into this Agreement and, subject to obtaining the Company Shareholders'
Approval (as defined in Section 4.13) and the Company Required Statutory
Approvals (as defined in Section 4.4(c)), to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation by the Company of the transactions contemplated hereby have been
duly authorized by all necessary corporate action on the part of the Company,
other than the Company Shareholders' Approval. This Agreement has been duly and
validly executed and delivered by the Company and, assuming the due
authorization, execution and delivery by the other signatories hereto,
constitutes the valid and binding obligation of the Company enforceable against
it in accordance with its terms.

(b) NON-CONTRAVENTION. Except as set forth in Section 4.4(b) of the
Company Disclosure Schedule, the execution and delivery of this Agreement by the
Company do not, and the consummation of the transactions contemplated hereby
will not, violate, conflict with, or result in a breach of any provision of, or
constitute a default (with or without notice or lapse of time or both) under, or
result in the termination or modification of, or accelerate the performance
required by, or result in the grant of any rights (in addition to the rights
under the employment agreements disclosed in Section 4.10(k) of the Company
Disclosure Schedule) under, or result in a right of termination, cancellation,
or acceleration of any obligation or the loss of a benefit under, or result in
the creation of any lien, security interest, charge or encumbrance ("LIENS")
upon any of the properties or assets of the Company or any of its subsidiaries
or any of its joint ventures (any such violation, conflict, breach, default,
right of termination, modification, cancellation or acceleration, grant, loss or
creation, a "VIOLATION" with respect to the Company (such term when used in
Article V having a correlative meaning with respect to Parent)) pursuant to any
provisions of (i) the certificate of incorporation, by-laws or similar governing
documents of the Company, any of its subsidiaries or any of its joint ventures,
(ii) subject to obtaining the Company Required Statutory Approvals and the
receipt of the Company Shareholders' Approval, any statute, law, ordinance,
rule, regulation, judgment, decree, order, injunction, writ, permit or license
of any Governmental Authority applicable to the Company, any of its subsidiaries
or any of its joint ventures, or any of their respective properties or assets or
(iii) subject to obtaining the third-party consents or other approvals set forth
in Section 4.4(b) of the Company Disclosure Schedule (the "COMPANY REQUIRED
CONSENTS") any note, bond, mortgage, indenture, deed of trust, license,
franchise, permit, concession, contract, lease or other instrument, obligation
or agreement of any kind to which the Company, any of its subsidiaries or any of
its joint ventures is a party or by which it or any of its properties or assets
may be bound or affected, excluding from the foregoing clauses (i), (ii) and
(iii) such Violations that would not reasonably be expected to have, in the
aggregate, a Company Material Adverse Effect and would not prevent the
consummation of the Merger.

(c) STATUTORY APPROVALS. Except as described in Section 4.4(c) of the
Company Disclosure Schedule, no declaration, filing or registration with, or
notice to or authorization, consent or approval of, any court, federal, state,
local or foreign governmental or regulatory body (including a stock exchange or
other self-regulatory body) or authority (each, a "GOVERNMENTAL AUTHORITY") is
necessary for the execution and delivery of this Agreement by the Company or the
consummation by the Company of the transactions contemplated hereby, the failure
to obtain, make or give which would reasonably be expected to have, in the
aggregate, a Company Material Adverse Effect or would prevent the consummation
of the Merger (the "COMPANY REQUIRED STATUTORY APPROVALS"), it being understood
that references in this Agreement to "obtaining" such Company Required Statutory
Approvals shall mean making such declarations, filings or registrations; giving
such notices; obtaining such authorizations, consents or approvals; and having
such waiting periods expire as are necessary to avoid a violation of law.

A-9

(d) COMPLIANCE. Except as set forth in Section 4.4(d) or Section 4.11 of
the Company Disclosure Schedule, or as disclosed in the Company SEC Reports (as
defined in Section 4.5) filed prior to the date hereof, neither the Company, nor
any of its subsidiaries nor any of its joint ventures is in violation of, is
under investigation with respect to any violation of, or has been given notice
or been charged with any violation of, any law, statute, order, rule,
regulation, ordinance or judgment (including, without limitation, any applicable
Environmental Law, as defined in Section 4.11(f)(ii)) of any Governmental
Authority except for violations that, in the aggregate, do not have and would
not reasonably be expected to have a Company Material Adverse Effect. Except as
set forth in Section 4.4(d) of the Company Disclosure Schedule or in
Section 4.11 of the Company Disclosure Schedule, the Company and its
subsidiaries and joint ventures have all permits, licenses, franchises and other
governmental authorizations, consents and approvals necessary to conduct their
respective businesses as currently conducted in all respects, except those which
the failure to obtain would not reasonably be expected to have, in the
aggregate, a Company Material Adverse Effect. Except as set forth in
Section 4.4(d) of the Company Disclosure Schedule, the Company and each of its
subsidiaries are not in breach or violation of or in default in the performance
or observance of any term or provision of, and no event has occurred which, with
lapse of time or action by a third party, could result in a default under,
(i) its certificate of incorporation or by-laws or (ii) any material contract,
commitment, agreement, indenture, mortgage, loan agreement, note, lease, bond,
license, approval or other instrument to which it is a party or by which it is
bound or to which any of its property is subject, except for breaches,
violations or defaults that, in the aggregate, do not have and would not
reasonably be expected to have a Company Material Adverse Effect.

(e) NON-COMPETITION. Except as set forth in Section 4.4(e) of the Company
Disclosure Schedule, there is no "non-competition" or other similar contract,
commitment, agreement or understanding that materially restricts the ability of
the Company or any of its affiliates to conduct business in any geographic area
or that would reasonably be likely to materially restrict the Surviving
Corporation or any of its affiliates to conduct business in any geographic area.

Section 4.5 REPORTS AND FINANCIAL STATEMENTS. The filings required to be
made by the Company and its subsidiaries since January 1, 1998 under the
Securities Act of 1933, as amended (the "SECURITIES ACT"), the Securities
Exchange Act of 1934, as amended (the "EXCHANGE ACT"), the 1935 Act, the Federal
Power Act, as amended (the "POWER ACT"), the Atomic Energy Act of 1954, as
amended (the "ATOMIC ENERGY ACT") and applicable state public utility laws and
regulations have been filed with the Securities and Exchange Commission (the
"SEC"), the Federal Energy Regulatory Commission (the "FERC"), the Nuclear
Regulatory Commission (the "NRC") or the appropriate state public utilities
commission, as the case may be, including all forms, statements, reports,
agreements (oral or written) and all documents, exhibits, amendments and
supplements appertaining thereto, and complied, as of their respective dates, in
all material respects with all applicable requirements of the appropriate
statute and the rules and regulations thereunder. The Company has made available
to Parent a true and complete copy of each report, schedule, registration
statement and definitive proxy statement filed by the Company or its predecessor
with the SEC since January 1, 1998 (as such documents have since the time of
their filing been amended, the "COMPANY SEC REPORTS"). As of their respective
dates, the Company SEC Reports did not 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 light of the circumstances under
which they were made, not misleading. The audited consolidated financial
statements and unaudited interim financial statements of the Company included in
the Company SEC Reports (collectively, the "COMPANY FINANCIAL STATEMENTS") have
been prepared in accordance with generally accepted accounting principles
applied on a consistent basis ("GAAP") (except as may be indicated therein or in
the notes thereto and except with respect to unaudited statements as permitted
by Form 10-Q of the SEC) and fairly present the consolidated financial position
of the Company as of the dates thereof and the consolidated results of
operations and cash flows for the periods then ended.

A-10

True, accurate and complete copies of the certificate of incorporation and
by-laws of the Company, as in effect on the date hereof, have been made
available to Parent.

Section 4.6 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in
the Company SEC Reports filed prior to the date hereof or as set forth in
Section 4.6 of the Company Disclosure Schedule, since September 30, 2000, and
prior to the date hereof, the Company and each of its subsidiaries have
conducted their business only in the ordinary course of business consistent with
past practice, and there has not been, and no fact or condition exists which
would have, or would reasonably be expected to have, a Company Material Adverse
Effect.

Section 4.7 LITIGATION. Except as disclosed in the Company SEC Reports
filed prior to the date hereof or as set forth in Section 4.7, Section 4.9 or
Section 4.11 of the Company Disclosure Schedule, (a) there are no claims, suits,
actions or proceedings, pending or, to the knowledge of the Company, threatened,
nor are there any investigations or reviews pending or, to the knowledge of the
Company, threatened against, relating to or affecting the Company or any of its
subsidiaries, and (b) there are no judgments, decrees, injunctions, rules or
orders of any court, governmental department, commission, agency,
instrumentality or authority or any arbitrator applicable to the Company or any
of its subsidiaries, except for any of the foregoing under clauses (a) and
(b) as to which there is no significant likelihood of an adverse determination
on the merits and that individually or in the aggregate would not reasonably be
expected to have a Company Material Adverse Effect.

Section 4.8 REGISTRATION STATEMENT AND JOINT PROXY STATEMENT. None of the
information supplied or to be supplied by or on behalf of the Company for
inclusion or incorporation by reference in (a) the registration statement on
Form S-4 to be filed with the SEC in connection with the issuance of shares of
Parent Common Stock in the Merger (the "REGISTRATION STATEMENT") will, at the
time the Registration Statement becomes effective under the Securities Act,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading and (b) the joint proxy statement, in definitive form (the "JOINT
PROXY STATEMENT"), relating to the Company Shareholders' Meeting (as defined in
Section 7.4(a)) and Parent Shareholders' Meeting (as defined in Section 7.4(b))
shall not, at the dates mailed to Company shareholders and Parent shareholders
and at the time of the Company Shareholders' Meeting and Parent Shareholders'
Meeting, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made, not
misleading. The Registration Statement and the Joint Proxy Statement, insofar as
the information included therein is supplied by or on behalf of the Company or
any of its subsidiaries, shall comply as to form in all material respects with
the applicable provisions of the Securities Act and the Exchange Act and the
rules and regulations thereunder.

Section 4.9 TAX MATTERS. "Taxes," as used in this Agreement, means any
federal, state, county, local or foreign taxes, charges, fees, levies or other
assessments, including, without limitation, all net income, gross income, sales
and use, ad valorem, transfer, gains, profits, excise, franchise, real and
personal property, gross receipts, capital stock, production, business and
occupation, disability, employment, payroll, license, estimated, stamp, custom
duties, severance or withholding taxes or charges imposed by any governmental
entity, and includes any interest and penalties (civil or criminal) on or
additions to any such taxes. "TAX RETURN," as used in this Agreement, means a
report, return or other written information required to be supplied to a
governmental entity with respect to Taxes.

(a) Except as disclosed in Section 4.9 of the Company Disclosure
Schedule:

(i) FILING OF TIMELY TAX RETURNS. The Company and each of its
subsidiaries have duly filed (or there have been filed on its behalf)
within the time prescribed by law all material Tax Returns required to be
filed by each of them under applicable law. All such Tax Returns were and
are in all material respects true, complete and correct.

A-11

(ii) PAYMENT OF TAXES. The Company and each of its subsidiaries
have, within the time and in the manner prescribed by law, paid all
material Taxes that are currently due and payable except for those
contested in good faith and for which adequate reserves have been taken.

(iii) TAX RESERVES. All material Taxes payable by the Company and its
subsidiaries for all taxable periods and portions thereof through the
date of the most recent financial statements contained in the Company
Financial Statements filed prior to the date of this Agreement are
properly reflected in such financial statements in accordance with GAAP.

(iv) AUDIT, ADMINISTRATIVE AND COURT PROCEEDINGS. No material
claims, audits, disputes, controversies, examinations, investigations or
other proceedings are presently pending with regard to any Taxes or Tax
Returns of the Company or any of its subsidiaries.

(v) TAX SHARING AGREEMENTS. Neither the Company nor any of its
subsidiaries is a party to any agreement, understanding or arrangement
(with any person other than the Company and/or any of its subsidiaries)
relating to allocating or sharing of any material amount of Taxes.

(vi) LIABILITY FOR OTHERS. Neither the Company nor any of its
subsidiaries has any liability for any material Taxes of any person other
than the Company and its subsidiaries (i) under Treasury Regulation
Section 1.1502-6 (or any similar provision of state, local or foreign
law), (ii) as a transferee or successor or (iii) by contract.

(b) CODE SECTION 897. To the best knowledge of the Company after
due inquiry, no foreign person owns or has owned beneficially more than
five percent of the total fair market value of Company Common Stock
during the applicable period specified in Section 897(c)(1)(A)(ii) of the
Code.

(c) CODE SECTION 368(A). The Company has no knowledge of any fact,
nor has the Company taken any action that would, or would be reasonably
likely to, adversely affect the qualification of the Merger as a
reorganization described in Section 368(a) of the Code.

(d) CODE SECTION 355(E). Neither the Company nor any of its
subsidiaries has constituted a "distributing corporation" or a
"controlled corporation" in a distribution of stock intended to qualify
for tax-free treatment under Section 355 of the Code in the past
24 month period.

Section 4.10 EMPLOYEE MATTERS; ERISA. Except as set forth in the
appropriate subsection of Section 4.10 of the Company Disclosure Schedule:

(a) For purposes of this Section 4.10, the following terms have the
definitions set forth below:

(i) "CONTROLLED GROUP LIABILITY" means any and all liabilities
(a) under Title IV of ERISA (as defined below), or the group health plan
requirements of Section 701 ET SEQ. of the Code and Section 701 ET SEQ.
of ERISA, (b) as a result of a failure to comply with the minimum funding
requirements of Section 302 of ERISA or Section 412 of the Code,
(c) under Section 4971 of the Code, and (d) as a result of a failure to
comply with the continuation coverage requirements of Section 601 et seq.
of ERISA and Section 4980B of the Code, other than such liabilities that
arise solely out of, or relate solely to, the Employee Benefit Plans
listed in Section 4.10(b) of the Company Disclosure Schedule.

(ii) An "EMPLOYEE BENEFIT PLAN" means any employee benefit plan,
program, policy, practice, or other arrangement providing benefits to any
current or former employee, officer or director of the Company or any of
its subsidiaries or any beneficiary or dependent thereof that is
sponsored or maintained by the Company or any of its subsidiaries or to
which the Company or any of its subsidiaries contributes or is obligated
to contribute, whether or not written, including without limitation any
employee welfare benefit plan within the meaning of

A-12

Section 3(1) of ERISA, any employee pension benefit plan within the
meaning of Section 3(2) of ERISA (whether or not such plan is subject to
ERISA) and any material bonus, incentive, deferred compensation,
vacation, stock purchase, stock option, severance, employment, change of
control or fringe benefit plan, program or policy.

(iii) An "EMPLOYMENT AGREEMENT" means a contract, offer letter or
agreement of the Company or any of its subsidiaries with or addressed to
any individual who is rendering or has rendered services thereto as an
employee or consultant pursuant to which the Company or any of its
subsidiaries has any actual or contingent liability or obligation to
provide compensation and/or benefits in consideration for past, present
or future services; PROVIDED, HOWEVER, that the term "Employment
Agreement" shall not include any contract, offer letter or agreement
under which no more than (i) $100,000 will be paid in any calendar year
or (ii) $300,000 will be paid in the aggregate.

(iv) "ERISA" means the Employment Retirement Income Security Act of
1974, as amended, and the regulations promulgated thereunder.

(v) "ERISA AFFILIATE" means, with respect to any entity, trade or
business, any other entity, trade or business that is a member of a group
described in Section 414(b), (c), (m) or (o) of the Code or
Section 4001(b)(1) of ERISA that includes the first entity, trade or
business, or that is a member of the same "CONTROLLED GROUP" as the first
entity, trade or business pursuant to Section 4001(a)(14) of ERISA.

(vi) A "MULTIEMPLOYER PLAN" means any "multiemployer plan" within the
meaning of Section 4001(a)(3) of ERISA.

(vii) A "PLAN" means any Employee Benefit Plan other than a
Multiemployer Plan.

(viii) "WITHDRAWAL LIABILITY" means liability to a Multiemployer Plan
as a result of a complete or partial withdrawal from such Multiemployer
Plan, as those terms are defined in Part I of Subtitle E of Title IV of
ERISA.

(b) Section 4.10(b) of the Company Disclosure Schedule includes a
complete list of all material Employee Benefit Plans and all Employment
Agreements.

(c) With respect to each Plan, the Company has delivered or made
available to Parent a true, correct and complete copy of: (i) each writing
constituting a part of such Plan, including without limitation all material
plan documents, trust agreements, and insurance contracts and other funding
vehicles (or, in the case of any unwritten Plan, a description thereof);
(ii) the most recent Annual Report (Form 5500 Series) and accompanying
schedules, if any; (iii) the current summary plan description and any
material modifications thereto, if required to be furnished under ERISA;
(iv) the most recent annual financial report, if any; (v) the most recent
actuarial report, if any; and (vi) the most recent determination letter from
the Internal Revenue Service (the "IRS"), if any. The Company has delivered
or made available to Parent a true, correct and complete copy of each
Employment Agreement. Except as specifically provided in the foregoing
documents delivered to Parent, there are no amendments to any Plan or
Employment Agreement that have been adopted or approved nor has the Company
or any of its subsidiaries undertaken to make any such amendments or to
adopt or approve any new Plan.

(d) Section 4.10(b) of the Company Disclosure Schedule identifies each
Plan that is intended to be a "qualified plan" within the meaning of
Section 401(a) of the Code ("QUALIFIED PLANS"). The IRS has issued a
favorable determination letter with respect to each Qualified Plan and the
related trust that has not been revoked, and except as would not have a
Company Material Adverse Effect, there are no existing circumstances nor any
events that have occurred that could adversely affect the qualified status
of any Qualified Plan or the related trust. No Plan or related trust is
intended to meet the requirements of Code Section 501(c)(9) (a "VEBA").

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(e) All material contributions required to be made to any Plan by
applicable law or regulation or by any Plan document or other contractual
undertaking, and all material premiums due or payable with respect to
insurance policies funding any Plan, for any period through the date hereof
have been timely made or paid in full or, to the extent not required to be
made or paid on or before the date hereof, have been fully reflected on the
Company Financial Statements. Each Plan that is an employee welfare benefit
plan under Section 3(1) of ERISA (i) is funded through an insurance company
contract or a contract with a health maintenance organization, (ii) is, or
is funded through, a VEBA identified as such in Section 4.10(b) of the
Company Disclosure Schedule, or (iii) is unfunded.

(f) With respect to each Employee Benefit Plan, except as would not have
a Company Material Adverse Effect, the Company and its subsidiaries have
complied, and are now in compliance, with all provisions of ERISA, the Code
and all laws and regulations applicable to such Employee Benefit Plans and
each Plan has been administered in all material respects in accordance with
its terms. No provision of any material Plan limits the Company's authority
to amend, modify, suspend, revoke or terminate that Plan, other than to
state a limitation required by ERISA or the Code, and there have been no
oral or written communications to participants or beneficiaries stating a
limitation other than a limitation required by ERISA or the Code. There is
not now, nor do any circumstances exist that could reasonably be expected to
give rise to, any requirement for the posting of security with respect to a
Plan or the imposition of any lien on the assets of the Company or any of
its subsidiaries under ERISA or the Code. Except as would not have a Company
Material Adverse Effect, no non-exempt prohibited transaction (as defined in
Section 406 of ERISA or Section 4975 of the Code) has occurred with respect
to any Plan.

(g) With respect to each Plan that is subject to Title IV of ERISA, the
minimum funding requirements of Section 302 of ERISA or Section 412 of the
Code, or Section 4971 of the Code: (i) there does not exist any accumulated
funding deficiency within the meaning of Section 412 of the Code or
Section 302 of ERISA, whether or not waived, in respect of any plan year
ended prior to the date hereof and for which the time for making
contributions in order to avoid occurring an accumulated funding deficiency
for such year has expired; (ii) the fair market value of the assets of each
such Plan that is a defined benefit plan equals or exceeds the actuarial
present value of the accumulated benefit obligation under such Plan (whether
or not vested), based upon the actuarial assumptions set forth in the most
recent actuarial report for such Plan; (iii) no reportable event within the
meaning of Section 4043(c) of ERISA for which the 30-day notice requirement
has not been waived has occurred since December 31, 1995 in respect of any
such Plan which is a defined benefit Plan; (iv) all material premiums to the
Pension Benefit Guaranty Corporation ("PBGC") have been timely paid in full;
(v) no material liability (other than for premiums to the PBGC and for the
payment of benefits and contributions in the ordinary course) under Title IV
of ERISA has been or could reasonably be expected to be incurred by the
Company or any of its subsidiaries; and (vi) to the knowledge of the
Company, the PBGC has not instituted proceedings to terminate any such Plan
and no condition exists that presents a material risk that such proceedings
will be instituted or which would constitute grounds under Section 4042 of
ERISA for the termination of, or the appointment of a trustee to administer,
any such Plan.

(h) No Employee Benefit Plan is a Multiemployer Plan or a plan that has
two or more contributing sponsors at least two of which are not under common
control, within the meaning of Section 4063 of ERISA (a "MULTIPLE EMPLOYER
PLAN"). None of the Company and its subsidiaries nor any of their respective
ERISA Affiliates has, at any time during the last six years, contributed to
or been obligated to contribute to any Multiemployer Plan or Multiple
Employer Plan. None of the Company and its subsidiaries nor any ERISA
Affiliates has incurred any Withdrawal Liability that has not been satisfied
in full.

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(i) There does not now exist, nor do any circumstances exist that could
reasonably be expected to result in, any Controlled Group Liability that
could have a Company Material Adverse Effect. Without limiting the
generality of the foregoing, neither the Company nor any of its
subsidiaries, nor any of their respective ERISA Affiliates, has engaged in
any transaction described in Section 4069 or Section 4204 or 4212 of ERISA
since December 31, 1995.

(j) Except for health continuation coverage as required by
Section 4980B of the Code or Part 6 of Title I of ERISA or applicable state
law, the Company and its subsidiaries have no material liability for life,
health, medical or other welfare benefits to former employees or
beneficiaries or dependents of former employees.

(k) Neither the execution and delivery of this Agreement nor the
consummation of any of the transactions contemplated hereby will (either
alone or in conjunction with any other event) result in, cause the
accelerated funding, vesting or delivery of, or increase the amount or value
of, any material payment or benefit to any employee, officer or director of
the Company or any of its subsidiaries. Section 4.10(k) of the Company
Disclosure Schedule sets forth a reasonable estimate of (i) the maximum
amount of each category of "parachute payments" within the meaning of
Section 280G of the Code that could become payable by the Company and its
subsidiaries (including without limitation severance, parachute payments
resulting from the vesting of options, and enhanced retirement benefits) and
(ii) the amounts required to be contributed by the Company and its
subsidiaries to any grantor trusts or other funding arrangements for any
Employee Benefit Plans and Employment Agreements, in each case in connection
with the execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby. Section 4.10(k) of the Company
Disclosure Schedule also sets forth the aggregate amount of the dividend
equivalents payable as of the date hereof to holders of Company Options (as
defined in Section 7.11(a)).

(l) The Company does not have any labor contracts or collective
bargaining agreements with any persons employed by the Company or any
persons otherwise performing services primarily for the Company. No labor
organization or group of employees of the Company or any of its subsidiaries
has made a pending demand for recognition or certification, and there are no
representation or certification proceedings or petitions seeking a
representation proceeding presently pending or, to the knowledge of the
Company, threatened to be brought or filed, with the National Labor
Relations Board or any other labor relations tribunal or authority.
Section 4.10(l) of the Company Disclosure Schedule identifies every demand
for recognition or petition to the National Labor Relations Board for
certification as collective bargaining representative of a unit of the
Company's employees within the last five years. There are no organizing
activities, strikes, work stoppages, slowdowns, lockouts, material
arbitrations or material grievances, or other material labor disputes
pending or, to the knowledge of the Company, threatened against or involving
the Company or any of its subsidiaries. Each of the Company and its
subsidiaries is in compliance with all applicable laws respecting employment
and employment practices, terms and conditions of employment, wages and
hours and occupational safety and health, except as would not have a Company
Material Adverse Effect.

(m) There are no pending or, to the knowledge of the Company, threatened
claims (other than claims for benefits in the ordinary course), lawsuits or
arbitrations which have been asserted or instituted, and, to the knowledge
of the Company, no condition or event has occurred which may reasonably be
expected to give rise to a claim or lawsuit, against the Plans, any
fiduciaries thereof with respect to their duties to the Plans or the assets
of any of the trusts under any of the Plans which could reasonably be
expected to result in any material liability of the Company or any of its
subsidiaries to the Pension Benefit Guaranty Corporation, the Department of
Treasury, the Department of Labor, any Multiemployer Plan, any Plan, any
participant in a Plan or any other party.

A-15

(n) The Company, its subsidiaries and each member of their respective
business enterprise has complied with the Worker Adjustment and Retraining
Notification Act.

(o) There are no awards outstanding under the Company's Long Term
Incentive Plan. With respect to each severance agreement substantially in
the form of the severance agreements listed in Section 4.10(b) of the
Company Disclosure Schedule (each, a "SEVERANCE AGREEMENT"), the provisions
of the form of letter agreement set forth in Section 7.11(e) of the Company
Disclosure Schedule represent the correct interpretation of such Severance
Agreement as in effect on the date hereof.

Section 4.11 ENVIRONMENTAL PROTECTION. Except as set forth in
Section 4.11 of the Company Disclosure Schedule or in the Company SEC Reports
filed prior to the date hereof:

(a) COMPLIANCE. Except where the failure to be in such compliance
would not reasonably be expected to have, in the aggregate, a Company
Material Adverse Effect, (i) the Company and each of its subsidiaries are,
and within applicable statutes of limitation have been, in compliance with
all applicable Environmental Laws (as defined in Section 4.11(f)(ii)) and
(ii) neither the Company nor any of its subsidiaries has received any
written communication from any Governmental Authority or any written
communication from any other person, in each case, which remains unresolved,
that alleges that the Company or any of its subsidiaries is not in
compliance with applicable Environmental Laws.

(b) ENVIRONMENTAL PERMITS. The Company and each of its subsidiaries
has obtained all permits, licenses, approvals, consents and governmental
authorizations (collectively, the "ENVIRONMENTAL PERMITS") required by
Environmental Law for the construction of its facilities or the conduct of
its operations, and all such Environmental Permits are in good standing or,
where required by Environmental Law, a renewal application has been timely
filed and is pending agency approval, and the Company reasonably believes
that any transfer, renewal or reapplication for any Environmental Permit
required as a result of the Merger can be accomplished in the ordinary
course of business, except as would not reasonably be expected to have, in
the aggregate, a Company Material Adverse Effect.

(c) ENVIRONMENTAL CLAIMS. There are no Environmental Claims (as
defined in Section 4.11(f)(i)) pending or, to the knowledge of the Company,
threatened (i) against the Company or any of its subsidiaries, or
(ii) against any real or personal property or operations that the Company or
any of its subsidiaries currently owns, leases or operates or, to the
Company's knowledge, against any real or personal property or operations
that the Company or any predecessor in interest owned, leased or operated,
or (iii) to the knowledge of the Company, against any person or entity whose
liability for any Environmental Claim the Company or any of its subsidiaries
has or may have retained or assumed either contractually or by operation of
law, in whole or in part that, if adversely determined, would reasonably be
expected to have, in the aggregate, a Company Material Adverse Effect.

(d) RELEASES. Except for Releases of Hazardous Materials the liability
for which would not reasonably be expected to have, in the aggregate, a
Company Material Adverse Effect, there have been no Releases (as defined in
Section 4.11(f)(iv)) by the Company or any of its subsidiaries or, to the
Company's knowledge, by any other party of any Hazardous Materials (as
defined in Section 4.11(f)(iii)) that would be reasonably likely to
(i) form the basis of any Environmental Claim against the Company or any of
its subsidiaries, or (ii) to the knowledge of the Company, cause damage or
diminution of value to any of the operations or real properties currently
owned, leased or operated, in whole or in part, by Company or any of its
subsidiaries.

(e) CERCLA. No property currently, or to the knowledge of the Company,
formerly owned, operated or leased by the Company or by any predecessor in
interest, is listed on the

A-16

National Priorities List promulgated under the Comprehensive Environmental
Response, Compensation, and Liability Act, as amended ("CERCLA"), or on any
comparable state list established under Environmental Law as of the
Effective Time. Except as would not reasonably be expected to have, in the
aggregate, a Company Material Adverse Effect, no property currently, or to
the knowledge of the Company formerly owned, operated or leased by the
Company or any predecessor in interest, is listed on the Comprehensive
Environmental Response, Compensation and Liability Information System
promulgated under CERCLA or on any comparable state list established under
Environmental Law as of the Effective Time.

(f) DEFINITIONS. As used in this Agreement:

(i) "ENVIRONMENTAL CLAIM" means any and all administrative,
regulatory or judicial actions, suits, demands, demand letters, requests
for information (under CERCLA or any comparable state law), directives,
claims, liens, investigations, proceedings or notices of noncompliance or
violation by any person or entity (including any Governmental Authority),
in each case, in writing, alleging potential liability (including,
without limitation, potential responsibility for or liability for
enforcement costs, investigatory costs, cleanup costs, governmental
response costs, removal costs, remedial costs, natural-resources damages,
property damages, personal injuries, fines or penalties) arising out of,
based on or resulting from (A) the presence, or Release or threatened
Release into the environment, of any Hazardous Materials at any location,
whether or not owned, operated, leased or managed by the Company, Parent
or any of their respective subsidiaries or joint ventures; or
(B) circumstances forming the basis of any violation, or alleged
violation, of any Environmental Law; or (C) any and all claims by any
third party seeking damages, contribution, indemnification, cost
recovery, compensation or injunctive relief resulting from the presence
or Release of any, or exposure to, Hazardous Materials.

(ii) "ENVIRONMENTAL LAWS" means all applicable federal, state, local,
foreign or international laws, rules, ordinances, treaties, regulations,
orders, judgments, legally binding directives, decrees or common law, in
each case in existence prior to or as of the Effective Time, relating to
pollution, the environment (including, without limitation, ambient air,
surface water, groundwater, land surface or subsurface strata) or
protection of human health as it relates to the environment and natural
resources including, without limitation, laws and regulations relating to
Releases or threatened Releases of Hazardous Materials, noise or
otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of Hazardous
Materials.

(iii) "HAZARDOUS MATERIALS" means (A) any petroleum or petroleum
products, radioactive materials, asbestos, urea formaldehyde foam
insulation, coal tar residue, and polychlorinated biphenyls ("PCBS") and
(B) any chemicals, materials or substances which are now defined as,
included in the definition of, or regulated as "hazardous substances",
"hazardous wastes," "hazardous materials," "extremely hazardous wastes,"
"restricted hazardous wastes," "toxic substances," "toxic pollutants,"
"hazardous constituents," "regulated substances," or words of similar
import, under any Environmental Law; and (C) any other chemical,
material, substance or waste, exposure to which is now prohibited,
limited or regulated under any Environmental Law.

(iv) "RELEASE" means any actual or threatened release, spill,
emission, leaking, injection, deposit, disposal, discharge, dispersal or
leaching into the atmosphere, soil, surface water, groundwater or
property.

(g) RECORDS AND FILES. The Company has made available to Parent and
its authorized representatives all material records and files, including but
not limited to, all assessments, reports, studies, analyses, audits, tests
and data available to the Company, in each case, within the

A-17

Company's actual possession or control, concerning the material existence of
Hazardous Materials or any other material environmental concern at
properties, assets or facilities currently or formerly owned, operated or
leased by the Company, or concerning material compliance by the Company
with, or material liability under, any Environmental Laws, in each case
which is pending or remains unresolved.

Section 4.12 REGULATION AS A UTILITY. The Company is an exempt holding
company under the 1935 Act. Except as set forth in Section 4.12 of the Company
Disclosure Schedule, neither the Company nor any "associate company,"
"subsidiary company" or "affiliate" (as such terms are defined in the 1935 Act)
of the Company is subject to regulation as (a) a "holding company," a
"public-utility company," a "subsidiary company" or an "affiliate" of a "holding
company," within the meaning of Sections 2(a)(7), 2(a)(5), 2(a)(8) and 2(a)(11),
respectively, of the 1935 Act, (b) a "public utility" under the Power Act,
(c) a "natural-gas company" under the Natural Gas Act or (d) a public utility or
public service company (or similar designation) by any state in the United
States other than New York or by any foreign country.

Section 4.13 VOTE REQUIRED. The approval of the Merger by a majority of
the votes of all outstanding shares of Company Common Stock entitled to vote
(the "COMPANY SHAREHOLDERS' APPROVAL") is the only vote of the holders of any
class or series of the capital stock of the Company or any of its subsidiaries
required to approve this Agreement, the Merger and the other transactions
contemplated hereby.

Section 4.14 OPINION OF FINANCIAL ADVISOR. The Company has received the
opinion of Morgan Stanley Dean Witter & Co., to the effect that, as of
February 16, 2001, the Merger Consideration is fair from a financial point of
view to the holders of Company Common Stock.

Section 4.15 OWNERSHIP OF PARENT COMMON STOCK. Except as set forth in
Section 4.15 of the Company Disclosure Schedule, the Company does not
"beneficially own" (as such term is defined for purposes of Section 13(d) of the
Exchange Act) any shares of Parent Common Stock or Parent Preferred Stock (as
defined in Section 5.3).

Section 4.16 TAKEOVER LAWS. The Company has taken all action required to
be taken by it in order to exempt this Agreement and the transactions
contemplated hereby from, and this Agreement and the transactions contemplated
hereby are exempt from, the requirements of any "moratorium," "control share,"
"fair price" or other anti-takeover laws and regulations (collectively,
"TAKEOVER LAWS") of the State of New York, including Section 912 of the NYBCL.

Section 4.17 OPERATIONS OF NUCLEAR POWER PLANT. The operation of the
nuclear generation plant (the "NUCLEAR FACILITY") wholly owned by the Company is
being conducted in substantial compliance with current laws and regulations
governing nuclear plant operations, except for such failures to comply as would
not reasonably be expected to have, individually or in the aggregate, a Company
Material Adverse Effect. Except as would not reasonably be expected to have a
Company Material Adverse Effect, (a) the Nuclear Facility maintains and is in
substantial compliance with emergency evacuation plans as required by the laws
and regulations governing nuclear plant operations and (b) as of the date of
this Agreement, the storage of spent nuclear fuel and the plans for the
decommissioning of the Nuclear Facility substantially conform with the
requirements of applicable law.

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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT

Parent represents and warrants to the Company as follows:

Section 5.1 ORGANIZATION AND QUALIFICATION. Except as set forth in
Section 5.1 of the Parent Disclosure Schedule (as defined in Section 7.6),
Parent and each of its subsidiaries is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation or organization, has all requisite corporate power and authority,
and has been duly authorized by all necessary approvals and orders, to own,
lease and operate its assets and properties to the extent owned, leased and
operated and to carry on its business as it is now being conducted and is duly
qualified and in good standing to do business in each jurisdiction in which the
nature of its business or the ownership or leasing of its assets and properties
makes such qualification necessary, other than in such jurisdictions where the
failure to be so qualified and in good standing would not, when taken together
with all other such failures, reasonably be expected to have a material adverse
effect on the business, properties, financial condition or results of operations
of Parent and its subsidiaries taken as a whole or on the consummation of this
Agreement (any such material adverse effect being hereafter referred to as a
"PARENT MATERIAL ADVERSE EFFECT").

Section 5.2 SUBSIDIARIES. Section 5.2 of the Parent Disclosure Schedule
sets forth a description, as of the date hereof, of each material "subsidiary
company," as such term is defined in the 1935 Act, and joint venture of Parent,
including the name of each such entity, the state or jurisdiction of its
incorporation or organization, Parent's interest therein and a brief description
of the principal line or lines of business conducted by each such entity. Except
as set forth in Section 5.2 of the Parent Disclosure Schedule, all of the issued
and outstanding shares of capital stock owned by Parent of each Parent
subsidiary are validly issued, fully paid, nonassessable and free of preemptive
rights, and are owned directly or indirectly by Parent free and clear of any
liens, claims, encumbrances, security interests, equities, charges and options
of any nature whatsoever, and there are no outstanding subscriptions, options,
calls, contracts, voting trusts, proxies or other commitments, understandings,
restrictions, arrangements, rights or warrants, including any right of
conversion or exchange under any outstanding security, instrument or other
agreement, obligating any such subsidiary to issue, deliver or sell, or cause to
be issued, delivered or sold, additional shares of its capital stock or
obligating it to grant, extend or enter into any such agreement or commitment,
except for any of the foregoing that would not reasonably be expected to have a
Parent Material Adverse Effect.

Section 5.3 CAPITALIZATION. (a) Except as set forth in Section 5.3 of the
Parent Disclosure Schedule, the authorized capital stock of Parent consists of
300,000,000 shares of Parent Common Stock and 10,000,000 shares of preferred
stock, par value $.01 per share, of Parent ("PARENT PREFERRED STOCK"). As of the
close of business on February 15, 2001, there were issued and outstanding
117,474,498 shares of Parent Common Stock and no shares of Parent Preferred
Stock. All of the issued and outstanding shares of the capital stock of Parent
are, and will be, validly issued, fully paid, nonassessable and free of
preemptive rights. Except as set forth in Section 5.3 of the Parent Disclosure
Schedule, as of the date hereof, there are no outstanding subscriptions,
options, calls, contracts, voting trusts, proxies or other commitments,
understandings, restrictions, arrangements, rights or warrants, including any
right of conversion or exchange under any outstanding security, instrument or
other agreement, obligating Parent or any of the subsidiaries of Parent to
issue, deliver or sell, or cause to be issued, delivered or sold, additional
shares of the capital stock of Parent, or obligating Parent to grant, extend or
enter into any such agreement or commitment.

(b) The authorized capital stock of Merger Sub consists of 1,000 shares of
Merger Sub Common Stock. As of the date hereof, there were issued and
outstanding no shares of Merger Sub Common Stock. It is anticipated that as of
the Effective Time, Merger Sub shall have issued and outstanding 1,000 shares of
Merger Sub Common Stock, all of which shall be owned by Parent.

A-19

Section 5.4 AUTHORITY; NON-CONTRAVENTION; STATUTORY APPROVALS; COMPLIANCE.

(a) AUTHORITY. Parent has all requisite corporate power and authority to
enter into this Agreement and, subject to obtaining Parent Shareholders'
Approval (as defined in Section 5.11) and Parent Required Statutory Approvals
(as defined in Section 5.4(c)), to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation by
Parent of the transactions contemplated hereby have been duly authorized by all
necessary corporate action on the part of Parent, other than Parent
Shareholders' Approval. This Agreement has been duly and validly executed and
delivered by Parent and, assuming the due authorization, execution and delivery
by the other signatories hereto, constitutes a valid and binding obligation of
Parent enforceable against it in accordance with its terms.

(b) NON-CONTRAVENTION. Except as set forth in Section 5.4(b) of the Parent
Disclosure Schedule, the execution and delivery of this Agreement by Parent do
not, and the consummation of the transactions contemplated hereby will not,
result in a Violation pursuant to any provisions of (i) the certificate of
incorporation, by-laws or similar governing documents of Parent, any of its
subsidiaries or any of its joint ventures, (ii) subject to obtaining Parent
Required Statutory Approvals and the receipt of Parent Shareholders' Approval,
any statute, law, ordinance, rule, regulation, judgment, decree, order,
injunction, writ, permit or license of any Governmental Authority applicable to
Parent or any of its subsidiaries or any of its joint ventures, or any of their
respective properties or assets or (iii) subject to obtaining the third-party
consents or other approvals set forth in Section 5.4(b) of the Parent Disclosure
Schedule (the "PARENT REQUIRED CONSENTS"), any note, bond, mortgage, indenture,
deed of trust, license, franchise, permit, concession, contract, lease or other
instrument, obligation or agreement of any kind to which Parent or any of its
subsidiaries or any of its joint ventures is a party or by which it or any of
its properties or assets may be bound or affected, excluding from the foregoing
clauses (i), (ii) and (iii) such Violations as would not reasonably be expected
to have, in the aggregate, a Parent Material Adverse Effect and would not
prevent the consummation of the Merger.

(c) STATUTORY APPROVALS. Except as described in Section 5.4(c) of the
Parent Disclosure Schedule, no declaration, filing or registration with, or
notice to or authorization, consent or approval of, any Governmental Authority
is necessary for the execution and delivery of this Agreement by Parent or the
consummation by Parent of the transactions contemplated hereby, the failure to
obtain, make or give which would reasonably be expected to have, in the
aggregate, a Parent Material Adverse Effect or would prevent the consummation of
the Merger (the "PARENT REQUIRED STATUTORY APPROVALS"), it being understood that
references in this Agreement to "obtaining" such Parent Required Statutory
Approvals shall mean making such declarations, filings or registrations; giving
such notices; obtaining such authorizations, consents or approvals; and having
such waiting periods expire as are necessary to avoid a violation of law.

(d) COMPLIANCE. Except as set forth in Section 5.4(d) or Section 5.9 of
the Parent Disclosure Schedule, or as disclosed in the Parent SEC Reports (as
defined in Section 5.5) filed prior to the date hereof, or in any reports filed
under the Exchange Act by any Parent subsidiary since January 1, 1998 (the
"SUBSIDIARY REPORTS"), neither Parent nor any of its subsidiaries nor any of its
joint ventures is in violation of, is under investigation with respect to any
violation of, or has been given notice or been charged with any violation of,
any law, statute, order, rule, regulation, ordinance or judgment (including,
without limitation, any applicable Environmental Law) of any Governmental
Authority, except for violations that, in the aggregate, do not have and would
not reasonably be expected to have, a Parent Material Adverse Effect. Except as
set forth in Section 5.4(d) of the Parent Disclosure Schedule or in Section 5.9
of the Parent Disclosure Schedule, Parent and its subsidiaries and joint
ventures have all permits, licenses, franchises and other governmental
authorizations, consents and approvals necessary to conduct their respective
businesses as currently conducted in all respects, except those which the
failure to obtain would not reasonably be expected to have, in the aggregate, a
Parent Material Adverse Effect. Except as set forth in Section 5.4(d) of the
Parent Disclosure Schedule, Parent and each of its subsidiaries are not in
breach or violation of or in default in the performance or

A-20

observance of any term or provision of, and no event has occurred which, with
lapse of time or action by a third party, could result in a default under,
(i) its certificate of incorporation or by-laws or (ii) any material contract,
commitment, agreement, indenture, mortgage, loan agreement, note, lease, bond,
license, approval or other instrument to which it is a party or by which it is
bound or to which any of its property is subject, except for breaches,
violations or defaults that, in the aggregate, do not have and would not
reasonably be expected to have a Parent Material Adverse Effect.

Section 5.5 REPORTS AND FINANCIAL STATEMENTS. The filings required to be
made by Parent and its subsidiaries since January 1, 1998 under the Securities
Act, the Exchange Act, the 1935 Act, the Power Act and applicable state public
utility laws and regulations have been filed with the SEC, the FERC or the
appropriate state public utilities commission, as the case may be, including all
forms, statements, reports, agreements and all documents, exhibits, amendments
and supplements appertaining thereto, and complied, as of their respective
dates, in all material respects with all applicable requirements of the
appropriate statute and the rules and regulations thereunder. Parent has made
available to the Company a true and complete copy of each report, schedule,
registration statement and definitive proxy statement filed by Parent or its
predecessor with the SEC since January 1, 1998 (as such documents have since the
time of their filing been amended, the "PARENT SEC REPORTS"). As of their
respective dates, the Parent SEC Reports did not 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 light of the circumstances under
which they were made, not misleading. The audited consolidated financial
statements and unaudited interim financial statements of Parent included in the
Parent SEC Reports (collectively, the "PARENT FINANCIAL STATEMENTS") have been
prepared in accordance with GAAP (except as may be indicated therein or in the
notes thereto and except with respect to unaudited statements as permitted by
Form 10-Q of the SEC) and fairly present the consolidated financial position of
Parent as of the dates thereof and the consolidated results of its operations
and cash flows for the periods then ended. True, accurate and complete copies of
the certificate of incorporation and by-laws of Parent as in effect on the date
hereof, have been made available to the Company.

Section 5.6 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in
the Parent SEC Reports or Subsidiary Reports filed prior to the date hereof or
as set forth in Section 5.6 of the Parent Disclosure Schedule, since
September 30, 2000 and prior to the date hereof, Parent and each of its
subsidiaries have as of the date hereof conducted their businesses only in the
ordinary course of business consistent with past practice, and there has not
been, and no fact or condition exists which has had or would reasonably be
expected to have, a Parent Material Adverse Effect.

Section 5.7 LITIGATION. Except as disclosed in the Parent SEC Reports or
Subsidiary Reports filed prior to the date hereof or as set forth in
Section 5.7 or Section 5.9 of the Parent Disclosure Schedule, (a) there are no
claims, suits, actions or proceedings, pending or, to the knowledge of Parent,
threatened, nor are there any investigations or reviews pending or, to the
knowledge of Parent, threatened against, relating to or affecting Parent or any
of its subsidiaries, and (b) there are no judgments, decrees, injunctions, rules
or orders of any court, governmental department, commission, agency,
instrumentality or authority or any arbitrator applicable to Parent or any of
its subsidiaries, except for any of the foregoing under clauses (a) and (b) as
to which there is no significant likelihood of an adverse determination on the
merits and that individually or in the aggregate would not reasonably be
expected to have a Parent Material Adverse Effect.

Section 5.8 REGISTRATION STATEMENT AND JOINT PROXY STATEMENT. None of the
information supplied or to be supplied by or on behalf of Parent for inclusion
or incorporation by reference in (a) the Registration Statement will, at the
time the Registration Statement becomes effective under the Securities Act,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading and (b) the Joint Proxy Statement shall not, at the dates mailed
to the Company shareholders and Parent shareholders and at the time of the
Company Shareholders' Meeting and Parent Shareholders' Meeting, contain any
untrue statement of a material fact or omit to state any material fact required
to

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be stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they are made, not misleading. The Registration
Statement and the Joint Proxy Statement, insofar as the information included
therein is supplied by or on behalf of Parent or any of its subsidiaries, shall
comply as to form in all material respects with the applicable provisions of the
Securities Act and the Exchange Act and the rules and regulations thereunder.

Section 5.9 ENVIRONMENTAL PROTECTION. Except as would not reasonably be
expected to have, in the aggregate, a Parent Material Adverse Effect, and except
for matters disclosed in Section 5.9 of the Parent Disclosure Schedule or in the
Parent SEC Reports or Subsidiary Reports, (i) Parent and its subsidiaries are in
compliance with all applicable Environmental Laws and the terms and conditions
of all applicable Environmental Permits, and neither Parent nor any of its
subsidiaries has received any written notice from any person or Governmental
Authority, in each case, which remains unresolved, that alleges that Parent or
any of its subsidiaries is not in material compliance with applicable
Environmental Laws or the terms and conditions of all such Environmental
Permits, (ii) there are no Environmental Claims pending or, to the knowledge of
Parent, threatened (A) against Parent or any of its subsidiaries, (B) to the
knowledge of Parent, against any person or entity whose liability for any
Environmental Claim Parent or any of its subsidiaries has or may have retained
or assumed either contractually or by operation of law or (C) against any real
or personal property or operations that Parent or any of its subsidiaries
currently owns, leases or operates, in whole or in part, and (iii) there have
been no Releases of Hazardous Materials by Parent or any of its subsidiaries or,
to Parent's knowledge, by any other person that would be reasonably likely to
(A) form the basis of any Environmental Claim against Parent or any of its
subsidiaries or against any person or entity whose liability for any
Environmental Claim Parent or any of its subsidiaries has or may have retained
or assumed either contractually or by operation of law or (B) to the knowledge
of Parent, cause damage or diminution of value to any of the operations or real
properties currently owned, leased or operated, in whole or in part, by Parent
or any of its subsidiaries.

Section 5.10 REGULATION AS A UTILITY. Parent is a public utility holding
company registered under, and subject to the provisions of, the 1935 Act.
Section 5.10 of the Parent Disclosure Schedule lists the subsidiaries of Parent
that are "public utility companies" within the meaning of Section 2(a)(5) of the
1935 Act and lists the state and federal regulatory commissions that have
jurisdiction over the rates for the sale, transmission or distribution of
electricity or the sale, transportation or distribution of natural gas by each
such subsidiary. Except as set forth above and as set forth in Section 5.10 of
the Parent Disclosure Schedule, neither Parent nor any "subsidiary company" or
"affiliate" (as such terms are defined in the 1935 Act) of Parent is subject to
regulation as (a) a "public utility" under the Power Act, (b) a "natural-gas
company" under the Natural Gas Act or (c) a public utility or public service
company (or similar designation) by any state in the United States other than
New York or by any foreign country.

Section 5.11 VOTE REQUIRED. The approval of the issuance of Parent Common
Stock issuable in connection with the Merger by a majority of votes cast by
holders of Parent Common Stock, where the total vote cast represents over 50% in
interest of all securities entitled to vote (the "PARENT SHAREHOLDERS'
APPROVAL"), is the only vote of the holders of any class or series of the
capital stock of Parent or any of its subsidiaries required to approve this
Agreement, the Merger and the other transactions contemplated hereby.

Section 5.12 OWNERSHIP OF THE COMPANY COMMON STOCK. Except as set forth in
Section 5.12 of the Parent Disclosure Schedule, Parent does not "beneficially
own" (as such term is defined for purposes of Section 13(d) of the Exchange Act)
any shares of Company Common Stock.

Section 5.13 CODE SECTION 368(A). Parent has no knowledge of any fact, nor
has Parent taken any action that would, or would be reasonably likely to,
adversely affect the qualification of the Merger as a reorganization described
in Section 368(a) of the Code.

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ARTICLE VI
CONDUCT OF BUSINESS PENDING THE MERGER

Section 6.1 COVENANTS OF THE PARTIES. After the date hereof and prior to
the Effective Time or earlier termination of this Agreement, Parent and the
Company each agree as follows, each as to itself and to each of its
subsidiaries, except as expressly contemplated or permitted in this Agreement,
or to the extent the other parties hereto shall otherwise consent in writing:

(a) ORDINARY COURSE OF BUSINESS. The Company shall, and shall cause
its subsidiaries to, carry on their respective businesses in the usual,
regular and ordinary course in substantially the same manner as heretofore
conducted and use all commercially reasonable efforts to (i) preserve intact
their present business organizations and goodwill, preserve the goodwill and
relationships with customers, suppliers and others having business dealings
with them, (ii) subject to prudent management of workforce needs and ongoing
programs currently in force, keep available the services of their present
officers and employees as a group, and (iii) maintain and keep material
properties and assets in as good repair and condition as at present, subject
to ordinary wear and tear, and maintain supplies and inventories in
quantities consistent with past practice.

(b) DIVIDENDS.

(i) Neither party shall, nor shall any party permit any of its
subsidiaries to declare or pay any dividends on or make other
distributions in respect of any capital stock other than (A) dividends by
a wholly owned subsidiary to such party or another wholly owned
subsidiary, (B) dividends by a less than wholly owned subsidiary
consistent with past practice, (C) regular dividends on such party's
common stock with usual record and payment dates that do not materially
exceed the current regular dividends on such common stock or (D) in the
case of Parent, increases in regular quarterly dividends consistent with
past practice. Prior to the Closing Date, each of the parties agrees to
coordinate dividend policies so as not to adversely affect either party's
shareholders because of the timing of record, declaration or payment
dates.

(ii) The Company shall not, nor shall it permit any of its
subsidiaries to: (A) split, combine or reclassify any capital stock or
the capital stock of any subsidiary or issue or authorize or propose the
issuance of any other securities in respect of, in lieu of, or in
substitution for, shares of capital stock or the capital stock of any
subsidiary or (B) redeem, repurchase or otherwise acquire any shares of
capital stock or the capital stock of any subsidiary.

(c) ISSUANCE OF SECURITIES. Except as set forth in Section 6.1(c) of
the Company Disclosure Schedule, the Company shall not, nor shall it permit
any of its subsidiaries to, issue, agree to issue, deliver, sell, award,
pledge, dispose of or otherwise encumber or authorize or propose the
issuance, delivery, sale, award, pledge, disposal or other encumbrance of,
any shares of their capital stock of any class or any securities convertible
into or exchangeable for, or any rights, warrants or options to acquire, any
such shares or convertible or exchangeable securities, other than pursuant
to currently outstanding stock options granted under Employee Benefit Plans.

(d) CHARTER DOCUMENTS; OTHER ACTIONS. Neither party shall, nor shall
any party permit any of its subsidiaries to, amend or propose to amend its
respective certificate of incorporation, by-laws or regulations, or similar
organizational documents or to take or fail to take any other action, which
in any such case would reasonably be expected to prevent, impede or
interfere with the Merger.

(e) ACQUISITIONS. Except as disclosed in Section 6.1(e) of the Company
Disclosure Schedule, the Company shall not, nor shall it permit any of its
subsidiaries to, acquire or agree to acquire, by merging or consolidating
with, or by purchasing a substantial equity interest in or a substantial

A-23

portion of the assets of, or by any other manner, any business or any
corporation, partnership, association or business organization or division
thereof, or otherwise acquire or agree to acquire (other than in the
ordinary course of business) any material amount of assets other than
(i) intercompany transactions between the Company and a wholly owned
subsidiary of the Company or (ii) acquisitions for cash which are not, in
the aggregate, for consideration in excess of $100 million, excluding from
the foregoing clauses (i) and (ii) such transactions that may not be entered
into by a public utility holding company registered under the 1935 Act.

(f) CAPITAL EXPENDITURES. Except as set forth in Section 6.1(f) of the
Company Disclosure Schedule, the Company shall not, nor shall it permit any
of its subsidiaries to, make capital expenditures in an aggregate amount in
excess of 120% of the amount budgeted by the Company or its subsidiaries for
capital expenditures as set forth in Section 6.1(f) of the Company
Disclosure Schedule, provided that any such capital expenditures in excess
of 100% of the amount so budgeted shall be made only after consultation with
Parent.

(g) DISPOSITIONS. Except as set forth in Section 6.1(g) of the Company
Disclosure Schedule, the Company shall not, nor shall it permit any of its
subsidiaries to, sell, lease, license, encumber or otherwise dispose of, any
of its respective assets, other than (i) encumbrances or dispositions in the
ordinary course of business consistent with past practice,
(ii) intercompany transactions between the Company and a wholly owned
subsidiary of the Company or (iii) dispositions which are not, in the
aggregate, for consideration in excess of $100 million (based, in the case
of consideration consisting of securities, on the average market closing
thereof for the ten consecutive trading days prior to the closing of such
acquisition and, in the case of consideration consisting of other property,
the fair market value of such property as determined by an independent
appraiser).

(h) INDEBTEDNESS. Except as set forth in Section 6.1(h) of the Company
Disclosure Schedule, the Company shall not, nor shall it permit any of its
subsidiaries to, incur or guarantee any indebtedness (including any debt
borrowed or guaranteed or otherwise assumed including, without limitation,
the issuance of debt securities or warrants or rights to acquire debt) or
enter into any "KEEP WELL" or other agreement to maintain any financial
statement condition of another person or enter into any arrangement having
the economic effect of any of the foregoing other than (i) short-term
indebtedness in the ordinary course of business consistent with past
practice to fund expenditures which are not capital expenditures,
(ii) arrangements between the Company and its subsidiaries or among its
subsidiaries, (iii) in connection with the refunding of existing
indebtedness at a lower cost of funds, (iv) borrowings to finance the
capital expenditures described in Section 6.1(f) which borrowings are not,
in the aggregate, in excess of $140 million, (v) arrangements to refinance
scheduled maturities of indebtedness existing on the date hereof which are
not, in the aggregate, in excess of $200 million and (vi) with the consent
of Parent, in connection with the refunding of preferred stock of Rochester
Gas and Electric Corporation outstanding on the date hereof.

(i) COMPENSATION; BENEFITS. Except as set forth in Section 6.1(i) of
the Company Disclosure Schedule, as may be required by applicable law or
under existing Employee Benefit Plans or Employment Agreements, as may be
required to facilitate or obtain a determination letter from the IRS that a
Plan is a Qualified Plan, or as expressly contemplated by this Agreement,
the Company shall not, nor shall it permit any of its subsidiaries to,
(i) enter into, adopt or amend or increase the amount or accelerate the
payment or vesting of any benefit or amount payable under any Employee
Benefit Plan or Employment Agreement, or otherwise increase the compensation
or benefits of any director, officer or other employee of such party or any
of its subsidiaries, except for normal increases in compensation and
benefits, or grants of new incentive compensation awards, or actions in the
ordinary course of business, that are consistent with the Company's past
practice of adjusting compensation and benefits to reflect the average
compensation and benefits as determined by general industry or market
surveys, or (ii) enter into or amend any employment,

A-24

severance or special pay arrangement with respect to the termination of
employment or other similar contract, agreement or arrangement with any
director or officer or other employee other than with respect to employees
who are not officers of the Company in the ordinary course of business
consistent with current industry practice. This subsection (i) is not
intended to (A) restrict the Company or its subsidiaries from granting
promotions to officers or employees based upon job performance or workplace
requirements in the ordinary course of business consistent with past
practice, (B) restrict the Company's ability to make available to employees
the plans, benefits and arrangements that have customarily and consistent
with past practices been available to officers and employees in the context
of such merit-based promotion or (C) restrict the Company or its
subsidiaries in providing compensation, incentives and benefits to new hires
in the ordinary course of business consistent with past practices, so long
as such provision complies with clauses (i) and (ii) above.

(j) 1935 ACT. Except as set forth in Section 6.1(j) of the Company
Disclosure Schedule, and except as required or contemplated by this
Agreement, the Company shall not, nor shall it permit any of its
subsidiaries to, engage in any activities which would cause a change in its
status, or that of its subsidiaries, under the 1935 Act.

(k) ACCOUNTING. Except as set forth in Section 6.1(k) of the Company
Disclosure Schedule, the Company shall not, nor shall it permit any of its
subsidiaries to, make any changes in their accounting methods, except as
required by law, rule, regulation or GAAP.

(l) COOPERATION; NOTIFICATION. Each party shall, and shall cause its
subsidiaries to, (i) confer on a regular and frequent basis with one or more
representatives of the other party to discuss, subject to applicable law,
material operational matters and the general status of its ongoing
operations; (ii) promptly notify the other party of any significant changes
in its business, properties, assets, condition (financial or other), results
of operations or prospects; (iii) advise the other party of any change or
event which has had, or would reasonably be expected to have, in the case of
the Company, a Company Material Adverse Effect or, in the case of Parent, a
Parent Material Adverse Effect; and (iv) promptly provide the other party
with copies of all filings made by such party or any of its subsidiaries
with any state or federal court, administrative agency, commission or other
Governmental Authority in connection with this Agreement and the
transactions contemplated hereby.

(m) THIRD-PARTY CONSENTS. The Company shall, and shall cause its
subsidiaries to, use all commercially reasonable efforts to obtain all the
Company Required Consents. The Company shall promptly notify Parent of any
failure or prospective failure to obtain any such consents and, if requested
by Parent, shall provide copies of all the Company Required Consents
obtained by the Company to Parent. Parent shall, and shall cause its
subsidiaries to, use all commercially reasonable efforts to obtain all
Parent Required Consents. Parent shall promptly notify the Company of any
failure or prospective failure to obtain any such consents and, if requested
by the Company, shall provide copies of all Parent Required Consents
obtained by Parent to the Company.

(n) BREACH, ETC. No party shall, nor shall any party permit any of its
subsidiaries to, willfully take any action that would or is reasonably
likely to result in a material breach of any provision of this Agreement or
in any of its representations and warranties set forth in this Agreement
being untrue on and as of the Closing Date.

(o) DISCHARGE OF LIABILITIES. The Company shall not pay, discharge or
satisfy any material claims, liabilities or obligations (absolute, accrued,
asserted or unasserted, contingent or otherwise), other than the payment,
discharge or satisfaction, in the ordinary course of business consistent
with past practice (which includes the payment of final and unappealable
judgments) or in accordance with their terms, of liabilities reflected or
reserved against in, or contemplated by, the most recent

A-25

consolidated financial statements (or the notes thereto) of the Company
included in the Company's reports filed with the SEC, incurred in the
ordinary course of business consistent with past practice, or permitted
under Section 6.1(h)(iii).

(p) CONTRACTS. Except as set forth in Section 6.1(p) of the Company
Disclosure Schedule, the Company shall not, except in the ordinary course of
business consistent with past practice, modify, amend, terminate, renew or
fail to use reasonable business efforts to renew any Company Material
Contract to which the Company or any of its subsidiaries is a party, or
waive, release or assign any material rights or claims. "Company Material
Contracts" as used herein shall mean (i) those contracts and agreements
(x) included under, or which would be required to be included under,
Exhibit 10 to the Company's annual report on Form 10-K for the fiscal year
ended December 31, 1999 or any other annual report of the Company on
Form 10-K filed thereafter, (y) included under, or which would be required
to be included under, Exhibit 10 to any of the Company's quarterly reports
on Form 10-Q filed after December 31, 1999, or (z) included, or which would
be required to be included, as an exhibit to a current report on Form 8-K
after December 31, 1999, and (ii) any other contract or agreement the
absence of which would have, or would reasonably be expected to have, a
Company Material Adverse Effect.

(q) INSURANCE. Each party shall, and shall cause its subsidiaries to,
maintain with financially responsible insurance companies insurance in such
amounts and against such risks and losses as are customary for companies
engaged in the electric and gas utility industry.

(r) PERMITS. The Company shall, and shall cause its subsidiaries to,
use reasonable efforts to maintain in effect all existing governmental
permits pursuant to which the Company or any of its subsidiaries operate.

(s) TAKEOVER LAWS. Neither party shall take any action that would
cause the transactions contemplated by this Agreement to be subject to
requirements imposed by any Takeover Law, and each of them shall take all
necessary steps within its control to exempt (or ensure the continued
exemption of) the transactions contemplated by this Agreement from, or if
necessary challenge the validity or applicability of, any applicable
Takeover Law, as now or hereafter in effect, including Section 912 of the
NYBCL.

(t) RIGHTS. The Company shall not amend or waive any rights under any
agreement or otherwise in a manner that would materially and adversely
affect either party's ability to consummate the Merger or the economic
benefits of the Merger to either party.

(u) TAXES. Except as disclosed on Section 6.1(u) of the Company
Disclosure Schedule, the Company shall not, and shall cause its subsidiaries
not to, (A) make or rescind any express or deemed material election relating
to Taxes, (B) settle or compromise any material claim, audit, dispute,
controversy, examination, investigation or other proceeding relating to
Taxes or (C) materially change any of its methods of reporting income or
deductions for federal income Tax purposes, except as may be required by
applicable law.

(v) PRIMARY BUSINESSES. Parent shall not engage in or enter into, or
agree to engage in or enter into, any transaction that would cause Parent to
become not primarily engaged in the gas and electric utilities businesses.

(w) CERTAIN TRANSACTIONS. Parent shall not engage in or enter into, or
agree to engage in or enter into, any acquisition or disposition of assets
or securities that would delay, or would reasonably be expected to delay,
the consummation of the Merger, including any such delay resulting from any
amendment or modification of a Parent Required Statutory Approval.

Section 6.2 COVENANT OF THE COMPANY; ALTERNATIVE PROPOSALS. From and after
the date hereof, the Company agrees (a) that it will not, its subsidiaries will
not, and it will not authorize or permit any of

A-26

its or its subsidiaries' officers, directors, employees, agents and
representatives (including, without limitation, any investment banker, attorney
or accountant retained by it or any of its subsidiaries or any of the foregoing)
to, directly or indirectly, encourage, initiate or solicit (including by way of
furnishing information) or take any other action to facilitate knowingly any
inquiries or the making of any proposal or offer (including, without limitation,
any proposal or offer to its shareholders) which constitutes or may reasonably
be expected to lead to an Alternative Proposal (as defined below) from any
person or engage in any discussion or negotiations concerning, or provide any
non-public information or data to make or implement, an Alternative Proposal;
(b) that it will immediately cease and cause to be terminated any existing
solicitation, initiation, encouragement, activity, discussions or negotiations
with any parties conducted heretofore with a view of formulating an Alternative
Proposal; and (c) that it will notify Parent orally and in writing of any such
inquiry, offer or proposals (including, without limitation, the terms and
conditions of any such proposal and the identity of the person making it),
within 48 hours of the receipt thereof, and that it shall keep Parent informed
of the status and details of any such inquiry, offer or proposal and shall give
Parent 48 hours' prior notice of any confidentiality or similar agreement to be
entered into or of the fact that it proposes to commence providing information
to any person making such inquiry, offer or proposal; PROVIDED, HOWEVER, that
notwithstanding any other provision hereof, the Company may (i) at any time
prior to the time at which the Company Shareholders' Approval shall have been
obtained engage in discussions or negotiations with a third party who (without
any solicitation, initiation, encouragement, discussion or negotiation, directly
or indirectly, by or with the Company or its representatives after the date
hereof) seeks to initiate such discussions or negotiations and may furnish such
third party information concerning the Company and its business, properties and
assets if, and only to the extent that, (A) (x) the third party has first made
an Alternative Proposal that the Board of Directors of the Company determines in
good faith is financially superior to the Merger and has demonstrated that any
necessary financing has been obtained, or in the reasonable judgment of the
Company's financial advisor is obtainable, and (y) the Board of Directors of the
Company shall conclude in good faith, after consultation with its financial
advisor and outside counsel and consideration of such other matters as the Board
of Directors of the Company deems relevant, that failure to do so would likely
result in a breach of its fiduciary duties under applicable law, and (B) prior
to furnishing such information to, or entering into discussions or negotiations
with, such person or entity, the Company receives from such person an executed
confidentiality agreement in reasonably customary form except that such
confidentiality agreement shall not prohibit such person from making an
unsolicited Alternative Proposal, and (ii) comply with Rule 14e-2 promulgated
under the Exchange Act with regard to a tender or exchange offer and/or
(iii) accept an Alternative Proposal from a third party, provided the Company
terminates this Agreement pursuant to Section 9.1(f). "ALTERNATIVE PROPOSAL"
shall mean any merger, acquisition, consolidation, reorganization, share
exchange, tender offer, exchange offer or similar transaction involving the
Company or any of the Company's subsidiaries, or any proposal or offer to
acquire in any manner, directly or indirectly, a substantial equity interest in
or a substantial portion of the assets of the Company or any of the Company's
subsidiaries. Nothing herein shall prohibit an acquisition permitted by
Section 6.1(e) hereof or a disposition permitted by Section 6.1(g) hereof.

Section 6.3 EMPLOYMENT AGREEMENT. Parent, the Company and Mr. Richards
have entered into an employment agreement in the form attached hereto as
EXHIBIT A (the "RICHARDS EMPLOYMENT AGREEMENT"), which will become effective
upon consummation of the Merger.

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ARTICLE VII
ADDITIONAL AGREEMENTS

Section 7.1 ACCESS TO INFORMATION. (a) Upon reasonable notice and during
normal business hours, each party shall, and shall cause its subsidiaries to,
afford to the officers, directors, employees, accountants, counsel, investment
bankers, financial advisors and other representatives of the other
(collectively, "REPRESENTATIVES") reasonable access, throughout the period prior
to the Effective Time, to all of its properties, books, contracts, commitments
and records (including, but not limited to, Tax Returns) and, during such
period, each party shall, and shall cause its subsidiaries to, furnish promptly
to the other (i) access to each report, schedule and other document filed or
received by it or any of its subsidiaries pursuant to the requirements of
federal or state securities laws or filed with or sent to the SEC, the FERC, the
NRC, the Department of Justice, the Federal Trade Commission or any other
federal or state regulatory agency or commission, and (ii) access to all
information concerning themselves, their subsidiaries, directors, officers and
shareholders and such other matters as may be reasonably requested by the other
party in connection with any filings, applications or approvals required or
contemplated by this Agreement. Each party shall, and shall cause its
subsidiaries and Representatives to, hold in strict confidence all Proprietary
Information (as defined in the Confidentiality Agreement) concerning the other
parties furnished to it in connection with the transactions contemplated by this
Agreement in accordance with the Confidentiality Agreement, dated as of
September 8, 2000, between the Company and Parent, as it may be amended from
time to time (the "CONFIDENTIALITY AGREEMENT").

(b) From the date of this Agreement until the Effective Time, each party
(the "INSPECTED PARTY") shall (i) permit the other party and its authorized
representatives to conduct such Phase I environmental inspections as the other
party may reasonably require and (ii) without limiting any representation made
in Section 4.11 hereof, cause its officers and those of its subsidiaries to
furnish the other party with such information in existence as the other party
may from time to time reasonably request, including, without limitation,
assessments, reports, audits, studies and data concerning the existence of
Hazardous Materials at facilities or properties presently or formerly owned,
operated, leased or used by the Inspected Party or any present or former
subsidiary, or concerning compliance by the Inspected Party and its subsidiaries
with, or liability under, any Environmental Laws.

Section 7.2 JOINT PROXY STATEMENT AND REGISTRATION STATEMENT.

(a) PREPARATION AND FILING. The parties will prepare and file with the SEC
as soon as reasonably practicable after the date hereof the Registration
Statement and the Joint Proxy Statement (together, the "JOINT PROXY/REGISTRATION
STATEMENT"). The parties hereto shall each use reasonable efforts to cause the
Registration Statement to be declared effective under the Securities Act as
promptly as practicable after such filing. Each party hereto shall also take
such action as may be reasonably required to cause the shares of Parent Common
Stock issuable in connection with the Merger to be registered or to obtain an
exemption from registration under applicable state "BLUE SKY" or securities
laws; PROVIDED, HOWEVER, that no party shall be required to register or qualify
as a foreign corporation or to take other action which would subject it to
service of process in any jurisdiction where it will not be, following the
Merger, so subject. Each of the parties hereto shall furnish all information
concerning itself which is required or customary for inclusion in the Joint
Proxy/Registration Statement. The parties shall use reasonable efforts to cause
the shares of Parent Common Stock issuable in connection with the Merger to be
approved for listing on the NYSE upon official notice of issuance. The
information provided by any party hereto for use in the Joint Proxy/Registration
Statement shall be true and correct in all material respects without omission of
any material fact which is required to make such information not false or
misleading. No representation, covenant or agreement is made by or on behalf of
any party

A-28

hereto with respect to information supplied by any other party for inclusion in
the Joint Proxy Statement/Registration Statement.

(b) LETTER OF THE COMPANY'S ACCOUNTANT. Following receipt by
PricewaterhouseCoopers LLP, the Company's independent auditor, of an appropriate
request from the Company pursuant to SAS No. 72, the Company shall use its best
efforts to cause to be delivered to Parent a letter of PricewaterhouseCoopers
LLP dated a date within two business days before the date of the Joint Proxy/
Registration Statement, and addressed to Parent, in form and substance
reasonably satisfactory to Parent and customary in scope and substance for "cold
comfort" letters delivered by independent public accountants in connection with
registration statements similar to the Joint Proxy/Registration Statement.

(c) LETTER OF PARENT'S ACCOUNTANT. Following receipt by
PricewaterhouseCoopers LLP, Parent's independent auditor, of an appropriate
request from Parent pursuant to SAS No. 72, Parent shall use its best efforts to
cause to be delivered to the Company a letter of PricewaterhouseCoopers LLP,
dated a date within two business days before the date of the Joint
Proxy/Registration Statement, and addressed to the Company, in form and
substance reasonably satisfactory to the Company and customary in scope and
substance for "cold comfort" letters delivered by independent public accountants
in connection with registration statements similar to the Joint
Proxy/Registration Statement.

Section 7.3 FURTHER ASSURANCES; REGULATORY MATTERS. (a) Subject to
Section 8.2(h), each party hereto shall, and shall cause its subsidiaries to,
cooperate and use its best efforts to (i) promptly prepare and file with the
appropriate Governmental Authorities all necessary reports, applications,
petitions, forms, notices or other applicable documents required or advisable
with respect to the Merger or the other transactions contemplated by this
Agreement, (ii) comply, at the earliest practicable date following the date of
receipt by Parent or the Company, with any request for information or documents
from a Governmental Authority related to, and appropriate in the light of,
matters within the jurisdiction of such Governmental Authority, provided that
(x) the parties shall use their best efforts to keep any such information
confidential to the extent required by the party providing the information and
(y) each party may take, in its reasonable discretion, appropriate legal action
not to provide information relating to trade or business secrets, privileged
information or other information which reasonably should be treated as
confidential, (iii) take all actions necessary or advisable to obtain no later
than the Initial Termination Date, as such date may be extended pursuant to
Section 9.1(b), all necessary permits, consents, approvals and authorizations of
all Governmental Authorities necessary or advisable to consummate the Merger and
the other transactions contemplated by this Agreement (including, without
limitation, the Company Required Statutory Approvals and Parent Required
Statutory Approvals) and (iv) oppose vigorously any litigation that would impede
or delay the consummation of the Merger, including, without limitation, promptly
appealing any adverse court order.

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(b) Each party will, and will cause its subsidiaries to, execute such
further documents and instruments and take such further actions as may
reasonably be requested by any other party in order to consummate the Merger in
accordance with the terms hereof. The parties expressly acknowledge and agree
that, although it is their current intention to effect a business combination
between themselves in the form contemplated by this Agreement, it may be
preferable to effectuate such a business combination by means of an alternative
structure in light of the conditions set forth in Section 8.1(e) or 8.2(h).
Accordingly, if the only conditions to the parties' obligations to consummate
the Merger which are not satisfied or waived are receipt of any one or more of
the Company Required Statutory Approvals or Parent Required Statutory Approvals
and the adoption of an alternative structure (that otherwise substantially
preserves for Parent and the Company the economic benefits of the Merger and
does not require any additional filing with or authorization, consent or
approval from any Governmental Authority, other than supplements or amendments
to filings already made, to reflect such alternative structure) would result in
such conditions being satisfied or waived, then the parties shall use their
respective best efforts to effect a business combination among themselves by
means of a mutually agreed upon structure other than the Merger that so
preserves such benefits; PROVIDED that, prior to closing any such restructured
transaction, all material third party and Governmental Authority declarations,
filings, registrations, notices, authorizations, consents or approvals necessary
for the effectuation of such alternative business combination shall have been
obtained and all other conditions to the parties' obligations to consummate the
Merger, as applied to such alternative business combination, shall have been
satisfied or waived.

(c) Parent and the Company shall together discuss and formulate the approach
to be taken with the New York State Public Service Commission (the "PSC") with
respect to the Merger and the transactions contemplated by this Agreement;
PROVIDED, HOWEVER, that Mr. Richards shall have the primary responsibility for
coordinating strategy and communications with the PSC, and no contacts with the
PSC relating to the Merger shall be made by any party without prior notice to
and consultation with the other party, except in accordance with procedures
mutually agreed upon by the parties in connection with ordinary course requests
for information made by the PSC.

Section 7.4 SHAREHOLDERS' APPROVAL.

(a) COMPANY SHAREHOLDERS' MEETING. Subject to the provisions of
Section 7.4(c), the Company shall, as soon as reasonably practicable after the
date hereof (i) take all steps necessary to duly call, give notice of, convene
and hold a meeting of its shareholders (the "COMPANY SHAREHOLDERS' MEETING") for
the purpose of securing the Company Shareholders' Approval, (ii) distribute to
its shareholders the Joint Proxy Statement in accordance with applicable federal
and state law and with its certificate of incorporation and by-laws,
(iii) subject to the fiduciary duties of its Board of Directors, recommend to
its shareholders the approval of this Agreement and the transactions
contemplated hereby and (iv) cooperate and consult with Parent with respect to
each of the foregoing matters.

(b) PARENT SHAREHOLDERS' MEETING. Subject to the provisions of
Section 7.4(c), Parent shall, as soon as reasonably practicable after the date
hereof (i) take all steps necessary to duly call, give notice of, convene and
hold a meeting of its shareholders (the "PARENT SHAREHOLDERS' MEETING") for the
purpose of securing Parent Shareholders' Approval, (ii) distribute to its
shareholders the Joint Proxy Statement in accordance with applicable federal and
state law and with its certificate of incorporation and by-laws, (iii) subject
to the fiduciary duties of its Board of Directors, recommend to its shareholders
the approval of issuance of Parent Common Stock issuable in connection with the
Merger and (iv) cooperate and consult with Company with respect to each of the
foregoing matters.

(c) MEETING DATE. The Company Shareholders' Meeting for the purpose of
securing the Company Shareholders' Approval and Parent Shareholders' Meeting for
the purpose of securing Parent Shareholders' Approval shall be held on the same
date, which shall be such date as the Company and Parent shall mutually
determine. The Company shall use its reasonable best efforts to hold the

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Company Shareholders' Meeting, and Parent shall use its reasonable best efforts
to hold Parent Shareholders' Meeting, simultaneously with the Company's and
Parent's 2001 annual meetings, respectively, or otherwise, as promptly as
practicable after the date hereof.

Section 7.5 DIRECTORS' AND OFFICERS' INDEMNIFICATION.

(a) INDEMNIFICATION. To the extent, if any, not provided by an existing
right of indemnification or other agreement or policy, from and after the
Effective Time, Parent and the Surviving Corporation shall, to the fullest
extent permitted by applicable law, indemnify, defend and hold harmless each
person who is now, or has been at any time prior to the date hereof, or who
becomes prior to the Effective Time, an officer, director or employee of the
Company or any of its subsidiaries (each an "INDEMNIFIED PARTY" and
collectively, the "INDEMNIFIED PARTIES") against (i) all losses, expenses
(including reasonable attorney's fees and expenses), claims, damages or
liabilities or, subject to the proviso of the next succeeding sentence, amounts
paid in settlement, arising out of actions or omissions occurring at or prior to
the Effective Time (and whether asserted or claimed prior to, at or after the
Effective Time) that are, in whole or in part, based on or arising out of the
fact that such person is or was a director, officer or employee of the Company
or a subsidiary of the Company (the "INDEMNIFIED LIABILITIES"), and (ii) all
Indemnified Liabilities to the extent they are based on or arise out of or
pertain to the transactions contemplated by this Agreement. In the event of any
such loss, expense, claim, damage or liability (whether or not arising before
the Effective Time), (i) Parent shall pay the reasonable fees and expenses of
counsel selected by the Indemnified Parties, which counsel shall be reasonably
satisfactory to Parent, promptly after statements therefor are received and
otherwise advance to such Indemnified Party upon request reimbursement of
documented expenses reasonably incurred, (ii) any determination required to be
made with respect to whether an Indemnified Party's conduct complies with the
standards set forth in Section 722 of the NYBCL, and the certificate of
incorporation or by-laws, shall be made by independent counsel mutually
acceptable to Parent and the Indemnified Party; PROVIDED, HOWEVER, that Parent
shall not be liable for any settlement effected without its written consent
(which consent shall not be unreasonably withheld). The Indemnified Parties as a
group may retain only one law firm with respect to each related matter except to
the extent there is, in the opinion of counsel to an Indemnified Party, under
applicable standards of professional conduct, a conflict on any significant
issue between positions of such Indemnified Party and any other Indemnified
Party or Indemnified Parties.

(b) INSURANCE. For a period of six years after the Effective Time, Parent
shall (i) cause to be maintained in effect policies of directors' and officers'
liability insurance for the benefit of those persons who are currently covered
by such policies of the Company on terms no less favorable than the terms of
such current insurance coverage or (ii) provide tail coverage for such persons
which provides coverage for a period of six years for acts prior to the
Effective Time on terms no less favorable than the terms of such current
insurance coverage; PROVIDED, HOWEVER, that Parent shall not be required to
expend in any year an amount in excess of 200% of the annual aggregate premiums
currently paid by the Company, for such insurance; and provided, further, that
if the annual premiums of such insurance coverage exceed such amount, Parent
shall be obligated to obtain a policy with the best coverage available, in the
reasonable judgment of the Board of Directors of Parent, for a cost not
exceeding such amount.

(c) SUCCESSORS. In the event Parent or any of its successors or assigns
(i) consolidates with or merges into any other person and shall not be the
continuing or surviving corporation or entity of such consolidation or merger or
(ii) transfers all or substantially all of its properties and assets to any
person, then, and in either such case, proper provisions shall be made so that
the successors and assigns of Parent shall assume the obligations set forth in
this Section 7.5.

(d) SURVIVAL OF INDEMNIFICATION. To the fullest extent permitted by law,
from and after the Effective Time, all rights to indemnification as of the date
hereof in favor of the employees, agents,

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directors and officers of the Company, and its subsidiaries with respect to
their activities as such prior to the Effective Time, as provided in its
respective certificate of incorporation and by-laws in effect on the date
hereof, or otherwise in effect on the date hereof, shall survive the Merger and
shall continue in full force and effect for a period of not less than six years
from the Effective Time.

(e) BENEFIT. The provisions of this Section 7.5 are intended to be for the
benefit of, and shall be enforceable by, each Indemnified Party, his or her
heirs and his or her representatives.

Section 7.6 DISCLOSURE SCHEDULES. On the date hereof, (a) Parent has
delivered to the Company a schedule (the "PARENT DISCLOSURE SCHEDULE"),
accompanied by a certificate signed by the Executive Vice President, General
Counsel and Secretary of Parent stating the Parent Disclosure Schedule is being
delivered pursuant to this Section 7.6(a), and (b) the Company has delivered to
Parent a schedule (the "COMPANY DISCLOSURE SCHEDULE"), accompanied by a
certificate signed by the Senior Vice President and General Counsel of the
Company stating the Company Disclosure Schedule is being delivered pursuant to
this Section 7.6(b). The Company Disclosure Schedule and the Parent Disclosure
Schedule are collectively referred to herein as the "DISCLOSURE SCHEDULES." The
Disclosure Schedules constitute an integral part of this Agreement and modify
the respective representations, warranties, covenants or agreements of the
parties hereto contained herein to the extent that such representations,
warranties, covenants or agreements expressly refer to the Disclosure Schedules.
Anything to the contrary contained herein or in the Disclosure Schedules
notwithstanding, any and all statements, representations, warranties or
disclosures set forth in the Disclosure Schedules shall be deemed to have been
made on and as of the date hereof.

Section 7.7 PUBLIC ANNOUNCEMENTS. Subject to each party's disclosure
obligations imposed by law, the Company and Parent will cooperate with each
other in the development and distribution of all news releases and other public
information disclosures with respect to this Agreement or any of the
transactions contemplated hereby and shall not issue any public announcement or
statement with respect hereto without the consent of the other party (which
consent shall not be unreasonably withheld).

Section 7.8 RULE 145 AFFILIATES. Within 30 days after the date of this
Agreement, the Company shall identify in a letter to Parent all persons who are,
and to such person's best knowledge who will be at the Closing Date,
"affiliates" of the Company, as such term is used in Rule 145 under the
Securities Act. The Company shall use all reasonable efforts to cause its
affiliates (including any person who may be deemed to have become an affiliate
after the date of the letter referred to in the prior sentence) to deliver to
Parent on or prior to the Closing Date a written letter substantially in the
form attached as EXHIBIT B (each, an "AFFILIATE LETTER").

Section 7.9 CERTAIN EMPLOYEE AGREEMENTS. Subject to Section 7.10, Parent
and the Surviving Corporation and its subsidiaries shall honor all contracts,
agreements and commitments of the parties which apply to any current or former
employee or current or former director of the parties hereto; PROVIDED, HOWEVER,
that the foregoing shall not prevent Parent or the Surviving Corporation from
enforcing, amending or terminating such contracts, agreements and commitments in
accordance with their terms, including, without limitation, any reserved right
to amend, modify, suspend, revoke or terminate any such contract, agreement or
commitment. It is the present intention of Parent and the Company that following
the Effective Time, there will be no involuntary reductions in workforce at the
Surviving Corporation or its subsidiaries, but that Parent, the Surviving
Corporation and their respective subsidiaries will continue Parent's and the
Company's present strategy of achieving workforce reductions through attrition;
PROVIDED, HOWEVER, that if any reductions in workforce in respect of employees
of the Surviving Corporation and its subsidiaries become necessary, any such
reduction shall be made in consultation with the Chairman of the Surviving
Corporation and shall be made on a fair and equitable basis, in light of the
circumstances and the objectives to be achieved, giving consideration to
previous work history, job experience, qualifications, and business needs
without regard to whether

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employment prior to the Effective Time was with the Company or its subsidiaries
or Parent or its subsidiaries; PROVIDED, FURTHER, that to the extent that any
such workforce reduction would affect employees of Rochester Gas and Electric
Corporation disproportionately, in the aggregate, as compared with employees of
New York State Electric & Gas Corporation as a result of provisions of a
collective bargaining agreement applicable to such employees of New York State
Electric & Gas Corporation, each employee of Rochester Gas and Electric
Corporation shall be protected with respect to such workforce reduction to the
same extent that a similarly situated employee of New York State Electric & Gas
Corporation is protected with respect to such workforce reduction by such
provisions of the collective bargaining agreement. Any employees whose
employment is terminated or jobs are eliminated by Parent, the Surviving
Corporation or any of their respective subsidiaries shall be entitled to
participate on a fair and equitable basis in the job opportunity and employment
placement programs offered by Parent, the Surviving Corporation or any of their
respective subsidiaries. Any workforce reductions carried out following the
Effective Time by Parent or the Surviving Corporation and their respective
subsidiaries shall be done in accordance with all laws and regulations governing
the employment relationship and termination thereof including, without
limitation, the Worker Adjustment and Retraining Notification Act and
regulations promulgated thereunder, and any comparable state or local law.

Section 7.10 EMPLOYEE BENEFIT PLANS.

(a) CONTINUATION OF BENEFITS. Except as contemplated by this Agreement,
for a period of 18 months following the Effective Time, Parent and the Surviving
Corporation shall continue to maintain the Employee Benefit Plans or shall
maintain replacement employee benefit plans and arrangements which shall provide
a level of benefits to active and retired employees of the Company and its
subsidiaries no less favorable in the aggregate than those provided under the
Employee Benefit Plans as in effect immediately prior to the Effective Time;
PROVIDED, HOWEVER, that changes may be made to the Employee Benefit Plans or
such replacement employee benefit plans and arrangements to the extent necessary
to comply with applicable law.

(b) SERVICE RECOGNITION. To the extent that service is relevant for
purposes of eligibility, participation, vesting or benefit accrual (other than
benefit accrual under any defined benefit pension plans) under any employee
benefit plan, program or arrangement established, maintained or contributed to
by the Surviving Corporation and Parent, employees of the Company and its
subsidiaries shall be credited for service accrued or deemed accrued prior to
the Effective Time with the Company or a subsidiary of the Company; PROVIDED,
HOWEVER, that such crediting of service does not result in the duplication of
benefits or an unintended windfall with respect to the accrual of benefits. The
Surviving Corporation shall provide each employee of the Company and its
subsidiaries with credit for any co-payments and deductibles paid prior to the
Effective Time for the calendar year in which the Effective Time occurs, in
satisfying any applicable deductible or out-of-pocket requirements under any
welfare plans that such employees are eligible to participate in after the
Effective Time.

Section 7.11 COMPANY STOCK AND OTHER PLANS. (a) At the Effective Time,
each holder of an option to purchase shares of Company Common Stock or stock
appreciation right with respect to Company Common Stock outstanding and
unexercised as of the Effective Time (a "COMPANY OPTION") granted pursuant to
the Company 1996 Performance Stock Option Plan as has been amended from time to
time (the "COMPANY STOCK PLAN") or otherwise granted by the Company other than
pursuant to the Company Stock Plan shall be paid in full satisfaction of such
Company Option a cash payment in an amount in respect thereof equal to the
product of (i) the excess, if any, of the Cash Consideration over the exercise
price of such Company Option and (ii) the number of shares of Company Common
Stock subject to the Company Option. In addition, each holder of a Company Stock
Option shall be paid at the Effective Time an amount in cash equal to the
aggregate dividend equivalents credited to the account of such holder. All
amounts payable pursuant to this Section 7.11(a) shall be paid less any income
or employment tax withholding required under the Code or any provision of state
or local law.

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(b) At the Effective Time, the Executive Incentive Plan shall terminate and
each participant shall be entitled to and paid an amount in cash equal to the
product of (x) the Target Award (as defined in the plan) and (y) a fraction, the
numerator of which is the number of days from the start of the calendar year
until the Effective Time and the denominator of which is 365.

(c) Prior to the Effective Time, the Company shall be permitted to establish
a retention program for employees of the Company and its subsidiaries consistent
with the terms set forth in Section 7.11(c) of the Company Disclosure Schedule;
PROVIDED, HOWEVER, that the specific terms and conditions of such retention
program (including, without limitation, the identity and levels and form of
participation of each employee covered thereby, the forms of all plan documents
and individual agreements and all related employee communications and other
documentation thereof) shall be subject to the review and comment and final
approval of Parent.

(d) At the Effective Time, each common stock equivalent or deferred stock
unit credited to participating directors' accounts under the Rochester Gas and
Electric Corporation Deferred Compensation Plan or the Deferred Stock Unit Plan
for Non-Employee Directors shall be valued based on the Cash Consideration. Such
amounts shall be payable at such time and in such manner as prescribed in the
relevant plan with, in the case of amounts credited under the Deferred
Compensation Plan, deemed interest at the rate provided for in such plan with
respect to amounts not deemed invested in Company Common Stock. All transfer
restrictions applicable to any share of Company Common Stock owned by a
director, officer or employee of the Company shall lapse as of the Effective
Time.

(e) The Company shall use its reasonable best efforts to cause each
individual who is a party to a Severance Agreement to enter into a letter
agreement with the Company substantially in the form set forth in
Section 7.11(e) of the Company Disclosure Schedule as soon as practicable after
the date hereof.

Section 7.12 EXPENSES. Subject to Section 9.3, all costs and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such expenses, except that those
expenses incurred in connection with printing the Joint Proxy/Registration
Statement, as well as the filing fee relating thereto, shall be shared equally
by the Company and Parent.

Section 7.13 CORPORATE OFFICES. At and subsequent to the Effective Time,
the corporate headquarters of the Surviving Corporation, Rochester Gas and
Electric Corporation, New York State Electric & Gas Corporation and the Energy
East Management Corporation shall be located in Rochester, New York, and the
operations center for New York State Electric & Gas Corporation shall be located
in Binghamton, New York. The parties hereto hereby acknowledge and agree that as
of the Effective Time, the Energy East Management Corporation shall have at
least 40 employees in Rochester, New York.

Section 7.14 PARENT BOARD OF DIRECTORS. At the Effective Time, the Board
of Directors of Parent shall increase by three the number of directors on the
Board of Directors of Parent and shall thereupon elect as directors
Mr. Richards and two other persons who are currently non-management directors of
the Company.

Section 7.15 COMMUNITY INVOLVEMENT. After the Effective Time, Parent will,
or will cause the Surviving Corporation to, increase the level of charitable
contributions to, and community involvement with, Rochester, New York to reflect
the increase in size of the company to be based in Rochester.

Section 7.16 ADVISORY BOARD. At the Effective Time, there shall be
established an advisory board to the Surviving Corporation ("ADVISORY BOARD"),
which shall be comprised of the persons who were directors of the Company
immediately prior to the Effective Time, except directors of the Company elected
to the Board of Directors of Parent pursuant to Section 7.14. The Advisory Board
shall meet no less frequently than quarterly and shall provide advice to the
Board of Directors of the Surviving

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Corporation with respect to such issues as the Board of Directors of the
Surviving Corporation may from time to time request, including but not limited
to community relations, customer service, economic development, employee
development and relations and such other matters of community interest as may be
appropriate. The members of the Advisory Board, who shall serve at the
discretion of the Surviving Corporation, shall receive remuneration for their
services equivalent to the remuneration currently provided to non-employee
directors of the Company. In the event of a vacancy on the Advisory Board, the
remaining members of the Advisory Board shall determine, subject to the approval
of Parent, whether to fill such vacancy and may fill such vacancy by nominating
a successor member satisfactory to the Surviving Corporation.

Section 7.17 TAX-FREE STATUS. No party shall, nor shall any party permit
any of its subsidiaries to, take any actions which would, or would be reasonably
likely to, adversely affect the status of the Merger as a reorganization within
the meaning of Section 368(a) of the Code, and each party hereto shall use all
reasonable efforts to achieve such result.

Section 7.18 TRANSITION MANAGEMENT. (a) As promptly as practicable after
the date hereof, the Company and Parent shall create a special transition
management task force (the "TASK FORCE") jointly chaired by Mr. Richards and a
person designated by Parent (the "TASK FORCE CHAIRPERSONS"). Members of the Task
Force shall consist of an equal number of representatives designated by the
Company and Parent.

(b) The functions of the Task Force shall include

(i) serving as a conduit for the flow of information and documents among
the parties and their subsidiaries as contemplated by Section 6.1(l),

(ii) developing regulatory plans and proposals, corporation
organizational and management plans, workforce combination proposals, and
such other matters as the Task Force deems appropriate,

(iii) evaluating and recommending the manner in which best to organize
and manage the business of the Surviving Corporation after the Effective
Time; PROVIDED that that Task Force shall not be responsible for controlling
the operations of the business of the parties or any of their respective
subsidiaries, and

(iv) recommending additional officers, if any, of Rochester Gas and
Electric Corporation pursuant to Section 7.19(b) and of New York State
Electric & Gas Corporation pursuant to Section 7.20(b).

(c) The Task Force Chairpersons shall be responsible for directing all
activities of the Task Force contemplated by this Section 7.18.

Section 7.19 ROCHESTER GAS AND ELECTRIC CORPORATION.

(a) DIRECTORS. Commencing at the Effective Time, the directors of
Rochester Gas and Electric Corporation shall consist of four persons, two
persons nominated by Parent and two persons nominated by the Company, and such
directors shall hold office from the Effective Time until their respective
successors are duly elected or appointed and qualified in the manner provided in
the certificate of incorporation and by-laws of Rochester Gas and Electric
Corporation, or as otherwise provided by the NYBCL. Parent hereby confirms that
it intends to nominate Mr. von Schack and Mr. Jasinski as directors of Rochester
Gas and Electric Corporation. The Company hereby confirms that it intends to
nominate Mr. Richards as a director of Rochester Gas and Electric Corporation.

(b) OFFICERS. Commencing at the Effective Time, the officers of Rochester
Gas and Electric Corporation shall consist of (i) the officers of Rochester Gas
and Electric Corporation immediately prior to the Effective Time and (ii) such
other additional persons as recommended by the Task Force,

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and such officers shall hold office from the Effective Time until their
respective successors are duly elected or appointed and qualified in the manner
provided in the certificate of incorporation and by-laws of Rochester Gas and
Electric Corporation, or as otherwise provided by the NYBCL.

Section 7.20 NEW YORK STATE ELECTRIC & GAS CORPORATION.

(a) DIRECTORS. Commencing at the Effective Time, the directors of New York
State Electric & Gas Corporation shall consist of four persons, three persons
nominated by Parent and one person nominated by the Company, and such directors
shall hold office from the Effective Time until their respective successors are
duly elected or appointed and qualified in the manner provided in the
certificate of incorporation and by-laws of New York State Electric & Gas
Corporation, or as otherwise provided by the NYBCL. Parent hereby confirms that
it intends to nominate Mr. von Schack, Mr. Jasinski and Mr. Tedesco as directors
of New York State Electric & Gas Corporation. The Company hereby confirms that
it intends to nominate Mr. Richards as a director of New York State Electric &
Gas Corporation.

(b) OFFICERS. Commencing at the Effective Time, the officers of New York
State Electric & Gas Corporation shall consist of (i) the officers of New York
State Electric & Gas Corporation immediately prior to the Effective Time and
(ii) such other additional persons as recommended by the Task Force, and such
officers shall hold office from the Effective Time until their respective
successors are duly elected or appointed and qualified in the manner provided in
the certificate of incorporation and by-laws of New York State Electric & Gas
Corporation, or as otherwise provided by the NYBCL.

Section 7.21 SHARE CONTRIBUTION. Parent shall, as promptly as practicable
following the Effective Time, but in no event later than five days following the
Effective Time, transfer its shares of New York State Electric & Gas Corporation
to the Surviving Corporation so that New York State Electric & Gas Corporation
shall become a direct wholly owned subsidiary of the Surviving Corporation;
PROVIDED, HOWEVER, that Parent shall not effect any such transfer if, in the
reasonable good faith judgment of Parent after consultation with the Company,
such transfer or intended transfer would result in any material impediment or
delay in obtaining any Company Required Statutory Approval or Parent Required
Statutory Approval or would otherwise materially impede or delay the
consummation of the Merger. Whether or not Parent effects such transfer,
Mr. Richards shall serve as Chairman of the Board and Chief Executive Officer of
New York State Electric & Gas Corporation following the Effective Time.

ARTICLE VIII
CONDITIONS

Section 8.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The
respective obligations of each party to effect the Merger shall be subject to
the satisfaction on or prior to the Closing Date of the following conditions,
except, to the extent permitted by applicable law, that such conditions may be
waived in writing pursuant to Section 9.5 by the joint action of the parties
hereto:

(a) SHAREHOLDER APPROVAL. The Company Shareholders' Approval and
Parent Shareholders' Approval shall have been obtained.

(b) NO INJUNCTION. No temporary restraining order or preliminary or
permanent injunction or other order by any federal or state court preventing
consummation of the Merger shall have been issued and be continuing in
effect, and the Merger and the other transactions contemplated hereby shall
not have been prohibited under any applicable federal or state law or
regulation.

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(c) REGISTRATION STATEMENT. The Registration Statement shall have
become effective in accordance with the provisions of the Securities Act,
and no stop order suspending such effectiveness shall have been issued and
remain in effect.

(d) LISTING OF SHARES. The shares of Parent Common Stock issuable in
connection with the Merger pursuant to Article II shall have been approved
for listing on the NYSE upon official notice of issuance.

(e) STATUTORY APPROVALS. The Company Required Statutory Approvals and
Parent Required Statutory Approvals shall have been obtained at or prior to
the Effective Time and such approvals shall have become Final Orders. A
"FINAL ORDER" means action by the relevant regulatory authority relating to
this Agreement or the transactions contemplated hereby which has not been
reversed, stayed, enjoined, set aside, annulled or suspended, with respect
to which any waiting period prescribed by law before the transactions
contemplated hereby may be consummated has expired, and as to which all
conditions to the consummation of such transactions prescribed by law,
regulation or order have been satisfied.

Section 8.2 CONDITIONS TO OBLIGATION OF PARENT TO EFFECT THE MERGER. The
obligation of Parent to effect the Merger shall be further subject to the
satisfaction, on or prior to the Closing Date, of the following conditions,
except as may be waived by Parent in writing pursuant to Section 9.5:

(a) PERFORMANCE OF OBLIGATIONS OF THE COMPANY. The Company (and its
appropriate subsidiaries) shall have performed in all material respects its
agreements and covenants contained in Sections 6.1 and 6.2 and shall have
performed in all material respects its other agreements and covenants
contained in or contemplated by this Agreement to be performed by it at or
prior to the Effective Time.

(b) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Company set forth in this Agreement shall be true and correct in all
respects (without regard to any materiality qualifications or references to
Company Material Adverse Effect contained therein) (i) on and as of the date
hereof and (ii) on and as of the Closing Date with the same effect as though
such representations and warranties had been made on and as of the Closing
Date (except for representations and warranties that expressly speak only as
of a specific date or time other than the date hereof or the Closing Date,
which need only be true and correct as of such date or time) except in each
of cases (i) and (ii) for such failures of representations or warranties to
be true and correct which would not reasonably be expected to have,
individually and in the aggregate, a Company Material Adverse Effect.

(c) CLOSING CERTIFICATES. Parent shall have received a certificate
signed by the Senior Vice President and General Counsel of the Company,
dated the Closing Date, to the effect that, to the best of such officer's
knowledge, the conditions set forth in Section 8.2(a) and Section 8.2(b)
have been satisfied.

(d) NO COMPANY MATERIAL ADVERSE EFFECT. No Company Material Adverse
Effect shall have occurred, and there shall exist no fact or circumstance
other than facts and circumstances described in Section 8.2(d) of the
Company Disclosure Schedule or the Company SEC Reports filed prior to the
date hereof which would reasonably be expected to have a Company Material
Adverse Effect; PROVIDED, HOWEVER, that for the purpose of this
Section 8.2(d), Company Material Adverse Effect shall exclude any effects,
consequences or conditions attributable to (i) any change in U.S. or global
economic conditions, U.S. or global financial markets or conditions, or GAAP
or (ii) any change relating to the industries in which Parent and the
Company operate or in any generally applicable law or regulation, in each
case that does not specifically relate to Parent or the Company and that
does not affect Parent or the Company in a materially disproportionate
manner relative to each other to the extent disproportionate.

(e) COMPANY REQUIRED CONSENTS. The Company Required Consents the
failure of which to obtain would reasonably be expected to have a Company
Material Adverse Effect shall have been obtained.

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(f) AFFILIATE LETTERS. Parent shall have received Affiliate Letters,
duly executed by each "affiliate" of the Company, substantially in the form
of EXHIBIT B, as provided in Section 7.8.

(g) TAX OPINION. Parent shall have received an opinion of Wachtell,
Lipton, Rosen & Katz to the effect that the Merger will be treated as a
reorganization within the meaning of Section 368(a) of the Code. In
rendering such opinion, Wachtell, Lipton, Rosen & Katz may receive and rely
upon representations contained in certificates of Parent, the Company and
others, in each case in form and substance reasonably acceptable to such
counsel.

(h) STATUTORY APPROVALS. The Final Orders shall not impose terms or
conditions which, individually or in the aggregate, would have, or would
reasonably be expected to have, a Company Material Adverse Effect or a
Parent Material Adverse Effect. In addition, the inclusion of a condition or
requirement of the SEC's approval of the Merger under the 1935 Act that
Parent divest its ownership of any of the gas or electric utility operations
of Parent or the Company shall constitute a term or condition which would
reasonably be expected to have a "material adverse effect" within the
meaning of this Section 8.2(h) of the Agreement.

Section 8.3 CONDITIONS TO OBLIGATION OF THE COMPANY TO EFFECT THE
MERGER. The obligation of the Company to effect the Merger shall be further
subject to the satisfaction, on or prior to the Closing Date, of the following
conditions, except as may be waived by the Company in writing pursuant to
Section 9.5.

(a) PERFORMANCE OF OBLIGATIONS OF PARENT. Parent (and its appropriate
subsidiaries) shall have performed in all material respects its agreements
and covenants contained in Section 6.1 and shall have performed in all
material respects its other agreements and covenants contained in or
contemplated by this Agreement to be performed by it at or prior to the
Effective Time.

(b) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Parent set forth in this Agreement shall be true and correct in all
respects (without regard to any materiality qualifications or references to
Parent Material Adverse Effect contained therein) (i) on and as of the date
hereof and (ii) on and as of the Closing Date with the same effect as though
such representations and warranties had been made on and as of the Closing
Date (except for representations and warranties that expressly speak only as
of a specific date or time other than the date hereof or the Closing Date,
which need only be true and correct as of such date or time) except in each
of cases (i) and (ii) for such failures of representations or warranties to
be true and correct which would not reasonably be expected to have,
individually and in the aggregate, a Parent Material Adverse Effect.

(c) CLOSING CERTIFICATES. The Company shall have received a
certificate signed by the Executive Vice President, General Counsel and
Secretary of Parent, dated the Closing Date, to the effect that, to the best
of such officer's knowledge, the conditions set forth in Section 8.3(a) and
Section 8.3(b) have been satisfied.

(d) NO PARENT MATERIAL ADVERSE EFFECT. No Parent Material Adverse
Effect shall have occurred, and there shall exist no fact or circumstance
other than facts and circumstances described in the Parent SEC Reports filed
prior to the date hereof which would reasonably be expected to have a Parent
Material Adverse Effect; PROVIDED, HOWEVER, that for the purpose of this
Section 8.3(d), Parent Material Adverse Effect shall exclude any effects,
consequences or conditions attributable to (i) any change in U.S. or global
economic conditions, U.S. or global financial markets or conditions, or GAAP
or (ii) any change relating to the industries in which Parent and the
Company operate or in any generally applicable law or regulation, in each
case that does not specifically relate to Parent or the Company and that
does not affect Parent or the Company in a materially disproportionate
manner relative to each other to the extent disproportionate.

A-38

(e) PARENT REQUIRED CONSENTS. Parent Required Consents the failure of
which to obtain would reasonably be expected to have a Parent Material
Adverse Effect shall have been obtained.

(f) TAX OPINION. The Company shall have received an opinion from
Shearman & Sterling to the effect that the Merger will be treated as a
reorganization within the meaning of Section 368(a) of the Code. In
rendering such opinion, Shearman & Sterling may receive and rely upon
representations contained in certificates of Parent, the Company and others,
in each case in form and substance reasonably acceptable to such counsel.

ARTICLE IX

TERMINATION, AMENDMENT AND WAIVER

Section 9.1 TERMINATION. This Agreement may be terminated at any time
prior to the Closing Date, whether before or after approval by the shareholders
of the respective parties hereto contemplated by this Agreement:

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

(b) by any party hereto, by written notice to the other parties, if the
Effective Time shall not have occurred on or before the date that is
12 months from the date hereof (the "INITIAL TERMINATION DATE"); PROVIDED,
HOWEVER, that if on the Initial Termination Date the conditions to the
Closing set forth in Section 8.1(e) shall not have been fulfilled but all
other conditions to the Closing shall be fulfilled or shall be capable of
being fulfilled, then the Initial Termination Date shall be extended to the
21-month anniversary of the date hereof; and provided, further, that the
right to terminate this Agreement under this Section 9.1(b) shall not be
available to any party whose failure to fulfill any obligation under this
Agreement or whose breach of any agreement or covenant has been the cause
of, or resulted directly or indirectly in, the failure of the Effective Time
to occur on or before the Initial Termination Date or as it may be so
extended.

(c) by any party hereto, by written notice to the other parties, if the
Company Shareholders' Approval shall not have been obtained at a duly held
Company Shareholders' Meeting, including any adjournments thereof by the
Initial Termination Date;

(d) by any party hereto, by written notice to the other parties, if
Parent Shareholders' Approval shall not have been obtained at a duly held
Parent Shareholders' Meeting, including any adjournments thereof by the
Initial Termination Date;

(e) by any party hereto, if any state or federal law, order, rule or
regulation is adopted or issued, which has the effect, as supported by the
written opinion of outside counsel for such party, of prohibiting the
Merger, or by any party hereto if any court of competent jurisdiction in the
United States or any State shall have issued an order, judgment or decree
permanently restraining, enjoining or otherwise prohibiting the Merger, and
such order, judgment or decree shall have become final and nonappealable;

(f) by the Company prior to the time at which the Company Shareholders'
Approval shall have been obtained, upon three days' prior notice to Parent,
if the Company is not in breach of Section 6.2 and, as a result of an
Alternative Proposal, the Board of Directors of the Company determines in
good faith, that (i) the Alternative Proposal is financially superior to the
Merger and the third party making the Alternative Proposal has demonstrated
that any necessary financing has been obtained, or in the reasonable
judgment of the Company's financial advisor such financing is obtainable,
and (ii) after consultation with its financial advisor and outside counsel
and consideration of such other matters as the Board of Directors of the
Company deems relevant, after considering applicable provisions of state law
and after giving effect to all concessions which may be offered by the other
party pursuant to the proviso below, that failure to do so would likely

A-39

result in a breach of its fiduciary duties under applicable law; PROVIDED,
HOWEVER, that prior to any such termination, the Company shall, and shall
cause its respective financial and legal advisors to consider in good faith
any proposal made by Parent to enable the Company to proceed with the
transactions contemplated herein;

(g) by the Company, by written notice to Parent, if (i) there exist
breaches of the representations and warranties of Parent made herein as of
the date hereof which breaches, individually or in the aggregate, would or
would reasonably be expected to have a Parent Material Adverse Effect, and
such breaches shall not have been remedied within 20 days after receipt by
Parent of notice in writing from the Company, specifying the nature of such
breaches and requesting that they be remedied, (ii) Parent (or its
appropriate subsidiaries) shall have failed to perform and comply with, in
all material respects, its agreements and covenants hereunder, and such
failure to perform or comply shall not have been remedied within 20 days
after receipt by Parent of notice in writing from the Company, specifying
the nature of such failure and requesting that it be remedied, or (iii) the
Board of Directors of Parent or any committee thereof shall withdraw or
modify in any manner adverse to the Company its approval or recommendation
of the issuance of Parent Common Stock issuable in connection with the
Merger or shall resolve to take such action;

(h) by Parent, by written notice to the Company, if (i) there exist
breaches of the representations and warranties of the Company made herein as
of the date hereof which breaches, individually or in the aggregate, would
or would reasonably be expected to have a Company Material Adverse Effect,
and such breaches shall not have been remedied within 20 days after receipt
by the Company of notice in writing from Parent, specifying the nature of
such breaches and requesting that they be remedied, (ii) the Company (or its
appropriate subsidiaries) shall not have performed and complied with its
agreements and covenants contained in Sections 6.1(b) and 6.1(c) or shall
have failed to perform and comply with, in all material respects, its other
agreements and covenants hereunder, and such failure to perform or comply
shall not have been remedied within 20 days after receipt by the Company of
notice in writing from Parent, specifying the nature of such failure and
requesting that it be remedied, or (iii) the Board of Directors of the
Company or any committee thereof (A) shall withdraw or modify in any manner
adverse to Parent its approval or recommendation of this Agreement or the
transactions contemplated herein, (B) shall fail to reaffirm such approval
or recommendation upon Parent's request within seven days after such request
(provided that Parent may make such request only once with respect to any
Alternative Proposal), (C) shall approve or recommend any acquisition of the
Company or a material portion of its assets or any tender offer for the
shares of capital stock of the Company, in each case by a party other than
Parent or any of its affiliates or (D) shall resolve to take any of the
actions specified in clause (A), (B) or (C).

Section 9.2 EFFECT OF TERMINATION. Subject to Section 10.1(b), in the
event of termination of this Agreement by either the Company or Parent pursuant
to Section 9.1, there shall be no liability on the part of either the Company or
Parent or their respective officers or directors hereunder, except that
Section 7.12, Section 9.3, the agreement contained in the last sentence of
Section 7.1, Section 10.8 and Section 10.9 shall survive the termination.

Section 9.3 TERMINATION FEE; EXPENSES.

(a) TERMINATION FEE UPON BREACH OR FAILURE TO PERFORM. If this Agreement
is terminated at such time that this Agreement is terminable pursuant to one
(but not both) of (x) Section 9.1(g)(i) or (ii) or (y) Section 9.1(h)(i) or
(ii), then: (i) the breaching party shall promptly (but not later than five
business days after receipt of notice from the non-breaching party) pay to the
non-breaching party in cash an amount equal to all documented out-of-pocket
expenses and fees incurred by the non-breaching party (including, without
limitation, fees and expenses payable to all legal, accounting, financial,
public

A-40

relations and other professional advisors arising out of, in connection with or
related to the Merger or the transactions contemplated by this Agreement) not in
excess of $10 million ("EXPENSES"); PROVIDED, HOWEVER, that, if this Agreement
is terminated by a party as a result of a willful breach by the other party, the
non-breaching party may pursue any remedies available to it at law or in equity
and shall, in addition to its out-of-pocket expenses (which shall be paid as
specified above and shall not be limited to $10 million), be entitled to retain
such additional amounts as such non-breaching party may be entitled to receive
at law or in equity.

(b) COMPANY TERMINATION FEE. The Company shall pay Parent a fee of
$50 million ("TERMINATION FEE") plus Expenses, upon the termination of this
Agreement by Parent or the Company pursuant to Section 9.1(c) or the Company
pursuant to Section 9.1(f) or by Parent pursuant to Section 9.1(h)(iii);
PROVIDED, HOWEVER, that in the event of termination under either Section 9.1(c)
or Section 9.1(h)(iii), no payment of the Termination Fee or Expenses shall be
required unless and until within 12 months of such termination the Company
enters into a definitive agreement to consummate or consummates a Business
Combination, and, in the case of a termination pursuant to Section 9.1(c), there
shall have been made and not withdrawn at the time of the Company Shareholders'
Meeting an Alternative Proposal and, in the case of a termination pursuant to
Section 9.1(h)(iii), there shall have been made and not withdrawn at the time of
such termination an Alternative Proposal. "BUSINESS COMBINATION" means with
respect to a party, (i) a merger, consolidation, share exchange, business
combination or similar transaction involving the party as a result of which the
party's stockholders prior to such transaction in the aggregate cease to own at
least 70% of the voting securities of the entity surviving or resulting from
such transaction (or the ultimate parent entity thereof), (ii) a sale, lease,
exchange, transfer or other disposition of more than 30% of the assets of the
party and its subsidiaries, taken as a whole, in a single transaction or a
series of related transactions, or (iii) the acquisition, by a person (other
than the other party or any affiliate thereof), group or entity of beneficial
ownership (as defined in Rule 13d-3 under the Exchange Act) of more than 30% of
the party's common stock whether by tender or exchange offer or otherwise.

(c) PARENT TERMINATION FEE. Parent shall pay the Company the Termination
Fee plus Expenses, upon the termination of this Agreement by Parent or the
Company pursuant to Section 9.1(d); PROVIDED, HOWEVER, that in the event of
termination under Section 9.1(d), no payment of the Termination Fee or Expenses
shall be required unless and until (i) within 12 months of such termination
Parent enters into a definitive agreement to consummate or consummates a
Business Combination, (ii) there shall have been made and not withdrawn at the
time of Parent Shareholders' Meeting an Alternative Proposal and (iii) the
person or persons that made the Alternative Proposal conditioned such
Alternative Proposal on Parent Shareholders' Approval not being obtained at a
duly held Parent Shareholders' Meeting.

(d) PROMPT PAYMENT. If one party fails to pay promptly to the other any
fee or expenses due hereunder, the defaulting party shall pay the costs and
expenses (including legal fees and expenses) in connection with any action,
including the filing of any lawsuit or other legal action, taken to collect
payment, together with interest on the amount of any unpaid fee at the publicly
announced prime rate of J.P. Morgan Chase & Co., from the date such fee was
required to be paid.

Section 9.4 AMENDMENT. This Agreement may be amended by the Boards of
Directors of the parties hereto, at any time before or after approval hereof by
the shareholders of the Company and prior to the Effective Time, but after such
approvals, no such amendment shall (a) alter or change the amount or kind of
shares, rights or any of the proceedings of the treatment of shares under
Article II, or (b) alter or change any of the terms and conditions of this
Agreement if any of the alterations or changes, alone or in the aggregate, would
materially adversely affect the rights of holders of Company capital stock,
except for alterations or changes that could otherwise be adopted by the Board
of Directors of the Company, without the further approval of such shareholders.
This Agreement may not be amended except by an instrument in writing signed on
behalf of each of the parties hereto.

A-41

Section 9.5 WAIVER. At any time prior to the Effective Time, the parties
hereto may (a) extend the time for the performance of any of the obligations or
other acts of the other parties hereto, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto and (c) waive compliance with any of the agreements or
conditions contained herein, to the extent permitted by applicable law. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid if set forth in an instrument in writing signed on behalf of such party.

ARTICLE X
GENERAL PROVISIONS

Section 10.1 NON-SURVIVAL; EFFECT OF REPRESENTATIONS AND
WARRANTIES. (a) All representations, warranties and agreements in this
Agreement shall not survive the Merger, except as otherwise provided in this
Agreement and except for the agreements contained in this Section 10.1, in
Articles I and II and in Sections 7.5, 7.11, 7.16, 10.7, 10.8 and 10.9.

(b) No party may assert a claim for breach of any representation or warranty
contained in this Agreement (whether by direct claim or counterclaim) except in
connection with the cancellation of this Agreement pursuant to
Section 9.1(g)(i) or Section 9.1(h)(i) (or pursuant to any other subsection of
Section 9.1, if the terminating party would have been entitled to terminate this
Agreement pursuant to Section 9.1(g)(i) or Section 9.1(h)(i)).

Section 10.2 BROKERS. The Company represents and warrants that, except for
Morgan Stanley Dean Witter & Co. whose fees have been disclosed to Parent prior
to the date hereof, no broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with the Merger or
the transactions contemplated by this Agreement based upon arrangements made by
or on behalf of the Company. Parent represents and warrants that, except for UBS
Warburg LLC, whose fees have been disclosed to the Company prior to the date
hereof, no broker, finder or investment banker is entitled to any brokerage,
finder's or other fee or commission in connection with the Merger or the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of Parent.

Section 10.3 NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed given if (a) delivered personally, (b) sent by
reputable overnight courier service, (c) telecopied (which is confirmed) or
(d) five days after being mailed by registered or certified mail (return receipt
requested) to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice):

(i) If to the Company, to:

RGS Energy Group, Inc.
89 East Avenue
Rochester, New York 14649-0001
Attention: Michael T. Tomaino, Esq.
Senior Vice President and General Counsel

Telephone: (716) 771-4444
Telecopy: (716) 724-8285

A-42

with a copy to:

Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
Attention: David W. Heleniak, Esq.
Telephone: (212) 848-4000
Telecopy: (212) 848-7179

(ii) If to Parent or Merger Sub, to:

Energy East Corporation
P.O. Box 12904
Albany, New York 12212-2904
Attention: Kenneth M. Jasinski, Esq.
Executive Vice President, General Counsel and Secretary

Telephone: (607) 762-4315
Telecopy: (607) 762-4005

with a copy to:

Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: Seth A. Kaplan, Esq.
Telephone: (212) 403-1000
Telecopy: (212) 403-2000

Section 10.4 MISCELLANEOUS. This Agreement (including the documents and
instruments referred to herein) (a) constitutes the entire agreement and
supersedes all other prior agreements and understandings, both written and oral,
among the parties, or any of them, with respect to the subject matter hereof
other than the Confidentiality Agreement; (b) shall not be assigned by operation
of law or otherwise; and (c) shall be governed by and construed in accordance
with the laws of the State of New York applicable to contracts executed in and
to be fully performed in such State, without giving effect to its conflicts of
law, rules or principles and except to the extent the provisions of this
Agreement (including the documents or instruments referred to herein) are
expressly governed by or derive their authority from the NYBCL.

Section 10.5 INTERPRETATION. When a reference is made in this Agreement to
Sections or Exhibits, such reference shall be to a Section or Exhibit of this
Agreement, respectively, unless otherwise indicated. The table of contents and
headings contained in this Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement. Whenever
the words "include," "includes" or "including" are used in this Agreement, they
shall be deemed to be followed by the words "without limitation."

Section 10.6 COUNTERPARTS; EFFECT. This Agreement may be executed in one
or more counterparts, each of which shall be deemed to be an original, but all
of which shall constitute one and the same agreement.

Section 10.7 PARTIES IN INTEREST. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and, except for rights of
Indemnified Parties as set forth in Section 7.5, nothing in this Agreement,
express or implied, is intended to confer upon any other person any rights or
remedies of any nature whatsoever under or by reason of this Agreement.

Section 10.8 WAIVER OF JURY TRIAL AND CERTAIN DAMAGES. Each party to this
Agreement waives, to the fullest extent permitted by applicable law, (a) any
right it may have to a trial by jury in respect of

A-43

any action, suit or proceeding arising out of this Agreement and (b) without
limiting the effect of Section 9.3, any right it may have, other than in the
case of a willful breach, to receive damages from any other party based on any
theory of liability for any special, indirect, consequential (including lost
profits) or punitive damages.

Section 10.9 ENFORCEMENT. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court of the United States
located in the State of New York or in New York state court, this being in
addition to any other remedy to which they are entitled at law or in equity. In
addition, each of the parties hereto (a) consents to submit itself to the
personal jurisdiction of any federal court located in the State of New York or
any New York state court in the event any dispute arises out of this Agreement
or any of the transactions contemplated by this Agreement, (b) agrees that it
will not attempt to deny such personal jurisdiction by motion or other request
for leave from any such court and (c) agrees that it will not bring any action
relating to this Agreement or any of the transactions contemplated by this
Agreement in any court other than a federal or state court sitting in the State
of New York.

[Signature Page Follows]

A-44

IN WITNESS WHEREOF, the Company, Parent and Merger Sub have caused this
Agreement to be signed by their respective officers thereunto duly authorized as
of the date first written above.

RGS ENERGY GROUP, INC.

By: /s/ THOMAS S. RICHARDS
-----------------------------------------
Name: Thomas S. Richards
Title: Chairman, President and Chief
Operating Officer

ENERGY EAST CORPORATION

By: /s/ KENNETH M. JASINSKI
-----------------------------------------
Name: Kenneth M. Jasinski
Title: Executive Vice President, General
Counsel and Secretary

EAGLE MERGER CORP.

By: /s/ KENNETH M. JASINSKI
-----------------------------------------
Name: Kenneth M. Jasinski
Title: Vice President,
General Counsel and Secretary

A-45

APPENDIX B

[MORGAN STANLEY DEAN WITTER LOGO]

1585 BROADWAY
NEW YORK, NEW YORK 10036
(212) 761-4000

February 16, 2001

Board of Directors
RGS Energy Group, Inc.
89 East Avenue
Rochester, NY 14649-0001

Members of the Board:

We understand that RGS Energy Group, Inc. ("RGS"), Energy East Corporation
("Energy East") and Eagle Merger Corp. ("Merger Sub") propose to enter into an
Agreement and Plan of Merger, substantially in the form of the draft dated
February 16, 2001 (the "Merger Agreement") which provides, among other things,
for the merger (the "Merger") of RGS with and into Merger Sub. Pursuant to the
Merger, RGS will become a wholly owned subsidiary of Energy East and each
outstanding share of common stock, par value $.01 per share (the "RGS Common
Stock"), of RGS, other than shares held in treasury or held by Energy East or
any affiliate of Energy East, will be converted into the right to receive at the
election of a holder RGS Common Stock, (i) $39.50 in cash, (ii) a certain number
of shares of common stock, par value $.01 per share ("Energy East Common
Stock"), of Energy East or (iii) a combination of cash and Energy East Common
Stock, each as determined pursuant and subject to certain formulas set forth in
the Merger Agreement (collectively, the "Consideration"). The terms and
conditions of the Merger are more fully set forth in the Merger Agreement.

You have asked for our opinion as to whether the Consideration to be received by
the holders of shares of RGS Common Stock pursuant to the Merger Agreement is
fair from a financial point of view to such holders.

For purposes of the opinion set forth herein, we have:

(i) reviewed certain publicly available financial statements and other
information of RGS and Energy East;

(ii) reviewed certain internal financial statements and other financial
and operating data concerning RGS and Energy East prepared by the
managements of RGS and Energy East, respectively;

(iii) reviewed certain financial projections prepared by the managements
of RGS and Energy East;

(iv) discussed the past and current operations and financial condition
and the prospects of RGS and Energy East, including information
relating to certain strategic, financial and operational benefits
anticipated from the Merger, with senior executives of RGS and
Energy East, respectively;

(v) reviewed the pro forma impact of the Merger on Energy East's
earnings per share, credit ratios and consolidated capitalization;

(vi) reviewed the reported prices and trading activity for the RGS
Common Stock and the Energy East Common Stock;

(vii) compared the financial performance of RGS and Energy East and the
prices and trading activity of the RGS Common Stock and the Energy
East Common Stock with that of

B-1

[MORGAN STANLEY DEAN WITTER LOGO]

certain other publicly traded companies comparable with RGS and
Energy East, respectively, and their securities;

(viii) reviewed the financial terms, to the extent publicly available, of
certain comparable acquisition transactions;

(ix) participated in discussions and negotiations among representatives
of RGS and Energy East and their financial and legal advisors;

(x) reviewed the Merger Agreement, and certain related documents; and

(xi) performed such other analyses and considered such other factors as
we have deemed appropriate.

We have assumed and relied upon without independent verification the accuracy
and completeness of the information reviewed by us for the purposes of this
opinion. With respect to the financial projections, including information
relating to certain strategic, financial and operational benefits anticipated
from the Merger, we have assumed that they have been reasonably prepared on
bases reflecting the best currently available estimates and judgments of the
future financial performance of RGS and Energy East. We have relied upon,
without independent verification, the assessment by the managements of RGS and
Energy East of the future competitive and regulatory environment for RGS and
Energy East and their ability to achieve the strategic, financial and
operational benefits anticipated from the Merger. We have assumed that in
connection with the receipt of all the necessary regulatory approvals for the
Merger, no restrictions will be imposed that would have a material adverse
effect on the contemplated benefits expected to be derived in the Merger. In
addition, we have assumed that the Merger will be consummated in accordance with
the terms set forth in the Merger Agreement, including among other things, that
the Merger is intended to be treated as a reorganization pursuant to the
Internal Revenue Code of 1986. We have not made any independent valuation or
appraisal of the assets or liabilities of the Energy East, nor have we been
furnished with any such appraisals. Our opinion is necessarily based on
financial, economic, market and other conditions as in effect on, and the
information made available to us as of, the date hereof.

We have acted as financial advisor to the Board of Directors of RGS in
connection with this transaction and will receive a fee for our services. In the
past, Morgan Stanley & Co. Incorporated and its affiliates have provided
financial advisory and financing services for RGS and Energy East and have
received fees for the rendering of these services.

It is understood that this letter is for the information of the Board of
Directors of RGS and may not be used for any other purpose without our prior
written consent, except that this opinion may be included in its entirety in any
filing made by RGS in respect of the transaction with the Securities and
Exchange Commission. In addition, this opinion does not in any manner address
the prices at which the Energy East Common Stock will trade following
consummation of the Merger, and Morgan Stanley expresses no opinion or
recommendation as to how the shareholders of RGS should vote at the
shareholder's meeting held in connection with the Merger.

Based on the foregoing, we are of the opinion on the date hereof that the
Consideration to be received by the holders of shares of RGS Common Stock
pursuant to the Merger Agreement is fair from a financial point of view to such
holders.

Very truly yours,
MORGAN STANLEY & CO. INCORPORATED

By: /s/ Morgan Stanley & Co. Incorporated
-----------------------------------------
MORGAN STANLEY & CO.
INCORPORATED

B-2

APPENDIX C

[UBS WARBURG LOGO]

February 16, 2001

The Board of Directors
Energy East Corporation
P.O. Box 12904
Albany, NY 12212-2904

Ladies and Gentlemen:

We understand that Energy East Corporation, a New York corporation ("Energy
East" or the "Company"), is considering a transaction whereby a wholly owned
subsidiary of the Company will merge with RGS Energy Group, Inc., a New York
corporation ("RGS"). Pursuant to the terms of the proposed Agreement and Plan of
Merger (the "Merger Agreement") dated as of February 16, 2001, by and among the
Company, Eagle Merger Corp., which will be a wholly owned subsidiary of the
Company at the effective time of the merger ("Merger Sub"), and RGS, RGS will
merge with and into Merger Sub (the "Merger"), and each share of Common Stock,
par value $0.01 per share, of RGS (in aggregate, the "Shares") (other than those
Shares held in treasury by RGS or any of its subsidiaries and those Shares owned
by the Company or any of its subsidiaries), will be converted, subject to
election by each holder of the Shares, into the right to receive (1) $39.50 in
cash, (2) that number of shares of Common Stock, par value $0.01 per share, of
the Company ("Company Common Stock") equal to the Exchange Ratio (as defined in
the Merger Agreement) or (3) a combination of cash and shares of Company Common
Stock (together, the "Consideration"); provided that the allocation will be
adjusted as set forth in the Merger Agreement so that the aggregate number of
Shares to be converted into the right to receive cash will not exceed 55% of the
total number of Shares outstanding as of the effective time of the Merger and
the aggregate number of Shares to be converted into the right to receive Company
Common Stock will not exceed 45% of the total number of Shares outstanding as of
the effective time of the Merger, subject to certain conditions. The terms and
conditions of the Merger are more fully set forth in the Merger Agreement.

You have requested our opinion as to the fairness from a financial point of
view to the Company of the Consideration to be paid to the shareholders of RGS
in the Merger.

UBSW will receive a fee upon delivery of this opinion, and additional fees
(1) at the time of the Company's shareholder vote and (2) at the closing of the
Merger. In the past, UBSW and its predecessors have provided investment banking
services to the Company and received customary compensation for the rendering of
such services. In the ordinary course of business, UBSW, its successors and
affiliates have traded or may trade securities of the Company or RGS for their
own accounts and the accounts of their customers and, accordingly, may at any
time hold a long or short position in such securities.

Our opinion does not address the Company's underlying business decision to
effect the Merger or constitute a recommendation to any shareholder of the
Company as to how such shareholder should vote with respect to the issuance of
shares of Company Common Stock to effect the Merger. Other than as set forth in
this opinion, we have not been asked to, nor do we, offer any opinion as to the
material terms of the Merger Agreement or the form of the Merger. We express no
opinion as to what the value of Company Common Stock will be when issued
pursuant to the Merger or the prices at which it will trade in the future. In
rendering this opinion, we have assumed, with your consent, that the Company and
RGS will comply with all the material terms of the Merger Agreement.

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In arriving at our opinion, we have, among other things: (i) reviewed
certain publicly available business and historical financial information
relating to RGS and the Company, (ii) reviewed certain internal financial
information and other data relating to the business and financial prospects of
RGS, including estimates and financial forecasts prepared by management of RGS,
that were provided to us by RGS and not publicly available, (iii) reviewed
certain internal financial information and other data relating to the business
and financial prospects of the Company, including estimates and financial
forecasts prepared by the management of the Company and not publicly available,
(iv) conducted discussions with members of the senior managements of RGS and the
Company concerning the businesses and financial prospects of RGS and the
Company, (v) reviewed publicly available financial and stock market data with
respect to certain other companies in lines of business we believe to be
generally comparable to those of RGS, (vi) reviewed publicly available financial
and stock market data with respect to certain other companies in lines of
business we believe to be generally comparable to those of the Company,
(vii) compared the financial terms of the Merger with the publicly available
financial terms of certain other transactions which we believe to be generally
relevant, (viii) considered certain pro forma effects of the Merger on the
Company's financial statements, (ix) reviewed the Merger Agreement,
(x) considered the strategic advantages of the Merger, and (xi) conducted such
other financial studies, analyses, and investigations, and considered such other
information as we deemed necessary or appropriate.

In connection with our review, at your direction, we have not assumed any
responsibility for independent verification for any of the information reviewed
by us for the purpose of this opinion and have, with your consent, relied on
such information being complete and accurate in all material respects. In
addition, at your direction, we have not made any independent evaluation or
appraisal of any of the assets or liabilities (contingent or otherwise) of the
Company or RGS, nor have we been furnished with any such evaluation or
appraisal. With respect to the financial forecasts, estimates and pro forma
effects referred to above, we have assumed, at your direction, that they have
been reasonably prepared on a basis reflecting the best currently available
estimates and judgments of the management of each company as to the future
performance of their respective companies. In addition, we have assumed with
your approval that the future financial results referred to above will be
achieved at the times and in the amounts projected by management. We have also
assumed, with your consent, that the Merger will be accounted for under the
purchase method of accounting. We have also assumed that all governmental,
regulatory or other consents and approvals necessary for the consummation of the
Merger will be obtained without any material adverse effect on the Company
and/or RGS. Our opinion is necessarily based on economic, monetary, market and
other conditions as in effect on, and the information made available to us as
of, the date hereof.

Based upon and subject to the foregoing, it is our opinion that, as the date
hereof, the Consideration to be paid to the shareholders of RGS in the Merger is
fair, from a financial point of view, to the Company.

Very truly yours,
/s/ UBS Warburg LLC
--------------------------------------
UBS WARBURG LLC

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APPENDIX D

RGS ENERGY GROUP, INC.
AUDIT COMMITTEE CHARTER

PURPOSE

The purpose of the Audit Committee is to provide oversight, on behalf of the
Board of Directors, of the Company's financial reporting processes, the quality
and integrity of its financial statements, and the system of internal control
that management has established to safeguard the assets of the Company. The
Board and the Committee are in place to represent the Company's shareholders;
accordingly, the outside auditor is ultimately accountable to the Board and the
Committee.

MEMBERSHIP OF THE AUDIT COMMITTEE

The Audit Committee is appointed by and serves at the request of the Board
of Directors. The Committee shall be comprised of a minimum of three financially
literate directors with at least one member who has accounting or related
financial management expertise. The Board of Directors defines financial
literacy as the ability to read and understand fundamental financial statements,
including a balance sheet, income statement, and cash flow statement. The
Committee's composition will meet the requirements of the Audit Committee Policy
of the New York Stock Exchange (NYSE).

Audit Committee members shall be independent of the Company's management and
free of any relationship that, in the opinion of the Board of Directors, would
interfere with their exercise of independent judgment as a Committee member.

KEY RESPONSIBILITIES

The following functions shall be the common recurring activities of the
Committee in carrying out its oversight function. These functions are set forth
as a guide with the understanding that the Committee may expand upon its
financially related functions under appropriate circumstances.

To fulfill its responsibilities, the Audit Committee shall:

- Ensure an open avenue of communication between the internal auditors,
external auditors, Board of Directors, and management of the Company.

- Recommend annually, to the Board of Directors, the external auditors to be
selected to audit the financial statements of the Company and its
subsidiaries.

- Meet with the external auditors to determine whether they are satisfied
with the disclosure and content of the financial statements and the
Company's internal control system and structure. This includes:

- Reviewing the form and content of the annual financial statements,
including the external auditor's evaluation of the:

- fairness of the presentation of the financial position and
operating results of the Company, including the adequacy of
disclosures made by management.

- quality and adequacy of the record keeping, accounting, and
financial policies/ procedures.

- internal control system and structure of the Company.

- effectiveness of the internal audit function in meeting its
assigned responsibilities.

- cooperation of management with the external auditors in the
performance of their duties.

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- Reviewing the Company's interim financial results included in the
Company's quarterly reports to be filed with the SEC and the matters
required to be discussed by SAS No. 61, Communication with Audit
Committees, as amended. This review will occur prior to the Company's
filing of the Form 10-Q.

- Reviewing any changes in accounting principles.

- Reviewing all fees for services charged by the external auditors and
assuring they are reasonable and fair.

- Require a formal written statement from the external auditor, documenting
all relationships between the auditor and the Company, consistent with
Independence Standards Board Standard No. 1, "Independence Discussions
with Audit Committees."

- Discuss with the external auditor disclosed relationships or services that
may impact the objectivity and independence of the auditor.

- Review the internal audit function of the Company, including:

- the independence and authority of its reporting obligations.

- approval of the proposed audit plan for the coming year.

- overseeing management's coordination of the audit plan with the external
auditor to avoid duplication of effort and maximize effective
complementary efforts.

- Meet with the internal auditors on at least a quarterly basis, and as
otherwise requested, to review:

- significant audit findings with the General Auditor and management.

- management's progress in implementing corrective action for significant
items previously presented.

- their progress made against plan and any changes to the approved audit
plan.

- Assist in the interviewing and selection process when replacing the
General Auditor.

- Review commitments and significant findings resulting from regulatory
examinations.

- Consider such other matters in relation to the financial affairs of the
Company and its accounts and in relation to the internal and external
audit of the Company as the Audit Committee may, in its discretion,
determine to be advisable.

- On an annual basis, review management's monitoring of the Company's
compliance with the Code of Conduct to ensure management maintains
effective controls regarding conflict of interest, illegal acts, and
ethical conduct by directors, officers, and employees of the Company.

- Investigate any matter brought to its attention within the scope of its
duties, with the power to retain outside counsel for this purpose if, in
its judgment, that is appropriate.

- Submit the minutes of all meetings of the Audit Committee to, or review
the matters discussed at each Committee meeting with, the Board of
Directors.

- On an annual basis, review and assess this charter's adequacy.

MEETINGS

A minimum of four meetings of the Audit Committee will be held on an annual
basis. The Committee may have in attendance such members of management or others
as it deems necessary to provide the information required to carry out its
duties.

Date Original Charter Approved: July 21, 1999

Date Revised: October 18, 2000

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APPENDIX E

ENERGY EAST CORPORATION
AUDIT COMMITTEE CHARTER

The primary purpose of the audit committee is to assist the board of
directors in overseeing financial reporting and the system of internal controls
of Energy East Corporation (the "Company"). The audit committee has
responsibility for reviewing the company's financial reporting process and
system of internal controls and for maintaining a direct line of communication
between the audit committee and the company's independent public accountant,
accounting officer and general auditor. The Audit Committee also assists the
Board of Directors in overseeing the company's Compliance Program.

COMPOSITION

The audit committee is composed of at least three members of the board of
directors. The members of the audit committee and the chair of the committee are
appointed by the board of directors. Each member appointed to the audit
committee must be financially literate and meet the independence requirements of
the New York Stock Exchange. At least one member must have accounting or
financial management expertise.

MEETINGS

The audit committee meets at least three times annually. Additional meetings
may be called by the chair of the audit committee in the chair's sole
discretion, or at the request of the board of directors, the accounting officer,
the general auditor or the company's independent public accountant. Attendance
at committee meetings by officers and employees of the company, the independent
public accountant and others is at the discretion of the audit committee chair.

RESPONSIBILITIES

In carrying out its responsibilities, the audit committee:

1. Annually recommends to the board of directors the appointment of the
independent public accountant to audit the company's financial statements
and employee benefit plans. Advises such accountant that they are
ultimately accountable to the board of directors and the audit committee,
and that the committee and the board have ultimate authority and
responsibility to select, evaluate and, where appropriate, replace the
accountant. Is responsible for ensuring that the independent public
accountant submits on a periodic basis a formal written statement
delineating all relationships between the accountant and the company and
engaging in a dialogue with the accountant with respect to any disclosed
relationships or services that may impact the objectivity and
independence of the accountant and recommending, if appropriate, that the
board take action to satisfy itself of the accountant's independence.
Meets with the independent public accountant to discuss the scope of the
upcoming audit and again to discuss the results of the audit. Is advised
by management of the proposed audit fees.

2. Reviews management's plans for engaging the independent public
accountant to perform management advisory services work, including the
scope of the work and proposed fees. Considers the possible impact this
work may have on the independence of the independent public accountant.

3. Meets at least annually with the independent public accountant, the
accounting officer and the general auditor to discuss the adequacy of the
company's system of internal controls and the annual and quarterly
financial reporting process. Reviews the company's annual financial

E-1

statements and the related opinion of the independent public accountant
with management, the accounting officer and the independent public
accountant prior to the release to shareholders and the filing with the
Securities and Exchange Commission of the company's annual financial
statements and the related opinion of the independent public accountant.

4. Reviews with management and the independent public accountant any
significant changes in accounting principles or financial disclosure
practices. Candidly discusses with management and the independent public
accountant their qualitative judgments about the appropriateness, not
just the acceptability, of the accounting principles and financial
disclosure practices used or proposed to be adopted. Is advised when
management seeks a second opinion on an accounting matter from another
independent public accounting firm.

5. Reviews with management and the independent public accountant, either as
the committee or through the chair, the company's quarterly financial
statements prior to filing the Form 10-Q.

6. Reviews with the general auditor at each audit committee meeting the
results of completed audits. Annually reviews the internal audit
department's objectives, planned work and staffing plans, as well as its
coordination of activities with the independent public accountant. Meets
in executive session with the general auditor at each audit committee
meeting.

7. Reviews any changes to the internal audit department charter and the
appointment or replacement of the general auditor.

8. Oversees the operation of the company's Compliance Program by meeting,
no less than twice each year, with the company's Executive Vice
President, General Counsel & Secretary and the company's Compliance
Officer to (a) on an annual basis, review the company's Compliance
Program to prevent and detect violations of laws and regulations by
company employees and agents; (b) on an as-needed basis, review reports
of significant compliance and ethics related activities within the
company; and (c) on an annual basis, review certifications by the
company's Executive Vice President, General Counsel & Secretary and the
company's Compliance Officer that the company's Compliance Program is
effective and complies with the applicable legal and regulatory
requirements.

9. Advises the independent public accountant that it expects to be informed
as soon as practicable concerning any possible illegal acts that have
been detected, unless the illegal act is clearly inconsequential. Ensures
that management takes timely and appropriate remedial actions with
respect to the reported illegal acts.

10. Provides the report required by the Securities and Exchange Commission
to be included in the company's annual meeting proxy statement.

11. Meets in executive session, at least annually, with the independent
public accountant, the accounting officer and the company's outside legal
counsel.

12. Inquires at least annually of the general auditor and the independent
public accountant whether there are any areas that require the audit
committee's special attention.

13. Reports to the board of directors on the audit committee's activities on
a regular basis.

14. Reviews and assesses the adequacy of this charter on an annual basis and
recommends any proposed changes to the board of directors for approval.

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RESOURCES AND AUTHORITY

The audit committee has access to all corporate documents and records. It
may, in its sole discretion:

1. Enlist the aid of the company's staff to perform work necessary to
fulfill its responsibilities.

2. Retain special counsel or other experts to fulfill its responsibilities.

3. Institute investigations of improprieties or suspected improprieties.

4. Take any additional action it deems necessary to fulfill its
responsibilities.

Amended by the board of directors February 9, 2001.

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