AGREEMENT AND PLAN OF MERGER

Agreement and Plan of Merger

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This Agreement and Plan of Merger involves

PROGRESS METAL RECLAMATION COMPANY | PROGRESS FUELS CORPORATION | AND PROGRESS ENERGY, INC.

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Title: AGREEMENT AND PLAN OF MERGER
Governing Law: North Carolina Date: 3/17/2006
Law Firm: Morgan, Lewis & Bockius LLP

AGREEMENT AND PLAN OF MERGER, Parties: progress metal reclamation company , progress fuels corporation , and progress energy inc.

Exhibit 10.3

EXECUTION VERSION

AGREEMENT AND PLAN OF MERGER

BY AND AMONG

PROGRESS RAIL SERVICES HOLDINGS CORP.,

PRSC ACQUISITION CORP.,

PMRC ACQUISITION CO.,

PROGRESS RAIL SERVICES CORPORATION,

PROGRESS METAL RECLAMATION COMPANY,

PROGRESS FUELS CORPORATION

AND

PROGRESS ENERGY, INC.
(WITH RESPECT TO ARTICLES III, VI, VIII AND IX)

FEBRUARY 17, 2005

TABLE OF CONTENTS

ARTICLE I		DEFINITIONS	1

	1.1	Abatement	2

	1.2	ABCA	2

	1.3	Action	2

	1.4	Adjustment Amount	2

	1.5	Affiliate	2

	1.6	Agreement	2

	1.7	Applicable Lease Agreements	2

	1.8	Asbestos	2

	1.9	Asbestos Abatement	2

	1.10	Asbestos Abatement Proposal	2

	1.11	Asbestos Laws	2

	1.12	Asbestos Matters	3

	1.13	Audited Statements	3

	1.14	Basket	3

	1.15	Benefit Plan	3

	1.16	Business	3

	1.17	Business Combination	3

	1.18	Canadian Benefit Plan	4

	1.19	Canadian Pacific Earnout	4

	1.20	Claim	4

	1.21	Closing	4

	1.22	Closing Date	4

	1.23	Closing Financial Statements	4

	1.24	Closing Working Capital	4

	1.25	Code	4

	1.26	Companies	4

	1.27	Company Transaction Expenses	4

	1.28	Consolidated Subsidiaries	5

1.29	Contracts	5

1.30	Current Property	5

1.31	Dispute Notification	5

1.32	DOJ	5

1.33	Effective Time	5

1.34	Environmental Claim	5

1.35	Environmental Laws	5

1.36	Environmental Matters	5

1.37	Environmental Response Action	6

1.38	Environmental Response Action Proposal	6

1.39	ERISA	6

1.40	Final Determination	6

1.41	Financial Statements	7

1.42	FTC	7

1.43	GAAP	7

1.44	Georgetown Steel Bankruptcy	7

1.45	Governmental Authority	7

1.46	Hazardous Materials	7

1.47	Holdings	7

1.48	Holdings Claim	7

1.49	Holdings Claim Notice	7

1.50	Holdings Controlled Environmental Response Action	7

1.51	HSR Act	7

1.52	Incentive Plan	7

1.53	Indebtedness	8

1.54	Independent Accountants	8

1.55	Initial Written Notice	8

1.56	Intellectual Property	8

1.57	IRS	8

1.58	KBCA	8

1.59	Knowledge of the Companies	8

1.60	Laws	8

1.61	Leased Real Property	8

1.62	Least Stringent Abatement Remedy	9

1.63	Least Stringent Standard	9

1.64	Liabilities	9

1.65	Licensed Rights	9

1.66	Liens	9

1.67	Losses	9

1.68	Material Adverse Effect	9

1.69	Mergers	9

1.70	Merger Consideration	9

1.71	Merger Subs	9

1.72	Notice of Disagreement	9

1.73	Open Source License	9

1.74	Option	10

1.75	Ordinary Rework	10

1.76	Other Antitrust Regulations	10

1.77	Other Tax Returns	10

1.78	Owned Real Property	10

1.79	PBO	10

1.80	Pension Plan	10

1.81	Permits	10

1.82	Permitted Liens	10

1.83	Person	10

1.84	Plan	11

1.85	Plan Funding Statement	11

1.86	Post-Closing Period	11

1.87	Pre-Closing Period	11

1.88	Progress Controlled Environmental Response Action	11

iii

1.89	Progress Energy	11

1.90	Progress Fuels	11

1.91	Progress Fuels Claim	11

1.92	Progress Fuels Claim Notice	11

1.93	Progress Fuels Group	11

1.94	Progress Metal	11

1.95	Progress Metal Articles of Merger	11

1.96	Progress Metal Merger	11

1.97	Progress Metal Merger Consideration	11

1.98	Progress Metal Merger Sub	11

1.99	Progress Metal Plan	11

1.100	Progress Metal Shares	11

1.101	Progress Metal Surviving Corporation	12

1.102	Progress Rail	12

1.103	Progress Rail Articles of Merger	12

1.104	Progress Rail Merger	12

1.105	Progress Rail Merger Consideration	12

1.106	Progress Rail Merger Sub	12

1.107	Progress Rail Surviving Corporation	12

1.108	RCL	12

1.109	Real Property	12

1.110	Real Property Leases	12

1.111	Release	12

1.112	Relevant Group	12

1.113	Required Consents	12

1.114	Retained Leasing Assets	12

1.115	Retained Leasing Liabilities	12

1.116	Retained Real Property	13

1.117	Retention Plan	13

1.118	Shares	13

	1.119	Software	13

	1.120	State Income Tax	13

	1.121	Subsidiary	13

	1.122	Surviving Corporations	13

	1.123	Target Working Capital	13

	1.124	Tax Claim	13

	1.125	Tax Indemnitee	13

	1.126	Tax Returns	13

	1.127	Taxes	14

	1.128	Taxing Authority	14

	1.129	Trade Secrets	14

	1.130	Transfer Taxes	14

	1.131	Unfunded PBO	14

	1.132	WARN Act	14

	1.133	Warranty Obligation	14

	1.134	Working Capital	14

ARTICLE II		THE MERGERS	15

	2.1	The Mergers	15

	2.2	Merger Consideration	15

	2.3	Deliveries at Closing	15

	2.4	Effective Time	16

	2.5	Effects of the Mergers	16

	2.6	Effect on Capital Stock	17

	2.7	Adjustment Amount and Payment	18

	2.8	Adjustment Procedure	18

	2.9	Further Assurances	19

ARTICLE III		REPRESENTATIONS AND WARRANTIES OF PROGRESS ENERGY AND PROGRESS FUELS	19

	3.1	Ownership of the Shares	19

	3.2	Organization	19

	3.3	Authorization; Execution and Delivery; Enforceability	20

	3.4	No Violation or Conflict; Consents	20

ARTICLE IV		ADDITIONAL REPRESENTATIONS AND WARRANTIES OF PROGRESS FUELS CONCERNING THE COMPANIES AND THE SUBSIDIARIES	20

	4.1	Organization; Capitalization of the Companies; Authorization; Execution and Delivery; Enforceability	20

	4.2	Subsidiaries	21

	4.3	No Violation or Conflict; Consents	22

	4.4	Financial Statements	22

	4.5	Absence of Change	23

	4.6	Assets	23

	4.7	Intellectual Property	25

	4.8	Compliance with Law	27

	4.9	Contracts, Agreements, etc	27

	4.10	Litigation	29

	4.11	Insurance	29

	4.12	Employee Benefits	30

	4.13	Employment Matters	32

	4.14	Taxes	33

	4.15	Transactions With Affiliates	35

	4.16	Accounts Receivable; Accounts Payable	35

	4.17	Environmental and Asbestos	36

	4.18	Books and Records	38

	4.19	Real Property	38

	4.20	Substantial Customers and Suppliers	39

	4.21	Entire Business	40

	4.22	Warranty Obligations	40

	4.23	Inventory	40

	4.24	Foreign Corrupt Practices Act	40

	4.25	No Broker	40

	4.26	Bank Accounts	41

ARTICLE V		REPRESENTATIONS AND WARRANTIES OF HOLDINGS AND THE MERGER SUBS	41

	5.1	Organization	41

	5.2	Authorization; Execution and Delivery; Enforceability	41

	5.3	No Violation or Conflict; Consents	42

	5.4	No Broker	42

	5.5	Purchase for Investment	42

ARTICLE VI		PRE-CLOSING COVENANTS	42

	6.1	Conduct of Business	42

	6.2	Employee Benefits Matters	44

	6.3	Access to Information	45

	6.4	Further Assurances; Consents; Waiver of Notices	45

	6.5	Publicity	45

	6.6	Confidentiality	46

	6.7	No Solicitations	46

	6.8	Estoppel Certificates; Landlord Lien Waivers; Contract Notices; Termination of Liens	46

	6.9	Cooperation with Debt Financing	47

	6.10	Insurance	47

	6.11	Company Transaction Expenses	47

	6.12	Antitrust Matters	47

	6.13	Available Cash	48

	6.14	Title Insurance Affidavits, Indemnities and Information	48

ARTICLE VII		CONDITIONS PRECEDENT TO CONSUMMATION OF THE MERGERS	48

	7.1	Conditions Precedent to Each Party’s Obligations to Effect the Mergers	48

	7.2	Conditions Precedent to Obligations of Holdings to Effect the Mergers	49

	7.3	Conditions Precedent to Obligations of Progress Fuels, Progress Rail and Progress Metal to Effect the Mergers	51

ARTICLE VIII		POST-CLOSING COVENANTS	51

vii

	8.1	Access to Books and Records	52

	8.2	Tax Matters	52

	8.3	Employee Benefits	63

	8.4	WARN Act	65

	8.5	Nonsolicitation; Noncompetition; Nondisclosure	65

	8.6	Insurance	66

	8.7	Directors’ and Officers’ Insurance	67

	8.8	Recoveries	67

ARTICLE IX		SURVIVAL; INDEMNIFICATION	67

	9.1	Limitation on and Survival of Representations and Warranties	67

	9.2	Indemnification by Progress Energy and Progress Fuels	68

	9.3	Indemnification by Holdings	71

	9.4	Limitation of Liability	72

	9.5	Indemnity Amounts to be Computed on After Tax Basis	73

	9.6	Exclusive Remedy	73

	9.7	Procedures for Environmental Response Action	74

	9.8	Standards for Environmental Response Actions	80

	9.9	Insurance Proceeds	81

	9.10	Procedures and Standards for Asbestos Abatement	81

ARTICLE X		TERMINATION	83

	10.1	Termination	83

	10.2	Effect of Termination	84

ARTICLE XI		MISCELLANEOUS	84

	11.1	Entire Agreement	84

	11.2	Expenses	84

	11.3	Amendment	84

	11.4	Extension; Waiver	85

	11.5	Governing Law	85

	11.6	Assignment	85

	11.7	Notices	85

viii

11.8	Counterparts; Headings	86

11.9	Specific Performance	86

11.10	Interpretation	86

11.11	Severability	86

11.12	No Reliance	86

EXHIBITS

Exhibit 6.8(a)		Form of Collateral Access Agreement
Exhibit 7.2(e)		Form of Secretary’s Certificate
Exhibit 7.2(g)		Form of Opinion of Counsel of Progress Fuels and the Companies
Exhibit 7.2(m)		Form of Employee Lease Agreement
Exhibit 7.3(e)		Form of Opinion of Counsel of Holdings and the Merger Subs
Exhibit 7.3(g)		Trademark Coexistence Agreement

SCHEDULES

Schedule 1.81		Permits
Schedule 1.114		Retained Leasing Assets
Schedule 1.115		Exceptions to Retained Leasing Liabilities
Schedule 1.116		Retained Real Property
Schedule 2.8		Working Capital
Schedule 3.1		Ownership of Shares
Schedule 4.1		Organization
Schedule 4.2(a)		Subsidiaries; Ownership; Capitalization
Schedule 4.2(b)		Subsidiaries; Organization
Schedule 4.3		Required Consents
Schedule 4.4		Exceptions to Financial Statements
Schedule 4.5		Absence of Change
Schedule 4.7		Intellectual Property
Schedule 4.8		Compliance with Law
Schedule 4.9		Contracts, Agreements, etc.
Schedule 4.10		Litigation
Schedule 4.11		Insurance
Schedule 4.12		Employee Benefits
Schedule 4.13		Employment Matters
Schedule 4.14		Taxes
Schedule 4.15		Transactions With Affiliates
Schedule 4.16		Accounts Receivable; Accounts Payable
Schedule 4.17		Environmental and Asbestos
Schedule 4.19(a)		Owned Real Property
Schedule 4.19(b)		Condemnation Proceedings
Schedule 4.19(c)		Real Property Leases
Schedule 4.20		Substantial Customers and Suppliers
Schedule 4.21		Entire Business
Schedule 4.22		Warranty Obligations
Schedule 4.26		Bank Accounts
Schedule 6.1(ix)		Capital Expenditure Budget
Schedule 6.2(c)		Management Plans
Schedule 7.2(j)		Debt Financing

AGREEMENT AND PLAN OF MERGER

This Agreement and Plan of Merger (“Agreement”) is made as of February 17, 2005 by and among Progress Rail Services Holdings Corp., a Delaware corporation (“Holdings”), PRSC Acquisition Corp., an Alabama corporation (“Progress Rail Merger Sub”), PMRC Acquisition Co., a Kentucky corporation (“Progress Metal Merger Sub” and, together with Progress Rail Merger Sub, the “Merger Subs”), Progress Rail Services Corporation, an Alabama corporation (“Progress Rail”), Progress Metal Reclamation Company, a Kentucky corporation (“Progress Metal” and, together with Progress Rail, the “Companies”), Progress Fuels Corporation, a Florida corporation (“Progress Fuels”), and Progress Energy, Inc., a North Carolina corporation (“Progress Energy”), with respect to Articles III, VI, VIII and IX.

RECITALS

WHEREAS , Holdings (as the sole shareholder of each of Progress Rail Merger Sub and Progress Metal Merger Sub), the Boards of Directors of each of Progress Rail Merger Sub and Progress Metal Merger Sub and the Boards of Directors of each of the Companies have approved and declared advisable this Agreement and the transactions contemplated hereby, pursuant to which Holdings will acquire (i) Progress Rail by means of a merger of Progress Rail Merger Sub with and into Progress Rail and (ii) Progress Metal by means of a merger of Progress Metal Merger Sub with and into Progress Metal, in each case upon the terms and subject to the conditions set forth herein;

WHEREAS , concurrently with the execution hereof, Progress Fuels, the sole holder of (i) all of the outstanding shares of common stock, par value $1.00 per share, of Progress Rail (the “Progress Rail Shares”) and (ii) all of the outstanding shares of common stock, no par value per share, of Progress Metal (the “Progress Metal Shares” and, together with the Progress Rail Shares, the “Shares”), has executed a written consent approving and adopting this Agreement; and

WHEREAS , the parties hereto desire to make certain representations, warranties, covenants and agreements in connection with the Mergers and also to prescribe various conditions to the Mergers.

NOW, THEREFORE , in consideration of the foregoing premises and the respective representations, warranties, covenants and agreements contained herein, and intending to be legally bound hereby, the parties hereto agree as follows:

ARTICLE I
DEFINITIONS

When used in this Agreement, the following terms shall have the meanings specified:

1.1 Abatement . “Abatement” when used with respect to Asbestos or an Asbestos Abatement shall include any action to remove, abate or encapsulate the Asbestos and mitigate or eliminate any risks associated with the Asbestos.

1.2 ABCA . “ABCA” shall have the meaning given in Schedule 2.1 .

1.3 Action . “Action” shall mean any action, claim, suit, litigation, proceeding, arbitration or governmental investigation or audit.

1.4 Adjustment Amount . “Adjustment Amount” shall have the meaning given in Section 2.7 .

1.5 Affiliate . “Affiliate” shall mean (i) any director, partner, officer, agent or employee of any of the Companies, any Subsidiary or Progress Fuels, (ii) any Person, firm or corporation that directly or indirectly controls, is controlled by or is under common control with any of the Companies, any Subsidiary or Progress Fuels or (iii) any other Person that owns or controls (A) 5% or more of any class of equity securities of that Person or any of its Affiliates or (B) 5% or more of any class of equity securities (including any equity securities issuable upon the exercise of any option or convertible security) of that Person or any of its Affiliates. For purposes of this definition, “control” (including with correlative meanings, the terms “controlling”, “controlled by”, and “under common control with”) as applied to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of that Person, whether through ownership of voting securities or by contract or otherwise. Where the term “Affiliate” is used herein with respect to Holdings, it shall have the meaning set forth above, except that “Holdings” shall be substituted for “any of the Companies, any Subsidiary or Progress Fuels.”

1.6 Agreement . “Agreement” shall mean this Agreement, together with the Exhibits and Schedules attached hereto and the certificates delivered in connection herewith, as the same may be amended from time to time in accordance with the terms hereof.

1.7 Applicable Lease Agreements . “Applicable Lease Agreements” shall mean any leases in effect as of the Closing Date pursuant to which the Companies or the Subsidiaries lease Leased Real Property.

1.8 Asbestos . “Asbestos” shall mean any asbestos and any asbestos-containing material or asbestos-containing product.

1.9 Asbestos Abatement . “Asbestos Abatement” shall have the meaning given in Section 9.9(a) .

1.10 Asbestos Abatement Proposal . “Asbestos Abatement Proposal” shall have the meaning given in Section 9.9(c) .

1.11 Asbestos Laws . “Asbestos Laws” shall mean all federal, national, provincial, state or local statutes, laws, codes, common law rules (including, without limitation, personal injury claims, premises liability claims and product liability claims), regulations, ordinances, orders, standards, permits, licenses or requirements (including consent decrees, judicial decisions

and administrative orders) pertaining to Asbestos, including, without limitation, those relating to the protection, preservation, conservation or regulation of the environment, the disposal, abatement, encapsulation, handling, transportation, removal, storage, disturbance, dismantling, Release or exposure to Asbestos or imposing requirements relating to public or employee health and safety, including without limitation, any Environmental Laws to the extent that they regulate, apply to or pertain to Asbestos.

1.12 Asbestos Matters . “Asbestos Matters” shall mean any and all Losses (including, without limitation, any actual or alleged personal injury (including death) or property damage) relating to, incurred in connection with or arising out of: (i) the actual or alleged manufacture, processing, marketing, distribution, sale, assembly, treatment, storage, transportation, disposal, installation, removal, disturbance, dismantling, handling or use of Asbestos as of or prior to the Closing Date, by or on behalf of the Companies, any of their current or former Subsidiaries or Affiliates or any of their respective predecessors, in each case regardless of when such actual or alleged exposure, damage or injury occurs or occurred, when any such actual or alleged Losses become or became known or manifest or when any claim accrues; or (ii) the actual or alleged presence of or exposure of any Person to any Asbestos as of or prior to the Closing Date at any real property currently owned, operated, leased or occupied by the Companies, any of their current or former Subsidiaries or Affiliates or any of their respective predecessors or the actual or alleged presence of or exposure of any person to Asbestos prior to, as of, or after the Closing Date with respect to any real property formerly owned, operated, leased or occupied by the Companies, any of their current or former Subsidiaries or Affiliates or any of their respective predecessors, in each case regardless of when such actual or alleged exposure, damage or injury occurs or occurred, when any such actual or alleged Losses become or became known or manifest or when any claim accrues; provided , however , Asbestos Matters shall not include any costs associated with the Abatement of any Asbestos contained in any building materials or any other alleged property damage relating to Asbestos at any real property currently owned, operated, leased or occupied by the Companies or any Subsidiaries to the extent such Asbestos is in compliance with applicable Asbestos Laws as of the Closing Date.

1.13 Audited Statements . “Audited Statements” shall have the meaning given in Section 7.2(p) .

1.14 Basket . “Basket” shall have the meaning given in Section 9.4 .

1.15 Benefit Plan . “Benefit Plan” shall have the meaning given in Section 4.12(a) .

1.16 Business . “Business” shall mean the business of, directly or indirectly, providing products and services or advice with respect to rail, railcar or transit systems, including, without limitation, railcar and locomotive repair, trackwork, rail parts reconditioning and sales, scrap metal recycling, railcar leasing and other rail-related products or services currently provided by any of the Companies or the Subsidiaries.

1.17 Business Combination . “Business Combination” shall mean, with respect to any Person, (i) any merger, consolidation or combination to which such Person is a party, (ii) any sale, dividend, split or other disposition of any capital stock or other equity interests of such Person, (iii) any tender offer (including, without limitation, a self-tender), exchange offer,

recapitalization, liquidation, dissolution or similar transaction, (iv) any sale, dividend or other disposition of all or a material portion of the assets and properties of such Person or (v) the entering into of any agreement or understanding, or the granting of any rights or options, with respect to any of the foregoing.

1.18 Canadian Benefit Plan . “Canadian Benefit Plan” shall have the meaning given in Section 4.12(a) .

1.19 Canadian Pacific Earnout . “Canadian Pacific Earnout” shall mean the amounts payable by Chemetron-Railway Products, Inc. to Canadian Pacific Railway Company pursuant to that Conditional Sales Agreement, dated December 15, 1999, by and between Canadian Pacific Railway Company and Chemetron-Railway Products, Inc.

1.20 Claim. “Claim” shall mean with respect to any Person, any and all suits, sanctions, legal proceedings, claims, assessments, judgments, damages, penalties, fines, assessments, awards, settlements or compromises related thereto, liabilities (whether accrued, absolute, contingent, unliquidated or otherwise), obligations, demands, payments, out-of-pocket costs, reasonable out-of-pocket expenses of whatever kind (including reasonable attorneys’ and consultants’ fees and expenses and disbursements in connection therewith) and losses incurred or sustained by or against such Person.

1.21 Closing . “Closing” shall mean the consummation of the Mergers contemplated herein which shall occur at 10:00 a.m., local time, on the Closing Date, at the offices of Morgan, Lewis & Bockius LLP, New York, New York or at such other time and place as shall be agreed by Progress Fuels and Holdings.

1.22 Closing Date . “Closing Date” shall mean the date that the Closing actually occurs, which shall be (i) the third business day in each of the State of Alabama and the State of Kentucky after the satisfaction or waiver of the closing conditions set forth in Article VII , or (ii) such other date as Progress Fuels and Holdings may mutually agree in writing.

1.23 Closing Financial Statements . “Closing Financial Statements” shall have the meaning given in Section 2.8(b) .

1.24 Closing Working Capital . “Closing Working Capital” shall have the meaning given in Section 2.8(b) .

1.25 Code . “Code” shall mean the Internal Revenue Code of 1986, as amended.

1.26 Companies . “Companies” shall have the meaning given in the preamble to this Agreement.

1.27 Company Transaction Expenses . “Company Transaction Expenses” shall mean any costs and expenses, other than Taxes, of the Companies or any of the Subsidiaries relating to the transactions contemplated by this Agreement incurred at or prior to the Closing, including, without limitation, (i) any costs and expenses of any agent, broker, finder, investment banker, consultant, financial, accounting or legal advisor or other similar Person which relate to the transactions contemplated by this Agreement, (ii) the costs of any surveys, whether updates or

otherwise, with respect to Owned Real Property and the costs of accountants’ comfort letters required by Holdings’ financing sources but excluding other costs, if any, payable by the Companies pursuant to any agreement entered into with Holdings’ debt financing sources, or (iii) any payments which become due and payable as a result of the transactions contemplated by this Agreement.

1.28 Consolidated Subsidiaries. “Consolidated Subsidiaries” shall have the meaning given in Section 8.2(a) .

1.29 Contracts . “Contracts” shall have the meaning given in Section 4.9 .

1.30 Current Property . “Current Property” shall have the meaning given in Section 1.36 .

1.31 Dispute Notification . “Dispute Notification” shall have the meaning given in Section 9.7(c) .

1.32 DOJ . “DOJ” shall have the meaning given in Section 6.13(a) .

1.33 Effective Time . “Effective Time” shall have the meaning given in Section 2.2 .

1.34 Environmental Claim . “Environmental Claim” shall mean any Claim under any Environmental Law.

1.35 Environmental Laws . “Environmental Laws” shall mean all federal, national, provincial, state or local statutes, laws, codes, common law rules, regulations, ordinances, orders, standards, permits, licenses or requirements (including consent decrees, judicial decisions and administrative orders) pertaining to the protection, preservation, conservation or regulation of the environment, the disposal, Release or exposure to Hazardous Materials; or imposing requirements relating to public or employee health and safety, including without limitation, the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. § 9601 et seq., the Resource Conservation and Recovery Act of 1976, 42 U.S.C. § 6901 et seq., the Emergency Planning and Community Right to Know Act, 42 U.S.C. § 11001 et seq., the Clean Air Act, 42 U.S.C. § 7401 et seq., the Federal Water Pollution Control Act, 33 U.S.C. § 1251 et seq., the Toxic Substances Control Act, 15 U.S.C. § 2601 et seq., the Safe Drinking Water Act, 42 U.S.C. § 300F et seq., and the Occupational Safety and Health Act, 29 U.S.C. § 651 et seq., and any statutory, regulatory or common law doctrine related to the contamination or remediation of property (including, without limitation, contribution, strict liability, negligence, trespass and nuisance). Environmental Laws shall not include the applicability of the foregoing to Asbestos other than when the term “Environmental Laws” is used in the definition of Asbestos Laws.

1.36 Environmental Matters . “Environmental Matters” shall mean: (i) the presence, Release, threatened Release or migration of any Hazardous Materials existing or occurring at levels, concentrations, amounts or under conditions or circumstances that exceed or do not satisfy the requirements or criteria of the Least Stringent Standard (as described by Section 9.8(a)) as of or prior to the Closing Date at, from, in, to, on, or under any real property owned, operated, occupied or leased as of the Closing Date by the Companies or the Subsidiaries

(“Current Property”) but not to the extent of any Losses that result from any negligent affirmative actions after the Closing Date by Holdings, or anyone acting at the direction of Holdings, that exacerbate or worsen any such condition; (ii) any Environmental Claim (including, without limitation, any Environmental Claim relating to any Applicable Lease Agreement) arising out of or relating to the presence, Release, threatened Release or migration of any Hazardous Materials existing or occurring as of or prior to the Closing Date at, from, in, to, on, or under any Current Property but not to the extent of any Losses that result from any negligent affirmative actions after the Closing Date by Holdings, or anyone acting at the direction of Holdings, that exacerbate or worsen any such condition giving rise to the Environmental Claim; (iii) any violation of any Environmental Law or Permit required pursuant to Environmental Laws as of or prior to the Closing Date by the Companies or the Subsidiaries or any of their respective actual or alleged corporate predecessors or other Persons for whom the Companies or the Subsidiaries are held responsible; (iv) the exposure or alleged exposure of any Person as of or prior to the Closing Date to any Hazardous Materials present or Released at, from, in, to, on, or under any Current Property; (v) any Environmental Claim arising out of products or services provided or operations conducted by or on behalf of the Companies, the Subsidiaries, any former Affiliates or any of their respective corporate predecessors on or prior to the Closing Date; and (vi) the actual or alleged transportation, treatment, storage, handling, or disposal or arrangement for transportation, treatment, storage, handling or disposal of any Hazardous Materials by or on behalf of the Companies, the Subsidiaries, any current or former Affiliates, or any of their respective actual or alleged corporate predecessors (or any other Persons for whom the Companies or the Subsidiaries are held responsible) as of or prior to the Closing Date (“Off-Site Disposal Activities”), any Releases of Hazardous Materials related to such Off-Site Disposal Activities or the exposure or alleged exposure of any Person to any Hazardous Materials related to any such Off-Site Disposal Activities. Environmental Matters shall not include Asbestos Matters which are the subject of Section 9.2(a)(vii) or matters covered by the indemnities provided in Sections 9.2(a)(iv) or (vi)(A) which shall be covered by the indemnities in those sections.

1.37 Environmental Response Action . “Environmental Response Action” shall have the meaning given in Section 9.7(a) .

1.38 Environmental Response Action Proposal . “Environmental Response Action Proposal” shall have the meaning given in Section 9.7(d) .

1.39 ERISA . “ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended.

1.40 Final Determination . “Final Determination” shall mean (i) a decision, judgment, decree or other order by any court of competent jurisdiction, which decision, judgment, decree or other order has become final after all allowable appeals by either party to the action have been exhausted or the time for filing such appeals has expired and is not subject to further review or modification, (ii) a closing agreement entered into under Section 7121 of the Code or any other settlement or other final agreement entered into in connection with an administrative or judicial proceeding, (iii) execution of an Internal Revenue Service Form 870-AD or (iv) the expiration of the time for instituting suit with respect to a claimed deficiency.

1.41 Financial Statements . “Financial Statements” shall mean the combined audited balance sheets of the Companies as of each of November 30, 2002 and 2003 and the combined unaudited balance sheet of the Companies as of November 30, 2004 and, in each case, the notes thereto and the related combined statements of operations, shareholders’ equity and cash flows of the Companies for the years then ended, all as previously provided to Holdings.

1.42 FTC . “FTC” shall have the meaning given in Section 6.13(a) .

1.43 GAAP . “GAAP” shall mean generally accepted accounting principles as in effect in the United States of America at the time of the preparation of the subject financial statements, consistently applied.

1.44 Georgetown Steel Bankruptcy . “Georgetown Steel Bankruptcy” shall mean the proceeding, In re Georgetown Steel Company, LLC, United States Bankruptcy Court, District of South Carolina, Case No. 03-13156.

1.45 Governmental Authority . “Governmental Authority” shall mean any federal, national, state, provincial, municipal or other governmental department, commission, board, bureau, agency or instrumentality or any court or tribunal, in each case whether of the United States, any of its possessions or territories or of any foreign nation.

1.46 Hazardous Materials . “Hazardous Materials” shall mean any chemicals, materials or substances which are now or hereafter become defined as or included in the definition of “hazardous substances,” “hazardous wastes,” “hazardous materials,” “extremely hazardous substances,” “restricted hazardous wastes,” “toxic substances,” “solid wastes,” “pollutants” or “contaminants” or words or similar meaning or regulatory effect, or any other chemical, material or substances, exposure to which is prohibited, limited or regulated by any applicable Environmental Law, including petroleum, petroleum hydrocarbons or petroleum products, petroleum by-products, radioactive materials, radon, urea formaldehyde, lead or lead-containing materials and polychlorinated biphenyls.

1.47 Holdings . “Holdings” shall have the meaning given in the preamble to this Agreement.

1.48 Holdings Claim . “Holdings Claim” shall have the meaning given in Section 9.2(a) .

1.49 Holdings Claim Notice . “Holdings Claim Notice” shall have the meaning given in Section 9.2(b) .

1.50 Holdings Controlled Environmental Response Action . “Holdings Controlled Environmental Response Action” shall have the meaning given in Section 9.7(l)(i) .

1.51 HSR Act . “HSR Act” shall mean the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (15 U.S.C. § 18a), as amended.

1.52 Incentive Plan . “Incentive Plan” shall have the meaning given in Section 6.2(c) .

1.53 Indebtedness . “Indebtedness” of any Person shall mean all obligations of such Person (i) for borrowed money, (ii) evidenced by notes, bonds, debentures or similar instruments, (iii) for reimbursement with respect to letters or credit, banker’s acceptances and surety bonds, (iv) for the deferred revenue of goods or services (other than trade payables or accruals incurred in the ordinary course of business), (v) under capital leases, (vi) arising under conditional sale or title retention agreements with respect to property acquired by such Person, (vii) for deferred rental expenses and (viii) in the nature of guarantees of the obligations described in clauses (i) through (vii) above of any other Person.

1.54 Independent Accountants . “Independent Accountants” shall have the meaning given in Section 2.8(d) .

1.55 Initial Written Notice . “Initial Written Notice” shall have the meaning given in Section 9.7(b) .

1.56 Intellectual Property . “Intellectual Property” shall mean all United States and foreign (i) patents and patent applications, patent disclosures awaiting filing determination and patents subsequently issuing from patent applications and design rights, (ii) trademarks, service marks, trade names, corporate names, trade dress and domain names, including logos and slogans, and registrations and applications for registrations for the foregoing and all goodwill of the Companies and all Subsidiaries associated therewith, (iii) registered copyrights and registrations, renewals and applications, (iv) Software, (v) Trade Secrets, (vi) in connection with the foregoing clauses (i) through (v) above, causes of action (including past infringement), damages and remedies relating thereto and rights of protection of any interest therein under the laws of all jurisdictions and (vii) copies and tangible embodiments thereof (in whatever form or medium, including electronic media).

1.57 IRS . “IRS” shall have the meaning given in Section 4.12(b) .

1.58 KBCA . “KBCA” shall have the meaning given in Section 2.1 .

1.59 Knowledge of the Companies . “Knowledge of the Companies” shall mean the actual knowledge or awareness of the following Persons and, with respect to all of the following Persons except Donald K. Davis, David B. Fountain, Carol Nelson and David J. Hatcher, matters which such Person should have known after due inquiry: William P. Ainsworth, David R. Klementz, John R. Grace, Jackie A. Nesmith, David R. Roeder, J. Duane Cantrell, Jimmy Lawley, Michael Vanden Bergh, Glen Lehmann, Edward A. O’Neal, Thomas R. Sullivan, Laine H. Spruiell, Gary Pickett, H. Michael Smith, Matthew I. Hart, Donald K. Davis, David B. Fountain, Carol Nelson and David J. Hatcher.

1.60 Laws . “Laws” shall mean any national, federal, state, provincial, local or other law or governmental requirement of any kind, and the rules, regulations and orders promulgated thereunder.

1.61 Leased Real Property . “Leased Real Property” shall have the meaning given in Section 4.19(c) .

1.62 Least Stringent Abatement Remedy . “Least Stringent Abatement Remedy” shall have the meaning given in Section 9.9(d) .

1.63 Least Stringent Standard . “Least Stringent Standard” shall have the meaning given in Section 9.8(a) .

1.64 Liabilities . “Liabilities” shall mean any and all contingencies, liabilities and obligations of any kind, character or description whatsoever, known or unknown, contingent, fixed or otherwise, due or to become due, asserted or unasserted.

1.65 Licensed Rights . “Licensed Rights” shall have the meaning given in Section 4.7(a) .

1.66 Liens . “Liens” shall mean any and all liens, encumbrances, assignments, claims, title and survey matters, mortgages, charges, deeds of trust, leases, possessory rights, options, rights of first refusal, easements, rights of way, claims, restrictions, pledges, security interests, impositions and any other encumbrance of any kind or character.

1.67 Losses . “Losses” shall have the meaning given in Section 9.2(a) .

1.68 Material Adverse Effect . “Material Adverse Effect” or “Material Adverse Change” shall mean (i) with respect to any entity or group of entities, a material adverse effect on or change in (or any development which, insofar as reasonably can be foreseen, is reasonably likely to have a material adverse effect on or change in) the business, operations, assets, Liabilities, financial condition or results of operations of such entity or group of entities taken as a whole, other than any change, circumstance or effect (A) relating to the economy or securities markets in general or (B) relating generally to the industries in which such entity or group of entities operates and not specifically relating to it, in each case, which do not and will not have a materially disproportionate effect on the Business or the Companies; or (ii) a material adverse impairment of the ability of Progress Energy, Progress Fuels or either of the Companies to perform its obligations under this Agreement and the other agreements contemplated hereby.

1.69 Mergers . “Mergers” shall have the meaning given in Section 2.1 .

1.70 Merger Consideration . “Merger Consideration” shall have the meaning given in Section 2.2 .

1.71 Merger Subs . “Merger Subs” shall have the meaning given in the preamble to this Agreement.

1.72 Notice of Disagreement . “Notice of Disagreement” shall have the meaning given in Section 8.3(b) .

1.73 Open Source License . “Open Source License” shall mean the Companies’ and the Subsidiaries’ license of any Software from a third party in accordance with the terms and conditions of any version of the GNU General Public License, GNU Lesser General Public License or any similar license (generally on a “point and click” download basis from the World Wide Web) pursuant to which the licensee is permitted, on a royalty-free basis, to freely

distribute, modify, create derivative works of or otherwise incorporate all or any portion of the relevant Software into the Intellectual Property.

1.74 Option . “Option” shall mean, with respect to any Person, any security, right, subscription, warrant, option, “phantom” stock right or other contract that gives the right to (i) purchase or otherwise receive or be issued any shares of capital stock or other equity interests of such Person or any security of any kind convertible into or exchangeable or exercisable for any shares of capital stock or other equity interests of such Person or (ii) receive any benefits or rights similar to any rights enjoyed by or accruing to the holder of shares of capital stock or other equity interests of such Person, including, without limitation, any rights to participate in the equity, income or election of directors or officers of such Person.

1.75 Ordinary Rework . “Ordinary Rework” shall mean ordinary reworking of product in connection with all or any part of a product shipment returned by a customer within 90 days from the shipping date or the subject of a notice of dissatisfaction received within 90 days from the shipping date where the aggregate cost to the Companies and the Subsidiaries of such reworking is less than an aggregate of two hundred fifty thousand dollars ($250,000) with respect to the entire shipment.

AGREEMENT AND PLAN OF MERGER