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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Section 240.14a-101 Schedule 14A.
Information required in proxy statement.

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. 1)

Filed by the Registrant ý

Filed by a Party other than the Registrant o

Check the appropriate box:

o

 

Preliminary Proxy Statement

o

 

Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

ý

 

Definitive Proxy Statement

o

 

Definitive Additional Materials

o

 

Soliciting Material Pursuant to §240.14a-12 or Section 240.14a-12

PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED

(Name of Registrant as Specified In Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
         
Payment of Filing Fee (Check the appropriate box):

ý

 

No fee required.

o

 

Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
    (1)   Title of each class of securities to which transaction applies:
        

    (2)   Aggregate number of securities to which transaction applies:
        

    (3)   Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
        

    (4)   Proposed maximum aggregate value of transaction:
        

    (5)   Total fee paid:
        


o

 

Fee paid previously with preliminary materials:

o

 

Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

 

 

(1)

 

Amount Previously Paid:
        

    (2)   Form, Schedule or Registration Statement No.:
        

    (3)   Filing Party:
        

    (4)   Date Filed:
        


Explanatory Note

        This Amendment No. 1 to the Schedule 14A filed June 8, 2005 is being filed for the sole purpose of adding to the form of proxy, the following proposal to be voted on at the Annual Meeting of Shareholders that will be held July 19, 2005:

        The proposal numbers have been revised accordingly. The form of proxy included with Schedule 14A filed June 8, 2005 was not mailed or distributed. No other changes have been made to the proxy materials filed on June 8, 2005. The revised proxy is as follows:


LOGO   LOGO

Joint Proxy Statement
and Prospectus

for the

2005 Annual Meetings
of Shareholders

Including Action on the
Proposed Merger of
PSEG and Exelon


LOGO   LOGO

MERGER PROPOSAL—YOUR VOTE IS IMPORTANT

        On behalf of the boards of directors and management of both Exelon Corporation and Public Service Enterprise Group Incorporated, we are pleased to deliver our joint proxy statement/prospectus for the merger involving Exelon and PSEG. We believe this merger will create a strong combined company that will deliver important benefits to our shareholders, to our customers and to the communities we serve.

        If the merger is completed, PSEG shareholders will receive 1.225 shares of Exelon common stock for each share of PSEG common stock held. The exchange ratio is fixed and will not be adjusted to reflect stock price changes prior to the completion of the merger. Based on the closing price of Exelon common stock on the New York Stock Exchange on December 15, 2004, the last full trading day prior to a significant increase in trading volume from the average trading volume of Exelon and PSEG common stock and inquiries from The Wall Street Journal regarding whether Exelon and PSEG were in advanced merger discussions, the exchange ratio represented approximately $53.14 in value for each share of PSEG common stock. Based on the closing price of Exelon common stock on the New York Stock Exchange on December 16, 2004, the last full trading day prior to the publication of news articles reporting that Exelon and PSEG were in advanced merger discussions, the exchange ratio represented approximately $52.19 in value for each share of PSEG common stock. Based on the closing price of Exelon common stock on the New York Stock Exchange on December 17, 2004, the last full trading day prior to our public announcement of the merger, the exchange ratio represented approximately $51.28 in value for each share of PSEG common stock. Based on the closing price of Exelon common stock on the New York Stock Exchange on May 31, 2005, of $46.85, the exchange ratio represented approximately $57.39 in value for each share of PSEG common stock. The value of the consideration to be received by PSEG shareholders will fluctuate with changes in the price of Exelon common stock. We urge you to obtain current market quotations for Exelon and PSEG common stock.

        Exelon shareholders will continue to own their existing Exelon shares. We estimate that Exelon may issue up to approximately 313 million shares of Exelon common stock to PSEG shareholders as contemplated by the merger agreement, which includes approximately 7.2 million shares of Exelon common stock issuable pursuant to PSEG stock options and other equity-based awards to be assumed by Exelon and substituted with options to purchase Exelon common stock and other Exelon equity-based awards. Upon completion of the merger, Exelon's shareholders immediately prior to the merger will own approximately 68% of Exelon's outstanding common stock on a fully diluted basis and former PSEG shareholders will own approximately 32% of Exelon's outstanding common stock on a fully diluted basis. Upon completion of the merger, Exelon will change its name from Exelon Corporation to Exelon Electric & Gas Corporation. Exelon common stock will continue to be listed on the New York Stock Exchange.

        For a discussion of the United States federal income tax consequences of the merger, see "The Merger—Material United States Federal Income Tax Consequences of the Merger" beginning on page 109 of this joint proxy statement/prospectus.

        We urge you to read this joint proxy statement/prospectus, which includes important information about the merger and our annual meetings. In particular, see the section titled "Risk Factors" on pages 21 through 34 of this joint proxy statement/prospectus which contains a description of the risks that you should consider in evaluating the merger.

        Exelon asks that, in addition to the other matters to be considered at the Exelon annual meeting, Exelon shareholders approve the issuance of shares of Exelon common stock as contemplated by the merger agreement. Exelon's annual meeting will be held at the following time and place:

        July 22, 2005
9:30 a.m., local time
PECO Energy Headquarters
2301 Market Street
Philadelphia, Pennsylvania

        Exelon's board of directors has reviewed and considered the terms of the merger and the merger agreement and has unanimously determined that the merger, including the issuance of shares of Exelon common stock as contemplated by the merger agreement, is advisable, fair to and in the best interests of Exelon and its shareholders and unanimously recommends that Exelon shareholders vote FOR the proposal to approve the issuance of shares of Exelon common stock as contemplated by the merger agreement.

        PSEG asks that, in addition to the other matters to be considered at the PSEG annual meeting, PSEG shareholders approve the merger agreement and thereby approve the merger. PSEG's annual meeting will be held at the following time and place:

        July 19, 2005
2:00 p.m., local time
The New Jersey Performing Arts Center
One Center Street
Newark, New Jersey

        PSEG's board of directors has reviewed and considered the terms of the merger and the merger agreement and has unanimously determined that the merger is advisable, fair to and in the best interests of PSEG and its shareholders and unanimously recommends that PSEG shareholders vote FOR the proposal to approve the merger agreement and thereby approve the merger.

        We cannot complete the merger unless the Exelon shareholders approve the issuance of shares of Exelon common stock as contemplated by the merger agreement and the PSEG shareholders approve the merger agreement. Your vote is important.

SIGNATURE       SIGNATURE
John W. Rowe
Chairman of the Board,
President and Chief Executive Officer
Exelon Corporation
      E. James Ferland
Chairman of the Board,
President and Chief Executive Officer
Public Service Enterprise Group Incorporated

        Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved the securities to be issued under this joint proxy statement/prospectus or determined if this joint proxy statement/prospectus is accurate or adequate. Any representation to the contrary is a criminal offense.

        This joint proxy statement/prospectus is dated May 31, 2005 and is first being mailed to Exelon and PSEG shareholders on or about June 10, 2005.


REFERENCES TO ADDITIONAL INFORMATION

        This joint proxy statement/prospectus incorporates important business and financial information about Exelon and PSEG from other documents that are not included in or delivered with this joint proxy statement/prospectus. This information is available to you without charge upon your written or oral request. You can obtain copies of the documents incorporated by reference into this joint proxy statement/prospectus through the Securities and Exchange Commission website at www.sec.gov or by requesting them in writing or by telephone from the appropriate company at the following addresses and telephone numbers:

•    if you are an Exelon shareholder:   •    if you are a PSEG shareholder:

Exelon Corporation
Exelon Shareholder Services
10 South Dearborn Street, Chicago, IL 60603
(312) 394-2345

 

Public Service Enterprise Group Incorporated
PSEG Investor Relations
80 Park Plaza, 6th Floor Newark, NJ 07101
(973) 430-6565


    



 


 

        If you would like to request documents from PSEG, please do so by July 12, 2005, in order to receive them before the PSEG annual meeting. If you would like to request documents from Exelon, please do so by July 15, 2005, in order to receive them before the Exelon annual meeting.

        See "Where You Can Find More Information" beginning on page 243 of this joint proxy statement/prospectus.

VOTING BY TELEPHONE, BY THE INTERNET OR BY MAIL

        Exelon shareholders of record may submit their proxies:

        PSEG shareholders of record may submit their proxies:


        If you hold your shares through a bank, broker, custodian or other recordholder, please refer to your proxy card or voting instruction form or the information forwarded by your bank, broker, custodian or other recordholder to see which options are available to you.


LOGO

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
OF EXELON CORPORATION

TO THE SHAREHOLDERS OF EXELON CORPORATION:

        Exelon will hold the annual meeting of Exelon shareholders on July 22, 2005, at 9:30 a.m., local time, at PECO Energy Headquarters, 2301 Market Street, Philadelphia, Pennsylvania.

        The purpose of the annual meeting is to consider and take action on the following:

        1.     A proposal to approve the issuance of shares of Exelon common stock as contemplated by the Agreement and Plan of Merger, dated as of December 20, 2004, between Exelon Corporation and Public Service Enterprise Group Incorporated. A copy of the merger agreement is attached as Annex A to the joint proxy statement/prospectus accompanying this notice. In the merger, each share of PSEG common stock outstanding immediately prior to completion of the merger will be converted into the right to receive 1.225 shares of Exelon common stock.

        2.     The election of five Class II directors: Edward A. Brennan, Bruce DeMars, Nelson A. Diaz, John W. Rowe and Ronald Rubin, each for a term of three years.

        3.     A proposal to approve an amendment to Exelon's Amended and Restated Articles of Incorporation to increase the number of authorized shares of Exelon common stock from 1,200,000,000 to 2,000,000,000.

        4.     A proposal to ratify PricewaterhouseCoopers LLP as Exelon's independent accountants for the year 2005.

        5.     A proposal to approve the Exelon Corporation 2006 Long-Term Incentive Plan.

        6.     A proposal to approve the Exelon Corporation Employee Stock Purchase Plan for Unincorporated Subsidiaries.

        7.     Any proposal of the Exelon board of directors to adjourn or postpone the annual meeting.

        8.     Any other business that properly comes before the annual meeting and any adjournment or postponement thereof.

        Shareholders of record of Exelon common stock at the close of business on May 2, 2005 will be entitled to vote at the annual meeting and any adjournment or postponement of that meeting. As of the record date, there were 669,137,081 shares of Exelon common stock outstanding. Each share of common stock is entitled to one vote on each matter properly brought before the meeting.

        You are cordially invited to attend the meeting; however, whether or not you expect to attend in person, you can be sure your shares are represented at the meeting by promptly voting and submitting your proxy by phone, by Internet or by completing, signing, dating and returning the enclosed proxy card in the enclosed prepaid envelope.

        If you plan on attending the annual meeting, please bring your admission ticket and a photo ID along with you. The portion of your proxy card marked "Admission Ticket" or voting instruction form will serve as your admission ticket.


        Your board of directors unanimously recommends that you vote for the proposal to approve the issuance of shares of Exelon common stock as contemplated by the merger agreement, which is described in detail in the joint proxy statement/prospectus accompanying this notice, and for proposals two through seven in this notice.

By Order of the Board of Directors


SIGNATURE

Katherine K. Combs
Vice President, Corporate Secretary
and Deputy General Counsel




LOGO

Public Service Enterprise Group Incorporated
80 Park Plaza, P.O. Box 1171
Newark, New Jersey 07101-1171

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
OF PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED

TO THE SHAREHOLDERS OF PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED:

        PSEG will hold the annual meeting of PSEG shareholders on July 19, 2005, at 2:00 p.m., local time, at The New Jersey Peforming Arts Center, One Center Street, Newark, New Jersey.

        The purpose of the annual meeting is to consider and take action on the following:

        1.     A proposal to approve the Agreement and Plan of Merger, dated as of December 20, 2004, between Exelon Corporation and Public Service Enterprise Group Incorporated. A copy of the merger agreement is attached as Annex A to the joint proxy statement/prospectus accompanying this notice. In the merger, each share of PSEG common stock outstanding immediately prior to completion of the merger will be converted into the right to receive 1.225 shares of Exelon common stock.

        2.     To elect three members of Class III of the PSEG board of directors: Conrad K. Harper, Shirley Ann Jackson and Thomas A. Renyi.

        3.     To consider and act upon the ratification of the appointment of Deloitte & Touche LLP as PSEG's independent auditor for the year 2005.

        4.     To consider and act upon any proposal by the PSEG board of directors to adjourn or postpone the PSEG annual meeting.

        5.     To consider and act upon a shareholder proposal related to executive compensation, if presented at the meeting.

        6.     Any other business that properly comes before the annual meeting and any adjournment or postponement thereof.

        Shareholders of record of PSEG common stock at the close of business on May 27, 2005 will be entitled to vote at the annual meeting and any adjournment or postponement of that meeting. As of the record date, there were 238,731,592 shares of PSEG common stock outstanding. Each share of common stock is entitled to one vote on each matter properly brought before the meeting, except for the proposal relating to the election of directors, on which PSEG shareholders are entitled to cumulative voting.

        You are cordially invited to attend the meeting; however, whether or not you expect to attend in person, you can be sure your shares are represented at the meeting by promptly voting and submitting your proxy by phone, by Internet or by completing, signing, dating and returning the enclosed proxy card in the enclosed prepaid envelope.

        If you plan on attending the annual meeting, please bring your admission ticket and a photo ID along with you. The portion of your proxy card marked "Admission Ticket" or voting instruction form will serve as your admission ticket.


        Your board of directors unanimously recommends that you vote for the proposal to approve the merger agreement and thereby approve the merger, which is described in detail in the joint proxy statement/prospectus accompanying this notice, and for proposals two through four in this notice and against proposal five in this notice.

    By Order of the Board of Directors
  

 

 

SIGNATURE
    EDWARD J. BIGGINS, JR.
Secretary





TABLE OF CONTENTS

 
  Page
CHAPTER ONE—THE INTRODUCTION   1
  QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETINGS   1
  SUMMARY   4
  RISK FACTORS   21
  FORWARD-LOOKING STATEMENTS   35
  THE COMPANIES   37
CHAPTER TWO—INFORMATION ABOUT THE ANNUAL MEETINGS AND VOTING   40
  THE EXELON ANNUAL MEETING   40
    Date, Time and Place of Annual Meeting   40
    Purpose of the Annual Meeting   40
    Record Date for the Annual Meeting   40
    Outstanding Shares   40
    Shares Entitled to Vote   40
    Quorum, Abstentions and Broker Non-Votes   41
    Vote Required   41
    Shares Beneficially Owned by Exelon Directors and Officers   42
    Voting at the Annual Meeting   42
    How to Vote by Proxy   42
    Proxies without Instruction   42
    Revocation of Proxies   43
    Proxy Solicitation   43
    Other Business; Adjournments   43
    Exelon Shareholder Account Maintenance   44
  THE PSEG ANNUAL MEETING   45
    Date, Time and Place of Annual Meeting   45
    Purpose of the Annual Meeting   45
    Record Date for the Annual Meeting   45
    Outstanding Shares   45
    Shares Entitled to Vote   45
    Quorum, Abstentions and Broker Non-Votes   45
    Vote Required   46
    Shares Beneficially Owned by PSEG Directors and Officers   46
    Voting at the Annual Meeting   46
    How to Vote by Proxy   46
    Proxies without Instruction   47
    Revocation of Proxies   47
    Proxy Solicitation   47
    Other Business; Adjournments   48
    PSEG Shareholder Account Maintenance   48
    Enterprise Direct (Dividend Reinvestment and Stock Purchase Plan) and Employee Stock Purchase Plan, PSEG Thrift and Tax-Deferred Savings Plan and PSEG Employee Savings Plan   48
     

i


CHAPTER THREE—EXELON PROPOSAL 1 AND PSEG PROPOSAL 1: THE MERGER   49
    General   49
    Exelon's Proposal   49
    PSEG's Proposal   49
    Background of the Merger   49
    Recommendation of Exelon Board; Exelon's Reasons for the Merger   57
    Recommendation of PSEG Board; PSEG's Reasons for the Merger   62
    Opinions of Financial Advisors   66
    Forward-Looking Financial Information   91
    Estimated Potential Synergies Attributable to the Merger   96
    Board of Directors and Management Following Completion of the Merger   97
    Interests of PSEG's Directors and Executive Officers in the Merger   99
    Certain Relationships Between Exelon and PSEG; Operating Services Contract   108
    Accounting Treatment   109
    Material United States Federal Income Tax Consequences of the Merger   109
    Regulatory Matters Relating to the Merger   111
    Corporate Restructuring   116
    Appraisal Rights   116
    Federal Securities Laws Consequences; Stock Transfer Restriction Agreements   116
    Listing on the New York Stock Exchange; Delisting and Deregistration of PSEG Common Stock   117
  THE MERGER AGREEMENT   118
    General   118
    Closing Matters   118
    Consideration to be Received Pursuant to the Merger; Treatment of Stock Options and PSEG Equity-Based Awards   118
    Exchange of Certificates Pursuant to the Merger   119
    Fractional Shares   120
    Listing of Exelon Stock   120
    Covenants   120
    Other Covenants and Agreements   129
    Representations and Warranties   131
    Conditions   133
    Termination of Merger Agreement   134
    Amendments, Extensions and Waivers   138
  PRO FORMA FINANCIAL INFORMATION   139
    Exelon Unaudited Pro Forma Condensed Consolidated Financial Statements   139
    Exelon and PSEG Unaudited Pro Forma Condensed Combined Consolidated Financial Statements   145
  COMPARISON OF EXELON/PSEG SHAREHOLDER RIGHTS   158
  DESCRIPTION OF EXELON CAPITAL STOCK   172
    Authorized Capital Stock   172
    Exelon Common Stock   172
     

ii


    Exelon Preferred Stock   172
    Transfer Agent and Registrar   172
CHAPTER FOUR—OTHER MATTERS TO BE CONSIDERED AT THE EXELON ANNUAL MEETING   173
  EXELON PROPOSAL 2: ELECTION OF DIRECTORS   173
  EXELON PROPOSAL 3: AMENDMENT TO EXELON CORPORATION'S AMENDED AND RESTATED ARTICLES OF INCORPORATION   203
  EXELON PROPOSAL 4: RATIFICATION OF PRICEWATERHOUSECOOPERS AS EXELON'S INDEPENDENT ACCOUNTANTS FOR 2005   204
  EXELON PROPOSAL 5: APPROVAL OF EXELON CORPORATION 2006 LONG-TERM INCENTIVE PLAN   206
  EXELON PROPOSAL 6: APPROVAL OF EXELON CORPORATION EMPLOYEE STOCK PURCHASE PLAN FOR UNINCORPORATED SUBSIDIARIES   213
CHAPTER FIVE—OTHER MATTERS TO BE CONSIDERED AT THE PSEG ANNUAL MEETING   216
  PSEG PROPOSAL 2: ELECTION OF DIRECTORS   216
  PSEG PROPOSAL 3: RATIFICATION OF DELOITTE & TOUCHE LLP   237
  PSEG PROPOSAL 4: SHAREHOLDER PROPOSAL   238
DATE FOR SUBMISSION OF SHAREHOLDER PROPOSALS   241
    Exelon   241
    PSEG   241
LEGAL MATTERS   242
EXPERTS   242
WHERE YOU CAN FIND MORE INFORMATION   243
  Annex A—Agreement and Plan of Merger    
  Annex B—Opinion of J.P. Morgan Securities Inc.    
  Annex C—Opinion of Lehman Brothers Inc.    
  Annex D—Opinion of Morgan Stanley & Co. Incorporated    
  Annex E—Form of Amendment to Exelon Corporation's Amended and Restated Articles of Incorporation    
  Annex F—Form of Exelon Corporation's Amended and Restated By-laws    
  Annex G—Exelon Corporation Audit Committee Charter    
  Annex H—Exelon Corporation 2006 Long-Term Incentive Plan    
  Annex I—Exelon Corporation Employee Stock Purchase Plan for Unincorporated Subsidiaries    

iii



CHAPTER ONE
THE INTRODUCTION

QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETINGS

Q:
Why am I receiving this document?

A:
We are delivering this document to you because it is serving as both a joint proxy statement of Exelon and PSEG and a prospectus of Exelon. It is a joint proxy statement because it is being used by our boards of directors to solicit proxies of our shareholders. It is a prospectus because Exelon is offering shares of its common stock in exchange for shares of PSEG common stock if the merger is completed.

Q:
What do I need to do now?

A:
After you carefully read this joint proxy statement/prospectus, please respond by submitting your proxy by telephone or the Internet or by completing, signing, dating and returning your signed proxy card(s) in the enclosed prepaid return envelope, as soon as possible, so that your shares may be represented at your annual meeting. In order to assure that your vote is recorded, please vote your proxy as instructed on your proxy card even if you currently plan to attend your annual meeting in person.

Q:
Why is my vote important?

A:
Exelon shareholders are being asked to approve the issuance of shares of Exelon common stock as contemplated by the merger agreement and to take action on the other proposals in the Exelon notice. PSEG shareholders are being asked to approve the merger agreement and thereby approve the merger and to take action on the other proposals in the PSEG notice. If you do not submit your proxy by telephone or the Internet, or return your signed proxy card(s) by mail or vote in person at your annual meeting, it will be more difficult for Exelon and PSEG to obtain the necessary quorum to hold their respective annual meetings.

Q:
How will my proxy be voted?

A:
If you vote by telephone or by the Internet or by completing, signing, dating and returning your signed proxy card(s), your proxy will be voted in accordance with your instructions.

1


Q:
May I vote in person?

A:
Yes. If you are a shareholder of record of Exelon common stock as of May 2, 2005 or of PSEG common stock as of May 27, 2005, you may attend your annual meeting and vote your shares in person, instead of submitting your proxy by telephone or by the Internet or returning your signed proxy card(s).

Q:
If my shares are held in "street name" by my broker, will my broker vote my shares for me?

A:
If you are an Exelon shareholder whose shares are held in "street name" by your broker, you must provide your broker with instructions on how to vote your shares; otherwise, your broker will not vote your shares on the proposal to approve the issuance of shares of Exelon common stock as contemplated by the merger agreement, the proposal to approve the Exelon Corporation 2006 Long-Term Incentive Plan or the proposal to approve the Exelon Corporation Employee Stock Purchase Plan for Unincorporated Subsidiaries.
Q:
What if I fail to instruct my broker?

A:
If you fail to instruct your broker to vote your shares and the broker submits an unvoted proxy, the resulting broker "non-vote" will, in the circumstances described under "Chapter Two—Information About the Annual Meetings and Voting," be counted toward a quorum at your annual meeting but will not be counted in determining the number of votes cast with respect to a proposal.

Q:
Who will count the vote?

A:
For the Exelon proposals, representatives of Equiserve Trust Company, N.A. and Exelon's Office of the Corporate Secretary will count the votes and serve as judges of election.
Q:
What does it mean if I receive more than one set of materials?

A:
This means you own shares of both Exelon and PSEG or you own shares of Exelon or PSEG that are registered under different names. For example, you may own some shares directly as a shareholder of record and other shares through a broker or you may own shares through more than one broker. In these situations, you will receive multiple sets of proxy materials. It is necessary for you to vote, sign and return all of the proxy cards or follow the instructions for any alternative voting procedure on each of the proxy cards you receive in order to vote all of the shares you own. Each proxy card you receive will come with its own prepaid return envelope; if you vote by mail, make sure you return each proxy card in the return envelope which accompanied that proxy card.

2


Q:
Can I revoke my proxy and change my vote?

A:
Yes. You have the right to revoke your proxy at any time prior to the time your shares are voted at your annual meeting. If you are a shareholder of record, your proxy can be revoked in several ways:

by entering a new vote by telephone or the Internet;

by delivering a written revocation to your company's secretary that is received prior to your annual meeting;

by submitting another valid proxy bearing a later date that is received prior to your annual meeting; or

by attending your annual meeting and voting your shares in person.
Q:
When and where are the annual meetings?

A:
The Exelon annual meeting will take place on July 22, 2005, at 9:30 a.m., local time, at PECO Energy Headquarters, 2301 Market Street, Philadelphia, Pennsylvania.
Q:
What must I bring to attend the annual meetings?

A:
Admittance to the annual meetings is limited to shareholders of Exelon or PSEG, as the case may be, who are eligible to vote or their authorized representatives. If you wish to attend your meeting, bring the portion of your proxy which is marked as your "Admission Ticket" or your voting instruction form. Also, be sure to bring a photo ID. Seating is limited.

Q:
Should I send in my stock certificates now?

A:
No. After the merger is completed, Exelon will send PSEG shareholders written instructions for exchanging their PSEG stock certificates for Exelon stock certificates. Exelon shareholders will keep their existing stock certificates.

Q:
Are there risks I, as an Exelon shareholder, should consider in deciding to vote on the issuance of shares of Exelon common stock as contemplated by the merger agreement or, as a PSEG shareholder, should consider in deciding to vote on the approval of the merger agreement?

A:
Yes, in evaluating the issuance of shares of Exelon common stock as contemplated by the merger agreement, or the merger agreement and the merger, you should carefully read this joint proxy statement/prospectus, including the factors discussed in the section titled "Risk Factors" beginning on page 21 of this joint proxy statement/prospectus.

Q:
Who can answer any questions I may have about the annual meetings or the merger?

A:
Exelon shareholders may call Georgeson Shareholder Communications Inc. at (800) 561-4182.


PSEG shareholders may call Morrow & Co., Inc. at (800) 607-0088.

3



SUMMARY

        This summary highlights selected information from this joint proxy statement/prospectus related to the merger and may not contain all of the information that is important to you. To understand the merger and for a more complete description of the legal terms of the merger agreement, you should carefully read this entire joint proxy statement/prospectus and the documents to which this joint proxy statement/prospectus refers you. A copy of the merger agreement is attached as Annex A to this joint proxy statement/prospectus and is incorporated by reference into this joint proxy statement/prospectus. See "Where You Can Find More Information" on page 243 of this joint proxy statement/prospectus.

The Companies Involved in the Merger (see page 37)

Exelon Corporation
10 South Dearborn Street—37th Floor
P.O. Box 805379
Chicago, Illinois 60680-5379
(312) 394-7398
Internet address:
www.exeloncorp.com

        Exelon Corporation, a registered public utility holding company under the Public Utility Holding Company Act of 1935, as amended, through its subsidiaries, operates in two business segments—Energy Delivery and Generation as of January 1, 2005. Prior to January 1, 2005, Exelon operated in a third business segment, Enterprises. In addition to Exelon's two business segments, Exelon Business Services Company, a subsidiary of Exelon, provides Exelon and its subsidiaries with financial, human resource, legal, information technology, supply management and corporate governance services. Exelon was incorporated in Pennsylvania in February 1999.

Public Service Enterprise Group Incorporated
80 Park Plaza
P.O. Box 1171
Newark, New Jersey 07101-1171
(973) 430-7000
Internet address:
www.pseg.com

        Public Service Enterprise Group Incorporated is an exempt public utility holding company under PUHCA. PSEG has three principal direct wholly-owned subsidiaries engaged in the transmission and distribution of electric energy and gas in New Jersey; wholesale supply; and power production and distribution in selected domestic and international markets. In addition, PSEG Services provides management and administrative services to PSEG and its subsidiaries. PSEG was incorporated under the laws of the State of New Jersey in 1985.

The Merger (see page 118)

        Under the terms of the merger, PSEG will merge with and into Exelon with Exelon continuing as the surviving corporation. Upon completion of the merger, Exelon will change its name to Exelon Electric & Gas Corporation.

        The merger agreement is attached as Annex A to this joint proxy statement/prospectus. We urge you to read the merger agreement carefully and fully to understand the rights and obligations of Exelon and PSEG under the merger agreement, as it is the legal document that governs the merger.

PSEG Shareholders Will Receive 1.225 Shares of Exelon Common Stock for Each Share of PSEG Common Stock (see page 118)

        Subject to the terms and conditions of the merger agreement, upon completion of the merger, PSEG shareholders will receive 1.225 shares of Exelon common stock for each share of PSEG common stock they hold. Exelon will not issue fractional shares pursuant to the merger. As a result, the total

4



number of shares of Exelon common stock that each PSEG shareholder would otherwise receive pursuant to the merger will be rounded down to the nearest whole number, and each PSEG shareholder will receive such whole number of shares of Exelon common stock and a cash payment for the remaining fraction of a share of Exelon common stock that such shareholder would otherwise receive, if any, based on the last reported sale price per share of Exelon common stock at the close of business on the closing date of the merger, rounded down to the nearest cent.

        Example: If you own 137 shares of PSEG common stock when the merger is completed, you will be entitled to receive 167 shares of Exelon common stock and a check for the market value of 0.83 shares of Exelon common stock at the close of business on the closing date of the merger.

Each Outstanding Option to Purchase PSEG Common Stock and Each PSEG Equity-Based Award Will be Substituted with an Option to Purchase Shares of Exelon Common Stock or an Exelon Equity-Based Award at the Exchange Ratio and All Restrictions on PSEG Equity-Based Awards Will Be Assigned to Exelon (see page 118)

        Upon completion of the merger, each outstanding option to purchase shares of PSEG common stock will be assumed by Exelon and substituted with an option to purchase shares of Exelon common stock, exercisable on generally the same terms and conditions that applied before the merger. The number of shares of Exelon common stock subject to the substitute Exelon stock option will equal the number of shares of PSEG common stock subject to the PSEG stock option immediately prior to completion of the merger, multiplied by the exchange ratio, rounded down to the nearest whole share. The per share exercise price of each substitute Exelon stock option will equal the exercise price of the PSEG stock option immediately prior to completion of the merger divided by the exchange ratio, rounded up to the nearest whole cent. In addition, upon completion of the merger, Exelon will assume all PSEG equity-based awards and substitute them with equity-based awards with respect to shares of Exelon common stock on generally the same terms and conditions that applied before completion of the merger. The number of shares of Exelon common stock issuable under those awards, and the exercise prices for those awards, will be adjusted to take into account the exchange ratio.

        Upon completion of the merger, all restrictions on PSEG equity-based awards immediately prior to completion of the merger, including all repurchase and forfeiture rights, will be assigned to Exelon, and, subject to any acceleration, lapse or other vesting occurring by operation of the merger, those PSEG equity-based awards will continue to be unvested and subject to the same restrictions which applied immediately prior to completion of the merger.

The Exchange Ratio is Fixed and Will Not Be Adjusted in Response to Changes in Our Stock Prices (see page 118)

        The exchange ratio is fixed in the merger agreement and neither Exelon nor PSEG has the right to terminate the merger agreement based solely on changes in either party's stock price. The market value of the Exelon common stock that PSEG shareholders receive in the merger may fluctuate significantly from its current value.

        The table below shows the closing prices of Exelon and PSEG common stock, which are listed on the New York Stock Exchange under the trading symbols "EXC" and "PEG," respectively, and the pro forma "equivalent stock price" at the close of the regular trading session on:

5


        The "equivalent stock price" of shares of PSEG common stock represents the closing price per share of Exelon common stock on the New York Stock Exchange as of the applicable date, multiplied by the exchange ratio of 1.225.

 
  Exelon Common Stock
Closing Price

  PSEG Common Stock
Closing Price

  PSEG Equivalent Stock
Price

December 15, 2004   $ 43.38   $ 44.58   $ 53.14
December 16, 2004   $ 42.60   $ 45.61   $ 52.19
December 17, 2004   $ 41.86   $ 47.27   $ 51.28
May 31, 2005   $ 46.85   $ 55.50   $ 57.39

        The value of the consideration to be received by PSEG shareholders will fluctuate with changes in the price of Exelon common stock. You are urged to obtain current market quotations for shares of both companies.

Exelon and PSEG Expect to Continue Their Respective Stated Dividend Policies Until Completion of the Merger; Exelon has Agreed, Subject to Specified Limitations, to Increase its Dividend Following Completion of the Merger to Equal PSEG's Dividend on an Exchange Ratio Adjusted Basis

        The merger agreement permits each of us to continue to pay regular dividends to our respective shareholders in accordance with our previously announced dividend policies. Exelon has previously indicated it expects to maintain a dividend payout policy of 50% to 60% of earnings. On April 27, 2005, Exelon declared a second quarter dividend for 2005 of $0.40 per share. On January 18, 2005, PSEG increased its first quarter dividend for 2005 to $0.56 per share from $0.55 per share, for an indicated annual dividend increase of $0.04 per share for the year 2005. On April 19, 2005, PSEG declared a second quarter dividend for 2005 of $0.56 per share. For the year 2006, PSEG will continue to evaluate its dividend payment and consider modest increases.

        We have agreed to coordinate dividend declarations and the related record dates and payment dates so that our shareholders will not receive two dividends, or fail to receive one dividend, for any single calendar quarter. Accordingly, prior to completion of the merger, we may coordinate and amend our record dates and payment dates in order to effect this policy.

        In addition, the merger agreement provides that, subject to applicable law and the fiduciary duties of its board of directors, Exelon will increase its first quarterly dividend paid after completion of the merger to an amount equal, on an exchange ratio adjusted basis, to the dividend PSEG shareholders received in the quarter immediately prior to completion of the merger, up to a maximum of $0.47 per share of Exelon common stock. The lesser of $0.47 and the amount required to equal PSEG's dividend on an exchange ratio adjusted basis is referred to in this joint proxy statement/prospectus as the "threshold amount." If the first quarterly dividend to be paid by Exelon after completion of the merger will be less than the threshold amount, PSEG may make a one time special cash dividend to its shareholders equal to the amount of the difference between the dividend Exelon has informed PSEG it will pay and the threshold amount, on an exchange ratio adjusted basis.

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PSEG Shareholders Generally Will Not Recognize Any Gain or Loss for United States Federal Income Tax Purposes Upon the Exchange of Their Shares of PSEG Common Stock for Shares of Exelon Common Stock in the Merger, Except that Gain or Loss Will Be Recognized on the Receipt of Cash in Lieu of a Fractional Share of Exelon Common Stock (see page 109)

        A holder of shares of PSEG common stock generally will not recognize any gain or loss upon the exchange of the holder's shares of PSEG common stock for shares of Exelon common stock pursuant to the merger, except that gain or loss will be recognized on the receipt of cash in lieu of a fractional share of Exelon common stock. You should read carefully the discussion under the heading "The Merger—Material United States Federal Income Tax Consequences of the Merger" beginning on page 109 of this joint proxy statement/prospectus.

        Holders of shares of PSEG common stock are urged to consult their tax advisors as to the specific tax consequences to them of the merger, including the applicability and effect of United States federal, state, local and foreign income and other tax laws in light of their particular circumstances.

Exelon's Financial Advisors Delivered their Opinions to the Exelon Board of Directors to the Effect that, as of December 20, 2004, the Exchange Ratio in the Merger Was Fair, from a Financial Point of View, to Exelon (see page 66)

        Each of Exelon's financial advisors, J.P. Morgan Securities Inc. and Lehman Brothers Inc., has delivered its opinion dated as of December 20, 2004 to the Exelon board of directors that, as of that date, based upon and subject to the assumptions, qualifications and limitations set forth in their respective opinions, the exchange ratio in the merger was fair, from a financial point of view, to Exelon. The full text of the opinions of JPMorgan and Lehman Brothers are attached as Annex B and Annex C, respectively, to this joint proxy statement/prospectus. Exelon urges its shareholders to read the opinions in their entirety. Each of JPMorgan and Lehman Brothers has provided its opinion for the information and assistance of the Exelon board of directors in connection with its consideration of the merger agreement, the issuance of shares of Exelon common stock as contemplated by the merger agreement and the merger, and the opinions do not constitute a recommendation as to how any holder of Exelon common stock should vote with respect to the issuance of shares of Exelon common stock as contemplated by the merger agreement.

        The opinion of each of JPMorgan and Lehman Brothers will not reflect any developments that may occur or may have occurred after the date of the opinions and prior to completion of the merger.

        Pursuant to an engagement letter dated October 26, 2004, Exelon has agreed to pay JPMorgan a fee of $15 million in consideration for its services as financial advisor, $5 million of which was paid following the public announcement of the execution of the merger agreement, $5 million of which is payable upon approval of the issuance of shares of Exelon common stock as contemplated by the merger agreement by Exelon shareholders and $5 million of which is payable upon completion of the merger. Pursuant to an engagement letter dated November 5, 2004, Exelon has agreed to pay Lehman Brothers a fee of $15 million in consideration for its services as financial advisor, $5 million of which was paid following the public announcement of the execution of the merger agreement, $5 million of which is payable upon approval of the issuance of shares of Exelon common stock as contemplated by the merger agreement by Exelon shareholders and $5 million of which is payable upon completion of the merger.

PSEG's Financial Advisor Delivered its Opinion to the PSEG Board of Directors to the Effect that, as of December 20, 2004, the Exchange Ratio Under the Merger Agreement Was Fair, from a Financial Point of View, to the Holders of PSEG Common Stock (see page 82)

        PSEG's financial advisor, Morgan Stanley & Co. Incorporated, has delivered its opinion dated as of December 20, 2004 to the PSEG board of directors that, as of that date, based upon and subject to the assumptions, qualifications and limitations discussed in its opinion, the exchange ratio under the

7



merger agreement was fair, from a financial point of view, to the holders of PSEG common stock. The full text of Morgan Stanley's opinion is attached as Annex D to this joint proxy statement/prospectus. PSEG urges its shareholders to read that opinion in its entirety. Morgan Stanley provided its opinion for the information and assistance of the PSEG board of directors in connection with its consideration of the merger agreement and the merger, and the opinion does not constitute a recommendation as to how any holder of PSEG common stock should vote with respect to the merger agreement.

        The opinion of Morgan Stanley will not reflect any developments that may occur or may have occurred after the date of its opinion and prior to completion of the merger.

        Pursuant to an engagement letter dated November 8, 2004, PSEG has agreed to pay Morgan Stanley a fee of $20 million in consideration for its services as financial advisor, $5 million of which was paid following the public announcement of the execution of the merger agreement, $5 million of which is payable upon PSEG shareholder approval of the merger agreement and $10 million of which is payable upon completion of the merger.

Both Exelon and PSEG Shareholder Approvals Will Be Required to Complete the Merger (see pages 40 and 45)

For Exelon Shareholders:

        Approval of the proposal to issue shares of Exelon common stock as contemplated by the merger agreement requires the affirmative vote of at least a majority of the votes cast by holders of shares of Exelon common stock present in person or by proxy and entitled to vote on the issuance of shares of Exelon common stock as contemplated by the merger agreement as long as a quorum, which is the presence of holders of shares of Exelon common stock outstanding and entitled to cast at least a majority of the votes that all shareholders are entitled to cast on the matter, is present in person or by proxy and the total votes cast on the proposal represents at least a majority of the shares of Exelon common stock entitled to vote. Approval of the proposal to issue shares of Exelon common stock as contemplated by the merger agreement is a condition to completion of the merger.

        Because the holders of Exelon common stock immediately prior to completion of the merger will own a majority of the shares of Exelon common stock outstanding immediately following completion of the merger, a separate vote by the holders of Exelon common stock on the merger agreement or the merger itself is not required under Pennsylvania law.

        On May 2, 2005, which is the record date for determining those Exelon shareholders who are entitled to vote at the Exelon annual meeting, directors and executive officers of Exelon and their affiliates beneficially owned and had the right to vote 4,955,493 shares of Exelon common stock, representing less than 1% of the shares of Exelon common stock outstanding on the record date. To Exelon's knowledge, directors and executive officers of Exelon and their affiliates intend to vote their shares of common stock in favor of the proposal to issue shares of Exelon common stock as contemplated by the merger agreement, although none of them has entered into any agreement requiring them to do so.

For PSEG Shareholders:

        Approval of the merger agreement requires the affirmative vote of at least a majority of the votes cast by holders of shares of PSEG common stock present in person or by proxy and entitled to vote on the approval of the merger agreement as long as a quorum, which is a majority of the shares of PSEG common stock outstanding, is present in person or by proxy.

        On May 27, 2005, which is the record date for determining those PSEG shareholders who are entitled to vote at the PSEG annual meeting, directors and executive officers of PSEG and their affiliates beneficially owned and had the right to vote 4,951,871 shares of PSEG common stock, representing approximately 1.8% of the outstanding shares of PSEG common stock outstanding on the

8



record date. To PSEG's knowledge, directors and executive officers of PSEG and their affiliates intend to vote their shares of common stock in favor of the approval of the merger agreement, although none of them has entered into any agreement requiring them to do so.

Recommendations of Exelon and PSEG to Shareholders (see pages 57 and 62)

To Exelon Shareholders:

        The Exelon board of directors has reviewed and considered the terms of the merger and the merger agreement and has unanimously determined that the merger, including the issuance of shares of Exelon common stock as contemplated by the merger agreement, is advisable, fair to and in the best interests of Exelon and its shareholders and unanimously recommends that Exelon shareholders vote FOR the proposal to approve the issuance of shares of Exelon common stock as contemplated by the merger agreement.

To PSEG Shareholders:

        The PSEG board of directors has reviewed and considered the terms of the merger and the merger agreement and has unanimously determined that the merger is advisable, fair to and in the best interests of PSEG and its shareholders and unanimously recommends that PSEG shareholders vote FOR the proposal to approve the merger agreement and thereby approve the merger.

Completion of the Merger is Subject to Regulatory Clearance (see page 111)

        To complete the merger, we must receive approval from and/or make filings with various federal and state regulatory authorities. At the federal level, these approvals include the approval of the Securities and Exchange Commission under PUHCA, the Federal Energy Regulatory Commission under the Federal Power Act and the Nuclear Regulatory Commission under the Atomic Energy Act. In addition, under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, the merger cannot be completed until we have made required notifications and given certain information and materials to the Antitrust Division of the United States Department of Justice and until specified waiting period requirements have expired. At the state level, among other required approvals, the New Jersey Board of Public Utilities and the Pennsylvania Public Utility Commission must review and approve the merger and the New York Public Service Commission must approve the indirect transfer of the ownership interest of a subsidiary of PSEG Power that has generation assets located in the State of New York. The Illinois Commerce Commission has been notified of the merger and it has informed Exelon and PSEG that it does not have jurisdiction over the merger and thus its approval is not required. See "The Merger—Regulatory Matters Relating to the Merger" beginning on page 111 of this joint proxy statement/prospectus for a discussion of the status of the regulatory approval process.

Exelon's Amended and Restated By-Laws Will Be Amended and Restated Following Completion of the Merger to, Among Other Things, Provide for Certain Governance Arrangements During a Transition Period Beginning Upon Completion of the Merger and Ending Three Years Following Completion of the Merger (see page 129)

        Exelon has agreed to amend and restate its Amended and Restated By-laws to, among other things, provide for certain arrangements relating to its board of directors and management during a transition period beginning upon completion of the merger and ending three years following completion of the merger, including the following:

9


        A copy of the form of Amended and Restated By-laws of Exelon is attached as Annex F to this joint proxy statement/prospectus and is incorporated by reference into this joint proxy statement/prospectus.

PSEG Executive Officers and Directors Have Interests in the Merger that May Be Different from, or in Addition to, the Interests of the PSEG shareholders (see page 99)

        When PSEG shareholders consider their board of directors' recommendation that they vote in favor of the approval of the merger agreement, PSEG shareholders should be aware that PSEG executive officers and directors may have interests in the merger that are different from, or in addition to, PSEG shareholders' interests. Those interests include, among other things, the accelerated vesting of PSEG equity-based awards, increased severance benefits under specified circumstances and the appointment of six of the PSEG directors to the Exelon board of directors.

        As a result, the directors and officers of PSEG may be more likely to recommend the approval of the merger agreement than if they did not have these interests.

Completion of the Merger is Subject to the Satisfaction of a Number of Conditions (see page 133)

        Completion of the merger depends upon the satisfaction of a number of conditions, including the following:

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        Other than the conditions to obtain the regulatory approvals required by law and the shareholder approvals, each of Exelon and PSEG may waive any conditions relating to its obligations to complete the merger. However, the parties do not intend to waive the condition relating to the receipt of tax opinions referred to above. If it were determined that the merger would not qualify as a tax-free reorganization and Exelon and PSEG were to waive the condition relating to the receipt of the tax opinions described above, Exelon and PSEG would re-solicit their shareholders' vote on the issuance of the shares of Exelon common stock as contemplated by the merger agreement and approval of the merger agreement, respectively.

How the Merger Agreement May Be Terminated by Exelon and PSEG (see page 134)

        Exelon and PSEG may mutually agree to terminate the merger agreement and abandon the merger at any time prior to completion of the merger, whether before or after the PSEG shareholders have approved the merger agreement and the Exelon shareholders have approved the issuance of shares of Exelon common stock as contemplated by the merger agreement.

        In addition, either party could decide, without the consent of the other, to terminate the merger agreement in a number of situations, including:

        The merger agreement may be terminated by PSEG prior to completion of the merger if, prior to the PSEG annual meeting:

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        The merger agreement may also be terminated by PSEG prior to the PSEG annual meeting if Exelon enters into a definitive agreement with respect to a "parent acquisition transaction" (see "The Merger Agreement—Termination of Merger Agreement" beginning on page 134 of this joint proxy statement/prospectus for a discussion of this term) or consummates such a transaction and PSEG notifies Exelon in writing that it is terminating the merger agreement within 10 business days of the earlier to occur of such parent acquisition transaction and the public announcement of the entry into such definitive agreement. If the merger agreement is terminated under this provision, Exelon will be required to pay PSEG a termination fee of $400 million and up to $40 million of PSEG's out-of-pocket expenses.

        The merger agreement may be terminated by Exelon prior to completion of the merger if:

Termination Fees and Expenses May Be Payable Under Some Circumstances (see page 136)

        Generally, if the merger agreement is terminated by Exelon in specified circumstances where the PSEG board of directors has withdrawn, qualified or modified its declaration with respect to or its approval or recommendation of the merger agreement and the merger with Exelon in a manner adverse to Exelon, by either party in specified circumstances involving the acquisition of PSEG by another person, or by Exelon upon a material breach by PSEG of the no-solicitation provisions of the merger agreement, PSEG will be required to pay Exelon a termination fee of $400 million and up to $40 million of Exelon's out-of-pocket expenses.

        Generally, if the merger agreement is terminated by PSEG where the Exelon board of directors has withdrawn, qualified or modified its declaration with respect to or its approval or recommendation of the merger agreement, the issuance of shares of Exelon common stock as contemplated by the merger agreement and the merger in a manner adverse to PSEG, Exelon will be required to pay up to $40 million of PSEG's out-of-pocket expenses. If the merger agreement is terminated by PSEG or Exelon where Exelon enters into a definitive agreement with respect to a parent acquisition transaction or consummates such a transaction, Exelon will be required to pay PSEG a termination fee of $400 million and up to $40 million of PSEG's out-of-pocket expenses.

12


Neither Exelon nor PSEG Shareholders Will Have Appraisal Rights in Connection with the Merger (see page 116)

        Neither Exelon nor PSEG shareholders are entitled to dissenters' appraisal rights in connection with the merger.

Exelon Common Stock Will Be Listed on the New York Stock Exchange (see page 117)

        The shares of Exelon common stock to be issued pursuant to the merger will be listed on the New York Stock Exchange. In addition, Exelon currently intends to list the shares of Exelon common stock issued in the merger on the Chicago Stock Exchange and the Philadelphia Stock Exchange.

The Merger Will Be Accounted for Using the Purchase Method of Accounting (see page 109)

        Exelon will account for the merger under the purchase method of accounting for business combinations under accounting principles generally accepted in the United States. Under the purchase method of accounting, the assets and liabilities of PSEG will be recorded, as of completion of the merger, at their respective fair values and added to those of Exelon.

PSEG Shareholders Will Hold Approximately 32% of the Outstanding Shares of Exelon Common Stock Following Completion of the Merger (see page 145)

        Upon completion of the merger, Exelon will issue up to approximately 313 million shares of Exelon common stock to PSEG shareholders as contemplated by the merger agreement. In addition, approximately 7.2 million shares of Exelon common stock will be issuable pursuant to PSEG stock options and PSEG equity-based awards to be assumed by Exelon, approximately 1.4 million of which will vest before or upon completion of the merger. Immediately following completion of the merger, it is expected that there will be approximately 991 million shares of Exelon common stock issued and outstanding on a fully diluted basis. The shares of Exelon common stock to be issued to PSEG shareholders will represent approximately 32% of the outstanding Exelon common stock after the merger on a fully diluted basis. This information is based on the number of Exelon and PSEG shares and PSEG equity-based awards and securities convertible into shares of PSEG common stock (PSEG's Participating Units) outstanding on April 30, 2005.

Due to Variances Between the State Business Corporation Law of Pennsylvania and New Jersey and Between the Charters and Other Corporate Documents of Exelon and PSEG, Differences Exist Between the Rights of Exelon Shareholders and PSEG Shareholders (see page 158)

        The rights of Exelon and PSEG shareholders under the business corporation law of Pennsylvania and New Jersey, respectively, are different. There are additional differences in the rights of Exelon shareholders and PSEG shareholders as a result of the provisions of the charters, by-laws and other corporate documents of each company. See "Comparison of Exelon/PSEG Shareholder Rights" beginning on page 158 of this joint proxy statement/prospectus.

The Merger and the Performance of the Combined Company are Subject to a Number of Risks (see page 21)

        There are a number of risks relating to the merger and to the businesses of Exelon, PSEG and the combined company following the merger. See "Risk Factors" beginning on page 21 of this joint proxy statement/prospectus for a discussion of these and other risks and see also the documents that we have filed with the SEC and which we have incorporated by reference into this joint proxy statement/prospectus.

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Selected Historical Financial Information

        The following selected historical financial information is being provided to assist you in your analysis of the financial aspects of the merger. The Exelon annual historical information is derived from the audited consolidated financial statements of Exelon as of and for each of the years in the five-year period ended December 31, 2004. The PSEG annual historical information is derived from the audited consolidated financial statements of PSEG as of and for each of the years in the five-year period ended December 31, 2004. The information as of and for the three months ended March 31, 2005 and 2004 has been derived from unaudited interim financial statements of Exelon and PSEG, respectively, and, in the opinion of such company's management, include all normal and recurring adjustments that are considered necessary for the fair presentation of the results for the interim period of such company. The information is only a summary and should be read in conjunction with each company's historical consolidated financial statements and related notes contained in the Exelon and PSEG annual reports on Form 10-K for the year ended December 31, 2004 and the quarterly reports on Form 10-Q for the period ended March 31, 2005 and the report on Form 8-K filed by Exelon on May 13, 2005, in which Items 6, 7 and 8 of Exelon's annual report on Form 10-K for the year ended December 31, 2004 were recast, which have been incorporated by reference into this joint proxy statement/prospectus, as well as other information that has been filed with the SEC. See "Where You Can Find More Information" beginning on page 243 of this joint proxy statement/prospectus for information on where you can obtain copies of this information. The historical results included below and elsewhere in this joint proxy statement/prospectus are not necessarily indicative of the future performance of Exelon, PSEG or the combined company.

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Exelon Selected Historical Financial Information

 
  As of and for the
 
 
  Three Months Ended
March 31,

  Year Ended December 31,
 
 
  2005
  2004
  2004
  2003(2)
  2002
  2001
  2000(1)
 
 
  (unaudited)

  (in millions, except per share data)

   
   
 
Statement of Operations Information:                                      
Operating revenues   $ 3,561   $ 3,635   $ 14,133   $ 15,148   $ 14,060   $ 13,978   $ 7,060  
Operating income     931     771     3,499     2,409     3,280     3,406     1,562  
Income from continuing operations     507     397     1,870     892     1,690     1,448     606  
Income (loss) from discontinued operations     14     (17 )   (29 )   (99 )   (20 )   (32 )   (44 )
Income before cumulative effect of changes in accounting principles     521     380     1,841     793     1,670     1,416     562  
Cumulative effect of changes in accounting principles (net of income taxes)         32     23     112     (230 )   12     24  
Net income     521     412     1,864     905     1,440     1,428     586  
Income from continuing operations per share of common stock:(4)                                            
  Basic   $ 0.76   $ 0.60   $ 2.83   $ 1.37   $ 2.62   $ 2.26   $ 1.50  
  Diluted     0.75     0.59     2.79     1.36     2.60     2.24     1.49  
Discontinued operations:(4)                                            
  Basic   $ 0.02   $ (0.02 ) $ (0.04 ) $ (0.15 ) $ (0.03 ) $ (0.05 ) $ (0.11 )
  Diluted     0.02     (0.02 )   (0.04 )   (0.15 )   (0.03 )   (0.05 )   (0.11 )
Income before cumulative effect of changes in accounting principles per share of common stock:(4)                                            
  Basic   $ 0.78   $ 0.58   $ 2.79   $ 1.22   $ 2.59   $ 2.21   $ 1.40  
  Diluted     0.77     0.57     2.75     1.21     2.57     2.19     1.38  
Net income per share of common stock:(4)                                            
  Basic   $ 0.78   $ 0.63   $ 2.82   $ 1.39   $ 2.23   $ 2.23   $ 1.46  
  Diluted     0.77     0.62     2.78     1.38     2.22     2.21     1.44  
Dividends per common share     0.40     0.275     1.26     0.96     0.88     0.91     0.46  
Balance Sheet Information:                                            
Total assets   $ 42,408         $ 42,770   $ 41,936   $ 37,869   $ 34,969   $ 36,674  
Long-term debt     10,997           12,148     13,489     13,127     12,879     12,958  
Preferred securities of subsidiaries(3)     87           87     87     595     613     630  
Shareholders' equity     9,713           9,423     8,503     7,742     8,102     7,215  

(1)
Reflects the effects of the merger of Exelon, Unicom Corporation and PECO on October 20, 2000 (the "Unicom Merger"). The Unicom Merger was accounted for using the purchase method of accounting with PECO as the acquiring company. Accordingly, financial results for 2000 consist of PECO's results for 2000 and Unicom results after October 20, 2000.

(2)
2003 results include a pre-tax charge of $945 million ($573 million after-tax) related to the impairment of Exelon's investment in Boston Generating, LLC and a pre-tax charge of $255 million ($166 million after-tax) related to the impairment of Exelon's investment in Sithe Energies, Inc.

(3)
Upon adoption of Financial Accounting Standards Board Interpretation ("FIN") No. 46 (revised December 2003), "Consolidation of Variable Interest Entities" ("FIN No. 46-R") in 2003, the mandatory redeemable preferred securities of ComEd and PECO were reclassified as long-term debt to financing trusts as of December 31, 2003.

(4)
Per share information for 2000 through 2004 has been adjusted to reflect the 2-for-1 stock split that was distributed to Exelon shareholders on May 5, 2004.

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PSEG Selected Historical Financial Information

 
  As of and for the
 
  Three Months Ended
March 31,

  Year Ended December 31,
 
  2005
  2004
  2004
  2003
  2002(1)
  2001
  2000
 
  (unaudited)

  (in millions, except per share data)

   
Statement of Operations Information:                                    
Operating revenues   $ 3,310   $ 3,225   $ 10,996   $ 11,139   $ 8,220   $ 6,883   $ 6,521
Income from continuing operations     285     271     721     852     405 (1)   766     782
Net income     285     271     726     1,160     235 (1)   764     770
Income from continuing operations per share of common stock:                                          
  Basic   $ 1.20   $ 1.15   $ 3.04   $ 3.73   $ 1.94 (1) $ 3.68   $ 3.64
  Diluted     1.18     1.14     3.03     3.72     1.94 (1)   3.68     3.64
Net income per share of common stock:                                          
  Basic   $ 1.20   $ 1.15   $ 3.06   $ 5.08   $ 1.13 (1) $ 3.67   $ 3.58
  Diluted     1.18     1.14     3.05     5.07     1.13 (1)   3.67     3.58
Dividends per common share     0.56     0.55     2.20     2.16     2.16     2.16     2.16
Balance Sheet Information:                                          
Total assets   $ 28,885         $ 29,237   $ 28,131   $ 26,147   $ 25,568   $ 21,531
Long-term debt obligations(2)(3)     12,775           12,975     12,995     12,291     10,814     5,869
Preferred stock with mandatory redemption                               75
Shareholders' equity     5,736           5,739     5,529     3,885     4,068     3,946

(1)
2002 results include after-tax charges of $368 million, or $1.76 per share, related to losses from PSEG Energy Holdings L.L.C.'s Argentine investments.

(2)
Includes capital lease obligations. The increase between 2000 and 2001 is related to the $2.5 billion securitization transaction in 2001.

(3)
Amounts include debt obligations between PSEG and PSE&G and their respective capital trusts due to the implementation of FIN No. 46-R which required the deconsolidation of such trusts. This implementation resulted in the removal of the preferred securities issued by the trusts from the PSEG consolidated financial statements and the addition of long-term debt between PSEG and PSE&G and their respective trusts equal to the amount of preferred securities issued by the trusts and the common equity investment contributed to the trusts.

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Selected Unaudited Pro Forma Condensed Combined Consolidated Financial Information

        The merger will be accounted for under the purchase method of accounting, which means the assets and liabilities of PSEG will be recorded, as of completion of the merger, at their respective fair values and added to those of Exelon. For a more detailed description of purchase accounting, see "The Merger—Accounting Treatment" beginning on page 109 of this joint proxy statement/prospectus.

        We have presented below selected unaudited pro forma condensed combined consolidated financial information that reflects the purchase method of accounting and gives effect to the merger, in the case of the statement of operations information, as though the merger had occurred as of January 1, 2004 and, in the case of the balance sheet information, as though the merger had occurred as of March 31, 2005.

        The unaudited pro forma condensed combined consolidated financial information has been prepared giving effect to the issuance of 1.225 shares of Exelon common stock in exchange for each outstanding share of PSEG common stock.

        The unaudited pro forma condensed combined consolidated financial information may have been different had the companies actually been combined as of January 1, 2004 or March 31, 2005. The selected unaudited pro forma condensed combined consolidated financial information does not reflect the effect of asset dispositions, if any, or synergies that may result from the merger. You should not rely on the selected unaudited pro forma condensed combined consolidated financial information as being indicative of the historical results that would have occurred had the companies been combined or the future results that may be achieved after completion of the merger. The following selected unaudited pro forma condensed combined consolidated financial information has been derived from, and should be read in conjunction with, the Exelon and PSEG Unaudited Pro Forma Condensed Combined Consolidated Financial Statements and related notes beginning on page 145 of this joint proxy statement/prospectus.

 
  As of and for the
Unaudited Pro Forma Condensed Combined Consolidated

  Three Months Ended
March 31, 2005

  Year Ended
December 31, 2004

 
  (in millions, except per share data)

Statement of Operations Information:            
Operating revenues   $ 6,984   $ 25,544
Operating income     1,641     6,101
Income from continuing operations     820     2,867
Earnings per share from continuing operations:            
  Basic   $ 0.86   $ 3.01
  Diluted     0.84     2.98
Weighted average number of shares and share equivalents:            
  Basic     958     952
  Diluted     973     963

Balance Sheet Information (as of March 31, 2005):

 

 

 

 

 

 
Cash and cash equivalents   $ 683      
Total assets     79,716      
Long-term debt     24,407      
Total liabilities     57,003      
Shareholders' equity     22,545      
Shareholders' equity per share     23.53      

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Comparative Historical and Unaudited Pro Forma Per Share Information

        The following table sets forth selected pro forma and historical per share information of Exelon and PSEG, respectively, and unaudited pro forma condensed combined consolidated per share information reflecting the merger between Exelon and PSEG, under the purchase method of accounting, and the issuance of 1.225 shares of Exelon common stock in exchange for each outstanding share of PSEG common stock. You should read this information in conjunction with the selected historical financial information, included elsewhere in this joint proxy statement/prospectus, the historical financial statements of Exelon and PSEG and related notes contained in the Exelon and PSEG annual reports on Form 10-K for the year ended December 31, 2004, the Exelon and PSEG quarterly reports on Form 10-Q for the period ended March 31, 2005 and the report on Form 8-K filed by Exelon on May 13, 2005, in which Items 6, 7 and 8 of Exelon's annual report on Form 10-K for the year ended December 31, 2004 were recast, which have been incorporated by reference into this joint proxy statement/prospectus and the Exelon Unaudited Pro Forma Condensed Consolidated Financial Statements beginning on page 145 of this joint proxy statement/prospectus. The unaudited pro forma condensed combined consolidated per share information is derived from, and should be read in conjunction with, the Exelon and PSEG Unaudited Pro Forma Condensed Combined Consolidated Financial Statements and related notes beginning on page 145 of this joint proxy statement/prospectus. The historical per share information is derived from the audited financial statements of Exelon, as adjusted for discontinued operations, and the audited financial statements of PSEG as of and for the year ended December 31, 2004 and the unaudited financial statements of Exelon and PSEG for the three months ended March 31, 2005. The unaudited pro forma PSEG per share equivalents are calculated by multiplying the unaudited Exelon pro forma combined per share amounts by the exchange ratio of 1.225.

        The unaudited pro forma condensed combined consolidated per share information does not purport to represent what the actual results of operations of Exelon and PSEG would have been had

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the companies been combined during the periods presented or to project Exelon's and PSEG's results of operations that may be achieved after completion of the merger.

 
  As of and for the
 
  Three Months Ended
March 31, 2005

  Year Ended
December 31, 2004

Unaudited Pro Forma Combined            
Income from continuing operations per share:            
  Basic   $ 0.86   $ 3.01
  Diluted     0.84     2.98
Shareholders' equity per share     23.53      

Exelon—Historical (as adjusted for discontinued operations)

 

 

 

 

 

 
Income from continuing operations per share:            
  Basic   $ 0.76   $ 2.83
  Diluted     0.75     2.79
Dividends declared per common share     0.40     1.26
Shareholders' equity per share     14.58     14.29

PSEG—Historical

 

 

 

 

 

 
Income from continuing operations per share:            
  Basic   $ 1.20   $ 3.04
  Diluted     1.18     3.03
Dividends declared per common share     0.56     2.20
Shareholders' equity per share     24.07     24.22

Unaudited Pro Forma PSEG Equivalents Combined

 

 

 

 

 

 
Income from continuing operations per share:            
  Basic   $ 1.47   $ 3.72
  Diluted     1.45     3.71
Shareholders' equity per share     29.48      

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Comparative Per Share Market Price and Dividend Information

        Exelon common stock and PSEG common stock are each listed on the New York Stock Exchange. Exelon's and PSEG's trading symbols are "EXC" and "PEG," respectively. The following table shows, for the calendar quarters indicated, based on published financial sources: (1) the high and low sale prices of shares of Exelon and PSEG common stock as reported on the New York Stock Exchange Composite Transaction Tape and (2) the cash dividends paid per share of Exelon and PSEG common stock. The sales prices and dividends with respect to Exelon common stock noted below have been retroactively restated for all periods to reflect the 2 for 1 stock split that was distributed to the Exelon shareholders on May 5, 2004.

 
  Exelon Common Stock
  PSEG Common Stock
 
  High
  Low
  Dividends
  High
  Low
  Dividends
2003                                    
First Quarter   $ 27.60   $ 23.04   $ 0.23   $ 37.25   $ 32.09   $ 0.54
Second Quarter     30.46     24.83     0.23     44.50     36.45     0.54
Third Quarter     31.98     27.09     0.25     43.78     39.77     0.54
Fourth Quarter     33.31     30.48     0.25     44.20     39.40     0.54
2004                                    
First Quarter     34.44     32.18     0.275     47.71     42.85     0.55
Second Quarter     34.90     30.92     0.275     47.70     39.66     0.55
Third Quarter     37.90     32.69     0.305     42.60     38.10     0.55
Fourth Quarter     44.70     37.16     0.40     52.64     40.55     0.55
2005                                    
First Quarter     47.18     41.77     0.40     56.09     49.67     0.56
Second Quarter (through May 31, 2005)     49.70     44.14     0.40     58.28     52.00     0.56

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RISK FACTORS

        Exelon and PSEG will operate as a combined company in a market environment that involves significant risks, many of which will be beyond the combined company's control. In addition to the other information contained in or incorporated by reference into this joint proxy statement/prospectus, you should carefully consider the risks described below before deciding how to vote your shares. This section does not describe risks that are generally applicable to participants in the utility and generation industries. We believe we have described all other material risks relating to the merger and the combined company; however, additional risks and uncertainties not presently known to Exelon and PSEG or that are not currently believed to be important to you, if they materialize, also may adversely affect the merger and Exelon and PSEG as a combined company.

Risks Relating to the Merger

The value of Exelon shares to be received by PSEG shareholders will fluctuate.

        Upon completion of the merger, each outstanding share of PSEG common stock will be converted into the right to receive 1.225 shares of Exelon common stock. The number of shares of Exelon common stock to be issued pursuant to the merger for each share of PSEG common stock is fixed. The market price of Exelon common stock when the merger is completed may differ significantly from its market price at the date of this joint proxy statement/prospectus and at the date of the annual meetings of Exelon and PSEG. For example, during the 12-month period ended on May 31, 2005, the most recent practicable date prior to the mailing of this joint proxy statement/prospectus, Exelon common stock traded in a range from a low of $32.10 to a high of $49.70 and ended that period at $46.85. See "Summary—Comparative Per Share Market Price and Dividend Information" beginning on page 20 of this joint proxy statement/prospectus for more detailed share price information.

        Because of the number of regulatory approvals necessary to complete the merger, there may be a significant period of time between the date of the Exelon and PSEG annual meetings and the closing date of the merger, which under the merger agreement must occur no later than December 20, 2006 unless that date is extended by Exelon and PSEG. At the time of their respective annual meetings, Exelon and PSEG shareholders will not know the exact market value of the Exelon common stock that will be issued in connection with the merger. The value of the merger consideration to be received by PSEG shareholders will fluctuate with changes in the price of Exelon's common stock. Shareholders of Exelon and PSEG are urged to obtain current market quotations for Exelon and PSEG common stock.

The anticipated benefits of combining PSEG and Exelon may not be realized.

        Exelon and PSEG entered into the merger agreement with the expectation that the merger would result in various benefits, including, among other things, synergies, cost savings and operating efficiencies. Although we expect to achieve the anticipated benefits of the merger, achieving them, including the synergies, is subject to a number of uncertainties, including:

        Although the companies' plans for integration and operation of the combined company and its subsidiaries and divisions are focused on minimizing uncertainties in order to achieve these anticipated

21



benefits, no assurance can be given that these benefits will be achieved. Failure to achieve these anticipated benefits could result in increased costs, decreases in the amount of expected revenues and diversion of management's time and energy and could have an adverse effect on the combined company's business, financial condition, operating results and prospects.

Exelon and PSEG may be unable to successfully integrate their operations.

        The merger involves the integration of two companies that previously operated independently. The difficulties of combining each company's operations include:

In addition, the integration of some of Exelon's and PSEG's operations will require regulatory approval.

        Exelon and PSEG recognize that the process of integrating operations could cause an interruption of, or loss of momentum in, the activities of one or more of the combined company's businesses, and we intend to address these issues. The diversion of management's attention and any delays or difficulties encountered in connection with the merger and the integration of the two companies' operations could have an adverse effect on the business, financial condition, operating results and prospects of the combined company after the merger, and could impair the combined company's ability to realize the anticipated benefits of the merger.

The application of the purchase method of accounting will result in approximately $8.1 billion of additional goodwill which could become impaired and adversely affect the market value of the combined company's common stock following completion of the merger.

        Under the purchase method of accounting, the total purchase price paid by Exelon in the merger will be allocated to PSEG's tangible assets and liabilities and identifiable intangible assets, if any are identified, based on their fair values as of the date of completion of the merger. The excess of the purchase price over those fair values will be recorded as goodwill. We expect that the merger will result in the creation of approximately $8.1 billion in goodwill based upon the application of purchase accounting. As a result, upon completion of the merger, the combined company will have approximately $13.4 billion in goodwill. To the extent the value of goodwill or intangibles becomes impaired, the combined company may be required to incur material charges relating to such impairment. Such a potential impairment charge could have a material impact on the combined company's operating results.

The combined company may be unable to obtain permission from the NJBPU to recover PSE&G's pension and other post-retirement benefit expenses, which could have an adverse effect on its cash flow and results of operation.

        PSE&G is permitted by its current NJBPU rate order to recover through its rates the amortized portion of its pension expenses and other post-retirement benefit expenses associated with its pension and post-retirement obligations. As a result of the application of the purchase method of accounting to these costs, the recognition of certain unrecognized pension and OPEB expenses will be accelerated and, as a result, will no longer be reflected in the calculation of pension and OPEB expenses that PSE&G's current rate order permits it to recover. PSE&G estimates that it could have as much as $1.2 billion in unrecognized pension and OPEB expenses that PSE&G may be unable to recover following completion of the merger unless it obtains approval from the NJBPU to permit continued recovery of those expenses in the manner the current rate order permits. Exelon and PSEG have made it a condition to completion of the merger that PSE&G receive an order from the NJBPU permitting

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PSE&G to continue to recover the pension expenses as it did prior to completion of the merger. The NJBPU has issued similar orders in other merger proceedings and such an order would not be expected to increase rates above current levels; however, Exelon and PSEG cannot assure you that PSE&G will receive such an order from the NJBPU or that if it does receive such an order, it will be permitted in future rate proceedings to continue to recover these expenses. Failure to obtain or maintain the right to recover the pension and OPEB expenses would have an adverse effect on the combined company's cash flow and results of operations.

Exelon and PSEG will incur significant transaction and merger-related integration costs in connection with the merger.

        Exelon and PSEG expect to incur costs associated with consummating the merger and integrating the operations of the two companies, as well as approximately $41 million in transaction fees in the case of Exelon and $29 million in the case of PSEG. The estimated $41 million of transaction costs incurred by Exelon will be included as a component of the purchase price for purposes of purchase accounting. The amount of transaction fees expected to be incurred is a preliminary estimate and subject to change. Exelon currently estimates integration costs associated with the merger to be approximately $700 million over a period of four years, with approximately $450 million being incurred in the first full year of operations following completion of the merger. Exelon is in the early stages of assessing the magnitude of these costs and, therefore, these estimates may change, and additional unanticipated costs may be incurred in the integration of the businesses of Exelon and PSEG. Although Exelon and PSEG believe that the elimination of duplicative costs, as well as the realization of other efficiencies related to the integration of the businesses, will offset incremental transaction and merger-related costs over time, we cannot assure you that this net benefit will be achieved in the near term, or at all.

Exelon and PSEG will be subject to business uncertainties and contractual restrictions while the merger is pending which could adversely affect their businesses.

        Uncertainty about the effect of the merger on employees and customers may have an adverse effect on Exelon and PSEG and, consequently, on the combined company. Although Exelon and PSEG intend to take steps to reduce any adverse effects, these uncertainties may impair Exelon's and PSEG's ability to attract, retain and motivate key personnel until the merger is consummated and for a period of time thereafter, and could cause customers, suppliers and others that deal with Exelon and PSEG to seek to change existing business relationships with Exelon and PSEG. Employee retention may be particularly challenging during the pendency of the merger, as employees may experience uncertainty about their future roles with the combined company. If, despite Exelon's and PSEG's retention efforts, key employees depart because of issues relating to the uncertainty and difficulty of integration or a desire not to remain with the combined company, the combined company's business could be seriously harmed. In addition, the merger agreement restricts Exelon and PSEG from making certain acquisitions and taking other specified actions until the merger occurs or the merger agreement terminates. These restrictions may prevent Exelon and PSEG from pursuing otherwise attractive business opportunities and making other changes to their businesses that may arise prior to completion of the merger or termination of the merger agreement. Please see the section titled "The Merger Agreement—Covenants" beginning on page 120 of this joint proxy statement/prospectus for a description of the restrictive covenants applicable to PSEG and Exelon.

The combined company may be subject to adverse regulatory conditions following completion of the merger.

        Before the merger may be completed, various approvals or consents must be obtained from FERC, the SEC, the NRC and various utility regulatory, antitrust and other authorities in the United States and in foreign jurisdictions. The governmental authorities from which these approvals are required may

23



impose conditions on completion of the merger or require changes to the terms of the merger. These conditions or changes could have the effect of delaying completion of the merger or imposing additional costs on or limiting the revenues of the combined company following the merger, any of which might have a material adverse effect on the combined company following completion of the merger.

        Exelon and PSEG have filed or will file applications for the required statutory approvals with the governmental authorities described above, including a market concentration mitigation plan with FERC. The market concentration mitigation plan included with the companies' original filing with FERC contemplated (1) the divestiture of fossil fuel generating facilities with 2,900 MW of generating capacity and (2) the transfer of control of 2,600 MW of baseload nuclear capacity through either long-term firm baseload energy sales contracts or an annual auction. In response to certain objections and concerns raised by intervenors, the companies filed a supplement to the market concentration mitigation plan, which proposed the divestiture of at least 1,100 MW of additional fossil fuel generating capacity, for a total of 6,600 MW of capacity proposed for mitigation, if FERC approves the merger without an evidentiary hearing. Exelon and PSEG have not offered to divest any nuclear generating facilities and do not anticipate doing so. FERC could, however, condition its approval of the merger on the parties agreeing to divest or transfer control of a greater amount of capacity and/or to divest additional generation assets. If that were to occur, it could have the effects described in the previous paragraph. See "The Merger—Regulatory Matters Relating to the Merger" beginning on page 111 of this joint proxy statement/prospectus for a discussion of the required statutory approvals and the filings by Exelon and PSEG.

Some of the directors and executive officers of PSEG and Exelon have interests and arrangements that could have affected their decision to support or approve the merger.

        The interests of some of the directors and executive officers of PSEG in the merger are different from, and may be in addition to, those of PSEG shareholders generally and could have affected their decision to support or approve the merger. These interests include those described under "The Merger—Interests of PSEG's Directors and Executive Officers in the Merger" beginning on page 99 of this joint proxy statement/prospectus. As a result, the directors and officers of PSEG may be more likely to recommend to PSEG's shareholders the approval of the merger agreement than if they did not have these interests.

        The interests of some of the executive officers of Exelon in the merger are different from, and may be in addition to, those of Exelon shareholders generally and could have affected their decision to support the merger. The Amended and Restated By-laws of Exelon to be adopted upon completion of the merger provide that for at least the three-year transition period following completion of the merger, Mr. Rowe will be the Chief Executive Officer of Exelon and that when Mr. Ferland ceases to serve as the non-executive Chairman of the Exelon board of directors, the Chief Executive Officer of Exelon will be appointed Chairman of the Exelon board of directors. In addition, the merger agreement permits Exelon to amend its severance agreements and plans to treat the merger as a change in control under those agreements and plans. The Exelon compensation committee has recently considered changes to the senior management severance plan that would provide certain benefits to participating executives whose employment terminates in connection with the merger, including the accelerated vesting of outstanding stock options and restricted stock awards. No such changes have been formally adopted to date, but it is currently anticipated that such changes will be adopted on or before the closing of the merger. As a result, the officers of Exelon may be more likely to recommend to Exelon's shareholders the approval of the issuance of shares of Exelon common stock as contemplated by the merger agreement.

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Risks Relating to the Business of the Combined Company

Under the combined company's holding company structure, the payment of dividends to shareholders will be subject to the ability of its subsidiaries to pay dividends.

        Each of Exelon and PSEG is, and the combined company will be, a holding company with no material assets other than the stock of its subsidiaries. Accordingly, all of the combined company's operations will be conducted by its subsidiaries. The combined company's ability to pay dividends on its common stock will depend on the payment to it of dividends by its operating subsidiaries. These subsidiaries' payments of dividends to the combined company in turn will depend on their results of operations and cash flows and other other items impacting retained earnings. Under applicable federal law, Exelon, ComEd, PECO, and Exelon Generation can pay dividends only from retained, undistributed or current earnings. Following completion of the merger, PSE&G will be subject to the same restrictions. Following completion of the merger, a significant loss recorded at ComEd, PECO, PSE&G or Exelon Generation may limit the dividends that these companies can distribute to Exelon. Under Illinois law, ComEd may not pay any dividend on its stock unless, among other things, its earnings and earned surplus are sufficient to declare and pay a dividend after provision is made for reasonable and proper reserves, or unless ComEd has specific authorization from the Illinois Commerce Commission. As a condition to approval of other utility mergers, the NJBPU has imposed dividend restrictions. We can give no assurance that a similar restriction will not be imposed on PSE&G. In addition, PSEG Energy Holdings and its subsidiaries are parties to debt agreements that restrict their ability to pay dividends, make cash distributions or otherwise transfer funds to PSEG, or after completion of the merger, the combined company.

Exelon's and PSEG's businesses are, and the combined company's business will be, subject to extensive regulation that will affect their operations and costs.

        Exelon and PSEG are, and the combined company will be, subject to regulation by the SEC under PUHCA, by FERC and the NRC, by federal, state and local authorities under environmental laws and by state public utility commissions under laws regulating Exelon's and PSEG's distribution businesses, among others. Regulation will affect almost every aspect of the combined company's businesses, from its fundamental business management actions to its ability to:

        Changes in regulation can cause delays in or affect business planning and transactions and can increase the combined company's costs. As part of retail electric restructuring initiatives in Illinois and Pennsylvania and other regulatory proceedings, ComEd's and PECO's rates are currently subject to limitations, including:

25


        These rate provisions limit the ability of ComEd and PECO to recover cost increases or the costs of new investments. As a result, ComEd and PECO must effectively manage their costs to maintain their current profitability.

        In addition, the end of the transition periods in Illinois and Pennsylvania include uncertainties, including the source and pricing of generation services to be provided by PECO and methodology for wholesale supply procurement in Illinois and Pennsylvania and recovery of supply costs from retail customers. The end of the transition periods in Illinois and Pennsylvania also presents uncertainty for Exelon Generation, which sells a significant portion of its output to ComEd and PECO under long-term purchased power agreements. The agreement with ComEd, which expires at the end of 2006, may not be replaced with a similar arrangement. If the agreement is not replaced, Exelon Generation will need to sell more power at market-based prices, which may include an auction-based model, or enter into new contractual arrangements with third parties, which may have shorter durations and lower volume sales. Increased market sales and new contractual arrangements may adversely affect Exelon Generation's credit risk, due to an increase in the number of customers and the loss of a highly predictable revenue source, and may increase the variability of Exelon's earnings.

        PSE&G's New Jersey base rates for electric and gas distribution are subject to regulation by the NJBPU and are effective until a new base rate case is filed and concluded. In addition, limited categories of costs are recovered through adjustment charges that are periodically reset to reflect current costs. Inability to recover material costs not included in base rates or adjustment clauses could have an adverse effect on cash flow and financial position of the combined company.

        PSEG Global's electric and gas distribution facilities located in various foreign jurisdictions are rate-regulated enterprises. Governmental authorities establish rates charged to customers. While these rates are designed to cover all operating costs and provide a return, considerable fiscal and cash uncertainties in certain countries due to local regulation or economic, political and social crisis could have an adverse impact. In addition, future rates may not be adequate to provide cash flow to pay principal and interest on the debt of PSEG Global's subsidiaries and affiliates or to enable its subsidiaries and affiliates to comply with the terms of debt agreements.

The combined company's financial performance will be affected by the amortization and eventual completion of stranded cost recovery for ComEd and PECO.

        ComEd's and PECO's current retail electric rates include charges to recover stranded costs that might not otherwise be recoverable in a fully competitive market. The amount of stranded cost recovery by ComEd varies annually depending on wholesale market prices and other factors, with stranded cost recovery ending at the end of 2006. Stranded cost recovery by PECO continues through 2010. Although the annual amount of stranded cost recovery is scheduled to increase during that period, annual increases in amortization of PECO's stranded cost recovery and the corresponding reductions in the return on the unamortized portion of stranded cost recovery will adversely affect PECO's results through 2010. Further, the termination of stranded cost recovery at the end of 2006 for ComEd and at the end of 2010 for PECO could significantly adversely affect their future results of operation.

The combined company's energy delivery business will be obligated as the provider-of-last-resort to provide energy to all retail customers in its service territories, which makes it difficult to predict and plan for load requirements.

        PECO, ComEd and PSE&G serve as the provider-of-last-resort, referred to in this proxy statement/prospectus as a "POLR," for energy for all retail customers in their respective electric and gas service territories in Illinois, Pennsylvania, and New Jersey. As POLR suppliers, PECO, ComEd and PSE&G could be required to secure load requirements sufficient to serve all customers in their

26



respective service territories in the event that customers do not choose alternate suppliers or a third party supplier is unable to satisfy its obligations. As a result, planning has a higher level of uncertainty than that traditionally experienced due to weather and the economy, and it is more difficult to predict and plan for the number of customers and their associated energy demand.

The combined company's energy generation business will have contractual obligations to certain energy delivery businesses to provide full requirements service to satisfy POLR requirements, which makes it difficult to predict and plan for load requirements and may result in increased operating costs to the business.

        The combined companies' generation business will have contractual obligations to certain energy delivery businesses to supply requirements service to such companies to satisfy all or a portion of such companies' POLR obligations. The uncertainty regarding the amount of load that the combined company's generation business must prepare for will likely increase the operating cost of the combined company's generation business. A significant under-estimation of load requirements could result in the combined company's generation business not having enough power to cover its load obligation, in which case it would be required to buy power from third parties at prevailing market prices. Those prices may not be as favorable or as manageable as the long-term supply costs of the combined company's generation business and thus could increase its operating costs. The divestiture of generation assets or capacity in order to obtain the required regulatory approvals to complete the merger, increases the likelihood of the combined company's generation business not having enough power to cover its load obligation.

The combined company's generation business may incur substantial costs and liabilities due to its ownership and operation of nuclear generating facilities.

        Following completion of the merger, it is expected that, prior to giving effect to any divestitures required by governmental authorities to complete the merger and prior to implementing the combined company's anticipated strategy of divesting assets that do not meet the strategic objectives of the combined company, approximately 46% of the combined company's owned generation capacity will be nuclear and the combined company will own approximately 20% of the nuclear generation capacity in the United States. Accordingly, the combined company will have greater exposure to risks that adversely affect the nuclear generation industry compared to other companies in the utility industry.

        The ownership and operation of nuclear generating facilities involve risks, including:

        The material risks known or currently anticipated by Exelon and PSEG that could affect the ability of the combined company's nuclear generation business to achieve desired levels of profitability are:

        Capacity Factors.    The combined company's nuclear fleet must operate at consistently high capacity factors in order for it to produce efficient, low-cost energy and sustain the current profitability levels of Exelon and PSEG.

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        NRC License Extensions.    Exelon Generation's nuclear generating facilities are currently operating under 40-year NRC licenses. Exelon Generation has received 20-year extensions for the operating licenses for Peach Bottom units 2 and 3, Dresden units 2 and 3 and Quad Cities nuclear generating facilities. In December 2004, the NRC issued an order that will permit Oyster Creek to operate beyond its license expiration in April 2009 if the NRC has not completed reviewing the application for extension. The application for Oyster Creek's license renewal is expected to be filed by August 2005 to comply with this agreement. Exelon Generation is currently evaluating other nuclear facilities for possible license extension. PSEG Power's nuclear generating facilities are currently operating under NRC licenses that expire in 2016, 2020 and 2026. The operating license extension process takes approximately four to five years from the commencement of the project until completion of NRC review. Exelon Generation and PSEG Power cannot be sure that they will receive the requested extensions or be able to operate the facilities for all or any portion of any extended license.

        Regulatory Risk.    The NRC may modify, suspend or revoke licenses, shut down a nuclear facility and impose civil penalties for failure to comply with the Atomic Energy Act, related regulations or the terms of the licenses for nuclear generating facilities. A change in the Atomic Energy Act or the applicable regulations or licenses may require a substantial increase in capital expenditures or may result in increased operating or decommissioning costs.

        Operational Risk.    Operations at any of the combined company's nuclear generation plants could degrade to the point where the combined company has to shut down the plant or operate at less than full capacity. If this were to happen, identifying and correcting the causes may require significant time and expense. The combined company may choose to close a plant rather than incur the expense of restarting it or returning it to full capacity. In either event, the combined company may lose revenue and incur increased fuel and purchased power expense to meet its supply commitments.

        Nuclear Accident Risk.    Accidents and other unforeseen problems have occurred both in the United States and elsewhere. The consequences of an accident can be severe and include loss of life and property damage. Any resulting financial impact from a nuclear accident may exceed the combined company's resources, including insurance coverages.

        Nuclear Fuel Quality May Affect Costs.    The quality of nuclear fuel utilized by the combined company's generation business can affect the efficiency and costs of its operations. Certain Exelon Generation nuclear generating facilities have recently identified a limited number of fuel performance issues. Remediation actions have resulted in increased costs due to accelerated fuel amortization and/or increased outage costs and could continue to do so. It is difficult to predict the total cost of these remediation procedures.

The combined company's generation business may incur substantial costs and liabilities and be exposed to volatility as a result of its participation in the wholesale energy markets.

        The material risks associated with the wholesale energy markets known or currently anticipated by Exelon and PSEG that could adversely affect the combined company's operations are:

        Price Fluctuations.    Exelon Generation sells electricity in both the wholesale bilateral markets and spot markets. These sales expose it to the risks of rising and falling prices in those markets, and its cash flows may vary accordingly. To the extent it does not supply power to serve the needs of ComEd and PECO at fixed rates mandated by state regulatory commissions, its cash flows will largely be determined by wholesale prices of electricity and its ability to market successfully energy, capacity and ancillary services. At any given time, the wholesale spot-market price of electricity for each hour is generally determined by the cost of supplying the next unit of electricity to the market during that hour. In many cases, the next unit of electricity supplied would be supplied from generating stations fueled by fossil fuels, primarily coal and natural gas. Consequently, the open market wholesale price of

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electricity may reflect the cost of coal and natural gas plus the cost to convert the fuel to electricity, commonly known as the spark spread. Therefore, changes in the supply and cost of coal and natural gas may impact the open market wholesale price of electricity.

        PSEG Power expects to meet its supply obligations through a combination of generation and energy purchases managed by PSEG ER&T. PSEG Power also enters into trading positions related to its generation assets and supply obligations. To the extent PSEG Power does not hedge its costs, PSEG Power will be subject to the risk of price fluctuations that could affect its future results including variability in costs, such as changes in the expected price of energy and capacity that PSEG Power sells into the market, increases in the price of energy purchased to meet its supply obligations or the amount of excess energy sold into the market, the cost of fuel to generate electricity and the cost of emission credits and congestion credits that are used by PSEG Power to transmit electricity.

        Third Party Credit Risk.    In the bilateral markets, Exelon Generation and PSEG Power are exposed to the risk that counterparties that owe them money or energy as a result of market transactions will not perform their obligations. For example, energy supplied by third-party generators under long-term agreements represents a significant portion of Exelon Generation's overall capacity and may provide a significant portion of PSEG's NJBPU auction load requirements. These generators face operational risks, such as those that Exelon Generation and PSEG Power face, and their ability to perform depends on their financial condition. If the counterparties to these arrangements fail to perform, Exelon Generation and PSEG Power might be forced to honor the underlying commitment at then-current market prices and incur additional losses, to the extent of amounts, if any, already paid to the counterparties, and increased cost of energy or capacity to the extent the market price exceeds the contract price. In the spot markets, Exelon Generation and PSEG Power are exposed to the risks of whatever default mechanisms exist in that market, some of which attempt to spread the risk across all participants, which may not be an effective way of lessening the severity of the risk and the amounts at stake.

        Risk of Credit Downgrades.    Exelon Generation's and PSEG Power's trading businesses are, and the trading business of the combined company will be, required to meet credit quality standards. If either of Exelon Generation or PSEG Power, or the generation business of the combined company after the merger, were to lose its investment grade credit rating, it would be required under trading agreements to provide collateral in the form of letters of credit or cash, which may materially adversely affect the liquidity of Exelon or PSEG, or after completion of the merger, the combined company. If Exelon Generation had lost its investment grade credit rating as of March 31, 2005, it would have been required to provide approximately $920 million in collateral. If PSEG Power had lost its investment grade credit rating as of March 31, 2005, it would have been required to provide approximately $869 million in collateral.

Impairment of ComEd's goodwill could adversely affect the combined company's results of operation and could restrict ComEd's ability to pay dividends to the combined company.

        At March 31, 2005, ComEd had recorded goodwill of approximately $4.7 billion. This goodwill was recognized and recorded in connection with the merger of Unicom Corporation and PECO. Under generally accepted accounting principles, the goodwill will remain at its recorded amount unless it is determined to be impaired, based upon an annual (or more often as circumstances dictate) analysis of ComEd's expected future cash flows. If an impairment of goodwill is determined at ComEd, the amount of the impaired goodwill will be written off and expensed at ComEd. ComEd's cash flows include competitive transition charges, which will cease at the end of 2006, unless there is a legislative or regulatory change, and collections from traditional bundled customers at tariffed rates. ComEd's cash flows will be affected by other factors, including the restructuring of the power purchase agreement, referred to in this joint proxy statement/prospectus as a "PPA," with Exelon Generation. Absent another source of revenues to replace the loss of competitive transition charge revenue or

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changes in its cost structure, there is a reasonable possibility that goodwill will be impaired at ComEd, and possibly Exelon, in 2005 or later periods. Under current regulations, a significant goodwill impairment may restrict ComEd's ability to pay dividends to the combined company with the result that the combined company's dividends would depend upon the receipt of dividends from other subsidiaries. For a discussion of potential impairment charges in connection with accounting for the merger under the purchase method of accounting, see "—Risks Relating to the Merger—The application of the purchase method of accounting will result in approximately $8.1 billion of additional goodwill which could become impaired and adversely affect the market value of the combined company's common stock following completion of the merger" on page 22 of this joint proxy statement/prospectus.

The Internal Revenue Service might successfully challenge certain leveraged lease transactions entered into by PSEG, which could have a material adverse impact on the combined company's operating results.

        In 1996 through 2002, PSEG, through its subsidiary PSEG Resources, entered into a number of leveraged leasing transactions in the ordinary course of PSEG Resources' business. The IRS is likely to argue that certain of those transactions are of a type that it has announced its intention to challenge, and PSEG and Exelon understand that similar transactions entered into by other companies have been the subject of review and challenge by the IRS. As of March 31, 2005, the total gross investment by PSEG Resources in such transactions was approximately $1.4 billion.

        The IRS is presently reviewing the tax returns of PSEG and its subsidiaries for tax years 1997 through 2000, years when PSEG Resources entered into these transactions. The IRS is aware of these lease transactions and has requested information and documents associated with them. To date, the IRS has not proposed to disallow any deductions claimed relative to these transactions, but may propose such disallowances in the future. If the tax benefits associated with the lease transactions were successfully challenged by the IRS, PSEG or, following completion of the merger, the combined company would be assessed interest and possibly penalties in addition to any underpayments of tax. During the time period of 1997 through 2000, these transactions reduced current tax liabilities of PSEG by approximately $240 million and during the subsequent time period of 2001 though 2004, these and similar transactions reduced the current tax liabilities of PSEG by approximately $345 million. Interest that would be assessed on these potential deficiencies, if associated deductions were disallowed, would be approximately $140 million through March 31, 2005.

        It is presently unclear the extent to which the IRS will seek to disallow deductions associated with lease transactions, if at all, and, if it were to do so, the extent to which any such challenge would be successful. If deductions associated with these transactions entered into by PSEG were successfully challenged by the IRS, it could have a material adverse impact on the combined company's operating results and could impact future returns on these transactions.

        The Financial Accounting Standards Board, referred to in this joint proxy statement/prospectus as "FASB," is currently considering a modification to the Generally Accepted Accounting Principles, referred to in this joint proxy statement/prospectus as "GAAP," for leveraged leases. Under present GAAP, a tax settlement with the IRS that results merely in a change in the timing of tax liabilities would not require an accounting repricing of the lease investment. As such, income from the lease would continue to accrue at the original economic yield computed for the lease and there would be no writedown of the lease investment.

        A modification currently being considered by the FASB could require a lease to be repriced if a change in the timing of tax liabilities has a significant impact on the economic yield of the lease and to be retested to determine if it qualifies for leveraged lease accounting. If this or a similar modification were to be adopted by the FASB, a successful challenge by the IRS to the tax treatment of the leases referred to above (or a settlement with the IRS), could trigger a lease repricing. If a repricing were to occur, there could be a material adverse impact on the combined company's operating results. Further,

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such a successful challenge or settlement may cause the lease to fail to qualify for leveraged lease accounting. Failure to so qualify would require that the non-recourse debt associated with the lease be brought onto the balance sheet of the combined company, which also could have a material adverse impact on the combined company's operating results. It is presently unclear what modifications, if any, will be adopted by the FASB, the timing of any such modification and the effect of any such modification on the operating results of PSEG or the combined company.

The IRS might successfully challenge certain tax positions taken by Exelon in connection with certain sale transactions, which could have a material adverse impact on the combined company's operating results.

        Exelon, through its ComEd subsidiary, has taken certain tax positions, which have been disclosed to the IRS, to defer the tax gain on a 1999 sale of its fossil generating assets. As of March 31, 2005, deferred tax liabilities related to the fossil plant sale are reflected in Exelon's consolidated balance sheets, with the majority allocated to the consolidated balance sheets of ComEd and the remainder to the consolidated balance sheets of Exelon Generation. The 1999 income tax liability deferred as a result of these transactions was approximately $1.1 billion. Exelon's ability to defer a portion of this liability depends on whether its characterization of a portion of the sales proceeds as having been received in connection with an "involuntary conversion" is proper. Exelon's ability to defer the remainder of this liability may depend in part on whether its tax characterization of a lease transaction it entered into in connection with the sale is proper. The IRS might argue that the lease transaction is of a type it has announced its intention to challenge, and Exelon understands that somewhat similar transactions entered into by other companies have been the subject of review and challenge by the IRS. Changes in IRS interpretations of existing primary tax authority or challenges to Exelon's tax positions could have the impact of accelerating future income tax payments and increasing interest expense related to the deferred tax gain that becomes current. Any required payments could be significant to the cash flows of Exelon. Exelon's management believes Exelon's reserve for interest, which has been established in the event that such positions are not sustained, has been appropriately recorded in accordance with SFAS No. 5, "Accounting for Contingencies." However, the ultimate outcome of such matters could result in additional unfavorable adjustments to the results of operations, and such adjustments could be material. Federal tax returns covering the period of the 1999 sale are currently under IRS audit. Final resolution of this matter is not anticipated for several years.

        It is presently unclear the extent to which the IRS will seek to disallow the deferral of tax liability resulting from the 1999 sale of fossil generating assets, if at all, and if it were to do so, the extent to which any such challenge would be successful. If the deferral were successfully challenged by the IRS, it could have a material adverse impact on the combined company's operating results.

Because a portion of the combined company's business will be conducted outside the United States, adverse international developments could negatively impact its business.

        Following completion of the merger and prior to implementing the combined company's anticipated strategy of divesting assets that do not meet the strategic objectives of the combined company, it is expected that approximately 5% of its assets will be outside the United States and 3% of its revenue will be generated from sources outside the United States, most of which will be held by and generated from PSEG Global.

        The economic and political conditions in certain countries where PSEG Global has interests present risks that may be different from, or more extensive than, those found in the United States including:

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        Changes in the legal environment in foreign countries in which PSEG Global has investments could make it more difficult to obtain non-recourse project refinancing on suitable terms and could impair PSEG Global's ability to enforce its rights under agreements relating to such projects. In addition, such changes could make it more difficult for the combined company to pursue an accelerated strategy of selling certain of PSEG Global's investments that no longer meet strategic objectives of the combined company.

        Operations in foreign countries also present risks associated with currency exchange and convertibility, inflation and repatriation of earnings. In countries in which PSEG Global operates in the future, economic and monetary conditions and other factors could affect PSEG Global's ability to convert its cash distributions to United States dollars or other freely convertible currencies, or to move funds offshore from these countries. Furthermore, the central bank of any of these countries may have the authority to suspend, restrict or otherwise impose conditions on foreign exchange transactions or to approve distributions to foreign investors. Although PSEG Global generally seeks to structure power purchase contracts and other project revenue agreements to provide for payments to be made in, or indexed to, United States dollars or a currency freely convertible into United States dollars, its ability to do so in all cases may be limited.

Market performance will affect the combined company's decommissioning trust funds and benefit plan asset values.

        The performance of the capital markets will affect the value of the assets that are held in trust to satisfy the combined company's future obligations under its pension and post-retirement benefit plans and to decommission nuclear generating plants. A decline in the market value of those assets, as was experienced from 2000 to 2002, may increase the combined company's funding requirements for these obligations.

The combined company's results of operations and cash flows may be affected by its ability to divest unprofitable or under-performing businesses.

        The combined company will pursue opportunities to sell businesses and assets that either do not meet the strategic objectives of the combined company or are unprofitable. The combined company may incur significant expenses in divesting these businesses. The combined company also may be unable to implement successfully this strategy for a number of reasons, including an inability to locate appropriate buyers or to negotiate acceptable terms for the transactions. In addition, the amounts that the combined company may realize from a divestiture are subject to fluctuating market conditions that may contribute to pricing and other terms that are materially different than expected and could result in a loss on the sale. Timing of any divestitures may positively or negatively affect the combined company's results of operations and cash flows.

War and acts and threats of terrorism may adversely affect the combined company's results of operations, the combined company's ability to raise capital and its future growth.

        Exelon and PSEG do not fully know the impact that any future terrorist attacks may have on the industry in general and on the combined company in particular. In addition, any retaliatory military strikes or sustained military campaign may affect the combined company's operations in unpredictable ways, such as changes in insurance markets and disruptions of fuel supplies and markets, particularly

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oil. The possibility alone that infrastructure facilities, such as electric generation, electric and gas transmission and distribution facilities, would be direct targets of, or indirect casualties of, an act of terror may affect the combined company's operations. Additionally, the continuing military activity in Iraq and other wars may have an adverse effect on the economy in general. A lower level of economic activity might result in a decline in energy consumption, which may adversely affect the combined company's revenues or restrict its future growth. Instability in the financial markets as a result of terrorism or war may affect the combined company's stock price and its ability to raise capital.

The combined company may incur substantial costs to fulfill its obligations related to environmental matters.

        Subsidiaries of Exelon and PSEG are subject to extensive environmental regulation by local, state and federal authorities. These laws and regulations affect the manner in which Exelon and PSEG and their subsidiaries conduct their operations and make capital expenditures. Further, such laws and regulations are subject to future changes that may result in increased compliance costs. For example, on March 10, 2005 the United States Environmental Protection Agency finalized more stringent nitrogen oxide ("NOx") and sulfur dioxide ("SO2") regulation for the eastern United States that will take effect in two phases, Phase I in 2010 and Phase II in 2015. Similarly, on March 15, 2005 the EPA also finalized "cap-and-trade" based mercury regulations that must be implemented in two phases on roughly the same timeline. Subsidiaries of Exelon and PSEG are subject to liability under environmental laws for the costs of remediating environmental contamination of property now or formerly owned by them and of property contaminated by hazardous substances they generated. Remediation activities associated with manufactured gas plant operations for subsidiaries of Exelon and PSEG will be one source of such costs. Also, subsidiaries of Exelon and PSEG are currently involved in a number of proceedings relating to sites where hazardous substances have been deposited and may be subject to additional proceedings in the future. In addition, most of PSEG's generating facilities are located in the State of New Jersey. In particular, New Jersey's environmental programs are generally considered to be more stringent in comparison to similar programs in other states. Therefore, there may be instances where the facilities located in New Jersey are subject to more stringent and, therefore, more costly pollution control requirements than competitive facilities in other states. The Salem nuclear generating facility has a permit from the New Jersey Department of Environment Protection allowing for the continued operation of the Salem facility with its existing cooling water system. That permit expires in July 2006. The NJDEP, in anticipation of PSEG's application to renew the permit for Salem, has advised PSEG that it strongly recommends that cooling water intake flow at the Salem facility be reduced commensurate with closed cycle cooling. The application of Federal Water Pollution Control Act Section 316(b) regulations published in 2004 could, as one option, require the installation of structures at the Salem facility to reduce cooling water intake commensurate with closed cycle cooling, which would result in material costs of compliance for the combined company. The regulations under Section 316(b) of the FWPCA could also result in material costs of compliance at other generating facilities of the combined company.

Exelon and PSEG retain contingent liabilities in connection with asset sales.

        Exelon and PSEG have each divested assets or businesses for aggregate consideration (purchase price plus debt assumed) in the amount of approximately $2.6 billion and approximately $1.5 billion, respectively, over the last three years. We have entered into a number of agreements for the sale of assets that include provisions whereby we are required to:

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        Many of these contingent liabilities can remain open for extended periods of time after the sales are closed. Depending on the extent to which the buyers may ultimately seek to enforce their rights under these contractual provisions, and the resolution of any disputes we may have concerning them, these liabilities could have a material adverse effect on our financial condition, liquidity, cash flow and results of operations.

        Each of Exelon and PSEG has established reserves with respect to the obligations under the agreements described above; however, we cannot assure you that such reserves would be sufficient to cover any payments required under the agreements described above.

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FORWARD-LOOKING STATEMENTS

        We have made forward-looking statements in this joint proxy statement/prospectus, including in the documents that are incorporated by reference into this joint proxy statement/prospectus, that are subject to risks and uncertainties. These statements are based on the current expectations of each company's management. Generally, forward-looking statements include information concerning possible or assumed future actions, events or results of operations of Exelon, PSEG and the combined company. Forward-looking statements include the information in this joint proxy statement/prospectus regarding:

        These statements may be preceded by, followed by or include the words "may," "will," "should," "could," "would," "potential," "possible," "believes," "expects," "anticipates," "intends," "plans," "estimates," "hopes" or similar expressions. We claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 for all forward-looking statements.

        Forward-looking statements are not guarantees of performance. You should understand that the following important factors, in addition to those discussed in "Risk Factors" above and elsewhere in this joint proxy statement/prospectus, and in the documents which are incorporated by reference into this joint proxy statement/prospectus, could affect the future results of Exelon and PSEG, and of the combined company after completion of the merger, and could cause those results or other outcomes to differ materially from those expressed or implied in our forward-looking statements:

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        Because forward-looking statements are subject to assumptions and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements. Shareholders are cautioned not to place undue reliance on such statements, which speak only as of the date of this joint proxy statement/prospectus or the date of any document incorporated by reference.

        All subsequent written and oral forward-looking statements concerning the merger or other matters addressed in this joint proxy statement/prospectus and attributable to Exelon or PSEG or any person acting on either company's behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Except to the extent required by applicable law or regulation, neither Exelon nor PSEG undertakes any obligation to publicly release any revisions or updates to such forward-looking statements to reflect events or circumstances after the date of this joint proxy statement/prospectus or to reflect the occurrence of unanticipated events.

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THE COMPANIES

Exelon Corporation
10 South Dearborn Street—37th Floor
P.O. Box 805379
Chicago, Illinois 60680-5379
(312) 394-7398
Internet address:
www.exeloncorp.com

        Exelon Corporation, a registered public utility holding company under the Public Utility Holding Company Act of 1935, as amended, through its subsidiaries, operates in two business segments—Energy Delivery and Generation as of January 1, 2005—as described below. Prior to January 1, 2005, Exelon operated in a third business segment, Enterprises. In addition to Exelon's two business segments, Exelon Business Services Company, a subsidiary of Exelon, provides Exelon and its subsidiaries with financial, human resource, legal, information technology, supply management and corporate governance services. Exelon was incorporated in Pennsylvania in February 1999.

        Energy Delivery.    Exelon's energy delivery business consists of the purchase and sale of electricity and distribution and transmission services by Commonwealth Edison Company in northern Illinois and by PECO Energy Company in southeastern Pennsylvania and the purchase and sale of natural gas and distribution services by PECO in the Pennsylvania counties surrounding the City of Philadelphia. ComEd's retail service territory has an area of approximately 11,300 square miles and an estimated population of 8 million. The service territory includes the City of Chicago, an area of about 225 square miles with an estimated population of 3 million. ComEd has approximately 3.76 million customers. PECO's retail service territory has an area of approximately 2,100 square miles and an estimated population of 3.8 million. PECO provides electric delivery service in an area of approximately 2,000 square miles, with a population of approximately 3.7 million, including 1.5 million in the City of Philadelphia. Natural gas service is supplied in an area of approximately 1,900 square miles in southeastern Pennsylvania adjacent to the city of Philadelphia, with a population of approximately 2.3 million. PECO delivers electricity to approximately 1.5 million customers and natural gas to approximately 460,000 customers.

        Generation.    Exelon's generation business consists of the owned and contracted for electric generating facilities and energy marketing operations of Exelon Generation Company, a 49.5% interest in two power stations in Mexico and the competitive retail sales business of Exelon Energy Company.

        Enterprises.    Exelon's enterprise business was comprised of infrastructure and electrical contracting services of Exelon Enterprises Company, LLC and other investments weighted towards the communications and energy services industries. During 2004 and 2003, Enterprises exited a significant number of businesses and investments. Exelon plans to divest or wind-down the remaining assets of Enterprises during 2005.

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Public Service Enterprise Group Incorporated
80 Park Plaza
P.O. Box 1171
Newark, New Jersey 07101-1171
(973) 430-7000
Internet address:
www.pseg.com

        Public Service Enterprise Group Incorporated is an exempt public utility holding company under PUHCA. PSEG has four principal direct wholly-owned subsidiaries: Public Service Electric and Gas Company, PSEG Power LLC, PSEG Energy Holdings L.L.C. and PSEG Services Corporation. PSEG was incorporated under the laws of the State of New Jersey in 1985.

        PSE&G.    PSE&G is an operating public utility company engaged principally in the transmission and distribution of electric energy and gas service in New Jersey. PSE&G provides electric and gas service in areas of New Jersey in which approximately 5.5 million people, about 70% of the State's population, reside. PSE&G's electric and gas service area is a corridor of approximately 2,600 square miles running diagonally across New Jersey from Bergen County in the northeast to an area below the city of Camden in the southwest. The greater portion of this area is served with both electricity and gas, but some parts are served with electricity only and other parts with gas only. This heavily populated, commercialized and industrialized territory encompasses most of New Jersey's largest municipalities, including its six largest cities—Newark, Jersey City, Paterson, Elizabeth, Trenton and Camden—in addition to approximately 300 suburban and rural communities. This service territory contains a diversified mix of commerce and industry, including major facilities of many nationally prominent corporations. PSE&G's load requirements are almost evenly split among residential, commercial and industrial customers.

        PSEG Power.    PSEG Power is a multi-regional, wholesale energy supply company that integrates its generating asset operations with its wholesale energy, fuel supply, energy trading and marketing and risk management function through three principal direct wholly-owned subsidiaries: PSEG Nuclear LLC, PSEG Fossil LLC and PSEG Energy Resources & Trade LLC.

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        PSEG Energy Holdings.    PSEG Energy Holdings is a New Jersey limited liability company and is the successor to PSEG Energy Holdings Inc., which was originally incorporated in 1989. PSEG Energy Holdings has two principal direct wholly-owned subsidiaries, PSEG Global L.L.C. and PSEG Resources L.L.C. PSEG Global has pursued investment opportunities in electric generation, transmission and distribution facilities and is engaged in power production and distribution in selected domestic and international markets. PSEG Resources invests in energy-related financial transactions and manages a diversified portfolio of assets. Upon completion of the merger, the combined company intends to pursue opportunities to sell certain of PSEG Global's investments that do not meet the strategic objectives of the combined company.

        PSEG Services.    PSEG Services provides management and administrative services to PSEG and its subsidiaries. These include accounting, legal, communications, human resources, information technology, treasury and financial, investor relations, shareholder services, real estate, insurance, risk management, tax, library and information services, security, corporate secretarial and certain planning, budgeting and forecasting services. PSEG Services charges PSEG and its subsidiaries for the cost of work performed and services provided pursuant to the terms and conditions of intercompany service agreements.

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CHAPTER TWO
INFORMATION ABOUT THE ANNUAL MEETINGS AND VOTING
 
THE EXELON ANNUAL MEETING

        The Exelon board of directors is using this joint proxy statement/prospectus to solicit proxies from the holders of Exelon common stock for use at the annual meeting of Exelon's shareholders. Exelon is first mailing this joint proxy statement/prospectus and accompanying proxy card to Exelon shareholders on or about June 10, 2005.

Date, Time and Place of Annual Meeting

        The Exelon annual meeting of shareholders will be held on July 22, 2005 at 9:30 a.m., local time at PECO Energy Headquarters, 2301 Market Street, Philadelphia, Pennsylvania.

Purpose of the Annual Meeting

        The purpose of the annual meeting is to take action upon the following:

Record Date for the Annual Meeting

        The Exelon board of directors has fixed the close of business on May 2, 2005 as the record date for determination of shareholders entitled to notice of and to vote at the Exelon annual meeting.

Outstanding Shares

        As of May 2, 2005, the record date for the Exelon annual meeting, there were approximately 669,137,081 shares of Exelon common stock outstanding.

Shares Entitled to Vote

        Shares entitled to vote at the Exelon annual meeting are shares of Exelon common stock held as of the close of business on the record date, May 2, 2005. Each shareholder is entitled to one vote at the Exelon annual meeting for each share of Exelon common stock held by that shareholder at the

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close of business on the record date. Shares of Exelon common stock held by Exelon in its treasury are not voted.

Quorum, Abstentions and Broker Non-Votes

        A quorum of Exelon shareholders is necessary to permit a particular matter to be considered and acted upon at the meeting. The presence in person or by proxy at the annual meeting of holders of issued and outstanding shares of Exelon common stock entitled to cast at least a majority of the votes that all shareholders are entitled to cast on a particular matter constitutes a quorum. Shares held by Exelon in its treasury do not count towards a quorum. Broker non-votes (so long as such shares are voted on the director proposal or proposal to ratify Exelon's independent accountants) and abstentions count as present for establishing a quorum. A broker non-vote occurs on an item when the broker is not permitted to vote on that item without instruction from the beneficial owner of the shares of Exelon common stock and the beneficial owner gives no instruction as to voting of the shares. Under New York Stock Exchange rules, your broker or bank does not have discretionary authority to vote your shares on the proposal to issue shares of Exelon common stock as contemplated by the merger agreement, the proposal to approve the Exelon Corporation 2006 Long-Term Incentive Plan or the proposal to approve the Exelon Corporation Employee Stock Purchase Plan for Unincorporated Subsidiaries. Without your voting instructions on those items, a broker non-vote will occur.

Vote Required

        The proposals require different percentages of votes in order to approve them:

        Abstentions and broker non-votes are not counted as votes cast on a proposal.

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Shares Beneficially Owned by Exelon Directors and Officers

        Exelon directors and officers beneficially owned 4,955,493 shares of Exelon common stock on May 2, 2005 the record date for the Exelon annual meeting. These shares represent in total less than 1% of the total voting power of Exelon's voting securities outstanding and entitled to vote as of May 2, 2005. Exelon currently expects that Exelon's directors and officers will vote their shares in favor of the share issuance proposal, although none of them has entered into any agreements obligating them to do so.

Voting at the Annual Meeting

        If you are a shareholder of record, you may vote in person by ballot at the Exelon annual meeting or by submitting a proxy. Exelon recommends you submit your proxy even if you plan to attend the annual meeting. If you attend the annual meeting, you may vote by ballot, thereby canceling any proxy previously submitted.

        Voting instructions are included on your proxy card. If you properly give your proxy and submit it to Exelon in time to vote, one of the individuals named as your proxy will vote your shares as you have directed. You may vote for or against the proposals or abstain from voting.

How to Vote by Proxy

        By Telephone or Internet.    If you are a shareholder of record, you can submit your proxy by telephone by calling the toll-free telephone number on your proxy card (877) 779-8683 or by Internet by accessing the website identified on your proxy card www.eproxyvote.com/exc. Telephone and Internet voting are available 24 hours a day and will be accessible until 11:59 p.m. on July 21, 2005. Exelon's telephone and Internet voting procedures are designed to authenticate shareholders by using individual control numbers. If you hold your shares through a bank, broker, custodian or other recordholder, please refer to your proxy card or the voting instruction form provided by your bank, broker, custodian or other recordholder for information on telephone or Internet voting. If you submit your proxy by telephone or Internet, please do not mail your proxy card. If you are located outside the United States, Canada and Puerto Rico, see your proxy card or other materials for additional instructions with respect to voting by telephone.

        By Mail.    If you are a shareholder of record and choose to submit your proxy by mail, please complete each proxy card you receive, date and sign it, and return it in the prepaid envelope which accompanied that proxy card. If you hold your shares through a bank, broker, custodian or other recordholder, please refer to your proxy card or the voting instruction form provided to you by your bank, broker, custodian or other recordholder.

Proxies without Instruction

        If you are a shareholder of record and submit your proxy but do not make specific choices, your proxy will follow the Exelon board of directors' recommendations and your shares will be voted:

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        If you hold your shares through a bank, broker, custodian or other recordholder, failure to instruct such recordholder how to vote your shares will have the effect described under "—Quorum, Abstentions and Broker Non-Votes."

Revocation of Proxies

        You may revoke your proxy at any time prior to the time your shares are voted. If you are a shareholder of record, your proxy can be revoked in several ways:

        However, if your shares are held in "street name" through a bank, broker, custodian or other recordholder, you must check with your bank, broker, custodian or other recordholder to determine how to revoke your proxy.

Proxy Solicitation

        Exelon will pay the costs of soliciting proxies from Exelon shareholders. In addition to this mailing, proxies may be solicited by directors, officers or employees of Exelon in person or by telephone or electronic transmission. None of the directors, officers or employees will be directly compensated for such services. Exelon has retained Georgeson Shareholder Communications Inc. to assist in the distribution and solicitation of proxies. Exelon will pay Georgeson Shareholder Communications Inc. a fee of $16,500, plus reasonable expenses, for these services.

        The extent to which these proxy soliciting efforts will be necessary depends entirely upon how promptly proxies are submitted. You should submit your proxy without delay by telephone, by the Internet or by mail. Exelon also reimburses brokers and other nominees for their expenses in sending these materials to you and getting your voting instructions.

Other Business; Adjournments

        Exelon is not currently aware of any other business to be acted upon at the Exelon annual meeting. If, however, other matters are properly brought before the annual meeting, or any adjourned meeting, your proxies include discretionary authority on the part of the individuals appointed to vote your shares to act on those matters according to their best judgment.

        Adjournments may be made for the purpose of, among other things, soliciting additional proxies. Any adjournment may be made from time to time by the affirmative vote of a majority of the votes cast by holders of shares of Exelon common stock present in person or by proxy at the Exelon annual meeting, whether or not a quorum is present, without further notice other than by an announcement at the meeting. Exelon does not currently intend to seek an adjournment of its annual meeting.

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Exelon Shareholder Account Maintenance

        Exelon's transfer agent is Equiserve Trust Company, N.A. All communications concerning accounts of Exelon shareholders of record, including address changes, name changes, inquiries as to requirements to transfer shares of common stock and similar issues can be handled by calling the Exelon Shareholder Services department at (312) 394-2345, or by calling Equiserve, toll-free at (800) 626-8792. For other information about Exelon, Exelon shareholders can visit Exelon's web site at www.exeloncorp.com.

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THE PSEG ANNUAL MEETING

        The PSEG board of directors is using this joint proxy statement/prospectus to solicit proxies from the holders of PSEG common stock for use at the annual meeting of PSEG's shareholders. PSEG is first mailing this joint proxy statement/prospectus and accompanying proxy card to PSEG shareholders on or about June 10, 2005.

Date, Time and Place of Annual Meeting

        The PSEG annual meeting of shareholders will be held on July 19, 2005 at 2:00 p.m., local time at The New Jersey Performing Arts Center, One Center Street, Newark, New Jersey.

Purpose of the Annual Meeting

        The purpose of the PSEG annual meeting is to take action upon the following:

Record Date for the Annual Meeting

        The PSEG board of directors has fixed the close of business on May 27, 2005 as the record date for determination of shareholders entitled to notice of and to vote at the PSEG annual meeting.

Outstanding Shares

        As of May 27, 2005, the record date for the PSEG annual meeting, there were approximately 238,731,592 shares of PSEG common stock outstanding.

Shares Entitled to Vote

        Shares entitled to vote at the PSEG annual meeting are shares of PSEG common stock held as of the close of business on the record date, May 27, 2005. Each shareholder is entitled to one vote at the PSEG annual meeting for each share of PSEG common stock held by that shareholder at the close of business on the record date, except for the proposal relating to the election of directors, on which PSEG shareholders are entitled to cumulative voting. Shares of PSEG common stock held by PSEG in its treasury are not voted.

Quorum, Abstentions and Broker Non-Votes

        A quorum of PSEG shareholders is necessary to hold a valid meeting. The presence in person or by proxy at the annual meeting of holders of a majority of the issued and outstanding shares of PSEG common stock entitled to vote at the meeting is a quorum. Shares held by PSEG in its treasury do not count towards a quorum. Abstentions and broker non-votes count as present for establishing a quorum. A broker non-vote occurs on an item when the broker is not permitted to vote on that item without instruction from the beneficial owner of the shares of PSEG common stock and the beneficial owner

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gives no instruction as to voting of the shares. Under New York Stock Exchange rules, your broker or bank does not have discretionary authority to vote your shares on the proposal to approve the merger agreement or on the shareholder proposal. Without your voting instructions on those items, a broker non-vote will occur.

Vote Required

        The proposals require different percentages of votes in order to approve them:

        Abstentions and broker non-votes are not counted as votes cast on a proposal.

Shares Beneficially Owned by PSEG Directors and Officers

        PSEG directors and officers beneficially owned 4,951,871 shares of PSEG common stock on May 27, 2005 the record date for the PSEG annual meeting. These shares represent in total 1.8% of the total voting power of PSEG's voting securities outstanding and entitled to vote as of May 27, 2005. PSEG currently expects that PSEG's directors and officers will vote their shares in favor of the share issuance proposal, although none of them has entered into any agreements obligating them to do so.

Voting at the Annual Meeting

        If you are a shareholder of record, you may vote in person by ballot at the PSEG annual meeting or by submitting a proxy. PSEG recommends you submit your proxy even if you plan to attend the PSEG annual meeting. If you attend the annual meeting, you may vote by ballot, thereby canceling any proxy previously submitted.

        Voting instructions are included on your proxy card. If you properly give your proxy and submit it to PSEG in time to vote, one of the individuals named as your proxy will vote your shares as you have directed. You may vote for or against the proposals or abstain from voting.

How to Vote by Proxy

        By Telephone or Internet.    If you are a shareholder of record, you can submit your proxy by telephone by calling the toll-free telephone number on your proxy card (866) 242-0618 or by Internet by accessing the website identified on your proxy card www.proxyvotenow.com/pseg. Telephone and Internet voting are available 24 hours a day and will be accessible until 11:59 p.m. on July 18, 2005. PSEG's telephone and Internet voting procedures are designed to authenticate shareholders by using individual control numbers. If you hold your shares through a bank, broker, custodian or other recordholder, please refer to your proxy card or the voting instruction form provided by your bank, broker, custodian or other recordholder for information on telephone or Internet voting. If you submit

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your proxy by telephone or Internet, please do not mail your proxy card. If you are located outside the United States, Canada and Puerto Rico, see your proxy card or other materials for additional instructions with respect to voting by telephone.

        By Mail.    If you are a shareholder of record and choose to submit your proxy by mail, please complete each proxy card you receive, date and sign it, and return it in the prepaid envelope which accompanied that proxy card. If you hold your shares through a bank, broker, custodian or other recordholder, please refer to your proxy card or the voting instruction form provided to you by your bank, broker, custodian or other recordholder.

Proxies without Instruction

        If you are a shareholder of record and submit your proxy but do not make specific choices, your proxy will follow the PSEG board of directors' recommendations and your shares will be voted:

        If you hold your shares through a bank, broker, custodian or other recordholder, failure to instruct such recordholder how to vote your shares will have the effect described under "—Quorum, Abstensions and Broker Non-Votes."

Revocation of Proxies

        You may revoke your proxy at any time prior to the time your shares are voted. If you are a shareholder of record, your proxy can be revoked in several ways:

        However, if your shares are held in "street name" through a bank, broker, custodian or other recordholder, you must check with your bank, broker, custodian or other recordholder to determine how to revoke your proxy.

Proxy Solicitation

        PSEG will pay the costs of soliciting proxies from PSEG shareholders. In addition to this mailing, proxies may be solicited by directors, officers or employees of PSEG in person or by telephone or electronic transmission. None of the directors, officers or employees will be directly compensated for such services. PSEG has retained Morrow & Co., Inc. to assist in the distribution and solicitation of proxies. PSEG will pay Morrow & Co., Inc. a fee of $25,000 plus reasonable expenses, for these services.

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        The extent to which these proxy soliciting efforts will be necessary depends entirely upon how promptly proxies are submitted. You should submit your proxy without delay by telephone, by the Internet or by mail. PSEG also reimburses brokers and other nominees for their expenses in sending these materials to you and getting your voting instructions.

Other Business; Adjournments

        PSEG is not currently aware of any other business to be acted upon at the PSEG annual meeting. If, however, other matters are properly brought before either meeting, or any adjourned meeting, your proxies include discretionary authority on the part of the individuals appointed to vote your shares or act on those matters according to their best judgment.

        Adjournments may be made for the purpose of, among other things, soliciting additional proxies. Any adjournment may be made from time to time by the affirmative vote of a majority of the votes cast by holders of shares of PSEG common stock present in person or by proxy at the meeting, whether or not a quorum is present, without further notice other than by an announcement made at the meeting. PSEG does not currently intend to seek an adjournment of its annual meeting.

PSEG Shareholder Account Maintenance

        PSEG acts as its own transfer agent. All communications concerning accounts of PSEG shareholders of record, including address changes, name changes, inquiries as to requirements to transfer shares of common stock and similar issues can be handled by calling the PSEG Shareholder Services department, toll-free, at (800) 242-0813, or by visiting PSEG's web site at www.pseg.com.

        Do not send in any stock certificates with your proxy cards. The exchange agent will mail transmittal forms with instructions for the surrender of stock certificates for PSEG common stock to former PSEG shareholders as soon as practicable after completion of the merger.

Enterprise Direct (Dividend Reinvestment and Stock Purchase Plan) and Employee Stock Purchase Plan, PSEG Thrift and Tax-Deferred Savings Plan and PSEG Employee Savings Plan

        Participants in PSEG's Enterprise Direct Plan and Employee Stock Purchase Plan will receive one proxy card for all shares of PSEG common stock beneficially held in each such plan. Your proxy card will serve as voting instructions to the administrator of the plan. If you fail to complete, sign and return your proxy card for the Enterprise Direct Plan, the administrator of the plan will vote your shares of PSEG common stock in accordance with the recommendation of the PSEG board of directors. If you fail to complete, sign and return your proxy card for the Employee Stock Purchase Plan, your shares will not be voted.

        Participants in the PSEG Thrift and Tax-Deferred Savings Plan or the PSEG Employee Savings Plan will receive a separate direction card from the respective plan's trustee for shares of PSEG common stock that have been allocated to their accounts under the PSEG Common Stock Fund and their ESOP Accounts. The trustee will vote the shares of PSEG common stock beneficially owned by the participant under the respective plan in accordance with such participant's instructions. If you do not instruct the trustee how to vote your shares of PSEG common stock, your shares will not be voted.

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CHAPTER THREE
EXELON PROPOSAL 1 AND PSEG PROPOSAL 1: THE MERGER

General

        The Exelon board of directors is using this joint proxy statement/prospectus to solicit proxies from the holders of Exelon common stock for use at the Exelon annual meeting. The PSEG board of directors also is using this joint proxy statement/prospectus to solicit proxies from the holders of PSEG common stock for use at the PSEG annual meeting.

Exelon's Proposal

        At the Exelon annual meeting, holders of shares of Exelon common stock will be asked to vote on the issuance of shares of Exelon common stock as contemplated by the merger agreement.

        The merger will not be completed unless Exelon's shareholders approve the issuance of shares of Exelon common stock as contemplated by the merger agreement.

        Because the holders of Exelon common stock immediately prior to completion of the merger will own a majority of the shares of Exelon common stock outstanding immediately following completion of the merger, a separate vote by the holders of Exelon common stock on the merger agreement or the merger itself is not required under Pennsylvania law.

PSEG's Proposal

        At the PSEG annual meeting, holders of shares of PSEG common stock will be asked to vote on the approval of the merger agreement and thereby approve the merger.

        The merger will not be completed unless PSEG's shareholders approve the merger agreement and thereby approve the merger.

Background of the Merger

        As participants in the energy industry, the management of Exelon and of PSEG are each generally familiar with the business and operations of the other company, and management personnel meet from time to time at industry conferences and similar events. John W. Rowe, Chairman, President and Chief Executive Officer of Exelon, and E. James Ferland, Chairman, President and Chief Executive Officer of PSEG, have each served as a chief executive officer in the electric utility industry for a period of approximately 20 years, and Messrs. Rowe and Ferland have met from time to time to discuss industry issues, personal experiences and philosophies relating to the management of utilities. In addition, as Exelon and PSEG have been joint owners of certain nuclear generating facilities for over 30 years, management of Exelon and PSEG meet from time to time to discuss operations at jointly owned facilities. Further, PSE&G and PECO have conducted utility operations in adjacent territories for over 75 years. As a consequence of these business relationships, Exelon and PSEG each is generally familiar with the other's business and operations.

        On an ongoing basis, each of Exelon and PSEG evaluates options for achieving its long-term strategic goals and enhancing shareholder value. For several years, the Exelon board of directors and management have been engaged in a strategic planning process designed to position Exelon to take advantage of growth opportunities in its industry. As part of this process, Exelon periodically has evaluated a variety of possible business combinations in light of its evolving acquisition criteria and opportunities presented by various potential transactions. As part of its regular strategic planning process, management of PSEG periodically made presentations to the PSEG board of directors that included review of potential opportunities for business combinations or acquisitions within the utility industry.

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        On May 12, 2004, Mr. Robert S. Shapard, the then Executive Vice President and Chief Financial Officer of Exelon, telephoned Mr. Thomas M. O'Flynn, Executive Vice President and Chief Financial Officer of PSEG, in order to arrange a meeting to discuss the general business environment, the strategic direction of their companies and operations at jointly-owned nuclear generating facilities, including, among other options, the possibility of Exelon providing operations assistance to PSEG with respect to the Salem nuclear generating facility, one of the companies' jointly-owned nuclear generating facilities. Messrs. Shapard and O'Flynn met to discuss these matters and other strategic opportunities regarding the companies' generation businesses on May 20, 2004.

        On May 25, 2004, at a regularly scheduled meeting of the Exelon board of directors and as part of Exelon's ongoing strategic planning process described above, members of Exelon management mentioned several potential candidates for an acquisition or business combination, including PSEG. The Exelon board of directors gave informal authorization to management to make contact with some of the companies discussed in order to assess the possibility of a business combination or other strategic transaction. Management of Exelon was engaged in an evaluation of the feasibility of transactions with several companies, including PSEG, and management had begun working on financial models as part of these feasibility studies.

        On June 11, 2004, Randall E. Mehrberg, Executive Vice President, Corporate Strategy, Mergers & Acquisitions, and General Counsel of Exelon, and Mr. O'Flynn attended the annual meeting of Nuclear Electric Insurance Limited, or "NEIL," in Bermuda. Messrs. Mehrberg and O'Flynn, both NEIL board members, met briefly at that time to discuss further the matters that Mr. O'Flynn had previously discussed with Mr. Shapard at their May 20, 2004 meeting.

        On June 14, 2004, Mr. Rowe contacted Mr. Ferland and scheduled a meeting to discuss strategic alternatives for Exelon and PSEG, in particular with respect to Exelon's and PSEG's jointly-owned nuclear generating facilities.

        On June 15, 2004, the PSEG board of directors held a regularly scheduled meeting at which the conversations between Messrs. Mehrberg, Shapard and O'Flynn and the proposed meeting between Mr. Ferland and Mr. Rowe were discussed.

        On June 23, 2004, Mr. Rowe met with Mr. Ferland in Boston, Massachusetts. Mr. Rowe and Mr. Ferland discussed possible arrangements for improving operations at jointly-owned nuclear generating facilities, including the suggestion made by Exelon that Exelon provide operational assistance with respect to the Salem nuclear generating facility jointly-owned by Exelon and PSEG and operated by PSEG. They also discussed other alternatives, including a possible exchange of ownership of jointly-owned nuclear generating facilities. Messrs. Rowe and Ferland also discussed general considerations relating to a possible business combination between Exelon and PSEG.

        Exelon held a previously scheduled strategy retreat of its board of directors on June 27 through June 29, 2004. At the retreat and as part of the ongoing strategic planning process, management presented to the Exelon board of directors an analysis of the mergers and acquisition strategy of Exelon and an evaluation of a number of possible transactions, including a possible business combination with PSEG or one of several other companies.

        On July 1, 2004, Mr. Mehrberg and Mr. O'Flynn attended a meeting of the strategic planning committee of the board of NEIL held at PSEG's offices in Newark, New Jersey. After the NEIL meeting, Messrs. Mehrberg and O'Flynn met to discuss further strategic options relating to nuclear generating facilities and to discuss strategic alternatives for their companies, including a possible business combination.

        On July 16, 2004, Mr. Mehrberg phoned Mr. O'Flynn to discuss the possibility of exploring a business combination to be structured as a stock-for-stock merger with a fixed exchange ratio representing a pricing premium in the range of 10-20%, subject to, among other things, the results of

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due diligence, the input of financial advisors and the outcome of further discussions. Mr. Mehrberg also expressed Exelon's interest in putting in place an operating services contract with respect to PSEG's and Exelon's jointly-owned nuclear generation facilities. Mr. Mehrberg indicated that Mr. Rowe would contact Mr. Ferland to discuss the matter further.

        Mr. Rowe and Mr. Ferland had a telephone discussion on July 19, 2004. Mr. Rowe and Mr. Ferland discussed the possibility of an operating services contract for PSEG's and Exelon's jointly-owned nuclear generating facilities. They also discussed the possibility of exploring a business combination to be structured as a stock-for-stock merger with a pricing premium in the range of 10 to 20%, subject to a number of different factors, including results of due diligence, input of financial advisors, satisfactory regulatory assessments, governance issues, the outcome of further discussions and approval of each company's board of directors.

        On July 20, 2004, the PSEG board of directors held a regularly scheduled board meeting at which Mr. Ferland reviewed with the directors his discussions with Mr. Rowe. The PSEG board of directors directed Mr. O'Flynn to request certain information from Exelon, including information about Exelon's operating experience with respect to its nuclear generating facilities. Mr. O'Flynn phoned Mr. Mehrberg that day to request that information.

        On July 21, 2004, Mr. Mehrberg and Mr. Shapard participated in a conference call with Mr. O'Flynn and R. Edwin Selover, Senior Vice President and General Counsel of PSEG. They discussed the possibility of further discussions with respect to a possible business combination and the provision by Exelon of nuclear operating services. They concluded that, given the early stage of the discussions, they would not retain investment banking firms at that time to act as financial advisors in connection with a possible business combination. That same day, Mr. Selover provided a form of mutual confidentiality agreement to Mr. Mehrberg.

        On July 26, 2004, Mr. Mehrberg and Mr. Shapard participated in a call with Mr. O'Flynn to discuss PSEG's interest in continuing discussions concerning a possible business combination. During this conversation, Messers Mehrberg, Shapard and O'Flynn confirmed the mutual interest of Exelon and PSEG in continuing discussions about a possible nuclear operating services contract and a possible business combination structured as a stock-for-stock merger.

        On July 27, 2004, Exelon held a regularly scheduled meeting of its board of directors, at which Exelon management discussed contacts made with companies in the industry with respect to the possibility of a business combination and the results of management's further analysis of potential transactions with two of those companies. At this meeting, Exelon management reported on the status of the preliminary investigation of potential business combination transactions, including a potential transaction with PSEG. The results of the preliminary investigation presented to the Exelon board of directors included analysis of various factors that would affect the value of potential transactions to Exelon, including, but not limited to, earnings per share accretion/dilution, synergies and scalability, consistency of state regulatory models, regional diversity, opportunities for diversification, opportunities to serve markets with generation fleet, social issues, international and non-core assets, size of transaction, and credit considerations. The Exelon board of directors also discussed the continuing conversations with PSEG with respect to the general terms of a possible business combination and the terms of the proposed operating services contract. After considering the factors relevant to the evaluation of alternatives, the feasibility of the alternatives and the nature of discussions with PSEG, the Exelon board of directors accepted management's recommendation that Exelon pursue a possible business combination with PSEG. The Exelon board of directors instructed management to proceed with discussions with PSEG on the basis of the conversations held to date and to begin due diligence efforts.

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        On July 29, 2004, Mr. Mehrberg and Mr. Shapard spoke again with Mr. O'Flynn regarding Exelon's perspective with respect to a possible business combination. They also identified various financial advisors that each company might consider retaining.

        Considering the size, complexity and geographic diversity of the proposed merger with PSEG, Exelon determined to retain two internationally recognized financial advisors with complementary strengths and substantial experience in similar transactions involving complex financial analysis, international operations and nuclear electric generation. On August 5, 2004, Mr. Rowe met with representatives of J.P. Morgan Securities Inc. to discuss the retention of JPMorgan as a financial advisor with respect to a possible business combination with PSEG. Exelon retained JPMorgan on August 9, 2004. On August 7, 2004, Messrs. Mehrberg and Shapard contacted representatives of Lehman Brothers Inc. to discuss the potential retention of Lehman Brothers as a financial advisor with respect to a possible transaction. Exelon retained Lehman Brothers as one of its financial advisors shortly thereafter.

        On August 9, 2004, Mr. O'Flynn contacted representatives of Morgan Stanley & Co. Incorporated to discuss the possible retention of Morgan Stanley by PSEG as its financial advisor with respect to PSEG's strategic discussions with Exelon, including the fact that Morgan Stanley was then acting as Exelon's financial advisor with respect to its possible disposition of Sithe Energies, Inc.

        On August 12, 2004, Exelon and PSEG entered into the mutual confidentiality agreement and a joint defense and common interest agreement. Mr. Mehrberg and Mr. O'Flynn attended a meeting of the strategic planning committee of the board of NEIL held at Exelon's offices in Philadelphia, Pennsylvania. That day Mr. Mehrberg and Mr. O'Flynn spoke again about the possibility of a strategic combination of Exelon and PSEG and the possible terms of such a transaction, as well as the due diligence and other steps that would be necessary to determine whether an agreement could be reached. During the course of later discussions on August 12, Messrs. Mehrberg, Shapard and O'Flynn talked generally about a possible business combination with an exchange ratio representing a pricing premium in the range of 13 to 17%, subject to, among other things, the results of due diligence, the input of financial advisors, satisfactory regulatory assessments, the outcome of further discussions and approval of each company's board of directors. Later that evening, Messrs. Mehrberg, Shapard, O'Flynn and Selover and Mr. Frank Cassidy, President and Chief Operating Officer of PSEG Power, met in Washington, D.C., to discuss various aspects of the possible strategic combination, including financial matters and nuclear operations.

        On August 13, 2004, representatives of Exelon and PSEG, including Messrs. Mehrberg, Shapard, O'Flynn, Selover and Cassidy and Ms. Elizabeth A. Moler, Executive Vice President, Governmental & Environmental Affairs and Policy of Exelon, along with representatives of Skadden, Arps, Slate, Meagher & Flom LLP, Exelon's federal regulatory counsel, and representatives of Steptoe & Johnson LLP, PSEG's federal regulatory counsel, and representatives of other advisors of Exelon and PSEG, met in Washington, DC to discuss the federal regulatory aspects relating to a possible business combination and arrangements relating to the operation of PSEG's nuclear generating facilities.

        On August 18, 2004, Mr. Mehrberg and Mr. Shapard discussed with Mr. O'Flynn PSEG's possible retention of Morgan Stanley as its financial advisor with respect to a possible business combination. The parties discussed the scope of Morgan Stanley's proposed engagement and the fact that Morgan Stanley was then acting as Exelon's financial advisor with respect to its possible disposition of Sithe. The parties confirmed that Morgan Stanley's work on this assignment would not pose an impediment to PSEG's engagement of Morgan Stanley as its financial advisor. Management of PSEG continued to discuss internally its selection of a financial advisor.

        On August 24, 2004, PSEG retained Morgan Stanley as its financial advisor. On that day, Mr. O'Flynn and other representatives of PSEG met with representatives of Morgan Stanley in order to discuss PSEG's strategic alternatives, including a possible business combination with Exelon.

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        On August 30, 2004, at the request of the PSEG board of directors, Mr. Rowe met with members of the PSEG board of directors in Short Hills, New Jersey in order to discuss his strategic rationale for a possible business combination and his long-range plans for a combined company.

        On September 2, 2004, the PSEG board of directors held a previously scheduled strategy conference. Members of PSEG management, including Mr. O'Flynn and Mr. Selover, also participated in the conference. At the conference, the PSEG board of directors discussed industry trends and strategic issues and alternatives for PSEG, including a possible business combination with Exelon.

        Also on September 2, 2004 senior officers of Exelon, including Mr. Mehrberg and Mr. Shapard, representatives of Sidley Austin Brown & Wood LLP, Exelon's mergers and acquisitions counsel, Skadden, JPMorgan and Lehman Brothers and other advisors held an organizational meeting in Chicago, Illinois, at the offices of Sidley Austin Brown & Wood LLP in order to formally begin due diligence efforts with respect to a possible business combination with PSEG.

        During the period of September to mid-November 2004, PSEG consulted regularly with Pillsbury Winthrop LLP (now Pillsbury Winthrop Shaw Pittman LLP), outside counsel to PSEG, and Morgan Stanley concerning legal and financial issues that would arise in the course of consideration of a potential business combination with Exelon.

        During the period of September 9 through November 17, 2004, the parties and certain of their financial, legal, accounting and other advisors held numerous and extensive meetings by telephone or in person to exchange information in the course of the due diligence process, to consider possible synergies and other opportunities presented by a business combination and to discuss regulatory requirements and strategies. Additional document due diligence was conducted during this same period. During this time Exelon and PSEG reviewed a broad range of business, financial, accounting, legal and operational issues, with a particular emphasis on financial and related accounting matters and on Exelon's understanding of the business of PSEG Energy Holdings. The parties were also in regular contact, as appropriate, concerning the outcome of meetings of their respective boards of directors at which the possible business combination was discussed. In addition, representatives of Exelon and PSEG met during this period to discuss an operating services contract in order to improve operations at PSEG's nuclear generating facilities.

        On September 21, 2004, the PSEG board of directors held a regularly scheduled meeting during which regulatory considerations relating to a possible business combination with Exelon were discussed.

        On October 1, 2004, Messrs. Mehrberg, Shapard, O'Flynn and Selover, together with other representatives of Exelon and PSEG, JPMorgan, Lehman Brothers and Morgan Stanley, met at Lehman Brothers' offices in New York City in order to discuss the status of due diligence and related matters.

        On October 4, 2004, representatives of Exelon and PSEG, including Messrs. Mehrberg, Shapard, O'Flynn and Selover spoke regarding alternatives for a nuclear operating services contract.

        On October 18, 2004, Mr. Mehrberg and Mr. O'Flynn spoke by telephone with respect to the status of the due diligence efforts of the parties and the progress of discussions with respect to the terms of possible business combination. The discussion covered various subjects that the parties had been evaluating as part of the due diligence effort and how those subjects might become relevant to the possible terms of a business combination.

        On October 19, 2004, the PSEG board of directors held a previously scheduled regular meeting at which the directors discussed the status of the evaluation of a possible business combination with Exelon and Exelon's performance with respect to nuclear generation.

        On October 26, 2004, the Exelon board of directors held a previously scheduled regular meeting at which representatives of Sidley Austin, JPMorgan and Lehman Brothers were present and at which

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management provided an update to the Exelon board of directors as to the ongoing discussions with PSEG and the progress to date with respect to due diligence and Exelon's preliminary financial analysis of PSEG. The update also included a discussion of the general terms of an operating services contract relating to PSEG's nuclear generating facilities. At this meeting, representatives of Sidley Austin reviewed with the directors their fiduciary duties in connection with considering a possible business combination.

        On October 29, 2004, Messrs. Mehrberg, Shapard, O'Flynn and Selover spoke with respect to the status of due diligence and the progress of discussions with respect to the possible business combination, as well as the status and scope of the proposed operating services contract.

        On the evening of November 7 and morning of November 8, 2004, Mr. Mehrberg and Mr. Shapard met with Mr. Selover and Mr. O'Flynn in Chicago, Illinois, to discuss in more detail the terms of a possible business combination. Exelon proposed, subject to the results of due diligence and approval by the Exelon board of directors, a stock-for-stock merger with a fixed exchange ratio representing a pricing premium of approximately 15%. In addition, there was a discussion of regulatory, nuclear, governance, headquarters and related issues.

        On November 10, 2004, Mr. John Young, Executive Vice President of Exelon and President of Exelon Generation, and Mr. Christopher M. Crane, Senior Vice President of Exelon, President & Chief Nuclear Officer of Exelon Nuclear and President and Chief Executive Officer of Amergen, met with Mr. Ferland and Mr. Cassidy in order to discuss Exelon's management process with respect to the operation of nuclear generating facilities.

        Also on November 10, 2004, Messrs. Mehrberg, Shapard, O'Flynn and Selover spoke with respect to the regulatory aspects of a possible business combination.

        On November 11, 2004, Messrs. Mehrberg, Shapard, O'Flynn and Selover met in Elizabeth, New Jersey, in order to discuss in more detail the terms of a possible business combination, including possible exchange ratios. Messrs. Mehrberg and Shapard initially proposed a fixed exchange ratio of 1.20 shares of Exelon stock for each share of PSEG common stock. Mr. O'Flynn proposed a premium of 17%, which was roughly equivalent to a 1.25 exchange ratio based on then current prices. The parties did not reach any agreement on the exchange ratio for a possible business combination during the course of these discussions. The parties also discussed the proposed agreement for nuclear operating services, issues associated with regulatory approvals for a business combination, governance issues, the location of headquarters of business units and related matters.

        On November 12, 2004, Messrs. Mehrberg, Shapard, O'Flynn and Selover spoke again with respect to the terms of a possible business combination and, in particular, the exchange ratio for such a transaction. In these discussions, the parties had further discussion about a possible exchange ratio in the range of between 1.22 and 1.24 shares of Exelon common stock for each share of PSEG common stock. That same day Mr. Rowe and Mr. Ferland met in Washington, DC to discuss the proposed terms of a possible business combination. Mr. Rowe proposed, subject to approval by the Exelon board of directors, the completion of due diligence and both companies near-term stock performance, a business combination with a fixed exchange ratio of 1.225 shares of Exelon common stock for each share of PSEG common stock. They also discussed a proposed commitment by Exelon to raise its dividend over time after the execution of a merger agreement such that the first dividend received by PSEG shareholders after completion of the merger would match the dividend received by them prior to completion of the merger on an exchange ratio adjusted basis.

        On November 13, 2004, Messrs. Rowe and Ferland had a telephone conference in which Mr. Ferland indicated that he would present the proposed terms to the PSEG board of directors, including the 1.225 fixed exchange ratio proposed by Mr. Rowe, and recommend proceeding with full due diligence and negotiation of the terms of a merger agreement.

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        On November 15, 2004, the Exelon board of directors met in person, along with representatives of Sidley Austin, JPMorgan and Lehman Brothers, in order to discuss the results of Exelon's due diligence efforts to date, including the proposed regulatory strategy and preliminary analysis of the financial prospects of PSEG and a combined company, and the proposed terms of the business combination. In addition, the Exelon board of directors reviewed the terms of the proposed operating services contract and the general terms of a proposed business combination, including the general terms of a draft merger agreement. After a discussion, the Exelon board of directors authorized management to go forward with further due diligence and to present a draft of a proposed merger agreement to PSEG. Later the same day Mr. Rowe spoke with Mr. Ferland by phone to report the decision of the Exelon board of directors.

        On November 16, 2004, the PSEG board of directors held a regularly scheduled meeting, also attended by representatives of Pillsbury Winthrop and Morgan Stanley, in order to discuss the status of the possible business combination, including the proposed terms thereof. Pillsbury Winthrop reviewed with the PSEG board of directors the legal and fiduciary responsibilities of directors when contemplating potential business combination transactions. After a discussion, the PSEG board of directors authorized management to go forward with further due diligence, including the formation of an expanded internal and external due diligence team, and to begin negotiation of a merger agreement. Later that day Mr. Ferland phoned Mr. Rowe in order to discuss the outcome of the meeting and to discuss a time schedule for conducting further due diligence and negotiations regarding a possible business combination. Mr. Ferland also requested that Mr. Crane and Mr. Young meet with the nuclear committee of the PSEG board of directors to discuss Exelon's management process with respect to the operation of nuclear generating facilities.

        During the period from November 17, 2004 through December 19, 2004, the parties conducted further due diligence with respect to each other, including document review and in person and telephonic meetings among the parties and their legal, financial, accounting and other advisors. This review included an examination of business and financial outlooks, litigation, environmental, accounting, financial reporting, tax, treasury, power trading, human resources, employee benefits, executive compensation, information technology and general legal matters.

        On November 18, 2004, Sidley Austin delivered a draft of the merger agreement to PSEG and Pillsbury Winthrop. On November 30, 2004, Pillsbury Winthrop delivered PSEG's comments to the draft merger agreement.

        On November 30, December 1 and December 3, 2004, the generation oversight, energy delivery oversight and enterprises oversight committees of the Exelon board of directors, respectively, met to discuss with members of management certain aspects of Exelon's due diligence efforts. In addition, on November 30, 2004, Exelon and PSEG made a joint presentation to each of Standard and Poor's and Moody's in order to inform the rating agencies of a possible merger of PSEG with Exelon and present the financial outlook for the combined company.

        On December 6, 2004, Messrs. Mehrberg and Shapard and other representatives of Exelon, along with representatives of Sidley Austin and Lehman Brothers, met with Messrs. O'Flynn and Selover, along with representatives of Pillsbury Winthrop and Morgan Stanley, in Chicago, Illinois, to discuss the draft merger agreement and related transaction issues. On December 7, 2004, Sidley Austin delivered a revised draft of the merger agreement to PSEG and Pillsbury Winthrop.

        On December 7, 2004, the Exelon board of directors held a previously scheduled regular meeting, which meeting was attended by representatives of Sidley Austin, JPMorgan and Lehman Brothers. The Exelon board of directors discussed the status of due diligence and the financial analysis of PSEG, the course of negotiations to date and various other matters relating to the proposed business combination. Exelon management reviewed with the Exelon board of directors the proposed terms of the operating

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services contract. That same day Messrs. Mehrberg, Shapard, O'Flynn and Selover spoke regarding the outcome of the meeting of the Exelon board of directors and the course of negotiations.

        On December 8, 2004, the parties reached substantial agreement in principle on the terms of the operating services contract, subject to board approval and satisfactory resolution of related regulatory matters.

        On December 10, 2004, Mr. Shapard and other representatives of Exelon, along with representatives of Sidley Austin and Lehman Brothers, met in New York, New York, at the offices of Sidley Austin with Messrs. O'Flynn and Selover, along with representatives of Pillsbury Winthrop and Morgan Stanley, to discuss the revised draft of the merger agreement. On December 11, 2004, Sidley Austin sent a revised draft of the merger agreement to PSEG and Pillsbury Winthrop.

        On December 11, 2004, Mr. Rowe met over dinner with directors of PSEG in Bernardsville, New Jersey to discuss his strategic vision for a combined company.

        On December 12, 2004, the nuclear committee of the PSEG board of directors, and certain other PSEG directors, met with Messrs. Rowe, Young and Crane and with representatives of PSEG to review Exelon's management process with respect to the operation of nuclear generating facilities. Also on December 12, the PSEG board of directors held a special meeting, also attended by representatives of Pillsbury Winthrop, Steptoe & Johnson, Morgan Stanley and other advisors, to discuss the results of PSEG's due diligence and the discussions to date with respect to the merger agreement. Pillsbury Winthrop led the PSEG board of directors through a discussion of the terms of the draft merger agreement and discussed the PSEG board of directors' duties in the context of considering the proposed business combination. Morgan Stanley reviewed the status of certain preliminary financial analyses of the proposed business combination with the PSEG board of directors. That evening, Mr. O'Flynn spoke to Mr. Mehrberg with respect to various matters raised by the PSEG board of directors on the merger agreement and related items.

        On December 13, 2004, Messrs. Mehrberg and Shapard and other representatives of Exelon, along with representatives of Sidley Austin and Lehman Brothers, met with Messrs. O'Flynn and Selover and representatives of Pillsbury Winthrop and Morgan Stanley by teleconference to discuss the revised draft of the merger agreement. On December 14, 2004, Sidley Austin distributed a revised draft of the merger agreement to PSEG and Pillsbury Winthrop.

        On December 15, 2004, Messrs. Mehrberg and Shapard and other representatives of Exelon, along with representatives of Sidley Austin and Lehman Brothers, and Messrs. O'Flynn and Selover, along with representatives of Pillsbury Winthrop and Morgan Stanley, met by teleconference to discuss the revised draft of the merger agreement. Later that day, Sidley Austin distributed a revised draft of the merger agreement to PSEG and Pillsbury Winthrop and to the Exelon board of directors. On December 16, 2004, PSEG distributed the revised draft of the merger agreement to the PSEG board of directors.

        On December 17, 2004, at a special meeting, the Exelon board of directors met in person and by video conference in Chicago, Illinois and Philadelphia, Pennsylvania, to discuss the merger agreement and the proposed terms and conditions of the merger. The Exelon board of directors also reviewed the business, regulatory, financial and operational aspects of the proposed merger. At the meeting, representatives of Sidley Austin led the Exelon board of directors through a detailed review of the merger agreement. Representatives of Sidley Austin also reviewed with the members of the Exelon board of directors their fiduciary duties in connection with considering a business combination. The Exelon board of directors also reviewed the due diligence findings and management's financial analysis of the transaction. In addition, representatives of JPMorgan and Lehman Brothers presented their analysis of the transaction and each stated that they were prepared to render an opinion to the Exelon board of directors that, based upon and subject to the assumptions, qualifications and limitations

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described by them and to be set forth in their written opinions, the proposed 1.225 exchange ratio in the merger was fair, from a financial point of view, to Exelon.

        On December 17, 2004, Sidley Austin distributed a revised draft of the merger agreement to PSEG and Pillsbury Winthrop in response to comments on the previous draft communicated by representatives of Pillsbury Winthrop. On December 18, 2004, representatives of Sidley Austin held further discussions with representatives of Pillsbury Winthrop with respect to the draft merger agreement. On December 18, 2004, Sidley Austin distributed a revised draft of the merger agreement to PSEG and Pillsbury Winthrop and to the Exelon board of directors. PSEG distributed this revised draft of the merger agreement to its board of directors that same day.

        On December 19, 2004, the organization and compensation committee of the PSEG board of directors held a special meeting in person and by telephone attended, for a portion of the meeting, by Hewitt Associates LLC and by Messrs. Ferland and Selover, to consider the proposed severance and retention plans, an amendment to Mr. Ferland's employment agreement, to avoid triggering the severance benefit that would otherwise result from the merger and the change in his responsibilities, and certain employment agreements. The committee approved the proposed arrangements and resolved to recommend their adoption to the PSEG board of directors.

        On the morning of December 20, 2004, the PSEG board of directors held a special meeting, in person and by teleconference, with representatives of PSEG, Pillsbury Winthrop, Steptoe & Johnson and Morgan Stanley to discuss the merger agreement and the proposed terms and conditions of the transaction, the operating services agreement, severance and retention plans, the amendment to Mr. Ferland's employment agreement and other employment agreements. Pillsbury Winthrop reviewed the merger agreement with the PSEG board of directors. Morgan Stanley delivered its oral opinion (subsequently confirmed in writing) that, as of December 20, 2004 and based upon and subject to the considerations, assumptions and limitations discussed in the opinion, the exchange ratio under the merger agreement was fair, from a financial point of view, to the holders of PSEG common stock.

        The PSEG board of directors, by unanimous vote, approved the merger agreement and the merger and the operating services contract.

        The Exelon board of directors held a special meeting by telephone on the morning of December 20, 2004. At this meeting the Exelon board of directors reviewed the final merger agreement and the factors that it considered in connection with the proposed merger, and representatives of each of JPMorgan and Lehman Brothers delivered their firm's respective written opinions that, based upon and subject to the assumptions, qualifications and limitations described in such opinion, the 1.225 exchange ratio in the merger was fair, from a financial point of view, to Exelon.

        Also on the morning of December 20, 2004, the Exelon board of directors, by unanimous vote, approved the merger agreement and the merger, including the issuance of shares of Exelon common stock as contemplated by the merger agreement, and the operating services contract. Thereafter Exelon and PSEG executed the merger agreement and the operating services contract and issued a joint press release announcing execution of the merger agreement.

Recommendation of Exelon Board; Exelon's Reasons for the Merger

        The Exelon board of directors has unanimously approved the merger agreement, has unanimously determined that the merger, including the issuance of shares of Exelon common stock as contemplated by the merger agreement, is advisable, fair to and in the best interests of Exelon and its shareholders and unanimously recommends a vote FOR the proposal to approve the issuance of shares of Exelon common stock as contemplated by the merger agreement.

        In reaching its decision to recommend the issuance of shares of Exelon common stock as contemplated by the merger agreement, the Exelon board of directors consulted with Exelon

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management, as well as J.P. Morgan Securities Inc. and Lehman Brothers Inc., Exelon's financial advisors, Sidley Austin Brown & Wood LLP, Exelon's outside mergers and acquisitions counsel, and, with respect to federal regulatory matters, Skadden, Arps, Slate, Meagher & Flom LLP, Exelon's outside federal regulatory counsel, and considered various material factors, which are described below. The following discussion of the information and factors considered by the Exelon board of directors is not exhaustive, but includes all material factors considered by the Exelon board of directors. In view of the wide variety of factors considered by the Exelon board of directors in connection with its evaluation of the merger, the Exelon board of directors did not consider it practical to, nor did it attempt to, quantify, rank or otherwise assign relative weights to the specific factors that it considered in reaching its decision. In considering the factors described below, individual members of the Exelon board of directors may have given different weight to different factors. The Exelon board of directors considered this information as a whole, and overall considered the information and factors to be favorable to, and in support of, its determinations and recommendations. Among the material information and factors considered by the Exelon board of directors were the following:

        Strategic Considerations.    The Exelon board of directors considered a number of factors pertaining to the strategic rationale for the merger, including the following:

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        Synergies.    The Exelon board of directors considered that, although no assurance can be given that any particular level of cost savings and other synergies will be achieved, Exelon management had identified estimated synergies of approximately $400 million in the first full year of operations following completion of the merger and approximately $500 million in the second full year of operations following completion of the merger, prior to out-of-pocket expenses and transaction costs. The Exelon board of directors also considered the probability that the net present value of the estimated synergies over a ten-year period, plus terminal value, would exceed the premium to be paid in the merger under a range of assumptions. The Exelon board of directors took note of the fact that the synergy numbers were estimates, that they may change and that achieving the synergies is subject to a number of uncertainties. See "Risk Factors—Risks Relating to the Merger—The anticipated benefits of combining PSEG and Exelon may not be realized."

        Comparable Business Approach.    The Exelon board of directors considered the comparable corporate cultures of the two companies, including their shared commitment to supporting and participating in competitive energy markets and the competitive strategies of the companies.

        Impact of the Merger on Customers, Employees, Suppliers.    The Exelon board of directors evaluated the expected impact of the merger on Exelon's customers, employees and suppliers. Specifically, the merger should benefit customers by enhancing operations and strengthening reliability and provide more opportunities for employees in a larger, more competitive company.

        Impact of the Merger on Communities.    The Exelon board of directors evaluated the expected impact of the merger on the communities in which Exelon and PSEG are located and which they serve. In particular, the Exelon board of directors believes the merger will benefit the municipalities served by the combined company by creating a strong combined company able to provide more reliable service with operating headquarters in Newark, New Jersey, Chicago, Illinois, and Philadelphia, Pennsylvania. In addition, the companies expect to maintain their substantial presence in the cities and communities they serve, including significant charitable contributions.

        Benefits of Operating Services Contract.    The Exelon board of directors evaluated the expected benefits to Exelon and the expected increase in the value of PSEG resulting from the nuclear operating services contract entered into by Exelon Generation and PSEG Nuclear. See "The Merger—Certain Relationships Between Exelon and PSEG; Operating Services Contract" for a description of the contract.

        Share Prices.    The Exelon board of directors took note of the historic stock prices of Exelon and PSEG, including that the exchange ratio represented a 14.6% premium over the closing price of PSEG's common stock on December 16, 2004 and a 18.7% premium over the 30-day average closing price of PSEG's common stock as of December 16, 2004.

        Financial Considerations.    The Exelon board of directors considered the expected financial impact of the merger on Exelon in light of Exelon's acquisition criteria, including that the merger is expected to be accretive to shareholders of both companies. In particular, the Exelon board of directors considered the quantitative analysis of the merger on the combined company's earnings per share and the financial prospects of Exelon and PSEG, including the financial projections and extensions thereof prepared by the management of Exelon and the financial projections prepared by the management of PSEG, as adjusted by the management of Exelon. The Exelon board of directors also considered the historic financial condition, operating results and businesses of Exelon and PSEG, including information with respect to their respective earnings history.

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        Opinions of Financial Advisors.    The Exelon board of directors considered the opinions of each of JPMorgan and Lehman Brothers to the Exelon board of directors that, as of December 20, 2004 and subject to and based upon the assumptions, qualifications and limitations discussed in each opinion, the exchange ratio in the merger was fair, from a financial point of view, to Exelon. See "The Merger—Opinions of Financial Advisors—Opinions of Exelon's Financial Advisors."

        Strategic Alternatives.    The Exelon board of directors considered the trends and competitive developments in the industry and the range of strategic alternatives available to Exelon, including the possibility of business combinations with other participants in the industry or continuing to operate as a stand-alone entity.

        Recommendation of Management.    The Exelon board of directors took into account management's recommendation in favor of the merger.

        Terms of the Merger Agreement.    The Exelon board of directors reviewed the terms of the merger agreement, including that the exchange ratio is fixed, the restrictions on Exelon's interim operations, the covenant for Exelon, subject to the Exelon board of directors' fiduciary duties and applicable laws, to increase its dividend to equal PSEG's on an exchange ratio adjusted basis, the ability of PSEG in specified circumstances to issue up to $350 million in equity or equity equivalents prior to completion of the merger, the conditions to each party's obligation to complete the merger, the instances in which each party is permitted to terminate the merger agreement and the related termination fees payable by each party in the event of termination of the merger agreement under specified circumstances. See "The Merger Agreement" for a detailed discussion of the terms and conditions of the merger agreement. The Exelon board of directors also considered the course of negotiations of the merger agreement.

        Severance and Retention Arrangements.    The Exelon board of directors considered the severance and retention arrangements of PSEG in place prior to the execution of the merger agreement and those adopted in contemplation of execution of the merger agreement and the impact of such arrangements on the retention of key management of PSEG.

        Due Diligence.    The Exelon board of directors considered the scope of the due diligence investigation conducted by management and Exelon's outside advisors, including due diligence with respect to PSEG's international operations and evaluated the results thereof, including the information contained in PSEG's disclosure letter relating to the merger agreement. The Exelon board of directors also took note of the reports of the committees of the Exelon board of directors evaluating the results of the due diligence investigations and the coverage of identified risk areas in the representations and warranties in the merger agreement.

        Likelihood of Completion of the Merger.    The Exelon board of directors considered the likelihood that the merger will be completed on a timely basis, including the likelihood that the merger will receive all necessary regulatory approvals without unacceptable conditions. The Exelon board of directors took note of the closing condition in the merger agreement that neither Exelon nor PSEG is required to complete the merger if any governmental authority has entered a "burdensome order" in connection with the required statutory approvals. (See "The Merger Agreement—Covenants" for a description of this term). The Exelon board of directors also took note of Exelon's history of completing on a timely basis a transaction with similar regulatory approval requirements.

        The Exelon board of directors also considered the potential risks of the merger, including the following:

        Regulatory Approvals.    The Exelon board of directors considered the extensive regulatory approvals required to complete the merger and the risk that the governmental authorities and third parties may seek to impose unfavorable terms or conditions on the required approvals or that such approvals would

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not be obtained at all. The Exelon board of directors also considered the potential length of the regulatory approval process and that the merger agreement provides that it may not be terminated until June 20, 2006, which may be extended to December 20, 2006 under specified circumstances.

        Restrictions on Interim Operations.    The Exelon board of directors considered the provisions of the merger agreement placing restrictions on Exelon's operations until completion of the merger.

        Diversion of Management.    The Exelon board of directors considered the possible diversion of management resulting from the substantial time and effort necessary to complete the merger and integrate the operations of Exelon and PSEG following completion of the merger.

        Integration.    The Exelon board of directors evaluated the challenges inherent in the combination of two business enterprises of the size and scope of Exelon and PSEG, including the possibility of not achieving the anticipated synergies and other benefits sought from the merger.

        Impact on Credit Rating.    The Exelon board of directors considered the likelihood that the merger could result in a lower investment grade credit rating for the combined company and certain of its subsidiaries for a period of time from that of Exelon and its subsidiaries prior to the merger and the implications of such lower credit rating.

        Increased Regulation.    The Exelon board of directors considered the additional regulation to which the combined company would be subject.

        PSEG Nuclear Generating Facilities.    The Exelon board of directors considered the state of the nuclear generating facilities operated by PSEG and the impact on the combined company if the shutdown of the Hope Creek generating facility that was then in effect was extended beyond its expected timeframe or one or more of the nuclear generating facilities were unexpectedly shut down by the NRC or otherwise for an extended period of time. The Exelon board of directors took note of the ameliorative efforts of Exelon and PSEG on this matter, including under the operating services contract.

        Rate Recovery.    The Exelon board of directors considered the fact that as a result of purchase method accounting, certain of PSE&G's pension expenses currently recoverable under its current rate order from the NJBPU would be accelerated and may no longer be recoverable under that rate order. The Exelon board of directors took note of the fact that it is a condition to completion of the merger that PSE&G obtain an order from the NJBPU that permits PSE&G to recover such costs.

        The Exelon board of directors also considered the corporate governance provisions of the merger agreement and the Amended and Restated By-laws to be adopted upon completion of the merger, including that, upon completion of the merger, the Exelon board of directors will be comprised of twelve legacy Exelon directors and six legacy PSEG directors and that following completion of the merger until March 31, 2007, Mr. E. James Ferland, the current Chairman, President and Chief Executive Officer of PSEG, will serve as the non-executive Chairman of the Exelon board of directors.

        The Exelon board of directors realized that there can be no assurance about future results, including results considered or expected as described in the factors listed above, such as assumptions regarding potential synergies. It should be noted that this explanation of the Exelon board of directors' reasoning and all other information presented in this section are forward-looking in nature and, therefore, should be read in light of the factors discussed under the heading "Forward-Looking Statements."

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Recommendation of PSEG Board; PSEG's Reasons for the Merger

        The PSEG board of directors has unanimously approved the merger agreement, has unanimously determined that the merger agreement and the merger are advisable, fair to and in the best interests of PSEG and the holders of PSEG common stock, and unanimously recommends that PSEG shareholders vote FOR the proposal to approve the merger agreement and thereby approve the merger.

        In reaching its determination to recommend the approval of the merger agreement and the merger, the PSEG board of directors consulted with management, as well as Morgan Stanley & Co. Incorporated, PSEG's financial advisor, Pillsbury Winthrop Shaw Pittman LLP, PSEG's outside legal counsel, and, with respect to federal regulatory matters, Steptoe & Johnson LLP, PSEG's outside federal regulatory counsel, and considered various material factors, which are discussed below. The following discussion of the information and factors considered by the PSEG board of directors is not intended to be exhaustive. In view of the wide variety of factors considered in connection with the merger, the PSEG board of directors did not consider it practicable to, nor did it attempt to, quantify or otherwise assign relative weights to the specific material factors it considered in reaching its decision. In addition, individual members of the PSEG board of directors may have given different weight to different factors. The PSEG board of directors considered this information and these factors as a whole, and overall considered the relevant information and factors to be favorable to, and in support of, its determinations and recommendations. Among the material information and factors considered by the PSEG board of directors were the following:

        Strategic Considerations.    The PSEG board of directors considered a number of factors pertaining to the strategic rationale for the merger, including the following:

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        Cost Savings and Synergies.    The PSEG board of directors considered that, although no assurance can be given that any particular level of cost synergies will be achieved, management had identified estimated annual pre-tax cost savings and synergies of $300 million in the first full year following completion of the merger increasing to approximately $400 million by the third year (without deduction for out-of-pocket expenses and transaction costs). These cost savings and synergies would occur in general and administrative operations, trading operations, fossil and nuclear operations and other operations, as well as opportunities to improve its meter reading and customer service efficiency, but did not include expected improvements in the operating performance of nuclear generating units to the extent those improvements were already reflected in PSEG's forward-looking financial information for 2005-2009. The PSEG board of directors believes that particular synergy opportunities exist in the areas of corporate staffing, operations and support staffing, corporate programs, information technology, the supply chain and plant optimization. The PSEG board of directors took note of the fact that the cost synergy numbers were estimates, that they may change and that achieving the cost synergies is subject to a number of uncertainties. See "Risk Factors—Risks Relating to the Merger—The anticipated benefits of combining PSEG and Exelon may not be realized."

        Impact of the Merger on Communities.    The PSEG board of directors evaluated the expected impact of the merger on the communities in which PSEG is located and which it serves. The PSEG board of directors believes the merger will benefit the municipalities served by the combined company by creating a strong combined company with operating headquarters in Newark, New Jersey, Chicago, Illinois and Philadelphia, Pennsylvania. The PSEG board of directors considered that, although the corporate headquarters of the combined company will be located in Chicago, Illinois, Exelon has agreed that it will maintain the combined company's generation headquarters in Newark, New Jersey. In addition, the companies expect to maintain their substantial presence in the cities and communities they serve, including through ongoing and significant charitable contributions. In particular, the PSEG board of directors considered the provision of the merger agreement to the effect that, during the four-year period immediately following the merger, the combined company will provide charitable contributions and traditional local community support within the service areas of PSEG and its subsidiary utilities at levels substantially comparable to and no less than the levels of charitable contributions and community support provided within their service areas within the two-year period immediately prior to completion of the merger.

        Benefits of Nuclear Operating Services Contract.    The PSEG board of directors considered the expected benefits to PSEG resulting from the nuclear operating services contract entered into by PSEG Nuclear and Exelon Generation. See "The Merger—Certain Relationships Between Exelon and PSEG; Operating Services Contract" for a description of the contract.

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        Share Prices and Tax-Free Exchange.    The PSEG board of directors took note of the historic stock prices of PSEG and Exelon, including that the exchange ratio represented a 19.2% premium over the closing price of PSEG's common stock on December 15, 2004 and a 17.2% premium over the 30 day average closing price of PSEG's common stock as of December 15, 2004. The PSEG board of directors considered the potential for appreciation in value of Exelon's common stock and the opportunity for PSEG shareholders receiving Exelon shares in the merger to participate in this appreciation. The PSEG board of directors also took into account the fact that the merger is designed to be tax-free to the holders of PSEG common stock.

        Financial Considerations.    The PSEG board of directors considered the expected financial impact of the merger on PSEG, including that the merger is expected to be accretive to PSEG shareholders in the estimated amount of 13% in the first year following the merger. In particular, the PSEG board of directors considered the quantitative analysis of the merger on the combined company's earnings per share and the financial prospects of PSEG and Exelon. The PSEG board of directors also considered the historic financial condition, operating results and businesses of PSEG and Exelon, including information with respect to their respective earnings history.

        Opinion of Financial Advisor.    The PSEG board of directors considered the opinion of Morgan Stanley delivered to it that, as of December 20, 2004 and subject to and based on the considerations, assumptions and limitations discussed in that opinion, the exchange ratio under the merger agreement was fair, from a financial point of view, to the holders of PSEG's common stock. See "The Merger—Opinions of Financial Advisors—Opinion of PSEG's Financial Advisor."

        Recommendation of Management.    The PSEG board of directors considered management's recommendation in support of the merger.

        Stand-Alone Strategy.    The PSEG board of directors considered the prospects inherent in PSEG's stand-alone business plan, including among other strategies the potential monetization of certain of its assets and the plans for improvement in its nuclear operations. The PSEG board of directors considered that the benefits of the merger are likely to be achieved on a more accelerated basis and with less uncertainty of execution than the stand-alone business plan.

        Terms of the Merger Agreement.    The PSEG board of directors reviewed the terms of the merger agreement, including Exelon's undertaking, subject to the Exelon board of directors' fiduciary duties and applicable law, to increase its dividend to equal PSEG's on an exchange ratio adjusted basis, the degree of mutuality and symmetry of representations, obligations and rights of the parties under the merger agreement, the conditions to each party's obligation to complete the merger, the instances in which each party is permitted to terminate the merger agreement and the related termination fees payable by each party in the event of termination of the merger agreement under specified circumstances. See "The Merger Agreement" for a detailed discussion of the terms and conditions of the merger agreement.

        Due Diligence.    The PSEG board of directors considered the scope of the due diligence investigation conducted by management and PSEG's outside advisors and evaluated the results thereof, including the information contained in Exelon's disclosure letter relating to the merger agreement.

        Likelihood of Completion of the Merger.    The PSEG board of directors considered the likelihood that the merger will be completed on a timely basis, including the likelihood that the merger will receive all necessary regulatory approvals without unacceptable conditions. The PSEG board of directors took note of the closing condition in the merger agreement that neither PSEG nor Exelon is required to complete the merger if any governmental authority has entered a "burdensome order" in connection with the required statutory approvals. (See "The Merger Agreement—Covenants" for a description of this term.)

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        Employee Matters.    The PSEG board of directors considered that Exelon has agreed that the combined company will give fair and equitable consideration to workforce reductions and job opportunities in the combined company. Exelon also has agreed in the merger agreement that the combined company will honor and perform PSEG's collective bargaining agreements and benefit plans, including continuing to provide benefits which, in the aggregate, are no less favorable than those provided to employees of Exelon in comparable positions and providing benefit plan credit for pre-merger service under PSEG's benefit plans.

        The PSEG board of directors also considered the potential risks of the merger, including the following:

        Regulatory Uncertainty in Illinois and Pennsylvania.    The PSEG board of directors considered the uncertainty surrounding the completion of electric restructuring initiatives in both Illinois and Pennsylvania. While New Jersey completed its transition period in August 2003, the Illinois transition period concludes at the end of 2006 and the Pennsylvania transition period concludes in 2010. In both states, the full details of the transition to fully competitive markets remain to be decided. The PSEG board of directors considered the effects of the completion of restructuring of the Illinois power markets in 2006, including the uncertainties and effects of a new and developing competitive generation market and the need for ComEd to file a rate case for its distribution business and place new rates in effect by January 1, 2006.

        Regulatory Approvals.    The PSEG board of directors considered the extensive regulatory approvals required to complete the merger and the risk that the governmental authorities and third parties may seek to impose unfavorable terms or conditions on the required approvals or that such approvals would not be obtained at all. The PSEG board of directors also considered the potential length of the regulatory approval process and that the merger agreement provides that it may not be terminated until June 20, 2006, which may be extended to December 20, 2006 under specified circumstances.

        Concentration in Nuclear Generation.    The PSEG board of directors considered the combined company's predominant focus on nuclear generation and attendant risks. The PSEG board of directors considered the fact that the combined entity will be the largest owner and operator of nuclear generation in the country with 20 reactors.

        Fixed Exchange Ratio.    The PSEG board of directors considered that the exchange ratio is fixed and there is a possibility that the value of the Exelon common stock could be more or less at closing than at the time of announcement of the merger.

        Goodwill.    The PSEG board of directors considered the fact that Exelon had $4.7 billion of goodwill on its balance sheet related to the PECO/Unicom merger in 2000, and that some or all of that goodwill may be impaired at some time in the future.

        Restrictions on Interim Operations.    The PSEG board of directors considered the provisions of the merger agreement placing restrictions on PSEG's operations until completion of the merger, and the extent of those restrictions as negotiated between the parties.

        Integration.    The PSEG board of directors evaluated the challenges inherent in the combination of two business enterprises of the size and scope of PSEG and Exelon, including the possibility of not achieving the anticipated synergies and other benefits sought to be obtained from the merger.

        Shareholders.    The PSEG board of directors considered the fact that PSEG shareholders will hold approximately 32% of the common stock of the combined company after completion of the merger and will therefore not control the combined company.

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        Personnel.    The PSEG board of directors considered the adverse impact that business uncertainty pending completion of the merger could have on the ability to attract, retain and motivate key personnel until the merger is completed. The PSEG board of directors also considered the level and impact of job reductions as a result of merger related synergies. Further, the PSEG board of directors considered the increased complexity of industrial relations resulting from the merger.

        The PSEG board of directors also considered the corporate governance provisions of the merger agreement and the Amended and Restated By-laws to be adopted by Exelon upon completion of the merger, including that upon completion of the merger and for a fixed period of time thereafter, the Exelon board of directors will be comprised of six legacy PSEG directors and twelve legacy Exelon directors.

        The PSEG board of directors believed that, overall, the potential benefits of the merger to PSEG and PSEG's shareholders outweighed the risks which are mentioned above.

        The PSEG board of directors realized that there can be no assurance about future results, including results considered or expected as described in the factors listed above. It should be noted that this explanation of the PSEG board of directors' reasoning and all other information presented in this section are forward-looking in nature and, therefore, should be read in light of the factors discussed under the heading "Forward-Looking Statements."

Opinions of Financial Advisors

Opinions of Exelon's Financial Advisors

        At the meeting of the Exelon board of directors on December 17, 2004, JPMorgan and Lehman Brothers jointly presented materials combining both firms' respective analyses of the exchange ratio in the merger. JPMorgan and Lehman Brothers informed the Exelon board of directors that each firm had independently performed its analysis, and had applied different methodologies to the underlying data. The jointly presented materials reflected the full range of analyses of both advisors.

        As described below, on December 20, 2004 at the Exelon board of directors meeting each of JPMorgan and Lehman Brothers delivered its opinion to the Exelon board of directors that, based upon and subject to the assumptions, qualifications and limitations set forth therein, the exchange ratio in the merger was fair, from a financial point of view, to Exelon.

Opinion of JPMorgan

        The full text of the opinion of JPMorgan dated December 20, 2004, which sets forth, among other things, the assumptions made, the procedures followed, matters considered, and qualifications and limitations of the review undertaken by JPMorgan in rendering its opinion is attached as Annex B to this joint proxy statement/prospectus and is incorporated into this joint proxy statement/prospectus by reference. The summary of the JPMorgan fairness opinion set forth in this joint proxy statement/prospectus is qualified in its entirety by reference to the full text of the opinion. Exelon shareholders should read the opinion carefully and in its entirety. JPMorgan provided its opinion for the information and assistance of the Exelon board of directors in connection with its consideration of the proposed merger. The JPMorgan opinion is not a recommendation to any Exelon shareholder as to how any shareholder should vote with respect to the issuance of shares of Exelon common stock as contemplated by the merger agreement or any other matter and should not be relied upon by any Exelon shareholder as such.

        In arriving at its opinion, JPMorgan, among other things:

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        In addition, JPMorgan held discussions with certain members of the management of PSEG and Exelon with respect to certain aspects of the merger, and the past and current business operations of PSEG and Exelon, the financial condition and future prospects and operations of PSEG and Exelon, the effects of the merger, including the estimated cost savings and related expenses, synergies and other strategic benefits expected to result from the merger, on the financial condition and future prospects of Exelon, and certain other matters JPMorgan believed necessary or appropriate to its inquiry.

        JPMorgan relied upon and assumed, without independent verification, the accuracy and completeness of all information that was publicly available or was furnished to JPMorgan by Exelon and PSEG or otherwise reviewed by JPMorgan, and JPMorgan did not assume any responsibility or liability therefor. JPMorgan did not conduct any valuation or appraisal of any assets or liabilities, nor were any such valuations or appraisals provided to JPMorgan. In relying on financial analyses and projections (and extensions thereof) provided to JPMorgan, including the estimated cost savings and related expenses, synergies and other strategic benefits expected to result from the merger, JPMorgan assumed that they were reasonably prepared based on assumptions reflecting the best then currently available estimates and judgments by management as to the expected future results of operations and financial condition of PSEG and Exelon to which such analyses or projections relate. JPMorgan also assumed that the merger will qualify as a tax-free reorganization for United States federal income tax purposes and that the transactions contemplated by the merger agreement will be consummated as described in the merger agreement, without material waiver, modification or amendment. JPMorgan relied as to all legal matters relevant to rendering its opinion upon the advice of its counsel. JPMorgan further assumed that all material governmental, regulatory or other consents and approvals necessary for the consummation of the merger will be obtained within the constraints contemplated by the merger agreement and without any material adverse effect on the contemplated benefits of the merger, and that all other conditions to the merger will be satisfied in all material respects.

        JPMorgan's opinion is necessarily based on economic, market and other conditions as in effect on, and the information made available to JPMorgan as of, the date of the opinion. It should be understood that subsequent developments may affect the opinion and that JPMorgan does not have any obligation to update, revise, or reaffirm its opinion. JPMorgan's opinion is limited to the fairness, from a financial point of view, to Exelon of the exchange ratio in the proposed merger and JPMorgan expresses no opinion as to the underlying decision by Exelon to engage in the merger. JPMorgan is expressing no opinion as to the price at which Exelon common stock or PSEG common stock will trade at any future time.

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        In connection with rendering its opinion to the Exelon board of directors, JPMorgan performed a variety of financial and comparative analyses, including those described below. The preparation of a fairness opinion is a complex process and involves various judgments and determinations as to the most appropriate and relevant assumptions and financial analyses and the application of these methods to the particular circumstances involved. Fairness opinions are therefore not necessarily susceptible to partial analysis or summary description.

        Accordingly, JPMorgan believes that the analyses it performed and the summary set forth below must be considered as a whole and that selecting portions of its analyses and factors, or focusing on information in tabular format, without considering all analyses and factors or the narrative description of the analyses, could create a misleading or incomplete view of the processes underlying the analyses performed by JPMorgan in connection with its opinion. In arriving at its opinion, JPMorgan did not attribute any particular weight to any analyses or factors considered by it and did not form an opinion as to whether any individual analysis or factor (positive or negative), considered in isolation, supported or failed to support its opinion. Rather, JPMorgan arrived at its ultimate opinion based on the results of all analyses undertaken by it and assessed as a whole, and believes that the totality of the factors considered and analyses it performed in connection with its opinion operated collectively to support its determination as to the fairness to Exelon of the exchange ratio in the proposed merger from a financial point of view.

        In performing its analysis, JPMorgan considered industry performance, general business and economic conditions and other matters, many of which are beyond the control of Exelon and PSEG. The analyses performed by JPMorgan are not necessarily indicative of actual values or actual future results, which may be significantly more or less favorable than suggested by the analyses. The analyses were prepared solely as part of JPMorgan's analysis of the fairness of the exchange ratio in the proposed merger, from a financial point of view, to Exelon. Additionally, the analyses performed by JPMorgan relating to the values of businesses do not purport to be appraisals or to reflect the prices at which businesses actually may be acquired or sold.

        JPMorgan's opinion and financial analyses were only one of many factors considered by the Exelon board of directors in its evaluation of the merger and should not be viewed as determinative of the views of the Exelon board of directors or management with respect to the merger or the exchange ratio.

        The following is a summary of the material financial analyses performed by JPMorgan in connection with providing its opinion to the Exelon board of directors on December 20, 2004. Some of the summaries of the financial analyses include information presented in tabular format. To fully understand the financial analyses, the tables should be read together with the text of each summary. Considering the data set forth in the tables without considering the narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of the financial analyses.

Comparable Publicly Traded Companies Analysis

        Using publicly available information, JPMorgan compared selected financial data of Exelon and PSEG with similar data for selected publicly traded companies engaged in businesses that JPMorgan judged to be reasonably comparable to Exelon and PSEG, based upon its experience with companies in the power and utility industry and their relative similarity in size and business mix to that of Exelon and PSEG, in order to assess how the public market values shares of similar publicly traded companies and to provide an implied range of relative values for shares of Exelon and PSEG common stock by reference to these companies, which could then be used to determine implied exchange ratio ranges. In evaluating companies identified by JPMorgan as reasonably comparable to Exelon and PSEG, JPMorgan made judgments and assumptions with regard to industry performance, general business,

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economic, market and financial conditions and other matters, many of which are beyond the control of Exelon or PSEG.

        JPMorgan reviewed the trading and operating statistics of the following selected publicly traded companies in the power and utility industry:

        Based on the above companies' closing stock prices on December 16, 2004, JPMorgan calculated the ratio of firm value (calculated as equity value, plus debt, less cash and cash equivalents) to 2005 estimated earnings before interest, taxes, depreciation and amortization, referred to in this joint proxy statement/prospectus as "EBITDA," and the ratio of stock price to 2005 estimated earnings per share, referred to in this joint proxy statement/prospectus as "EPS." Estimated financial performance for the comparable companies, for Exelon and for PSEG were based on publicly available information, financial projections for Exelon provided by Exelon's management and financial projections for PSEG prepared by PSEG's management, as adjusted by Exelon's management and provided to JPMorgan by Exelon's management, respectively. This analysis indicated the following firm value and share price multiples:

Company

  Firm value as
a multiple of
2005 Estimated
EBITDA

  Price as a multiple of
2005 Estimated EPS

American Electric Power   6.9x   14.5x
Constellation Energy   7.6x   12.6x
Cinergy   8.7x   14.5x
Dominion Resources   7.9x   13.4x
Entergy   7.5x   14.1x
FPL Group   7.6x   14.5x
PPL Corp.   7.6x   12.9x
   
 
Median   7.6x   14.1x
Mean   7.7x   13.8x
Exelon   8.6x   14.1x
PSEG   8.8x   15.2x
   
 

        Based on the current trading multiples of the comparable companies, JPMorgan applied a range of multiples of estimated 2005 EBITDA and 2005 earnings to the corresponding financial data regarding Exelon and PSEG provided to JPMorgan by Exelon's management as discussed above, without giving effect to potential transaction-related synergies, to derive an implied range of values for shares of Exelon and PSEG common stock. Based on these value ranges, JPMorgan determined implied exchange ratio ranges of 0.747 to 1.238 and 0.863 to 1.149 Exelon shares of common stock per PSEG share of common stock based on EBITDA multiples and price to earnings multiples, respectively, as

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compared to the proposed merger exchange ratio of 1.225 shares of Exelon common stock per share of PSEG common stock in the proposed merger. Accordingly, JPMorgan determined that the proposed merger exchange ratio fell within or reasonably close to these calculated values.

        JPMorgan noted that none of the selected comparable companies is either identical or directly comparable to Exelon or PSEG and that any analysis of selected companies necessarily involves complex considerations and judgments concerning financial and operating characteristics and other factors that could affect the public trading of the selected companies.

Discounted Cash Flow Analysis

        JPMorgan performed discounted cash flow analyses of PSEG and Exelon for the purpose of determining the implied fully diluted equity value for each share of the companies' respective common stocks, based on the expected future cash flows to be generated by each company, as described below. Utilizing these implied values, JPMorgan then calculated implied exchange ratio ranges.

        Exelon:    JPMorgan conducted a discounted cash flow analysis to determine a range of estimated equity values per diluted share for Exelon common stock. JPMorgan calculated the present value of the Exelon cash flow streams from 2005 through 2009, assuming it continued to operate as a stand-alone entity, based on financial projections for 2005 through 2007 and extensions of those projections from 2008 through 2009 (also referred to in this joint proxy statement/prospectus as Exelon forward-looking financial information for 2005 through 2007 and extensions of that forward-looking financial information for 2008 through 2009), in each case provided by Exelon's management. JPMorgan also calculated an implied range of terminal values for Exelon at the end of 2009 by applying a range of multiples of 8.0x to 9.0x to Exelon's 2009 EBITDA assumption. The cash flow streams and the range of terminal values were then discounted to present values using a range of discount rates from 5.25% to 5.75%, which was based on Exelon's estimated weighted average cost of capital, to determine a discounted cash flow value range. The value of Exelon's common stock was derived from the discounted cash flow value range by subtracting Exelon's debt and adding Exelon's cash and cash equivalents outstanding as of December 31, 2004, in each case based on Exelon's management estimates.

        PSEG:    JPMorgan conducted a discounted cash flow analysis to determine a range of estimated equity values per diluted share for PSEG common stock. JPMorgan calculated the present value of the PSEG cash flow streams from 2005 through 2009, with and without giving effect to potential transaction-related synergies, based on financial projections prepared by PSEG's management (also referred to in this joint proxy statement/prospectus as PSEG forward-looking financial information), as adjusted by Exelon's management and provided to JPMorgan by Exelon's management. JPMorgan also calculated an implied range of terminal values for PSEG at the end of 2009 by applying a range of multiples of 8.0x to 9.0x to PSEG's 2009 estimated EBITDA. The cash flow streams and the range of terminal values were then discounted to present values using a range of discount rates from 5.25% to 5.75%, which was based on PSEG's weighted average cost of capital, to determine a discounted cash flow value range. The value of PSEG's common stock was derived from the discounted cash flow value range by subtracting PSEG's debt and adding PSEG's cash and cash equivalents outstanding as of December 31, 2004, in each case based on estimates provided by PSEG's management.

        Using the range of implied equity values for Exelon and PSEG described above, JPMorgan then calculated a range of implied exchange ratios. The high and the low implied exchange ratio were calculated by dividing the highest per share value for PSEG with the lowest per share value for Exelon and the lowest per share value for PSEG with the highest per share value for Exelon, respectively. This analysis indicated the following implied exchange ratio reference ranges both with and without synergies attributed to PSEG, as compared to the proposed merger exchange ratio of 1.225 shares of Exelon common stock per share of PSEG common stock in the proposed merger. As set forth in the

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table below, JPMorgan determined that the proposed merger exchange ratio fell within or reasonably close to these calculated values.

Implied Exchange Ratio
with Synergies

  Implied Exchange Ratio
without Synergies

1.263x - 1.862x   1.021x - 1.506x

Historical Exchange Ratio Analysis

        JPMorgan reviewed the historical average exchange ratio between PSEG and Exelon common stocks as of December 16, 2004 and for the four-week, three-month, six-month, one-year and two-year periods ending December 16, 2004. These historical exchange ratios were reviewed in order to provide background information and perspective with respect to the relative historical share prices of Exelon and PSEG common stock. The historical average exchange ratios were calculated by dividing the daily closing price per share of PSEG common stock by the daily closing price per share of Exelon common stock for each day in the indicated periods and then calculating the average for such period. JPMorgan also reviewed the high and the low historical exchange ratio for the two-year period ending December 16, 2004. This review indicated implied exchange ratios set out in the table below, as compared to the proposed merger exchange ratio of 1.225 shares of Exelon common stock per share of PSEG common stock in the proposed merger. As set forth in the table below, JPMorgan determined that the proposed merger exchange ratio fell within the values calculated for the exchange ratio range as part of the historical exchange ratio analysis.

Period Ended December 16, 2004

  Exchange Ratio
One-day   1.071x
Four-week average   1.044x
Three-month average   1.084x
Six-month average   1.117x
One-year average   1.219x
Two-year average   1.291x

Premium Paid Analysis

        In order to assess the premium to be paid by Exelon to PSEG shareholders, JPMorgan reviewed the premiums paid to one-day, one-week and four-weeks prior closing target stock prices in transactions involving United States publicly traded target companies for transactions valued at greater than $1 billion announced between January 1, 1998 and November 30, 2004. Additionally, JPMorgan also reviewed the premiums paid to one-day, one-week and four-weeks prior closing target stock prices in seven precedent transactions in the power and utility sector, including the proposed acquisition of UniSource Energy Corporation by Saguaro Acquisition Corp., a corporation whose indirect owners include investment funds affiliated with Kohlberg Kravis Roberts & Co., L.P., J.P. Morgan Partners, LLC and Wachovia Capital Partners; Energy East Corporation's acquisition of RGS Energy Group, Inc.; Potomac Electric Power Company's acquisition of Conectiv; FirstEnergy Corp.'s acquisition of GPU, Inc.; PECO Energy Company's merger with Unicom Corporation; Northern States Power Company's acquisition of New Century Energies, Inc.; and American Electric Power's acquisition of Central and South West Corporation.

        JPMorgan compared the premiums implied in the above group of transactions with the premiums in the proposed merger based on the merger consideration implied by the exchange ratio of 1.225 shares of Exelon common stock per share of PSEG common stock and Exelon's closing stock price on December 16, 2004, and the closing price for PSEG stock on December 16, 2004, one-week prior to December 16, 2004, and four-weeks prior to December 16, 2004. This analysis indicated the

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following implied premiums for the selected transactions, as compared to the premiums implied in the proposed merger:

 
  One-Day
  One-Week
  Four-Weeks
 
All deals   29.7 % 34.4 % 39.3 %
Comparable power and utility deals   18.1 % 22.1 % 25.4 %
Implied premium in the merger   14.4 % 21.1 % 18.4 %
   
 
 
 

        As set forth in the table above, JPMorgan determined that the premiums implied in the proposed merger for the one-day, one-week and four-week periods described above were in each case below the average premiums paid in similar precedent transactions.

        JPMorgan noted that none of these transactions is either identical or directly comparable to the merger and that any analysis of selected transactions necessarily involves complex considerations and judgments concerning financial and operating characteristics and other factors that could affect the premiums paid in transactions.

Relative Contribution Analysis

        JPMorgan reviewed selected Exelon forward-looking financial information and extensions of that forward-looking financial information provided by Exelon's management and selected PSEG forward-looking financial information prepared by PSEG's management, as adjusted by Exelon's management and provided to JPMorgan by Exelon's management, to determine the companies' relative contribution to the combined business, which is one measure of whether shareholders of Exelon and PSEG, respectively, are receiving an appropriate portion of the equity ownership of the combined company. JPMorgan analyzed Exelon's and PSEG's relative contributions to EBITDA and net income for the year 2005, making an adjustment for PSEG's financial leverage.

        Based on the relative contributions of Exelon and PSEG, prior to consideration of the impact of any potential transaction-related synergies, JPMorgan determined a range of implied exchange ratios from 0.996 to 1.051 shares of Exelon common stock per share of PSEG common stock as compared to the proposed merger exchange ratio of 1.225 shares of Exelon common stock per share of PSEG common stock.

Financial Contribution Measure

  Implied Exchange Ratio
2005E EBITDA   1.051x
2005E Net income   0.996x
   

Analysis of Merger Impact on Earnings

        JPMorgan analyzed the expected impact of the proposed merger on Exelon's estimated earnings per common share for years 2006 and 2007, after giving effect for potential transaction-related synergies. Based on the terms of the proposed merger and using Exelon forward-looking financial information for 2005 through 2007 provided by Exelon's management, PSEG forward-looking financial information prepared by PSEG's management, as adjusted by Exelon's management and provided to JPMorgan by Exelon's management, and estimates of potential synergies provided by Exelon's management, JPMorgan's analysis indicated that the proposed merger can be expected to be accretive to Exelon's earnings per share in each year analyzed. JPMorgan noted that actual results may vary from projected results and the variations may be material.

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Miscellaneous

        JPMorgan has acted as financial advisor to Exelon with respect to the proposed merger, and will receive a fee of $15 million from Exelon for its services, which is payable in three equal installments. The first installment was paid following announcement of the execution of the merger agreement, the second one will be due upon Exelon's shareholder approval of the issuance of shares of Exelon common stock as contemplated by the merger agreement, and the third installment will be due upon consummation of the proposed merger. JPMorgan and its affiliates have performed in the past, and may perform in the future, a variety of investment banking and commercial banking services for each of Exelon and the PSEG. Specifically, JPMorgan's commercial bank affiliate is an agent bank and lender under credit facilities of each of Exelon and PSEG. During the past two years, JPMorgan and its affiliates have received fees of approximately $6.2 million from Exelon and its affiliates for advisory, underwriting, loan syndication, and other investment banking assignments, exclusive of any fees received in connection with the merger, and approximately $8.7 million from PSEG and its affiliates. In the ordinary course of business, JPMorgan and its affiliates may participate in loans and actively trade the debt and equity securities of Exelon or PSEG for their own accounts or for the accounts of customers and, accordingly, JPMorgan may at any time hold long or short positions in such securities.

Opinion of Lehman Brothers

        The full text of Lehman Brothers' written opinion, dated as of December 20, 2004 is attached as Annex C to this joint proxy statement/prospectus and is incorporated into this joint proxy statement/prospectus by reference. You are urged to read Lehman Brothers' opinion carefully in its entirety for a description of the assumptions made, procedures followed, factors considered and limitations upon the review undertaken by Lehman Brothers in rendering its opinion. The following is a summary of Lehman Brothers' opinion and the methodology that Lehman Brothers used to render its opinion. This summary is qualified in its entirety by reference to the full text of the opinion.

        Lehman Brothers' advisory services and opinion were provided for the information and assistance of the Exelon board of directors in connection with its consideration of the merger. Lehman Brothers' opinion is not intended to be and does not constitute a recommendation to any Exelon shareholders as to how such shareholder should vote in connection with the merger. Lehman Brothers was not requested to opine as to, and Lehman Brothers' opinion does not address, Exelon's underlying business decision to proceed with or effect the merger.

        In arriving at its opinion, Lehman Brothers reviewed and analyzed, among other things:

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        In addition, Lehman Brothers had discussions with the managements of Exelon and PSEG concerning their respective businesses, operations, assets, liabilities, financial conditions and prospects, and the strategic benefits of the merger, and undertook such other studies, analyses and investigations as Lehman Brothers deemed appropriate.

        In arriving at its opinion, Lehman Brothers assumed and relied upon the accuracy and completeness of the financial and other information provided to Lehman Brothers without assuming any responsibility for independent verification of such information and further relied upon the assurances of the managements of Exelon and PSEG that they were not aware of any facts or circumstances that would make such information inaccurate or misleading. With respect to the financial projections of Exelon and PSEG, including the associated cost savings and operating synergies estimated to result from the merger, upon advice of Exelon, Lehman Brothers assumed that such projections were reasonably prepared on a basis reflecting the best then currently available estimates and judgments of the management of Exelon as to the respective future financial performance of Exelon and PSEG and that Exelon and PSEG would perform substantially in accordance with such projections. With respect to the extensions of Exelon's financial projections for any periods after December 31, 2007, upon advice of Exelon, in arriving at its opinion, Lehman Brothers used and relied on extensions of the financial projections of Exelon for the calendar years ended December 31, 2008 and 2009 which were prepared by the management of Exelon using similar assumptions as those used by the management of Exelon in preparing its financial projections for the periods up to December 31, 2007 and such projection extensions were reviewed and determined to be reasonable by Exelon's management. In arriving at its opinion, Lehman Brothers did not conduct a physical inspection of the properties and facilities of Exelon or PSEG and did not make or obtain any evaluations or appraisals of the assets or liabilities of Exelon or PSEG. Upon the advice of Exelon and its legal and accounting advisors, Lehman Brothers assumed that (1) the merger will qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended, and therefore as a tax-free transaction to the shareholders of Exelon and (2) the merger will be treated as a purchase of interests for accounting purposes and that certain purchase accounting adjustments provided to Lehman Brothers by Exelon's management represented Exelon's management's best estimates of the likely accounting for the merger. Lehman Brothers further assumed, upon advice of Exelon, that all material governmental, regulatory or other consents or approvals necessary for the consummation of the merger will be obtained within the constraints contemplated by the merger agreement. Lehman Brothers' opinion necessarily was based upon market, economic and other conditions as they existed on, and could be evaluated as of, the date Lehman Brothers' rendered its opinion to the Exelon board of directors.

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        In addition, Lehman Brothers expressed no opinion as to the prices at which shares of Exelon common stock would trade at any time following the announcement of the merger or the consummation of the merger.

        In connection with rendering its opinion, Lehman Brothers performed certain financial, comparative and other analyses described below. Lehman Brothers also relied on these analyses in preparing the joint presentation with JPMorgan made to the Exelon board of directors. In arriving at its opinion, Lehman Brothers did not ascribe a specific range of value to Exelon or PSEG but rather made its determination as to the fairness, from a financial point of view, to Exelon of the exchange ratio to be paid by Exelon in the merger, on the basis of financial and comparative analyses. The preparation of a fairness opinion involves various determinations as to the most appropriate and relevant methods of financial and comparative analysis and the application of those methods to the particular circumstances, and therefore, such an opinion is not readily susceptible to summary description. In arriving at its opinion, Lehman Brothers did not attribute any particular weight to any analysis or factor considered by it but rather made qualitative judgments as to the significance and relevance of each analysis and factor. Accordingly, Lehman Brothers believes that its analysis must be considered as a whole and that considering any portion of such analyses and factors, without considering all analyses and factors as a whole, could create a misleading or incomplete view of the process underlying its opinion. In its analyses, Lehman Brothers made numerous assumptions with respect to industry performance, general business and economic conditions and other matters, many of which are beyond the control of Exelon and PSEG. Any estimates contained in Lehman Brothers' analyses were not necessarily indicative of actual values or predictive of future results or values, which may be significantly more or less favorable than those suggested by its analyses. In addition, analyses relating to the value of the businesses do not purport to be appraisals or to reflect the prices at which businesses actually may be sold.

        The following is a summary of the material financial analyses used by Lehman Brothers in connection with providing its opinion to the Exelon board of directors. The financial analyses summarized below include information presented in tabular format. In order to fully understand the financial analyses used by Lehman Brothers, the tables must be read together with the text of each summary.

Comparable Public Companies Analysis

        In order to assess how the public market values shares of similar publicly traded companies and to provide a range of relative implied equity values per share of Exelon and PSEG common stock by reference to these companies, which could then be used to calculate implied exchange ratio ranges, Lehman Brothers reviewed and compared certain financial information, ratios and public market multiples relating to Exelon and PSEG to corresponding financial data for comparable publicly traded power and utility companies. Lehman Brothers selected these companies based upon its views as to the comparability of the financial and operating characteristics of these companies to Exelon and PSEG.

        The companies included in the comparable companies analysis for both Exelon and PSEG were:

        Lehman Brothers then reviewed publicly available research analysts' estimates to compare financial information and multiples of market value of these companies to Exelon's and PSEG's:

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        Multiples were based on closing stock prices on December 16, 2004. The following table reflects the results of the analysis, as compared to the multiples for Exelon and PSEG:

 
  Firm Value to EBITDA
  Stock Price to EPS
 
  2004E
  2005E
  2004E
  2005E
Comparable Companies: Selected                
Range   7.7x - 8.7x   7.2x - 8.2x   14.2x - 16.2x   12.8x - 14.8x
Exelon   8.7x   8.3x   15.6x   14.5x
PSEG   8.8x   8.7x   14.8x   15.2x

        Applying a range of multiples derived from the comparable public companies analysis to corresponding financial data on Exelon and PSEG provided to Lehman Brothers by Exelon and PSEG as discussed below, including attributing 100% of the expected transaction synergies from the merger (net of any estimated costs to achieve such synergies) to PSEG's estimated earnings and EBITDA, Lehman Brothers calculated a range of implied equity values per share of Exelon and PSEG common stock which were then used to calculate a range of implied exchange ratios, with and without transaction synergies. The following table reflects the results of this analysis:

 
  Firm Value to EBITDA
  Stock Price to EPS
Implied Exchange Ratio: No Synergies   0.721x - 1.206x   0.934x - 1.231x
Implied Exchange Ratio: With Synergies   0.979x - 1.559x   1.225x - 1.614x

        As illustrated by the table above, Lehman Brothers noted that the transaction's proposed exchange ratio of 1.225 shares of Exelon common stock per share of PSEG common stock was in line with the exchange ratio ranges resulting from the comparable public companies analysis.

        No company utilized in the comparable public companies analysis was identical to Exelon or PSEG. Accordingly, an analysis of the results of the foregoing necessarily involves complex considerations and judgments concerning differences in financial and operating characteristics of Exelon and PSEG and other factors that could affect the public trading value of the companies to which they are being compared. In evaluating the comparable companies, Lehman Brothers 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 Exelon or PSEG, such as the impact of competition on Exelon or PSEG and the industry generally, industry growth and the absence of any material adverse change in the financial conditions and prospects of Exelon or PSEG or the industry or in the financial markets in general.

Discounted Cash Flow Analysis

        In order to estimate the respective present values for Exelon common stock and PSEG common stock, a measure designed to provide insight into the value of a company based upon its expected future cash flows, Lehman Brothers performed discounted cash flow analyses on Exelon and PSEG using financial projections for Exelon provided by Exelon's management for the period from January 1, 2005 through December 31, 2007, extensions of the projections of Exelon provided by Exelon's management for the period from January 1, 2008 through December 31, 2009 (also referred to in this

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joint proxy statement/prospectus as Exelon forward-looking financial information for 2005 through 2007 and extensions of that forward-looking financial information for 2008 through 2009) and financial projections for PSEG prepared by the management of PSEG (also referred to in this joint proxy statement/prospectus as PSEG forward-looking financial information), as adjusted by the management of Exelon and provided to Lehman Brothers by Exelon's management, for the period from January 1, 2005 through December 31, 2009.

        For the Exelon discounted cash flow analysis, Lehman Brothers calculated terminal values by applying a range of terminal multiples to assumed 2009 EBITDA of 7.72x to 8.72x. This range was based on the firm value to 2004 estimated EBITDA multiple range derived in the comparable companies analysis. The cash flow streams and terminal values were discounted to present values using a range of discount rates of 5.43% to 6.43%. From this analysis, Lehman Brothers calculated a range of implied equity values per share of Exelon common stock.

        For the PSEG discounted cash flow analysis, Lehman Brothers performed separate analyses assuming (1) no transaction synergies and (2) that 100% of the transaction synergies (net of any estimated costs to achieve such synergies) would be attributed to PSEG. In both cases, Lehman Brothers calculated terminal values by applying the same range of terminal multiples of 7.72x to 8.72x as applied in the discounted cash flow analysis of Exelon to PSEG's 2009 estimated EBITDA. The cash flow streams and terminal values were discounted to present values using the same range of discount rates of 5.43% to 6.43% as applied to the discounted cash flow analysis of Exelon. From these analyses, Lehman Brothers calculated a range of implied equity values per share of PSEG common stock.

        Based on the range of values calculated in the Exelon and PSEG discounted cash flow analyses with and without transaction synergies (net of any estimated costs to achieve such synergies) attributed to PSEG, Lehman Brothers calculated a range of implied exchange ratios for PSEG common stock to Exelon common stock. The following table reflects the results of this analysis:

 
  Discounted Cash Flow
Analysis

Implied Exchange Ratio: No Synergies   0.979x - 1.558x
Implied Exchange Ratio: With Synergies   1.211x - 1.872x

        Lehman Brothers noted that the transaction's proposed exchange ratio of 1.225 shares of Exelon common stock per share of PSEG common stock fell within the exchange ratio ranges resulting from the discounted cash flow analysis as summarized above.

Historical Trading Analysis

        Lehman Brothers reviewed the ratio of daily closing share prices of PSEG common stock to Exelon common stock for the two-year, one-year, six-month, three-month and four-week periods ended December 16, 2004. This historical trading data was reviewed to provide background information and perspective with respect to the relative historical share prices of PSEG and Exelon common stock. The following table reflects the results of the analysis:

Historical Period

  Daily Average Trading Ratios
Two-year historical period   1.291x
One-year historical period   1.219x
Six-month historical period   1.117x
Three-month historical period   1.084x
Four-week historical period   1.044x
December 16, 2004   1.071x

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        Lehman Brothers noted that the transaction's proposed exchange ratio of 1.225 shares of Exelon common stock per share of PSEG common stock fell within the exchange ratio range resulting from the selected historical trading analysis as illustrated above.

Premiums Paid Analysis

        To assess the premium to be paid by Exelon to PSEG shareholders, Lehman Brothers reviewed selected historical transactions for the premiums paid to shareholders in such transactions. Lehman Brothers selected transactions with an equity value greater than $1 billion for (1) all industries announced from 1998 to December 16, 2004 (507 transactions in total), and (2) comparable transactions in the power and utility sector. The selected comparable historical transactions in the power and utility sector were the following:

        The premiums were calculated over the share price one-day prior, one-week prior and four-weeks prior to the selected historical transactions' respective announcement date. These premiums were then compared to the implied premium to be paid to PSEG shareholders over the price one-day prior to, one-week prior to, and for the four-weeks prior to December 16, 2004. The following table reflects the results of the analysis:

 
  Premium to Price Prior to Announcement
 
 
  1 Day
  1 Week
  4 Weeks
 
Selected Historical Transactions: All Industries   29.7 % 34.4 % 39.3 %
Selected Historical Transactions: Power and Utility Sector   18.1 % 22.1 % 25.4 %
Implied Premium to PSEG Shareholders (as of December 16, 2004)   14.4 % 21.1 % 18.4 %

        The implied premium paid to PSEG shareholders over the share price one-day prior, one-week prior and four-weeks prior to the transaction's announcement were derived from the transaction's proposed exchange ratio of 1.225 shares of Exelon common stock per share of PSEG common stock. As illustrated by the table above, Lehman Brothers noted that the implied premium to be paid to PSEG shareholders over the share price one-day prior, one-week prior and four-weeks prior to the transaction's announcement was below the average premiums paid in similar historical transactions.

Contribution Analysis

        Lehman Brothers reviewed selected historical and estimated future financial information for Exelon and PSEG to determine Exelon's and PSEG's relative contribution to the combined company after the merger, which is one measure of whether the shareholders of Exelon and PSEG, respectively,

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are receiving an appropriate portion of the equity ownership of the combined company. Lehman Brothers analyzed Exelon's and PSEG's relative contribution to estimated EBITDA, net income and cash flow from operations for the years 2004 and 2005. Lehman Brothers analyzed estimated EBITDA and net income and cash flow from operations based on:

        Based on the relative contributions of Exelon and PSEG to the combined company calculated in the contribution analysis, Lehman Brothers determined a range of implied exchange ratios for PSEG common stock to Exelon common stock.

        The following table reflects the results of the analysis:

 
  Implied Exchange Ratio Based on Contributions
to the Combined Company

 
  No Synergies
  With Synergies
2004E EBITDA   1.002x   1.312x
2005E EBITDA   0.890x   1.185x
2004E Net Income   1.135x   1.484x
2005E Net Income   1.020x   1.342x
2004E Cash Flow from Operations   1.347x   1.564x
2005E Cash Flow from Operations   1.308x   1.511x
   
 
High   1.347x   1.564x
Low   0.890x   1.185x

        Lehman Brothers noted that the transaction's proposed exchange ratio of 1.225 shares of Exelon common stock per share of PSEG common stock fell within the exchange ratio range resulting from the contribution analysis as summarized in the table above.

Purchase Price Multiples Analysis

        In order to assess how the public market values comparable publicly traded companies and companies that have been involved in comparable transactions and to provide a basis for comparing these companies to Exelon and PSEG, Lehman Brothers performed a purchase price multiples analysis of the merger. This analysis compared the market multiples of selected comparable companies and the multiples of selected announced comparable historical transactions in the power and utility sector to the following multiples of the transaction:

        For this analysis, Lehman Brothers used the publicly available financial and market information of the following announced comparable historical transactions in the power and utility sector:

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        From these selected announced comparable historical transactions, Lehman Brothers employed the following ratios in the purchase price multiples analysis:

        As part of the purchase price multiples analysis, Lehman Brothers also reviewed and compared certain financial information, ratios and public market multiples relating to Exelon and PSEG to corresponding financial data for comparable publicly traded power and utility companies and calculated various financial multiples as set forth above under the comparable public companies analysis. To reflect a merger premium paid, Lehman Brothers increased the comparable companies market equity value by a 15% premium and calculated the same financial multiples as it did under the comparable public companies analysis.

        The following table reflects the results of the purchase price multiples analysis:

 
  Firm Value to EBITDA
  Stock Price to EPS
 
  2004E
  2005E
  2004E
  2005E
Comparable Announced Transactions (Last Twelve Months and 1 Year Forward)   7.5x   7.0x   16.3x   15.8x
Comparable Companies   8.2x   7.7x   15.2x   13.8x
Comparable Companies Adjusted for 15% Premium   9.5x   8.9x   17.5x   15.9x
Exelon and PSEG Merger   9.4x   9.2x   16.9x   17.4x

        Lehman Brothers noted that the purchase price multiples resulting from the proposed transaction were in line with the multiples from the comparable companies when adjusted for a merger premium.

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Accretion/Dilution Analysis

        Lehman Brothers analyzed and considered the impact of the merger on the estimated EPS and dividends per share of Exelon for the years 2006, 2007, 2008 and 2009, assuming the merger is completed at the exchange ratio of 1.225x, using the Exelon forward-looking financial information for 2005 through 2007 and extensions of that forward-looking financial information for 2008 through 2009 provided by Exelon's management and PSEG forward-looking financial information prepared by the management of PSEG, as adjusted by the management of Exelon and provided to Lehman Brothers by Exelon's management and including estimates of transaction synergies, for the period from January 1, 2006 through December 31, 2009.

        Lehman Brothers assumed that, among other things:

        Based on this analysis, the proposed transaction is expected to result in an increase in EPS when compared to Exelon's EPS on a stand-alone basis in the years 2006, 2007, 2008 and 2009. In addition, based on this analysis, the proposed transaction is also expected to result in an increase in dividends per share paid to Exelon shareholders of common stock, when compared to the dividends per share paid to Exelon shareholders of common stock on a stand-alone basis, in the years 2006, 2007, 2008 and 2009.

        Lehman Brothers also analyzed and considered the impact of the merger on the estimated EPS of Exelon for the years 2006 and 2007, assuming the merger is completed at the exchange ratio of 1.225x. Estimated EPS for Exelon and PSEG for 2006 were based on consensus EPS of the Institutional Brokers Estimate System, referred to in this joint proxy statement prospectus as "I/B/E/S," and for 2007 were based on I/B/E/S consensus EPS for 2006 grown at the I/B/E/S long-term earnings per share growth estimates. The analysis took into account estimates of transaction synergies provided to Lehman Brothers by the management of Exelon. Based on this analysis, the proposed merger is expected to result in an increase in EPS when compared to Exelon's EPS on a stand-alone basis in the years 2006 and 2007.

        Lehman Brothers is an internationally recognized investment banking firm and, as part of its investment banking activities, is regularly engaged in the valuation of 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 corporate and other purposes. The Exelon board of directors selected Lehman Brothers because of its expertise, reputation and familiarity with Exelon, PSEG and the utility industry generally and because its investment banking professionals have substantial expertise in transactions comparable to the merger.

        As compensation for its services in connection with the merger, Exelon has agreed to pay Lehman Brothers a transaction fee of $15 million, which is payable in three equal installments. The first installment was paid following the announcement of the execution of the merger agreement, the second one will be due upon Exelon's shareholder approval of the issuance of shares of Exelon common stock

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as contemplated by the merger agreement, and the third installment will be due upon completion of the merger. Exelon has also agreed to reimburse Lehman Brothers for certain expenses incurred by Lehman Brothers, including fees of outside legal counsel, and to indemnify Lehman Brothers and related parties against liabilities arising out of Lehman Brothers' engagement and the rendering of its opinion. Lehman Brothers in the past has rendered investment banking services to Exelon, PSEG and their affiliates and received customary fees for such services. During the past two years, Lehman Brothers and its affiliates have received fees of approximately $3.4 million from Exelon and its affiliates for advisory, underwriting and other investment banking assignments exclusive of any fees received in connection with the merger, and approximately $7.8 million from PSEG and its affiliates.

        In the ordinary course of its business, Lehman Brothers may participate in loans and actively trade in the debt or equity securities of Exelon and PSEG for its own account and for the accounts of its customers and, accordingly, may at any time hold a long or short position in those securities.

Opinion of PSEG's Financial Advisor

        Pursuant to a letter agreement dated November 8, 2004, PSEG formally retained Morgan Stanley to provide it with certain financial advisory services in connection with the merger. At the meeting of the PSEG board of directors on December 20, 2004, Morgan Stanley rendered its oral opinion, subsequently confirmed in writing, that as of December 20, 2004, and based upon and subject to the assumptions, qualifications and limitations discussed in its opinion, the exchange ratio under the merger agreement was fair, from a financial point of view, to holders of PSEG common stock.

        The full text of Morgan Stanley's opinion, dated December 20, 2004, which sets forth, among other things, the assumptions made, procedures followed, matters considered and qualifications and limitations of the reviews undertaken in rendering its opinion is attached as Annex D to this joint proxy statement/prospectus and is incorporated by reference into this joint proxy statement/prospectus. The summary of Morgan Stanley's fairness opinion set forth in this joint proxy statement/prospectus is qualified in its entirety by reference to the full text of the opinion. Shareholders should read this opinion carefully and in its entirety. Morgan Stanley's opinion is directed to the board of directors of PSEG, addresses only the fairness from a financial point of the merger consideration to be received by holders of PSEG common stock pursuant to the merger agreement, and does not address any other aspect of the merger. Morgan Stanley's opinion does not constitute a recommendation to any shareholder of PSEG as to how such shareholder should vote with respect to the merger agreement.

        In connection with rendering its opinion, Morgan Stanley, among other things:

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        In arriving at its opinion, 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 and extensions thereof, including information relating to certain strategic, financial and operational benefits anticipated from the merger, Morgan Stanley assumed that they had been reasonably prepared on bases reflecting the best then currently available estimates and judgments of the future financial performance of PSEG and Exelon. Morgan Stanley also relied on the assessments of senior management of PSEG and Exelon of the strategic rationale for the merger. In addition, Morgan Stanley assumed that the merger and the other transactions contemplated in the merger agreement would be consummated in accordance with the terms set forth in the merger agreement, including, among other things, that the merger would be treated as a tax-free reorganization, pursuant to the Internal Revenue Code of 1986, as amended. Morgan Stanley assumed that in connection with the receipt of all necessary regulatory approvals for the proposed merger, no restrictions would be imposed that would have a material adverse effect on the contemplated benefits expected to be derived in the proposed merger. Morgan Stanley did not make any independent valuation or appraisal of the assets or liabilities of PSEG or of Exelon, nor was Morgan Stanley furnished with any such appraisals. Morgan Stanley is not a legal, regulatory or tax expert and relied on the assessments made by advisors to PSEG with respect to such issues. Morgan Stanley's opinion was necessarily based on financial, economic, market and other conditions as in effect on, and the information made available to Morgan Stanley as of December 20, 2004.

        In arriving at its opinion, Morgan Stanley was not authorized to solicit, and did not solicit, interest from any party with respect to the acquisition of PSEG or any of its assets.

        The following is a summary of the financial analyses performed by Morgan Stanley in connection with its oral opinion and the preparation of its written opinion, dated December 20, 2004. Some of these summaries include information in tabular format. In order to understand fully 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 analyses.

        In connection with its analysis, Morgan Stanley calculated the implied consideration to be paid for each share of PSEG common stock by multiplying the merger exchange ratio of 1.225 times the closing price of a share of Exelon common stock of $43.38 as of December 15, 2004 for a per share implied consideration of $53.14.

        Historical Trading and Exchange Ratio Analysis.    Morgan Stanley reviewed the historical trading ranges of PSEG and Exelon for various periods ending on December 15, 2004 and the resulting implied exchange ratios to provide it with background and perspective for how each company's stock has historically traded on a standalone basis and relative to each other.

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        Morgan Stanley noted that for the 52-week period ending December 15, 2004, the range of closing prices for PSEG common shares was $38.10 to $47.72. Morgan Stanley also noted that for the 52-week period ending December 15, 2004, the range of closing prices for Exelon common shares was $30.92 to $43.40. Morgan Stanley also observed the following:

Period Ending December 15, 2004

  Average PSEG
Price
Per Share

  Average Exelon
Price
Per Share

  Historical
Trading Ratio

  Implied
Premium at
Merger
Exchange Ratio

 
5 Trading Days Prior   $ 43.82   $ 42.56   1.03x   19.0 %
10 Trading Days Prior   $ 43.57   $ 42.14   1.03x   18.5 %
One Month Prior   $ 43.96   $ 42.06   1.05x   17.2 %
Two Months Prior   $ 43.44   $ 40.99   1.06x   15.6 %

        Morgan Stanley noted that the implied consideration to be paid for each share of PSEG common stock was $53.14 as of December 15, 2004, which was greater than the average prices per share for PSEG common stock listed above.

        Comparable Public Companies Analysis.    Morgan Stanley performed a comparable company analysis on PSEG and Exelon, which attempted to provide an implied value for PSEG and Exelon by comparing them to similar companies. For purposes of its analysis, Morgan Stanley reviewed and compared certain public and internal PSEG and Exelon financial information, ratios and available public market multiples relating to PSEG and Exelon to corresponding financial data for selected publicly-traded utility companies. Morgan Stanley selected these companies for its comparable company analysis of PSEG and Exelon based on its experience with companies in the utility industry and their relative similarity in size and business mix to that of PSEG and Exelon, respectively.

        PSEG.    The companies included in the PSEG comparable companies analysis were:

        Morgan Stanley then reviewed both public and internal PSEG financial information to compare financial metrics of these companies to the following PSEG metrics:


        The following table reflects the results of the analysis and the corresponding multiples for PSEG based on representative ranges of median earnings and EBITDA estimates for these companies

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obtained 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:

 
  Price to EPS
  Aggregate
Value to
EBITDA

 
  2005E
  2006E
  2006E
Range derived from PSEG comparables   12.5x - 13.5x   11.5x - 12.5x   6.75x - 7.25x
PSEG multiples   13.5x   12.2x   7.6x

        Applying a representative range of multiples derived from the comparable public companies analysis, Morgan Stanley calculated a range of implied equity values per share of PSEG with respect to PSEG's:

        Based on this analysis, Morgan Stanley derived a range of implied equity values per share of PSEG common stock of $40.00 to $48.68. Morgan Stanley noted that the implied consideration to be paid for each share of PSEG common stock was $53.14 as of December 15, 2004, which was greater than the range implied by the analysis.

        Exelon.    The companies included in the Exelon comparable companies analysis were:

        Morgan Stanley then reviewed public financial information to compare financial metrics of market value of these companies to Exelon's public and internal financial metrics:

        The following table reflects the results of the analysis and the corresponding multiples for Exelon based on representative ranges of median I/B/E/S earnings and EBITDA forecasts:

 
  Price to EPS
  Aggregate Value to EBITDA
 
  2005E
  2006E
  2005E
  2006E
Ranges derived from Exelon comparables   13.0x - 14.0x   12.0x - 13.0x   7.5x - 8.0x   7.25x - 7.75x
Exelon multiples   14.5x   13.4x   8.0x   7.7x

        Applying a range of multiples derived from the comparable public companies analysis, Morgan Stanley calculated a range of implied equity values per share of Exelon with respect to Exelon's and based on public and internal Exelon financial information:

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        Based on this analysis, Morgan Stanley derived a range of implied equity values per share of Exelon common stock of $38.48 to $45.51. Morgan Stanley noted that the closing price of Exelon common stock on December 15, 2004 was $43.38, which was within the range implied by this analysis.

        No company utilized in the comparable public companies analysis is identical to PSEG or Exelon. Accordingly, an analysis of the results of the foregoing necessarily involves complex considerations and judgments concerning differences in financial and operating characteristics of PSEG and Exelon and other factors that could affect the public trading value of the companies to which they are being compared. In evaluating the comparable companies, 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 PSEG or Exelon, such as the impact of competition on PSEG or Exelon and the industry generally, industry growth and the absence of any adverse material change in the financial conditions and prospects of PSEG or Exelon or the industry or in the financial markets in general. Mathematical analysis, such as determining the mean, median or average, is not in itself a meaningful method of using comparable company data.

        Sum-of-the-Parts Discounted Cash Flow Analyses.    Given the different nature of businesses in which PSEG and Exelon participate, Morgan Stanley also analyzed each company as the sum of its constituent businesses, or as the "sum of its parts" and performed a discounted cash flow analysis on each of its constituent businesses. A discounted cash flow analysis is designed to provide insight into the value of a company as a function of its future cash flows and terminal value. Morgan Stanley's discounted cash flow analysis was based on:

        Unlevered free cash flows were calculated as net income available to common shareholders plus the aggregate of preferred stock dividends, depreciation and amortization, deferred taxes, and other noncash expenses and after-tax net interest expense less the sum of capital expenditures and investment in noncash working capital for each operating subsidiary. The free cash flows and range of terminal values were then discounted to present values using a range of discount rates which were chosen by Morgan Stanley based upon an analysis of market discount rates applicable to comparable companies in the electric utility sector.

        PSEG.    For the PSEG discounted cash flow analysis, Morgan Stanley performed discounted cash flow analysis on the following business units with the noted assumptions and considerations.

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        From this analysis, Morgan Stanley calculated a range of equity value per share of PSEG common stock of $40.53 to $45.49. Morgan Stanley noted that the implied consideration to be paid for each share of PSEG common stock was $53.14 as of December 15, 2004, which was greater than the range implied by this analysis.

        Exelon.    For the Exelon discounted cash flow analysis, Morgan Stanley performed discounted cash flow analysis on the following business units with the noted assumptions and considerations.

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        From this analysis, Morgan Stanley calculated a range of equity value per share of Exelon common stock of $40.32 to $44.45. Morgan Stanley noted that the closing price of Exelon common stock on December 15, 2004 was $43.38, which was within the range implied by this analysis.

        The sum-of-the-parts discounted cash flow analyses does not imply the value at which the individual PSEG or Exelon businesses could be sold. Morgan Stanley did not consider the effect of transaction costs, including taxes that could be payable, associated with a disposition of any of the PSEG or Exelon businesses.

        Sum-of-Parts Comparable Public Companies Analysis.    Morgan Stanley also used a comparable companies analysis as described earlier to analyze each of PSEG's and Exelon's constituent businesses. Using management estimates, Morgan Stanley compared certain financial measures of selected comparable companies to those of the relevant businesses within PSEG and Exelon. Morgan Stanley selected these comparable companies based upon its views as to the comparability of the financial and operating characteristics of these companies to the relevant PSEG and Exelon businesses. Morgan Stanley calculated reference value ranges for the PSEG and Exelon businesses by applying various multiples derived from these comparable companies to selected financial measures of the relevant PSEG and Exelon businesses based on information provided by each company's management. Based on this analysis, Morgan Stanley calculated per share values for PSEG common stock ranging from $38.66 to $41.51. Morgan Stanley noted that the implied consideration to be paid for each share of PSEG common stock was $53.14 as of December 15, 2004, which was greater than the range implied by this analysis. In addition, based on this analysis, Morgan Stanley calculated per share value for Exelon common stock ranging from $41.16 to $45.97 and noted that the closing price of Exelon common stock on December 15, 2004 was $43.38, which was within the range implied by this analysis.

        Dividend Discount Analysis.    Morgan Stanley also analyzed the implied values of PSEG and Exelon as a function of the present value of their respective dividend payments. Morgan Stanley performed these analyses of PSEG and Exelon based on the following information:

        Morgan Stanley calculated terminal values by applying a range of multiples to the estimated EPS in fiscal year 2009 and the dividend streams and terminal values were then discounted to the present using a range of discount rates representing an estimated range of the cost of equity for each of PSEG and Exelon. Based on this analysis, Morgan Stanley calculated per share values for PSEG ranging from $42.75 to $47.10. Morgan Stanley noted that the implied consideration to be paid for each share of PSEG common stock was $53.14 as of December 15, 2004, which was greater than the range implied by this analysis. In addition, based on this analysis, Morgan Stanley calculated per share values for Exelon ranging from $38.15 to $42.01 and noted that the closing price of Exelon common stock on December 15, 2004 was $43.38, which was greater than the range implied by this analysis.

        Analysis of Selected Precedent Transactions.    Morgan Stanley also performed an analysis of selected precedent transactions, which attempted to provide an implied value for PSEG by comparing it to other companies involved in business combinations. Using publicly available information, Morgan Stanley considered three sets of announced or completed transactions:

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        Morgan Stanley compared certain financial and market statistics of the three sets of selected precedent transactions. Based on an assessment of the Large United States All-Stock Mergers, Morgan Stanley applied a premium to unaffected market price ranging from 10% to 20%. Based on the analysis of Large United States All-Stock Mergers, Morgan Stanley calculated per share values for PSEG common stock ranging from $49.04 to $53.50.

        Based on an assessment of the Utility MOEs, Morgan Stanley applied a premium to unaffected market price ranging from 0% to 10% and the 1-year forward I/B/E/S price to earnings multiple ranging from 12.0x to 14.0x. Based on the analysis of Utility MOEs, Morgan Stanley calculated per share values for PSEG common stock ranging from $38.40 to $49.04.

        Based on an assessment of the Utility Acquisitions, Morgan Stanley applied a premium to unaffected market price ranging from 20% to 40%. Based on the analysis of Utility Acquisitions, Morgan Stanley calculated per share values for PSEG common stock ranging from $53.50 to $62.41.

        Morgan Stanley noted that the implied consideration to be paid for each share of PSEG common stock was $53.14 as of December 15, 2004, which was within the range implied by the large United States All-Stock Mergers, greater than the range implied by the Utility MOEs, and less than the range implied by the Utility Acquisitions. Morgan Stanley also noted that the Utility Acquisitions involved much smaller transactions in terms of the size (of the target), and very few of these transactions occurred in 2003 or 2004. Of the 24 transactions comprising the Utility Acquisitions group, the target company median size was $2 billion, and only four of these transactions were announced since the end of 2002. Morgan Stanley further noted that no Utility MOEs have been announced since 2000.

        No transaction utilized as a comparison in the analysis of selected precedent transactions is identical to the merger in both business mix, timing and size. Accordingly, an analysis of the results of the foregoing necessarily involves complex considerations and judgments concerning differences in financial and operating characteristics of PSEG and other factors that would affect the value of the companies to which it is being compared. In evaluating the precedent transactions, Morgan Stanley made judgments and assumptions with regard to industry performance, global business, economic, market and financial conditions and other matters, many of which are beyond the control of PSEG, such as the impact of competition on PSEG and the industry generally, industry growth and the absence of any adverse material change in the financial conditions and prospects of PSEG or the industry or the financial markets in general. Mathematical analysis (such as determining the mean or median) is not, in itself, a meaningful method of using precedent transactions data.

        Pro Forma Transaction Analysis.    Using financial projections provided by PSEG's and Exelon's managements and publicly available I/B/E/S earnings estimates and taking into account certain management estimates of synergies provided to Morgan Stanley by PSEG management, Morgan Stanley reviewed the pro forma impact of the merger on PSEG's and Exelon's estimated EPS for the years 2006-2009. For purposes of this analysis, Morgan Stanley assumed the transaction closed on January 1, 2006.

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        The pro forma impact on Recurring Earnings Per Share (defined as earnings based on all projected merger-related adjustments to EPS except for impacts relating to costs to achieve synergies and certain short-term purchase accounting adjustments) was found to be accretive to earnings from 2006 to 2009 to both PSEG and Exelon using each company's forward-looking financial information, and extension thereof in the case of Exelon, as the basis of comparison for both companies. The pro forma impact on Reported Earnings Per Share (defined as earnings per share taking into account all projected merger-related adjustments and any extraordinary items) was found to be accretive to earnings from 2006 to 2009 to PSEG and accretive to earnings from 2007 to 2009 to Exelon using each company's forward-looking financial information and, extension thereof in the case of Exelon, as the basis of comparison for both companies. Assuming no merger-related adjustments to earnings per share and based on I/B/E/S earnings estimates, the pro forma impact on EPS was found to be accretive to earnings from 2006 to 2009 to both PSEG and Exelon using I/B/E/S projections as the basis for comparison for both companies.

        Contribution Analysis.    Morgan Stanley also performed a contribution analysis which reviewed the pro forma contribution of each of PSEG and Exelon to the combined entity and implied contributions based on other financial metrics. Morgan Stanley reviewed the pro forma effect of the merger and computed the implied equity contribution of PSEG and Exelon for the years ended December 31, 2004, December 31, 2005 and December 31, 2006. Such financial results included EBITDA and net income. The computation showed, among other things, that PSEG's implied equity contribution based on 2004, 2005 and 2006 projected EBITDA was 27%, 28% and 30%, respectively; based on 2004, 2005 and 2006 projected net income, PSEG's implied equity contribution was 28%, 28% and 30%, respectively. In addition, Morgan Stanley calculated the implied equity contribution of PSEG and Exelon based on the results of the Sum-of-Parts Discounted Cash Flow, Sum-of-Parts Comparable Public Companies, and Dividend Discount analyses; the computation showed, among other things, that PSEG's implied equity contribution based on these three analyses was 27%, 25% and 29%, respectively. Morgan Stanley noted that the 1.225x exchange ratio of Exelon common shares to PSEG common shares would result in pro forma ownership of the combined company for holders of PSEG common stock equal to approximately 31%.

        In connection with the review of the transaction with the PSEG board of directors, Morgan Stanley performed a variety of financial and comparable analyses for purposes of rendering its opinion. The preparation of a fairness opinion is a complex process and is not 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 analysis or factor considered. Furthermore, Morgan Stanley believes that the summary provided and the analyses described above must be considered as a whole and that selecting any portion of the analyses, without considering all of them, would create an incomplete view of the process underlying Morgan Stanley's analyses and opinion. As a result, the ranges of valuations resulting from any particular analysis or combination of analyses described above should not be taken to be the view of Morgan Stanley with respect to the actual value of PSEG or Exelon common stock.

        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 PSEG or Exelon. Any estimates contained in Morgan Stanley's analyses are not necessarily indicative of future results or actual values, which may be significantly more or less favorable than those suggested by the estimates. The analyses performed were performed solely as part of Morgan Stanley's analysis of the fairness from a financial point of view of the exchange ratio pursuant to the merger agreement to the holders of PSEG common stock and were conducted in connection with the delivery of Morgan Stanley's opinion to the PSEG board of directors. The analyses do not purport to be appraisals or to reflect the prices at which PSEG common stock or Exelon common stock might actually trade. The exchange ratio applicable to each share of PSEG common stock under the merger agreement and other terms of the merger agreement were determined through

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arm's length negotiations between PSEG and Exelon and approved by the PSEG board of directors. The written opinion of Morgan Stanley dated December 20, 2004, was one of a number of factors taken into consideration by PSEG's board of directors in making its decision to approve the merger agreement and the transactions contemplated by the merger agreement. Consequently, Morgan Stanley's analyses described above should not be viewed as determinative of the opinion of the PSEG board of directors with respect to the value of PSEG or Exelon. See "—Recommendation of PSEG Board; PSEG's Reasons for the Merger."

        Morgan Stanley, as part of its investment banking businesses, is continually engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, negotiated underwritings, competitive biddings, secondary distributions of listed and unlisted securities, private placements and valuations for estate, corporate and other purposes. PSEG selected Morgan Stanley as its financial advisor based upon the firm's qualifications, experience and expertise and because it is an internationally recognized investment banking firm with substantial experience in transactions similar to the merger. In the ordinary course of its trading and brokerage activities, Morgan Stanley and its affiliates may at any time hold long or short positions, trade or otherwise effect transactions, for their own accounts or for the accounts of customers, in the equity or debt securities or senior loans of PSEG or Exelon.

        Pursuant to the terms of its engagement, PSEG agreed to pay Morgan Stanley a transaction fee of $20 million. The fee is payable as follows: $5 million of which was due upon the public announcement of the execution of the merger agreement, $5 million of which is payable upon PSEG's shareholder approval and $10 million of which is payable upon completion of the merger. PSEG has also agreed to reimburse Morgan Stanley for its fees and expenses incurred in performing its services. In addition, PSEG has agreed to indemnify Morgan Stanley and its affiliates, their respective directors, officers, agents and employees and each person, if any, controlling Morgan Stanley or any of its affiliates against certain liabilities and expenses, including certain liabilities under the federal securities laws, related to or arising out of Morgan Stanley's engagement and any related transactions. During the past two years, Morgan Stanley and its affiliates have provided financial advisory, underwriting, loan syndication and other investment banking services for PSEG and Exelon and have received fees of approximately $4 million, exclusive of any fees for the merger, and $3 million, respectively, for the rendering of these services. The fees received from Exelon relate primarily to financial advice Morgan Stanley provided to Exelon in connection with the sale of the outstanding common stock of ExRes SHC Inc., the parent company of Sithe Energies and Sithe Independent L.P., to Dynegy, Inc. Exelon Generation enters into various energy related derivative transactions for hedging and speculative purposes with Morgan Stanley. These transactions, include, but are not limited to, power forwards, power swaps, natural gas swaps, natural gas options, oil swaps and oil options. Morgan Stanley also may or may in the future seek to provide financial advice or financing services to PSEG and Exelon and may receive fees for such services.

Forward-Looking Financial Information

Exelon Forward-Looking Financial Information

        Exelon does not as a matter of course publicly disclose detailed forecasts or internal projections as to future revenues, earnings or financial condition. However, in the course of its discussions with PSEG leading up to the execution of the merger agreement, Exelon provided PSEG with some business and financial information which Exelon and PSEG believe was not publicly available. The information provided to PSEG included forward-looking financial information for years 2005 through 2007 based upon projections developed by Exelon through a regular internal planning and forecasting process that included input from Exelon's business units and a corporate level review. As described below, those projections were adjusted to reflect market price assumptions that Exelon and PSEG agreed to use for the purpose of providing to each other comparable information. The following table is a summary of the forward-looking financial information Exelon provided to PSEG for years 2005 through 2007.

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Exelon Corporation
Forward-Looking Income and Cash Flow Statement Data
(in millions, except per share data)

 
  For the Year Ending December 31,
 
 
  2005
  2006
  2007
 
Net Income Available for Common Shareholders(1)   $ 2,080   $ 2,210   $ 2,303  
Exelon Earnings Per Share(2)   $ 3.11   $ 3.30   $ 3.44  
Total Common Dividends(3)   $ (1,135 ) $ (1,204 ) $ (1,245 )

(1)
Net income amounts include $64, $64 and $65 for 2005, 2006 and 2007, respectively, reflecting the impact of investments in synthetic fuel.

(2)
Earnings per share amounts include $0.10, $0.10 and $0.10 per share for 2005, 2006 and 2007, respectively, reflecting the impact of investments in synthetic fuel.

(3)
Reflects cash disbursement for common dividends.

PSEG also requested forward-looking financial information for years 2008 and 2009. In response to PSEG's request, Exelon created forward-looking financial information for years 2008 and 2009 through a process of extension of the forward-looking financial information for years 2005 through 2007 described above, but only with a corporate level review not involving the same planning processes, analysis and input from Exelon's business units that were used in the preparation of Exelon's projections for years 2005 through 2007. The following table is a summary of the extended forward-looking financial information Exelon provided to PSEG for years 2008 and 2009.

Exelon Corporation
Extension of Forward-Looking Income and Cash Flow Statement Data
(in millions, except per share data)

 
  For the Year Ending December 31,
 
 
  2008
  2009
 
Net Income Available for Common Shareholders(1)   $ 2,302   $ 2,349  
Exelon Earnings Per Share(2)   $ 3.43   $ 3.49  
Total Common Dividends(3)   $ (1,281 ) $ (1,315 )

(1)
Net income amounts include $16 and $0 for 2008 and 2009, respectively, reflecting the impact of investments in synthetic fuel.

(2)
Earnings per share amounts include $0.02 and $0.00 for 2008 and 2009, respectively, reflecting the impact of investments in synthetic fuel.

(3)
Reflects cash disbursement for common dividends.

        The Exelon forward-looking financial information was based upon various assumptions, including the following principal assumptions:

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        The estimates and assumptions underlying the forward-looking financial information involved judgments with respect to, among other things, future economic, competitive, regulatory and financial market conditions and future business decisions which may not be realized and are inherently subject to significant business, economic, competitive and regulatory uncertainties, all of which are difficult to predict and many of which are beyond the control of Exelon and PSEG. Accordingly, there can be no assurance that the prospective results thereof would be realized or that actual results would not differ materially from those presented in the forward-looking financial information.

        See cautionary statements regarding forward-looking information under "Forward-Looking Statements."

        Although all of the forward-looking financial information Exelon provided to PSEG was prepared in good faith by Exelon management, the information provided for years 2008 and 2009 was not prepared with the same degree of analysis as the information provided for years 2005 through 2007. In addition, no assurance can be made regarding future events. As a result, prospective financial information such as that provided for years 2005 through 2009 above cannot be considered a reliable predictor of future operating results, and this information should not be relied on as such. The information provided to PSEG and summarized above was not prepared with a view toward public disclosure or with a view toward complying with the guidelines established by the American Institute of Certified Public Accountants with respect to prospective financial information, published guidelines of the SEC regarding forward-looking statements, or United States generally accepted accounting principles. In the view of Exelon management, the information was prepared on a reasonable basis and reflects reasonable estimates and judgments. However, this information should not be relied upon as being necessarily indicative of future results, and readers of this joint proxy statement/prospectus are cautioned not to place reliance on this information.

        The forward-looking financial information included in the previous two tables was prepared by, and is the responsibility of, Exelon management. Neither PricewaterhouseCoopers LLP nor Deloitte & Touche LLP has examined or compiled the accompanying prospective financial information and, accordingly, neither PricewaterhouseCoopers LLP nor Deloitte & Touche LLP expresses an opinion or

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any other form of assurance with respect thereto. The PricewaterhouseCoopers LLP reports included in this joint proxy statement/prospectus relate to Exelon's historical financial information. They do not extend to the prospective financial information and should not be read to do so.

        The Exelon forward-looking financial information for years 2005 through 2007 and the extensions of that forward-looking financial information for years 2008 through 2009 were prepared for Exelon on a stand-alone basis and the PSEG forward-looking financial information was prepared for PSEG on a stand-alone basis. The combination of the Exelon and PSEG forward-looking financial information does not represent the results the combined company will achieve if the merger is completed nor does it represent forward-looking financial information for the combined company.

        The information concerning forward-looking financial information provided by Exelon is not included in this joint proxy statement/prospectus in order to induce any shareholder to vote in favor of the merger agreement or to acquire securities of Exelon.

        Exelon does not intend to update or otherwise revise the forward-looking financial information to reflect circumstances existing since its preparation or to reflect the occurrence of unanticipated events, even in the event that any or all of the underlying assumptions are shown to be in error. Furthermore, Exelon does not intend to update or revise the forward-looking financial information to reflect changes in general economic or industry conditions.

PSEG Forward-Looking Financial Information

        PSEG does not as a matter of course make public projections as to future sales, earnings, or other financial results. However, in the course of its discussions with Exelon leading up to the execution of the merger agreement, the management of PSEG provided to Exelon certain prospective financial information which PSEG and Exelon believe is not publicly available. The accompanying prospective financial information was not prepared with a view toward public disclosure or with a view toward complying with the guidelines established by the American Institute of Certified Public Accountants with respect to prospective financial information, but, in the view of PSEG management, was prepared on a reasonable basis and reflects reasonable estimates and judgments. However, this information should not be relied upon as being necessarily indicative of future results, and readers of this joint proxy statement/prospectus are cautioned not to place reliance on the prospective financial information.

        Neither PSEG's independent auditors, nor any other independent accountants, have compiled, examined, or performed any procedures with respect to the prospective financial information contained herein, nor have they expressed any opinion or any other form of assurance on such information or its achievability, and assume no responsibility for, and disclaim any association with, the prospective financial information.

        The following table is a summary of the forward-looking financial information PSEG provided to Exelon for years 2005 through 2009.

PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
Forward-Looking Income and Cash Flow Statement Data
(in millions, except per share data)

 
  For the Year Ending December 31,
 
 
  2005
  2006
  2007(1)
  2008
  2009
 
Net Income Available for Common Shareholders   $ 771   $ 910   $ 1,002   $ 1,068   $ 1,067  
Adjusted PSEG Earnings Per Share   $ 3.20   $ 3.58   $ 3.82   $ 4.11   $ 4.22  
Total Common Dividends(2)   $ (543 ) $ (583 ) $ (608 ) $ (619 ) $ (630 )

(1)
Reflects exclusion of after-tax loss on a forecasted sale of a plant.

(2)
Reflects cash disbursement for common dividends.

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        The PSEG forward-looking financial information was based upon various assumptions, including the following principal assumptions:

        The estimates and assumptions on which the forward-looking financial information is based involved judgments with respect to, among other things, future economic, competitive, regulatory and financial market conditions and future business decisions which may not be realized and are inherently subject to significant business, economic, competitive and regulatory uncertainties, all of which are difficult to predict and many of which are beyond the control of PSEG and Exelon. Accordingly, there can be no assurance that the prospective results thereof would be realized or that actual results would not differ materially from those presented in the forward-looking financial information.

        See cautionary statements regarding forward-looking information under "Forward-Looking Statements."

        The PSEG forward-looking financial information for years 2005 through 2009 was prepared for PSEG on a stand-alone basis and the Exelon forward-looking financial information for years 2005 through 2007 and the extensions of that forward-looking financial information for 2008 through 2009 were prepared for Exelon on a stand-alone basis. The combination of the PSEG and Exelon forward-looking financial information does not represent the results the combined company will achieve if the merger is completed nor does it represent forward-looking financial information for the combined company.

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        The information concerning forward-looking financial information provided by PSEG is not included in this joint proxy statement/prospectus in order to induce any shareholder to vote in favor of the merger agreement or to acquire securities of PSEG.

        PSEG does not intend to update or otherwise revise the forward-looking financial information to reflect circumstances existing since its preparation or to reflect the occurrence of unanticipated events, even in the event that any or all of the underlying assumptions are shown to be in error. Furthermore, PSEG does not intend to update or revise the forward-looking financial information to reflect changes in general economic or industry conditions.

Estimated Potential Synergies Attributable to the Merger

        The companies have estimated potential reductions and avoidances in costs and other synergies, collectively referred to as synergies, that may be attributable to the merger. Recognition has also been given to those out-of-pocket costs that are expected to be incurred to successfully complete the merger and to integrate operations. These estimated potential cost savings are directly attributable to the merger and do not include estimated potential savings from other initiatives that were already underway or planned by either company independent of the merger or that could be achieved in the absence of the merger.

        Total potential cost savings and other synergies identified by the management of Exelon have been estimated at approximately $400 million in the first full year of operations following completion of the merger and approximately $500 million in the second full year of operations following completion of the merger. The management of PSEG estimated similar levels of synergies, giving effect to all expected improvements in the operating performance of nuclear generating units, including improvements reflected in PSEG's forward-looking financial information for 2005-2009. Related costs-to-achieve these synergies are currently estimated at approximately $450 million in the first full year of operations following completion of the merger and approximately $700 million over a period of four years following the merger. Identified plans for stand-alone cost reduction initiatives have also been recognized and deducted from the estimated potential cost savings in the amount of $5 million in the first full year of operations and $9 million in the second full year of operations. The impact of these planned initiatives will continue into the future and reduce identified merger synergies each year.

        The principal components of the anticipated synergies identified by the companies are set forth below.

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        Potential synergies were analyzed across an extended time period and continued into perpetuity in order to determine the net present value of estimated synergies. This calculation reflects the ongoing nature of the estimated synergies and was used to develop a basis for determining the present value of the future stream of estimated synergies.

        These estimated synergies were grown at an escalation rate over time with a terminal value used to value the stream of estimated synergies in future years. A conservative synergies sharing assumption was made to reflect the net retainable level of total synergies. This total stream of synergies was converted to an after-tax value and discounted back to the present at a 6% discount rate.

        This analysis indicated that the identified level of estimated annual synergies over a 10 year period, plus a terminal value at the end of that period for the estimated synergies in subsequent years, would result in approximately $8 to 9 billion of estimated retained synergies on a net present value basis.

        The Exelon analysis of estimated expected and growing synergies under a conservative synergies retention assumption indicated that the merger is expected to be accretive to earnings of the combined company in the second full year of operations by approximately 3 to 4%.

        The estimates and assumptions underlying the identification of potential synergies and estimated accretion involve judgments with respect to, among other things, the extent to which the regulatory authorities require the combined company to share synergies with its customers, future economic, competitive, regulatory and market conditions and future business decisions which may not be realized and are inherently subject to uncertainties. For this reason, synergies are difficult to predict and there can be no assurance that the estimated synergies referred to in the preceding paragraphs will be achieved and in the amounts and time periods estimated by the managements of the companies. See "Risk Factors—Risks Relating to the Merger—The anticipated benefits of combining PSEG and Exelon may not be realized."

Board of Directors and Management Following Completion of the Merger

        Exelon has agreed to amend and restate its Amended and Restated By-laws upon completion of the merger to provide for certain arrangements relating to the Exelon board of directors and

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management during a transition period lasting for three years following completion of the merger. Generally, these new provisions of the Amended and Restated By-laws to be adopted will not be able to be changed by the board of directors without the approval of at least 80% of the whole Exelon board of directors. These provisions and the provisions of the merger agreement related to the governance of Exelon following completion of the merger are described below.

Board of Directors

        Pursuant to the merger agreement and the Amended and Restated By-laws, upon completion of the merger, Exelon will increase the number of directors on its board of directors to 18 and appoint six former PSEG directors designated by the Chief Executive Officer of PSEG to fill six directors seats, subject to applicable laws and regulations. Such former PSEG directors will be allocated evenly among Classes I, II and III of the Exelon board of directors.

        Pursuant to Exelon's Amended and Restated By-laws to be adopted upon completion of the merger, with respect to the first and second elections of directors during the transition period, the Exelon board of directors is required, subject to its fiduciary duties and applicable laws and regulations, to nominate for election the legacy PSEG directors (or their successors) whose class is standing for election and to nominate the legacy Exelon directors (or their successors) whose class is standing for election. In addition, during the transition period, the Exelon board of directors is required to, subject to its fiduciary duties and applicable laws and regulations, take any action necessary to ensure that any vacancy of a position on the Exelon board of directors previously held by a legacy PSEG director will be filled by a person nominated by the Exelon board of directors and approved by a majority of the legacy PSEG directors remaining on the Exelon board of directors, and that any vacancy of a position on the Exelon board of directors previously held by a legacy Exelon director will be filled by a person nominated by the Exelon board of directors and approved by a majority of the legacy Exelon directors remaining on the Exelon board of directors.

        In addition, pursuant to Exelon's Amended and Restated By-laws to be adopted upon completion of the merger, during the transition period, a legacy PSEG director will be the chairman of at least one committee of the board of directors as determined by the Exelon corporate governance committee.

        To help assure continuity before and for a period of time following completion of the merger, the Exelon board of directors has deferred, until after completion of the merger, the retirement of three directors who otherwise would have retired at the end of 2004. In addition, the Exelon board of directors suspended its director retirement policy so that directors who reach the retirement age of 72 within three years following completion of the merger will not be required to retire until the end of that three-year period.

Chairman of the Board; Chief Executive Officer; President

        Pursuant to Exelon's Amended and Restated By-laws to be adopted, upon completion of the merger, Mr. Ferland will become the non-executive Chairman of the Exelon board of directors. Mr. Ferland will serve as non-executive Chairman of the Exelon board of directors until the earlier of (1) March 31, 2007, his announced date of retirement, and (2) the date on which Mr. Ferland no longer serves as a member of the Exelon board of directors. At such time, the Chief Executive Officer of Exelon will be appointed as Chairman of the Exelon board of directors and continue in such role for the duration of the transition period and thereafter as determined by the Exelon board of directors.

        As the non-executive Chairman, Mr. Ferland will preside at all meetings of the Exelon board of directors and will, in consultation with the Chief Executive Officer of Exelon, establish the agenda for meetings of the Exelon board of directors. Mr. Ferland will have such other duties as non-executive Chairman of the Exelon board of directors as may from time to time be requested by the Chief Executive Officer of Exelon.

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        For at least the transition period, Mr. Rowe will continue to serve as the President and Chief Executive Officer of Exelon in charge of general supervision over the business and operations of Exelon.

Senior Officers

        The merger agreement provides that the officers of Exelon following the merger will continue as the officers of Exelon with such substitutions, additions and deletions as shall be determined by Mr. Rowe in consultation with the Chief Executive Officer of PSEG and approved by the Exelon board of directors.

Corporate Offices

        Pursuant to the Amended and Restated By-laws to be adopted upon completion of the merger, the corporate headquarters of Exelon will continue to be in Chicago, Illinois. The headquarters of Exelon's power trading business will be in southeastern Pennsylvania and the headquarters of Exelon's generation business will be in Newark, New Jersey, with headquarters of Exelon's nuclear generating business in southeastern Pennsylvania. ComEd will maintain its headquarters in Chicago, Illinois, PECO will maintain its headquarters in southeastern Pennsylvania and PSE&G will maintain its headquarters in Newark, New Jersey. Following completion of the merger, the Exelon board of directors may amend the provisions of the Amended and Restated By-laws setting Chicago, Illinois, as the corporate headquarters by the approval of at least 80% of the whole Exelon board of directors. Following completion of the merger, the Exelon board of directors may amend the provisions of the Amended and Restated By-laws setting the headquarters of the subsidiaries and divisions of the combined company by the approval of a majority of the directors present and voting at a meeting, so long as a quorum is present.

        The proposed arrangement described above relating to the headquarters of subsidiaries and divisions of the combined company could be changed by agreement of Exelon and PSEG prior to the completion of the merger, if approved by the companies' boards of directors. However, the headquarters of PSE&G, PECO and ComEd will remain, respectively, in Newark, Philadelphia and Chicago. In addition, the parties expect that the headquarters of another significant business unit of the combined company will be located in Newark and the headquarters of another significant business unit will be located in southeastern Pennsylvania.

Interests of PSEG's Directors and Executive Officers in the Merger

Appointment of Directors and Executive Officers

        When the merger is completed, six current members of the PSEG board of directors as designated by the Chief Executive Officer of PSEG, including Mr. Ferland, will be appointed to the Exelon board of directors. The Exelon board of directors will have the authority to fix the compensation of the directors for their services as such and a director may be a salaried officer of Exelon.

        Pursuant to the second amendment to his employment agreement and Exelon's Amended and Restated By-laws to be adopted upon completion of the merger, Mr. Ferland will serve as the Chairman of the Exelon board of directors until the earlier of March 31, 2007 and the date on which he ceases to be a director of Exelon. After the merger becomes effective, pursuant to the second amendment to his employment agreement, which amendment does not change the compensation provisions of his employment agreement, Mr. Ferland will continue to receive:

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        Under the second amendment, Mr. Ferland agreed to waive his right to resign for "good reason" and to be paid any severance as a result of the merger and the change in his responsibilities and agreed that the change in his responsibilities following completion of the merger will not constitute "good reason" or the termination of his employment without "cause." The second amendment further provides that Mr. Ferland will voluntarily retire as an employee of Exelon and as a member of the Exelon board of directors no later than March 31, 2007.

        In addition, the merger agreement provides that the officers of Exelon immediately prior to completion of the merger will continue as the officers of Exelon following completion of the merger with such substitutions, additions and deletions as will be determined by the Chief Executive Officer of Exelon, in consultation with the Chief Executive Officer of PSEG, and approved by the Exelon board of directors.

PSEG Director and Executive Officer Stock Options and Equity-Based Awards

Substitution of Current PSEG Stock Options and Equity-Based Awards

        Upon completion of the merger, each PSEG stock option which is outstanding pursuant to the PSEG 1989, 2001 and 2004 Long-Term Incentive Plans will be assumed by Exelon and substituted with an option to purchase the number of shares of Exelon common stock determined by multiplying (1) the number of shares of PSEG common stock subject to such PSEG stock option immediately prior to completion of the merger by (2) the exchange ratio of 1.225, at an exercise price per share of Exelon common stock equal to the exercise price per share of PSEG common stock under such PSEG stock option immediately prior to completion of the merger divided by the exchange ratio. Thereafter, except as provided in this paragraph and the accelerated vesting of certain stock options as described below, each substituted Exelon stock option will be exercisable on the same terms and conditions that applied before the merger.

        Upon completion of the merger, all PSEG equity-based awards will be assumed by Exelon and substituted with a right or award with respect to shares of Exelon common stock on the same terms and conditions as were applicable under the PSEG equity-based award, including all repurchase and forfeiture rights held by PSEG. The number of shares of Exelon common stock issuable under those equity-based awards will be adjusted to take into account the exchange ratio.

        The table below shows the number of PSEG stock options and equity-based awards held by the directors and executive officers of PSEG as of April 30, 2005 and the total number of substitute Exelon stock options and substitute Exelon equity-based awards the directors and executive officers of PSEG

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will receive in substitution for such PSEG stock options and equity-based awards upon completion of the merger.


SUBSTITUTE STOCK OPTIONS AND SUBSTITUTE EQUITY-BASED AWARDS

 
  PSEG Stock Options
Pre-Merger

  Exelon Stock Options
Post-Merger

  PSEG Restricted Shares
Pre-Merger

  Exelon Restricted Shares
Post-Merger

Executive Officer                
E. James Ferland   1,566,000   1,918,350   109,800 (1) 134,505
Thomas M. O'Flynn   506,333   620,257   17,167   21,029
Ralph Izzo   354,667   434,467   19,667   24,092
Frank Cassidy   693,000   848,925   17,167   21,029
Robert J. Dougherty   618,000   757,050   17,167   21,029
R. Edwin Selover   227,000   278,075   11,300   13,842
Patricia A. Rado   64,266   78,725   3,933   4,817
Robert E. Busch   365,000   447,125   9,500   11,637
   
 
 
 
Total:   4,394,266   5,382,974   205,701   251,980
   
 
 
 

(1)
Includes 30,000 shares of restricted stock awarded to Mr. Ferland under Mr. Ferland's employment agreement.

        As of April 30, 2005, there were 5,796,645 shares of PSEG common stock subject to PSEG stock options with a weighted average exercise price of $40.48, of which options with respect to 4,147,512 shares of PSEG common stock were vested as of that date. Of the remaining 1,649,133 unvested PSEG stock options, options with respect to 901,596 shares of PSEG common stock, with a weighted average exercise price of $36.55, are scheduled to vest in accordance with their terms prior to December 31, 2005. Of the 747,537 balance of unvested PSEG stock options, options with respect to 435,429 shares of PSEG common stock, with a weighted average exercise price of $42.79, will vest as a result of the approval by PSEG shareholders of the merger agreement or the completion of the merger.

Lapse of Restrictions on Director Restricted Shares

        If following consummation of the merger, any member of the PSEG board of directors (other than Mr. Ferland) ceases to be a director of PSEG, or Exelon as its successor, all restrictions on such member's restricted shares will immediately lapse and be of no effect. As of January 1, 2005, the members of the PSEG board of directors (other than Mr. Ferland) collectively held 28,800 shares of restricted PSEG common stock.

Acceleration of Executive Officer PSEG Stock Options Granted Pursuant to Employment Agreements

        Employment agreements with certain executive officers of PSEG, other than Mr. Ferland, provide for accelerated vesting of their PSEG stock options granted pursuant to the employment agreements in certain circumstances. If, during the term of the employment agreement, there occurs a change in control of PSEG or the PSEG shareholders approve an agreement to effect a change in control of PSEG, the executive officer's right to his PSEG stock options granted pursuant to the agreement will vest and become exercisable as of the date of such change in control or approval. Accordingly if the PSEG shareholders approve the merger agreement, whether or not the merger is completed, the outstanding PSEG stock options subject to these employment agreements (other than Mr. Ferland's whose options will vest as described elsewhere in this section and Mr. Izzo's whose options will vest upon completion of the merger) will vest.

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        As of April 30, 2005, PSEG executive officers with employment agreements held options with accelerated vesting provisions to acquire an aggregate of 450,000 shares of PSEG common stock at a weighted average exercise price of $43.237. The following chart sets forth as of April 30, 2005 the aggregate number of stock options granted pursuant to these employment agreements held by executive officers of PSEG that will become exercisable upon approval of the merger agreement by PSEG shareholders (or in the case of Mr. Izzo, upon completion of the merger) and the weighted average exercise price of those stock options. Each executive officer may hold additional PSEG stock options that are already exercisable or which were not granted pursuant to his employment agreement and with respect to which vesting will not accelerate upon approval of the merger by PSEG shareholders. Such PSEG stock options are not reflected in this chart.


STOCK OPTIONS SUBJECT TO ACCELERATION UNDER EMPLOYMENT AGREEMENTS

Executive Officer

  Number of Stock
Options to Become
Exercisable

  Weighted
Average
Exercise Price

Thomas M. O'Flynn   100,000   $ 45.85
Ralph Izzo   200,000   $ 40.77
Frank Cassidy   50,000   $ 44.0625
Robert J. Dougherty   50,000   $ 44.0625
Robert E. Busch   50,000   $ 46.23
   
 
Total:   450,000   $ 43.237
   
 

Acceleration of PSEG Stock Options and Equity-Based Awards Under Long-Term Incentive Plans

        Certain executive officers of PSEG have received grants of PSEG stock options, dividend equivalents and performance units under PSEG's 2001 Long-Term Incentive Plan and 2004 Long-Term Incentive Plan, the vesting of which may accelerate following completion of the merger under the circumstances described below.

        2001 and 2004 Long-Term Incentive Plans.    Under the terms of the 2001 LTIP, if after a change in control occurs, the officer's employment is terminated, all outstanding options, dividend equivalents and performance shares granted thereunder will immediately vest and become fully exercisable. Under the terms of the 2004 LTIP, if an officer is terminated within 18 months following a change in control, other than a termination for "cause," his or her equity-based awards (other than stock options, stock appreciation rights and performance units, the treatment of which is described below) will vest. The merger constitutes a change in control under the LTIPs. Accordingly, if following completion of the merger any officer of PSEG is terminated at any time, in the case of the 2001 LTIP, or within 18 months after completion of the merger, in the case of the 2004 LTIP (and only if not for cause), his or her options, dividend equivalents and performance units under the 2001 LTIP will vest and his or her other equity-based awards under the 2004 LTIP will vest. The following chart sets forth as of

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April 30, 2005, the number of stock options granted to executive officers of PSEG under the 2001 LTIP, the vesting of which will accelerate if such executive is terminated as described above.


2001 LTIP STOCK OPTIONS
SUBJECT TO ACCELERATION UPON TERMINATION

Executive Officer

  PSEG
Stock Options

E. James Ferland   116,667
Thomas M. O'Flynn   43,333
Ralph Izzo   11,667
Frank Cassidy   93,333
Robert J. Dougherty   43,333
R. Edwin Selover   26,667
Patricia A. Rado   8,333
Robert E. Busch   21,667
   
Total:   365,000
   

        The 2004 LTIP also provides for the granting of other equity-based awards as described above. As of April 30, 2005, however, no such awards have been granted other than performance units, the treatment of which is described below under "—2004 Long-Term Incentive Plan Performance Units."

        2004 Long-Term Incentive Plan Stock Options and Stock Appreciation Rights.    Under the terms of the 2004 LTIP, upon a change in control, all outstanding PSEG stock options and stock appreciation rights granted under the 2004 LTIP will immediately vest and become fully exercisable. The merger constitutes a change in control under the 2004 LTIP. The following chart sets forth as of April 30, 2005, the number of PSEG stock options granted to executive officers of PSEG under the 2004 LTIP, the vesting of which will accelerate upon completion of the merger. As of April 30, 2005, no SARs have been granted.


2004 LTIP STOCK OPTIONS SUBJECT TO ACCELERATION

Executive Officer

  PSEG
Stock Options

E. James Ferland   90,000
Thomas M. O'Flynn   22,000
Ralph Izzo   22,000
Frank Cassidy   22,000
Robert J. Dougherty   22,000
R. Edwin Selover   14,667
Patricia A. Rado   5,067
Robert E. Busch   13,333
   
Total:   211,067
   

        2004 Long-Term Incentive Plan Performance Units.    Under the terms of the 2004 LTIP, if a change in control occurs after performance units have been granted but before completion of the performance period, a pro rata portion of such performance award will become payable as of the date of the change in control to the extent otherwise earned on the basis of achievement of the pro rata portion of the performance goals relating to the portion of the performance period completed as of the date of the change in control. As of April 30, 2005, all performance units granted under the 2004 LTIP are subject to a three-year performance period that expires December 31, 2006. Based upon the assumptions described in the following paragraph, PSEG currently estimates that the aggregate value of the payments to executive officers of PSEG following completion of the merger in connection with the

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acceleration of vesting of outstanding performance shares under the 2004 LTIP will be approximately $2.9 million.

        The following chart sets forth the amounts of the estimated value of the payments to be made to each executive officer of PSEG following completion of the merger in connection with the acceleration of vesting of outstanding performance units, assuming that the merger is completed at the beginning of the second quarter of 2006 and assuming that each PSEG performance unit has a value of $51.28 when the merger is completed (based on the $41.86 per share closing price of Exelon common stock on the last trading day preceding the announcement of the merger multiplied by the exchange ratio). If the merger is completed after such time, the value of the payments may be greater since the calculation under the plan factors in the length of time in the performance period that has elapsed prior to completion of the merger. The value may also be higher or lower than these estimates depending upon the market value of Exelon common stock when the merger is completed.


2004 LTIP PERFORMANCE UNITS

Executive Officer

  Estimated Value of Aggregate Payment(1)
E. James Ferland   $ 1,245,878
Thomas M. O'Flynn     308,664
Ralph Izzo     308,664
Frank Cassidy     308,664
Robert J. Dougherty     308,664
R. Edwin Selover     185,198
Patricia A. Rado     70,151
Robert E. Busch     168,362
   
Total:   $ 2,904,245
   

(1)
Assumes performance is at 100% of goal.

Severance Agreements with Executive Officers

        Pursuant to the second amendment to his employment agreement with PSEG, if Mr. Ferland retires at the expiration of his employment period, March 31, 2007, he will be paid the following in a lump sum of cash within 30 days of the date of such retirement:

In addition, all outstanding stock options and equity-based awards (including stock options and equity-based awards granted following completion of the merger) will immediately vest and become fully exercisable.

        The employment agreements of Messrs. Ferland, O'Flynn, Cassidy, Dougherty, Izzo and Busch and the PSEG Key Executive Severance Plan, which covers 30 officers including Ms. Patricia A. Rado, and one executive officer, Mr. R. Edwin Selover, who do not currently have individual employment agreements, provide severance benefits for a termination by PSEG without "cause" or by the executive officer for "good reason" that occurs at any time after a change in control (or in the case of Mr. Izzo's employment agreement and the severance plan, within two years after a change in control). The merger will constitute a change in control under the agreements and the severance plan.

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        Specifically, if a covered executive officer's employment were terminated following completion of the merger without cause or the executive resigned for good reason, the executive officer would be entitled to:

        In addition, under the severance plan, the executive officer would be entitled to a pro rata portion of his or her annual salary and target bonus, accelerated vesting of his or her PSEG stock options and other equity-based awards, vesting of any compensation previously deferred and a year of outplacement services. These benefits are also provided for under the employment agreements upon a termination without cause or the resignation of the executive officer for good reason; however, under the employment agreements they are available whether or not a change in control has occurred.

        The other officers covered under the severance plan, including Ms. Rado, will receive the same benefits described above except the amounts under the three bullets will be two times and two years rather than three times and three years and they are not entitled to the excise tax gross-up.

        The following chart sets forth, as of April 30, 2005, the estimated termination payments that would be payable to each executive if, following completion of the merger, the executive's employment were terminated without cause or the executive resigned for good reason within the applicable time frames. The salary, bonus and incentive awards for an executive may be increased from time to time subsequent to March 15, 2005 (including following completion of the merger), which would in turn increase the aggregate termination payments.


SEVERANCE PAYMENTS UPON TERMINATION FOLLOWING THE MERGER

Executive Officer

  3 X
(Base Salary +
Target Bonus)

  Lump Sum
Retirement Plan
Payment

  Aggregate
Termination
Payments

E. James Ferland(1)   $ 6,480,000   $ 0   $ 6,480,000
Thomas M. O'Flynn(2)     2,568,000     1,848,000     4,416,000
Ralph Izzo     2,400,000     242,000     2,642,000
Frank Cassidy     2,520,000     0     2,520,000
Robert J. Dougherty     2,808,000     0     2,808,000
R. Edwin Selover     2,070,000     0     2,070,000
Patricia A. Rado(3)     742,500     0     742,500
Robert E. Busch     1,777,500     33,000     1,810,500
   
 
 

(1)
Under the second amendment to his employment agreement, Mr. Ferland agreed to waive his right to resign for "good reason" and to be paid any severance as a result of the merger and the change in his responsibilities and agreed that the change in his responsibilities following completion of the merger will not constitute "good reason" or the termination of his employment without "cause."

(2)
Mr. O'Flynn's employment agreement provides that, upon completion of five years of service with PSEG (July 1, 2006), Mr. O'Flynn will be granted 15 years of pension credit in respect of his prior service.

(3)
Ms. Rado's severance payments are 2x (Base Salary + Target Bonus).

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        Under the second amendment to Mr. Ferland's employment agreement, "cause" is defined as any of the following:

and following a change in control, "good reason" is defined as any of the following:

        Under Mr. O'Flynn's employment agreement, "cause" is defined as any of the following:

and "good reason" is defined as any of the following:

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        "Cause" under the other employment agreements and under the severance plan is defined as:

In addition, under Mr. Izzo's employment agreement and the severance plan, "cause" further includes the willful conduct by the executive officer in violation of PSEG's Standards of Integrity.

        "Good reason" under the other employment agreements and the severance plan is defined as:

In addition under the employment agreements, "good reason" includes any purported termination of the executive officer's employment by PSEG for a reason or in a manner not expressly permitted by his employment agreement.

Retention Program

        In connection with the execution of the merger agreement, PSEG adopted a Retention Program for Key Employees of Public Service Enterprise Group Incorporated. The program provides for payments to be made to certain officers and key employees of PSEG who remain employed from the date of the merger agreement through the date that is 90 days after completion of the merger, subject to an aggregate limit of $10 million. Under the program, the organization and compensation committee of the PSEG board of directors will select any officers that may receive retention payments under the program. The committee will determine the amount of each officer's retention payment. The amount of an officer's retention payment may not be less than 40% or more than 150% of his or her annual base salary. PSEG currently does not intend to grant awards to any officers under the program.

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Directors and Executive Officers Indemnification and Insurance

        Indemnification and Insurance.    Subject to applicable laws, Exelon has agreed that after completion of the merger:

Certain Relationships Between Exelon and PSEG; Operating Services Contract

        PSEG Nuclear and Exelon Generation jointly own the Salem and Peach Bottom nuclear generation stations. Under the Salem co-owners agreement dated November 24, 1971, as amended, Exelon Generation owns 42.59% and PSEG Nuclear owns 57.41% of Salem Units 1, 2 and 3. PSEG Nuclear is responsible for operation of the Salem Units. Exelon Generation and PSEG Nuclear each own 50% of the Peach Bottom Units. Exelon Generation is responsible for operation of the Peach Bottom Units.

        Concurrently with the execution of the merger agreement by Exelon and PSEG, Exelon Generation and PSEG Nuclear entered into an operating services contract relating to the provision of operating services by Exelon Generation in respect of PSEG Nuclear's Salem and Hope Creek nuclear generating facilities. The operating services contract provides that Exelon Generation will provide a chief nuclear officer and other key personnel to oversee daily plant operations at the Hope Creek and Salem nuclear generating facilities and to implement the Exelon Nuclear Management Model, which defines practices that Exelon has used to manage its own nuclear performance improvement program. Until completion of the merger, PSEG Nuclear will continue as the license holder with exclusive legal authority to operate and maintain the facilities, will retain responsibility for management oversight and will have full authority with respect to the marketing of its share of the output from the nuclear generating facilities. Exelon Generation will be entitled to receive reimbursement of its costs in discharging its obligations, an annual operating services fee and incentive fees based on attainment of goals relating to safety, capacity factors of the plants and operation and maintenance expenses. The operating services contract has a term of two years, subject to earlier termination in certain events upon prior notice, including any termination of the merger agreement. In the event of termination, Exelon Generation will continue to provide services under the operating services contract for a transition period of at least 180 days and up to two years at the election of PSEG Nuclear. This period may be further extended by PSEG Nuclear for up to an additional 12 months if PSEG Nuclear determines that additional time is necessary to complete required activities during the transition period.

        The foregoing description of the operating services contract is qualified in its entirety by reference to the full text of the operating services contract which is filed as an exhibit to Exelon's Current Report on Form 8-K filed with the SEC on December 21, 2004.

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Accounting Treatment

        The merger will be accounted for as a purchase by Exelon under accounting principles generally accepted in the United States. Under the purchase method of accounting, the assets and liabilities of PSEG will be recorded, as of completion of the merger, at their respective fair values and added to those of Exelon. The reported financial condition and results of operations of Exelon issued after completion of the merger will reflect PSEG's balances and results after completion of the merger, but will not be restated retroactively to reflect the historical financial position or results of operations of PSEG. Following completion of the merger, the earnings of the combined company will reflect purchase accounting adjustments, including increased amortization and depreciation expense for acquired assets.

Material United States Federal Income Tax Consequences of the Merger

        General.    The following discussion addresses the material United States federal income tax consequences of the exchange of shares of PSEG common stock for shares of Exelon common stock pursuant to the merger. This discussion, insofar as it relates to United States federal income tax law and legal conclusions with respect thereto, represents the opinion of each of Sidley Austin Brown & Wood LLP, legal counsel to Exelon, and Pillsbury Winthrop Shaw Pittman LLP, legal counsel to PSEG. The opinions of counsel are based, in part, upon customary written factual representations received from Exelon and PSEG, which factual representations counsel has assumed to be true and correct.

        The following discussion is not binding on the IRS. It is based on the Internal Revenue Code, applicable United States Treasury regulations, administrative interpretations and court decisions, each as in effect as of the date of this joint proxy statement/prospectus and all of which are subject to change, possibly with retroactive effect. The tax consequences under foreign laws, United States state and local laws and United States federal laws other than United States federal income tax laws are not addressed.

        This discussion addresses only those holders of shares of PSEG common stock that hold their shares as capital assets and does not address all aspects of United States federal income taxation that might be relevant to a holder of shares of PSEG common stock in light of that shareholder's particular circumstances or to a shareholder subject to special rules, such as:

        If a partnership holds shares of PSEG common stock, the United States federal income tax treatment of a partner generally will depend on the status of the partner and the activities of the

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partnership. Partners of a partnership that holds shares of PSEG common stock should consult their tax advisors.

        Holders of shares of PSEG common stock are urged to consult their tax advisors as to the specific tax consequences to them of the merger, including the applicability and effect of federal, state, local and foreign income and other tax laws in light of their particular circumstances.

        United States Federal Income Tax Consequences of the Merger.    Each of Sidley Austin Brown & Wood LLP, legal counsel to Exelon, and Pillsbury Winthrop Shaw Pittman LLP, legal counsel to PSEG, has delivered its opinion which provides that the merger will be treated for United States federal income tax purposes as a "reorganization" within the meaning of Section 368(a) of the Internal Revenue Code and that each of Exelon and PSEG will be a party to the reorganization within the meaning of Section 368(b) of the Internal Revenue Code. Assuming that the foregoing opinions are correct, the following are the material United States federal income tax consequences of the exchange of shares of PSEG common stock pursuant to the merger:


        It is a condition to the obligation of each of Exelon and PSEG to complete the merger that, at the closing of the merger, it receive a separate opinion of Sidley Austin Brown & Wood LLP, legal counsel to Exelon, and Pillsbury Winthrop Shaw Pittman LLP, legal counsel to PSEG, respectively (or, in either case, another law firm of national standing), substantially to the same effect as the opinions described above. Neither Exelon nor PSEG intends to waive this condition.

        Each of the opinions described above is or will be based, in part, on customary assumptions and representations that have been or will be received from Exelon and PSEG, including those contained in the merger agreement and in certificates of officers of Exelon and PSEG, each of which must be accurate as of the effective time of the merger. If any of those assumptions or representations is inaccurate as of the effective time of the merger, the tax consequences of the merger could differ materially from those described in this joint proxy statement/prospectus.

        Opinions of counsel neither bind the IRS or any court, nor preclude the IRS from adopting a contrary position. No ruling has been or will be sought from the IRS on the tax consequences of the

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merger, and no assurance can be given that the IRS will not take, or that a court will not sustain, a position contrary to any of the tax consequences set forth above.

        This discussion does not address tax consequences that may vary with, or are contingent on, individual circumstances. In addition, it does not address any non-income tax or any foreign, state or local tax consequences of the merger. Accordingly, we urge each holder of shares of PSEG common stock to consult the holder's tax advisor to determine the particular federal, state, local or foreign income or other tax consequences of the merger to that shareholder.

Regulatory Matters Relating to the Merger

General

        To complete the merger, we need to obtain approvals or consents from, or make filings with a number of United States federal and state public utility, antitrust and other regulatory authorities as well as authorities in various foreign jurisdictions. The material United States federal and state approvals, consents and filings are described below. Additional approvals, including the approval of various foreign governmental authorities which may be required in connection with the indirect transfer of PSEG Global, may be required to complete the merger. We have also made it a condition to each party's obligation to complete the merger that certain orders or approvals not required by law are obtained. These approvals are collectively referred to in this joint proxy statement/prospectus as the "required statutory approvals."

        It is a condition to consummation of the merger that "final orders" are obtained for these approvals and that such orders do not constitute "burdensome orders" (see "The Merger Agreement—Covenants" for a description of these terms). The merger agreement provides for a regulatory approval team to formulate the approach with respect to obtaining these approvals. The composition and authority of the regulatory approval team is described in greater detail under "The Merger Agreement—Covenants."

        While we believe that we will receive the required statutory approvals and other clearances for the merger, there can be no assurance as to the timing of these approvals and clearances or our ability to obtain these approvals and clearances on satisfactory terms or otherwise. There can be no assurance that any of these approvals will be obtained or, if obtained, will not contain terms or conditions that could reasonably be expected to have a material adverse effect on the combined company following completion of the merger. Based on the current status of the regulatory approval process, the parties expect that, assuming all other conditions to completion of the merger are satisfied, the merger should be completed in the first quarter of 2006 if the regulatory proceedings before the New Jersey Board of Public Utilities and the Pennsylvania Public Utility Commission are settled and approved before the dates on which those state authorities are expected to rule on the merger in the absence of settlement, as discussed below. If early settlements are not reached and approved, then the parties expect that, assuming all other conditions are satisfied, the merger should be completed in the second quarter of 2006. If FERC were to hold a hearing on the application relating to the merger, the anticipated closing would be extended into mid-2006 or perhaps later.

State Approvals

        New Jersey Board of Public Utilities.    As a utility in the State of New Jersey, PSE&G is subject to the jurisdiction of the New Jersey Board of Public Utilities. Under Section 48:2-51.1 of New Jersey's public utility law, the NJBPU's approval is required in connection with the indirect transfer of the capital stock of PSE&G resulting from the merger. In considering the merger, the NJBPU is required to evaluate the impact of the merger in four areas:

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        On February 4, 2005, Exelon and PSE&G made the initial filing of their joint application with the NJBPU for approval of the indirect transfer of the capital stock of PSE&G resulting from the merger. On April 5, 2005, the administrative law judge in the proceeding before the NJBPU issued a prehearing order establishing a timetable for the regulatory approval process in New Jersey. The order provides for the administrative law judge to issue an initial decision by February 26, 2006. Thereafter, pursuant to the provision of the New Jersey Administrative Procedure Act, a decision of the full NJBPU can be expected by approximately March 23, 2006. The procedural schedule resulted from an agreement among Exelon, PSEG, the NJBPU staff, and the New Jersey Ratepayer Advocate pertaining to the procedural schedule to be followed during the course of the administrative process before the NJBPU.

        In addition, while not required by law to complete the merger, Exelon and PSEG have made it a condition to the merger that PSE&G receive an order from the NJBPU allowing PSE&G to defer certain pension and other post-retirement benefit expenses that will be recognized in connection with the purchase accounting treatment of the merger, and that provides that PSE&G's rate recovery of pension and other post-retirement benefits will be calculated consistently with recovery of such amounts in the absence of the merger. For a description of this matter, see "Risk Factors—Risks Relating to the Merger—The combined company may be unable to obtain permission from the NJBPU to recover PSE&G's pension and other post-retirement benefit expenses, which could have an adverse effect on its cash flow and results of operations." On February 4, 2005, Exelon and PSE&G made the initial filing of their joint application with the NJBPU to obtain the order. The schedule for receiving this order is the same as that for the NJBPU's ruling on the merger.

        New Jersey Department of Environmental Protection.    Subsidiaries of PSEG own properties in New Jersey that may be subject to the New Jersey Industrial Site Recovery Act. The indirect transfer of those properties in connection with the merger may require approval by the NJDEP under ISRA. It is a condition to the completion of the merger that it be determined ISRA does not apply to the transfers or that the parties otherwise comply with the requirements of ISRA. The parties filed their application for a letter of non-applicability on March 31, 2005.

        New York Public Service Commission.    As an owner of generation facilities in the State of New York, a subsidiary of PSEG Power is subject to the jurisdiction of the New York Public Service Commission. Under Section 70 of the New York Public Service Law, the NYPSC's written consent is required in connection with the indirect transfer of ownership interests in such subsidiary of PSEG Power in connection with the merger. Under Section 70 of the New York Public Service Law, the NYPSC must determine whether the merger is in the public interest. The parties filed their application for approval with the NYPSC on March 16, 2005.

        Pennsylvania Public Utility Commission.    PECO and PSE&G are subject to the jurisdiction of the Pennsylvania Public Utility Commission. The issuance to each of PECO and PSE&G of a certificate of public convenience and necessity by the PPUC may be required as a result of the indirect transfer of the capital stock of PSE&G in connection with the merger under Chapters 11, 22 and 28 of the Public Utility Code of Pennsylvania. The standard for approval is whether the transaction is necessary and proper for the service, accommodation, convenience or safety of the public. This standard has been applied by the PPUC to require that applicants demonstrate that the transaction will affirmatively promote the service, accommodation, convenience or safety of the public in some substantial way. In

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addition, under provisions enacted as part of Pennsylvania's electric and natural gas restructuring legislation, the PPUC must consider:

        On February 4, 2005, PECO and PSE&G made the initial filing of their joint application for approval by the PPUC under the Public Utility Code of Pennsylvania or a determination that Chapters 11, 22 and 28 are not applicable to the merger. On March 30, 2005, the administrative law judge in the proceeding before the PPUC issued a prehearing order establishing a timetable for the regulatory approval process in Pennsylvania, which provides for the administrative law judge to issue an initial decision on November 7, 2005. Thereafter, a decision of the full PPUC can be expected in December 2005 or January 2006. The procedural schedule resulted from an agreement among Exelon, PSEG, and numerous parties in the case, including the PPUC Office of Trial Staff and the Pennsylvania Office of Consumer Advocate.

        Illinois Commerce Commission.    ComEd has filed a notice with respect to the merger with the Illinois Commerce Commission. On February 23, 2005, at a meeting of its Electricity Policy Committee, the ICC's General Counsel confirmed that it does not have jurisdiction over the matter and its approval is not required for the merger.

        Connecticut.    As the owner of generation stations in the State of Connecticut, PSEG Power Connecticut LLC, an indirect subsidiary of PSEG Power, is subject to the jurisdiction of the Connecticut Siting Council under Connecticut public utility laws and the Connecticut Department of Environmental Protection under Connecticut environmental law. The indirect transfer of the ownership interests in these entities may require the approval of the Connecticut Department of Environmental Protection under Connecticut environmental law and will require the approval of the Connecticut Siting Council under Connecticut public utility laws. The parties received approval on March 16, 2005 from the CSC.

Public Utility Holding Company Act

        Exelon is a registered holding company under PUHCA subject to the jurisdiction of the SEC thereunder. Exelon's acquisition of 100% of the common stock of PSEG will require approval by the SEC under Sections 9 and 10 of PUHCA.

        Under the applicable standards of PUHCA, the SEC is directed to approve the merger unless it finds that:

        To approve the merger, the SEC must also find that the merger complies with state law, tends towards the economic and efficient development of an integrated public utility system and otherwise

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conforms to PUHCA's integration and corporate simplification standards. The parties filed their application with the SEC on March 16, 2005.

        In addition, SEC approval may be required under PUHCA in order for Exelon to own certain assets of PSEG Energy Holdings following completion of the merger.

Nuclear Regulatory Commission

        PSEG Power holds a NRC operating license for its Salem and Hope Creek nuclear generating facilities. This license authorizes PSEG Power to own and/or operate its nuclear generating facilities. 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 of any license unless the NRC finds that the transfer complies with the Atomic Energy Act and consents to the transfer. Therefore, the consent of the NRC is required for the transfer of control pursuant to the merger of the license held by PSEG Power. The NRC will consent to the transfer if it determines that:

        The parties filed their application with the NRC on March 8, 2005.

Federal Energy Regulatory Commission

        Each of Exelon and PSEG has public utility subsidiaries subject to the jurisdictions of FERC under the Federal Power Act. Section 203 of the Federal Power Act provides that no public utility may sell or otherwise dispose of its jurisdictional facilities, directly or indirectly merge or consolidate its facilities with those of any other person, or acquire any security of any other public utility, without first having obtained authorization from FERC.

        FERC has stated in its 1996 utility merger policy statement that, in analyzing a merger under Section 203, it will evaluate the following criteria:


        On February 4, 2005 Exelon and PSEG made the initial filing of their application for approval with FERC. Included in the filing was the parties' market concentration mitigation plan. The market concentration mitigation plan submitted on February 4 contemplated (1) the divestiture of fossil fuel generating facilities with 2,900 MW of generating capacity and (2) the transfer of control of 2,600 MW of baseload nuclear capacity through either long-term firm baseload energy sales contracts or an annual auction referred to in this joint proxy statement/prospectus as a virtual divestiture. Approximately 50 intervenors, including governmental, consumer, industry and policy groups, intervened in the proceedings before FERC, approximately 20 of the intervenors filed protests, and several of those parties requested that FERC hold hearings on the proposed merger. On May 9, 2005, Exelon and PSEG filed a supplement to their February 4 filing with FERC, responding to objections and concerns raised by the intervenors. In the supplementary filing on May 9, Exelon and PSEG proposed that if FERC approved the merger without an evidentiary hearing, Exelon and PSEG would divest at least 1,100 MW of additional fossil fuel generation capacity. Exelon and PSEG also proposed to invest

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approximately $25 million in new transmission projects over five years if the merger is approved by FERC without a hearing. Exelon and PSEG also proposed to eliminate restrictions on which entities may purchase divested generation and reduce the proposed period of time allowed for divestiture following the closing of the merger, and proposed an independent market monitor for the virtual divestitures. The divestitures of generation proposed in the May 9 filing with FERC, in combination with the 2,900 MW of fossil capacity divestiture and the 2,600 MW of baseload nuclear capacity virtual divestiture proposed in the February 4 filing, results in a total of 6,600 MW of capacity proposed for mitigation. Exelon and PSEG have not offered to divest any nuclear generating facilities and do not anticipate doing so.

        Exelon and PSEG currently expect that the FERC schedule relating to approval under Section 203 will not impact the anticipated timing of closing of the merger. However, as indicated above, several intervenors in the FERC proceeding, including the NJBPU, have requested that FERC hold hearings on the application relating to the merger. If FERC were to hold hearings with respect to the merger the approval process would extend the anticipated closing into mid-2006 or perhaps later.

        In addition, while not required by the Federal Power Act, Exelon and PSEG have made it a condition to completion of the merger that FERC approve under Section 205 of the Federal Power Act the sale by the public utility subsidiaries of the combined company of wholesale power and related services at market-based rates.

Antitrust

        Under the provisions of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, the merger cannot be completed until both Exelon and PSEG file a notification of the proposed transaction with the Antitrust Division of the United States Department of Justice and the Federal Trade Commission and the specified waiting periods have expired or been terminated. The parties filed the required notification on March 4, 2005. The parties have been informed that the Antitrust Division of the DOJ will review the case and FTC will not. On March 23, Exelon and PSEG received a letter from the Antitrust Division of the DOJ requesting additional information pertaining to the merger. Exelon and PSEG are in the process of responding to the request for additional information. The formal request for additional, specific information supplements information already provided in the original HSR filing. The DOJ request extends the waiting period under HSR, and the period of DOJ review of the proposed merger, for a period of 30 days after Exelon and PSEG provide the information requested by DOJ. The extension of the HSR waiting period is not expected to impact the anticipated closing date of the merger.

        At any time before the merger is completed, either the Antitrust Division, or the FTC could challenge or seek to block the merger under the antitrust laws, as it deems necessary or desirable in the public interest. Other competition promoting agencies with jurisdiction over the merger could also initiate action to challenge or block the merger. In addition, in some jurisdictions, a competitor, customer or other third party could initiate a private action under the antitrust laws challenging or seeking to enjoin the merger, before or after it is completed. Based upon an examination of information available relating to the businesses in which the companies are engaged, Exelon and PSEG believe, with the market concentration mitigation plan they have proposed, that completion of the merger will not violate United States or applicable foreign antitrust laws. However, Exelon and PSEG cannot be sure that a challenge to the merger will not be made or that, if a challenge is made, Exelon and PSEG will prevail.

        The merger may also be subject to review by the governmental authorities of various other jurisdictions under the antitrust laws of those jurisdictions.

        There can be no assurance that the reviewing authorities will permit the applicable statutory waiting periods to expire or that the reviewing authorities will terminate the applicable statutory waiting

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periods at all or without restrictions or conditions that would have a material adverse effect on the combined company if the merger were completed. These restrictions and conditions could include mandatory licenses, sales or other dispositions of assets, divestitures, or the holding separate of assets, businesses or PSEG capital stock.

IRS Private Letter Ruling Regarding Nuclear Decommissioning Trust Funds

        United States Treasury regulations generally provide for the nonrecognition of gain or loss for United States federal income tax purposes with respect to the transfer of certain decommissioning trust funds maintained by nuclear power plant owners in connection with the transfer of an interest in a nuclear power plant. The precise application of these Treasury Regulations in the context of the merger, however, is not free from doubt. Therefore, Exelon and PSEG have agreed to seek a ruling from the IRS confirming that no gain or loss will be recognized for United States federal income tax purposes with respect to the transfer of PSEG's decommissioning trust funds as a result of the merger.

Corporate Restructuring

        Subject to receipt of necessary regulatory approvals, Exelon and PSEG intend to pursue a restructuring of their corporate organizations after completion of the merger. In general, this restructuring will involve:

        By virtue of the merger, PSEG Energy Holdings will become a direct subsidiary of the combined company.

        The companies may modify these restructuring plans to adapt to changing regulatory and competitive conditions. Completion of the merger is not conditioned on the consummation of, or receipt of regulatory approval for, any portion of these corporate restructuring plans.

Appraisal Rights

        Neither Exelon nor PSEG shareholders are entitled to appraisal rights in connection with the merger under the Pennsylvania Business Corporation Law or the New Jersey Business Corporation Act, respectively.

Federal Securities Laws Consequences; Stock Transfer Restriction Agreements

        All shares of Exelon common stock received by PSEG shareholders pursuant to the merger will be freely transferable, except that shares of Exelon common stock received by persons who are deemed to be "affiliates" of PSEG under the Securities Act of 1933, as amended, at the time of the PSEG annual meeting may be resold by them only in transactions permitted by Rule 145 under the Securities Act of 1933 or as otherwise permitted under the Securities Act of 1933, as amended. Persons who may be deemed to be affiliates of PSEG for such purposes generally include individuals or entities that control, are controlled by or are under common control with, PSEG, as the case may be, and include directors and certain executive officers of PSEG. The merger agreement requires that PSEG use reasonable best efforts to cause each affiliate to execute a written agreement to the effect that such persons will not

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offer, sell or otherwise dispose of any of the shares of Exelon common stock issued to them pursuant to the merger in violation of the Securities Act of 1933, as amended, or the related SEC rules and regulations promulgated thereunder.

        The registration statement of which this joint proxy statement/prospectus is a part does not cover any resales of the Exelon common stock to be received by the shareholders of PSEG upon completion of the merger, and no person is authorized to make any use of this joint proxy statement/prospectus in connection with any such resale.

Listing on the New York Stock Exchange; Delisting and Deregistration of PSEG Common Stock

        It is a condition to the merger that the shares of Exelon common stock issuable pursuant to the merger be approved for listing on the New York Stock Exchange, subject to official notice of issuance. Although not a condition to completion of the merger, Exelon currently intends to list the shares of Exelon common stock issued pursuant to the merger on the Chicago Stock Exchange and the Philadelphia Stock Exchange. If the merger is completed, PSEG common stock will cease to be listed on the New York Stock Exchange and its shares will be deregistered under the Securities Exchange Act of 1934, as amended.

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THE MERGER AGREEMENT

        The following is a summary of the material terms of the merger agreement. This summary does not purport to describe all the terms of the merger agreement and is qualified by reference to the complete merger agreement which is attached as Annex A to this joint proxy statement/prospectus and incorporated by reference. All shareholders of Exelon and PSEG are urged to read the merger agreement carefully and in its entirety to understand the rights and obligations of Exelon and PSEG under the merger agreement.

        The text of the merger agreement has been included to provide you with information regarding its terms. The terms of the merger agreement (such as the representations and warranties) are intended to govern the contractual rights and relationships, and allocate risks, between the parties in relation to the merger. The merger agreement contains representations and warranties Exelon and PSEG made to each other as of specific dates. The representations and warranties were negotiated between the parties with the principal purpose of setting forth their respective rights with respect to their obligation to complete the merger and may be subject to important limitations and qualifications as set forth therein, including a contractual standard of materiality different from that generally applicable under federal securities laws.

General

        The merger agreement provides for the merger of PSEG with and into Exelon, with Exelon continuing as the surviving corporation.

Closing Matters

        Closing.    Unless the parties agree otherwise, the closing of the merger will take place not later than the second business day after all closing conditions have been satisfied or waived. See "—Conditions" below for a more complete description of the conditions that must be satisfied or waived prior to closing.

        Completion of the Merger.    As soon as practicable after the satisfaction or waiver of the conditions to the merger, Exelon and PSEG will file articles of merger with the Department of State of Pennsylvania in accordance with the relevant provisions of the Pennsylvania Business Corporation Law and a certificate of merger with the Department of Treasury of New Jersey in accordance with the relevant provisions of New Jersey Business Corporation Act. The merger will become effective when the articles of merger and certificate of merger are filed or at such later time as Exelon and PSEG agree and specify in the articles of merger and the certificate of merger. The articles of merger and the certificate of merger will provide that Exelon's articles of incorporation will be amended upon completion of the merger so that its name is Exelon Electric & Gas Corporation.

        We currently expect that the merger will be completed in either the first or second quarter of 2006 depending on whether the parties are able to reach early settlements in the NJBPU and PPUC proceedings. However, we cannot predict the actual timing. See "The Merger—Regulatory Matters Relating to the Merger—General."

Consideration to be Received Pursuant to the Merger; Treatment of Stock Options and PSEG Equity-Based Awards

        The merger agreement provides that, upon completion of the merger:

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        As of April 30, 2005, there were 5,796,645 shares of PSEG common stock subject to outstanding PSEG stock options, with a weighted average exercise price of $40.48, of which stock options with respect to 4,147,582 shares of PSEG common stock were vested as of that date. Of the remaining 1,649,133 unvested PSEG stock options, options with respect to 901,596 shares of PSEG common stock, with a weighted average exercise price of $36.55, are scheduled to vest in accordance with their terms prior to December 31, 2005. Of the 747,537 balance of unvested PSEG stock options, options with respect to 435,429 shares of PSEG common stock, with a weighted average exercise price of $42.79, will vest as a result of the approval by PSEG shareholders of the merger agreement or the completion of the merger.

Exchange of Certificates Pursuant to the Merger

        Before completion of the merger, Exelon will appoint Equiserve, or another entity selected by Exelon and reasonably satisfactory to PSEG, as exchange agent to handle the exchange of PSEG stock certificates for the certificates representing shares of Exelon common stock and all cash and property to which PSEG shareholders may be entitled relating to dividends and distributions or cash in lieu of fractional shares. As soon as practicable after completion of the merger, the exchange agent will send a letter of transmittal to each former PSEG shareholder who holds one or more stock certificates. The letter of transmittal will contain instructions explaining the procedure for surrendering PSEG stock certificates. You should not return stock certificates with the enclosed proxy card.

        PSEG shareholders who surrender their stock certificates, together with a properly completed letter of transmittal, will receive a certificate representing that number of shares of Exelon common stock into which their shares of PSEG common stock were converted pursuant to the merger.

        After completion of the merger, each certificate that previously represented shares of PSEG common stock will only represent the right to receive:

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        Exelon will not pay dividends declared with a record date on or after completion of the merger to any holder of any PSEG stock certificates until the holder surrenders PSEG stock certificates. However, once those certificates are surrendered, Exelon will pay to the holder, without interest, upon the earlier of such surrender and the payment date with respect to such dividends, any dividends that have been declared and paid after the closing date of the merger on the shares into which those PSEG shares have been converted.

Fractional Shares

        No fractional shares of Exelon common stock will be issued pursuant to the merger. Instead, the exchange agent will pay each of those PSEG shareholders who would otherwise have been entitled to a fractional share of Exelon common stock an amount in cash determined by multiplying the last reported sale price per share of Exelon common stock on the New York Stock Exchange on the date of completion of the merger by the fractional interest of a share of Exelon common stock to which such holder would otherwise be entitled.

Listing of Exelon Stock

        Approval for listing on the New York Stock Exchange of the shares of Exelon common stock issuable to PSEG shareholders pursuant to the merger, subject only to official notice of issuance, is a condition to the obligations of Exelon and PSEG to complete the merger.

Covenants

        We have each undertaken certain covenants in the merger agreement concerning the conduct of our respective businesses from the date the merger agreement was signed until the earlier of the date of completion of the merger and the date of the termination of the merger agreement. The following summarizes the more significant of these covenants:

        No Solicitation.    PSEG has agreed that it will not and will not permit its subsidiaries or its or any of its subsidiaries respective officers, directors, employees, advisors, representatives or agents to:

        Under the merger agreement, PSEG agreed to cease all existing activities, discussions or negotiations as of the date of the merger agreement with any third parties with respect to any takeover proposal. PSEG also agreed to notify Exelon as promptly as practicable and in any event within 18 hours after it receives a takeover proposal or any information is sought with respect to a takeover proposal and to inform Exelon of the proposed material terms and conditions of any such proposal and the identity of the party making such proposal. PSEG has further agreed to keep Exelon informed on a current basis of the status and details of any takeover proposal or inquiry. PSEG has also agreed to provide Exelon with copies of all written materials delivered to PSEG by the party making the takeover proposal. PSEG also agreed to enforce all standstill agreements to which it or any of its subsidiaries is a party.

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        However, prior to the PSEG annual meeting, PSEG is permitted to participate in negotiations with, and furnish information (including non-public information) with respect to PSEG to, a third party making an unsolicited bona fide written takeover proposal, if:

        Additionally, the provision described above does not restrict PSEG from complying with Rules 14d-9 or 14e-2 under the Exchange Act. However, compliance with such rules will not limit or modify the effect that any action taken pursuant to such rules has under the merger agreement.

        A "takeover proposal" means any inquiry, offer or proposal by any third party (other than Exelon and its affiliates) relating to any:

        A "superior proposal" means any unsolicited bona fide written offer to acquire, directly or indirectly, for consideration consisting of cash and/or securities:

and otherwise on terms the PSEG board of directors determines in its reasonable good faith judgment, after consultation with PSEG's financial advisors, to be more favorable to PSEG's shareholders from a financial point of view than the transactions contemplated by the merger agreement (including any proposal to amend the merger agreement) which is not conditioned on any financing and is reasonably likely to receive all required governmental approvals in the form of final orders by June 20, 2006 (as

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may be extended) and is otherwise reasonably capable of being completed on the terms proposed (taking into account the ability to deliver any consideration to be paid in such transaction).

        Board of Directors' Covenant to Recommend.    PSEG has agreed that its board of directors will recommend the approval of the merger agreement to PSEG shareholders and neither such board of directors nor a committee thereof will:

except pursuant to its right to terminate the merger agreement as described under the heading "—Termination of Merger Agreement."

        Similarly, Exelon has agreed that its board of directors will recommend the issuance of shares of Exelon common stock as contemplated by the merger agreement and such board of directors will not withdraw, qualify or modify in a manner adverse to PSEG, such recommendation or its approval of the share issuance; the merger agreement and the merger or the Exelon board of directors' declaration that the merger agreement and the merger are advisable, fair to and in the best interests of Exelon and its shareholders, except to the extent that, in the reasonable good faith judgment of Exelon's board of directors failure to so withdraw, qualify or modify its recommendation would violate the fiduciary duties of Exelon's board of directors under applicable law provided that such board of directors may not withdraw, qualify or modify its recommendation after the Exelon annual meeting.

        Operations of Exelon and PSEG Pending Closing.    As explained below, we have each undertaken a separate covenant that places restrictions on ourselves and our respective subsidiaries until either completion of the merger or the termination of the merger agreement.

        Restrictions on Exelon's Business Pending Closing.    In general, until either the closing of the merger or the termination of the merger agreement, Exelon and its subsidiaries are required to carry on their businesses in all material respects in the ordinary course as currently conducted and to use reasonable best efforts to preserve their business organization intact, maintain their material permits, and preserve their relations and goodwill with governmental authorities and with their employees, customers, suppliers, distributors, creditors, lessors, licensors, licensees and others having ongoing business relationships with them to the end that their goodwill and ongoing businesses be unimpaired at the effective time of the merger. Exelon also has agreed that (subject to specified exceptions and except as expressly contemplated by the merger agreement), without the prior written consent of PSEG (which consent will not be unreasonably withheld or delayed), it will not and will not permit any of its subsidiaries to:

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        Restrictions on PSEG's Business Pending Closing.    In general, until either the closing of the merger or the termination of the merger agreement, PSEG and its subsidiaries are required to carry on their businesses in all material respects in the ordinary course as currently conducted and to use reasonable best efforts to preserve their business organization intact, maintain their material permits, and preserve their relations and goodwill with governmental authorities and with their employees, customers, suppliers, distributors, creditors, lessors, licensors, licensees and others having ongoing business relationships with them to the end that their goodwill and ongoing businesses be unimpaired at the effective time of the merger. PSEG also has agreed that (subject to specified exceptions and except as expressly contemplated by the merger agreement), without the prior written consent of Exelon (which

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consent will not be unreasonably withheld or delayed), it will not and will not permit any of its subsidiaries to:

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        Reasonable Best Efforts Covenant.    We have agreed to cooperate with each other and to use our (and cause our respective subsidiaries to use) reasonable best efforts to take or cause to be taken all actions and do or cause to be done all things necessary, proper or advisable under the merger agreement and applicable laws to complete the merger and the other transactions contemplated by the merger agreement as soon as practicable, including obtaining as promptly as practicable all required statutory approvals in such a form as they would not constitute a "burdensome order" as such term is described below.

        However, neither Exelon nor PSEG nor any of their affiliates will be required to divest or hold separate or otherwise take any action or commit to take any action that limits its freedom with respect to its business or the business of Exelon after giving effect to the merger, unless such action would not constitute a burdensome action.

        A "burdensome action" is any action that:

        Exelon and PSEG submitted their market concentration mitigation plan, including the "Appendix A" analyses for baseload capacity and peaking and mid-merit capacity, on February 4, 2005. On May 9, 2005, Exelon and PSEG filed a supplement to their February 4 filing, responding to objections and concerns raised by intervenors. In the supplementary filing Exelon and PSEG proposed an increase in the generation capacity that they are willing to divest if FERC approves the merger

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without a hearing. See "The Merger—Regulatory Matters Relating to the Merger" for a description of this filing.

        A "burdensome order" is any order that requires Exelon or PSEG to take or agree to take a burdensome action or an order that otherwise constitutes a burdensome action.

        A "final order" is any action by the relevant governmental authority 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.

        Pursuant to the merger agreement, Exelon and PSEG have formed a regulatory approval team to formulate the approach to be taken with respect to obtaining the required statutory approvals. The team's chair is Exelon's Executive Vice President, Governmental & Environmental Affairs and Policy and its vice chair is PSEG's Senior Vice President and General Counsel. The regulatory approval team has three committees: an Illinois committee, a Pennsylvania committee and a New Jersey committee. The committees have primary responsibility for formulating the approach to be taken with respect to obtaining the required statutory approvals in their respective jurisdictions. The entire regulatory approval team, and not a committee thereof, will have primary responsibility for formulating the approach to be taken with respect to obtaining the other state and all federal required statutory approvals.

        Neither Exelon nor PSEG will commit to make any concessions, agreements or undertakings with any governmental authority or third party in connection with obtaining the required statutory approvals unless such concession, agreement or undertaking has been approved by the regulatory approval team. If the chair and the vice-chair of the regulatory approval team do not agree on an action to be taken, they will refer the matter to the Chief Executive Officers of Exelon and PSEG. If the Chief Executive Officers do not agree, the committee or team with primary responsibility for obtaining such approval will decide which of the actions presented to the Chief Executive Officers will be taken so long as such action is otherwise consistent with the terms of the merger agreement.

        Employee Matters.    In the merger agreement, Exelon has agreed that, following the merger, it will:

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        Indemnification and Insurance.    Subject to applicable law, Exelon has agreed that after completion of the merger:


Other Covenants and Agreements

        Expenses.    We have each agreed to pay our own costs and expenses incurred in connection with the merger and the merger agreement, with the exception that we will each pay 50% of any expenses incurred in connection with the parties' filing under the Hart-Scott-Rodino Act, the fees of Booz Allen Hamilton Inc. and printing and filing with the SEC the registration statement of which this joint proxy statement/prospectus forms a part.

        Election to Exelon Board of Directors.    Exelon has agreed that immediately after completion of the merger, it will increase the total number of members on the Exelon board of directors to 18 and appoint to its board of directors six directors of PSEG as designated by the Chief Executive Officer of PSEG to be allocated evenly among Class I, Class II and Class III of the Exelon board of directors. These appointments will be subject to applicable laws and regulations, including the Securities Exchange Act of 1934, as amended, and the New York Stock Exchange.

        Adoption of Amended and Restated By-laws.    Exelon has agreed that effective upon completion of the merger, it will adopt Amended and Restated By-laws to provide for certain matters relating to the Exelon board of directors, the Chief Executive Officer and headquarters for the three years following completion of the merger, referred to in this joint proxy statement/prospectus as the "transition period," including the following:

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        The proposed arrangement described above relating to the headquarters of subsidiaries and divisions of the combined company could be changed by agreement of Exelon and PSEG prior to the completion of the merger, if approved by the companies' boards of directors. However, the headquarters of PSE&G, PECO and ComEd will remain, respectively, in Newark, Philadelphia and Chicago. In addition, the parties expect that the headquarters of another significant business unit of the combined company will be located in Newark and the headquarters of another significant business unit will be located in southeastern Pennsylvania.

        Agreement to Increase Dividend.    The merger agreement permits each of us to continue to pay regular dividends to our respective shareholders in accordance with our previously announced dividend policies. Exelon has previously indicated it expects to maintain a dividend payout policy of 50% to 60% of earnings. On April 27, 2005, Exelon declared a second quarter dividend for 2005 of $0.40 per share. On January 18, 2005, PSEG increased its first quarter dividend for 2005 to $0.56 per share from $0.55 per share, for an indicated annual dividend increase of $0.04 per share for the year 2005. On April 19, 2005, PSEG declared a second quarter dividend for 2005 of $0.56 per share. For the year 2006, PSEG will continue to evaluate its dividend payment and consider modest increases.

        We have agreed to coordinate dividend declarations and the related record dates and payment dates so that our shareholders will not receive two dividends, or fail to receive one dividend, for any single calendar quarter. Accordingly, prior to completion of the merger, we may coordinate and amend our record dates and payment dates in order to effect this policy.

        In addition, the merger agreement provides that, subject to applicable law and its board of directors fiduciary duties, Exelon will increase its quarterly dividend so that the first dividend paid after

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completion of the merger is equal, on an exchange ratio adjusted basis, to the dividend PSEG shareholders received in the quarter immediately prior to completion of the merger, up to a maximum of $0.47 per share of Exelon common stock. In addition, Exelon has agreed that as close to 30 days prior to the closing date of the merger as reasonably practicable it will inform PSEG of the amount of the dividend it intends to pay in the first quarter following completion of the merger. If this amount is less than the amount described above, PSEG is permitted under the merger agreement to make a one time cash dividend to its shareholders equal to the amount of shortfall, on an exchange ratio adjusted basis.

        PSEG Equity Issuance.    The merger agreement permits PSEG to issue in a public offering shares of PSEG common stock, or securities convertible into or exchangeable for shares of PSEG common stock, with an aggregate initial offering amount to the public of up to $350 million if:

        Other Covenants.    The merger agreement contains certain other covenants, including covenants relating to public announcements and employee communications, access to information, state takeover laws and tax matters.

Representations and Warranties

        The merger agreement contains customary representations and warranties, generally qualified by material adverse effect, made by each of us to the other. The representations and warranties relate to:

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        As used in the merger agreement, the term "material adverse effect" or "material adverse change" means with respect to either Exelon or PSEG, as applicable, any event, effect, change or development (including, in the case of PSEG, with respect to its joint ventures) that, individually or when taken together with all other events, effects, changes or developments, is or would reasonably be expected to be, materially adverse to the financial condition, business, assets, liabilities, operations or results of operations of such company and its subsidiaries, taken as a whole, or has a material adverse effect on its ability to perform its obligations under the merger agreement or consummate the transactions contemplated by the merger agreement by June 20, 2006 (as may be extended). However, to the extent any event, effect, change or development is caused by or results from any of the following, it will not be taken into account in determining whether there has been (or would reasonably be expected to be) a "material adverse effect" or "material adverse change":

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In addition, Exelon and PSEG have agreed that the tax and accounting treatment of certain transactions undertaken by Exelon and PSEG will not be considered to have had a material adverse effect, including those described in "Risk Factors—Risks Relating to the Business of the Combined Company—The Internal Revenue Service might successfully challenge certain leveraged lease transactions entered into by PSEG, which could have a material adverse impact on the combined company's operating results" and "Risk Factors—Risk Relating to the Business of the Combined Company—The IRS might successfully challenge certain tax positions taken by Exelon in connection with certain sale transactions, which could have a material adverse impact on the combined company's operating results."

Conditions

        Our respective obligations to complete the merger are subject to the satisfaction of the following conditions:

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        In addition, individually, our respective obligations to effect the merger are subject to the satisfaction of the following additional conditions:

        Other than the conditions to obtain the regulatory approvals required by law and the shareholder approvals, each of Exelon and PSEG may waive any conditions relating to its obligations to complete the merger. However, the parties do not intend to waive the condition relating to the receipt of the tax opinions referred to above. If it were determined that the merger would not qualify as a tax-free reorganization and Exelon and PSEG were to waive the condition relating to the receipt of the tax opinions described above, Exelon and PSEG would re-solicit their shareholders' vote on the issuance of the shares of Exelon common stock as contemplated by the merger agreement and approval of the merger agreement, respectively.

Termination of Merger Agreement

        Right to Terminate.    The merger agreement may be terminated at any time prior to completion of the merger in any of the following ways:

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        "Parent acquisition transaction" means any transaction or series of transactions involving the acquisition by any third party, directly or indirectly, of more than 50% of the voting power of the outstanding shares of capital stock of Exelon or all or substantially all of the assets of Exelon.

        Termination Fees Payable by PSEG.    PSEG has agreed to pay Exelon a termination fee of $400 million and Exelon's out-of-pocket expenses incurred with respect to the merger agreement and

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the merger up to $40 million if the merger agreement is terminated under one of the following circumstances:

        The termination fee and expenses are required to be paid by PSEG at different times, depending on what provision is used to terminate the merger agreement. If the termination fee becomes payable pursuant to the first or second bullet point above, the fee and expenses are required to be paid to Exelon on the date of the termination of the merger agreement. If the termination fee and expenses become payable pursuant to the third bullet point above, the fee and expenses are required to be paid to Exelon upon the earlier to occur of such acquisition transaction and the entry into such definitive agreement.

        Termination Fees Payable by Exelon.    Exelon has agreed to pay PSEG a fee of $400 million and PSEG's out-of-pocket expenses incurred with respect to the merger agreement and the merger up to $40 million if the merger agreement is terminated by PSEG or Exelon as a result of Exelon entering into a definitive agreement with respect to a parent acquisition transaction or the occurrence of any parent acquisition transaction.

        Exelon has also agreed to pay up to $40 million of PSEG's out-of-pocket expenses incurred with respect to the merger agreement and the merger because the merger agreement is terminated by PSEG pursuant to the first hash mark under the description of PSEG's rights to terminate the merger agreement relating to a change or withdrawal of Exelon's board of directors' recommendation.

        The termination fee and/or expenses are required to be paid by Exelon to PSEG on the date of termination of the merger agreement.

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Amendments, Extensions and Waivers

        Amendments.    The merger agreement may be amended by the parties at any time prior to completion of the merger, except that any amendment after a shareholders' meeting which requires approval by shareholders may not be made without such approval. All amendments to the merger agreement must be in writing signed by each party.

        Extensions and Waivers.    At any time prior to completion of the merger, either party to the merger agreement may:

        All extensions and waivers must be in writing and signed by the party against whom the extension or waiver is to be effective.

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PRO FORMA FINANCIAL INFORMATION


Exelon
Unaudited Pro Forma Condensed
Consolidated Financial Statements

        The following Exelon Unaudited Pro Forma Condensed Consolidated Financial Statements are based on the historical consolidated financial statements of Exelon after giving effect to and presenting as discontinued operations:

        The Unaudited Pro Forma Condensed Consolidated Statement of Operations for the year ended December 31, 2004, gives effect to the disposition of Sithe and presents as discontinued operations the results of operations of Sithe for the period from April 1, 2004 through December 31, 2004, and gives effect to the dispositions of qualifying Enterprises' businesses and AllEnergy and presents as discontinued operations the results of operations and gains or losses on dispositions for each of the years ended December 31, 2002, 2003 and 2004.

        The Unaudited Pro Forma Condensed Consolidated Balance Sheet as of December 31, 2004, gives effect to the January 2005 disposition of Sithe.

        The historical financial information of Exelon as of and for the years ended December 31, 2002, 2003 and 2004 is derived from the audited financial statements of Exelon, but does not include all disclosures required by accounting principles generally accepted in the United States ("GAAP").

139



Exelon
Unaudited Pro Forma Condensed Consolidated Statement of Operations
For the Year Ended December 31, 2002
(in millions, except per share data)

 
  Exelon
Historical

  Pro Forma
Adjustments for Discontinued Operations

  Exelon
Adjusted for Discontinued Operations

 
OPERATING REVENUES   $ 14,955   $ (895 ) $ 14,060  
   
 
 
 
OPERATING EXPENSES                    
  Purchased power and fuel     5,262     (172 )   5,090  
  Operating and maintenance     4,345     (690 )   3,655  
  Depreciation and amortization     1,340     (10 )   1,330  
  Taxes other than income taxes     709     (4 )   705  
   
 
 
 
    TOTAL OPERATING EXPENSES     11,656     (876 )   10,780  
   
 
 
 
OPERATING INCOME     3,299     (19 )   3,280  
   
 
 
 
  Other income and deductions:                    
    Interest expense     (966 )   11     (955 )
    Distributions on preferred securities of subsidiaries     (45 )       (45 )
    Equity in earnings of unconsolidated affiliates     80     6     86  
    Other, net     304     23     327  
   
 
 
 
      TOTAL OTHER INCOME AND DEDUCTIONS     (627 )   40     (587 )
   
 
 
 
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND MINORITY INTEREST     2,672     21     2,693  
    Income tax provision     998     2     1,000  
    Minority interest income (expense), net of tax     (4 )   1     (3 )
   
 
 
 
INCOME FROM CONTINUING OPERATIONS   $ 1,670   $ 20   $ 1,690  
   
 
 
 
Weighted average shares of common stock outstanding:                    
  Basic     645           645  
  Diluted     649           649  
Income per share from continuing operations:                    
  Basic   $ 2.59         $ 2.62  
  Diluted     2.57           2.60  

140



Exelon
Unaudited Pro Forma Condensed Consolidated Statement of Operations
For the Year Ended December 31, 2003
(in millions, except per share data)

 
  Exelon Historical
  Pro Forma Adjustments
for Discontinued Operations

  Exelon
Adjusted for Discontinued Operations

 
OPERATING REVENUES   $ 15,812   $ (664 ) $ 15,148  
   
 
 
 
OPERATING EXPENSES                    
  Purchased power and fuel     6,375     (181 )   6,194  
  Impairment of Boston Generating, LLC long-lived assets     945         945  
  Operating and maintenance     4,508     (593 )   3,915  
  Depreciation and amortization     1,126     (11 )   1,115  
  Taxes other than income taxes     581     (11 )   570  
   
 
 
 
    TOTAL OPERATING EXPENSES     13,535     (796 )   12,739  
   
 
 
 
OPERATING INCOME     2,277     132     2,409  
   
 
 
 
  Other income and deductions:                    
    Interest expense     (881 )   8     (873 )
    Distributions on preferred securities of subsidiaries     (39 )       (39 )
    Equity in earnings of unconsolidated affiliates     33         33  
    Other, net     (261 )   17     (244 )
   
 
 
 
      TOTAL OTHER INCOME AND DEDUCTIONS     (1,148 )   25     (1,123 )
   
 
 
 
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND MINORITY INTEREST     1,129     157     1,286  
    Income tax provision     331     58     389  
    Minority interest expense, net of tax     (5 )       (5 )
   
 
 
 
INCOME FROM CONTINUING OPERATIONS   $ 793   $ 99   $ 892  
   
 
 
 
Weighted average shares of common stock outstanding:                    
  Basic     651           651  
  Diluted     657           657  
Income per share from continuing operations:                    
  Basic   $ 1.22         $ 1.37  
  Diluted     1.21           1.36  

141



Exelon
Unaudited Pro Forma Condensed Consolidated Statement of Operations
For the Year Ended December 31, 2004
(in millions, except per share data)

 
  Exelon
Historical

  Pro Forma
Adjustments
for Discontinued Operations

  Exelon
Adjusted for Discontinued Operations

 
OPERATING REVENUES   $ 14,515   $ (382 ) $ 14,133  
   
 
 
 
OPERATING EXPENSES                    
  Purchased power and fuel     5,082     (153 )   4,929  
  Operating and maintenance     3,976     (276 )   3,700  
  Depreciation and amortization     1,305     (10 )   1,295  
  Taxes other than income taxes     719     (9 )   710  
   
 
 
 
    TOTAL OPERATING EXPENSES     11,082     (448 )   10,634  
   
 
 
 
OPERATING INCOME     3,433     66     3,499  
   
 
 
 
  Other income and deductions:                    
    Interest expense     (905 )   77     (828 )
    Distributions on preferred securities of subsidiaries     (3 )       (3 )
    Equity in losses of unconsolidated affiliates     (153 )   (1 )   (154 )
    Other, net     140     (77 )   63  
   
 
 
 
      TOTAL OTHER INCOME AND DEDUCTIONS     (921 )   (1 )   (922 )
   
 
 
 
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND MINORITY INTEREST     2,512     65     2,577  
    Income tax provision     692     21     713  
    Minority interest income (expense), net of tax     21     (15 )   6  
   
 
 
 
INCOME FROM CONTINUING OPERATIONS   $ 1,841   $ 29   $ 1,870  
   
 
 
 
Weighted average shares of common stock outstanding:                    
  Basic     661           661  
  Diluted     669           669  
Income per share from continuing operations:                    
  Basic   $ 2.79         $ 2.83  
  Diluted     2.75           2.79  

142



Exelon
Unaudited Pro Forma Condensed Consolidated Balance Sheet
As of December 31, 2004
(in millions)

 
  Exelon
Historical

  Pro Forma Adjustments
for Discontinued Operations

  Exelon Adjusted for Discontinued Operations
ASSETS                  
Cash and cash equivalents   $ 499   $ (43 ) $ 456
Restricted cash and investments     60     (19 )   41
Accounts receivable, net     2,058     (33 )   2,025
Mark-to-market derivative assets     403     (18 )   385
Inventories     542         542
Deferred income taxes     68     59     127
Other     296     (3 )   293
   
 
 
  TOTAL CURRENT ASSETS     3,926     (57 )   3,869
Property, plant and equipment, net     21,482     (270 )   21,212
Regulatory assets     4,790         4,790
Nuclear decommissioning trust funds     5,262         5,262
Investments     804         804
Goodwill     4,705         4,705
Mark-to-market derivative assets     383     (85 )   298
Deferred debits and other assets     1,418     (530 )   888
   
 
 
  TOTAL ASSETS   $ 42,770   $ (942 ) $ 41,828
   
 
 

143



Exelon
Unaudited Pro Forma Condensed Consolidated Balance Sheet
As of December 31, 2004
(in millions)

 
  Exelon
Historical

  Pro Forma
Adjustments for Discontinued Operations

  Exelon
Adjusted for Discontinued Operations

 
LIABILITIES AND SHAREHOLDERS' EQUITY                    
Commercial paper   $ 490   $   $ 490  
Long-term debt due within one year     913     (34 )   879  
Accounts payable     1,255     (19 )   1,236  
Mark-to-market derivative liabilities     598         598  
Accrued expenses     1,143     (34 )   1,109  
Other     483     (19 )   464  
   
 
 
 
  TOTAL CURRENT LIABILITIES     4,882     (106 )   4,776  

Long-term debt

 

 

12,148

 

 

(785

)

 

11,363

 

Deferred credits and other liabilities:

 

 

 

 

 

 

 

 

 

 
Deferred income taxes     4,488     (24 )   4,464  
Unamortized investment tax credits     275         275  
Asset retirement obligations     3,981     (3 )   3,978  
Pension and postretirement benefit obligations     3,058         3,058  
Spent nuclear fuel obligation     878         878  
Regulatory liabilities     2,204         2,204  
Mark-to-market derivative liabilities     323         323  
Other     981     (13 )   968  
   
 
 
 
  TOTAL DEFERRED CREDITS AND OTHER LIABILITIES     16,188     (40 )   16,148  
   
 
 
 
Minority interest of consolidated subsidiaries     42     (36 )   6  
Preferred securities of subsidiaries     87         87  

SHAREHOLDERS' EQUITY

 

 

 

 

 

 

 

 

 

 
Common stock     7,598         7,598  
Treasury stock, at cost     (82 )       (82 )
Retained earnings     3,353     25     3,378  
Accumulated other comprehensive loss     (1,446 )       (1,446 )
   
 
 
 
  TOTAL SHAREHOLDERS' EQUITY     9,423     25     9,448  
   
 
 
 
  TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY   $ 42,770   $ (942 ) $ 41,828  
   
 
 
 

144



Exelon and PSEG
Unaudited Pro Forma Condensed Combined
Consolidated Financial Statements

        The following Exelon and PSEG Unaudited Pro Forma Condensed Combined Consolidated Financial Statements are based on the historical consolidated financial statements of Exelon, as adjusted for discontinued operations (see pages 139 through 144), and the historical consolidated financial statements of PSEG after giving effect to:

        As described in the accompanying notes, Exelon's cost to acquire PSEG will be allocated to the net tangible and identifiable intangible assets acquired and liabilities assumed based upon their estimated fair values as of the completion of the merger. The completion of the merger is currently expected to occur in either the first or second quarter of 2006 depending on whether the parties are able to reach early settlements in the NJBPU and PPUC proceedings described under "The Merger—Regulatory Matters Relating to the Merger—General," although we cannot predict the actual timing. The excess of purchase price, including estimated fees and expenses related to the merger incurred by Exelon, over the preliminary estimated fair values of the net assets acquired and liabilities assumed is classified as goodwill in the accompanying Exelon and PSEG Unaudited Pro Forma Condensed Combined Consolidated Balance Sheet. Exelon may record some additional level of amortizable intangible assets not yet identified or recorded in these pro forma financial statements. The amortization of these assets may adversely impact future earnings of the combined company. The purchase method of accounting applied to the merger is based on current accounting literature, which may be amended prior to the completion of the merger and, if amended, could materially impact the allocation of purchase price.

        The Exelon and PSEG Unaudited Pro Forma Condensed Combined Consolidated Statements of Operations give effect to the merger as though it occurred on January 1, 2004. The Exelon and PSEG Unaudited Pro Forma Condensed Combined Consolidated Balance Sheet gives effect to the merger as though it occurred on March 31, 2005.

        The Exelon and PSEG Unaudited Pro Forma Condensed Combined Consolidated Financial Statements include estimates of potential adjustments for events that are:


        These preliminary adjustments are based on Exelon's and PSEG's managements' current estimates and are subject to change pending additional information that may come to their knowledge and as decisions are made with respect to the corporate restructuring described under "The Merger—Corporate Restructuring." The actual adjustments recorded in purchase accounting will be based on final valuations as determined by management and independent third parties and may differ materially from the preliminary amounts recorded in the Exelon and PSEG Unaudited Pro Forma Condensed Combined Consolidated Financial Statements. If the final valuation indicates that the fair value of the assets of PSEG is higher than managements' current estimates, the percentage of the purchase price allocated to these assets would be greater than that currently allocated to them in the pro forma financial statements. The greater level of amortizable assets would result in additional amortization, which may adversely impact the future earnings of the combined company.

        The historical financial information of Exelon and PSEG as of and for the three months ended March 31, 2005 is unaudited. The historical financial information of Exelon and PSEG for the year ended December 31, 2004 is derived from the audited financial statements of Exelon and PSEG, respectively, but does not include all disclosures required by GAAP.

145


        You should read the Exelon and PSEG Unaudited Pro Forma Condensed Combined Consolidated Financial Statements in conjunction with the:

        The Exelon and PSEG Unaudited Pro Forma Condensed Combined Consolidated Financial Statements are presented for illustrative purposes only and are not necessarily indicative of what the combined company's financial position or operating results actually would have been had the merger been completed on the dates indicated. In addition, the Exelon and PSEG Unaudited Pro Forma Condensed Combined Consolidated Financial Statements do not purport to project the future financial position or operating results of the combined company.

146


Exelon and PSEG
Unaudited Pro Forma Condensed Combined Consolidated
Statement of Operations
For the Three Months Ended March 31, 2005
(in millions, except per share data)

 
  Exelon
Historical

  (a)
PSEG
Historical

  Pro Forma
Adjustments

  Exelon
Pro Forma

 
 
  (unaudited)

  (unaudited)

   
   
 
OPERATING REVENUES   $


 
3,561


 



 
$


 
3,310


 



 
$


 
72
(4
42
3
 (c)
)(c)
 (h)
 (i)
$


 
6,984


 



 
   
 
 
 
 
OPERATING EXPENSES                          
  Purchased power and fuel  
 
1,190
 

 

 
1,874
 

 
  (18
(1
)(c)
)(i)

 
3,045
 

 
  Operating and maintenance     949     598     6  (d)   1,553  
  Depreciation and amortization     319     190     21  (e)   530  
  Taxes other than income taxes     172     43         215  
   
 
 
 
 
    TOTAL OPERATING EXPENSES     2,630     2,705     8     5,343  
   
 
 
 
 
OPERATING INCOME     931     605     105     1,641  
   
 
 
 
 
  Other income and deductions:                          
    Interest expense  
 
(190
 
)
 

 
(215
 
)
 
  23
(20
 (f)
)(f)

 
(402
 
)
 
    Distributions on preferred securities of subsidiaries     (1 )   (1 )       (2 )
    Equity in earnings of unconsolidated affiliates     (36 )   37     (2 )(g)   (1 )
    Other, net     30     27     1  (g)   58  
   
 
 
 
 
      TOTAL OTHER INCOME AND DEDUCTIONS     (197 )   (152 )   2     (347 )
   
 
 
 
 
INCOME BEFORE INCOME TAXES AND MINORITY INTEREST     734     453     107     1,294  
    Income tax provision  
 
227
 

 

 
168
 

 
  53
26
 (h)
 (j)

 
474
 

 
   
 
 
 
 
INCOME FROM CONTINUING OPERATIONS   $ 507   $ 285   $ 28   $ 820  
   
 
 
 
 
Weighted average shares of common stock outstanding:                          
  Basic     666     238           958  (k)
  Diluted     675     242           973  (k)
Income per share from continuing operations:                          
  Basic   $ 0.76   $ 1.20         $ 0.86  
  Diluted     0.75     1.18           0.84  

See accompanying Notes to Exelon and PSEG Unaudited Pro Forma Condensed Combined Consolidated Statement of Operations, which are an integral part of these statements.

147


Exelon and PSEG
Unaudited Pro Forma Condensed Combined Consolidated
Statement of Operations
For the Year Ended December 31, 2004
(in millions, except per share data)

 
  Exelon
Pro Forma
Adjusted for Discontinued Operations

  (b)
Pro Forma
Adjustment
for Boston
Generating

  Exelon as
Adjusted

  (a)
PSEG
Historical

  Pro Forma
Adjustments

  Exelon
Pro Forma

 
OPERATING REVENUES   $


 
14,133


 



 
$


 
(248


 
)


 
$


 
13,885


 



 
$


 
10,996


 



 
$


 
505
(14
189
(17
 (c)
)(c)
 (h)
)(i)
$


 
25,544


 



 
   
 
 
 
 
 
 
OPERATING EXPENSES                                      
  Purchased power and fuel  
 
4,929
 

 

 
(222
 
)
 

 
4,707
 

 

 
6,057
 

 
  (178
(4
)(c)
)(i)

 
10,582
 

 
  Operating and maintenance     3,700     (62 )   3,638     2,260     27  (d)