Fill and Sign the Stock Purchase and Sale Agreement Dated August Secgov Form

STOCK PURCHASE AGREEMENT between ALLEGHENY ENERGY, INC., ENERGY CORPORATION OF AMERICA and EASTERN SYSTEMS CORPORATION TABLE OF CONTENTS Page ARTICLE I - Definitions 3 ARTICLE II - Agreements of Purchase and Sale 11 ARTICLE III - Purchase Price 12 ARTICLE IV - Representations and Warranties of the Seller 16 ARTICLE V - Representations and Warranties of the Buyer 36 ARTICLE VI - Assumption of Liabilities, Survival and Indemnification 38 ARTICLE VII - Covenants and Certain Actions of the Parties 44 ARTICLE VIII - Conditions Precedent 53 ARTICLE IX - Closing and Settlement 57 ARTICLE X- Termination 58 ARTICLE XI - Taxes 60 ARTICLE XII - Miscellaneous 66 STOCK PURCHASE AGREEMENT THIS AGREEMENT, dated as of the 20th day of December, 1999, by and between ALLEGHENY ENERGY, INC., a Maryland corporation, (such corporation or, as and from the date of any assignment made pursuant to Section 7.03(c), the assignee thereof, the "Buyer"), and ENERGY CORPORATION OF AMERICA, a West Virginia corporation ("ECA") and EASTERN SYSTEMS CORPORATION, a West Virginia corporation ("ESC"), (hereinafter ECA and ESC are sometimes collectively referred to as the "Sellers" and referred to individually as a "Seller"). W I T N E S S E T H: WHEREAS, the Buyer is a public utility holding company whose subsidiaries generate, distribute and provide electric service to customers in the State of West Virginia and elsewhere; and WHEREAS, ESC owns one hundred percent (100%) of the outstanding stock of Mountaineer Gas Company, a West Virginia corporation ("Mountaineer Gas" and, collectively with the subsidiaries of Mountaineer Gas, "Mountaineer",) and, WHEREAS, Mountaineer is engaged in the distribution and sale of natural gas in West Virginia, and WHEREAS, ESC desires to sell, and the Buyer desires to purchase, all of the outstanding stock of Mountaineer Gas (the "Shares") upon the terms and conditions hereinafter set forth,and WHEREAS, contemporaneously with the execution and delivery of this Agreement, ECA and Buyer have executed and delivered, each to the other, a Management Agreement, in the form set forth in Exhibit A and at Closing shall execute the Lease and Development Agreement substantially in the form of Exhibit B hereto (such agreements collectively, including all schedules and exhibits thereto, the "Ancillary Agreements"). 1 NOW, THEREFORE, in consideration of the respective representations, warranties and covenants contained herein, the Buyer and the Sellers hereby agree as follows: 2 ARTICLE I - DEFINITIONS 1.01 Actual Long Term Debt The principal outstanding amount of the Long Term Debt identified on Schedule 1.26 as of the Closing Date. 1.02 Adjustment Date The last day of the calendar month in which the Closingoccurs. 1.03 Adjustment Period The period commencing on the Effective Date and ending on the Adjustment Date. 1.04 Adjustment Working Capital The difference between the total current assets of Mountaineer as reflected on the unaudited consolidated financial statements of Mountaineer as of the close of business on the Adjustment Date and the total current liabilities of Mountaineer as reflected on the unaudited consolidated financial statements of Mountaineer as of the close of business on the AdjustmentDate. 1.05 Agreed Capital Expenditures Six Million Dollars ($6,000,000.00). 1.06 Affiliate As applied to any Person, means any other Person directly or indirectly controlling, controlled by or under common control with such Person. 1.07 Agreement This Stock Purchase Agreement, including all Schedules and Exhibits hereto and the Seller's Disclosure Schedule. 3 1.08 Base Financial Statements The audited balance sheet of Mountaineer Gas and its consolidated subsidiaries as of June 30, 1999 and the audited income statement and cash flow statement of Mountaineer Gas and its consolidated subsidiaries for the year then ended, which balance sheet, income statement and cash flow statement are attached hereto as Schedule 1.08. 1.09 Benefit Plans All benefit and compensation plans, contracts, policies or arrangements covering current or former Employees, including, but not limited to, "employee benefit plans" within the meaning of Section 3(3) of ERISA, and deferred compensation, stock option, stock purchase, stock appreciation rights, stock based, incentive and bonus plans. 1.10 Business Day Any day other than a Saturday, a Sunday or a day on which banks in any of Denver, Colorado, Hagerstown, Maryland or New York, New York are authorized or obligated by law or executive order to close. 1.11 Buyer Allegheny Energy, Inc., or any subsidiary or affiliate existing or hereafter created to purchase the Shares. 1.12 Closing The consummation of the transactions described in Section9.01(b). 1.13 Closing Date The fifth Business Day after the conditions precedent set forth in Sections 8.02(d) and (e) and Sections 8.03 (d) and (e) have been satisfied, or such later date as the Parties may agreeupon. 4 1.14 Code The Internal Revenue Code of 1986, as amended and the rules and regulations promulgated thereunder. 1.15 Effective Date November 30, 1999. 1.16 Employee(s) Those persons actively employed by Mountaineer who are participants in any plans and not laid off. 1.17 ERISA The Employee Retirement Income Security Act of 1974, asamended. 1.18 Environmental Law Any federal, state, local or foreign statute, law, regulation, order, decree, permit, authorization, opinion, common law or agency requirement relating to: (A) the protection, investigation or restoration of the environment, health, safety, or natural resources, (B) the handling, use, presence, disposal, release or threatened release of or exposure to any Hazardous Substance or (C) noise, odor, indoor air, employee exposure, wetlands, pollution, contamination or (D) any injury or threat of injury to persons or property relating to any HazardousSubstance. 1.19 GAAP Generally accepted accounting principles in the United States as of the date of this Agreement, without reference to changes therein as may otherwise be applicable to subsequent periods, consistently applied. 5 1.20 Governmental Entity Any court, tribunal, arbitrator, arbitration panel, or any governmental, administrative, or regulatory authority, agency, commission, or body or similar entity. 1.21 Hazardous Substance (A) Any substance that is listed, classified or regulated pursuant to any Environmental Law; (B) any petroleum or coal product or by-product, any waste or ash, asbestos-containing material, lead-containing paint or plumbing, polychlorinated biphenyls, radioactive material or radon; and (C) any other substance which is regulated by any government entity in connection with any Environmental Law. 1.22 Intellectual Property The trade names and other intellectual property set forth on Schedule 1.22. 1.23 Interest Rate The then current prime or base lending rate of Citibank, N.A. as established from time to time. 1.24 Interim Period The period from the date of this Agreement until and including the Closing Date. 1.25 Legal Requirements Any and all applicable (i) federal, state, local and foreign laws, statutes, ordinances, requirements, awards, processes, rules and regulations, (ii) judgments, orders, writs, injunctions, decrees, administrative rulings and (iii) contracts or agreements, with any Governmental Entity relating to compliance with matters described in (i) and (ii). 6 1.26 Long Term Debt The principal amount of the indebtedness identified on Schedule 1.26 as of November 30, 1999. 1.27 Material Adverse Effect or Material Adverse Change With respect to any person or persons, a material adverse effect on, or a material adverse change in, the financial condition, properties, business, results of operations or prospects of such person or persons, other than effects or changes resulting directly from (i) changes in the volume of natural gas purchased by customers from Mountaineer that are attributable to weather conditions, (ii) any general suspension of trading in, or limitations on prices for, or material change in prices of, securities generally on any national securities exchange or in the over-the-counter markets, (iii) the declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (iv) the commencement or continuation of a war, armed hostilities or similar international or national calamity directly or indirectly involving the United States; (v) any limitation (whether or not mandatory) by any U.S. governmental authority or agency on the extension of credit by banks or other financial institutions; (vi) any general decline in economic conditions in the United States gas utility industry as a whole or in general economic conditions in any geographic region of the United States; and (vii) in the case of any of the events described in the foregoing clauses (i) through (vi), a material acceleration or worseningthereof. 1.28 November Financial Statements The unaudited balance sheet of Mountaineer and its consolidated Subsidiaries dated as of November 30, 1999 and the unaudited income statement and cash flow statement of Mountaineer and its consolidated Subsidiaries for the five months then ended, which balance sheet, income statement and cash flow statement are attached hereto as Schedule 1.28. 7 1.29 Parties The Buyer and the Sellers.1.30 Party The Buyer or a Seller, as the case may be. 1.31 Permits Any and all permits, authorizations, certificates, approvals, registrations, variances, rights of way, franchises, orders or other approvals and licenses relating to the operations of Mountaineer (i) under any (x) federal, state, local or foreign laws, statutes, ordinances, rules or regulations or (y) judgment or contract with any federal, state, local or foreign court, arbitrator or administrative or governmental authority, bureau or agency relating to compliance with matters described in clause (i)(x), or (ii) granted by any federal, state, local or foreign administrative or governmental authority, bureau or agency. 1.32 Person Any individual, corporation, partnership, firm, joint venture, association, joint stock company, trust, unincorporated organization, governmental or regulatory body or other entity. 1.33 Purchase Price Shall have the meaning assigned to it in Article III. 1.34 Seller's Disclosure Schedule That schedule attached hereto as Exhibit 1.34. 1.35 Seller's Group Any "affiliated group" (as defined in Section 1504(a) of the Code without regard to the limitations contained in section 1504(b) of the Code) that includes ECA, ESC or Mountaineer or any predecessor of or successor to ECA, ESC or Mountaineer (or another such predecessor or successor). 8 1.36 Short Term Debt Any indebtedness of Mountaineer which does not constitute Long Term Debt. 1.37 Subsidiary With respect to any Person, any other Person, whether incorporated or unincorporated, of which at least a majority of the securities or ownership interest having by their terms ordinary voting power to elect a majority of the Board of Directors or other Persons performing similar functions is directly or indirectly owned or controlled by such Person or by one or more of the direct or indirect Subsidiaries of such Person or by such Person and any one or more of its respectiveSubsidiaries. 1.38 Taxes All federal, state, local or foreign taxes, including income, gross receipts, windfall profits, customs duties, value added, severance, property, trade, consumption, solidarity surcharge, capital, production, estimated sales, use, license, excise, franchise, employment, withholding or other taxes of any kind, together with any interest, additions or penalties with respect thereto and any interest in respect of such additions orpenalties. 1.39 Tax Returns All reports and returns required to be filed with respect toTaxes. 1.40 West Virginia PSC The Public Service Commission of West Virginia. 9 1.41 Working Capital The difference between the total current assets of Mountaineer as reflected on the unaudited consolidated financial statements of Mountaineer as of November 30, 1999 and the total current liabilities of Mountaineer as reflected on the unaudited consolidated financial statements of Mountaineer as of November 30, 1999. 1.42 Year 2000 Problem The material inability of any hardware, software or process to recognize and correctly calculate dates on and after January 1, 2000, or the failure of computer systems, products or services to perform any of their intended functions in a proper manner in connection with data containing any date on or after January 1,2000. 10 ARTICLE II - AGREEMENTS OF PURCHASE AND SALE 2.01 Sale and Purchase of Shares On the terms and subject to the conditions set forth in this Agreement, the Buyer agrees to purchase the Shares and ESC agrees to sell, transfer, assign, convey and deliver the Shares to the Buyer in consideration for the Adjusted Purchase Price paid in accordance with Article III hereof. 11 ARTICLE III - PURCHASE PRICE 3.01 Purchase Price On the Closing Date Buyer agrees to pay and deliver to ECA the sum of Three Hundred Twenty-Three Million Dollars ($323,000,000), less the sum of Mountaineer's Long Term Debt, as set forth on Schedule 1.26, existing on the Closing Date, and $200,000 (the "Purchase Price"). 3.02 Post Closing Adjustments to Purchase Price (a) Calculation of Adjustments of Purchase Price (1) Working Capital Adjustment (A) if Adjustment Working Capital is greater than the sum of Working Capital plus $100,000, Buyer shall pay to ECA the amount by which Adjustment Working Capital exceeds Working Capital, (B) if Adjustment Working Capital is less than Working Capital minus $100,000, ECA shall pay to Buyer the amount by which Working Capital exceeds Adjustment WorkingCapital, (2) Capital Expenditure Adjustment (A) if the actual capital expenditures made by Mountaineer during the Adjustment Period is less than the Agreed Capital Expenditures, ECA shall pay such difference toBuyer, (B) if the actual capital expenditures made by Mountaineer during the Adjustment Period is more than the Agreed Capital Expenditures, Buyer shall pay such difference toECA. 12 (3) Long Term Debt Adjustment (A) if Actual Long Term Debt exceeds Long Term Debt, ECA shall pay to Buyer the amount of the excess, and (B) if Long Term Debt exceeds Actual Long Term Debt, Buyer shall pay to ECA the amount of the excess. Any payments required pursuant to this Section 3.02(a) are referred to collectively as "Post-Closing Adjustments". (b) As soon as practicable, but in no event later than 60 calendar days following the Closing Date, ECA shall prepare a calculation of Adjustment Working Capital (the "Working Capital Statement"), a calculation of Adjustment Capital Amounts (the "Capital Amount Statement") and a calculation of Actual Long Term Debt (the "Long Term Debt Statement") and, collectively with the Working Capital Statement and the Capital Amount Statement, the "Closing Statements"), each of which shall be prepared in good faith in accordance with GAAP on a basis consistent with the preparation of the Base Financial Statements. (c) After receipt of the Closing Statements, Buyer shall have 30 calendar days to review the Closing Statements, together with the workpapers used in the preparation thereof. Buyer and its accountants shall have full access to (i) all relevant books, records and employees of ECA and (ii) ECA's accountants and their relevant supporting workpapers. Unless Buyer delivers written notice to ECA on or prior to the thirtieth calendar day after the preparation of the Closing Statements, stating that Buyer has objections to the Closing Statements and describing any such objections, Buyer shall be deemed to have accepted and agreed to the Closing Statements. If, on or prior to the thirtieth calendar day after the preparation of the Closing Statements, Buyer shall give such notice to ECA, Buyer shall, within 10 calendar days (or such longer period as the Parties may agree) 13 following the giving of such notice (the "Resolution Period"), attempt in good faith to resolve their differences, and any resolution by them as to any disputed amounts shall be final, binding and conclusive. (d) Any amounts remaining in dispute at the conclusion of the Resolution Period ("Unresolved Changes") shall be submitted to a nationally recognized public accounting firm, independent of Buyer and the Sellers, mutually acceptable to Buyer and ECA (such firm being referred to as the "Auditing Firm"), within 10 calendar days after the expiration of the Resolution Period. Each party agrees to execute, if requested by the Auditing Firm, an engagement letter containing reasonable terms. All fees and expenses relating to the work, if any, to be performed by the Auditing Firm in accordance with this Section 3.02 shall be borne equally by Buyer and ECA. The Auditing Firm shall be instructed to use a materiality standard as such firm may determine to be reasonable under the circumstances, in light of the cost to be incurred and the amount in issue. The Auditing Firm shall be instructed to make such determination in accordance with the provision of this Agreement. The Auditing Firm's determination of the Unresolved Changes shall be made within 30 days of the submission of the Unresolved Changes thereto, shall be set forth in a written statement delivered to Buyer and ECA and shall be final, binding and conclusive on the parties for all purposes. (e) In the event that there are Unresolved Changes at the end of the Resolution Period, (i) if Buyer and ECA agree that a Post-Closing Adjustment is owed to Buyer or ECA, as the case may be, regardless of the ultimate resolution of any Unresolved Changes, then the minimum amount which Buyer and ECA agree is owed to Buyer, or ECA, as the case may be, shall be paid within five Business Days after the end of the Resolution Period and any additional amounts owing to Buyer, or ECA, as the case may be, with respect to the Unresolved Changes shall be paid within five 14 Business Days after resolution thereof by the Auditing Firm and (ii) in all other cases, any and all payments shall be made within five Business Days after resolution of the Unresolved Changes by the Auditing Firm. (f) Any payments made in respect of the Post-Closing Adjustment or Unresolved Changes shall be deemed to be adjustments to the Purchase Price for all Tax purposes. (g) The Purchase Price, as adjusted by the Post-Closing Adjustments, constitutes the "Adjusted Purchase Price". 15 ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF THE SELLER The Sellers jointly and severally, represent and warrant to the Buyer that, as of the date hereof, and as of the Closing Date, except as set forth in the corresponding sections or subsections of the Seller's Disclosure Schedule: 4.01 Corporate Status and Authority Each of ECA, ESC and Mountaineer Gas is a corporation duly organized, validly existing and in good standing under the laws of the State of West Virginia. Each of Mountaineer Gas' Subsidiaries is duly organized, validly existing and in good standing under the laws of the respective state of its incorporation. Each of Mountaineer Gas and its Subsidiaries has all the requisite corporate power and authority under all Legal Requirements to carry on its business as it now is being conducted and to own or lease and to operate its assets as the case may be, as and in the places where Mountaineer's business is now conducted or where its assets are now owned or leased and now operated. Each of ECA and ESC has all requisite corporate power and authority and has taken all corporate action necessary in order to execute and deliver this Agreement and the Ancillary Agreements and, subject only to the governmental authorizations specified in Section 7.03(a), to perform its obligations hereunder and thereunder. The Seller's Disclosure Schedule lists all Subsidiaries of Mountaineer Gas. 4.02 Power to Transfer; Duly Executed (a) Subject to any required governmental authorization referred to in Section 7.03(a) hereof, each Seller has full right, power and authority to enter into this Agreement and the Ancillary Agreements and to perform its obligations hereunder andthereunder. (b) This Agreement and each Ancillary Agreement have been duly executed and delivered on behalf of each Seller party thereto and subject only to governmental authorizations specified 16 to in Section 7.03(a) hereof, constitute the legal, valid and binding obligations of the Sellers enforceable in accordance with their terms. 4.03 Qualification Each of ECA, ESC and Mountaineer Gas and each of Mountaineer Gas' Subsidiaries is duly qualified, and is in good standing, to do business in West Virginia as a corporation. 4.04 Authorized Capital of Mountaineer. The authorized capital stock of Mountaineer Gas consists of 2,200,000 shares, $25.00 par value, of which 1,831,687 shares are outstanding and no shares are held in treasury. All of the Shares have been duly authorized, and are validly issued, fully paid and nonassessable and are owned, either directly or indirectly by ECA, free and clear of all mortgages, liens, pledges, charges, title retention or security agreements, claims, restrictions, leases, options, rights of first offer or refusal, or other encumbrances or rights of others. Each of the outstanding shares of capital stock of each of Mountaineer Gas' Subsidiaries is duly authorized, validly issued, fully paid and nonassessable and owned, either directly or indirectly, by Mountaineer Gas, free and clear of all liens, pledges, security interests, claims or other encumbrances. Except as set forth above, there are no shares of capital stock of Mountaineer Gas or any of its Subsidiaries authorized, issued or outstanding and there are no preemptive rights nor any outstanding subscriptions, options, warrants, rights, convertible or exchangeable securities or other agreements or commitments of any character relating to the issued or unissued capital stock or other securities of Mountaineer Gas or any of its Subsidiaries. Seller has good and marketable title to the Shares and on the Closing Date will transfer and convey the Shares to Buyer free and clear of all mortgages, liens, pledges, charges, title retention or security agreements, claims, restrictions, leases, options, rights of first offer or first refusal, or other 17 encumbrances or rights of others. Each of Mountaineer Gas and its Subsidiaries has good and marketable title to its properties and assets except for such defects in title that, individually or in the aggregate, have not and are not reasonably likely to affect the ownership, operation or marketability thereof. 4.05 Noncontravention The execution, delivery and performance of this Agreement and the Ancillary Agreements by ECA and any of its Subsidiaries party thereto, and the consummation by the Sellers, Mountaineer Gas and any of their respective Subsidiaries of the transactions contemplated in this Agreement and therein, do not and will not (a) violate or conflict with, or constitute a default under, anyprovision of the certificate of incorporation, by-laws or comparable governing instruments of the Sellers, Mountaineer Gas or any of their respective Subsidiaries, (b) violate any provision of, or constitute (or with notice or lapse of time or both would constitute) a default under, or accelerate or permit the acceleration of the performance required by, any agreement, lease, contract, note, mortgage, indenture, instrument, arrangement or other obligation (collectively, "Contracts") to which the Sellers, Mountaineer Gas or any of their respective Subsidiaries is a party or by which any of them or any of their respective assets or properties are bound or subject (collectively, the "Seller Contracts"), (c) entitle any party to cancel or terminate, or result in any change in the rights or obligations of any party under, or require a consent or waiver by any party to, any Seller Contract, (d) result in the creation of a lien, pledge, security interest, voting trust arrangement, charge, option, restriction, claim, or other encumbrance on the equity securities, ownership interests or on the assets of any Seller, Mountaineer or any of their respective Subsidiaries, (e) violate any law, statute, rule, regulation, ordinance, requirement, administrative ruling, order, judgment, injunction, award, decree or process of any Governmental Entity (collectively, "Laws") by which or to which any of their 18 respective assets or properties are bound or subject, or (f) result in the loss or impairment of any approval, authorization, comment, license, franchise, order or permit of or by, or filing with a Person of or benefiting any Seller, Mountaineer or any of their respective Subsidiaries; except (i) in the case of clauses (b), (d), (e), and (f) of this Section, for such violations, defaults, accelerations, losses or impairments as, when taken together with all other such violations, defaults, accelerations, losses and impairments, could not adversely impair Mountaineer's business or operations, and (ii) in the case of clauses (b) and (c), for violations, defaults, accelerations, cancellations, terminations of and changes in rights listed in Seller's Disclosure Schedule. 4.06 Seller's Disclosure Schedule Seller is obligated to, and represents that it has, fully and completely included all information required under the Seller's Disclosure Schedule and that it is true and accurate to the best of its knowledge and belief, and that the Seller's Disclosure Schedule is hereby incorporated as part of thisAgreement. 4.07 Changes, Etc. Since June 30, 1999, (a) there has been no Material Adverse Change with respect to Mountaineer nor any material damage, destruction or loss adversely affecting Mountaineer's assets (whether or not covered by insurance); (b) Mountaineer has conducted its business in the ordinary course of business consistent with past practice; (c) Mountaineer's assets have not been mortgaged, pledged, or subjected to any lien, security interest, or to either Seller's knowledge, any other encumbrance, which mortgage, pledge, lien, security interest or encumbrance shall be released on or before the Closing Date; 19 (d) except as incurred in the ordinary course of Mountaineer's business consistent with past practice, no liability, contractual, or otherwise, has been incurred (whether absolute, accrued, contingent or otherwise) by either Seller or Mountaineer in connection with Mountaineer's business that has not been fully paid, released or otherwise provided for; and (e) there has not been any incurrence, assumption or guarantee by either Seller of any indebtedness for borrowed money by Mountaineer, other than in the ordinary course of business consistent with past practice. 4.08 Compliance with Laws; Governmental Authorizations (a) Each of the Sellers and Mountaineer is in compliance in all material respects with all Legal Requirements and Permits applicable to Mountaineer's business. Mountaineer has not received any written notice or communication of any material noncompliance with any Legal Requirement or Permit that has not been cured as of the date hereof. (b) To Sellers' or Mountaineer's knowledge, Mountaineer has, all Permits necessary to own, operate, use and maintain Mountaineer's assets, in the manner in which they are now being maintained and operated and to conduct Mountaineer's business as now being conducted. All Permits of Mountaineer relating to its business are in full force and effect and there are no proceedings pending or, to the knowledge of the Seller or Mountaineer, threatened that seek the revocation, cancellation, suspension or any adverse modification of any such Permits. Subject to obtaining the consents and approvals specified in Section 7.03(a), the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby will not result in any such revocation, cancellation, suspension or modification of such Permits. (c) To Seller's and Mountaineer's knowledge (i) Mountaineer's business is and has been in material compliance with all applicable Environmental Laws; (ii) no property currently or formerly owned or operated by Mountaineer (including 20 soils, groundwater, surface water, buildings or other structures) is contaminated with any Hazardous Substance which could reasonably be expected to result in any investigation, remediation or material liability to Mountaineer under any Environmental Law; (iii) Mountaineer's business has not been involved in any disposal, release or threat of release of any Hazardous Substance which could reasonably be expected to result in material liability under any Environmental Law; (iv) Mountaineer has not received any written notice, demand, letter, claim or request for information indicating that Mountaineer may be in violation of or subject to liability under any Environmental Law; (v) Mountaineer is not subject to any order, decree, injunction or other arrangement with any governmental entity or any indemnity or other agreement with any third party relating to liability under any Environmental Law or relating to Hazardous Substances in connection with its business; (vi) there are no other circumstances or conditions involving Mountaineer that could reasonably be expected to result in any material claim, liability, investigation, cost or restriction on the ownership, use, or transfer of any property pursuant to any Environmental Law; and (vii) Seller has delivered to Buyer copies of all environmental reports, studies, assessments, sampling data and other environmental information in its possession relating to Mountaineer's business. 4.09 Permits; Public Service Commission of West Virginia (a) The Seller's Disclosure Schedule includes all currently effective Permits issued or entered into by any Governmental Entity, including the West Virginia PSC to Mountaineer and presently in effect in connection with Mountaineer's business. (b) The Seller's Disclosure Schedule lists all of the currently operative rules, regulations and tariffs heretofore authorized and approved by the West Virginia PSC applicable to Mountaineer's business and all of the currently pending rate, certificate or other filings heretofore made by Mountaineer 21 before the West Virginia PSC and the status of each such filing on the date hereof. (c) All currently effective filings heretofore made by Mountaineer with the West Virginia PSC were made in substantial compliance with Legal Requirements then applicable thereto and the information contained therein was true and correct in all material respects as of the respective dates of such filings. 4.10 Contracts (a) The Seller's Disclosure Schedule contains a complete and correct list of all Mountaineer's material contracts relating to Mountaineer's business as of the date hereof. There are no defaults under any such contracts which, individually or in the aggregate, could adversely impair Mountaineer's business or operations. Based upon reasonable inquiry, Mountaineer has no knowledge of any facts which would suggest that any such contract may be cancelled. (b) Each contract required to be disclosed pursuant to this Section is a valid and binding agreement of Mountaineer and is in full force and effect, and enforceable by Mountaineer in accordance with its terms, except to the extent such contract has expired by its own terms without penalty, and none of Mountaineer or, to the knowledge of Mountaineer, any other party thereto is in default or breach under the terms of any such contracts and, to the knowledge of Mountaineer, no event or circumstance has occurred that, with notice or lapse of time or both, would constitute any event of default thereunder other than in each case defaults or breaches which, individually or in the aggregate, could not adversely impair Mountaineer's business or operations. 4.11 Rights-of-Way and Real Property (a) Schedule 4.11(a) of the Seller's Disclosure Schedule contains a complete and correct legal description of all the real property (other than rights-of-way and oil and gas leases) owned 22 directly or indirectly, by Mountaineer and its Subsidiaries, necessary for the conduct of, or otherwise material to, the business of Mountaineer and its Subsidiaries as it is currently conducted (the "Owned Real Property"). Mountaineer and its Subsidiaries have good, marketable and insurable fee simple title to the Owned Real Property, free and clear of all liens other than Permitted Liens. The current use and operation of the Owned Real Property does not violate any instrument of record affecting the Owned Real Property. To the best of Sellers' and Mountaineer's knowledge, except as set forth in Schedule 4.11(a), no Owned Real Property is located in a special flood hazard area designated by any state or federal authority. The Owned Real Property is in compliance with all Laws and all licenses, building permits, certificates of occupancy and other approvals and authorizations required by governmental authorities. (b) Schedule 4.11(b) of the Seller's Disclosure Schedule contains a complete and correct list of all interests of Mountaineer Gas and its Subsidiaries in real property (the "Leased Real Property") pursuant to leases, licenses or other occupancy or use agreements (collectively, the "Leases"), except that such Schedule excludes rights of way and oil and gas leases. Mountaineer Gas and its Subsidiaries have good, valid and marketable title to, and is in peaceful undisturbed possession of, the leasehold estates created under the Leases, free and clear of all liens other than Permitted Liens. Mountaineer has previously allowed Buyer to examine true, correct and complete copies of the Leases, together with all amendments and modifications thereof and supplements thereto. Except as set forth on Schedule 4.11(b) of the Seller's Disclosure Schedule, (i) each of the Leases is valid and binding and in full force and effect and (ii) neither Mountaineer Gas nor any of its Subsidiaries is in default under any Lease. Each of the Leases either (x) may be assigned by Mountaineer Gas and its Subsidiaries without the consent or approval of any other person 23 or entity, or (y) if any such consent or approval shall be required, such consent or approval shall be obtained prior toClosing. (c) Neither Mountaineer Gas nor any of its Subsidiaries has any interest in real property except the Owned Real Property and the Leased Real Property. (d) For purposes of this Agreement, "Permitted Liens" shall mean (i) liens for taxes or assessments not yet delinquent or, if delinquent, that are being contested in good faith in the ordinary course of business, (ii) materialman's, mechanic's, repairman's, employee's, contractor's, operator's and other similar liens or charges arising in the course of business (x) if they have not been filed pursuant to law, (y) if filed, they have not yet become due and payable or payment is being withheld as provided by law, or (z) if their validity is being contested in good faith by appropriate action and (iii) that certain deed of trust on Mountaineer Gas' office in Elkins, West Virginia. (e) Except as set forth on Schedule 4.11(e), there are no pending, and Seller has no knowledge of any threatened, condemnation proceeding or similar proceeding affecting any Owned Real Property. (f) Except as set forth on Schedule 4.11 (f), no Person has any option, right to acquire any portion of the Owned Real Property or any interest therein, or a right of first offer or right of refusal to do so (whether exercisable now or upon any subsequent resale of any Owned Real Property or any portionthereof). (g) No casualty has occurred with respect to any Owned Real Property within the last 24 months which has not been materially restored or repaired. 24 (h) Neither Mountaineer Gas nor any of its Subsidiaries is a "foreign person" as defined in Section 1445 of the Internal Revenue Code of 1986, as amended, and the regulations promulgatedthereunder. 4.12 Employment Agreements and Benefits, Etc. (a) Employment Agreements The Seller's Disclosure Schedule lists all currently effective employment, management, consultant or similar agreements and all currently effective labor contracts and collective bargaining agreements heretofore entered into by Mountaineer with respect to its business. Except as disclosed therein, Mountaineer has no employment, management, severance, consultant or other similar agreement with any Employees. (b) Employee Relations There are not occurring any slow downs, pickets, work stoppages, labor strikes or disputes, walk-outs, lock-outs or other similar disruptive labor activities on the part of the Employees. To Mountaineer's knowledge, no grievance, unfair labor practice charge or any arbitration proceeding exists, is pending or is threatened on the date hereof, nor does Mountaineer have any knowledge of any organized effort presently being made or threatened by or on behalf of any labor union to representMountaineer's employees except under existing collective bargaining agreements. (c) Employment Benefit Plans As applicable to Mountaineer (i) All Benefit Plans are listed in Seller's Disclosure Schedule. True and complete copies of all such Benefit Plans, including, but not limited to, any trust instruments and insurance contracts forming a part of any Benefit Plans, and all amendments thereto have been provided or made available to Buyer. 25 (ii) All Benefit Plans covering Employees, to the extent subject to ERISA, are in substantial compliance with ERISA. Each Benefit Plan which is an "employee pension benefit plan" within the meaning of Section 3(2) of ERISA ("Pension Plan") and which is intended to be qualified under Section 401 (a) of the Code, has received a favorable determination letter from the Internal Revenue Service with respect to "TRA" (as defined in Section 1 of Rev. Proc. 93-39), and Mountaineer is not aware of any circumstances likely to result in revocation of any such favorable determination letter. There is no material pending or, to the knowledge of Mountaineer, threatened litigation relating to the Benefit Plans. Neither Mountaineer Gas nor any of its Subsidiaries has engaged in a transaction with respect to any Benefit Plan that, assuming the taxable period of such transaction expired as of the date hereof, could subject Mountaineer to a tax or penalty imposed by either Section 4975 of the Code or Section 502(i) of ERISA in an amount which would bematerial. (iii) No liability under Subtitle C or D of Title IV of ERISA has been or is expected to be incurred by Mountaineer with respect to any ongoing, frozen or terminated "single-employer plan", within the meaning of Section 4001 (a)(15) of ERISA, currently or formerly maintained by any of them, or the single- employer plan of any entity which is considered one employer with the Seller under Section 4001 of ERISA or Section 414 of the Code (an "ERISA Affiliate"). Neither Mountaineer Gas, any of its Subsidiaries nor any ERISA Affiliate has contributed to a "multi- employer plan", within the meaning of Section 3(37) of ERISA, at any time on or after September 26, 1980. No notice of a "reportable event", within the meaning of Section 4043 of ERISA for which the 30-day reporting requirement has not been waived, has been required to be filed for any Pension Plan or by any ERISA Affiliate within the 12-month period ending on the date hereof (or will be required to be filed in connection with the transactions contemplated by this Agreement). 26 (iv) All contributions required to be made under the terms of any Benefit Plan have been timely made or have been reflected on the Base Financial Statements or the November Financial Statements. Neither any Pension Plan nor any single employer plan of an ERISA Affiliate has an "accumulated funding deficiency" (whether or not waived) within the meaning of Section 412 of the Code or Section 302 of ERISA and no ERISA Affiliate has an outstanding funding waiver. Mountaineer has not provided, nor is required to provide, security to any Pension Plan or to any single-employer plan of an ERISA Affiliate pursuant to Section 401 (a)(29) of the Code. (v) Under each Pension Plan which is a single-employer plan and which is subject to Title IV or ERISA, as of the July 1, 1998 Actuarial Valuation Report prepared by William M. Mercer, Incorporated, the present value of all "benefits liabilities", within the meaning of Section 4001 (a)(16) of ERISA, did not exceed the then current value of the assets of such Plan by more than $6 Million Dollars, and there has been no material adverse change in the financial condition of such Plan subsequent to suchreport. (vi) Mountaineer provides the medical and life insurance benefits to retirees set forth on Seller's Disclosure Schedule. (vii) Neither the execution of this Agreement nor the consummation of the transactions contemplated by this Agreement will (w) entitle any Employees to severance pay or any increase in severance pay upon any termination of employment prior to or after the date hereof, (x) accelerate the time of payment or vesting or trigger any payment or funding (through a grantor trust or otherwise) of compensation or benefits under, increase the amount payable or trigger any other material obligation to any Employee under any of the Benefit Plans, (y) cause Mountaineer or any of its Subsidiaries to record additional compensation expense on its income statement with respect to any 27 outstanding stock option or other equity-based award or (z) result in any payments to any Employee under any of the Benefit Plans which would not be deductible under Section 162(m) or Section 280G of the Code. 4.13 Insurance The Seller's Disclosure Schedule contains a true and accurate summary of the insurance coverage of the property, assets or business liabilities of Mountaineer as a whole specifying with respect to each such type of coverage, the term of the policies or bonds, the limits and layers of liability and the annual premiums, and (ii) lists any agreements, arrangements or commitments under which Mountaineer indemnifies any other Person or is required to carry insurance for the benefit of any other Person in an amount in excess of $1,000,000 in the aggregate. The policies and bonds summarized in Seller's Disclosure Schedule are in full force and effect, all premiums due and payable thereon have been paid, no notice of cancellation or termination has been received with respect to any cash policy, and the Sellers and Mountaineer have complied with such policies and bonds. Such policies and bonds will remain in full force and effect through the respective dates set forth in the Seller's Disclosure Schedule without the payment of additional premiums, except in the ordinary course of business, and will not in any way be affected by, terminate, or lapse by reason of the transactions contemplated by this Agreement or any AncillaryAgreement. 4.14 Intellectual Property (a) Mapcom Systems, Inc., a wholly-owned subsidiary of Mountaineer Gas, owns (free and clear of any and all liens, claims or encumbrances), or is licensed or otherwise possesses sufficient legally enforceable rights to use, the Intellectual Property. The Intellectual Property is sufficient for the continued conduct of Mountaineer's business after the Closing in substantially the same manner as conducted prior to the Closing. 28 (b) To Mountaineer's knowledge, Mountaineer's use of the Intellectual Property does not conflict with, infringe upon, or violate any intellectual property right of any other person. Mountaineer has not received written notice of any material claim that any Intellectual Property Right is invalid or conflicts with the asserted right of any other person. 4.15 Litigation; Claims; Citations (a) The Seller's Disclosure Schedule lists all material actions, suits, workers compensation claims, proceedings or governmental investigations pending, or to the knowledge of Mountaineer, threatened in writing against or affecting Mountaineer's business or its assets. None of Mountaineer's assets is subject to any order, writ, judgment, award,injunction, or decree of any governmental or regulatory authority, any court of competent jurisdiction or any arbitrator or arbitrators. (b) To Mountaineer's knowledge, no citations, fines or penalties have been assessed, threatened or asserted against in connection with the conduct of Mountaineer's business under any Environmental Law which have not been fully resolved as of the date of this Agreement. (c) There are no actions, suits, proceedings or governmental investigations pending or threatened against any Seller, Mountaineer or any of their respective Subsidiaries that challenge the validity of this Agreement or any Ancillary Agreement or seek to enjoin or otherwise prohibit or limit the transactions contemplated herein or therein. 4.16 Brokers All negotiations relating to this Agreement and the transactions contemplated hereby have been carried out without the intervention of any person acting on behalf of the Seller or any of its affiliates in such manner as to give rise to any valid claim against the Buyer for any broker's or finder's commission, fee or similar compensation. 29 4.17 Property and Assets Mountaineer's buildings, plants, structures, and equipment are structurally sound, are in good operating condition and repair, and are adequate for the uses to which they are being put, and none of such buildings, plants, structures, or equipment is in need of maintenance or repairs except for ordinary, routine maintenance and repairs that are not material in nature or cost. Mountaineer's property (real and personal) and assets (tangible and intangible) are sufficient for the continued conduct of Mountaineer's businesses after the Closing in substantially the same manner as conducted prior to the Closing. 4.18 Material Facts No representation or warranty by Sellers or Mountaineer in this Agreement, any Ancillary Agreement, or any statement or certificate furnished or to be furnished to the Buyer by Sellers or Mountaineer pursuant to this Agreement or any Ancillary Agreement, or in connection with the transactions contemplated hereby, contains or will contain any untrue statement of a material fact, or omits or will omit to state a material fact necessary to make the statements contained therein not materiallymisleading. 4.19 Y2K (Year 2000) Mountaineer has initiated a review and assessment of the Year 2000 Problem, has developed a plan for addressing the Year 2000 Problem on a timely basis and has to date implemented such plan, except where Mountaineer's failure to do so is not reasonably likely to adversely impair Mountaineer's business or operations. To the knowledge of Mountaineer, none of the system- critical assets or equipment owned or utilized by Mountaineer in its business will fail to perform because of, or due in any way to, a Year 2000 Problem. To the knowledge of Mountaineer, no vendor, supplier or customer of Mountaineer will experience a Year 2000 Problem that, individually or in the aggregate, could reasonably be expected to adversely impair Mountaineer's business or operations. 30 4.20 Financial Statements. Each of the Base Financial Statements and the November Financial Statements fairly presents the financial condition and the results of operations, changes in stockholders' equity, and cash flow of Mountaineer as of the respective dates of and for the periods referred to in such respective financial statements, all in accordance with GAAP consistently applied throughout the periods involved. No financial statements of any Person other than the entities specified in the Base Financial Statements and the November Financial Statements are required by GAAP to be included in the consolidated financial statements of Mountaineer. 4.21 Taxes (a) All Tax Returns that are required to be filed on or before the Closing Date (taking into account applicable extensions) by or with respect to the Seller's Group, including Mountaineer have been filed; (b) All Taxes of the Seller's Group and of Mountaineer that are due and payable have been timely paid, other than Taxes which are not yet due or which, if due, are not delinquent, are being contested in good faith, or have not been finally determined and for which appropriate reserves therefore have been established; (c) There are no pending or, to the knowledge of Seller or Mountaineer, threatened actions or proceedings for the assessment or collection of Taxes against Mountaineer; (d) All Taxes required to be withheld from payments to employees have been withheld and paid to the proper taxing authority in a timely fashion; 31 (e) To the knowledge of Sellers or Mountaineer, no taxing authorities are presently conducting any audits or other examinations of any Tax Returns referred to in clause (a) or Taxes referred to in clause (b); (f) There are no liens for unpaid Taxes on Mountaineer'sassets. (g) No waivers of statutes of limitations have been given by or requested with respect to any Taxes of the Seller's Group; (h) No tax is required to be withheld pursuant to Section 1445 of the Code as a result of the transfer contemplated by thisAgreement. 4.22 Conduct of Business The Sellers and their respective Subsidiaries are engaged in the gas utility business in the State of West Virginia only through Mountaineer, and neither the Sellers, nor any of their respective Subsidiaries conducts any operation associated with, or owns any assets or properties used in, or holds any permits or licenses used in, the gas utility business in the state of West Virginia. Mountaineer Gas is not, nor (to Seller's knowledge) has been, engaged in any material business other than the gas utility business in the State of West Virginia or owns or has owned any material assets or properties which are used in any business other than the gas utility business in the State of West Virginia. 4.23 Customers Since June 30, 1999, to ECA's knowledge, no customer of Mountaineer accounting for 2% or more of the consolidated annual revenue of Mountaineer has canceled or otherwise terminated its relationship with Mountaineer and there has been no material adverse change in the business relationship of Mountaineer with any such customer, as the case may be. To ECA's knowledge, no such customer intends to cancel or otherwise terminate its relationship with Mountaineer or to decrease significantly its purchases of natural gas from Mountaineer. 32 4.24 Affiliate Interests (a) Neither ECA, any of ECA's Affiliates (excluding Mountaineer) nor to the knowledge of ECA (after reasonable investigation) any director or officer or employee of ECA or any of ECA's Affiliates (including Mountaineer) (i) has any interest in any property, real or personal, tangible or intangible, of Mountaineer, except for interests with a value of not greater than $200,000 in the aggregate, (ii) has any cause of action or other claim whatsoever against Mountaineer or its assets or properties, or owes any amount to, or is owed any amount by, any of them, except for claims and indebtedness not in excess of $200,000 in the aggregate or (iii) owns, directly or indirectly, any debt, equity or other interest or investment in any person which is a competitor, lessor, lessee, or supplier of Mountaineer, except securities of any publicly-held corporation which do not exceed 1% of the outstanding voting securities of such corporation. (b) There are no agreements, indebtedness, arrangements, understandings, obligations or other rights or obligations between Mountaineer, on the one hand, and ECA, any of ECA's Affiliates (excluding Mountaineer), or to the knowledge of ECA (after reasonable investigation) any director or officer or employee of ECA or any of ECA's Affiliates (including Mountaineer), on the other hand, other than agreements, indebtedness, arrangements, understandings, obligations and other rights which will not survive the Closing. 4.25 Personal Property Leases (a) Seller's Disclosure Schedule sets forth a true and complete list of all of the leases of personal property to which Mountaineer is a party which provides for payments in excess of $2,000,000 per year (collectively, the "Mountaineer Personal Property Leases"). ECA has caused to be delivered or made available to Buyer a true and complete copy of each Mountaineer Personal Property Lease. 33 (b) Except as set forth in Seller's Disclosure Schedule, (i) each Mountaineer Personal Property Lease is a valid and binding obligation of each party thereto and is enforceable against each such party in accordance with its terms, (ii) there is no default or claim of default under any Mountaineer Personal Property Lease, and (iii) no event has occurred that, with the passage of time or the giving of notice or both, would constitute a default by any party to any Mountaineer Personal Property Lease, or would permit unilateral modification, acceleration, or termination of any Mountaineer Personal Property Lease. 34 ARTICLE V - REPRESENTATIONS AND WARRANTIES OF THE BUYER The Buyer represents and warrants to the Seller that as of the date hereof and as of the Closing Date: 5.01 Corporate Status and Authority The Buyer is a corporation duly organized, validly existing in Maryland and in good standing under the laws of the State of West Virginia. Buyer has all requisite corporate power and authority and has taken all corporate action necessary in order to execute and deliver this Agreement and the Ancillary Agreements, and subject only to the governmental authorizations specified in Section 7.03(a), to perform its obligations hereunder. 5.02 Duly Executed This Agreement and each Ancillary Agreement has been duly executed and delivered on behalf of the Buyer thereto and, subject only to the governmental authorization specified to in Section 7.03(a) hereof, constitutes a legal, valid and binding obligation of the Buyer enforceable in accordance with its terms. 5.03 [RESERVED] 5.04 Power; Governmental Consent Subject to the obtaining of any governmental approvals necessary for the Agreement, and the Ancillary Agreements, as more fully explained under Section 7.03(a), no consent, waiver, approval or authorization of or designation, declaration or filing with any governmental authority is or has, been required on the part of the Buyer in connection with the execution and delivery of this Agreement and each Ancillary Agreement or the consummation of the transactions contemplated hereby. 35 5.05 Brokers All negotiations relating to this Agreement and the transactions contemplated hereby have been carried out without the intervention of any person acting on behalf of the Buyer in such manner as to give rise to any valid claim against the Seller or any of its affiliates for any brokerage or finder's commission, fee or similar compensation. 5.06 Litigation There are no actions, suits, proceedings or governmental investigations pending, or to the knowledge of the Buyer, threatened against the Buyer or any of its subsidiaries that challenge the validity of this Agreement or any Ancillary Agreement or seek to enjoin or otherwise prohibit or limit the transactions contemplated herein or therein. 5.07 Noncontravention The execution, delivery and performance of this Agreement and the Ancillary Agreements by Buyer, and the consummation by the Buyer of the transactions contemplated in this Agreement and therein, do not and will not (a) violate or conflict with, or constitute a default under, any provision of the certificate of incorporation, by-laws or comparable governing instruments of Buyer, (b) violate any provision of, or constitute (or with notice or lapse of time or both would constitute) a default under, or accelerate or permit the acceleration of the performance required by, any Contract to which Buyer is a party or by which any of them or any of its assets or properties are bound or subject (collectively, the "Buyer Contracts"), (c) entitle any party to cancel or terminate, or result in any change in the rights or obligations of any party under, or require a consent or waiver by any party to, any Buyer Contract, (d) result in the creation of a lien, pledge, security interest, voting trust arrangement, charge, option, restriction, claim or other encumbrance on the equity securities, ownership interests or on the assets of Buyer, (e) violate any Law by which or to 36 which any of its assets or properties are bound or subject, or (f) result in the loss or impairment of any approval, authorization, comment, license, franchise, order or permit of or by, or filing with a Person of or benefiting Buyer; except (i) in the case of clauses (b), (d), (e) and (f) of this Section, for such violations, defaults, accelerations, losses or impairments as, when taken together with all other such violations, defaults, accelerations, losses and impairments, could not adversely impair Buyer's business or operations. 37 ARTICLE VI - ASSUMPTION OF LIABILITIES, SURVIVAL AND INDEMNIFICATION 6.01 The Buyer's Assumption of Liabilities Buyer shall, from and after the Closing Date, indemnify and hold Seller harmless against all obligations of Mountaineer; provided that Buyer shall have no obligation hereunder in respect of any Losses for which ECA is otherwise obligated to indemnify any Buyer Indemnified Party pursuant to Section 6.04.. 6.02 Survival of Representations, Warranties, Covenants and Agreements; Knowledge of Breach. Notwithstanding any otherwise applicable statute of limitations, the representations and warranties included or provided for in this Agreement shall survive the Closing until eighteen month after the Closing Date; provided, however, that (i) any representations and warranties contained in Sections 4.08(c), 4.12 and 4.21 hereof shall survive the Closing until the expiration of the applicable statute of limitations (including any waivers or extensions thereof) with respect to such matters; and (ii) the representations and warranties contained in Sections 4.01, 4.02, 4.03, 4.04, 5.01 and 5.02 shall survive the Closing for a period of 10 years. The covenants and agreements contained in this Agreement shall survive the Closing until the date or dates specified therein or the expiration of the applicable statute of limitations (including any waivers or extensions thereof) with respect to such matters, whichever is later. Except with respect to the representations, warranties, covenants and agreements contained in Articles II and XI, in no event shall Buyer be liable to the ECA Indemnified Parties (as hereinafter defined) or ECA be liable to the Buyer Indemnified Parties (as hereinafter defined), as the case may be, for any breach of the representations, warranties, covenants and agreements included or provided for herein or in any schedule or 38 certificate or other document delivered pursuant to this Agreement, unless and until all claims for which damages are recoverable hereunder by Buyer or ECA, as the case may be, exceed $5,000,000 in the aggregate, in which case Buyer or ECA, as the case may be, shall be entitled to recover $2,500,000 and all such damages in excess of $5,000,000; provided, however, that for purposes of calculating the amount of claims for which damages are recoverable hereunder by Buyer or ECA, as the case may be, the representations and warranties sha