PARTICIPATION AGREEMENT
PARTICIPATION AGREEMENT (this "Agreement"), dated as of December 20, 1999,
between Allegheny Energy, Inc., a Maryland corporation ("AYE") and Energy
Corporation of America, a West Virginia corporation ("ECA").
RECITALS
WHEREAS, the parties desire to coordinate their efforts in the
identification and acquisition of certain gas and gas-related assets and
properties, and/or certain business entities that engage in gas and gas-related
activities, upon the terms and subject to the conditions contained herein.
NOW, THEREFORE, in consideration of the agreements set forth herein and for
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto hereby agree as follows:
ARTICLE I
DEFINED TERMS
Section 1.01. Certain Definitions. As used in this Agreement, the terms set
forth in Appendix A have the meanings ascribed to them therein.
Section 1.02. Schedule of Definitions. As used in this Agreement, the terms
set forth in Appendix B have the meanings ascribed to them in the Sections of
this Agreement indicated in such Appendix.
ARTICLE II
PARTICIPATION
Section 2.01. Election to Participate. (a) Promptly following AYE's
execution of Preliminary Documentation with respect to any Gas Assets, AYE will
provide ECA with a written notification (the "Notification") to the effect that
AYE is evaluating such Gas Assets (any Gas Assets as to which AYE provides a
Notification, a "Confidential Acquisition"). Each Notification will include an
estimate of the date on which AYE and the seller or issuer of such Confidential
Acquisition are reasonably likely to execute definitive documentation concerning
AYE's acquisition of such Confidential Acquisition (the "Estimate Date").
Subject to the prior execution by ECA of a confidentiality agreement between ECA
and the seller or issuer of such Confidential Acquisition in form and substance
substantially identical to the confidentiality agreement between AYE and such
seller or issuer, AYE will furnish to ECA, if and as received, all information
received by AYE from such seller or issuer. AYE makes no, and shall not be
deemed to make any, representation or warranty concerning any information
furnished to ECA concerning any Confidential Acquisition, or as to the past,
present or future operating or financial performance of the Confidential
Acquisition. ECA agrees that it will satisfy itself as to the accuracy and
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sufficiency of the matters on which it relies in making any investment decision
with respect to each Confidential Acquisition. Following its receipt of the
Notification, ECA shall refrain from engaging in negotiations, discussions or
other activities that could result in a failure by AYE to purchase the
Confidential Acquisition. AYE shall have no obligation to acquire or invest in
any Confidential Acquisition and shall have no obligation to enter into any
discussions or negotiations or to continue to engage in any discussions or
negotiations concerning any Confidential Acquisition. AYE shall control any
discussions and negotiations between AYE and/or ECA (on the one hand) and third
parties (on the other hand) concerning the acquisition of each Confidential
Acquisition, but AYE shall afford ECA a reasonable opportunity to participate in
such discussions and negotiations. ECA shall not engage in any discussions or
negotiations with third parties concerning any Confidential Acquisition without
the prior consent of AYE.
(b) With respect to each Confidential Acquisition that is a Gas
Acquisition, ECA will provide AYE with a written notification (each, a "Gas
Acquisition Election") as to whether ECA elects to exercise its rights pursuant
to Section 2.02, not fewer than 30 calendar days prior to the Estimate Date.
With respect to each Confidential Acquisition that is a Pooling Acquisition, ECA
will provide AYE with a written notification (each, a "Pooling Acquisition
Election") as to whether ECA elects to exercise its rights pursuant to Section
2.03 not fewer than 30 calendar days prior to the Estimate Date.
(c) If the Confidential Acquisition consists of Gas Assets, then not fewer than
20 calendar days prior to the Estimate Date AYE will provide ECA with a
financial model showing the capitalization of a hypothetical business entity,
the only assets of which are such Gas Assets. The value of the equity capital
of such hypothetical entity as set forth in such model (the "Initial Equity
Amount") shall not exceed the long term indebtedness of such entity set forth
therein.
(d) ECA shall notify AYE of the Selected Percentage not fewer than 15 calendar
days prior to the Estimate Date.
Section 2.02. Selected Gas Acquisitions. AYE and ECA agree that following
AYE's receipt of a Gas Acquisition Election stating that ECA has elected to
exercise its rights pursuant to this section, AYE and ECA will negotiate in good
faith appropriate contractual arrangements with respect to the related
Selected Gas Acquisition pursuant to which, if and only if AYE acquires such
Selected Gas Acquisition during the Reference Period or within 18 months
following the end of the Reference Period: (i) AYE and ECA will form a Selected
Gas Entity for the purpose of acquiring, holding and disposing of such Selected
Gas Acquisition, and (ii) ECA will purchase or otherwise acquire for value an
ECA Interest. In connection with such negotiations, the parties will negotiate
in good faith appropriate contractual arrangements concerning the acquisition,
holding, operation and disposition of such Selected Gas Acquisition and the
related Interests. Such contractual arrangements:
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(a) Will contain provisions that are not reasonably likely to (i) cause a
material delay or complication in obtaining regulatory approval for the
acquisition of such Selected Gas Acquisition or the related AYE Interest or ECA
Interest, (ii) cause the acquisition transaction not to qualify for any tax,
accounting or regulatory treatment, the failure to qualify for which would
either have a significant adverse on AYE, or to the benefits to AYE of the
acquisition of the Selected Gas Acquisition or the related AYE Interest or the
attractiveness to the seller or issuer of such Selected Gas Acquisition of AYE's
proposal to acquire the Selected Gas Acquisition, or (iii) result in any
tax, accounting or regulatory conditions or circumstances that would have a
significant adverse effect on the ownership or operation by AYE of the Selected
Gas Acquisition, the AYE Interest or any of AYE's other assets or properties,
And
(b) Will provide that upon the payment by ECA to AYE of an amount of cash
equal to the product of (i) the Selected Percentage, multiplied by (ii) the
Initial Equity Amount, ECA will acquire an ECA Interest representing a
percentage "passive" equity interest or similar "synthetic" equity in the
related Selected Gas Entity equal to the Selected Percentage.
(c) Will provide AYE with complete management and operating control of the
Selected Gas Entity and will provide ECA with a "passive" equity interest or
similar synthetic equity in such Selected Gas Entity, and
(d) Will provide that the long term indebtedness of or attributable to the
Selected Gas Acquisition will be refinanced and replaced by intercompany loans
extended by AYE or one of its Affiliates to the related Selected Gas Entity, the
interest on which will be equal to such intercompany lender's cost of funds
relating to the indebtedness incurred by such lender in connection with the
making of such intercompany loans, and
(e) Will provide that AYE and ECA will have the same rights and
obligations with respect to Interests as those provided in Article IV, and will
contain provisions analogous to those set forth in Articles III and VI.
AYE and ECA shall use their respective best efforts to ensure that the foregoing
contractual arrangements have been executed and delivered at least five Business
Days prior to the Estimate Date.
Section 2.03. Pooling Acquisitions. AYE and ECA agree that following AYE's
receipt of an Election stating that ECA has elected to exercise its rights
pursuant to this Section 2.03, AYE and ECA will negotiate in good faith
appropriate contractual arrangements with respect to the related Pooling
Acquisition (and shall negotiate in good faith concerning whether such
arrangements should be comprised of (i) modifications to this Agreement
applicable to subsequent Gas Acquisitions, (ii) consulting and advisory
arrangements with respect to such Pooling Acquisition, and/or (iii) other
contractual arrangements) pursuant to which, if and only if AYE acquires such
Pooling Acquisition during the Reference Period or within 18 months following
the end of the Reference Period:
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(a) ECA will pay to AYE at least two years and one day following the date of
consummation of such Pooling Acquisition, but not prior to two years and
one day following the date of such consummation, cash equal to the product of
(i) the Selected Percentage, multiplied by (ii) the market value of the equity
consideration paid by AYE in connection with such Pooling Acquisition, which
shall be determined in the manner set forth in Section 4.06(j) as of the date of
the consummation of such Pooling Acquisition.
(b) At least two years and one day following the date of consummation of
such Pooling Acquisition, but not prior to two years and one day following the
date of such consummation or prior to the payment referred to in Section
2.03(a), ECA will have "synthetic equity" or other economic rights as equivalent
as may be practicable (in light of the factors specified in clause (a) of
Section 2.02 and in light of the requirements for "pooling of interests"
accounting treatment) to such economic rights as ECA would have if ECA had
purchased a percentage equity interest in such Pooling Acquisition equal to the
Selected Percentage.
(c) AYE and ECA will have substantially the same rights and obligations with
respect to such economic rights as those provided in Article IV with respect to
AYE Interests and ECA Interests.
Such contractual arrangement will contain provisions analogous to those set
forth in Articles III and VI.
Section 2.04. Agreement Concerning Combined Gas and Electric Acquisitions.
In the event that during the Reference Period AYE acquires assets or securities
of an entity which operates one or more electric utilities, and such assets or
securities do not constitute Gas Assets solely because the gross revenues of or
attributable to such entity or assets that are derived from Covered Activities
in the Territory (after giving effect to any disposition of assets and
businesses not acquired by AYE) do not equal or exceed 50% of the gross revenues
of or attributable to such entity or assets, each of AYE and ECA will
entertain reasonable proposals from the other party concerning, and shall
discuss in good faith, whether and on what terms AYE and ECA should cooperate in
the ownership, operation and/or disposition of such assets of the acquired
entity or such portion of the acquired assets as may be engaged or employed in
connection with Covered Activities in the Territory.
Section 2.05. Agreement Concerning Financing Arrangements. The parties
recognize that this Agreement broadly prohibits the creation of liens,
encumbrances and security interests on or with respect to Interests. In
connection with the negotiations referred to in Section 2.02, AYE and ECA will
negotiate in good faith appropriate contractual arrangements (and shall
negotiate in good faith concerning whether such arrangements should be comprised
of modifications to this Agreement and/or other contractual arrangements)
concerning the matters set forth in Article IV intended (i) to permit ECA to
borrow funds sufficient to make the payments contemplated by Section 2.02(b),
(ii) to accommodate such liens, encumbrances and security interests as attach to
AYE's assets and properties by operation of federal or state law or in the
ordinary course of AYE's financing activities, (iii) to safeguard and protect
AYE's right to acquire an ECA Interest in the event a lender forecloses or
otherwise takes possession or title to such ECA Interest or executes upon a
lien, encumbrance or security interest thereon, and (iv) to safeguard and
protect ECA's right to acquire an AYE Interest in the event a lender forecloses
or otherwise takes possession or title to such AYE Interest or executes upon a
lien, encumbrance or security interest thereon.
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ARTICLE III
REGULATORY APPROVALS
Section 3.01. Approval of Acquisitions. The effectiveness of this Agreement
will be conditioned upon the occurrence of the Closing. The effectiveness
of all contractual arrangements concerning the matters specified in Sections
2.02 and 2.03 and Article IV will be conditioned upon prior approval of the
Securities and Exchange Commission (the "SEC") if and to the extent required by
the Public Utility Holding Company Act of 1935, as amended, and the rules and
regulations thereunder (collectively, the "1935 Act"), and upon the prior
receipt of any other required regulatory approvals. AYE and ECA will negotiate
in good faith to cause such contractual arrangements to contain such terms and
conditions as are not reasonably likely to cause such approvals to be withheld,
delayed or conditioned.
ARTICLE IV
DISPOSITIONS
Section 4.01. General. Neither AYE nor ECA shall make any Disposition to
any Person unless such Disposition is expressly permitted by and made in
accordance with this Agreement. AYE and ECA shall cause each Selected Gas
Entity not to reflect on its books any Disposition except Dispositions expressly
permitted by and made in accordance with, this Agreement. Any Disposition
not permitted by and made in accordance with this Agreement (an "Impermissible
Disposition"), including but not limited to Dispositions made without prior
compliance with the provisions of this Article IV, shall be null and void ab
initio. AYE and ECA agree to cooperate in obtaining any regulatory approvals
required in connection with any Disposition made in accordance with this
Agreement.
Section 4.02. Dispositions By AYE. If at any time AYE makes a
determination to sell any AYE Interest, it shall submit to ECA a written offer
(an "Offer") with respect to such Disposition specifying the price and the other
material terms and conditions, including deferred payment mechanics (if
applicable) pursuant to which AYE proposes to sell the AYE Interest. Such Offer
shall state that ECA is entitled to purchase, at its option and in accordance
with the provisions of this Agreement, all of the AYE Interest for such price
and on such other terms and conditions.
Section 4.03. Election to Purchase or to "Tag-Along". Upon receipt of an
Offer, ECA shall have the right (but not the obligation), which it may exercise
by delivering a written notice of such exercise (an "Exercise Notice") to AYE
within 30 calendar days of the date of dispatch of such Offer, to either (i)
purchase all (but not less than all) of the AYE Interest for the price and on
the other terms and conditions, including deferred payment mechanics (if
applicable), set forth in the Offer, or, alternatively, (ii) authorize and
direct AYE, as agent and attorney-in-fact for ECA, to offer the corresponding
ECA Interest for sale to any third party to which AYE offers to sell the AYE
Interest and to take all actions necessary or appropriate to sell such ECA
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Interest on behalf of ECA, in each case on the same terms, and subject to the
same conditions, as are applicable to the AYE Interest (except for the price,
which shall be proportionate to the price for the AYE Interest), it being
understood that AYE may not sell the ECA Interest to any Person other than the
Person which acquires the corresponding AYE Interest (the "Acquiror"). ECA may
exercise either, but not both, of the rights described in clauses (i) and (ii)
of the previous sentence but shall be under no obligation to exercise either
such right. Any Exercise Notice shall, together with the Offer, constitute a
valid, legally binding and enforceable agreement on the part of ECA to either
purchase such AYE Interest from AYE for the price and on the other terms and
conditions, including deferred payment mechanics (if applicable) set forth in
the Offer, or to sell such ECA Interest to the Acquiror on the same terms and
subject to the same conditions as are applicable to the sale of the AYE Interest
(except the price, which shall be proportionate to the price for the AYE
Interest), each as the case may be. If ECA shall have made the election
contemplated by clause (ii) of the first sentence of this Section 4.03 (the
"Tag-Along Election") within the time period specified in such sentence, ECA
shall execute such instruments and documents as may be necessary to confirm
AYE's power and authority as agent and attorney-in-fact of ECA to offer and sell
of the ECA Interest on ECA's behalf.
Section 4.04. If ECA Elects to Purchase. If ECA shall have made the
election contemplated by clause (i) of the first sentence of Section 4.03 (the
"Purchase Election") within the time period specified in such sentence, then
subject to compliance with applicable laws and regulations and the obtaining of
such regulatory approvals as may be required, the purchase and sale of the AYE
Interest shall be consummated as soon as practicable following the receipt of
all regulatory approvals required in connection with such transaction. Such
disposition shall be effected by (i) AYE's delivery to ECA of documents
sufficient to effect the sale to ECA of the AYE Interest, and (ii) ECA's
delivery to AYE of the purchase price set forth in the Offer, subject to any
deferred payment mechanics (if any) set forth therein, in cash, by wire transfer
or by certified or official bank check. AYE hereby (i) warrants to ECA that, as
of the consummation of such purchase and sale transaction the sale and delivery
of the AYE Interest shall vest in ECA good legal title and beneficial ownership
of the AYE Interest, free and clear of all liens, charges, encumbrances,
restrictions, equities, options and claims, other than those incurred by action
of ECA and (ii) agrees to indemnify and hold harmless ECA against any losses or
damages arising out of any breach of the warranty set forth in clause (i) of
this sentence.
Section 4.05. If ECA Does Not Elect to Purchase. (a) If ECA does not make
a Purchase Election or Tag Along Election within the time period specified in
Section 4.03, AYE shall have the right, which may be exercised at any time
during the period prior to the 150th calendar day following the date of dispatch
of the Offer (the "Drag-Along Period"), to elect to cause ECA to sell the
ECA Interest to the Acquiror at a price and subject to other terms and
conditions which are (i) not more favorable in the aggregate to the Acquiror
than those specified in the Offer (other than the price, which shall be
proportionate to the price for the AYE Interest), and (ii) identical (except the
price, which shall be proportionate to the price for the AYE Interest) to the
terms and conditions of the sale of the AYE Interest (any such election, a
"Drag-Along Election").
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(b) AYE may exercise a Drag-Along Election by furnishing written notice
thereof to ECA prior to the expiration of the Drag-Along Period. The
consummation of the purchase and sale of the ECA Interest shall occur
contemporaneously with the consummation of the purchase and sale of the AYE
Interest. If AYE shall cause the Acquiror to purchase the ECA Interest, such
purchase shall be at a price and subject to terms and conditions which are (i)
not more favorable in the aggregate to the Acquiror than those specified in the
Offer (other than the price, which shall be proportionate to the price for the
AYE Interest), and (ii) are identical (except the price, which shall be
proportionate to the price for the AYE Interest) to the price, terms and
conditions applicable to the sale of the AYE Interest;
(c) If ECA does not make a Purchase Election within the time period
specified in Section 4.03, AYE may, at any time within 180 days following the
date of dispatch of the Offer, enter into an agreement to sell the AYE Interest
to any Person. Any such sale of an AYE Interest shall be made to the Acquiror
at a price and on other terms and conditions not more favorable in the aggregate
to the Acquiror than those specified in the Offer. If ECA shall have made
the Tag-Along Election, AYE shall not sell or agree to sell the AYE Interest
unless the Acquiror agrees to purchase all of the ECA Interest on terms and
conditions identical (except the price, which shall be proportionate to the
price for the AYE Interest) to the price, terms and conditions applicable to the
sale of the AYE Interest. If an Acquiror shall not have entered into definite
documentation concerning the purchase of the AYE Interest within 180 calendar
days following the date of dispatch of the Offer, the AYE Interest shall
continue to be subject to the rights of first offer set forth in this Article
IV, and AYE's power and authority as agent and attorney-in-fact of ECA with
respect to the ECA Interest shall terminate.
Section 4.06. Other Purchase Rights. (a) Impermissible Disposition by AYE.
AYE agrees to furnish to ECA prompt written notice upon becoming aware of the
occurrence of an Impermissible Disposition with respect to an AYE Interest. If
such Impermissible Disposition has not been reversed, rescinded or canceled
within 30 calendar days following the date of dispatch by AYE of a notice with
respect to a particular Impermissible Disposition (the "AYE Impermissible
Disposition Cure Period"), ECA shall have the right, which may be exercised at
any time during the period of 30 calendar days following the elapse of the
Impermissible Disposition Cure Period to elect to purchase the AYE Interest at
Fair Market Value in accordance with this Section 4.06. Notwithstanding the
foregoing, ECA shall retain all causes of action, rights and remedies in respect
of a breach by AYE of its obligations under this Agreement to which ECA
would otherwise be entitled under applicable law.
(b) Impermissible Dispositions by ECA. ECA agrees to furnish to AYE prompt
written notice upon becoming aware of the occurrence of an Impermissible
Disposition with respect to an ECA Interest. If such Impermissible Disposition
has not been reversed, rescinded or canceled within 30 calendar days following
the date of dispatch by ECA of a notice with respect to a particular
Impermissible Disposition (the "ECA Impermissible Disposition Cure Period"), AYE
shall have the right, which may be exercised at any time during the period of 30
calendar days following the elapse of the Impermissible Disposition Cure Period
to elect to purchase the ECA Interest at Fair Market Value in accordance with
this Section 4.06. Notwithstanding the foregoing, AYE shall retain all causes
of action, rights and remedies in respect of a breach by ECA of its obligations
under this Agreement to which AYE would otherwise be entitled under applicable
law.
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(c) AYE Call Right. AYE shall have the right, which may be exercised at any
time following the second anniversary of the acquisition by ECA of an ECA
Interest, to elect to purchase all, but not less than all, of such ECA Interest
for Fair Market Value in accordance with this Section 4.06.
(d) ECA Put Right. ECA shall have the right, which may be exercised at any
time following the second anniversary of the acquisition by ECA of an ECA
Interest, to elect to cause AYE to purchase all, but not less than all, of such
ECA Interest for Fair Market Value in accordance with this Section 4.06.
(e) AYE Change of Control. AYE shall have the right, which may be
exercised at any time following the termination of this Agreement by AYE
pursuant to Section 5.02, to elect to purchase all, but not less than all, of
any ECA Interest for Fair Market Value plus the Control Premium in accordance
with this Section 4.06.
(f) ECA Change of Control. AYE shall have the right, which may be
exercised at any time following the termination of this Agreement by AYE
pursuant to Section 5.03, to elect to purchase all, but not less than all, of
any ECA Interest for Fair Market Value in accordance with this Section 4.06.
(g) Closing. If either AYE or ECA elects to exercise any right pursuant to
Section 4.06(a), through (f), such party (the "Exercising Party") shall provide
to the other a written notification of such exercise (any such notification, a
"Put/Call Notice") prior to the expiration of the period of time during which
such right may be exercised. The consummation of the purchase and sale of the
Interest to which the Put/Call Notice relates, shall occur on the fifteenth
calendar day following the last to occur of (x) the final determination of the
Fair Market Value of the Interest, and (y) the receipt of all governmental and
regulatory approvals required for the consummation of such purchase and sale (or
if such fifteenth calendar day is not a business day, then the next succeeding
business day), at 10:00 a.m., local time, at a location in Pittsburgh,
Pennsylvania mutually agreed upon by AYE and ECA.
(h) Warranties. AYE warrants to ECA, with respect to each Interest that is
the subject of a Put/Call Notice and is an AYE Interest, and ECA warrants
to AYE, with respect to each Interest that is the subject of a Put/Call Notice
and is an ECA Interest, that the sale and delivery of such Interest at the
closing of the purchase and sale of such Interest shall vest in the Exercising
Party good legal title to and beneficial ownership of such Interest, free and
clear of all liens, charges, encumbrances, restrictions, equities, options and
claims, other than such as may be imposed by action of the Exercising Party.
Each party agrees to indemnify and hold harmless such Exercising Party against
any losses or damages arising out of any breach of the warranty set forth in the
previous sentence.
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(i) A Fair Market Value@ means the price which a willing buyer would pay to
a willing seller for the Interest in question in an arms= length negotiated
transaction without undue time constraints, and shall be determined in U.S.
dollars as of the date of dispatch of the Put/Call Notice. AControl Premium@
means, with respect to any ECA Interest, an amount equal to the product of (i)
the aggregate Achange of control premium,@ if any, received or to be received by
AYE stockholders as a result of the related AYE Change in Control, as determined
in accordance with Section 4.06(j), multiplied by (ii) the product of (A) the
amount that would have been shown on AYE=s books at the time of the consummation
of the AYE Change in Control as the book value of such ECA Interest if AYE had
acquired such ECA Interest at the time ECA acquired such ECA Interest, divided
by (B) the aggregate book value of AYE=s assets at the time of the consummation
of the AYE Change in Control.
(j) Any Determination Amount shall be determined, if possible, by the mutual
agreement of AYE and ECA. If AYE and ECA are unable to reach such an
agreement within 30 calendar days following the receipt of the Put/Call Notice,
the Determination Amount shall be determined by a nationally recognized
investment banking firm jointly selected by AYE and ECA. If AYE and ECA are
unable to mutually agree on an investment banking firm, each shall choose an
investment banking firm and the two firms so chosen shall select a third
investment banking firm. The third firm so selected shall determine the
Determination Amount, which determination shall be final and binding on the
parties. If either party shall fail to select an investment banking firm within
10 calendar days following receipt from the other party of a notice specifying
such failure, or if the two investment banking firms shall fail to select a
third investment banking firm, such third investment banking firm shall be
selected by the American Arbitration Association or by arbitration in accordance
with the Commercial Arbitration Rules thereof. The parties shall instruct such
third investment banking firm so retained to deliver to such parties a written
opinion as to the Determination Amount within 60 days following the selection of
such firm. The cost of determining the Determination Amount, including the fees
and expenses of such investment banking firms, shall, unless otherwise agreed by
the parties in writing, be borne equally by AYE, on the one hand, and ECA, on
the other hand.
(k) Each party agrees to furnish to each investment banking firm
referred to in Section 4.06(j) such financial, business and other information as
is reasonably necessary to allow it to evaluate the business, financial
condition and results of operation of the related Selected Gas Entity, subject
to the execution of a reasonable confidentiality agreement by such investment
banking firm.
ARTICLE V
TERMINATION
Section 5.01. Mutual Agreement. This Agreement may be terminated at any
time by the mutual written consent of AYE and ECA.
Section 5.02. AYE Change of Control. AYE agrees to furnish to ECA 30 days'
prior written notice upon becoming aware of the occurrence of an AYE Change in
Control. AYE shall have the right, which may be exercised at any time during
the period of 90 calendar days following the consummation of any AYE Change in
Control, to terminate this Agreement.
Section 5.03. ECA Change of Control. ECA agrees to furnish to AYE 30 days'
prior written notice upon becoming aware of the occurrence of an ECA Change in
Control. AYE shall have the right, which may be exercised at any time during
the period of 90 calendar days following the date that AYE receives such notice
or otherwise becomes aware of an ECA Change in Control, to terminate this
Agreement.
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Section 5.04 Automatic Termination. This Agreement shall terminate
automatically on the second anniversary of the last day of the Reference Period.
ARTICLE VI
CONFIDENTIALITY; NONCOMPETITION; NONSOLICITATION
Section 6.01. Confidential Information Provided to ECA. (a) From and after
the date hereof and until the fifth anniversary of the last day of the Reference
Period, ECA (i) shall hold and shall use its reasonable efforts to cause
its Affiliates, officers, directors, employees, representatives, consultants and
advisors (collectively with ECA, the "ECA Group") to hold in strict confidence,
unless compelled to disclose by judicial or administrative process, or, in the
opinion of its counsel, by other requirements of law or the rules of any
applicable stock exchange, all Confidential Information that it has obtained
(except to the extent that such information can be shown to have been (x)
previously actually known by any member of the ECA Group, or (y) in the public
domain through no fault of any member of the ECA Group), (ii) shall not release
or disclose, and shall cause each member of the ECA Group not to release or
disclose, Confidential Information to any other Person (other than members of
the ECA Group and its auditors, counsel and lenders who need to know such
information for the purpose of evaluating a Confidential Acquisition), and (iii)
will not use such Confidential Information to the detriment of AYE. If any
member of ECA Group shall be required by legal process to make disclosure of any
such Confidential Information, ECA shall give AYE prior written notice of the
making of such disclosure (which notice shall attach a copy of such legal
process) and shall use all reasonable efforts to afford AYE an opportunity to,
and will cooperate with AYE if AYE chooses to, contest the making of such
disclosure.
(b) In addition to the covenants contained in Section 6.01(a), ECA shall,
and shall cause each member of the ECA Group to, use any Confidential
Information of or relating to any Selected Gas Entity solely for the purpose of
owning or holding the related ECA Interest.
Section 6.02. Confidential Information Provided to AYE. (a) From and after
the date hereof and until the fifth anniversary of the last day of the Reference
Period, AYE (i) shall hold and shall use its reasonable efforts to cause
its Affiliates, officers, directors, employees, representatives, consultants and
advisors (collectively with AYE, the "AYE Group") to hold in strict confidence,
unless compelled to disclose by judicial or administrative process, or, in the
opinion of its counsel, by other requirements of law or the rules of any
applicable stock exchange, all Confidential Information that it has obtained
(except to the extent that such information can be shown to have been (x)
previously actually known by any member of the AYE Group, or (y) in the public
domain through no fault of any member of the AYE Group), (ii) shall not release
or disclose, and shall cause each member of the AYE Group not to release or
disclose, Confidential Information to any other Person (other than members of
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the AYE Group and its auditors, counsel and lenders who need to know such
information for the purpose of evaluating a Confidential Acquisition), and (iii)
will not use such Confidential Information to the detriment of ECA. If any
member of AYE Group shall be required by legal process to make disclosure of any
such Confidential Information, AYE shall give ECA prior written notice of the
making of such disclosure (which notice shall attach a copy of such legal
process) and shall use all reasonable efforts to afford ECA an opportunity to,
and will cooperate with ECA if ECA chooses to, contest the making of such
disclosure.
(b) In addition to the covenants contained in Section 6.02(a), AYE shall,
and shall cause each member of the AYE Group to, use any Confidential
Information of or relating to any Selected Gas Entity solely for the purpose of
owning or holding the related AYE Interest.
Section 6.03. Confidentiality of Acquisition Discussions. ECA shall not,
and ECA will use its reasonable efforts to cause the ECA Group to not, discuss a
Confidential Acquisition with any other person or disclose to any other
Person either the fact that discussions or negotiations are taking place
concerning a Confidential Acquisition or any of the terms, conditions or other
facts with respect to any such Confidential Acquisition, including the status
thereof; provided, however, that any member of the ECA Group may make such
disclosure to the extent such member has received the written opinion of ECA's
outside counsel that such disclosure is required to be made in order to avoid
violating the federal securities laws and ECA is otherwise not in breach of this
Agreement.
Section 6.04. Noncompetition. (a) In consideration for being furnished
with Confidential Information, ECA hereby covenants and agrees that until two
years after the Reference Period, ECA shall not directly or indirectly acquire
any financial or beneficial interest in, provide services with respect to, lease
or own, manage, operate or control any Confidential Acquisition that does not
result in the acquisition by ECA of an ECA Interest.
(b) In consideration for being furnished with Confidential Information,
ECA hereby covenants and agrees that is will not, directly or indirectly
(whether as an owner, partner, stockholder, employee, director, officer, agent,
consultant or the equivalent of any person or entity), engage in, assist any
other person or entity to engage in, or have any equity, financial, proprietary,
ownership or like interest in, any business which is in competition with the
business conducted by any Selected Gas Entity.
ARTICLE VII
MISCELLANEOUS
Section 7.01. Survival. Articles IV and VI shall survive termination of
this Agreement.
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Section 7.02. Amendment and Waiver. Any provision of this Agreement may be
amended or waived if, and only if, such amendment or waiver is in writing and
signed, in the case of an amendment, by AYE and ECA, or in the case of a waiver,
by the party against whom the waiver is to be effective. No failure or delay by
any party in exercising any right, power or privilege hereunder shall operate as
a waiver thereof nor shall any single or partial exercise thereof preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege.
Section 7.03. Performance and Assignment. Any action or obligation to be
performed by AYE under this Agreement shall be deemed to be performed by AYE if
such action or obligation is performed by a Subsidiary of AYE. No party to this
Agreement may assign or delegate any of its rights or obligations under
this Agreement without the prior written consent of the other party hereto,
except that AYE may assign or delegate any or all of its rights under this
Agreement to any wholly owned Subsidiary or Subsidiaries of AYE. Any assignment
made in violation of this Section 7.03 shall be null and void.
Section 7.04. Expenses. Except as otherwise expressly provided in this
Agreement, whether or not the transactions contemplated by this Agreement are
consummated, the parties shall bear their own respective expenses (including,
but not limited to, all compensation and expenses of counsel, financial
advisors, consultants, actuaries and independent accountants) incurred in
connection with this Agreement and the transactions contemplated hereby.
Section 7.05. Parties in Interest; No Third Party Beneficiaries. This
Agreement shall inure to the benefit of and be binding upon the parties hereto
and their respective successors and permitted assigns. Nothing in this
Agreement, express or implied, is intended to confer upon any Person other than
AYE and ECA and their successors or permitted assigns any rights or remedies
under or by reason of this Agreement.
Section 7.06. Public Disclosure. Each of the parties to this Agreement
hereby agrees with the other parties hereto that, except as may be required to
comply with the requirements of applicable law or the rules and regulations of
each stock exchange upon which the securities of one of the parties or its
Affiliates is listed, no press release or similar public announcement or
communication will be made or caused to be made concerning the execution or
performance of this Agreement unless specifically approved in advance by all
parties hereto; provided, however, that, to the extent that either party to this
Agreement is required by law or the rules and regulations of any stock exchange
upon which the securities of one of the parties or its Affiliates is listed to
make such a public disclosure, such public disclosure shall only be made after
prior consultation with the other party to this Agreement.
Section 7.07. Entire Agreement. This Agreement (including all Annexes and
Schedules hereto) and any agreement between AYE and ECA making specific
reference to this Section 8.06 constitutes the entire agreement between the
parties hereto with respect to the subject matter hereof and supersedes all
prior agreements and understandings, oral or written, with respect to such
matters.
Section 7.08. Counterparts. This Agreement and any amendments hereto may be
executed in one or more counterparts, each of which shall be deemed to be an
original, and all of which shall be considered one and the same instrument.
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Section 7.09. Schedules. The inclusion of any matter in any schedule to
this Agreement shall be deemed to be an inclusion for all purposes of this
Agreement, including each representation and warranty as to which the relevance
of such matter is readily apparent, but inclusion therein shall expressly not be
deemed to constitute an admission by AYE or ECA, or otherwise imply, that any
such matter is material or creates a measure for materiality for the purposes of
this Agreement.
Section 7.10. Section Headings. The section and paragraph headings and
table of contents contained in this Agreement are for reference purposes only
and shall not in any way affect the meaning or interpretation of this Agreement.
Section 7.11. Notices. All notices hereunder shall be deemed given if in
writing and delivered personally or sent by facsimile or by registered or
certified mail (return receipt requested) to the parties at the following
addresses (or at such other addresses as shall be specified by like notice):
(a) if to AYE, to:
Allegheny Energy, Inc.
Attention: Jay Pifer, President
800 Cabin Hill Drive
Greensburg, Pennsylvania 15601-1689
With a copy to:
Allegheny Energy, Inc.
Attention: Thomas K. Henderson, Vice President, Legal
10435 Downsville Pike
Hagerstown, Maryland 21740
And
Sullivan & Cromwell
Attention: Matthew G. Hurd
125 Broad Street
New York, New York 10004
(b) if to ECA, to:
Energy Corporation of America
Attention: John Mork, President
4643 South Ulster, Suite 1100
Denver, Colorado 80237
With a copy to:
Goodwin & Goodwin, LLP
Attention: Thomas R. Goodwin
1500 One Valley Square
Charleston, West Virginia 25301
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Section 7.12. Governing Law; Submission to Jurisdiction; Selection of Forum.
This Agreement shall be governed by, and construed in accordance with, the
laws of the State of West Virginia without reference to the choice of law
principles thereof. Each party hereto agrees that it shall bring any action or
proceeding in respect of any claim arising out of or related to this Agreement
or the transactions contained in or contemplated by this Agreement, whether in
tort or contract or at law or in equity, exclusively in the United States
District Court for the Southern District of West Virginia (the "Chosen Court")
and (i) irrevocably submits to the exclusive jurisdiction of the Chosen Court,
(ii) waives any objection to the laying of venue in any such action or
proceeding in the Chosen Court, (iii) waives any objection that the Chosen Court
is an inconvenient forum or does not have jurisdiction over any party hereto and
(iv) agrees that service of process upon such party in any such action or
proceeding shall be effective if notice is given in accordance with Section 7.11
of this Agreement.
Section 7.13. Severability. The provisions of this Agreement shall be
deemed severable and the invalidity or unenforceability of any provision shall
not affect the validity or enforceability of the other provisions hereof. If
any provision of this Agreement, or the application thereof to any person or
entity or any circumstance, is invalid or unenforceable, (a) a suitable and
equitable provision shall be substituted therefor in order to carry out, so far
as may be valid and enforceable, the intent and purpose of such invalid or
unenforceable provision and (b) the remainder of this Agreement and the
application of such provision to other persons, entities or circumstances shall
not be affected by such invalidity or unenforceability, nor shall such
invalidity or unenforceability affect the validity or enforceability of such
provision, or the application thereof, in any other jurisdiction.
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IN WITNESS WHEREOF, this Agreement has been signed on behalf of each of the
parties hereto as of the date hereof.
ALLEGHENY ENERGY, INC.
By: /S/ Jay Pifer
--------------------------------
Name: Jay Pifer
Title: Senior Vice President
ENERGY CORPORATION OF AMERICA
By: /S/ John Mork
--------------------------------
Name: John Mork
Title: President
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APPENDIX A
CERTAIN DEFINITIONS
"Affiliate" means, with respect to any Person, any other Person that,
directly or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, such Person.
"AYE Change in Control" means any merger or consolidation of AYE with or into
another entity, any transfer or sale of all or substantially all of AYE's
assets, any Bankruptcy Event with respect to AYE and any assignment of the
Agreement by AYE, by operation of law or otherwise.
"AYE Interest" means, with respect to any Selected Gas Acquisition, any equity
or economic interest in the related Selected Gas Entity, which interest is owned
or held, directly or indirectly, by AYE.
"Bankruptcy Event" means, with respect to any Person, the occurrence of any of
the following events: (i) the entry by a United States Bankruptcy Court or by a
court having jurisdiction in the premises of (A) a decree or order for relief in
respect of such Person in an involuntary case or proceeding under any applicable
bankruptcy, insolvency, reorganization or other similar law, or (B) a decree or
order adjudging such Person a bankrupt or insolvent, or approving as properly
filed a petition seeking reorganization, arrangement, adjustment or composition
of or in respect of such Person under any applicable law, or appointing a
custodian, receiver, liquidator, assignee, trustee, sequestrator or other
similar official of such Person or of any substantial part of its property, or
ordering the winding up or liquidation or its affairs, and the continuance of
any such decree or order unstayed and in effect for a period of 150 consecutive
calendar days; or (ii) the commencement by such Person of a voluntary case or
proceeding under any applicable bankruptcy, insolvency, reorganization or other
similar law or of any other case or proceeding to be adjudicated a bankrupt or
insolvent, or the consent by it to the entry of a decree or order for relief in
respect of such Person in an involuntary case or proceeding under any applicable
bankruptcy, insolvency, reorganization or other similar law or to the
commencement of any bankruptcy or insolvency case or proceeding against it, or
the filing by it of a petition or answer or consent seeking reorganization or
relief under any applicable law, or the consent by it to the filing of such
petition or to the appointment of or taking possession by a custodian, receiver,
liquidator, assignee, trustee, sequestrator or other similar office of such
Person or of any substantial part of its property, or the making by it of an
assignment for the benefit of creditors, or the admission by it in writing of
its inability to pay its debts generally as they become due, or the taking of
corporate, limited liability company or partnership action by such Person in
furtherance of any such action.
"Business Day" means 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.
"Closing" means the Closing contemplated by the Stock Purchase Agreement, dated
as of December 20, 1999, among Allegheny Energy, Inc., Energy Corporation of
America and Eastern Systems Corporation.
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"Confidential Information" means any financial, technical, operational
or other information (including, without limitation, analyses, compilations,
memoranda, notes, any other writings, financial and valuation models, financial
projections, trade secrets, processes, customer lists and know-how) of or
relating to any Confidential Acquisition or Selected Gas Entity.
"Covered Activities" means the exploration, production, storage,
transportation, distribution, sale, development, operation and marketing,
regulated or otherwise, of oil and/or natural gas.
"Determination Amount" means any of the following: (i) the Fair Market Value of
an Interest, (ii) the Change in Control Premium, (iii) the component of the
Change in Control Premium described in the second sentence of Section 4.06(i),
and (iv) the market value of equity consideration described in clause (ii) of
Section 2.03(a).
"Dispose" means to effect a Disposition.
"Disposition" means any direct or indirect sale, assignment (by operation of law
or otherwise), transfer, pledge, hypothecation, placement in trust (voting or
otherwise) or disposition of, lien or encumbrance on, creation of a security
interest in, or foreclosure by any person or entity other than AYE and ECA on,
any Interest A divestiture of property or assets by a Selected Gas Acquisition
or such an entity shall not constitute a Disposition.
"ECA Change in Control" means any merger or consolidation of ECA with or into
another entity, any transfer or sale of all or substantially all of ECA's
assets, any purchase by persons other than persons or entities controlled by the
current management of ECA of more than 50% of ECA's voting equity securities,
any Bankruptcy Event with respect to ECA and any assignment of the Agreement by
ECA, by operation of law or otherwise.
"ECA Interest" means, with respect to any Selected Gas Acquisition, a non-voting
equity or economic interest equal to the Selected Percentage in the related
Selected Gas Entity, which interest is owned or held, directly or indirectly, by
ECA.
"Gas Acquisition" means any Gas Assets which are both (i) the subject of
Preliminary Documentation executed by AYE during the Reference Period, and (ii)
actually acquired by AYE in transactions consummated during the Reference Period
or within 18 months following the end of the Reference Period, except for:
a. Gas Assets the aggregate consideration for which will be less than $25
million (if the consideration is "all cash") or have a fair market value of less
than $25 million (if the consideration is anything other than "all cash"), and
b. Pooling Acquisitions.
"Gas Assets" means both:
a. Equity securities (including securities convertible or exchangeable for
equity securities) of business entities (other than subsidiaries of AYE), at
least 50% of the gross revenues of which (giving effect to any disposition of
assets and businesses not acquired by AYE) are derived from Covered Activities
in the Territory, and
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b. Property and other assets (other than property and assets owned or held
by subsidiaries of AYE), at least 50% of the gross revenues attributable to
which are derived from Covered Activities in the Territory,
provided, however, that the following do not constitute Gas Assets:
c. Interests acquired by AYE in joint ventures between AYE and third parties,
or
d. Any combustion turbine assets, cogeneration assets or electric power
generation assets, or interests or participations therein, or
e. The assets or securities of Mountaineer Gas Company.
"Interest" means an AYE Interest or an ECA Interest, as the case may be.
"Person" means any individual, partnership, firm, corporation, association,
joint venture, trust or other entity, or any government or political subdivision
or agency, department or instrumentality thereof.
"Pooling Acquisition" means any Gas Assets which are both (i) the subject of
Preliminary Documentation executed by AYE during the Reference Period, and (ii)
actually acquired by AYE in transactions consummated in business combination
transactions intended to qualify for "pooling of interests" accounting treatment
during the Reference Period or within 18 months following the end of the
Reference Period.
"Preliminary Documentation" means, with respect to any Gas Assets, any
confidentiality agreement, letter of intent or memorandum of understanding with
respect to the acquisition by AYE of such Gas Assets.
"Reference Period" means the period between the Closing and the fifth
anniversary of such date.
"Selected Gas Acquisition" means any Gas Acquisition as to which ECA submits a
timely Gas Acquisition Election stating that ECA has elected to exercise its
rights pursuant to Section 2.02.
"Selected Gas Entity" means any business entity or contractual joint venture
formed for the purpose of acquiring, holding and disposing of a Gas Acquisition
as to which ECA submits a timely Gas Acquisition Election stating that ECA has
elected to exercise its rights pursuant to Section 2.02.
"Selected Percentage" means a percentage, which shall not be less than 10% nor
greater than 20%, determined by ECA in its sole discretion.
"Subsidiary" means, with respect to any Person, any other Person the shares of
stock or other ownership interests of which having ordinary voting power to
elect a majority of the board of directors of such Person and are at the time
owned, or the management or policies of which are otherwise at the time
controlled, directly or indirectly through one or more intermediaries (including
other Subsidiaries) or both, by such first Person.
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"Territory" means the United States, Canada and Mexico, and their respective
territories and possessions.
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<TABLE>
<CAPTION>
APPENDIX B
SCHEDULE OF DEFINITIONS
Term Section
----------------------------------------- --------
<S> <C>
1935 Act. . . . . . . . . . . . . . . . . 3.01
Acquiror. . . . . . . . . . . . . . . . . 4.03
Agreement . . . . . . . . . . . . . . . . Preamble
AYE . . . . . . . . . . . . . . . . . . . Preamble
AYE Group . . . . . . . . . . . . . . . . 6.02
AYE Impermissible Disposition Cure Period 4.06
Chosen Court. . . . . . . . . . . . . . . 7.12
Confidential Acquisition. . . . . . . . . 2.01
Control Premium . . . . . . . . . . . . . 4.06
Drag-Along Election . . . . . . . . . . . 4.05
Drag-Along Period . . . . . . . . . . . . 4.05
ECA . . . . . . . . . . . . . . . . . . . Preamble
ECA Group . . . . . . . . . . . . . . . . 6.01
ECA Impermissible Disposition Cure Period 4.06
Estimate Date . . . . . . . . . . . . . . 2.01
Exercise Notice . . . . . . . . . . . . . 4.03
Exercising Party. . . . . . . . . . . . . 4.06
Fair Market Value . . . . . . . . . . . . 4.06
Gas Acquisition Election. . . . . . . . . 2.01
Impermissible Disposition . . . . . . . . 4.01
Initial Equity Amount . . . . . . . . . . 2.01
Notification. . . . . . . . . . . . . . . 2.01
Offer . . . . . . . . . . . . . . . . . . 4.02
Pooling Acquisition Election. . . . . . . 2.01
Purchase Election . . . . . . . . . . . . 4.04
Put/Call Notice . . . . . . . . . . . . . 4.06
SEC . . . . . . . . . . . . . . . . . . . 3.01
Tag-Along Election. . . . . . . . . . . . 4.03
</TABLE>
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