File No. 70-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM U-1
APPLICATION-DECLARATION WITH RESPECT TO
AN INVESTMENT BY EUA ENERGY INVESTMENT CORPORATION
IN A POWER LINE CONDITIONING AND
UNINTERRUPTIBLE POWER SUPPLY MANUFACTURER
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
EUA ENERGY INVESTMENT CORPORATION
P.O. Box 2333, Boston, Massachusetts 02107
(Name of companies filing this statement
and address of principal executive office)
EASTERN UTILITIES ASSOCIATES
(Name of top registered holding company
parent of applicant or declarant)
CLIFFORD J. HEBERT, JR., TREASURER
EASTERN UTILITIES ASSOCIATES
P.O. Box 2333, Boston, Massachusetts 02107
(Name and address of agent for service)
The Commission is requested to mail signed copies
of all orders, notices and communications to:
ARTHUR I. ANDERSON, ESQ.
McDermott, Will & Emery
75 State Street
Boston, MA 02109
<PAGE>
This application-declaration is filed with the United States Securities
and Exchange Commission (the "Commission") by EUA Energy Investment Corporation
("EEIC"), a Massachusetts corporation and a wholly-owned subsidiary of Eastern
Utilities Associates ("EUA"), a Massachusetts voluntary association and a
registered holding company under the Public Utility Holding Company Act of
1935, as amended (the "Act"). The other members of the EUA holding company
system (the "EUA System") are Eastern Edison Company, EUA Cogenex Corporation
and EUA Service Corporation ("EUA Service"), each a Massachusetts corporation;
Northeast Energy Management, Inc., a Massachusetts corporation and a wholly-
owned subsidiary of EUA Cogenex Corporation; EUA TransCapacity, Inc., a
Massachusetts corporation and a wholly-owned subsidiary of EEIC; Montaup
Electric Company, a Massachusetts corporation and a wholly-owned subsidiary of
Eastern Edison Company; and Blackstone Valley Electric Company, Newport
Electric Company and EUA Ocean State Corporation, each a Rhode Island
corporation.
The Applicant seeks Commission approval for EEIC to invest a total of
$275,000 to be paid as consideration for the acquisition of 9.9% of the common
stock of Quality Power Systems, Inc., a Massachusetts corporation ("QPS")
engaged in the manufacture, marketing and sale of uninterruptible power
systems, utility interface front-end power supplies and other electric and
electronic devices and equipment. For the reasons set forth below, the
Applicant believes that such investment will result in the enhanced quality and
efficiency of electric power supplied to the retail customers of the EUA System
operating companies and to users of electric energy throughout New England.
For additional support for such belief, the Applicant calls the Commission's
attention to Item I of the Application-Declaration of New England Electric
System ("NEES"), New England Power Services Company ("NEPSCO") and New England
Electric Resources, Inc. ("NEERI"), in which NEERI, a subsidiary of NEES, a
registered holding company under the Act, also applied for authorization to
make an equity investment representing a 9.9% ownership interest in the common
stock of QPS (hereinafter, the "NEES Application"; File No. 70-8303 dated
November 12, 1993).
ITEM 1. DESCRIPTION OF THE PROPOSED TRANSACTIONS.
I. Overview of the Application-Declaration.
EEIC hereby requests authorization to invest $275,000 in QPS, such amount
to be paid in one lump sum as consideration for the acquisition of 9.9% of the
total common stock of QPS. EEIC further requests authorization to acquire
without additional consideration such additional shares of the common stock of
QPS as EEIC from time to time may be entitled to receive to maintain EEIC's
9.9% ownership interest in QPS. In accordance with the terms and conditions of
a Stock Purchase Agreement entered into subject to Commission authorization by
duly authorized officers of QPS and EEIC on January 24, 1994 and attached
hereto as Exhibit B-2 (the "Stock Purchase Agreement"), EEIC's investment would
be used by QPS for the development and marketing of low harmonic distortion
Uninterruptible Power Systems ("UPS") manufactured by QPS under a license to
QPS by Digital Equipment Corporation ("DEC") pursuant to the License Agreement
attached hereto as Exhibit B-1.
II. Description of the Uninterruptible Power Systems and the QPS Marketing
Strategy.
The primary purpose of the UPS is to improve the quality of power supplied
by an electric utility provider to its customers by reducing harmonic
distortion at the interconnection between the utility and its customers. QPS
achieves such quality enhancement using DEC's HA6000 product, a system
developed by DEC to satisfy new requirements being imposed on power line
conditioning equipment and uninterruptible power supplies by International
Safety and Electrical Manufacturing Compliance (EMC) Standards. The HA6000
utilizes a unique technology which generates a synthesized current wave form
that tracks the input voltage sine-wave to reduce total harmonic distortion to
a level fifteen to twenty percent below currently available systems. It is
built using a modular concept that allows construction of units between 3.3 KVA
and 20 KVA in 3.3 KVA increments. This design provides advantages related to
maintenance, repair time and costs since work may be done on individual major
components rather than on the total unit, and represents an architecture
innovative in its application to utility equipment and supplies.
There currently are seven competitors of QPS, none of which manufactures
or sells products that meet the HA6000 specifications. To take full advantage
of its perceived market opportunity, QPS has developed a multi-phased marketing
plan involving: first, direct sales to DEC as the power supply module for DEC
computer systems; second, sales through electric utilities including affiliates
of EUA to their commercial and industrial customers; and third, direct sales by
QPS marketing and sales personnel to non-DEC original equipment manufacturers
("OEMs"), consultants for power quality problems and end-user customers. With
respect to sales to customers of electric utilities (including affiliates of
EUA), the Applicant and QPS believe that the increasing use of automation for
demand side and load management of energy needs and the proliferation of
computers and other sensitive electronic equipment used by customers of
electric utilities will necessitate enhanced reduction of harmonic feedback
into the distribution systems of electric utilities. To support the second
phase of the QPS multi-phase marketing plan, EUA affiliates will receive "most
favored" OEM pricing on systems procured for installation at sites serviced by
EUA retail electric affiliates.
III. Anticipated Benefits of the Proposed Transactions.
QPS has committed to manufacture and market its UPS and related products
in the New England region. (See NEES Application, second paragraph of Item 1.)
Use of the HA6000 technology will permit electric utilities in the New England
region to reduce harmonic distortion in an extremely cost efficient manner by
directing corrective attention specifically to customers whose equipment
contributes to harmonic distortion at utility interconnections and by providing
such customers with the lowest available rates on low maintenance modular units
customized to such customers' respective needs. Customers who have no power
quality complaints will not be required to contribute to such corrective
efforts, yet will benefit from improved power servicing due to anticipated
reductions in electric utilities' capacity requirements costs upon
implementation of the HA6000 systems.
IV. Applicable Precedent.
In Releases No. 35-25353 and 35-25580 dated July 25, 1991 and July 13,
1992, respectively, the Commission authorized Electec, a wholly-owned, non-
utility subsidiary of Entergy Corporation, a registered holding company under
the Act, to acquire and maintain an equity ownership interest of at least 9.95%
but less than 10% in First Pacific Networks, Inc. ("FPN"). Electec's
investment in FPN was for the purpose of developing utility applications for a
patented communications system. The marketing of the system was not restricted
to utility applications and included plans to develop applications for
business, cable television, local telephone communications and international
communications. Because the system was expected to "dramatically" increase the
exchange of information between a utility and its customers, the investment was
permitted and deemed to be functionally related to the business of the Entergy
Corporation holding company system. Similarly, (a) the Applicant herein
proposes to acquire and maintain a significant but less than 10% equity
interest in QPS; (b) among the diverse target markets for the QPS products are
direct utility applications which are expected to noticeably increase the
quality of power supplied to retail electric customers by reducing harmonic
distortion at the point of interface between a utility and its customers; and
(c) the Applicant firmly believes that implementation of the HA6000 and other
QPS products at utility retail customer sites will enhance the efficiency and
diminish the maintenance and repair time and costs of servicing such customers.
V. Description of the Operative Documents.
Upon Commission approval of EEIC's participation in the Stock Purchase
Agreement (defined in Section I above), EEIC will enter into a Stockholders
Agreement substantially in the form attached hereto as Exhibit B-3 (the
"Stockholders Agreement"; and together with the Stock Purchase Agreement, the
"Operative Documents"). Prior to EEIC's execution of the Stockholders
Agreement, duly authorized officers of QPS will file with the Massachusetts
Secretary of State Articles of Amendment in the form of the Proposed Articles
of Amendment attached hereto as Exhibit A-2, amending the QPS Articles of
Organization to remove existing restrictions on transfer.
In exchange for EEIC's lump sum payment of $275,000 cash to QPS, the Stock
Purchase Agreement provides for the sale of 9.9% of the total shares of common
stock of QPS to EEIC and an agreement by QPS and its founders to not at any
time issue additional shares which would result in diminishing EEIC's initial
percentage ownership position in QPS. EEIC and QPS also agreed that the
proceeds from the sale of shares to EEIC will be dedicated to the development
and marketing of QPS' uninterruptible power systems products. Under the Stock
Purchase Agreement, QPS is obligated to provide EEIC with: (a) an audited
balance sheet and statements of income and cash flows within 90 days after the
end of each fiscal year; (b) unaudited balance sheets and statements of income
and cash flow for each month and each fiscal quarter; (c) monthly management
reports of bookings, billings, cost of goods sold, administrative and marketing
expenses; (d) copies of notices, press releases, information and data
distributed to the shareholders of QPS and/or filed with the Commission, and
(e) monthly management narrative reports explaining variances from financial
forecasts and significant current developments in staffing, marketing, sales
and operations. The Stock Purchase Agreement also provides for certain
negative covenants of QPS including, among other things, the requirement of
advance written consent by EEIC to (i) any change in the nature of QPS'
business; (ii) the declaration, making or payment of dividends or distributions
on QPS capital stock; (iii) the repurchase or redemption of QPS capital stock
unless EEIC is offered the same repurchase or redemption opportunity; (iv) any
merger or consolidation with, or acquisition of substantially all the assets
of, another entity or the sale, lease or other disposition of substantially all
of QPS' assets; (v) any assignment or transfer of technology or intellectual
property rights by QPS other than in the ordinary course of business; (vi) the
entering into or altering of contractual relations between QPS and any of its
founders, directors, officers, stockholders, affiliates and "family members"
(described below in the discussion of the Stockholders Agreement); (vii) any
amendment, alteration or repeal of any provision of the QPS Articles of
Organization or By-Laws; and (viii) the issuance, sale, exchange or reservation
for issuance, sale or exchange of any QPS shares of common stock, options
rights, warrants or convertible debt securities other than those committed for
issuance to NEERI or any affiliate thereof pursuant to that certain Agreement
between QPS and NEPSCO dated June 1, 1993 (Exhibit B-1 to NEES Application).
Upon Commission approval, EEIC will enter into a Stockholders Agreement
providing for EEIC's designation of one out of six director positions on the
Board of Directors of QPS, with any vacancy in such position to be filled only
by a subsequent designee of EEIC. (Upon Commission approval of the NEES
Application, a position on the Board of Directors will be similarly designated
by NEERI.) In general, all transfers of QPS stock other than in accordance
with the provisions set forth in the Stockholders Agreement would be
prohibited. The Stockholders Agreement provides for exceptions to the general
restriction on transfer for (1) the right of each stockholder of QPS to
purchase on a pro rata basis shares offered for sale by another stockholder of
QPS (the right of first refusal), and (2) the right of each stockholder of QPS
to sell on a pro rata basis any or all of its shares on the same terms and
conditions as provided to an outside party in the event of a proposed sale of
QPS common stock by any other stockholder of QPS (the right of co-sale).
The Stockholders Agreement would also provide certain registration rights
to the QPS stockholders in the event of subsequent registration of QPS
securities under the Securities Act of 1933. EEIC and other stockholders would
receive advance written notice of any proposed registration and the right to
participate in any offering on a pro rata basis (subject to any limitations on
the number of shares which can be offered).
Under the terms of the Operative Documents, EEIC would be permitted to
transfer its rights and obligations thereunder to an Affiliate without first
obtaining the prior consent of QPS or its stockholders. An individual
stockholder of QPS would be permitted to sell, assign or transfer shares of the
common stock of QPS to such shareholder's spouse, children, grandchildren or
any trust established for the benefit of such shareholder or his spouse,
children or grandchildren, provided that the shares so transferred remain
subject to the terms and conditions of the Stockholders Agreement and such
permitted transferee deliver to QPS and to EEIC a written instrument confirming
such transferee's agreement to be so bound by the Stockholders Agreement.
EEIC would not be obligated to make any additional capital contributions,
loans or advances to QPS, nor would EEIC be involved directly with the
manufacturing, marketing and sales activities of QPS. EEIC would on occasion
provide consulting services directly to QPS. EEIC may also permit QPS to use
its name (and that of EUA) as part of QPS' marketing efforts, such uses to be
approved in advance and in writing by EEIC.
The Applicant hereby requests authorization to enter into each of the
Operative Documents.
VI. Request for Authorization of Funds for Investment by EEIC.
By order dated December 4, 1987, as amended January 11, 1988 (Release No.
35-24515A), EEIC was authorized, among other things, to engage in certain
research activities focused primarily on energy and energy conservation.
However, prior to acquiring an interest in any new business, EEIC was required
to seek further Commission authorization. Accordingly, EEIC hereby seeks
Commission authorization for the acquisition of a 9.9% ownership interest in
the common stock of QPS.
VII. Services to be Provided by EUA System Companies.
QPS will have its own employees. No employee of EUA's retail electric
utilities will be assigned to any activity involving QPS nor does the Applicant
anticipate the need to hire any additional personnel in connection with the
Applicant's participation in QPS. EUA Service Corporation will provide certain
services to EEIC in connection with the transactions proposed herein, such
services to be provided at cost under the existing Service Agreement between
EUA Service Corporation and EEIC, the cost and expenses of which shall be
reimbursed to EUA Service Corporation by EEIC.
EEIC does not now, and will not in the future, without prior Commission
approval, own or operate or be an equity participant in any exempt wholesale
generator or foreign utility company, as such terms are defined in the Energy
Policy Act of 1992.
ITEM 2. FEES, COMMISSIONS, AND EXPENSES.
The fees, commissions and expenses of the Applicant expected to be paid or
incurred, directly or indirectly, in connection with the transaction described
above are estimated as follows:
Securities and Exchange Commission Fees $ 2,000
Other Filing Fees $ *
Legal Fees $ *
Miscellaneous $ *
TOTAL $ *
* To be filed by amendment.
ITEM 3. APPLICABLE STATUTORY PROVISIONS.
The sections of the Act and rules or exemptions thereunder that the
Applicant considers applicable to the transactions for the basis for exemption
therefrom are set forth below:
Acquisition of up to 9.9% Sections 9(a) and 10.
of the common stock of
Quality Power Systems, Inc.
ITEM 4. REGULATORY APPROVALS.
No state commission and no federal commission, other than the Commission,
has jurisdiction over the proposed transactions.
ITEM 5. PROCEDURE.
(a) In order to be in a position to carry out the proposed transaction at
the most advantageous time, the Applicant requests that the Commission issue
its order hereon on the earliest practical date.
(b) It is not considered necessary that there be a recommended decision
by a hearing officer or by any other responsible officer of the Commission.
The Office of Public Utility Regulation may assist in the preparation of the
decision of the Commission, and it is believed that a thirty (30) day waiting
period between the issuance of the order of the Commission and the day on which
the order is to become effective would not be appropriate.
ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS
(a) Exhibits.
* Exhibit A-1 Articles of Organization of QPS.
* Exhibit A-2 Form of proposed amendment to Articles of
Organization of QPS.
* Exhibit A-3 By-Laws of QPS.
Exhibit B-1 License Agreement between Digital Equipment
Corporation and QPS. (New England Electric
System, File No. 70-8303.)
Exhibit B-2 Stock Purchase Agreement between
EEIC, QPS and its founders.
Exhibit B-3 Form of Stockholders Agreement between
EEIC, QPS, its founders and any subsequent
holders of QPS stock.
* Exhibit F Opinion of Counsel.
* Exhibit H Proposed Form of Notice (Filed herewith.)
(b) Financial Statements.
b-1 Financial Statements of EEIC at 9/30/93 -
see Certificate of Notification Pursuant to
Rule 24 dated November 18, 1993 (File No.
70-7426).
* b-2 Balance Sheet of QPS at December 31, 1993.
* b-3 Income Statement of QPS for the ten month
period ended December 31, 1993.
* To be filed by amendment
ITEM 7. INFORMATION AS TO ENVIRONMENTAL EFFECTS.
The transactions described in Item 1 do not involve major federal actions
significantly affecting the quality of the human environment. No federal
agency has prepared or is preparing an environmental impact statement with
respect to the proposed transactions.
SIGNATURE
Pursuant to the requirements of the Public Utility Holding Company Act of
1935, the undersigned Applicant has duly caused this statement to be signed on
its behalf by the undersigned duly authorized individual.
EUA ENERGY INVESTMENT CORPORATION
/s/ Clifford J. Hebert, Jr.
By: ___________________________
Clifford J. Hebert, Jr.
Treasurer
Date: February 2, 1994
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INDEX OF DOCUMENTS
Exhibit A-1 Articles of Organization of QPS.
Exhibit A-2 Form of Proposed Amendment to Articles of Organization
of QPS.
Exhibit A-3 By-Laws of QPS.
Exhibit B-1 License Agreement between Digital Equipment
Corporation and QPS. (New England Electric
System, File No. 70-8303.)
Exhibit B-2 Stock Purchase Agreement between EEIC, QPS and its
founders.
Exhibit B-3 Form of Stockholders Agreement between
EEIC, QPS, its founders and any subsequent
holders of QPS stock.
Exhibit F Opinion of Counsel.
Exhibit H Proposed Form of Notice.
EXHIBIT B-3
STOCK PURCHASE AGREEMENT
Among
QUALITY POWER SYSTEMS, INC.,
Edmund Rosa, Alfred Guertin,
Donald Christiansen and
Arthur Berube, and
EUA ENERGY INVESTMENT CORPORATION
dated January 24, 1994
STOCK PURCHASE AGREEMENT
This Agreement dated as of January 24, 1994 is entered into by and among
Quality Power Systems, Inc., a Massachusetts corporation (the "Company"), Edmund
Rosa, Alfred Guertin, Donald Christiansen, and Arthur Berube (individually, a
"Founder" and, collectively, the "Founders"), and EUA Energy Investment
Corporation (the "Purchaser").
In consideration of the mutual promises and covenants contained in this
Agreement, the parties hereto agree as follows:
1. Authorization and Sale of Shares.
1.1 Authorization. The Company has, or before the Closing (as
defined
in Section 2) will have, duly authorized the sale and issuance, pursuant to the
terms of this Agreement, of shares of its Common Stock, no par value (the
"Common Stock"), having the rights, restrictions, privileges and preferences set
forth in the Articles of Organization and Articles of Amendment attached hereto
as Exhibit A (the "Articles").
1.2 Sale of Shares. Subject to the terms and conditions of this
Agreement, at the Closing the Company will sell and issue to the Purchaser, and
the Purchaser will purchase, for $275,000, that number of shares of Common Stock
that will represent 9.9% of the total shares of the Company as of the Closing.
The Company and the Founders agree that the Company will not at any time issue
shares of stock of any class or any rights, options or warrants convertible into
or exchangeable for any such stock which results in the Purchaser's percentage
ownership position being diluted below the Purchaser's percentage ownership
level
at the time of executing this Agreement unless the Company issues additional
shares to the Purchaser at no additional cost in an amount that maintains the
Purchaser's 9.9% ownership percentage. The shares of Common Stock being sold
under this Agreement are referred to as the "Shares."
1.3 Use of Proceeds. The Company will use the proceeds from the sale
of the Shares and from all subsequent sales of Common Stock for the development
and marketing of the Company's uninterruptable power systems products, and not
for
distribution to any Company shareholder.
2. The Closing. The closing ("Closing") of the sale and purchase of the
Shares under this Agreement shall take place at the offices of EUA Energy
Investment Corporation at 10 a.m. on the fifth business day after satisfaction
of the conditions precedent herein or at such other time, date and place as are
mutually agreeable to the Company and the Purchaser. At the Closing, the
Company shall deliver to the Purchaser a certificate for the number of Shares
being purchased by the Purchaser, registered in the name of Purchaser, against
payment to the Company of the purchase price therefor, by wire transfer, check,
or other method acceptable to the Company. The date of the Closing is
hereinafter referred to as the "Closing Date."
3. Representations of the Company and Founders. Subject to and except as
disclosed by the Company in Exhibit B hereto, the Company and each of the
Founders hereby represent and warrant to the Purchaser as follows:
3.1 Organization and Standing. The Company is a corporation duly
organized and validly existing under the laws of the Commonwealth of
Massachusetts and has full corporate power and authority to conduct its business
as presently conducted and as proposed to be conducted by it and to enter into
and perform this Agreement and to carry out the transactions contemplated by
this Agreement. The Company is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction in which the failure to
so qualify would have a material adverse effect on the operations or financial
condition of the Company. The Company has furnished to the Purchaser true and
complete copies of its Articles of Organization, By-Laws, and minutes of all
Stockholder and Director Meetings, each as amended to date and presently in
effect.
3.2 Capitalization. The authorized capital stock of the Company
(immediately prior to the Closing) consists of 10,000 shares of common stock, no
par value (the "Authorized Stock"), of which 10,000 shares are issued and
outstanding. All of the issued and outstanding shares of Common Stock have been
duly authorized and validly issued and are fully paid and nonassessable. Except
as set forth in Exhibit B hereto or provided in this Agreement, (i) no
subscription, warrant, option, convertible security or other right (contingent
or otherwise) to purchase or acquire any shares of capital stock of the Company
is authorized or outstanding, (ii) the Company has no obligation (contingent or
otherwise) to issue any subscription, warrant, option, convertible security or
other such right or to issue or distribute to holders of any shares of its
capital stock any evidences of indebtedness or assets of the Company, and (iii)
the Company has no obligation (contingent or otherwise) to purchase, redeem or
otherwise acquire any shares of its capital stock or any interest therein or to
pay any dividend or make any other distribution in respect thereof. All of the
issued and outstanding shares of capital stock of the Company have been offered,
issued and sold by the Company in compliance with applicable Federal and state
securities laws.
3.3 Subsidiaries, Etc. The Company has no subsidiaries and does not
own or control, directly or indirectly, any shares of capital stock of any other
corporation or any interest in any partnership, joint venture or other
non-corporate business enterprise.
3.4 Stockholder List and Agreements. Attached as Exhibit C is a true
and complete list of the stockholders of the Company, showing the number of
shares of capital stock or other securities of the Company held by each
stockholder as of the date of this Agreement and the consideration paid to the
Company, if any therefor. Except as provided in this Agreement, there are no
agreements, written or oral, between the Company and any holder of its capital
stock, or, to the best of the Company's knowledge, among any holders of its
capital stock, relating to the acquisition (including without limitation rights
of first refusal or preemptive rights), disposition, registration under the
Securities Act of 1933, as amended (the "Securities Act"), or voting of the
capital stock of the Company.
3.5 Issuance of Shares. The issuance, sale and delivery of the
Shares in accordance with this Agreement has been, or will be on or prior to the
Closing, duly authorized by all necessary corporate action on the part of the
Company, and all such shares have been duly reserved for issuance. The Shares
when so issued, sold and delivered against payment therefor in accordance with
the provisions of this Agreement will be duly and validly issued, fully paid and
non-assessable.
3.6 Authority for Agreement. The execution, delivery and performance
by the Company of this Agreement and all other agreements required to be
executed by the Company on or prior to the Closing pursuant to Section 5.3 (the
"Ancillary Agreements"), and the consummation by the Company of the transactions
contemplated hereby and thereby, have been duly authorized by all necessary
corporate action. This Agreement and the Ancillary Agreements have been duly
executed and delivered by the Company and constitute valid and binding
obligations of the Company enforceable in accordance with their respective
terms. The execution of and performance of the transactions contemplated by
this Agreement and the Ancillary Agreements and compliance with their provisions
by the Company will not violate any provision of law and will not conflict with
or result in any breach of any of the terms, conditions or provisions of, or
constitute a default under, or require a consent or waiver under, its Articles
of Organization or By-Laws (each as amended to date) or any indenture, lease,
agreement or other instrument to which the Company is a party or by which it or
any of its properties is bound, or any decree, judgment, order, statute, rule or
regulation applicable to the Company.
3.7 Litigation. There is no action, suit or proceeding, or
governmental inquiry or investigation, pending, or, to the best of the Company's
knowledge, threatened against the Company.
3.8 Absence of Liabilities. Except as disclosed in Exhibit B, the
Company does not have any material liabilities of any type, whether absolute or
contingent, other than liabilities incurred in the ordinary course of business
and liabilities under the Digital Equipment contract referred to in the next
paragraph.
3.9 Digital Equipment Contract. The Company has delivered to the
Purchaser a complete copy of the Company's agreement with Digital Equipment
Corporation dated June 9, 1993. Such agreement is valid, binding and in full
force and effect, has not been amended or supplemented and there are no defaults
or events which with notice or passage of time or both would be defaults
thereunder.
3.10 ERISA. The Company does not have or otherwise contribute to or
participate in any employee benefit plan subject to the Employee Retirement
Income Security Act of 1974.
3.11 Disclosures. Neither this Agreement nor any Exhibit hereto, nor
any report, certificate or instrument furnished to the Purchaser in connection
with the transactions contemplated by this Agreement contains or will contain
any untrue statement of a material fact or omits or will omit to state a
material fact necessary in order to make the statements contained herein or
therein, in light of the circumstances under which they were made, not
misleading. The Company knows of no information or fact which has or would have
a material adverse effect on the business, prospects, assets or condition,
financial or otherwise, of the Company which has not been disclosed in Exhibit
B. Each financial projection furnished to the Purchaser was prepared in good
faith based on reasonable assumptions at the time the projection was made and
represents the Company's best estimate of future results based on information
available as of the date of the projection.
4. Representations of the Purchaser. The Purchaser represents and
warrants to the Company as follows:
4.1 Investment. The Purchaser is acquiring the Shares for its own
account for investment and not with a view to, or for sale in connection with,
any distribution thereof, nor with any present intention of distributing or
selling the same; and, except as contemplated by this Agreement and the Exhibits
hereto, the Purchaser has no present or contemplated agreement, undertaking,
arrangement, obligation, indebtedness or commitment providing for the
disposition thereof.
4.2 Authority. The Purchaser has full power and authority to enter
into and to perform this Agreement in accordance with its terms.
5. Conditions to the Obligations of the Purchaser. The obligation of the
Purchaser to purchase Shares at the Closing is subject to the fulfillment, or
the waiver by the Purchaser, of each of the following conditions on or before
the Closing:
5.1 Accuracy of Representations and Warranties. Each representation
and warranty contained in Section 3 shall be true on and as of the Closing Date
with the same effect as though such representation and warranty had been made on
and as of that date.
5.2 Performance. The Company and each of the Founders shall have
performed and complied with all agreements and conditions contained in this
Agreement required to be performed or complied with by the Company or such
Founder prior to or at the Closing.
5.3 Ancillary Agreements. The Stockholders Agreement attached hereto
as Exhibit D (the "Stockholders Agreement") shall have been executed and
delivered by the Company and the Purchaser and each of the Founders.
5.4 Compliance Certificate. The Company shall have delivered to the
Purchaser a certificate, executed by the President of the Company and the
Founders, dated the Closing Date, certifying to the fulfillment of the
conditions to closing specified in this Agreement.
5.5 Regulatory Approvals. The Purchaser shall have received approval
of the Securities and Exchange Commission to close the purchase of the Shares
under the Public Utility Holding Company Act of 1935.
5.6 Other Matters. All corporate and other proceedings in connection
with the transactions contemplated by this Agreement and all documents and
instruments incident to such transactions shall be reasonably satisfactory in
substance and form to the Purchaser and the Purchaser shall have received all
such counterpart originals or certified or other copies of such documents as
they may reasonably request.
5.7 Amendment of Articles of Organization. The Company shall have
amended its Articles of Organization to include the amendment set forth in
Exhibit A hereto.
5.8 NEPSCo Agreement. The Company shall have amended its agreement
with New England Power Service Company (or an affiliate) in a form acceptable to
Purchaser.
6. Conditions to the Obligations of the Company. The obligations of the
Company under this Agreement are subject to fulfillment, or the waiver, of the
following conditions on or before the Closing:
6.1 Accuracy of Representations and Warranties. The representations
and warranties of the Purchaser contained in Section 4 shall be true on and as
of the Closing Date with the same effect as though such representations and
warranties had been made on and as of that date.
6.2 Purchase Price. Payment by the Purchaser to the Company in
accordance with Section 1 hereof of the purchase price for the Shares being
purchased hereunder.
7. Covenants of the Company.
7.1 Inspection and Observation.
(a) The Company shall permit the Purchaser, or any authorized
representative thereof, to visit and inspect the properties of the Company,
including its corporate and financial records, and to discuss its business and
finances with officers of the Company, during normal business hours following
reasonable notice and as often as may be reasonably requested.
(b) The Company will permit the Purchaser or any authorized
representative thereof, to attend all meetings of the Board of Directors of the
Company, and shall provide it with such notice and other information with
respect to such meetings as are delivered to the directors of the Company. The
Company shall notify each such holder, within ten days thereafter, of the taking
of any written action by the Board of Directors of the Company in lieu of a
meeting thereof and will provide the Purchaser with minutes of all meetings
within ten days after each meeting.
7.2 Financial Statements and Other Information.
(a) The Company shall deliver to Purchaser:
(i) within 90 days after the end of each fiscal year of the
Company ending on or after December 31, 1993, an audited balance sheet
of the Company as at the end of such year and audited statements of
income and of cash flows of the Company for such year, certified by
certified public accountants selected by the Company, and prepared in
accordance with generally accepted accounting principles;
(ii) within 21 days after the end of each fiscal quarter of the
Company, an unaudited balance sheet of the Company as at the end of
such quarter, and unaudited statements of income and of cash flows of
the Company for such fiscal quarter and for the current fiscal year to
the end of such fiscal quarter, setting forth in comparative form the
Company's projected financial statements for the corresponding period
for the current fiscal year, certified by either the President or
Chief Financial Officer of the Company;
(iii) within 15 days after the end of each month, an unaudited
balance sheet of the Company as at the end of such month and unaudited
statements of income and of cash flows of the Company for such month
and for the current fiscal year to the end of such month, certified by
either the President or Chief Financial Officer of the Company;
(iv) monthly reports, at the time and in the format delivered to
the Board of Directors of the Company, of bookings, billings, cost of
goods sold, administrative and marketing expenses; and
(v) with reasonable promptness, such other notices, press
releases, information and data with respect to the Company as the
Company delivers to the holders of its Common Stock or files with the
Securities and Exchange Commission, and such other information and
data as Purchaser may from time to time reasonably request.
(b) The foregoing financial statements shall be prepared on a
consolidated basis if the Company then has any subsidiaries. The financial
statements delivered pursuant to clauses (i), (ii) and (iii) of paragraph (a)
shall be accompanied by a certificate of the Chief Financial Officer of the
Company stating that such statements have been prepared in accordance with
generally accepted accounting principles consistently applied (except as noted)
and fairly present the financial condition and results of operations of the
Company at the date thereof and for the periods covered thereby.
(c) The Company shall deliver to each Purchaser at the time of
delivery of each monthly statement pursuant to clause (iii) of paragraph (a) a
management narrative report explaining all significant variances from forecasts
and all significant current developments in staffing, marketing, sales and
operations.
(d) The Company shall deliver to each Purchaser, within 30 days
prior to the start of each fiscal year, consolidated capital and operating
expense budgets, cash flow projections and income and loss projections for the
Company and its subsidiaries in respect of such fiscal year, a business plan and
projected financial statements for such fiscal year, all itemized in reasonable
detail.
7.3 Material Changes and Litigation. The Company shall promptly
notify the Purchaser of any material adverse change in the business, prospects,
assets or condition, financial or otherwise, of the Company and of any
litigation or governmental proceeding or investigation brought or, to the best
of the Company's knowledge, threatened against the Company.
7.4 Negative Covenants.
(a) The Company shall not, without the written consent of the
Purchaser:
(i) change the nature of the Company's business as conducted
and as proposed to be conducted on the Closing Date;
(ii) declare, pay, or make any dividends or distributions on any
capital stock, or repurchase or redeem any shares of the Company's
capital stock unless the Purchaser is offered the same repurchase or
redemption opportunity in writing;
(iii) (A) merge with or into or consolidate with any other
corporation, (B) sell, lease or otherwise dispose of all or
substantially all of its properties or assets, (C) assign, grant a
license under, or otherwise transfer any of its technology or
intellectual property rights other than in the ordinary course of
business, or (D) acquire all or substantially all of the properties or
assets of any other corporation or entity;
(iv) enter into any transaction with, or amend, alter or repeal
any provision of any agreement with, or give any material consent,
waiver or approval under any agreement with, a Founder or an officer,
director or stockholder of the Company, or any Affiliate (as defined
below) or Family Member (as defined below) thereof;
(v) amend, alter or repeal any provision of the Company's
Articles of Organization or By-Laws; or
(vi) except for the issuance of equity or debt securities to New
England Power Service Company (or an affiliate) pursuant to its
Agreement with the Company dated June 1, 1993, authorize or issue,
sell or exchange, agree to issue, sell or exchange, or reserve or set
aside for issuance, sale or exchange, (i) any shares of its Common
Stock, (ii) any other equity securities of the Company, (iii) any
option, warrant or other right to subscribe for, purchase or otherwise
acquire any equity securities of the Company, or (iv) any debt
securities convertible into capital stock of the Company.
(b) For purposes of this Agreement, the following terms shall
have the following meanings:
(i) "Affiliate" shall mean, in respect of any person or entity,
another person or entity controlling, controlled by or under common
control with, such person or entity. In addition, in the case of the
Purchaser, the Purchaser's affiliates shall include without limitation
Eastern Utilities Associates, a Massachusetts voluntary association,
any subsidiary or affiliate of Eastern Utilities Associates, and any
venture, partnership or corporation in which any such subsidiary or
affiliate has an interest. For purposes of this clause (i) the term
"control" shall have the meaning given to it under the Securities Act
and the rules and regulations promulgated thereunder.
(ii) "Family Member" shall mean, in respect of any person, (A)
his spouse, children, parents and siblings, (b) the parents and
sibling of such spouse and the spouse and children of such siblings,
or any other person related by blood or marriage to any person
described in subclause (A) or (B) of this clause (ii), (C) any trust
in which any person (or any combination of him and other persons)
described in subclause (A) or (B) have an interest, and (D) any
partnership, corporation or other entity whose partners, shareholders
or owners are any of the persons described in subclause (A), (B) or
(C) or this clause (ii) or any combination of the foregoing; provided
that Family Member shall not include a corporation, partnership or
other entity that is publicly traded on a national securities exchange
or quoted on the National Association of Securities Dealers, Inc.
National Market System if the persons described in this clause (ii)
beneficially own (within the meaning of the Securities Act an the
rules and regulations promulgated thereunder) not greater than 2% of
such partnership, corporation or other entity.
7.5 Stockholders Agreement. The Company shall require any person or
entity acquiring (i) any shares of Common Stock of the Company, (ii) any other
equity security of the Company, (iii) any option, warrant or other right to
subscribe for, purchase or otherwise acquire any equity securities of the
Company, or (iv) any debt securities or other instrument convertible into
capital stock of the Company to enter into the Stockholders Agreement attached
as Exhibit D.
7.6 Termination of Covenants. The covenants of the Company contained
in this Section 7 shall terminate, and be of no further force or effect, upon
the effective date of a registration statement filed by the Company under the
Securities Act of 1933, as amended, covering the company's first public offering
of Common Stock, resulting in gross proceeds to the Company of at least
$10,000,000.00.
7.7 Use of Proceeds of NEPSCo Investment. Company and Founders agree
that the proceeds of the grant to or investment by New England Power Service
Company (or an affiliate) in the Company shall not be distributed to the
Founders unless and until the Company shall have for any fiscal year earnings
before interest and taxes in accordance with generally accepted accounting
principles of at least $3,000,000.
8. Miscellaneous.
8.1 Successors and Assigns. This Agreement, and the rights and
obligations of the Purchaser hereunder, may be assigned by the Purchaser to any
person or entity to which Shares are transferred by the Purchaser and to any
affiliate of the Purchaser, and such transferee shall be deemed the "Purchaser"
for purposes of this Agreement; provided that the transferee provides written
notice of such assignment to the Company.
8.2 Survival of Representations and Warranties. All agreements,
representations and warranties contained herein shall survive the execution and
delivery of this Agreement and the closing of the transactions contemplated
hereby.
8.3 Notices. All notices, requests, consents, and other
communications under this Agreement shall be in writing and shall be delivered
by hand or mailed by first class certified or registered mail, return receipt
requested, postage prepaid:
If to the Company at 19 Sterling Road, Billerica, Massachusetts 01821,
Attention: President, or at such other address or addresses as may have been
furnished in writing by the Company to the Purchaser.
If to the Purchaser, to EUA Energy Investment Corporation c/o Eastern
Utilities Associates, One Liberty Square, 13th Floor, Boston, Massachusetts,
02109, Attention: President, or at such other address or addresses as may have
been furnished to the Company in writing by the Purchaser.
If to a Founder, at his address set forth below his signature to this
Agreement.
Notices provided in accordance with this Section 11.5 shall be deemed
delivered upon personal delivery or two business days after deposit in the mail.
8.4 Brokers. The Company, each Founder and the Purchaser (i)
represent and warrant to the other parties hereto that he or it has retained no
finder or broker in connection with the transactions contemplated by this
Agreement, and (ii) will indemnify and save the other parties harmless from and
against any and all claims, liabilities or obligations with respect to brokerage
or finders' fees or commissions, or consulting fees in connection with the
transactions contemplated by this Agreement asserted by any person on the basis
of any statement or representation alleged to have been made by such
indemnifying party.
8.5 Entire Agreement. This Agreement and the Ancillary Agreements
embody the entire agreement and understanding between the parties hereto with
respect to the subject matter hereof and supersede all prior agreements and
understandings relating to such subject matter.
8.6 Amendments and Waivers. Except as otherwise expressly set forth
in this Agreement, any term of this Agreement may be amended and the observance
of any term of this Agreement may be waived (either generally or in a particular
instance and either retroactively or prospectively), with the written consent of
the Company and the Purchaser. No waivers of or exceptions to any term,
condition or provision of this Agreement, in any one or more instances, shall be
deemed to be, or construed as, a further or continuing waiver of any such term,
condition or provision.
8.7 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
shall be one and the same document.
8.8 Section Headings. The section headings are for the convenience
of the parties and in no way alter, modify, amend, limit, or restrict the
contractual obligations of the parties.
8.9 Severability. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement.
8.10 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Massachusetts.
8.11 Publicity. Before using the Purchaser's or any affiliate's names
in any press releases or announcements or in connection with marketing Company
products, the Company will obtain the Purchaser's prior written approval.
8.12 Pricing. The Company will provide to the Purchaser and each of
its affiliates OEM pricing on all purchases of Company products. Such OEM
pricing will be better than the best pricing provided to any other OEM of the
Company's products.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as an
instrument under seal as of the date first above written.
COMPANY:
QUALITY POWER SYSTEMS, INC.
By: _________________________
Name:
Title:
PURCHASER:
EUA ENERGY INVESTMENT CORPORATION
By: /s/ Donald G. Pardus
Name: Donald G. Pardus
Title: Chairman
FOUNDERS:
/s/ Edmund Rosa
Edmund Rosa
/s/ Alfred Guertin
Alfred Guertin
/s/ Donald Christiansen
Donald Christiansen
/s/ Arthur Berube
Arthur Berube
EXHIBIT A
Articles of Organization and Amendment
EXHIBIT B
Disclosure Schedule
1. The Company is obligated to issue 9.9% of its Common Stock to New England
Electric Resources, Inc. ("NEERI") under certain circumstances. The
Founders have agreed and hereby agree to contribute to the Company Shares
of Common Stock sufficient for issuance of such Common Stock to NEERI, such
that no unissued shares need be issued to honor such obligation.
EXHIBIT C
Stockholders
1. Edmund Rosa (2,500 Shares)
2. Alfred Guertin (2,500 Shares)
3. Donald Christiansen (2,500 Shares)
4. Arthur Berube (2,500 Shares)
EXHIBIT D
Stockholders Agreement
EXHIBIT B-2
FORM OF STOCKHOLDERS AGREEMENT
Agreement dated as of January 24, 1994, by and among Quality Power Systems,
Inc., a Massachusetts corporation (the "Company"), EUA Energy Investment
Corporation, a Massachusetts corporation (the "Purchaser"), and Edmund Rosa,
Alfred Guertin, Donald Christiansen, and Arthur Berube and any other person or
entity who at any time hereafter executes and delivers to the Company a supple-
mental signature page to this Agreement (individually, a "Holder" and
collectively, the "Holders"). The Purchaser, the Holders and any permitted
transferee pursuant to Section 2 hereof are sometimes referred to in this
Agreement collectively as the "Stockholders."
Recitals
A. As used in this Agreement, the term "Shares" shall include all shares
of capital stock of the Company held by the Stockholders, whether now owned or
hereafter acquired.
B. The purpose of this Agreement is to provide for continuity in the
management and control of the Company and to assist the Stockholders in selling
their Shares if they so desire.
NOW, THEREFORE, for valuable consideration, it is agreed as follows.
1. Restrictions on Transfer
1.1 No Stockholder may sell, assign, transfer or otherwise dispose of
any shares other than according to the terms of this Agreement and any sale or
other disposition of any of the Shares by a Stockholder, other than according to
the terms of this Agreement, shall be void and transfer no right, title, or
interest in or to any of such Shares to the purported transferee.
1.2 An original copy of this Agreement, duly executed by each of the
parties hereto, shall be delivered to the Clerk of the Company and maintained at
the principal executive office of the Company and made available for inspection
by any person requesting it.
1.3 Each Stockholder agrees to present the certificates representing
the Shares presently owned or hereafter acquired by him to the Clerk of the
Company and cause the Clerk to stamp on the certificate in a prominent manner
the following legend:
"The sale or other disposition of any of the shares represented by this
certificate is restricted by a Stockholders Agreement, dated as of January
24, 1994, among certain of the stockholders of this corporation and this
corporation (the "Agreement"). A copy of the Agreement is available for
inspection during normal business hours at the principal executive office
of this corporation."
2. Transfers Not Subject to Restrictions
2.1 Any Stockholder who is a natural person may at any time and from
time to time sell, assign or transfer Shares to his spouse, children or
grandchildren, or any trust established for his benefit or the benefit of his
spouse, children or grandchildren, or by operation of will or the laws of
intestacy, without compliance with Sections 3 through 6 hereof, provided that
such Shares shall remain subject to this Agreement (including without
limitation, the restrictions on transfer set forth in Section 1) and such
permitted transferee shall, as a condition to such transfer, deliver to the
Company and the Purchaser
a written instrument confirming that such transferee shall be bound by all of
the terms and conditions of this Agreement.
2.2 The Purchaser may at any time and from time to time assign or
transfer Shares to any affiliate of the Purchaser, provided that such Shares
shall remain subject to this Agreement (including without limitation, the
restrictions on transfer set forth in Section 1) and such permitted transferee
shall, as a condition to such transfer, deliver to the Company a written
instrument confirming that such transferee shall be bound by all of the terms
and conditions of this Agreement. For purposes hereof, "affiliate" shall have
the meaning set forth in the Stock Purchase Agreement among the parties hereto
signed on the date hereof.
2.3 If the Purchaser is required by law to divest any Shares, the
Purchaser may do so without compliance with the provisions of this Agreement.
3. Offer of Sale; Notice of Proposed Sale
If any Stockholder desires to sell, transfer or otherwise dispose of
any of his or its Shares, or of any interest in such Shares, whether voluntarily
or
by operation of law, in any transaction other than pursuant to Section 2 of this
Agreement (a "Transaction"), such Stockholder (the "Selling Stockholder") shall
first deliver written notice of his or its desire to do so (the "Notice") to the
Company and each of the other Stockholders. The Notice must specify: (i) the
name and address of the party to which the Selling Stockholder proposes to sell
or otherwise dispose of the Shares or an interest in the Shares (the "Offeror"),
(ii) the number of Shares the Selling Stockholder proposes to sell or otherwise
dispose of (the "Offered Shares"), (iii) the consideration per Share to be
delivered to the Selling Stockholder for the proposed sale, transfer or
disposition, and (iv) all other material terms and conditions of the proposed
Transaction.
4. Option to Purchase
4.1 Each Stockholder other than the Selling Stockholder shall have an
option, exercisable within the 20 day period after the date of delivery of the
Notice, to purchase, on a pro rata basis according to the number of Shares owned
by each such Stockholder, the Offered Shares for the consideration per share and
on the other terms and conditions set forth in the Notice. Such option shall be
exercisable by delivery of written notice to the Clerk of the Company.
Alternatively, each Stockholder other than the Selling Stockholder may within
the same 20 day period, notify the Clerk of the Company of its desire to
participate as a seller of Shares in the Transaction in accordance with Section
6 below on the terms and conditions set forth in the Notice, and the number of
Shares it wishes to sell.
4.2 In the event that Stockholders have exercised options to purchase
with respect to some but not all of the Offered Shares, those Stockholders who
have exercised their options within the 20 day period specified in Section 4.1
shall have an additional option, exercisable within the five day period after
the last day of such 20 day period, to purchase all or any part of the balance
of such Offered Shares for the consideration per share and on the other terms
and conditions set forth in the Notice, which option shall be exercised by the
delivery of written notice to the Clerk of the Company. In the event there are
two or more such Stockholders that choose to exercise the option set forth in
this Section 4.2 for a total number of Offered Shares in excess of the number
available, the available Offered Shares shall be allocated to such Stockholders
pro rata based on the number of Shares owned by the Stockholders so electing.
4.3 If the options to purchase the Offered Shares are exercised in
full by the Stockholders, the Clerk of the Company shall promptly notify the
Selling Stockholder and all of the exercising Stockholders of that fact. The
closing of the purchase of the Offered Shares shall take place at the offices of
the Company five days after the date of such notice to the Selling Stockholder
and the other Stockholders.
4.4 If the options to purchase the Offered Shares are not exercised
in full by the Stockholders, the Clerk of the Company shall, by the day after
the five-day period referred to in Section 4.2, give written notice of that fact
to the Company (the "Company Notice"). The Company Notice shall specify the
number of offered Shares not purchased by the Stockholders (the "Remaining
Shares") and the Company shall have the option set forth in Section 5 below.
4.5 To the extent that the terms of payment by the Offeror for the
Offered Shares are other than cash against delivery, the Stockholders,
exercising their options under Section 4 hereof, may pay for the Offered Shares
to be purchased by them on the same terms or may pay cash of equivalent value,
as determined in good faith by agreement of the Selling Stockholder and such
purchasing Stockholders.
5. Company's Option to Purchase
If the options to purchase the Offered Shares are not
exercised in full by the Purchaser, the Company shall have an option,
exercisable within the 15 day period after the date of delivery of the Company
Notice, to purchase all of the Remaining Shares for the consideration per share
and on the other terms and conditions set forth in the Notice. Such option
shall be exercised by delivery of written notice to the Selling Stockholder. If
the option to purchase the Remaining Shares is exercised in full by the Company,
the Clerk of the Company shall immediately notify all of the purchasing
Stockholders of that fact. The Closing of the purchase by the Company and the
exercising Stockholders (if any) of the Offered Shares shall take place at the
offices of the Company no later than five days after the date of such notice to
the purchasing Stockholders.
6. Failure to Fully Exercise Options; Co-Sale; Re-offer
6.1 If the Stockholders and the Company do not exercise options to
purchase all of the Offered Shares within the periods described above in this
Agreement (the "Option Period"), then the Selling Stockholder may sell all of
the Offered Shares to the Offeror, but each Stockholder which has, pursuant to
Section 4.1, expressed a desire to sell Shares in the Transaction (a
"Participating Stockholder"), shall be entitled to do so pursuant to this
Section 6. The Clerk of the Company shall promptly, on expiration of the Option
Period, notify the Selling Stockholder of the aggregate number of Shares the
other Stockholders wish to sell. The Selling Stockholder shall use his best
efforts to interest the Offeror in purchasing, in addition to the Offered
Shares, the Shares the other Stockholders wish to sell. If the Offeror does not
wish to purchase all of the Shares made available by the Selling Stockholder and
the other Stockholders, then each other Stockholder and the Selling Stockholder
shall be entitled to sell, for the consideration per share and on the other
terms and conditions set forth in the Notice, a portion of the Shares being sold
to the Offeror, in the same proportion as such Selling Stockholder's or other
Stockholder's ownership of Shares bears to the aggregate number of Shares owned
by the Selling Stockholder and the other Stockholders. The Transaction
contemplated by the Notice shall be consummated not later than 60 days after the
expiration of the Option Period.
6.2 If the other Stockholders do not elect to sell the full number of
Shares which they are entitled to sell pursuant to Section 6.1, the Selling
Stockholder shall be entitled to sell to the Offeror, for the consideration per
share and on the other terms and conditions set forth in the Notice, that number
of his own Shares which equals the difference between the number of Shares
desired to be purchased by the Offeror and the number of Shares the other
Stockholders wish to sell.
6.3 If the Selling Stockholder wishes to sell, transfer or otherwise
dispose of any Shares at a price per Share which differs from that set forth in
the Notice, upon other terms and conditions different from those set forth in
the Notice, or more than 60 days after the expiration of the Option Period, as a
condition precedent to such transaction, such Shares must first be offered to
the Company and the other Stockholders on the same terms and conditions and in
accordance with the procedures and time periods set forth above.
6.4 The proceeds of any sale made by the Selling Stockholder without
compliance with the provisions of this Section 6 shall be deemed to be held in
constructive trust in such amount as would have been due the other Stockholders
if the Selling Stockholder had complied with this Agreement.
7. Termination of Agreement
7.1 This Agreement shall terminate upon the earliest of the following
events:
(a) the written agreement of the Company and the Stockholders;
(b) the sale of all or substantially all of the assets or
business of the Company, by merger, sale of assets or otherwise; or
(c) the closing of the Company's initial public offering of
shares of Common Stock pursuant to an effective registration statement
under the Securities Act of 1933, as amended (the "Act"), resulting in at
least $10,000,000.00 of gross proceeds to the Company.
7.2 The provisions of Sections 3, 4, 5 and 6 hereof shall not apply
to any sale of Shares pursuant to a transaction referred to in Sections 7.1(b)
or 7.1(c) above.
8. Transfers of Rights.
8.1 Any transferee to whom rights under this Agreement are
transferred shall, as a condition to such transfer, deliver to the Company a
written instrument by which such transferee identifies itself, gives the Company
notice of the transfer of such rights, indicates the Shares acquired by it and
agrees to be bound by the obligations imposed upon Stockholders under this
Agreement to the same extent as if such transferee were an original Stockholder.
8.2 A transferee to whom rights are transferred pursuant to this
Section 8 may not again transfer such rights to any other person or entity,
other than as provided in Section 8.1 above.
8.3 Except as provided in Sections 2 and 8, no party to this
Agreement may transfer or assign any of its rights or obligations hereunder.
9. Directors.
9.1 In any and all elections of Directors (whether at a meeting or by
written consent in lieu of a meeting), each Stockholder shall vote or cause to
be voted all Shares owned by him or it, or over which he or it has voting
control, and otherwise use his or its respective best efforts, so as to elect
one member of the Company's Board of Directors designated by the Purchaser (or
its successor or assign), provided that the Purchaser shall elect to designate a
Director.
9.2 No Stockholder shall vote to remove any director designated by
the Purchaser in accordance with this Agreement, except for bad faith or willful
misconduct.
9.3 Any vacancy in a directorship resulting from the death,
resignation or termination for cause of a director designated by the Purchaser
in accordance with this Agreement shall be filled by the subsequent designee of
the Purchaser.
10. Registration Rights.
10.1 As used in this Section 10, the following terms shall have the
following respective meanings:
"Act means the Securities Act of 1933, as amended.
"Registrable Securities" shall mean Company Common Stock of any
Stockholder including any Company Common Stock issued upon any stock
split, stock dividend, recapitalization or similar event; provided
that any such share shall cease to be a "Registrable Security" when
sold pursuant to a registration statement declared effective under the
Act or sold pursuant to Rule 144 promulgated thereunder.
The term "register" means to register under the Act and applicable
state securities laws for the purpose of effecting a public sale of
securities.
"Registration Expenses" shall mean all expenses incurred by the
Company in compliance with Section 10.2 hereof, including, without
limitation, all registration and filing fees, printing expenses, fees
and disbursements of counsel for the Company, blue sky fees and
expenses, reasonable fees and disbursements of one counsel for all the
selling Stockholders, and the expense of any special audits incident
to or required by any such registration.
"Selling Expenses" shall mean all underwriting discounts, selling
commissions and transfer taxes applicable to the sale of Registrable
Securities.
10.2 If the Company shall determine to register any of its securities,
either for its own account or the account of a security holder or holder
exercising their registration rights, other than a registration relating solely
to employee benefit plans, or a registration on any registration form which does
not permit secondary sales or does not include substantially the same
information as would be required to be included in a registration statement
covering the sale of Registrable Securities, the Company will:
10.2.1 promptly give to each Stockholder owning Registrable
Securities written notice thereof (which shall include the number
of shares the Company or other security holder proposes to
register and, if known, the name of the proposed underwriter);
and
10.2.2 use its best efforts to include in such registration all
the Registrable Securities specified in a written request or
requests, made by any Stockholder within twenty (20) days after
receipt of the written notice from the Company described in
clause 10.2.1 above. If the underwriter advises the Company that
marketing considerations require a limitation on the number of
shares offered pursuant to any registration statement, the shares
permitted to be included therein shall be allocated to the
Stockholders pro-rata in accordance with their percentage
ownership interests in Registrable Securities of the Company.
10.2.3 If any Stockholder disapproves of the terms of any Company
underwriting in which his shares are to be included under this
Section 10.2, he or it may elect to withdraw therefrom by written
notice to the Company and the underwriter delivered at least
seven days prior to the effective date of the registration
statement.
10.2.4 All Registration Expenses incurred in connection with any
registration, qualification or compliance requested or effected
pursuant to this Section shall be borne by the Company, and all
Selling Expenses shall be borne by the holders of the securities
so registered pro rata on the basis of the number of their shares
so registered.
10.3 In the case of each registration effected by the Company pursuant
to this Section, the Company will keep each Stockholder owning Registrable
Securities included in such registration advised in writing as to the initiation
of each registration and as to the completion thereof. At its expense, the
Company will do the following for the benefit of such Stockholders:
10.3.1 Use its best efforts to keep such registration effective
for a period of one hundred fifty days or until the Stockholders
have completed the distribution described in the registration
statement relating thereto, whichever first occurs, and amend or
supplement such registration statement and the prospectus
contained therein from time to time to the extent necessary to
comply with the Act and applicable state securities laws;
10.3.2 Use its best efforts to register or qualify the
Registrable Securities covered by such registration under the
applicable securities or "blue sky" laws of such jurisdictions as
the underwriter of such offering shall reasonably deem necessary
in order to ensure a successful offering;
10.3.3 Furnish such number of prospectuses and other documents
incident thereto as a Stockholder from time to time may
reasonably request;
10.3.4 To the extent then permitted under applicable professional
guidelines and standards, obtain a comfort letter from the
Company's independent public accountants in customary form and
covering such matters of the type customarily covered by comfort
letters and an opinion from the Company's counsel in customary
form and covering such matters of the type customarily covered in
a public issuance of securities, in each case addressed to the
Stockholders whose shares are included in the registration, and
provide copies thereof to such Stockholders;
10.3.5 Permit each selling Stockholder and his counsel or other
representatives to inspect and copy such corporate documents as
he may reasonably request; and
10.3.6 Indemnify each selling Stockholder against any liability
incurred by such Stockholder in connection with such offering
upon terms and conditions customary for such an offering.
11. General.
11.1 Severability. The provisions of this Agreement are severable, so
that the invalidity or unenforceability of any provision of this Agreement shall
not affect the validity or enforceability of any other term or provision of this
Agreement, which shall remain in full force and effect.
11.2 Specific Performance. In addition to any and all other remedies
that may be available at law in the event of any breach of this Agreement, each
Stockholder shall be entitled to specific performance of the agreements and
obligations of the Company and Stockholders hereunder and to such other
injunctive or other equitable relief as may be granted by a court of competent
jurisdiction.
11.3 Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the Commonwealth of Massachusetts.
11.4 Notices. All notices, requests, consents, and other
communications under this Agreement shall be in writing and shall be delivered
by hand or mailed by first class certified or registered mail, return receipt
requested, postage prepaid:
If to the Company, at 19 Sterling Road, Billerica, MA 01821 or at such
other address or addresses as may have been furnished in writing by the Company
hereunder; or
If to a Stockholder, at its address set forth on the signature pages
hereof, or at such other address or addresses as may have been furnished to the
Company
in writing by the Stockholder.
Notices provided in accordance with this Section 11.4 shall be deemed
delivered upon personal delivery or two business days after deposit in the mail,
provided that the required copy or copies have been sent in accordance with this
Section 11.4.
11.5 Complete Agreement; Amendments. This Agreement constitutes the
full and complete agreement of the parties hereto, and supersedes all prior
agreements, whether written or oral, with respect to the subject matter hereof.
No amendment, modification or termination of any provision of this Agreement
shall be valid unless in writing and signed by the Company and the Stockholders.
11.6 Pronouns. Whenever the content may require, any pronouns used in
this Agreement shall include the corresponding masculine, feminine or neuter
forms, and the singular form of nouns and pronouns shall include the plural, and
vice versa.
11.7 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall constitute one Agreement binding on all the
parties hereto.
11.8 Captions. Captions of sections have been added only for
convenience and shall not be deemed to be a part of this Agreement.
IN WITNESS WHEREOF, this Agreement has been executed as an instrument
under seal as of the date first above written.
COMPANY:
QUALITY POWER SYSTEMS, INC.
By: _________________________
Name: _________________________
Title: _________________________
STOCKHOLDERS:
_________________________
Edmund Rosa
Address:
_________________________
Alfred Guertin
Address:
_________________________
Donald Christiansen
Address:
_________________________
Arthur Berube
Address:
PURCHASER:
EUA ENERGY INVESTMENT CORPORATION
By: _________________________
Name: _________________________
Title: _________________________
