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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (date of earliest event reported) MARCH 23, 1998
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U.S. ENERGY SYSTEMS, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE
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(State or other jurisdiction of incorporation)
0-10238 52-1216347
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(Commission File Number) (IRS Employer Identification No.)
515 N. FLAGLER DRIVE, SUITE 702
WEST PALM BEACH, FLORIDA 33401
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (561) 820-9779
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(Former name or former address, if changed since last report)
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ITEM 5. OTHER EVENTS
On March 23, 1998, U.S. Energy Systems, Inc. (the "Company") issued
250,000 shares of its Series A Convertible Preferred Stock, par value $.01 per
share (the "Preferred Stock"), to Energy Systems Investors, LLC ("Energy
Investors"), a Delaware limited liability company controlled by Lawrence I.
Schneider. The aggregate offering price for the Preferred Stock was $2,250,000
($9.00 per share).
The Preferred Stock pays a 9% per annum cumulative dividend, in cash or
shares of common stock of the Company, par value $.01 per share (the "Common
Stock"), and is convertible at any time into shares of the Company's common
stock, par value $.01 per share (the "Common Stock"), based upon a $2.25
conversion price. Such conversion price, which was approximately 10% above the
closing market price of the Common Stock on the date of issuance, is subject to
certain anti-dilutive adjustments upon the happening of specified events.
Currently, each share of Preferred Stock is convertible into four shares of
Common Stock. The Preferred Stock also has the right to vote on all matters that
come before the shareholders of the Company. The number of votes per share of
Preferred Stock is based on the conversion price and is currently four votes per
share. Energy Investors has certain registration rights in connection with the
shares of Common Stock received upon the conversion of the Preferred Stock. The
Company may redeem the Preferred Stock after March 1, 2001, and may force the
conversion of the Preferred Stock to Common Stock after March 1, 2006.
After giving effect to the issuance of the Preferred Stock, Energy
Investors has the right to vote approximately 16.2% of the outstanding voting
stock of the Company. Additionally, Energy Investors has the right to purchase
an additional 222,000 shares of Preferred Stock prior to March 23, 1999, on the
same terms as the initial offering. Such additional acquisition of Preferred
Stock and any acquisition of the voting securities of the Company which would
result in the voting securities beneficially owned by Energy Investors to exceed
19.9% of the outstanding voting securities of the Company is subject to the
prior approval of a majority of the shares of Common Stock (exclusive of the
shares held by Energy Investors).
Lawrence I. Schneider, the president and manager of Energy Investors,
has been appointed to the Board of Directors of the Company and to its Executive
Committee. Mr. Schneider has been associated with numerous public companies
through the years and was a member of the board of directors of Newpark Resource
Corp., a company involved with oilfield environmental remediation. Mr. Schneider
was also a partner in the New York Stock Exchange firm of Sassower, Jacobs and
Schneider.
The foregoing summary of the Company's Preferred Stock issuance is
subject to, and is qualified in its entirety by, the full text of the Company's
Certificate of Designation of Series A Convertible Preferred Stock, the
Subscription Agreement between the Company and Energy Investors, and the
Registration Rights Agreement between the Company and Energy Investors, which
are all filed as Exhibits hereto.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(C) EXHIBITS
4.1 Certificate of Designation of Series A Convertible
Preferred Stock of U.S. Energy Systems, Inc. as filed
with the Secretary of State of Delaware on March 23,
1998.
10.1 Subscription Agreement, dated March 20, 1998, between
U.S. Energy Systems, Inc. and Energy Systems Investors,
LLC.
10.2 Registration Rights Agreement, dated March 20, 1998,
between U.S. Energy Systems, Inc. and Energy Systems
Investors, LLC.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
U.S. ENERGY SYSTEMS, INC.
Dated: March 26, 1998 By: /s/ Richard H. Nelson
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President and Chief Executive Officer
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INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT DESCRIPTION PAGE NUMBER
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<S> <C> <C>
4.1 Certificate of Designation of Series A Convertible Preferred
Stock of U.S. Energy Systems, Inc. as filed with the Secretary of
State of Delaware on March 23, 1998.
10.1 Subscription Agreement, dated March 20, 1998, between U.S. Energy
Systems, Inc. and Energy Systems Investors, LLC.
10.2 Registration Rights Agreement, dated March 20, 1998, between U.S.
Energy Systems, Inc. and Energy Systems Investors, LLC.
</TABLE>
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Exhibit 4.1
CERTIFICATE OF DESIGNATION
OF
SERIES A CONVERTIBLE PREFERRED STOCK
OF
U.S. ENERGY SYSTEMS, INC.
(PURSUANT TO SECTION 151 OF THE
DELAWARE GENERAL CORPORATION LAW)
------------------------------------
U.S. Energy Systems, Inc., a corporation organized and existing under
the General Corporation Law of the State of Delaware (hereinafter called the
"Corporation"), hereby certifies that the following resolution was adopted by
the Board of Directors of the Corporation as required by Section 151 of the
Business Corporation Law at a meeting duly called and held on March 18, 1998:
RESOLVED, that pursuant to the authority granted to and vested in the
Board of Directors of this Corporation (hereinafter called the "Board of
Directors" or the "Board") in accordance with the provisions of the Certificate
of Incorporation of the Corporation, the Board of Directors hereby creates a
Series A Preferred Stock, $.01 par value per share (the "Preferred Stock"), of
the Corporation and hereby states the designation and number of shares, and
fixes the relative rights, preferences, and limitations thereof as follows:
Convertible Preferred Stock:
Section 1. DESIGNATION AND AMOUNT. The shares of such series shall be
designated as "Series A Convertible Preferred Stock" (the "Preferred Stock") and
the number of shares constituting the Preferred Stock shall be 600,000. Such
number of shares may be increased or decreased by resolution of the Board of
Directors; provided, that no decrease shall reduce the number of shares of
Preferred Stock to a number less than the number of shares then outstanding and
no increase shall increase the number of shares of Preferred Stock above the
total number of authorized shares.
Section 2. RANK. The Preferred Stock shall rank as to distributions
of assets upon liquidation, dissolution or winding up of the Corporation,
whether voluntary or involuntary: (i) senior to all of the Corporation's common
stock, par value $.01 per share (the "Common Stock"); (ii) senior to any class
or series of capital stock of the Corporation hereafter created specifically
ranking by its terms junior to the Preferred Stock (collectively, with the
Common Stock, "Junior Securities" or "Junior Stock"); and (iii) on parity with
any class or series of capital
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stock of the Corporation hereafter created specifically ranking by its terms on
parity with the Preferred Stock ("Parity Securities" or "Parity Stock"). While
any shares of Preferred Stock are outstanding, no Parity Securities or equity
securities senior to the Preferred Stock shall be authorized or issued without
the written consent of the holders of the Preferred Stock, voting as a class.
This prohibition shall not include the authorization or issuance of any form of
debt securities or instruments to a bank or other institution.
Section 3. DIVIDENDS.
(a) The holders of the Preferred Stock shall be entitled to
receive out of funds of the Corporation legally available for payment cash
dividends, payable quarterly in arrears, at the rate of $0.81 per share per
annum, payable in cash, Common Stock or some combination thereof at the holder's
option. Any Common Stock granted as a Dividend under this Section 3 shall be
granted at a price equal to the average trading price of the Common Stock of the
Corporation on the five trading days prior to the date the Corporation declares
the dividend. Dividends on the Preferred Stock shall accrue from the date of
issuance or thereafter, from the most recent date on which dividends were
payable, and shall be payable quarterly on April 30, July 31, October 31 and
January 31 of each year (each a "Dividend Payment Date"), commencing with a
pro-rata dividend on the first Dividend Payment Date after the initial issuance
of the Preferred Stock; PROVIDED, HOWEVER, that if any such day is a
non-business day, the Dividend Payment Date will be the next business day. Each
declared dividend shall be payable to holders of record as they appear at the
close of business on the stock books of the Corporation on such record date, not
more than 30 calendar days and not less than 10 calendar days preceding the
Dividend Payment Date therefor, as determined by the Board of Directors (each of
such dates a "Record Date"). Quarterly dividend periods (each a "Dividend
Period") shall commence on and include the 1st day of February, May, August and
November of each year and shall end on and include the day next preceding the
next following Dividend Payment Date. If any state or federal laws or
regulations or the then applicable rules of the National Association of
Securities Dealers, or any market or exchange on which the Common Stock of the
Corporation is traded, prohibit any dividend payment from being made with Common
Stock, then such payment shall be made in cash.
(b) No dividends shall be declared or paid or set apart for
payment on any Common Stock, Parity Stock or Junior Stock during any calendar
quarter unless full dividends on the Preferred Stock for all Dividend Periods
ending prior to or during such calendar quarter have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
is set apart for such payment. When dividends are not so paid in full (or a sum
sufficient for such full payment is not so set apart) upon the Preferred Stock
and any other Parity Stock, dividends upon the Preferred Stock and dividends on
such other Parity Stock payable during such calendar quarter shall be declared
pro rata so that the amount of such dividends so payable per share on the
Preferred Stock and such other Parity Stock shall in all cases bear to each
other the same ratio that full dividends on the shares of Preferred Stock and
full dividends, if any, on shares of such other Parity Stock, bear to each
other. If full dividends on the Preferred Stock have not been declared and paid
or set apart for payment, no dividend or distribution, other
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than in shares of capital stock ranking junior to the Preferred Stock as to
dividends or liquidation preference ("Junior Stock"), may be declared, set aside
or paid on any shares of Junior Stock. Except with respect to the Corporation's
9% Convertible Secured Subordinated Debentures and Redeemable Common Stock
Purchase Warrants, so long as any Preferred Stock is outstanding, the
Corporation may not repurchase, redeem or otherwise acquire any shares of its
Junior Stock (except by conversion into or exchange for Junior Stock), and may
not, directly or indirectly, repurchase, redeem or otherwise acquire (except by
conversion into or exchange for Junior Stock) any shares of any class or series
of Junior Stock or warrants, calls, options or other rights to acquire capital
stock of the Corporation or other security exercisable or exchangeable into
capital stock of the Corporation without the written consent of the holders of
the Preferred Stock. Holders of the Preferred Stock shall not be entitled to any
dividends, whether payable in cash, property or stock, in excess of the
dividends provided for herein. No interest or sum of money in lieu of interest
shall be payable in respect of any declared dividend payment or payments on the
Preferred Stock which may be in arrears. As used herein, the phrase "set apart"
in respect of the payment of dividends shall require deposit of any funds in a
bank or trust company in a separate deposit account maintained for the benefit
of the holders of the Preferred Stock.
Section 4. VOTING RIGHTS. Each share of Preferred Stock shall be
entitled to a number of votes in any vote brought before the holders of the
Common Stock of the Corporation equal to $9.00 divided by the Conversion Price
(as set forth in Section 6 hereof) determined as of the record date of such vote
of stockholders. Holders of shares of Preferred Stock shall be entitled to
notice of all stockholder meetings or written consents with respect to which
they would be entitled to vote, which notice shall be provided pursuant to the
Corporation's bylaws and applicable law.
To the extent that under Delaware law the vote of the holders of shares
of Preferred Stock, voting separately as a class, is required to authorize a
given action of the Corporation, the affirmative vote or consent of the holders
of at least a majority of the outstanding shares of the Preferred Stock shall
constitute the approval of such action by the class.
Section 5. CONVERSION. Subject to and upon compliance with this Section
5, the holders of shares of Preferred Stock shall have conversion rights as
follows:
(a) OPTIONAL CONVERSION. Each holder of a share of Preferred
Stock shall have the right, at any time, at the office of the Corporation or any
transfer agent for the Preferred Stock, to convert such share of Preferred Stock
into that number of fully paid and nonassessable shares of Common Stock equal to
$9.00 divided by the Conversion Price of such share of Preferred Stock as set
forth in Section 6 hereof.
(b) MECHANICS OF CONVERSION. In order to convert shares of
Preferred Stock into shares of Common Stock, the holder of shares of Preferred
Stock shall (i) fax or otherwise deliver a copy of the fully executed notice of
conversion in the form attached hereto as Exhibit A ("Notice of Conversion") to
the Corporation at its principal office and to the transfer agent for the
Preferred Stock that such holder elects to convert the same, which notice shall
specify the
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number of shares of Preferred Stock to be converted and shall contain the
Conversion Price (together with a copy of the first page of each certificate to
be converted) prior to 5:00 p.m., Eastern Standard time (the "Conversion Notice
Deadline") on the date of conversion specified on the Notice of Conversion and
(ii) surrender the original certificate or certificates for the shares of
Preferred Stock to be converted, duly endorsed, and deliver the original Notice
of Conversion by either overnight courier or two-day courier, to the principal
office of the Corporation or the office of the transfer agent for the Preferred
Stock; provided, however, that the Corporation shall not be obligated to issue
certificates evidencing the shares of Common Stock issuable upon such conversion
unless the certificates evidencing such shares of Preferred Stock are delivered
to the Corporation or its transfer agent as provided above. Upon receipt by the
Corporation of evidence of the loss, theft, destruction or mutilation of any
certificate representing shares of Preferred Stock, and (in the case of loss,
theft or destruction) of indemnity or security reasonably satisfactory to the
Corporation, and upon surrender and cancellation of any certificate representing
shares of Preferred Stock, if mutilated, the Corporation shall execute and
deliver a new certificate of like tenor and date. No fractional shares of Common
Stock shall be issued upon conversion of the Preferred Stock. In lieu of any
fractional share to which the holder of shares of Preferred Stock would
otherwise be entitled, the Corporation shall pay cash to such holder in an
amount equal to such fraction multiplied by the Conversion Price then in effect.
In the case of a dispute as to the calculation of the Conversion Rate, the
Corporation's calculation shall be deemed conclusive absent manifest error.
The Corporation shall use all reasonable efforts to issue and deliver
within seven (7) business days after delivery to the Corporation of the
certificates representing the shares of Preferred Stock to be converted, or
after such agreement and indemnification, to such holder of Preferred Stock at
the address of the holder on the books of the Corporation, a certificate or
certificates for the number of shares of Common Stock to which the holder shall
be entitled as aforesaid. The date on which conversion occurs (the "Date of
Conversion") shall be deemed to be the date set forth in such Notice of
Conversion, provided (i) that the advance copy of the Notice of Conversion is
delivered to and received by the Corporation before 5:00 p.m., Eastern Standard
time, on the Date of Conversion, and (ii) that the original stock certificates
representing the shares of Preferred Stock to be converted are received by the
Corporation or the transfer agent within two (2) business days thereafter. The
person or persons entitled to receive the shares of Preferred Stock issuable
upon such conversion shall be treated for all purposes as the record holder or
holders of such shares of Common Stock on the Date of Conversion. If the
original certificates representing the shares of Preferred Stock to be converted
are not received by the Corporation or the transfer agent within two (2)
business days after the Date of Conversion or if the facsimile of the Notice of
Conversion is not received by the Corporation or its transfer agent prior to the
Conversion Notice Deadline, the Notice of Conversion, at the Corporation's
option, may be declared null and void.
Following any conversion of shares of Preferred Stock, such shares of
Preferred Stock shall no longer be outstanding and all rights of a holder with
respect to the shares surrendered for conversion shall immediately terminate
except for the right to receive Common Stock.
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(c) RESERVATION OF SHARES. The Corporation shall at all
times reserve and keep available out of its authorized but unissued shares of
Common Stock such number of shares of Common Stock as shall from time to time be
sufficient to effect the conversion of all then outstanding shares of Preferred
Stock and to pay the dividends thereon in Common Stock; and if at any time the
number of authorized but unissued shares of Common Stock shall not be sufficient
to effect the conversion of all then outstanding shares of Preferred Stock or to
pay the dividends thereon in Common Stock, the Corporation will take such
corporate action as may be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purpose.
Section 6. CONVERSION PRICE. The "Conversion Price" per share of the
Preferred Stock shall be $2.25, subject to adjustment as set forth below.
(a) The Conversion Price shall be adjusted from time to time
as follows:
(i) If the Corporation consummates any offering of
its Common Stock (or securities exercisable or convertible into Common Stock) at
a price (or exercise or conversion price) below the Conversion Price, the
Conversion Price of the Preferred Stock shall be reduced to such offering price
(or exercise price or conversion price, as applicable). The provisions of this
Section 6(a) shall not apply upon the issuance of securities in connection with
an acquisition of the stock or equity interests or substantially all the assets
of an entity, or a merger by the Corporation.
(ii) The Conversion Price shall not be reduced below
$1.00 pursuant to this Section 6(a) unless the Corporation consummates any
offering of its Common Stock or convertible securities at a price or conversion
price less than an amount equal to the net book value per share of the
Corporation as determined using the information provided in the Corporation's
last quarterly or annual report as filed with the Securities and Exchange
Commission, pursuant to the Securities Exchange Act of 1934, as amended.
(b) If and whenever after the date hereof the Corporation
shall issue or sell any shares of its Common Stock in connection with an
acquisition or merger (as expressly excluded from the provisions of paragraph
(a) above) for a consideration per share less than the Conversion Price in
effect immediately prior to the time of such issue or sale, then, forthwith upon
such issue or sale, the Conversion Price shall be reduced to the price
(calculated to the nearest cent) determined by dividing (i) an amount equal to
the sum of (a) the number of shares of Common Stock outstanding immediately
prior to such issue or sale multiplied by the then existing Conversion Price,
and (b) the consideration, if any received by the Corporation upon such issue or
sale by (ii) the total number of shares of Common Stock outstanding immediately
after such issue or sale. In case any shares of Common Stock shall be issued or
sold for cash, the consideration received therefor shall be deemed to be the
amount received by the Corporation therefor, without deduction therefrom of any
expenses incurred or any underwriting commissions or concessions paid or allowed
by the Corporation in connection therewith. In case any shares of Common Stock
shall be issued or sold for a consideration other than cash, the amount of the
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consideration other than cash received by the Corporation shall be deemed to be
the fair value of such consideration as determined by the Board of Directors of
the Corporation, without deduction of any expenses incurred or any underwriting
commissions or concessions paid or allowed by the Corporation in connection
therewith.
(c) In case at any time the Corporation shall in any manner
grant in connection with an acquisition or merger (as expressly excluded from
the provisions of paragraph (a) above) any rights to subscribe for or to
purchase, or any options for the purchase of, Common Stock ("Options") or any
stock or securities convertible into or exchangeable for Common Stock
("Convertible Securities") whether or not such Options or Convertible Securities
are immediately exercisable or convertible, and the exercise price per share of
such Options or the conversion price per share of such Convertible Securities
shall be less than the Conversion Price in effect immediately prior to the time
of the granting of such Options or Convertible Securities, then the Conversion
Price shall be reduced to the price (calculated to the nearest cent) determined
by dividing (i) an amount equal to the sum of (a) the number of shares of Common
Stock outstanding immediately prior to such issuance multiplied by the then
existing Conversion Price, and (b) the aggregate exercise price or conversion
price to be received by the Corporation upon the exercise or conversion of the
Options or Convertible Securities, as applicable, by (ii) the total number of
shares of Common Stock outstanding immediately after the issuance of Options or
Convertible Securities, assuming the exercise of such Options or the conversion
of such Convertible Securities.
(d) If, prior to the conversion of all outstanding shares of
Preferred Stock, the number of outstanding shares of Common Stock is increased
by a stock split, stock dividend or other similar event, the Conversion Price
shall be proportionately reduced, or if the number of outstanding shares of
Common Stock is decreased by a combination or reclassification of shares or
other similar event, the Conversion Price shall be proportionately increased.
(e) If, prior to the conversion of all outstanding shares of
Preferred Stock, there shall be any merger, consolidation, exchange of shares,
recapitalization, reorganization or other similar event, as a result of which
shares of Common Stock of the Corporation shall be changed into the same or a
different number of shares of the same or another class or classes of stock or
securities of the Corporation or another entity, then the holders of shares of
Preferred Stock shall thereafter have the right to purchase and receive upon
conversion of Preferred Stock, upon the basis and upon the terms and conditions
specified herein and in lieu of the shares of Common Stock immediately
theretofore issuable upon conversion, such shares of stock and/or securities as
may be issued or payable with respect to or in exchange for the number of shares
of Common Stock immediately theretofore purchasable and receivable upon the
conversion of the Preferred Stock held by such holders had such merger,
consolidation, exchange of shares, recapitalization or reorganization not taken
place, and in any such case appropriate provisions shall be made with respect to
the rights and interests of the holders of the Preferred Stock to the end that
the provisions hereof (including, without limitation, provisions for adjustment
of the Conversion Price and of the number of shares issuable upon conversion of
the Preferred Stock) shall thereafter be applicable, as nearly as may be
practicable in relation to any shares of stock or
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securities thereafter deliverable upon the exercise hereof. The Corporation
shall not effect any transaction described in this subsection 6(e) unless the
resulting successor or acquiring entity (if not the Corporation) assumes by
written instrument the obligation to deliver to the holders of the Preferred
Stock such shares of stock and/or securities as, in accordance with the
foregoing provisions, the holders of the Preferred Stock may be entitled to
purchase.
(f) No adjustment of the Conversion Price shall be made in an
amount less than $.01 per share.
(g) In no event shall the Conversion Price be adjusted
pursuant to this Section 6 in connection with the issuance of Common Stock or
Options to the officers, directors, employees or agents of the Corporation or to
any person who shall be issued Common Stock or Options pursuant to a pending
employment, agency or consulting agreement (whether or not such agreement is to
be consummated in connection with an acquisition or merger).
(h) Upon any adjustment of the Conversion Price, then and in
each case the Corporation shall give written notice thereof, by first class
mail, postage prepaid, addressed to each holder of shares of the Preferred Stock
at the address of such holder as shown on the books of the Corporation, which
notice shall state the Conversion Price resulting from such adjustment, setting
forth in reasonable detail the method of calculation and the facts upon which
such calculation is based.
(i) In case at any time:
(i) the Corporation shall declare any dividend upon
its Common Stock payable in cash or stock or make any other distribution to the
holders of its Common Stock;
(ii) the Corporation shall offer for subscription PRO
RATA to the holders of its Common Stock any additional shares of stock of any
class or other rights;
(iii) there shall be any capital reorganization or
reclassification of the capital stock of the Corporation, or a consolidation or
merger of the Corporation with, or a sale of all or substantially all its assets
to, another corporation; or
(iv) there shall be a voluntary or involuntary
dissolution, liquidation or winding up of the Corporation;
then, in any one or more of said cases, the Corporation shall give, by first
class mail, postage prepaid, addressed to each holder of any shares of Preferred
Stock at the address of such holder as shown on the books of the Corporation,
(i) at least 30 days' prior written notice of the date on which the books of the
Corporation shall close or a record shall be taken for such dividend,
distribution or subscription rights or for determining rights to vote in respect
of any such reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation or winding up, and (ii) in the case of any such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding up, at least 30 days' prior written notice of the date
when the
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same shall take place. Such notice in accordance with the foregoing clause (y)
shall also specify, in the case of any such dividend, distribution or
subscription rights, the date on which the holders of Common Stock shall be
entitled thereto, and such notice in accordance with the foregoing clause (z)
shall also specify the date on which the holders of Common Stock shall be
entitled to exchange their Common Stock for securities or other property
deliverable upon such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding up, as the case may be, and in the
case of such merger or sale, the aggregate consideration to be received by the
holder of the Corporation's capital stock.
Section 7. STATUS OF CONVERTED OR REACQUIRED SHARES. Any shares of
Preferred Stock converted into shares of Common Stock pursuant to Section 5
hereof or purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and canceled promptly after the conversion or
acquisition thereof. All such shares shall upon their cancellation become
authorized but unissued shares of Preferred Stock and may be reissued as part of
a new series of Preferred Stock subject to the conditions and restrictions on
issuance set forth herein, in the Certificate of Incorporation, or in any other
Certificate of Designation creating a series of Preferred Stock or any similar
stock or as otherwise required by law.
Section 8. LIQUIDATION, DISSOLUTION OR WINDING UP.
(a) In the event of any liquidation, dissolution or winding
up of the Corporation, either voluntary or involuntary, the holders of shares of
Preferred Stock shall be entitled to receive out of the assets of the
Corporation available for distribution to stockholders under applicable law,
prior and in preference to any distribution to holders of the Common Stock or
any Junior Securities but in parity with any distribution to holders of Parity
Securities, an amount of $9.00 per share, plus a sum equal to all dividends
accrued on such shares (whether or not declared) and unpaid for the then current
Dividend Period. If upon the occurrence of such event, the assets and funds to
be distributed among the holders of shares of Preferred Stock and Parity
Securities shall be insufficient to permit the payment to such holders of the
full preferential amounts due to the holders of shares of Preferred Stock and
Parity Securities, respectively, then the entire assets and funds of the
Corporation legally available for distribution shall be distributed among the
holders of shares of Preferred Stock and Parity Securities, pro rata, based on
the respective liquidation amounts to which each such series of stock is
entitled by the Corporation's Certificate of Incorporation and any certificate
of designation of preferences.
(b) Upon the completion of the distribution required by
subsection 8(a) above, if assets remain in the Corporation, they shall be
distributed to holders of Parity Securities (unless holders of Parity Securities
have received distributions pursuant to subsection 8(a)) and Junior Securities
in accordance with the Corporation's Certificate of Incorporation, including any
duly adopted certificate(s) of designation of preferences.
(c) A consolidation or merger of the Corporation with or
into any other corporation or corporations, or a sale, exchange, conveyance or
disposition of all or substantially all of the assets of the Corporation or the
effectuation by the Corporation of a transaction or
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series of related transactions in which more than 50% of the voting power of the
Corporation is disposed of, shall not be deemed to be a liquidation, dissolution
or winding up of the Corporation within the meaning of this Section 8.
Section 9. CONSOLIDATION, MERGER, ETC. In the event of a merger,
reorganization, recapitalization or similar event of or with respect to the
Corporation (a "Corporate Change") (other than a Corporate Change in which all
or substantially all of the consideration received by the holders of the
Corporation's equity securities upon such Corporate Change consists of cash or
assets other than securities issued by the acquiring entity or any affiliate
thereof), the Preferred Stock shall be assumed by the acquiring entity and
thereafter the Preferred Stock shall be convertible into such class and type of
securities as the holder of shares of Preferred Stock would have received had
such holder converted the Preferred Stock immediately prior to such Corporate
Change.
Section 10. REDEMPTION.
(a) At the option of the Corporation at any time and from
time to time after March 1, 2001, the Preferred Stock may be redeemed in full or
in part (in amounts no less than 50% of the outstanding Preferred Stock held by
such holder) for cash at the following prices per share:
$12.15 after March 1, 2001 through February 28, 2002
$11.70 after March 1, 2002 through February 28, 2003
$11.25 after March 1, 2003
plus, in each case, an amount equal to all accrued but unpaid dividends (whether
or not declared) for all Dividend Periods preceding the date fixed for
redemption (the "Redemption Date").
(b) Notice of redemption of the Preferred Stock, specifying
the Redemption Date and place of redemption, shall be given by first class mail
to each holder of record of the shares to be redeemed, at his address of record,
not less than 30 nor more than 60 calendar days prior to the Redemption Date.
Each such notice shall also specify the redemption price applicable to the
shares to be redeemed. If less than all the shares owned by such holder are then
to be redeemed, the notice shall also specify the number of shares thereof which
are to be redeemed and the fact that a new certificate or certificates
representing any unredeemed shares shall be issued without cost to such holder.
(c) Notice of redemption of shares of the Preferred Stock
having been given as provided in Section 10(b), then unless the Corporation
shall have defaulted in the payment of the redemption price and all accrued and
unpaid dividends (whether or not declared), all rights of the holders thereof
(except the right to receive the redemption price and all accrued and unpaid
dividends, whether or not declared) shall cease with respect to such shares on
the Redemption Date and such shares shall not, after the Redemption Date, be
deemed to be outstanding and shall not have the status of Preferred Stock. In
case fewer than all the shares represented by any such
9
<PAGE> 10
certificate are redeemed, a new certificate shall be issued representing the
unredeemed shares without cost to the holder thereof.
(d) Shares of the Preferred Stock are not subject or entitled
to the benefit of a sinking fund.
(e) Notwithstanding the foregoing, if notice of redemption
shall have been given pursuant to this Section 10 and any holder of the
Preferred Stock shall, prior to the close of business on the date three business
days next preceding the Redemption Date, give written notice to the Corporation
pursuant to Section 5 hereof of the conversion of any or all of the shares held
by the holder (accompanied by a certificate or certificates for such shares,
duly endorsed or assigned to the Corporation), then the redemption shall not
become effective as to such shares and the conversion shall become effective as
provided in Section 5.
Section 11. FORCED CONVERSION. At the option of the Corporation at
any time after March 1, 2006, and upon thirty (30) days written notice, the
Corporation may require any holder of Preferred Stock to convert all or part of
the Preferred Stock then held by such Holder into the number of shares of the
Common Stock equal to $9.00 divided by the then applicable Conversion Price,
plus accrued and unpaid dividends (whether or not declared) for all periods
prior to such conversion date.
IN WITNESS WHEREOF, this Certificate of Designation has been executed
on behalf of the Corporation by its Chairman of the Board and attested by its
Secretary this 20th day of March, 1998.
On behalf of the Board of Directors:
/s/ Theodore Rosen
------------------------------------
Theodore Rosen
Chairman of the Board of Directors
Attest:
/s/ Seymour J. Beder
- --------------------
Seymour J. Beder
Secretary
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<PAGE> 11
EXHIBIT A
NOTICE OF CONVERSION
(TO BE EXECUTED BY THE REGISTERED HOLDER
IN ORDER TO CONVERT THE SERIES A PREFERRED STOCK)
The undersigned hereby irrevocably elects to convert ______ shares of
Series A Preferred Stock, represented by stock certificate No(s)._____________
(the "Preferred Stock Certificates") into shares of common stock ("Common
Stock") of U.S. Energy Systems, Inc. (the "Corporation") according to the
conditions of the Certificate of Designation of Preferred Stock, as of the date
written below. If shares are to be issued in the name of a person other than the
undersigned, the undersigned will pay all transfer taxes payable with respect
thereto. No fee will be charged to the holder for any conversion, except for
transfer taxes, if any.
The undersigned represents and warrants that all offers and sales by
the undersigned of the shares of Common Stock issuable to the undersigned upon
conversion of the Preferred Stock shall be made pursuant to registration of such
shares of Common Stock under the Securities Act of 1933, as amended, or pursuant
to an exemption from registration under such Act.
Conversion Calculations: --------------------------------
Date of Conversion
--------------------------------
Applicable Conversion Price
--------------------------------
Signature
--------------------------------
Name
--------------------------------
Address:
*No shares of Common Stock will be issued until the original Preferred Stock
Certificate(s) to be converted and the Notice of Conversion are received by the
Corporation's Transfer Agent. The original Stock Certificate(s) representing the
Preferred Stock to be converted and the Notice of Conversion must be received by
the Corporation's Transfer Agent by the second business day following the Date
of Conversion, or the Notice of Conversion, at the Corporation's option, may be
declared null and void.
<PAGE> 1
Exhibit 10.1
U.S. ENERGY SYSTEMS, INC.
SUBSCRIPTION AGREEMENT
----------------------
SUBSCRIBER: Energy Systems Investors LLC
SECURITIES SUBSCRIBED FOR: 250,000 shares of Series A Convertible
Preferred Stock, $.01 par value, at
$9.00 per share.
AGGREGATE PURCHASE PRICE: $2,250,000.00
- -------------------------------------------------------------------------------
SUBSCRIPTION AGREEMENT, dated as of March 20, 1998, by and between U.S.
Energy Systems, Inc., a Delaware corporation (the "Company"), and Energy Systems
Investors LLC, a Delaware limited liability company (the "Investor").
W I T N E S S E T H:
--------------------
The Company desires to sell, and the Investor desires to buy, an
aggregate of 250,000 shares of the Company's Series A Convertible Preferred
Stock, par value $.01 per share (the "Preferred Stock"), at a purchase price of
$9.00 per share, having the rights and preferences set forth in the Certificate
of Designation attached hereto as EXHIBIT A (the "Certificate of Designation").
The Preferred Stock is sometimes referred to herein as the "Securities."
The Company is described in the Company's Annual Report on Form 10-KSB
for the fiscal year ended January 31, 1997, Quarterly Reports on Form 10-QSB for
the quarters ended April 30, 1997, July 31, 1997 and October 31, 1997, and
current reports on Form 8-K dated April 24, 1997, August 12, 1997, August 22,
1997 and November 3, 1997 (collectively, the "Reports") filed with the
Securities and Exchange Commission (the "Commission").
NOW, THEREFORE, the parties hereto agree as follows:
1. SUBSCRIPTION AND PAYMENT. Subject to the terms and conditions herein
set forth, the Investor hereby subscribes for the number of shares of Preferred
Stock set forth above. The Investor acknowledges that this subscription shall
not be effective until accepted by the Company.
The Investor agrees to deliver to the Company at the Closing (as
defined below) by wire transfer to an account designated by the Company the
aggregate purchase price of $2,250,000, payable in immediately available funds,
for the Securities subscribed for hereby.
<PAGE> 2
2. CLOSING. The closing (the "Closing") of the purchase and sale of the
Securities subscribed for hereby (the "Offering") shall occur on March 23, 1998
or the earliest date thereafter on which the closing conditions specified in
Sections 8 and 9 of this Agreement shall have been satisfied or waived (any such
date, the "Closing Date"); provided, however, that if the Closing has not
occurred by March 31, 1998, then this Agreement shall terminate and the Closing
shall not take place. At the Closing, the Company will deliver to the Investor:
(i) one executed copy of this Agreement; (ii) a stock certificate representing
the Investor's ownership of the Preferred Stock subscribed for hereby; (iii) an
executed Registration Rights Agreement in the form attached hereto as EXHIBIT B
(the "Registration Rights Agreement"); and (iv) such other certificates,
instruments, opinions and documents as are otherwise set forth herein or
contemplated hereby. Subject to the provisions of Section 13 hereto and prior to
execution by the Company, the Company shall have the right to reject this
Subscription Agreement and not issue the Securities to the Investor, in its
discretion.
3. TERMINATION OF OFFERING. The Investor understands and agrees that it
will not be entitled to exercise the rights of a Stockholder of the Company
until an appropriate certificate representing the Preferred Stock for which it
has subscribed has been issued to it on the day of the Closing. If (a) the
Company shall have reasonably determined that an event has occurred or a
condition exists which could materially and adversely affect the business or
proposed business of the Company and that such possibility warrants termination
of the Offering, (b) the conditions to the Closing of the Offering are not
satisfied or (c) the Company elects to terminate the Offering, the Offering will
be terminated, and the Company will not issue the Preferred Stock and the
Company will not be entitled to payment of the purchase price for the Preferred
Stock.
4. REPRESENTATIONS AND WARRANTIES BY INVESTOR. The Investor hereby
represents and warrants to the Company that:
(a) it is an "accredited investor" as that term is defined in
Rule 501(a) under the Securities Act of 1933, as amended (the "Act");
(b) it has the requisite knowledge and experience in financial
and business matters through its managers to be capable of evaluating the merits
and risks of an investment in the Company;
(c) it has received and read the Reports and has evaluated the
risks of investing in the Company;
(d) it has been given the opportunity to ask questions of, and
receive answers from, the Company concerning the terms and conditions of the
Offering and to obtain additional information necessary to verify the accuracy
of the information contained in the Reports or such other information as it
desired in order to evaluate its investment;
(e) in making the decision to purchase the Securities herein
subscribed for, it has relied solely upon the Reports, the representations,
warranties, agreements, undertakings and acknowledgments of the Company in this
Subscription Agreement and independent investigations made by such Member;
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<PAGE> 3
(f) it understands that an investment in the Company involves
certain risks and the Investor has taken full cognizance of and understands such
risks, including those set forth in the Reports;
(g) it understands that neither the Preferred Stock nor the
shares of Common Stock into which the Preferred Stock is convertible has been
registered under the Act, and agrees that the Preferred Stock and the Common
Stock may not be sold, offered for sale, transferred, pledged, hypothecated or
otherwise disposed of except in compliance with the Act and subject to the terms
of this Subscription Agreement;
(h) it understands that no federal or state agency has made
any finding or determination as to the fairness of the investment in, or any
recommendation or endorsement of, the Preferred Stock;
(i) the Securities herein subscribed for are being acquired by
the Investor in good faith solely for the account of the Investor, for
investment purposes and not with a view to subdivision, distribution or resale.
The Investor will not sell or otherwise dispose of any shares of the Preferred
Stock or Common Stock, as the case may be, unless:
(i) the Investor shall have advised the Company in
writing that it intends to dispose of such shares of Preferred Stock or
Common Stock, as the case may be, in a manner to be described in such
advice, and counsel reasonably acceptable to the Company and its
respective counsel shall have delivered to the Company an opinion
reasonably acceptable to the Company and its respective counsel that
registration is not required under the Act or under any applicable
securities laws of any jurisdiction; or
(ii) a registration statement on an appropriate form
under the Act, or a post-effective amendment to such registration
statement, covering the proposed sale or other disposition of such
shares of Preferred Stock or Common Stock, as the case may be, shall be
in effect under the Act and such shares of Preferred Stock or Common
Stock or the proposed sale or other disposition thereof shall have been
registered or qualified under applicable securities laws of any
jurisdiction.
The Investor acknowledges and agrees that the certificates representing
the Preferred Stock and the Common Stock shall bear the following legend (unless
subsequently registered under the Act):
"The securities represented by this certificate have not been
registered under the Securities Act of 1933 and may not be
sold, exchanged, hypothecated or transferred in any manner
except in compliance with such Act and that certain
Subscription Agreement dated as of March 20, 1998 between the
Corporation and Energy Systems Investors LLC."
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<PAGE> 4
The Investor also acknowledges that the Company may place a stop
transfer order against transfer of the Preferred Stock and the Common Stock, if
necessary in the Company's reasonable judgment, in order to assure compliance by
the Investor with the terms of this Agreement.
(j) The Investor represents and warrants that (i) the
individual executing this Agreement has appropriate authority to act on behalf
of the Investor and (ii) the Investor is not an Investment Company, as defined
under the Investment Company Act of 1940, as amended. This Agreement has been
duly executed and delivered by or on behalf of the Investor and constitutes the
valid and binding agreement of the Investor, enforceable against the Investor in
accordance with its terms.
(k) The Investor understands that the Securities are being
offered and sold, and the shares of Common Stock issuable upon conversion of the
Preferred Stock are being offered hereby in reliance on specific exemptions from
the registration requirements of the Act and that the Company is relying on the
foregoing representations, warranties, agreements, undertakings and
acknowledgments in determining the availability of such exemptions and the
Investor's suitability as the purchaser of the Securities.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to the Investor that:
(a) The Company has duly filed with the Commission all reports
required to be filed by it by the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). The Company has furnished to the Investor a true and
correct copy of each Report. Each Report did not, as of the date on which it was
signed, contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(b) The financial statements (including the related notes) of
the Company included in the Reports present fairly the financial position of the
Company as of the dates indicated and its results of operations for the periods
specified therein. All such financial statements have been prepared in
accordance with generally accepted accounting principles on a basis consistently
applied.
(c) The Company has been duly organized and is validly
existing as a corporation in good standing under the laws of the State of
Delaware, with full power and authority (corporate and other) to own its
properties and conduct its business as described in the Reports, and is duly
qualified to do business as a foreign corporation and is in good standing in
each jurisdiction in which the character of the business conducted by it or the
location of the properties owned or leased by it makes such qualification
necessary for the conduct of its business as described in the Reports except
where the failure to be so qualified would not have a material adverse effect on
the Company.
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<PAGE> 5
(d) The authorized capital stock of the Company consists of
(i) 5,000,000 shares of Preferred Stock, par value $.01 per share, of which none
are outstanding as of January 31, 1998, and (ii) 35,000,000 shares of Common
Stock, par value $.01 per share, of which 5,160,609 shares are issued and
outstanding as of January 31, 1998. At January 31, 1998, there were outstanding
options, warrants and convertible debentures exercisable for or convertible into
a total of 5,912,725 shares of Common Stock. The Company has all requisite power
and authority to issue, sell and deliver the Preferred Stock in accordance with
and upon the terms and conditions set forth in this Agreement and the Common
Stock issuable upon conversion of the Preferred Stock; and all corporate action
required to be taken by the Company for the due and proper authorization,
issuance, sale and delivery of the Securities and Common Stock has been validly
and sufficiently taken. The outstanding shares of Common Stock are, and the
shares of Common Stock issuable upon conversion of the Preferred Stock in
accordance with their respective terms will be, when issued, duly authorized,
validly issued, fully paid and nonassessable.
(e) Except as set forth in this Agreement, or as described in
the Reports, subsequent to the respective dates as of which information is given
in the Reports, the Company has not incurred any material liability or
obligation, direct or contingent, or entered into any material transaction
(except for the transactions contemplated hereby), whether or not in the
ordinary course of business, and there has not been any material change on a
consolidated basis in the capital stock, or any material increase in the
short-term debt or long-term debt, or any material adverse change in the
condition (financial or other), business, key personnel, properties or results
of operations of the Company.
(f) The Company is not in violation of any material provision
of its Certificate of Incorporation or Bylaws or in default in the performance
of any material obligation contained in any material agreement, indenture or
other instrument. The performance by the Company of its obligations under this
Agreement and the consummation of the transactions herein contemplated will not
conflict with or result in a breach of the Certificate of Incorporation or
Bylaws of the Company, or any material agreement, indenture or other instrument
to which the Company is a party or by which it is bound, or (assuming the
accuracy of the Investor's representations and warranties herein) any law, rule,
administrative regulation or decree of any court or governmental authority
having jurisdiction over the Company or its properties, or result in the
creation or imposition of any material lien, charge, claim or encumbrance upon
any property or asset of the Company. Except as required by the Act and
applicable state securities or blue sky laws and except for the filing of the
Certificate of Designation with the Secretary of State of the State of Delaware,
no consent, approval, authorization or order of any court or governmental
authority is required in connection with the consummation of the transactions
contemplated by this Agreement. The rights granted to the Investor hereunder do
not in any way conflict with and are not inconsistent with any rights granted to
the holders of the Company's securities or debt instruments.
(g) The Common Stock issuable upon conversion of the Preferred
Stock, upon such issuance, will conform to the description thereof contained in
the Reports. Except as
5
<PAGE> 6
described in the Reports, there are no preemptive rights or other rights to
subscribe for or to purchase, or any restriction upon the voting or transfer of,
any shares of Common Stock pursuant to the Company's Certificate of
Incorporation or Bylaws or any agreement or other instrument to which the
Company is a party. Neither the Offering nor the sale of the Preferred Stock as
contemplated in this Agreement gives rise to any rights for or relating to the
registration of any shares of Common Stock (other than as provided in Section 10
of this Agreement).
(h) The Company has full right, power and authority to enter
into this Agreement and this Agreement has been duly authorized, executed and
delivered by the Company and (assuming the accuracy of the Investor's and
Members' representations and warranties herein) constitutes the legal, valid and
binding agreement of the Company enforceable against the Company in accordance
with its terms (except in all cases as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws
affecting the enforcement of creditors' rights generally and except that the
availability of the equitable remedy of specific performance or injunctive
relief is subject to the discretion of the court before which any proceeding may
be brought).
(i) Except as set forth in the Reports, there are no actions,
suits or proceedings pending before or by any court or governmental agency or
authority, or any arbitrator, which seek to restrain or prohibit the
consummation of the transactions contemplated hereby or which might reasonably
be expected to result in any material adverse change in the condition (financial
or other), business or results of operations of the Company and, to the best of
the Company's knowledge, no such action, suit or proceeding has been threatened.
(j) The Company is not in violation of any law, ordinance,
governmental rule or regulation or court decree to which it may be subject and
the Company has not failed to obtain any license, permit, franchise or other
governmental authorization necessary to the ownership of its property or to the
conduct of its business, which violation or failure to obtain is likely to have
a material adverse effect on the condition (financial or other), business or
results of operations of the Company, except that (i) the Company and its
affiliates have not received all authorization required to construct the private
geothermal heating district project currently being developed by Reno Energy LLC
in Reno, Nevada, and (ii) the Company and its affiliates have not received
authorization necessary to renew its air commissions permit with respect to its
cogeneration unit in Lehi, Utah..
6. COVENANTS OF THE INVESTOR.
(a) The Investor covenants with the Company that at all times
during which it holds the Preferred Stock or Common Stock, it shall comply with
all applicable federal and state securities laws, the rules and regulations of
the Nasdaq Stock Market, or any other market or exchange on which the Company's
securities are traded, and any applicable state law relating to the governance
of corporations, pertaining to the amount of equity ownership of the Company
that the Investor or its members may beneficially own, the aggregate voting
rights the Investor or its members may have in respect to all other stockholders
of the Company, and the effective
6
<PAGE> 7
change in control of the Company. Should the Company reasonably believe that any
dividend or distribution of Preferred Stock or Common Stock, additional grants
of Preferred Stock or Common Stock, Purchase Price adjustment or other
occurrence would place the Investor, the members or the Company in violation of
any such rules, regulations or laws, it shall have the right to take any action
it deems necessary to avoid any such violation, including, but not limited to,
substitution of cash for any payment of a stock dividend or distribution or
grant of additional securities of the Company.
(b) The Investor will not engage in any activity that would
jeopardize the status of the Offering as an exempt transaction under the Act or
under the laws of any state in which the Offering is made.
(c) The Investor acknowledges that the representations,
warranties, agreements, undertakings and acknowledgments are made by the
Investor with the intent that they be relied upon by the Company in determining
whether to issue the Securities.
7. COVENANTS OF THE COMPANY. The Company covenants with the Investor
that:
(a) The Company will apply the net proceeds from the sale of
the Securities to working capital and other general corporate purposes and
possible acquisitions.
(b) The Company will, so long as the Investor shall be the
holder of Preferred Stock or Common Stock, furnish to the Investor, as soon as
practicable after the end of each fiscal year, an annual report with respect to
such year (including financial statements audited by independent public
accountants) and, as soon as practicable after the end of each quarterly period
(other than the last quarterly period) of each fiscal year, a statement (which
need not be audited) of the results of operations of the Company for such
period, and, to the extent not otherwise furnished, promptly upon the filing
thereof, copies of all reports filed by the Company with the Commission pursuant
to the Exchange Act.
(c) The Company shall at all times keep in reserve the number
of shares of its Common Stock issuable from time to time upon the conversion of
all the outstanding Preferred Stock.
(d) The Investor shall have the right to nominate one person
to the Company's Board of Directors, which person shall be appointed to the
Board of Directors at the Closing, and shall be included in the slate of the
Board of Directors for a three-year term as presented to the Stockholders of the
Company at their 1998 annual meeting.
(e) The Investor shall have the right to purchase in any
public or private offering of the Company's securities (exclusive of issuances
of Common Stock or options to purchase Common Stock to officers, directors,
employees and consultants of the Company, or stock issued in connection with an
acquisition or merger by the Company) within two (2) years
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<PAGE> 8
of the Closing Date a portion of such offering, on the same terms offered to
other investors, equal to the Investor's then-current percentage of equity
ownership in the Company.
(f) Neither the Company nor any of its officers, directors or
employees will engage in any activity that would jeopardize the status of the
Offering as an exempt transaction under the Act or under the laws of any state
in which the offering is made.
(g) The Company acknowledges that the representations,
warranties, agreements, undertakings and acknowledgments are made by the Company
with the intent that they be relied upon by the Investor and the Members in
determining whether to subscribe for the Securities.
(h) The Company shall grant the Investor additional shares of
Preferred Stock or Common Stock (provided such grant does not increase the
Investor's (or combined group of investors) voting control in the Company above
19.9% at such time unless previously approved by the stockholders of the
Company) or pay the Investor in cash, or some combination thereof at the
Company's option, if any non-operational, extraordinary or non-recurring event
(an "Event") occurs within 24 months of the Closing Date and which arises from a
situation preceding the Closing Date hereof, which diminishes the stockholder
equity in the Company as of January 31, 1998, in an amount greater than
$500,000. The amount of any additional grant of Preferred Stock (or Common
Stock, or payment of cash pursuant to this Section 7(h), shall be equal to the
decrease in stockholder equity multiplied by the Investor's then-current equity
percentage ownership in the Company, divided by the lesser of (a) the average
market price of the Company's Common Stock on the five days prior to the Event
or (b) 150% of the Conversion Price.
(i) Any dividends to be received by the Investor pursuant to
Section 3 of the Company's Certificate of Designation of its Series A
Convertible Preferred Stock shall be paid by the Company in cash or a grant of
Common Stock or some combination thereof, at the option of the Investor.
(j) Subject to the approval of a majority of the stockholders
of the Company in accordance with the rules of Nasdaq, the Investor shall have
the option to purchase up to an additional 222,000 shares of Preferred Stock
within one year of the date hereof on the same terms and conditions as set forth
herein.
8. CONDITIONS OF INVESTOR OBLIGATIONS. The Investor's obligations
under this Agreement are subject to the accuracy of the representations and
warranties of the Company made in Section 5 hereof in all material respects, and
to the performance by the Company of its other obligations under this Agreement
to be performed at or prior to the Closing.
9. CONDITIONS OF OBLIGATIONS OF THE COMPANY. The obligations of the
Company under this Agreement are subject to the accuracy of the representations
and warranties of the Investor and the Members made in Section 4 hereof in all
material respects, and to the
8
<PAGE> 9
performance by the Investor and the Members of their other obligations under
this Agreement to be performed at or prior to the Closing.
10. RULE 144. The Company covenants that it will file the reports
required to be filed by it under the Act and the Exchange Act and the rules and
regulations adopted by the Commission thereunder (or, if it ceases to be
required to file such reports, it will, upon the request of the Investor, make
publicly available other information that fulfills the information requirements
set forth in Rule 144 (c) (2)), and it will take such further action as the
Investor may reasonably request, all to the extent required from time to time to
enable the Investor to sell the Common Stock without registration under the Act
within the limitation of the exemptions provided by (a) Rule 144 under the Act,
as such Rule may be amended from time to time, or (b) any similar rule or
regulation hereafter adopted by the Commission. Upon the request of the
Investor, the Company will deliver to it a written statement as to whether the
Company has complied with such information disclosure and other requirements.
11. EXPENSES. The Company agrees that it will pay in the aggregate up
to $25,000 of the Investor's and the members' legal and other expenses incurred
in connection with this Offering. All expenses of the Investor or any member in
excess of $25,000 shall be borne solely by them.
12. NOTICES.
(a) Any notice required to be given or delivered to the
Investor or the Members shall be mailed first class, postage prepaid, return
receipt requested, to the Investor's address shown on the signature page hereof.
(b) Any notice required to be given or delivered to the
Company shall be mailed first class, postage prepaid, return receipt requested,
to:
U.S. Energy Systems, Inc.
515 N. Flagler Drive, Suite 702
W. Palm Beach, FL 33401
Attn: Richard A. Nelson, President and CEO
13. BREAK-UP FEE. The Company shall pay the Investor a break-up fee
(the "Break-up Fee") in the amount of $100,000 if the Company refuses for
reasons within its control to issue the Preferred Stock to the Investor as set
forth herein, and engages in a corporate financing transaction with another
investor within 90 days of the termination of the Offering.
14. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties and agreements hereunder shall survive execution of this Agreement
and delivery of the Securities.
15. GOVERNING LAW. This Agreement and the rights and obligations of the
parties shall be governed by and construed in accordance with the laws of the
State of Delaware applicable to contracts made and to be performed wholly within
that State.
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IN WITNESS WHEREOF, the undersigned has executed this Subscription
Agreement as of the date first above written.
ENERGY SYSTEMS INVESTORS LLC,
a Delaware limited liability company
By: /s/ Lawrence I. Schneider
---------------------------------
Lawrence I. Schneider, Manager
The terms of the foregoing including the
subscription described therein are agreed
to and accepted on this 20th day of March,
1998:
U.S. ENERGY SYSTEMS, INC.
By: /s/ Richard H. Nelson
---------------------------------------
Richard H. Nelson, President and CEO
10
<PAGE> 1
Exhibit 10.2
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT ("Agreement") is made and entered
into to be effective as of this 20th day of March, 1998, between U.S. ENERGY
SYSTEMS, INC., a Delaware corporation (the "Company") and ENERGY SYSTEMS
INVESTORS, LLC, a Delaware limited liability company (the "Holder").
RECITALS
I. Pursuant to that certain Subscription Agreement dated as of March
20, 1998 (the "Subscription Agreement"), the Company has agreed to provide to
Holder certain registration rights with respect to the shares of the Company's
Common Stock issuable upon the conversion of 250,000 shares of the Company's
Series A Preferred Stock (the "Preferred Stock") issued to the Holder pursuant
to the Subscription Agreement, and any shares of Common Stock granted as
dividends or otherwise on or with respect to the Preferred Stock (all of such
shares of Common Stock being referred to herein as the "Restricted Shares").
II. Capitalized terms used but not otherwise defined herein shall have
the meanings ascribed thereto in the Subscription Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and covenants set
forth in the Subscription Agreement, the parties agree as follows:
1. INCIDENTAL (PIGGYBACK) REGISTRATION RIGHTS.
(a) Subject to the limitations set forth in this Agreement,
if the Company at any time after the first anniversary of the Closing Date
proposes to file on its behalf and/or on behalf of any of its security holders
other than the Holder ("the demanding security holders") a registration
statement (a "Registration Statement") under the Securities Act of 1933, as
amended (the "Securities Act"), on any form (other than a Registration Statement
on Form S-4 or S-8 or any successor form not available for registering the
Restricted Shares, or any form for securities to be offered in a transaction of
the type referred to in Rule 145 under the Securities Act or to employees of the
Company pursuant to any employee benefit plan, respectively) for the general
registration of securities to be sold for cash with respect to its Common Stock
or any other class of equity security (as defined in Section 3(a) (11) of the
Securities Exchange Act of 1934, as amended) of the Company, it will give
written notice to the Holder at least thirty (30) days before the initial filing
with the Securities and Exchange Commission (the "Commission") of such
Registration Statement, which notice shall set forth the intended method of
disposition of the securities proposed to be registered by the Company. The
notice shall offer to include in such filing the aggregate number of shares of
Restricted Shares as the Holder may request.
<PAGE> 2
(b) If the Holder desires to have Restricted Shares
registered under this Section 1, he shall advise the Company in writing within
fifteen (15) days after the date of receipt of such offer from the Company,
setting forth the amount of such Restricted Shares for which registration is
requested. The Company shall thereupon include in such filing the number of
shares of Restricted Shares for which registration is so requested; provided
that nothing herein shall prevent the Company from abandoning or delaying any
such registration at any time. In the event that the proposed registration by
the Company is, in whole or in part, an underwritten public offering of
securities of the Company, the Company shall not be required to include any of
the Restricted Shares in such underwriting unless the Holder agrees to accept
the offering on the same terms and conditions as the shares of Common Stock, if
any, otherwise being sold through underwriters under such registration;
provided, however, that if the managing underwriter advises the Company in
writing that the inclusion of all Restricted Shares proposed to be included by
the Holder in the underwritten public offering and other issued and outstanding
shares of Common Stock proposed to be included therein by the persons other than
the Holder, the Company (the "Other Shares") would jeopardize the success of the
Company's offering, then the Company shall be required to include in the
offering (in addition to the number of shares to be sold by the Company) only
that number of Restricted Shares that the managing underwriter believes will not
jeopardize the success of the Company's offering and the number of Restricted
Shares and Other Shares not included in such underwritten public offering shall
be reduced pro rata based upon the number of shares of Restricted Shares and
Other Shares requested by the holders thereof to be registered in such
underwritten public offering. In the event the Company chooses a registration
form which limits the size offering either in terms of the number of shares or
dollar amount, the Company shall not be required to include in the offering (in
addition to the number of shares to be sold by the Company) Restricted Shares
which would exceed such limits.
(c) Notwithstanding anything to the contrary contained in
this Section 1, in the event that there is a firm commitment underwritten public
offering of securities of the Company pursuant to a registration covering
Restricted Shares and the Holder does not elect to sell his Restricted Shares to
the underwriters of the Company's securities in connection with such offering,
the Holder shall refrain from selling such Restricted Shares so registered
pursuant to this Section 1 during the period of distribution of the Company's
securities by such underwriters and the period in which the underwriting
syndicate participates in the after market; PROVIDED, HOWEVER, that the Holder
shall, in any event, be entitled to sell its Restricted Shares commencing on the
90th day after the effective date of such registration statement.
2. DEMAND REGISTRATION RIGHTS.
(a) At any time after the second anniversary of the Closing
Date and prior to the fifteenth anniversary of the Closing Date (the
"Registration Period"), the Holder shall have one right to request (a
"Registration Request") by delivery of written notice to the Company that the
Company effect the registration under the Securities Act, of all or any portion
of the Restricted Shares. In such event, the Company shall use reasonable
efforts to cause the Restricted Shares to be registered under the Securities Act
and to promptly effect and comply with all such qualifications, compliances and
requirements as may be necessary to permit the sale or other transfer of such
Restricted Shares in the manner described in such Registration Request,
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<PAGE> 3
including, without limitation, qualifications under the applicable Blue Sky or
other state securities laws (provided that the Company shall not be required in
connection therewith to qualify as a foreign corporation or to execute a general
consent to service of process in any state); provided, however, that (i) the
Company shall not be obligated to file and cause to become effective more than
one registration statement in which Restricted Shares are sold pursuant to this
subsection (a) (it being understood that (a) the Company will not withdraw any
such registration statement if the Holder exercises his rights to a piggyback
registration under Section 1 until the Section 1 registration statement becomes
effective or (b) if the Company does withdraw the registration statement under
this section after the Holder exercises his piggyback rights prior to the
effectiveness of the registration statement under Section 1 hereof and the
Section 1 registration statement does not become effective, then the Company
will file another registration statement pursuant to Section 2) and (ii) the
Company shall not be obligated to conduct a special audit of its financial
statements, unless such audit shall have been requested by the Commission, or in
any other case unless the Holder undertakes to pay the costs associated with
such audit.
(b) Notwithstanding the foregoing, the Company may delay
filing a registration statement, and may withhold efforts to cause the
registration statement to become effective, if the Board of Directors of the
Company determines in good faith that such registration would reasonably be
likely to (i) interfere with or affect the negotiation or completion of any
transaction that is being contemplated by the Company (whether or not a final
decision has been made to undertake such transaction) at the time the right to
delay is exercised, or (ii) involve initial or continuing disclosure obligations
that would not be in the best interest of the Company's stockholders. If, after
a registration statement becomes effective, the Company advises the holders of
registered shares that the Company considers it appropriate for the registration
statement to be amended, the holders of such shares shall suspend any further
sales of their registered shares until the Company advises them that the
registration statement has been amended.
3. REGISTRATION PROCEDURES.
(a) In connection with the filing of a Registration Statement
pursuant hereto, the Company will:
(i) prepare and file with the Commission a
Registration Statement with respect to such securities and use its
reasonable efforts to cause such Registration Statement to become and
remain effective for a period of time (not to exceed thirty (30) days)
required for the disposition of such securities by the Holder thereof;
(ii) prepare and file with the Commission such
amendments and supplements to such Registration Statement and the
prospectus used in connection therewith as may be necessary to keep
such Registration Statement effective and to comply with the provisions
of the Securities Act with respect to the sale or other disposition of
all securities covered by such Registration Statement until the earlier
of
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<PAGE> 4
such time as all of such securities have been disposed of in a public
offering or the expiration of sixty (60) days;
(iii) furnish to the Holder such number of copies
of a summary prospectus or other prospectus, including a preliminary
prospectus, in conformity with the requirements of the Securities Act,
and such other documents, as the Holder may reasonably request;
(iv) use its reasonable efforts to register or
qualify the securities covered by such Registration Statement under
such other securities or blue sky laws of such jurisdictions within the
United States as the Holder of such securities shall reasonably request
(provided, however, the Company shall not be obligated to qualify as a
foreign corporation to do business under the laws of any jurisdiction
in which it is not then qualified or to file any general consent to
service or process), and do such other reasonable acts and things as
may be required of it to enable the Holder to consummate the
disposition in such jurisdiction of the securities covered by such
Registration Statement;
(v) enter into customary agreements (including an
underwriting agreement in customary form) and take such other actions
as are reasonably required in order to expedite or facilitate the
disposition of such Common Stock and as shall be required in connection
with the action taken by the Company; and
(vi) promptly notify in writing the Holder of the
happening of any event, during the period of distribution, as a result
of which the Registration Statement includes an untrue statement of a
material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein not misleading in
light of the circumstances then existing (in which case, if so
requested by the Company in writing, the Holder shall promptly take
action to cease making any offers of the Restricted Shares until
receipt and distribution of a revised or supplemental prospectuses).
(b) In connection with any registration hereunder, the
Holder will (i) prior to issuing a Registration Request or notifying the Company
of his intent to include Restricted Shares in a registration statement to be
filed by the Company, agree in writing to convert the shares of Preferred Stock
necessary to provide the Holder that number of shares of Common Stock to be sold
pursuant to the registration statement not later than the effective date of such
registration statement, (ii) furnish the Company in writing such information
with respect to himself and the proposed distribution by him as reasonably
requested by the Company and all such information necessary in order to assure
compliance with Federal and applicable state securities laws and (iii) if the
Holder elects to sell the Restricted Shares to underwriters, enter into an
agreement with the managing underwriters in such form and containing such
provisions as are customary in the securities business for such an arrangement
between major underwriters and companies of the Company's size and investment
stature, provided that such agreement shall not contain any provisions
applicable to the Company which are inconsistent with the provisions
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<PAGE> 5
hereof and, provided further, that the time and place of the closing of such
agreement shall be as mutually agreed upon between the Company and the managing
underwriter.
4. EXPENSES. All expenses incurred in complying with this Agreement,
including, without limitation, all registration and filing fees, printing
expenses, fees and disbursements of counsel for the Company, expenses of any
special audits incident to or required by any such registration and expenses
(including attorneys' fees) of complying with the securities or blue sky laws of
any jurisdictions pursuant to Section 3(d), except to the extent required to be
paid by participating selling security holders by state securities or blue sky
laws, shall be paid by the Company; provided, however, that the Holder (and not
the Company) shall be liable for (i) all fees, discounts and commissions to any
underwriter or broker, if any, (ii) all transfer taxes, if any, and (iii) all
fees and disbursements of legal counsel to the Holder, if any.
5. INDEMNIFICATION.
(a) INDEMNIFICATION BY THE COMPANY. In the event of any
registration of any Restricted Shares under the Securities Act pursuant to this
Agreement, the Company shall indemnify and hold harmless the Holder, each
underwriter of the Restricted Shares, if any, each such broker or any other
person, if any, who controls any of the foregoing persons, within the meaning of
the Securities Act, against any losses, claims, damages or liabilities, joint or
several, to which any of the foregoing persons may become subject under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon an
untrue statement of a material fact contained in the Registration Statement
under which such Restricted Shares were registered under the Securities Act, any
final prospectus contained therein, or any amendment or supplement thereto, or
arise out of or are based upon the omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading or, with respect to any final prospectus, necessary to make the
statements therein in light of the circumstances under which they were made, not
misleading; and shall reimburse the Holder, such underwriter, broker and each
such controlling person for any legal expenses reasonably incurred by any of
them in connection with defending any such loss, claim, damage, liability or
action; provided, however, that the Company shall not be obligated to so
indemnify the Holder, such underwriter, broker or any such controlling person
insofar as such loss, claim, damage or liability arises out of or is based upon
an untrue statement or alleged untrue statement or omission or alleged omission
made in said Registration Statement, said final prospectus or said amendment or
supplement in reliance upon and in conformity with information furnished to the
Company or such underwriter or broker by the Holder in writing for use in
preparation thereof.
(b) INDEMNIFICATION BY HOLDER. Before Restricted Shares held
by the Holder shall be included in any Registration Statement pursuant to this
Agreement, the Holder shall indemnify and hold harmless (in the same manner and
to the same extent as set forth in Section 5(a) hereof for the indemnification
of the Holder by the Company) the Company, each director of the Company, each
officer of the Company who shall sign such Registration Statement and any person
who controls the Company within the meaning of the Securities Act, with respect
to any untrue statement or omission from such Registration Statement or final
prospectus contained
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<PAGE> 6
therein or any amendment or supplement thereto, if such untrue statement or
omission was (i) made in reliance upon and in conformity with information
furnished to the Company by the Holder in writing for use in the preparation of
such Registration Statement, final prospectus or amendment or supplement or (ii)
contained in any Registration Statement which was utilized by the Holder or any
controlling person or affiliate of the Holder after the Holder was notified, in
accordance with Section 3(a)(vi) hereof, that such Registration Statement
contained an untrue statement of a material fact or omitted to state any
material fact.
(c) INDEMNIFICATION PROCEDURES. Promptly after receipt by an
indemnified party of notice of the commencement of any action involving a claim
referred to in this Section 5, such indemnified party will, if a claim in
respect thereof is made against any indemnifying party, give written notice to
the latter of such claim and/or the commencement of such action. In case any
such action is brought against an indemnified party, the indemnifying party will
be entitled to participate in and assume the defense thereof, jointly with any
other indemnifying party similarly notified to the extent that it may wish, with
counsel reasonably satisfactory to such indemnified party, and after notice from
the indemnifying party to such indemnified party of its election to assume the
defense thereof, the indemnifying party shall be responsible for any legal or
other expenses subsequently incurred by the latter in connection with the
defense thereof, provided that if any indemnified party shall have reasonably
concluded that there may be one or more legal defenses available to such
indemnified party which conflict in any material respect with those available to
the indemnifying party, or that such claim or litigation involves or could have
an effect upon matters beyond the scope of the indemnity agreement provided in
this Section 5, such indemnifying party shall reimburse such indemnified party
and shall not have the right to assume the defense of such action on behalf of
such indemnified party and such indemnifying party shall reimburse such
indemnified party and any person controlling such indemnified party for that
portion of the fees and expenses of any counsel retained by the indemnified
party which are reasonably related to the matters covered by the indemnity
agreement provided in this Section 5. The indemnifying party shall not make any
settlement of any claims indemnified against thereunder without the written
consent of the indemnified party or parties, which consent shall not be
unreasonably withheld. Notwithstanding the foregoing provisions of this Section
5, if pursuant to an underwritten public offering of the Common Stock, the
Company, the Holder and the underwriters enter into an underwriting or purchase
agreement relating to such offering which contains provisions covering
indemnification among the parties thereto in connection with such offering, the
indemnification provisions of this Section 5 shall be deemed inoperative for
purposes of such offering.
6. CERTAIN LIMITATIONS ON REGISTRATION RIGHTS. Notwithstanding the
other provisions of this Agreement, the Company shall not be obligated to
register the Restricted Shares of the Holder if, in the opinion of counsel to
the Company, the sale or other disposition of the Holder's Restricted Shares may
be effected without registering such Restricted Shares under the Securities Act.
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<PAGE> 7
7. MISCELLANEOUS.
(a) NOTICE GENERALLY. Any notice, demand, request, consent,
approval, declaration, delivery or other communication hereunder to be made
pursuant to the provisions of this Agreement shall be sufficiently given or made
if in writing and either delivered in person with receipt acknowledged,
delivered by reputable overnight courier, telecopied and confirmed separately in
writing by a copy mailed as follows or sent by registered or certified mail,
return receipt requested, postage prepaid, addressed as set forth in the
Subscription Agreement.
(b) SUCCESSORS AND ASSIGNS. This Agreement shall inure to
the benefit of and be binding upon the successors and assigns of each of the
parties hereto; provided, however, that, the Holder's rights hereunder may not
be assigned or transferred without the prior written consent of the Company.
(c) GOVERNING LAW. This Agreement shall be governed by the
laws of the State of Delaware, without regard to the provisions thereof relating
to conflict of laws.
(d) SEVERABILITY. Wherever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provisions shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
(e) ENTIRE AGREEMENT. This Agreement, together with the
Subscription Agreement, is intended by the parties as a final expression of
their agreement and intended to be a complete exclusive statement of the
understanding of the parties hereto in respect of the subject matter contained
herein and therein. There are no restrictions, promises, warranties or
undertakings, other than those set forth or referred to herein and therein. This
Agreement supersedes all prior agreements and understandings between the parties
with respect to the subject matter hereof.
(f) COUNTERPARTS. This Agreement may be executed in any number
of separate counterparts, each of which shall collectively and separately,
constitute one agreement.
(g) DISPUTE RESOLUTION. In the event that a dispute arises
in connection with any matter directly or indirectly related to this Agreement
which cannot be resolved by the parties hereto or by mediation of the parties
hereto, the parties shall resolve any such dispute through arbitration in New
York, New York in accordance with the regulations of the American Arbitration
Association.
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<PAGE> 8
IN WITNESS WHEREOF, the Company and the Holder have executed this
Agreement as of the date first above written.
U.S. ENERGY SYSTEMS, INC.,
a Delaware corporation
By: /s/ Richard H. Nelson
------------------------------------
Richard H. Nelson, President and CEO
ENERGY SYSTEMS INVESTORS, LLC, a
Delaware limited liability company
By: /s/ Lawrence I. Schneider
------------------------------------
Lawrence I. Schneider, Manager
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