STOCKHOLDERS' AGREEMENT
THIS STOCKHOLDERS AGREEMENT (the "Agreement") is dated as of
November 28, 2000, by and among USE Acquisition Corp., a Delaware corporation
(the "Company"), U.S. Energy Systems, Inc., a Delaware corporation ("USE") and
Cinergy Energy Solutions, Inc., a Delaware corporation ("CES"), which is a
wholly owned subsidiary of Cinergy Solutions, Inc. ("CSI"). Each of the parties
to this Agreement (other than the Company) and any other individual,
corporation, partnership, trust, unincorporated organization or a government or
any agency or political subdivision thereof (a "Person") who shall become a
party to or agree to be bound by the terms of this Agreement after the date
hereof is sometimes hereinafter referred to as a "Stockholder."
RECITALS
A. The Company, USE and CES have entered into a certain
subscription agreement (the "Subscription Agreement") dated as of November 28,
2000 to acquire 4,574 shares of the Company's Class B Common Stock (the
"Class B Stock").
B. The Subscription Agreement provides that the parties thereto
shall execute and deliver this Stockholder's Agreement simultaneous with the
consummation of the subscription transaction described in the Subscription
Agreement.
C. As of the date hereof, USE owns 5,426 shares of the
Company's Class A Common Stock (the "Class A Stock" and together with the Class
B Stock, the "Common Stock"), which together with the shares of Class B Stock
issued to CES pursuant to the Subscription Agreement constitute all of the
issued and outstanding stock of the Company.
D. Upon the consummation of the subscription transaction
described in the Subscription Agreement, the Company shall consummate a merger
transaction with Zahren Alternative Power Corporation, a Delaware Corporation,
("Zapco"), (the "Merger") pursuant to an Agreement and Plan of Reorganization
and Merger by and among USE, the Company and Zapco dated as of even date with
the Subscription Agreement (the "Merger Agreement"). As a result of such Merger,
Company shall merge with and into Zapco, the separate corporate existence of the
Company shall cease and Zapco shall continue as the "Surviving Corporation" (as
defined in the Merger Agreement) and this Stockholders Agreement shall become
the Stockholders Agreement of the Surviving Corporation. Accordingly all
references to the "Company" herein shall also refer to the Surviving
Corporation.
E. The Company and the Stockholders desire, for their mutual benefit
and protection, to enter into this Agreement to set forth their respective
rights and obligations with respect to their shares of Common Stock (whether
issued or acquired hereafter, including all shares of Common Stock issuable upon
the exercise of warrants, options or other rights to acquire shares of Common
Stock, or upon the conversion or exchange of any security ("Rights")).
NOW, THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
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1. MANAGEMENT
1.1 Management. The management of the Company shall be conducted in
accordance with the provisions of this Agreement and the provisions of the
Certificate of Incorporation, as amended (as amended and as may be amended from
time to time, the "Certificate") and By-laws, as amended (as amended and as may
be amended from time to time, the "By-laws"), of the Company.
1.2 Board of Directors; Board Composition; Removal and Vacancies.
(a) Number of Directors. The Board of Directors of the Company
(the "Board") following the consummation of the transactions contemplated by the
Subscription Agreement (the "Subscription") shall be comprised of five directors
(the "Directors") who shall be elected and removed as set forth in subsections
(b) through (d) below. A Director need not be a Stockholder.
(b) Election of Directors. USE and, following the time of the
Subscription (the "Subscription Time"), CES shall have the right to designate
four individuals and one individual, respectively, as nominees for election as
Directors and as directors of any future direct or indirect subsidiary of the
Company (a "Future Subsidiary"). A Stockholder entitled to designate Directors
pursuant to the immediately preceding sentence shall be referred to as a
"Designating Stockholder." The Stockholders hereby agree to vote their
respective shares of Common Stock in favor of the election of the Directors
designated by each Designating Stockholder. If, at any time, a Designating
Stockholder shall notify the Company and the other Stockholder in writing
of such Designating Stockholder's desire to have removed from the Board any
Director designated by such Designating Stockholder, the Stockholders shall (i)
meet within five (5) days after the date of such notice for the purpose of
considering such removal and (ii) vote at such meeting their respective shares
of Common Stock in favor of such removal; provided that the Director to be
removed shall continue to hold office until so removed. A Director may only be
removed from the Board with the written consent of the Designating Stockholder
who designated such Director.
(c) Board of Directors following the Subscription. The Board of the
Company as of the Subscription Time will consist of the following persons:
<TABLE>
<CAPTION>
<S>
<C>
------------------------------------------------ ----------------------------------------
Name of Directors Designating Stockholder
----------------------------------------------- ----------------------------------------
Goran Mornhed USE
------------------------------------------------ ----------------------------------------
Bob Benson USE
------------------------------------------------ ----------------------------------------
Barbara Farr USE
------------------------------------------------ ----------------------------------------
Henry Schneider USE
------------------------------------------------ ----------------------------------------
M. Stephen Harkness CES
------------------------------------------------ ----------------------------------------
</TABLE>
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Each of such persons shall hold office until such person's
death, resignation or removal or until such person's successor shall have been
duly designated, where applicable, and elected by the Stockholders.
(d) Vacancies; Action by Stockholders. If a vacancy is created on the
Board by reason of the death, disability, removal or resignation of any
Director, the Stockholder, which, under Section 1.2(b), is entitled to designate
such Director, shall be entitled to designate a new nominee to serve as
Director. Upon notice from such Designating Stockholder to the Company and
the other Stockholder, the Stockholders shall (i) meet within five (5) days of
such notice for the purpose of considering the election of the designated
nominee to fill such vacancy and (ii) vote their shares of Common Stock
in favor of such nominee.
1.3 Officers. The Board shall have the right to elect officers of the
Company, to delegate to such officers such rights, powers and responsibilities
as the Board shall determine, and to remove and replace such officers. The
officers of the Company as of the Effective Time shall be as follows: (a)Goran
Mornhed, President and, (b) Barbara Farr as Secretary.
1.4 Notice; Quorum and Vote.
(a) Either the Company or either Stockholder may call a
meeting of the Stockholders and either the Company or any Director may call a
meeting of the directors at any time by giving notice, specifying the time,
place and purpose of the meeting, to the Stockholders or the Directors, as the
case may be, at least two days before the time appointed. A written waiver of
notice, signed or Director, as the case may be, by the Stockholder or Director,
as the case may be, entitled to notice, whether before or after the time stated
therein, shall be deemed equivalent to notice.
(b) A quorum of Directors shall consist of a majority of
Directors and, except as otherwise set forth herein, all decisions of the Board
shall require the affirmative vote of a majority of Directors.
(c) A quorum of stockholders of the Company shall consist of
the holders, present in person or by proxy, of shares of Common Stock
representing 50% or more of the votes if all of the outstanding shares of Common
Stock were present and voting and, except as otherwise set forth herein or
required by law, all actions of the stockholders of the Company (including the
election of Directors) shall require the affirmative vote of 50% of the
outstanding shares of Class A Stock and Class B Stock entitled to vote, voting
together as a single class, provided, however, that each share of Class A Stock
will be entitled to one (1) vote and each share of Class B Stock will be
entitled to 0.296437937 votes.
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1.5 Voting Requirements for Required Matters. All Stockholders shall be
entitled to vote on any matter submitted to a vote of the Stockholders. The only
matters to be submitted to the Stockholders shall be matters expressly required
to be submitted to the Stockholders pursuant to this Agreement or the provisions
of the General Corporation Law of the State of Delaware (the "GCL").
Notwithstanding any other provision of this Agreement to the contrary, the
Directors shall not, without the approval of 50% of the outstanding shares of
each of the Class A Stock and the Class B Stock, with each voting as a separate
class, take any of the following actions on behalf of the Company:
1. Demand additional capital from the Stockholders
2. Borrow money or guarantee the obligations of any Person not in the
ordinary course of business, or mortgage, pledge or grant a security
interest in assets not in the ordinary course of business, in any one
transaction or a series of related transactions.
3. Enter into a transaction or agreement with an Affiliate of a
Stockholder other than as specifically set forth in this Agreement not
in the ordinary course of business.
4. Make unbudgeted acquisitions not in the ordinary course of business.
5. Dispose of assets not in the ordinary course of business.
6. Enter into any contract not in the ordinary course of business which
requires unbudgeted expenditures, commitments or liabilities.
7. Amend the By-Laws or Certificate of the Company.
8. Authorize or issue any additional Common Stock or other equity
interests of the Company or any option or warrant to purchase such
equity interests.
9. Engage in a business activity other than the Business.
10. Commence the process of dissolution, liquidation, insolvency or
voluntary bankruptcy.
11. Approve any merger or consolidation of the Company.
12. Form any subsidiary.
13. Amend or modify any credit agreement or implement any change in capital
structure not in the ordinary course of business.
14. Commence or settle any litigation that involves an amount in excess of
$100,000.
15. Engage or terminate principal auditors or attorneys of the Company.
16. Obtain approval for any Company budget and any material expenditures
that deviate from the Company's budget during any Probation Period. A
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"Probation Period" is any period that commences when the Company's
financial results, as reflected in an annual audited financial
statement for the Company, differ materially adversely from the
Company's pro forma projections (the projections for 2001 - 2005 are
annexed hereto) and terminates when the Company's financial results are
no longer below the thresholds in such projections.
17. Such other matters as the Stockholders or their designated Directors
shall by mutual consent determine as being appropriate.
The matters required to be submitted to the Stockholders pursuant to this
Section 1.5 are referred to herein as the "Required Matters."
1.6 Limitation on Management Power. Notwithstanding anything set forth
herein or in the Certificate or By-laws and without limiting the authority of
the Board to oversee the management of the Company, no officer of the Company
shall take any of the following actions without the prior approval of the Board
and, in the case of the actions described in Section 1.5, the required vote
of the Stockholders: (i) change the line of business or enter into any new
line of business; (ii) retain any attorney or accountant to represent or
provide services to the Company; (iii) authorize or enter into any agreement
or arrangement between the Company and any of its officers, Directors,
Stockholders or Affiliates; (iv) the Required Matters; or (v) agree to do
any of the foregoing.
1.7 Directors' Expenses. The Company shall reimburse directors for all
reasonable out-of-pocket expenses incurred in connection with their attendance
or participation at Board meetings or other Company related business.
1.8 Action by Stockholders and Directors. Each Stockholder shall vote its
shares of Common Stock and take such other action, and cause its nominees to
take such action, as is necessary or appropriate in its capacity as Stockholder,
officer and/or director of the Company to carry out the provisions of this
Agreement.
1.9 Additional Capital.
(a) Notice. If at any time and from time to time, the Board
determines by unanimous vote that the Company requires additional funds (the
"Additional Capital") in excess of its then existing capital, written notice
shall be given to each Stockholder of (i) the total amount of Additional Capital
required, (ii) the reason the Additional Capital is required, (iii) each
Stockholder's proportionate share of the total Additional Capital (determined in
accordance with this Section), and (iv) the date each Stockholder's Additional
Capital is due and payable, which date shall be no sooner than thirty (30) days
after the notice has been given.
(b) Stockholder's Share. A Stockholder's proportionate share of the
total Additional Capital shall be equal to the product obtained by multiplying
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the total Additional Capital required by (i) the number of shares of Common
Stock held by such Stockholder divided by (ii) the total number of shares of
Common Stock outstanding.
(c) Form of Payment. A Stockholder's proportionate share of the
Additional Capital shall be payable in cash or by certified check, wire
transferred federal funds of bank cashier's check or in such other form as the
Board approves by unanimous vote.
(d) Issuance of Additional Shares. The Company shall issue additional
shares of Common Stock in exchange for the Additional Capital as follows:
(i) The Company shall issue to CES one
share of Class B Stock for every
$2,500 CES provides to the Company
pursuant to this Section.
(ii) The Company shall issue to USE one
share of Class A Stock for every
$2,500 USE provides to the Company
pursuant to this Section.
1.10 Dividends. It is the intent of the Stockholders that the primary
source of their investment return in connection with this Agreement shall be
dividends and distributions from the Company. Accordingly, the Stockholders
shall cause the Company to adopt appropriate policies of declaring dividends
at the highest level permitted by applicable law, consistent with prudent
business practices and having due regard for relevant business, taxation,
working capital, banking covenant and operational requirements.
1.11 Maintenance of Books and Records; Accounts and Accounting Method.
Unless otherwise agreed, the Board shall cause the Company to keep full and
accurate accounts of the transactions of the Company in proper books and records
of account which shall set forth all information required by the GCL. Such
accounts shall be maintained in accordance with Generally Accepted Accounting
Principles. For purposes of this Agreement, "Generally Accepted Accounting
Principles" means the generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession in the United States. Such books and records shall be available, upon
two (2) business days' notice to the Company, for inspection and copying at
reasonable times during business hours by any Stockholder or its duly authorized
agents or representatives for any purpose reasonably related to such
Stockholder's interest as a stockholder of the Company.
1.12 Financial Statements. Promptly after the end of each fiscal quarter,
the Company shall have prepared, and delivered to each Stockholder, a quarterly
set of primary financial statements for the Company. This set of primary
financial statements shall include (i) a balance sheet reflecting the assets,
liabilities and capital accounts, comparative to the prior year and the prior
year-end, and (ii) statements of operations for the quarter and year-to-date,
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comparative to the prior year. Upon the request of any Stockholder, the Board
of the Company shall cause the annual financial statements to be examined by
the Company's independent auditor and submitted for adoption at the annual
meeting of stockholders.
1.13 Additional Information. Upon the request of any Stockholder, the
Company shall prepare additional periodic or special reports of accounts and/or
business activity considered necessary by such equity holder, including but not
limited to, detailed reports of sales by location, detailed expense reports,
reports of capital expenditures, details of assets and liabilities, and non-
financial statistical and ratio data.
1.14 Minutes of Meetings. The minutes of all proceedings and copies of
resolutions adopted at meetings of the Stockholders or the Board of the Company
shall be duly entered in the minute books which shall be kept at the executive
offices of the Company.
2. TRANSFERABILITY OF SHARES.
2.1 Definition of Shares. The term "Shares" as used in the balance of this
Agreement means the capital stock of the Company of all classes, including,
without limitation, subscription rights and options with respect to such capital
stock, capital stock received by way of dividend or upon any increase,
reduction, substitution or reclassification of Shares, or upon any merger,
consolidation or other reorganization of the Company.
2.2 Restrictions Upon Transfer of Shares. Except as set forth in this
Agreement, no Stockholder shall sell, transfer, donate, give, mortgage,
pledge, hypothecate, or otherwise encumber or dispose of, whether voluntarily,
by operation of law or otherwise (any of the foregoing acts being herein
referred to as a "Transfer") any Shares now or hereafter owned by such
Stockholder. Any Transfer or attempted Transfer of Shares, unless pursuant
to the terms and conditions hereof, shall be absolutely null and void, of no
force or effect and may be enjoined. No dividend shall be paid or any
distribution made to any transferee of Shares transferred in violation hereof
nor shall any such Transfer be registered on the books of the Company. The
Transfer or attempted Transfer of any Shares in violation hereof shall not
affect the beneficial ownership of such Shares, and, notwithstanding such
Transfer or attempted Transfer, the Stockholder making such prohibited
Transfer or attempted Transfer shall retain the right to vote and the right to
receive dividend and liquidation proceeds with respect to such Shares.
2.3 Restrictive Legend on Certificates. Every certificate representing
certificated Shares of the Company shall bear the following legend in addition
to any other legend which may be required by applicable law:
"The sale, transfer, pledge, hypothecation, or other
encumbrance or disposition of the securities represented
hereby is restricted by the terms of a certain Stockholders'
Agreement dated as of November 28, 2000 (the "Agreement"),
between the issuer of such securities and all of its
stockholders, a copy of which is on file at the principal
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place of business of such issuer and is available for
inspection by the stockholders during the regular business
hours of such issuer. Any sale, transfer, pledge,
hypothecation, or other encumbrance or disposition of the
securities represented hereby shall be absolutely void if in
contravention of the terms, provisions or conditions of such
Agreement. The securities represented by this certificate have
not been registered under the Securities Act of 1933, as
amended (the "Act"), or under any applicable state securities
law. These securities may not be sold or transferred in the
absence of an effective registration statement under the Act
and any applicable state securities law or receipt by the
issuer of an opinion of counsel satisfactory to the issuer
that registration under the Act and applicable state law is
not required."
3. PERMITTED TRANSFERS.
3.1 Permitted Transfers. Subject to the provisions of Section 3.2, the
following Transfers of Shares are permitted at any time (each a "Permitted
Transfer"), so long as the provisions of Section 5 are not otherwise applicable
to the transferor or transferee:
(a) Transfers pursuant to the terms of Articles 4 and 5;
(b) Transfers by a Stockholder to an entity which was an Affiliate
of such Stockholder before such Transfer and remains an Affiliate of such
Stockholder after such Transfer; and
(c) Transfers to an entity (or an entity which, directly or
indirectly, owns all of the stock or interests of such entity, or an entity
which is a wholly-owned subsidiary, directly or indirectly, of such entity),
which is acquiring substantially all of the assets of such Stockholder subject
to the approval of the non-transferring Stockholder, which approval shall not
be unreasonably withheld.
3.2 Additional Requirements of Transfer. Any Transfer permitted by
this Agreement shall be further subject to and conditioned upon full
compliance by the transferor and transferee with each of the following
conditions:
(a) Each transferee shall have executed an agreement in form and
substance satisfactory to the Company, by which such transferee shall have
agreed to become a party to and bound by the terms and conditions of this
Agreement.
(b) Any transfer, conveyance or other taxes resulting from such
Transfer, and any costs or expenses incurred by the Company in connection with
such Transfer shall be borne, jointly and severally, by the transferor and/or
the transferee and each transferor and transferee do hereby jointly and
severally agree to indemnify and hold harmless each other party hereto from
such taxes and jointly and severally indemnify and hold harmless the Company
from such other expenses, and agree to promptly reimburse the Company or such
other party, as the case may be, for any such taxes, costs or expenses.
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(c) No Transfer shall be made: (i) to a Person who, in accordance with
applicable law, lacks the capacity to own, or otherwise is prohibited from
owning, such Shares by reason of minority, incompetence or otherwise; or (ii) to
a Person otherwise prohibited by applicable law from entering into such
transaction or holding such Shares; or (ii) which violates any other provision
of this Agreement.
(d) Upon the sale, assignment, donation or other disposition of Shares
owned by a Stockholder, such transferring Stockholder shall cause its nominees
to submit their resignations as directors and officers of the Company, in
form and substance satisfactory to the Company.
(e) The transferor and transferee shall have delivered to the Company
such other agreements, instruments and other documents (including opinions of
counsel reasonably satisfactory to the Company) as the Company shall request in
order to demonstrate compliance of any such Transfer with the provisions of
this Agreement and applicable law.
(f) The Transfer will not result in the Company's being subject
to the registration and reporting requirements of the Investment Company Act of
1940, as amended.
(g) The Transfer shall not cause the Company to become a "holding
company" or a "public utility company" or an "affiliate" of a "public utility
company" as such terms are defined by the Public Utility Holding Company Act of
1935 ("PUHCA").
(h) The Transfer will not result in the Company or any Stockholder
being subject to any additional material regulatory burdens or adverse tax
treatment.
(i) The Transfer shall not cause the Company or its subsidiaries to
become subject to the Federal Power Act or Natural Gas Act or regulation as a
"public utility", a "local distribution company", an "electrical load serving
entity" or a similar entity under the law of any state except to the extent
that, at the time of the Transfer, the Company or any subsidiary thereof is
already subject to regulation thereunder.
(j) The Transfer shall not cause any Qualifying Facility within the
meaning of the Public Utility Regulatory Policies Act of 1978 ("PURPA") and 18
C.F.R. Part 292 ("Qualifying Facility") in which the Company or its subsidiaries
hold an equity interest to lose its status as such under PURPA or have any
material adverse effect on the regulatory status of any other project owned or
operated by the Company or its subsidiaries.
4. RIGHTS OF FIRST OFFER
Except for Permitted Transfers under Section 3.1 hereunder and
subject to Article 5 hereof, the following shall apply:
4.1 Right of First Offer. In the event any Stockholder or its Affiliate
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desires to sell or otherwise dispose of any of its Shares, such selling
Stockholder or Affiliate (the "Selling Party") shall first deliver a written
notice (the "Section 4.1 Notice") to the other Stockholder (the "Second Party")
which notice shall specify the Shares to be sold (the "Offered Shares"). Within
thirty (30) days after receipt of the Section 4.1 Notice by the Second Party,
the Second Party shall have the right to offer to purchase (the "First Offer")
all, but not less than all, of the Offered Shares at a price which price shall
be payable only in cash (the "First Offer Price"), and on other terms and
conditions as shall be set forth in the First Offer. Within thirty (30) days
after receipt of the First Offer, the Selling Party shall either accept or
reject the First Offer. If the Selling Party accepts the First Offer, the
Selling Party shall sell, and the Second Party shall purchase, the Offered
Shares at a closing to be held at a time not later than sixty (60) days (or such
necessary longer period specified in Section 4.2) after the Selling Party's
acceptance of the First Offer and at the place as may be mutually agreed upon,
at which time the Offered Shares shall be delivered free and clear of all liens
which may have been imposed on the Offered Shares and are not connected with
the financing or operation of the Company itself against payment of the First
Offer Price. In order to comply with applicable regulatory requirements, the
Second Party may designate (A) a third party to purchase any portion of the
Offered Shares which the Second Party is committed to purchase hereunder if
the Offered Shares constitute all of Selling Party's Shares or (B) a third
party reasonably acceptable to the Selling Party to purchase any portion of the
Offered Shares which the Second Party is committed to purchase hereunder if the
Offered Shares constitute less than all of the Selling Party's Shares. If the
Selling Party rejects or does not timely accept the First Offer, then the
Selling Party shall have one hundred and twenty (120) days (or such necessary
longer period specified in Section 4.2) following such rejection within which
to consummate the sale of all of the Offered Shares at a price per share in cash
greater than the First Offer Price, and in all other respects upon terms and
conditions no less favorable than those specified in the First Offer. If no such
sale occurs within such 120-day period (or longer period as described in Section
4.2), the Offered Shares shall again be subject to all of the restrictions set
forth in this Section 4.1.
4.2 Extensions. The foregoing notwithstanding, the time periods specified
in Section 4.1 may be extended by either Stockholder by providing written notice
to the other Stockholder to the extent reasonably required to accommodate any
regulatory approval, shareholder approval or removal of liens being sought in
good faith by appropriate procedures promptly initiated and diligently conducted
by the Stockholder requesting the extension, and further, such time periods may
be extended by either party by providing written notice to the other party to
the extent reasonably required to accommodate the procurement of debt or equity
funding by USE or any third party designated by the Second Party pursuant to
Sections 4.1 for acquisition of the Offered Shares, provided such extension
shall not to exceed six (6) months from the originally specified date.
4.3 Tag-Along. If the Second Party does not elect to purchase the Offered
Shares pursuant to Section 4.1 above, the Second Party shall have the right,
but not the obligation, to sell to the prospective purchaser identified in the
First Offer the same proportion of the Second Party's Common Stock as the
proportion of the Selling Party's Common Stock proposed to be sold by the
Selling Party at the same price and otherwise on the same terms and conditions
on which, and at the same time as, the Selling Party wishes to sell its Common
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Stock. The proportionate sale right referred to in this Section 4.3 shall be
exercisable by written notice given by the Second Party to the Selling Party
during the same thirty (30) day period the Second Party has to make the First
Offer referred to in Section 4.1. The Selling Party shall not sell any of its
interest to the prospective purchaser unless such purchaser honors its
obligation to purchase the Common Stock from the Second Party as provided
herein. Any purported Transfer of Shares which is inconsistent with this
Section 4.3 shall be null and void and of no effect. By illustration, if a
purchaser offers to purchase CES's 4,574 shares for $4,000 per share of Class B
Stock, it would be required to pay $4,000 per share for USE's Class A Stock,
and it would be required to purchase 2,092 shares of Class B Stock and 2,482
shares of Class A Stock.
5. REDEMPTION; EXCHANGE
5.1 Redemption.
(a) At the option of the Company at any time on or before the
second anniversary of the Effective Date, so long as (i) USE has not made a
First Offer which has been accepted by CES pursuant to Section 4.1 hereof
and (ii) CES has not exercised its rights pursuant to Section 5.2, the Class B
Stock may be redeemed in full for cash at a price equal to $14,600,000.
(b) Notice of redemption of the Class B Stock, specifying the
Redemption Date and place of redemption, shall be given by first class mail to
CES, at its address of record in accordance with Section 9.1 hereto, not less
than 30 nor more than 60 calendar days prior to the date fixed for redemption
(the "Redemption Date"). Such notice shall also specify the redemption price.
(c) Notice of redemption of shares of the Class B Stock having been
given as provided in Section 5.1(b), then all rights of the holders of the Class
B Stock (except the right to receive the redemption price) 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 Class B Stock.
(d) Notwithstanding the foregoing, if notice of redemption shall have
been given pursuant to Section 5.1(b) and CES shall, prior to the close of
business on the date ten business days next preceding the Redemption Date, give
written notice to the Company and USE pursuant to Section 5.2(b) hereof of the
exchange of all of the shares of Class B Stock (accompanied by a certificate or
certificates for such shares, duly endorsed or assigned to the Company) for the
Exchange Shares, then the redemption shall not become effective and the exchange
shall become effective as provided in Section 5.2.
5.2 Merger Election. Subject to and upon compliance with this Section 5.2
and the approval of USE's shareholders, which approval will be sought at the
Stockholders' Meeting (as defined in the Merger Agreement), so long as USE has
not made a First Offer which has been accepted by CES pursuant to Section 4.1
hereof, CES shall have merger election rights as follows:
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(a) Optional Merger. CES shall have the right, at any time on or
before the second anniversary of the Effective Date, at the office of the
Company, to convert all, but not less than all, of the shares of Class B Stock,
pursuant to a tax deferred merger (the "Elected Merger") in which CES will
merge into USE or, at the option of USE, a subsidiary of USE. As a result
of the Elected Merger, CSI will be issued 1,967,000 fully paid and nonassessable
shares (the "Merger Shares") of USE's common stock (the "USE Common Stock"),
subject to adjustment as set forth in Section 5.3.
(b) Mechanics of Merger. In order to effectuate the Elected Merger,
CES shall deliver a fully executed notice of election ("Notice of Election")
to the Company and USE at their principal offices, indicating that CES has
elected to effectuate the Elected Merger. CES and CSI shall represent and
warrant, among other things:
(i) CES has engaged in no business other than as a
shareholder of the Company;
(ii) CES has no liabilities;
(iii) no liens exist on shares of CES's stock or any
of CES's assets;
(iv) regarding CES's and CSI's due organization,
requisite corporate power and authority to
enter into the Elected Merger:
(v) regarding the authorization of the Elected
Merger by CES and CSI;
(vi) regarding the absence of any conflict;
(vii) regarding the obtaining of all consents;
(viii) regarding the absence of any litigation:
(ix) regarding the issuance of the Merger Shares
without registration under the Securities Act
of 1933, as amended;
(x) the comsummation of the Elected Merger shall
not cause USE or the Company to become a
"holding company" or a "public utility
company" or an "affiliate" of a "public
utility company" as such terms are defined
byPUHCA;
(xi) the comsummation of the Elected Merger shall
not cause USE or the Company or any of their
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subsidiaries to become subject to the Federal
Power Act or Natural Gas Act or regulation
as a "public utiltiy", a "local distribution
company", and "electrical load serving entity"
or a similar entity under the law of any
state except to the extent that, at the time
of the Elected Merger, USE, the Company or
any of their subsidiaries is already subject
to regulation thereunder; and
(xii) the comsummation of the Elected Merger shall
not cause any Qualifying Facility in which
USE, the Company or any of their subsidiaries
hold an equity interest to lose its status as
such under PURPA or have any material adverse
effect on the regulatory status of any other
project owned or operated by USE, the Company
or any of their subsidiaries.
and CSI shall indemnify USE if there is a breach of such representations as
mutually agreed to by CSI, CES and USE in the definitive documents effectuating
the Elected Merger. USE shall represent and warrant regarding its due
organization, requisite corporate power and authority to enter into the Elected
Merger, its authorization of the Elected Merger, the absence of any conflict and
as to such other matters typically found in agreements of this type as are
reasonably requested by CES and CSI. USE shall indemnify CSI if there is a
breach of such representations as mutually agreed to by CSI, CES and USE in the
definitive documents effectuating the Elected Merger. Thereafter a certificate
of merger shall be executed and filed with the appropriate secretaries of state.
Upon the effectiveness of the Elected Merger and the surrender of the original
certificate or certificates for the shares of Class B Stock, duly endorsed, to
the principal office of USE, USE shall deliver the Merger Shares; provided,
however, that USE shall not be obligated to issue certificates evidencing the
shares of USE Common Stock issuable upon such exchange unless the certificates
evidencing such shares of Class B Stock are delivered to USE. No fractional
shares of USE Common Stock shall be issued upon exchange of the Class B Stock.
In lieu of any fractional share to which CSI would otherwise be entitled, USE
shall round up the number of Merger Shares to the next whole number. In the case
of a dispute as to the calculation of the number of Merger Shares, USE's
calculation shall be deemed conclusive absent manifest error.
USE shall issue and deliver within seven (7) business days
after the delivery to USE of the certificates representing the shares of Class B
Stock to be exchanged to CSI, at the address provided for in Section 9.1, a
certificate or certificates for the number of shares of USE Common Stock to
which CSI shall be entitled as aforesaid and deliver a registration rights
agreement covering such shares that contains substantially similar terms as the
Registration Rights Agreement between USE and CSI dated October 12, 2000.
(c) Reservation of Shares. USE shall at all times reserve and keep
available out of its authorized but unissued shares of USE Common Stock such
number of shares of USE Common Stock as shall from time to time be sufficient
to effect the Elected Merger; and if at any time the number of authorized but
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unissued shares of USE Common Stock shall not be sufficient to effect the
Elected Merger, USE will take such corporate action as may be necessary to
increase its authorized but unissued shares of USE Common Stock to such number
of shares as shall be sufficient for such purpose.
5.3 Adjustment. (a) The number of Merger Shares shall be subject
to adjustment as set forth below:
(i) If, prior to the Elected Merger, the
number of outstanding shares of USE
Common Stock is increased by a stock
split, stock dividend or other
similar event, the number of Merger
Shares shall be proportionately
increased, or if the number of
outstanding shares of USE Common
Stock is decreased by a combination
or reclassification of shares or
other similar event, the number of
Merger Shares shall be
proportionately decreased.
(ii) If, prior to the Elected Merger,
there shall be any merger,
consolidation, exchange of shares,
recapitalization, reorganization or
other similar event, as a result of
which shares of USE Common Stock
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 USE or
another entity, then CSI shall
thereafter have the right to receive
upon the Elected Merger, upon the
basis and upon the terms and
conditions specified herein, and in
lieu of the shares of USE Common
Stock that would have been issuable
upon the Elected Merger if such
event had not occurred, 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 USE Common Stock that were
issuable upon the Elected Merger
if such Elected Merger had occurred
immediately prior to such event, and
in any such case appropriate
provisions shall be made with
respect to the rights and interests
of CSI to the end that the
provisions hereof (including,
without limitation, provisions for
adjustment of the number of Merger
Shares issuable upon exchange of the
Class B Stock) shall thereafter be
applicable, as nearly as may be
practicable in relation to any
shares of stock or securities
thereafter deliverable upon the
exercise hereof.
(b) Upon any adjustment of the number of Merger Shares,
then and in each case the Company shall give written notice thereof, by first
class mail, postage prepaid, addressed to CES in accordance with Section 9.1,
which notice shall state the number of Merger Shares resulting from such
adjustment, setting forth in reasonable detail the method of calculation and
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the facts upon which such calculation is based.
(c) In case at any time:
(i) USE 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) USE 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 USE, or a
consolidation or merger of USE 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 USE; then, in any one or more of said cases, the Company shall
give, by first class mail, postage prepaid, addressed to CES in accordance with
Section 9.1, (x) at least 30 days' prior written notice of the date on which
the books of USE 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 (y) 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 same shall take place. Such notice in accordance with the foregoing
clause (x) shall also specify, in the case of any such dividend, distribution
or subscription rights, the date on which the holders of USE Common Stock shall
be entitled thereto, and such notice in accordance with the foregoing clause (y)
shall also specify the date on which the holders of USE Common Stock shall be
entitled to exchange their USE 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 USE's capital stock.
6. CLOSING OF TRANSFER.
6.1 Deliveries at Closing. At the closing of the sale of
Shares pursuant to Articles 4 or 5, the selling and purchasing Persons shall
execute and deliver to each other the various documents which shall be required
to carry out their obligations hereunder including, without limitation, the
assignment and delivery of certificates representing the purchased Shares, free
and clear of all liens, pledges and encumbrances, and any stock powers required
in connection therewith, the execution and delivery of the Selling Stockholder's
and its Director designee resignations as directors and officers of the Company,
and all other documents required by this Agreement.
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6.2 Payment of Purchase Price. All amounts paid in respect of a
purchase or repurchase of Shares pursuant to Articles 4 or Section 5.1 hereof
shall be paid in cash at the closing thereof.
7. CONFIDENTIALITY.
7.1 Confidentiality.
(a) Neither any Stockholder nor any of its officers, directors,
managers, employees, Affiliates, agents or advisors shall without the prior
written consent of the other parties: (i) reveal to any third party any
confidential or proprietary information, data, documents, know-how or trade
secrets of the other parties hereto other than information subject to
confidentiality provisions of the Joint Project Development Agreement dated as
of October 12, 2000 by and between CSI and USE or other agreements entered into
after the date hereof by the Stockholders that do not relate to the Company
or the Business ("Confidential Information"); or (ii) use any Confidential
Information in any manner which may directly or indirectly adversely affect
the other parties hereto or their Affiliates; provided, however, that any
Confidential Information may be disclosed by such Stockholder if required by law
or legal or regulatory process or as may be required by the rules of or any
agreement with the SEC, the New York Stock Exchange, Inc. or NASDAQ (but only in
accordance with such law or legal or regulatory process) or in compliance with
the valid order of a court of competent jurisdiction or in connection with the
procurement of debt or equity funding so long as the receiving party agrees to
be bound by the confidentiality provisions contained in this Section 7.1.
Confidential Information shall not include information which has become
available as a matter of public record through no act or omission of such
Stockholder, or any of its Affiliates, agents or advisors, or to the extent such
Confidential Information was in the possession of such Stockholder or its
Affiliates prior to its receipt from the other parties or which was received
from a third party without breach of confidentiality obligations. Confidential
Information shall not be used by the receiving Stockholder for any reason
outside of the purpose and scope of this Agreement. The obligations established
pursuant to this Section shall survive any termination of this Agreement for a
period of three (3) years, except that there shall be no limit on the amount
of time trade secrets must be kept confidential.
(b) Each Stockholder shall take reasonable efforts to ensure that the
Confidential Information is not disclosed to, or obtained from it or its
employees, officers or agents by, any Person other than personnel employed by it
or acting on its behalf who require to have access to it in order to facilitate
the transactions contemplated by this Agreement and the conduct of the business
of the Company in accordance with this Agreement.
(c) The parties hereto agree that irreparable damage shall occur in
the event of a breach of Sections 7.1 (a) or (b) and that the non-breaching
parties shall be entitled to equitable relief in the event of any such breach.
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7.2 Competition of Stockholders Allowed.
None of USE, CSI, CES or any of their respective
Affiliates shall be prohibited by this Agreement from engaging in any business
or activities that are competitive to those of the Company or any of the other
Stockholders.
8. TERM AND TERMINATION.
8.1 Term of Agreement. The term of this Agreement shall be twenty
years, unless this Agreement shall be terminated as herein provided.
8.2 Termination. (a) This Agreement shall terminate with respect to
the Company and all Stockholders upon the occurrence of any of the following
events:
(1) The adjudication of the Company as a bankrupt, the execution
of an assignment for the benefit of creditors of the Company,
the appointment of a receiver for the Company or the
voluntary or involuntary dissolution of the Company.
(2) The execution of a written instrument, by the Company, each
of the Stockholders terminating this Agreement, or
(3) Any public offering of capital stock or other securities of
the Company.
(b) This Agreement shall automatically terminate with respect to
a Stockholder in the event that his interest in his Shares completely terminates
and, upon such complete termination, such Stockholder shall have no further
rights or obligations hereunder other than those rights and obligations arising
prior to such termination, other than the obligations imposed by Article 7.
If such Stockholder subsequently acquires or reacquires Shares, he shall
automatically become bound once again by the terms of this Agreement. This
Section in no event shall be interpreted so as to relieve a Stockholder of
liability for his breach of or failure to comply with any term or provision
hereof arising or existing prior to or at the time of the termination of this
Agreement.
(c) Upon the termination of this Agreement, the provisions of the
restrictive legend set forth in Section 2.3 of this Agreement shall be promptly
removed from the Shares.
8.3 Effect of Termination. In the event of the termination of this
Agreement pursuant to Article 8, this Agreement shall forthwith become void and
have no effect, without any liability on the part of any party hereto; provided,
however, that the termination of this Agreement shall not relieve any party from
liability for any breach of this Agreement; and further provided, however, that
the following provisions of this Agreement shall survive termination: Sections
7.2, 8.3, 9.1, 9.11, 9.17 and 9.18.
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9. MISCELLANEOUS.
Notices. (a) Any notice or other communication required or permitted hereunder
shall be in writing and shall be delivered personally by hand, by telecopy or
mail if mailed by, registered or certified mail postage prepaid return receipt
requested or by Federal Express or similar overnight courier service if
addressed to the Stockholders at the addresses set forth below:
if to CES:
Cinergy Energy Solutions, Inc.
1000 East Main Street
Plainfield, IN 46168
Attention: M. Stephen Harkness, President & COO
Facsimile: 317-838-2090
with a copy to:
Cinergy Corp.
221 East Fourth Street
Cincinatti, Ohio 45201
Attention: Jerome A. Vennemann, Esq.
Facsimile: 513-287-1362
and
if to USE or the Company:
U.S. Energy Systems, Inc.
One North Lexington Avenue
4th Floor
White Plains, New York 10601
Attention: Goran Mornhed, President and Chief
Operating Officer
Fax: 914-271-5315
With a copy to:
Robinson Brog Leinwand Greene
Genovese & Gluck P.C.
1345 Avenue of the Americas
New York, New York 10105-0143
(b) Unless otherwise specified herein, such notices or other
communications shall be deemed effective (i) on the date delivered, if delivered
personally or by a nationally recognized overnight courier, (ii) one business
day after being sent, if sent by telecopier with confirmation of good
transmission and receipt, and (iii) three business days after being sent, if
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<PAGE>
sent by registered or certified mail. Each of the parties herewith shall be
entitled to specify another address by giving notice as aforesaid to each of the
other parties hereto.
9.1 Intellectual Property Rights. Any intellectual property rights held
by a Stockholder or its Affiliates that are made available to the other
Stockholder or to the Company in the implementation of this Agreement will
be on a non-exclusive and no profit basis, to the extent such Stockholder is
legally or contractually able to do so.
9.2 Names and Logos. To further the objectives of this Agreement,
the Stockholders acknowledge and agree that the Company shall have the non-
exclusive right to use the names and logos of the Stockholders in connection
with the implementation of this Agreement subject to the prior written approval
of the Stockholder whose name and logos are being used.
9.3 No Inconsistent Efforts or Agreements. No Stockholder shall solicit
proposals or enter into any agreements or arrangements of any kind with any
Person (other than a party hereto) with respect to the Company on terms
inconsistent with the provisions of this Agreement.
9.4 Publicity; Publications. All media contacts and public announcements
by any Stockholder or any of its Affiliates regarding the matters covered by
this Agreement shall be mutually agreed upon by the parties hereto. Unless
otherwise agreed to by the parties hereto, media contacts and public
announcements relating to the Company shall be approved by the Board.
Notwithstanding the foregoing, the Stockholders and their Affiliates may make
such public announcements, reports, filings and disclosures concerning this
Agreement and the businesses of the Company as may be required by the rules
of or any agreement with the SEC, the New York Stock Exchange, Inc. or NASDAQ,
provided, that, such disclosing Stockholder or Affiliate shall use reasonable
efforts to consult with the other Stockholder regarding the nature and contents
of the contemplated disclosure. Unless the parties hereto otherwise agree, each
and every advertisement by or on behalf of the Company shall have the "CSI" name
on the left side of such advertisement and the "U.S. Energy Systems, Inc." name
on the right side of such advertisement.
9.5 Cooperation Regarding Developments. To assist in achieving the purposes
and intent of this Agreement and the transactions contemplated hereby, each of
the Stockholders shall from time to time brief the other on trends in the
industry, including legislative and legal developments, that impact markets
relating to the Company.
9.6 Compliance with Laws. Each of the Stockholders shall comply in all
material respects, and shall cause its respective Subsidiaries to comply in all
material respects, with all applicable laws, rules or regulations of the United
States or any other jurisdiction that are or may be applicable to the efforts
hereunder or the Company in connection with the implementation of this
Agreement.
9.7 Regulatory Matters. The parties hereto shall cooperate with each other
to ensure that all information necessary for the making of (or responding to any
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<PAGE>
requests for further information consequent upon) any notifications or filings
made in respect of this Agreement, or the transactions contemplated hereby, with
any governmental agency or authority is supplied to the party responsible for
such notification and filings in order that such filings are properly,
accurately and timely made.
9.8 Assignment. This Agreement shall not be assigned by any party hereto
or by operation of law or otherwise, provided, however, that a merger of the
ultimate parent of any Stockholder shall not be deemed to be an assignment by
operation of law for the purposes of this Section 9.9.
9.9 Parties in Interest. This Agreement shall be binding upon and inure
solely to the benefit of each party hereto and its successors and permitted
assigns, and nothing in this Agreement, express or implied, is intended to or
shall confer upon any other Person any rights, benefits or remedies of any
nature whatsoever under or by reason of this Agreement.
9.10 No Consequential Damages. Except as otherwise provided in this
Agreement, it is agreed that no Party hereto will be responsible to the others
for any indirect, special, incidental or consequential loss or damage whatsoever
(including lost profits and opportunity costs) arising out of this Agreement.
9.11 Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity and enforceability of the other provisions hereof. If any
provision of this Agreement, or the application thereof to any Person or
entity or any circumstance, is invalid or unenforceable, (a) a suitable and
equitable provision shall be substituted therefor in order to carry out, so far
as may be valid and enforceable, the intent and purpose of such invalid and
unenforceable provision and (b) the remainder of this Agreement and the
application of such provision to other Persons, entities or circumstances shall
not be affected by such invalidity or unenforceability, nor shall such
invalidity or unenforceability affect the validity or enforceability of such
provision, or the application thereof, in any other jurisdiction.
9.12 Independent Parties. Nothing contained in this Agreement shall be
deemed or construed for any purpose to establish, between the Stockholders, a
partnership or joint venture, a principal-agent relationship, or an employer-
employee relationship, and neither Stockholder shall have the authority to bind
the other with respect to the Company other than as may be provided in the
operative documents executed by the Stockholders with respect to the Company.
9.13 Fees and Expenses. Each party hereto shall bear its own expenses and
costs in connection with and prior to entering this Agreement.
9.14 Entire Agreement. This Agreement, the Registration Rights Agreement
and the Subscription Agreement contains the entire agreement between the
parties with respect to the subject matter hereof and supersedes all prior
agreements, written or oral. The Joint Project Development Agreement between
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the Stockholders is not part of this Agreement, is not superseded by this
Agreement and does not supersede this Agreement.
9.15 Waivers and Amendments; Non-Contractual Remedies; Preservation of
Remedies. This Agreement may be amended only with the prior written consent
of the Company, USE and CES. This Agreement may be waived, only by a written
instrument signed by the party hereto waiving compliance. No delay on the part
of any party in exercising any fight, power or privilege hereunder shall
operate as a waiver thereof nor shall any waiver on the part of any party of any
such right, power or privilege, nor any single or partial exercise of any
such right, power or privilege, preclude any further exercise thereof or the
exercise of any other such right, power or privilege. The rights and remedies
herein provided are cumulative and are not exclusive of any rights or
remedies that any party may otherwise have at law or in equity.
9.16 Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Delaware applicable to agreements made
and to be performed entirely within such State, without regard to the conflict
of laws rules thereof.
9.17 Further Assurances. Each of the parties shall execute and
deliver such other documents and take such other or further action as any other
party may reasonably request so as to consummate the transactions contemplated
hereby more effectively.
9.18 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original as against any
party whose signature appears thereon, and all of which shall together
constitute one and the same instrument. This Agreement shall become binding
when one or more counterparts hereof, individually or taken together, shall bear
the signatures of all of the parties reflected hereon as the signatories.
9.19 Definitions. The following terms, as used herein, have the
following meanings:
"Affiliate" of any Person means any other Person
directly or indirectly through one or more intermediary Persons, controlling,
controlled by or under common control with such Person.
"Business" shall mean the development ownership and
operation of landfill as fueled energy project, and related activities.
"Code" shall mean the Internal Revenue Code of 1986,
as amended.
"control" shall mean the power to direct the
management and policies of such Person directly or indirectly, by or through
stock ownership, agency or otherwise, or pursuant to or in connection with an
agreement, arrangement or understanding (written or oral) with one or more other
Persons by or through stock ownership, agency or otherwise; and the terms
"controlling" and "controlled" shall have meanings correlative to the foregoing.
"Effective Date" shall have the meaning set forth in
the Merger Agreement.
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"Fiscal Year" means a calendar year.
"Merger Agreement" means that certain Agreement and
Plan of Reorganization and Merger dated as of the date hereof by and among the
Company, USE and Zahren Alternative Power Corporation.
"Person" means an individual, corporation, limited
liability company, partnership, joint venture, association, trust,
unincorporated organization or other entity.
"Qualifying Facility" shall have the meaning set
forth in the Merger Agreement.
9.20 Headings; Gender. The headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning
or interpretation of this Agreement. The use of the neuter gender herein shall
be deemed to include the masculine and feminine genders wherever necessary
or appropriate, the use of the masculine gender shall be deemed to include the
neuter and feminine genders and the use of the feminine gender shall be deemed
to include the neuter and masculine genders wherever necessary or appropriate.
9.21 Specific Enforcement. Each Stockholder acknowledges and agrees
that the covenants and undertakings contained in this Agreement relate to
matters which are of a special, unique and extraordinary character and that a
violation of any of the terms of this Agreement will cause irreparable injury to
the Company and the Stockholders and that the amount of such injury will be
difficult, if not impossible, to estimate or determine and cannot be adequately
compensated by monetary damages. Therefore, each Stockholder agrees that the
other parties hereto shall be entitled, in addition to all other rights and
remedies available under this Agreement and applicable law, as a matter of
course, to an injunction, restraining order or other equitable relief from
any court of competent jurisdiction, restraining any violation or threatened
violation and compelling performance of any of such terms by a Stockholder and
by such other persons as the court shall order.
9.22 Governing Documents. If there is any inconsistency between the
Certificate and By-laws and this Agreement, the provisions of the Certificate
and By-laws shall be amended and the provisions of this Agreement shall govern.
9.24 Covenants with Respect to Regulatory Matters. CES
covenants and agrees that neither it nor Cinergy Corp., Cinergy Investments,
Inc., Cinergy Solutions Holding Company, Inc., Cinergy Solutions, Inc., nor any
of their Affiliates will, at any time, without the consent of USE, take any
action that would (a) cause any Qualifying Facility in which the Company holds
an equity interest to lose its status as such under PURPA, (b) subject the
Company to regulation as a "holding company" or a "public utility company," or
an "affiliate" of a "public utility company" as such terms are defined by PUHCA,
(c) subject the Company to regulation as a "public utility", a "local
distribution company", "electrical load serving entity" or a similar entity
under the laws of any state or (d) cause the seller and purchaser of any
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<PAGE>
qualified fuel respecting any Company Project (as defined in the Merger
Agreement) to be treated as a "related person" under Section 29 of the Code. The
Company covenants and agrees that it will not, at any time, without the consent
of CES, take any action that would subject the Company to regulation as a
"holding company" or a "public utility company" or an "affiliate" of a "public
utility company" as such terms are defined by PUHCA.
9.25 In the event, ((a) the Company as Surviving Corporation
and Purchaser Indemnitee under the Indemnification Agreement, receives payment
under Sections 4(b) of the Indemnification Agreement in the form of USE Shares
(as defined in the Indemnification Agreement) or (b) the Merger Consideration is
reduced pursuant to section 2.05 of the Merger Agreement and Section 3 of the
Escrow Agreement through the disbursement or payment to the Company, Surviving
Corporation of Stock (as defined in the Escrow Agreement) "USE Shares" and
"Stock" shall be referred to herein as Stock then, at the option of CES (i) the
Surviving Corporation shall dividend 45.7% of the Stock to CES and 54.3% of the
Stock to USE or (ii) USE shall have the option of (A) repurchasing 100% of the
Stock from the Surviving Corporation within 90 days of the receipt of the Stock
by the Company, for a cash payment equal to the amount of the Damages payment or
Merger Consideration reduction represented by the Shares, as calculated in
accordance with the applicable provisions of the Indemnification Agreement, the
Merger Agreement and the Escrow Agreement or (B) using all commercially
reasonable efforts to register the Stock for resale by the Surviving Corporation
(it being understood that the parties hereto shall reasonably cooperate in
connection with such registration) and upon such registration, the Surviving
Corporation shall sell the Stock for its own account in accordance with
applicable securities laws. If USE is unable to register such Stock for resale
within 90 days after receipt of such Stock by the Company, then USE take the
actions described in clause (ii)(A) hereof within 180 days of the receipt of the
Stock by the Company.
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IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date and year first above written.
USE ACQUISITION CORP.
By: /s/ Goran Mornhed
---------------------------------------
Name:
Title:
U.S. ENERGY SYSTEMS, INC.
By: /s/ Goran Mornhed
--------------------------------------
Name: Goran Mornhed
Title: President and Chief Operating Officer
CINERGY ENERGY SOLUTIONS, INC.
By: /s/ M. Stehen Harkness
-------------------------------------------
Name: M. Stephen Harkness
Title:President and Chief Operating Officer
