TERMINATION FEE AGREEMENT
TERMINATION FEE AGREEMENT, dated as of November 28, 2000 (this
"Agreement"), among U.S. ENERGY SYSTEMS, INC., a Delaware corporation ("USE"),
CINERGY ENERGY SOLUTIONS, INC., a Delaware corporation ("CES"), and ZAHREN
ALTERNATIVE POWER CORPORATION, a Delaware corporation ("Zapco").
WHEREAS, USE, Zapco and USE Acquisition Corp., a Delaware
corporation (the "Sub"), have entered into that certain Agreement and Plan of
Reorganization and Merger, dated as of even date herewith (the "Merger
Agreement"). All capitalized terms used herein but not otherwise defined herein
shall have their respective meanings as set forth in the Merger Agreement;
WHEREAS, it is a condition to the effectuation of the Merger
that CES, an indirect wholly owned subsidiary of Cinergy Solutions Holding
Company, Inc. ("CSHC"), shall purchase 4,574 shares of Class B Common Stock of
Sub for $11,500,000 pursuant to a subscription agreement dated as of even date
herewith (the "Subscription Agreement"; and
WHEREAS, each of USE, CES and Zapco desires to enter into this
Agreement to restrict USE's and Zapco's ability to solicit or entertain
alternative merger or acquisition proposals and to provide for the payment of a
Termination Fee (as defined below) and certain expense reimbursements under
certain circumstances as set forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the
respective representations, warranties, covenants and agreements set forth in
this Agreement, the parties hereto agree as follows:
SECTION 1. No Solicitation of Transactions by USE and Zapco.
(a) Zapco and USE immediately shall cease and cause to be terminated all
existing discussions or negotiations with any parties conducted heretofore with
respect to a Competing Transaction (as defined below) from the date hereof until
the earlier of (i) the Effective Time, or (ii) the termination of the Merger
Agreement in accordance with its terms (the "Period"). During the Period, Zapco
and USE shall not, directly or indirectly, and each will instruct its officers,
directors, employees, subsidiaries, agents or advisors or other representatives
(including, without limitation, any investment banker, attorney or accountant
retained by it) (collectively "Representatives"), not to, directly or
indirectly, (i) solicit, initiate or knowingly encourage (including by way of
furnishing nonpublic information), or take any other action knowingly to
facilitate, any inquiries or the making of any proposal or offer (including,
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without limitation, any proposal or offer to its stockholders) that constitutes,
or may reasonably be expected to lead to, any Competing Transaction, (ii) enter
into or maintain or continue discussions or negotiate with any person or entity
in furtherance of such inquiries, (iii) obtain a Competing Transaction, (iv)
agree to or endorse any Competing Transaction, or (v) authorize or knowingly
permit any Representative of such party or any of its Subsidiaries to take any
such action. If any proposal or offer, or any inquiry or contact with any person
with respect thereto, regarding a Competing Transaction is made to Zapco or USE
(any party which receives such a proposal, other inquiry or contact is hereafter
referred to as the "Receiving Party"), such Receiving Party promptly shall
notify the other parties hereto. Each of ZAPCO and USE shall immediately cease
and cause to be terminated all existing discussions or negotiations with any
parties conducted heretofore with respect to a Competing Transaction. Each of
Zapco and USE agrees not to release any third party from, or waive any provision
of, any confidentiality or standstill agreement relating to Competing
Transactions to which it is a party.
(b) Notwithstanding anything to the contrary in Section 1(a)
above, the Board of Directors of such Receiving Party may cause such Receiving
Party to furnish information to, and may participate in discussions or
negotiations with, any person that, without any solicitation by or on behalf of
such Receiving Party, has submitted a written proposal to such Board of
Directors which constitutes a Superior Proposal (as hereafter defined, except
that for purposes of this Section 1(b) a Superior Proposal shall not require a
financing commitment), to the extent that the Board of Directors of such
Receiving Party determines in good faith that the failure to do so would cause
such Board of Directors to breach its fiduciary duties to the Receiving Party or
its stockholders under applicable Laws if the Receiving Party has received
advice to such effect from independent legal counsel (who may be such party's
regularly engaged independent legal counsel, it being understood that Robinson
Brog Leinwand Greene Genovese & Gluck P.C., Tannenbaum Helpern Syracuse &
Hirschtritt LLP and Shipman & Goodwin LLP shall be deemed to be independent
legal counsel). Notwithstanding anything to the contrary contained in this
Agreement, any such furnishing of information and participation in such
discussions or negotiations shall not constitute a breach of this Agreement by
such party.
(c) A "Competing Transaction" means any of the following
involving Zapco or USE (other than the Merger and the Investment): (i) a merger,
consolidation, share exchange, business combination or other similar transaction
as a result of which the stockholders of such party immediately prior to such
transaction will, after such transaction, own less than 50% of the voting stock
of the combined, surviving or merged entity; (ii) any sale, lease, exchange,
transfer or other disposition of 50% or more of the assets of such party and its
subsidiaries, taken as a whole or (iii) a tender offer or exchange offer for, or
any acquisition of, 50% or more of the outstanding voting securities of such
party by a person not affiliated with any party hereto.
(d) A "Superior Proposal" shall mean any proposal made by a
third party for a Competing Transaction with Zapco or USE which the Board of
Directors of such party reasonably determines in its good faith judgment (based
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on the advice of a financial advisor and independent counsel) to be more
favorable to such party's stockholders than the Merger and for which financing,
to the extent required, is then committed, subject to standard terms and
conditions at the time ZAPCO or USE as applicable, exercises any right to
terminate the Merger Agreement provided for in this Agreement.
SECTION 2. Termination of Merger Agreement. (a) In addition
to the provisions of Section 8.01 of the Merger Agreement, the Merger Agreement
may be terminated at any time prior to the Effective Time as follows:
(i) By USE, if (A) the Board of Directors of Zapco
does not recommend to its stockholders the approval of the transactions
contemplated by the Merger Agreement or withdraws, modifies or changes
its recommendation of the transactions contemplated by the Merger
Agreement in a manner adverse to USE or shall have resolved to do so,
(B) the Board of Directors of Zapco shall have recommended to the
stockholders of Zapco a Competing Transaction or shall have resolved to
do so, or (C) if the transactions contemplated by the Merger Agreement
shall fail to receive the requisite vote for adoption at the Zapco
Stockholders' Meeting held within thirty days of the Merger Agreement
execution date; provided, however, that nothing herein shall reduce the
liability of the shareholders of Zapco under the Stockholders' and
Voting Agreement by and among USE and certain shareholders of USE and
Zapco dated as of the date hereof (the "Stockholders Agreement") for
any breach of their obligations under the Stockholders Agreement;
(ii) By Zapco, if (A) the Board of Directors of USE
does not recommend to its stockholders the approval of the transactions
contemplated by the Merger Agreement or withdraws, modifies or changes
its recommendation of the transactions contemplated by the Merger
Agreement in a manner adverse to Zapco or shall have resolved to do so,
(B) the Board of Directors of USE shall have recommended to the
stockholders of USE a Competing Transaction or shall have resolved to
do so, or (C) a tender offer or exchange offer for 50% or more of the
outstanding shares of capital stock of USE is commenced, and the Board
of Directors of USE fails to recommend within ten Business Days against
acceptance of such tender offer or exchange offer by its stockholders
(for purposes of this Agreement, taking no position with respect to the
acceptance of such tender offer or exchange offer by its stockholders
shall be considered to be a failure to recommend against acceptance),
provided, however, that nothing herein shall reduce the liability of
any shareholder of USE under the Stockholders Agreement for any breach
of its obligations under the Stockholders Agreement; or
(iii) By Zapco or USE if the transactions
contemplated by the Merger Agreement shall fail to receive the
requisite vote for adoption at (A) the USE Stockholders' Meeting or any
adjournment or postponement thereof or (B) the Zapco Stockholders'
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Meeting or any adjournment or postponement thereof provided that Zapco
may terminate the Merger Agreement pursuant to this clause B, if and
only if the Zapco Stockholders (as defined in the Stockholders
Agreement) are not obligated to vote in favor of the Merger under the
express terms of Section 2.01(a) of the Stockholders Agreement;
provided, however, that nothing herein shall reduce the liability of
the shareholders of USE or Zapco under the Stockholders Agreement for
any breach of their obligations under the Stockholders Agreement.
(b) In addition to the provisions of Section 8.01 of the
Merger Agreement, the Merger Agreement may be terminated at any time prior to
the Effective Time as follows:
(i) By USE, if (A) USE shall pay the Termination Fee
and (B) (1) the Board of Directors of USE shall have withdrawn,
modified or changed its recommendation of the adoption of the
transactions contemplated by the Merger Agreement in a manner adverse
to Zapco following such Board's receipt of advice of independent legal
counsel (who may be USE's regularly engaged independent legal counsel)
that failure to terminate the Merger Agreement would cause the Board of
Directors of USE to breach its fiduciary duties to USE or its
stockholders under applicable Laws and (2) any person (other than
Zapco) shall have made a public announcement or communicated to USE
with respect to a Superior Proposal with respect to USE and the Board
of Directors of USE fails to recommend within ten Business Days against
acceptance of such Superior Proposal; or
(ii) By Zapco, if (A) Zapco shall pay the Termination
Fee and (B) (1) the Board of Directors of Zapco shall have withdrawn,
modified or changed its recommendation of the approval of the
transactions contemplated by the Merger Agreement in a manner adverse
to USE following such Board's receipt of advice of independent legal
counsel (who may be Zapco's regularly engaged independent legal
counsel) that failure to terminate the Merger Agreement would cause the
Board of Directors of Zapco to breach its fiduciary duties to Zapco or
its stockholders under applicable Laws and (2) any person (other than
USE) has made a public announcement or otherwise communicated to Zapco
with respect to a Superior Proposal with respect to Zapco.
SECTION 3. Termination Fee and Expenses. In the event that the
Merger Agreement is terminated in the following circumstances, then (subject to
the provisions of Section 4 hereof) the party indicated below shall be required
to pay to the other parties hereto (to be shared equally by the other parties),
the Termination Fee, and shall be required to reimburse the other parties'
Expenses (as defined in Section 3(d)) upon the receipt of reasonable
documentation in respect thereof:
(a) Zapco shall pay to USE and CES the lesser of (i) the
highest amount then allowed under the Laws of the State of Delaware and (ii)
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$2,000,000 in cash (the "Pre-Approval Termination Fee") and shall reimburse USE
and CES for all of their Expenses in the following circumstances:
(i) If USE terminates the Merger Agreement pursuant to
Section 2(a)(i) hereof before or at the time Zapco's stockholders
approve the transactions contemplated by the Merger Agreement (the
"Zapco Shareholder Approval") and at the time of such termination, any
person shall have made a public announcement or otherwise communicated
to Zapco with respect to a Competing Transaction with respect to Zapco;
or
(ii) If Zapco terminates the Merger Agreement before or at the
time of the Zapco Shareholder Approval pursuant to Section 2(b)(ii)
hereof;
(b) USE shall pay to Zapco and CES the Pre-Approval
Termination Fee and shall reimburse Zapco and CES for all of their Expenses in
the following circumstances:
(i) If Zapco terminates the Merger Agreement pursuant to
Section 2(a)(ii) hereof before or at the time USE's stockholders
approve the transactions contemplated by the Merger Agreement (the "USE
Shareholder Approval") and at the time of such termination, any person
shall have made a public announcement or otherwise communicated to USE
with respect to a Competing Transaction with respect to USE and the
Board of Directors of USE fails to recommend within fifteen Business
Days against acceptance of such Competing Transaction;
(ii) Zapco terminates the Merger Agreement pursuant to Section
2(a)(iii) (A) hereof and at the time of such failure, any person shall
have made a public announcement or otherwise communicated to USE with
respect to a Competing Transaction with respect to USE and the Board of
Directors of USE fails to recommend within fifteen Business Days
against acceptance of such Competing Transaction.
(iii) If USE terminates the Merger Agreement before or at the
time of the USE Shareholder Approval pursuant to Section 2(b)(i)
hereof.
(c) Zapco shall pay to USE and CES the lesser of (i) the
highest amount then allowed under the Laws of the State of Delaware and (ii)
$5,000,000 in cash (the "Post-Approval Termination Fee" and together with the
Pre-Approval Termination Fee, the "Termination Fee") and shall reimburse USE and
CES for all of their Expenses in the following circumstances:
(i) If USE terminates the Merger Agreement pursuant to Section
2(a)(i) hereof after the Zapco Shareholder Approval and at the time of
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such termination, any person shall have made a public announcement or
otherwise communicated to Zapco with respect to a Competing Transaction
with respect to Zapco; or
(ii) If Zapco terminates the Merger Agreement after the Zapco
Shareholder Approval pursuant to Section 2(b)(ii) hereof.
(d) USE shall pay to Zapco and CES the Post-Approval Termination Fee and shall
reimburse Zapco and CES for all of their Expenses in the following
circumstances:
(i) If Zapco terminates the Merger Agreement after the USE
Shareholder Approval pursuant to Section 2(a)(ii) hereof and at the
time of such termination, any person shall have made a public
announcement or otherwise communicated to USE with respect to a
Competing Transaction with respect to USE and the Board of Directors of
USE fails to recommend within fifteen Business Days against acceptance
of such Competing Transaction;
(ii) If USE terminates the Merger Agreement after the USE
Shareholder Approval pursuant to Section 2(b)(i) hereof.
(e) CES shall pay the Pre-Approval Termination Fee and shall
reimburse the other parties' Expenses if the Merger Agreement is terminated by
ZAPCO or USE as the result of a breach by CES of one or more of its
representations, warranties, covenants or agreements contained in the
Subscription Agreement provided that CES shall not be required to pay the
Pre-Approval Termination Fee if CES terminates the Subscription Agreement in
accordance with the terms of such agreement. In no event will CES be required to
pay the Post-Approval Termination Fee.
(f) "Expenses" as used in this Agreement shall consist of all
out-of-pocket expenses (including, without limitation, all fees and expenses of
counsel, accountants, investment bankers, experts and consultants to a party
hereto and its affiliates) incurred by a party on its behalf in connection with
or related to the authorization, preparation, negotiation, execution and
performance of the Merger Agreement (and the related documents), the
preparation, printing, filing and mailing of the proxy statements of USE and
ZAPCO, the solicitation of stockholder approvals, the Investment, the purchase
of securities of Energy Systems Investors LLC by certain shareholders of Zapco
and all other matters related to the closing of the Merger.
(g) All payments required to be made pursuant to Section 3
above shall be made to the parties entitled to receive such payments not later
than thirty Business Days after delivery to the other parties hereto of notice
of demand for payment and shall be made by wire transfer of immediately
available funds to an account designated by the party entitled to receive
payment in such notice of demand, except that all payments required to be made
pursuant to a termination by either party pursuant to Sections 3(a)(ii) or
3(b)(iii) shall be made by wire transfer of immediately available funds to an
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account designated by the other parties entitled to receive payment on or prior
to the effective date of such termination.
(h) In the event that Zapco, USE or CES, as the case may be,
shall fail to pay any Expense or any Termination Fee when due, the amount of any
such Expense or Termination Fee shall be increased to include the costs and
expenses actually incurred or incurred by the party entitled to receive payment
(including, without limitation, fees and expenses of counsel) in connection with
the collection under and enforcement of this Section 3, together with interest
on such unpaid Expenses and Termination Fee, commencing on the date that such
Expenses and Termination Fee became due, at a rate equal to (i) the rate of
interest publicly announced by Citibank, N.A., from time to time, in the City of
New York, as such bank's Prime Rate plus (ii) 1.00%.
SECTION 4. Limitation on Section 3 Hereof. (a) Notwithstanding
anything to the contrary herein, no party to this Agreement shall be entitled to
receive any portion of a Termination Fee or to be reimbursed for its Expenses to
the extent such party has materially breached its obligations under the Merger
Agreement (or the Subscription Agreement) or, in the case of Zapco, any of the
Zapco Stockholders (as defined in the Stockholders Agreement) has materially
breached its obligations under the Stockholders Agreement or, in the case of
USE, any of the USE Stockholders has materially breached its obligations under
the Stockholders Agreement to the party that is required to pay the Termination
Fee and to reimburse Expenses hereunder. In the event that one of the parties
hereto is required to pay the Termination Fee and reimburse Expenses and only
one of the other parties is entitled to receive such Termination Fee and to be
reimbursed for such Expenses, then the full Termination Fee shall be paid to the
party entitled to receive payment and only the Expenses of the party entitled to
receive payment shall be reimbursed.
Notwithstanding anything to the contrary herein, no party to this
Agreement shall be required to pay more than one Termination Fee and no party
shall be entitled to receive any portion of a Termination Fee or to be
reimbursed for its expenses if the Merger Agreement is terminated by any party
because the Average Parent Share Price is less than $4.00.
SECTION 5. Difficulty of Calculating Actual Damages. The
parties hereby acknowledge and agree that it would not be possible to calculate
the magnitude of their damages in the event the Merger Agreement were terminated
in any of the circumstances described in Section 2 hereof. Accordingly, in the
event the Merger Agreement were terminated in any of the circumstances described
in Section 2 hereof, they agree that the Termination Fee and Expenses represent
(a) a fair and reasonable measure of the value of the time expended by the
management of the parties hereto and the opportunities that such parties have
foregone the payment of which is consistent with any fiduciary duties owed to
the shareholders of the party making such payment and (b) the parties' sole and
exclusive remedy arising from such termination of the Merger Agreement.
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SECTION 6. Effect of Merger, Termination. Upon the
consummation of the Merger, this Agreement shall forthwith become void and be
terminated and there shall be no liability under this Agreement on the part of
USE, CES or Zapco, provided, however that if CES is liable for the Termination
Fee and the Expenses of any other party at the time when the Merger is
consummated, then such liability shall survive the termination of this
Agreement.
SECTION 7. Notices. All notices and other communications given
or made pursuant hereto shall be in writing and shall be deemed to have been
duly given or made as of the date delivered, mailed or transmitted, and shall be
effective upon receipt, if delivered personally, mailed by overnight, registered
or certified mail (postage prepaid, return receipt requested) to the parties at
the following addresses (or at such other address for a party as shall be
specified by like changes of address) or sent by electronic transmission to the
facsimile number specified below:
(a) If to USE:
U.S. Energy Systems, Inc.
One North Lexington Avenue, 4th Floor
White Plains, New York 10601
Facsimile No.: 914-271-5315 and 718-832-0263
Attention: Goran Mornhed, President & COO
Barbara Farr, General Counsel
With a copy to:
Robinson Brog Leinwand Greene
Genovese & Gluck P.C.
1345 Avenue of the Americas
New York, New York 10105-0143
Facsimile No.: (212) 956-2164
Attention: Allen J. Rothman
(b) If to Zapco:
Zahren Alternative Power Corporation
40 Tower Lane
Avon, CT 06001
Facsimile No.: (860) 677-6054
Attention: Bernard J. Zahren, President
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With a copy to:
Shipman & Goodwin LLP
One American Row
Hartford, CT 06103-2819
Facsimile No.: (860) 251-5999
Attention: John H. Lawrence Jr., Esq. and
Marcus D. Wilkinson, Esq.
and
Tannenbaum Helpern Syracuse & Hirschtritt LLP
900 Third Avenue
New York, New York 10022
Facsimile No.: (212) 826-0773
Attention: Stephen Rosenberg, Esq.
(c) If to CES:
Cinergy Energy Solutions, Inc.
c/o Cinergy 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
Cincinnati, Ohio 45201
Attention: Jerome A. Vennemann, General Counsel
Facsimile: 513-287-1363
SECTION 8. Headings. 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.
SECTION 9. Severability. If any term or other provision of
this Agreement is invalid, illegal or incapable of being enforced by any rule of
Law or public policy, all other conditions and provisions of this Agreement
shall nevertheless remain in full force and effect so long as the economic or
legal substance of the transactions contemplated hereby is not affected in any
manner materially adverse to any party. Upon such determination that any term or
other provision is invalid, illegal or incapable of being enforced, the parties
hereto shall negotiate in good faith to modify this Agreement so as to effect
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the original intent of the parties as closely as possible in an acceptable
manner to the end that transactions contemplated hereby are fulfilled to the
extent possible.
SECTION 10. Entire Agreement. This Agreement constitutes the
entire agreement of the parties and supersedes all prior agreements and
undertakings, both written and oral, between the parties, or any of them, with
respect to the subject matter hereof and, except as otherwise expressly provided
herein, is not intended to confer upon any other person any rights or remedies
hereunder; provided however, that nothing herein shall be deemed to supercede
the Merger Agreement or the Stockholders Agreement and nothing in the Merger
Agreement or the Stockholders Agreement shall be deemed to supercede this
Agreement.
SECTION 11. Assignment. This Agreement shall not be assigned
by operation of law or otherwise.
SECTION 12. Parties in Interest. This Agreement shall be
binding upon and inure solely to the benefit of each party hereto, and nothing
in this Agreement, express or implied, is intended to or shall confer upon any
other person any right, benefit or remedy of any nature whatsoever under or by
reason of this Agreement.
SECTION 13. Mutual Drafting. Each party hereto has
participated in the drafting of this Agreement, which each party acknowledges is
the result of extensive negotiations between the parties.
SECTION 14. Governing Law. This Agreement shall be governed
by, and construed in accordance with, the Laws of the State of Delaware,
regardless of the Laws that might otherwise govern under applicable principles
of conflicts of law.
SECTION 15. Specific Performance. The parties hereto agree
that irreparable damage would occur in the event any provision of this Agreement
was not performed in accordance with the terms hereof and that the parties shall
be entitled to specific performance of the terms hereof, in addition to any
other remedy at law or in equity.
SECTION 16. Jurisdiction. Each party hereby irrevocably: (1)
agrees that any suit, action, or other legal proceeding arising out of this
Agreement or out of any of the transactions contemplated hereby or thereby, may
be brought in any New York court or United States federal court located in the
County of New York; (2) consents to the jurisdiction of each such court in any
such suit, action, or legal proceeding; (3) waives any objection which such
party may have to the laying of venue of any such suit, action, or legal
proceeding in any of such courts; (4) agrees that New York is the most
convenient forum for litigation of any such suit, action, or legal proceeding;
and (5) designates the Secretary of State of the State of New York as such
party's agent to accept and acknowledge on its behalf service of any and all
process in any such suit, action or legal proceeding brought in any such court,
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and agrees and consents that any such service of process upon such agent shall
be taken and held to be valid personal service upon such party and that any such
service of process shall be of the same force and validity as if service were
made upon such party according to the laws governing the validity and
requirements of such service in the State of New York, and waives all claim of
error by reason of any such service.
SECTION 17. Counterparts. This Agreement may be executed in
one or more counterparts, and by the different parties hereto in separate
counterparts, each of which when executed shall be deemed to be an original but
all of which taken together shall constitute one and the same agreement.
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IN WITNESS WHEREOF, USE, CES and Zapco have caused this
Agreement to be executed as of the date first written above.
U.S. ENERGY SYSTEMS, INC.
By: /s/ Goran Mornhed
---------------------
Name: Goran Mornhed
Title: President & COO
CINERGY ENERGY SOLUTIONS, INC.
By: /s/ M. Stephen Harkness
---------------------------
Name: M. Stephen Harkness
Title: President & COO
ZAHREN ALTERNATIVE POWER
CORPORATION
By: /s/ Bernard J. Zahren
---------------------------
Name: Bernard J. Zahren
Title: President
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