INDEMNIFICATION AGREEMENT
INDEMNIFICATION AGREEMENT dated as of November 28, 2000 (as
amended, supplemented or modified from time to time, this "Agreement") by and
among U.S. Energy Systems, Inc., a Delaware corporation ("USE"), USE Acquisition
Corp., a Delaware corporation (the "Sub" and together with the USE, the "USE
Parties") and Cinergy Energy Solutions, Inc., a Delaware corporation ("CES")
W I T N E S S E T H:
WHEREAS, Zahren Alternative Power Corporation ("ZAPCO") and the
USE Parties are party to that certain agreement and plan of reorganization and
merger (the "Merger Agreement") dated as of the date hereof providing for the
merger (the "Merger") of ZAPCO and the Sub, as contemplated therein;
WHEREAS, concurrently with the execution of the Merger Agreement,
USE and CES are entering into a certain subscription agreement (the
"Subscription Agreement") dated as of the date hereof to acquire 4,574 shares of
the Sub's Class B Common Stock (the "Class B Stock");
WHEREAS, it is a condition to the willingness of the USE Parties
to enter into the Subscription Agreement and the obligations of the USE Parties
to consummate the transactions contemplated thereby that CES indemnify and hold
harmless the USE Parties; (and, following the Merger, the Surviving Corporation)
and their respective affiliates, shareholders, officers, directors, employees
and agents, and the heirs, successors and assigns of each of the foregoing (each
a "USE Indemnitee" and, collectively, the "USE Indemnitees") from certain
Damages (as defined herein), all as provided herein.
WHEREAS, it is a condition to the willingness of CES to enter into
the Subscription Agreement and the obligations of CES to consummate the
transactions contemplated thereby that the USE Parties indemnify and hold
harmless CES and its affiliates, shareholders, officers, directors, employees
and agents and the heirs, successors and assigns of each of the foregoing (each
a "CES Indemnitee" and, collectively, the "CES Indemnitees"; the CES Indemnitees
and the USE Indemnitees are collectively referred to as the "Indemnitees") from
Damages, all as provided herein.
NOW, THEREFORE, in consideration of the benefits accruing to the
parties, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby make the following representations and warranties and
hereby covenant and agree as follows:
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1. As used in this Agreement, capitalized terms not defined herein
which are defined in the Merger Agreement are used herein as therein defined,
and the following terms shall have the following meanings:
"Damages" means all liabilities, judgments, demands, claims,
actions or causes of action, regulatory, legislative or judicial
proceedings or investigations, assessments, levies, losses, fines,
penalties, damages, costs and expenses. Without limiting the
generality of the foregoing, Damages include, without limitation:
reasonable attorneys', arbitrators', accountants', investigators',
environmental consultants' and experts' fees and expenses,
sustained or incurred in connection with the enforcement by an
Indemnitee of its rights and remedies under this Indemnification
Agreement, or the Subscription Agreement, or any agreement,
instrument or document executed or to be delivered in connection
with the Subscription Agreement (collectively, including the
Subscription Agreement, the "Transaction Documents").
"Person" shall mean an individual, partnership, corporation,
limited liability company, association, joint stock company,
trust, joint venture, or unincorporated organization, or the
United States of America or any other nation, or any state or
other political subdivision thereof, or any entity with executive,
legislative, judicial, regulatory or administrative functions of
government; and
2. (a) From and after the Closing, CES shall indemnify the USE
Indemnitees as provided in this Indemnification Agreement. For the purposes of
this Indemnification Agreement, CES shall be deemed to have remade all
representations and warranties of CES contained in the Subscription Agreement at
the Closing with the same effect as if originally made at the Closing.
(b) From and after the Closing, the USE Parties shall
indemnify the CES Indemnitees as provided in this Indemnification Agreement. For
the purposes of this Indemnification Agreement, the USE Parties shall be deemed
to have remade all representations and warranties of the USE Parties contained
in the Subscription Agreement at the Closing with the same effect as if
originally made at the Closing.
3. (a) CES hereby unconditionally and irrevocably, subject to
Section 4, agrees to indemnify, save and keep the USE Indemnitees harmless at
all times after the Closing Date against and from all Damages sustained or
incurred by any USE Indemnitee as a result of, or arising out of, by virtue of,
or in connection with:
i. any inaccuracy in or breach of any representation and
warranty made by CES in the Transaction Documents;
ii. any breach by CES of, or failure by CES to comply with,
any of its covenants or obligations under the Transaction
Documents; and
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iii. and all claims, actions, suits, proceedings, demands,
assessments, judgments, costs and expenses incident to any
of the foregoing;
(b) Each of the USE Parties hereby unconditionally and
irrevocably, subject to Section 4, agrees to indemnify, save and keep the CES
Indemnitees harmless at all times after the Closing Date against and from all
Damages sustained or incurred by any CES Indemnitee as a result of, or arising
out of, by virtue of, or in connection with:
i. any inaccuracy in or breach of any representation and
warranty made by the USE Parties in the Transaction
Documents;
ii. any breach by the USE Parties of, or failure by the USE
Parties to comply with, any of their covenants or
obligations under the Transaction Documents;
iii. the amount ZAPCO is liable for pursuant to Section
10(b) of that certain indemnification agreement by and among
the USE Parties and certain shareholders of ZAPCO (the
"ZAPCO Indemnification Agreement") dated as of the date
hereof; less any amounts paid by the Major Shareholders
pursuant to Section 3(a)(v) of the ZAPCO Indemnification
Agreement; provided, however, if the amount payable under
this Section 3(b)(iii) is paid by the Sub or the Surviving
Corporation (but not by USE), then the Sub or the Surviving
Corporation, as the case may be, shall also be liable for
the amount for which Cinergy Gasco Solutions, Inc. is liable
pursuant to Section 10(b) of the ZAPCO Indemnification
Agreement; and
iv. all claims, actions, suits, proceedings, demands,
assessments, judgments, costs and expenses incident to any
of the foregoing.
(c) The respective obligations of CES and the USE Parties, under
Sections 3(a) and 3(b) hereof are referred to herein as the "Obligations."
4. (a) The USE Indemnitees shall not be entitled to recover under
Section 3(a):
i. unless a Notice of Claim (as defined herein) has been
delivered to CES, on or prior to the date which is eighteen
months after the Closing Date;
ii. for Damages to the extent such Damages do not exceed
$500,000 in the aggregate;
iii. For Damages to the extent that CES has previously paid
Damages to a USE Indemnitee with respect to the same matter
pursuant to the Merger Agreement or any of the agreements
executed in connection therewith and the transactions
contemplated by the Merger Agreement;
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iv. with respect to lost profits or punitive damages (other
than punitive damages paid or payable to, or claimed by
third parties); and
v. more than $11,500,000.
The CES Indemnitees shall not be entitled to recover under Section 3(b):
i. unless a Notice of Claim (as defined herein) has been
delivered to the USE Parties, on or prior to the date which
is eighteen months after the Closing Date;
ii. for Damages to the extent such Damages do not exceed
$500,000 in the aggregate;
iii. For Damages to the extent that any USE Party has
previously paid Damages to a CES Indemnitee with respect to
the same matter pursuant to the Merger Agreement or any of
the agreements executed in connection therewith and the
transactions contemplated by the Merger Agreement;
iv. with respect to lost profits or punitive damages (other
than punitive damages paid or payable to, or claimed by
third parties); and
v. more than $11,500,000
(b) The payment of any Damages to which the Indemnitees are
entitled pursuant to Section 3 of this Indemnification Agreement shall be
satisfied by disbursing cash.
(c) The parties hereto agree that the provisions of this
Section 4 will govern any claims for indemnification under this Indemnification
Agreement. If and when a USE Indemnitee desires to assert a claim for Damages
against CES pursuant to the provisions of this Indemnification Agreement, or a
CES Indemnitee desires to assert a claim for Damages against the USE Parties
pursuant to the provisions of this Indemnification Agreement, the USE Indemnitee
or the CES Indemnitee, shall deliver to (i) CES or (ii) the USE Parties as the
case may be (the "Indemnifying Party") reasonably promptly after its receipt of
a claim or specific and affirmative awareness of a potential claim, a
certificate signed by the Indemnitee (the "Notice of Claim"): (i) stating the
amount of Damages (to the extent then known); and, (ii) specifying to the extent
possible (A) the individual items of Damages included in the amount so stated,
(B) the date each such item is to be paid or accrued and (C) the basis upon
which Damages are claimed. CES and the USE Parties shall proceed, in good faith,
and using reasonable efforts, to agree upon the amount of such Damages. If the
Indemnifying Party does not notify the Indemnitee within thirty (30) days of the
giving of such Notice of Claim that the Indemnifying Party) disputes such
Damages, the amount of such Damages shall be conclusively deemed a liability of
the Indemnifying Party hereunder. If CES and the USE Parties are unable to agree
on the amount of such Damages within thirty (30) days after giving the Notice of
Claim then the provisions of Section 4(d) shall become effective.
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(d) Each and every controversy or claim arising out of or
relating to indemnification for Damages pursuant to Section 4(c) of this
Indemnification Agreement which the Indemnifying Party and the Indemnitee (the
"Parties") have not resolved, shall be resolved by arbitration in accordance
with the rules of the American Arbitration Association ("AAA") as modified by
this Agreement. Each party shall select one arbitrator and the two such selected
arbitrators shall select a third arbitrator (who shall not be appointed by the
Parties) selected from the AAA. Judgment upon the award rendered in such
arbitration shall be final and binding upon the Parties and may be entered in
any court having jurisdiction thereof. Notice of the demand for arbitration
shall be filed in writing with the other party and with the office of the AAA,
located in Manhattan, New York, which such demand shall set forth in the same
degree of particularity as required for complaints under the Federal Rules of
Civil Procedure the claims to be submitted to arbitration. Additionally, the
demand for arbitration shall include appropriate copies of all documents on
which the claims are based and a list of all persons who the party seeking
arbitration will call as witnesses with respect to such claims. The arbitration
shall take place in Manhattan, New York. This agreement to arbitrate may be
specifically enforced by a court of competent jurisdiction under the applicable
law of the State of New York pertaining to arbitrations.
The arbitrator shall have the authority and jurisdiction to enter
any pre-arbitration awards that would aid and assist the conduct of the
arbitration or preserve the Parties' rights with respect to the arbitration as
the arbitrator shall deem appropriate in his discretion. The award of the
arbitrator shall be in writing and it shall specify in detail the issues
submitted to arbitration and the award of the arbitrator with respect to each of
the issues so submitted.
The provisions of the Federal Rules of Civil Procedure relating to
the right of discovery in civil actions shall be applicable to such arbitration
proceedings except as modified by the terms of this Indemnification Agreement.
Within thirty (30) days after the commencement of any arbitration proceeding
under this Indemnification Agreement, each party shall file with the arbitrator
its contemplated discovery plan outlining the desired documents to be produced,
the depositions to be taken and any other discovery action sought in the
arbitration proceeding. After a hearing, the arbitrator in an interim award
shall fix the scope and content of each Party's discovery plan as the arbitrator
deems appropriate. The arbitrator shall have the authority to modify, amend or
change such interim award fixing the discovery plans of the Parties upon
application by either Party, if good cause appears for doing so.
The "Prevailing Party" as determined by the arbitrator shall
be entitled to recover from the losing party reasonable expenses, attorneys'
fees and costs incurred in connection therewith and in the enforcement or
collection of any judgment or award rendered therein. The "Prevailing Party"
means the Party determined by the arbitrator to have most nearly prevailed, even
if such Party does not prevail in all matters, or is not the Party in whose
favor an award is rendered. Included within the cost recoverable pursuant to the
terms of this Section 4(d) shall be included service of process costs, filing
fees, arbitration fees, arbitrators' fees, court and reporter costs,
investigative costs, and expert witness fees. The award pursuant to such
arbitration will be final, binding and conclusive.
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5. The liability of each Indemnifying Party hereunder is
independent of any agreements to indemnify the Indemnitees whether executed by
the parties hereto, any other indemnifying person or by any other party, and the
liability of the parties hereunder shall not be affected or impaired by (a) any
direction as to application of payment by any party hereto, (b) any other
continuing or other indemnity, undertaking of a party hereto or of any other
indemnifying person or other party as to the Obligations, (c) any payment on or
in reduction of any such other indemnity or undertaking, or (d) any dissolution,
termination or increase, decrease or change in personnel by any party hereto.
6. The obligations of each party hereto hereunder are independent
of the obligations of any other party hereto, or indemnifying person or other
party of any of the Obligations, and a separate action or actions may be brought
and prosecuted against any party hereto, subject to Section 4(a), whether or not
action is brought against any other party hereto, or indemnifying person or
other party of, or with respect to, any of the Obligations, and whether or not
any other party hereto or indemnifying person or other party of, or with respect
to, any of the Obligations, be joined in any such action or actions. No
Indemnifying Party shall be entitled to require that any action be brought
against any other Person before action is brought against it hereunder by the
Indemnitee. Subject to Section 4(a) hereof, each party hereto waives, to the
fullest extent permitted by law, the benefit of any statute of limitations
affecting its liability hereunder or the enforcement thereof. Any payment by any
party hereto, or other circumstance which operates to toll any statute of
limitations as to any party hereto shall operate to toll the statute of
limitations as to each Indemnifying Party.
7. No invalidity, irregularity or unenforceability of all or any
part of the Obligations or of any security therefor shall affect, impair or be a
defense to this Agreement, and (except to the extent, if any, as shall be
required by applicable statute and cannot be waived) this Agreement shall be
primary, absolute and unconditional notwithstanding the occurrence of any event
or the existence of any other circumstances which might constitute a legal or
equitable discharge of an indemnifying person except payment in full of the
Obligations. No provision of this Agreement shall be deemed to be a waiver by
any party hereto of its right to assert that its Obligations have been paid in
full.
8. Each Indemnifying Party waives any right (except as shall be
required by applicable statute or law and cannot be waived) to require the
Indemnitees to: (i) proceed against any party hereto, indemnifying person or
other person of, or with respect to, any of the Obligations or; (ii) proceed
against or exhaust any security held from or any party hereto, indemnifying
person of, or with respect to, any of the Obligations; or (iii) pursue any other
remedy in any Indemnitee's power whatsoever. Each Indemnifying Party waives (to
the fullest extent permitted by applicable law) any defense based on or arising
out of any defense of any party hereto, indemnifying person of, or with respect
to, any of the Obligations other than payment in full of the Obligations,
including, without limitation, any defense based on or arising out of the
disability of any party hereto, indemnifying person of, or with respect to, any
of the Obligations, or the unenforceability of the Obligations or any part
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thereof from any cause. Each party waives any defense arising out of any such
election by the Indemnitees, even though such election operates to impair or
extinguish any right of reimbursement or subrogation or other right or remedy of
any party hereto against any party or any security.
9. In order to induce the parties hereto to enter into and
consummate the transactions contemplated by the Subscription Agreement, each
party hereto represents, warrants and covenants that:
(a) no consent of any other Person and no consent or
authorization of, filing with or other act by or in respect of, any Governmental
Entity or any other Person is required in connection with the execution,
delivery or performance by such party, or the validity or enforceability of,
this Agreement, except for consents, authorizations, filings or acts which have
been made or obtained, as the case may be, and are in full force and effect; and
(b) the execution, delivery and performance by such party of
this Indemnification Agreement will not (i) violate any law, statute, rule,
regulation or ordinance or any order, writ, junction or decree of any court,
Governmental Entity or arbitration board or tribunal, or (ii) conflict or be
inconsistent with or result in any breach of, any of the terms, covenants,
conditions or provisions of, or constitute a default under, or (other than
pursuant to the Transaction Documents) result in the creation or imposition of
(or the obligation to create or impose) any lien upon any of the property or
assets of such party pursuant to the terms of any indenture, mortgage, deed of
trust, loan agreement, credit agreement or other material agreement or other
instrument to which such party is a party or by which it or any of its property
or assets is bound or to which it may be subject.
10. Nothing contained in this Indemnification Agreement shall
limit the ability of the Indemnitees to pursue Damages or such other remedies,
at law or in equity, resulting from fraud or intentional misrepresentation.
11. (a) All representations and warranties set forth in this
Indemnification Agreement shall survive the Closing for a period of six years
following the Effective Time (and none shall merge into any instrument of
conveyance) regardless of any investigation or lack of investigation by the
parties hereto provided that this sentence is not intended to extend the time
limits respecting the delivery of Notices of Claims set forth in Section 4(a)
hereof. No specific representation and warranty shall limit the generality or
applicability of a more general representation and warranty. The failure in any
one or more instances of a party to insist upon performance of any of the terms,
covenants or conditions of this Indemnification Agreement, to exercise any right
or privilege conferred in this Indemnification Agreement, or the waiver by said
party of any breach of any of the terms, covenants or conditions of this
Indemnification Agreement, shall not be construed as a subsequent waiver of any
such terms, covenants, conditions, right or privileges, but the same shall
continue and remain in full force and effect as if no such forbearance or waiver
had occurred. No waiver shall be effective unless it is in writing and signed by
an authorized representative of the waiving party.
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(b) This Indemnification Agreement sets forth the exclusive
remedies of the Indemnitees against the Indemnifying Parties, absent fraud or
intentional misrepresentation, with respect to the matters expressly set forth
in Section 3 hereof.
12. This Indemnification Agreement shall inure to the benefit of
and be binding upon the parties hereto, and their successors and permitted
assigns. Nothing in this Indemnification Agreement, express or implied, is
intended to confer on any person other than the parties hereto, and their
respective successors and permitted assigns any rights, remedies, obligations or
liabilities under or by reason of this Indemnification Agreement.
13. This Indemnification Agreement shall not be assignable by the
parties without the prior written consent of the other parties, except that
after the Closing, subject to compliance with all applicable securities laws,
each party may assign its respective rights and delegate its respective
obligations under this Indemnification Agreement to any third party which
assumes all of the assigning party's obligations hereunder provided, however,
that such assigning shall remain liable for all of its obligations hereunder.
14. This Indemnification Agreement may be executed in multiple
counterparts, each of which shall be deemed to be an original, and all such
counterparts shall constitute but one instrument.
15. The parties shall execute such further documents, and perform
such further acts, as may be necessary to otherwise comply with the terms of
this Indemnification Agreement, and the Transaction Documents and consummate the
transactions contemplated thereby. In addition, the USE Indemnitees shall, and
shall cause the Surviving Corporation to, cooperate with the CES in connection
with all claims giving rise to any claim for indemnification hereunder. In
furtherance of the foregoing, the USE Indemnitees shall and shall cause the
Surviving Corporation (at the expense of CES) to make available to CES, and
permit CES to make copies of all records, data and other materials and otherwise
to cooperate in all respects with the prosecution and defense of all such
claims.
16. None of the terms or provisions of this Agreement may be
amended, supplemented or otherwise modified except by a written instrument
executed by the parties hereto.
17. Any notice or request hereunder may be given to the parties as
follows:
If to the USE Parties:
U.S. Energy Systems, Inc.
One North Lexington Avenue, 4th Floor
White Plains, New York 10601
Facsimile No.: 561-820-9775
Attention: Goran Mornhed, President and Chief
Operating Officer
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with a copy to:
Robinson Brog Leinwand Greene Genovese & Gluck P.C.
1345 Avenue of the Americas
New York, New York 10105
Facsimile No.: 212-956-2164
Attention: Allen J. Rothman, Esq.
If to CES:
Cinergy Energy Solutions, Inc.
1000 East Main Street
Plainfield, IN 46168
Attention: M. Stephen Harkness, President and COO
Facsimile: 317-838-2090
with a copy to:
Cinergy Corp.
221 East Fourth Street
Cincinnati, Ohio 45201
Attention: Jerome Vennemann, Esq.
Facsimile: 513-287-1363
or, at such other address as may hereafter be specified in a notice designated
as a notice of change of address under this Section. Any notice or request
hereunder shall be given by reputable overnight courier. Any notice or other
communication required or permitted pursuant to this Agreement shall be deemed
given upon actual receipt thereof when sent by a recognized overnight delivery
service.
19. Subject to Section 4(d) hereof, this Agreement shall be
governed by and construed in accordance with the laws of the State of New York
applied to contracts to be performed wholly within the State of New York,
without giving effect to the principles of conflicts of law. Any judicial
proceeding brought by or against any party hereto with respect to this Agreement
or any related agreement may be brought in the Supreme Court of the State of New
York located in the County of New York or in the United States District Court
for the Southern District of New York and, by execution and delivery of this
Agreement, each party accepts, for itself or himself and in connection with its
or his properties, generally and unconditionally, the non-exclusive jurisdiction
of the aforesaid courts, and irrevocably agrees to be bound by any judgment
rendered thereby in connection with this Agreement. Each party hereto hereby
waives personal service of any and all process upon it or him and consents that
all such service of process may be made by registered mail (return receipt
requested) directed to such party at the address set forth pursuant to Section
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18 hereto and service so made shall be deemed completed five (5) days after the
same shall have been so deposited in the mails of the United States of America.
Nothing herein shall affect the right to serve process in any manner permitted
by law or shall limit the right of any party to bring proceedings against any
other party in the courts of any other jurisdiction. The parties hereto waive
any objection to jurisdiction and venue of any action instituted hereunder in
any court referred to above and shall not assert any defense based on lack of
jurisdiction or venue or based upon forum non conveniens.
20. All payments made by the Indemnifying Parties hereunder will
be made without set off, counterclaim or other defense.
21. If any part of this Agreement is contrary to, prohibited by,
or deemed invalid under applicable laws or regulations, such provision shall be
inapplicable and deemed omitted to the extent so contrary, prohibited or
invalid, but the remainder hereof shall not be invalidated thereby and shall be
given effect so far as possible.
23. This Agreement shall not become effective until the Closing
Time. If the Merger Agreement is terminated before the Closing Time, this
Agreement shall be null and void and of no effect.
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IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement as of the day and year first above written.
CINERGY ENERGY SOLUTIONS, INC.
By: M. Stephen Harkness
----------------------------------------
Name:
Title:
U.S. ENERGY SYSTEMS, INC.
/s/ Goran Mornhed
---------------------------
Name: Goran Mornhed
Title:President and Chief Operating Officer
USE ACQUISITION CORP.:
/s/ Goran Mornhed
---------------------------
Name:
Title:
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