SUBSCRIPTION AGREEMENT
This SUBSCRIPTION AGREEMENT (this "Agreement") is made and entered
into as of the 28th day of November, 2000 by and between Cinergy Energy
Solutions, Inc. ("CES"), a wholly-owned indirect subsidiary of Cinergy
Solutions Holding Company, Inc. ("CHSC"), U.S. Energy Systems, Inc., a Delaware
corporation ("USE"), and USE Acquisition Corp. a Delaware corporation (the
"Company,") a wholly-owned subsidiary of USE.
RECITALS
CES desires to subscribe for 4,574 shares of Class B Common Stock the
Company (the "Shares") for $11,500,000 (the "Subscription Price"), upon and
subject to the terms and conditions of this Agreement.
The Company shall use the proceeds received from CES in exchange for
the Shares to finance in part the acquisition of Zahren Alternative Power
Corporation, a Delaware corporation ("ZAPCO") pursuant to an Agreement and Plan
of Reorganization and Merger by and among USE, the Company and ZAPCO dated as of
the date hereof (the "Merger Agreement").
NOW, THEREFORE, in consideration of and in reliance upon the above
Recitals, which by this reference are incorporated herein, the terms, covenants,
conditions and representations contained in this Agreement, and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Subscription. In consideration for the payment of the
Subscription Price in cash payable by CES, the Company agrees to issue to CES
the Shares.
2. Representations; Warranties; Covenants.
A. CES represents and warrants to the Company that the
following are true, complete and correct as of the date of this Agreement and,
where applicable, covenants with the Company as follows:
(i) CES is duly organized, validly existing and in
good standing under the laws of the State of Delaware and has all
requisite corporate power and authority to enter into this Agreement,
the Indemnification Agreement dated as of the date hereof among the
Company , USE and CES, (the "Indemnification Agreement ") and the
stockholders' agreement dated as of the date hereof among the Company,
CES and USE (the "Stockholders' Agreement" and together with
Indemnification Agreement and this Agreement the "Transaction
Agreements") and perform its obligations hereunder and thereunder.
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(ii) The execution, delivery and performance of the
Transaction Agreements (a) have been duly authorized by all necessary
corporate action, and (b) do not and will not violate, breach or
constitute a default (or an event which with or without notice and/or
lapse of time would constitute a default) under the CES's
organizational documents, any agreement or instrument by which it is
bound or any law, regulation, order, award, judgment, decree, license,
permit or instrument to which it is subject. Each Transaction Agreement
is valid and enforceable against the Subscriber in accordance with its
terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization and similar laws affecting
creditors' rights generally and applicable equitable principles.
(iii) CES has obtained all consents, approvals,
novations, waivers or notifications of any third party or governmental
entity (collectively, "Consents") which are necessary or required on
its part for the consummation of the transactions contemplated by the
Transaction Agreements.
(iv) There is no action, suit, legal or
administrative proceeding, arbitration, investigation or other
proceeding or claim pending or, to the knowledge of CES, threatened
against, or affecting CES that, if adversely determined, might
reasonably be expected to have a material adverse effect on its ability
to consummate the transactions contemplated by the Transaction
Agreements.
(v) CES understands that the Shares have not been
registered under the Securities Act of 1933, as amended (the "Act"), or
the securities or similar laws of any state and are offered in reliance
on exemptions therefrom.
(vi) CES understands that neither the Securities and
Exchange Commission nor any other Federal or state agency has
recommended, approved or endorsed the acquisition of the Shares as an
investment or passed on the accuracy or adequacy of the information set
forth in any Company's documents.
(vii) CES is a special purpose C Corporation which is
an indirect wholly owned subsidiary of CSHC.
(viii) CES confirms that the Shares were not offered
to it by any means of general solicitation or general advertising, that
it has received no representations, warranties or written
communications with respect to the offering of the Shares other than
those contained in this Agreement, and in entering into the
transactions contemplated by the Transaction Agreements CES is not
relying upon any information other than that contained in this
Agreement and the results of its own independent investigation.
(ix) CES is acquiring the Shares solely for its own
account, for investment purposes only, and not with a view to the
distribution or resale thereof.
(x) CES acknowledges that the Company is making no
representations concerning the value of the Shares except as
specifically set forth herein.
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(xi) CES will not sell or otherwise transfer the
Shares without registration under the Act or an exemption therefrom and
agrees that it must bear the economic risk of the purchase for an
indefinite period of time because, among other reasons, the Shares have
not been registered under the Act or under the securities laws of any
state and, therefore, cannot be resold, pledged, assigned or otherwise
disposed of unless it is subsequently registered under the Act and
under applicable state securities laws or an exemption from such
registration is available. CES understands that the Company is under no
obligation to register the Shares on behalf of CES or to assist CES in
complying with any exemption from such registration under the Act.
(xii) CES acknowledges, represents, agrees and is
aware that:
(a) the Company has no financial and
operating history;
(b) the representations, warranties,
agreements, undertakings and acknowledgments made by CES in
this Agreement are made with the intent that they be relied
upon by the Company in determining the suitability of CES as a
purchaser of the Shares and shall survive the issuance of the
Shares to CES; and
(c) the Shares are illiquid and CES must
bear the economic risk of its purchase of the Shares for an
indefinite period of time.
(xiii) Assuming the accuracy of USE's and the
Company's representations and warranties contained in Sections B and C
hereof and ZAPCO'S representations and warranties contained in Section
3.29 of the Merger Agreement, the consummation of the transactions
described herein shall not cause USE, the Company or the Surviving
Corporation (as such term is defined in the Merger Agreement) to become
(i) an "affiliate" of an "electric utility company," or a "subsidiary
company" of an electric utility company as such terms are defined by
the Public Utility Holding Company Act of 1935 ("PUHCA") (ii) subject
to the Federal Power Act or Natural Gas Act, or (iii) subject to
regulation as a "public utility," a "local distribution company," an
"electric load serving entity" or a similar entity under the laws of
any state, except to the extent with respect to the foregoing clauses
(i), (ii) and (iii) that USE or the Company or the Surviving
Corporation is already subject to regulation as such thereunder.
(xiv) Assuming the accuracy of USE's representations
and warranties contained in Section C hereof and ZAPCO'S
representations and warranties contained in Section 3.29 of the Merger
Agreement, the consummation of the transactions described herein 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 USE, the Surviving Corporation or
any of their subsidiaries owns an equity interest to lose its status as
such under PURPA.
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(xv) CES acknowledges that it understands that the
Company intends to apply the proceeds of the Subscription Price towards
the cost of acquiring ZAPCO pursuant to the Merger Agreement.
(xvi) CES acknowledges that this Agreement contains
no representations or warranties concerning ZAPCO and that neither the
Company nor USE is making any representations or warranties, directly
or indirectly, concerning ZAPCO, its business, or its prospects.
B. The Company hereby represents and warrants to CES that the
following are true, complete and correct as of the date of this
Agreement:
(i) The Company is duly organized, validly existing and in
good standing under the laws of the State of Delaware and has all
requisite corporate power and authority to enter into this Agreement
and the other Transaction Agreements to which it is a party and perform
its respective obligations hereunder and thereunder.
(ii) The execution, delivery and performance of the
Transaction Agreements to which it is a party (i) have been duly
authorized by all necessary corporate action, (ii) do not and will not
violate, breach or constitute a default (or an event which with or
without notice and/or lapse of time would constitute a default) under
the Company's organizational documents, any agreement or instrument by
which any of them is bound or any law, regulation, order, award,
judgment, decree, license, permit or instrument to which any of them is
subject, and (iii) will not result in the creation or imposition of any
lien, claim, charge or other encumbrance upon any of the assets or
properties of the Company. Each Transaction Agreement to which it is a
party is valid and enforceable against the Company in accordance with
its terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization and similar laws affecting
creditors' rights generally and applicable equitable principles.
(iii) The Company has obtained all Consents which are
necessary or required on its part for the consummation of the
transactions contemplated by the Transaction Agreements to which it is
a party.
(iv) The Shares, when issued, sold and delivered in accordance
with the terms of this Agreement, will be duly and validly issued,
fully paid, non-assessable and free and clear of all liens and
encumbrances.
(v) The entire authorized capital stock of the Company
consists of 5,426 shares of Class A Common Stock, .01 par value (the
"Class A Shares") and 4,574 shares of Class B Common Stock, .01 par
value (the "Class B Shares") of which all of the Class A Shares have
been issued to USE and all of the Class B Shares shall be issued CES
pursuant to this Agreement. There are no outstanding options, warrants
or commitments on the part of the Company to issue any equity
securities of the Company. All of the issued and outstanding Shares are
duly authorized, validly issued, fully paid and nonassessable, were not
issued in violation of any law or of any preemptive or similar rights
of any shareholder or other person.
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(vi) The representations and warranties of the Company made by
it as "Merger Sub" in Article IV of the Merger Agreement as modified or
qualified by the disclosure schedules attached thereto (the "Disclosure
Schedules") delivered by the Company to ZAPCO in connection with the
execution of the Merger Agreement are hereby incorporated by this
reference as if more fully set forth herein and constitute
representations made by the Company to CES pursuant to this Agreement.
(vii) The Company is not an "electric utility company," a
"holding company" or an "affiliate" of an "electric utility company"
as such terms are defined by PUHCA.
C. USE hereby represents and warrants to CES that the
following are true, complete and correct as of the date of this Agreement:
(i) USE is duly organized, validly existing and in good
standing under the laws of the State of Delaware and, subject to the
approval of its shareholders, has all requisite corporate power and
authority to enter into this Agreement and the other Transaction
Agreements to which it is a party and perform its respective
obligations hereunder and thereunder.
(ii) The execution, delivery and performance of the
Transaction Agreements to which it is a party (i) have been duly
authorized by all necessary corporate action (other than the approval
of its shareholders), (ii) do not and will not violate, breach or
constitute a default (or an event which with or without notice and/or
lapse of time would constitute a default) under USE's organizational
documents, any agreement or instrument by which any of them is bound or
any law, regulation, order, award, judgment, decree, license, permit or
instrument to which any of them is subject, and (iii) will not result
in the creation or imposition of any lien, claim, charge or other
encumbrance upon any of the assets or properties of USE. Each
Transaction Agreement to which it is a party is valid and enforceable
against USE in accordance with its terms, except as such enforceability
may be limited by applicable bankruptcy, insolvency, reorganization and
similar laws affecting creditors' rights generally and applicable
equitable principles.
(iii) USE has obtained all Consents which are necessary or
required on its part for the consummation of the transactions
contemplated by the Transaction Agreements to which it is a party.
(iv) The representations and warranties of USE made by it as
"Parent" in Article IV of the Merger Agreement as modified or qualified
by the Disclosure Schedules delivered by USE to ZAPCO in connection
with the execution of the Merger Agreement are hereby incorporated by
this reference as if more fully set forth herein and constitute
representations and warranties made by USE to CES pursuant to this
Agreement.
(v) USE is not an "electric utility company" or a "holding
company" or, to its knowledge, an "affiliate" of an "electric utility
company" or a "subsidiary" of a "holding company" as such terms are
defined by PUHCA. USE or its subsidiaries has duly self-certified or
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obtained certification from the Federal Energy Regulatory Commission
that each of its cogeneration or small power production facilities is a
Qualifying Facility. No more than 38% of the equity interests of any
such facility is held by an electric utility or utilities or by an
electric utility holding company or companies or any combination
thereof. To USE's knowledge, no more than 8% of the voting power of
USE's outstanding voting securities are held by an electric utility
holding company or companies or any subsidiary thereof.
3. Conditions to Closing.
A. Conditions to the Obligations of Both Parties. The
respective obligations of each party to effect this Agreement and the other
transactions contemplated herein shall be subject to the satisfaction at or
prior to the Closing of the following conditions, any or all of which may be
waived, in whole or in part, to the extent permitted by applicable law:
(a) No governmental entity or federal or state court of
competent jurisdiction shall have enacted, issued, promulgated, enforced or
entered any statute, rule, regulation, executive order, decree, judgment,
injunction or other order (whether temporary, preliminary or permanent), in any
case which is in effect and which prevents or prohibits the transactions
contemplated in this Agreement.
(b) All consents, approvals and authorizations legally
required to be obtained to consummate the transactions contemplated hereby have
been obtained.
(c) None of the Transaction Documents shall have been modified
or terminated or challenged in court.
B. Conditions to the Obligations of the Company. The
obligations of the Company to effect the transactions contemplated herein are
also subject to the following conditions:
(a) Each of the representations and warranties of CES
contained in this Agreement shall be true and correct in all material respects
as of the Closing, except that those representations and warranties which
address matters only as of a particular date shall remain true and correct in
all material respects as of such date. CES shall have performed or complied in
all material respects with all agreements and covenants required by this
Agreement to be performed or complied with by it on or prior to the Closing.
(b) At or prior to the Closing, all filings necessary under
federal and state securities laws to permit the issuance and delivery of the
Shares in connection with the Agreement in compliance with such laws shall have
been made, and any authorizations in connection therewith from all applicable
securities regulatory authorities shall have been obtained.
(c) All conditions set forth in Sections 7.01 and 7.02 of the
Merger Agreement shall have been satisfied except for (i) the conditions
described in Section 7.01(e) and (ii) any condition set forth in such Sections
7.01 and 7.02 which is not satisfied due to a breach by the Company of any
representation, warranty, covenant or obligation contained in any of the
Transaction Documents (as defined in the Merger Agreement) to which the Company
is a party.
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(d) The Cinergy Gasco Purchase and Sale Agreement shall have
been executed by all parties thereto, in substantially the form of Exhibit 7.01
(e-2), and all conditions to closing thereunder, other than the payment of the
"Purchase Price" (as defined therein) pursuant to Section 8.4 therein shall
have been satisfied or waived by the appropriate party thereunder.
C. Conditions to the Obligations of CES. The obligations of
CES to effect the transaction contemplated herein are also subject to the
following conditions:
(a) Each of the representations and warranties of the Company
and USE contained in this Agreement shall be true and correct in all material
respects as of the Closing, except that those representations and warranties
which address matters only as of a particular date shall remain true and correct
in all material respects as of such date. Each of the Company and USE shall have
performed or complied in all material respects with all agreements and covenants
required by this Agreement to be performed or complied with by it on or prior to
the Closing.
(b) All conditions to closing set forth in Article VII of the
Merger Agreement except for (i) the conditions described in Sections 7.01(e),
7.03(j) (to the extent a Change of Control (as defined in the Merger Agreement)
is caused by Cinergy Corp., Cinergy Investments, Inc., CHSC, Cinergy Solutions,
Inc., CES or any of their Affiliates (each a "Cinergy Entity") and 7.03(l) (to
the extent CSHC fails to deliver its Guarantee (as defined in the Merger
Agreement)) and 7.03(n) (to the extent Cinergy Corp. fails to take the actions
or deliver the documents necessary to effectuate the parts of the Hancock Debt
Service Reserve Arrangement (as defined in the Merger Agreement) as acceptable
in form and substance to AJG , Cinergy Corp., the Company and USE and applicable
to Cinergy Corp. or (ii) or any condition which is not satisfied due to a breach
by a Cinergy Entity of any representation, warranty, covenant or obligation
contained in any of the Transaction Documents (as defined in the Merger
Agreement) to which it is a party shall have been satisfied and neither USE or
the Company shall have waived or agreed to any subscription agreement
modification of such conditions.
(c) The Cinergy Gasco Purchase and Sale Agreement shall have
been executed by all parties thereto (other than Cinergy Gasco Solutions, LLC),
in substantially the form of Exhibit 7.01(e-2), and all conditions to closing
thereunder, other than the payment of the "Purchase Price" (as defined therein)
pursuant to Section 8.4 therein shall have been satisfied or waived by the
appropriate party thereunder.
(d) There shall not have been a "Change in Law" (as defined in
the Cinergy Gasco Purchase and Sale Agreement).
(e) The Closing (as defined in the Cinergy Gasco Purchase and
Sale Agreement) shall have occurred by March 31, 2001.
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4. Closing. The closing (the "Closing") of the transactions
contemplated by this Agreement shall take place at the Effective Time
(as defined in the Merger Agreement) and place as shall be agreed upon
by CES and the Company. The parties agree that at Closing:
A. The Company shall deliver to CES against
delivery of the items listed in Section 4(B):
(i) a certificate evidencing the Shares;
(ii) a certificate of Good Standing of
the Company from the Secretary of State of Delaware;
(iii) a certificate of the resolutions of
the Company's Board of Directors approving the transactions
contemplated hereby;
(iv) the Stockholders Agreement annexed
hereto as Exhibit A duly executed by USE and the Company;
(v) the Indemnification Agreement annexed
hereto as Exhibit B duly executed by USE and the Company
(vi) all agreements referred to in the
Merger Agreement to which any Cinergy Entity is a party duly
executed by the other parties thereto; and
(vii) such other instruments as CES or its
counsel shall reasonably deem necessary to consummate the
transactions contemplated hereby.
B. CES shall deliver to the Company against
delivery of the items listed in Section 4(A):
(i) the Subscription Price;
(ii) a certificate of Good Standing of
CES from the Secretary of State of Delaware;
(iii) a certificate of the resolutions of
CES' Board of Directors approving the transactions
contemplated hereby; and
(iv) the Stockholders Agreement annexed
hereto as Exhibit A duly executed by CES; and
(v) the Indemnification Agreement duly
executed by CES
(vi) all agreements referred to in the
Merger Agreement to which any Cinergy Entity is a party duly
executed by the applicable Cinergy Entity; and
(vii) such other instruments as the Company
or its counsel shall reasonably deem necessary to consummate
the transactions contemplated hereby.
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C. All proceedings taken and all documents executed
and delivered by the parties at the Closing shall be deemed to
have been taken and executed simultaneously, and no proceeding
shall be deemed taken nor any document executed or delivered
until all have been taken, executed and delivered.
5. Further Assurances. The parties hereto shall execute and
deliver such agreements and arrangements which are customary in
connection with transactions of this type. In addition to the actions
specifically provided for elsewhere in this Agreement, each of the
parties hereto shall use its best efforts to take, or cause to be
taken, all actions, and to do, or cause to be done, all things,
reasonably necessary, proper or advisable under applicable laws,
regulations and agreements to effectuate and make effective the
transactions contemplated by this Agreement, including, without
limitation, using its best efforts to obtain the consents and
approvals, to enter into any amendatory agreements and to make the
filings and applications necessary or desirable in order to effectuate
the transactions contemplated by this Agreement.
6. Access to Information
A. Cooperation with Respect to Government Filings and
Reports. CES and the Company agree to provide the other party (without
cost to such other party) with access during reasonable business hours
and for a reasonable business purpose and such cooperation and
information, including, but not limited to, all records, books,
contracts, instruments, computer data and other data, including all
historical financial and tax information, and personnel with relevant
knowledge of such information, as may be reasonably requested by the
other in connection with the preparation or filing of any government
report or other government filing, contemplated by this Agreement. Such
cooperation and information shall include, without limitation, promptly
forwarding copies of appropriate notices and forms or other
communications received from or sent to any government authority to the
appropriate party. Each party shall make its employees and facilities
available during normal business hours and on reasonable prior notice
shall provide explanation of any documents or information provided
hereunder.
B. Cooperation with Confidentiality. CES and the
Company agree to use their reasonable best efforts to protect the
confidentiality of all non-public information, attorney-client
privileged information, attorney work product information and other
privileged information concerning the other party which is disclosed
pursuant to this Agreement and neither party shall waive any claim that
information is privileged without the written consent of the other
party.
7. Hancock Debt Service Reserve Arrange ment
CES shall cause Cinergy Corp. to take all actions and deliver all
documents necessary to effectuate the parts of the Hancock Debt Service Reserve
Arrangement applicable to Cinergy Corp. acceptable in form and substance to AJG,
Cinergy Corp., the Company and USE.
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8. Miscellaneous.
A. Survival of Representations and Warranties. All of
the representations or warranties set forth in Article 2 of this
Agreement shall survive the Closing for a period of eighteen months
following the Effective Time, subject to the terms of the
Indemnification Agreement.
B. Notices. All notices and other communications
given or made pursuant hereto shall be sent by reputable overnight
courier next day delivery and shall be deemed to have been duly given
or made as of the date so sent for delivery, to the parties at the
following addresses (or at such other address for a party as shall be
specified by like changes of address):
(a) If to the Company and USE:
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:
U.S. Energy Systems, Inc.
One North Lexington Avenue
4th Floor
White Plains, New York 10601
Attention: Barbara Farr, Esq., General Counsel
Fax: (718) 832-0263
(b) if to CES:
Cinergy Energy Solutions, Inc.
c/o Cinergy Solutions, Inc.
1000 East Main Street
Plainfield, IN 46168
Attention: M. Stephen Harkness, President and Chief
Operating Officer
Facsimile: 317-838-2090
with a copy to:
Cinergy Corp.
221 East Fourth Street
Cincinnati, Ohio 45201
Attention: Jerome A. Vennemann, Esq.
Facsimile: 513-287-1363
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C. 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.
D. 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.
E. Entire Agreement. This Agreement, the agreements
referenced in the Merger Agreement to which USE, the Company and any
Cinergy Entity are all parties, and the Disclosure Schedules constitute
the entire agreement of the parties and supersede 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, are not intended to confer upon
any other person any rights or remedies hereunder.
F. 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.
G. 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 choice of law principles.
H. Reserved
I. Expenses. Except as otherwise provided herein,
each party shall bear its own fees and expenses incurred in connection
with, relating to or arising out of the negotiation, preparation,
execution, delivery and performance of this Agreement, and the
effectuation of the transactions contemplated hereby, including,
without limitation, financial advisors', attorneys', accountants' and
other professional fees and expenses.
J. Assignment; No Third Party Rights; Successors and
Assigns. This Agreement shall not be assigned by any party hereto or by
operation of law or otherwise without the consent of the other party
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hereto. 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.
K. 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.
L. 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, the parties have executed this Agreement
as of the date set forth hereinabove.
CINERGY ENERGY SOLUTIONS, INC.
By: /s/ M. Stephen Harkness
--------------------------------------------
Name: M. Stephen Harkness
Title: President and Chief Operating Officer
USE ACQUISITION CORP.
By: /s/ Goran Mornhed
--------------------------------------------
Name:
Title:
U.S. ENERGY SYSTEMS, INC.
By: /s/ Goran Mornhed
----------------------------------
Name:
Title:
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