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Exhibit 3
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT ("Agreement") is made and entered
into to be effective as of this 20th day of March, 1998, between U.S. ENERGY
SYSTEMS, INC., a Delaware corporation (the "Company") and ENERGY SYSTEMS
INVESTORS, LLC, a Delaware limited liability company (the "Holder").
RECITALS
I. Pursuant to that certain Subscription Agreement dated as of March
20, 1998 (the "Subscription Agreement"), the Company has agreed to provide to
Holder certain registration rights with respect to the shares of the Company's
Common Stock issuable upon the conversion of 250,000 shares of the Company's
Series A Preferred Stock (the "Preferred Stock") issued to the Holder pursuant
to the Subscription Agreement, and any shares of Common Stock granted as
dividends or otherwise on or with respect to the Preferred Stock (all of such
shares of Common Stock being referred to herein as the "Restricted Shares").
II. Capitalized terms used but not otherwise defined herein shall have
the meanings ascribed thereto in the Subscription Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and covenants set
forth in the Subscription Agreement, the parties agree as follows:
1. Incidental (Piggyback) Registration Rights.
(a) Subject to the limitations set forth in this
Agreement, if the Company at any time after the first anniversary of the Closing
Date proposes to file on its behalf and/or on behalf of any of its security
holders other than the Holder ("the demanding security holders") a registration
statement (a "Registration Statement") under the Securities Act of 1933, as
amended (the "Securities Act"), on any form (other than a Registration Statement
on Form S-4 or S-8 or any successor form not available for registering the
Restricted Shares, or any form for securities to be offered in a transaction of
the type referred to in Rule 145 under the Securities Act or to employees of the
Company pursuant to any employee benefit plan, respectively) for the general
registration of securities to be sold for cash with respect to its Common Stock
or any other class of equity security (as defined in Section 3(a)(11) of the
Securities Exchange Act of 1934, as amended) of the Company, it will give
written notice to the Holder at least thirty (30) days before the initial filing
with the Securities and Exchange Commission (the "Commission) of such
Registration Statement, which notice shall set forth the intended method of
disposition of the securities proposed to be registered by the Company. The
notice shall offer to include in such filing the aggregate number of shares of
Restricted Shares as the Holder may request.
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(b) If the Holder desires to have Restricted Shares
registered under this Section 1, he shall advise the Company in writing within
fifteen (15) days after the date of receipt of such offer from the Company,
setting forth the amount of such Restricted Shares for which registration is
requested. The Company shall thereupon include in such filing the number of
shares of Restricted Shares for which registration is so requested; provided
that nothing herein shall prevent the Company from abandoning or delaying any
such registration at any time. In the event that the proposed registration by
the Company is, in whole or in part, an underwritten public offering of
securities of the Company, the Company shall not be required to include any of
the Restricted Shares in such underwriting unless the Holder agrees to accept
the offering on the same terms and conditions as the shares of Common Stock, if
any, otherwise being sold through underwriters under such registration;
provided, however, that if the managing underwriter advises the Company in
writing that the inclusion of all Restricted Shares proposed to be included by
the Holder in the underwritten public offering and other issued and outstanding
shares of Common Stock proposed to be included therein by the persons other than
the Holder, the Company (the "Other Shares") would jeopardize the success of the
Company's offering, then the Company shall be required to include in the
offering (in addition to the number of shares to be sold by the Company) only
that number of Restricted Shares that the managing underwriter believes will not
jeopardize the success of the Company's offering and the number of Restricted
Shares and Other Shares not included in such underwritten public offering shall
be reduced pro rata based upon the number of shares of Restricted Shares and
Other Shares requested by the holders thereof to be registered in such
underwritten public offering. In the event the Company chooses a registration
form which limits the size offering either in terms of the number of shares or
dollar amount, the Company shall not be required to include in the offering (in
addition to the number of shares to be sold by the Company) Restricted Shares
which would exceed such limits.
(c) Notwithstanding anything to the contrary contained in
this Section 1, in the event that there is a firm commitment underwritten public
offering of securities of the Company pursuant to a registration covering
Restricted Shares and the Holder does not elect to sell his Restricted Shares to
the underwriters of the Company's securities in connection with such offering,
the Holder shall refrain from selling such Restricted Shares so registered
pursuant to this Section 1 during the period of distribution of the Company's
securities by such underwriters and the period in which the underwriting
syndicate participates in the after market; provided, however, that the Holder
shall, in any event, be entitled to sell its Restricted Shares commencing on the
90th day after the effective date of such registration statement.
2. Demand Registration Rights.
(a) At any time after the second anniversary of the
Closing Date and prior to the fifteenth anniversary of the Closing Date (the
"Registration Period"), the Holder shall have one right to request (a
"Registration Request") by delivery of written notice to the Company that the
Company effect the registration under the Securities Act, of all or any portion
of the Restricted Shares. In such event, the Company shall use reasonable
efforts to cause the Restricted Shares to be registered under the Securities Act
and to promptly effect and comply with all such qualifications, compliances and
requirements as may be necessary to permit the sale or other transfer of such
Restricted Shares in the manner described in such Registration Request,
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including, without limitation, qualifications under the applicable Blue Sky or
other state securities laws (provided that the Company shall not be required in
connection therewith to qualify as a foreign corporation or to execute a general
consent to service of process in any state); provided, however, that (i) the
Company shall not be obligated to file and cause to become effective more than
one registration statement in which Restricted Shares are sold pursuant to this
subsection (a) (it being understood that (a) the Company will not withdraw any
such registration statement if the Holder exercises his rights to a piggyback
registration under Section 1 until the Section 1 registration statement becomes
effective or (b) if the Company does withdraw the registration statement under
this section after the Holder exercises his piggyback rights prior to the
effectiveness of the registration statement under Section 1 hereof and the
Section 1 registration statement does not become effective, then the Company
will file another registration statement pursuant to Section 2) and (ii) the
Company shall not be obligated to conduct a special audit of its financial
statements, unless such audit shall have been requested by the Commission, or in
any other case unless the Holder undertakes to pay the costs associated with
such audit.
(b) Notwithstanding the foregoing, the Company may delay
filing a registration statement, and may withhold efforts to cause the
registration statement to become effective, if the Board of Directors of the
Company determines in good faith that such registration would reasonably be
likely to (i) interfere with or affect the negotiation or completion of any
transaction that is being contemplated by the Company (whether or not a final
decision has been made to undertake such transaction) at the time the right to
delay is exercised, or (ii) involve initial or continuing disclosure obligations
that would not be in the best interest of the Company's stockholders. If, after
a registration statement becomes effective, the Company advises the holders of
registered shares that the Company considers it appropriate for the registration
statement to be amended, the holders of such shares shall suspend any further
sales of their registered shares until the Company advises them that the
registration statement has been amended.
3. Registration Procedures.
(a) In connection with the filing of a Registration
Statement pursuant hereto, the Company will:
(i) prepare and file with the Commission a
Registration Statement with respect to such securities and use its reasonable
efforts to cause such Registration Statement to become and remain effective for
a period of time (not to exceed thirty (30) days) required for the disposition
of such securities by the Holder thereof;
(ii) prepare and file with the Commission such
amendments and supplements to such Registration Statement and the prospectus
used in connection therewith as may be necessary to keep such Registration
Statement effective and to comply with the provisions of the Securities Act with
respect to the sale or other disposition of all securities covered by such
Registration Statement until the earlier of
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such time as all of such securities have been disposed of in a public offering
or the expiration of sixty (60) days.
(iii) furnish to the Holder such number of copies
of a summary prospectus or other prospectus, including a preliminary prospectus,
in conformity with the requirements of the Securities Act, and such other
documents, as the Holder may reasonably request;
(iv) use its reasonable efforts to register or
qualify the securities covered by such Registration Statement under such other
securities or blue sky laws of such jurisdictions within the United States as
the Holder of such securities shall reasonably request (provided, however, the
Company shall not be obligated to qualify as a foreign corporation to do
business under the laws of any jurisdiction in which it is not then qualified or
to file any general consent to service or process), and do such other reasonable
acts and things as may be required of it to enable the Holder to consummate the
disposition in such jurisdiction of the securities covered by such Registration
Statement;
(v) enter into customary agreements (including
an underwriting agreement in customary form) and take such other actions as are
reasonably required in order to expedite or facilitate the disposition of such
Common Stock and as shall be required in connection with the action taken by the
Company; and
(vi) promptly notify in writing the Holder of the
happening of any event, during the period of distribution, as a result of which
the Registration Statement includes an untrue statement of a material fact or
omits to state any material fact required to be stated therein or necessary to
make the statements therein not misleading in light of the circumstances then
existing (in which case, if so requested by the Company in writing, the Holder
shall promptly take action to cease making any offers of the Restricted Shares
until receipt and distribution of a revised or supplemental prospectuses).
(b) In connection with any registration hereunder, the
Holder will (i) prior to issuing a Registration Request or notifying the Company
of his intent to include Restricted Shares in a registration statement to be
filed by the Company, agree in writing to convert the shares of Preferred Stock
necessary to provide the Holder that number of shares of Common Stock to be sold
pursuant to the registration statement not later than the effective date of such
registration statement, (ii) furnish the Company in writing such information
with respect to himself and the proposed distribution by him as reasonably
requested by the Company and all such information necessary in order to assure
compliance with Federal and applicable state securities laws and (iii) if the
Holder elects to sell the Restricted Shares to underwriters, enter into an
agreement with the managing underwriters in such form and containing such
provisions as are customary in the securities business for such an arrangement
between major underwriters and companies of the Company's size and investment
stature, provided that such agreement shall not contain any provisions
applicable to the Company which are inconsistent with the provisions
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hereof and, provided further, that the time and place of the closing of such
agreement shall be as mutually agreed upon between the Company and the managing
underwriter.
4. Expenses. All expenses incurred in complying with this
Agreement, including, without limitation, all registration and filing fees,
printing expenses, fees and disbursements of counsel for the Company, expenses
of any special audits incident to or required by any such registration and
expenses (including attorneys' fees) of complying with the securities or blue
sky laws of any jurisdictions pursuant to Section 3(d), except to the extent
required to be paid by participating selling security holders by state
securities or blue sky laws, shall be paid by the Company; provided, however,
that the Holder (and not the Company) shall be liable for (i) all fees,
discounts and commissions to any underwriter or broker, if any, (ii) all
transfer taxes, if any, and (iii) all fees and disbursements of legal counsel to
the Holder, if any.
5. Indemnification.
(a) Indemnification by the Company. In the event of any
registration of any Restricted Shares under the Securities Act pursuant to this
Agreement, the Company shall indemnify and hold harmless the Holder, each
underwriter of the Restricted Shares, if any, each such broker or any other
person, if any, who controls any of the foregoing persons, within the meaning of
the Securities Act, against any losses, claims, damages or liabilities, joint or
several, to which any of the foregoing persons may become subject under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon an
untrue statement of a material fact contained in the Registration Statement
under which such Restricted Shares were registered under the Securities Act, any
final prospectus contained therein, or any amendment or supplement thereto, or
arise out of or are based upon the omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading or, with respect to any final prospectus, necessary to make the
statements therein in light of the circumstances under which they were made, not
misleading; and shall reimburse the Holder, such underwriter, broker and each
such controlling person for any legal expenses reasonably incurred by any of
them in connection with defending any such loss, claim, damage, liability or
action; provided, however, that the Company shall not be obligated to so
indemnify the Holder, such underwriter, broker or any such controlling person
insofar as such loss, claim, damage or liability arises out of or is based upon
an untrue statement or alleged untrue statement or omission or alleged omission
made in said Registration Statement, said final prospectus or said amendment or
supplement in reliance upon and in conformity with information furnished to the
Company or such underwriter or broker by the Holder in writing for use in
preparation thereof.
(b) Indemnification by Holder. Before Restricted Shares
held by the Holder shall be included in any Registration Statement pursuant to
this Agreement, the Holder shall indemnify and hold harmless (in the same manner
and to the same extent as set forth in Section 5(a) hereof for the
indemnification of the Holder by the Company) the Company, each director of the
Company, each officer of the Company who shall sign such Registration Statement
and any person who controls the Company within the meaning of the Securities
Act, with respect to any untrue statement or omission from such Registration
Statement or final prospectus contained
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therein or any amendment or supplement thereto, if such untrue statement or
omission was (i) made in reliance upon and in conformity with information
furnished to the Company by the Holder in writing for use in the preparation of
such Registration Statement, final prospectus or amendment or supplement or (ii)
contained in any Registration Statement which was utilized by the Holder or any
controlling person or affiliate of the Holder after the Holder was notified, in
accordance with Section 3(a)(vi) hereof, that such Registration Statement
contained an untrue statement of a material fact or omitted to state any
material fact.
(c) Indemnification Procedures. Promptly after receipt by
an indemnified party of notice of the commencement of any action involving a
claim referred to in this Section 5, such indemnified party will, if a claim in
respect thereof is made against any indemnifying party, give written notice to
the latter of such claim and/or the commencement of such action. In case any
such action is brought against an indemnified party, the indemnifying party will
be entitled to participate in and assume the defense thereof, jointly with any
other indemnifying party similarly notified to the extent that it may wish, with
counsel reasonably satisfactory to such indemnified party, and after notice from
the indemnifying party to such indemnified party of its election to assume the
defense thereof, the indemnifying party shall be responsible for any legal or
other expenses subsequently incurred by the latter in connection with the
defense thereof, provided that if any indemnified party shall have reasonably
concluded that there may be one or more legal defenses available to such
indemnified party which conflict in any material respect with those available to
the indemnifying party, or that such claim or litigation involves or could have
an effect upon matters beyond the scope of the indemnity agreement provided in
this Section 5, such indemnifying party shall reimburse such indemnified party
and shall not have the right to assume the defense of such action on behalf of
such indemnified party and such indemnifying party shall reimburse such
indemnified party and any person controlling such indemnified party for that
portion of the fees and expenses of any counsel retained by the indemnified
party which are reasonably related to the matters covered by the indemnity
agreement provided in this Section 5. The indemnifying party shall not make any
settlement of any claims indemnified against thereunder without the written
consent of the indemnified party or parties, which consent shall not be
unreasonably withheld. Notwithstanding the foregoing provisions of this Section
5, if pursuant to an underwritten public offering of the Common Stock, the
Company, the Holder and the underwriters enter into an underwriting or purchase
agreement relating to such offering which contains provisions covering
indemnification among the parties thereto in connection with such offering, the
indemnification provisions of this Section 5 shall be deemed inoperative for
purposes of such offering.
6. Certain Limitations on Registration Rights. Notwithstanding
the other provisions of this Agreement, the Company shall not be obligated to
register the Restricted Shares of the Holder if, in the opinion of counsel to
the Company, the sale or other disposition of the Holder's Restricted Shares may
be effected without registering such Restricted Shares under the Securities Act.
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7. Miscellaneous.
(a) Notice Generally. Any notice, demand, request,
consent, approval, declaration, delivery or other communication hereunder to be
made pursuant to the provisions of this Agreement shall be sufficiently given or
made if in writing and either delivered in person with receipt acknowledged,
delivered by reputable overnight courier, telecopied and confirmed separately in
writing by a copy mailed as follows or sent by registered or certified mail,
return receipt requested, postage prepaid, addressed as set forth in the
Subscription Agreement.
(b) Successors and Assigns. This Agreement shall inure to
the benefit of and be binding upon the successors and assigns of each of the
parties hereto; provided, however, that, the Holder's rights hereunder may not
be assigned or transferred without the prior written consent of the Company.
(c) Governing Law. This Agreement shall be governed by
the laws of the State of Delaware, without regard to the provisions thereof
relating to conflict of laws.
(d) Severability. Wherever possible, each provision of
this Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement shall be prohibited
by or invalid under applicable law, such provisions shall be ineffective to the
extent of such prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Agreement.
(e) Entire Agreement. This Agreement, together with the
Subscription Agreement, is intended by the parties as a final expression of
their agreement and intended to be a complete exclusive statement of the
understanding of the parties hereto in respect of the subject matter contained
herein and therein. There are no restrictions, promises, warranties or
undertakings, other than those set forth or referred to herein and therein. This
Agreement supersedes all prior agreements and understandings between the parties
with respect to the subject matter hereof.
(f) Counterparts. This Agreement may be executed in any
number of separate counterparts, each of which shall collectively and
separately, constitute one agreement.
(g) Dispute Resolution. In the event that a dispute
arises in connection with any matter directly or indirectly related to this
Agreement which cannot be resolved by the parties hereto or by mediation of the
parties hereto, the parties shall resolve any such dispute through arbitration
in New York, New York in accordance with the regulations of the American
Arbitration Association.
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IN WITNESS WHEREOF, the Company and the Holder have executed this
Agreement as of the date first above written.
U.S. ENERGY SYSTEMS, INC., a
Delaware corporation
By: /s/ Xxxxxxx X. Xxxxxx
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Xxxxxxx X. Xxxxxx, President and CEO
ENERGY SYSTEMS INVESTORS, LLC, a
Delaware limited liability company
By: /s/ Xxxxxxxx X. Xxxxxxxxx
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Xxxxxxxx X. Xxxxxxxxx, Manager
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