SUBSCRIPTION AGREEMENT
THIS AGREEMENT (the "Agreement"), dated as of August 23, 2000, is made
and entered into by and among U.S. Energy Systems Castlebridge LLC, a Delaware
limited liability company ("USE"), Xxxxxx-Castlebridge, Inc., a Delaware
corporation ("KC"), Castlebridge Partners, LLC, a Delaware limited liability
company (the "Company") and XXX XX Corporation, a Delaware corporation ("GKM"
and together with KC, the "Initial Members").
RECITALS
A. The Company desires to issue to USE an Interest (as such term is
defined in the Restated Operating Agreement (as defined below)) in the Company
and USE desires to purchase such an Interest so that USE will have a 25%
Percentage (as such term is defined in the Restated Operating Agreement) of the
Company.
B. In order to pay the purchase price to acquire such an Interest, USE
desires to make a capital contribution to the Company in the amount of Three
Million Five Hundred Thousand Dollars ($3,500,000) by delivering 583,333 1/3
shares of common stock (the "Common Stock") of U. S. Energy Systems Inc. ("USE
Parent") to or for the benefit of the Company as set forth below.
C. Concurrently with the Contribution and the Company's purchase of the
Interest as provided in Recitals A and B above, USE, KC and GKM will amend and
restate the Amended and Restated Operating Agreement dated as of May 27, 2000
(the "Current Operating Agreement") by executing and delivering the Second
Amended and Restated Operating Agreement as set forth in Annex A attached hereto
and hereby made a part hereof (the "Restated Operating Agreement").
D. The Company is engaged in the business of capital markets consulting
(the "Business").
Now, therefore, in consideration of the foregoing and the mutual
covenants and agreements hereinafter set forth, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto agree as follows:
ARTICLE I
ISSUANCE OF INTEREST AND OTHER AGREEMENTS
Section 1.1. Issuance of Interest. Upon the terms and subject to the
conditions set forth in this Agreement, on or before August 23, 2000 (the
"Closing Date" or the "Closing"), the Company will issue, transfer and convey
the Interest to USE and simultaneously USE will purchase the Interest from the
Company by paying the purchase price of Three Million Five Hundred Thousand
Dollars ($3,5000,000) (the "Purchase Price") by (I) delivering 568,750 shares
(the "USE Shares") of Common Stock to the Company and (II) delivering 14,583 1/3
shares of Common Stock to XXXXXXxxxxx.xxx, Corporation ("SPARK"), which payment
of the Purchase Price shall be deemed to be an Initial Capital Contribution (as
such term is defined in the Restated Operating Agreement) of $3,500,000 to the
Company.
Section 1.2. Admittance as Member. Upon receipt of the Purchase
Price from USE, USE will be admitted as a Member.
Section 1.3. Restatement of Operating Agreement. Upon the admittance of
USE as a Member, USE and the Initial Members shall execute and deliver upon the
Closing the Restated Operating Agreement in the form attached hereto as Annex A
and hereby made a part hereof, including Exhibit A thereto, providing that USE
will have a Percentage interest equal to 25% and each of the Initial Members
will have a Percentage interest equal to 37.5%.
Section 1.4. Services Agreement. Following the Closing, USE Parent and
the Company shall execute and deliver a Services Agreement whereby the Company
shall provide consulting services to USE Parent at the request of USE Parent on
terms to be set forth therein and it shall provide, among other things, that USE
Parent shall have available two hours of consulting services for every three
hours of consulting services provided to an Affiliate of KC (defined below)).
Until the effectiveness of such agreement, the Company shall provide monthly
consulting services to USE Parent as requested by USE Parent on terms on which
USE Parent and the Company may agree provided that the Company shall make
available time for such services on the basis of 44 hours to USE for 66 hours to
such Affiliate of KC. "Affiliate" means with respect to a specified person: (i)
any person that directly or indirectly through one or more intermediaries
controls more than twenty-five percent (25%) of the voting or beneficial
interests in that specified person, (ii) any person in which the specified
person owns more than twenty-five percent (25%) of the voting or beneficial
interests, (iii) any person that is an officer, director, general partner,
managing member, or trustee of, or serves in a similar capacity with respect to,
such specified person (or an Affiliate of such specified person), (iv) with
respect to an individual person, any relative or spouse of the specified person
or (v) any person in which more than twenty-five percent (25%) of the voting or
beneficial interests are owned by a person who has a relationship with the
specified person described in clauses (i), (ii), (iii) or (iv) above.
ARTICLE II
REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF
THE COMPANY AND THE INITIAL MEMBERS
As an inducement to USE to enter into this Agreement and to consummate
the transactions contemplated hereby, the Company and GKM hereby jointly and
severally represent and warrant to, and agree with, USE (except with respect to
the representations and warranties contained in Sections 2.5(b), 2.6(b), 2.7(b)
-2-
and 2.31(a)) and subject to section 2.30(b) hereof KC represents and warrants
to, and agrees with, USE as follows:
Section 2.1. Organization of the Company. The Company is a Delaware
limited liability company formed, validly existing and in good standing under
the laws of the State of Delaware. The Company is qualified to do business and
in good standing in each jurisdiction which the ownership or leasing of its
properties or the conduct of its Business requires qualification. The Company
has full power and authority to own its assets and to carry on its Business as
now conducted.
Section 2.2. Authority of the Company. The Company has full legal
right, power, capacity and authority to execute and deliver this Agreement and
all of the other agreements and instruments contemplated hereby, to consummate
the transactions contemplated hereby and thereby and to comply with the terms,
conditions and provisions hereof and thereof. This Agreement and each other
agreement or instrument of the Company contemplated hereby constitutes the
legal, valid and binding agreement of the Company enforceable in accordance with
their respective terms, except as enforcement may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally and general equitable principles
regardless of whether such enforceability is considered in a proceeding at law
or in equity.
Section 2.3. No Violation by the Company. The execution and delivery of
this Agreement by the Company, the performance by the Company of its obligations
hereunder and the consummation by the Company of the transactions contemplated
by this Agreement will not: (i) violate or conflict with any law, statute,
ordinance, rule, regulation, decree, writ, injunction, judgment or order of any
governmental authority or of any arbitration award which is either applicable
to, binding upon or enforceable against the Company; (ii) conflict with, result
in any breach of, or constitute a default (or an event which would, with the
passage of time or the giving of notice or both, constitute a default) under, or
give rise to a right to terminate, amend, modify, abandon or accelerate, any
contract which is applicable to, binding upon or enforceable against the
Company; (iii) result in, or require the creation or imposition of, any lien
upon or with respect to any of the property or assets of the Company; or (iv)
require the consent, approval, authorization or permit of, or filing with or
notification to, any governmental authority, any court or tribunal or any other
Person.
Section 2.4. No Finder. Other than the obligation of the Company to pay
$87,500 to SPARK, which obligation shall be satisfied by USE's delivering 14,583
1/3 shares of Common Stock to SPARK pursuant to Section 1.1 hereof, for acting
as broker in connection with the transactions contemplated by this Agreement,
none of the Company or the Initial Members, nor any Person acting on their
behalf, has paid or become obligated to pay any fee or commission to any broker,
finder or intermediary for or on account of the transactions contemplated by
this Agreement.
Section 2.5. Organization of the Initial Members. (a) GKM is a Delaware
corporation organized, validly existing and in good standing under the laws of
the State of Delaware. GKM is qualified to do business and in good standing in
each jurisdiction which the ownership or leasing of its properties or the
-3-
conduct of its business requires qualification. GKM has full power and authority
to own its assets and to carry on its business as now conducted.
(b) KC is a Delaware corporation organized, validly existing
and in good standing under the laws of the State of Delaware. KC is qualified to
do business and in good standing in each jurisdiction which the ownership or
leasing of its properties or the conduct of its business requires qualification.
KC has full power and authority to own its assets and to carry on its business
as now conducted.
Section 2.6. Authority of the Initial Members. (a) GKM has full legal
right, power, capacity and authority to execute and deliver this Agreement and
all of the other agreements and instruments contemplated hereby, to consummate
the transactions contemplated hereby and thereby and to comply with the terms,
conditions and provisions hereof and thereof. This Agreement and each other
agreement or instrument of GKM contemplated hereby have been authorized and
constitute the legal, valid and binding agreement of GKM enforceable in
accordance with their respective terms, except as enforcement may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors' rights generally and general equitable
principles regardless of whether such enforceability is considered in a
proceeding at law or in equity.
(b) KC has full legal right, power, capacity and authority to
execute and deliver this Agreement and all of the other agreements and
instruments contemplated hereby, to consummate the transactions contemplated
hereby and thereby and to comply with the terms, conditions and provisions
hereof and thereof. This Agreement and each other agreement or instrument of KC
contemplated hereby have been authorized and constitute the legal, valid and
binding agreement of KC enforceable in accordance with their respective terms,
except as enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and general equitable principles regardless of
whether such enforceability is considered in a proceeding at law or in equity.
Section 2.7. No Violation by the Initial Members (a) The execution and
delivery of this Agreement by GKM, the performance by GKM of its obligations
hereunder and the consummation by GKM of the transactions contemplated by this
Agreement will not: (i) violate or conflict with any law, statute, ordinance,
rule, regulation, decree, writ, injunction, judgment or order of any
governmental authority or of any arbitration award which is either applicable
to, binding upon or enforceable against GKM; (ii) conflict with, result in any
breach of, or constitute a default (or an event which would, with the passage of
time or the giving of notice or both, constitute a default) under, or give rise
to a right to terminate, amend, modify, abandon or accelerate, any contract
which is applicable to, binding upon or enforceable against GKM; (iii) result
in, or require the creation or imposition of, any lien upon or with respect to
any of the property or assets of GKM; or (iv) require the consent, approval,
authorization or permit of, or filing with or notification to, any governmental
authority, any court or tribunal or any other Person.
-4-
(b) The execution and delivery of this Agreement by KC, the
performance by KC of its obligations hereunder and the consummation by KC of the
transactions contemplated by this Agreement will not: (i) violate or conflict
with any law, statute, ordinance, rule, regulation, decree, writ, injunction,
judgment or order of any governmental authority or of any arbitration award
which is either applicable to, binding upon or enforceable against KC; (ii)
conflict with, result in any breach of, or constitute a default (or an event
which would, with the passage of time or the giving of notice or both,
constitute a default) under, or give rise to a right to terminate, amend,
modify, abandon or accelerate, any contract which is applicable to, binding upon
or enforceable against KC; (iii) result in, or require the creation or
imposition of, any lien upon or with respect to any of the property or assets of
KC; or (iv) require the consent, approval, authorization or permit of, or filing
with or notification to, any governmental authority, any court or tribunal or
any other Person.
Section 2.8. Annual Financial Statements Previously Delivered. (a)
The Company has furnished to USE copies of annual unaudited financial statements
listed and described on Schedule 2.8 attached hereto and hereby made a part
hereof for the three years ended December 31, 1999.
(b) Each of the financial statements referred to in paragraph (a) of
this Section 2.8 has been prepared in accordance with sound accounting
principles and practices consistently applied, is true, correct and complete in
all material respects and fairly presents the financial position of the Company,
as of the date thereof or, as the case may be, the results of operations for the
periods covered thereby. The assets are carried in the balance sheets
constituting a part of such financial statements at cost less all depreciation
and amortization and each of said balance sheets fully sets forth all
liabilities of whatever nature of the Company, existing as of the date thereof.
The statements of income constituting a part of such financial statements
correctly state the revenues and net earnings of the Company, for the respective
periods covered thereby and include adequate provision for all taxes. All
accounts receivable shown on such balance sheets are collectible, subject only
to the reserves on such balance sheets. The financial statements have been
prepared and the records of the Company have been kept in such a manner so that
it would be possible to prepare without unreasonable expense or hardship audited
annual financial statements for the Company for fiscal 1999 in accordance with
generally accepted accounting principles that would comply with the requirements
of Regulation S-X promulgated by the Securities and Exchange Commission.
Section 2.9. Interim Financial Statements and Projections.
(a) The Company has furnished to USE copies of the interim unaudited
financial statements of the Company listed and described on Schedule 2.9
attached hereto and hereby made a part hereof for periods ending June 30, 2000.
(b) Each of the financial statements referred to in paragraph (a) of
this Section 2.9 has been prepared in accordance with sound accounting
principles and practices consistently applied, is true, correct and complete in
all material respects and fairly presents the financial position of the Company,
as of the date thereof or, as the case may be, the results of operations for the
-5-
periods covered thereby. The assets are carried in the balance sheets
constituting a part of such financial statements at cost less all depreciation
and amortization and said balance sheets fully set forth all liabilities of
whatever nature of the Company, existing as of the date thereof. The statements
of income constituting a part of such financial statements correctly state the
revenues and net earnings of the Company, for the respective periods covered
thereby and include adequate provision for all taxes. All accounts receivable
shown on such balance sheets are collectible, subject only to the reserves on
such balance sheets.
(c) The Company has furnished to USE copies of the projections of the
Company listed and described on Schedule 2.9 attached hereto and hereby made a
part hereof (the "Projections").
(d) Each of the Projections has been prepared based upon reasonable
assumptions made in good faith and in accordance with sound accounting
principles and practices consistently applied and information currently
available. The Projections contain forward-looking statements which involve
known and unknown risks, uncertainties and other factors which may cause the
actual results, performance and achievements of the Company, or industry
results, to be materially different from any future results, performance, or
achievements expressed or implied by such forward-looking statements. Such
factors include, among others, general economic and business conditions,
industry capacity, industry trends, competition, litigation, material costs and
availability, the loss of any significant management personnel, the loss of any
significant customers, changes in business strategy or development plans,
quality of management, availability, terms and deployment of capital, business
abilities and judgment of personnel, availability of qualified personnel,
changes in, or the failure to comply with, government regulations, and other
factors referenced herein and in the Projections. Therefore the Company and GKM
are making no representation, warranty or guarantee that the results set forth
in the Projections, or the assumptions upon which they are based will be
realized and notwithstanding anything to the contrary in this Agreement, KC is
making no representation or warranty whatsoever as to the financial statements
or Projections referred to in this Agreement.
Section 2.10. Operations. Except as disclosed on Schedule 2.10 attached
hereto and hereby made a part hereof, since December 31, 1999, there has not
been any material adverse change in the business, operations, financial
position, properties and other assets of the Company, and since such date, the
Business has been conducted in the usual, regular and ordinary manner and shall
continue, through and including the Closing Date, to be conducted in such
manner, unless prior written approval for any variation therefrom shall have
first been secured from USE. Except as disclosed on Schedule 2.10 attached
hereto, for the period from December 31, 1999, to and including the Closing
Date, the following is and will be true with respect to the Company, and the
operation of the Business:
(a) All transactions involving the Company, have been
accurately and fully recorded or otherwise reflected in books and
records of the Company;
(b) The Company has not sold, exchanged, conveyed or
otherwise disposed, or subjected to lien, pledge, hypothecation,
mortgage, or other encumbrance, any assets or properties;
-6-
(c) The Company has paid its debts and liabilities, including
taxes, fees, levies and assessments in the ordinary course as they have
matured;
(d) The Company has not incurred any debt, obligation or
liability other than those incurred in the ordinary course of its
businesses, which are not of a material nature or individually in
excess of $10,000, and which do not or will not presently, with the
passage of time or upon default, subject the Company's assets to any
lien, claim, charge, mortgage or other encumbrance, nor have they
undertaken to guarantee in whole or in part, any of the debts,
obligations or liabilities of any other party;
(e) The Company has not altered, amended, terminated or
discharged any written or oral contract, lease, plan, commitment or
agreement to which the Company is presently a party, nor waived any
material right with respect thereto, nor permitted or consented to such
alteration, amendment, termination or discharge, nor has the Company
committed a breach or default in any of the provisions thereof;
(f) The Company has not entered into any written or oral
contract except in the ordinary course of business at the prices and
upon the terms consistent with its past practices and which do not
violate any representation, warranty or covenant of this Agreement;
(g) The Company has complied with all laws applicable to
the conduct of the Business;
(h) The Company has conducted the Business only in the usual,
regular and ordinary course and in substantially the same manner as
theretofore conducted;
(i) The Company has not engaged in any business other
than the Business;
(j) The Company has maintained its properties and assets in a
good state of repair, order and condition, reasonable wear and tear and
damage by fire or other casualty adequately covered by insurance
excepted; and
(k) There has not occurred any transaction or event, nor to
the best knowledge of the Company and the GKM (and the actual knowledge
of KC) is any anticipated, which does or may adversely affect the
Company or the Business in any material respect.
Section 2.11. Liabilities and Obligations of the Company. The Company
will have on the Closing Date no debts, liabilities, contracts, commitments or
other obligations, direct or indirect, absolute or contingent, determined or
undetermined, known or unknown, which are not reflected, described or disclosed
in (i) the June 30, 2000 financial statements referred to in Section 2.9 hereof
or (ii) any of the Schedules attached hereto, except those arising in the
ordinary course of Business after June 30, 2000 which are not and will not be of
a material nature, or individually in excess of $10,000, are not and will not be
in violation of any representation, warranty or covenant contained in this
-7-
Agreement, and are not and will not have an adverse effect upon the operations,
financial position, prospects or properties of the Company or the Business.
Section 2.12. Title. Except as set forth in Schedule 2.12 attached
hereto and made a part hereof, the Company has good and marketable title to all
of its assets, free and clear of all liabilities, liens, charges, claims,
rights, encumbrances and restrictions on transfers, and no financing statement
covering all or any portion of its assets and naming the Company, as debtor has
been filed in any public office, and the Company has not signed any financing
statement or security agreement as debtor or borrower which financing statement
or security agreement covers all or any portion of its assets, except for (a)
liens for current taxes not yet due and payable, and (b) properties, interests
and assets sold or otherwise disposed of after June 30, 2000, in the ordinary
course of business.
Section 2.13. Right to Inspect the Properties and Records. Between the
execution of this Agreement and Closing, USE and its agents, attorneys,
accountants, employees, contractors and other authorized representatives shall
have the right, at any reasonable time and from time to time as USE may
reasonably deem appropriate, to examine the properties and records of the
Company and GKM, and of their respective Affiliates (other than KC and its
Affiliates (other than the Company)), and to make such tests, surveys,
investigations and other inspections in such manner as USE may deem necessary or
desirable. No investigation or examination by USE or any of its agents or
representatives of such properties and records of the Company or GKM, or of
their respective Affiliates, shall affect the representations and warranties of
the Company and the Initial Members contained in this Agreement.
Section 2.14. Insurance. (a) The Company has in effect such insurance
coverage described on Schedule 2.14 attached hereto and hereby made a part
hereof, which description includes the name of the insurer, the policy number,
the name of the insureds, the type and amount of coverage and risks insured, and
the Company has delivered to USE complete and accurate copies of all such
insurance policies. Such insurance coverage, as to amounts and types of coverage
and risks insured, in the reasonable judgment of the Company and GKM, is
adequate for the Business as presently conducted.
(b) Schedule 2.14 attached hereto contains a list and description of
all claims made against the insurance policies held by the Company for the
previous two (2) years, excepting therefrom claims made by employees of the
Company against health insurance plan carriers, and the Company has delivered to
USE complete and accurate copies of all insurance policies held by the Company
for the previous two (2) years.
(c) Schedule 2.14 attached hereto contains a list of all bonds on
employees and other personnel of the Company. Each of such bonds is in full
force and effect.
Section 2.15. Litigation and Claims. Except as set forth in Schedule
2.15 attached hereto and hereby made a part hereof, there are no litigations,
suits, claims, demands or proceedings pending or to the best knowledge of the
Company and GKM (and the actual knowledge of KC) in prospect, asserted or
threatened against or relating to or affecting the Company or the Initial
-8-
Members, or their properties or assets, nor to the best knowledge of the Company
and GKM (and the actual knowledge of KC) is there any meritorious basis for any
such suit, claim, demand or proceeding, nor is there in existence any judgment
or award against any of the Company or the Initial Members, relating to or
affecting any of the Company or the Initial Members, or the properties or assets
of the Company or the Initial Members. To the best knowledge of the Company and
GKM (and the actual knowledge of KC), none of the Company and the Initial
Members, or their Affiliates, is under investigation by any governmental
authority or self-regulatory organization for violation of any law or
regulation.
Section 2.16. Employment Obligations. Schedule 2.16 attached hereto and
hereby made a part hereof lists the names, commencement dates of employment and
the current salary and other compensation rates of all present employees of the
Company, together with a listing of all other employment benefits, including,
without limitation, personal leave time, employee loans an accurate summary of
any pension, profit sharing, bonus, medical benefits, insurance or similar
arrangements for the employees of the Company, salaried or nonsalaried,
including any formal or informal plans, the funding arrangements with regard
thereto and all severance pay and other obligations which would be due employees
if their employment was terminated as of June 30, 2000. As of the date hereof
there are no accrued profit sharing or pension benefits with respect to any
Company employee. Except as and to the extent set forth on Schedule 2.16
attached hereto or otherwise disclosed herein, there are no agreements,
contracts or understandings between the Company and its employees with respect
to employment, wages, expenses, allowances, vacations, hours, working
conditions, bonuses, salaries, pensions, profit sharing, medical benefits,
insurance benefits, severance pay or otherwise.
Section 2.17. Compliance with ERISA. (a) The Company is not a party
to nor participates in or has any liability or contingent liability with respect
to:
1. Any "employee welfare benefit plan" or "employee pension
benefit plan" (as those terms are respectively defined in Sections 3(l)
and 3(2) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), including any "multi-employer plan" (as defined in
Section 3(37) of ERISA)), except as set forth on Schedule 2.16 attached
hereto;
2. Any retirement or deferred compensation plan, incentive
compensation plan, stock option plan, stock plan, unemployment
compensation plan, vacation pay, severance pay, bonus or benefit
arrangement, insurance or hospitalization program or any other fringe
benefit arrangements (referred to collectively hereinafter as "fringe
benefit arrangements") for any employee, director, consultant or agent,
whether pursuant to contract, arrangement, custom or informal
understanding, which does not constitute an "employee benefit plan" (as
defined in Section 3(3) of ERISA), except as set forth on Schedule 2.16
attached hereto; or
3. Any employment agreement not terminable on thirty (30) or
fewer days' written notice, without further liability, except as set
forth on Schedule 2.16 attached hereto.
-9-
(b) A true and correct copy of each of the plans, arrangements and
agreements listed on Schedule 2.16 attached hereto, and all contracts relating
thereto, or to the funding thereof, including, without limitation, all trust
agreements, insurance contracts, investment management agreements, subscription
and participation agreements and record keeping agreements, each as in effect on
the date hereof, has been delivered to USE by the Company. In the case of any
plan, arrangement or agreement which is not in written form, USE has been
provided with an accurate description of such plan, arrangement or agreement as
in effect on the date hereof. A true and correct copy of the most recent annual
report, actuarial report, summary plan description and Internal Revenue Service
determination letter with respect to each such plan or arrangement, to the
extent applicable, and a current schedule of assets (and the fair market value
thereof assuming liquidation of any asset which is not readily tradable) held
with respect to any funded plan arrangement or agreement has been supplied to
USE by the Company, and there have been no material changes in the financial
condition in the respective plans from that stated in the annual reports and
actuarial reports supplied.
(c) As to all plans, arrangements and agreements of the Company
listed on Schedule 2.16 attached hereto:
(1) All employee benefit plans and fringe benefit
arrangements comply and have been administered in form and in
operation, in all material respects, in compliance with all
requirements of law and regulation applicable thereto, and the Company
has not received any notice from any governmental agency questioning or
challenging such compliance;
(2) All employee pension benefit plans comply in form and in
operation with all applicable requirements of Sections 401(a) and
501(a) of the Internal Revenue Code of 1986, as amended (the "Code");
there have been no amendments to such plans which are not the subject
of a determination letter issued with respect thereto by the Internal
Revenue Service; and no event has occurred which will or could give
rise to disqualification of any such plan under such sections or to a
tax under Section 511 of the Code;
(3) None of the assets of any employee benefit plan are
invested in employer securities or employer real property;
(4) There have been no "prohibited transactions" (as
described in Section 406 of ERISA or Section 4975 of the Code) with
respect to any employee benefit plan and the Company has not otherwise
engaged in any prohibited transaction;
(5) As to any employee pension benefit plan which is subject
to Title IV of ERISA, there have been no "reportable events" (as
described in Section 4043 of ERISA), and no steps have been taken to
terminate any such plan;
(6) There have been no acts or omissions by the Company which
have given rise to or may give rise to fines, penalties, taxes or
-10-
related charges under Sections 502(c), 502(i) or 4071 of ERISA or
Chapter 43 of the Code, for which the Company may be liable;
(7) None of the payments contemplated by such plans,
arrangements and agreements would, in the aggregate, constitute excess
parachute payments as defined in Section 280G of the Code;
(8) There are no actions, suits or claims (other than routine
claims for benefits) pending or threatened involving such plans or the
assets of such plans, and no facts exist which could give rise to any
such actions, suits or claims (other than routine claims for benefits);
(9) All group health plans of the Company (including any
plans of current and former Affiliates of the Company which must be
taken into account under Section 4980B of the Code or Section 601 of
ERISA) have been operated in compliance with the group health plan
continuation coverage requirements of Section 4980B of the Code and
Section 601 of ERISA to the extent such requirements are applicable;
and
(10) Actuarially adequate accruals for all obligations under
such plans, arrangements and agreements are reflected in the balance
sheet of the Company as June 30, 2000, described in Section 2.9 hereof.
Section 2.18. Preservation of Business Relationships. Between the
execution of this Agreement and Closing, the Company and GKM will use their best
efforts to preserve the relationships of the Company with the Company's
employees, agents, customers, and others having business relationships with the
Company.
Section 2.19. Tax Returns. The Company is taxed as a general
partnership for Federal and state income tax purposes. All Federal, state and
local income, property, franchise, sales, use and other tax returns and reports
required by law to be filed by the Company have been filed. There are no liens
for taxes affecting the Company. The Company has provided USE with true, correct
and complete copies of all federal and state tax returns filed for all periods.
Except as set forth in Schedule 2.19 attached hereto and hereby made a part
hereof, the Company has not executed or filed with the Internal Revenue Service
any agreement extending the period for assessment and collection of any Federal
tax, nor is the Company a party to any action or proceeding by any governmental
authority for assessment or collection of taxes, nor has any claim or assessment
for collection of taxes been asserted against the Company or its Members.
Section 2.20. Material Agreements. (a) Schedule 2.20(a) attached hereto
and hereby made a part hereof accurately lists (or with respect to any oral
agreement describes) all material leases and licenses with respect to any
property, real or personal (whether as landlord, tenant, licensor or licensee),
contracts, guarantees, mortgages, indentures, agreements, understandings or
other commitments, whether oral or written, of the Company, and the Company has
delivered to USE complete and accurate copies of all documents referred to on
Schedule 2.20(a) attached hereto, each of which is in effect and valid and
enforceable in accordance with its terms, except as such enforceability may be
-11-
limited by bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting creditors generally and by general principles of equity.
(b) Except as set forth in Schedules 2.20(b) attached hereto and hereby
made a part hereof, between the date hereof and the Closing Date, the Company
will not, without the prior written consent of USE, enter into, amend or
terminate any contract, guarantee, mortgage, indenture, agreement or other
instrument of any of the types referred to in paragraph (a) of this Section
2.20.
(c) Except as set forth in Schedule 2.20(c) attached hereto and hereby
made a part hereof, no Initial Member nor any of its Affiliates of any Initial
Member owns any direct or indirect interest or investment in any person which is
a party to any of the agreements with the Company listed in Schedule 2.20(a)
attached hereto.
Section 2.21. Compliance with Laws. The Company's services, practices,
xxxxxxxx, employee benefits, properties, equipment, machinery, buildings used,
and operations are in full compliance with all applicable Federal, state and
local laws, statutes, ordinances, codes, regulations, rules, orders,
restrictions and requirements, governmental, administrative, judicial and
otherwise, including, without limitation, environmental laws and those relating
to wages, securities, commodities, investment advisory services, prices, equal
opportunity, environmental protection, safety, health, medical care, building
and zoning, and to the best knowledge of the Company and GKM and the actual
knowledge of KC, no publicly announced changes in any such laws, statutes,
ordinances, codes, regulations, rules, orders, restrictions or requirements have
been proposed or are in prospect with which the Company could not comply without
any materially adverse effect on the operations, properties, financial
condition, profitability or prospects of the Company.
Section 2.22. Licenses, Permits and Approvals. Attached hereto as
Schedule 2.22 and hereby made a part hereof is a list and description of all
licenses, permits, authorizations and approvals required of the Company or the
Initial Members by any Federal, state or local government's administrative or
judicial authorities in connection with the operation of the Business as
presently being conducted or as contemplated by the Company, all of which are in
full force and effect and, except as specifically noted on Schedule 2.22
attached hereto, will remain in full force and effect after the Closing Date.
Section 2.23. Ownership of Properties. The Company owns all properties,
assets and facilities, both tangible and intangible, real, personal and mixed
which are used in the conduct of the Business by the Company except for the
leases of real and personal property by the Company under the lease agreements
listed and described in Schedule 2.20(a) attached hereto. All of the tangible
assets of the Company are located at the Company`s offices at 000 Xxxx Xxxxxxx
Xxxx., Xxxxx 0X, Xxxxxxx, Xxxxxxxx.
Section 2.24. Intellectual Property. Schedule 2.24 sets forth a list of
all trademarks, service marks, trade names, copyrights, know-how, patents, trade
secrets, licenses (including licenses for the use of computer software
programs), and other intellectual property of the Company used in the conduct of
the Business (the "Intellectual Property"). The Company has full legal right,
-12-
title and interest in and to all Intellectual Property. The conduct of the
Business of the Company as presently conducted, and, except as set forth on
Schedule 2.24, the unrestricted conduct and the unrestricted use and
exploitation of the Intellectual Property, does not infringe or misappropriate
any rights held or asserted by any Person, and to the best knowledge of the
Company and GKM (and the actual knowledge of KC), no Person is infringing on the
Intellectual Property. No payments are required for the continued use of the
Intellectual Property, except as set forth in Schedule 2.24. None of the
Intellectual Property has ever been declared invalid or unenforceable, or is the
subject of any pending or threatened action for opposition, cancellation,
declaration, infringement, or invalidity, unenforceability or misappropriation
or like claim, action or proceeding. The Company is not engaged in any kind of
unfair or unlawful competition nor the wrongful use of any confidential
information or trade secrets or patentable inventions of any former employee of
the Company or any other person, firm or corporation.
Section 2.25. Membership Interests. (a) There is only one class
of membership Interests in the Company. Fifty percent (50%) of the membership
Interests are owned and held by GKM and fifty percent (50%) of the membership
Interests are owned and held by KC.
(b) All of the issued and outstanding membership Interests of the
Company are validly issued, fully paid and nonassessable and were not issued in
violation of the preemptive rights or similar rights of any person.
(c) There are no outstanding, and immediately prior to the Closing
there will be no outstanding, warrants, options, subscriptions, contracts,
preemptive or other rights, membership Interests of the Company or other
arrangements or commitments obligating the Company to issue any additional
membership Interests of the Company, nor are there any securities, debts,
obligations or rights outstanding which are convertible into or exchangeable for
Membership Interests of the Company.
Section 2.26. Securities Law Matters. (a) The Company acknowledges that
it is making an investment by way of a private placement in USE Parent based
upon negotiations between it and representatives of USE Parent. The Company has
received, read and is familiar with information relating to USE Parent which has
been provided to the Company or which is available in USE Parent filings with
the U.S. Securities and Exchange Commission, and has been provided with the
opportunity to ask for and receive other information and documents which the
Company deems relevant and which is available to USE Parent. Apart from
information provided by USE Parent or which is available in USE Parent filing
with the U.S. Securities and Exchange Commission, the Company has not relied on
any other statements made to the Company by any other person for purposes of
entering into this Agreement. Furthermore, the Company has been given an
opportunity to consult professional advisors regarding this investment. The
Company's senior management is experienced in financial and energy-related
matters.
(b) The Company has been provided with all materials and information
requested by either it, its counsel, or others representing the Company,
including any information requested to verify information furnished, and there
has been direct communication between USE Parent and USE Parent's
-13-
representatives on the one hand, and the Company and its representatives and
advisors on the other, in connection with the information provided to the
Company or otherwise available to the Company and its advisors who have also had
the opportunity to ask questions of, and receive answers from USE Parent and its
directors, officers, and representatives concerning the terms and conditions of
this issuance.
(c) The Company is acquiring the USE Shares for its own account and for
investment purposes only and has no present intention, agreement or arrangement
for the distribution, transfer, assignment, resale or subdivision thereof;
provided, however, that except as otherwise expressly set forth herein or in the
Restated Operating Agreement, the disposition of the USE Shares shall at all
times be and remain within the Company's control.
(d) The Company further understands and agrees that the USE Shares
issued hereunder may not be offered, sold, transferred, pledged or hypothecated
to any persons in the absence of registration under the Securities Act of 1933,
as amended (the "Securities Act") and applicable state securities laws, or an
opinion of counsel satisfactory to USE Parent that such registration is not
required.
Section 2.27. Investments, Affiliates and Affiliate Operations. Except
for the ownership of the entire membership interest in Castlebridge Weather
Markets, LLC, a Delaware limited liability company ("CWM"), the Company has
never owned any subsidiary or other business organization or any equity
ownership in any other entity. CWM discontinued all operations prior to May 16,
2000. The entire membership interests in CWM were distributed to GKM on May 16,
2000. All representations, warranties and agreements of the Company and GKM
contained herein with respect to the Company includes all assets, operations and
liabilities of CWM. The Company has no debts or liabilities, direct or indirect,
absolute or continent, determined or undetermined, known or unknown relating to
CWM and its prior operations or the distribution of the membership interests of
CWM to GKM. In connection with the discontinuance of its operations, CWM and GKM
entered into that certain Separation Agreement dated January 7, 2000, by and
among CWM, the Company, Xxxxx Xxxxxxxx, Xxxxx Xxxx, Xxxx Xxxxxx, American Re
Corporation and American Re Capital Markets, Inc. (the "Separation Agreement").
GKM, CWM and the Company are in compliance with all terms and conditions in the
Separation Agreement.
Section 2.28. Disclosure. No representation or warranty made herein by
the Company or the Initial Members and no written statement, certificate or
Schedule given or to be given to USE pursuant to this Agreement on or before
Closing, or with respect to the transactions contemplated hereunder, contains or
will contain any untrue statement of a material fact, or omits or will omit to
state a material fact necessary to make the statements contained herein or
therein under the circumstances under which they were made not misleading, and
the Company and the Initial Members have made, and will make in good faith
through the Closing Date, full disclosure of all material facts with respect to
the Company and the Initial Members, including, without limitation, the
operations, assets and prospects of the Company, which a prudent investor would
deem relevant.
-14-
Section 2.29. Accuracy of Schedules. There has been no material adverse
change in any of the matters reflected in any schedule delivered by the Company
pursuant to this Agreement from the respective date thereof to and including the
date of this Agreement, nor will there be any material adverse change in such
matters from the date hereof to and including the Closing Date.
Section 2.30. Basis for Representations and Warranties. (a) Prior to
executing this Agreement, the Company and GKM have made such affirmative and
thorough reviews, searches, inspections and inquiries relating to the Company
and GKM, have consulted with such third parties, which a prudent person might
deem necessary or advisable in order to gain knowledge concerning the matters to
which the representations and warranties relate and each of them shall continue
to make such reviews, searches, inspections and inquiries through the Closing. A
person's knowledge or belief with respect to the subject matter of a
representation and warranty contained herein shall be deemed to include matters
which such person should have known with respect to the subject matter of said
representations and warranties.
(b) Prior to executing this Agreement, KC has made such affirmative and
thorough reviews, searches, inspections and inquiries relating to KC, has
consulted with such third parties, which a prudent person might deem necessary
or advisable in order to gain knowledge concerning only the matters to which the
representations and warranties contained in Sections 2.5(b), 2.6(b), 2.7(b) and
2.31 (the "KC Representations") relate and shall continue to make such reviews,
searches, inspections and inquiries regarding the KC Representations through the
Closing. KC's knowledge or belief with respect to the subject matter of a KC
Representation shall be deemed to include matters which such person should have
known with respect to the subject matter of said representations and warranties.
Any representation and warranty made by KC contained in this Agreement other
than the KC Representations shall be deemed to be limited to matters as to which
KC has actual knowledge.
Section 2.31. Investment Company Act. (a) KC is considered
to be "one person" for purposes of calculating the number of beneficial owners
of securities of the Company under Section 3(c )(1) of the Investment Company
Act of 1940, as amended.
(b) GKM is considered to be not more than four persons for
purposes of calculating the number of beneficial owners of securities of the
Company under Section 3(c)(1) of the Investment Company Act of 1940, as amended.
ARTICLE III
REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF USE
As an inducement to the Company and the Initial Members to enter into
this Agreement and to consummate the transactions contemplated hereby, USE
hereby represents and warrants to, and agrees with, the Company and the Initial
Members as follows:
-15-
Section 3.1. Organization of USE. USE is a Delaware limited liability
company duly organized, validly existing and in good standing under the laws of
the State of Delaware. USE is qualified to do business and in good standing in
each jurisdiction in which the ownership or leasing of its properties or the
conduct of its business requires qualification. USE has full power and authority
to own its assets and to carry on its business as now conducted.
Section 3.2. Authority of USE. USE has full legal right, power,
capacity and authority to execute and deliver this Agreement and all of the
other agreements and instruments contemplated hereby, to consummate the
transactions contemplated hereby and thereby and to comply with the terms,
conditions and provisions hereof and thereof. The execution, delivery and
performance of this Agreement by USE has been duly authorized and approved by
USE and does not require any further authorization or consent. This Agreement
and each other agreement or instrument of USE contemplated hereby constitutes
the legal, valid and binding agreement of USE enforceable in accordance with
their respective terms, except as enforcement may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally and general equitable principles
regardless of whether such enforceability is considered in a proceeding at law
or in equity.
Section 3.3. No Violation. The execution and delivery of this
Agreement, the performance of the obligations hereunder and the consummation by
USE of the transactions contemplated by this Agreement will not: (i) violate or
conflict with any law, statute, ordinance, rule, regulation, decree, writ,
injunction, judgment or order of any governmental authority or of any
arbitration award which is either applicable to, binding upon or enforceable
against USE; (ii) conflict with, result in any breach of, or constitute a
default (or an event which would, with the passage of time or the giving of
notice or both, constitute a default) under, or give rise to a right to
terminate, amend, modify, abandon or accelerate, any contract which is
applicable to, binding upon or enforceable against USE; (iii) result in, or
require the creation or imposition of, any lien upon or with respect to any of
the property or assets of USE; or (iv) require the consent, approval,
authorization or permit of, or filing with or notification to, any governmental
authority, any court or tribunal or any other Person.
Section 3.4. No Finder. Other than the obligation of USE to pay $87,500
to SPARK by delivering 14,583 1/3 shares of Common Stock to SPARK for acting as
broker in connection with the transactions contemplated by this Agreement,
neither USE nor any party acting on its behalf has paid or become obligated to
pay any fee or commission to any broker, finder or intermediary for or on
account of the transactions contemplated by this Agreement except to Marathon
Capital LLC.
Section 3.5. Access to Information. USE hereby acknowledges and
confirms that it has been provided access to information concerning, among other
things, the business affairs and financial condition of the Company and had the
opportunity to ask questions of and receive information and answers from
officers of the Company respecting, among other things, the business affairs and
financial conditions of the Company. Such access and opportunity shall not
affect the representations and warranties of the Initial Members and the
Company.
-16-
Section 3.6. No Litigation. No action, suit, investigation or
proceeding has been instituted or to USE's knowledge threatened to restrain,
prohibit or otherwise challenge the legality or validity of the transactions
contemplated hereby.
Section 3.7. Filings with the SEC. USE Parent has made all
filings (collectively the "Public Reports") with the Securities and Exchange
Commission that it has been required to make within the past three years under
the Securities Act and the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). Each of the Public Reports has complied with the Securities Act
and the Exchange Act in all material respects. None of the Public Reports, as of
their respective dates, contained any untrue statement of a material fact or
omitted to state a material fact necessary in order to make the statements made
therein, in light of the circumstances under which they were made, not
misleading.
Section 3.8. Financial Statements. The consolidated balance
sheet of USE Parent as of January 31, 2000, and the related consolidated
statements of operations, stockholders equity and cash flows for the years then
ended, certified by Xxxxxxx X. Xxxxxx & Company, LLP, as set forth in USE
Parent's Annual Reports on Form 10-Kfor the year ended January 31, 2000, have
been prepared in accordance with GAAP applied on a consistent basis throughout
the periods covered thereby, and presents fairly the financial condition of the
USE Parent and its consolidated subsidiaries as of the dates thereof and the
results of their operations for the periods then ended.
Section 3.9. Absence of Certain Changes or Events. Except as
may be set forth in the Public Reports, since April 30, 2000 there has not been
any material adverse change in the business, assets, condition (financial or
other) or results of operations of USE Parent and its subsidiaries, taken as a
whole.
Section 3.10. USE Shares. The USE Shares which are to be
issued to the Company pursuant to this Agreement will, upon the issuance thereof
in accordance with the terms of this Agreement, be duly authorized, validly
issued and outstanding, fully paid and nonassessable.
Section 3.11. Investment Company Act. USE is considered to be "one
person" for purposes of calculating the number of beneficial owners of
securities of the Company under Section 3(c )(1) of the Investment Company Act
of 1940, as amended.
ARTICLE IV
COVENANTS
Section 4.1. Further Assurances; Additional Agreements. At any time and
from time to time hereafter, each party shall execute and deliver such
additional instruments and other documents and shall take such further actions
as may be necessary or appropriate to effectuate, carry out and comply with all
of the terms of this Agreement and the transactions contemplated hereby.
-17-
Section 4.2. Confidentiality; Publicity. Except as may be required by
law or as otherwise permitted or expressly contemplated herein, no party hereto
or its Affiliates, employees, agents and representatives shall disclose to any
third party this Agreement or the subject matter or terms hereof without the
prior written consent of the other parties hereto. No press release or other
public announcement related to this Agreement or the transactions contemplated
hereby shall be issued by any party hereto without the prior written approval of
the other parties. The covenant described in this Section 4.2 shall run in
perpetuity and not be restricted by time or location.
Section 4.3. Transfer of USE Shares to Comply with Securities Act;
Registration Rights. (a) The USE Shares may not be sold or otherwise disposed of
except as follows: (1) to a person who, in the opinion of counsel reasonably
acceptable to USE Parent, is a person to whom the USE Shares may legally be
transferred without registration and without the delivery of a current
prospectus under the Securities Act with respect thereto, and against receipt of
an agreement of such person to comply with the obligations of the Company
pursuant to this Agreement and the Restated Operating Agreement with respect to
the USE Shares, which agreement shall be reasonably satisfactory in form and
substance to USE Parent; or (2) to any person upon delivery of a prospectus then
meeting the requirements of the Securities Act relating to such securities and
the offering thereof for such sale or disposition or (3) a sale pursuant to Rule
144 under the Securities Act.
(b) USE shall cause USE Parent to cause to be filed a shelf
registration statement (the "Registration Statement") for the resale of the USE
Shares pursuant to Rule 415 under the Securities Act promptly upon the
consummation of the transaction described herein; provided the Company furnishes
the information specified in items 507 and 508 of Regulation S-K (or any
successor provisions) under the Securities Act. USE will use its best efforts to
cause such Registration Statement to become effective promptly thereafter. The
parties hereto acknowledge that the Registration Statement cannot be filed until
audited financial statements are prepared for the Company's 1999 fiscal year.
USE shall cause USE Parent to use its best efforts to keep such Registration
Statement current for a period expiring on the earlier of (i) the date that the
Company has sold all of the USE Shares or (ii) that date which is twelve (12)
months following the effective date of the Registration Statement; provided
however, USE Parent shall have the option of suspending the effectiveness of the
Registration Statement for periods of up to an aggregate of 90 days in any
calendar year if the Board of Directors of USE Parent determines that compliance
with the disclosure obligations necessary to maintain the effectiveness of the
Registration Statement at such time could reasonably be expected to have a
material adverse effect on USE Parent or a pending corporate transaction of USE
Parent.
(c) USE shall bear the entire direct cost and expenses (including fees
associated with listing such shares on an exchange or automated quotation
system) of any registration of the USE Shares pursuant to this Agreement. The
Company shall, however, bear the fees of its own counsel and accountants and any
transfer taxes or underwriting discounts or commissions applicable to the USE
Shares sold by it pursuant thereto. USE shall provide the Company with such
number of prospectuses and shall qualify such securities in such jurisdiction as
the Company reasonably requests.
-18-
Section 4.4. Preparation of Audited Financial Statements. The Company
shall maintain its records in such a manner so that it will be possible for the
Company to prepare (at USE's expense) without unreasonable expense or hardship
audited annual financial statements for the Company for fiscal 1999 in
accordance with generally accepted accounting principles that will comply with
the requirements of Regulation S-X. The Company shall cooperate fully with the
independent auditor and USE, including by granting them, their employees and
agents, access to such information as they, their employees and agents request,
including access to all of the Company's records and employees, and by providing
representation letters, so that they can cause the preparation (at USE's
expense) of audited annual financial statements for the Company for fiscal 1999
promptly following the Closing. The Company shall prepare at its expense audited
annual financial statements for all years commencing with fiscal 2000, which
audited annual financial statements shall be prepared in accordance with
generally accepted accounting principles and will comply with the requirements
of Regulation S-X promulgated by the Securities and Exchange Commission.
ARTICLE V
SURVIVAL OF REPRESENTATIONS AND WARRANTIES, INDEMNIFICATION
Section 5.1. Survival of Representations and Warranties. Any
investigation or examination by either USE, on the one hand, or the Company or
the Initial Members on the other hand, of the business, or properties or affairs
of the other or others shall not affect the representations and warranties of
such person or persons set forth herein. The representations and warranties
herein made by the parties shall be deemed to be remade at and survive the
Closing Date.
Section 5.2. Indemnification by the Company and GKM. The Company and
GKM agree jointly and severally to indemnify and hold USE and its stockholders,
and their respective directors and officers, harmless from and against all
liability, loss, cost or expense, including, without limitation, attorneys'
fees, expenses and costs of litigation ("Losses"), USE and/or any such person
may sustain by reason of any of the following:
(a) The inaccuracy of any representation or warranty of the
Company or GKM herein set forth or in any certificate or other document
delivered by the Company or GKM to USE in accordance with the terms
hereof;
(b) The breach of any of the agreements or covenants of the
Company or GKM contained herein or in the Current Operating Agreement
or Restated Operating Agreement or in any certificate or other document
delivered by the Company or GKM to USE in accordance with the terms
hereof; and
-19-
(c) Any debts, liabilities or obligations relating to CWM and
its operations, including, without limitation, any debts, liabilities
or obligations arising out of the Separation Agreement.
Section 5.3. Indemnification by USE. USE agrees to indemnify and hold
the Company and the Initial Members and their respective stockholders, members,
directors and officers from and against all Losses which the Company or the
Initial Members and/or any such person may sustain by reason of any of the
following:
(a) The inaccuracy of any representation or warranty of USE
herein set forth or in any certificate or other document delivered by
USE to the Company or either Initial Member; and
(b) The breach of any of the agreements or covenants of USE
contained herein or in the Restated Operating Agreement or in any
certificate or other document delivered by USE to the Company or the
Initial Members in accordance with the terms hereof.
Section 5.4 Maximum Recovery by USE for Certain Claims. The maximum
aggregate amount which USE may recover collectively from the Company and the
Initial Members under Section 5.2 and 5.6 of this Agreement, with respect to
inaccuracy of any representation or warranty or breach of any agreement or
covenant relating to liabilities which arise from the conduct of the Company's
Business after the closing under this Agreement shall be $2,800,000; provided,
however, the maximum aggregate amount which USE may recover from KC under this
Agreement shall be $1,500,000; provided, further however, that nothing contained
in this Section 5.4 will be construed to limit the amount of recovery by USE
from the Company or GKM relating to liabilities which arise from the conduct of
the Company's business prior to Closing.
Section 5.5 Maximum Recovery by the Company and the Initial Members for
Certain Claims. The maximum aggregate amount which the Company and the Initial
Members may recover collectively from USE under Section 5.3 of this Agreement
shall be $2,800,000.
Section 5.6. Indemnification by KC. KC shall indemnify and hold USE and
its stockholders, and their respective directors and officers, harmless from and
against all Losses, USE and/or any such person may sustain by reason of any of
the following:
(a) The inaccuracy of any representation or warranty of KC
herein set forth or in any certificate or other document delivered by
KC to USE in accordance with the terms hereof; and
(b) The breach of any of the agreements or covenants of KC
contained herein or in the Current Operating Agreement or Restated
Operating Agreement or in any certificate or other document delivered
by KC to USE in accordance with the terms hereof.
-20-
Section 5.7. Certain Other Indemnity Matters. (a) From and after the
Closing the sole and exclusive remedies of the Company, the Initial Members and
USE with respect to any and all claims relating the inaccuracy of any
representation or warranty, and breaches of the agreements and covenants,
contained in this Agreement shall be pursuant to the indemnification provisions
set forth in this Article V. In furtherance of the foregoing, the Company, the
Initial Members and USE hereby agree, on their own behalf and on behalf of their
Affiliates, waive, to the fullest extent permitted under applicable law, and
agree not to assert in any action or proceeding of any kind, any and all rights,
claims and causes of action it or such Affiliate may now or hereafter have
against the other parties relating to the inaccuracy of any representation or
warranty, and breach of any agreement or covenant, other than claims for
indemnification asserted as permitted by and in accordance with the provisions
set forth in this Section 5.7 (including, without limitation, any such rights,
claims or causes of action arising under or based upon common law or other legal
requirements).
(b) The parties agree that in no event shall any party hereto have any
claim or cause of action (including, without limitation, any tort claim) arising
from or relating to this Agreement against any Affiliate (other than any
signatory hereto as to its obligations hereunder) of any other party hereto,
including, without limitation, any claim or cause of action based on any theory
asserting shareholder liability of an entity or the "piercing of the corporate
veil" of an entity.
(c ) Notwithstanding anything to the contrary contained herein, KC
retains all rights and remedies it has under that certain Purchase and Sale
Agreement, dated as of May 17, 2000, by and between KC and GKM III, LLC, a
Delaware limited liability company, and under that certain Contribution
Agreement dated as of May 17, 2000, by and among KC, the Company and GKM and
nothing contained herein or in any other document executed in connection with
the transactions contemplated hereby shall be construed to amend, modify or
waive any of the terms or provisions of such Agreements, including, without
limitation, the indemnification provisions of such Agreements.
ARTICLE VI
CLOSING DOCUMENTS
Section 6.1. Documents to Be Delivered by the Company and the Initial
Members to USE. The Company and the Initial Members agree to deliver to USE on
the Closing Date the following:
(a) Certificates of as to Certain Documents. Certificates of
the authorized executive officers of the Company and the Initial
Members dated the Closing Date with respect to (i) the Certificate of
Formation of the Company, (ii) the Operating Agreement of the Company,
(iii) the resolutions authorizing the transactions contemplated hereby,
and (iv) the incumbency of certain officers of the Company and the
-21-
Initial Members and the specimen signatures of those officers of the
Company and the Initial Members executing documents.
(b) Certificate of Formation. Certificate of Formation, and
all amendments thereto, of the Company certified by the Secretary of
State of Delaware as of a date not more than thirty (30) days prior to
the Closing Date.
(c) Good Standing Certificates. Certificates of good standing
for the Company issued by the Secretary of State of Delaware and the
Secretary of State of Illinois dated not more than thirty (30) days
prior to the Closing Date.
(d) Lien Search. Good and sufficient evidence reasonably
satisfactory to counsel for USE that there are no chattel mortgages,
security interests, judgments, claims or other liens outstanding
against any of the assets of the Company.
(e) Counsel Opinion. Opinion of counsel for the Company
and GKM and opinion of counsel for KC, in each case
addressed to USE, dated the Closing Date, to the
effect set forth in Annex B and hereby made a part
hereof;
(f) Restated Operating Agreement. The Restated
Operating Agreement executed by the Initial Members.
(g) Consent to Issuance. All consents of third parties which
are necessary, in the opinion of USE, to effectively transfer the
Interest in the manner provided for herein, in form and substance
satisfactory to said counsel unless waived in writing by USE. (h) USE
Parent Agreement.The letter agreement by and among USE Parent, the
Company and the Initial Members (the "USE Parent Agreement")
substantially in the form of Annex C executed by the Company and the
Initial Members.
(i) Other Documents. Such other documents and showings
as shall reasonably be required by USE and its counsel.
Section 6.2. Documents to Be Delivered by USE. USE agrees to deliver to
the Company and the Initial Members on the Closing Date the following:
(a) Certificate of Secretarial Officer of USE. Certificate of
the authorized executive officers of USE dated the Closing Date with
respect to (i) the certificate of formation of USE, (ii) the Operating
Agreement of USE, (iii) resolutions authorizing the transactions
contemplated hereby, and (iv) the incumbency of certain officers of USE
and the specimen signatures of those officers executing documents.
(b) Counsel's Opinion. Opinion of counsel for USE addressed
to the Company and the Initial Members dated the Closing Date in the
form attached hereto as Annex D and hereby made a part hereof.
-22-
(c) Restated Operating Agreement. The Restated Operating
Agreement executed by USE.
(d) Purchase Price. The USE Shares to the Company and 14,583
1/3 shares of Common Stock to SPARK pursuant to Section 1.1 hereof.
(e) Broker's Fee. 14,583 1/3 shares of Common Stock to
SPARK pursuant to Section 3.4 hereof.
(f) USE Parent Agreement. The USE Parent Agreement executed
by USE Parent.
(g) Other Documents. Such other documents and showings as
shall reasonably be required by the Company and the Initial Members and
their counsel.
ARTICLE VII
GENERAL PROVISIONS
Section 7.1. Arm's Length Negotiations. Each party expressly represents
and warrants to the other party that: (a) before executing this Agreement, the
party has fully informed itself of the terms, contents, conditions and effects
of this Agreement; (b) the party has relied solely and completely upon its own
judgment in executing this Agreement; (c) the party has had the opportunity to
seek and has obtained the advice of counsel before executing this Agreement; (d)
the party has acted voluntarily and of its own free will in executing this
Agreement; (e) the party is not acting under duress, whether economic or
physical, in executing this Agreement; and (f) this Agreement is the result of
arm's length negotiations conducted by and among the parties and their
respective counsel.
Section 7.2. Execution in Counterparts. This Agreement may be executed
in one or more counterparts, each of which shall be considered an original
instrument, but all of which shall be considered one and the same agreement, and
shall become binding when one or more counterparts have been signed by each of
the parties and delivered to the Company, the Initial Members and USE.
Section 7.3. Expenses. Each party shall pay its own fees and
expenses, including the costs of any attorneys or consultants engaged by it,
incurred in connection with the negotiation, execution and delivery of this
Agreement or any transaction contemplated hereby.
Section 7.4. Assignment, Binding Effect. This Agreement shall bind and
inure to the benefit of the parties hereto, its heirs, executors,
administrators, successors and permitted assigns. No party may assign its rights
or delegate its obligations under this Agreement without the prior written
consent of each of the other parties hereto.
-23-
Section 7.5. Section Headings. The Section headings herein have
been inserted for convenience of reference only, and shall in no way modify or
restrict any of the terms or provisions hereof.
Section 7.6. Unenforceability; Severability. If any provision of this
Agreement shall for any reason be held unenforceable, such provision to the
extent enforceable shall be severed from this Agreement unless, as a result of
such severance, the Agreement fails to reflect the basic intent of the parties.
If the Agreement continues to reflect the basic intent of the parties, then the
invalidity of such specific provision shall not affect the enforceability of any
other provision herein, and the remaining provisions shall remain in full force
and effect. If any covenant or restriction contained herein is determined by a
court of law to be overly broad, thereby making the covenant unenforceable, the
parties hereto agree, and it is their desire, that such court shall substitute a
judicially enforceable limitation in its place, and that as so modified the
covenant shall be binding upon the parties as if originally set forth herein.
Section 7.7. Recitals. The Recitals set forth above are hereby
incorporated in and made a part of this Agreement by this reference.
Section 7.8. Termination. This Agreement may be terminated before
the Closing Date:
(a) by mutual written consent of all of the parties
hereto;
(b) by USE in the event of a material breach by the Company
or the Initial Members of any provision of this Agreement;
(c) by the Company in the event of a material breach
by USE of any provision of this Agreement;
(d) by USE if any of the conditions set forth in Section
6.1 shall not have been satisfied or waived; or
(e) by the Company and the Initial Members if any of the
conditions set forth in Section 6.2 shall not have been satisfied or
waived.
Section 7.9. Waivers; Amendment. This Agreement may not be modified,
amended, supplemented, canceled or discharged, except by written instrument
executed by all parties. No failure to exercise, and no delay in exercising, any
right, power or privilege under this Agreement shall operate as a waiver, nor
shall any single or partial exercise of any right, power or privilege hereunder
preclude the exercise of any other right, power or privilege. No waiver of any
breach of any provision shall be deemed to be a waiver of any preceding or
succeeding breach of the same or any other provision, nor shall any waiver be
implied from any course of dealing between the parties. No extension of time for
performance of any obligations or other acts hereunder or under any other
agreement shall be deemed to be an extension of the time for performance of any
other obligations or any other acts. The rights and remedies of the parties
under this Agreement are subject to Article V hereof; provided, however, that in
addition to the rights and remedies provided by such Article V, the parties
shall be entitled to equitable relief except for any claim or cause of action
-24-
(including, without limitation, any tort claim) arising from or relating to this
Agreement against any Affiliate (other than any signatory hereto as to its
obligations hereunder) of any other party hereto, including, without limitation,
any claim or cause of action based on any theory asserting shareholder liability
of an entity or the "piercing of the corporate veil" of an entity.
Section 7.10. Notices. All notices, claims, certificates, requests,
demands and other communications hereunder shall be in writing and shall be
deemed to have been duly given if personally delivered or if sent by
nationally-recognized overnight courier, by telecopy, or by registered or
certified mail, return receipt requested and postage prepaid, addressed as
follows:
If to the Company or GKM:
XXX XX Corporation
000 Xxxx Xxxxxxx Xxxx.
Xxxxx 0X
Xxxxxxx, XX 00000
Attn: Xxxxx X. Xxxx
with a copy to:
Xxxxxxx X. Xxxxxx, Esq.
Xxxxxxx & Xxxxxxxx Ltd.
000 Xxxxx Xxxxxxxx Xxx.
Xxxxx 0000
Xxxxxxx, XX 00000
If to KC:
Xxxxxx-Castlebridge, Inc.
c/x Xxxxxx Casualty Inc.
Xxx Xxxxx Xxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, XX 00000
Attn: Xxxxxx X. Xxxxxxxx, Chief Financial Officer
with a copy to:
Xxxx Xxxxxx, Assistant General Counsel
Xxxxxx Casualty Inc.
000 Xxxxxxx Xxxx., Xxxxx 000
Xxxxxxxxx, XX 00000
If to USE:
U.S. Energy Castlebridge LLC
C/o U.S. Energy Inc.
000 X. Xxxxxxx Xxxxx
Xxxxx 000
Xxxx Xxxx Xxxxx, Xxxxxxx 00000
Attn: Chief Operating Officer
-25-
With a copy to:
Xxxxx X. Xxxxxxx, Esq.
Xxxxxxxx Brog Leinwand
Xxxxxx Xxxxxxxx & Xxxxx P.C.
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
or to such other address as any party hereto to whom notice is to be given may
have furnished to the other parties hereto in writing in accordance herewith.
Any such notice or communication shall be deemed to have been delivered and
received (i) in the case of personal delivery, on the date of such delivery,
(ii) in the case of nationally-recognized overnight courier, on the next
business day after the date when sent, (iii) in the case of telecopy
transmission when received, and (iv) in the case of mailing, on the third
business day following that on which the piece of mail containing such
communication is posted.
-26-
Section 7.11. Governing Law. This Agreement shall be governed by
and construed in accordance with the internal laws (without regard to any
conflict of laws principles) of the State of Illinois.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first written above.
XXX XX CORPORATION
By: /s/ Xxxxx Xxxx
------------------
Name: Xxxxx Xxxx
Title: Secretary
CASTLEBRIDGE PARTNERS, LLC
By: /s/ Xxxx Xxxxxx
-------------------
Name: Xxxx Xxxxxx
Title: President
XXXXXX -CASTLEBRIDGE, INC.
By: /s/Xxxxx Xxxxxx
--------------------
Name: Xxxxx Xxxxxx
Title: Secretary
U.S. ENERGY SYSTEMS
CASTLEBRIDGE LLC
By: /s/ Xxxxx Mornhed
-------------------
Name: Xxxxx Xxxxxxx
Title: President
-27-
