Scandinavian Energy Finance Limited
and
Xxxxxxxxxxxx 0000 XX to be renamed Narvarme Acquisition III AB
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FINANCING AGREEMENT
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FINANCING AGREEMENT
This financing agreement (the "Agreement") is made on March 11, 2002
BETWEEN
1. Scandinavian Energy Finance Limited, a company incorporated in Ireland,
with the address c/o Xxxxxxx Xxxx, XxXxxx Xxxxxxxxxx, 0 Xxxxxxxxxxxxx
Xxxxx, International Financial Service Centre, Xxxxxx 0, Xxxxxxx, (the
"Lender"); and
2. Xxxxxxxxxxxx 0000 XX (name to be changed to Narvarme Acquisition III AB,
(reg no 556614-6642), a company incorporated in Sweden, with the address
Xxxxxxxxxx 00, 000 00 Xxxx, Xxxxxx, (the "the Company").
The Lender and the Company are jointly referred to as the "Parties" and
each a "Party".
WHEREAS
1. The Company shall issue a convertible debenture loan (the "Convertible")
to be subscribed for by the Lender subject to the terms and conditions
herein.
2. A prerequisite for the Lender's subscription of the Convertible is the
Parties' agreement that the Company shall fulfil certain conditions as set
out in this Agreement.
THEREFORE
the Parties agree as follows.
1. Definitions
All the references to the following definitions in these terms and
conditions shall have the meaning presented below:
"Affiliate" means in relation to any shareholder, any
company when more than 50 % of the voting rights
attached to the share capital is owned directly
or indirectly by that shareholder or which is
under the control of that shareholder or any
related person as defined in section 12.7 of the
Act.
"Available Cash" means all cash from all sources held by
the Company and its affiliates (the "Group")
which may be used to pay interest and principal
under the Convertible without violating
applicable law, any contractual covenants
binding on the Group previously consented for by
the Creditors holding a majority of the amount
of the Convertible from time to time and which
is not required to pay future expenses of the
Group in the judgement of the Creditors holding
a majority of the amount of this debenture from
time to time
"Company" Xxxxxxxxxxxx 0000 XX to be renamed Narvarme
Acquisition III AB, company registration number
556614-6642
"Creditor" a person in possession of a convertible note
"Environmental Laws" shall mean all applicable federal, provincial,
municipal, or local laws, statutes, regulations, rules, ordinances,
orders or decisions and all common law requirements, relating to the
environment; health and occupational safety.
"Event of Default" means the events as set out in Sections 10.2 -
10.5 below.
"Hazardous Substances" includes, any contaminants, pollutants,
dangerous substances, liquid wastes, industrial wastes, hauled liquid
wastes, toxic substances, hazardous wastes, hazardous materials or
hazardous substances whatsoever nature and type, that are regulated
by or form the basic of liability under any Environmental Laws.
"Material Agreements" shall mean any contract representing 3 % or
more of gross revenue.
"Permitted Liens" means the liens as set out in Schedule 2 to this
Agreement.
"Permits" shall include all permits, certificates, approvals,
registrations and licenses issued by any ministry, department,
administrative or regulatory agency.
"Person" shall mean any person not being a party to this Agreement.
"Release" includes releasing, spilling, leaking, pumping, pouring,
emitting, emptying, discharging, injecting, escaping, leaching,
disposing or dumping.
"Swedish Generally Accepted Accounting Principles" shall mean the
accounting principles that are in accordance with applicable laws and
general accepted accounting in Sweden.
2. Postponement of interest and principal
Under the terms of the Convertible the Company may at its own
discretion postpone payment of interest. The parties agree that the
Company shall only make such postponement if and to the extent there
is no Available Cash as defined herein.
3. The Convertible
3.1 The Shareholder have passed a resolution to issue the Convertible in
accordance with the terms attached hereto as Schedule 1.
3.2 The Convertible shall be subscribed for by the Lender subject to the
terms and conditions herein.
4. Forthwith termination
According to the terms of the Convertible, the Lender has a right to
call for immediate payment upon 30 days written notice. The Parties
have agreed that the Lender shall not use this possibility under the
Convertible as long as there is no Event of Default under this
Agreement or any corresponding events of default under any
indebtedness in excess of SEK 500,000 to which the Group is a party.
5. Reporting covenants
5.1 The Company shall provide unaudited consolidated quarterly financial
statements within 45 days of quarter end and audited annual
consolidated financial statements including balance sheets, profit
and loss statements and cash flow statement within 120 days of each
fiscal year end. All quarterly financial statements to be accompanied
by a certificate of no default setting out compliance calculations.
In addition the Company shall issue monthly, operating statements
within 15 days of month end for each district heating system operated
by the Company and its direct and indirect subsidiaries.
6. Positive covenants
6.1 So long as any amounts remain outstanding and unpaid under the
convertible loans the Company will, and will ensure that its direct
and indirect subsidiaries will:
6.1.1 Pay all amounts of principal and interest on the dates, times and at
the place specified in the Terms or under any other agreement between
the Lender and the Company.
6.1.2 Advise Lender of any change in the amount and the terms of any credit
arrangement made with other permitted lenders or any action taken by
another lender to recover amounts outstanding with such other lender.
6.1.3 Advise promptly after the happening of any event which will result in
a material adverse change in the financial condition, business,
operations, or prospects of the Company or its direct and indirect
subsidiaries or the occurrence of any Event of Default or default
under the Convertible or under any other agreement for borrowed
money.
6.1.4 Do all things necessary to maintain in good standing its corporate
existence and preserve and keep all material agreements, rights,
franchises, licences, operations, contracts or other arrangements in
full force and effect.
6.1.5 Pay all taxes, assessments and government charges, unless such taxes,
assessments, or charges are being contested in good faith and
appropriate reserves shall be made with funds set aside in a separate
trust fund.
6.1.6 Provide Lender and its representatives including, without limitation,
EIC Partners AG with information and financial data as it may
reasonably request from time to time.
6.1.7 Maintain property, plant and equipment in good repair and working
condition with reasonable wear and tear excepted.
6.1.8 Inform Lender of any actual or threatened litigation and furnish the
Lender with copies of details of any litigation or other proceedings,
which might materially and adversely affect the financial condition,
business, operations, or prospects of the Company.
6.1.9 Continue to carry on the business substantially currently being
carried on by the Company and its direct and indirect subsidiaries at
the date hereof.
6.1.10 Maintain adequate insurance on all of its assets, undertakings, and
business risks.
6.1.11 Permit Lender or its authorised representatives, including without
limitation EIC Partners AG, full and reasonable advance notice to its
premises, business, financial and computer records and allow the
duplication or extraction of adequate information therefrom.
6.1.12 Comply with applicable environmental regulations at all times.
6.1.13 Comply with contractual obligations and laws, including payment of
taxes.
6.1.14 remains in the district energy business and maintaining all requisite
licenses to do so.
6.1.15 comply and cause its direct and indirect subsidiaries to comply with
all obligations to Lantbrukskredit relating to loans made by
Lantbrukskredit to the Company and/or its subsidiaries.
6.1.16 maintain the legally required ratio between equity and registered
share capital of the Group.
6.1.17 comply with the reasonable requests for co-operation from Lender's
financial services consultant EIC Partners AG.
6.2 The Company and its subsidiaries have acquired certain assets and
shares from Narvarme Sverige AB and Varmeland Teknik AB and their
Affiliates pursuant to (i) a Share Sale and Purchase Agreement by and
among Varmeland Teknik AB and Xxxxxxxxxxxx 0000 XX (ii) an Asset
Purchase Agreement regarding acquisition of assets by Gigantissimo
2323 AB (iii) an Asset Purchase Agreement regarding acquisition of
assets by Gigantissimo 2321 AB and related agreements including
without limitation an Indemnification and Escrow Agreement by and
among the parties to the aforementioned agreements (collectively the
"Acquisition Agreements"). The Company shall, and shall cause its
subsidiaries to, enforce all of their rights against the respective
Sellers under such Acquisition Agreements in a diligent manner and
shall keep Lender fully informed respecting such enforcement actions.
7. Negative covenants
7.1 So long as any amounts remain outstanding under the convertible loans
the Company will not and will ensure that its direct and indirect
subsidiaries do not without the written consent of the Lender:
7.1.1 Create, incur, assume, or suffer to exist, any mortgage, deed of
trust, pledge, lien, security interest, assignment, charge, or
encumbrance (including without limitation, any conditional sale, or
other title retention agreement, or finance lease) of any nature,
respect to any of its assets or undertakings, now owned or hereafter
acquired, except for those Permitted Liens set out in Schedule 2.
7.1.2 Create, incur, assume, or suffer to exist any other outside
indebtedness for borrowed money (except for SEK 30,000,000
convertible debenture issued to Lansforsakringar indebtedness
resulting from Permitted Liens, if any) or guarantee or act as surely
or agree to indemnify the debts of any other Person.
7.1.3 Merge or consolidate with any other outside Person, or acquire all or
substantially all of the shares, assets or business of any other
Person.
7.1.4 Sell, lease, assign, transfer, convey or otherwise dispose of any of
its now owned or hereafter acquired assets (including, without
limitation, shares of stock and indebtedness of subsidiaries,
receivables and leasehold interests), except for inventory disposed
of in the ordinary course of business and replacement of equipment in
the ordinary course of business.
7.1.5 Cease to carry on the business currently being carried on by each of
the Company and its direct or indirect subsidiaries at the date
hereof.
7.1.6 Permit any change of ownership or change in the capital structure of
the Company or direct or indirect subsidiaries except in connection
with the conversion of the convertible debentures issued by the
Company to Lansforsakringar and the Lender or in connection with the
exercise of the option granted by Xxxxx Xxxxxxxx to the Lender
respecting his shares in the Company.
7.1.7 Make third party guarantees without Lender's prior written consent
(i.e. the Company will not provide its guarantee to anyone else
including parent or related entities).
7.1.8 Effect a change in control of the Company or its direct or indirect
subsidiaries except in connection with the conversion of the
convertible debentures issued by the Company to Lansforsakringar and
the Lender or in connection with the exercise of the option granted
by Xxxxx Xxxxxxxx to the Lender respecting his shares in the Company.
7.1.9 Enter into any further outside divestitures, investments, mergers,
amalgamations or consolidations without Lender's prior written
consent.
7.1.10 Pledge any security to any other party.
7.1.11 Permit any amendment or termination of material contracts.
7.1.12 Prepay any contractual obligations before they become due or prepay
any amounts due under the Convertible prior to January 1, 2005.
7.1.13 Replace, amend or alternate the Articles of Association of the
Company or its direct or indirect subsidiaries.
7.1.14 Enter into or grant any options to subscribe for shares or issue any
securities convertible into shares or enter into any agreement for
the same.
7.1.15 Voluntarily liquidate or wind-up the Company.
7.1.16 Change the place of the registered office of the Company.
7.1.17 Reduce the capital by redemption of shares or any equivalent
procedure.
7.1.18 Distribute profits by dividends or any other form of shareholders
benefit unless so required by law or approved by the Lender.
7.1.19 Enter into any agreement which would likely have a material effect on
the Company. "Material for these purposes is an agreement that has
gross revenues or costs of more than SEK 500,000 per annum or which
otherwise would likely have a material effect on the operations
financial conditions, assets, business or prospects of the Company or
its direct or indirect subsidiaries.
7.1.20 Enter into, terminate or modify any agreement between the Company,
its direct or indirect subsidiaries on the one hand and any managing
director, shareholder (other than a Group Company), employee or
Affiliate of the same on the other hand.
7.1.21 Appoint or dismiss a managing director, a finance director or a
technical director without the prior approval of Lender which
approval shall not be unreasonably withheld or delayed.
7.1.22 Enter into any transaction or make any expenditures which separately
or in the aggregate result in a material deviation from the budget
approved by the Lender pursuant to Section 8 below.
7.1.23 Agree or commit to do any of the foregoing.
7.2 The provisions of Section 7 shall not prevent the Company from paying
Ernstson such amount as is necessary to make Ernstson whole
(including settlement costs and reasonable legal, accounting and
other expenses for investigation or defence) on an after tax basis
for any wealth tax payable by him in connection with his ownership of
shares of the Company Swedco 3 provided that Ernstson advises
Lantbrukskredit, SEFL and Lansforsakringar of any such tax assessed
and takes any reasonable lawful action jointly suggested by
Lantbrukskredit, SEFL and Lansforsakringar to reduce such tax
liability before paying such tax.
7.3 Lender undertakes not to and to cause its affiliates from time to
time not to make or submit any claim against Xxxxx Xxxxxxxx regarding
any matter resulting from, arising out of or relating to this
Agreement or the Loans described herein, provided that this
restriction shall not prevent claims against Ersntson based on
actions, measures or omissions by Ernstson after the closing date
which constitute gross negligence or fraud or other criminal acts or
a knowing violation of the Swedish Companies Act or a breach of an
agreement to which Ernstson is a party or breach of any agreement to
which the Company or its direct or indirect subsidiaries is a party
committed by a the Company or its direct or indirect subsidiaries, if
such breach is knowingly caused by the intentional acts of Ernstson.
8. Budget
On or before December 1 at each year, the Company shall submit an
operating and capital budget for the coming calendar year for the
Company and its direct and indirect subsidiaries to be approved by
the Lender.
9. Representations and warranties
9.1 The Company hereby represents and warrants, which representations and
warranties shall be deemed to be continually repeated so long as any
amounts remain outstanding and unpaid.
9.1.1 The Company and each of its direct and indirect subsidiaries are
corporations duly incorporated and organised, validly existing and in
good standing under the laws of Sweden and the Company and each of
its direct and indirect subsidiaries has adequate corporate power and
authority to carry on its business, own property, borrow monies and
enter into agreements therefor and observe and perform the terms and
provisions of this Agreement and the Convertibles.
9.1.2 There are no laws, statutes or regulations applicable to or binding
upon the Company and no provisions in its charter documents or in any
by laws, resolutions, contracts, agreements, or arrangements which
would be contravened, breached, or violated as a result of the
execution, delivery, performance, observance, of any terms of this
Agreement or the Convertibles.
9.1.3 No Event of Default has occurred nor has any event occurred which,
with the passage of time or the giving of notice, would constitute a
default under any other agreement for borrowed money in excess of SEK
500,000.
9.1.4 There are no actions, suits, or proceedings, including appeals or
applications for review, or any knowledge of pending actions, suits,
or proceedings against the Company or its subsidiaries, before any
court or administrative agency which would result in any material
adverse change in the property, assets, financial condition, business
or operations of the Company or its direct or indirect subsidiaries.
9.1.5 All material authorisations, approvals, consents, licenses,
exemptions, filings, registrations and other requirements of
governmental, judicial and public bodies and authorities required to
carry on its business and the business of its direct and indirect
subsidiaries have been or will be obtained or affected and are or
will be in full force and effect.
9.1.6 The financial statements delivered to Lender fairly present the
financial position of the Company and its direct and indirect
subsidiaries as at the dates and with respect to the periods
applicable to such financial statements, and have been prepared by
the Company in accordance with Swedish Generally Accepted Accounting
Principles consistently applied.
9.1.7 All of the remittances required to be made by the Company and its
direct and indirect subsidiaries to the federal government and all
provincial and municipal governments have been made, are currently up
to date and there are no outstanding affairs. Without limiting the
foregoing, all employee source deductions, sales taxes, corporate
income taxes, corporate capital taxes, payroll taxes and workers'
compensation dues are currently paid and up to date except for those
remittances being contested in good faith and adequately reserved
for.
10. Environmental representations and warranties
10.1 The Company represents and warrants (which representation and
warranty shall continue throughout the term of this Agreement) that:
the business, properties and operations of the Company and its direct
and indirect subsidiaries have been and are in material compliance
with all Environmental Laws and Permits.
10.2 The Company and its direct and indirect subsidiaries have received no
written notice of violation respecting Environmental Laws and
Permits, and do not know of any facts which could give rise to such
notice of violation. If the Company or its direct or indirect
subsidiaries receive a notice respecting Environmental Laws and
Permits, or are aware that a notice is about to be filed, the Company
shall provide the Lender with a copy of such notice or information
promptly upon receipt thereof.
10.3 The Company and its direct and indirect subsidiaries have not
received any written request for information in connection with any
federal, provincial, municipal or local inquiries as to Hazardous
Substances or otherwise.
10.4 To the best of the Company's knowledge after due inquiry and
investigation the Company and its direct and indirect subsidiaries
have not used any of their facilities, or permitted them to be used,
to generate, manufacture, refine, trust, transport, store, handle,
dispose, transfer, produce or process Hazardous Substances except in
material compliance with all Environmental Laws.
10.5 The Company and its subsidiaries have no material contingent
liability of which the Company has actual knowledge in connection
with the disposal, release or existence of Hazardous Substances on or
offsite of their property or any facility owned or operated by third
parties, but with respect to which the Company is alleged to have
liability.
10.6 To the best of the Company's knowledge the Company and its
subsidiaries have never been convicted of an offence for
non-compliance with any Environmental Laws or been fined or otherwise
sentenced or settled such prosecution short of conviction.
10.7 To the best of the Company's knowledge the Company has never
defaulted in reporting to the proper authority on the happening of a
substantial occurrence requiring it by Environmental Laws to do so.
10.8 The Company shall, at the request of the Lender from time to time,
and at the Company's expense, obtain and provide to the Lender an
environmental audit or inspection report of the property from
auditors or inspectors acceptable to the Lender.
10.9 The Company hereby indemnifies the Lender, its officers, directors,
employees, agents and shareholders, and agrees to hold each of them
harmless from all loss, claims, damages, expenses (including legal
and audit expenses) which may be suffered of incurred in connection
with the indebtedness under this Agreement unless such loss, claims,
damages and expenses are caused by the negligent, wilful or unlawful
acts or omissions of the Lender or its agents. The Lender will not
settle any lawsuit or proceeding for which the Company must indemnify
the Lender pursuant to the terms hereof without the prior consent of
the Company, such consent not to be unreasonably withheld.
11. Events of Default
11.1 The following events are deemed as Events of Default:
11.1.1 Non-payment of outstanding interest or principal when due except when
payments are postponed in accordance with the terms of the
Convertible.
11.1.2 If any representation, warranty or statement made hereunder or made
in connection with the execution and delivery of this Agreement is
materially false or misleading at any time.
11.1.3 If there is a breach or non-performance or non-observance of any term
or condition of this Agreement except as described in Section 12.1.1
and, if such default is capable of being remedied, the default
continues unremedied for 30 Days after written notice to the Company
of the occurrence.
11.1.4 If the Company or any one of its direct or indirect subsidiaries
makes a general assignment for the benefit of creditors, files or
presents a position, makes a proposal or commits any act of
bankruptcy, or if any action is taken for the winding up, liquidation
or the appointment of a liquidator, trustee in bankruptcy, custodian,
curator, receiver or any other officer with similar powers or if a
judgement or order shall be entered by any court approving a petition
for reorganization, arrangement or composition of or in respect of
the Company or any of its direct or indirect subsidiaries or if the
Company or any of its direct or indirect subsidiaries is insolvent or
declared bankrupt.
11.1.5 If there exists a suspension of business by the Company for a period
equal to 20 calendar days.
11.1.6 If action is taken by an encumbrancer against the Company or any of
its direct or indirect subsidiaries to take possession of property or
enforce proceedings against any material assets.
11.1.7 If any material final judgement for the payment of monies is made
against the Company or any of its direct or indirect subsidiaries and
it is not discharged within 20 Business Days from the imposition of
such judgement.
11.1.8 If there exists any event, the effect of which with lapse of time or
giving of notice, will constitute an event of default or a default
under any other agreement for borrowed money in excess or SEK 500,000
entered into by the Company or any of its direct or indirect
subsidiaries.
11.1.9 If there exists any state of facts which have or are reasonably
likely to have a material adverse effect on the business, operations,
assets, financial condition or prospects of the Company or its direct
or indirect subsidiaries such that their ability to comply with this
Agreement or the Convertibles is materially impaired.
11.2 If an Event of Default occurs and is continuing, the Lender may by
notice to the Borrower demand immediate repayment of the Convertibles
and the Borrower agrees to pay the Convertibles in accordance with
the notice subject to Section 2 of the Convertibles.
12. Expenses
The Company shall reimburse the Lender for all of its reasonable
external and internal costs, on a fully loaded basis, without profit
relating to the transaction covered by this Agreement including the
cost relating prior to signing this Agreement, the future
administration of the Convertible and the enforcement of its rights
hereunder.
13. Announcements
13.1 Announcement, Communication or Circular
The Borrower shall not without the Lender's written consent, make or
send any announcement, communication or circular relating to the
subject matter of this Agreement such consent not to be unreasonably
withheld.
Lender or any of its Affiliated Companies may however give adequate
market information relating to their loan to the Borrower which
information shall be disclosed to the chairman of the board of
directors of the Borrower prior to it being released.
13.2 Content of Announcement
Clause 13.1 does not apply to an announcement, communication or
circular required by law or by the rules of any stock exchange or by
any governmental authority, in which event the party required to make
or send such announcement, communication or circular shall, where
practicable, first consult with the Borrower as to the content of
such announcement.
14. Confidentiality
The Parties shall hold in confidence and not use in any manner any
confidential documents or other information concerning the businesses
of any of the Parties, provided that these restrictions shall not
apply to any information that (i) a Party has been required to
disclose by law or by any applicable stock exchange regulations or
(ii) a Party can show to have been, at the time of disclosure or use,
in the public domain, by publication or otherwise, except by
violation of this Agreement on behalf of any Party or their
respective representatives.
15. Miscellaneous
15.1 This Agreement can not be amended unless made in writing and duly
signed by or on behalf of the Lender and the Company.
15.2 This Agreement can not be transferred, assigned, pledged or
hypothecated by any Party hereto other than by operation of law.
16. Notices
16.1 Any notice or other communication under or in connection with this
Agreement shall be given in writing or by facsimile to the Party due
to receive such notice. Any such notice will be deemed to be given as
follows:
a) if in writing, when delivered; and
b) if by facsimile, when received.
However, a notice given in accordance with the above but received on
a non-working day or after business hours in the place of receipt
will only be deemed to be given at the opening of business on the
next working day in that place.
16.2 The addresses and facsimile numbers of each Party for all notices under
or in connection with this Agreement are:
a) in the case of the Lender;
c/o Xxxxxxx Xxxx
Xx Xxxx Xxxxxxxxxx
0 Xxxxxxxxxxxxx Xxxxx
International Financial Service Cente
Dublin, Ireland
353 1 824 0010
with a copy to
President
US Energy Systems Inc.
Xxx Xxxxxxxxx
Xxxxxx Xxxxx
Xxxxx Xxxxxx X.X. 00000
Fax: 000 000 0000
With a copy to
EIC Partners AG
Xxxxxxxx-Xxxxx Xxxxxxx 00 X.X. Xxx 00
XX-0000 Xxxxxxxxxx Xxxxxxxxxxx
Fax: 00 0000 0000 until 15 April 2002
41 4384 410 01 as of 15 April 2002
b) in the case of the Company;
Gigantissimo 2321 AB, to be renamed Narvarme Acquisition III AB,
Xxxxxxxxxx 00, 000 00 Xxxx, Xxxxxx
or such other as a Party may notify to the other Party by no less
than five (5) business day's notice .
All notices and communication between the Parties shall be in English
unless otherwise agreed.
17. Governing law and disputes
17.1 This Agreement shall be governed by and construed and enforced in
accordance with Swedish law.
17.2 Any dispute, controversy or claim arising out of or in connection
with this Agreement, or the breach, termination or invalidity
thereof, shall be settled by arbitration in accordance with the Rules
of the Arbitration Institute of the Stockholm Chamber of Commerce.
The arbitral tribunal shall be composed of three arbitrators. The
place or arbitration including the making of the award shall be
Stockholm, Sweden. The language to be used in the arbitral
proceedings shall be English.
_____________
This Fnancing Agreement has been executed in two copies, of which the
parties have taken on each.
Gigantissimo 2321 AB
Stockholm, March 11, 2002
By: _____________________ By: _____________________
Title: ____________________ Title: ____________________
PRESENT when the Common Seal of SCANDINAVIA ENERGY FINANCE LIMITED
was affixed hereto:
_____________________________________
Director
_____________________________________
Director/Secretary
