EXECUTION COPY
ROYALTY AGREEMENT
This Royalty Agreement, dated as of April 8, 2004, is made by US
Energy Biogas Corporation, a Delaware corporation ("USEB"), Countryside Canada
Power Inc., a Canadian corporation ("Holder"), U.S. Energy Systems, Inc., a
Delaware corporation, and Cinergy Energy Solutions Inc., a Delaware corporation.
PRELIMINARY STATEMENT:
WHEREAS, Holder and USEB desire to enter into an arrangement whereby
Holder will make a payment to USEB in exchange for an economic participation in
the distributable cash flow of USEB, and a right in certain circumstances to
exchange such economic participation for non-voting USEB Stock,
THEREFORE, for good and valuable consideration, as described below, the
receipt and adequacy of which are hereby acknowledged, the parties agree as
follows:
SectioN 1. Definitions.
"Acquisition Agreement" means that certain agreement to be entered into
between the Fund, Countryside Canada Acquisition Inc., an Ontario corporation,
and U.S. Energy Systems, Inc., a Delaware corporation, dated of even date
herewith.
"AJG Note" means that certain purchase money note issued by AJG
Financial Services Inc. to Resources Generating Systems, Inc. dated as of April
8, 2004.
"AJG Subordinated Note" means that certain Amended and Restated
Subordinated Note issued by USEB to AJG Financial Services Inc. dated October
15, 2003.
"Agreement" means this Royalty Agreement dated as of April 8, 2004,
including all Schedules and Attachments hereto.
"Capital Event" means the liquidation of the USEB Operating Assets, the
sale of all or substantially all of the USEB Operating Assets, or the
refinancing of the USEB Loans.
"Capital Distribution Cap" means the greatest amount of money such that
500% (five hundred percent) of such amount is, at the time such amount is
distributed to Holder pursuant to the provisions of Section 7c(i) hereof,
concurrently distributed to USEB Shareholders with respect to their USEB Stock.
"Certificate of Incorporation" means that certain 2nd Amended and
Restated Certificate of Incorporation of U.S. Energy Biogas Corp. substantially
in the form attached hereto as Schedule 5 hereto.
"Code" means the United States Internal Revenue Code of 1986, as
amended.
"Conversion" means the exchange by Holder of the Royalty Interest for
the Equity Interest in accordance with the provisions of this Agreement.
"Conversion Effective Date" means the date on which the Conversion
becomes effective for purposes of this Agreement, which shall occur as of the
first day on or after the Conversion Eligibility Date on which: (i) Holder has
given Notice of election to exchange the Royalty Interest for the Equity
Interest; (ii) Holder, USEB, and the Illinois Projects, as applicable, have
received all third party consents and final, non-appealable approvals from
government authorities as are required for such Conversion in the opinion of
counsel to USEB, including but not limited to any ICC approval necessary to
authorize a change of ownership of the Illinois Projects while maintaining their
QSWEF status; (iii) USEB has filed the Certificate of Incorporation, and (iv)
Holder has executed the Shareholder Agreement.
"Conversion Eligibility Date" means the earlier to occur of the date on
which payment or prepayment of the USEB Loans is made in full and the 20th
(twentieth) anniversary of the date of this Agreement.
"Distribution Cap" means the greatest amount of money such that at
least 104.09% (one hundred four and nine one-hundredths percent) of such amount
is at the time such amount is distributed with respect to the Royalty Interest,
concurrently distributed to USEB Shareholders with respect to their USEB Stock
which is neither (i) nonvoting stock which is limited and preferred as to
dividends, nor (ii) "excluded stock" within the meaning of Code Section 1563(c).
"Dividend Distribution Requirement" means the requirement under Section
4 to make concurrent distributions to USEB Shareholders.
"Equity Interest" means non-voting USEB Stock to be issued by USEB upon
the Conversion, conveying rights to the holder(s) thereof in the aggregate to
49% (forty-nine per cent) of any distribution authorized by the Board of
Directors of USEB from time to time to be paid to USEB Shareholders with respect
to USEB Stock. For purposes of the preceding sentence, "USEB Stock" does not
include stock which is (i) nonvoting stock which is limited and preferred as to
dividends, or (ii) "excluded stock" within the meaning of Code Section 1563(c).
"Excluded Assets" means those certain assets of USEB identified in
Schedule 1 attached hereto.
"Fiscal Quarter" means the three calendar months commencing on January
1, April 1, July 1, and October 1 each year.
"Fund" means Countryside Power Income Fund, an unincorporated,
open-ended, limited purpose trust formed under the laws of the Province of
Ontario, Canada.
"GAAP" means United States generally accepted accounting principles,
consistently applied.
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"Gasco Notes" means those certain notes of indebtedness identified in
Schedule 2 attached hereto.
"Gross Up Amount" shall have the meaning ascribed to such term in
Section 9 hereof.
"Growth Capital Expenditures" means cash invested to expand the
capacity or production of USEB Operating Assets.
"Holder" means Countryside Canada Power Inc., a Canadian corporation
which is a wholly-owned subsidiary of the Fund.
"ICC" means the Illinois Commerce Commission, an official agency of the
State of Illinois.
"Illinois Projects" means those certain landfill gas recovery and power
projects identified in Schedule 3 attached hereto.
"Improvement Agreement" means that certain non-binding agreement
entered into as of April 8, 2004 between USEB and the Fund, describing an intent
to provide the Fund with a right of first offer to invest in two project
expansion projects and two greenfield development projects.
"Net Residual Proceeds" means the sum of the gross cash and other
proceeds generated by a Capital Event and the amounts held in the Reimbursement
Accounts as of the date of such Capital Event, less: (i) all expenses of or
allocable to the USEB Operating Assets incurred in connection with the Capital
Event, including but not limited to legal and accounting fees and disbursements,
banking and investment banking fees, brokerage fees, and other internal and
third party fees and costs related to the Capital Event and of or allocable to
the USEB Operating Assets; (ii) all amounts required to pay the USEB Loans in
full; (iii) Rate Incentive Reimbursement amounts and all other amounts due or
reserved for future payments to the Illinois Public Utility Fund, the Illinois
General Revenue Fund or State of Illinois governmental entity in respect of the
Illinois Projects; (iv) all amounts required to pay the YESCO Note and the AJG
Subordinated Note in full; (v) federal, state and local taxes due and owing and
an amount to be reasonably reserved to pay all such taxes which will become
payable by the USEB Operating Assets; (vi) all amounts required to liquidate all
other financial and contractual liabilities and wind up the affairs of the USEB
Operating Assets; (vii) all dividends of USEB and Royalty Payments which are
declared and unpaid as of the date of the Capital Event; (viii) a stipulated
amount of $30,000,000 (thirty million U.S. Dollars) representing the book value
of the investment of USEB Shareholders in USEB Operating Assets including
minority interests, but excluding the Royalty Interest, determined in accordance
with GAAP as of the date of the Offering, (ix) a stipulated amount of
$6,000,000.00 (six million U.S. Dollars) representing the book value of the
Royalty Interest at the time of the Offering; provided that neither the USEB
Reserve nor distributions therefrom shall be taken into account for purposes of
determining Net Residual Proceeds, and provided further that for purposes of
this definition, Net Residual Proceeds shall not be less than zero. For purposes
hereof, non-cash proceeds shall be valued as follows: (i) publicly traded
securities shall be valued at the average of their closing prices (as reported
by the stock exchange upon which such securities had the highest daily volume)
for the five trading days prior to the closing of the Capital Event, and (ii)
any other non-cash proceeds shall be valued at their fair market value
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reasonably determined in good faith by USEB and Holder; provided that in the
event Holder and USEB fail to agree upon the fair market value of such proceeds,
either party may by Notice to the other, submit the question for final
determination by an accounting firm of greater than 250 professionals accredited
as such in the United States, that is unaffiliated with either party or their
parent or subsidiary companies, and that is not currently under contract with or
subject to a proposal for services to either party, their parent or subsidiary
companies; and provided further that the determination of fair market value by
such accounting firm shall be binding on both parties and not subject to
judicial appeal, and that the costs and fees charged by such accounting firm
shall be for the account of USEB and shall further reduce Net Residual Proceeds.
"Notice" means the communication described below in Section 13.
"Offering" means the distribution of trust units of the Fund, which
distribution is made pursuant to an initial public offering on April 8, 2004.
"QSWEF" means a Qualifying Solid Waste Energy Facility as determined by
the ICC.
"Rate Incentive Reimbursement" means the repayment of amounts received
by USEB Operating Assets under a certain QSWEF rate incentive program
established by the law of the State of Illinois.
"Reimbursement Accounts" means those certain accounts required by the
ICC to be maintained to fund the Rate Incentive Reimbursement.
"Reimbursement Account Deposits" means those deposits and reinvestments
of interest and earnings in the Reimbursement Accounts required by the
provisions of the USEB Loan Agreement.
"Royalty Distribution" means any Royalty Payment and any other payment
by USEB to Holder with respect to the Royalty Interest, including without
limitation the payments described in Section 7c below.
"Royalty Interest" means the right of Holder established by the terms
and conditions of this Agreement to receive: (i) from the date hereof until the
Conversion Eligibility Date, the lesser of (a) the sum of 7% (seven per cent) of
the USEB Distributable Cash Flow and 1.8% (one and eight-tenths of one per cent)
of the USEB Revenues, and (b) the Distribution Cap; and (ii) on and after the
Conversion Eligibility Date, the lesser of (x) 49% (forty-nine per cent) of USEB
Distributable Cash Flow and (y) the Distribution Cap; provided that the Royalty
Interest shall be determined in respect of each Fiscal Quarter or portion
thereof, as the case may be, and shall be limited in any event to an amount of
money equal to the USEB Distributable Cash Flow, if any, during such period.
"Royalty Payment" means the sum of (i) any payment by USEB with respect
to the Royalty Interest to Holder in accordance with the provisions of this
Agreement, including without limitation any payment under Section 7 or Section 9
hereof, but not including the return of the $6,000,000.00 (six million U.S.
Dollars) in consideration paid by Holder, pursuant to a Capital Event as
provided in Section 7 (c) hereof, plus (ii) any applicable Gross Up Amount.
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"Shareholder Agreement" means an agreement among the USEB Shareholders
substantially in the form attached hereto as Schedule 4 hereto.
"Transfer" shall have the meaning described in Section 10 hereof.
"USEB" means US Energy Biogas Corporation, a Delaware corporation.
"USEB Distributable Cash Flow" means with respect to any period of
time, USEB Revenues less: (i) Reimbursement Account Deposits of cash during such
period; (ii) actual cash payments and distributions of every kind made by USEB
Operating Assets during such period (other than payments or distributions to
other USEB Operating Assets or to Excluded Assets), such payments to include
without limitation expenses, salaries, fees, rent, overhead not to exceed
$1,400,000.00 (one million four hundred thousand U.S. Dollars) per annum, taxes,
capital expense, and, if 100% (one hundred percent) of the revenues of Illinois
Electrical Generation Partners II, L.P., a Delaware limited partnership ("IEGP
II") are included in USEB Revenues, distributions to AJG Financial Services in
respect of its interests in IEGP II, but to exclude payments to USEB
Shareholders in respect of services rendered, and (iii) cash payments of
principal and interest, funding of reserve requirements in cash, including but
not limited to the USEB Reserve, and other cash payments and reimbursements
during such period as required by the USEB Loan Agreement and the YESCO Note;
provided that USEB Distributable Cash Flow shall not be reduced by Growth
Capital Expenditures during such period.
"USEB Loan(s)" means two certain loans from Holder to USEB dated of
even date with the Offering, under which USEB will provide a first lien on all
of the USEB Operating Assets as security, the direct and indirect subsidiaries
of USEB will guarantee the USEB Loans jointly and severally, and such
subsidiaries will provide a first lien on all of their respective assets as
security for their guarantees.
"USEB Loan Agreement" means that certain Loan Agreement evidencing the
USEB Loans, the collateral security agreements pertaining thereto, and certain
other agreements ancillary thereto, all dated as of the date of the Offering.
"USEB Operating Assets" means the assets, liabilities and
capitalization of USEB and its predecessor company and their subsidiaries,
excluding the equity and assets and liabilities of the Excluded Assets.
"USEB Reserve" means amounts held in that certain debt service cash
reserve account required by the terms of the USEB Loan Agreement to be funded
with an initial contribution of USD$2,000,000.00 (two million U.S. Dollars) and
thereafter increased and maintained by USEB.
"USEB Revenues" means, with respect to any period of time, the
aggregate consolidated gross revenues received by the USEB Operating Assets
during such period, including but not limited to: (i) interest on and other
earnings from investment of the Reimbursement Accounts from time to time, to the
extent such interest and earnings are not required by the USEB Loan Agreement to
be reinvested in the Reimbursement Accounts and are reasonably determined by
USEB to be in excess of the amounts required to provide for the Rate Incentive
Reimbursement; (ii) interest on and other earnings from investment of the USEB
Reserve; (iii) repayments of principal or payments of interest actually received
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during such period under any of the Gasco Notes; (iv) fees and other payments
received from services rendered and sales made to persons or entities other than
to the USEB Operating Assets; (v) amounts received under the QSWEF rate
incentive program which have not otherwise been included in gross revenues, and
(vi) repayments of principal or payments of interest which are actually received
by USEB during such period pursuant to the AJG Note; provided that cash or other
proceeds generated by a Capital Event shall not be taken into account in
determining USEB Revenues. For purposes of this definition, in order to
eliminate multiple counting of revenues, aggregate consolidated gross revenues
shall be determined in a manner that does not take into account amounts of any
nature transferred among USEB Operating Assets.
"USEB Shareholders" means all of the owners of USEB Stock.
"USEB Stock" means all of the voting and nonvoting stock authorized and
issued by USEB from time to time, which, for greater certainty, shall exclude
the Royalty Interest.
"YESCO Note" means that certain $4,700,000 Secured Promissory Note,
dated March 30, 2001, by BMC Energy LLC, Brookhaven Energy, LLC, Countryside
Genco, L.L.C., Countryside Landfill Gasco, L.L.C., Xxxxxx Xxxxx, L.L.C. and
Xxxxxx Xxxxx, L.L.C., each a Delaware limited liability company, in favor of
Yankee Energy Services Company, as amended.
SECTION 2. Grant of Royalty Interest. In consideration of a cash payment by
Holder sto USEB in the amount of USD $6,000,000.00 (six million U.S. Dollars),
and other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, USEB hereby grants to Holder the Royalty Interest,
subject to the terms and conditions of this Agreement.
SECTION 3. Royalty Payments. Subject to the following Section 4, Royalty
Payments shall be paid within 45 (forty-five) days following the last day of
each Fiscal Quarter, including the Fiscal Quarter in which the Conversion
Effective Date or a Capital Event may occur, and USEB shall provide with each
such payment a detailed statement of calculations supporting the determination
of the Royalty Payment.
SECTION 4. Dividend Distribution Requirement. Notwithstanding anything else in
this Agreement, no Royalty Distribution may be made unless, at the time of such
Royalty Distribution, an amount equal to or greater than 104.09% (one hundred
four and nine one hundredths percent) of the amount of the Royalty Distribution
is concurrently distributed to USEB Shareholders with respect to their USEB
Stock which is neither (i) nonvoting stock which is limited and preferred as to
dividends, nor (ii) "excluded stock" within the meaning of Code Section 1563(c).
In the event that a Royalty Distribution or any portion thereof is not timely
paid or a Royalty Distribution or any portion thereof would have been payable
but was not paid because USEB has not paid dividends to USEB Shareholders for
any reason (including (i) compliance with dividend distribution restrictions
provisions of the USEB Loans or the YESCO Note, (ii) restriction imposed by law,
statute, rule or regulation, or (iii) other good business reason (each of (i)
through (iii) a "Dividend Payment Restriction")), then such unpaid amounts shall
accrue for the account of Holder and be reserved by USEB, and, (A) in the case
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in which failure to pay the dividends was due to a Dividend Payment Restriction,
USEB shall pay such previously restricted dividends and the corresponding
accrued and unpaid Royalty Distributions as soon as practicable after such
Dividend Payment Restriction no longer remains operative, until all accrued and
unpaid Royalty Distributions have been paid in full, and (B) in all other cases,
USEB shall pay such dividends and the corresponding accrued and unpaid Royalty
Distributions as soon as practicable, until all accrued and unpaid Royalty
Distributions have been paid in full. For greater certainty, Holder shall in no
event be entitled to receive any such unpaid, accrued or reserved amounts except
in compliance with the first sentence of this Section 4.
SECTION 5. Term. The Term of this Agreement and the Royalty Interest conveyed
hereunder shall commence upon the date first appearing above, and shall
terminate upon the earlier to occur of (i) the payment of all amounts due to
Holder pursuant to the provisions of this Agreement following the occurrence of
a Capital Event other than a refinancing of the USEB Note, and (ii) the
Conversion Effective Date; provided that Holder's rights under this Agreement to
receive Royalty Payments which have accrued during the Term hereof shall survive
such termination until the date on which the final Royalty Payment due or
accrued to Holder have been paid.
SECTION 6. Conversion. Holder shall have the right to convert all but not less
than all of its rights in and to the Royalty Interest into the Equity Interest,
and shall have the right to own the Equity Interest, subject to the following
provisions of this Section 6:
a. Holder shall have the right at its sole discretion to convert all
but not less than all of its rights in and to the Royalty Interest at
any time on or after the Conversion Eligibility Date.
x. Xxxxxx shall exercise the right to convert the Royalty Interest to
the Equity Interest by: (i) giving Notice of such exercise to USEB as
provided below, and (ii) executing the Shareholder Agreement.
x. Xxxxxx shall own the Equity Interest as of the Conversion Effective
Date, at which time the Royalty Interest shall expire and terminate,
whether this Agreement has terminated or not.
d. Upon Notice from Holder of election to exercise its right to
Conversion, USEB shall use its reasonable best efforts, and Holder
shall use its reasonable best efforts to cooperate with USEB, to obtain
all third party consents and approvals of government authorities
required to effect the Conversion in the opinion of counsel to USEB,
including but not limited to any ICC approval necessary to authorize a
change of ownership of the Illinois Projects while maintaining their
QSWEF status.
e. Upon Notice from Holder of election to exercise its right to
Conversion, U.S. Energy Systems, Inc. and Cinergy Energy Solutions Inc.
shall execute the Shareholder Agreement and USEB shall file the
Certificate of Incorporation.
f. USEB shall calculate the Royalty Interest up to and including the
Conversion Effective Date and shall make the final Royalty Payment not
later than 45 days following the end of the Fiscal Quarter in which the
Conversion Effective Date occurs, subject to the provisions of Section
4 above.
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g. USEB shall authorize and issue to Holder upon the Conversion
Effective Date, one or more fully executed certificates evidencing, in
the aggregate, ownership of the Equity Interest.
h. For greater certainty, any Royalty Payment occurring as of or after
the Conversion Effective Date shall be subject to the Dividend
Distribution Requirement, provided that Holder shall not be treated as
a USEB Shareholder for such purposes.
i. Prior to the Conversion Effective Date, subject to the provisions of
the USEB Loans, USEB shall have the right to distribute any or all of
the USEB Reserve to the USEB Shareholders without the consent of
Holder.
j. Conversion of the Royalty Interest to the Equity Interest shall be
further subject to and conditioned upon full compliance with the
following conditions:
(i) The Conversion will not result in USEB being subject to
the registration and reporting requirements of the Investment
Company Act of 1940, as amended.
(ii) The Conversion shall not cause USEB to become a "holding
company" or a "public utility company" or an "affiliate" of a
"public utility company" as such terms are defined by the
Public Utility Holding Company Act of 1935.
(iii) The Conversion will not result in USEB or any USEB
Shareholder being subject to any additional material
regulatory burdens or adverse tax treatment.
(iv) The Conversion shall not cause USEB or its subsidiaries
to become subject to the Federal Power Act or Natural Gas Act
or regulation as a "public utility", a "local distribution
company", an "electric load serving entity" or a similar
entity under the law of any state except to the extent that,
at the time of the Conversion, USEB or any subsidiary thereof
is already subject to regulation thereunder.
(v) The Conversion shall not cause any "Qualifying Facility"
within the meaning of the Public Utility Regulatory Policies
Act of 1978 and 18 C.F.R. Part 292 in which USEB or its
subsidiaries hold an equity interest to lose its status as
such or have any material adverse effect on the federal, state
or local regulatory status of any project owned or operated by
USEB or its subsidiaries.
SECTION 7. Capital Event.
a. USEB shall give Holder prior Notice as soon as practicable of any
potential Capital Event, in sufficient detail that Holder may have a
reasonable opportunity to evaluate and at its discretion exercise its
rights to Conversion prior to such Capital Event.
b. Upon the occurrence of a Capital Event when Conversion has not
occurred, the Royalty Interest shall be determined through the date of
the Capital Event and the appropriate Royalty Payment, if any, shall be
made.
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c. Upon the occurrence of a Capital Event when Conversion has not
occurred on or prior to such Capital Event, in addition to and not in
lieu of any Royalty Payment due, USEB shall pay to Holder the aggregate
of (i): the lesser of (A) the Capital Distribution Cap, and (B)
$6,000,000 (six million U.S. Dollars), and (ii) the lesser of (C) the
Distribution Cap, and (D) an amount of money equal to 49% (forty-nine
per cent) of the Net Residual Proceeds, if any.
SECTION 8. Dividends. USEB shall at all times take such actions and cause such
actions to be taken, as the case may be, for USEB: (i) to authorize, declare and
pay dividends which will maximize the Distribution Cap and the Capital
Distribution Cap for purposes of determining the Royalty Interest and the
Royalty Distributions pursuant to the terms of this Agreement and permit the
payment in full of any Royalty Distribution when such Royalty Distribution is
first due, and (ii) to pay to Holder its share of the Net Residual Proceeds as
provided by this Agreement, provided that such obligation to take and cause such
actions shall be subject in each case to applicable law and the terms of the
USEB Loan Agreement, the YESCO Note, and the AJG Subordinated Note.
SECTION 9. Reimbursement of Withholding Tax. In addition to any other payments
due and payable to Holder under this Agreement, USEB shall make Holder whole for
any U.S. withholding taxes that are imposed on Holder with respect to any
Royalty Distribution, as follows: USEB shall be responsible for the payment of
United States federal and state withholding taxes with respect to Royalty
Distributions, and shall add to each Royalty Distribution such amount as is
necessary to put Holder in the same position it would have been in if no such
withholding taxes were imposed on such Royalty Distribution ("Gross Up Amount").
SECTION 10. Assignment and Transfer.
a. This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns.
b. USEB may not assign, assign as collateral, or Transfer (as defined
below) any of its rights or obligations under this Agreement without
the prior written consent of Holder, which consent shall not
unreasonably be withheld. Except to the extent expressly restricted by
this Section 10, Holder may freely assign, assign as collateral, or
Transfer its rights and obligations under this Agreement. Each party
shall use its commercially reasonable best efforts to assist and
cooperate with the other parties in any manner reasonably requested to
effect the assignment, collateral assignment or Transfer of rights and
obligations under this Agreement, subject to the provisions of this
Section 10. In the case of a permitted assignment hereunder (other than
a permitted collateral assignment), the assignee shall have, to the
extent of such assignment, the same rights, benefits and obligations as
would assignor hereunder. In the case of any collateral assignment
permitted under this Agreement, assignor's obligations under this
Agreement shall remain unchanged and assignor shall remain solely
responsible to the other parties hereto for the performance of such
obligations, and the other parties may continue to deal directly with
assignor. Without the prior written consent of USEB, Holder shall not
assign, assign as collateral, or Transfer less than all of Holder's
rights and obligations under this Agreement.
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c. Notwithstanding any other provision of this Agreement, without the
prior written consent of USEB, U.S. Energy Systems, Inc. and Cinergy
Energy Solutions Inc., no assignment, assignment as collateral, or
Transfer (including participations), shall be permitted to any person
or entity that is engaged or that has affiliates engaged in the
business of developing, owning or operating landfill gas recovery
systems or power generating or thermal energy production facilities
fueled by landfill gas, or in the business of developing, owning or
operating district thermal energy systems.
d. Except with respect to collateral assignments of Holder's rights
and obligations under this Agreement which are not absolute assignments
, the Royalty Interest shall not be sold, transferred, donated, given,
assigned, or otherwise disposed of, whether voluntarily, by operation
of law or otherwise (any of the foregoing acts with respect to rights
and obligations under this Agreement including without limitation the
Royalty Interest being referred to in this Section 10 as a "Transfer"),
except subject to and conditioned upon full compliance by the
transferor and transferee of such Royalty Interest with each of the
following conditions:
(i) Each transferee shall have executed an agreement in form
and substance satisfactory to USEB, by which such transferee
shall have agreed to become a party to and bound by the terms
and conditions of this Agreement.
(ii) No Transfer shall be made: (A) to a person or other
entity who, in accordance with applicable law, lacks the
capacity to own, or otherwise is prohibited from owning, such
Royalty Interest by reason of minority, incompetence or
otherwise; or (B) to a person or entity otherwise prohibited
by applicable law from entering into such transaction or
holding such Royalty Interest; or (C) which violates any other
provision of this Agreement.
(iii) The transferor and transferee shall have delivered to
USEB such other agreements, instruments and other documents
(including opinions of counsel reasonably satisfactory to
USEB) as USEB shall request in order to demonstrate compliance
of any such Transfer with the provisions of this Agreement and
applicable law. (iv) The Transfer will not result in USEB
being subject to the registration and reporting requirements
of the Investment Company Act of 1940, as amended.
(v) The Transfer shall not cause USEB to become a "holding
company" or a "public utility company" or an "affiliate" of a
"public utility company" as such terms are defined by the
Public Utility Holding Company Act of 1935.
(vi) The Transfer will not result in USEB or any USEB
Shareholder being subject to any additional material
regulatory burdens or adverse tax treatment.
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(vii) The Transfer shall not cause USEB or its subsidiaries to
become subject to the Federal Power Act or Natural Gas Act or
regulation as a "public utility", a "local distribution
company", an "electrical load serving entity" or a similar
entity under the law of any state except to the extent that,
at the time of the Transfer, USEB or any subsidiary thereof is
already subject to regulation thereunder.
(viii) The Transfer shall not cause any "Qualifying Facility"
within the meaning of the Public Utility Regulatory Policies
Act of 1978 and 18 C.F.R. Part 292 in which USEB or its
subsidiaries hold an equity interest to lose its status as
such or have any material adverse effect on the federal, state
or local regulatory status of any project owned or operated by
USEB or its subsidiaries.
SECTION 11. Conditions of Effectiveness. This Agreement shall become effective
as of the date first set forth above when each of the following conditions shall
have been fulfilled:
a. Each of USEB, Holder, U.S. Energy Systems, Inc. and Cinergy Energy
Solutions Inc. shall have executed and delivered to each other a
counterpart of this Agreement;
b. USEB shall have delivered to Holder an opinion of counsel relating
to the transactions contemplated by this Agreement in form and
substance reasonably satisfactory to Holder;
x. Xxxxxx shall have delivered to USEB the consideration described in
Section 2 hereof;
d. The representations and warranties set forth in Section 12 hereof
shall be true and correct on and as of the date of effectiveness of
this Agreement as though made on and as of such date; and
e. All of the transactions contemplated in the Acquisition Agreement
shall have been completed.
SECTION 12. Representations, Warranties and Covenants.
a. USEB, U.S. Energy Systems, Inc. and Cinergy Energy Solutions Inc.
individually and not jointly and severally represent and warrant that:
(i) Each of them is a corporation duly organized, validly existing and
in good standing under the laws of the State of its respective
incorporation and is duly qualified to do business and in good standing
under each other jurisdiction in which it owns its properties or the
conduct of its business requires such qualification.
(ii) Each of them has the corporate power and authority to own, license
or lease the properties and assets it purports to own, license or lease
and to conduct its business as now conducted and as presently proposed
to be conducted and to execute, deliver and perform its obligations
under this Agreement.
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(iii) The execution and delivery by each of them of this Agreement and
the performance of its respective obligations hereunder have been or
will be, as the case may be, duly authorized and constitute or will
constitute, as the case may be, valid obligations legally binding upon
it and enforceable in accordance with the terms hereof, except as
enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights
generally or by equitable principles relating to or limiting creditors'
rights generally. This Agreement has been executed and delivered by
each of them.
(iv) The execution and delivery of this Agreement by each of them and
the performance of its respective obligations hereunder do not, and
will not, require any approval that has not been obtained, or the
approval of any trustee or holder of any obligation or indebtedness of
that has not been obtained, and do not, and will not, contravene any
law, statute, rule or regulation, any governmental approval or
authorization or its respective corporate governing documents, or
constitute a default under any indenture, mortgage, deed of trust, loan
, purchase or credit agreement, lease or any other agreement or
instrument to which it is a party or by which it or its properties may
be bound or affected, or result in the creation of any lien upon any of
its property.
x. Xxxxxx represents and warrants that:
(i) Holder is a corporation duly organized, validly existing
and in good standing under the laws of Canada.
(ii) Holder has the corporate power and authority to execute
and deliver this Agreement and to perform its obligations under this
Agreement.
(iii) The execution and delivery of this Agreement by Holder
and the performance by Holder of its obligations hereunder have been or
will be, as the case may be, duly authorized and constitute or will
constitute, as the case may be, valid obligations of Holder legally
binding upon it and enforceable in accordance with the terms of this
Agreement, except as enforcement may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting creditors' rights generally or by equitable principles
relating to or limiting creditors' rights generally. This Agreement has
been executed and delivered by Holder.
(iv) The execution and delivery by Holder of this Agreement
and the performance by Holder of its obligations hereunder do not, and
will not, require any approval that has not been obtained, or the
approval of any trustee or holder of any obligation or indebtedness of
Holder that has not been obtained, and do not, and will not, contravene
any law, statute, rule or regulation, any governmental approval or
authorization, or Holder's corporate governing documents, or constitute
a default under any indenture, mortgage, deed of trust, loan, purchase
or credit agreement, lease or any other agreement or instrument to
which Holder is a party or by which Holder or its properties may be
bound or affected.
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(v) In connection with the execution of this Agreement, Holder
is delivering to USEB a complete and valid Form W-8BEN.
c. Covenants.
(i) Other than the Royalty Interest and the right to acquire
the Equity Interest as provided herein, Holder covenants not to acquire
(until after the Conversion Effective Date) directly, indirectly, by
operation of the constructive ownership rules of Code Section 318 as
modified by Code Section 871(h)(3)(C), or through a person bearing a
relationship to Holder described in Code Section 267, any equity
interest or royalty interest or option, right of first refusal, right
of first offer or similar right to acquire an equity interest or
royalty interest in any of USEB, U.S. Energy Systems, Inc., or Cinergy
Energy Solutions Inc., except as provided in the "Definitive Agreement"
as that term is defined in the Improvement Agreement.
(ii) Holder and USEB agree to cooperate and to file or provide
such forms, returns or other documentation as may at any time be
required or appropriate to minimize the U.S. federal withholding tax
applicable to any Royalty Payment or other transaction contemplated
hereunder.
(iii) The parties hereto agree that except as required by a
change in law or GAAP after the date hereof, they (and their respective
direct and indirect subsidiaries) will not treat the Royalty Interest
as debt for any purposes (including for accounting purposes).
(iv) No USEB Shareholder shall sell, transfer, donate, give,
mortgage, pledge, hypothecate, or otherwise encumber or dispose of,
whether voluntarily, by operation of law or otherwise (any of the
foregoing acts being herein referred to as a "Transfer") any USEB Stock
now or hereafter owned by such USEB Shareholder, except subject to and
conditioned upon full compliance by the transferor and transferee with
each of the following conditions:
(1) Each transferee shall have executed an agreement
in form and substance satisfactory to Holder, by which such
transferee shall have agreed to become a party to and bound by
the terms and conditions of this Agreement.
(2) No Transfer shall be made: (A) to a person or
other entity who, in accordance with applicable law, lacks the
capacity to own, or otherwise is prohibited from owning, such
USEB Stock by reason of minority, incompetence or otherwise;
or (B) to a person or entity otherwise prohibited by
applicable law from entering into such transaction or holding
such USEB Stock; (C) to any person if, as a result of such
Transfer, any USEB Stock would be "excluded stock" within the
meaning of Code Section 1563(c), or (D) which violates any
other provision of this Agreement.
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(3) The transferor and transferee shall have
delivered to Holder such other agreements, instruments and
other documents (including opinions of counsel reasonably
satisfactory to Holder) as Holder shall request in order to
demonstrate compliance of any such Transfer with the
provisions of this Agreement and applicable law.
(v) USEB shall not directly or indirectly solicit any
proposals or enter into any agreements or arrangements of any kind with
any person or entity, which proposals, agreements or arrangements, if
given effect, would be inconsistent with the provisions of this
Agreement or would frustrate its intent.
(vi) USEB will not authorize or issue any stock which is
nonvoting and limited and preferred as to dividends, and will not issue
any stock to a person if, in the hands of such person, such stock would
be "excluded stock" within the meaning of Code Section 1563(c).
SECTION 13. Notices. Notices and other communications provided for herein shall
be in writing and shall be delivered by overnight courier service next day
delivery, as follows:
a. If to USEB, at its address at One North Lexington Avenue 15th Floor,
ATTN: President, Facsimile number (000) 000-0000.
b. If to Holder, at its address at 000 Xxxxxxxx Xxxxxx, Xxxxxx,
Xxxxxxx, X0X 0X0, ATTN: Xxxxxx Xxxxxxxxx, Facsimile number (519)
435-0396, with a copy to Countryside U.S. Power Inc., c/o U.S. Energy
Systems, Inc. at its address at One North Lexington Avenue 15th Floor,
ATTN: President, Facsimile number (000) 000-0000..
c. If to U.S. Energy Systems, Inc., at its address at Xxx Xxxxx
Xxxxxxxxx Xxxxxx 00xx Xxxxx, ATTN: Xxxxx Xxxxxxx, President & COO,
Facsimile number ( 000) 000-0000.
d. If to Cinergy Energy Solutions Inc., at its address at 000 Xxxx
Xxxxxx Xxxxxx, 5 Atrium II EA502, Xxxxxxxxxx, Xxxx 00000, ATTN:
President, Facsimile number (000) 000-0000 with a copy to Cinergy
Corp., 000 Xxxx Xxxxxx Xxxxxx, 0 Xxxxxx XX XX000, Xxxxxxxxxx, Xxxx
00000, ATTN: General Counsel, Commercial Business Unit, Facsimile
number (000) 000-0000.
e. As to each party hereto, at such other address as shall be
designated by such party from time to time by Notice to the other
parties hereto.
All notices and other communications given to any party hereto in accordance
with the provisions of this Agreement shall be deemed to have been given on the
date of receipt if delivered by overnight courier service to such party as
provided in this Section or in accordance with the latest unrevoked direction
from such party given in accordance with this Section.
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SECTION 14. Books and Records. USEB shall keep and maintain proper books and
records of the transactions and payments under this Agreement, and shall permit
the other parties hereto access to review and make photocopies of such books and
records during normal business hours on reasonable prior Notice.
SECTION 15. Execution in Counterparts. This Agreement may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed and delivered shall be deemed to be an original
and all of which taken together shall constitute but one and the same
instrument.
SECTION 16. Governing Law. This Amendment shall be governed by, and construed in
accordance with, the internal laws of the State of the New York.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
US Energy Biogas Corporation
By: _______________________________
Name:
Title:
Countryside Canada Power Inc.
By__________________________________
Name:
Title:
U.S. Energy Systems, Inc.
By_________________________________
Name:
Title:
Cinergy Energy Solutions, Inc.
By_________________________________
Name:
Title:
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