AMENDMENT NO. 1 TO INDEMNIFICATION AGREEMENT
THIS AMENDMENT NO. 1 to the Indemnification Agreement is made
as of the [ ] day of May 2001 (as supplemented or modified from time to time,
this "Agreement") by and among AJG Financial Services, Inc., by its Vice
President, General Counsel, as agent (the "Major Shareholder Agent") for ▇▇▇▇▇▇▇
▇. ▇▇▇▇▇▇, Finova Mezzanine Capital Corp., AJG Financial Services, Inc., ("AJG")
Environmental Opportunities Fund (for itself and as successor to) Environmental
Opportunities Fund Cayman, ▇▇▇▇▇▇▇ ▇▇▇▇, M&R Associates, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ (each, an "Initial Major
Shareholder"), ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ Alternative Power Corporation, a
Delaware corporation ("ZAPCO "), U.S. Energy Systems, Inc., a Delaware
corporation ("USE"), USE Acquisition Corp., a Delaware corporation (the "Sub"
and together with USE, the "Beneficiaries") and Cinergy Energy Solutions, Inc.,
a Delaware corporation ("CES"). Unless indicated otherwise, capitalized terms
shall have the same meanings herein as they have in the Indemnification
Agreement (as defined below).
W I T N E S S E T H:
WHEREAS, the parties hereto and the Initial Major Shareholders
have previously entered into that certain Indemnification Agreement dated as of
November 28, 2000 (the "Indemnification Agreement");
WHEREAS, the parties hereto and the Initial Major Shareholders
wish to add ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ as a "Major Shareholder" as such term is used in
the Indemnification Agreement;
WHEREAS, Zapco has not posted a bond required by the City of
Garland in connection with Zapco's project in Garland, Texas (the "Garland
Project");
WHEREAS, Zapco and certain subsidiaries and affiliates of
Zapco have agreed that unless certain conditions are met, the "Debt Service
Reserve Minimum Amount" under the Indenture of Trust and Security Agreement
among Zapco, those subsidiaries and affiliates and the Chase Manhattan Bank, as
Trustee, shall increase by $200,000 and a Debt Service Reserve Account of such
amount shall be funded by Zapco by June 30, 2001;
WHEREAS, pursuant to the terms of the Construction and Term
Loan Agreement by and between ABB Energy Capital L.L.C. ("ABB") and BMC Energy
LLC, Brookhaven Energy Partners LLC and Countryside Genco LLC dated as of April
30, 2001 (the "ABB Loan Agreement"), ZAPCO is required to obtain an insurance
policy providing for a payoff of the loan (the "ABB Loan") pursuant to the ABB
Loan Agreement in the event of a condemnation which in ABB's judgment would
cause future cash revenues from the Countryside Project to be inadequate to
fully pay for debt service due in respect of the ABB Loan, which policy shall be
in form and substance satisfactory to the ABB in all respects ("Condemnation
Insurance");
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WHEREAS, the following documents, among others, have been
executed and delivered in connection with the Note Purchase Agreement and the
▇▇▇▇▇▇▇ Notes:
1. First Amendment dated as of October 13, 2000 to Note Purchase
Agreement.
2. Second Amendment dated as of April 30, 2001 to Note Purchase Agreement.
3. Third Amendment dated as of May 11, 2001 to Note Purchase Agreement.
4. Indenture of Trust and Security Agreement dated as of November 30,
1999.
5. First Amendment dated as of March 14, 2000 to Indenture of Trust and
Security Agreement.
6. First Supplemental Indenture of Trust and Security Agreement dated as
of October 13, 2000.
7. Second Supplemental Indenture of Trust and Security Agreement dated as
of December 21, 2000.
8. Second Amendment dated as of December 22, 2000 to Indenture of Trust
and Security Agreement.
9. Third Amendment dated as of May 11, 2001 to Indenture of Trust and
Security Agreement.
10. Third Supplemental Indenture of Trust and Security Agreement dated
as of April 30, 2001 (the "Third Supplemental Indenture"); and
11. The Consent Letter Agreement among ZAPCO and certain of its
Affiliates, ▇▇▇▇▇▇▇ and certain of its Affilitates and investors
and Mellon Bank, N.A., as trustee, dated as of May 11, 2001
(collectively the "New ▇▇▇▇▇▇▇ Documents"); and
WHEREAS, the parties hereto now wish to amend the
Indemnification Agreement:
NOW, THEREFORE, in consideration of $10.00 and other
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
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1. The prefatory paragraph and the signature page of the
Indemnification Agreement are amended to include
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ as a "Major Shareholder." By his
signature hereto, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ represents and
warrants that he has read the Indemnification
Agreement, as amended by this Agreement, and agrees
to be bound by its terms as a Major Shareholder as if
he were an original signatory thereto.
2. Section 3(a)(viii) of the Indemnification Agreement is hereby amended
by deleting the existing paragraph in its entirety and inserting in
its place the following paragraph:
(viii.) any breach by ZAPCO of, or failure by ZAPCO
to comply with, any of its covenants or obligations
under the YESCO Agreement and the other agreements
(collectively, the "YESCO Documents") executed and
delivered in connection with the YESCO Transaction,
including all agreements and documents (the "YESCO
Financing Documents") executed and delivered in
connection with the financing (the "YESCO Financing")
of the YESCO Transaction, in each case only to the
extent such breach or failure arises or accrues
before the Effective Time, including (A) the ABB Loan
Agreement and the other agreements (collectively, the
"ABB Loan Documents") executed and delivered in
connection with the loan (the "ABB Loan ") pursuant
to the ABB Loan Agreement and (B) the Term Loan
Agreement by and between AJG Financial Services, Inc.
and BMC Energy LLC and ▇▇▇▇▇▇ ▇▇▇▇▇ LLC dated as of
March 30, 2001 and the other agreements (collectively
the "AJG Loan Documents") executed and delivered in
connection with the loan (the "AJG Loan") pursuant to
the AJG Loan Agreements and any breach by ZAPCO of,
or failure by ZAPCO to comply with, any of its
covenants or obligations under the YESCO Documents,
the YESCO Financing Documents and any liability of
ZAPCO in connection with the YESCO Transaction and
the YESCO Financing in each case only to the extent
such breach or failure arises or accrues before the
Effective Time;
3. Section 3(a) of the Indemnification Agreement is hereby amended by
inserting at the end thereof the following paragraphs:
(xii.) (a) all Claims relating to or arising from
the failure to obtain a performance bond (the
"▇▇▇▇▇▇▇ ▇▇▇▇") relating to the Garland Project, (b)
any amounts paid for the premiums and other charges
of the issuer of the ▇▇▇▇▇▇▇ ▇▇▇▇ for issuing and
maintaining such Bond (but not including any amounts
paid to obtain or maintain any collateral or security
for such Bond or any amounts deposited or otherwise
posted as collateral or security therefor), and (c)
the Lost Opportunity Costs with respect to the
collateral, if any, posted in connection with any
▇▇▇▇▇▇▇ ▇▇▇▇▇; for purposes of this clause, Lost
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Opportunity Costs means (i) the aggregate amount of
any collateral multiplied by 20% per annum less (ii)
any amount received by Zapco as interest or other
earnings on such collateral, discounted to present
value using a 20% discount factor;
(xiii.) any breach by ZAPCO of, or failure by ZAPCO
to comply with, any of its covenants or obligations
under the Purchase and Sale Agreement by and among
AIG GAS, LLC, AJG, and ZAPCO dated as of December 22,
2000 (the "AIG Agreement") and the other agreements
(collectively, the "AIG Documents") executed and
delivered in connection with the AIG Agreement and
any breach by ZAPCO of, or failure by ZAPCO to comply
with, any of its covenants or obligations under the
AIG Documents and any liability of ZAPCO in
connection with the AIG Documents in each case only
to the extent such breach or failure arises or
accrues before the Effective Time;
(xiv) any breach by ZAPCO of, or failure by ZAPCO to
comply with, any of its covenants or obligations
under the New ▇▇▇▇▇▇▇ Documents and any breach by
ZAPCO of, or failure by ZAPCO to comply with, any
of its covenants or obligations under the New
▇▇▇▇▇▇▇ Documents and any liability of ZAPCO in
connection with the New ▇▇▇▇▇▇▇ Documents in each
case only to the extent such breach or failure
arises or accrues before the Effective Time;
(xv) all Claims relating to or arising from an
event of default under Section 5.01(s) of the
Security Agreement as such term is defined in the
Third Supplemental Agreement;
(xvi) So long as ABB refuses to release funds from
the Countryside Projects because ZAPCO has not
obtained Condemnation Insurance with respect to the
Countryside Properties, the net present value of
the cash distributions that would have been made to
Zapco or its Affiliates from the Project Control
Account during the relevant period pursuant to
Sections 4.4(ii) and (vii) of the ABB Loan
Agreement if ABB had not withheld any such funds
from distribution to Zapco or its Affiliates due to
a failure to obtain Condemnation Insurance pursuant
to such Sections 4.4(ii) and (vii), less the net
present value of the cash distributions that were
actually received by Zapco and its Affiliates from
the Project Control Account during such relevant
period pursuant to Sections 4.4(ii) and (vii) of
the ABB Loan Agreement (including earnings on such
distributions). Such net present value calculations
shall account for the timing and amount of the
putative and actual cash distributions described
above and shall use a 20% per annum discount
factor;
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(xvii) The premiums and other charges paid to the
insurance company for issuing and maintaining the
Condemnation Insurance (in excess of the amounts
held in escrow by ABB from the proceeds of the ABB
Loan applied to obtain and maintain such
Condemnation Insurance plus any residual amounts
paid to Zapco from such escrow);
(xviii) Any amounts to be paid to ABB for obtaining
ABB's agreement to waive or modify the Condemnation
Insurance or self-insure (in excess of the amounts
held in escrow by ABB from the proceeds of the ABB
Loan applied to obtain such agreement by ABB plus
any residual amounts paid to Zapco from such
escrow);
(xix) If ZAPCO refinances the loans and credit
arrangements obtained pursuant to the ABB Loan
Agreement (the "Refinancing"), the aggregate of (a)
the breakage fee or other amounts paid to ABB to
terminate the ABB Loan Documents, (b) ZAPCO's
transaction costs, including, without limitation,
legal and other professional fees and expenses, out
-of-pocket costs and any points or other initiation
charges for obtaining the Refinancing, plus, if a
positive number, or minus, if a negative number the
present value of the change in interest expense
resulting from the change in the interest rates
from the ABB loan to the new loan discounted at the
interest rate of such new loan.
4. Section 4(a)(ii) of the Indemnification Agreement is
hereby amended by deleting the existing paragraph
in its entirety and inserting in its place the
following paragraph:
(ii) for Damages to the extent such
Damages (other than pursuant to
3(a)(iii), 3(a)(vi), 3(a)(xii),
3(a)(xv), 3(a)(xvi), 3(a)(xvii),
3(a)(xviii) and 3(a)(xix)) do not
exceed $500,000 in the aggregate;
5. Section 17 of the Indemnification Agreement is hereby
amended by deleting the existing section in its
entirety and inserting in its place the following
section:
None of the terms or provisions of this Agreement may
be amended, supplemented or otherwise modified except
by a written instrument executed by the Major
Shareholder Agent (acting on behalf of the Major
Shareholders), CES and the Beneficiaries except that
Sections 4(a)(iii) and 4(a)(vi) of the
Indemnification Agreement may not be modified
respecting any Major Shareholder without the written
consent of such Major Shareholder.
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6. A new Section 26 is added to the Indemnification
Agreement as follows:
In the event that, at any time prior to the Release
Date (as defined in the Escrow Agreement), Zapco is
required to deposit $200,000 to fund the Debt Service
Reserve Account (the "Reserve Account") described in
Section 3.02(f) of the Third Supplemental Indenture
of Trust and Security Agreement, dated as of April
30, 2001, among Zapco, certain of its subsidiaries
and The Chase Manhattan Bank, as Trustee, then the
Escrow Agent shall promptly transfer $200,000 in cash
from the Indemnification Escrow Fund to the Reserve
Account. If such $200,000 funding (the "Reserve
Funding") is released from the Reserve Account before
the later of (i) the Release Date and (ii) the
resolution of all Claims outstanding on the Release
Date (as such terms are defined in the Escrow
Agreement), the Reserve Funding shall be returned to
the Escrow Agent so that it can be deposited in the
Indemnification Escrow Fund. If it is subsequently
released from the Indemnification Escrow Fund
pursuant to the Escrow Agreement, the Reserve Funding
shall be distributed to the Major Shareholders in
proportion to the respective amounts they contributed
to the Reserve Account. In the event all or part of
the initial Reserve Funding is drawn upon by the
indenture trustee, Zapco shall promptly replenish the
Reserve Account in the amount of any such draw (but
in no event by more than $200,000 with respect to any
single drawing). The disposition of such replenished
funds shall be governed by the second sentence of
this Section 26 as if such funds had been part of the
initial Reserve Funding. With respect to such
disposition, in no event shall the amount distributed
to the Major Shareholders under the second section of
this Section 26 exceed $200,000 in the aggregate.
7. Except as amended hereby, the Indemnification
Agreement is hereby ratified and confirmed and, as so
amended, remains in full force and effect on the date
hereof.
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be Executed as of the date first written above.
▇▇▇▇▇▇ ALTERNATIVE POWER
CORPORATION:
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: President and CEO
MAJOR SHAREHOLDER AGENT:
/s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
-----------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Title: Vice President and General
Counsel
For: AJG Financial Services, Inc.
CINERGY ENERGY SOLUTIONS, INC.:
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Title: Vice President
U.S. ENERGY SYSTEMS, INC.:
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇
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Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇
Title: President and Chief Operating
Counsel
USE ACQUISITION CORP.:
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇
------------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇
Title: President
/s/▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
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▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
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