AMENDMENT NO. 1 TO ESCROW AGREEMENT
THIS AMENDMENT NO. 1 to the Escrow 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.,
through its Vice-President, General Counsel as agent (the "Major Shareholder
Agent") for ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Finova Mezzanine Capital Corp., AJG Financial
Services, Inc., Environmental Opportunities Fund (by itself and as successor to
Environmental Opportunities Fund Cayman), ▇▇▇▇▇▇▇ ▇▇▇▇, M&R Associates, ▇▇▇▇▇▇
▇. ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ (each, an "Initial
Major Shareholder"), U.S. Energy Systems, Inc., a Delaware corporation ("USE"),
and USE Acquisition Corp. a Delaware corporation (the "Sub" and together with
USE, the "USE Parties"), Cinergy Energy Solutions, Inc., a Delaware corporation
("CES" and together with the USE Parties, the "Beneficiaries"), and ▇▇▇▇▇▇▇▇▇▇
Helpern Syracuse & Hirschtritt LLP having an office at ▇▇▇ ▇▇▇▇▇ ▇▇▇., ▇▇▇ ▇▇▇▇,
▇▇▇ ▇▇▇▇, ▇▇▇▇▇ (the "Escrow Agent"). Unless indicated otherwise, capitalized
terms shall have the same meanings herein as they have in the Escrow 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 Escrow Agreement dated as of November
28, 2000 (the "Escrow Agreement");
WHEREAS, the parties hereto and the Initial Major Shareholders
wish to add ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ as a "Major Shareholder" as such term is used in
the Escrow Agreement;
WHEREAS, the parties hereto now wish to amend the Escrow
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:
1. The prefatory paragraph and the signature page of the
Escrow Agreement are amended to include ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
as a "Major Shareholder." By his signature hereto, ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇ represents and warrants that he has read the
Escrow 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. The first sentence of Section 2 of the Escrow Agreement is
hereby amended by deleting the existing sentence in its
entirety and inserting in its place the following
sentence:
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Escrow Agent agrees to hold and disburse (i) cash, shares
of USE's Series C Preferred Stock ("Preferred Stock") and
shares of USE's common stock ("Common Stock" and together
with the Preferred Stock, the "Stock") delivered to it
pursuant to the Merger Agreement on account of the
possibility of a post-closing adjustment to the Merger
Consideration (the "Working Capital Escrow Fund"), (ii)
cash and shares of Stock delivered to it pursuant to the
Merger Agreement on account of the obligations of the
Major Shareholders pursuant to the Indemnification
Agreement other than pursuant to Sections 3(a)(xvi)-(xix)
thereof (the "Indemnification Escrow Fund"), and (iii)
cash delivered to it pursuant to the Merger Agreement on
account of the obligations of the Major Shareholders
pursuant to Sections 3(a)(xvi)-(xix) of the
Indemnification Agreement (the "Additional Indemnification
Escrow Fund" and together with the Indemnification Escrow
Fund and the Working Capital Escrow Fund, the "Escrow
Funds") pursuant to the terms hereof.
3. Section 3(c) of the Escrow Agreement is hereby amended by deleting the
existing section in its entirety and inserting in its place the
section:
(c) The parties acknowledge that the Indemnification Escrow
Fund shall serve as a source of funding for amounts owing by the Major
Shareholders to the Beneficiaries pursuant to Section 3(a) of the
Indemnification Agreement, other than pursuant to Sections 3(a)(xvi)-(xix)
thereof ("Claims"). If any Beneficiary shall request a disbursement from the
Indemnification Escrow Fund associated with any Claim, it shall give notice of
such request (which notice shall be executed by such Beneficiary) to the Escrow
Agent and the Major Shareholders, which notice shall set forth the amount
requested, the basis for such request, and reasonable documentation to support
such request (such notice being substantially in the form of Exhibit C hereto).
The Escrow Agent shall disburse the amount requested within 10 days of its
receipt of the notice in the event the Escrow Agent shall not have received a
notice of objection from the Major Shareholder Agent within such period. In the
event the Escrow Agent shall receive a notice of objection from the Major
Shareholder Agent within such period, it shall not disburse the amount requested
unless and until it shall have received (i) the joint written notice of the
Major Shareholder Agent and such Beneficiary setting forth the joint direction
of such parties (such notice being substantially in the form of Exhibit D
hereto), (ii) a written instrument representing a final and non-appealable order
or similar direction with respect to the disposition of such amount issued by
the arbitrator or arbitration forum, or (iii) a certified copy of a final and
non-appealable judgment of a court of competent jurisdiction directing the
disbursement of such funds; the Escrow Agent shall also be entitled, in its sole
discretion, to deposit such Indemnification Escrow Fund with the clerk of the
court in which any litigation between the parties is pending, or with the clerk
of an appropriate court in New York, New York. The Escrow Agent shall make
disbursements in cash, Common Stock or Preferred Stock from the Indemnification
Escrow Fund in proportion to the aggregate amount of cash (including any
investments made pursuant to Section 2 hereof and the proceeds thereof), Common
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Stock and Preferred Stock in the Indemnification Escrow Fund, with the Stock
which valued according to the Merger Consideration Value.
4. Section 3(d) of the Escrow Agreement is hereby amended by deleting the
existing section in its entirety and inserting in its place the
following section:
(d) At any time following the Release Date, the Major
Shareholder Agent may, at its option, give notice to the
Escrow Agent and the Beneficiaries that the Escrow Agent
shall disburse to the Major Shareholder Agent the
Non-Disputed Portion (as defined below) of the
Indemnification Escrow Fund. In the event the Escrow Agent
shall not have received a notice of objection from either
Beneficiary within 10 days after delivery of such notice,
it shall be required to disburse the Non-Disputed Portion
to the Major Shareholders in accordance with the
instructions contained in the Major Shareholder Agent's
notification and the Indemnification Escrow Fund shall
terminate (and, if the Additional Indemnification Escrow
Fund has also terminated, this Agreement shall terminate).
In the event that the Escrow Agent shall receive a notice
of objection from either Beneficiary within such period,
it shall not disburse any portion of the Indemnification
Escrow Fund and shall disburse the Indemnification Escrow
Fund only in accordance with the provisions of the fourth
sentence of Section 3(c) hereof. The "Non-Disputed
Portion" equals the Indemnification Escrow Fund less the
product of (i) a fraction, the numerator of which is (A)
the value of USE Shares in the Indemnification Escrow Fund
(valued in accordance with the definition of Merger
Consideration Value) plus the amount of cash in the
Indemnification Escrow Fund, and the denominator of which
is (B) the value of USE Shares in the Indemnification
Escrow Fund (valued in accordance with the definition of
USE Shares) plus the amount of cash in the Indemnification
Escrow Fund plus the Contingent Merger Payment, as
adjusted through such time and (ii) the amount at issue
(as reasonably determined by the Beneficiary that provided
such notice of Claim), including interest and fees
(including legal fees and expenses) (the "Amount at
Issue"), under the Claims that have been set forth in
notices provided under Section 3(c) of this Agreement and
have not been settled and paid in accordance with Section
3(c); each Beneficiary agrees that upon a request of a
Major Shareholder Agent following the Release Date, it
shall promptly prepare with respect to each Claim that has
been set forth in notices provided by it under Section
3(c) of this Agreement and has not been settled and paid
in accordance with Section 3(c), a statement setting forth
the Amount at Issue. The Escrow Agent shall make
disbursements of cash, Common Stock and Preferred Stock
from the Non-Disputed Portion of the Indemnification
Escrow Fund in proportion to the aggregate amount of cash
(including any investments made pursuant to Section 2
hereof and the proceeds thereof), Common Stock and
Preferred Stock in the Indemnification Escrow Fund, with
the Stock being valued according to the Merger
Consideration Value.
3
At any time following the Release Date that
all Claims that have been set forth in notices provided
under Sections 3(c) of the Agreement have been settled and
paid in accordance with the provisions of Section 3(c), no
such Claims remain outstanding, the Major Shareholder
Agent may, at its option, give notice to the Escrow Agent
and the Beneficiaries that all of such conditions have
been fulfilled. In the event the Escrow Agent shall not
have received a notice of objection from either
Beneficiary within 10 days after delivery of such notice,
it shall be required to disburse all amounts and Shares
then remaining in the Indemnification Escrow Fund to the
Major Shareholders in accordance with the instructions
contained in the Major Shareholder Agent's notification
and the Indemnification Escrow Fund shall terminate (and,
if the Additional Indemnification Escrow Fund has also
terminated, this Agreement shall terminate). In the event
that the Escrow Agent shall receive a notice of objection
from either Beneficiary within such period, it shall not
disburse any portion of the Indemnification Escrow Fund
and shall disburse the Indemnification Escrow Fund only in
accordance with the provisions of the fourth sentence of
Section 3(c) hereof. The "Release Date" shall be the date
eighteen months following the Closing Date.
5. Section 3 of the Escrow Agreement is hereby amended by inserting at the
end thereof the following subsection:
(f) The parties acknowledge that the Additional
Indemnification Escrow Fund shall serve as a source of
funding for amounts owing by the Major Shareholders to the
Beneficiaries pursuant to Section 3(a)(xvi)-(xix) of the
Indemnification Agreement ("Additional Claims"). If any
Beneficiary shall request a disbursement from the
Additional Indemnification Escrow Fund associated with any
Additional Claim, it shall give notice of such request
(which notice shall be executed by such Beneficiary) to
the Escrow Agent and the Major Shareholders, which notice
shall set forth the amount requested, the basis for such
request, and reasonable documentation to support such
request (such notice being substantially in the form of
Exhibit E hereto). The Escrow Agent shall disburse the
amount requested within 10 days of its receipt of the
notice in the event the Escrow Agent shall not have
received a notice of objection from the Major Shareholder
Agent within such period. In the event the Escrow Agent
shall receive a notice of objection from the Major
Shareholder Agent within such period, it shall not
disburse the amount requested unless and until it shall
have received (i) the joint written notice of the Major
Shareholder Agent and such Beneficiary setting forth the
joint direction of such parties (such notice being
substantially in the form of Exhibit F hereto), (ii) a
written instrument representing a final and non-appealable
order or similar direction with respect to the disposition
of such amount issued by the arbitrator or arbitration
forum, or (iii) a certified copy of a final and
non-appealable judgment of a court of competent
jurisdiction directing the disbursement of such funds; the
Escrow Agent shall also be entitled, in its sole
4
discretion, to deposit such Additional Indemnification
Escrow Funds with the clerk of the court in which any
litigation between the parties is pending, or with the
clerk of an appropriate court in New York, New York.
At any time following the Additional Escrow Fund
Release Date, the Major Shareholder Agent may, at its
option, give notice to the Escrow Agent and the
Beneficiaries that the Escrow Agent shall disburse to the
Major Shareholder Agent the Additional Non-Disputed
Portion (as defined below) of the Additional
Indemnification Escrow Fund. In the event the Escrow Agent
shall not have received a notice of objection from either
Beneficiary within 10 days after delivery of such notice,
it shall be required to disburse the Additional
Non-Disputed Portion to the Major Shareholders in
accordance with the instructions contained in the Major
Shareholder Agent's notification and the Additional
Indemnification Escrow Fund shall terminate (and, if the
Indemnification Escrow Fund has also terminated, this
Agreement shall terminate). In the event that the Escrow
Agent shall receive a notice of objection from either
Beneficiary within such period, it shall not disburse any
portion of the Additional Indemnification Escrow Fund and
shall disburse the Additional Indemnification Escrow Fund
only in accordance with the provisions of the fourth
sentence of Section 3(f) hereof. The "Additional
Non-Disputed Portion" equals the amount of cash in the
Additional Indemnification Escrow Fund less the amount at
issue (as reasonably determined by the Beneficiary that
provided such notice of Additional Claim), including
interest and fees (including legal fees and expenses) (the
"Additional Amount at Issue"), under the Additional Claims
that have been set forth in notices provided under Section
3(f) of this Agreement and have not been settled and paid
in accordance with Section 3(f); each Beneficiary agrees
that upon a request of a Major Shareholder Agent following
the Additional Escrow Fund Release Date, it shall promptly
prepare with respect to each Additional Claim that has
been set forth in notices provided by it under Section
3(f) of this Agreement and has not been settled and paid
in accordance with Section 3(f), a statement setting forth
the Additional Amount at Issue.
At any time following the Additional Escrow Fund Release
Date (as defined below) that all Claims that have been set
forth in notices provided under Sections 3(f) of this
Agreement have been settled and paid in accordance with
the provisions of this Section 3(f), no such Additional
Claims remain outstanding, the Major Shareholder Agent
may, at its option, give notice to the Escrow Agent and
the Beneficiaries that all of such conditions have been
5
fulfilled. In the event the Escrow Agent shall not have
received a notice of objection from either Beneficiary
within 10 days after delivery of such notice, it shall be
required to disburse all amounts and Shares then remaining
in the Additional Indemnification Escrow Fund to the Major
Shareholders in accordance with the instructions contained
in the Major Shareholder Agent's notification and the
Additional Indemnification Escrow Fund shall terminate
(and, if the Indemnification Escrow Fund has also
terminated, this Agreement shall terminate). In the event
that the Escrow Agent shall receive a notice of objection
from either Beneficiary within such period, it shall not
disburse any portion of the Additional Indemnification
Escrow Fund and shall disburse the Additional
Indemnification Escrow Fund only in accordance with the
provisions of the fourth sentence of Section 3(f) hereof.
The "Additional Escrow Fund Release Date" shall be the
earliest date of any of the following events: (i) the date
that the Condemnation Insurance (as defined in Amendment
No. 1 to the Indemnification Agreement) has been obtained,
(ii) the indebtedness described in the ABB Loan Agreement
has been paid in full, (iii) the requirement in the ABB
Loan Agreement for Condemnation Insurance and the related
holdback provisions in Section 4.4 of the ABB Loan
Agreement have been permanently waived or eliminated, or
(iv) any self-insurance arrangement with ABB replacing the
Condemnation Insurance requirement has been implemented
and the holdback provisions in Section 4.4 of the ABB Loan
Agreement relating to the Condemnation Insurance have been
eliminated.
(g) In the event that, at any time prior to
the Release Date, 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, 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 this
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 3(g) as if such funds had been part of
the initial Reserve Funding. With respect to such
disposition, in no event shall the amount distributed
6
to the Major Shareholders under the second section of
this Section 3(g) exceed $200,000 in the aggregate.
6. The Escrow Agreement is hereby amended by inserting at the
end thereof Exhibit E and Exhibit F in the form annexed
hereto as Annex A.
7. Except as amended hereby, the Escrow Agreement is hereby
ratified and confirmed and, as so amended, remains in full
force and effect on the date hereof.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be Executed as of the date first written above.
7
MAJOR SHAREHOLDER AGENT:
AJG FINANCIAL SERVICES, INC.
/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/ Goran Morhned
----------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇
Title: President and Chief Operating
Counsel
USE ACQUISITION CORP.:
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇
--------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇
Title: President
/s/▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
-----------------
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
8
ESCROW AGENT:
▇▇▇▇▇▇▇▇▇▇ HELPERN SYRACUSE & HIRSCHTRITT LLP
By: ________________________________
A Member of the Firm
9
ANNEX A
Exhibit E
FORM OF DISBURSEMENT NOTICE
CERTIFICATE
This certificate is being issued pursuant to Section 3(f) of that
certain Escrow Agreement (as amended, the "Escrow Agreement") dated as of
November 28, 2000 by and among ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Finova Mezzanine Capital
Corp., AJG Financial Services, Inc., Environmental Opportunities Fund,
Environmental Opportunities Fund Cayman, ▇▇▇▇▇▇▇▇ ▇▇▇▇, M&R Associates, ▇▇▇▇▇▇
▇. ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ (each, an "Major
Shareholder"), AJG Financial Services, Inc., through its Vice-President,
General Counsel as agent (the "Major Shareholder Agent") for the Major
Shareholders, Cinergy Energy Solutions, Inc., a Delaware corporation ("CES")
, U.S. Energy Systems, Inc., a Delaware corporation ("USE"), and USE
Acquisition Corp. a Delaware corporation (the "Sub" and together with USE and
CES, the "Beneficiaries"), and ▇▇▇▇▇▇▇▇▇▇ Helpern Syracuse & Hirschtritt LLP
as Escrow Agent (the "Escrow Agent"). Terms not defined in this certificate
shall have the meanings set forth in the Escrow Agreement. The undersigned,
one of the Beneficiaries, hereby certifies that:
1. The undersigned is requesting the Escrow Agent release the
amount of $_______from the Additional Indemnification Escrow Fund.
2. The undersigned is requesting the amount in Paragraph 1
above on account of [brief description of the claim] (the "Claim");
3. Attached hereto is documentation which supports the amount of
the Claim; and
4. A copy of this Certificate, including all attachments, has
been sent to each Major Shareholder in the manner set forth in the Escrow
Agreement.
IN WITNESS WHEREOF, the undersigned has executed and delivered this
Certificate as of the ________day of ___________________.
[ ]
_____________________________
Name:
Title:
10
Exhibit F
FORM OF JOINT DISBURSEMENT NOTICE
CERTIFICATE
This certificate is being issued pursuant to Section 3(f) of
that certain Escrow Agreement (as amended, the "Escrow Agreement") dated as of
November 28, 2000 by and among ▇▇▇▇▇▇▇ ▇.▇▇▇▇▇▇, Finova Mezzanine Capital Corp.,
AJG Financial Services, Inc., Environmental Opportunities Fund, Environmental
Opportunities Fund Cayman, ▇▇▇▇▇▇▇▇ ▇▇▇▇, M&R Associates, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ (each, an "Major Shareholder"), AJG
Financial Services, Inc., through its Vice-President, General Counsel as agent
(the "Major Shareholder Agent") for the Major Shareholders, Cinergy Energy
Solutions, Inc., a Delaware corporation ("CES"), U.S. Energy Systems, Inc., a
Delaware corporation ("USE"), and USE Acquisition Corp. a Delaware corporation
(the "Sub" and together with USE and CES, the "Beneficiaries"), and ▇▇▇▇▇▇▇▇▇▇
Helpern Syracuse & Hirschtritt LLP as Escrow Agent (the "Escrow Agent").
Terms not defined in this certificate shall have the meanings set forth in the
Escrow Agreement. The undersigned each hereby certify that:
1. On __________, ___ one of the Beneficiaries (the "Requesting Party")
filed a certificate (a copy of which was attached to this certificate with the
Escrow Agent) (the "Disputed Certificate") with the Escrow Agent and the other
parties required under Section 3(c) of the Escrow Agreement.
2. The Major Shareholder Agent disputed an element of the
Disputed Certificate in accordance with the above provision of the Escrow
Agreement.
3. The parties hereto are now jointly requesting the Escrow Agent
release the amount of $_______ from the Additional Indemnification Escrow Fund
to the Requesting Party as the agreed-to payment with respect to the Disputed
Certificate.
IN WITNESS WHEREOF, the Major Shareholder Agent and the Requesting
Party have executed and delivered this Certificate as of the ________day of
___________ ________.
[ ]
____________________________
Name:
Title:
MAJOR SHAREHOLDER AGENT:
___________________________
Name:
Title:
11
