EXHIBIT 10.16

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WARRANT PURCHASE AGREEMENT

between

U.S. ENERGY SYSTEMS, INC.,

SPCP GROUP, L.L.C.

and

SPCP GROUP III LLC

 

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Dated as of August 7, 2006

 

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TABLE OF CONTENTS

 

     Page ARTICLE 1 DEFINITIONS    1

1.1

   Definitions    1

1.2

   Rules of Construction    5 ARTICLE 2 PURCHASE AND SALE OF WARRANTS    5

2.

   Purchase and Sale of Warrants    5

2.2

   Closing; Conditions to Purchase of Warrants    6

2.3

   Issuance of Additional Warrant    6

2.4

   Allocated Purchase Price    6 ARTICLE 3 REPRESENTATIONS AND WARRANTIES    6

3.1

   Representations and Warranties of the Company    6 ARTICLE 4 REGISTRATION
RIGHTS    9

4.1

   Demand Registration Rights    9

4.2

   Piggyback Registrations    11

4.3

   Registration Procedures    13

4.4

   Registration Expenses    17

4.5

   Indemnification    18

4.6

   Participation in Underwritten Registrations    19

4.7

   Listing    20

4.8

   Rule 144    20

4.9

   Shareholder Approval    20 ARTICLE 5 MISCELLANEOUS    20

5.1

   Survival of Representations and Warranties    20

5.2

   Real Property Holding Compan    20

5.3

   Notices    21

5.4

   Successors and Assigns    22

5.5

   Amendment and Waiver    22

5.6

   Counterparts    22

5.7

   Headings; Table of Contents    22

5.8

   Governing Law    22

5.9

   Waiver of Jury Trial    23

5.10

   Severability    23

5.11

   Entire Agreement    23

EXHIBITS

 

A

   Form of Series G Warrant

B

   Instrument of Accession

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WARRANT PURCHASE AGREEMENT

WARRANT PURCHASE AGREEMENT, dated as of August 7, 2006 (this “Agreement”),
between U.S. ENERGY SYSTEMS, INC., a Delaware corporation (the “Company”), SPCP
GROUP, L.L.C., a Delaware limited liability corporation (“SPCP Group”), and SPCP
GROUP III LLC, a Delaware limited liability corporation (“SPCP Group III”,
collectively with SPCP Group, “Silver Point”). All capitalized terms used herein
which are not otherwise defined shall have the meaning assigned thereto in the
Credit Agreement (as defined below).

WHEREAS, in connection with the execution and delivery of the Credit Agreement
(as defined below), the Company will issue to SPCP Group and SPCP Group III
warrants to purchase an aggregate of 4,488,780 shares of the common stock, par
value $0.01 per share, of the Company (the “Common Stock”) at a purchase price
of $0.01 per share, pursuant to the terms and subject to the conditions of this
Agreement.

WHEREAS, the Company shall issue to Purchaser additional Warrant(s) pursuant to
this Agreement only upon the occurrence of an Event of Default, as defined the
Credit Agreement, under Section 8.1(l) of the Credit Agreement.

NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth herein and for good and valuable consideration, the receipt and adequacy
of which is hereby acknowledged, the parties hereto agree as follows:

ARTICLE 1

DEFINITIONS

1.1 Definitions. As used in this Agreement the following terms have the meanings
indicated:

“Affiliate” of, or a Person “Affiliated” with, a specified Person means any
other Person directly or indirectly controlling, controlled by, or under common
control with, that Person. For the purposes of this definition, “control”
(including, with correlative meanings, the terms “controlling,” “controlled by”
and “under common control with”), as applied to any Person, means the
possession, directly or indirectly, of the power (i) to vote 5% or more of the
securities having ordinary voting power for the election of directors of such
Person, or (ii) to direct or cause the direction of the management and policies
of that Person, whether through the ownership of voting securities or by
contract or otherwise.

“Agreement” shall have the meaning assigned to such term in the preamble.

“Business Day” means any day that is not a Saturday or Sunday or a day on which
banks are required or permitted to be closed in the State of New York.

“Closing” shall have the meaning assigned to such term in Section 2.2.

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“Code” shall mean the Internal Revenue Code of 1986, as amended, and the rules
and regulations promulgated thereunder.

“Company” means U.S. Energy Systems, Inc., a Delaware corporation, and any
successor corporation.

“Common Stock” means the common stock, par value $0.01 per share, of the Company
as constituted on the Original Issue Date, and any capital stock into which such
Common Stock may thereafter be changed, and shall also include (i) capital stock
of the Company of any other class (regardless of how denominated) issued to the
holders of shares of any Common Stock upon any reclassification thereof which is
also not preferred as to dividends or liquidation over any other class of stock
of the Company and which is not subject to redemption and (ii) shares of common
stock of any successor or acquiring corporation received by or distributed to
the holders of Common Stock of the Company in the circumstances contemplated by
Section 4.6 of the Warrant.

“Contracts” means all agreements, contracts, leases and subleases, purchase
orders, arrangements, commitments, non-governmental licenses, notes, bonds,
mortgages, indentures or other obligations or other understandings (whether
written or oral) (including amendments and supplements, modifications and side
letters or agreements).

“Credit Agreement” means that certain Credit and Guaranty Agreement, dated as of
the date hereof, as amended, modified, supplemented or restated from time to
time, by and among the Company, Overseas, the Lenders from time to time party
thereto, and Silver Point Finance LLC.

“Demanding Holder” shall have the meaning assigned to such term in
Section 4.1(b).

“Demand Registration” shall have the meaning assigned to such term in
Section 4.1(b).

“Dollar”, “Dollars” and the symbol “$” shall mean lawful money of the United
States of America.

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

“Expiration Date” shall have the meaning ascribed to such term by the Warrants.

“Governmental Entity” means any federal, state, municipal, national or other
government, governmental department, commission, board, bureau, court, agency or
instrumentality or political subdivision thereof or any entity or officer
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to any government or any court, in each case whether
associated with a state of the United States, the United States, or a foreign
entity or government.

 

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“Holder” means with respect to any Warrant or share of Warrant Stock, as the
case may be, the Person in whose name the Warrant or Warrant Stock is registered
on the books of the Company maintained for such purpose.

“Lien” means (i) any lien, mortgage, pledge, assignment, security interest,
charge or encumbrance of any kind (including any agreement to give any of the
foregoing, any conditional sale or other title retention agreement, and any
lease in the nature thereof) and any option, trust or other preferential
arrangement having the practical effect of any of the foregoing, and (ii) in the
case of Warrants and Warrant Stock, any purchase option, call or similar right
of a third party with respect to such Warrants and Warrant Stock.

“Majority Holder” means the Holder then holding a Warrant or Warrants to acquire
a majority of the Warrant Stock, and, if at the applicable time, there is no
such Holder, then the Holder holding a Warrant or Warrants to acquire a
plurality of the Warrant Stock, all as reflected in the Company’s records.

“Material Adverse Effect” means any material adverse effect on (i) the Warrants
and Warrant Stock, (ii) the ability of the Company or Silver Point to perform
their respective obligations under any Transaction Agreement, or (iii) the
business operations, properties, assets, condition (financial or otherwise) or
prospects of the Company and its Subsidiaries taken as a whole.

“Maximum Number of Shares” shall have the meaning assigned to such term in
Section 4.1(e).

“Original Issue Date” means August 7, 2006, the date on which the Original
Warrants were issued by the Company pursuant to the Purchase Agreement.

“Original Warrants” means the Series G Warrants originally issued by the Company
pursuant to this Agreement.

“Overseas” means US Energy Overseas Investments LLC.

“Overseas Class B Units” shall have the meaning ascribed to such term by
Section 3.1(c).

“Overseas Operating Agreement” means the amended and restated operating
agreement of Overseas, as amended from time to time.

“Person” means and includes natural persons, corporations, limited partnerships,
general partnerships, limited liability companies, limited liability
partnerships, joint stock companies, Joint Ventures, associations, companies,
trusts, banks, trust companies, land trusts, business trusts or other
organizations, whether or not legal entities, and Governmental Entities.

“Piggyback Registration” shall have the meaning assigned to such term in
Section 4.2(a).

 

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“Prospectus” means the prospectus or prospectuses included in any Registration
Statement, as amended or supplemented by any prospectus supplement with respect
to the terms of the offering of any portion of the Registrable Securities
covered by such Registration Statement and by all other amendments and
supplements to the prospectus, including post-effective amendments and all
material incorporated by reference in such prospectus or prospectuses.

“Registrable Securities” means the Common Stock of the Company owned by the
Holders, whether owned on the date hereof or acquired hereafter pursuant to the
exercise of the Warrants; provided, however, Registrable Securities shall not
include any securities sold by a Person to the public either pursuant to an
effective Registration Statement or Rule 144.

“Registration Expenses” shall have the meaning assigned to such term in
Section 4.4(a).

“Registration Statement” means any registration statement of the Company which
covers any of the Registrable Securities pursuant to the provisions of this
Agreement, including the Prospectus, amendments and supplements to such
Registration Statement, including post-effective amendments, all exhibits and
all materials incorporated by reference in such Registration Statement.

“Requesting Holders” shall have the meaning assigned to such term in
Section 4.1(a).

“Rights” means any restricted stock, restricted stock unit, option, warrant,
convertible security, a type of award contemplated by the 2000 Plan or any other
right to acquire Common Stock.

“SEC” means the Securities and Exchange Commission.

“Securities Act” means the Securities Act of 1933, as amended, and the rules and
regulations of the SEC thereunder, all as the same shall be in effect at the
time.

“Shareholder Approval” means the approval by the shareholders of the Company of
the issuance of the Warrant Stock.

“Shelf Registration Statement” shall have the meaning assigned to such term in
Section 4.1(a).

“Suspension Notice” shall have the meaning assigned to such term in
Section 4.3(f).

“Transaction Agreements” means collectively, this Agreement and the Warrants.

“underwritten registration” or “underwritten offering” means a registration in
which securities of the Company are sold to underwriters for reoffering to the
public.

 

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“Updates” shall have the meaning ascribed to such term by Section 2.3.

“USRPHC” shall have the meaning ascribed to such term by Section 5.2.

“Warrants” means the Original Warrants and all Warrants issued upon transfer,
division or combination of, or in substitution for, the Original Warrants, or
any other Warrant subsequently issued to the Holder pursuant to the Transaction
Agreements.

“Warrant Stock” means the shares of Common Stock issued, issuable or both (as
the context may require) upon the exercise of Warrants.

1.2 Rules of Construction.

(a) Unless otherwise specified, references in this Agreement (or any of its
Exhibits, Annexes, Appendices or Schedules) to a Section, subsection or clause
refer to such Section, subsection or clause as contained in this Agreement. The
words “herein,” “hereof” and “hereunder” and other words of similar import refer
to this Agreement as a whole, including all Exhibits, Annexes, Appendices and
Schedules, as the same may from time to time be amended, restated, modified or
supplemented, and not to any particular section, subsection or clause contained
in this Agreement or any such Exhibit, Annex, Appendix or Schedule. Unless set
forth specifically otherwise, all amounts referenced in the Transaction
Agreements are in Dollars.

(b) Wherever from the context it appears appropriate, each term stated in either
the singular or plural shall include the singular and the plural, and pronouns
stated in the masculine, feminine or neuter gender shall include the masculine,
feminine and neuter genders. The words “including”, “includes” and “include”
shall be deemed to be followed by the words “without limitation”; the word “or”
is not exclusive; references to Persons include their respective successors and
assigns (to the extent and only to the extent permitted by the Transaction
Agreements) or, in the case of governmental Persons, Persons succeeding to the
relevant functions of such Persons; and all references to statutes and related
regulations shall include any amendments of the same and any successor statutes
and regulations.

ARTICLE 2

PURCHASE AND SALE OF WARRANTS

2.1 Purchase and Sale of Warrants. Subject to the terms and conditions herein
set forth, the Company agrees that it will issue to Silver Point, and Silver
Point agrees that it will accept from the Company, on the Closing Date (as
defined in the Credit Agreement), in consideration of the foregoing and the
mutual agreements contained herein and in the Credit Agreement, the Warrants to
purchase shares of the Common Stock, with the Warrants being substantially in
the form attached hereto as Exhibit A, appropriately completed in conformity
herewith. SPCP Group will be issued a Warrant to purchase 3,366,585 shares of
Common Stock (subject to adjustment) and SPCP Group III will be issued a Warrant
to purchase 1,122,195 shares of Common Stock (subject to adjustment).

 

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2.2 Closing; Conditions to Purchase of Warrants. The closing (the “Closing”) of
this Agreement shall be held at the offices of Skadden, Arps, Slate, Meagher &
Flom LLP, Four Time Square, New York, New York, 10036 on the Closing Date. The
Closing shall occur in accordance with the provisions of the Credit Agreement.

2.3 Issuance of Additional Warrants. The Company shall execute, deliver and
issue to SPCP Group an additional Warrant to purchase 2,991,000 shares of Common
Stock (subject to adjustment) and to SPCP Group III an additional Warrant to
purchase 997,000 shares of Common Stock (subject to adjustment); in each case
within 3 Business Days of the occurrence of an Event of Default under
Section 8.1(l) of the Credit Agreement without any requirement of notice or
demand by or on behalf of Silver Point. The representations and warranties
contained in Section 3.1 herein, including, but not limited to, those related to
the capitalization of the Company, shall be updated as necessary upon the date
of issuance of any additional Warrants with such updates (the “Updates”)
evidenced by a certificate of the Secretary of the Company dated on the date of
issuance of any additional Warrant. Notwithstanding anything contained herein to
the contrary, for the purposes of Sections 4 and 10 of the Warrant, any
additional Warrants shall be deemed to have been issued as of the Original Issue
Date and all adjustments and payments that would have been required to have been
made or paid under the additional Warrants shall be so made or paid upon
issuance thereof.

2.4 Allocated Purchase Price. The Company and the Purchaser hereby acknowledge
that for the purposes of Section 1273(c)(2) of the Code, the Warrants are a part
of an investment unit with the loans to be made pursuant to the Credit Agreement
and that the allocated purchase price of the Warrants for such purposes is
$9,018,769.19. The Company and Silver Point agree to use the foregoing allocated
purchase price as the purchase price of the Warrants for all income tax
purposes.

ARTICLE 3

REPRESENTATIONS AND WARRANTIES

3.1 Representations and Warranties of the Company. The Company hereby represents
and warrants to Silver Point on the date hereof and, as updated by the Update,
on the date of issuance of any additional Warrants, as follows:

(a) The Company is duly organized, validly existing and in good standing under
the laws of its jurisdiction of formation or organization and has the requisite
corporate or similar power and authority to own and operate its properties and
assets and to carry on its business as presently conducted.

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(b) The Company has the requisite corporate power and authority and has taken
the requisite corporate action, necessary in order to execute, deliver and
perform its obligations under the Transaction Agreements. Each of the
Transaction Agreements has been duly executed and delivered by the Company and
each of the Transaction Agreements (assuming due and valid authorization,
execution and delivery hereof and thereof by the counterparties hereto and
thereto) constitutes the valid and binding obligation of the Company and is
enforceable against the Company, in accordance with its respective terms,
subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors’ rights and to general equity principles.

(c) The authorized capital stock of the Company consists of 50,000,000 shares of
common stock, par value $0.01 per share (the “Common Stock”), and 10,000,000
shares of preferred stock, par value $0.01 per share (the “Preferred Stock”), of
which 1,138,888 shares have been designated Series A Convertible Preferred Stock
(the “Series A Preferred Stock”), 875 shares have been designated Series B
Preferred Stock (the “Series B Preferred Stock”), 100,000 shares have been
designated Series C Preferred Stock (the “Series C Preferred Stock”) and
1,138,888 shares have been designated Series D Preferred Stock (the “Series D
Preferred Stock”). There are no shares of any other class or series of stock
authorized by the Company’s Certificate of Incorporation, as amended. Upon
issuance pursuant to the Overseas Operating Agreement, there will be 100 Class B
Membership Units of Overseas (the “Overseas Class B Units”) issued and
outstanding, which will be convertible into up to 1,900,000 shares of Common
Stock, and there will be warrants issued and outstanding to acquire 500,000
shares of Common Stock. As of the date hereof, there are 17,340,365 shares of
Common Stock issued and outstanding and 445,930 shares of Common Stock held as
treasury stock. As of the date hereof and after giving effect to the issuance of
the Warrants and the consummation of all the financing transactions contemplated
by the Credit Agreement, there are no shares of Series A Preferred Stock
outstanding, 365.907 shares of Series B Preferred Stock outstanding, 38,809
shares of Series C Preferred Stock, and no shares of Series D Preferred Stock
outstanding. As of the date hereof, the outstanding Series B Preferred Stock is
convertible into 100,940 shares of Common Stock, the outstanding shares of
Series C Preferred Stock are convertible into or exchangeable for up to 310,472
shares of Common Stock, without giving effect to the anti-dilution adjustments
applicable to the Series C Preferred Stock. Excluding the Rights set forth above
and excluding the Warrants, any other warrants being issued in connection with
the transactions contemplated by the Credit Agreement (including warrants
issuable to Kenmont Special Opportunities Master Fund, L.P., Credit Suisse
Securities (USA) LLC and VTEX Energy, Inc.), and the consummation of all the
financing transactions contemplated by the Credit Agreement, the Company has
outstanding Rights to acquire approximately 8,703,273 shares of Common Stock and
such Rights are held in the amounts as set forth on Schedule 3.1(c), which also
indicates the type or description of each such Rights held. The authorization,
execution and delivery of the Transaction Agreements, and the performance by the
Company of its obligations under each Transaction Agreement, including the
issuance of the Warrants in accordance with this Agreement or the issuance of
Common Stock upon exercise of the Warrants in accordance with the terms thereof,
and the consummation of the other transactions contemplated by the Credit
Agreement, including the issuance of any warrants under any agreement entered
into in connection therewith, will not

 

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result in or trigger any adjustment or modification of the rights of any holder
of outstanding Rights (other than the holders of Series C Preferred Stock),
including without limitation any anti-dilution provisions relating to such
securities. All of the outstanding shares of Common Stock and Preferred Stock
are duly authorized, validly issued, fully paid and non-assessable. All Warrant
Stock, when issued in accordance with the terms of the Warrants and for the
consideration contemplated thereby, which is not less per share than the par
value thereof, will be duly authorized, validly issued fully paid and
non-assessable. Except as set forth in this Section or in Schedule 3.1(c), there
are no existing (i) Rights, agreements, arrangements or commitments of any
character obligating the Company to issue, transfer or sell any shares of
capital stock or other equity interest in, the Company or securities convertible
into or exchangeable for such shares or equity interests; (ii) contractual
obligations of the Company to repurchase, redeem or otherwise acquire any
capital stock of the Company (except for any cashless exercise provisions that
are substantially similar to those set forth in the Warrant); or
(iii) stockholder agreements, registration rights agreements, stock transfer
restriction agreements (other than restrictions arising in connection with the
Securities Act), voting trusts or similar agreements to which the Company or, to
the knowledge of the Company, any other person is a party with respect to Common
Stock.

(d) Except as set forth in Schedule 3.1(d), neither the execution, delivery or
performance of any Transaction Agreement by the Company, nor the consummation by
it of the obligations and transactions contemplated hereby or thereby
(including, without limitation, the issuance, the reservation for issuance and
the delivery of the Warrant Stock) requires any consent of, authorization by,
exemption from, filing with or notice to any governmental authority or any other
Person, excluding the Company, any Holder or Silver Point, but including,
without limitation, any stock exchange or quotation system on which the Common
Stock is listed or traded.

(e) Except to the extent that the Company is required to issue shares of Common
Stock for less than the par value thereof, the execution, delivery and
performance of each Transaction Agreement and the consummation of the
transactions contemplated hereby and thereby (including, without limitation, the
issuance and reservation for issuance, as applicable, of the Warrant Stock) will
not (i) result in a violation of the certificate of incorporation or bylaws of
the Company, in each case as amended, (ii) conflict with or result in the breach
of the terms, conditions or provisions of or constitute a default (or an event
which with notice or lapse of time or both would become a default) under, or
give rise to any right of termination, acceleration or cancellation under, any
material Contract to which the Company or any Subsidiary is a party,
(iii) assuming the accuracy of the representations and warranties set forth in
Section 3.1 of the Warrant , result in a violation of any law, rule, regulation,
order, judgment or decree (including, without limitation, U.S. federal and state
securities laws and regulations) applicable to the Company or any Subsidiary or
by which any property or asset of the Company or any Subsidiary is bound or
affected, or (iv) result in the creation of any material Lien upon any of their
assets.

(f) Based solely upon the representations made by the Holders of the Warrants,
the offer and sale of the Warrants hereunder is exempt from the registration and
prospectus delivery requirements of the Securities Act, and the rules and
regulations thereunder.

 

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ARTICLE 4

REGISTRATION RIGHTS

4.1 Demand Registration Rights.

(a) Shelf Registration. At any time and from time to time before the Expiration
Date, one or more Holders (the “Requesting Holders”), which, together with their
respective Affiliates, in the aggregate, owns or has the right to acquire at
least 100,000 shares of Registrable Securities, may make a written request that
the Company file a shelf registration statement (a “Shelf Registration
Statement”) pursuant to Rule 415 promulgated under the Securities Act providing
for the sale by the Requesting Holders of all or part of the Registrable
Securities owned or to be acquired by the Requesting Holders. Requesting Holders
may request more than one Shelf Registration Statement be filed pursuant hereto,
but in each case prior to the Expiration Date. A majority-in-interest of the
Requesting Holders may, at their option, request that the Company file a Shelf
Registration Statement using Form S-3, if such form is available for use by the
Company. The Company shall use commercially reasonable efforts to file such
Shelf Registration Statement at the earliest practicable date, and use
commercially reasonable efforts to have such Shelf Registration Statement
thereafter declared effective by the SEC at the earliest practicable date. The
Company agrees to use commercially reasonable efforts to keep a Shelf
Registration Statement continuously effective for the period beginning on the
date on which a Shelf Registration Statement is declared effective until the
earlier to occur of (i) three years after the date such Shelf Registration
Statement initially is declared effective by the SEC, (ii) the day after the
date on which all of the Registrable Securities covered by a Shelf Registration
Statement have been sold pursuant to a Shelf Registration Statement, (iii) the
first date on which there shall cease to be any Registrable Securities covered
by such Shelf Registration Statement and (iv) two years after the Expiration
Date. The Company further agrees, if necessary, to use commercially reasonable
efforts to supplement or amend a Shelf Registration Statement, if required by
the rules, regulations or instructions applicable to the registration form used
by the Company or by the Securities Act or by any other rules and regulations
thereunder for shelf registration, and the Company agrees to furnish to the
Requesting Holders whose Common Stock is included in such Shelf Registration
Statement copies of any such supplement or amendment promptly after its being
issued or filed with the SEC.

(b) Non-Shelf Registration. At any time and from time to time before the
Expiration Date, a Holder, which together with its Affiliates, in the aggregate,
owns or has the right to acquire at least 100,000 shares of Registrable
Securities, may make a written demand for registration under the Securities Act
of all or part of their Registrable Securities (a “Demand Registration”). Any
demand for a Demand Registration shall specify the number of

 

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shares of Registrable Securities proposed to be sold and the intended method(s)
of distribution thereof. The Company shall give prompt written notice to all
holders of Registrable Securities of the demand, and each holder of Registrable
Securities who wishes to include all or a portion of such holder’s Registrable
Securities in the Demand Registration (each such holder including shares of
Registrable Securities in such registration, a “Demanding Holder”) shall so
notify the Company within fifteen (15) days after the receipt by the holder of
the notice from the Company. Upon any such request, the Demanding Holders shall
be entitled to have their Registrable Securities included in the Demand
Registration. The Company shall not be obligated to effect more than an
aggregate of three (3) Demand Registrations under this section in respect of
Registrable Securities.

(c) Effective Registration. A registration will not count as a Demand
Registration until the Registration Statement filed with the Commission with
respect to such Demand Registration has been declared effective and the Company
has complied in all material respects with all of its material obligations under
this Agreement with respect thereto, including, but not limited to, the
registration procedures outlined in Sections 4.3 and 4.4; provided, however,
that if, after such Registration Statement has been declared effective, the
offering of Registrable Securities pursuant to a Demand Registration is
interfered with by any stop order or injunction of any Governmental Entity, the
Registration Statement with respect to such Demand Registration will be deemed
not to have been declared effective, unless and until, (a) such stop order or
injunction is removed, rescinded or otherwise terminated, and (b) a
majority-in-interest of the Demanding Holders thereafter elect to continue the
offering; provided, further, that the Company shall not be obligated to file a
second Registration Statement until a Registration Statement that has been filed
is counted as a Demand Registration or is terminated.

(d) Underwritten Offering. If the majority-in-interest of the Demanding Holders
so advise the Company as part of their written demand for a Demand Registration,
the offering of such Registrable Securities pursuant to such Demand Registration
shall be in the form of an underwritten offering. If any Demand Registration is
an underwritten offering, the Demanding Holders shall have the right to select
the managing underwriter or underwriters to administer any such offering.

(e) Priority of Offering. If the managing underwriter or underwriters for a
Demand Registration that is to be an underwritten offering advises the Company
and the Demanding Holders in writing that the dollar amount or number of shares
of Registrable Securities that the Demanding Holders desire to sell, taken
together with all other shares of Common Stock or other securities which the
Company desires to sell and the shares of Common Stock, if any, as to which
registration has been requested pursuant to written contractual piggyback
registration rights held by other stockholders of the Company who desire to
sell, exceeds the maximum dollar amount or maximum number of shares that can be
sold in such offering without adversely affecting the proposed offering price,
the timing, the distribution method, or the probability of success of such
offering (such maximum dollar amount or maximum number of shares, as applicable,
the “Maximum Number of Shares”), then the Company shall include in such
registration: (a) first, the Registrable Securities as to which Demand
Registration has been requested by the Demanding Holders (pro rata in accordance

 

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with the number of shares of Registrable Securities which such Demanding Holder
has requested be included in such registration, regardless of the number of
shares of Registrable Securities held by each Demanding Holder) that can be sold
without exceeding the Maximum Number of Shares, (b) second, to the extent that
the Maximum Number of Shares has not been reached under the foregoing clause
(a), the shares of Common Stock or other securities that the Company desires to
sell that can be sold without exceeding the Maximum Number of Shares, and
(c) third, to the extent that the Maximum Number of Shares has not been reached
under the foregoing clauses (a) and (b), any other shares of Common Stock.

(f) Withdrawal. If the Demanding Holders disapprove of the terms of any
underwriting or are not entitled to include all of their Registrable Securities
requested to be included in any offering, any Demanding Holder may elect to
withdraw from such offering by giving written notice to the Company and the
underwriter or underwriters of their request to withdraw prior to the
effectiveness of the Registration Statement filed with the Commission with
respect to such Demand Registration. If the majority-in-interest of the
Demanding Holders withdraws from a proposed offering relating to a Demand
Registration because the Demanding Holders disapprove of the terms of any
underwriting (but are otherwise entitled to include all of the Registrable
Securities requested to be included therein), then such registration shall not
count as a Demand Registration if the Demanding Holders pay to the Company the
reasonable fees and expenses incurred by the Company in connection therewith. If
the majority-in-interest of the Demanding Holders withdraws from a proposed
offering relating to a Demand Registration because the Demanding Holders were
not entitled to include all of the Registrable Securities requested to be
included in the offering, then such registration shall not count as a Demand
Registration

4.2 Piggyback Registrations.

(a) Right to Piggyback. Whenever the Company proposes at any time before the
second anniversary of the Expiration Date, to register any of its common equity
securities under the Securities Act (other than a registration statement on Form
S-8 or on Form S-4 or any similar successor forms thereto), whether for its own
account or for the account of one or more security holders of the Company, and
the registration form to be used may be used for any registration of Registrable
Securities (a “Piggyback Registration”), the Company shall give prompt written
notice (in any event within 10 days after its receipt of notice of any exercise
of other demand registration rights) to all Holders of its intention to effect
such a registration and, subject to Sections 4.2(b) and 4.2(c), shall include in
such registration all Registrable Securities with respect to which the Company
has received written requests for inclusion therein within 15 days after the
receipt of the Company’s notice. The Company may postpone or withdraw the filing
or the effectiveness of a Piggyback Registration at any time in its sole
discretion. The Company shall not grant Piggyback Registration rights with equal
or higher priority than the rights granted in this Section 4.2.

(b) Priority on Primary Registrations. If a Piggyback Registration is an
underwritten primary registration on behalf of the Company, and the managing
underwriters advise the Company in writing that in their opinion the number of
securities requested to be included in such registration exceeds the number
which can be sold in such offering and/or that

 

11

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the number of securities proposed to be included in any such registration would
adversely affect the price per share of the Company’s equity securities to be
sold in such offering, the Company shall include in such registration (i) first,
the securities the Company proposes to sell, (ii) second, other securities,
including Registrable Securities, requested to be included in such registration
pro rata among (A) the holders of such securities who have been granted
registration rights pursuant to (i) that certain Registration Rights Agreement
dated as of May 22, 2006, as amended to date, between the Company and VTEX
Energy, Inc., (ii) that certain Registration Rights Agreement dated as of
March 20, 1998, between the Company and Energy Systems Investors, LLC,
(iii) that certain Warrant Purchase Agreement dated the date hereof between the
Company and Credit Suisse Securities (USA) LLC, and (iv) that certain Warrant
Purchase Agreement dated the date hereof between the Company and Kenmont Special
Opportunities Master Fund, L.P., and (B) the Holders, collectively, on the basis
of the number of securities requested to be registered by such holders,
including the Holders, or as such holders, including the Holders, may otherwise
agree, and (iii) third, other securities requested to be included in such
registration.

(c) Priority on Secondary Registrations. If a Piggyback Registration is an
underwritten secondary registration on behalf of a holder of the Company’s
securities other than Registrable Securities pursuant to demand registration
rights, and the managing underwriters advise the Company in writing that in
their opinion the number of securities requested to be included in such
registration exceeds the number which can be sold in such offering and/or that
the number of shares of Registrable Securities proposed to be included in any
such registration would adversely affect the price per share of the Company’s
equity securities to be sold in such offering, the Company shall include in such
registration (i) first, the securities requested to be included therein by the
holders requesting such registration, pro rata among the holders of such
securities on the basis of the number of securities requested to be registered
by such holders, and (ii) second, other securities, including Registrable
Securities, requested to be included in such registration pro rata among (A) the
holders of such securities who have been granted registration rights pursuant to
(i) that certain Registration Rights Agreement dated as of May 22, 2006, as
amended to date, between the Company and VTEX Energy, Inc., (ii) that certain
Registration Rights Agreement dated as of March 20, 1998, between the Company
and Energy Systems Investors, LLC, (iii) that certain Warrant Purchase Agreement
dated the date hereof between the Company and Credit Suisse Securities (USA)
LLC, and (iv) that certain Warrant Purchase Agreement dated the date hereof
between the Company and Kenmont Special Opportunities Master Fund, L.P., and
(B) the Holders collectively, on the basis of the number of securities requested
to be registered by such holders, including the Holders, or as such holders,
including the Holders, may otherwise agree and (iii) third, other securities
requested to be included in such registration.

(d) Selection of Underwriters. If any Piggyback Registration is an underwritten
primary offering, the Company shall have the right to select the managing
underwriter or underwriters to administer any such offering.

 

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4.3 Registration Procedures.

(a) Whenever the Holders request that any Registrable Securities be registered
pursuant to this Agreement, the Company shall use commercially reasonable
efforts to effect the registration and the sale of such Registrable Securities
in accordance with the intended methods of disposition thereof, and pursuant
thereto the Company shall as expeditiously as possible:

(i) prepare and file with the SEC a Registration Statement with respect to such
Registrable Securities (but in any event not later than 90 days after a request
is received from the Requesting Holders or the Demanding Holders) and use
commercially reasonable efforts to cause such Registration Statement to become
effective as soon as practicable thereafter; and before filing a Registration
Statement or Prospectus or any amendments or supplements thereto, furnish to the
Holders of Registrable Securities covered by such Registration Statement and the
underwriter or underwriters, if any, copies of all such documents proposed to be
filed, including documents incorporated by reference in the Prospectus and, if
requested by such Holders, the exhibits incorporated by reference, and such
Holders shall have the opportunity to object to any information pertaining to
such Holders that is contained therein and the Company will make the corrections
reasonably and promptly requested by such Holders with respect to such
information prior to filing any Registration Statement or amendment thereto or
any Prospectus or any supplement thereto; provided that if the Board of
Directors, in its good faith judgment, determines that any registration of
Registrable Securities should not be made because of a potential corporate event
involving a merger, acquisition, disposition, joint venture or strategic
allowance would be materially interfered with contrary the best interests of the
Company and would not otherwise be required to be disclosed by law, the Company
may postpone filing a registration statement until such time as the material
interference no longer exists, but in no event for more than 60 days in the
aggregate in any twelve-month period; and the Company shall give written notice
of its determination to postpone a registration statement and when the reason
for such postponement no longer exists, in each case, promptly after the
occurrence thereof;

(ii) prepare and file with the SEC such amendments and supplements to such
Registration Statement and the Prospectus used in connection therewith as may be
necessary to keep such Registration Statement effective, except as otherwise
provided in Section 4.1(a), or as contemplated by Section 4.2(a), for not more
than six months after the effective date thereof and comply with the provisions
of the Securities Act with respect to the disposition of all securities covered
by such Registration Statement during such period in accordance with the
intended methods of disposition by the sellers thereof set forth in such
Registration Statement;

(iii) furnish to each seller of Registrable Securities such number of copies of
such Registration Statement, each amendment and supplement thereto, the
Prospectus included in such Registration Statement (including each preliminary
Prospectus) and such other documents as such seller may reasonably request in
order to facilitate the disposition of the Registrable Securities owned by such
seller;

 

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(iv) use commercially reasonable efforts to register or qualify such Registrable
Securities under such other securities or blue sky laws of such jurisdictions as
any seller reasonably requests and do any and all other acts and things which
may be reasonably necessary or advisable to enable such seller to consummate the
disposition in such jurisdictions of the Registrable Securities owned by such
seller (provided, that the Company will not be required to (i) qualify generally
to do business in any jurisdiction where it would not otherwise be required to
qualify but for this subparagraph (iv), (ii) subject itself to taxation in any
such jurisdiction, or (iii) consent to general service of process in any such
jurisdiction);

(v) notify each seller of such Registrable Securities, at any time when a
Prospectus relating thereto is required to be delivered under the Securities
Act, of the occurrence of any event as a result of which the Prospectus included
in such Registration Statement contains an untrue statement of a material fact
or omits any fact necessary to make the statements therein not misleading, and,
at the request of any such seller, the Company shall prepare a supplement or
amendment to such Prospectus so that, as thereafter delivered to the purchasers
of such Registrable Securities, such Prospectus shall not contain an untrue
statement of a material fact or omit to state any material fact necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading;

(vi) in the case of an underwritten offering, enter into such customary
agreements (including underwriting agreements in customary form) and take all
such other actions as the Holders of a majority of number of shares of the
Registrable Securities being sold or the underwriters reasonably request in
order to expedite or facilitate the disposition of such Registrable Securities
(including, without limitation, making members of senior management of the
Company available to participate in, and cause them to cooperate with the
underwriters in connection with, “road-show” and other customary marketing
activities (including one-on-one meetings with prospective purchasers of the
Registrable Securities)) and cause to be delivered to the underwriters and the
sellers, if any, opinions of counsel to the Company in customary form, covering
such matters as are customarily covered by opinions for an underwritten public
offering as the underwriters may request and addressed to the underwriters and
the sellers;

(vii) make available, for inspection by any seller of Registrable Securities,
any underwriter participating in any disposition pursuant to such Registration
Statement, and any attorney, accountant or other agent retained by any such
seller or underwriter, all financial and other records, pertinent corporate
documents and properties of the Company, and cause the Company’s officers,
directors, employees and independent accountants to supply all information
reasonably requested by any such seller, underwriter, attorney, accountant or
agent in connection with such Registration Statement;

(viii) use commercially reasonable efforts to cause all such Registrable
Securities to be listed on each securities exchange on which securities of the
same class issued by the Company are then listed or, if no such similar
securities are then listed, on The Nasdaq Stock Market or a national securities
exchange selected by the Company;

(ix) provide a transfer agent and registrar for all such Registrable Securities
not later than the effective date of such Registration Statement;

 

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(x) if requested, cause to be delivered, immediately prior to the effectiveness
of the Registration Statement (and, in the case of an underwritten offering, at
the time of delivery of any Registrable Securities sold pursuant thereto),
letters from the Company’s independent certified public accountants addressed to
each selling Holder (unless such selling Holder does not provide to such
accountants the appropriate representation letter required by rules governing
the accounting profession) and each underwriter, if any such letter is provided
to any party in connection with the offering, stating that such accountants are
independent public accountants within the meaning of the Securities Act and the
applicable rules and regulations adopted by the SEC thereunder, and otherwise in
customary form and covering such financial and accounting matters as are
customarily covered by letters of the independent certified public accountants
delivered in connection with primary or secondary underwritten public offerings,
as the case may be;

(xi) make generally available to its stockholders a consolidated earnings
statement (which need not be audited) for the 12 months beginning after the
effective date of a Registration Statement as soon as reasonably practicable
after the end of such period, which earnings statement shall satisfy the
requirements of an earning statement under Section 11(a) of the Securities Act;
and

(xii) promptly notify each seller of Registrable Securities and the underwriter
or underwriters, if any:

 

  (1) when the Registration Statement, any pre-effective amendment, the
Prospectus or any Prospectus supplement or post-effective amendment to the
Registration Statement has been filed and, with respect to the Registration
Statement or any post-effective amendment, when the same has become effective;

 

  (2) of any written request by the SEC for amendments or supplements to the
Registration Statement or Prospectus;

 

  (3) of the notification to the Company by the SEC of its initiation of any
proceeding with respect to the issuance by the SEC of any stop order suspending
the effectiveness of the Registration Statement; and

 

  (4) of the receipt by the Company of any notification with respect to the
suspension of the qualification of any Registrable Securities for sale under the
applicable securities or blue sky laws of any jurisdiction.

(b) No Registration Statement (including any amendments or supplements thereto
and Prospectuses contained therein) shall contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein, or
necessary to make the statements therein not misleading (except, with respect to
any Holder, for an untrue

 

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statement or alleged untrue statement of a material fact or omission or alleged
omission of a material fact made in reliance on and in conformity with written
information furnished to the Company by or on behalf of such Holder specifically
for use therein).

(c) The Company shall make available to each Holder whose Registrable Securities
are included in a Registration Statement (i) promptly after the same is prepared
and publicly distributed, filed with the SEC, or received by the Company, one
copy of each Registration Statement and any amendment thereto, each preliminary
Prospectus and Prospectus and each amendment or supplement thereto, each letter
written by or on behalf of the Company to the SEC or the staff of the SEC (or
other governmental agency or self-regulatory body or other body having
jurisdiction, including any domestic or foreign securities exchange), and each
item of correspondence from the SEC or the staff of the SEC (or other
governmental agency or self-regulatory body or other body having jurisdiction,
including any domestic or foreign securities exchange), in each case relating to
such Registration Statement (other than any portion thereof which contains
information for which the Company has sought confidential treatment), and
(ii) such number of copies of a Prospectus, including a preliminary Prospectus,
and all amendments and supplements thereto and such other documents as such
Holder may reasonably request in order to facilitate the disposition of the
Registrable Securities owned by such Holder. The Company will promptly notify
each Holder by facsimile of the effectiveness of each Registration Statement or
any post-effective amendment. The Company will promptly respond to any and all
comments received from the SEC, with a view towards causing each Registration
Statement or any amendment thereto to be declared effective by the SEC as soon
as practicable and shall file an acceleration request as soon as practicable
following the resolution or clearance of all SEC comments or, if applicable,
following notification by the SEC that any such Registration Statement or any
amendment thereto will not be subject to review.

(d) At all times after the Company has filed a registration statement with the
SEC pursuant to the requirements of either the Securities Act or the Exchange
Act, the Company shall file all reports required to be filed by it under the
Securities Act and the Exchange Act and the rules and regulations adopted by the
SEC thereunder, and take such further action as any Holders may reasonably
request, all to the extent required to enable such Holders to be eligible to
sell Registrable Securities pursuant to Rule 144 (or any similar rule then in
effect).

(e) The Company may require each Holder, and each Holder hereby agrees, to
furnish to the Company such information regarding the Holder as the Company may
from time to time reasonably request in writing in connection with the
performance of the Company’s duties hereunder. The provision of such information
shall be a condition precedent to the inclusion of such Holder’s Registrable
Securities in the applicable Registration Statement.

(f) Each seller of Registrable Securities agrees by having its stock treated as
Registrable Securities hereunder that, upon notice of the happening of any event
as a result of which the Prospectus included in such Registration Statement
contains an untrue statement of a material fact or omits any material fact
necessary to make the statements therein

 

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not misleading (a “Suspension Notice”), such seller will forthwith discontinue
disposition of Registrable Securities for a reasonable length of time not to
exceed 60 days until such seller is advised in writing by the Company that the
use of the Prospectus may be resumed and is furnished with a supplemented or
amended Prospectus as contemplated by Section 4.3(e) hereof, and, if so directed
by the Company, such seller will deliver to the Company (at the Company’s
expense) all copies, other than permanent file copies then in such seller’s
possession, of the Prospectus covering such Registrable Securities current at
the time of receipt of such notice; provided, however, that such postponement of
sales of Registrable Securities by the Holders, together with postponements of
the filing of any registration statement, shall not exceed ninety (90) days in
the aggregate in any one year. If the Company shall give any notice to suspend
the disposition of Registrable Securities pursuant to a Prospectus, the Company
shall extend the period of time during which the Company is required to maintain
the Registration Statement effective pursuant to this Agreement by the number of
days during the period from and including the date of the giving of such notice
to and including the date such seller either is advised by the Company that the
use of the Prospectus may be resumed or receives the copies of the supplemented
or amended Prospectus contemplated by Section 4.3(a)(v). In any event, the
Company shall not be entitled to deliver more than two (2) Suspension Notices in
any one year.

4.4 Registration Expenses.

(a) All expenses incident to the Company’s performance of or compliance with
this Article 4, including, without limitation, all registration and filing fees,
fees and expenses of compliance with securities or blue sky laws, listing
application fees, printing expenses, transfer agent’s and registrar’s fees, cost
of distributing Prospectuses in preliminary and final form as well as any
supplements thereto, and fees and disbursements of counsel for the Company and
all independent certified public accountants and other Persons retained by the
Company (all such expenses being herein called “Registration Expenses”) (but not
including any underwriting discounts or commissions attributable to the sale of
Registrable Securities or fees and expenses of more than one counsel
representing the Holders of Registrable Securities), shall be borne by the
Company. In addition, the Company shall pay its internal expenses (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expense of any annual audit or
quarterly review, the expense of any liability insurance and the expenses and
fees for listing the securities to be registered on each securities exchange on
which they are to be listed.

(b) In connection with each registration initiated hereunder, the Company shall
reimburse the Holders covered by such registration or sale for the reasonable
fees and disbursements of one law firm chosen by the Holders of a majority of
the number of shares of Registrable Securities included in such registration or
sale.

(c) The obligation of the Company to bear the expenses described in
Section 4.4(a) and to reimburse the Holders for the expenses described in
Section 4.4(b) shall apply irrespective of whether a registration, once properly
demanded, if applicable, becomes effective, is withdrawn or suspended, is
converted to another form of registration and irrespective of when any of the
foregoing shall occur; provided, however, that Registration

 

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Expenses for any Registration Statement withdrawn solely at the request of a
Holder of Registrable Securities or any supplements or amendments to a
Registration Statement or Prospectus resulting from a misstatement furnished to
the Company by a Holder shall be borne by such Holder.

4.5 Indemnification.

(a) In connection with any Registration Statement in which a Holder of
Registrable Securities is participating, the Company shall indemnify each
Holder, its officers, directors and Affiliates and each Person who controls such
Holder (within the meaning of the Securities Act) against all losses, claims,
damages, liabilities and expenses arising out of or based upon any untrue or
alleged untrue statement of material fact contained in any Registration
Statement, Prospectus or preliminary Prospectus or any amendment thereof or
supplement thereto or any omission or alleged omission of a material fact
required to be stated therein or necessary to make the statements therein not
misleading or any violation or alleged violation by the Company of the
Securities Act, the Exchange Act or applicable “blue sky” laws, except insofar
as the same are made in reliance and in conformity with information relating to
such Holder furnished in writing to the Company by such Holder expressly for use
therein or caused by such Holder’s failure to deliver to such Holder’s immediate
purchaser a copy of the Prospectus or any amendments or supplements thereto (if
the same was required by applicable law to be so delivered) after the Company
has furnished such Holder with a sufficient number of copies of the same. In
connection with an underwritten offering, the Company shall indemnify such
underwriters, their officers and directors and each Person who controls such
underwriters (within the meaning of the Securities Act) to the same extent as
provided above with respect to the indemnification of the Holders.

(b) In connection with any Registration Statement in which a Holder of
Registrable Securities is participating, each such Holder shall furnish to the
Company in writing such information as the Company reasonably requests for use
in connection with any such Registration Statement or Prospectus and, shall
indemnify, to the fullest extent permitted by law, the Company, its officers,
directors, Affiliates, and each Person who controls the Company (within the
meaning of the Securities Act) against all losses, claims, damages, liabilities
and expenses arising out of or based upon any untrue or alleged untrue statement
of material fact contained in the Registration Statement, Prospectus or
preliminary Prospectus or any amendment thereof or supplement thereto or any
omission or alleged omission of a material fact required to be stated therein or
necessary to make the statements therein not misleading, but only to the extent
that the same are made in reliance and in conformity with information relating
to such Holder furnished in writing to the Company by such Holder expressly for
use therein; provided, however, that the obligation to indemnify shall be
several, not joint and several, among such Holders and the liability of each
such Holder shall be in proportion to and limited to the net amount received by
such Holder from the sale of Registrable Securities pursuant to such
Registration Statement.

 

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(c) Any Person entitled to indemnification hereunder shall (i) give prompt
written notice to the indemnifying party of any claim with respect to which it
seeks indemnification and (ii) unless in such indemnified party’s reasonable
judgment a conflict of interest between such indemnified and indemnifying
parties may exist with respect to such claim, permit such indemnifying party to
assume the defense of such claim with counsel reasonably satisfactory to the
indemnified party. If such defense is assumed, the indemnifying party shall not
be subject to any liability for any settlement made by the indemnified party
without its consent (but such consent will not be unreasonably withheld). An
indemnifying party who is not entitled to, or elects not to, assume the defense
of a claim shall not be obligated to pay the fees and expenses of more than one
counsel for all parties indemnified by such indemnifying party with respect to
such claim, unless in the reasonable judgment of any indemnified party there may
be one or more legal or equitable defenses available to such indemnified party
which are in addition to or may conflict with those available to another
indemnified party with respect to such claim. Failure to give prompt written
notice shall not release the indemnifying party from its obligations hereunder.

(d) The indemnification provided for under this Agreement shall remain in full
force and effect regardless of any investigation made by or on behalf of the
indemnified party or any officer, director or controlling Person of such
indemnified party and shall survive the transfer of securities.

(e) If the indemnification provided for in or pursuant to this Section 4.5 is
due in accordance with the terms hereof, but is held by a court to be
unavailable or unenforceable in respect of any losses, claims, damages,
liabilities or expenses referred to herein, then each applicable indemnifying
party, in lieu of indemnifying such indemnified party, shall contribute to the
amount paid or payable by such indemnified Person as a result of such losses,
claims, damages, liabilities or expenses in such proportion as is appropriate to
reflect the relative fault of the indemnifying party on the one hand and of the
indemnified party on the other in connection with the statements or omissions
which result in such losses, claims, damages, liabilities or expenses as well as
any other relevant equitable considerations. The relative fault of the
indemnifying party on the one hand and of the indemnified Person on the other
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the indemnifying
party or by the indemnified party, and by such party’s relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. In no event shall the liability of any selling Holder be
greater in amount than the amount of net proceeds received by such Holder upon
such sale or the amount for which such indemnifying party would have been
obligated to pay by way of indemnification if the indemnification provided for
under Section 4.5(a) or 4.5(b) hereof had been available under the
circumstances.

4.6 Participation in Underwritten Registrations. No Person may participate in
any registration hereunder which is underwritten unless such Person (a) agrees
to sell such Person’s securities on the basis provided in any underwriting
arrangements approved by the Person or Persons entitled hereunder to approve
such arrangements and (b) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents required
under the terms of such underwriting arrangements.

 

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4.7 Listing. Subject to receipt of the Shareholder Approval, from and after the
Closing Date, the Company covenants that it will use commercially reasonable
efforts to effect and maintain the quotation of all the Warrant Stock on The
Nasdaq Stock Market, or the primary stock exchange or quotation service upon
which the Common Stock is then traded, subject to official notice of issuance.

4.8 Rule 144. The Company covenants that it will file the reports required to be
filed by it under the Securities Act and the Exchange Act and the rules and
regulations adopted by the SEC thereunder, and it will take such further action
as any Holder may reasonably request to make available adequate current public
information with respect to the Company meeting the current public information
requirements of Rule 144(c) under the Securities Act, to the extent required to
enable such Holder to sell Registrable Securities without registration under the
Securities Act within the limitation of the exemptions provided by (i) Rule 144
under the Securities Act, as such Rule may be amended from time to time, or
(ii) any similar rule or regulation hereafter adopted by the SEC. Upon the
request of any Holder, the Company will deliver to such Holder a written
statement as to whether it has complied with such information and requirements.

4.9 Shareholder Approval. Unless the Company delivers to the Majority Holder a
determination letter from The Nasdaq Stock Market that the Company has been
relieved of the Shareholder Approval requirement, the Company covenants that it
will use its best efforts, including the solicitation of written consents in
lieu of a meeting or the calling of a meeting of shareholders and distribution
of a proxy or information statement and solicitation or proxies, as applicable,
to obtain Shareholder Approval either by action taken without a meeting by
written consent of stockholders or at a meeting of stockholders, in either case
on or before 90 days following the Original Issue Date; provided that the
Company will have up to an additional 60 days to obtain the Shareholder Approval
to the extent such additional days are necessary to resolve any issues arising
during the SEC’s review of the Company’s shareholder solicitation materials,
should such a review be conducted by the SEC. Subject to compliance with
applicable law, the Company may seek the Shareholder Approval, together with the
approval of the issuance of additional shares of Common Stock, as one bundled
proposal or in separate proposals, submitted to the stockholders of the Company.

ARTICLE 5

MISCELLANEOUS

5.1 Survival of Representations and Warranties. All of the representations and
warranties made herein shall survive the execution and delivery of this
Agreement, any investigation by or on behalf of the Holder, acceptance of the
Warrants and payment therefor, exercise of the Warrants or termination of this
Agreement.

5.2 Real Property Holding Company. The Company reasonably believes it is not a
United States real property holding corporation (a “USRPHC”) within the meaning
of Section 897(c)(2) of the Internal Revenue Code. So long as any Holder that is
a nonresident alien individual or foreign corporation (for federal income tax
purposes) holds Warrants or

 

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Warrant Stock (which Warrants or Warrant Stock would not qualify for the
exception for regularly traded stock and other interests in Section 897(c)(3)
and the regulations thereunder), the Company will use its reasonable best
efforts to avoid becoming a USRPHC. Unless the Company believes in good faith
that it may not validly do so, upon the request of such a Holder, the Company
shall within 10 Business Days of such request, issue to such holder a statement
as described in Treasury Regulations Section 1.897-2(h)(1).

5.3 Notices. All notices or other communications hereunder shall be deemed to
have been duly given and made if in writing and if served by personal delivery
upon the party for whom it is intended or by a national courier service, or if
sent by facsimile; provided that the facsimile is promptly confirmed by written
confirmation by a national courier service thereof, to the person at the address
set forth below, or such other address as may be designated in writing
hereafter, in the same manner, by such person:

If to the Holders or Silver Point, to:

Silver Point Capital

Two Greenwich Plaza

Greenwich, CT 06830

Attn.: Jennifer Poccia

Voice: (203) 542-4438

Email: jpoccia@silverpointcapital.com

Fax: (203) 542-4538

with a copy (which shall not constitute notice to the Holders), to:

Skadden, Arps, Slate, Meagher & Flom LLP

333 West Wacker Drive

Suite 2100

Chicago, IL 60606

Attn.: Sarah M. Ward

 L. Byron Vance III

Voice: (312) 407-0700

Fax: (312) 407-0411

If to the Company, to:

U.S. Energy Systems, Inc.

545 Madison Ave., 6th Floor

New York, NY 10022

Attn.: Asher E. Fogel

 Chief Executive Officer

Voice: (212) 588-8901

Fax: (212) 588-1635

 

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with a copy (which shall not constitute notice to the Company), to:

Robinson Brog Leinwand Greene Genovese & Gluck P.C.

1345 Avenue of the Americas

New York, NY 10105

Attention: S. Asher Gaffney

Voice: (212) 603-6326

Fax: (212) 956-2164

Any notice given by overnight courier is effective upon receipt against the
Person who receives it.

5.4 Successors and Assigns. This Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective permitted successors and
assigns, including any permitted transferee of all or any portion of the
Warrants or the Warrant Stock. No transfer of any rights under this Agreement
shall be permitted unless such transfer is in connection with the transfer of a
Warrant representing the right to acquire Warrant Stock attributable to at least
2.5% of the Warrant Stock subject to the Original Warrants and the transferee
executes and delivers an Instrument of Accession in the form attached hereto as
Exhibit B.

5.5 Amendment and Waiver. Any provision of this Agreement may be amended or
waived if, and only if, such amendment or waiver is in writing and signed, in
the case of an amendment, by the Company a majority-in-interest of the Holders,
or in the case of a waiver, by the party against whom the waiver is to be
effective. No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege.

5.6 Counterparts. This Agreement and any amendments hereto may be executed in
one or more counterparts, each of which shall be deemed to be an original by the
parties executing such counterpart, but all of which shall be considered one and
the same instrument.

5.7 Headings; Table of Contents. The section and paragraph headings and table of
contents contained in this Agreement are for reference purposes only and shall
not in any way affect the meaning or interpretation of this Agreement.

5.8 Governing Law. IN ALL RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION,
VALIDITY AND PERFORMANCE, THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE WITHOUT REGARD TO
CONFLICT OF LAW PRINCIPLES AND ANY APPLICABLE LAWS OF THE UNITED STATES OF
AMERICA.

 

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5.9 Waiver of Jury Trial. THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN
ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER SOUNDING
IN CONTRACT, TORT OR OTHERWISE, BETWEEN THE COMPANY AND SILVER POINT ARISING OUT
OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED
AMONG THEM IN CONNECTION WITH, THIS AGREEMENT OR ANY OF THE OTHER TRANSACTION
AGREEMENTS OR THE TRANSACTIONS RELATED THERETO.

5.10 Severability. Wherever possible, each provision of this Agreement shall be
interpreted in such a manner as to be effective and valid under applicable law,
but if any provision of this Agreement shall be prohibited by or invalid under
applicable law, such provision shall be ineffective only to the extent of such
prohibition or invalidity without invalidating the remainder of such provision
or the remaining provisions of this Agreement.

5.11 Entire Agreement. The Transaction Agreements constitute the complete
agreement between the parties with respect to the subject matter thereof.

 

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
and delivered by their respective officers hereunto duly authorized as of the
date first above written.

 

U.S. ENERGY SYSTEMS, INC. By        Name:   Title: SPCP GROUP, L.L.C. By       
Name:   Title: SPCP GROUP III LLC By        Name:   Title: