Document:

Exhibit 4.4 - Registration Rights Agr.

Exhibit 4.4

 

REGISTRATION RIGHTS AGREEMENT

REGISTRATION RIGHTS AGREEMENT (this “Agreement”), dated as of March 19, 2004, by and among SEMCO Energy, Inc., a Michigan corporation, (the “Company”), and each of the undersigned (together with any assignee or transferee of all of their respective rights hereunder, the “Investors”).

WHEREAS:

A.   In connection with the Securities Purchase Agreement by and among the parties hereto of event date herewith (the “Purchase Agreement”), the Company has agreed, upon the terms and subject to the conditions contained therein, to issue and sell to the Investors (i) Fifty Thousand (50,000) shares of the Company’s 6% Series B Convertible Preference Stock, par value $1.00 per share (the “Preference Stock”) and (ii) warrants to acquire up to Nine Hundred Five Thousand Five Hundred Sixty-Five (905,565) shares of Common Stock, upon terms and conditions set forth in each Common Stock Purchase Warrant, dated March 19, 2004 (the “Warrants”); and

B.   To induce the Investors to execute and deliver the Purchase Agreement, the Company has agreed to provide certain registration rights under the Securities Act of 1933, as amended, and the rules and regulations thereunder, or any similar successor statute (collectively, the “1933 Act”), and applicable state securities laws;

NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and each of the Investors hereby agree as follows:

1.   DEFINITIONS.

a.   As used in this Agreement, the following terms shall have the following meanings:

(i)   “register,” “registered,” and “registration” refer to a registration effected by preparing and filing a Registration Statement or Statements in compliance with the 1933 Act and pursuant to Rule 415 under the 1933 Act or any successor rule providing for offering securities on a continuous basis (“Rule 415”), and the declaration or ordering of effectiveness of such Registration Statement by the United States Securities and Exchange Commission (the “SEC”).

(ii)   "Registrable Conversion Securities" means (A) the Conversion Shares (as defined in the Purchase Agreement) issuable upon conversion of the Preference Stock and (B) any shares of capital stock issued or issuable as a dividend on or in exchange for or otherwise with respect to Conversion Shares. 

(iii)   “Registrable Securities” means (A) the Registrable Conversion Securities and/or (B) the Registrable Warrant Securities. 

	 
	 	 	 
	

	 

 

(iv)   “Registrable Warrant Securities” means the Warrant Shares (as defined in the Purchase Agreement) issued or issuable (up to the maximum number of Warrant Shares issuable pursuant to the Warrants) upon exercise of or otherwise pursuant to the Warrants, and (B) any shares of capital stock issued or issuable as a dividend on or in exchange for or otherwise with respect to the Warrant Shares.

(v)   “Registration Statement(s)” means a registration statement(s) of the Company under the 1933 Act.

b.   Capitalized terms used herein and not otherwise defined herein shall have the respective meanings set forth in the Purchase Agreement.

2.   REGISTRATION.

a.   Demand Registration.

(i)   Investors holding at least 33% of the Registrable Conversion Securities (the “Requesting Conversion Holders”) may make a written request for registration under the Securities Act on Form S-3 of the Registrable Conversion Securities (a “Demand Conversion Registration”); provided that the Company shall not be obligated to effect a Demand Conversion Registration for the Registrable Conversion Securities prior to the one (1) year anniversary of the date of Second Closing (as defined in the Purchase Agreement) or for more than an aggregate of three (3) Demand Conversion Registrations for the Registrable Conversion Securities pursuant to this Section 2(a). Investors holding in the aggregate Registrable Warrant Securities with a value of at least $2,000,000 (valued based on the Exercise Price (as defined in the Warrant)) (the “Requesting Warrant Holders”) may make a written request for registration under the Securities Act on Form S-3 of the Registrable Warrant Securities (a “Demand Warrant Registration”); provided that the Company shall not be obligated to effect a Demand Warrant Registration for the Registrable Warrant Securities prior to the three (3) year anniversary of the date of the First Closing (as defined in the Purchase Agreement) or more than an aggregate of two (2) Demand Warrant Registrations for the Registrable Warrant Securities pursuant to this Section 2(a). Upon receipt of a request for a Demand Conversion Registration or a Demand Warrant Registration, the Company will use commercially reasonable best efforts to effect the registration on Form S-3 (or, if Form S-3 is not then available, on such form of Registration Statement as is then available to effect a registration of the Registrable Securities, subject to the consent of the Investors, which consent will not be unreasonably withheld). A registration will not count as a Demand Conversion Registration or a Demand Warrant Registration until the registration statement filed pursuant to such Demand Conversion Registration or a Demand Warrant Registration, as applicable, has been declared effective by the Commission and remains effective for the period specified in Section 3(a).

(ii)   Neither the Company or any of its security holders (other than the Holders with respect to their Registrable Securities) shall be entitled to include any of the Company’s securities in a registration statement initiated as a Demand Conversion Registration or Demand Warrant Registration under Section 2(a) without the consent of the Requesting Warrant Holders or Requesting Conversion Holders, as applicable.

	 
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b.   Underwritten Offering. If any offering pursuant to a Registration Statement pursuant to Section 2(a) hereof involves an underwritten offering, the Investors who hold a majority in interest of the Registrable Securities subject to such underwritten offering, with the consent of a majority-in-interest of the Investors, shall have the right to select one legal counsel and to select an investment banker or bankers and manager or managers to administer the offering, which investment banker or bankers or manager or managers shall be reasonably acceptable to the Company. In the event that any Investors elect not to participate in such underwritten offering, the Registration Statement covering all of the Registrable Securities shall contain appropriate plans of distribution reasonably satisfactory to the Investors participating in such underwritten offering and the Investors electing not to participate in such underwritten offering (including, without limitation, the ability of non-participating Investors to sell from time to time at any time during the effectiveness of such Registration Statement).

c.   Piggy-Back Registrations. If, with respect to the Registrable Conversion Securities, after the one (1) year anniversary of the date of the Second Closing, and, with respect to the Registrable Warrant Securities, after the First Closing, at any time prior to the expiration of the Registration Period (as hereinafter defined) the Company shall determine to file with the SEC a Registration Statement relating to an offering for its own account or the account of others under the 1933 Act of any of its equity securities (other than on Form S-4 or Form S-8 or their then equivalents relating to equity securities to be issued solely in connection with any acquisition of any entity or business or equity securities issuable in connection with stock option or other employee benefit plans), the Company shall send to each Investor who is entitled to registration rights under this Section 2(c) written notice of such determination and, if within fifteen (15) calendar days after the effective date of such notice, such Investor shall so request in writing, the Company shall include in such Registration Statement all or any part of the Registrable Securities such Investor requests to be registered, except that if, in connection with any underwritten public offering for the account of the Company the managing underwriter(s) thereof shall impose a limitation on the number of shares of Common Stock which may be included in the Registration Statement because, in such underwriter(s)’ judgment, marketing or other factors dictate such limitation is necessary to facilitate public distribution, then the Company shall be obligated to include in such Registration Statement only such limited portion of the Registrable Securities with respect to which such Investor has requested inclusion hereunder as the underwriter shall permit. Any exclusion of Registrable Securities shall be made pro rata among the Investors seeking to include Registrable Securities in proportion to the number of Registrable Securities sought to be included by such Investors; provided, however, that the Company shall not exclude any Registrable Securities unless the Company has first excluded all outstanding securities, the holders of which are not entitled by contract to inclusion of such securities in such Registration Statement or are not entitled to pro rata inclusion with the Registrable Securities; and provided, further, however, that, after giving effect to the immediately preceding proviso, any exclusion of Registrable Securities shall be made pro rata with holders of other securities having the contractual right to include such securities in the Registration Statement other than holders of securities entitled to inclusion of their securities in such Registration Statement by reason of demand registration rights. No right to registration of Registrable Securities under this Section 2(c) shall be construed to limit any registration required under Section 2(a) hereof. If an offering in connection with which an Investor is entitled to registration under this Section 2(c) is an underwritten offering, then each Investor whose Registrable Securities are included in such Registration Statement shall, unless otherwise agreed by the Company, offer and sell such Registrable Securities in an underwritten offering using the same underwriter or underwriters and, subject to the provisions of this Agreement, on the same terms and conditions as other shares of Common Stock included in such underwritten offering. 

	 
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d.   Eligibility for Form S-3. The Company represents and warrants that it meets the registrant eligibility and transaction requirements for the use of Form S-3 for registration of the sale by the Investors and any other Investors of the Registrable Securities and the Company shall file all reports required to be filed by the Company with the SEC in a timely manner so as to maintain such eligibility for the use of Form S-3.

3.   OBLIGATIONS OF THE COMPANY.

In connection with the registration of the Registrable Securities, the Company shall have the following obligations:

a.   The Company use its best efforts to keep the Registration Statement effective pursuant to Rule 415 at all times until such date as is the earlier of (i) the date on which all of the Registrable Securities have been sold and (ii) the date on which the Registrable Securities (in the opinion of counsel to the Investors) may be immediately sold to the public without registration or restriction (including without limitation as to volume by each holder thereof) under the 1933 Act (the “Registration Period”), which Registration Statement (including any amendments or supplements thereto and prospectuses contained therein) shall not 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.

b.   The Company shall prepare and file with the SEC such amendments (including post-effective amendments) and supplements to the Registration Statements and the prospectus used in connection with the Registration Statements as may be necessary to keep the Registration Statements effective at all times during the Registration Period, and, during such period, comply with the provisions of the 1933 Act with respect to the disposition of all Registrable Securities of the Company covered by the Registration Statements until such time as all of such Registrable Securities have been disposed of in accordance with the intended methods of disposition by the seller or sellers thereof as set forth in the Registration Statements. 

c.   The Company shall furnish to each Investor whose Registrable Securities are included in a Registration Statement and its legal counsel (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, and, in the case of the Registration Statement referred to in Section 2(a), each letter written by or on behalf of the Company to the SEC or the staff of the SEC, and each item of correspondence from the SEC or the staff of the SEC, in each case relating to such Registration Statement (other than any portion of any 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 Investor may reasonably request in order to facilitate the disposition of the Registrable Securities owned by such Investor. The Company will immediately notify each Investor 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.

	 
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d.   The Company shall use reasonable efforts to (i) register and qualify the Registrable Securities covered by the Registration Statements under such other securities or “blue sky” laws of such jurisdictions in the United States as the Investors who hold a majority in interest of the Registrable Securities being offered reasonably request, (ii) prepare and file in those jurisdictions such amendments (including post-effective amendments) and supplements to such registrations and qualifications as may be necessary to maintain the effectiveness thereof during the Registration Period, (iii) take such other actions as may be necessary to maintain such registrations and qualifications in effect at all times during the Registration Period, and (iv) take all other actions reasonably necessary or advisable to qualify the Registrable Securities for sale in such jurisdictions; provided, however, that the Company shall not be required in connection therewith or as a condition thereto to (a) qualify to do business in any jurisdiction where it would not otherwise be required to qualify but for this Section 3(d), (b) subject itself to general taxation in any such jurisdiction, (c) file a general consent to service of process in any such jurisdiction, (d) provide any undertakings that cause the Company undue expense or burden, or (e) make any change in its charter or bylaws, which in each case the Board of Directors of the Company determines to be contrary to the best interests of the Company and its stockholders.

e.   In the event Investors who hold a majority-in-interest of the Registrable Securities being offered in the underwritten offering pursuant to a Demand Registration (with the approval of a majority-in-interest of the Investors) select underwriters for the offering which are reasonably acceptable to the Company, the Company shall enter into and perform its obligations under an underwriting agreement, in usual and customary form, including, without limitation, customary indemnification and contribution obligations, with the underwriters of such offering.

f.   As promptly as practicable after becoming aware of such event, the Company shall notify each Investor of the happening of any event, of which the Company has knowledge, as a result of which the prospectus included in any Registration Statement, as then in effect, includes an untrue statement of a material fact or omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and use its best efforts promptly to prepare a supplement or amendment to any Registration Statement to correct such untrue statement or omission, and deliver such number of copies of such supplement or amendment to each Investor as such Investor may reasonably request; provided that, for not more than fifteen (15) consecutive Trading Days (as defined in the Purchase Agreement) (or a total of not more than thirty (30) Trading Days in any twelve (12) month period), the Company may delay the disclosure of material non-public information concerning the Company (as well as prospectus or Registration Statement updating) the disclosure of which at the time is not, in the good faith opinion of the Company, in the best interests of the Company (an “Allowed Delay”); provided, further, that the Company shall promptly (i) notify the Investors in writing of the existence of (but in no event, without the prior written consent of an Investor, shall the Company disclose to such Investor any of the facts or circumstances regarding) material non-public information giving rise to an Allowed Delay and (ii) advise the Investors in writing to cease all sales under such Registration Statement until the end of the Allowed Delay. Upon expiration of the Allowed Delay, the Company shall again be bound by the first sentence of this Section 3(f) with respect to the information giving rise thereto.

	 
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g.   The Company shall use its best efforts to prevent the issuance of any stop order or other suspension of effectiveness of any Registration Statement, and, if such an order is issued, to obtain the withdrawal of such order at the earliest possible moment and to notify each Investor who holds Registrable Securities being sold (or, in the event of an underwritten offering, the managing underwriters) of the issuance of such order and the resolution thereof.

h.   The Company shall permit a single firm of counsel designated by the Investors to review such Registration Statement, and all amendments and supplements thereto (as well as all requests for acceleration or effectiveness thereof and any correspondence between the Company and the SEC relating to the Registration Statement) (collectively, the “Registration Documents”) a reasonable period of time prior to their filing with the SEC, and not file (or send) any Registration Documents in a form to which such counsel reasonably objects and will not request acceleration of such Registration Statement without prior notice to such counsel. The sections of such Registration Statement covering information with respect to the Investors, the Investor’s beneficial ownership of securities of the Company or the Investors intended method of disposition of Registrable Securities shall conform to the information provided to the Company by each of the Investors.

i.   The Company shall make generally available to its security holders as soon as practicable, but not later than ninety (90) calendar days after the close of the period covered thereby, an earnings statement (in form complying with the provisions of Rule 158 under the 1933 Act) covering a twelve-month period beginning not later than the first day of the Company’s fiscal quarter next following the effective date of the Registration Statement.

j.   At the request of any Investor, the Company shall furnish, on the date that Registrable Securities are delivered to an underwriter, if any, for sale in connection with any Registration Statement or, if such securities are not being sold by an underwriter, on the date of effectiveness thereof (i) an opinion, dated as of such date, from counsel representing the Company for purposes of such Registration Statement, in form, scope and substance as is customarily given in an underwritten public offering, addressed to the underwriters, if any, and the Investors and (ii) a letter, dated such date, from the Company’s independent certified public accountants in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering, addressed to the underwriters, if any, and the Investors.

	 
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k.   The Company shall make available for inspection by (i) any Investor, (ii) any underwriter participating in any disposition pursuant to a Registration Statement, (iii) one firm of attorneys and one firm of accountants or other agents retained by the Investors, (iv) one firm of attorneys and one firm of accountants or other agents retained by all other Investors, and (v) one firm of attorneys retained by all such underwriters (collectively, the “Inspectors”) all pertinent financial and other records, and pertinent corporate documents and properties of the Company (collectively, the “Records”), as shall be reasonably deemed necessary by each Inspector to enable each Inspector to exercise its due diligence responsibility, and cause the Company’s officers, directors and employees to supply all information which any Inspector may reasonably request for purposes of such due diligence; provided, however, that each Inspector shall hold in confidence and shall not make any disclosure (except to an Investor) of any Record or other information which the Company determines in good faith to be confidential, and of which determination the Inspectors are so notified, unless (a) the disclosure of such Records is necessary to avoid or correct a misstatement or omission in any Registration Statement, (b) the release of such Records is ordered pursuant to a subpoena or other order from a court or government body of competent jurisdiction, or (c) the information in such Records has been made generally available to the public other than by disclosure in violation of this or any other agreement. The Company shall not be required to disclose any confidential information in such Records to any Inspector until and unless such Inspector shall have entered into confidentiality agreements (in form and substance satisfactory to the Company) with the Company with respect thereto, substantially in the form of this Section 3(k). Each Investor agrees that it shall, upon learning that disclosure of such Records is sought in or by a court or governmental body of competent jurisdiction or through other means, give prompt notice to the Company and allow the Company, at its expense, to undertake appropriate action to prevent disclosure of, or to obtain a protective order for, the Records deemed confidential. Nothing herein (or in any other confidentiality agreement between the Company and any Investor) shall be deemed to limit the Investor’s ability to sell Registrable Securities in a manner which is otherwise consistent with applicable laws and regulations. 

l.   The Company shall hold in confidence and not make any disclosure of information concerning an Investor provided to the Company unless (i) disclosure of such information is necessary to comply with federal or state securities laws, (ii) the disclosure of such information is necessary to avoid or correct a misstatement or omission in any Registration Statement, (iii) the release of such information is ordered pursuant to a subpoena or other order from a court or governmental body of competent jurisdiction, or (iv) such information has been made generally available to the public other than by disclosure in violation of this or any other agreement. The Company agrees that it shall, upon learning that disclosure of such information concerning an Investor is sought in or by a court or governmental body of competent jurisdiction or through other means, give prompt notice to such Investor prior to making such disclosure, and allow the Investor, at its expense, to undertake appropriate action to prevent disclosure of, or to obtain a protective order for, such information.

m.   The Company shall (i) cause all the Registrable Securities covered by the Registration Statement to be listed on each national securities exchange on which securities of the same class or series issued by the Company are then listed, if any, if the listing of such Registrable Securities is then permitted under the rules of such exchange, or (ii) to the extent the securities of the same class or series are not then listed on a national securities exchange, secure the designation and quotation of all the Registrable Securities covered by the Registration Statement on the NYSE, the AMEX, Nasdaq or the Nasdaq SmallCap.

	 
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n.   The Company shall provide a transfer agent and registrar, which may be a single entity, for the Registrable Securities not later than the effective date of the Registration Statement.

o.   The Company shall cooperate with the Investors who hold Registrable Securities being offered and the managing underwriter or underwriters, if any, to facilitate the timely preparation and delivery of certificates (not bearing any restrictive legends) representing Registrable Securities to be offered pursuant to such Registration Statement and enable such certificates to be in such denominations or amounts, as the case may be, as the managing underwriter or underwriters, if any, or the Investors may reasonably request and registered in such names as the managing underwriter or underwriters, if any, or the Investors may request, and, within three (3) business days after a Registration Statement which includes Registrable Securities is ordered effective by the SEC, the Company shall deliver, and shall cause legal counsel selected by the Company to deliver, to the transfer agent for the Registrable Securities (with copies to the Investors whose Registrable Securities are included in such Registration Statement) an instruction in the form attached hereto as Exhibit 1 and an opinion of such counsel in the form attached hereto as Exhibit 2.

p.   At the request of the holders of a majority-in-interest of the Registrable Securities registered on a Registration Statement, the Company shall prepare and file with the SEC such amendments (including post-effective amendments) and supplements to a Registration Statement and any prospectus used in connection with the Registration Statement as may be necessary in order to change the plan of distribution set forth in such Registration Statement.

q.   The Company shall not, and shall not agree to, allow the holders of any securities of the Company to include any of their securities in any Registration Statement under Section 2(a) hereof or any amendment or supplement thereto under Section 3(b) hereof without the consent of the holders of a majority-in-interest of the Registrable Securities. In addition, the Company shall not offer any securities for its own account or the account of others in any Registration Statement under Section 2(a) hereof or any amendment or supplement thereto under Section 3(b) hereof without the consent of the holders of a majority-in- interest of the Registrable Securities.

r.   The Company shall take all other reasonable actions necessary to expedite and facilitate disposition by the Investors of Registrable Securities pursuant to a Registration Statement.

s.   The Company shall comply with all applicable laws related to a Registration Statement and offering and sale of securities and all applicable rules and regulations of governmental authorities in connection therewith (including without limitation the 1933 Act and the 1934 Act and the rules and regulations promulgated by the SEC).

4.   OBLIGATIONS OF THE INVESTORS.

In connection with the registration of the Registrable Securities, the Investors shall have the following obligations:

	 
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a.   It shall be a condition precedent to the obligations of the Company to complete the registration pursuant to this Agreement with respect to the Registrable Securities of a particular Investor that such Investor shall furnish to the Company such information regarding itself, the Registrable Securities held by it and the intended method of disposition of the Registrable Securities held by it as shall be reasonably required to effect the registration of such Registrable Securities and shall execute such documents in connection with such registration as the Company may reasonably request. At least three (3) business days prior to the first anticipated filing date of the Registration Statement, the Company shall notify each Investor of the information the Company requires from each such Investor. 

b.   Each Investor, by such Investor’s acceptance of the Registrable Securities, agrees to cooperate with the Company as reasonably requested by the Company in connection with the preparation and filing of the Registration Statements hereunder, unless such Investor has notified the Company in writing of such Investor’s election to exclude all of such Investor’s Registrable Securities from the Registration Statements.

c.   In the event Investors holding a majority-in-interest of the Registrable Securities being registered (with the approval of the Investors) determine to engage the services of an underwriter, each Investor agrees to enter into and perform such Investor’s obligations under an underwriting agreement, in usual and customary form, including, without limitation, customary indemnification and contribution obligations, with the managing underwriter of such offering and take such other actions as are reasonably required in order to expedite or facilitate the disposition of the Registrable Securities, unless such Investor has notified the Company in writing of such Investor’s election to exclude all of such Investor’s Registrable Securities from such Registration Statement.

d.   Each Investor agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 3(f) or 3(g), such Investor will immediately discontinue disposition of Registrable Securities pursuant to the Registration Statement covering such Registrable Securities until such Investor’s receipt of the copies of the supplemented or amended prospectus contemplated by Section 3(f) or 3(g) and, if so directed by the Company, such Investor shall deliver to the Company (at the expense of the Company) or destroy (and deliver to the Company a certificate of destruction) all copies in such Investor’s possession, of the prospectus covering such Registrable Securities current at the time of receipt of such notice.

e.   No Investor may participate in any underwritten registration hereunder unless such Investor (i) agrees to sell such Investor’s Registrable Securities on the basis provided in any underwriting arrangements in usual and customary form entered into by the Company, (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements, and (iii) agrees to pay its pro rata share of all underwriting discounts and commissions and any expenses in excess of those payable by the Company pursuant to Section 5 below.

	 
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5.   EXPENSES OF REGISTRATION.

All reasonable expenses, other than underwriting discounts and commissions, incurred in connection with registrations, filings or qualifications pursuant to Sections 2 and 3, including, without limitation, all registration, listing and qualification fees, printers and accounting fees and the fees and disbursements of counsel for the Company. The reasonable fees and disbursements of counsel selected by the Investors pursuant to Sections 2(b) and 3(h) hereof shall be borne by the Investors requesting registration.

6.   INDEMNIFICATION.

In the event any Registrable Securities are included in a Registration Statement under this Agreement:

a.   To the extent permitted by law, the Company will indemnify, hold harmless and defend (i) each Investor who holds such Registrable Securities, (ii) the directors, officers, partners, employees, agents and each person who controls any Investor within the meaning of the 1933 Act or the Securities Exchange Act of 1934, as amended (the “1934 Act”), if any, (iii) any underwriter (as defined in the 1933 Act) for the Investors, and (iv) the directors, officers, partners, employees and each person who controls any such underwriter within the meaning of the 1933 Act or the 1934 Act, if any (each, an “Indemnified Person”), against any joint or several losses, claims, damages, liabilities or expenses (collectively, together with actions, proceedings or inquiries by any regulatory or self-regulatory organization, whether commenced or threatened, in respect thereof, “Claims”) to which any of them may become subject insofar as such Claims arise out of or are based upon: (i) any untrue statement or alleged untrue statement of a material fact in a Registration Statement or the omission or alleged omission to state therein a material fact required to be stated or necessary to make the statements therein not misleading; (ii) any untrue statement or alleged untrue statement of a material fact contained in any preliminary prospectus if used prior to the effective date of such Registration Statement, or contained in the final prospectus (as amended or supplemented, if the Company files any amendment thereof or supplement thereto with the SEC) or the omission or alleged omission to state therein any material fact necessary to make the statements made therein, in light of the circumstances under which the statements therein were made, not misleading; or (iii) any violation or alleged violation by the Company of the 1933 Act, the 1934 Act, any other law, including, without limitation, any state securities law, or any rule or regulation thereunder relating to the offer or sale of the Registrable Securities (the matters in the foregoing clauses (i) through (iii) being, collectively, “Violations”). Subject to the restrictions set forth in Section 6(c) with respect to the number of legal counsel, the Company shall reimburse the Indemnified Person, promptly as such expenses are incurred and are due and payable, for any reasonable legal fees or other reasonable expenses incurred by them in connection with investigating or defending any such Claim. Notwithstanding anything to the contrary contained herein, the indemnification agreement contained in this Section 6(a): (i) shall not apply to a Claim arising out of or based upon a Violation which occurs in reliance upon and in conformity with information furnished in writing to the Company by any Indemnified Person or underwriter for such Indemnified Person expressly for use in connection with the preparation of such Registration Statement or any such amendment thereof or supplement thereto; (ii) shall not apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of the Company, which consent shall not be unreasonably withheld; and (iii) with respect to any preliminary prospectus, shall not inure to the benefit of any Indemnified Person if the untrue statement or omission of material fact contained in the preliminary prospectus was corrected on a timely basis in the prospectus, as then amended or supplemented, such corrected prospectus was timely made available by the Company pursuant to Section 3(c) hereof, and the Indemnified Person was promptly advised in writing not to use the incorrect prospectus prior to the use giving rise to a Violation and such Indemnified Person, notwithstanding such advice, used it. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Indemnified Person and shall survive the transfer of the Registrable Securities by the Investors pursuant to Section 9.

	 
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b.   In connection with any Registration Statement in which an Investor is participating, each such Investor agrees severally and not jointly to indemnify, hold harmless and defend, to the same extent and in the same manner set forth in Section 6(a), the Company, each of its directors, each of its officers who signs the Registration Statement, each person, if any, who controls the Company within the meaning of the 1933 Act or the 1934 Act, any underwriter and any other stockholder selling securities pursuant to the Registration Statement or any of its directors or officers or any person who controls such stockholder or underwriter within the meaning of the 1933 Act or the 1934 Act (collectively and together with an Indemnified Person, an “Indemnified Party”), against any Claim to which any of them may become subject, under the 1933 Act, the 1934 Act or otherwise, insofar as such Claim arises out of or is based upon any Violation by such Investor, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished to the Company by such Investor expressly for use in connection with such Registration Statement; and subject to Section 6(c), such Investor will reimburse any legal or other expenses (promptly as such expenses are incurred and are due and payable) reasonably incurred by them in connection with investigating or defending any such Claim; provided, however, that the indemnity agreement contained in this Section 6(b) shall not apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of such Investor, which consent shall not be unreasonably withheld; provided, further, however, that the Investor shall be liable under this Agreement (including this Section 6(b) and Section 7) for only that amount as does not exceed the net proceeds to such Investor as a result of the sale of Registrable Securities pursuant to such Registration Statement. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such Indemnified Party and shall survive the transfer of the Registrable Securities by the Investors pursuant to Section 9. Notwithstanding anything to the contrary contained herein, the indemnification agreement contained in this Section 6(b) with respect to any preliminary prospectus shall not inure to the benefit of any Indemnified Party if the untrue statement or omission of material fact contained in the preliminary prospectus was corrected on a timely basis in the prospectus, as then amended or supplemented.

	 
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c.   Promptly after receipt by an Indemnified Person or Indemnified Party under this Section 6 of notice of the commencement of any action (including any governmental action), such Indemnified Person or Indemnified Party shall, if a Claim in respect thereof is to be made against any indemnifying party under this Section 6, deliver to the indemnifying party a written notice of the commencement thereof, and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume control of the defense thereof with counsel mutually satisfactory to the indemnifying party and the Indemnified Person or the Indemnified Party, as the case may be; provided, however, that an Indemnified Person or Indemnified Party shall have the right to retain its own counsel with the fees and expenses to be paid by the indemnifying party, if, in the reasonable opinion of counsel retained by the indemnifying party, the representation by such counsel of the Indemnified Person or Indemnified Party and the indemnifying party would be inappropriate due to actual or potential differing interests between such Indemnified Person or Indemnified Party and any other party represented by such counsel in such proceeding. The indemnifying party shall pay for only one separate legal counsel for the Indemnified Persons or the Indemnified Parties, as applicable, and such legal counsel shall be selected by the Indemnified Person or Indemnified Party. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action shall not relieve such indemnifying party of any liability to the Indemnified Person or Indemnified Party under this Section 6, except to the extent that the indemnifying party is actually prejudiced in its ability to defend such action. The indemnification required by this Section 6 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as such expense, loss, damage or liability is incurred and is due and payable.

7.   CONTRIBUTION.

To the extent any indemnification by an indemnifying party is prohibited or limited by law, the indemnifying party agrees to make the maximum contribution with respect to any amounts for which it would otherwise be liable under Section 6 to the fullest extent permitted by law; provided, however, that (i) no contribution shall be made under circumstances where the maker would not have been liable for indemnification under the fault standards set forth in Section 6, (ii) no seller of Registrable Securities guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any seller of Registrable Securities who was not guilty of such fraudulent misrepresentation, and (iii) contribution (together with any indemnification or other obligations under this Agreement) by any seller of Registrable Securities shall be limited in amount to the net amount of proceeds received by such seller from the sale of such Registrable Securities.

8.   REPORTS UNDER THE 1934 ACT.

With a view to making available to the Investors the benefits of Rule 144 promulgated under the 1933 Act or any other similar rule or regulation of the SEC that may at any time permit the investors to sell securities of the Company to the public without registration (“Rule 144”), the Company agrees to:

a.   make and keep public information available, as those terms are understood and defined in Rule 144;

b.   file with the SEC in a timely manner all reports and other documents required of the Company under the 1933 Act and the 1934 Act so long as the Company remains subject to such requirements (it being understood that nothing herein shall limit the Company’s obligations under Section 4(c) of the Purchase Agreement) and the filing of such reports and other documents is required for the applicable provisions of Rule 144; and

	 
	 	12	 
	

	 

 

c.   furnish to each Investor so long as such Investor owns Registrable Securities, promptly upon request, (i) a written statement by the Company that it has complied with the reporting requirements of Rule 144, the 1933 Act and the 1934 Act, (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company, and (iii) such other information as may be reasonably requested to permit the Investors to sell such securities pursuant to Rule 144 without registration.

9.   ASSIGNMENT OF REGISTRATION RIGHTS.

The rights under this Agreement shall be automatically assignable by the Investors to any transferee of all or any portion of Registrable Securities if: (i) the Investor agrees in writing with the transferee or assignee to assign such rights, and a copy of such agreement is furnished to the Company within a reasonable time after such assignment, (ii) the Company is, within a reasonable time after such transfer or assignment, furnished with written notice of (a) the name and address of such transferee or assignee, and (b) the securities with respect to which such registration rights are being transferred or assigned, (iii) following such transfer or assignment, the further disposition of such securities by the transferee or assignee is restricted under the 1933 Act and applicable state securities laws, (iv) at or before the time the Company receives the written notice contemplated by clause (ii) of this sentence, the transferee or assignee agrees in writing with the Company to be bound by all of the provisions contained herein, (v) such transfer shall have been made in accordance with the applicable requirements of the Purchase Agreement, and (vi) such transferee shall be an “accredited investor” as that term defined in Rule 501 of Regulation D promulgated under the 1933 Act.

10.   AMENDMENT OF REGISTRATION RIGHTS.

Provisions of this Agreement may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively), only with written consent of the Company, each of the Investors (to the extent such Initial Investor still owns Registrable Securities) and Investors who hold a majority interest of the Registrable Securities. Any amendment or waiver effected in accordance with this Section 10 shall be binding upon each Investor and the Company.

11.   MISCELLANEOUS.

a.   A person or entity is deemed to be a holder of Registrable Securities whenever such person or entity owns of record such Registrable Securities. If the Company receives conflicting instructions, notices or elections from two or more persons or entities with respect to the same Registrable Securities, the Company shall act upon the basis of instructions, notice or election received from the registered owner of such Registrable Securities.

b.   Any notices required or permitted to be given under the terms hereof shall be sent by certified or registered mail (return receipt requested) or delivered personally or by courier (including a recognized overnight delivery service) or by facsimile and shall be effective five (5) calendar days after being placed in the mail, if mailed by regular United States mail, or upon receipt, if delivered personally or by courier (including a recognized overnight delivery service) or by facsimile, in each case addressed to a party. The addresses for such communications shall be:

	 
	 	13	 
	

	 

 

If to the Company:

SEMCO Energy, Inc.

28470 13 Mile Road
Suite 300
Farmington, Michigan 48334
Attention: Chief Financial Officer
Facsimile: (248) 702-6300

With copy to:

Verne C. Hampton, II
Dickinson Wright PLLC
500 Woodward Avenue
Suite 4000
Detroit, Michigan  48226
Facsimile:  (313) 223-3598

If to an Investor: to the address set forth immediately below such Investor’s name on the signature pages to the Purchase Agreement. 

c.   Failure of any party to exercise any right or remedy under this Agreement or otherwise, or delay by a party in exercising such right or remedy, shall not operate as a waiver thereof.

d.   This Agreement shall be governed by and construed in accordance with the laws of the State of Michigan applicable to agreements made and to be performed in the State of Michigan (without regard to principles of conflict of laws). Both parties irrevocably consent to the exclusive jurisdiction of the United States federal courts and the state courts located in Michigan with respect to any suit or proceeding based on or arising under this Agreement, the agreements entered into in connection herewith or the transactions contemplated hereby or thereby and irrevocably agree that all claims in respect of such suit or proceeding may be determined in such courts. Both parties irrevocably waive the defense of an inconvenient forum to the maintenance of such suit or proceeding. Both parties further agree that service of process upon a party mailed by first class mail shall be deemed in every respect effective service of process upon the party in any such suit or proceeding. Nothing herein shall affect either party’s right to serve process in any other manner permitted by law. Both parties agree that a final non-appealable judgment in any such suit or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on such judgment or in any other lawful manner.

e.   This Agreement and the Purchase Agreement (including all schedules and exhibits thereto) constitute the entire agreement among the parties hereto with respect to the subject matter hereof and thereof. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein and therein. This Agreement and the Purchase Agreement supersede all prior agreements and understandings among the parties hereto with respect to the subject matter hereof and thereof.

	 
	 	14	 
	

	 

 

f.   Subject to the requirements of Section 9 hereof, this Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties hereto.

g.   The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.

h.   This Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all of which shall constitute one and the same agreement. This Agreement, once executed by a party, may be delivered to the other party hereto by facsimile transmission of a copy of this Agreement bearing the signature of the party so delivering this Agreement.

i.   Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.

j.   Except as otherwise provided herein, all consents and other determinations to be made by the Investors pursuant to this Agreement shall be made by Investors holding a majority of the Registrable Securities.

k.   The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to each Investor by vitiating the intent and purpose of the transactions contemplated hereby. Accordingly, the Company acknowledges that the remedy at law for breach of its obligations hereunder will be inadequate and agrees, in the event of a breach or threatened breach by the Company of any of the provisions hereunder, that each Investor shall be entitled, in addition to all other available remedies in law or in equity, to an injunction or injunctions to prevent or cure breaches of the provisions of this Agreement and to enforce specifically the terms and provisions hereof, without the necessity of showing economic loss and without any bond or other security being required.

l.   The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party.

m.   In the event that any provision of this Agreement is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any provision hereof which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision hereof.

	 
	 	15	 
	

	 

 

n.   The initial number of Registrable Securities included in any Registration Statement and each increase to the number of Registrable Securities included therein shall be allocated pro rata among the Investors based on the number of Registrable Securities held by each Investor at the time of such establishment or increase, as the case may be. In the event an Investor shall sell or otherwise transfer any of such holder’s Registrable Securities, each transferee shall be allocated a pro rata portion of the number of Registrable Securities included in a Registration Statement for such transferor. Any shares of Common Stock included on a Registration Statement and which remain allocated to any person or entity which does not hold any Registrable Securities shall be allocated to the remaining Investors, pro rata based on the number of shares of Registrable Securities then held by such Investors. For the avoidance of doubt, the number of Registrable Securities held by an Investor shall be determined as if all Warrants then outstanding and held by an Investor were exercised for Registrable Securities.

[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

	
 

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IN WITNESS WHEREOF, the Company and the undersigned Investors have caused this Agreement to be duly executed as of the date first above written.

SEMCO ENERGY, INC.

By: John E. Schneider
Name: John E. Schneider
Title: Senior Vice President and CFO

K-1 GHM, LLLP

 

By: K-1 Ventures Michigan, Inc., its general partner

 

By: Jeffrey A. Safchik

Name: Jeffrey A. Safchik

Title: Chief Financial Officer

	
 

	 	17Exhibit 4.5 - Shareholder Agreement

Exhibit 4.5

 

SHAREHOLDER AGREEMENT

BETWEEN

SEMCO ENERGY, INC.,

A MICHIGAN CORPORATION

AND

K-1 GHM, LLLP

A Delaware limited liability limited partnership

DATED AS OF MARCH 19, 2004

	
 

	 	 	 
	

	

TABLE OF CONTENTS

 

	 	 	 	
 PAGE

	ARTICLE I	CERTAIN DEFINITIONS	
 1

	 	 	 	 
	ARTICLE II	REPRESENTATIONS AND WARRANTIES	
4

	 	Section 2.1.	Representations and Warranties of the Company	
 4

	 	Section 2.2.	Representations and Warranties of the Shareholder	
 5

	 	 	 	 
	ARTICLE III	SHAREHOLDER AND COMPANY CONDUCT	
 5

	 	Section 3.1.	Voting Restrictions	
 5

	 	Section 3.2.	Additional Rights	
 5

	 	 	 	 
	ARTICLE IV	BOARD REPRESENTATION	
 6

	 	Section 4.1.	Directors Designated by the Shareholder	
 6

	 	Section 4.2.	Resignation of Shareholder Nominees	
 8

	 	 	 	 
	ARTICLE V	EFFECTIVENESS AND TERMINATION	
 9

	 	Section 5.1.	Effectiveness	
 9

	 	Section 5.2.	Termination	
 9

	 	 	 	 
	ARTICLE VI	MISCELLANEOUS	
 9

	 	Section 6.1.	Regulatory Matters	
 9

	 	Section 6.2.	Injunctive Relief	
 9

	 	Section 6.3.	Successors and Assigns	
 9

	 	Section 6.4.	Amendments; Waiver	
 9

	 	Section 6.5.	Notices	
 10

	 	Section 6.6.	Applicable Law	
 11

	 	Section 6.7.	Headings	
 11

	 	Section 6.8.	Integration	
 11

	 	Section 6.9.	Severability	
 11

	 	Section 6.10.	Consent to Jurisdiction	
 11

	 	Section 6.11.	Waiver of Jury Trial	
 11

	 	Section 6.12.	Counterparts	
 12

 

	
 

	 	 i	 
	

	

SHAREHOLDER AGREEMENT, dated as of March 19, 2004 (this "Agreement", which term shall include any amendments hereto), between SEMCO Energy, Inc., a Michigan corporation (the "Company", which term shall include all successors thereto), and K-1 GHM, LLLP, a Delaware limited liability limited partnership (the "Shareholder", which term shall include all Successors (as defined herein) thereto).

W I T N E S S E T H:

RECITALS:

A.   The Shareholder and the Company have entered into a Securities Purchase Agreement, dated as of the date hereof (the "Securities Purchase Agreement") pursuant to which the Company has agreed to sell and the Shareholder has agreed to acquire (the "Investment") pursuant to the transactions contemplated thereby 50,000 shares of 6% Series B Convertible Preference Stock of the Company, par value $1.00 per share (the "Convertible Preference Stock") and stock purchase warrants (the "Warrants") to purchase 905,565 shares of common stock of the Company, par value $1.00 per share (the "Common Stock");

B.   Concurrently with the consummation of the Investment (the "Closing"), the Company and the Shareholder desire to establish in this Agreement certain terms and conditions concerning the acquisition and disposition of securities of the Company by the Shareholder, and related provisions concerning the Shareholder's relationship with and investment in the Company;

C.   Concurrently with the execution and delivery hereof, the Company and the Shareholder are entering into a Registration Rights Agreement, dated as of the date hereof (the "Registration Rights Agreement"); and

D.   The Company would not sell the Convertible Preference Stock and Warrants and the Shareholder would not make the Investment in accordance with the Securities Purchase Agreement without the execution and delivery of this Agreement by the Company.

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

ARTICLE I
CERTAIN DEFINITIONS

Section 1.1.   In addition to other terms defined elsewhere in this Agreement, as used in this Agreement, the following terms shall have the meanings ascribed to them below:

"Affiliate" shall have the meaning set forth in Section 2(a)(11) of the 1935 Act.

"Agreement" shall mean this agreement as it may be amended from time to time.

	 
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"Bankruptcy Code" shall mean Title 11 of the U.S. Code, as it then exists, or any replacement or successor statute governing bankruptcy or insolvency proceedings or creditors rights.

"Board" shall mean the Board of Directors of the Company in office at the applicable time, as elected in accordance with the By-laws of the Company and the provisions of this Agreement.

"Charter" shall mean the Articles of Incorporation of the Company, as it may be amended from time to time.

"Closing" shall have the meaning assigned in the Recital B of this Agreement.

"Common Stock" shall have the meaning assigned in the first recital of this Agreement.

"Company" shall have the meaning assigned in the preamble of this Agreement. 

"Convertible Preference Stock" shall have the meaning assigned in Recital A of this Agreement.

"Director" shall mean any member of the Board in office at the applicable time, as elected in accordance with the provisions of the By-laws of the Company and the provisions of this Agreement.

"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.

"Excess Voting Securities" shall mean such Voting Securities of any Shareholder Group in excess of the Restricted Voting Percentage.

"Independent Director" shall mean any Person who (i) is not a Shareholder Nominee and is independent of and otherwise unaffiliated with any member of any Shareholder Group, (ii) who is not a director, officer, employee, consultant or advisor (financial, legal or other) of any member of any Shareholder Group and has not served in any such capacity in the previous three (3) years, and (iii) meets the "independent director" tests of the NYSE.

"Initial Shareholder Nominee Notice" shall have the meaning assigned in Section 4.1(b) of this Agreement.

"Initial Shareholder Nominees" shall have the meaning assigned in Section 4.1(b) of this Agreement.

"Investment" shall have the meaning assigned in Recital A of this Agreement.

"1935 Act" shall mean the Public Utility Holding Act of 1935, as amended.

"MBCA" shall mean the Michigan Business Corporation Act.

"NYSE" shall mean the New York Stock Exchange.

	 
	 	 2	 
	

	 

 

"Person" shall mean any individual, partnership, joint venture, corporation, trust, unincorporated organization, government or department or agency of a government.

"Registration Rights Agreement" shall have the meaning assigned in Recital C of this Agreement.

A "Regulatory Change" will be deemed to have occurred, with respect to all or any one of the provisions of this Agreement, upon the receipt by the Shareholder of an opinion of the Shareholder's counsel (which counsel must be reasonably acceptable to the Company) to the effect that either (1) the 1935 Act has been repealed, modified, amended or otherwise changed or (2) the Shareholder has received an exemption, or, in the unqualified opinion of such counsel, is entitled without any regulatory approval to claim an exemption, or has received an approval or no-action letter from the SEC or its staff under the 1935 Act or has registered under the 1935 Act, or any combination of the foregoing, and as a consequence of (1) and/or (2) the Shareholder may fully and legally exercise the rights set forth in such provision(s) of this Agreement which take effect in the period after a Regulatory Change has occurred.

"Restricted Voting Percentage" shall mean 9.9% of the Total Voting Power.

"SEC" shall mean the United States Securities and Exchange Commission or any successor thereto.

"Securities" shall mean any equity securities of the Company.

"Securities Act" shall mean the Securities Act of 1993, as amended, and any successor statute.

"Securities Purchase Agreement shall have the meaning assigned in Recital A of this Agreement.

"Shareholder" shall have the meaning assigned in the preamble of this Agreement.

"Shareholder Group" shall mean, with respect to any Shareholder of the Company, such Shareholder along with any Affiliate of such Shareholder, whose aggregate Voting Ownership Percentage exceeds the Restricted Voting Percentage.

"Shareholder Nominees" shall have the meaning set forth in Section 4.1(d) of this Agreement.

"Successor" shall mean any Person who acquires from the Shareholder (or any transferee or successor of the Shareholder) (i) any Convertible Preference Stock or (ii) any Common Stock or other securities into which it has been converted, in excess of the Restricted Voting Percentage, and who is assigned any of the rights, and commits to the various restrictions, set forth in this Agreement.

"Successor Shareholder Nominee Notice" shall have the meaning assigned in Section 4.1(d) of this Agreement.

	 
	 	3 	 
	

	 

 

"Successor Shareholder Nominees" shall have the meaning assigned in Section 4.1(d) of this Agreement.

"Total Voting Power" shall mean, calculated at a particular point in time, the aggregate Votes represented by all then outstanding Voting Securities.

"Transfer" shall mean any sale, transfer, pledge, encumbrance or other disposition to any Person, and to "Transfer" shall mean to sell, transfer, pledge, encumber or otherwise dispose of to any Person.

"Votes" shall mean votes entitled to be cast by the holder of any Voting Securities.

"Voting Ownership Percentage" shall mean the Voting Power, calculated at a particular point in time, represented by the Voting Securities that are directly or indirectly owned, controlled or held with power to vote by the Person(s) whose Voting Ownership Percentage is being determined.

"Voting Power" shall mean the ratio, expressed as a percentage and calculated at a particular point in time, of (a) the Votes represented by the Voting Securities with respect to which the Voting Power is being determined to (b) Total Voting Power.

"Voting Securities" shall mean the Common Stock and shares of any Securities (including, without limitation, the Convertible Preference Stock) that has the right to vote on any matters that are more expansive than the matters set forth in Section 3.2.

"Warrants" shall have the meaning set forth in the first recital of this Agreement.

ARTICLE II
REPRESENTATIONS AND WARRANTIES

Section 2.1.   Representations and Warranties of the Company. The Company represents and warrants to the Shareholder as of the date hereof as follows:

(a)   The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Michigan and has all necessary corporate power and authority to enter into this Agreement and to carry out its obligations hereunder.

(b)   This Agreement has been duly and validly authorized by the Company and all necessary and appropriate action has been taken by the Company to execute and deliver this Agreement and to perform its obligations hereunder. 

(c)   This Agreement has been duly executed and delivered by the Company and assuming due authorization and valid execution and delivery by the Shareholder, this Agreement is a valid and binding obligation of the Company, enforceable in accordance with its terms.

	 
	 	 4	 
	

	 

 

Section 2.2.   Representations and Warranties of the Shareholder. The Shareholder represents and warrants to the Company as of the date hereof as follows:

(a)   The Shareholder has been duly incorporated and is validly existing as a corporation in good standing under the laws of the jurisdiction in which it is incorporated and has all necessary corporate power and authority to enter into this Agreement and to carry out its obligations hereunder.

(b)   This Agreement has been duly and validly authorized by the Shareholder and all necessary and appropriate action has been taken by the Shareholder to execute and deliver this Agreement and to perform its obligations hereunder. 

(c)   This Agreement has been duly executed and delivered by the Shareholder and assuming due authorization and valid execution and delivery by the Company, this Agreement is a valid and binding obligation of the Shareholder, enforceable in accordance with its terms.

ARTICLE III
SHAREHOLDER AND COMPANY CONDUCT

Section 3.1.   Voting Restrictions. Except as otherwise provided in Section 3.2, each Shareholder agrees that, prior to the occurrence of a Regulatory Change, it shall not, nor shall it allow any other member of its Shareholder Group to, vote Voting Securities that, when determined on an aggregate basis for such Shareholder Group, are in excess of the Restricted Voting Percentage on any matter with respect to which such Voting Securities are entitled to vote. However, each Shareholder or Successor and the other members of its Shareholder Group shall be entitled to vote all Voting Securities owned by the Shareholder Group up to and including the Restricted Voting Percentage on all matters as to which such Voting Securities are entitled to Vote.

Section 3.2.   Voting Rights. 

(a)   Voting Rights of Convertible Preference Stock. So long as any of the Convertible Preference Stock is issued and outstanding the Company will not, without the prior affirmative vote (voting separately as one class) or written consent (as provided by the MBCA) of the holders of two-thirds of the Convertible Preference Stock at the time outstanding, permit the taking of any the following actions, or take any action that has the effect of:

(i)   altering or changing the rights, preferences or privileges of the Convertible Preference Stock in the Company's organizational documents so as to affect adversely the Convertible Preference Stock or the holders thereof;

(ii)   creating any new class of stock having a preference over or parity to the Convertible Preference Stock with respect to voting, the payment of dividends or in the distribution of assets on any liquidation, dissolution or winding up of the Company;

	 
	 	 5	 
	

	 

 

(iii)   redeeming or purchasing any class of capital stock (exclusive of any securities issued by SEMCO Capital Trust I or SEMCO Capital Trust II) of the Company other than as set forth specifically herein;

(iv)   increasing the authorized number of shares of Convertible Preference Stock;

(v)   altering or changing the line of business of the Company or any Subsidiary (as defined in the Purchase Agreement) in any fundamental respect;

(vi)   resulting in a sale of assets of the Company or any subsidiary of the Company (excluding (A) Alaska Pipeline Company and (B) the Company's construction services business to the extent that, in connection with or as a result of the sale, the Company does not incur or otherwise assume liabilities or other obligations in excess of the greater of (1) $5,000,000 or (2) ten percent (10%) of the total sale price for such construction business) with a value exceeding ten percent (10%) of the total assets of the Company as reflected on its most current audited balance sheet reasonably adjusted for any asset disposition or purchase of the Corporation after the date of such audited balance sheet;

(vii)   resulting in the Company entering into transactions with Affiliates of the Company that are on terms that are less favorable than are obtainable from any Person which is not an Affiliate; or

(viii)   issuing any additional shares of Convertible Preference Stock other than Dividends authorized pursuant to the Certificate of Designation for the Convertible Preference Stock;

provided, however, that all rights under this Section 3.2(a) with respect to voting on actions relating to clauses (v), (vi) and (vii) above shall cease when less than 5,000 shares of Convertible Preference Stock remain issued and outstanding.

(b)   Additional Rights. If the holders of the Voting Securities are permitted to vote for the approval of any of the actions listed on Exhibit A attached hereto (the "Approval Actions"), each Shareholder shall be entitled to vote all of its Voting Securities with respect to such Approval Action. 

ARTICLE IV
BOARD REPRESENTATION

Section 4.1.   Directors Designated by the Shareholder.

	 
	 	 6	 
	

	 

 

(a)   Immediately following the Closing, the Board shall cause two (2) of the Company's ten (10) directors to be designated by the Shareholder in the Initial Shareholder Nominee Notice (as defined in Section 4.1(b) below) attached as Exhibit B hereto. Upon the existence of a Regulatory Change, the Board shall appoint additional Initial Shareholder Nominees as designated by the Shareholder in an additional Initial Shareholder Nominee Notice in a number sufficient to ensure that Shareholder Nominees comprise a number of Directors which is at least 22% of the existing Board seats except (i) if the Shareholder shall otherwise elect or (ii) if the Shareholder (including any Person (who shall be reasonably acceptable to Company) (a "Transferee" and together with the Shareholder, the "Nominating Group") who has been transferred Securities (including any dividends issued pursuant to the Convertible Preference Stock) in excess of five percent (5%) of the Company's issued and outstanding Common Stock) shall be deemed to beneficially own (as determined in accordance with the Exchange Act) in the aggregate less than ten percent (10%) of the Company's issued and outstanding Common Stock (the "Board Decrease Threshold"). If the Nominating Group shall be deemed to beneficially own less than the Board Decrease Threshold, the Nominating Group will only be permitted to appoint one director to the Board pursuant to this Section 4 (and, in any event, no less than 11% of the existing Board seats). If the Nominating Group shall be deemed to beneficially own in the aggregate less than five percent (5%) of the Company's issued and outstanding Common Stock, the Nominating Group shall cease to have any right to representation on the Board of Directors pursuant this Section 4. Such additional Initial Shareholder Nominees shall be distributed among the classes of Directors as evenly as possible. In the event of a vacancy caused by the disqualification, removal, resignation or other cessation of service of any Initial Shareholder Nominee from the Board, the Board shall appoint as a Director (to serve until the Company's immediately succeeding annual meeting of shareholders) a new Initial Shareholder Nominee who has been designated by the Shareholder in an additional Initial Shareholder Nominee Notice that has been provided to the Company at least seven (7) days prior to the date of a regular meeting of the Board. The Company agrees to use best efforts to obtain shareholder approval to amend its bylaws to decrease the size of its board of directors in accordance with the plan attached to Exhibit D of the Securities Purchase Agreement (and the Shareholder agrees to consent to such amendment). 

(b)   The Shareholder shall provide notice to the Company (the "Initial Shareholder Nominee Notice") as required by Section 4.1(a) above, which notice shall contain the following information: (i) the name of the person(s) it has designated to become Director(s) (the "Initial Shareholder Nominees"), and (ii) all information required by Regulation 14A and Schedule 14A under the Exchange Act with respect to each such Initial Shareholder Nominee.

(c)   After the existence of a Regulatory Change, until such time as the Initial Shareholder Nominees and the Successor Shareholder Nominees (as defined in Section 4.1(d) below) together comprise a number of Directors which is at least 22% (rounding up to the nearest whole Director) of the Board, at the first annual meeting of shareholders of the Company following the notice of Regulatory Change and at each subsequent annual meeting of shareholders of the Company at which (i) the term of any Director is to expire or (ii) a vacancy is caused by the removal, resignation, retirement, death, disability or disqualification or other cessation of service of any Director, the Company shall at its option (i) cause such directorship to remain vacant, with the size of the Board correspondingly being reduced, or (ii) designate as a replacement Director a Successor Shareholder Nominee to be included in the slate of nominees recommended by the Board to the Company's shareholders for election as Directors and use its best efforts to cause the election of each such Successor Shareholder Nominee to the Board, including soliciting proxies in favor of the election of such persons. The Successor Shareholder Nominees shall be divided as nearly equally as possible among all the classes of Directors, as specified in the Successor Shareholder Nominee Notice (as defined in Section 4.1(d) below).

	 
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(d)   Following the existence of a Regulatory Change, until such time as the Initial Shareholder Nominees and the Successor Shareholder Nominees together comprise a number of Directors which is (rounding up to the nearest whole Director) at least 22% of the Board, the Shareholder shall provide notice to the Company in writing sixty (60) days prior to each annual meeting of the Company's shareholders ("Successor Shareholder Nominee Notice"), indicating (i) the name of the person(s) it has designated to become Director(s) ("Successor Shareholder Nominees" and together with Initial Shareholder Nominees, "Shareholder Nominees"), if any, (ii) the class of Directors to which each such Successor Shareholder Nominee shall be assigned, and (iii) all information required by Regulation 14A and Schedule 14A under the Exchange Act with respect to each such Successor Shareholder Nominee.

(e)   The Shareholder shall consult with the Company in connection with the identity of any proposed Shareholder Nominee. In the event the Company is advised in writing by its outside counsel that a proposed Shareholder Nominee would not be qualified under the Company's Charter or By-Laws or any applicable statutory or regulatory standards to serve as a Director, or if the Company otherwise reasonably objects to a proposed Shareholder Nominee, including without limitation because such Shareholder Nominee has engaged in any adverse conduct that would require disclosure under Item 7 of Schedule 14A promulgated under the Exchange Act, the Shareholder agrees to withdraw such proposed Shareholder Nominee and nominate a replacement therefor (which replacement would be subject to the requirements of this Section 4.1(e)). Any such objection by the Company must be made no later than fifteen (15) days after the Shareholder first informs the Company of the identity of the proposed Shareholder Nominee; provided, however, that the Company shall in all cases notify the Shareholder of any such objection sufficiently in advance of the date on which proxy materials are mailed by the Company in connection with such election of directors to enable the Shareholder to propose an alternate Shareholder Nominee pursuant to and in accordance with the terms of this Agreement. 

(f)   The Company agrees to include each Shareholder Nominee to be added to or retained on the Board pursuant to this Agreement in the slate of nominees recommended by the Board to the Company's shareholders for election as Directors and shall use its best efforts to cause the election or reelection of each such Shareholder Nominee to the Board, including soliciting proxies in favor of the election of such persons.

(g)   Prior to the occurrence of a Regulatory Change, but not thereafter, no Shareholder Nominee shall (i) act as a Chairman of the Board or (ii) chair the Nominating Committee, Compensation Committee or Executive Committee of the Board. 

Section 4.2.   Resignation of Shareholder Nominees. Unless otherwise agreed by the Company, the Shareholder shall cause each of the Shareholder Nominees then serving on the Board to offer their resignations from the Board immediately upon the termination of this Agreement pursuant to and in accordance with Section 5.2 hereof.

	 
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ARTICLE V
EFFECTIVENESS AND TERMINATION

Section 5.1.   Effectiveness. This Agreement shall take effect immediately upon the Closing and shall remain in effect until it is terminated pursuant to Section 5.2 hereof.

Section 5.2.   Termination. This Agreement shall terminate upon the mutual written agreement of the Company and the Shareholder.

ARTICLE VI
MISCELLANEOUS

Section 6.1.   Regulatory Matters. The Company agrees to take all commercially reasonable steps to assist the Shareholder in (a) with respect to each provision of this Agreement, causing a Regulatory Change which would not reasonably be expected to have an adverse effect on the Company to occur as soon as reasonably practicable, and (b) securing such regulatory approvals as would not reasonably be expected to have a material adverse effect on the Company and as may be necessary to allow the Shareholder to exercise its rights under the Agreement at all times, including without limitation the right of the Shareholder to Transfer Securities free of the restrictions and limitations imposed by Section 3.1. 

Section 6.2.   Injunctive Relief. Each party hereto acknowledges that it would be impossible to determine the amount of damages that would result from any breach of any of the provisions of this Agreement and that the remedy at law for any breach, or threatened breach, of any of such provisions would likely be inadequate and, accordingly, agrees that each other party shall, in addition to any other rights or remedies which it may have, be entitled to seek such equitable and injunctive relief as may be available from any court of competent jurisdiction to compel specific performance of, or restrain any party from violating, any of such provisions. In connection with any action or proceeding for injunctive relief, each party hereto hereby waives the claim or defense that a remedy at law alone is adequate and agrees, to the maximum extent permitted by law, to have each provision of this Agreement specifically enforced against him or it, without the necessity of posting bond or other security against him or it, and consents to the entry of injunctive relief against him or it enjoining or restraining any breach or threatened breach of such provisions of this Agreement.

Section 6.3.   Successors and Assigns. This Agreement shall be binding upon, shall inure to the benefit of and shall be enforceable by the Company and its successors and assigns and by the Shareholder and its Successors (provided that any Successor assumes the obligations of the Shareholder pursuant to this Agreement) and assigns, and no such term or provision is for the benefit of, or intended to create any obligations to, any other Person.

Section 6.4.   Amendments; Waiver.

(a)   This Agreement may be amended only by an agreement in writing executed by the parties hereto. Any approval of an amendment of this Agreement upon the part of the Company shall require the approval of a majority of the Independent Directors at a duly convened meeting thereof or all of the Company's directors by written consent thereto.

	 
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(b)   Either party may waive in whole or in part any benefit or right provided to it under this Agreement, such waiver being effective only if contained in a writing executed by the waiving party. No failure by any party to insist upon the strict performance of any covenant, duty, agreement or condition of this Agreement or to exercise any right or remedy consequent upon breach thereof shall constitute a waiver of any such breach or of any other covenant, duty, agreement or condition, nor shall any delay or omission of either party to exercise any right hereunder in any manner impair the exercise of any such right accruing to it thereafter. Any waiver of any benefit or right provided to the Company under this Agreement shall require the approval of a majority of the Board and a majority of the Independent Directors at a duly convened meeting thereof or all of the Company's directors by written consent thereto.

Section 6.5.   Notices. Except as otherwise provided in this Agreement, all notices, requests, claims, demands, waivers and other communications hereunder shall be in writing and shall be deemed to have been duly given when delivered by hand, when delivered personally or by courier, three days after being deposited in the mail (registered or certified mail, postage prepaid, return receipt requested), or when received by facsimile transmission if promptly confirmed by one of the foregoing means, as follows:

If to the Company:

SEMCO Energy, Inc.
28470 13 Mile Road
Suite 300
Farmington Hills, Michigan 48334
Attention: Chief Financial Officer
Facsimile: (248) 702-6300

with a copy to:

Verne C. Hampton, II, Esq.
Dickinson Wright PLLC
500 Woodward Avenue, Suite 4000
Detroit, Michigan  48226
Facsimile:  (313) 223-3598

If to the Shareholder:

K-1 GHM, LLLP

c/o K-1 USA Ventures, Inc.

2601 S. Bayshore Dr.

Suite 1775

Coconut Grove, FL 33133

Attention: Jeffrey A. Safchik

Facsimile: 305-858-2334

	 
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with a copy to:

Sherry A. Stanley

Greenstreet Partners, L.P.

2601 S. Bayshore Dr.

Suite 1775

Coconut Grove, FL 33133

Facsimile: 305-858-2334

or to such other address or facsimile number as either party may, from time to time, designate in a written notice given in a like manner.

Section 6.6.   APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF MICHIGAN WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW.

Section 6.7.   Headings. The descriptive headings of the sections in this Agreement are for convenience only and do not constitute a part of this Agreement and shall not be deemed to limit or affect in any way the meaning or interpretation of this Agreement.

Section 6.8.   Integration. This Agreement and the other writings referred to herein or delivered pursuant hereto which form a part hereof contain the entire understanding of the parties with respect to its subject matter. This Agreement supersedes all prior agreements and understandings between the parties with respect to its subject matter. There are no restrictions, agreements, promises, representations, warranties, covenants or undertakings with respect to its subject matter other than those expressly set forth or in any other documents referred to herein or executed contemporaneously with the Closing.

Section 6.9.   Severability. If any term or provision of this Agreement or any application thereof shall be declared or held invalid, illegal or unenforceable, in whole or in part, whether generally or in any particular jurisdiction, such provision shall be deemed amended to the extent, but only to the extent, necessary to cure such invalidity, illegality or unenforceability, and the validity, legality and enforceability of the remaining provisions, both generally and in every other jurisdiction, shall not in any way be affected or impaired thereby.

Section 6.10.   Consent to Jurisdiction. In connection with any suit, claim, action or proceeding arising out of this Agreement, the Shareholder and the Company each hereby consent to the in personam jurisdiction of the United States federal courts and state courts located in Michigan; the Shareholder and the Company each agree that service in the manner set forth in Section 6.5 hereof shall be valid and sufficient for all purposes; and the Shareholder and the Company each agree to, and irrevocably waive any objection based on forum non conveniens or venue not to, appear in any United States federal court state court located in Michigan. 

Section 6.11.   Waiver of Jury Trial . The parties hereto waive the right to any trial by jury in connection with any litigation under or relating to this Agreement.

	 
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Section 6.12.   Counterparts. This Agreement may be executed by the parties hereto in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

[signature page follows]

	
 

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IN WITNESS WHEREOF, the Company and the Shareholder have caused this Agreement to be duly executed by their respective authorized officers as of the date set forth at the head of this Agreement.

SEMCO ENERGY, INC.

 

By: John E. Schneider

Name: John E. Schneider

Title: Senior Vice President and CFO

K-1 GHM, LLLP

By: K-1 Ventures Michigan, Inc.,

its general partner

 

By: Jeffrey A. Safchik

Name: Jeffrey A. Safchik

Title: Chief Financial Officer

	
 

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EXHIBIT A

 

1.   any recapitalization, reorganization, reclassification, merger, consolidation, liquidation, dissolution or other winding up, spin-off, subdivision or other combination;

2.   any declaration, setting aside or payment of any dividend or other similar distribution (including a redemption or repurchase of capital) in respect of any class of capital stock of the Company or any of its subsidiaries, other than payments of cash dividends on the Preferred Stock; 

3.   any authorization, sale, issuance or redemption of equity securities (or any warrants, options or rights to acquire equity securities or any securities (including debt securities) convertible into or exchangeable for equity securities) of the Company or any of its subsidiaries;

4.   any purchase, lease or other acquisition of any securities or assets of any other Person, except for acquisitions of securities, products, supplies and equipment; 

5.   any sale, lease, exchange, transfer, or other disposition of twenty-five percent (25%) or more of the Company’s or its subsidiaries’ assets or businesses on a consolidated basis (including, without limitation, the capital stock of any subsidiary); 

6.   any joint venture, partnership or other material operating alliance by the Company or any of its subsidiaries with any other Person; 

7.   any voluntary proceeding or filing of any petition by or on behalf of the Company or any of its subsidiaries seeking relief under the Bankruptcy Code or the voluntary wind up, dissolution or liquidation of the Company or any of its subsidiaries; 

8.   the adoption of any employee stock option plan, equity incentive plan or any other material employee benefit plan of the Company or any Subsidiary or any material change to such plans; 

9.   any change in the principal line of business of the Company or any of its Subsidiaries as in effect on the closing of the Transactions; 

10.   any public offering or private sale of equity securities (other than financing activities in the ordinary course) or any change of control of the Company or any of its Subsidiaries; 

11.   any amendment or modification of the Company’s or any of its subsidiaries’ organizational documents; and

12.   any other extraordinary transaction of the Company or its Subsidiaries for which the Company is seeking the approval of the holders of any Voting Securities.

	
 

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