Document:

Exhibit 4.1

 

STANDBY
EQUITY DISTRIBUTION AGREEMENT

 

THIS AGREEMENT dated as of June 19,
2009 (this “Agreement”) between YA
GLOBAL MASTER SPV LTD., a Cayman Islands company (the “Investor”),
and ADVANCED LIFE SCIENCES HOLDINGS, INC.,
a corporation organized and existing under the laws of the State of Delaware
(the “Company”).

 

WHEREAS, the parties
desire that, upon the terms and subject to the conditions contained herein, the
Company shall issue and sell to the Investor, from time to time as provided
herein, and the Investor shall purchase from the Company up to $15,000,000 of
the Company’s common stock, par value $0.01 per share (the “Common Stock”);
and

 

WHEREAS, the offer and
sale of the shares of Common Stock issuable hereunder have been registered on
the Company’s registration statement on Form S-3 (File No. 333-158494)
under the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder (the “Securities Act”).

 

NOW, THEREFORE, the parties hereto agree as
follows:

 

Article I. Certain Definitions

 

Section 1.01           “Advance”
shall mean the portion of the Commitment Amount requested by the Company in the
Advance Notice.

 

Section 1.02           “Advance
Date” shall mean the 1st Trading Day after expiration of
the applicable Pricing Period for each Advance.

 

Section 1.03           “Advance
Notice” shall mean a written notice in the form of Exhibit A
attached hereto to the Investor executed by an officer of the Company and
setting forth the Advance amount that the Company requests from the Investor.

 

Section 1.04           “Advance
Notice Date” shall mean each date the Company delivers (in accordance
with  of this Agreement) to the Investor
an Advance Notice requiring the Investor to advance funds to the Company,
subject to the terms of this Agreement. 
No Advance Notice Date shall be less than 5 Trading Days after the prior
Advance Notice Date.

 

Section 1.05           “Base
Prospectus” shall mean the Company’s prospectus accompanying the
Registration Statement.

 

Section 1.06           “Closing”
shall mean one of the closings of a purchase and sale of Common Stock pursuant
to.

 

Section 1.07           “Commitment
Amount” shall mean the aggregate amount of up to $15,000,000 which the
Investor has agreed to provide to the Company in order to purchase the Company’s
Common Stock pursuant to the terms and conditions of this Agreement.

 

 

Section 1.08           “Commitment
Period” shall mean the period commencing on the Effective Date, and
expiring upon the termination of this Agreement in accordance with .

 

Section 1.09           “Common
Stock” shall have the meaning set forth in the recitals of the Agreement.

 

Section 1.10           “Condition
Satisfaction Date” shall have the meaning set forth in.

 

Section 1.11           “Damages”
shall mean any loss, claim, damage, liability, costs and expenses (including,
without limitation, reasonable attorney’s fees and disbursements and costs and
expenses of expert witnesses and investigation).

 

Section 1.12           “Effective
Date” shall mean the date hereof.

 

Section 1.13           “Exchange
Act” shall mean the Securities Exchange Act of 1934, as amended, and the rules and
regulations promulgated thereunder.

 

Section 1.14           “Initial
Disclosure” shall have the meaning set forth in.

 

Section 1.15           “Market
Price” shall mean the lowest daily VWAP of the Common Stock during the
relevant Pricing Period.

 

Section 1.16           “Material
Adverse Effect” shall mean any condition, circumstance, or situation that
has resulted in, or would reasonably be expected to result in (i) a
material adverse effect on the legality, validity or enforceability of this
Agreement, (ii) a material adverse effect on the results of operations,
assets, business or condition (financial or otherwise) of the Company, taken as
a whole, or (iii) a material adverse effect on the Company’s ability to
perform in any material respect on a timely basis its obligations under this
Agreement.

 

Section 1.17           “Maximum
Advance Amount” shall be the greater of (i) $600,000 or (ii) the
average of the Daily Value Traded for each of the 5 Trading Days prior to the
Advance Notice Date where Daily Value Traded is the product obtained by multiplying
the daily trading volume for such day by the VWAP for such day, or such other
amount as may be agreed upon by the mutual consent of the parties.

 

Section 1.18           “Person”
shall mean an individual, a corporation, a partnership, an association, a trust
or other entity or organization, including a government or political
subdivision or an agency or instrumentality thereof.

 

Section 1.19           “Preferred
Stock” shall have the meaning set forth in.

 

Section 1.20           “Pricing
Period” shall mean the 5 consecutive Trading Days after the Advance Notice
Date.

 

Section 1.21           “Principal
Market” shall mean the Nasdaq Global Select Market, the Nasdaq Global
Market, the Nasdaq Capital Market, the NYSE Euronext, the OTC Bulletin Board or
the New York Stock Exchange, whichever is at the time the principal trading
exchange or market for the Common Stock.

 

 

Section 1.22           “Prospectus”
shall mean the Base Prospectus, as supplemented by any Prospectus Supplement.

 

Section 1.23           “Prospectus
Supplement” shall mean any prospectus supplement to the Base Prospectus
filed with the SEC pursuant to Rule 424(b) under the Securities Act.

 

Section 1.24           “Purchase
Price” shall be set at 95% of the Market Price during the Pricing Period.

 

Section 1.25           “Registration
Statement” shall mean the Company’s shelf registration statement filed by
the Company with the SEC under the Securities Act on Form S-3
(Registration Number 333-158494), with respect to Common Stock, Preferred Stock
and warrants to be offered and sold by the Company, as such Registration Statement
may be amended and supplemented from time to time and including any information
deemed to be a part thereof pursuant to Rule 430B under the Securities Act
or another registration statement on a form promulgated by the SEC for which
the Company then qualifies and which form shall be available for the
registration of the resale of Shares by the Investor.

 

Section 1.26           “SEC”
shall have the meaning set forth in the recitals of this Agreement.

 

Section 1.27           “SEC
Documents” shall have the meaning set forth in.

 

Section 1.28           “Securities
Act” shall have the meaning set forth in the recitals of this Agreement.

 

Section 1.29           “Settlement
Document” shall have the meaning set forth in.

 

Section 1.30           “Shares”
shall mean the shares of Common Stock to be issued from time to time hereunder
pursuant to Advances.

 

Section 1.31           “Trading Day”
shall mean any day during which the Principal Market shall be open for
business.

 

Section 1.32           “VWAP”
means, for any date, the daily volume weighted average price of the Common
Stock for such date on the Principal Market as reported by Bloomberg L.P.
(based on a Trading Day from 9:30 a.m. (New York City time) to 4:00 p.m.
(New York City time)).

 

Article II. Advances

 

Section 2.01           Advances. Subject to
the terms and conditions of this Agreement (including, without limitation, the
provisions of Article VII hereof), the Company, at its sole and exclusive
option, may issue and sell to the Investor, and the Investor shall purchase
from the Company, shares of the Company’s Common Stock by the delivery, in the
Company’s sole discretion, of Advance Notices. 
The number of shares of Common Stock that the Investor shall purchase
pursuant to each Advance shall be determined by dividing the amount of the
Advance by the Purchase Price.  No
fractional shares shall be issued. Fractional shares shall be rounded to the
next higher whole number of shares.  The
aggregate maximum amount of all Advances that the Investor shall be obligated
to make under this Agreement shall not exceed the Commitment Amount.

 

 

Section 2.02           Mechanics.

 

(a)               Advance Notice.  At any time during the Commitment Period, the
Company may require the Investor to purchase shares of Common Stock by
delivering an Advance Notice to the Investor, subject to the conditions set
forth in ; provided, however, that (i) the amount for each Advance as
designated by the Company in the applicable Advance Notice shall not be more
than the Maximum Advance Amount, (ii) the aggregate amount of the Advances
pursuant to this Agreement shall not exceed the Commitment Amount and (iii) in
no event shall the number of shares of Common Stock issuable to the Investor
pursuant to an Advance cause the aggregate number of shares of Common Stock
beneficially owned (as calculated pursuant to Section 13(d) of the
Exchange Act) by the Investor and its affiliates to exceed 9.99% of the then
outstanding Common Stock (the “Ownership Limitation”).  The Company acknowledges that the Investor
may sell shares of the Company’s Common Stock corresponding with a particular
Advance Notice after the Advance Notice is received by the Investor.  There shall be a minimum of 5 Trading Days
between each Advance Notice Date.

 

(b)              Date of
Delivery of Advance Notice.  Advance Notices shall be delivered in
accordance with the instructions set forth on the bottom of Exhibit A.  An Advance Notice shall be deemed delivered
on (i) the Trading Day it is received by facsimile or otherwise by the
Investor if such notice is received prior to 5:00 pm Eastern Time, or (ii) the
immediately succeeding Trading Day if it is received by facsimile or otherwise
after 5:00 pm Eastern Time on a Trading Day or at any time on a day which is
not a Trading Day.  No Advance Notice may
be deemed delivered on a day that is not a Trading Day.

 

(c)               Ownership
Limitation.  In
connection with each Advance Notice delivered by the Company, any portion of an
Advance that would cause the Investor to exceed the Ownership Limitation shall
automatically be withdrawn.

 

(d)              Registration
Limitation.  In
connection with each Advance Notice, any portion of an Advance that would cause
the aggregate offering price or number of Shares, as the case may be, to exceed
the aggregate offering price or number of shares of Common Stock available for
issuance under the Registration Statement shall automatically be deemed to be
withdrawn by the Company with no further action required by the Company.

 

Section 2.03           Closings.  Each Closing shall take place as soon as
practicable after each Advance Date in accordance with the procedures set forth
below.  In connection with each Closing the Company and the Investor shall
fulfill each of its obligations as set forth below:

 

(a)               Within 1
Trading Day after each Advance Date, the Investor shall deliver to the Company
a written document (each a “Settlement Document”) setting forth the
amount of the Advance (taking into account any adjustments pursuant to  or , the Purchase Price, the number of shares
of Common Stock to be issued and subscribed for (which in no event will be greater
than the Ownership Limitation)), and a report by Bloomberg, LP indicating the
VWAP for each of the Trading Days during the Pricing Period, in each case
taking into account the terms and conditions of this Agreement.  The Settlement Document shall be in the form
attached hereto as Exhibit B.

 

 

(b)              Upon receipt of
the Settlement Document with respect to each Advance, the Company shall confirm
that it has obtained all material permits and qualifications required for the
issuance and transfer of the shares of Common Stock applicable to such Advance,
or shall have the availability of exemptions therefrom and that the sale and
issuance of such shares of Common Stock shall be legally permitted by all laws
and regulations to which the Company is subject.

 

(c)               Promptly after
receipt of the Settlement Document with respect to each Advance (and, in any
event, not later than three Trading Days after each Advance Date), the Company
will, or will cause its transfer agent to, electronically transfer such number
of shares of Common Stock registered in the name of the Investor as shall equal
(x) the amount of the Advance specified in such Advance Notice (as may be
reduced according to the terms of this Agreement), divided by (y) the
Purchase Price by crediting the Investor’s account or its designee’s account at
the Depository Trust Company through its Deposit Withdrawal Agent Commission
System or by such other means of delivery as may be mutually agreed upon by the
parties hereto (which in all cases shall be freely tradable, registered shares
in good deliverable form) against payment of the Purchase Price in same day
funds to an account designated by the Company. 
No fractional shares shall be issued, and any fractional amounts shall
be rounded to the next higher whole number of shares.  Any certificates evidencing shares of Common
Stock delivered pursuant hereto shall be free of restrictive legends.

 

(d)              On or prior to the Advance
Date, each of the Company and the Investor shall deliver to the other all
documents, instruments and writings required to be delivered by either of them
pursuant to this Agreement in order to implement and effect the transactions
contemplated herein.

 

Section 2.04           Hardship.  In the event the Investor sells shares of the
Company’s Common Stock after receipt of an Advance Notice and the Company fails
to perform its obligations as mandated in , the Company agrees that in addition
to and in no way limiting the rights and obligations set forth in  hereto and in addition to any other remedy to
which the Investor is entitled at law or in equity, including, without
limitation, specific performance, it will hold the Investor harmless against
any loss, claim, damage, or expense (including reasonable legal fees and
expenses), as incurred, arising out of or in connection with such default by the
Company and acknowledges that irreparable damage would occur in the event of
any such default.  It is accordingly
agreed that the Investor shall be entitled to an injunction or injunctions to
prevent such breaches of this Agreement and to specifically enforce, without
the posting of a bond or other security, the terms and provisions of this
Agreement.

 

Article III. Representations and
Warranties of Investor

 

Investor hereby represents and warrants to,
and agrees with, the Company that the following are true and correct as of the
date hereof and as of each Advance Date:

 

Section 3.01           Organization
and Authorization.  The
Investor is duly incorporated or organized and validly existing in the
jurisdiction of its incorporation or organization and has all requisite power
and authority to purchase and hold the securities issuable hereunder.  The decision to

 

 

invest and the execution and delivery of this Agreement by such
Investor, the performance by such Investor of its obligations hereunder and the
consummation by such Investor of the transactions contemplated hereby have been
duly authorized and requires no other proceedings on the part of the
Investor.  The undersigned has the right,
power and authority to execute and deliver this Agreement and all other instruments
on behalf of the Investor.  This
Agreement has been duly executed and delivered by the Investor and, assuming
the execution and delivery hereof and acceptance thereof by the Company, will
constitute the legal, valid and binding obligations of the Investor,
enforceable against the Investor in accordance with its terms.

 

Section 3.02           Evaluation of
Risks.  The Investor has such
knowledge and experience in financial, tax and business matters as to be
capable of evaluating the merits and risks of, and bearing the economic risks
entailed by, an investment in the Company and of protecting its interests in
connection with this transaction.  It
recognizes that its investment in the Company involves a high degree of risk.

 

Section 3.03           No Legal Advice
From the Company.  The
Investor acknowledges that it had the opportunity to review this Agreement and
the transactions contemplated by this Agreement with his or its own legal
counsel and investment and tax advisors. 
The Investor is relying solely on such counsel and advisors and not on
any statements or representations of the Company or any of its representatives
or agents for legal, tax or investment advice with respect to this investment,
the transactions contemplated by this Agreement or the securities laws of any
jurisdiction.

 

Section 3.04           Investment
Purpose. The securities are being purchased by the Investor for its own
account, and for investment purposes. 
The Investor agrees not to assign or in any way transfer the Investor’s
rights to the securities or any interest therein and acknowledges that the
Company will not recognize any purported assignment or transfer except in
accordance with applicable Federal and state securities laws.  No other Person has or will have a direct or
indirect beneficial interest in the securities. 
The Investor agrees not to sell, hypothecate or otherwise transfer the
Investor’s securities unless the securities are registered under Federal and
applicable state securities laws or unless, in the opinion of counsel
satisfactory to the Company, an exemption from such laws is available.

 

Section 3.05           Accredited
Investor.  The
Investor is an “Accredited Investor” as that term is defined in Rule 501(a)(3) of
Regulation D of the Securities Act.

 

Section 3.06           Information.  The Investor and its advisors (and its
counsel), if any, have been furnished with all materials relating to the
business, finances and operations of the Company and information it deemed
material to making an informed investment decision.  The Investor and its advisors, if any, have
been afforded the opportunity to ask questions of the Company and its
management.  Neither such inquiries nor
any other due diligence investigations conducted by such Investor or its
advisors, if any, or its representatives shall modify, amend or affect the
Investor’s right to rely on the Company’s representations and warranties
contained in this Agreement.  The
Investor understands that its investment involves a high degree of risk.  The Investor is in a position regarding the
Company, which, based upon employment, family relationship or economic
bargaining power, enabled and enables such Investor to obtain information from
the Company in order to evaluate the merits and risks of this investment.  The

 

 

Investor has sought such accounting, legal and tax advice, as it has
considered necessary to make an informed investment decision with respect to
this transaction.

 

Section 3.07           Receipt of
Documents. The Investor and its counsel have received and
read in their entirety:  (i) this
Agreement and the Exhibits annexed hereto; (ii) all due diligence and
other information necessary to verify the accuracy and completeness of such
representations, warranties and covenants; (iii) the Company’s Form 10-K
for the year ended December 31, 2008, Form 10-Q for the period ended March 31,
2009 and Forms 8-K filed on January 9, 2009, February 11, 2009 (as
amended on February 12, 2009), February 27, 2009, March 30,
2009, April 10, 2009, May 4, 2009 and June 8, 2009; and (iv) answers
to all questions the Investor submitted to the Company regarding an investment
in the Company; and the Investor has relied on the information contained
therein and has not been furnished any other documents, literature, memorandum
or prospectus.

 

Section 3.08           Not an
Affiliate.  The
Investor is not an officer, director or a Person that directly, or indirectly
through one or more intermediaries, controls or is controlled by, or is under
common control with the Company or any “Affiliate” of the Company (as
that term is defined in Rule 405 of the Securities Act).

 

Section 3.09           Trading
Activities.  The
Investor’s trading activities with respect to the Company’s Common Stock shall
be in compliance with all applicable federal and state securities laws, rules and
regulations and the rules and regulations of the Principal Market on which
the Company’s Common Stock is listed or traded. Neither the Investor nor its
affiliates has an open short position in the Common Stock of the Company, the
Investor agrees that it shall not, and that it will cause its affiliates not
to, engage in any short sales of or hedging transactions with respect to the
Common Stock, provided that the
Company acknowledges and agrees that upon receipt of an Advance Notice the
Investor has the right to sell the shares to be issued to the Investor pursuant
to the Advance Notice during the applicable Pricing Period.

 

Article IV. Representations and
Warranties of the Company

 

Except as stated below, on the disclosure
schedules attached hereto or in the SEC Documents (as defined herein), the
Company hereby represents and warrants to, and covenants with, the Investor
that the following are true and correct as of the date hereof:

 

Section 4.01           Organization
and Qualification.  The Company
is duly incorporated or organized and validly existing in the jurisdiction of
its incorporation or organization and has all requisite corporate power to own
its properties and to carry on its business as now being conducted.  Each of the Company and its subsidiaries is duly
qualified as a foreign corporation to do business and is in good standing in
every jurisdiction in which the nature of the business conducted by it makes
such qualification necessary, except to the extent that the failure to be so
qualified or be in good standing would not have a Material Adverse Effect.

 

Section 4.02           Authorization,
Enforcement, Compliance with Other Instruments.  (i) The Company has the requisite
corporate power and authority to enter into and perform this Agreement and any
related agreements, in accordance with the terms hereof and thereof, (ii) the
execution and delivery of this Agreement and any related agreements by the
Company and the

 

 

consummation by it of the transactions contemplated hereby and thereby,
have been duly authorized by the Company’s Board of Directors and no further
consent or authorization is required by the Company, its Board of Directors or
its stockholders, (iii) this Agreement and any related agreements have
been duly executed and delivered by the Company, (iv) this Agreement and
assuming the execution and delivery thereof and acceptance by the Investor, any
related agreements, constitute the valid and binding obligations of the Company
enforceable against the Company in accordance with their terms, except as such
enforceability may be limited by general principles of equity or applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws
relating to, or affecting generally, the enforcement of creditors’ rights and
remedies.

 

Section 4.03           Capitalization.  The authorized capital stock of the Company
consists of 120,000,000 shares of Common Stock and 5,000,000 shares of
preferred stock, no par value per share (“Preferred Stock”), of which
50,698,926 shares of Common Stock and 0 shares of Preferred Stock are issued
and outstanding.  All of such outstanding
shares have been validly issued and are fully paid and nonassessable.  Except as disclosed in the SEC Documents, no
shares of Common Stock are subject to preemptive rights or any other similar
rights or any liens or encumbrances suffered or permitted by the Company.  Except as disclosed in the SEC Documents, as
of the date hereof, (i) there are no outstanding options, warrants, scrip,
rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into, any shares of capital
stock of the Company or any of its subsidiaries, or contracts, commitments,
understandings or arrangements by which the Company or any of its subsidiaries
is or may become bound to issue additional shares of capital stock of the
Company or any of its subsidiaries or options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, any shares of capital stock of the
Company or any of its subsidiaries, (ii) there are no outstanding debt
securities (iii) there are
no outstanding registration statements other than Registration Statements on Form S-8,
Registration Statements No. 333-158494 filed on Form S-3, No. 333-148483
filed on Form S-3 and No. 333-132900 filed on Form S-3 and (iv) there
are no agreements or arrangements under which the Company or any of its
subsidiaries is obligated to register the sale of any of their securities under
the Securities Act.  There are no
securities or instruments containing anti-dilution or similar provisions that
will be triggered by this Agreement or any related agreement or the
consummation of the transactions described herein or therein.  The Company has furnished to the Investor true
and correct copies of the Company’s Certificate of Incorporation, as amended
and as in effect on the date hereof (the “Certificate of Incorporation”),
and the Company’s By-laws, as in effect on the date hereof (the “By-laws”),
and the terms of all securities convertible into or exercisable for Common
Stock and the material rights of the holders thereof in respect thereto.

 

Section 4.04           No Conflict.  The execution, delivery and performance of
this Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby will not (i) result in a violation of the
Certificate of Incorporation, any certificate of designations of any
outstanding series of Preferred Stock of the Company or By-laws or (ii) conflict
with or constitute a default (or an event which with notice or lapse of time or
both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any agreement,
indenture or instrument to which the Company or any of its subsidiaries is a
party, or result in a violation of any law, rule, regulation, order, judgment
or

 

 

decree (including federal and state securities laws and regulations and
the rules and regulations of the Principal Market on which the Common
Stock is quoted) applicable to the Company or any of its subsidiaries or by
which any material property or asset of the Company or any of its subsidiaries
is bound or affected and which would cause a Material Adverse Effect.  Except as disclosed in the SEC Documents,
neither the Company nor its subsidiaries is in violation of any term of or in
default under its Articles of Incorporation or By-laws or their organizational
charter or by-laws, respectively, or any material contract, agreement,
mortgage, indebtedness, indenture, instrument, judgment, decree or order or any
statute, rule or regulation applicable to the Company or its subsidiaries
that would cause a Material Adverse Effect. 
The business of the Company and its subsidiaries is not being conducted
in violation of any material law, ordinance, regulation of any governmental
entity.  Except as specifically
contemplated by this Agreement and as required under the Securities Act and any
applicable state securities laws, the Company is not required to obtain any consent,
authorization or order of, or make any filing or registration with, any court
or governmental agency in order for it to execute, deliver or perform any of
its obligations under or contemplated by this Agreement in accordance with the
terms hereof or thereof except as such consent, authorization or order has been
obtained prior to the date hereof.  The
Company and its subsidiaries are unaware of any fact or circumstance which
might give rise to any of the foregoing.

 

Section 4.05           SEC Documents;
Financial Statements.  The Common
Stock is registered pursuant to Section 12(g) of the Exchange Act and
the Company has filed all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC under the Securities Exchange
Act for the two years preceding the date hereof (or such shorter period as the
Company was required by law or regulation to file such material) (all of the
foregoing filed prior to the date hereof or amended after the date hereof and
all exhibits included therein and financial statements and schedules thereto
and documents incorporated by reference therein, being hereinafter referred to
as the “SEC Documents”) on timely basis or has received a valid
extension of such time of filing and has filed any such SEC Document prior to
the expiration of any such extension. 
The Company has delivered to the Investors or their representatives, or
made available through the SEC’s website at http://www.sec.gov, true and
complete copies of the SEC Documents.  As
of their respective dates, the SEC Documents complied in all material respects
with the requirements of the Exchange Act and the rules and regulations of
the SEC promulgated thereunder applicable to the SEC Documents, and none of the
SEC Documents, at the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.  As of their respective dates, the financial
statements of the Company included in the SEC Documents complied as to form in
all material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto.  Such financial statements have been prepared
in accordance with generally accepted accounting principles, consistently
applied, during the periods involved (except (i) as may be otherwise
indicated in such financial statements or the notes thereto, or (ii) in
the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and fairly present in all
material respects the financial position of the Company as of the dates thereof
and the results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments).  No other information
provided by or on behalf of the Company to the Investor which is not included
in the

 

 

SEC Documents contains any untrue statement of a material fact or omits
to state any material fact necessary in order to make the statements therein,
in the light of the circumstance under which they are or were made, not
misleading.

 

Section 4.06           10b-5.  The SEC Documents do not include any untrue
statements of material fact, nor do they omit to state any material fact
required to be stated therein necessary to make the statements made, in light
of the circumstances under which they were made, not misleading.

 

Section 4.07           No Default.  Except as disclosed in the SEC Documents, the
Company is not in default in the performance or observance of any material
obligation, agreement, covenant or condition contained in any indenture,
mortgage, deed of trust or other material instrument or agreement to which it
is a party or by which it is or its property is bound and neither the
execution, nor the delivery by the Company, nor the performance by the Company
of its obligations under this Agreement or any of the exhibits or attachments
hereto will conflict with or result in the breach or violation of any of the
terms or provisions of, or constitute a default or result in the creation or
imposition of any lien or charge on any assets or properties of the Company
under its Certificate of Incorporation, By-Laws, any material indenture,
mortgage, deed of trust or other material agreement applicable to the Company
or instrument to which the Company is a party or by which it is bound, or any
statute, or any decree, judgment, order, rules or regulation of any court
or governmental agency or body having jurisdiction over the Company or its
properties, in each case which default, lien or charge is likely to cause a
Material Adverse Effect.

 

Section 4.08           Absence of Events
of Default.  Except for
matters described in the SEC Documents and/or this Agreement, no Event of
Default, as defined in the respective agreement to which the Company is a
party, and no event which, with the giving of notice or the passage of time or
both, would become an Event of Default (as so defined), has occurred and is
continuing, which would have a Material Adverse Effect.

 

Section 4.09           Intellectual
Property Rights.  The Company
and its subsidiaries own or possess adequate rights or licenses to use all
material trademarks, trade names, service marks, service mark registrations,
service names, patents, patent rights, copyrights, inventions, licenses,
approvals, governmental authorizations, trade secrets and rights necessary to
conduct their respective businesses as now conducted.   The Company and its subsidiaries do not have
any knowledge of any infringement by the Company or its subsidiaries of
trademark, trade name rights, patents, patent rights, copyrights, inventions,
licenses, service names, service marks, service mark registrations, trade
secret or other similar rights of others, and, to the knowledge of the Company,
there is no claim, action or proceeding being made or brought against, or to
the Company’s knowledge, being threatened against, the Company or its
subsidiaries regarding trademark, trade name, patents, patent rights,
invention, copyright, license, service names, service marks, service mark
registrations, trade secret or other infringement.

 

Section 4.10           Employee
Relations.  Neither the
Company nor any of its subsidiaries is involved in any labor dispute nor, to
the knowledge of the Company or any of its subsidiaries, is any such dispute
threatened.  None of the Company’s or its
subsidiaries’ employees is a member of a union and the Company and its
subsidiaries believe that their relations with their employees are good.

 

 

Section 4.11           Environmental
Laws.  Except as would not have a
Material Adverse Effect, the Company and its subsidiaries are (i) in
compliance with any and all applicable material foreign, federal, state and
local laws and regulations relating to the protection of human health and
safety, the environment or hazardous or toxic substances or wastes, pollutants
or contaminants (“Environmental Laws”), (ii) have received all
permits, licenses or other approvals required of them under applicable
Environmental Laws to conduct their respective businesses and (iii) are in
compliance with all terms and conditions of any such permit, license or
approval.

 

Section 4.12           Title.  Except as set forth in the SEC Documents, the
Company has good and marketable title to its properties and material assets
owned by it, free and clear of any pledge, lien, security interest,
encumbrance, claim or equitable interest other than such as are not material to
the business of the Company.  Any real property
and facilities held under lease by the Company and its subsidiaries are held by
them under valid, subsisting and enforceable leases with such exceptions as are
not material and do not interfere with the use made and proposed to be made of
such property and buildings by the Company and its subsidiaries.

 

Section 4.13           Insurance.  The Company and each of its subsidiaries are
insured by insurers of recognized financial responsibility against such losses
and risks and in such amounts as management of the Company believes to be
prudent and customary for similarly situated companies in the businesses in
which the Company and its subsidiaries are engaged.  Neither the Company nor any such subsidiary
has any reason to believe that it will not be able to renew its existing
insurance coverage as and when such coverage expires or to obtain similar
coverage from similar insurers as may be necessary to continue its business at
a cost that would not have a Material Adverse Effect.

 

Section 4.14           Regulatory
Permits.  The Company and its
subsidiaries possess all material certificates, authorizations and permits
issued by the appropriate federal, state or foreign regulatory authorities
necessary to conduct their respective businesses, and neither the Company nor
any such subsidiary has received any notice of proceedings relating to the
revocation or modification of any such certificate, authorization or permit.

 

Section 4.15           Internal
Accounting Controls.  The Company
and each of its subsidiaries maintain a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are
executed in accordance with management’s general or specific authorizations, (ii) transactions
are recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain asset
accountability, (iii) access to assets is permitted only in accordance
with management’s general or specific authorization and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.

 

Section 4.16           Absence of Litigation.  Except as set forth in the SEC Documents,
there is no action, suit, proceeding, inquiry or investigation before or by any
court, public board, government agency, self-regulatory organization or body
pending against or affecting the Company, the Common Stock or any of the
Company’s subsidiaries, wherein an unfavorable decision, ruling or finding
would (i) have a Material Adverse Effect on the transactions contemplated
hereby (ii) adversely affect the validity or enforceability of, or the
authority or ability of the Company to perform its obligations under, this
Agreement or any of the documents 

 

 

contemplated herein, or (iii) except
as expressly disclosed in the SEC Documents, have a Material Adverse Effect.

 

Section 4.17           Subsidiaries.  Except as disclosed in the SEC Documents, the
Company does not presently own or control, directly or indirectly, any interest
in any other corporation, partnership, association or other business entity.

 

Section 4.18           Tax Status.  Except as disclosed in the SEC Documents, the
Company and each of its subsidiaries has made or filed all federal and state
income and all other tax returns, reports and declarations required by any
jurisdiction to which it is subject and (unless and only to the extent that the
Company and each of its subsidiaries has set aside on its books provisions
reasonably adequate for the payment of all unpaid and unreported taxes) has paid
all taxes and other governmental assessments and charges that are material in
amount, shown or determined to be due on such returns, reports and
declarations, except those being contested in good faith and has set aside on
its books provision reasonably adequate for the payment of all taxes for
periods subsequent to the periods to which such returns, reports or
declarations apply.  There are no unpaid
taxes in any material amount claimed to be due by the taxing authority of any
jurisdiction, and the officers of the Company know of no basis for any such
claim.

 

Section 4.19           Certain
Transactions.  Except as
set forth in the SEC Documents none of the officers, directors, or employees of
the Company is presently a party to any transaction with the Company (other
than for services as employees, officers and directors), including any
contract, agreement or other arrangement providing for the furnishing of
services to or by, providing for rental of real or personal property to or
from, or otherwise requiring payments to or from any officer, director or such
employee or, to the knowledge of the Company, any corporation, partnership,
trust or other entity in which any officer, director, or any such employee has
a substantial interest or is an officer, director, trustee or partner.

 

Section 4.20           The Shares.  The Shares have been duly authorized and,
when issued, delivered and paid for pursuant to this Agreement, will be validly
issued and fully paid and non-assessable, free and clear of all encumbrances
and will be issued in compliance with all applicable United States federal and
state securities laws; the capital stock of the Company, including the Common
Stock, conforms in all material respects to the description thereof contained
in the Registration Statement No. 333-158494 filed on Form S-3 and
the Common Stock, including the Shares, will conform to the description thereof
contained in the Prospectus as amended or supplemented.  Neither the stockholders of the Company, nor
any other Person have any preemptive rights or rights of first refusal with
respect to the Shares or other rights to purchase or receive any of the Shares
or any other securities or assets of the Company, and no Person has the right,
contractual or otherwise, to cause the Company to issue to it, or register
pursuant to the Securities Act, any shares of capital stock or other securities
or assets of the Company upon the issuance or sale of the Shares.  The Company is not obligated to offer the
Shares on a right of first refusal basis or otherwise to any third parties
including, but not limited to, current or former shareholders of the Company,
underwriters, brokers, agents or other third parties.

 

Section 4.21           Use of Proceeds.  The Company shall use the net proceeds from
this offering for working capital and other general corporate purposes.

 

 

Section 4.22           Dilution.  The Company is aware and acknowledges that
issuance of shares of the Company’s Common Stock could cause dilution to
existing shareholders and could significantly increase the outstanding number
of shares of Common Stock.

 

Section 4.23           Acknowledgment
Regarding Investor’s Purchase of Shares. The Company acknowledges
and agrees that the Investor is acting solely in the capacity of an arm’s
length investor with respect to this Agreement and the transactions
contemplated hereunder. The Company further acknowledges that the Investor is
not acting as a financial advisor or fiduciary of the Company (or in any
similar capacity) with respect to this Agreement and the transactions
contemplated hereunder and any advice given by the Investor or any of its
representatives or agents in connection with this Agreement and the
transactions contemplated hereunder is merely incidental to the Investor’s
purchase of the Common Stock hereunder. 
The Company is aware and acknowledges that it may not be able to request
Advances under this Agreement if there is not an effective Registration
Statement or if any issuances of Common Stock pursuant to any Advances would
violate any rules of the Principal Market.

 

Article V.   Indemnification

 

The Investor and the Company represent to the
other the following with respect to itself:

 

Section 5.01           Indemnification.

 

(a)     In consideration of the
Investor’s execution and delivery of this Agreement, and in addition to all of
the Company’s other obligations under this Agreement, the Company shall defend,
protect, indemnify and hold harmless the Investor, and all of its officers,
directors, partners, employees and agents (including, without limitation, those
retained in connection with the transactions contemplated by this Agreement)
(collectively, the “Investor Indemnitees”) from and against any and all
actions, causes of action, suits, claims, losses, costs, penalties, fees,
liabilities and damages, and expenses in connection therewith (irrespective of
whether any such Investor Indemnitee is a party to the action for which
indemnification hereunder is sought), and including reasonable attorneys’ fees
and disbursements (the “Indemnified Liabilities”), incurred by the
Investor Indemnitees or any of them as a result of, or arising out of, or
relating to (a) any misrepresentation or breach of any representation or
warranty made by the Company in this Agreement or any other certificate,
instrument or document contemplated hereby or thereby, (b) any breach of
any covenant, agreement or obligation of the Company contained in this
Agreement or any other certificate, instrument or document contemplated hereby
or thereby, or (c) any cause of action, suit or claim brought or made
against such Investor Indemnitee not arising out of any action or inaction of
an Investor Indemnitee, and arising out of or resulting from the execution,
delivery, performance or enforcement of this Agreement or any other instrument,
document or agreement executed pursuant hereto by any of the Investor
Indemnitees.  To the extent that the
foregoing undertaking by the Company may be unenforceable for any reason, the
Company shall make the maximum contribution to the payment and satisfaction of
each of the Indemnified Liabilities, which is permissible under applicable law.

 

 

(b)     In consideration of the
Company’s execution and delivery of this Agreement, and in addition to all of
the Investor’s other obligations under this Agreement, the Investor shall
defend, protect, indemnify and hold harmless the Company and all of its
officers, directors, shareholders, employees and agents (including, without
limitation, those retained in connection with the transactions contemplated by
this Agreement) (collectively, the “Company Indemnitees”) from and
against any and all Indemnified Liabilities incurred by the Company Indemnitees
or any of them as a result of, or arising out of, or relating to (a) any
misrepresentation or breach of any representation or warranty made by the
Investor in this Agreement or any instrument or document contemplated hereby or
thereby executed by the Investor, (b) any breach of any covenant,
agreement or obligation of the Investor(s) contained in this Agreement or
any other certificate, instrument or document contemplated hereby or thereby
executed by the Investor, or (c) any cause of action, suit or claim
brought or made against such Company Indemnitee based on  misrepresentations or due to a  breach by the Investor and arising out of or
resulting from the execution, delivery, performance or enforcement of this
Agreement or any other instrument, document or agreement executed pursuant
hereto by any of the Company Indemnitees. 
To the extent that the foregoing undertaking by the Investor may be
unenforceable for any reason, the Investor shall make the maximum contribution
to the payment and satisfaction of each of the Indemnified Liabilities, which
is permissible under applicable law.

 

(c)     The obligations of the
parties to indemnify or make contribution under this  shall survive termination.

 

Article VI. 

Covenants of the Company

 

Section 6.01           Effective
Registration Statement. 
During the Commitment Period, the Company shall notify the Investor
promptly if (i) the Registration Statement shall cease to be effective under
the Securities Act, (ii) the Common Stock shall cease to be authorized for
listing on the Principal Market, (iii) the Common Stock ceases to be
registered under Section 12(g) of the Exchange Act or (iv) the
Company fails to file in a timely manner all reports and other documents
required of it as a reporting company under the Exchange Act.

 

Section 6.02           Corporate
Existence.  The Company
will take all steps necessary to preserve and continue the corporate existence
of the Company.

 

Section 6.03           Notice of
Certain Events Affecting Registration; Suspension of Right to Make an Advance.  The Company will immediately notify the
Investor, and confirm in writing, upon its becoming aware of the occurrence of
any of the following events: (i) receipt of any request for additional
information by the SEC or any other Federal or state governmental authority for
amendments or supplements to the Registration Statement, the Prospectus or for
any additional information; (ii) the issuance by the SEC or any other
Federal or state governmental authority of 
any stop order suspending the effectiveness of the Registration
Statement or the initiation of any proceedings for that purpose; (iii) receipt
of any notification with respect to the suspension of the qualification or
exemption from qualification of any of the Common Stock for sale in any
jurisdiction or the initiation or threatening of any proceeding for such
purpose; (iv) the 

 

 

happening of any event that makes any statement made in the
Registration Statement or Prospectus of any document incorporated or deemed to
be incorporated therein by reference untrue in any material respect or that
requires the making of any changes in the Registration Statement, Prospectus or
documents so that, in the case of the Registration Statement, it will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading, and that in the case of the Prospectus, it will not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading, or of the
necessity to amend the Registration Statement or supplement the Prospectus to
comply with the Securities Act or any other law; and (v) the Company’s
reasonable determination that a post-effective amendment to the Registration
Statement would be appropriate; and the Company will promptly make available to
the Investor any such supplement or amendment to the related prospectus.  The Company shall not deliver to the Investor
any Advance Notice during the continuation of any of the foregoing events.

 

Section 6.04           Prospectus Supplements.  The Company agrees that on such dates as the
Securities Act shall require, the Company will file a Prospectus Supplement or
other appropriate form as determined by counsel with the SEC under the
applicable paragraph of Rule 424(b) under the Securities Act, which
Prospectus Supplement will set forth, within the relevant period, the amount of
Shares sold to the Investor, the net proceeds to the Company and the discount
paid by the Investor with respect to such Shares.  The Company shall provide the Investor at
least 24 hours to comment on a draft of each such Prospectus Supplement (and
shall give due consideration to all such comments) and shall deliver or make
available to the Investor, without charge, an electronic copy of each form of
Prospectus Supplement, together with the Base Prospectus.  The Company consents to the use of the
Prospectus (and of any Prospectus Supplement thereto) in accordance with the
provisions of the Securities Act and with the securities or “blue sky” laws of
the jurisdictions in which the Shares may be sold by the Investor, in
connection with the offering and sale of the Shares and for such period of time
thereafter as the Prospectus is required by the Securities Act to be delivered
in connection with sales of the Shares. 
If during such period of time any event shall occur that in the judgment
of the Company and its counsel is required to be set forth in the Prospectus or
should be set forth therein in order to make the statements made therein, in
the light of the circumstances under which they were made, not misleading, or
if it is necessary to supplement or amend the Prospectus to comply with the
Securities Act or any other applicable law or regulation, the Company shall
forthwith prepare and file with the SEC an appropriate Prospectus Supplement to
the Prospectus and shall expeditiously furnish or make available to the
Investor an electronic copy thereof.

 

Section 6.05           Listing of
Shares.  The Company will use
commercially reasonable efforts to cause the Shares to be listed on the
Principal Market and to qualify the Shares for sale under the securities laws
of such jurisdictions as the Investor designates; provided that the Company
shall not be required in connection therewith to qualify as a foreign
corporation or to file a general consent to service of process in any
jurisdiction.

 

Section 6.06           Consolidation;
Merger.  If an Advance Notice has been
delivered to the Investor and the transaction contemplated in such Advance
Notice has not yet been closed in accordance with  hereof, then the Company shall not effect any
merger or consolidation of the Company 

 

 

with or into, or a transfer of all or substantially all the assets of
the Company to another entity (a “Consolidation Event”) unless the
resulting successor or acquiring entity (if not the Company) assumes by written
instrument the obligation to deliver to the Investor such shares of stock
and/or securities as the Investor is entitled to receive pursuant to this
Agreement.

 

Section 6.07           Issuance of the
Company’s Common Stock.  The
sale of the shares of Common Stock shall be made in accordance with the
provisions and requirements of the Securities Act and any applicable state
securities law.

 

Section 6.08           Review of
Public Disclosures.  None of the
public disclosures made by the Company, including, without limitation, press
releases, investor relations materials, and scripts of analysts meetings and
calls will contain any untrue statements of material fact, nor will they omit
to state any material fact required to be stated therein necessary to make the
statements made, in light of the circumstances under which they were made, not
misleading.

 

Section 6.09           Market
Activities.                The Company
will not, directly or indirectly, (i) take any action designed to cause or
result in, or that constitutes or might reasonably be expected to constitute,
the stabilization or manipulation of the price of any security of the Company
to facilitate the sale or resale of the Common Stock or (ii) sell, bid for
or purchase the Common Stock, or pay anyone any compensation for soliciting
purchases of the Common Stock.

 

Section 6.10           Opinion of
Counsel.  Provided that the Investor’s
resale of Common Stock received pursuant to this Agreement may be freely sold
by the Investor either pursuant to an effective Registration Statement, in
accordance with Rule 144, or otherwise, the Company shall obtain for the
Investor, at the Company’s expense, any and all opinions of counsel which may
be required by the Company’s transfer agent to issue such shares free of
restrictive legends, or to remove legends from such shares.

 

Section 6.11           Current Report.  Promptly after the date hereof (and prior to
the Company delivering an Advance Notice to the Investor hereunder), the
Company shall file with the SEC a report on Form 8-K or such other
appropriate form as determined by counsel to the Company, relating to the
transactions contemplated by this Agreement and a preliminary Prospectus
Supplement pursuant to Rule 424(b) of the Securities Act disclosing
all information relating to the transaction contemplated hereby required to be
disclosed therein (collectively, the “Initial Disclosure”) and shall
provide the Investor with 24 hours to review the Initial Disclosure prior to
its filing.

 

Article VII. 

Conditions for Advance and Conditions to Closing

 

Section 7.01           Conditions
Precedent to the Obligations of the Company.  The obligation hereunder of the Company to
issue and sell the shares of Common Stock to the Investor incident to each
Closing is subject to the satisfaction, or waiver by the Company, at or before
each such Closing, of each of the conditions set forth below.

 

(a)     Accuracy of the
Investor’s Representations and Warranties.  The representations and warranties of the
Investor shall be true and correct in all material respects.

 

 

(b)     Performance by
the Investor.  The
Investor shall have performed, satisfied and complied in all respects with all
covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by the Investor at or prior to such
Closing.

 

Section 7.02           Conditions
Precedent to the Right of the Company to Deliver an Advance Notice.  The right of the Company to deliver an
Advance Notice and the obligations of the Investor hereunder with respect to an
Advance is subject to the satisfaction by the Company, on  each Advance Notice Date and Advance Date (a “Condition
Satisfaction Date”), of each of the following conditions:

 

(a)     Accuracy of the
Company’s Representations and Warranties.  The representations and warranties of the Company
shall be true and correct in all material respects.

 

(b)     Registration of
the Common Stock with the SEC.  The Registration Statement is effective and
the Company is not aware of any of the events set forth in  hereof. 
The Initial Disclosure shall have been filed with the SEC, all
Prospectus Supplements shall have been filed with the SEC, as required pursuant
to  hereof and an electronic copy of such
Prospectus Supplement together with the Base Prospectus shall have been
delivered or made available to the Investor. 
The Company shall have filed with the SEC in a timely manner all
reports, notices and other documents required of a “reporting company” under
the Exchange Act and applicable SEC regulations.

 

(c)     Authority.  The Company shall have obtained all permits
and qualifications required by any applicable state for the offer and sale of
the shares of Common Stock, or shall have the availability of exemptions
therefrom.  The sale and issuance of the
shares of Common Stock shall be legally permitted by all laws and regulations
to which the Company is subject.

 

(d)     No Material
Notices. None of the following events shall have occurred and be
continuing:  (i) receipt by the
Company of any request for additional information from the SEC or any other
federal or state governmental, administrative or self regulatory authority
during the period of effectiveness of the Registration Statement, the response
to which would require any amendments or supplements to the Registration
Statement  or Prospectus; (ii) the issuance
by the SEC or any other federal or state governmental authority of any stop
order suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose; (iii) receipt by the
Company of any notification with respect to the suspension of the qualification
or exemption from qualification of any of the Shares for sale in any
jurisdiction or the initiation or threatening of any proceeding for such
purpose; (iv) the occurrence of any event that makes any statement made in
the Registration Statement or the Prospectus or any document incorporated or
deemed to be incorporated therein by reference untrue in any material respect
or that requires the making of any changes in the Registration Statement,
Prospectus or documents so that, in the case of the Registration Statement, it
will not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading, and that in the case of the Prospectus, it will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the 

 

 

statements
therein, in the light of the circumstances under which they were made, not
misleading; and (v) the Company’s reasonable determination that a
post-effective amendment to the Registration Statement would be required.

 

(e)     Performance by
the Company.  The Company
shall have performed, satisfied and complied in all material respects with all
covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by the Company at or prior to each
Condition Satisfaction Date.

 

(f)      No Injunction.  No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction that
prohibits or directly and adversely affects any of the transactions
contemplated by this Agreement, and no proceeding shall have been commenced
that may have a Material Adverse Effect.

 

(g)     No Suspension
of Trading in or Delisting of Common Stock.  The Common Stock is trading on a Principal
Market and all of the Shares issuable pursuant to such Advance Notice will be
listed or quoted for trading on such Principal Market and the Company believes,
in good faith, that trading of the Common Stock on a Principal Market will
continue uninterrupted for the foreseeable future.  The issuance of shares of Common Stock with
respect to the applicable Advance Notice will not violate the shareholder
approval requirements, if any, of the Principal Market.  The Company shall not have received any
notice threatening the continued listing of the Common Stock on the Principal
Market.

 

(h)     Maximum Advance
Amount.  The amount of an Advance
requested by the Company shall not exceed the Maximum Advance Amount.

 

(i)      Authorized.  There shall be a sufficient number of
authorized but unissued and otherwise unreserved shares of Common Stock for the
issuance of all of the shares issuable pursuant to such Advance Notice.

 

(j)      Opinion of
Counsel at Closing.  Investor
shall have received an opinion letter from counsel to the Company in the form
attached hereto as Exhibit C.

 

(k)     Executed
Advance Notice.  The
Investor shall have received the Advance Notice executed by an officer of the
Company and the representations contained in such Advance Notice shall be true
and correct as of each Condition Satisfaction Date.

 

Article VIII. 

Non-Disclosure of Non-Public Information

 

The Company covenants and agrees that it
shall refrain from disclosing, and shall cause its officers, directors,
employees and agents to refrain from disclosing, any material non-public
information to the Investor without also disseminating such information to the
public, unless prior to disclosure of such information the Company identifies
such information as being material non-public information and provides the
Investor with the opportunity to accept or refuse to accept such material
non-public information for review.

 

 

Article IX. 

Choice of Law/Jurisdiction

 

This Agreement shall be governed by and
interpreted in accordance with the laws of the State of New Jersey without
regard to the principles of conflict of laws. 
The parties further agree that any action between them shall be heard in
Hudson County, New Jersey, and expressly consent to the jurisdiction and venue
of the Superior Court of New Jersey, sitting in Hudson County, New Jersey and
the United States District Court of New Jersey, sitting in Newark, New Jersey,
for the adjudication of any civil action asserted pursuant to this paragraph.

 

Article X. Assignment; Termination

 

Section 10.01         Assignment.  Neither this Agreement nor any rights or
obligations of either party hereunder may be assigned to any other Person.

 

Section 10.02         Termination.

 

(a)     Unless earlier terminated as
provided hereunder, this Agreement shall terminate automatically on the
earliest of (i) the first day of the month next following the 24-month
anniversary of the date hereof, or (ii) the date on which the Investor
shall have made payment of Advances pursuant to this Agreement in the aggregate
amount of the Commitment Amount.

 

(b)     The Company may terminate
this Agreement effective upon fifteen Trading Days’ prior written notice to the
Investor; provided that (i) there are no Advances outstanding, and (ii) the
Company has paid all amounts owed to the Investor pursuant to this
Agreement.  This Agreement may be
terminated at any time by the mutual written consent of the parties, effective
as of the date of such mutual written consent unless otherwise provided in such
written consent.  In the event of any
termination of this Agreement by the Company hereunder, so long as the Investor
owns any shares of Common Stock issued hereunder, unless all of such shares of
Common Stock may be resold by the Investor without registration and without any
time, volume or manner limitations pursuant to Rule 144, the Company shall
not suspend or withdraw the Registration Statement or otherwise cause the
Registration Statement to become ineffective, or voluntarily delist the Common
Stock from the Principal Markets.

 

(c)     The obligation of the
Investor to make an Advance to the Company pursuant to this Agreement shall
terminate permanently (including with respect to an Advance Date that has not
yet occurred) in the event that (i) there shall occur any stop order or
suspension of the effectiveness of the Registration Statement for an aggregate
of 50 Trading Days, other than due to the acts of the Investor, during the
Commitment Period, or (ii) the Company shall at any time fail materially
to comply with the requirements of Article VI and such failure is not
cured within 30 days after receipt of written notice from the Investor, provided,
however, that this termination provision shall not apply to any period
commencing upon the filing of a post-effective amendment to such Registration
Statement and ending upon the date on which such post effective amendment is
declared effective by the SEC.

 

 

(d)     Nothing in this  shall be deemed to release the Company or the
Investor from any liability for any breach under this Agreement, or to impair
the rights of the Company and the Investor to compel specific performance by
the other party of its obligations under this Agreement.  The indemnification provisions contained
in  shall survive termination hereunder.

 

Article XI. Notices

 

Any notices, consents, waivers, or other
communications required or permitted to be given under the terms of this
Agreement must be in writing and will be deemed to have been delivered (i) upon
receipt, when delivered personally; (ii) upon receipt, when sent by
facsimile, provided a copy is mailed by U.S. certified mail, return receipt
requested; (iii) 3 days after being sent by U.S. certified mail, return
receipt requested, or (iv) 1 day after deposit with a nationally
recognized overnight delivery service, in each case properly addressed to the
party to receive the same.  The addresses
and facsimile numbers for such communications, except for Advance Notices which
shall be delivered in accordance with 
hereof, shall be:

 

	
  If
  to the Company, to:

  	
   

  	
  Advanced
  Life Sciences Holdings, Inc.

  
	
   

  	
   

  	
  1440
  Davey Road

  
	
   

  	
   

  	
  Woodridge,
  IL 60517

  
	
   

  	
   

  	
  Attention:

  	
  General
  Counsel

  
	
   

  	
   

  	
  Telephone:

  	
  (630)
  739-6744

  
	
   

  	
   

  	
  Facsimile:

  	
  (630)
  739-6754

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  With a copy to:

  	
   

  	
  Winston & Strawn
  LLP

  
	
   

  	
   

  	
  35 W. Wacker Drive

  
	
   

  	
   

  	
  Chicago, IL 60601

  
	
   

  	
   

  	
  Attention:

  	
  R. Cabell Morris

  
	
   

  	
   

  	
  Telephone:

  	
  (312) 558-5609

  
	
   

  	
   

  	
  Facsimile:

  	
  (312) 558-5700

  
	
   

  	
   

  	
   

  
	
  If to the Investor(s):

  	
   

  	
  YA Global Master SPV Ltd.

  
	
   

  	
   

  	
  101 Hudson Street
  —Suite 3700

  
	
   

  	
   

  	
  Jersey City, NJ 07302

  
	
   

  	
   

  	
  Attention:

  	
  Mark Angelo

  
	
   

  	
   

  	
   

  	
  Portfolio Manager

  
	
   

  	
   

  	
  Telephone:

  	
  (201) 985-8300

  
	
   

  	
   

  	
  Facsimile:

  	
  (201) 985-8266

  
	
   

  	
   

  	
   

  
	
  With a Copy to:

  	
   

  	
  David Gonzalez, Esq.

  
	
   

  	
   

  	
  101 Hudson Street —
  Suite 3700

  
	
   

  	
   

  	
  Jersey City, NJ 07302

  
	
   

  	
   

  	
  Telephone:

  	
  (201) 985-8300

  
	
   

  	
   

  	
  Facsimile:

  	
  (201) 985-8266

  
					

 

 

Each party shall provide 5 days’ prior
written notice to the other party of any change in address or facsimile number.

 

Article XII. Miscellaneous

 

Section 12.01         Counterparts.  This Agreement may be executed in two or more
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party. 
In the event any signature page is delivered by facsimile
transmission, the party using such means of delivery shall cause 4 additional
original executed signature pages to be physically delivered to the other
party within 5 days of the execution and delivery hereof, though failure to
deliver such copies shall not affect the validity of this Agreement.

 

Section 12.02         Reporting
Entity for the Common Stock.  The
reporting entity relied upon for the determination of the trading price or
trading volume of the Common Stock on any given Trading Day for the purposes of
this Agreement shall be Bloomberg, L.P. or any successor thereto.  The written mutual consent of the Investor
and the Company shall be required to employ any other reporting entity.

 

Section 12.03         Structuring
Fee.  On each Advance Date, the
Company hereby agrees to pay Yorkville Advisors, LLC a structuring fee of $500
directly out of the gross proceeds of each Advance.

 

Section 12.04         Brokerage.  Each of the parties hereto represents that it
has had no dealings in connection with this transaction with any finder or
broker who will demand payment of any fee or commission from the other
party.  The Company on the one hand, and
the Investor, on the other hand, agree to indemnify the other against and hold
the other harmless from any and all liabilities to any Person claiming
brokerage commissions or finder’s fees on account of services purported to have
been rendered on behalf of the indemnifying party in connection with this
Agreement or the transactions contemplated hereby.

 

Section 12.05         Confidentiality.  If for any reason the transactions contemplated
by this Agreement are not consummated, each of the parties hereto shall keep
confidential any information obtained from any other party (except information
publicly available or in such party’s domain prior to the date hereof, and
except as required by court order) and shall promptly return to the other
parties all schedules, documents, instruments, work papers or other written
information without retaining copies thereof, previously furnished by it as a
result of this Agreement or in connection herein.

 

Section 12.06         Integration.  This Agreement, along with any exhibits or
amendments hereto, encompasses the entire agreement of the parties and
supersedes all previous understandings and agreements between the parties,
whether oral or written.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

 

IN WITNESS WHEREOF, the parties
hereto have caused this Standby Equity Distribution Agreement to be executed by
the undersigned, thereunto duly authorized, as of the date first set forth
above.

 

	
   

  	
  COMPANY:

  
	
   

  	
  ADVANCED LIFE SCIENCES HOLDINGS, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Michael T. Flavin

  
	
   

  	
  Name:
  Michael T. Flavin

  
	
   

  	
  Title:  Chief
  Executive Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  INVESTOR:

  
	
   

  	
  YA GLOBAL MASTER SPV LTD.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Yorkville Advisors, LLC

  
	
   

  	
  Its:

  	
  Investment Manager

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  David Gonzalez

  
	
   

  	
  Name: David
  Gonzalez

  
	
   

  	
  Title:   Managing
  MemberExhibit 4.22

 

EXECUTION VERSION

 

SHARE PURCHASE AGREEMENT

 

This
Share Purchase Agreement dated April 23, 2009 (this “Agreement”) is
entered into in the City of Rio de Janeiro, State of Rio de Janeiro, Brazil, by
and among:

 

On
one side,

 

CEMIG GERAÇÃO E TRANSMISSÃO
S.A., a company duly
incorporated under the laws of Brazil, with head-offices at Av. Barbacena 1200,
Santo Agostinho, in the City of Belo Horizonte, State of Minas Gerais, Brazil,
enrolled with the Brazilian federal taxpayers’ registry under CNPJ
No. 06.981.176/0001-58, herein duly represented in accordance with its
by-laws (the “Buyer”);

 

On
the other side,

 

TERNA – RETE ELETTRICA
NAZIONALE S.P.A.,
a company duly incorporated under the laws of Italy, with head-offices at Via
Arno 64, 00198, Rome, Italy, enrolled with the Brazilian federal taxpayers’
registry under CNPJ No. 05.973.996/0001-35, herein duly represented in
accordance with its by-laws (the “Seller”);

 

and,
as intervening party,

 

COMPANHIA ENERGÉTICA DE MINAS
GERAIS – CEMIG, a company duly incorporated under the laws of Brazil, with
head-offices at Av. Barbacena 1200, Santo Agostinho, in the City of Belo
Horizonte, State of Minas Gerais, Brazil, enrolled with the Brazilian federal
taxpayers’ registry under CNPJ No. 17.155.730/0001-64, herein duly
represented in accordance with its by-laws (“CEMIG”);

 

RECITALS

 

WHEREAS, Terna Participações S.A., a publicly-traded company duly incorporated
under the laws of Brazil, with head offices at Praça Quinze de Novembro 20, 10th floor, suite No. 1003 (part), in the City of Rio de Janeiro, State
of Rio de Janeiro, enrolled with the Brazilian federal taxpayers’ registry
under CNPJ No. 07.859.971/0001.30 (the “Company”), controlled by
the Seller, with common and preferred shares listed as units at the São Paulo
Stock Exchange (Bovespa), under
Level 2 of Distinguished Practices of Corporate Governance (Nível 2 de Práticas Diferenciadas de Governança
Corporativa);

 

 

WHEREAS, the Company, through its subsidiaries, is engaged in the
implementation, operation and maintenance of electricity transmission
infrastructure and the provision of technical services in Brazil, which
subsidiaries (other than Terna Serviços Ltda.) hold concessions from the
Brazilian Federal Government to provide electricity transmission services in
Brazil;

 

WHEREAS, on the date hereof, the total issued and outstanding capital of the
Company is R$1,312,254,675.28, divided into 203,504,353 common shares (the “Common
Shares”) and 59,954,480 preferred shares (the “Preferred Shares”
and, collectively with the Common Shares, the “Shares”), out of which
the Seller owns 173,527,113 Common Shares directly (the “Purchased Shares”)
and 10,000 Common Shares and 20,000 Preferred Shares under Units of the Company
(such Units held by the Seller, the “Seller’s Units”), representing
approximately 85.28% of the voting capital and approximately 65.87% of the
total issued and outstanding capital of the Company, included in this amount
the Shares received by the members of the Board of Directors of the Company designated
by the Seller to occupy such positions;

 

WHEREAS, the Seller and the Company are parties to an Intercompany Loan, the
outstanding principal amount of which on the date hereof is R$500,000,000.00;

 

WHEREAS, on the basis of the representations and warranties of the Seller and
upon reliance thereon, the Buyer wishes to purchase the Purchased Shares from
the Seller, and the Seller wishes to sell the Purchased Shares to the Buyer,
subject to the terms and conditions set forth in this Agreement;

 

WHEREAS, the Buyer is a subsidiary of CEMIG and CEMIG executes this Agreement
as guarantor of Buyer’s obligations assumed hereunder to the extent and subject
to the terms and conditions set forth in this Agreement;

 

WHEREAS, the transfer of the Purchased Shares and consequent transfer of
Control of the Company is subject to approval by ANEEL, which approval is
therefore a condition precedent to the consummation of such transfer;

 

WHEREAS, the Board of Directors of CEMIG approved on April 23, 2009 all
the terms and conditions of the transaction contemplated by this Agreement,
provided that the acquisition of the Purchased Shares by the Buyer shall be
subject to ratification by CEMIG’s general shareholders meeting pursuant to
Article 256 of the Brazilian Corporations Law;

 

NOW, THEREFORE, the Parties hereto agree as follows:

 

2

 

ARTICLE I

DEFINITIONS

 

1.1.          Definitions.  (a) The following terms, as used herein,
shall have the following meanings, whether employed in the singular or plural
or used in different genders or verbal tenses:

 

“Affiliate”
means, with respect to any Person, any other Person directly or indirectly
Controlling, Controlled by, or under common direct or indirect Control with,
such Person from time to time.

 

“Agreement”
means this Share Purchase Agreement and the Schedules hereto.

 

“ANEEL”
means Agência Nacional de Energia Elétrica,
the Brazilian Electrical Energy Agency.

 

“Book-Entry
Registrar” means Banco Itaú S.A., book-entry registrar for the Company’s
shares.

 

“Bovespa”
means BM&FBOVESPA S.A., the São Paulo Stock Exchange.

 

“Brasnorte”
means Brasnorte Trasmissora de Energia Elétrica S.A., a company duly
incorporated under the laws of Brazil, with head-offices at Praça Quinze de
Novembro 20, 10th floor,
suite No. 1003 (part), in the City of Rio de Janeiro, State of Rio de
Janeiro, Brazil, enrolled with the Brazilian federal taxpayers’ registry under
CNPJ No. 09.274.998/0001-97.

 

“Brazilian
Corporations Law” means Law No. 6,404, of December 15, 1976, as
amended.

 

“Brazilian
GAAP” means generally accepted accounting principles in Brazil, as defined
by Brazilian corporate law and applicable CVM regulations and as in effect at
the time any applicable financial statements were prepared.

 

“Business
Day” means any day other than a day on which the banks are permitted or
required by Law to be closed in the City of Rio de Janeiro, Brazil or in the
City of Rome, Italy.

 

“CADE”
means Conselho Administrativo de Defesa
Econômica, the Brazilian antitrust agency.

 

3

 

“Claim”
means a Direct Claim or a Third Party Claim.

 

“Concession
Agreements” means the Concession Agreements listed in Schedule 1.1(a)-I
to this Agreement.

 

“Concessions”
means the concessions to provide electricity transmission services granted by
the Federal Government to the Group pursuant to the Concession Agreements.

 

“Control”
(including any variations thereof, such as the terms “Controlling”, “Controlled
by” and “under common Control with”), means, in respect of any Person, the
ownership of more than 50% of the voting capital of such Person or the
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of another Person (whether through
ownership of shares, quotas, other securities or other ownership interests, by
contract, shareholders agreement or otherwise), including the ownership,
directly or indirectly, of shares, quotas, other securities or other ownership
interests having the power to elect a majority of the members of the board of
directors and/or executive office, or other bodies governing the business and
affairs of such Person.

 

“Corporate
Documents” means, as to any Person, its partnership agreement,
incorporation documents, by-laws, articles of association, estatutos sociais or contrato social, as the case may be.

 

“CVM”
means the Brazilian Securities and Exchange Commission (Comissão de Valores Mobiliários - CVM).

 

“Damages”
means any and all materialized claims and/or liabilities, damages, penalties,
judgments, assessments, losses, Liens, costs and expenses, including attorneys’
fees, but excluding, losses of profits, indirect, punitive and consequential
damages, except if such losses of profits, indirect, punitive or consequential
damages are part of a Third Party Claim.

 

“Effective
Date” means the date of execution of this Agreement by all Parties hereto.

 

“Employee”
means an employee (empregado)
whether de facto or de juris of a Person. The term “Employment”
shall have a correlative meaning.

 

“Environmental
Laws” means any Law related to pollution or protection of the environment
or natural resources, including those relating to the use, handling,
transportation, treatment, storage, disposal, release or discharge of Hazardous
Materials.

 

4

 

“ETAU”
means Empresa de Transmissão do Alto Uruguai S.A., a Subsidiary of the Company.

 

“Euro
Equivalent” means the amount obtained by converting the relevant amount of
Brazilian Reais into Euro at the rate of the Euro in the free exchange market (Mercado de taxas livres) obtained by the
product USD/BRL exchange rate as provided by the Brazilian Central Bank screen
PTAX800 – Option 5 based on the average between the selling and buying rates
and the EUR/USD exchange rate as published on the Reuters page ECB37 at
1:15 pm London Time, both the rates being obtained on the Business Day
immediately preceding the relevant payment date by the Seller from the Foreign
Exchange Bank and informed in writing by the Seller to the Buyer.

 

“Euros”
or “EUR” means the lawful currency of the European Union.

 

“Foreign
Exchange Bank” means, as provided in Section 2.2(d) below, the
bank authorized to carry out foreign exchange transactions in Brazil as the
Seller may designate by written notice delivered to the Buyer at least five
Business Days prior to the Closing Date, provided that, in case the Foreign
Exchange Bank does not accept the designation by the Seller up to such date,
the Foreign Exchange Bank shall be a bank authorized to carry out foreign
exchange transactions freely selected by the Buyer among the banks having a
previous working relationship with the Buyer or CEMIG.

 

“Governmental
Authority” means any court, government or political subdivision or
department thereof, any governmental, regulatory or self-regulation bodies,
board, bureau, administrative agency or commission or other governmental agency
or instrumentality of competent jurisdiction.

 

“Group”
means the Company, its Subsidiaries and each other Person in which the Company
directly or indirectly holds any equity interest.

 

“Hazardous
Materials” means: (i) any petroleum, petroleum products, by-products
or breakdown products, radioactive materials, asbestos-containing materials or
polychlorinated biphenyls or (ii) any chemical, material or substance
defined or regulated as toxic or hazardous or as a pollutant or contaminant or
waste under any applicable Environmental Law.

 

“IFRS”
means the accounting principles known as “International Financial Reporting Standards”
issued by the Financial Accounting Standards Board.

 

“Intellectual
Property” means all of the following, owned or used by the Seller and/or
the Group in the conduct or exercise of the Group’s business as currently

 

5

 

conducted:
(i) trademarks and service marks (registered or unregistered), trade
dress, trade names and other names and slogans embodying business or product
goodwill, applications or registrations in any jurisdiction pertaining to the
foregoing and goodwill associated therewith; (ii) patentable inventions,
discoveries, improvements, know-how, processes, technology, computer programs
(including password unprotected interpretive code or source code, object code,
development documentation, programming tools, drawings, specifications and
data) and applications and patents in any jurisdiction pertaining to the
foregoing, including reissues, continuations, divisions, continuations-in-part,
renewals or extensions; (iii) trade secrets; (iv) copyrights in
writings, designs, software, or other works, applications or registrations in
any jurisdiction for the foregoing; (v) database rights;
(vi) internet websites, domain names and applications and registrations
pertaining thereto and all intellectual property used in connection with or
contained in all versions of the Group’s worldwide websites; (vii) books
and records describing or used in connection with the foregoing; and
(viii) sales and marketing materials.

 

“Intercompany
Loan” means the loan made by the Seller to the Company under the
Intercompany Facility Agreement dated February 16, 2009, due on
May 31, 2010, including principal and accrued interest due pro rata until
the date of its payment by the Company.

 

“Law”
means any applicable federal, provincial, state or local (or other political
subdivision) statute, law, ordinance, Order, rule or regulation of a
Governmental Authority.

 

“License”
means approvals, consents, rights, certificates, permissions, licenses,
franchises, permits, registrations, filings or other similar authorizations
issued, declared, designated, adopted or required by any Governmental
Authority.

 

“Lien”
means, with respect to any property or asset, any mortgage, lien, pledge,
charge, right of first refusal, option, preference, security interest,
encumbrance, usufruct, fideicomissum,
fiduciary transfer, attachment or other adverse claim, restriction or
limitation of any kind in respect of such property or asset.

 

“Material
Adverse Effect” means any material adverse effect on (i) the
operations, business, properties or condition (financial or otherwise) of the
Group taken as a whole that affect the ability to conduct the activities of the
Group taken as a whole as currently conducted; or (ii) the validity or
enforceability of this Agreement.

 

“ONS”
means the Transmission System Operator (Operador
Nacional do Sistema).

 

6

 

“Order”
means any judgment, arbitral award, order, injunction, writ, determination,
decree or award of, or agreement with, a Governmental Authority, arbitration
tribunal or alternative dispute resolution body.

 

“Parcela
Variável” means the reduction of the annual permitted revenue of a
Concession holder imposed pursuant to the respective Concession Agreement and
the applicable Laws as a result of the availability performance of network
elements pertaining to the respective Concession holder.

 

“Party”
or “Parties” means the Buyer, CEMIG and the Seller.

 

“Person”
means an individual, corporation, limited liability company, partnership,
association, trust, fund or other entity or organization, including a
government or political subdivision or an agency or instrumentality thereof,
whether having legal personality or not.

 

“Reais”
or “R$” means the lawful currency of Brazil.

 

“Reference
Financials” means the audited consolidated financial statements of the
Company as of December 31, 2008, prepared in accordance with Brazilian
GAAP, attached hereto as Schedule 1.1(a)-II.

 

“Related
Party” means, with respect to any Person, any of its Affiliates and the
respective directors, officers, managers and other representatives of such
Person and Affiliates.

 

“Selic
Rate” means the taxa referencial do
Sistema Especial de Liquidação e Custódia, or, in the event the
Selic Rate becomes no longer available, its replacing interest rate used to
adjust taxes due to the Brazilian National Treasury.

 

“Seller’s
Account” means the Seller’s account to be informed by the Seller to the
Buyer in writing at least five Business Days prior to the Closing Date.

 

“Subsidiaries”
means the companies Controlled by the Company.

 

“Tax
Return” means a report, return or other information (including any
amendments) required to be supplied to a Governmental Authority with respect to
Taxes including, where permitted or required, combined or consolidated returns
for any group of entities, the Company or any Affiliate.

 

“Taxes”
means all taxes, however denominated, including any deficiencies, assessments,
governmental charges, interest, additions to tax or penalties that may become
payable in respect thereof, imposed by any national, state, provincial,

 

7

 

county,
local or foreign Governmental Authority, which taxes shall include, without
limiting the generality of the foregoing, all income taxes, capital gain taxes,
PIS (Contribuição para o Programa de
Integração Social), COFINS (Contribuição
para o Financiamento da Seguridade Social), CSLL (Contribuição Social Sobre o LucroLíquido),
IOF (Imposto Sobre Operações de Crédito, Câmbio
e Seguro ou relativas a Titulos ou Valores Mobiliários), social
contribution taxes, payroll taxes and employee withholding taxes (INSS - Instituto Nacional do Seguro Social and
FGTS - Fundo de Garantia do Tempo de Serviço),
ISS (Imposto sobre Serviços),
ICMS (Imposto sobre Circulação de
Mercadorias e Serviços), unemployment insurance, social security,
sales and use taxes, excise taxes, environmental taxes, franchise taxes, gross
receipts taxes, occupation taxes, real and personal property taxes, stamp taxes,
documentary taxes, transfer taxes, withholding taxes, and other obligations of
the same or of a similar nature.

 

“Threshold
Amount” means R$200,000.00 or its equivalent in any other applicable
currency.

 

“Units”
means the units of the Company listed at Bovespa, each representing one Common
Share and two Preferred Shares.

 

(b)           Each of the following terms is defined in the
Section set forth opposite to such term:

 

	
  Term

  	
   

  	
  Section

  	
   

  
	
  BNDES

  	
   

  	
  Recitals

  	
   

  
	
  Buyer

  	
   

  	
  Preamble

  	
   

  
	
  Cap

  	
   

  	
  8.1

  	
   

  
	
  CEMIG

  	
   

  	
  Preamble

  	
   

  
	
  Claim
  Notice

  	
   

  	
  8.4(a)

  	
   

  
	
  Closing

  	
   

  	
  2.3(a)

  	
   

  
	
  Closing
  Date

  	
   

  	
  2.3(a)

  	
   

  
	
  Common
  Shares

  	
   

  	
  Recitals

  	
   

  
	
  Company

  	
   

  	
  Recitals

  	
   

  
	
  Confidential
  Information

  	
   

  	
  6.3

  	
   

  
	
  Contracts

  	
   

  	
  3.15(a)

  	
   

  
	
  Damages

  	
   

  	
  8.1(a)

  	
   

  
	
  Deductible

  	
   

  	
  8.3

  	
   

  
	
  Direct
  Claim

  	
   

  	
  8.4(a)

  	
   

  
	
  Expatriate

  	
   

  	
  5.4

  	
   

  
	
  Filings

  	
   

  	
  3.7

  	
   

  
	
  Financial
  Statements

  	
   

  	
  3.13(a)

  	
   

  
	
  ICC
  Rules

  	
   

  	
  10.7(b)

  	
   

  
	
  Indemnified
  Party

  	
   

  	
  8.4

  	
   

  

 

8

 

	
  Term

  	
   

  	
  Section

  	
   

  
	
  Indemnifying
  Party

  	
   

  	
  8.4

  	
   

  
	
  Indemnity
  Guaranty

  	
   

  	
  8.2

  	
   

  
	
  Interim
  Period

  	
   

  	
  5.1(a)

  	
   

  
	
  OPA

  	
   

  	
  6.5

  	
   

  
	
  Preferred
  Shares

  	
   

  	
  Recitals

  	
   

  
	
  Proceeding

  	
   

  	
  3.5(a)

  	
   

  
	
  Property
  / Properties

  	
   

  	
  3.16

  	
   

  
	
  Purchase
  Price

  	
   

  	
  2.2(a)

  	
   

  
	
  Purchase
  Price Per Share

  	
   

  	
  2.2(a)

  	
   

  
	
  Purchased
  Shares

  	
   

  	
  Recitals

  	
   

  
	
  Representatives

  	
   

  	
  6.3

  	
   

  
	
  Seller

  	
   

  	
  Recitals

  	
   

  
	
  Seller’s
  Units

  	
   

  	
  Recitals

  	
   

  
	
  Third
  Party Claim

  	
   

  	
  8.4(a)

  	
   

  

 

ARTICLE II

PURCHASE AND SALE

 

2.1.          Purchase and Sale. Upon the terms and subject to the
conditions set forth in this Agreement, on the Closing Date the Seller shall
sell, assign, transfer and convey to the Buyer, and the Buyer shall purchase
and acquire from the Seller the Purchased Shares, free and clear of any Liens.

 

2.2.          Purchase Price.  (a) Subject
to the adjustments set forth in clause (b) below, the purchase price for
all Purchased Shares is R$2,330,469,127.59 (two billion, three hundred thirty
million, four hundred sixty nine thousand, one hundred twenty seven Reais and
fifty nine cents) (the “Purchase Price”), corresponding to R$40.29
(forty Reais and twenty nine cents) per Unit and R$13.43 (thirteen reais and
forty three cents) per Purchased Share (the “Purchase Price Per Share”).

 

(b)         If Closing does not occur on
September 30, 2009 exclusively as a result of any of the conditions
precedent contemplated in Section 7.1(b), 7.1(h), 7.2(a), 7.2(b) or
7.2(c) not being met until such date, the Purchase Price Per Share and, consequently,
the Purchase Price shall be increased at a rate equivalent to 103% of the Selic
Rate from September 30, 2009 to but excluding the Closing Date. The
Purchase Price Per Share shall also be reduced by the amount per Share of
dividends or Share redemptions paid by the Company to the extent permitted
under this Agreement, if any, and, in such event, the Purchase Price shall be
reduced accordingly by the amount per Share of such dividends or share
redemptions (as adjusted pursuant to the following sentence, if applicable)
multiplied by the number of Purchased Shares. If Closing occurs after
September 30, 2009, the amount of

 

9

 

dividends
deducted from the Purchase Price in accordance with this Section 2.2(b) shall
be adjusted at a rate equivalent to 103% of the Selic Rate from the date of
such payment of dividends or share redemptions until the Closing Date.

 

(c)        Subject to the terms and conditions of this Agreement, the Purchase
Price shall be paid by the Buyer to the Seller in immediately available funds
on the Closing Date by means of wire transfer to the Seller’s Account, in a
foreign exchange transaction entered into in accordance with
Section 2.2(d) below, of the Reais amount set forth in
Section 2.2(a) above minus the amount of any fees and costs charged
by the bank closing the foreign exchange transaction and any Taxes and costs
which the Buyer is required by Law to withhold and/or pay in connection with
such payment and foreign exchange transaction (in which case, a certified copy
of the withholding Tax receipt (DARF) shall be delivered by the Buyer to the
Seller upon request as promptly as available after payment thereof in
accordance with applicable Law). The withholding income tax shall be calculated
by Seller, who will assume all responsibility before the Buyer and the
Governmental Authorities for the accuracy of such calculation, and must be
notified in writing to the Buyer. Notwithstanding anything to the contrary
contained in this Agreement, including, without limitation, any limitation
contained in Article VIII, Seller shall indemnify Buyer in full and hold
Buyer harmless from and against any challenge by any Governmental Authority in
connection with such withholding income tax, except in case of fraud or willful
misconduct of the Buyer.

 

(d)        The foreign exchange transaction contemplated in
Section 2.2(c) shall be entered into as follows:

 

(i)         a foreign exchange transaction closed on the Closing Date with a
Foreign Exchange Bank that agrees to convert the Reais amount set forth in
Section 2.2(a) above, after the deductions contemplated in
Section 2.2(c), into the Euro Equivalent of the resulting amount; or

 

(ii)        if no Foreign Exchange Bank accepts the designation by the Seller up to
the date set forth in item (i) above to carry out the foreign exchange
transaction as set forth therein, such foreign exchange transaction shall be
closed by the Buyer on the Closing Date with a bank in Brazil freely selected
by the Buyer among the banks having previous relationship with the Buyer or
CEMIG, in which case the exchange rate for the remittance of the Reais amount
set forth in Section 2.2(a) above, minus the amounts deducted
pursuant to Section 2.2(c), shall be the rate obtained by the Buyer from
such bank;

 

;
in either case, provided that nothing in this Agreement shall require the Buyer
to disburse or pay, with respect to payment of the Purchase Price, any amounts
in Reais (plus any applicable Selic Rate adjustments) in excess of the amount
set forth in 

 

10

 

Section 2.2(a) above.

 

(e)           The Buyer shall have the right, to
the fullest extent permitted by applicable Law, to set off and apply any and
all payments due to the Seller under this Agreement against any and all amounts
due by the Seller to the Buyer under this Agreement, including, without
limitation, any amounts due by the Seller in accordance with Article VIII.
Such right shall be in addition to, and not exclusive of, Buyer’s right to
pursue all remedies against the Seller (for breach of contract or otherwise) to
the fullest extent provided by applicable Law.

 

2.3.          Closing.  (a) The closing of the purchase and sale
of the Purchased Shares hereunder (the “Closing”) shall take place at
the offices of Pinheiro Guimarães – Advogados, in the city of Rio de Janeiro,
State of Rio de Janeiro, at Av. Rio Branco 181, 27th floor, at 10:00 a.m. (Rio de Janeiro
time) on the later of (i) September 30, 2009 if the conditions
precedent set forth in Article VII of this Agreement have been satisfied
on or before September 12, 2009; and (ii) the 19th day following satisfaction of all conditions
precedent set forth in Article VII of this Agreement, or on such other
date and place as the Buyer and the Seller may agree in writing (“Closing
Date”).

 

(b)           At the Closing:

 

(i)            The Seller shall
deliver to the Buyer a certificate signed by the Seller to the effect of
confirming that the condition precedent set forth in
Section 7.1(a) has been met;

 

(ii)           The Buyer shall
deliver to the Seller a certificate signed by the Buyer and CEMIG to the effect
of confirming that the condition precedent set forth in
Section 7.2(a) has been met;

 

(iii)          The Seller and the
Buyer shall execute any transfer registration forms required by the Book-Entry
Registrar for the transfer of the Purchased Shares to the Buyer;

 

(iv)          The Seller shall
deliver to the Buyer a statement issued by the Book-Entry Registrar evidencing
that the Purchased Shares were duly transferred to the Buyer;

 

(v)           The Seller shall
have caused such members of the board of directors and executive officers of
the Company and of the other entities of the Group appointed by or at the
direction of the Seller as the Buyer shall have designated in a written notice
delivered to the Seller at least five Business Days prior

 

11

 

to
the Closing Date to deliver to the Buyer resignation letters effective as of
the Closing Date with a full release and discharge of any obligations of the
Company or any other entity of the Group to such directors and officers, in the
form attached hereto as Schedule 2.3(b)(v), and to transfer to
the Buyer or any Person designated by the Buyer any Shares and any other
interest in any company of the Group;

 

(vi)          The Buyer and CEMIG shall deliver to
the Seller a full release and discharge of the directors and officers of the
Company and of any other entity of the Group, appointed by or at the direction
of the Seller, for any of their act or omission prior to the Closing, except in
the case of fault (culpa), fraud
or willful misconduct or breach of the respective entity’s By-laws in
accordance with Schedule 2.3(b)(vi);

 

(vii)         The Buyer shall execute and deliver to
Seller, the Company and Bovespa the Termo de
Anuência dos Controladores (Statement of Consent from Controlling
Shareholders) and any other document requested by Bovespa in accordance with
the Level 2 Corporate Governance Rules;

 

(viii)        The Buyer shall pay the Purchase Price
as set forth in Section 2.2 above;

 

(ix)           Subject to Section 6.4 and
Section 7.1(f), the Intercompany Loan shall be fully paid to the Seller
(principal plus pro rata interest accrued until but excluding the Closing Date)
pursuant to Section 6.4;

 

(x)            The Seller shall deliver to the
Buyer a full and irrevocable release and discharge of all obligations of the
Company under the Intercompany Loan and of any obligations relating to the use
by the Company and any other entity of the Group of Intellectual Property of
the Seller, including pursuant to the SAP Agreement;

 

(xi)           The Seller shall deliver to the Buyer
the Indemnity Guaranty, duly executed; and

 

(xii)          The Seller, the Buyer and/or the
Company shall execute such other instruments, documents or certificates, if
any, as may be reasonably required to consummate and perfect the transactions
contemplated hereby.

 

2.4.          Deliveries are one Single
Transaction.  All actions and
transactions indicated in Section 2.3 above shall be regarded as a single
transaction so that no action or transaction shall be deemed to have taken
place if and unless all other actions and

 

12

 

transactions
shall have taken place as provided in this Agreement. The Parties acknowledge
the essential nature of this provision.

 

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF THE SELLER

 

The
Seller represents and warrants to the Buyer, as of the date hereof and the
Closing Date (or, to the extent that any representation and warranty below
refers to a specific date, as of such date), that:

 

3.1.          Corporate Existence and Power.  The Company and each other entity of the Group
are duly organized and validly existing under the laws of Brazil and have all
corporate powers and all Licenses required to carry on their respective
business as presently conducted, except where failure to hold such Licenses
could not reasonably be expected to have a Material Adverse Effect. The Company
and each other entity of the Group are duly qualified to do business in each
jurisdiction where they conduct business. Except as set forth in Schedule
3.1, the Company and each other entity of the Group do not have any equity
participation in any other Person. The Buyer has been provided with true and
complete copies of the Corporate Documents of the Company and each other entity
of the Group as currently in effect.

 

3.2.          Authority in Relation to this
Agreement.  The execution, delivery
and performance by the Seller of this Agreement are within the powers and
capacity of the Seller and all consents required pursuant to its Corporate
Documents have been obtained and are in full force and effect. Assuming due
authorization, execution and delivery by the other Parties, this Agreement
constitutes a valid, binding and enforceable agreement of the Seller subject to
the effect of any applicable bankruptcy, reorganization, insolvency, moratorium,
fraudulent conveyance or similar laws affecting creditors’ rights generally.

 

3.3.          Governmental Authorization;
Consents.  Except as set forth in Schedule
3.3, the execution, delivery and performance by the Seller of this
Agreement requires no action by or in respect of, or filing with, or consent
from any Governmental Authority on the part of any of the Seller, the Company
or any other entity of the Group.

 

3.4.          Non-Contravention.  The execution, delivery and performance of
this Agreement by the Seller and the transfer of the Purchased Shares in
accordance herewith do not and will not: (a) violate the Corporate
Documents of the Company or any other entity of the Group, (b) assuming
compliance with the matters referred to in Section 3.3, violate any
applicable Law, (c) except as otherwise set forth in Schedule 3.4(c),
require any consent or other action by any Person, constitute a

 

13

 

default,
or give rise to any right of acceleration, termination or cancellation of any
Concession, License or contractual right of the Company or any other entity of
the Group or any contractual or other obligation of the Company or any entity
of the Group, except where, other than in respect of obligations involving
amounts in excess of R$200,000.00, failure to obtain such consent or perform
such action could not be reasonably expected to have a Material Adverse Effect,
or (d) result in the creation or imposition of any Lien on the Purchased
Shares or any asset of the Company or any entity of the Group.

 

3.5.          Litigation.  Except as disclosed in Schedule 3.5(a),
there is (a) no judicial or administrative action, suit, claim, demand,
investigation, proceeding, arbitration or dispute (it being understood that
with respect to confidential administrative proceedings or investigations, this
representation is made to the extent of the Seller’s knowledge or to the extent
that any such proceeding or investigation has been served upon or notified to
the Seller, the Company or any other entity of the Group) (“Proceeding”)
pending against the Company or any other entity of the Group or any of their
respective assets before any court or arbitrator or any Governmental Authority
involving amounts in excess of the Threshold Amount or which, if determined
adversely to the Company or any such other entity of the Group may have a
Material Adverse Effect, (b) no Proceeding against the Seller, the Company
or any other entity of the Group which in any manner challenges or seeks to
prevent, enjoin, alter or delay the transactions contemplated by this Agreement
and no Proceeding seeking any actual, proposed, possible or potential
revocation, withdrawal, suspension, cancellation or termination of, or
modification to, any Concession.

 

3.6.          Ownership of the Purchased Shares;
Corporate Filings; Shareholders’ Agreements.  (a) Schedule 3.6(a) sets
forth all of the issued and outstanding shares of capital stock of the Company,
a list of all Subsidiaries and the shares of each other entity of the Group as
of the date hereof. The Seller and any Affiliates of the Seller, on the Closing
Date, will not directly or indirectly own any shares of the Company or any
other entity of the Group other than the Purchased Shares and the Seller’s
Units. On the Effective Date and the Closing Date, the Purchased Shares
represent approximately 65.86% of the total issued and outstanding capital of
the Company and approximately 85.27% of the Company’s voting capital and are
free and clear of any Lien, and the Seller will transfer and deliver to the
Buyer, at the Closing, valid title to the Purchased Shares free and clear of
any Lien. All of the issued and outstanding shares of the Company and each
other entity of the Group are validly issued and fully paid. Upon the sale and
transfer of the Purchased Shares to the Buyer and payment of the Intercompany
Loan, the Seller will have conveyed to the Buyer all its equity and other
interests in the Company and the Group other than Seller’s Units.

 

14

 

(b)           Except as disclosed in Schedule
3.6(b), there are no authorized or outstanding subscriptions, options,
conversion rights, warrants, debt instruments, debentures, or other agreements,
securities or commitments of any nature whatsoever (whether oral or written and
whether firm or conditional) currently in force obligating the Seller, the
Company or any other entity of the Group to issue, deliver or sell, or cause to
be issued, delivered or sold, any authorized or outstanding shares of the
capital stock, or any securities convertible into or exchangeable for shares of
capital stock, of the Company or any other entity of the Group or obligating
the Company or any other entity of the Group to grant, extend or enter into any
such agreement or commitment.

 

(c)           The Corporate Documents of the
Company and the other entities of the Group and all amendments thereto and all
minutes of shareholders’ meetings and board of directors’ meetings have been
duly registered with the Commercial Registry and published in accordance with
applicable Law.

 

(d)           The Seller is not a party to any
shareholders’ agreement in respect of the Company, and there is no other
shareholders’ agreement in respect of equity participations of the Company in
other entities of the Group other than the agreements listed in Schedule
3.6(d).

 

3.7.          Regulatory Filings.  Except as disclosed in Schedule 3.7,
the Company and each other entity of the Group have filed all registrations,
reports, statements, notices, and other filings required to be filed by them under
the rules issued by any Governmental Authority, including all required
amendments or supplements to any of the above (collectively, the “Filings”),
and such Filings complied with all applicable Laws, except where failure to
make such filings that does not have a Material Adverse Effect.

 

3.8.          No Undisclosed Liabilities.  As of the date hereof, there are no material
liabilities (whether accrued or contingent) from financial transactions of the
Company or any other entity of the Group or under any derivative agreement or
hedging transaction (including any swap, forward, option or futures
transactions) or any off-balance sheet transaction, that have not been
disclosed by the Seller to the Buyer expressly in writing or in the Reference
Financials.

 

3.9.          Licenses; Concessions.  (a) Except for any License failure of
which to obtain could not have a Material Adverse Effect, the Company and each
other entity of the Group have all Licenses necessary for, affecting, or
relating in any way to, the conduct of their respective business as conducted
on the date hereof, and each such License is valid and in full force and effect
and, assuming compliance with the matters referred to in Section 3.3, none
of the Licenses could be terminated or impaired, in whole or in part, as a
result of the transactions contemplated hereby.

 

15

 

(b)           The Company and each other entity of
the Group are in compliance with the terms and requirements of each License
material to the conduct of their respective business and each Concession and no
event has occurred or circumstance exists that (with or without notice or lapse
of time): (i) constitute or result directly or indirectly in a violation
of or a failure to comply with any term or requirement of any such License,
except for any violation which could not reasonably be expected to have a
Material Adverse Effect, or Concession; or (ii) result directly or
indirectly in the revocation, withdrawal, suspension, cancellation or
termination of, or any modification to, any such License or Concession.

 

(c)           Neither the Company nor any other
entity of the Group has received any notice or other communication from any
Governmental Authority or any other Person regarding: (i) any actual,
alleged, possible or potential violation of or failure to comply with any term
or requirement of any License material to the conduct of its respective
business or any Concession; or (ii) any actual, proposed, possible or
potential revocation, withdrawal, suspension, cancellation or termination of,
or modification to, any License material to the conduct of its respective
business or any Concession.

 

3.10.        Foreign Investment Registration.  Schedule 3.10 sets forth the amount of
the foreign investment of the Seller in the Company registered with the Central
Bank of Brazil and correctly represents the actual equity interest held by the
Seller in the Company.

 

3.11.        Finders’ Fees.  There is no investment banker, broker, finder
or other intermediary or service provider who has been retained by or is
authorized to act on behalf of any of the Seller, the Company or any other
entity of the Group nor is there any other Person who, in each case, might be
entitled to any fee or commission payable by the Buyer or any entity of the
Group in connection with or as a result of the transactions contemplated by
this Agreement.

 

3.12.        Intellectual Property.  (a) Except as disclosed in Schedule
3.12(a), the Company and each other entity of the Group own all right,
title and interest in and to, or have a valid and enforceable license to use
all the Intellectual Property used by them and material to their respective
business. The Company and the other entities of the Group are in compliance in
all material respects with the contractual obligations relating to the
protection of such Intellectual Property as they use pursuant to license or
other agreements, where applicable. There are no conflicts with or
infringements of any Intellectual Property used, owned or licensed by any third
party and the conduct of the Group’s business as currently conducted does not
conflict with or infringe any proprietary right of any third party, except for
any of the foregoing which could not reasonably be expected to have a Material
Adverse

 

16

 

Effect.
There is no Proceeding pending against the Company or any other entity of the
Group: (i) alleging any conflict or infringement with any third party’s
proprietary Intellectual Property rights; or (ii) challenging the
ownership or use of, or the validity or enforceability of any, Intellectual
Property.

 

(b)           The consummation of the transactions
contemplated hereby will not alter or impair any Intellectual Property, except
where it could not reasonably be expected to have a Material Adverse Effect.
There are no licenses, sublicenses and other related agreements in which the
Company, any other entity of the Group or any sublicensee of the Company has
granted to any Person the right to use any such Intellectual Property; and
there are no other consents, indemnification, forbearances to sue, settlement
agreements and licensing or cross-licensing arrangements to which the Company
or any other entity of the Group is a party relating to any such Intellectual
Property.

 

(c)           The Company and each other entity of
the Group own or hold valid licenses to use the operating and applications
computer software programs and databases used by them that are material to the
conduct of their respective business as presently conducted.

 

3.13.        Financial Information; Accounting.
 (a) The Reference Financials,
attached hereto as Schedule 1.1(a)-II, were made available to the Buyer
(the “Financial Statements”).

 

(b)           Except as disclosed in Schedule
3.13(b) (and provided that the Seller shall cause the Company to promptly
comply with any determination of the relevant Governmental Authorities,
including Bovespa, CVM, Comitê de
Pronunciamentos Contábeis and Instituto
dos Auditores Independentes do Brasil with respect to the matters
disclosed in such schedule), the Financial Statements complied with all
applicable accounting requirements and with the published rules and
regulations of the CVM with respect thereto, have been prepared in accordance
with the then in force Brazilian GAAP consistently applied on a consistent basis
throughout the periods involved (except as may be indicated in the notes
thereto), and present fairly and accurately the financial position of the
Company and the other entities of the Group at the respective dates thereof and
the results of their operations for the periods indicated (subject, in the case
of unaudited quarterly statements, to normal year-end audit adjustments, which
were not and will not be material in amount), and show all indebtedness and
other liabilities, direct or contingent, of the Company and the other entities
of the Group as of the date thereof, including any actual or contingent
liabilities under any derivative agreement or hedging transaction to which the
Company or any other entity of the Group is a party (including any swap,
forward, option or future transaction).

 

17

 

(c)           Since the date of the Reference
Financials and until the date hereof, there has been no event or circumstance,
either individually or in the aggregate, that has had or could reasonably be
expected to have a Material Adverse Effect.

 

3.14.        Related Party Transaction.  Except for the Intercompany Loan or as
otherwise disclosed in Schedule 3.14, there is not any indebtedness for
borrowed money in any amount nor any kind of agreement or transaction involving
any entity of the Group on one side and the Seller or any Affiliate of the
Seller (other than any other entity of the Group) on the other side.

 

3.15.        Material Contracts; No Defaults.  (a) Schedule 3.15(a) lists all
leases, agreements, licenses, notes, mortgages, indentures, arrangements,
contracts and other contractual rights and obligations (collectively, “Contracts”)
to which the Company and/or any of its Subsidiaries is a party or by which the
Company and/or any of its Subsidiaries are bound, consisting of:

 

(i)  any
indenture, mortgage, indemnity, loan, promissory note or other Contract under
which the Company or any of its Subsidiaries has borrowed or may borrow any
money or issued or may issue any note, bond, indenture or other evidence of
indebtedness for or guaranteed indebtedness for money borrowed by others or
under which any Person has issued or may issue a letter of credit with respect
to which the Company has any liability;

 

(ii)  any
Contract or series of related Contracts requiring future payments by the
Company or any of its Subsidiaries: (A) in excess of R$200,000.00
individually or (B) which in the aggregate with other Contracts (without
considering the Contracts listed pursuant to item (A)) exceeds R$500,000.00;

 

(iii)  any
Contract or series of related Contracts for the sale, purchase, lease, license
or disposition, whether by or to the Company or any of its Subsidiaries, of
materials, products or other goods or services or other assets, properties or
shares: (A) in excess of R$200,000.00 individually or (B) which in
the aggregate with other Contracts (without considering the Contracts listed
pursuant to item (A)) exceeds R$500,000.00;

 

(iv)  any
Contract or series of related Contracts that provide for payment or receipt by
the Company or any of its Subsidiaries: (A) in excess of R$200,000.00
individually or (B) which in the aggregate with other Contracts (without
considering the Contracts listed pursuant to item (A)) exceeds R$500,000.00;

 

18

 

(v)  any
joint venture, partnership, shareholders, quotaholders or other Contract
involving the voting of shares of capital stock or other equity interests of,
or a sharing of profits, losses, costs or liabilities by the Company or any of
its Subsidiaries with any other Person;

 

(vi)  any
Contract that prohibits or restricts the Company or any of its Subsidiaries
from engaging in any line of business or from competing with any other Person;

 

(vii)  any
Contract entered into by the Company or any of its Subsidiaries with an
Affiliate of the Company or of any of its Subsidiaries;

 

(viii)  any
Contract entered into by the Company or any of its Subsidiaries with a
Governmental Authority; and

 

(ix)  any
Contract that requires the Company or any of its Subsidiaries to indemnify any
third parties in values in excess of R$200,000.00.

 

(b)           Except as set forth on Schedule
3.15(b) and except as would not have a Material Adverse Effect,
neither the Company nor any of its Subsidiaries is in breach of or in default
under, and no event has occurred and is continuing that would constitute a
default by the Company or any of its Subsidiaries under any provision of any
Contract, and neither the Company nor any of its Subsidiaries has received
written notice from any other party to any Contract that the Company or any of
its Subsidiaries is in breach of such Contract, which breach has not been
remedied, and, to Seller’s knowledge, no such other party is in breach of or
default under any material provision of any such Contract.

 

3.16.        Properties and Other Assets.  (a) The Company and the other entities of
the Group are the legal owners of, or in the case of leased property have a
valid leasehold interest in all property and assets (whether real or personal,
tangible or intangible) used by them in their respective business (the “Properties”
and each a “Property”). The Seller does not own nor has any rights over
any such Properties. Except as disclosed in Schedule 3.16(a), none of
such Properties that has a book value of at least R$1,000,000.00 is subject to
any Lien.

 

(b)           As to each Property:

 

(i)            the Company or
other relevant entity of the Group, as the case may be, has under its control
all title, deeds and documents necessary to prove its title to the Property
with a book value of at least R$1,000,000.00 including all necessary consents
for the grant of the leases;

 

19

 

(ii)           all such leases are
in full force and effect
and no written notice of any alleged breach of any of the terms of the leases
has been served by any landlord; and

 

(iii)          the existing use of
the Property is a lawful
permitted use and all necessary consents to such existing uses have been
obtained.

 

3.17.        Labor Matters.  (a) The Company and each other entity of
the Group are in compliance, in all material respects, with all applicable Laws
respecting employment and employment practices, terms and conditions of
employment, collective bargaining agreements and wages and hours relating to
their business. Schedule 3.17(a) sets forth a true and complete
list of all Employees of the Group who have been dismissed or whose employment
contracts have been otherwise terminated in the last five years, and all
dismissals or termination of employment contracts of Employees and termination
of service contracts of other Persons in the past five years were made in
accordance with all applicable Laws. Except as disclosed in Schedule 3.17(a),
there is no labor, service contract or corporate complaint pending against the
Company or any other entity of the Group before any courts or Governmental
Authority in Brazil or elsewhere involving amounts in excess of the Threshold
Amount or which, if determined adversely to the Company or any such other
entity of the Group may have a Material Adverse Effect.

 

(b)           Except as disclosed in Schedule
3.17(b), no entity of the Group is a party to any collective bargaining
agreement with any labor organization, nor has any such entity of the Group
agreed in writing to recognize any union or other collective bargaining unit
nor has any union or other collective bargaining unit been certified as
representing any of the Employees of the Company or any other entity of the
Group.

 

(c)           There has not occurred any strike,
slow downs, picketing, work stoppages, concerted refusals to work overtime or
other similar labor activities with respect to Employees of the Company or any
other entity of the Group. No grievance or arbitration or other proceeding
arising out of or under any collective bargaining agreement is pending against
the Company or any other entity of the Group.

 

(d)           Except as disclosed in Schedule
3.17(d), none of the Employees of the Company and the other entities of the
Group is entitled to stability under applicable Law.

 

20

 

3.18.        Employment and Other Matters.  (a) Except as set forth
in Schedule 3.18(a), there are no pension, profit-sharing, incentive,
deferred compensation, bonus, stock option, stock purchase, restricted stock,
share appreciation right, supplemental retirement, employment, termination,
severance or other similar contract, arrangement or agreement, including,
without limitation, any contract, arrangement or agreement that sets forth a
term of employment or guarantees any level of compensation or benefits to any
Employee, director, officer, manager or other service provider of the Company
or any other entity of the Group, any group or individual health, dental,
medical, or life insurance, retiree medical or life insurance, survivor
benefit, car allowance, reimbursement account, or similar plan, policy or
arrangement, whether formal or informal, which is contributed to, sponsored, or
maintained for the benefit of any Employee of the Company or any other entity
of the Group or for which the Company or any other entity of the Group has any
liability contingent or otherwise.

 

(b)           Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby, either alone or together
with another event, will (i) result in any payment (including, without
limitation, severance, unemployment compensation, golden parachute or
otherwise) becoming due under any agreement described in Section 3.18(a),
(ii) increase any benefits otherwise payable under any agreement described
in Section 3.18(a), or (iii) result in the acceleration of the time
of payment, vesting or funding of any benefits.

 

3.19.        Tax Matters.  (a) Except as disclosed in Schedule
3.19 herein:

 

(i)            (A) the
Company and each other entity of the Group have timely filed all Tax Returns
required to be filed by applicable Law and (B) all Taxes shown to be
payable on such Tax Returns have been paid or will be paid when due, except for
any Taxes which are being contested in good faith before the appropriate
Governmental Authority and for which appropriate provisions have been made by
the Company or other entity of the Group, as the case may be, and an adequate
accrual has been made, in accordance with Brazilian GAAP, in their respective
financial statements for Taxes which are not yet due and payable; all such Tax
Returns are true, correct and complete in all material respects and set forth
all items to the extent required to be reflected or included in such Tax
Returns by the applicable Laws;

 

(ii)           as
of the date hereof, there are no Liens with respect to any Taxes, except for
Liens for Taxes not yet due or being contested in good faith and in respect of
which appropriate reserves have been made in the financial statements of the
Company or any other entity of the Group, as the case may be;

 

21

 

(iii)          the
Company and each other entity of the Group have, in all material respects, paid
in full all Taxes for the periods covered by such Tax Returns, as well as all
other Taxes that have become due or payable (including, without limitation, if
applicable, all Taxes that they are obligated to withhold from amounts paid or
payable to or benefits conferred upon Employees, creditors and third parties),
except for any Taxes which are being contested in good faith before the
appropriate Governmental Authority and for which appropriate provision have
been made by the Company or other entity of the Group, as the case may be; and

 

(iv)          no
issues have been raised by (and are currently pending) any Governmental
Authority with taxing authority in connection with any of the Tax Returns.

 

(b)           The Company and the other entities of the
Group have maintained, in all material respects, updated and in proper form,
the books and records required to be maintained pursuant to the Laws of the
Governmental Authorities wherein it is required to file Tax Returns and other
reports relating to Taxes.

 

3.20.        Books and Records.  The Company and the other entities of the
Group maintain all books, Tax Returns and records which are necessary to their
regular existence and to regularly carry out their business and all of such
records are in proper order and are kept in a proper format and updated, as
required by applicable Law.

 

3.21.        Environmental Matters.
 (a) The Company and each other
entity of the Group are in compliance with all Environmental Laws applicable to
their business, except where failure to comply with such Environmental Laws
could not reasonably be expected to have a Material Adverse Effect.

 

(b)           The Company and the other entities of the
Group have all environmental approvals, consents, rights, certificates,
permissions, licenses, franchises, permits, registrations, filings or other
similar authorizations required under Environmental Laws for the conduction of
their respective business and such Licenses are listed in Schedule 3.21(b).

 

(c)           There are no Proceedings pending or, to the
best knowledge of the Seller, threatened against the Company or any other
entity of the Group that could reasonably be expected to result in the failure
to obtain or renew, suspension, cancellation or termination of any of the
Licenses referred to in clause (b) above.

 

22

 

3.22.        Insurance.  The Group’s insurance policies cover such
risks and contain such policy limits, types of coverage and deductibles
customary to insure against risks to which the Company and the other entities
of the Group, and their respective Employees, business, properties and other
assets would reasonably be expected to be exposed in the operation of their
business as currently conducted, and such policies are in accordance with
customary market practices in the type of business in which the Group is
engaged. All of the Group’s insurance policies are valid and enforceable policies,
all premiums due and payable under all such policies and bonds have been paid
and the Group is otherwise in compliance in all material respects with the
terms of such policies and bonds. Except as set forth in Schedule 3.22,
the Seller has no knowledge or belief, after due inquiry, of any threatened
termination of the insurance policies or any facts or actions that may cause
the non-payment of the premiums pursuant to the insurance policies.

 

3.23.        Full Disclosure.  No report, financial statement or certificate
furnished in writing by or on behalf of the Seller or the Group to the Buyer,
CEMIG or their respective representatives in connection with the Group’s
business, assets and liabilities, the transactions contemplated hereby and the
negotiation of this Agreement or delivered hereunder contains any material
misstatement of a fact or, taken as a whole, omits to state any material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading.

 

3.24.        Compliance with Laws.
 (a) The Company and each other
entity of the Group are in compliance in all material respects with the
requirements of all Laws applicable to them or to the conduct or operation of
their business and the ownership or use of their Properties and, with respect
to the Company, with the Level 2 of Distinguished Practices of Corporate
Governance (Nível 2 de Práticas
Diferenciadas de Governança Corporativa).

 

(b)           No event has occurred or circumstance exists
that (with or without notice or lapse of time): (i) may constitute or
result in a material violation by the Company or any other entity of the Group
of, or a failure on the part of the Company or any other entity of the Group to
comply with, any Law; or (ii) may give rise to any material obligation on
the part of the Company or any other entity of the Group to undertake or to
bear all or any portion of the cost of any remedial action of any nature.

 

(c)           Neither the Company nor any other entity of
the Group has received any notice or other communication (whether oral or
written) from any Governmental Authority or any other Person regarding:
(i) any actual, alleged, possible or potential violation of, or failure to
comply with, any Law in any material respect; or (ii) any actual, alleged,
possible or potential obligation on the part of the

 

23

 

Company
or any other entity of the Group to undertake or to bear all or any portion of
the cost of any remedial action of any nature.

 

3.25.        Powers-of-Attorney.  Schedule 3.25 contains a list of all
powers-of-attorney granted by the Company and the other entities of the Group
granting powers to attorneys-in-fact to carry out general management
activities, execute agreements, issue promissory notes or other debt
instruments, incur indebtedness, transfer, pledge or mortgage properties of the
Company or any other entity of the Group.

 

3.26.        Guarantees.  Neither the Company nor any of its
Subsidiaries is a guarantor or otherwise is responsible for any liability of
obligation (including indebtedness) of any other Person, except for the
guarantees mentioned in Schedule 3.26.

 

3.27.        Bankruptcy.  The Company and the Seller are not subject to
any bankruptcy, liquidation or similar procedure, including judicial or
out-of-court creditors reorganization.

 

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF THE BUYER AND CEMIG

 

Each
of CEMIG and the Buyer, jointly and severally, represents and warrants to the
Seller as of the date hereof and the Closing Date (or, to the extent that any
representation and warranty below refers to a specific date, as of such date)
that:

 

4.1.          Corporate Existence and Power.  It
is a company duly organized and validly existing under the laws of Brazil and
has all corporate powers and all material Licenses required to carry on its
business as presently conducted.

 

4.2.          Corporate Authorization.  The
execution, delivery and performance by it of this Agreement is within its
corporate powers and capacity and, except for the approval or ratification by
CEMIG’s shareholders required in accordance with Article 256 of the
Brazilian Corporations Law, all consents required pursuant to its Corporate
Documents have been obtained and are in full force and effect. Assuming due
authorization, execution and delivery by the other Parties hereto, this
Agreement constitutes its valid, binding and enforceable agreement, subject to
the effect of any applicable bankruptcy, reorganization, insolvency,
moratorium, fraudulent conveyance or similar laws affecting creditors’ rights
generally.

 

4.3.          Non-Contravention.  The
execution, delivery and performance of this Agreement by the Buyer and by CEMIG
do not and will not: (a) violate the Corporate Documents of the Buyer and
CEMIG, as long as this transaction is ratified by CEMIG’s shareholders in
accordance with Article 256 of the Brazilian

 

24

 

Corporations
Law, (b) violate any applicable Law, (c) except as set forth in Schedule
3.3, require any consent or other action by any Person, constitute a
default, or give rise to any right of acceleration, termination or cancellation
of any contractual right of the Buyer and CEMIG or any contractual or other
obligation thereof, or (d) result in the creation or imposition of any Lien
on any material asset of the Buyer or CEMIG.

 

4.4.          Governmental Authorization; Consents.  Except
as set forth in Schedule 3.3, the execution, delivery and performance by
the Buyer and CEMIG of this Agreement requires no action by or in respect of,
or filing with, or consent from any Governmental Authority on the part of any
of the Buyer and CEMIG.

 

4.5.          Financing.  Buyer and CEMIG have, or have
access to, sufficient cash resources to pay any and all amounts necessary to
consummate the payments and transactions contemplated hereby.

 

4.6.          Bankruptcy.  The Buyer and CEMIG are not
subject to any bankruptcy, liquidation or similar procedure, including judicial
or out-of-court creditors reorganizations.

 

4.7.          Forward-Looking Statements.  Notwithstanding
anything contained in this Agreement to the contrary, each of the Buyer and
CEMIG acknowledges and agrees that Seller, the Company and the entities of the
Group are not making any representations or warranties whatsoever, express or
implied, as to projections, forecasts or forward-looking statements provided to
Buyer or CEMIG.

 

4.8.          Finders’ Fees.  There
is no investment banker, broker, finder or other intermediary or service
provider who has been retained by or is authorized to act on behalf of either
the Buyer or CEMIG nor is there any other Person who, in each case, might be
entitled to any fee or commission payable by the Seller in connection with or
as a result of the transactions contemplated by this Agreement.

 

ARTICLE V

COVENANTS OF THE SELLER AND THE COMPANY

 

The
Seller agrees, for itself and for the Company, that:

 

5.1.          Conduct of the Business of the Group.  (a) From the Effective Date until the
Closing Date (the “Interim Period”), and subject to the terms hereof,
the Seller, to the extent applicable, shall cause the Company to conduct its
business and cause the other entities of the Group to conduct their business in
the ordinary course consistent with past practice and preserve intact the
business organizations and the relationships of the Group with third parties
and to keep available the services of

 

25

 

present
directors, officers and Employees of the Group (except for any dismissals for
cause – justa causa – and
unilateral termination by Employees). Without limiting the generality of the
foregoing, from the Effective Date until the Closing Date, the Seller shall not
permit the Company or any entity of the Group, except by written consent duly
signed by the authorized representatives of the Buyer (provided that, with
respect to items (vii), (viii), (xii), (xiv), (xvi) and (xvii) below such
consent shall be deemed granted if the Buyer does not manifest its denial
(which denial for the purposes of this provision may also be manifested by
means of an email) within three Business Days from its receipt of a duly signed
and delivered written request from the Seller), to:

 

(i)            adopt or propose any change in its Corporate
Documents;

 

(ii)           acquire, or otherwise invest in, by merger,
consolidation or other similar business combination, any corporation,
partnership or other business organization, division or substantially all of
the assets thereof, or any public concession, authorization or permit, or enter
into, directly or through any consortium, joint venture or otherwise, any new
business, or be the subject of any merger or consolidation with any Person;

 

(iii)          purchase, acquire, sell, lease, license or
otherwise dispose of any material assets or Property, including, without
limitation, Intellectual Property and software, except with respect to
Properties other than real property, in the ordinary course consistent with
past practice;

 

(iv)          issue, deliver or sell, or authorize or
propose the issuance, amalgamation or split of shares or the payment of share
bonus, combine or reclassify, or purchase or redeem any shares of, or take any
other similar action with respect to any of, its capital stock or any options
or warrants relating thereto or any other securities or instruments convertible
into or giving the right to subscribe or acquire shares of its capital stock;

 

(v)           authorize, recommend, propose or announce an
intention to adopt a plan of complete or partial liquidation or dissolution or
enter, declare or file for bankruptcy or judicial or extrajudicial
reorganization;

 

(vi)          incur, renew, extend, assume or guarantee any
indebtedness for borrowed money with a term to maturity of over 90 days or in
an amount exceeding R$200,000.00 for each transaction or series of related
transactions or R$500,000.00 in the aggregate of all transactions since the
Effective Date;

 

(vii)         mortgage, pledge, assign or transfer as
collateral any of its properties, or otherwise create or grant any other Lien
thereon, except for the cash

 

26

 

collateral
which may be granted by Novatrans Energia S.A. in favor of the syndicate of
banks listed in Schedule 3.4(c)(vii) in order to replace the corporate
guarantee issued by the Company with respect to the obligations of Novatrans
Energia S.A.;

 

(viii)        discharge or satisfy any Lien or pay or
satisfy any material obligation or liability (fixed or contingent) except on
their respective due date and in the ordinary course of business consistent
with past practice;

 

(ix)           make any change in its accounting procedures
or practices, except as required by changes in Brazilian GAAP or applicable
Law;

 

(x)            assume, guarantee, endorse or otherwise
become liable or responsible for any liabilities of any other Person;

 

(xi)           except as necessary to file any Tax Returns
when due or as is consistent with past practice, make any Tax election or
settle or compromise any material Tax liability;

 

(xii)          settle or agree to settle any Proceeding
(including any Proceeding relating to this Agreement or the transactions
contemplated hereby, in such case regardless of the amount involved) with a
value of R$200,000.00 individually or R$500,000.00 in the aggregate until the
Closing Date or pay, discharge or satisfy or agree to pay, discharge or satisfy
any claim or liability with a value of R$200,000.00 individually or
R$500,000.00 in the aggregate until the Closing Date, other than the payment,
discharge or satisfaction, on the due date thereof, of liabilities reflected in
the Reference Financials or incurred in the ordinary course of business consistent
with past practice;

 

(xiii)         enter into any agreement with Related
Parties, including any direct or indirect shareholders and/or Affiliates;

 

(xiv)        enter into any agreement involving amounts
that exceed R$200,000.00 for each agreement or series of related agreements or
R$500,000.00 in the aggregate of all agreements since the Effective Date;

 

(xv)         declare or make any distribution on its share
capital, including by way of dividends, interest on capital or otherwise, or
purchase, redeem or otherwise acquire any shares of its capital or any option
over such shares, or otherwise make any other payment to its shareholders,
except: (A) for dividends (which, for the avoidance of doubt, shall not be
construed to include interest on capital – juros
sobre capital próprio) or redemption of redeemable shares (it being
understood that any such redemption shall not have any actual or potential
adverse impact on or cause any actual or contingent liability to the Company or
to any

 

27

 

Subsidiary)
to be distributed and paid on September 29 or September 30, 2009 (but
not on any other date) from: (x) profit reserves (other than any reserves
created from tax benefits) existing in the end of the fiscal year 2008 and (y) interim
dividends in respect of the fiscal year of 2009, in each case as verified in
the Company’s audited or auditor-revised financial statements for the relevant
period, prepared in accordance with Section 3.13(b); and (B) if
Closing occurs after the end of the fiscal year 2009, for any mandatory
dividends declared at the Annual General Shareholders Meeting in respect of
such fiscal year which the Company is required to distribute in 2010 in
accordance with the Brazilian Corporations Law and its by-laws; provided that,
in any event, immediately after Closing (considering payment of any such
declared dividends or share redemptions) the Company and the other entities of
the Group shall have cash and cash equivalents (disponibilidades) of at least R$20,000,000.00 in the
aggregate on a consolidated basis and allocated R$ 1,000,000.00 to the Company
and the remainder among the entities of the Group proportionally to the
respective Permitted Annual Revenue (Receita
Anual Permitida) of each entity of the Group, in any case not
subject to any restriction or Lien and that no indebtedness shall be incurred
in order to pay such dividends and any distribution of such dividends cannot be
made in breach of applicable Law or any covenant of the Company or any entity
of the Group.

 

(xvi)        hire any new directors, officers or Employees
or enter into or modify any existing employment or service contract with a
director, officer or Employee; provided that the Company and other entities of
the Group may hire Employees for positions other than senior management in the
ordinary course of business consistent with past practice;

 

(xvii)       dismiss any director, officer or Employee,
except for the dismissal of any Employee in the ordinary course of business and
in accordance with applicable Law and the provisions of this Agreement;

 

(xviii)      (A) grant to any of its directors,
officers or Employees any increase in compensation (including by means of bonus
or dividend), or (B) grant to any of its directors, officers or Employees
any increase in severance or termination pay, except to the extent required by
Law;

 

(xix)         adopt, amend, terminate or increase any
benefit, retention, bonus or other compensation plan or arrangement with
respect to any director, officer or Employee, except to the extent required by
Law, except for payments until the Closing Date due under the retention plan
described in Schedule 5.1(xix), limited to the aggregate amount of
R$2,000,000.00;

 

(xx)          enter into any lease agreement with respect
to any of its Properties;

 

28

 

(xxi)         enter into any other agreement or obligation,
or otherwise incur any expenses other than in the ordinary course of business
consistent with past practice;

 

(xxii)        enter into any amendment or refinancing of
the Intercompany Loan, except as set forth in Section 7.1(f); and/or

 

(xxiii)       agree or commit to do any of the foregoing or
take any action that would reasonably be expected to make any representation or
warranty in this Agreement untrue or incorrect as of the date when made or as
of a future date and that would result in any of the conditions set forth in
this Agreement not being capable of being satisfied prior to the Closing.

 

(b)           For the avoidance of doubt, the following
shall be considered within the ordinary course of business and shall not, as a
consequence, be considered as falling within the scope of paragraphs
(a) (i) to (xxii) above and shall be considered permitted under this
Agreement:

 

(i)            all actions, transactions and matters
(including capital expenditures) provided or contemplated under any agreement
to which the Company or any of its Subsidiaries is a party on the date hereof,
or which are necessary to comply with any obligation under such licenses or the
agreements and documents related thereto or under applicable Laws; and

 

(ii)           all agreements with customers, suppliers and the ONS related to the
maintenance, use or operation, or development of, or access to, the
transmission grid.

 

(c)           During the Interim Period, the Buyer shall designate three representatives
to form a transition committee which will work together with the Seller in
connection with the day-to-day business of the Group and mediate the
relationship between the Seller and the Buyer with respect to any matters
requiring approval from the Buyer in accordance with Section 5.1(a). The
transition committee shall be granted full access to documents and information
relating to the business of the Group in accordance with Section 5.2
below.

 

(d)           The provisions of this Section 5.1 shall apply also to ETAU and Brasnorte,
and the Seller agrees to exercise its voting rights and power (and to cause the
Company to exercise its shareholder rights and power) in respect of such
Subsidiaries in a manner as to cause the provisions herein to be complied with
by such Subsidiaries to the extent such exercise of voting rights and power
does not contravene the provisions of the by-laws and shareholders’ agreements
of such

 

29

 

Subsidiaries,
and considering the limitation of rights and power of the Company as one of the
members of the controlling group of such companies.

 

5.2.          Access to Information.  From
the Effective Date until the Closing Date, with the purpose that an
uninterrupted and efficient transfer of the Purchased Shares may be
accomplished, the Seller shall cause the Company and the other entities of the
Group to, except that with respect to ETAU and Brasnorte this obligation is
limited to the extent of the access of the Company or any director or officer
appointed by or at the direction of the Company or the Seller to such relevant
information, upon reasonable request: (i) give Buyer, its counsel,
financial advisors, auditors and other authorized representatives access to the
offices, properties, books and records of the Company and the other entities of
the Group, (ii) furnish to the Buyer, its counsel, financial advisors,
auditors and other authorized representatives copies of such financial and
operating data, Contracts and other information relating to the Group and their
business as such Persons may request and (iii) instruct the Employees,
counsel and financial advisors of the Seller and of the Group to cooperate with
the Buyer in its investigation of the business of the Group. All such access
shall be granted during normal business hours, shall be subject to the normal
safety regulations and confidentiality obligations and limitations set forth in
applicable Law, and shall be granted under conditions which will not materially
interfere with the business and operations of the Group. No investigation by
the Buyer or other information received by the Buyer shall operate as a waiver
or otherwise affect any representation, warranty or agreement given or made by
the Seller hereunder.

 

5.3.          Notices of Certain Events.  From
the Effective Date until the Closing Date, the Seller shall (and shall cause
the Company to) notify the Buyer in writing of:

 

(a)           any communication from any Person alleging
that the consent of such Person is or may be required in connection with the
transactions contemplated by this Agreement;

 

(b)           any notice or other communication from any
Governmental Authority in connection with the transactions contemplated by this
Agreement or with any Filings;

 

(c)           any Proceedings commenced or threatened in
writing against, relating to or involving or otherwise affecting the Company or
any other entity of the Group that, if pending on the date of this Agreement,
would have been required to have been disclosed hereby or that relate to the
consummation of the transactions contemplated by this Agreement;

 

30

 

(d)         any
material change in the condition (financial or otherwise), properties,
liabilities or operations of the Company or any other entity of the Group,
other than in the ordinary course of business consistent with past practice;
and

 

(e)          any
fact that renders any representation or warranty made by the Seller hereunder
false, incomplete, misleading or incorrect on the Closing Date.

 

5.4.          Foreign
Employees.  Notwithstanding anything
to the contrary contained in this Agreement, the Seller shall be responsible
for, and hereby undertakes all liabilities in connection with, all matters
related to the Employment or services contract of any foreign Employee of the
Group or any foreign individual not formally retained by the Group under the
Brazilian Consolidação das Leis do Trabalho
who provides services to any entity of the Group (any such foreign Employee or
foreign individual, an “Expatriate”) and any termination thereof, and
shall otherwise be responsible, and undertakes all liabilities in connection
with, and agrees to indemnify, hold harmless and defend the Buyer, CEMIG, the
Company, the other entities of the Group and their respective Affiliates, from
and against any and all claims and/or liabilities, damages, penalties,
judgments, assessments, losses, Liens, Taxes, costs and expenses, including
attorneys’ fees, demanded by any Expatriate or otherwise payable in connection
with the relationship of the Company or any other entity of the Group with any
such Expatriate.

 

5.5.          Transfer
of Information Recorded in Seller’s Server and SAP System.  The Seller shall, at Closing, provide the
Buyer with a backup and otherwise transfer to the Buyer any information
recorded in its servers and in the Seller’s SAP system relating in any manner
to the Company and the other entities of the Group.

 

5.6.          Acknowledgment of
Company’s Required Actions.  The Seller shall
deliver to the Buyer, within five Business Days following the Effective Date,
copy of a written notice duly acknowledged by the Company’s authorized
representatives, informing the Company of the undertakings hereunder with
respect to the conduction of the Group’s business and other matters which
require action from the Company in accordance with this Agreement.

 

ARTICLE VI

COVENANTS OF THE BUYER, CEMIG, THE SELLER AND OPA

 

The Buyer, CEMIG and the Seller each agrees that:

 

6.1.          Further
Assurances.  Subject to the terms and
conditions of this Agreement, the Buyer, CEMIG and the Seller shall (and the
Seller shall cause the Company and CEMIG shall cause the Buyer to): (a) use
their reasonable best efforts to satisfy or

 

31

 

cause the satisfaction of the conditions precedent
contained in Article VII; (b) take, or cause to be taken, all actions
and to do, or cause to be done, all things necessary or desirable under
applicable Laws and regulations to consummate the transactions contemplated by
this Agreement, including for the purpose of making the filings and obtaining
the approvals and consents contemplated in Section 3.3; and (c) comply
with all their respective covenants, obligations and undertakings under this
Agreement. The Seller prior to the Closing, and the Buyer, after the Closing,
agree to cause the Company to execute and deliver such other documents,
certificates, agreements and other writings and to take such other actions as
may be necessary or desirable in order to consummate or implement expeditiously
the transactions contemplated by this Agreement.

 

6.2.          Public
Announcements.  The Buyer, CEMIG and
the Seller agree to consult and agree with each other before issuing any press
release or making any public statement with respect to this Agreement or the
transactions contemplated hereby and, except as may be required by applicable
Law, any listing agreement with any national securities exchange or any
Governmental Authority, will not issue any such press release or make any such
public statement without prior written approval of the other Party, which shall
not be unreasonably withheld, including with respect to the content and timing
of any such release or statement.

 

6.3.          Confidentiality.
 Each Party and its respective officers,
directors, Employees, accountants, counsel, consultants, advisors and agents
(the “Representatives”) shall hold confidential all information obtained
in connection with this Agreement and the transactions contemplated hereby and,
with respect to the Seller and its Representatives, also all information in
connection with the Group’s business, assets and activities, which is not
otherwise public knowledge, not independently known or developed, not received
from a third party who is not subject to an obligation of confidentiality or
not in the public domain through no fault of the receiving party (“Confidential
Information”). Even after a copy of this Agreement has been filed with any
Governmental Authority (if so required by applicable Law or such Governmental
Authority), each Party shall refrain from disclosing, and shall hold
confidential, the Confidential Information and the terms and conditions of this
Agreement, except to the extent that disclosure of any such information is
necessary or desirable for consummation of the transactions contemplated
hereby, demanded by any Governmental Authority, required by applicable Law or
stock exchange regulations to which a Party is subject, or with the consent of
all other Parties hereto.

 

6.4.          Intercompany
Loan.  (a) Subject to Section 7.1(f),
the Buyer shall cause the Company to fully repay the Intercompany Loan
(principal and pro rata interest accrued until its payment by the Company) on
the Closing Date. In order for such repayment to be made, the Buyer agrees to,
simultaneously with the Closing and subject to Closing occurring, grant or
procure that a third-party financial institution

 

32

 

grant to the Company, on the Closing Date, a new loan in
the amount corresponding to the outstanding amount of the Intercompany Loan on
the Closing Date, at such terms and conditions as the Company and the Buyer or
such third-party financial institution shall negotiate. The Seller shall cause
the Company to incur such new loan on the terms set forth herein and use the
proceeds thereof to fully repay the Intercompany Loan.

 

(b)             The
Seller hereby agrees to cooperate with the Buyer and the Company and to execute
all such documents and take all such further action as necessary or as
reasonably requested by the Buyer to procure that the Company obtain financing
from a third-party financial institution, in the terms negotiated by the Buyer,
in order to repay and substitute the Intercompany Loan in accordance with this Section 6.4;
provided that the Buyer shall keep the Seller, the Company and their managers
harmless from any obligation or liability arising out of the contracting and
performance of such third-party financing in accordance with the Buyer’s
instructions, except in case of fraud or willful misconduct of the Seller or
the Company.

 

6.5.          Public
Acquisition Offer (OPA).  (a) The
transfer of the Purchased Shares by the Seller to the Buyer shall impose on the
Buyer the obligation to make a public offer for the acquisition of the Units of
the non-controlling shareholders of the Company (“OPA”) within the term
and in accordance with the provisions of applicable Law, the Corporate
Documents of the Company and the Bovespa Level 2 Distinguished Practices of
Corporate Governance (Práticas Diferenciadas
de Governança Corporativa Nível 2). Failure to effect such OPA in
accordance herewith shall be construed as a condition subsequent (condição resolutiva). Forthwith after
Closing, the Buyer agrees to take all actions necessary to carry out such OPA
in order to satisfy the condition set forth herein, including: (a) the
payment of any applicable registration fees; (b) satisfaction of the
requirements made by the CVM with respect to the registration of the OPA; (c) engagement
of a financial institution to coordinate the OPA; and (d) consummation of
the OPA and the payment to non-controlling shareholders of the Company required
thereunder. Should the transaction contemplated hereby be resolved as a result
of the failure of the Buyer to launch and consummate the OPA, with the return
of the Purchased Shares to the Seller and the return of the Purchase Price to
the Buyer, the Seller shall be entitled to liquidated damages (multa compensatória) in the total amount
of EUR 100,000,000.00 payable by means of deduction from the Purchase Price to
be returned by the Seller to the Buyer. The liquidated damages contemplated
herein shall not be cumulative with any other penalty under this Agreement.

 

(b)             The
Seller agrees to accept the OPA and sell all the Seller’s Units at the OPA
filed by the Buyer in accordance with clause (a) above.

 

33

 

6.6.          ANEEL
and CADE Filing.  Forthwith after the
Effective Date the Parties shall jointly prepare all forms and documents
necessary to submit the transaction contemplated hereby to ANEEL and CADE for
approval of the transfer of the Purchased Shares, submit such documents to
ANEEL and CADE within the term set forth in applicable Law and otherwise
execute all necessary documents and cooperate with each other in order to
obtain the approval of ANEEL and CADE. The ANEEL and the CADE filings shall be
conducted by the Buyer; provided that the Seller shall provide to the Buyer all
documents and information and execute all documents and otherwise take all
further action as necessary or reasonably requested by the Buyer in connection
with the ANEEL and the CADE filings. All fees, costs and expenses incurred with
the filing of the transaction contemplated hereby with ANEEL and CADE and the
approval process shall be paid by the Buyer. In the event of any judgment,
decision or order by CADE imposing any condition for its approval of the
transfer of the Purchased Shares to the Buyer, Buyer shall have full discretion
with respect to the fulfillment of such conditions and adoption of any measures
in connection therewith and the Seller shall have no responsibility whatsoever
in connection with such judgment, decision or order.

 

6.7.          Change
of Corporate Name and Trademarks.  Subject
to Section 6.10, within 60 days after Closing, the Buyer shall cause the
entities of the Group to change their corporate name in order to not use the
name “Terna” and shall cause the Group to refrain from using any trademarks,
business names, logos or website or internet dominium with the name “Terna” and
to, upon request and at the expense of the Seller, cancel or transfer to the
Seller any registrations of such name, trademarks and logos with any
intellectual property registration authorities.

 

6.8.          Consummation
of the Transactions.  From the
Effective Date until the Closing, the Parties will not take, or omit to take
(and the Seller will not permit the Company and the other entities of the Group
to take or omit to take) any action that could reasonably be expected to (i) directly
or indirectly cause the transactions contemplated hereby not to be consummated
or (ii) result in a breach of any covenant, agreement, representation or
warranty under this Agreement.

 

6.9.          Notices
of Certain Events by Buyer.  From the
Effective Date until the Closing Date, the Buyer shall notify the Seller in
writing of:

 

(a)             any
communication from any Person alleging that the consent of such Person is or
may be required in connection with the transactions contemplated by this
Agreement;

 

(b)             any
notice or other communication from any Governmental Authority in connection
with the transactions contemplated by this Agreement; and

 

34

 

(c)           any
fact that renders any representation or warranty made by the Buyer hereunder
false, incomplete, misleading or incorrect on the Closing Date.

 

6.10.        Closing
Shareholders’ Meeting.  The Seller
shall cause the Company and the Subsidiaries to call a shareholders’ meeting
(or quotaholders’ meeting, as may be applicable) for the Business Day following
the Closing Date, and the Buyer agrees to carry out such shareholders’ or
quotaholders’ meetings, as applicable, to resolve on (A) the appointment
of directors of the Company and the Subsidiaries appointed by or at the
direction of the Buyer, or of the Company, in the case of the Subsidiaries; and
(B) amend the Company’s by-laws and Terna Serviços Ltda.’s articles of association
in order to exclude any reference to the name “Terna” therefrom.

 

6.11.        Provided
that it does not or may not constitute or cause a breach of the fiduciary
duties of the Buyer and CEMIG or a breach of Law, Buyer and CEMIG shall refrain
from exercising their voting rights to cause the Company to file any claim
against the directors and officers of the Company or of any other entity of the
Group, appointed by or under direction of the Seller, for any of their acts or
omissions prior to the Closing, except in cases of fault (culpa), fraud,
willful misconduct or breach of Law or of the By-laws.

 

6.12         CEMIG’s
General Shareholders’ Meeting to Approve or Ratify this Agreement.  CEMIG agrees to call a General Shareholders’
Meeting in accordance with its Corporate Documents in order to approve or
ratify this Agreement in accordance with Article 256 of the Brazilian
Corporations Law, and to take all such further action as necessary to ensure
that such General Shareholders’ Meeting be held in due course and adequate
timing between the Effective Date and the Closing Date.

 

ARTICLE VII

CONDITIONS TO CLOSING

 

7.1.          Conditions
to Obligation of the Buyer.  The
obligation of the Buyer to consummate the Closing is subject to the
satisfaction of the following further conditions (any of which may be waived in
writing, in whole or in part, by the Buyer):

 

(a)             (i) the
Seller shall have performed all of its material obligations hereunder required
to be performed by it on or prior to the Closing Date, and (ii) the
representations and warranties of the Seller contained in Article III of
this Agreement shall be true and correct as of the Effective Date and on the
Closing Date as though restated on and as of such date (except in the case of
any representation or warranty that by its terms is made as of a date specified
therein, such representation

 

35

 

or warranty shall be accurate as of such date);

 

(b)             all
approvals and consents required from any Governmental Authority (including ANEEL,
but excluding CADE), listed in Schedule 3.3, and any other third party
shall have been obtained and copies of such approvals and consents shall have
been provided to the Buyer (except for the consent of BNDES and other creditors
for borrowed money listed in Schedule 3.4(c) under “Other Lenders”,
in respect of which consents the condition shall be that a response from BNDES
or such other creditors to the consent request shall have been obtained,
regardless of such response being a consent or a denial of such consent;
provided that the Seller shall have fully cooperated with the Buyer and the
Company and executed all such documents and taken all such further action as
necessary or as reasonably requested by the Buyer, at Buyer’s expense, to
obtain such consents or procure that the Company obtain financing from a
third-party financial institution, in the terms negotiated by the Buyer, in
order to refinance all debt owed by the Group to BNDES and such other
creditors);

 

(c)             the
Buyer shall have received a duly executed legal opinion, dated the Closing
Date, of Italian counsel to the Seller satisfactory to the Buyer, substantially
in the form of Schedule 7.1(c), as to the valid execution, due
authorization, authority of the signatories and validity and enforceability of
this Agreement and the provisions hereof against the Seller, subject to
customary qualifications agreed upon with the Buyer;

 

(d)             since
the date of the Reference Financials and until the Closing Date, there shall
have been no event or circumstance, either individually or in the aggregate,
that has caused or could reasonably be expected to cause Damages to the
Company, any other entity of the Group, the Buyer, CEMIG and/or their
Affiliates equal to or greater than EUR 70,000,000.00;

 

(e)             the
Seller shall have delivered to the Buyer, at least five Business Days prior to
the Closing Date, the latest consolidated financial statements of the Company
required to be presented pursuant to CVM regulations;

 

(f)              the
Intercompany Loan shall have been amended to the Buyer s satisfaction in order
to clarify that, upon prepayment of the Intercompany Loan, interest shall be
calculated on the basis of actual days elapsed until such prepayment and to
extend the maturity date to May 31, 2010;

 

(g)             the
Seller shall have delivered to the Buyer copy of a waiver duly executed by the
lenders the Contrato de Abertura de Crédito
no CBG-00185/06, dated December 15, 2006, among Banco BNP
Paribas Brasil S.A., Banco Santander Banespa S.A., Banco Citibank S.A.,
Novatrans Energia S.A. (“Novatrans”), and the

 

36

 

bank credit bills (cédulas
de crédito bancário) issued in accordance therewith, with respect to
the failure by Novatrans to grant to the lenders the collateral required under
such agreement and bank credit bills or evidence satisfactory to the Buyer that
such failure has been properly cured; and

 

(h)           the
entering by the Buyer into this Agreement shall have been ratified by CEMIG’s
shareholders in accordance with Article 256 of the Brazilian Corporations
Law.

 

7.2.          Conditions
to Obligation of the Seller.  The
obligation of the Seller to consummate the Closing is subject to the
satisfaction of the following further conditions (any of which may be waived in
writing, in whole or in part, by the Seller):

 

(a)             (i) The
Buyer and CEMIG shall have performed all of their respective material
obligations hereunder required to be performed by them at or prior to the
Closing Date, and (ii) the representations and warranties of the Buyer and
CEMIG contained in Article IV shall be true and correct as of the
Effective Date and on the Closing Date as if made at and as of such date
(except in the case of any representation or warranty that by its terms is made
as of a date specified therein, such representation or warranty shall be
accurate as of such date);

 

(b)             The
Seller shall have received copies of the Corporate Documents of the Buyer and
CEMIG and all other corporate approvals and evidence of the authority of the
signatories to execute and deliver this Agreement on behalf of the Buyer and
CEMIG;

 

(c)             all
approvals and consents required from any Governmental Authority (including
ANEEL, but excluding CADE), listed in Schedule 3.3, for the execution
and delivery of this Agreement and performance of the transactions contemplated
hereby and for the transfer of the Purchased Shares by the Seller to the Buyer
shall have been obtained and copies of such approvals and consents shall have
been provided to the Seller.

 

ARTICLE VIII

SURVIVAL; INDEMNIFICATION

 

8.1.          Indemnification.
 Subject to the provisions of this Article VIII
and to an overall indemnification cap limit (with respect to the total amount
to be indemnifiable by each of the Buyer and the Seller, individually) of EUR
160,000,000.00 (one hundred-sixty million Euros) (the “Cap”) applicable
with respect to any Damages which shall be indemnified in accordance with this
Section

 

37

 

8.1 other than Damages arising under Section 8.1(a)(iii),
which shall not be limited to this Cap,

 

(a)             the
Seller agrees to pay and to indemnify fully, hold harmless and defend the
Buyer, CEMIG, the Company, the other entities of the Group and their respective
Affiliates, agents, directors, officers, employees, representatives, successors
and assigns, from and against any and all Damages:

 

(i)              resulting
from any inaccuracy or breach of any representation or warranty of the Seller
contained in this Agreement or from any acts, claims, contingencies,
liabilities, facts or omissions (other than: (x) costs incurred after the
date of the Reference Financials in the ordinary course of the business
consistent with past practices of the Group and capital expenditures in respect
of the construction of Brasnorte’s transmission line and substations in
accordance with the Concession Agreement and the Contracts of Brasnorte in
effect on the Effective Date except for any such capital expenditures incurred
in fraud and provided that Third Party Claims relating to such capital
expenditures are not excluded from indemnification pursuant to this item
(i)(x); (y) those contemplated in item (ii) below, which are
regulated in such item; and (z) liabilities and contingencies expressly
registered in the balance sheet contained in the Financial Statements attached
as Schedule
1.1(a)-II
up to the amount of such liabilities and contingencies set forth therein)
incurred, existing or occurred prior to the Closing Date, irrespective of it
being disclosed in any annex or schedule to this Agreement; provided that the
Buyer delivers a Claim Notice to the Seller until 18 months following the
Closing Date; and/or

 

(ii)             resulting
from acts, facts, claims, contingencies, liabilities or omissions arising out
of any inaccuracy or breach of representations and warranties, including on the
Closing Date, made in Sections 3.1, 3.2, 3.3, 3.4 and 3.6, irrespective of it
being disclosed in any annex or schedule to this Agreement and irrespective of
the date when the Buyer delivers a Claim Notice to the Seller; and/or

 

(iii)            any
claim, contingency or liability of the Company or any other entity of the Group
arising in connection with: (A) any Imposto
sobre Circulação de Mercadorias e Serviços (ICMS) due with respect
to energy transmission operations or services; and/or (B) PIS (Contribuição para o Programa de Integração Social)
and COFINS (Contribuição para o
Financiamento da Seguridade Social) due with respect to the adoption
of the non-cumulative regime for calculation of PIS and COFINS with respect to
operational revenues of the Group, in each case irrespective of it being
disclosed in any annex or schedule to this Agreement; provided that, in each
case, the Buyer deliver a Claim Notice to the Seller until 18 months following
the Closing Date; and/or

 

38

 

(iv)            resulting
from any breach of any covenant or agreement of the Seller (including any
covenant to cause the Company to take any action or fulfill any obligation)
contained in this Agreement (which is not specifically contemplated in (i), (ii) or
(iii) above); provided that in any case the imposition of the Parcela
Variável in a percentage not exceeding the average of the last three years in
respect to each network function of each Concession shall not give rise to
indemnification hereunder to the extent that it is consistent with the Group’s
past practices or the ordinary course of business and not caused by negligence
or willful misconduct of the Seller, the Company or other entity of the Group
and provided further that the imposition of the Parcela Variável with respect
to acts, facts or omissions related to events occurred after the Closing Date
shall not give rise to indemnification hereunder; and/or

 

(v)             resulting
from an inaccuracy or dispute in the amount of the withholding income tax
calculated by Seller pursuant to Section 2.2(c).

 

(b)           From
and after the Closing, the Buyer agrees to pay and to indemnify fully, hold
harmless and defend the Seller and its Affiliates, respective agents,
directors, officers, employees, representatives, successors and assigns, from
and against any and all Damages arising out of:

 

(i)              any
inaccuracy or breach of any representation or warranty of the Buyer or CEMIG
contained in this Agreement, provided that Seller delivers a Claim Notice to
the Buyer to that respect on or before the Closing; and/or

 

(ii)             any
breach of any covenant or agreement of the Buyer contained in this Agreement
(which is not specifically contemplated in (i) above).

 

; provided that, in either case of (a) and (b) above,
the requirement that a Claim Notice is delivered up to a certain date, where
applicable, means that the respective claim, contingency, liability or risk of
Damage must be identified in the Claim Notice up to such applicable date, but
that, nonetheless, actual materialization of Damage pursuant to Section 8.4
below may occur at any time thereafter and provided further that any Direct
Claim must be supported by an opinion issued in writing by an expert with
recognized experience with the subject matter of the Direct Claim.

 

(c)             Notwithstanding
the provisions of Section 8.1(a) above, the Seller shall not be
liable to the Buyer with respect to any direct adverse accounting impact of the
adjustments made to the financial statements of the Group solely and
exclusively in connection with the preparation of such financial statements in
accordance with IFRS pursuant to Schedule 3.13(b).

 

39

 

8.2.          Indemnity
Guaranty.  Without limiting any other
indemnity rights of the Buyer hereunder, to guarantee any of the Seller’s
indemnity obligations hereunder, Seller shall deliver to Buyer on or prior to
Closing a stand-by letter of credit issued by a first line bank with operations
in Brazil, containing express waivers of the benefits set forth in Sections
364, 366, 827, 834, 835, 837, 838 and 839 of the Brazilian Civil Code and Section 595
of the Brazilian Code of Civil Procedure (or comparable laws) and other terms
reasonably acceptable to Buyer (the “Indemnity Guaranty”). The Indemnity
Guaranty shall be valid and enforceable on a first demand basis within the
validity term of 18 (eighteen) months following the Closing Date, for the
guaranteed amount of R$75,000,000.00 (seventy five million Reais).

 

8.3.          Further Limitations.  An Indemnified Party shall
not be entitled to bring any individual claim until the aggregate amount of
Damages suffered, paid or incurred, including such claim, exceeds
R$18,000,000.00 (eighteen million Reais) (the “Deductible”) and any
indemnification hereunder shall be only to the extent of such excess and,
except with respect to Damages arising under Section 8.1(a)(iii), subject
to the Cap. For the avoidance of doubt, once the aggregate amount of Damages
suffered, paid or incurred by an Indemnified Party exceeds the Deductible, such
Indemnified Party shall be entitled to indemnification for any and all amount
of Damages which, considered jointly with all other Damages suffered, paid or
incurred, exceeds the Deductible.

 

8.4.  Method of
Asserting Claims, etc.  The party
making a claim for indemnification under this Article VIII is, for the
purposes of this Agreement, referred to as the “Indemnified Party” and
the party or parties against whom such claims are asserted under this Article VIII
is, for the purposes of this Agreement, referred to as the “Indemnifying
Party”. All claims by any Indemnified Party under this Article VIII
shall be asserted and resolved as follows:

 

(a)             In
the event that (i) any Proceeding is asserted, instituted or threatened by
the relevant competent Governmental Authority or Person, in any case other than
the Parties hereto and their Affiliates which could give rise to Damages for
which an Indemnifying Party would be liable to an Indemnified Party hereunder
(such Proceeding, a “Third Party Claim”) or (ii) any Indemnified
Party hereunder shall have a claim (including as a result of a potential claim
that may result from facts, liabilities, contingencies or practices of the
Group) to be indemnified by any Indemnifying Party hereunder (such claim, a “Direct
Claim”), the Indemnified Party shall, with reasonable promptness, send to
the Indemnifying Party a written notice specifying the nature of such claim or
demand and the amount or estimated amount (which estimate shall not be
conclusive of the final amount of such claim and demand) (a “Claim Notice”).

 

40

 

(b)             In
the event of a Third Party Claim, the Indemnifying Party and the Indemnified
Party shall agree on a reputable counsel among the leading firms specialized in
litigation and in the matter covered by the Third Party Claim to be retained by
the Indemnifying Party to represent the Indemnified Party and any other Person
the Indemnifying Party may reasonably designate in connection with such Third
Party Claim and the Indemnifying Party shall pay the fees and disbursements of
such counsel and any legal costs, expenses and deposits with regard thereto; provided, however,
that in the event the Indemnifying Party and the Indemnified Party fail to
agree on counsel as above described within two Business Days, the Indemnifying
Party may appoint within a subsequent period of one Business Day a reputable
counsel among the leading firms specialized in litigation and in the matter
covered by the Third Party Claim and, if the Indemnifying Party does not
appoint such counsel within such period, any Indemnified Party is hereby
authorized to retain reputable counsel among the leading firms specialized in
litigation and in the matter covered by the Third Party Claim, whose fees and
expenses, as well as any advances, legal costs, expenses or deposits (including
court or judicial deposits) required in any Third Party Claim, shall be at the
expense of the Indemnifying Party to file any motion, answer or other pleading
and take such other action which it shall reasonably deem necessary to protect
the interests of the Indemnified Party and the Indemnifying Party. The
Indemnifying Party shall not, in connection with any Third Party Claim or
related Proceedings in the same jurisdiction, be liable for the reasonable fees
and expenses of more than one such firm for all such Indemnified Parties. The
Indemnified Party agrees not to settle any Third Party Claim without the prior
written consent of the Indemnifying Party. If requested by the Indemnifying
Party, the Indemnified Party agrees to cooperate with the Indemnifying Party
and its counsel in defending any Third Party Claim which the Indemnifying Party
defends, or, if appropriate and related to the claim in question, in making any
counterclaim against the Person asserting the Third Party Claim or demand, or
any cross-complaint against any Person.

 

(c)             In
the event of a Direct Claim for Damages already materialized, unless the
Indemnifying Party notifies the Indemnified Party in writing within thirty (30)
days of receipt of a Claim Notice that it disputes such claim, the amount of
such claim shall be conclusively deemed a liability of the Indemnifying Party
hereunder and shall be paid to the Indemnified Party immediately. In the event
of a Direct Claim with respect to Damages not yet materialized notified by the
Indemnifying Party to the Indemnified Party within the relevant term set forth
in Section 8.1, the amount of such claim shall be paid by the Indemnifying
Party to the Indemnified Party within five Business Days following receipt of
written notice from the Indemnifying Party informing that the Damages have
materialized.

 

41

 

(d)              From
and after the delivery of a Claim Notice hereunder, at the reasonable request
of the Indemnifying Party, the Indemnified Party shall grant the Indemnifying
Party and its representatives all reasonable access to the books, records and
properties of the Indemnified Party to the extent reasonably related to the
matters to which the Claim Notice relates, except for any of the foregoing that
contains confidential or privileged information pursuant to applicable Law. The
Indemnifying Party will not, and shall require that its representatives do not,
use (except in connection with such Claim Notice) or disclose or make available
to any third Person other than the Indemnifying Party’s representatives (except
as may be required by applicable Laws) any information obtained pursuant to
this Section which is designated as confidential by the Indemnified Party.
All such access shall be granted during normal business hours, shall be subject
to the normal safety regulations of the Indemnified Party, and shall be granted
under conditions which will not interfere with the business and operations of
the Indemnified Party.

 

(e)               Any
Damages that are indemnifiable pursuant to this Article VIII shall be
paid: (i) (A) immediately upon definitive resolution of a dispute in
connection with a Direct Claim or (B) upon termination of the 30-day term
set forth in Section 8.4(c) in case of an undisputed Claim Notice in
accordance with such provision; or (ii) on the fifth Business Day after
receipt of written notice that, as the case may be (A) a settlement has
been made; or (B) all appeals in connection with the corresponding Third
Party Claim have been exhausted (decisão
transitada em julgado). Any Damages that are indemnifiable pursuant
to this Article VIII and are not paid on the due date thereof shall accrue
interest at a rate equivalent to 103% of the Selic Rate from the due date of
the indemnification until (but excluding) the date when actually paid.

 

(f)               Any
amount of Damages indemnifiable in accordance with this Article VIII which
is recovered by the Indemnified Party from third parties shall: (x) immediately
upon receipt thereof be deducted from the amounts payable by the Indemnifying
Party, if effectively received prior to payment of such indemnification, or (y) be
reimbursed to the Indemnifying Party within five days from receipt thereof if
effectively received after such Indemnifying Party has effectively paid the
full amount of the indemnification due to the Indemnified Party.

 

(g)              Without
in any manner limiting the rights of the Buyer under this Agreement, from and
after Closing the Buyer agrees to (and to cause the relevant entities of the
Group to), at the request and at the expense of the Seller, cooperate with the
Seller and use reasonable efforts to file (or cause the relevant entity of the
Group to file) the relevant claims with, and fill out the required forms and
other documents of, insurance and bank guarantee providers in order to recover
from such insurance and bank guarantee providers the amount of Damages

 

42

 

indemnifiable by the Seller in accordance with Section 8.1(a) which
is guaranteed by such insurance or bank guarantee providers, as long as filing
such claims and taking such other action contemplated herein may not, in the
reasonable judgment of the Buyer, be disadvantageous to the Buyer, adversely
interfere with the Buyer’s relationship with any third party or otherwise cause
any Damages to the Buyer; provided that the Seller shall keep the Buyer, the
Company, each other entity of the Group and their managers harmless from any
Damages arising out of the Buyer’s performance of the actions contemplated in
this Section 8.4(g). In any event, for the avoidance of doubt, the Parties
acknowledge that the commitment under this Section 8.4(g) is a
reasonable effort commitment and that nothing in this clause shall be construed
as to require the Buyer to mitigate Damages or seek recovery of such Damages
from any third party as a condition to being entitled to any indemnification
rights under this Agreement.

 

ARTICLE IX

TERMINATION

 

9.1.          Grounds
for Termination.  (a) This
Agreement may be terminated at any time prior to the Closing:

 

(i)              by
mutual written agreement of the Parties;

 

(ii)             by
the Seller or the Buyer, if: (A) the acquisition of the Purchased Shares
by the Buyer in accordance with this Agreement has not been approved or
ratified by CEMIG’s General Shareholders’ Meeting until May 31, 2009; or (B) the
Closing shall not have been consummated within 12 months after the Effective
Date; provided that, if the Closing has not occurred due to a Party’s breach of
any of the covenants or agreements herein, then such Party shall not have the
right to terminate this Agreement pursuant to this Section 9.1 (a)(ii);

 

(iii)            by
either the Seller or Buyer, if there shall be any Law that makes consummation
of the transactions contemplated hereby illegal or otherwise prohibited,
provided that such Law is not revoked, reversed, suspended or otherwise
overcome within thirty (30) days counted as of the date the Parties become
aware of its existence;

 

(iv)            by
the Buyer (provided that neither the Buyer nor CEMIG is then in material breach
of any of their representations, warranties, covenants or other agreements
contained herein) in case of a breach by the Seller of any of: (A) its
representations and warranties under Sections 3.1, 3.2, 3.3 and 3.6, or
material covenants contained in this Agreement, or (B) other
representations and warranties

 

43

 

contained herein in respect of matters that individually
or in the aggregate may cause Damages to the Company, any entity of the Group,
the Buyer, CEMIG and/or their Affiliates equal to or greater than EUR
70,000,000.00, which breach, in each case, is not cured within 30 (thirty) days
after written notice to the Seller specifying in reasonable detail the nature
of such breach or occurrence; or

 

(v)           by the
Seller (provided that the Seller is not then in material breach of any of its
representations, warranties, covenants or other agreements contained herein) in
case of a breach by either Buyer or CEMIG of: (A) any of their respective
representations and warranties under Sections 4.1, 4.2 and 4.4 or material
covenants contained in this Agreement, or (B) any of their other
representations and warranties contained herein in respect of matters that
individually or in the aggregate may cause Damages to the Seller and/or its
Affiliates equal to or greater than EUR 70,000,000.00, which breach, in each
case, is not cured within 30 (thirty) days after written notice to the Buyer
specifying in reasonable detail the nature of such breach or occurrence.

 

(b)           The
Party desiring to terminate this Agreement shall give written notice of such
termination to the other Parties.

 

9.2.          Effect
of Termination.  (a) If this
Agreement is terminated as permitted by Section 9.1(a)(i), 9.1(a)(ii) or
9.1(a)(iii) above, this Agreement shall become void and have no effect
forthwith as of the date of termination, and such termination shall be without
liability of any Party (or any shareholder, partner, director, officer,
employee, agent, consultant or representative of such Party) to the other Parties
to this Agreement.

 

(b)             If
the Buyer terminates this Agreement based on Section 9.1(a)(iv) above,
the Seller shall pay to the Buyer, in immediately available and fully
transferable funds, liquidated damages (multa
compensatória) in the amount of EUR 100,000,000.00 within ten
Business Days from the termination date. The liquidated damages contemplated
herein shall not be cumulative with any other penalty under this Agreement.

 

(c)             If
the Seller terminates this Agreement based on Section 9.1(a)(v) above,
the Buyer shall pay to the Seller, in immediately available and fully
transferable funds, liquidated damages (multa
compensatória) in the amount of EUR 100,000,000.00 within ten
Business Days from the termination date. The liquidated damages contemplated
herein shall not be cumulative with any other penalty under this Agreement.

 

(d)             Notwithstanding
anything to the contrary in this Agreement, the non-occurrence of the General
Shareholders’ Meeting of CEMIG to ratify this Agreement (for reasons other than
CEMIG’s failure to call such General

 

44

 

Shareholders’ Meeting) or the non-obtaining of such
ratification and the termination of this Agreement as a result of such lack of
ratification shall not impose on the Buyer, the Guarantor or the Seller any
obligation to pay any penalty, fee, Damages, liquidated damages whatsoever or
otherwise impose any other liability on the Buyer, the Guarantor or the Seller.

 

(e)             The
provisions of Sections 6.2, 6.3, 6.6, 9.1, 9.2, 10.1, 10.3, 10.5, 10.6 and 10.7
shall survive any termination hereof pursuant to Section 9.1, above.

 

ARTICLE X

MISCELLANEOUS

 

10.1.        Notices.
 All notices, requests and other
communications to any Party hereunder shall be in writing (including facsimile
transmission) and shall be provided to the address or facsimile number provided
for such Party on Schedule  10.1
hereto or, as directed by any Party, to such other address as shall be
designated by such Party by written notice to the other Parties in accordance
herewith. All such notices, requests and other communications shall be deemed
received on the date of receipt by the recipient thereof if received prior to
6:00 p.m. in the place of receipt and such day is a Business Day in the
place of receipt. Otherwise, any such notice, request or communication shall be
deemed not to have been received until the next succeeding Business Day in the
place of receipt.

 

10.2.        Amendments
and Waivers.  (a) Any provision
of this Agreement may be amended or waived prior to the Closing Date if such
amendment or waiver is in writing and is signed, in the case of an amendment,
by each Party to this Agreement, or in the case of a waiver, by the Party
against whom the waiver is to be effective.

 

(b)           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. The rights and remedies herein provided
shall be cumulative and not exclusive of any rights or remedies provided by
law.

 

10.3.        Expenses.
 Except as otherwise provided herein, all
costs and expenses incurred in connection with this Agreement shall be paid by
the Party incurring such cost or expense.

 

45

 

10.4.        Successors
and Assigns.  The provisions of this
Agreement shall be binding upon and inure to the benefit of the Parties hereto
and their respective successors and assigns; provided that no Party may assign,
delegate or otherwise transfer any of its rights or obligations under this
Agreement without the written consent of each other Party hereto, except that
the Buyer may, at its sole discretion and without the need of consent by the
Seller, assign this Agreement and its rights and obligations hereunder to any
of its Affiliates or to any Person Controlled or not by the Buyer or CEMIG, as
long as the obligations of such assignee are guaranteed by CEMIG in the same
terms of the guarantee set forth in Section 10.5 hereof.

 

10.5.        Parent
Guarantee.  (a) CEMIG hereby
personally, jointly and severally, guarantees all obligations and commitments
of the Buyer under this Agreement, being obligated and committed hereunder, as
primary obligor and not merely as a surety, to the same extent and under the
same conditions as the Buyer is itself obligated and committed (it being
understood that any obligations of the Company under or to pay any amounts due
under the Intercompany Loan are not guaranteed by CEMIG). For the purposes of
this Section 10.5, CEMIG irrevocably waives its rights under Section 364,
366, 827, 834, 835, 838 and 839 of the Brazilian Civil Code and Section 595
of the Brazilian Code of Civil Procedure.

 

10.6.        Governing
Law.  This Agreement shall be
governed by and construed in accordance with the laws of the Federative
Republic of Brazil.

 

10.7.        Arbitration.
 (a) The Parties shall use their
respective best efforts to settle amicably all disputes, doubts or differences
concerning the interpretation or application of any provision of this
Agreement, as well as any dispute, doubt or difference related to its
existence, validity, enforceability, breach or termination. If any such
dispute, doubt or difference is not so settled, each Party shall have the right
to refer it to arbitration for final settlement. In such event, the Parties
shall be obligated to join the arbitration proceeding and to refrain from
submitting the dispute to any court.

 

(b)             The
Parties agree that all disputes arising out of or in connection with this
Agreement shall be finally settled by arbitration under the Rules of
Arbitration of the International Chamber of Commerce then in force (the “ICC  Rules”), by an arbitration panel
appointed in accordance with the ICC Rules. The arbitral tribunal shall consist
of three arbitrators, one designated by the Seller, one designated by the Buyer
and CEMIG jointly and the third, who shall be the chairman of the arbitral
tribunal, selected by agreement of the two designated arbitrators. In the event
the two arbitrators shall fail to agree on the selection of the chairman, the
chairman shall be selected in accordance with the ICC Rules.

 

46

 

(c)            The
seat of the arbitration shall be the city of Rio de Janeiro, State of Rio de
Janeiro, Brazil. The Portuguese language shall be used throughout the
arbitration proceedings. The arbitral award shall be rendered in Brazil, within
six months after the arbitral tribunal is established. If necessary, such term
may be extended by the arbitral tribunal for an additional six-month period, or
a different period in case there is reasonable justification by the arbitral
tribunal.

 

(d)             The
arbitral award shall be final, binding and not subject to appeal, judicial
homologation or any remedy from any court, and any judgment upon such award may
be accepted and enforced in any court of competent jurisdiction. The defeated
Party(ies) will indemnify the winning Party(ies) for all their costs and expenses
incurred with the arbitration proceeding, including attorneys’ fees.

 

(e)             Each
of the Parties reserves the right to request judicial support in any competent
jurisdiction to: (i) compel the institution of arbitration; (ii) obtain
temporary or injunctive relief with respect to urgent matters, without any of
such measures being interpreted as a waiver of the foregoing arbitration
procedures; and (iii) to enforce any arbitrator’s resolution, including
the final arbitration decision. The Courts of the State of Rio de Janeiro shall
have jurisdiction for the matters contemplated in this clause (e), without
limiting each Party’s ability to seek any of these measures in any other court
of competent jurisdiction.

 

(f)              Each
Party shall maintain confidential all and any information with respect to any
arbitration proceeding hereunder and shall not disclose any such information
without the prior written consent of the other Parties, except to the extent it
shall be required by Law, court order or by an administrative or judicial
authority to disclose such information.

 

10.8.        Headings.
 The descriptive headings contained in
this Agreement are for convenience of reference only and shall not affect in
any way the meaning or interpretation of this Agreement.

 

10.9.        Foreign
Currency Denominated Amounts.  Except
as otherwise set forth in this Agreement, the Reais-equivalent amount of any
amounts expressed in Euros in this Agreement shall be calculated at the average
of the buy and sell rates for Euros, obtained under the Brazilian Central Bank
screen transaction PTAX800 – Option 5 at closing of the Business Day
immediately preceding the date when such amount is calculated.

 

47

 

10.10.      Severability.
 If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced, all other terms
and provisions of this Agreement shall nevertheless remain in full force and
effect so long as the economic or legal substance of the transactions
contemplated hereby are not affected in any manner materially adverse to any
Party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the Parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
Parties as closely as possible in an acceptable manner in order that the
transactions contemplated hereby are consummated as originally contemplated to
the greatest extent possible.

 

10.11.      Remedies
Non-Exclusive.  The remedies provided
for under this Agreement are cumulative and the exercise of one right or remedy
does not preclude any Party from exercising any other right or remedy against
the other Party, except as otherwise provided in this Agreement. Each Party
shall be entitled to all other remedies available under applicable Law in
addition to the remedies specifically mentioned in this Agreement.

 

10.12.      Specific
Performance.  The Parties agree that
the obligations imposed on them in this Agreement are especial, unique and of
an extraordinary character, and that, in the event of breach by any Party,
damages would not be an adequate or sufficient remedy and each of the other
Parties shall be entitled to specific performance and injunctive relief in
addition to any other remedy to which it may be entitled, at law or in equity;
and the Parties hereto further agree to waive any requirement for the securing
or posting of any bond in connection with the obtaining of any such injunctive
or other equitable relief. The Parties agree that all of the obligations
undertaken by them hereunder are subject to, and shall enjoy the benefit of,
specific performance in accordance with Articles 461, 466-A and 466-B of the
Civil Procedure Code of Brazil.

 

10.13.      Third
Party Beneficiaries.  No provision of
this Agreement is intended to confer upon any Person other than the Parties
hereto and their successors and permitted assignees any rights or remedies
hereunder.

 

10.14.      Entire
Agreement.  This Agreement
constitutes the entire agreement between the Parties with respect to the
subject matter hereof and supersedes all prior agreements and understandings,
both oral and written, between the Parties with respect to the subject matter
of this Agreement.

 

48

 

(signature page of the Share Purchase Agreement dated
April 23, 2009, between Terna – Rete Elettrica Nazionale S.p.A., Cemig
Geração e Transmissão S.A. and Companhia Energética de Minas Gerais – Cemig as
intervenig Party)

 

IN WITNESS WHEREOF, the Parties hereto have caused this
Share Purchase Agreement to be duly executed by their respective authorized
officers as of the day and year first above written.

 

Seller:

 

TERNA – RETE ELETTRICA NAZIONALE S.P.A.

 

	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
  Name:

  
	
   

  	
  Title:

  	
   

  	
  Title:

  

 

 

Buyer:

 

CEMIG GERAÇÃO E TRANSMISSÃO
S.A.

 

	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
  Name:

  
	
   

  	
  Title:

  	
   

  	
  Title:

  

 

 

Intervening party:

 

COMPANHIA ENERGÉTICA DE MINAS GERAIS – CEMIG

 

	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
  Name:

  
	
   

  	
  Title:

  	
   

  	
  Title:

  

 

 

Witnesses:

 

	
   

  	
   

  	
   

  
	
  Name:

  	
   

  	
  Name:

  
	
  CPF:

  	
   

  	
  CPF:

  

 

49

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