EXHIBIT 10.1 EXECUTION COPY REPURCHASE AGREEMENT

 

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                                                                    EXHIBIT 10.1

 

                                                                  EXECUTION COPY

 

                              REPURCHASE AGREEMENT

 

     THIS REPURCHASE AGREEMENT (the "Agreement") is made and entered into by

and between K-1 GHM, LLLP, a Delaware limited liability limited partnership

("K-1" or "Seller"), and SEMCO ENERGY, INC., a Michigan corporation ("Company"

or "Purchaser"), to be effective this 8th day of March, 2005. Seller and

Purchaser are sometimes hereinafter referred to together as the "Parties" and

individually as a "Party."

 

                                   BACKGROUND:

 

      A. K-1 and the Company entered into that certain Securities Purchase

Agreement dated as of March 19, 2004 (the "Securities Purchase Agreement"),

whereby K-1 purchased from the Company (i) 50,000 shares of Company's 6% Series

B Convertible Preference Stock, par value $1.00 per share (together with the

additional 2,542.94 shares of 6% Series B Convertible Preference Stock paid to

K-1 as dividends through February 15, 2005, the "Preference Stock"), the terms

of the Preference Stock being set forth in a Certificate of Designation of the

Company (the "Certificate of Designation") and (ii) warrants (the "Warrants") to

purchase 905,565 shares of the Company's common stock, par value $1.00 per share

(the "Common Stock").

 

      B. K-1 owns all of the issued and outstanding shares of Preference Stock

and Warrants, the Company wishes to repurchase the Preference Stock and Warrants

from K-1, and K-1 wishes to sell the Preference Stock and Warrants to the

Company.

 

      C. To facilitate such repurchase, the Parties have entered into this

Agreement, which shall govern in all respects the repurchase of the Preference

Stock and Warrants, as well as other rights and obligations of the Parties as

set forth herein.

 

      NOW, THEREFORE, FOR AND IN CONSIDERATION of the premises, the mutual

promises, covenants and agreements contained herein, and other good and valuable

consideration, the receipt and sufficiency of which are hereby acknowledged, the

Parties hereby agree as follows:

 

      1. Repurchase and Sale of Preference Stock and Warrants. Subject to the

terms and conditions contained herein, Seller hereby agrees to sell, convey and

deliver to Purchaser, and Purchaser hereby agrees to purchase from Seller, all

of Seller's right, title and interest in and to the Preference Stock and

Warrants (the "Repurchase"). Prior to Repurchase and in order to give effect

thereto, Seller agrees that at it shall not (i) permit any of the Preference

Stock or Warrants to become encumbered by any lien, pledge, claim, security

interest or other encumbrance (other than those that exist pursuant to the

Securities Purchase Agreement, Stock Purchase Agreement, Shareholders Agreement

(as defined herein), Registration Rights Agreement (as defined herein) or

Warrants) or (ii) sell, distribute or otherwise transfer any shares of

Preference Stock or Warrants.

 

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      2. Purchase Price. The total purchase price to be paid by Purchaser for

the Preference Stock and Warrants shall be $60 million (the "Purchase Price").

To the extent relating to the purchase of the Preference Stock, as between the

Parties, the Repurchase is being conducted in lieu of the notice, deposit for

funds and other mechanics provided for with respect to an "Optional Approval

Redemption" (as such term is defined in Section 11 of the Certificate of

Designation) provided, however, that the foregoing shall in no way constitute an

acknowledgement by Seller of Purchaser's right to conduct an Optional Approval

Redemption under any circumstances. Seller shall not be otherwise entitled to

the reimbursement by Purchaser of any other fees and expenses incurred by Seller

in connection with the transactions contemplated by this Agreement except as

otherwise specifically provided herein.

 

      In the event the Closing takes place after March 19, 2005, Purchaser shall

pay to Seller an amount, which shall be in addition to the Purchase Price and

deemed a part thereof, in lieu of accrued dividends on the Preference Stock, as

set forth below:

 

            (a) 3/20/05 - 3/31/05 - In the event the Closing occurs on or after

March 20, 2005 up to and including March 31, 2005, an amount equal to:

 

                        52,542.94 x [1/360] x 7% x $1,000

 

for each day after March 19, 2005 up to and including the date of Closing.

 

            (b) 4/1/05-5/14/05 - In the event the Closing occurs on or after

April 1, 2005 up to and including May 14, 2005, an amount equal to:

 

                        52,542.94 x [1/360] x 8% x $1,000

 

for each day after March 31, 2005 up to and including the date of Closing, plus

all amounts calculated in accordance with subsection (a), above. For the

purposes of the foregoing, each month shall be deemed to have 30 days.

 

      3. Closing Date and Termination of Transaction. The closing (the

"Closing") of the Repurchase shall occur at the offices of Troutman Sanders LLP,

600 Peachtree Street, Atlanta, Georgia 30308, at 10:00 a.m. (Atlanta time), or

any other time and location that is mutually agreed by the Parties, provided

that the Closing shall in no event occur later than April 15, 2005 (the

"Termination Date"). The Parties agree that if the Closing does not occur by the

Termination Date due to the breach or the non-performance of a Party, then the

non-breaching Party may terminate this Agreement or seek specific performance of

the obligations hereunder pursuant to Section 15(g) of this Agreement; provided,

further, that the foregoing shall in no way be deemed to release the breaching

Party from any liability for any breach or failure to perform by such Party of

the terms and conditions of this Agreement.

 

            (a) Notice of Closing - At least three (3) days prior to the

Closing, Purchaser shall provide Seller notice of the time and place of the

Closing (if the Closing

 

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is to be held at a location other than that the offices of Troutman Sanders,

Purchaser shall obtain the reasonable consent of Seller to the proposed time and

place for the Closing (which Closing shall occur no later than April 15, 2005).

At least one (1) business day prior to the Closing, Seller shall provide

Purchaser with wire transfer instructions.

 

            (b) Closing Deliveries - At the Closing, Seller shall deliver to

Purchaser (i) all certificates representing the Preference Stock, which shall be

endorsed in blank or accompanied by all necessary stock transfer powers, (ii)

the Warrants, accompanied by an instrument of assignment, (iii) the resignations

of the K-1 Directors (as defined below), (iv) a Release (as defined below) and

(v) a certificate of an appropriate officer of Seller substantially in the form

attached hereto as Exhibit A. Purchaser shall deliver to Seller (w) the Purchase

Price via wire transfer in accordance with the instructions provided by Seller

(or such other means agreed by the Parties), (x) a Release, (y) a certificate of

an appropriate officer of Purchaser substantially in the form attached hereto as

Exhibit A, and (z) an opinion of legal counsel, as contemplated by Section

15(l).

 

      4. Fund Raising by Purchaser and Waiver of Rights. The Parties acknowledge

that Purchaser will undertake certain activities to fund the Purchase Price (the

"Fund Raising"). Purchaser will use all commercially reasonable efforts to

timely complete the Fund Raising; provided, however, that Purchaser's failure to

complete the Fund Raising or otherwise produce the Purchase Price on or before

the Termination Date shall constitute a breach of this Agreement; provided,

further, that so long as Purchaser has used commercially reasonable efforts to

complete the Fund Raising, Purchaser's failure to complete the Fund Raising or

otherwise produce the Purchase Price on or before the Termination Date shall

provide Purchaser the right to terminate this Agreement. Seller agrees that

neither it nor any of its affiliates will in any way impede, obstruct or object

to the Fund Raising. To the extent the Fund Raising would otherwise trigger

Seller's pre-emptive rights under Section 4(e) of the Securities Purchase

Agreement, Seller hereby waives such pre-emptive rights. To the extent the Fund

Raising would otherwise require the approval of Seller as a holder of all the

Preference Stock or in conjunction with approval of the shareholders of

Purchaser, in general, Seller agrees to promptly provide such approval;

provided, however, that to the extent not impairing the legal validity of such

approvals, such approval can either be conditioned upon the occurrence of the

Repurchase or rendered null and void if the Repurchase does not occur as a

result of a termination of this Agreement not caused by the breach of this

Agreement by Seller.

 

      5. Resignation of Directorships. Seller agrees that at the Closing, it

will deliver the resignations of Mr. Jeffrey A. Safchik and Ms. Sherry A.

Stanley (the "K-1 Directors") from Purchaser's Board of Directors; provided,

however, that such resignations will be rendered null and void if the Repurchase

does not occur as a result of a termination of this Agreement not caused by the

breach of this Agreement by Seller. Seller acknowledges that such resignation of

the K-1 Directors will require Purchaser to file a current report on Form 8-K

with the Securities and Exchange Commission (the "SEC"), and Seller agrees to

provide any reasonable assistance to Purchaser in

 

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connection with such filing. The Parties further agree that the resignation of

the K-1 Directors is not "due to a disagreement with the registrant" and is not

a removal "with cause" as contemplated by Item 5.02(a) of Form 8-K.

 

      6. Withdrawal from RCA Proceedings. Promptly following the execution of

this Agreement, the Parties will jointly petition the Regulatory Commission of

Alaska ("RCA") to suspend and, upon or following the Closing, to dismiss

proceedings relating to the original purchase of the Preference Stock and

Warrants by Seller (Case No. U-04-106), on the grounds that, since the

Preference Stock and Warrants have been repurchased by Purchaser, it is

unnecessary for the RCA to further investigate or take any action with respect

to the issuance to Seller of the Preference Stock and Warrants. Seller further

agrees to take such other actions before and after the Closing as may reasonably

be requested by Purchaser (solely at the expense of Purchaser) in connection

with obtaining the favorable action of the RCA with respect to the suspension

and dismissal of this proceeding and any other action relating to the subject

matter of this Agreement. Purchaser acknowledges and agrees that Seller shall be

permitted to take all actions necessary to (i) comply with the applicable laws

of the State of Alaska and (ii) respond to any inquiries or requests of the

State of Alaska or its regulatory agencies; provided, however, that to the

extent such actions relate to the Repurchase or Seller's ownership of the

Preference Stock or Warrants, such actions shall be mutually agreed upon in

advance (unless Seller is advised by counsel that any such action not mutually

agreed upon in advance is required to be made by law or applicable rule and is

not binding upon Purchaser, and then only after consulting with Purchaser and

making reasonable efforts to comply with the provisions of this Section).

 

      7. Other Agreements. Except as otherwise specifically set forth herein,

the Parties agree that to the extent the terms of this Agreement conflict with

the Certificate of Designation or any other agreement between the Parties, that

the terms of this Agreement shall control and supersede such conflicting terms.

The Parties agree that upon the Closing, the following agreements of the Parties

shall be terminated: (i) the Shareholder Agreement between the Parties, dated as

of March 19, 2004, (ii) any provisions of the Securities Purchase Agreement that

survived following the purchase of the Preference Stock and Warrants by Seller,

and (iii) the Registration Rights Agreement (the "Registration Rights

Agreement") between the Parties, dated as of March 19, 2004. Additionally, the

Parties agree that, upon the Closing, Purchaser shall be entitled to amend its

articles of incorporation to cancel, eliminate or redesignate the Preference

Stock.

 

      8. Representation and Warranties of Seller. Seller hereby represents and

warrants to Purchaser that:

 

            (a) it is the lawful owner of the Preference Stock and Warrants and

that such securities are free and clear of any and all liens, pledges,

hypothecations, claims, security interests or other encumbrances (other than

those t