exv10w50






EXHIBIT 10.50



Execution Copy




WARRANT ACQUISITION AGREEMENT




     This Warrant Acquisition Agreement (this “Agreement”) is entered into as of March 30, 2010, by
and between Energy Focus, Inc., a Delaware corporation (the “Company”), and the persons and
entities listed on the schedule of investors attached hereto as Schedule I (each an investor and
collectively “Investors”).



RECITALS




     WHEREAS, each of the Investors is a member of EF Energy Partners LLC, an Ohio limited
liability company (the “Lender”); and



     WHEREAS, the Company and the Lender have entered into a Note Purchase Agreement dated March
30, 2010 (the “Purchase Agreement”) pursuant to which Lender will purchase the Company’s Secured
Subordinated Promissory Note of even date herewith (the “Note”); and



     WHEREAS, Investor has been induced to invest in the Lender, providing Lender with the amounts
necessary to perform its obligations under the Purchase Agreement, by the agreement of the Company
to enter into this Agreement with the Investors; and



     WHEREAS, this Agreement is being entered into pursuant to the Purchase Agreement; and



     WHEREAS, subject to the terms and conditions set forth in this Agreement and pursuant to
Section 4(2) of the Securities Act (as defined below) and Rule 506 promulgated thereunder, the
Company desires to issue to the Investors and each Investor desires to acquire from the Company,
certain warrants and securities of the Company, as more fully described in this Agreement,



     NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement, and for
other good and valuable consideration the receipt and adequacy of which are hereby acknowledged,
the Company and the Investors agree as follows:



ARTICLE 1




DEFINITIONS



     Section 1.1. Definitions. In addition to the terms defined elsewhere in this
Agreement, for all purposes of this Agreement, the following terms have the meanings indicated in
this Section 1.1:



     “Action” means any action, suit, inquiry, notice of violation, proceeding (including any
partial proceeding such as a deposition) or investigation pending or threatened in writing against
or affecting the Company, any Subsidiary or any of their respective properties before or by any



 









 




court, arbitrator, governmental or administrative agency, regulatory authority (federal,
state, county, local or foreign), stock market, stock exchange or trading facility.




     “Affiliate” means any Person that, directly or indirectly through one or more intermediaries,
controls or is controlled by or is under common control with a Person, as such terms are used in
and construed under Rule 144.



     “Board” means the Board of Directors of the Company.



     “Business Day” means any day except Saturday, Sunday and any day which is a federal legal
holiday or a day on which banking institutions in the City of New York are authorized or required
by law or other governmental action to close.



     “Claim” has the meaning set forth in Section 3.6(c).



     “Closing” means the closing of the acquisition and issuance of a Warrant pursuant to Article
2.



     “Closing Date” means the Business Day immediately following the date on which all of the
conditions set forth in Sections 5.1 and 5.2 hereof are satisfied, or such other date as the
parties may agree.



     “Commission” means the Securities and Exchange Commission.



     “Common Stock” means the common stock of the Company, par value $0.001 per share, and any
securities into which such common stock may hereafter be reclassified.



     “Common Stock Equivalents” means any securities of the Company or any Subsidiary which entitle
the holder thereof to acquire Common Stock at any time, including without limitation, any debt,
preferred stock, rights, options, warrants or other instrument that is at any time convertible into
or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock or other
securities that entitle the holder to receive, directly or indirectly, Common Stock.



     “Company Counsel” means Cowden & Humphrey Co. LPA.



     “Company Deliverables” has the meaning set forth in Section 2.4.



     “Effective Date” means the date that any Registration Statement filed pursuant to Article 3 is
first declared effective by the Commission.



     “Effectiveness Period” has the meaning set forth in Section 3.1(b).



     “Environmental Law” has the meaning set forth in Section 2.5(x).



     “ERISA” means the Employee Retirement Income Security Act of 1974, as amended, and the rules
and regulations promulgated thereunder.



2









 





     “ERISA Affiliate” means any trade or business, whether or not incorporated, that together with
the Company would be deemed to be a single employer for purposes of Section 4001 of ERISA or
Sections 414(b), (c), (m), (n) or (o) of the Internal Revenue Code of 1986, as amended.



     “Evaluation Date” has the meaning set forth in Section 2.5(r).



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



     “Exempt Issuance” means the issuance by the Company (a) to employees, officers, directors of,
and consultants to, the Company of shares of Common Stock or options for the purchase of shares of
Common Stock pursuant to stock option or long-term incentive plans approved by the Board, (b) of
shares of Common Stock upon the exercise of Warrants issued hereunder, (c) of shares of Common
Stock upon conversion of shares of Series A Preferred Stock, (d) of shares of Common Stock upon
exercise of Prior Warrants or conversion of Prior Convertible Securities, (e) of securities issued
pursuant to acquisitions, licensing agreements, or other strategic transactions, (f) of securities
issued in connection with equipment leases, real property leases, loans, credit lines, guaranties
or similar transactions approved by the Board, (g) of securities issued in connection with join
ventures or similar strategic relationships approved by the Board, (h) of securities in a merger,
or (i) of securities in a public offering registered under the Securities Act; provided that in the
case of securities issued pursuant clauses (e), (f), (g) and (h), the purpose of such issuance may
not be primarily to obtain cash financing.



     “Filing Date” means the date that is six months after the Closing Date.



     “Financial Statements” has the meaning set forth in Section 2.5 (h).



     “GAAP” means generally accepted accounting principles as in effect as of the date hereof in
the United States of America.



     “Governmental Authority” has the meaning set forth in Section 2.5 (e).



     “Hazardous Substance” has the meaning set forth in Section 2.5 (x).



     “Indemnified Party” has the meaning set forth in Section 2.5 (c).



     “Indemnified Person” has the meaning set forth in Section 2.5 (a).



     “Indemnifying Party” has the meaning set forth in Section 2.5 (c).



     “Intellectual Property Rights” has the meaning set forth in Section 2.5 (o).



     “Lender” has the meaning set forth in the first recital.



     “Lien” means any lien, charge, encumbrance, security interest, right of first refusal or other
restrictions of any kind.



3









 





     “Material Adverse Effect” means any of (i) a material and adverse effect on the legality,
validity or enforceability of any Transaction Document, (ii) a material and adverse effect on the
results of operations, assets, prospects, business or condition (financial or otherwise) of the
Company and the Subsidiary, taken as a whole, or (iii) a material impairment of the Company’s
ability to perform on a timely basis its obligations under any Transaction Document.



     “Note” has the meaning set forth in the second recital.



     “OFAC” has the meaning set forth in Section 2.5 (aa).



     “Person” means an individual or corporation, partnership, trust, incorporated or
unincorporated association, joint venture, limited liability company, joint stock company,
government (or an agency or subdivision thereof) or other entity of any kind.



     “Post-Effective Amendment” means a post-effective amendment to the Registration Statement.



     “Post-Effective Amendment Filing Deadline” means the seventh Business Day after the
Registration Statement ceases to be effective pursuant to applicable securities laws due to the
passage of time or the occurrence of an event requiring the Company to file a Post-Effective
Amendment.



     “Proceeding” means an action, claim, suit, investigation or proceeding (including, without
limitation, an investigation or partial proceeding, such as a deposition), whether commenced or
threatened.



     “Prospectus” has the meaning set forth in Section 3.3.



     “Purchase Agreement” has the meaning set forth in the second recital.



     “Registrable Securities” means the Warrant Shares issuable to the Investors; provided,
however, that no Investor shall be required to exercise such Investor’s Warrant in order to have
the Shares covered by it included in any Registration Statement.



     “Registration Period” means the period commencing on the date hereof and ending on the date on
which all of the Registrable Securities may be sold to the public without registration and without
volume or manner restrictions under the Securities Act in reliance on Rule 144.



     “Registration Statement” means a registration statement filed on the appropriate Form with,
and declared effective by, the Commission under the Securities Act and covering the resale by the
Investors of the Registrable Securities.



     “Requested Information” has the meaning set forth in Section 3.3(a).



     “Required Effectiveness Date” means the earlier of (i) the date that is eight months after the
Closing Date without SEC review or eleven months in the event of an SEC review process, or, in the
case of the registration of Cut Back Shares (as defined in Section 3.1(a)), eleven



4









 




months after the Restriction Termination Date or (ii) five Business Days after receipt by the
Company from the Commission of notice of “no review” of the Registration Statement.




     “Rule 144” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as
such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by
the Commission having substantially the same effect as such Rule.



     “SEC Reports” has the meaning set forth in Section 2.5 (h).



     “Securities” means the Warrant and the Warrant Shares.



     “Securities Act” means the Securities Act of 1933, as amended.



     “Shares” means the shares of Common Stock issuable to the Investors.



     “Subsidiary” means any “significant subsidiary” as defined in Rule 1-02(w) of Regulation S X
promulgated by the Commission under the Exchange Act.



     “Trading Day” means (i) a day on which the Common Stock is traded on a Trading Market, or (ii)
if the Common Stock is not listed on a Trading Market, a day on which the Common Stock is traded in
the over-the-counter market, as reported by the OTC Bulletin Board, or (iii) if the Common Stock is
not then listed or quoted on the OTC Bulletin Board, a day on which the Common Stock is quoted in
the over-the-counter market as reported by the National Quotation Bureau Incorporated (or any
similar organization or agency succeeding to its functions of reporting prices); provided, that in
the event that the Common Stock is not listed or quoted as set forth in (i), (ii) and (iii) hereof,
then Trading Day shall mean a Business Day.



     “Trading Market” means whichever of the New York Stock Exchange, the American Stock Exchange,
the Nasdaq National Market, or the Nasdaq Over-the-Counter Market on which the Common Stock is
listed or traded on the date in question.



     “Transaction Documents” means this Agreement, the Warrant, the Purchase Agreement, the Note
and any other documents or agreements executed in connection with the transactions contemplated
hereunder.



     “Warrant” means each Common Stock Purchase Warrant, in the form of Exhibit A, which is
issuable to the Investors at the Closing.



     “Warrant Shares” means the shares of Common Stock issuable upon exercise of the Warrants.



ARTICLE 2




ISSUE AND SALE



     Section 2.1. Issuance of Securities at the Closing. Upon the terms and subject to
the conditions set forth in this Agreement, and in accordance with applicable law, the Company
agrees to issue to the respective Investors, and each Investor respectively agrees to accept from



5









 




the Company, a Warrant in the form of Exhibit A to purchase the number of shares of
Common Stock set forth opposite such Investor’s name on Schedule I.




     Section 2.2. Consideration. As consideration for the issuance of the Warrant being
acquired at the Closing, each Investor severally shall on the Closing Date take all actions
required of it.



     Section 2.3. Delivery of Warrant. At the Closing, the Company shall take all actions
required of it to (i) issue to the Investors the Warrants and (ii) execute and deliver to the
transfer agent for the Common Stock irrevocable instructions to issue to the Investors the Warrant
Shares.



     Section 2.4. Additional Closing Deliveries. At the Closing, the Company shall deliver
or cause to be delivered to the Investors the following (the “Company Deliverables”):



               (i) Irrevocable instructions to the Company’s transfer agent as to the reservation and
issuance of the Warrant Shares; and



               (ii) A good standing certificate of the Company issued by the Secretary of State of the State
of Delaware dated as of a recent date.



REPRESENTATIONS AND WARRANTIES




     Section 2.5. Representations and Warranties of the Company. The Company hereby makes
the following representations and warranties to the Investors:



          (a) Subsidiaries. The Company has no direct or indirect Subsidiaries other than as
disclosed to the Investors.



          (b) Organization and Qualification. Each of the Company and each Subsidiary is duly
incorporated or otherwise organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization (as applicable), with the requisite power and
authority to own and use its properties and assets and to carry on its business as currently
conducted. Neither the Company nor any Subsidiary is in violation of any of the provisions of its
respective certificate or articles of incorporation, bylaws or other organizational or charter
documents. Each of the Company and each Subsidiary is duly qualified to conduct its respective
business and is in good standing as a foreign corporation or other entity in each jurisdiction in
which the nature of the business conducted or property owned by it makes such qualification
necessary, except where the failure to be so qualified or in good standing, as the case may be,
could not, individually or in the aggregate, have or reasonably be expected to result in a Material
Adverse Effect, and no proceedings have been instituted in any such jurisdiction revoking, limiting
or curtailing, or seeking to revoke, such power and authority or qualification.



          (c) Authorization; Enforcement. The Company has the requisite corporate power and
authority to enter into and to consummate the transactions contemplated by each of the Transaction
Documents and otherwise to carry out its obligations thereunder. The execution and delivery of each
of the Transaction Documents by the Company and the consummation by it of the transactions
contemplated thereby have been duly authorized by all necessary action on



6









 




the part of the Company and no further corporate action is required by the Company in
connection therewith. Each Transaction Document has been (or upon delivery will have been) duly
executed by the Company and, when delivered in accordance with the terms hereof, will constitute
the valid and binding obligation of the Company enforceable against the Company in accordance with
its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or affecting generally the
enforcement of, creditors’ rights and remedies or by other equitable principles of general
application.




          (d) No Conflicts. The execution, delivery and performance of the Transaction Documents
by the Company and the consummation by the Company of the transactions contemplated thereby do not
and will not (i) conflict with or violate any provision of the Company’s or any Subsidiary’s
certificate or articles of incorporation, bylaws or other organizational or charter documents, or
(ii) conflict with, or constitute a breach or default (or an event that with notice or lapse of
time or both would become a breach or default) under, or give to others any rights of termination,
amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, or
result in the imposition of any Lien upon any of the material properties or assets of the Company
or of any Subsidiary pursuant to, any agreement, credit facility, debt or other instrument
(evidencing a Company or Subsidiary debt or otherwise) or other understanding to which the Company
or any Subsidiary is a party or by which any property or asset of the Company or any Subsidiary is
bound or affected, or (iii) result in a violation of any law, rule, regulation, order, judgment,
injunction, decree or other restriction of any court or governmental authority to which the Company
or a Subsidiary is subject (including federal and state securities laws and regulations), or by
which any property or asset of the Company or a Subsidiary is bound or affected; except in the case
of each of clauses (ii) and (iii), such as could not, individually or in the aggregate, have or
reasonably be expected to result in a Material Adverse Effect.



          (e) Filings, Consents and Approvals. The Company is not required to obtain any
consent, waiver, authorization or order of, give any notice to, or make any filing or registration
with, any court or other federal, state, local or other governmental authority (a “Governmental
Authority”) or other Person in connection with the execution, delivery and performance by the
Company of the Transaction Documents and the consummation of the transactions contemplated thereby,
other than (i) the filing of a Notice of Sale of Securities on Form D with the Commission under
Regulation D of the Securities Act, (ii) filings required under applicable state securities laws,
(iii) the filing with the Commission of one or more Registration Statements in accordance with the
requirements of Article 3 of this Agreement, and (iv) the submission to the NASDAQ Stock Market LLC
of a Notification: Listing of Additional Shares.



          (f) Issuance of the Securities. The Company has reserved and set aside from its duly
authorized capital stock a sufficient number of shares of Common Stock to satisfy in full the
Company’s obligations to issue the Warrant Shares upon exercise of the Warrants. The Warrant
Shares are duly authorized and, when issued and paid for upon exercise of the Warrants in
accordance with their terms, will be duly and validly issued, fully paid and nonassessable, free
and clear of all Liens, other than Liens created by the Investors and those imposed by applicable
securities laws.



7









 





          (g) Capitalization. The authorized capital stock of the Company consists of 30,000,000
shares of Common Stock and no shares of Preferred Stock, par value $.0001, of which no shares have
been designed Series A Preferred Stock and no shares are undesignated. As of the close of business
on January 31, 2010, 21,250,304 shares of Common Stock were issued and outstanding, all of which
are validly issued, fully-paid and non-assessable. No Person has any right of first refusal,
preemptive right, right of participation, or any similar right to participate in the transactions
contemplated by the Transaction Documents. Except pursuant to outstanding options granted to
directors, employees, and consultants of the Company, to outstanding warrants to purchase Common
Stock, and to the reservation of shares for sale under the Company’s Stock Purchase Plan, the
Convertible Promissory Note dated December 31, 2009 relating to the acquisition of Stones River
Companies, LLC, and, options issued to various officers in connection with the Company’s Executive
Compensation Reduction Plan and warrants to certain directors and officers in connection with the
Company’s deposit to secure construction surety bonds for its Stones River Companies subsidiary, or
as a result of transactions in Securities as contemplated by this Agreement, there are no
outstanding options, warrants, scrip rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities, rights or obligations convertible into or exchangeable for,
or giving any Person any right to subscribe for or acquire, any shares of Common Stock, or
contracts, commitments, understandings or arrangements by which the Company or any Subsidiary is or
may become bound to issue additional shares of Common Stock or Common Stock Equivalents. The issue
and sale of the Securities will not obligate the Company to issue shares of Common Stock or other
securities to any Person (other than the Investors) and will not result in a right of any holder of
Company securities to adjust the exercise or conversion price under such securities. No further
approval or authorization of any stockholder, the Board of Directors of the Company or any other
Person is required for the issuance and sale of the Securities. There are no stockholders
agreements, voting agreements or other similar agreements with respect to the Company’s capital
stock to which the Company is a party or, to the knowledge of the Company, between or among any of
the Company’s stockholders.



          (h) SEC Reports; Financial Statements. The Company has filed all reports required to
be filed by it under the Securities Act and the Exchange Act, including pursuant to Section 13(a)
or 15(d) thereof, for the twelve months preceding the date hereof (the foregoing materials, being
collectively referred to herein as the “SEC Reports”). As of their respective dates, the SEC
Reports complied in all material respects with the requirements of the Securities Act and the
Exchange Act and the rules and regulations of the Commission promulgated thereunder, and none of
the SEC Reports, when filed, 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 light of the circumstances under which they were made, not misleading. The financial statements
of the Company (the “Financial Statements”) included in the SEC Reports comply in all material
respects with applicable accounting requirements and the rules and regulations of the Commission
with respect thereto as in effect at the time of filing. Such Financial Statements have been
prepared in accordance with GAAP applied on a consistent basis during the periods involved, except
as may be otherwise specified in such Financial Statements or the notes thereto, and fairly present
in all material respects the financial position of the Company and its consolidated Subsidiaries as
of and for the dates thereof and the results of operations and cash flows for the periods then
ended, subject, in the case of unaudited statements, to normal year-end audit adjustments.



8









 





          (i) Material Changes. Except as set forth in the Financial Statements, (i) there has
been no event, occurrence or development that has had or that could reasonably be expected to
result in a Material Adverse Effect, (ii) the Company has not incurred any liabilities or
obligations (contingent or otherwise) other than (A) trade payables, accrued expenses and other
liabilities incurred in the ordinary course of business consistent with past practice incurred
since the date of the most recent Financial Statements and (B) liabilities incurred in the ordinary
course of business not required to be reflected in the Financial Statements pursuant to GAAP or
required to be disclosed in filings made with the Commission, (iii) the Company has not altered its
method of accounting or the identity of its auditors, (iv) the Company has not declared or made any
dividend or distribution of cash or other property to its stockholders or purchased, redeemed or
made any agreements to purchase or redeem any shares of its capital stock, and (v) the Company has
not issued any equity securities to any officer, director or Affiliate, except pursuant to existing
Company stock option plans, the Company Stock Options and, options issued to various officers in
connection with the Company’s Executive Compensation Reduction Plan and warrants to certain
directors and officers in connection with the Company’s deposit to secure construction surety bonds
for its Stones River Companies subsidiary. The Company does not have pending before the Commission
any request for confidential treatment of information. The Company maintains and will continue to
maintain a standard system of accounting established and administered in accordance with GAAP.



          (j) Litigation and Investigations. Except as otherwise disclosed to the Investors
there is no Action which (i) challenges the legality, validity or enforceability of any of the
Transaction Documents or the Securities or (ii) except as specifically disclosed in the SEC
Reports, could, if there were an unfavorable decision, individually or in the aggregate, have or
reasonably be expected to result in a Material Adverse Effect. Neither the Company nor any
Subsidiary, nor any director or officer thereof (in his capacity as such), is the subject of any
pending Action involving a claim of violation of or liability under federal or state securities
laws or a claim of breach of fiduciary duty, except as specifically disclosed in the SEC Reports.
To the knowledge of the Company, there is not pending any investigation by the Commission involving
the Company or any current or former director or officer of the Company (in his or her capacity as
such). The Commission has not issued any stop order or other order suspending the effectiveness of
any registration statement filed by the Company or any Subsidiary under the Exchange Act or the
Securities Act. There are no outstanding comments by the staff of the Commission on any filing by
the Company or any Subsidiary under the Exchange Act or the Securities Act.



          (k) Labor Relations. No material labor dispute exists or, to the knowledge of the
Company, is imminent with respect to any of the employees of the Company.



          (l) Compliance. Neither the Company nor any Subsidiary (i) is in default under or in
violation of (and no event has occurred that has not been waived that, with notice or lapse of time
or both, would result in a default by the Company or any Subsidiary under), nor has the Company or
any Subsidiary received notice of a claim that it is in default under or that it is in violation
of, any indenture, loan or credit agreement or any other agreement or instrument to which it is a
party or by which it or any of its properties is bound (whether or not such default or violation
has been waived), (ii) is in violation of any order of any court, arbitrator or governmental body,
or (iii) is or has been in violation of any statute, rule or regulation of any



9









 




governmental authority, including without limitation all foreign, federal, state and local
laws relating to taxes, environmental protection, occupational health and safety, product quality
and safety and employment and labor matters, except in each case as could not, individually or in
the aggregate, have or reasonably be expected to result in a Material Adverse Effect.




          (m) Regulatory Permits. The Company and the Subsidiary possess all certificates,
authorizations and permits issued by the appropriate federal, state, local or foreign regulatory
authorities necessary to conduct their respective businesses as described in the SEC Reports,
except where the failure to possess such permits could not, individually or in the aggregate, have
or reasonably be expected to result in a Material Adverse Effect, and neither the Company nor any
Subsidiary has received any notice of proceedings relating to the revocation or modification of any
such permits.



          (n) Title to Assets. The Company and the Subsidiary have good and marketable title in
fee simple to all real property owned by them that is material to their respective businesses and
good and marketable title in all personal property owned by them that is material to their
respective businesses, in each case free and clear of all Liens, except for Liens that do not
materially affect the value of such property and do not materially interfere with the use made and
proposed to be made of such property by the Company and the Subsidiary. All real property and
facilities held under lease by the Company and the Subsidiary are held by them under leases of
which the Company and the Subsidiary are in material compliance, except as could not, individually
or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect.



          (o) Patents and Trademarks. The Company and the Subsidiary have, or have valid rights
to use, all patents, patent applications, trademarks, trademark applications, service marks, trade
names, copyrights, licenses and other similar rights that are necessary or material for use in
connection with their respective businesses as described in the SEC Reports and which the failure
to so have could, individually or in the aggregate, have or reasonably be expected to result in a
Material Adverse Effect (collectively, the “Intellectual Property Rights”). No claims or Actions
have been made or filed by any Person against the Company to the effect that Intellectual Property
Rights used by the Company or any Subsidiary violate or infringe upon the rights of such claimant.
To the knowledge of the Company, after commercially reasonable investigation, all of the
Intellectual Property Rights are enforceable and there is no existing infringement by another
Person of any of the Intellectual Property Rights or by the Company of the Intellectual Property
Rights of any other Person.



          (p) Insurance. The Company and the Subsidiary are insured by insurers of recognized
financial responsibility against such losses and risks and in such amounts as the Company believes
are prudent and customary in the businesses in which the Company and the Subsidiary are engaged.
The Company has no reason to believe that it will not be able to renew its and the Subsidiary’s
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 on terms consistent with the market
for the Company’s and such Subsidiaries’ respective lines of business.



10









 





          (q) Transactions With Affiliates and Employees. Except as set forth in the SEC
Reports, none of the officers or directors of the Company and, to the knowledge of the Company,
none of the employees of the Company is a party to any transaction with the Company or any
Subsidiary (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 entity in which any
officer, director, or any such employee has a substantial interest or is an officer, director,
trustee or partner.



          (r) Sarbanes-Oxley; Internal Accounting Controls. The Company is in material
compliance with all provisions of the Sarbanes-Oxley Act of 2002 (including the rules and
regulations of the Commission adopted thereunder) which are applicable to it as of the Closing
Date. The Company’s certifying officers have evaluated the effectiveness of the Company’s
disclosure controls and procedures as of the filing date of the most recently filed periodic report
under the Exchange Act (such date, the “Evaluation Date”). The Company presented in its most
recently filed periodic report under the Exchange Act the conclusions of the certifying officers
about the effectiveness of the disclosure controls and procedures based on their evaluations as of
the Evaluation Date. Since the Evaluation Date, there have been no significant changes in the
Company’s internal controls (as such term is defined in Item 307(b) of Regulation S-K under the
Exchange Act), or to the Company’s knowledge, in other factors that could significantly affect the
Company’s internal controls.



          (s) Certain Fees. No brokerage or finder’s fees or commissions are or will be payable
by the Company to any broker, financial advisor or consultant, finder, placement agent, investment
banker, bank or other Person with respect to the transactions contemplated by this Agreement. The
Investors shall have no obligation with respect to any fees or with respect to any claims (other
than such fees or commissions owed by the Investors pursuant to written agreements executed by the
Investors which fees or commissions shall be the sole responsibility of the Investors) made by or
on behalf of any Persons for fees of a type contemplated in this Section that may be due in
connection with the transactions contemplated by this Agreement.



          (t) Certain Registration Matters. Assuming the accuracy of the Investors’
representations and warranties set forth in Section 2.6(b)-(e), no registration under the
Securities Act is required for the offer and sale of the Securities by the Company to the Investors
under the Transaction Documents and the Asset Purchase Agreement.



          (u) Investment Company. The Company is not, and is not an Affiliate of, and
immediately following the Closing will not have become, an “investment company” within the meaning
of the Investment Company Act of 1940, as amended.



          (v) No Additional Agreements. The Company does not have any agreement or understanding
with the Investors with respect to the transactions contemplated by the Transaction Documents other
than as specified in the Transaction Documents.



          (w) Full Disclosure. The SEC Reports and the Company’s representations and warranties
set forth in this Agreement, taken together, are true and correct in all material



11









 




respects and do not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements made therein, in light of the circumstances
under which they were made, not misleading. Except with respect to the material terms and
conditions of the transactions contemplated by the Transaction Documents, the Company confirms that
neither it nor any other Person acting on its behalf has provided the Investors or Investors’
agents or counsel with any information that it believes constitutes or might constitute material,
non-public information. The Company understands and confirms that the Investors will rely on the
foregoing representation in effecting transactions in securities of the Company. The Company
acknowledges and agrees that the Investors do not make or have not made any representations or
warranties with respect to the transactions contemplated hereby other than those specifically set
forth in Section 2.6 hereof.




          (x) Environmental Matters. To the Company’s knowledge: (i) the Company and its
Subsidiary have complied with all applicable Environmental Laws, except for such noncompliance as
could not, individually or in the aggregate, have or reasonably be expected to result in a Material
Adverse Effect; (ii) after commercially reasonable investigation, the properties currently owned or
operated by Company (including soils, groundwater, surface water, buildings or other structures)
are not contaminated with any Hazardous Substances; (iii) after commercially reasonable
investigation, the properties formerly owned or operated by Company or its Subsidiary were not
contaminated with Hazardous Substances during the period of ownership or operation by Company and
its Subsidiary; (iv) Company and its Subsidiary are not subject to any material liability for any
Hazardous Substance disposal or contamination on any third party property; (v) Company and its
Subsidiary have not received any written notice, demand, letter, claim or request for information
alleging that Company and its Subsidiary may be in violation of or liable under any Environmental
Law; and (vi) Company and its Subsidiary are not subject to any orders, decrees, injunctions or
other arrangements with any Governmental Authority or subject to any indemnity or other agreement
with any third party relating to liability under any Environmental Law or relating to Hazardous
Substances which could, individually or in the aggregate, have or reasonably be expected to result
in a Material Adverse Effect.



          As used in this Agreement, the term “Environmental Law” means any federal, state, local or
foreign law, regulation, order, decree, permit, authorization, opinion, common law or agency
requirement relating to: (A) the protection, investigation or restoration of the environment,
health and safety, or natural resources; (B) the handling, use, presence, disposal, release or
threatened release of any Hazardous Substance or (C) noise, odor, wetlands, pollution,
contamination or any injury or threat of injury to persons or property.



          As used in this Agreement, the term “Hazardous Substance” means any substance that is: (i)
listed, classified or regulated pursuant to any Environmental Law; (ii) any petroleum product or
by-product, asbestos-containing material, polychlorinated biphenyls, radioactive materials or
radon; or (iii) any other substance which is the subject of regulatory action by any Governmental
Authority pursuant to any Environmental Law.



          (y) Taxes. The Company and its Subsidiary have filed all necessary federal, state and
foreign income and franchise tax returns when due (or obtained appropriate extensions for filing)
and have paid or accrued all taxes shown as due thereon, and the Company has no



12









 




knowledge of a tax deficiency which has been or might be asserted or threatened against it or
any Subsidiary which would have a Material Adverse Effect.




          (z) ERISA. Neither the Company nor any ERISA Affiliate maintains, contributes to or
has any liability or contingent liability with respect to any employee benefit plan subject to
ERISA.



          (aa) Foreign Assets Control Regulations and Anti-Money Laundering.



               (i) OFAC. Neither the issuance of the Warrants and Warrant Shares to the Investors,
nor the use of the respective proceeds thereof, shall cause the Investors to violate the U.S. Bank
Secrecy Act, as amended, and any applicable regulations thereunder or any of the sanctions programs
administered by the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) of
the United States Department of Treasury, any regulations promulgated thereunder by OFAC or under
any affiliated or successor governmental or quasi-governmental office, bureau or agency and any
enabling legislation or executive order relating thereto. Without limiting the foregoing, neither
the Company nor the Subsidiary (i) is a person whose property or interests in property are blocked
or subject to blocking pursuant to Section 1 of Executive Order 13224 of September 23, 200l
Blocking Property and Prohibiting Transactions With Persons Who Commit, Threaten to Commit, or
Support Terrorism (66 Fed. Reg. 49079 (2001)), (ii) engages in any dealings or transactions
prohibited by Section 2 of such executive order, or is otherwise associated with any such person in
any manner violative of Section 2, or (iii) is a person on the list of Specially Designated
Nationals and Blocked Persons or subject to the limitations or prohibitions under any other OFAC
regulation or executive order.



               (ii) Patriot Act. The Company and the Subsidiary are in compliance, in all material
respects, with the USA PATRIOT Act. No part of the proceeds of the sale of the Warrant Shares
hereunder will be used, directly or indirectly, for any payments to any governmental official or
employee, political party, official of a political party, candidate for political office, or anyone
else acting in an official capacity, in order to obtain, retain or direct business or obtain any
improper advantage, in violation of the United States Foreign Corrupt Practices Act of 1977, as
amended.



          (bb) Acknowledgment Regarding Investors’ Trading Activity. Except as expressly set
forth herein, it is understood and acknowledged by the Company that, except to the extent required
by applicable law: (i) no Investor has been asked by the Company to agree, nor has any Investor
agreed, to desist from purchasing or selling, long and/or short, securities of the Company, or
“derivative” securities based on securities issued by the Company or to hold the Securities for any
specified term; (ii) that past or future open market or other transactions by the Investors,
specifically including, without limitation, short sales or “derivative” transactions, before or
after the closing of this or future private placement transactions, may negatively impact the
market price of the Company’s publicly-traded securities; (iii) that any Investor, and
counter-parties in “derivative” transactions to which such Investor is a party, directly or
indirectly, presently may have a “short” position in the Common Stock; and (iv) that no Investor
shall be deemed to have any affiliation with or control over any arm’s length counter-party in any
“derivative” transaction. The Company further understands and acknowledges that, to the extent
permitted by applicable law (y) any Investor may engage in hedging activities at various times



13









 




during the period that the Securities are outstanding, including, without limitation, during
the periods that the value of the Warrant Shares deliverable with respect to Securities are being
determined, and (z) such hedging activities (if any) could reduce the value of the existing
stockholders’ equity interests in the Company at and after the time that the hedging activities are
being conducted. The Company acknowledges that such aforementioned hedging activities do not
constitute a breach of any of the Transaction Documents, except to the extent that any such
activities violate the provisions of applicable law.




          (cc) Regulation M Compliance. The Company has not, and to its knowledge no one acting
on its behalf has, (i) taken, directly or indirectly, any action designed to cause or to result in
the stabilization or manipulation of the price of any security of the Company to facilitate the
sale or resale of any of the Securities, (ii) sold, bid for, purchased, or, paid any compensation
for soliciting purchases of, any of the Securities, or (iii) paid or agreed to pay to any Person
any compensation for soliciting another to purchase any other securities of the Company.



          (dd) Form S-3 Eligibility. The Company is eligible to register the resale of the
Warrant Shares for resale by the Investors on Form S-3 promulgated under the Securities Act;
provided, however, that no violation of this Section 2.6(dd) shall be deemed to have occurred in
the event that the SEC imposes any restriction on the registration of the Warrant Shares pursuant
to Rule 415 as contemplated in Section 3.1(a) below.



     Section 2.6. Representations and Warranties of the Investors. Each Investor,
severally and with respect solely to himself, hereby represents and warrants to the Company as
follows:



          (a) Authority. This Agreement has been duly executed by such Investor, and when
delivered by such Investor in accordance with terms hereof, will constitute the valid and legally
binding obligation of such Investor, enforceable against such Investor in accordance with its
terms, except as such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or affecting generally the
enforcement of, creditors’ rights and remedies or by other equitable principles of general
application.



          (b) Own Account. Such Investor is acquiring the Securities as principal for such
Investor’s own account and not with a view to or for distributing or reselling such Securities or
any part thereof, without prejudice, however, to such Investor’s right at all times to sell or
otherwise dispose of all or any part of such Securities in compliance with applicable federal and
state securities laws. Such Investor does not have any agreement or understanding, directly or
indirectly, with any Person to distribute any of the Securities.



          (c) Investor Status. Such Investor is an “accredited investor” as defined in Rule
501(a) under the Securities Act. Such Investor is not a registered broker-dealer under Section 15
of the Exchange Act or associated or affiliated with such a broker-dealer. Such Investor has a
principal address as listed for such Investor on Schedule I.



          (d) Access to Information. Such Investor acknowledges that she has reviewed the SEC
Reports and has been afforded: (i) the opportunity to ask such questions as she



14









 




has deemed necessary of, and to receive answers from, representatives of the Company
concerning the terms and conditions of the offering of the Securities and the merits and risks of
investing in the Securities; (ii) access to information about the Company and the Subsidiary and
their respective financial condition, results of operations, business, properties, management and
prospects sufficient to enable such Investor to evaluate such Investor’s investment; and (iii) the
opportunity to obtain such additional information that the Company possesses or can acquire without
unreasonable effort or expense that is necessary to make an informed investment decision with
respect to the investment.




          (e) General Solicitation. Such Investor is not purchasing the Securities as a result
of any advertisement, article, notice or other communication regarding the Securities published in
any newspaper, magazine or similar media or broadcast over television or radio or presented at any
seminar or any other general solicitation or general advertisement.



          (f) Disclosure. Such Investor acknowledges and agrees that the Company neither makes
nor has made any representations or warranties with respect to the transactions contemplated hereby
other than those specifically set forth in Section 2.5.



          (g) Regulation M Compliance. Such Investor has not, and to such Investor’s knowledge
no one acting on such Investor’s behalf has, (i) taken, directly or indirectly, any action designed
to cause or to result in the stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of any of the Securities, (ii) sold, bid for, purchased,
or, paid any compensation for soliciting purchases of, any of the Securities, or (iii) paid or
agreed to pay to any Person any compensation for soliciting another to purchase any other
securities of the Company.



ARTICLE 3




REGISTRATION RIGHTS



     Section 3.1. Shelf Registration.



          (a) As promptly as possible, and in any event on or prior to the Filing Date, the Company
shall prepare and file with the Commission a “shelf” Registration Statement covering the resale of
all Registrable Securities for an offering to be made on a continuous basis pursuant to Rule 415.
If for any reason (including, without limitation, the Commission’s interpretation of Rule 415) the
Commission does not permit all of the Registrable Securities to be included in such Registration
Statement, then the Company shall prepare and file with the Commission one or more separate
Registration Statements with respect to any such Registrable Securities not included with the
initial Registration Statements, as soon as allowed under SEC Regulations and is commercially
practicable. The Registration Statement shall be on a Form S-3; in the event Form S-3 is not
available for the registration of the resale of Registrable Securities hereunder, the Company shall
(i) register the resale of the Registrable Securities on another appropriate form in accordance
herewith and (ii) attempt to register the Registrable Securities on Form S-3 as soon as such form
is available, provided that the Company shall maintain the effectiveness of the Registration
Statements then in effect until such time as a Registration Statement on Form S-3 covering the
Registrable Securities has been declared effective by the



15









 




Commission. If at any time the SEC takes the position that the offering of some or all of the
Registrable Securities in a Registration Statement is not eligible to be made on a delayed or
continuous basis under the provisions of Rule 415 under the 1933 Act or requires any Investor to be
named as an “underwriter”, the Company shall use its commercially reasonable best efforts to
persuade the SEC that the offering contemplated by the Registration Statement is a valid secondary
offering and not an offering “by or on behalf of the issuer” as defined in Rule 415 and that no
Investor is an “underwriter”. The Investors shall have the right to participate or have their
counsel participate in any meetings or discussions with the SEC regarding the SEC’s position and to
comment or have Investors’ counsel comment on any written submission made to the SEC with respect
thereto, and to have such comments relayed to the SEC with the consent of the Company, not to be
unreasonably withheld. No such written submission shall be made to the SEC to which the Investors’
counsel reasonably objects. In the event that, despite the Company’s commercially reasonable
efforts and compliance with the terms of this Section 2(e), the SEC refuses to alter its position,
the Company shall (i) remove from the Registration Statement such portion of the Registrable
Securities (the “Cut Back Shares”) and/or (ii) with the consent of the Investors’ counsel, not to
be unreasonably withheld, agree to such restrictions and limitations on the registration and resale
of the Registrable Securities as the SEC may require to assure the Company’s compliance with the
requirements of Rule 415; provided, however, that the Company shall not agree to name any Investor
as an “underwriter” in such Registration Statement without the prior written consent of such
Investor (collectively, the “SEC Restrictions”). No liquidated damages shall accrue on or as to
any Cut Back Shares until such time as the Company is able, using commercially reasonable efforts,
to effect the filing of an additional Registration Statement with respect to the Cut Back Shares in
accordance with any SEC Restrictions (such date, the “Restriction Termination Date”). From and
after the Restriction Termination Date, all of the provisions of this Article 3 (including the
liquidated damages provisions) shall again be applicable to the Cut Back Shares; provided, however,
that for such purposes, references to the Filing Date shall be deemed to be the Restriction
Termination Date.




          (b) The Company shall use its best efforts to cause each Registration Statement filed
hereunder to be declared effective by the Commission as promptly as possible after the filing
thereof, but in any event prior to the Required Effectiveness Date, and shall use its best efforts
to keep the Registration Statement continuously effective under the Securities Act until the
earlier of (i) the fifth anniversary of the Effective Date, (ii) the date when all Registrable
Securities covered by such Registration Statement have been sold publicly, or (iii) the date on
which the Registrable Securities are eligible for sale without volume limitation within a
three-month period pursuant to Rule 144 or any successor thereto (the “Effectiveness Period”). The
Company shall notify the Investors in writing promptly (and in any event within one Business Day)
after receiving notification from the Commission that the Registration Statement has been declared
effective.



          (c) As promptly as possible, and in any event no later than the Post-Effective Amendment
Filing Deadline, the Company shall prepare and file with the Commission a Post-Effective Amendment.
The Company shall use its best efforts to cause the Post-Effective Amendment to be declared
effective by the Commission as promptly as possible after the filing thereof. The Company shall
notify the Investors in writing promptly (and in any event within



16









 




one Business Day) after receiving notification from the Commission that the Post-Effective
Amendment has been declared effective.




          (d) If the Company issues to the Investors any Common Stock pursuant to the Transaction
Documents that is not included in the initial Registration Statement, then the Company shall file
an additional Registration Statement covering such number of shares of Common Stock on or prior to
the Filing Date and shall use it best efforts, but in no event later than the Required
Effectiveness Date, to cause such additional Registration Statement to be declared effective by the
Commission.



          (e) The Registration Statement shall not include any securities other than the Registrable
Securities without the prior written consent of the Investors.



     Section 3.2. Registration Process. In connection with the registration of the
Registrable Securities pursuant to Section 3.1, the Company shall:



          (a) Prepare and file with the Commission the Registration Statement and such amendments
(including post effective amendments) to the Registration Statement and supplements to the
prospectus included therein (a “Prospectus”) as the Company may deem necessary or appropriate and
take all lawful action such that the Registration Statement and any amendment thereto does not,
when it becomes effective, contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements therein, not
misleading and that the Prospectus forming part of the Registration Statement, and any amendment or
supplement thereto, does not at any time during the Registration Period include an untrue statement
of a material fact or omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were made, not
misleading.;



          (b) Comply with the provisions of the Securities Act with respect to the Registrable
Securities covered by the Registration Statement until the end of the Effectiveness Period;



          (c) Prior to the filing with the Commission of the Registration Statement (including any
amendments thereto) and the distribution or delivery of any Prospectus (including any supplements
thereto), provide draft copies thereof to the Investors and reflect in such documents all such
comments as the Investors (and Investors’ counsel) reasonably may propose and furnish to the
Investors and Investors’ legal counsel identified to the Company (i) promptly after the same is
prepared and publicly distributed, filed with the Commission, or received by the Company, one copy
of the Registration Statement, each Prospectus, and each amendment or supplement thereto, and (ii)
such number of copies of the Prospectus and all amendments and supplements thereto and such other
documents, as any Investor may reasonably request in order to facilitate the disposition of the
Registrable Securities;



          (d) (i) register or qualify the Registrable Securities covered by the Registration Statement
under such securities or “blue sky” laws of such jurisdictions as any Investor reasonably requests,
(ii) prepare and file in such jurisdictions such amendments (including post effective amendments)
and supplements to such registrations and qualifications



17









 




as may be necessary to maintain the effectiveness thereof at all times during the Registration
Period, (iii) take all such other lawful actions as may be necessary to maintain such registrations
and qualifications in effect at all times during the Registration Period, and (iv) take all such
other lawful actions reasonably necessary or advisable to qualify the Registrable Securities for
sale in such jurisdictions; provided, however, that the Company shall not be required in connection
therewith or as a condition thereto to (A) qualify to do business in any jurisdiction where it
would not otherwise be required to qualify, (B) subject itself to general taxation in any such
jurisdiction or (C) file a general consent to service of process in any such jurisdiction;




          (e) As promptly as practicable after becoming aware of such event, notify the Investors of the
occurrence of any event, as a result of which the Prospectus included in the Registration
Statement, as then in effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading, and promptly prepare an amendment
to the Registration Statement and supplement to the Prospectus to correct such untrue statement or
omission, and deliver a number of copies of such supplement and amendment to the Investors as any
Investor may reasonably request;



          (f) As promptly as practicable after becoming aware of such event, notify the Investors (or,
in the event of an underwritten offering, the managing underwriters) of the issuance by the
Commission of any stop order or other suspension of the effectiveness of the Registration Statement
and take all lawful action to effect the withdrawal, rescission or removal of such stop order or
other suspension;



          (g) Take all such other lawful actions reasonably necessary to expedite and facilitate the
disposition by the Investors of his Registrable Securities in accordance with the intended methods
therefor provided in the Prospectus which are customary under the circumstances;



          (h) Make generally available to its security holders as soon as practicable, but in any event
not later than 18 months after the Effective Date of the Registration Statement, an earnings
statement of the Company and its Subsidiary complying with Section 11(a) of the Securities Act and
the rules and regulations of the Commission thereunder;



          (i) In the event of an underwritten offering, promptly include or incorporate in a Prospectus
supplement or post effective amendment to the Registration Statement such information as the
underwriters reasonably agree should be included therein and to which the Company does not
reasonably object and make all required filings of such Prospectus supplement or post effective
amendment as soon as practicable after it is notified of the matters to be included or incorporated
in such Prospectus supplement or post effective amendment;



          (j) Make reasonably available for inspection by the Investors, any underwriter participating
in any disposition pursuant to the Registration Statement, and any attorney, accountant or other
agent retained by the Investors or any such underwriter all relevant financial and other records,
pertinent corporate documents and properties of the Company and its Subsidiary, and cause the
Company’s officers, directors and employees to supply all information reasonably requested by the
Investors or any such underwriter, attorney, accountant or agent in



18









 




connection with the Registration Statement, in each case, as is customary for similar due
diligence examinations; provided, however, that all records, information and documents that are
designated in writing by the Company, in good faith, as confidential, proprietary or containing any
nonpublic information shall be kept confidential by the Investors and any such underwriter,
attorney, accountant or agent (pursuant to an appropriate confidentiality agreement in the case of
any such holder or agent), unless such disclosure is made pursuant to judicial process in a court
proceeding (after first giving the Company an opportunity promptly to seek a protective order or
otherwise limit the scope of the information sought to be disclosed) or is required by law, or such
records, information or documents become available to the public generally or through a third party
not in violation of an accompanying obligation of confidentiality; and provided, further, that, if
the foregoing inspection and information gathering would otherwise disrupt the Company’s conduct of
its business, such inspection and information gathering shall, to the maximum extent possible, be
coordinated on behalf of the Investors and the other parties entitled thereto by one firm of
counsel designated by and on behalf of the majority in interest of the Investors and other parties;




          (k) In connection with any offering, make such representations and warranties to the Investors
and to the underwriters if an underwritten offering, in form, substance and scope as are
customarily made by a company to underwriters in secondary underwritten offerings;



          (l) In connection with any underwritten offering, deliver such documents and certificates as
may be reasonably required by the underwriters;



          (m) Cooperate with each Investor to facilitate the timely preparation and delivery of
certificates representing Registrable Securities to be sold pursuant to the Registration Statement,
which certificates shall, if required under the terms of this Agreement, be free of all restrictive
legends, and to enable such Registrable Securities to be in such denominations and registered in
such names as such Investor may request and maintain a transfer agent for the Common Stock;



          (n) Use its commercially reasonable efforts to cause all Registrable Securities covered by the
Registration Statement to be listed or qualified for trading on the principal Trading Market, if
any, on which the Common Stock is traded or listed on the Effective Date of the Registration
Statement; and



          (o) Unless and to the extent that such Plan of Distribution requires modification due to
inaccuracy due to changes in the plan of distribution of Investors, or due to a change in SEC
regulations, to use the Plan of Distribution attached hereto as Exhibit B in each
Prospectus and Registration Statement.



     Section 3.3. Obligations and Acknowledgements of the Investors. In connection with
the registration of the Registrable Securities, each Investor, severally, shall have the following
obligations with respect to such Investor and hereby make the following acknowledgements:



          (a) It shall be a condition precedent to the obligations of the Company to include the
Registrable Securities in the Registration Statement that such Investor (i) shall



19









 




furnish to the Company such information regarding itself, the Registrable Securities held by
it and the intended method of disposition of the Registrable Securities held by it as shall be
reasonably required to effect the registration of such Registrable Securities and (ii) shall
execute such documents in connection with such registration as the Company may reasonably request.
At least five Business Days prior to the first anticipated filing date of a Registration Statement,
the Company shall notify such Investor of the information the Company requires from such Investor
(the “Requested Information”) if such Investor elects to have any of its Registrable Securities
included in the Registration Statement. If at least two Business Days prior to the anticipated
filing date the Company has not received the Requested Information from such Investor, then the
Company may file the Registration Statement without including any Registrable Securities of such
Investor and the Company shall have no further obligations under this Article 3 to such Investor
after such Registration Statement has been declared effective. If such Investor notifies the
Company and provides the Company the information required hereby prior to the time the Registration
Statement is declared effective, the Company will file an amendment to the Registration Statement
that includes the Registrable Securities of such Investor; provided, however, that the Company
shall not be required to file such amendment to the Registration Statement at any time less than
five Business Days prior to the Effectiveness Date.




          (b) Such Investor agrees to cooperate with the Company in connection with the preparation and
filing of a Registration Statement hereunder, unless such Investor has notified the Company in
writing of such Investor’s election to exclude all of its Registrable Securities from such
Registration Statement; and



          (c) Such Investor agrees that, upon receipt of any notice from the Company of the occurrence
of any event of the kind described in Section 3.2(e) or 3.2(f), such Investor shall immediately
discontinue such Investor’s disposition of Registrable Securities pursuant to the Registration
Statement covering such Registrable Securities until such Investor’s receipt of the copies of the
supplemented or amended Prospectus contemplated by Section 3.2(e) and, if so directed by the
Company, such Investor shall deliver to the Company (at the expense of the Company) or destroy (and
deliver to the Company a certificate of destruction) all copies in such Investor’s possession
(other than one copy of any documents not filed with the SEC for evidentiary purposes), of the
Prospectus covering such Registrable Securities current at the time of receipt of such notice.



     Section 3.4. Expenses of Registration. All expenses (other than underwriting
discounts and commissions and the fees and expenses of the Investors’ counsel) incurred in
connection with registrations, filings or qualifications pursuant to this Article 3, including,
without limitation, all registration, listing, and qualifications fees, printing and engraving
fees, accounting fees, and the fees and disbursements of counsel for the Company, shall be borne by
the Company.



     Section 3.5. Accountant’s Letter. If the Investors propose to engage in an
underwritten offering, the Company shall deliver to the Investors, at the Company’s expense, a
letter dated as of the effective date of each Registration Statement or Post-Effective Amendment
thereto, from the independent public accountants retained by the Company, addressed to the
underwriters and to the Investors, in form and substance as is customarily given in an



20









 




underwritten public offering, provided that such seller has made such representations and
furnished such undertakings as the independent public accountants may reasonably require;




     Section 3.6. Indemnification and Contribution



          (a) Indemnification by the Company. The Company shall indemnify and hold harmless the
Investors and each underwriter, if any, which facilitates the disposition of Registrable
Securities, and each of their respective officers and directors and each Person who controls such
underwriter within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act (each such Person being sometimes hereinafter referred to as an “Indemnified Person”) from and
against any losses, claims, damages or liabilities, joint or several, to which such Indemnified
Person may become subject under the Securities Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue
statement or alleged untrue statement of a material fact contained in any Registration Statement or
an omission or alleged omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, not misleading, or arise out of or are based upon an
untrue statement or alleged untrue statement of a material fact contained in any Prospectus or an
omission or alleged omission to state therein a 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 the Company hereby agrees to reimburse such Indemnified Person for all
reasonable legal and other expenses incurred by them in connection with investigating or defending
any such action or claim as and when such expenses are incurred; provided, however, that the
Company shall not be liable to any such Indemnified Person in any such case to the extent that any
such loss, claim, damage or liability arises out of or is based upon (i) an untrue statement or
alleged untrue statement made in, or an omission or alleged omission from, such Registration
Statement or Prospectus in reliance upon and in conformity with written information furnished to
the Company by such Indemnified Person expressly for use therein or (ii) in the case of the
occurrence of an event of the type specified in Section 3.2(e), the use by the Indemnified Person
of an outdated or defective Prospectus after the Company has provided to such Indemnified Person an
updated Prospectus correcting the untrue statement or alleged untrue statement or omission or
alleged omission giving rise to such loss, claim, damage or liability.



          (b) Indemnification by Investor. Each Investor, severally, agrees, as a consequence
of the inclusion of any of such Investor’s Investor Registrable Securities in a Registration
Statement to (i) indemnify and hold harmless the Company, its directors (including any person who,
with his or her consent, is named in the Registration Statement as a director nominee of the
Company), its officers who sign any Registration Statement and each Person, if any, who controls
the Company within the meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act, against any losses, claims, damages or liabilities to which the Company or such other
persons may become subject, under the Securities Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based upon (A) an untrue
statement or alleged untrue statement of a material fact contained in such Registration Statement
or Prospectus or arise out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements therein (in light
of the circumstances under which they were made, in the case of the Prospectus), not misleading, in
each case to the extent, but only to the extent, that such untrue



21









 




statement or alleged untrue statement or omission or alleged omission was made in reliance
upon and in conformity with written information furnished to the Company by such Investor expressly
for use therein or (B) the use by such Investor of an outdated Prospectus from and after receipt by
such Investor of a notice pursuant to Section 3.2(e), and (ii) reimburse the Company for any legal
or other expenses incurred by the Company in connection with investigating or defending any such
action or claim as such expenses are incurred; provided, however, that such Investor shall not be
liable under this Section 3.6(b) for any amount in excess of the net proceeds paid to such Investor
in respect of Registrable Securities sold by it.




          (c) Notice of Claims, etc. Promptly after receipt by a Person seeking indemnification
pursuant to this Section 3.6 (an “Indemnified Party”) of written notice of any investigation,
claim, proceeding or other action in respect of which indemnification is being sought (each, a
“Claim”), the Indemnified Party promptly shall notify the Person against whom indemnification
pursuant to this Section 3.6 is being sought (the “Indemnifying Party”) of the commencement
thereof; but the omission to so notify the Indemnifying Party shall not relieve it from any
liability that it otherwise may have to the Indemnified Party, except to the extent that the
Indemnifying Party is materially prejudiced and forfeits substantive rights and defenses by reason
of such failure. In connection with any Claim as to which both the Indemnifying Party and the
Indemnified Party are parties, the Indemnifying Party shall be entitled to assume the defense
thereof. Notwithstanding the assumption of the defense of any Claim by the Indemnifying Party, the
Indemnified Party shall have the right to employ separate legal counsel and to participate in the
defense of such Claim, and the Indemnifying Party shall bear the reasonable fees, out of pocket
costs and expenses of such separate legal counsel to the Indemnified Party if (and only if): (i)
the Indemnifying Party shall have agreed to pay such fees, costs and expenses, (ii) the Indemnified
Party shall reasonably have concluded that representation of the Indemnified Party by the
Indemnifying Party by the same legal counsel would not be appropriate due to actual or, as
reasonably determined by legal counsel to the Indemnified Party, potentially differing interests
between such parties in the conduct of the defense of such Claim, or if there may be legal defenses
available to the Indemnified Party that are in addition to or disparate from those available to the
Indemnifying Party (other than that the Indemnified Party is entitled to be indemnified by the
Indemnifying Party), or (iii) the Indemnifying Party shall have failed to employ legal counsel
reasonably satisfactory to the Indemnified Party within a reasonable period of time after notice of
the commencement of such Claim. If the Indemnified Party employs separate legal counsel in
circumstances other than as described in the preceding sentence, the fees, costs and expenses of
such legal counsel shall be borne exclusively by the Indemnified Party. Except as provided above,
the Indemnifying Party shall not, in connection with any Claim in the same jurisdiction, be liable
for the fees and expenses of more than one firm of counsel for the Indemnified Party (together with
appropriate local counsel). The Indemnified Party shall not, without the prior written consent of
the Indemnifying Party (which consent shall not unreasonably be withheld), settle or compromise any
Claim or consent to the entry of any judgment that does not include an unconditional release of the
Indemnifying Party from all liabilities with respect to such Claim or judgment or contain any
admission of wrongdoing.



          (d) Contribution. If the indemnification provided for in this Section 3.6 is
unavailable to or insufficient to hold harmless an Indemnified Party in respect of any losses,
claims, damages or liabilities (or actions in respect thereof) referred to therein, then each



22









 




Indemnifying Party shall contribute to the amount paid or payable by such Indemnified Party as
a result of such losses, claims, damages or liabilities (or actions in respect thereof) in such
proportion as is appropriate to reflect the relative fault of the Indemnifying Party and the
Indemnified Party in connection with the statements or omissions or alleged statements or omissions
which resulted in such losses, claims, damages or liabilities (or actions in respect thereof), as
well as any other relevant equitable considerations. The relative fault of such Indemnifying Party
and Indemnified Party shall be determined by reference to, among other things, whether the untrue
or alleged untrue statement of a material fact or omission or alleged omission to state a material
fact relates to information supplied by such Indemnifying Party or by such Indemnified Party, and
the parties’ relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 3.6(d) were determined by pro rata allocation
(even if the Investors or any underwriters were treated as one entity for such purpose) or by any
other method of allocation which does not take account of the equitable considerations referred to
in this Section 3.6(d). The amount paid or payable by an Indemnified Party as a result of the
losses, claims, damages or liabilities (or actions in respect thereof) referred to above shall be
deemed to include any legal or other fees or expenses reasonably incurred by such Indemnified Party
in connection with investigating or defending any such action or claim. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent misrepresentation.




          (e) Limitation on Investors’ Obligations. Notwithstanding any other provision of this
Section 3.6, in no event shall any Investor have any liability under this Section 3.6 for any
amounts in excess of the dollar amount of the proceeds actually received by such Investor from the
sale of Registrable Securities (after deducting any fees, discounts and commissions applicable
thereto) pursuant to any Registration Statement under which such Registrable Securities are
registered under the Securities Act.



          (f) Other Liabilities. The obligations of the parties under this Section 3.6 shall be
in addition to any liability which such party may otherwise have to any Indemnified Person and the
obligations of any Indemnified Person under this Section 3.6 shall be in addition to any liability
which such Indemnified Person may otherwise have to any other party. The remedies provided in this
Section 3.6 are not exclusive and shall not limit any rights or remedies which may otherwise be
available to an indemnified party at law or in equity.



     Section 3.7. Rule 144. With a view to making available to the Investors the benefits
of Rule 144 or any successor thereto, until the shares are eligible for sale without volume
limitations, the Company agrees to use its best efforts to:



               (i) comply with the provisions of paragraph (c)(1) of Rule 144 or any successor thereto; and



               (ii) file with the Commission in a timely manner all reports and other documents required to
be filed by the Company pursuant to Section 13 or 15(d) under the Exchange Act; and, if at any time
it is not required to file such reports but in the past had been required to or did file such
reports, it will, upon the request of any Investor, make available other



23









 




information as required by, and so long as necessary to permit sales of, its Registrable
Securities pursuant to Rule 144 or any successor thereto.




     Section 3.8. Common Stock Issued Upon Stock Split, etc. The provisions of this
Article 3 shall apply to any shares of Common Stock or any other securities issued as a dividend or
distribution in respect of the Warrant Shares.



ARTICLE 4




OTHER AGREEMENTS OF THE PARTIES



     Section 4.1. Certificates; Legends.



          (a) The Securities may only be transferred in compliance with state and federal securities
laws. In connection with any transfer of the Securities other than (i) pursuant to an effective
registration statement, (ii) to the Company, or (iii) by an Investor to an Affiliate of such
Investor, the Company may require the transferor thereof to provide to the Company an opinion of
counsel selected by the transferor and reasonably acceptable to the Company, the form and substance
of which opinion shall be reasonably satisfactory to the Company, to the effect that such transfer
does not require registration of such transferred Securities under the Securities Act or applicable
state securities laws. In the event of a private transfer of the Securities the Transferee shall
be required to execute a counterpart to this Agreement, agreeing to be bound by (and shall have the
benefits of) the terms hereof other than those set forth in Article 2 hereof, and such Transferee
shall be deemed to be an “Investor” for purposes of this Agreement.



          (b) The certificate representing the Warrant to be delivered at the Closing and the
certificates evidencing the Warrant Shares to be delivered upon exercise of the Warrant will
contain appropriate legends referring to restrictions on transfer relating to the registration
requirements of the Securities Act and applicable state securities laws.



          (c) In connection with any sale or disposition of the Securities by such Investor pursuant to
Rule 144 or pursuant to any other exemption under the 1933 Act such that the purchaser acquires
freely tradable shares and upon compliance by such Investor with the requirements of this
Agreement, the Company shall or, in the case of Common Stock, shall cause the transfer agent for
the Common Stock (the “Transfer Agent”) to issue replacement certificates representing the
Securities sold or disposed of without restrictive legends. Upon the earlier of (i) registration
for resale pursuant to the Registration Rights Agreement or (ii) the Warrant Shares becoming freely
tradable without restriction pursuant to Rule 144 the Company shall (A) deliver to the Transfer
Agent irrevocable instructions that the Transfer Agent shall reissue a certificate representing
shares of Common Stock without legends upon receipt by such Transfer Agent of the legended
certificates for such shares, and, in the case of a proposed sale pursuant to Rule 144, a customary
representation by such Investor that the conditions required to freely sell the shares of Common
Stock represented thereby without restriction pursuant to Rule 144 have been satisfied, and (B)
cause its counsel to deliver to the Transfer Agent one or more opinions to the effect that the
removal of such legends in such circumstances may be effected under the 1933 Act. From and after
the earlier of such dates, upon such Investor’s written



24









 




request, the Company shall promptly cause certificates evidencing such Investor’s Securities
to be replaced with certificates which do not bear such restrictive legends, and Warrant Shares
subsequently issued upon due exercise of the Warrants shall not bear such restrictive legends,
provided the provisions of either clause (i) or clause (ii) above, as applicable, are satisfied
with respect to such Warrant Shares. When the Company is required to cause an unlegended
certificate to replace a previously issued legended certificate, if: (1) the unlegended certificate
is not delivered to such Investor within three (3) Business Days of submission by such Investor of
a legended certificate and supporting documentation to the Transfer Agent as provided above and (2)
prior to the time such unlegended certificate is received by such Investor, such Investor, or any
third party on behalf of such Investor or for such Investor’s account, purchases (in an open market
transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by such
Investor of shares represented by such certificate (a “Buy-In”), then the Company shall pay in cash
to such Investor (for costs incurred either directly by such Investor or on behalf of a third
party) the amount by which the total purchase price paid for Common Stock as a result of the Buy-In
(including brokerage commissions, if any) exceeds the proceeds received by such Investor as a
result of the sale to which such Buy-In relates. Such Investor shall provide the Company written
notice indicating the amounts payable to such Investor in respect of the Buy-In.




     Section 4.2. Integration. The Company has not and shall not, and shall use its best
efforts to ensure that no Affiliate of the Company shall, sell, offer for sale or solicit offers to
buy or otherwise negotiate in respect of any security (as defined in Section 2 of the Securities
Act) that would be integrated with the offer or sale of the Securities in a manner that would
require the registration under the Securities Act of the issuance of the Securities to the
Investors, or that would be integrated with the offer or sale of the Securities for purposes of the
rules and regulations of any Trading Market in a manner that would require stockholder approval of
the sale of the securities to the Investors.



     Section 4.3. Securities Laws Disclosure; Publicity. By 5:00 p.m. (New York time) on
the Trading Day following the execution of this Agreement, and by 5:00 p.m. (New York time) on the
Trading Day following the Closing Date, the Company shall issue press releases disclosing the
material terms of the transactions contemplated hereby and the Closing, and the Company shall file
Current Reports on Form 8-K disclosing the material terms of the Transaction Documents and the
Closing. In addition, the Company will make such other filings and notices in the manner and time
required by the Commission and the Trading Market on which the Common Stock is listed.



     Section 4.4. Use of Proceeds. The Company shall use the net proceeds from the sale of
the Securities hereunder (i) for working capital purposes, (ii) for use in the Company’s business,
or (iii) for investment in new technologies related to the Company’s business (including without
limitation through the acquisition of other companies).



     Section 4.5. Prospectus Delivery Requirements. Each Investor, severally, agrees that
such Investor will not effect any sale, transfer or other disposition of any Securities except
pursuant to either the registration requirements of the Securities Act, including any applicable
prospectus delivery requirements, or an exemption therefrom, and that if Securities are sold
pursuant to a Registration Statement, they will be sold in compliance with the plan of distribution



25









 




set forth therein, and acknowledges that the removal of the restrictive legend from
certificates representing Securities as set forth in Section 3.1 is predicated upon the Company’s
reliance upon this understanding.




     Section 4.6. Reservation of Common Stock. From and after the Closing Date, the Company
shall reserve and keep available at all times, free of preemptive rights, a sufficient number of
shares of Common Stock for the purpose of enabling the Company to issue the Warrant Shares pursuant
to any exercise of the Warrants.



     Section 4.7. Disclosure of Information. Except upon the prior written consent of an
Investor, the Company shall not disclose any material non-public information to such Investor or
such Investor’s counsel. Any such disclosure shall be made pursuant to an in accordance with a
customary non-disclosure agreement between the Company and such Investor.



     Section 4.8. Authorization of Additional Common Stock. The Company shall propose, at
the next meeting of its stockholders, an amendment to the Company’s Certificate of Incorporation
the effect of which will be to increase the number of authorized shares of Common Stock of the
Company by not less than 6,000,000 shares. The Company shall use its best efforts to secure the
adoption of such amendment at such meeting of stockholders.



ARTICLE 5




CONDITIONS PRECEDENT TO CLOSING



     Section 5.1. Conditions Precedent to the Obligations of the Investors to Acquire
Securities. The obligation of the Investor to acquire Securities is subject to the
satisfaction or waiver by the Investors, at or before the Closing, of each of the following
conditions:



          (a) Representations and Warranties. The representations and warranties of the Company
contained herein are true and correct in all material respects as of the date when made and as of
the Closing Date as though made on and as of such Closing Date;



          (b) Performance. The Company shall have performed, satisfied and complied in all
material respects with all covenants, agreements and conditions required by the Transaction
Documents to be performed, satisfied or complied with by it at or prior to the Closing;



          (c) 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 the consummation of any of the transactions
contemplated by the Transaction Documents;



          (d) No Adverse Changes. Since the date of execution of this Agreement, no event or
series of events shall have occurred that reasonably could have or result in a Material Adverse
Effect; and



          (e) Company Deliverables. The Company shall have delivered the Company Deliverables in
accordance with Section 2.4.



26









 





     Section 5.2. Conditions Precedent to the Obligations of the Company to Issue
Securities. The obligation of the Company to issue Securities is subject to the satisfaction
or waiver by the Company, at or before the Closing, of each of the following conditions:



          (a) Representations and Warranties. The representations and warranties of the
Investors contained herein shall be true and correct in all material respects as of the date when
made and as of the Closing Date as though made on and as of such date;



          (b) Performance. The Investors shall have performed, satisfied and complied in all
material respects with all covenants, agreements and conditions required by the Transaction
Documents to be performed, satisfied or complied with by the Investors at or prior to the Closing
and the Lender shall have performed, satisfied and complied in all material respects with all
covenants, agreements and conditions required by the Transaction Documents to be performed,
satisfied or complied with by the Lender at or prior to the Closing under the Purchase Agreement;
and



          (c) 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 the consummation of any of the transactions
contemplated by the Transaction Documents.



ARTICLE 6




MISCELLANEOUS



     Section 6.1. Fees and Expenses. Each party shall pay the fees and expenses of its
advisers, counsel, accountants and other experts, if any, and all other expenses incurred by such
party incident to the negotiation, preparation, execution, delivery and performance of the
Transaction Documents.



     Section 6.2. Entire Agreement. The Transaction Documents, together with the Exhibits
thereto, contain the entire understanding of the parties with respect to the subject matter hereof
and supersede all prior agreements, understandings, discussions and representations, oral or
written, with respect to such matters, which the parties acknowledge have been merged into such
documents and exhibits.



     Section 6.3. Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be deemed given and
effective on the earliest of (a) the date of transmission, if such notice or communication is
delivered via facsimile (provided the sender receives a machine-generated confirmation of
successful transmission) at the facsimile number specified in this Section prior to 6:30 p.m. on a
Business Day, (b) the next Business Day after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number specified in this Section on a day
that is not a Business Day or later than 6:30 p.m. on any Business Day, (c) the Business Day
following the date of transmission, if sent by a nationally recognized overnight courier service,
or (d) upon actual receipt by the party to whom such notice is required to be given. The addresses
for such notices and communications shall be as follows:



27









 





	 	 	 
	If to the Company:
	 	Energy Focus, Inc.

	 
	 	32000 Aurora Road

	 
	 	Solon, Ohio 44139

	 
	 	Facsimile:  440.519.1038

	 
	 	Attention:  Mr. Joseph G. Kaveski, Chief Executive Officer
	 
	 	 
	With a copy to:
	 	Cowden & Humphrey Co. LPA

	 
	 	4600 Euclid Avenue, Suite 400

	 
	 	Cleveland, Ohio 44103-3758

	 
	 	Facsimile:  216.241.2881

	 
	 	Attention:  Mr. Gerald W. Cowden
	 
	 	 
	If to the Investors, at the address set forth for each Investor in Schedule I.
	 
	 	 
	With a copy to:
	 	Brouse McDowell LLP

	 
	 	388 S. Main Street

	 
	 	Akron, Ohio 44311

	 
	 	Facsimile No.: 330-253-8601

	 
	 	Attention:  James S. Hogg, Esq.





or such other address as may be designated by any Investor or the Company in writing, in the same
manner, by such Person.




     Section 6.4. Amendments; Waivers. No provision of this Agreement may be waived or
amended except in a written instrument signed by the Company and Investors holding a majority of
the Registrable Securities. No waiver of any default with respect to any provision, condition or
requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver
of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor
shall any delay or omission of either party to exercise any right hereunder in any manner impair
the exercise of any such right.



     Section 6.5. Termination. This Agreement may be terminated prior to the Closing by
written agreement of the Investors holding a majority of the Registrable Securities and the
Company. Upon a termination in accordance with this Section 6.5, the Company and the Investors
shall have no further obligation or liability (including as arising from such termination) to the
other, provided that any liabilities arising prior to such termination shall not be affected by the
termination.



     Section 6.6. Construction. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect any of the
provisions hereof. The language used in this Agreement will be deemed to be the language chosen by
the parties to express their mutual intent, and no rules of strict construction will be applied
against any party. This Agreement shall be construed as if drafted jointly by the parties, and no
presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any provisions of this Agreement or any of the Transaction Documents.



28









 





     Section 6.7. Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties and their successors, and permitted assigns. Neither party may assign
this Agreement or any rights or obligations hereunder without the prior written consent of the
other party.



     Section 6.8. No Third-Party Beneficiaries. This Agreement is intended for the benefit
of the parties hereto, and their heirs, representatives, successors, and permitted assigns, and
their affiliated Persons that are parties to the Asset Purchase Agreement, and is not for the
benefit of, nor may any provision hereof be enforced by, any other Person.



     Section 6.9. Governing Law; Jurisdiction. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware and of the United States, without
giving effect to the doctrine of conflicts of laws. The parties each agree that the federal and
state courts located within the State of Delaware, the State of Ohio, and the State of Tennessee
shall have nonexclusive jurisdiction as to all matters, actions, claims or disputes arising out of
this Agreement or the transactions contemplated hereby.



     Section 6.10. Survival. The representations, warranties, agreements and covenants
contained herein shall survive the Closing and the delivery of the Securities; provided, however,
that the representations and warranties shall expire one month after the Company files its Annual
Report on Form 10-K for the period ending December 31, 2010.



     Section 6.11. Execution. This Agreement may be executed in two or more counterparts,
all of which when taken together 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, it
being understood that both parties need not sign the same counterpart. In the event that any
signature is delivered by facsimile transmission, such signature shall create a valid and binding
obligation of the party executing (or on whose behalf such signature is executed) with the same
force and effect as if such facsimile signature page were an original thereof, notwithstanding any
subsequent failure or refusal of the signatory to deliver an original executed in ink.



     Section 6.12. Severability. If any provision of this Agreement is held to be invalid
or unenforceable in any respect, the validity and enforceability of the remaining terms and
provisions of this Agreement shall not in any way be affected or impaired thereby and the parties
will attempt to agree upon a valid and enforceable provision that is a reasonable substitute
therefore, and upon so agreeing, shall incorporate such substitute provision in this Agreement.



     Section 6.13. Replacement of Securities. If any certificate or instrument evidencing
any Securities is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be
issued in exchange and substitution for and upon cancellation thereof, or in lieu of and
substitution therefore, a new certificate or instrument, but only upon receipt of evidence
reasonably satisfactory to the Company of such loss, theft or destruction and customary and
reasonable indemnity, if requested. The applicant for a new certificate or instrument under such
circumstances shall also pay any reasonable third-party costs associated with the issuance of such
replacement Securities. If a replacement certificate or instrument evidencing any Securities



29









 




is requested due to a mutilation thereof, the Company may require delivery of such mutilated
certificate or instrument as a condition precedent to any issuance of a replacement.




     Section 6.14. Remedies. In addition to being entitled to exercise all rights provided
herein or granted by law, including recovery of damages, each of the Investors and the Company will
be entitled to specific performance under the Transaction Documents. The parties agree that, except
as expressly set forth herein with respect to liquidated damages, monetary damages may not be
adequate compensation for any loss incurred by reason of any breach of obligations described in the
foregoing sentence and hereby agrees to waive in any action for specific performance of any such
obligation the defense that a remedy at law would be adequate.



[Signatures appear on following page.]






30









 







IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first indicated
above.




	 	 	 	 	 
	 	COMPANY:



ENERGY FOCUS, INC.

 	 
	 	By:  	 	 
	 	 	Name:  	Joseph G. Kaveski 	 
	 	 	Its:	Chief Executive Officer 

	 



	 	 	 	 	 
	 	
INVESTORS:



THE BARRETT FAMILY TRUST

 	 
	 	By:  	 	 
	 	 	Donald A. Barrett, Trustee 	 
	 
	 	And by: 	 

	 
	 	 	
Karen A. Barrett, Trustee 	 
	 
	 	 	 
	 	 	R. Thomas Green, Jr. 	 
	 
	 	 	 
	 	 	Marc Martter 	 
	 
	 	JKZ PROPERTIES, LTD

 	 
	 	By:  	 	 
	 	 	Joseph Zeno 	 
	 	 	Managing Partner 	 
	 
	 
	 	ALEXANDER S. TAYLOR FAMILY TRUST

 	 
	 	By:  	 	 
	 	 	Alexander S. Taylor, Trustee 	 
	 	 	 	 



 









 







	 	 	 	 	 
	 	DKE WEBB LLC

 	 
	 	By:  	 	 
	 	 	David Webb 	 
	 	 	Title:  	 	 
	 
	 	 	 
	 	 	James M. Wiles 	 
	 
	 	 	 
	 	 	Larry Wright 	 




32









 





Schedule I




Investors



	 	 	 	 	 	 	 
	 	 	 	 	Number of
	Name	 	Address	 	Warrant Shares
	R. Thomas Green Jr.

	 	35 Cohasset Drive

Hudson, Ohio 44236
	 	 	10,000	 
	 
	 	 	 	 	 	 
	Donald A Barrett and

Karen A Barrett ttees 

The Barrett Family Trust 

u/a/d 9-18-06

	 	431 West Main Street

Kent, Ohio 44240
	 	 	10,000	 
	 
	 	 	 	 	 	 
	Alexander S. Taylor 

Family Trust U/A/D 6/9/97

	 	510 Dogwood Lane

Chagrin Falls, Ohio 44023
	 	 	10,000	 
	 
	 	 	 	 	 	 
	DKE Webb LLC

	 	c/o David Webb

361 Wallace Road

Lake Forest, Illinois 60045
	 	 	40,000	 
	 
	 	 	 	 	 	 
	James M. Wiles

	 	Wiles, Boyle, Burkholder

300 Spruce Street

Floor One

Columbus, Ohio 43215
	 	 	40,000	 
	 
	 	 	 	 	 	 
	 

	 	380 Fifth Street

PO Box 510762

Key Colony Beach, Florida 33051	 	 	 	 
	 
	 	 	 	 	 	 
	Marc Martter

	 	Apt #6 501 East Ocean Drive 

P.O. Box 510169

Key Colony Beach, Florida 33051
	 	 	10,000	 
	 
	 	 	 	 	 	 
	 

	 	1130 By The Shores Drive

Unit #1

Huron, Ohio 44839	 	 	 	 
	 
	 	 	 	 	 	 
	JKZ Properties, LTD

	 	Joseph Zeno, Mng. Partner

4534 Barnsleigh Drive 

Akron, Ohio 44333
	 	 	100,000	 
	 
	 	 	 	 	 	 
	Larry Wright

	 	418 North Water Street

Kent, Ohio 44240
	 	 	10,000	 






33









 






EXHIBIT A




Form of Warrant











 









 








EXHIBIT B




Plan of Distribution



     The selling stockholders, which as used herein includes donees, pledgees, transferees or other
successors-in-interest selling shares of common stock or interests in shares of common stock
received after the date of this prospectus from a selling stockholder as a gift, pledge,
partnership distribution or other transfer, may, from time to time, sell, transfer or otherwise
dispose of any or all of their shares of common stock or interests in shares of common stock on any
stock exchange, market or trading facility on which the shares are traded or in private
transactions. These dispositions may be at fixed prices, at prevailing market prices at the time
of sale, at prices related to the prevailing market price, at varying prices determined at the time
of sale, or at negotiated prices.



     The selling stockholders may use any one or more of the following methods when disposing of
shares or interests therein:



     - ordinary brokerage transactions and transactions in which the broker-dealer solicits
purchasers;



     - block trades in which the broker-dealer will attempt to sell the shares as agent, but may
position and resell a portion of the block as principal to facilitate the transaction;



     - purchases by a broker-dealer as principal and resale by the broker-dealer for its account;



     - an exchange distribution in accordance with the rules of the applicable exchange;



     - privately negotiated transactions;



     - short sales effected after the date the registration statement of which this Prospectus is a
part is declared effective by the SEC;



     - through the writing or settlement of options or other hedging transactions, whether through
an options exchange or otherwise;



     - broker-dealers may agree with the selling stockholders to sell a specified number of such
shares at a stipulated price per share; and



     - a combination of any such methods of sale.



     The selling stockholders may, from time to time, pledge or grant a security interest in some
or all of the shares of common stock owned by them and, if they default in the performance of their
secured obligations, the pledgees or secured parties may offer and sell the shares of common stock,
from time to time, under this prospectus, or under an amendment to this prospectus under Rule
424(b)(3) or other applicable provision of the Securities Act amending the list of selling
stockholders to include the pledgee, transferee or other successors in interest as selling
stockholders under this prospectus. The selling stockholders also may transfer the shares



 









 




of common stock in other circumstances, in which case the transferees, pledgees or other
successors in interest will be the selling beneficial owners for purposes of this prospectus.




     In connection with the sale of our common stock or interests therein, the selling stockholders
may enter into hedging transactions with broker-dealers or other financial institutions, which may
in turn engage in short sales of the common stock in the course of hedging the positions they
assume. The selling stockholders may also sell shares of our common stock short and deliver these
securities to close out their short positions, or loan or pledge the common stock to broker-dealers
that in turn may sell these securities. The selling stockholders may also enter into option or
other transactions with broker-dealers or other financial institutions or the creation of one or
more derivative securities which require the delivery to such broker-dealer or other financial
institution of shares offered by this prospectus, which shares such broker-dealer or other
financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect
such transaction).



     The aggregate proceeds to the selling stockholders from the sale of the common stock offered
by them will be the purchase price of the common stock less discounts or commissions, if any. Each
of the selling stockholders reserves the right to accept and, together with their agents from time
to time, to reject, in whole or in part, any proposed purchase of common stock to be made directly
or through agents. We will not receive any of the proceeds from this offering. Upon any exercise
of the warrants by payment of cash, however, we will receive the exercise price of the warrants.



     The selling stockholders also may resell all or a portion of the shares in open market
transactions in reliance upon Rule 144 under the Securities Act of 1933, provided that they meet
the criteria and conform to the requirements of that rule.



     The selling stockholders and any underwriters, broker-dealers or agents that participate in
the sale of the common stock or interests therein may be “underwriters” within the meaning of
Section 2(11) of the Securities Act. Any discounts, commissions, concessions or profit they earn
on any resale of the shares may be underwriting discounts and commissions under the Securities Act.
Selling stockholders who are “underwriters” within the meaning of Section 2(11) of the Securities
Act will be subject to the prospectus delivery requirements of the Securities Act.



     To the extent required, the shares of our common stock to be sold, the names of the selling
stockholders, the respective purchase prices and public offering prices, the names of any agents,
dealer or underwriter, any applicable commissions or discounts with respect to a particular offer
will be set forth in an accompanying prospectus supplement or, if appropriate, a post-effective
amendment to the registration statement that includes this prospectus.



     In order to comply with the securities laws of some states, if applicable, the common stock
may be sold in these jurisdictions only through registered or licensed brokers or dealers. In
addition, in some states the common stock may not be sold unless it has been registered or
qualified for sale or an exemption from registration or qualification requirements is available and
is complied with.



 









 





     We have advised the selling stockholders that the anti-manipulation rules of Regulation M
under the Exchange Act may apply to sales of shares in the market and to the activities of the
selling stockholders and their affiliates. In addition, to the extent applicable we will make
copies of this prospectus (as it may be supplemented or amended from time to time) available to the
selling stockholders for the purpose of satisfying the prospectus delivery requirements of the
Securities Act. The selling stockholders may indemnify any broker-dealer that participates in
transactions involving the sale of the shares against certain liabilities, including liabilities
arising under the Securities Act.



     We have agreed to indemnify the selling stockholders against liabilities, including
liabilities under the Securities Act and state securities laws, relating to the registration of the
shares offered by this prospectus.



     We have agreed with the selling stockholders to keep the registration statement of which this
prospectus constitutes a part effective until the earlier of (1) such time as all of the shares
covered by this prospectus have been disposed of pursuant to and in accordance with the
registration statement or (2) the date on which the shares may be sold without restriction pursuant
to Rule 144 of the Securities Act.