Document:

exv10w9

Exhibit 10.9

WARRANT ACQUISITION AGREEMENT

     This Warrant Acquisition Agreement (this “Agreement”) is made as of June 21, 2010, with an
effective date of December 29, 2009, by and between Energy Focus, Inc., a Delaware corporation (the
“Company”), and The Quercus Trust (the “Investor”).

RECITALS

     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 Investor and the Investor desires to acquire from the Company,
certain warrants of the Company, as more fully described in this Agreement; this Agreement is
entered into pursuant to that certain Bonding Support Agreement of even date between the Company
and the Investor (the “Bonding Support Agreement”); capitalized terms used herein without
definition are used with the definitions assigned thereto in that Bonding Support 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 Investor 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 4.6(c).

1

 

     “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 6.1 and 6.2 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 4 is
first declared effective by the Commission.

     “Effectiveness Period” has the meaning set forth in Section 4.1(b).

     “Environmental Law” has the meaning set forth in Section 3.1(x).

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

     “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 3.1(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

2

 

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 3.1(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 3.1(e).

     “Hazardous Substance” has the meaning set forth in Section 3.1(x).

     “Indemnified Party” has the meaning set forth in Section 4.6(c).

     “Indemnified Person” has the meaning set forth in Section 4.6(a).

     “Indemnifying Party” has the meaning set forth in Section 4.6(c).

     “Intellectual Property Rights” has the meaning set forth in Section 3.1(o).

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

     “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.

     “OFAC” has the meaning set forth in Section 3.1(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

3

 

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 4.3.

     “Registrable Securities” means the Warrant Shares issuable to the Investor; provided, however,
that the Investor shall not be required to exercise the 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
Investor of the Registrable Securities.

     “Requested Information” has the meaning set forth in Section 4.3(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 4.1(a)), eleven 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 3.1(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 Investor.

     “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

4

 

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 and any other documents or
agreements executed in connection with the transactions contemplated hereunder.

     “Warrant” means the Common Stock Purchase Warrant, in the form of Exhibit A, which is
issuable to the Investor 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 Investor, and the Investor agrees to accept from the Company, a Warrant in
the form of Exhibit A to purchase 150,000 shares of Common Stock.

     Section 2.2. Consideration. As consideration for the issuance of the Warrant being
acquired at the Closing, the Investor 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 Investor the Warrant and (ii) execute and deliver to the
transfer agent for the Common Stock irrevocable instructions to issue to the Investor the Warrant.

     Section 2.4. Additional Closing Deliveries. At the Closing, the Company shall deliver
or cause to be delivered to the Investor 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.

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

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

5

 

          (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 the part of the Company
and no further corporate action is required by the Company in connection therewith[; provided,
however, that Investor shall not have the right to exercise the Warrant unless and until the
shareholders of the Company have approved this Agreement and the Warrant in 2010 at their regular
annual meeting or a special meeting held for that purpose]. 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

6

 

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 4 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 Investor and those imposed by applicable
securities laws.

          (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 designated Series A Preferred Stock and no shares are undesignated. As of the close of
business on December 31, 2009, 21,077,859 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, officers, 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, or as a result of transactions in Securities as contemplated by this Agreement and
the Member Interest Purchase Agreement dated as of December 31, 2009 relating to the acquisition of
Stones River Companies, LLC, there are no outstanding options, warrants, script 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 Investor)
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

7

 

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.

          (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 or the Company Stock Options. 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. 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

8

 

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 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

9

 

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.

          (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
Investor shall have no obligation with respect to any fees or with respect to any claims (other
than such fees or commissions owed by the Investor pursuant to written agreements executed by the
Investor which fees or commissions shall be the sole responsibility of the

10

 

Investor) 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 Investor’s
representations and warranties set forth in Section 3.2(b)-(e), no registration under the
Securities Act is required for the offer and sale of the Securities by the Company to the Investor
under the Transaction Documents.

          (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 Investor 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 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 Investor or Investor’s agents or counsel with any
information that it believes constitutes or might constitute material, non-public information. The
Company understands and confirms that the Investor will rely on the foregoing representation in
effecting transactions in securities of the Company. The Company acknowledges and agrees that the
Investor does not make or has 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.

11

 

          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 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 Investor,
nor the use of the respective proceeds thereof, shall cause the Investor 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, 2001
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

12

 

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 Investor’s 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) the Investor has not been asked by the Company to agree, nor has the
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 Investor, 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 the Investor, and
counter-parties in “derivative” transactions to which the Investor is a party, directly or
indirectly, presently may have a “short” position in the Common Stock; and (iv) that the Investor
shall not 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) the Investor may engage in hedging activities at various times
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 Investor on Form S-3 promulgated under the Securities Act;
provided, however, that no violation of this Section 3.1(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 4.1(a) below.

     Section 2.6. Representations and Warranties of the Investor. The Investor hereby
represents and warrants to the Company as follows:

          (a) Authority. This Agreement has been duly executed by the Investor, and when
delivered by the Investor in accordance with terms hereof, will constitute the valid and legally
binding obligation of the Investor, enforceable against 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,

13

 

or affecting generally the enforcement of,
creditors’ rights and remedies or by other equitable principles of general application.

          (b) Own Account. The Investor is acquiring the Securities as principal for
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 the 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. The Investor does not have any agreement or understanding, directly or
indirectly, with any Person to distribute any of the Securities.

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

          (d) Access to Information. The Investor acknowledges that the Investor has reviewed
the SEC Reports and has been afforded: (i) the opportunity to ask such questions as the Investor
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 Investor to evaluate 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. The 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. The 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 3.1.

          (g) Regulation M Compliance. The Investor has not, and to Investor’s knowledge no one
acting on 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.

14

 

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
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 the 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 the
Investor is not an “underwriter”. The Investor 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 Investor’s 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 Investor’s
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 Investor’s 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 the Investor
as an “underwriter” in such Registration Statement without the prior written consent of the
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 4 (including the
liquidated damages provisions) shall again be applicable to the Cut Back

15

 

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 Investor 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 Investor in writing promptly (and in any event within 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 Investor 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 Investor.

     Section 3.2. Registration Process. In connection with the registration of the
Registrable Securities pursuant to Section 4.1, 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.;

16

 

          (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 Investor and reflect in such
documents all such comments as the Investor (and Investor’s counsel) reasonably may propose
and furnish to the Investor and Investor’s 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 the 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 the Investor reasonably requests,
(ii) prepare and file in such jurisdictions such amendments (including post effective amendments)
and supplements to such registrations and qualifications 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 Investor 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 Investor as the
Investor may reasonably request;

          (f) As promptly as practicable after becoming aware of such event, notify the Investor (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 Investor of his Registrable Securities in accordance with the intended methods
therefor provided in the Prospectus which are customary under the circumstances;

17

 

          (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 Investor, any underwriter participating in
any disposition pursuant to the Registration Statement, and any attorney, accountant or other agent
retained by the Investor 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
Investor or any such underwriter, attorney, accountant or agent in 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 Investor 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 Investor and the other parties entitled thereto by one firm of counsel designated by
and on behalf of the majority in interest of the Investor and other parties;

          (k) In connection with any offering, make such representations and warranties to the Investor
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 the 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 the Investor may request and maintain a transfer agent for the Common Stock;

18

 

          (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 Investor, 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 Investor. In connection with the
registration of the Registrable Securities, the Investor shall have the following obligations 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 the Investor (i) shall furnish to the
Company such information regarding itself, the Registrable Securities held by it and the intended
method of disposition of the Registrable Securities held by it as shall be reasonably required to
effect the registration of such Registrable Securities and (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 the Investor of the information the Company requires from the Investor (the “Requested
Information”) if the 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 the Investor, then the Company may file the
Registration Statement without including any Registrable Securities of the Investor and the Company
shall have no further obligations under this Article 4 to the Investor after such Registration
Statement has been declared effective. If the 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 the 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) The Investor agrees to cooperate with the Company in connection with the preparation and
filing of a Registration Statement hereunder, unless the Investor has notified the Company in
writing of Investor’s election to exclude all of its Registrable Securities from such Registration
Statement;

          (c) The Investor agrees that, upon receipt of any notice from the Company of the occurrence of
any event of the kind described in Section 4.2(e) or 4.2(f), the Investor shall immediately
discontinue Investor’s disposition of Registrable Securities pursuant to the Registration Statement
covering such Registrable Securities until the Investor’s receipt of the copies of the supplemented
or amended Prospectus contemplated by Section 4.2(e) and, if so directed by the Company, the
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 the Investor’s possession (other than one
copy of any

19

 

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; and

     Section 3.4. Expenses of Registration. All expenses (other than underwriting
discounts and commissions and the fees and expenses of the Investor’s counsel) incurred in
connection with registrations, filings or qualifications pursuant to this Article 4,
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 Investor proposes to engage in an
underwritten offering, the Company shall deliver to the Investor, 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 Investor, in form and substance as is customarily given in an 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
Investor 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 4.2(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.

20

 

          (b) Indemnification by Investor. The Investor agrees, as a consequence of the
inclusion of any of 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 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 the Investor expressly for use therein or (B) the use by
the Investor of an outdated Prospectus from and after receipt by the Investor of a notice pursuant
to Section 4.2(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 the Investor shall not be liable under this Section 4.6(b) for
any amount in excess of the net proceeds paid to the 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 4.6 (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 4.6 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

21

 

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 4.6 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
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 4.6(d) were determined by pro rata allocation
(even if the Investor 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 4.6(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 Investor’s Obligations. Notwithstanding any other provision of this
Section 4.6, in no event shall the Investor have any liability under this Section 4.6 for any
amounts in excess of the dollar amount of the proceeds actually received by the 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 4.6 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 4.6 shall be in addition to any

22

 

liability
which such Indemnified Person may otherwise have to any other party. The remedies provided in this
Section 4.6 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 Investor 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 the Investor, make available other 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 or the 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) to an Affiliate of the 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 the 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 the Investor with the requirements of this

23

 

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 the 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 the Investor’s written request, the
Company shall promptly cause certificates evidencing the 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 the
Investor within three (3) Business Days of submission by the 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 the Investor, the Investor, or any third party on behalf of
the Investor or for the Investor’s account, purchases (in an open market transaction or otherwise)
shares of Common Stock to deliver in satisfaction of a sale by the Investor of shares represented
by such certificate (a “Buy-In”), then the Company shall pay in cash to the Investor (for costs
incurred either directly by such Purchaser 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 the Investor as a result of the sale to which
such Buy-In relates. The Investor shall provide the Company written notice indicating the amounts
payable to the 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
Investor, 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 Investor.

     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.

24

 

     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. The Investor agrees that the 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 set forth therein, and
acknowledges that the removal of the restrictive legend from certificates representing Securities
as set forth in Section 4.1 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 the
Investor, the Company shall not disclose any material non-public information to the Investor or
Investor’s counsel. Any such disclosure shall be made pursuant to an in accordance with a
customary non-disclosure agreement between the Company and the Investor.

     Section 4.8. Agreement not to Exercise Warrant; Reduction in Shares. (a) The Warrant
is not exercisable unless and until approved by the Company’s shareholders at its annual meeting in
2010 or at a special shareholder meeting in 2010 called for that purpose. If shareholders do not
approve the Warrant in 2010 at a special or the annual meeting, the Warrant shall terminate.

     (b) The Investor agrees that the Investor will not exercise the Warrant or the right to
assign this Agreement or the Warrant, without first having received written notice from the Company
that this Agreement and the Warrant have been approved by the Company’s Board of Directors or a
committee of the Board, and by the Company’s shareholders in 2010 at a special or the annual
meeting.

     (c) If the Company replaces and releases, or simply releases, the Deposit or the Letter of
Credit by June 30, 2010, the number of shares covered by the Warrant shall reduce to a number of
shares equal to the product of (i) the number of full months elapsed in 2010 times (ii) 12,500.

ARTICLE 5

CONDITIONS PRECEDENT TO CLOSING

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

25

 

          (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;

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

     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 Investor
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 Investor 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 Investor 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.

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, except that Company shall pay to Investor $750.00 towards Investor’s
expenses.

26

 

     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:

	 	 	 

	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 Investor:

	 	The Quercus Trust
	 

	 	1835 Newport Blvd.
	 

	 	A109-PMB 467
	 

	 	Costa Mesa, CA 92627
	 

	 	Attention: David Gelbaum
	 

	 	Facsimile No.: 949-631-6723

or such other address as may be designated by the 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 the Investor. 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.

27

 

     Section 6.5. Termination. This Agreement may be terminated prior to the Closing by
written agreement of the Investor and the Company. Upon a termination in accordance with this
Section 7.5, the Company and the Investor 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.

     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 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. Each party agrees that all Proceedings
concerning the interpretations, enforcement and of the transactions contemplated by this Agreement
and any other Transaction Documents (whether brought against a party hereto or its respective
Affiliates, employees or agents) shall be commenced exclusively in the state or federal courts
sitting in, or having jurisdiction over, New Castle County in the State of Delaware (the “Delaware
Courts”). Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the
Delaware Courts for the adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein (including with respect to the enforecement of
any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any
Proceeding, any claim that it is not personally subject to the jurisdiction of any such Delaware
Court, or that such Proceeding has been commenced in an improper or inconvenient foum. Each party
hereto hereby irrevocably waives personal service of process and consents to process being served
in any such Proceeding by mailing a copy thereof via registered or certified mail or overnight
delivery (with evidence of delivery) to such party at the address in effect for notices to it under
this Agreement and agrees that such service shall constitute good and sufficient service of process
and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to
serve process in any manner permitted by law. Each party hereto hereby irrevocably waives, to the
fullest extent permitted by applicable law, any and all right to trial by jury in any legal
proceeding arising out of or relating to this Agreement or the transactions contemplated hereby.
If either party shall commence a Proceeding to enforce any provisions of a Transaction

28

 

Document,
then the prevailing party in such Proceeding shall be reimbursed by the other party for its
reasonable attorneys’ fees and other costs and expenses incurred with the investigation,
preparation and prosecution of such Proceeding.

     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 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 Investor 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.]

29

 

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

	 	 	 	 	 
	 	COMPANY:

ENERGY FOCUS, INC.

 	 
	 	/s/ Joseph G. Kaveski
 	 
	 	Joseph G. Kaveski 	 
	 	Chief Executive Officer 	 
	 
	 	INVESTOR:

THE QUERCUS TRUST

 	 
	 	/s/ David Gelbaum
 	 
	 	David Gelbaum 	 
	 	Co-Trustee 	 
	 

Warrant Acquisition Agreement

30

 

EXHIBIT A

Form of Warrant

A-1

 

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

B-1

 

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.

B-2

 

     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.

B-3exv4w1

Exhibit 4.1

  

Otter Tail Corporation

 

Amendment No. 3

Dated as of June 23, 2010

to

Note Purchase Agreement

Dated as of February 23, 2007

 

Re: $50,000,000 Senior Note

due November 30, 2017

 

 

 

Amendment No. 3 to Note Purchase Agreement

     This Amendment dated as of June 23, 2010 (the or this “Amendment”) to the Note
Purchase Agreement dated as of February 23, 2007 is between Otter Tail Corporation, a Minnesota
corporation (the “Company”), and Cascade Investment, L.L.C. (“Cascade”).

Recitals:

     A. The Company and Cascade have heretofore entered into the Note Purchase Agreement, dated as
of February 23, 2007, as amended by a letter agreement dated December 14, 2007 and an Amendment No.
2 dated as of June 30, 2009 (as so amended, the “Note Purchase Agreement”). The Company has
heretofore issued the $50,000,000 5.778% Senior Note due November 30, 2017 (the “Note”) dated
December 14, 2007 pursuant to the Note Purchase Agreement.

     B. The Company has indicated that it intends to enter into that certain Second Amended and
Restated Credit Agreement (the “Credit Agreement”) by and between the Company, the banks from time
to time party thereto (the “Banks”), Bank of America, N.A. and JPMorgan Chase Bank, National
Association, as Co-Syndication Agents, Keybank National Association, as Documentation Agent, and
U.S. Bank National Association, as administrative agent for the Banks and as Lead Arranger.

     C. The Company and Cascade now desire to amend the Note Purchase Agreement in the respects,
but only in the respects, hereinafter set forth.

     D. Capitalized terms used herein shall have the respective meanings ascribed thereto in the
Note Purchase Agreement (as amended hereby) unless herein defined or the context shall otherwise
require.

     Now, therefore, in consideration of good and valuable consideration the receipt and
sufficiency of which is hereby acknowledged, the Company and Cascade do hereby agree as follows,
which agreement shall become effective as of the Effective Time (as defined below) upon the full
and complete satisfaction of each of the conditions precedent set forth in Section 3.1 hereof:

ARTICLE I

AMENDMENTS

     Section 1.1. Effective as of the Effective Time, the following definitions of “Credit
Agreement,” “Debt” and “Investment” set forth in Annex A to the Note Purchase Agreement shall be
amended in their entirety to read as follows:

     “Credit Agreement” shall mean the Second Amended and Restated Credit Agreement, dated
as of May 4, 2010, among the Company (formerly known as Otter Tail Holding Company), the
Banks referenced therein, Bank of America, N.A. and JPMorgan Chase Bank, National
Association, as Co-Syndication Agents, Keybank National Association, as Documentation Agent,
and U.S. Bank National Association, as Agent for

 

 

the Banks and as Lead Arranger, as amended from time to time, and any replacement or
successor agreement or agreements thereto.

     “Debt” means, with respect to any Person, without duplication,

     (a) its liabilities for borrowed money and its redemption obligations in respect of
Redeemable Preferred Stock;

     (b) its liabilities for the deferred purchase price of property acquired by such Person
(excluding accounts payable arising in the ordinary course of business but including,
without limitation, all liabilities created or arising under any conditional sale or other
title retention agreement with respect to any such property);

     (c) the principal component of its Capital Lease Obligations;

     (d) all liabilities for borrowed money secured by any Lien with respect to any property
owned by such Person (whether or not it has assumed or otherwise become liable for such
liabilities);

     (e) net liabilities under (i) any hedging agreement constituting an interest rate swap,
collar or other interest rate hedging agreement, (ii) any commodity price or foreign
exchange rate hedging agreement having a duration of one year or less to the extent the
aggregate amount of all such net liabilities exceeds $10,000,000; and (iii) any commodity
price or foreign exchange rate hedging agreement having a duration in excess of one year;

     (f) undertakings or agreements to reimburse or indemnify issuers of letters of credit
other than commercial letters of credit; and

     (g) any Guaranty of such Person with respect to Debt of a type described in any of
clauses (a) through (f) hereof, excluding ordinary course endorsements.

     Debt of any Person shall include all obligations of such Person of the character
described in clauses (a) through (g) to the extent such Person remains legally liable in
respect thereof notwithstanding that any such obligation is deemed to be extinguished under
GAAP.

     “Investment” means the acquisition, purchase, making or holding of any stock or other
security, any loan, advance, contribution to capital, extension of credit (except for trade
and customer accounts receivable for inventory sold or services rendered in the ordinary
course of business and payable in accordance with customary trade terms), any acquisitions
of real or personal property (other than real and personal property acquired in the ordinary
course of business), any hedging arrangement of the type referred to in the definition of
“Debt” and any purchase or commitment or option to purchase stock or other debt or equity
securities of or any interest in another Person or any integral part of any business or the
assets comprising such business or part thereof.

2

 

     In addition, the following definition of “Foreign Subsidiary” is added to Annex A to the Note
Purchase Agreement:

     “Foreign Subsidiary” shall mean any Subsidiary of the Company that is not organized or
incorporated under the laws of the United States, any state thereof or the District of
Columbia.

     Section 1.2. Effective as of the Effective Time, Section 7.1(e)(i) of the Note Purchase
Agreement shall be amended to read as follows:

     “(i) with respect to any Plan, any reportable event, as defined in section
4043(c) of ERISA and the regulations thereunder in effect as of January 1, 2010, for
which notice thereof has not been waived pursuant to such regulations as in effect
as of January 1, 2010.

     Section 1.3. Effective as of the Effective Time, Section 10.3 of the Note Purchase Agreement
shall be amended by deleting the word “and” appearing at the end of clause (k) and deleting the
existing clause (l) in its entirety and replacing it with clauses (l) through (o) as follows:

     “(l) Liens on securities that are the subject of repurchase agreements permitted by
Section 10.10(f) that arise in connection with the Company’s cash management program in the
ordinary course of business consistent with past practices;

     (m) Liens created as a result of any agreement to sell, transfer or otherwise dispose
of assets permitted to be sold, transferred or otherwise disposed of hereunder; provided
that such Liens relate solely to the assets to be sold, transferred or otherwise disposed
of;

     (n) Liens encumbering cash collateral or other financial assets not exceeding
$10,000,000 in aggregate value at any time outstanding securing Investments or Debt
consisting of hedging arrangements not otherwise prohibited hereunder constituting interest
rate, commodity price or foreign exchange rate exposure not entered into for any
speculative purpose; and

     (o) Liens created, assumed or incurred after the date of the Closing given to secure
Debt of the Company or any Subsidiary in addition to the Liens permitted by the preceding
clauses (a) through (n) hereof; provided that all Debt secured by Liens permitted under
this Section 10.3(o) does not exceed $5,000,000 in the aggregate at any time outstanding;”

     Section 1.4. Effective as of the Effective Time, Section 10.10 of the Note Purchase Agreement
shall be amended by deleting clause (k) and replacing it with clauses (k) through (o) as follows:

     “(k) Any Material Subsidiary may make Investments constituting loans to the Company
and provided that no Default or Event of Default shall have occurred and continued, the
Company and any Material Subsidiary may make Investments

3

 

constituting loans to (i) any Material Subsidiaries, or (ii) any Subsidiaries that are
not Material Subsidiaries and are not Otter Tail Power Company or its Subsidiaries,
provided, that such loans to any one such Subsidiary shall not exceed $15,000,000 in
aggregate principal amounts outstanding at any time, other than short-term loans arising
from the Company’s cash management program in the ordinary course of business consistent
with past practices;

     (l) in the case of Foreign Subsidiaries that are not Otter Tail Power Company or its
Subsidiaries and that become Material Subsidiaries, short-term Investments consisting of
the following:

     (i) marketable direct obligations and repurchase agreements relating to
securities issued by, or unconditionally guaranteed by, the sovereign nation in
which such Foreign Subsidiary is organized and is conducting business or issued by
any agency of such sovereign nation and backed by the full faith and credit of such
sovereign nation, in each case maturing within one year from the date of
acquisition, so long as the indebtedness of such sovereign nation is rated at least
A- by S&P or A3 by Moody’s or carries an equivalent rating from a comparable
foreign rating agency, and

     (ii) investments of the type and maturity described in clauses (d) and (e)
above of foreign obligors, which investments or obligors have capital and/or
ratings described in such clauses or equivalent ratings from comparable foreign
rating agencies;

     (m) Investments consisting of hedging arrangements not otherwise prohibited hereunder
constituting interest rate swaps, collars or other interest rate, commodity price or
foreign exchange rate hedging agreements not entered into for any speculative purpose;

     (n) Investments in the form of contingent liabilities permitted by Section 10.11; and

     (o) Investments of a Material Subsidiary acquired after the date hereof or of a
corporation merged into the Company or merged into or consolidated with a Material
Subsidiary in accordance with Section 10.4 after the date hereof to the extent that such
Investments were not made in contemplation of or in connection with such acquisition,
merger or consolidation and were in existence on the date of such acquisition, merger or
consolidation.”

     Section 1.5. Effective as of the Effective Time, Section 10.11 of the Note Purchase Agreement
shall be amended to by deleting the word “and” appearing at the end of clause (vii) and adding
clauses (viii) and (ix) as follows:

     “(viii) guaranties by the Company in connection with worker’s compensation,
unemployment insurance and other like laws, and obligations to carriers, warehousemen and
statutory landlords and guaranties of the performance of bids, tenders or trade

4

 

contracts, statutory obligations, surety or appeal bonds or other guaranties of like
general nature, in any case incurred in the ordinary course of business consistent with past
practices and not incurred in connection with the borrowing of money; and

     (ix) guaranties by the Company or any Subsidiary of the obligations of the Company or
any Material Subsidiary under any unsecured interest-bearing obligation the incurrence of
which does not cause a Default or Event of Default; provided, however, that:

     (1) prior to the issuance of a Subsidiary guaranty permitted in accordance
with this clause (ix), if such Subsidiary is not currently a Subsidiary Guarantor or
an Additional Subsidiary Guarantor under this Agreement, such Subsidiary shall
become an Additional Subsidiary Guarantor in accordance with Section 9.7;

     (2) neither Otter Tail Power Company nor any of its Subsidiaries shall provide
any guaranties of the obligations of the Company or any Material Subsidiary; and

     (3) the aggregate amount guaranteed with respect to all guaranties permitted
under this clause (ix) does not exceed $10,000,000 in the aggregate at any time
outstanding.”

     Section 1.6. Effective as of the Effective Time, Schedule 1 to the Note Purchase Agreement
shall be amended and restated to read as set forth on Exhibit A to this Amendment, which Exhibit A
is hereby made a part of the Note Purchase Agreement as Schedule 1 thereto.

     Section 1.7. Effective as of the Effective Time, a new Schedule 5.4 to the Note Purchase
Agreement shall be inserted to read as set forth on Exhibit B to this Amendment, which Exhibit B is
hereby made a part of the Note Purchase Agreement as Schedule 5.4 thereto.

     Section 1.8. Effective as of the Effective Time, a new Schedule 5.8 to the Note Purchase
Agreement shall be inserted to read as set forth on Exhibit C to this Amendment, which Exhibit C is
hereby made a part of the Note Purchase Agreement as Schedule 5.8 thereto.

     Section 1.9. Effective as of the Effective Time, a new Schedule 5.15 to the Note Purchase
Agreement shall be inserted to read as set forth on Exhibit D to this Amendment, which Exhibit D is
hereby made a part of the Note Purchase Agreement as Schedule 5.15 thereto.

     Section 1.10. Effective as of the Effective Time, a new Schedule 10.6 to the Note Purchase
Agreement shall be inserted to read as set forth on Exhibit E to this Amendment, which Exhibit E is
hereby made a part of the Note Purchase Agreement as Schedule 10.6 thereto.

     Section 1.11. Effective as of the Effective Time, a new Schedule 10.10 to the Note Purchase
Agreement shall be inserted to read as set forth on Exhibit F to this Amendment,

5

 

which Exhibit F is hereby made a part of the Note Purchase Agreement as Schedule 10.10
thereto.

ARTICLE II

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

     Section 2.1. To induce Cascade to execute and deliver this Amendment (which representations
shall survive the execution and delivery of this Amendment), the Company represents and warrants to
Cascade that:

     (a) (i) this Amendment has been duly authorized by all requisite corporate action on the part
of the Company, and (ii) this Amendment has been executed and delivered by the Company and
constitutes the legal, valid and binding agreement of the Company enforceable against it in
accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws or equitable principles relating to or limiting
creditors’ rights generally;

     (b) each of the Note Purchase Agreement, as amended by this Amendment, and the Note,
constitutes the legal, valid and binding obligation, contract and agreement of the Company
enforceable against it in accordance with its terms, except as enforcement may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable principles relating
to or limiting creditors’ rights generally;

     (c) the execution and delivery by the Company of this Amendment and the performance by the
Company of its obligations under this Amendment will not (A) violate the Articles of Incorporation
of the Company, as amended, or Bylaws of the Company, as amended, (B) violate Section 673 of the
Minnesota Business Corporation Act (the “MBCA”) or Minnesota Statutes Section 216B.48, or (C)
violate, result in the breach or modification of, conflict with, constitute a default or result in
an acceleration of any obligation under, result in the imposition of any encumbrance pursuant to,
or affect the validity or effectiveness of, any contract, permit, order or other law applicable to
the Company, except (as to clause (C) only) for any violation, breach, modification, conflict,
default, acceleration, encumbrance or effect which would not have a material adverse effect on the
Company and its Subsidiaries taken as a whole. No approval or consent, filings, notifications,
waivers or exemptions on the part of any (A) Minnesota, North Dakota or South Dakota or (B) New
York or federal, governmental authority is required to be obtained or made by the Company in
connection with the execution and delivery by it of this Amendment and the performance by the
Company of its obligations under this Amendment, except such as have been obtained or made;

     (d) as of the date hereof and after giving effect to this Amendment, no Default or Event of
Default has occurred and is continuing;

     (e) all the representations and warranties contained in Article V of the Note Purchase
Agreement are true and correct in all material respects with the same force and effect as if made
by the Company on and as of the date hereof, except as set forth on Schedule A hereto and as
modified pursuant to Exhibits A through F hereto; and

6

 

     (f) none of the Material Subsidiaries listed on Schedule 1 to the Note Purchase Agreement are
Subsidiaries of Otter Tail Power Company.

ARTICLE III

CONDITIONS TO EFFECTIVENESS OF THIS AMENDMENT

	     Section 3.1. Conditions Precedent. The amendments contained in this Amendment shall
become effective (the “Effective Time”) upon delivery by the Company of, and compliance by the
Company with, the following:

     (a) executed counterparts of this Amendment, duly executed by the Company and Cascade, shall
have been delivered to Cascade;

     (b) (i) the representations and warranties of the Company set forth in Section 2.1 hereof are
true and correct on and with respect to the date hereof and at the Effective Time, and (ii) the
Company shall have complied with all of the obligations contained in this Amendment;

     (c) no Default or Event of Default under the Note Purchase Agreement has occurred and is
continuing;

     (d) Cascade shall have received the favorable opinions of counsel to the Company as to the
matters set forth in Sections 2.1(a), 2.1(b) and 2.1(c) hereof, which opinions shall be in form and
substance satisfactory to Cascade and shall cover the matters set forth in Exhibit G to this
Amendment attached hereto;

     (e) the Company shall have paid the reasonable fees, charges and disbursements of Cascade’s
special counsel, Cleary Gottlieb Steen & Hamilton LLP, in connection with the negotiation,
preparation, approval, execution and delivery of this Amendment to the extent reflected in a
statement of such counsel rendered to Cascade and delivered to the Company; and

     (f) the Company shall have paid to Cascade a mutually agreed upon fee, which shall be
non-refundable.

ARTICLE IV

PAYMENT OF NOTEHOLDER’S COUNSEL FEES AND EXPENSES

     Section 4.1. The Company agrees to pay upon demand, the reasonable fees and expenses of Cleary
Gottlieb Steen & Hamilton LLP, counsel to Cascade, in connection with the negotiation, preparation,
approval, execution and delivery of this Amendment.

ARTICLE V

NOTEHOLDER REPRESENTATIONS AND WARRANTIES

     Section 5.1. Cascade represents that it holds all of the outstanding principal amount of the
Note.

7

 

ARTICLE VI

MISCELLANEOUS

     Section 6.1. This Amendment shall be construed in connection with and as part of the Note
Purchase Agreement, and except as modified and expressly amended by this Amendment, all terms,
conditions and covenants contained in the Note Purchase Agreement and the Note are hereby ratified
and shall be and remain in full force and effect.

     Section 6.2. Any and all notices, requests, certificates and other instruments executed and
delivered after the execution and delivery of this Amendment may refer to the Note Purchase
Agreement without making specific reference to this Amendment but nevertheless all such references
shall include this Amendment unless the context otherwise requires.

     Section 6.3. The descriptive headings of the various Sections or parts of this Amendment are
for convenience only and shall not affect the meaning or construction of any of the provisions
hereof.

     Section 6.4. This Amendment shall be governed by and construed in accordance with New York
law.

     Section 6.5. The execution hereof by you shall constitute a contract between us for the uses
and purposes hereinabove set forth, and this Amendment may be executed in any number of
counterparts, each executed counterpart constituting an original, but all together only one
agreement.

     Section 6.6. This Amendment shall terminate and have no effect on the Note Purchase Agreement
and the Note if the Effective Time has not occurred by June 30, 2010.

[Remainder of page intentionally left blank]

8

 

     The foregoing is hereby agreed to as of the date hereof.

	 	 	 	 	 
	 	Otter Tail Corporation

 	 
	 	By:  	/s/
George A. Koeck	 
	 

ACCEPTED AND AGREED TO:

CASCADE INVESTMENT, L.L.C.

	 	 	 	 	 
	 	 	 
	By:  	/s/
Alan Hueberger	 	 
	 	Name: Alan Hueberger	 	 
	 	Title: Authorized Signatory	 	 
	 

(signature page to Amendment No. 3

to Note Purchase Agreement)

 

 

SCHEDULE A

(to Amendment No. 3 to Note Purchase Agreement)

Exceptions to Representations and Warranties

as applied to Otter Tail Corporation upon and after

consummation of the Permitted Reorganization

	1.	 	The information provided in each Schedule delivered to Cascade as required by Section
5.1(g)(i) of the Amendment is true and correct only as of the date of delivery thereof,
notwithstanding any statement to the contrary in Article V of the Note Purchase Agreement.
	 
	2.	 	For purposes of Section 5.7, no order of the Minnesota Public Utilities Commission approving
the capital structure of Otter Tail Corporation is required.
	 
	3.	 	With respect to Section 5.19, Otter Tail Corporation was incorporated in June 2009 and will
not be subject to SEC reporting requirements until the Effective Time.
	 
	4.	 	With respect to Section 5.20, Otter Tail Corporation was incorporated in June 2009.

 

 

EXHIBIT A

(to Amendment No. 3 to Note Purchase Agreement)

SCHEDULE 1

(to Note Purchase Agreement)

MATERIAL SUBSIDIARIES

	1.	 	Aevenia, Inc.
	 
	2.	 	BTD Manufacturing, Inc.
	 
	3.	 	DMI Industries, Inc.
	 
	4.	 	DMS Health Technologies, Inc.
	 
	5.	 	DMS Imaging, Inc.
	 
	6.	 	Foley Company
	 
	7.	 	Idaho-Pacific Corporation
	 
	8.	 	Idaho Pacific Holdings, Inc.
	 
	9.	 	Miller Welding & Iron Works, Inc.
	 
	10.	 	Northern Pipe Products, Inc.
	 
	11.	 	ShoreMaster, Inc.
	 
	12.	 	Varistar Corporation
	 
	13.	 	Vinyltech Corporation
	 
	14.	 	E.W. Wylie Corporation
	 
	15.	 	T.O. Plastics, Inc.

 

 

EXHIBIT B

(to Amendment No. 3 to Note Purchase Agreement)

SCHEDULE 5.4

(to Note Purchase Agreement)

SUBSIDIARIES OF THE COMPANY AND OWNERSHIP OF SUBSIDIARY STOCK

The following sets forth a list of the Company’s Subsidiaries upon and after consummation of the
Permitted Reorganization showing, in each case, as to each Subsidiary, the correct name thereof,
the jurisdiction of its organization, and the percentage of shares of each class of its capital
stock or similar equity interests outstanding owned by the Company and each other Subsidiary.

	 	 	 	 	 	 	 	 	 
	 	 	 	 		 	 
	 	 	 	 		 	 
	 	 	State of	 	Number and Class of Shares Issued 

and Owned by Otter Tail 	 	 
	Company	 	Organization	 	
Corporation or its Subsidiaries	 	Footnote Ref.
	AWI Acquisition Company Limited

	 	Prince Edward 
Island
	 	1 Share Common
	 	 	(8	)
	 

	 	Canada	 	 	 	 	 	 
	Aevenia, Inc.

	 	Minnesota
	 	100 Shares Common
	 	 	(1	)
	AgraWest Investments Limited

	 	Prince Edward 
Island
	 	5,000,000 Shares Common

1,500 Shares Class C Preferred
	 	 	(9	)
	 

	 	Canada
	 	 	 	 	 	 
	Aviva Sports, Inc.

	 	Minnesota
	 	100 Shares Common
	 	 	(6	)
	BTD Manufacturing, Inc.

	 	Minnesota
	 	200 Shares Common
	 	 	(1	)
	DMI Industries, Inc.

	 	North Dakota
	 	980 Shares Common
	 	 	(1	)
	DMI Canada, Inc.

	 	Canada
	 	1 Share Common
	 	 	(4	)
	DMI Equipment, LLC

	 	Delaware
	 	100 Membership Units
	 	 	(4	)
	DMS Health Technologies, Inc.

	 	North Dakota
	 	8,500 Shares Class A
	 	 	(1	)
	 

	 	 	 	5,100 Shares Class B	 	 	 	 
	DMS Health Technologies —

	 	North Dakota
	 	1,000 Shares Common
	 	 	(10	)
	Canada, Inc.
	 	 	 	 	 	 	 	 
	DMS Imaging, Inc.

	 	North Dakota
	 	1,606 Shares Common Voting
	 	 	(2	)
	DMS Leasing Corporation**

	 	North Dakota
	 	2,500 Shares Common
	 	 	(2	)
	E. W. Wylie Corporation

	 	North Dakota
	 	100 Shares Common
	 	 	(1	)
	Foley Company

	 	Missouri
	 	50,000 Shares Common
	 	 	(1	)
	Galva Foam Marine Industries,
Inc.

	 	Missouri
	 	100,000 Shares Common
	 	 	(6	)
	Green Hills Energy, LLC

	 	Minnesota
	 	1,000 Membership Units
	 	 	(5	)
	Idaho Pacific Holdings, Inc.

	 	Delaware
	 	10,002 Shares Class A Common
(voting)
	 	 	(1	)
	Idaho-Pacific Corporation

	 	Idaho
	 	400 Shares Common
	 	 	(8	)
	Idaho-Pacific Colorado Corporation

	 	Delaware
	 	100 Shares Common
	 	 	(8	)
	Miller Welding & Iron Works, Inc.

	 	Minnesota
	 	1,000 Shares Common
	 	 	(11	)
	Moorhead Electric, Inc.

	 	Minnesota
	 	80 Shares Common
	 	 	(3	)
	Northern Pipe Products, Inc.

	 	North Dakota
	 	10,000 Shares Common
	 	 	(1	)
	Otter Tail Assurance Limited

	 	Cayman Islands
	 	50,000 Shares Common
	 	 	(7	)
	Otter Tail Energy Services
Company, Inc.

	 	Minnesota
	 	1,000 Shares Common
	 	 	(7	)
	Otter Tail Power Company

	 	Minnesota
	 	100 Shares Common
	 	 	(7	)
	Overland Mechanical Services,
Inc.

	 	Minnesota
	 	100 Shares Common
	 	 	(5	)
	Sheridan Ridge I, LLC

	 	Minnesota
	 	1,000 Membership Units
	 	 	(5	)
	Sheridan Ridge II, LLC

	 	Minnesota
	 	1,000 Membership Units
	 	 	(5	)

 

 

	 	 	 	 	 	 	 	 	 
	 	 	 	 		 	 
	 	 	 	 		 	 
	 	 	State of	 	Number and Class of Shares Issued 

and Owned by Otter Tail 	 	 
	Company	 	Organization	 	
Corporation or its Subsidiaries	 	Footnote Ref.
	Shoreline Industries, Inc.

	 	Minnesota
	 	1,000 Shares Common
	 	 	(6	)
	ShoreMaster, Inc.

	 	Minnesota
	 	100 Shares Common
	 	 	(1	)
	ShoreMaster Costa Rica SRL

	 	Costa Rica
	 	50 quotas
	 	 	(6	)
	T.O. Plastics, Inc.

	 	Minnesota
	 	100 Shares Common
	 	 	(1	)
	Varistar Corporation

	 	Minnesota
	 	100 Shares Common
	 	 	(7	)
	Vinyltech Corporation

	 	Arizona
	 	100 Shares Common
	 	 	(1	)

 

			
	(1)	 	Subsidiary of Varistar Corporation

	 
	(2)	 	Subsidiary of DMS Health Technologies, Inc.
	 
	(3)	 	Subsidiary of Aevenia, Inc.
	 
	(4)	 	Subsidiary of DMI Industries, Inc.
	 
	(5)	 	Subsidiary of Otter Tail Energy Services Company, Inc.
	 
	(6)	 	Subsidiary of ShoreMaster, Inc.
	 
	(7)	 	Subsidiary of Otter Tail Corporation
	 
	(8)	 	Subsidiary of Idaho Pacific Holdings, Inc.
	 
	(9)	 	Subsidiary of AWI Acquisition Company Limited
	 
	(10)	 	Subsidiary of DMS Imaging, Inc.
	 
	(11)	 	Subsidiary of BTD Manufacturing, Inc.
	 
	**	 	Inactive

Subsidiary Guarantors include:

BTD Manufacturing, Inc.

DMI Industries, Inc.

DMS Health Technologies, Inc.

DMS Imaging, Inc.

Foley Company

Idaho Pacific Holdings, Inc.

Aevenia, Inc. (formerly known as Midwest Construction Services, Inc.)

Northern Pipe Products, Inc.

ShoreMaster, Inc.

Vinyltech Corporation

Idaho Pacific Corporation

Varistar Corporation

E.W. Wylie Corporation

T.O. Plastics, Inc.

Miller Welding & Iron Works, Inc.

 

 

EXHIBIT C

(to Amendment No. 3 to Note Purchase Agreement)

SCHEDULE 5.8

(to Note Purchase Agreement)

CERTAIN LITIGATION

All material litigation matters affecting the Company or a Material Subsidiary are reported in
Otter Tail Corporation’s 10-K (See Item 3) filed with the SEC on February 26, 2010.

 

 

EXHIBIT D

(to Amendment No. 3 to Note Purchase Agreement)

SCHEDULE 5.15

(to Note Purchase Agreement)

INDEBTEDNESS

The following table provides a breakdown of the assignment of the Company’s consolidated
short-term and long-term debt outstanding as of March 31, 2010:

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	Otter Tail	 
	 	 	 	 	 	 	 	 	 	 	Otter Tail	 	 	Corporation	 
	(in thousands)	 	OTP	 	 	Varistar	 	 	Corporation	 	 	Consolidated	 
	 
	Lines of Credit
	 	$	63,499	 	 	 	 	 	 	$	47,000	 	 	$	110,499	 
	 
	Senior Unsecured Notes 6.63%, due December 1, 2011
	 	 	90,000	 	 	 	 	 	 	 	 	 	 	 	90,000	 
	Pollution Control Refunding Revenue Bonds,
Variable, 3.00% at March 31, 2010, due December 1, 2012
	 	 	10,400	 	 	 	 	 	 	 	 	 	 	 	10,400	 
	9.000% Notes, due December 15, 2016
	 	 	 	 	 	 	 	 	 	 	100,000	 	 	 	100,000	 
	Senior Unsecured Notes 5.95%, Series A, due August 20, 2017
	 	 	33,000	 	 	 	 	 	 	 	 	 	 	 	33,000	 
	Grant County, South Dakota Pollution Control
Refunding Revenue Bonds 4.65%, due September 1, 2017
	 	 	5,125	 	 	 	 	 	 	 	 	 	 	 	5,125	 
	Senior Unsecured Note 8.89%, due November 30, 2017
	 	 	 	 	 	 	 	 	 	 	50,000	 	 	 	50,000	 
	Senior Unsecured Notes 6.15%, Series B, due August 20, 2022
	 	 	30,000	 	 	 	 	 	 	 	 	 	 	 	30,000	 
	Mercer County, North Dakota Pollution Control
Refunding Revenue Bonds 4.85%, due September 1, 2022
	 	 	20,390	 	 	 	 	 	 	 	 	 	 	 	20,390	 
	Senior Unsecured Notes 6.37%, Series C, due August 20, 2027
	 	 	42,000	 	 	 	 	 	 	 	 	 	 	 	42,000	 
	Senior Unsecured Notes 6.47%, Series D, due August 20, 2037
	 	 	50,000	 	 	 	 	 	 	 	 	 	 	 	50,000	 
	Obligations of Varistar Corporation — Various up to 13.31% at
March 31, 2010
	 	 	 	 	 	$	6,471	 	 	 	 	 	 	 	6,471	 
	 
	Total
	 	$	280,915	 	 	$	6,471	 	 	$	150,000	 	 	$	437,386	 
	Less:
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Current Maturities
	 	 	—	 	 	 	916	 	 	 	—	 	 	 	916	 
	Unamortized Debt Discount
	 	 	—	 	 	 	386	 	 	 	6	 	 	 	392	 
	 
	Total Long-Term Debt
	 	$	280,915	 	 	$	5,169	 	 	$	149,994	 	 	$	436,078	 
	 
	Total Short-Term and Long-Term Debt (with current maturities)
	 	$	344,414	 	 	$	6,085	 	 	$	196,994	 	 	$	547,493	 
	 

The 8.89% Senior Unsecured Note due 2017 is guaranteed by Varistar Corporation and certain of
its Subsidiaries. The Grant County and Mercer County pollution control refunding revenue bonds are
covered under a financial guaranty insurance policy provided by Ambac Assurance Corporation.

The Company’s obligations under that certain Second Amended and Restated Credit Agreement dated May
4, 2010 with U.S. Bank National Association, as Administrative Agent and other lenders thereunder
are guaranteed by certain of the Company’s Subsidiaries.

 

 

EXHIBIT E

(to Amendment No. 3 to Note Purchase Agreement)

SCHEDULE 10.6

(to Note Purchase Agreement)

TRANSACTIONS WITH RELATED PARTIES

None

 

 

EXHIBIT F

(to Amendment No. 3 to Note Purchase Agreement)

SCHEDULE 10.10

(to Note Purchase Agreement)

INVESTMENTS

The following is a list of Investments of the Company and its Material Subsidiaries as of March 31,
2010:

	 	 	 	 	 

	Investment in Affordable Housing (OTC)
	 	 	908,249	 
	Investment in Loan Pools (OTP)
	 	 	465,116	 
	Investments — Bank of Butterfield (OTAL)
	 	 	8,609,449	 
	CoBank (St Paul Bank for Coop’s) (VSC)
	 	 	183,819	 
	Other Miscellaneous (OTP, OTESCO)
	 	 	107,162	 
	 
	 	 	 
	 
	Total Investments of Otter Tail Corporation
and Subsidiaries
	 	$	10,273,795	 
	 
	 	 	 

 

 

EXHIBIT G

(to Amendment No. 3 to Note Purchase Agreement)

DESCRIPTION OF OPINION OF COUNSEL

[See attached]

 

 

[Form of Opinion of Dorsey & Whitney LLP]

June 23, 2010

Cascade Investment, L.L.C.

2365 Carillon Point

Kirkland, Washington 98033

Ladies and Gentlemen:

     We have acted as special counsel to Otter Tail Corporation, a Minnesota corporation (the
“Company”), in connection with that certain Amendment No. 3 dated as of June 23, 2010, to the Note
Purchase Agreement dated as of February 23, 2007 (the “Amendment”), between the Company and Cascade
Investment, L.L.C. (“Cascade”), which amends that certain Note Purchase Agreement, dated as of
February 23, 2007 (the “Original Note Purchase Agreement”), as amended by a letter agreement dated
December 14, 2007 (the “Letter Agreement”) and Amendment No. 2 dated as of June 30, 2009
(“Amendment No. 2”) (the Original Note Purchase Agreement, as amended by the Letter Agreement and
Amendment No. 2, being referred to herein as the “Note Purchase Agreement”), between the Company
and Cascade relating to the issuance and sale by the Company of its 8.89% Senior Note due November
30, 2017 in the aggregate principal amount of $50,000,000 (the “Note”; the Amendment, the Note
Purchase Agreement and the Note may be referred to herein as the “Transaction Documents”). This
opinion is being delivered to you pursuant to Section 3.1(b) of the Amendment. Capitalized terms
used herein, except as otherwise specifically defined herein, are used with the same meaning as
defined in the Note Purchase Agreement, as amended by the Amendment.

     In connection with this opinion, we have examined such documents and reviewed such questions
of law as we have considered necessary and appropriate for the purposes of this opinion.

     In rendering the opinions expressed below, we have assumed, with Cascade’s permission and
without verification:

	 	(a)	 	the authenticity of all documents submitted to us as originals,
	 
	 	(b)	 	the genuineness of all signatures,
	 
	 	(c)	 	the legal capacity of natural persons,
	 
	 	(d)	 	the conformity to originals of all documents submitted to us as copies and the
authenticity of the originals of such copies,

 

 

June 23, 2010

Page 2

	 	(e)	 	the accuracy as to factual matters of the representations and warranties of the
Company and Cascade contained in the Transaction Documents,
	 
	 	(f)	 	that all conditions precedent to the effectiveness of the Amendment have been
satisfied or waived,
	 
	 	(g)	 	that each party to the Transaction Documents is validly existing and in good
standing under the laws of its jurisdiction of organization and has the requisite
power and authority to execute, deliver and perform its obligations under each of
the Transaction Documents to which it is a party,
	 
	 	(h)	 	that the execution and delivery of the Transaction Documents has been duly
authorized by all necessary corporate action and proceedings on the part of each party
to the Transaction Documents, and the Transaction Documents have been duly executed and
delivered by each party to the Transaction Documents,
	 
	 	(i)	 	that execution, delivery and performance of the Transaction Documents does not
violate any provision of the articles or certificate of incorporation, by-laws or other
organizational documents of any party to the Transaction Documents or require the
approval of such party’s shareholders, except any approval which has been obtained and
remains in effect,
	 
	 	(j)	 	that each of the Transaction Documents constitutes the valid and binding
obligation of each of the parties thereto other than the Company, enforceable against
such parties in accordance with their respective terms,
	 
	 	(k)	 	that the execution and delivery by the Company of, and performance of its
respective obligations under, each Transaction Document to which the Company is a party
will not violate any order of any governmental authority to which the Company is
subject or (except as provided in numbered paragraphs 3, 4 and 5) the laws under which
the Company is organized, and
	 
	 	(l)	 	that the execution and delivery by the Company of, and performance of its
respective obligations under, each Transaction Document to which the Company is a party
will not constitute or result in a breach or modification of, conflict with, constitute
a default or result in an acceleration of any obligation under, result in any
encumbrance pursuant to, or affect the validity or effectiveness of any contract,
permit, order or (except as provided in numbered paragraphs 3, 4 and 5) other law
applicable to the Company.

     Our opinions expressed below as to certain factual matters are qualified as being limited
“to our knowledge” or by other words to the same or similar effect. Such words, as used herein,
mean that prior to or during the course of this firm’s representation of the Company in connection
with the specific transactions contemplated by the Note Purchase Agreement, as amended by the
Amendment, no contrary information came to the attention (but not including any constructive or
imputed notice) of the attorneys currently with our firm who have given substantive attention to
matters on behalf of the Company. In rendering such opinions, we have not conducted any
independent investigation of the Company, consulted with other attorneys in our firm with respect
to the matters covered thereby, or reviewed any of our prior files involving

 

 

June 23, 2010

Page 3

the Company. Finally, no inference as to our knowledge with respect to the factual matters upon which we have so
qualified our opinions should be drawn from the fact of our representation of the Company.

     Based on the foregoing, we are of the opinion that:

     1. The Amendment constitutes the legal, valid and binding agreement of the Company
enforceable against the Company in accordance with its terms.

     2. Each of the Note Purchase Agreement, as amended by the Amendment, and the Note
constitutes the legal, valid and binding agreement of the Company enforceable against the Company
in accordance with its terms. Notwithstanding the execution of the Amendment, pursuant to the
Sections 4(a) and 4(c) of the Guaranty Agreement, the guaranty under the Guaranty Agreement by each
of the Subsidiary Guarantors listed in Schedule 5.4 to the Amendment remains in full force and
effect.

     3. No approval or consent of, filing with, notification to, or waiver or exemption
from, any Minnesota, New York or federal governmental authority (other than any Minnesota, New York
or federal governmental authority regulating public utilities or public utility holding companies,
as to which we express no opinion) is required to be obtained or made by the Company in connection
with its execution and delivery of the Amendment or the performance by the Company of its
obligations pursuant to the Note Purchase Agreement, as amended by the Amendment, except for such
approvals, consents, filings, notifications, waivers or exemptions as have been obtained or made
and except that we express no opinion regarding any federal securities laws (other than as provided
in our opinion in paragraph 5, below), or the securities or “Blue Sky” laws of any state.

     4. Assuming the accuracy and performance of, and compliance with, the
representations, warranties and agreements of the Company and Cascade in the Note Purchase
Agreement, as amended by the Amendment, the issuance and delivery of the Note under the
circumstances contemplated by the Note Purchase Agreement, as amended by the Amendment, do not,
under existing law, require the registration of the Note under the Securities Act of 1933.

     5. The Company is not an “investment company” as such term is defined in the
Investment Company Act of 1940, as amended, and to our knowledge, based solely on our review of the
statements of beneficial ownership of the Company’s stock filed as of the date hereof with the SEC,
and in reliance upon certificates of officers of the Company, the Company is not “controlled” by an
“investment company” within the meaning of the Investment Company Act of 1940, as amended.

     The opinions set forth above are subject to the following qualifications and exceptions:

(a) Our opinions above in paragraphs 1 and 2 are subject to the effect of any
applicable bankruptcy, insolvency, reorganization, arrangement, moratorium,
fraudulent transfer, statutes of limitation or other similar laws and judicial
decisions affecting or relating to the rights of creditors generally.

 

 

June 23, 2010

Page 4

(b) Our opinions above in paragraphs 1 and 2 above are subject to the effect of
general principles of equity, including without limitation, concepts of materiality,
reasonableness, good faith and fair dealing, estoppel, election of remedies and
other similar doctrines affecting the enforceability of agreements generally
(regardless of whether considered in a proceeding in equity or at law). In
addition, the availability of specific performance, injunctive relief, the
appointment of a receiver or other equitable remedies is subject to the discretion
of the tribunal before which any proceeding therefor may be brought.

(c) We express no opinion as to the enforceability of provisions in the Transaction
Documents to the extent they contain obligations of the Company to pay any
prepayment premium, default interest rate or other form of liquidated damages if the
payment of such premium, interest rate or damages may be construed as unreasonable
in relation to the actual damages or disproportionate to actual damages suffered by
the Purchaser as a result of such prepayment or default.

(d) We express no opinion as to the enforceability of the 2001 Note Purchase
Agreement and any Credit Agreement which may be deemed to be incorporated by
reference into the Note Purchase Agreement pursuant to Section 10.7 of the Note
Purchase Agreement or as to the effect such incorporation may have on the
enforceability of the Note Purchase Agreement or the Note.

(e) We express no opinion as to the validity, binding effect or enforceability of
(i) any provision of the Transaction Documents related to choice of law, forum
selection or submission to jurisdiction (including, without limitation, any express
or implied waiver of any objection to venue in any court or of any objection that a
court is an inconvenient forum) to the extent that the validity, binding effect or
enforceability of any such provision is to be determined by any court other than a
court of the State of New York, (ii) waivers by the Company of any statutory or
constitutional rights or remedies, (iii) terms which excuse any person or entity
from liability for such person’s or entity’s negligence or willful misconduct, (iv)
cumulative remedies to the extent such cumulative remedies purport to compensate, or
would have the effect of compensating, the party entitled to the benefits thereof in
an amount in excess of the actual loss suffered by such party, (v) provisions
providing that waivers or consents by a party may not be given effect unless in
writing or that one or more waivers may not under certain circumstances constitute a
wavier of other matters of the same kind, or (vi) terms purporting to establish
evidentiary standards.

(f) We express no opinion as to compliance or the effect of noncompliance by Cascade
with any state or federal laws or regulations applicable to Cascade in connection
with the transactions described in the Transaction Documents.

(g) In rendering our opinion in paragraph 3 above, we do not express any opinion
with respect to any approval or consent of, filing with, notification to, or waiver
or exemption from, any Minnesota, New York or federal governmental authority
required generally in connection with the business or operations of the Company.

 

 

June 23, 2010

Page 5

     The opinions expressed above are limited to the laws of the States of Minnesota and New York
and the federal laws of the United States and we express no opinion as to the laws of any other
jurisdiction.

     The opinions expressed herein are based on an analysis of existing laws and court decisions
and cover certain matters not directly addressed by such authorities. This opinion is
solely for the benefit of the addressee hereof in connection with the transaction described in
the first paragraph of this letter, may not be relied upon by the addressee hereof for any other
purpose, and may not be relied upon or used by, circulated, quoted, or referred to, nor may copies
hereof be delivered to, another person for any purpose without our prior written approval,
provided, however, that such permitted reliance shall not imply or establish an attorney-client
relationship between such relying party and this firm with respect to the Transaction Documents or
the transactions contemplated thereby, and such relying party by relying on our opinion disclaims
any such attorney-client relationship with respect to the Transaction Documents or the transactions
contemplated thereby. We disclaim any obligation to update this opinion letter for events
occurring or coming to our attention, or any changes in the law taking effect, after the date
hereof.

Very truly yours,

LJG/SK

 

 

[Form of Opinion of General Counsel]

June 23, 2010

Cascade Investment, L.L.C.

2365 Carillon Point

Kirkland, Washington 98033

Ladies and Gentlemen:

     I have acted as counsel to Otter Tail Corporation, a Minnesota corporation (the “Company”), in
connection with that certain Amendment No. 3 dated as of June 23, 2010 to Note Purchase Agreement
dated as of February 23, 2007 (the “Amendment No. 3”), between the Company and Cascade Investment,
L.L.C. (“Cascade”), which amends that certain Note Purchase Agreement, dated as of February 23,
2007 (the “Original Note Purchase Agreement”), as amended by a letter agreement dated December 14,
2007 (the “Letter Agreement”) and Amendment No. 2 dated as of June 30, 2009 (“Amendment No. 2”)
(the Original Agreement, as amended by the Letter Agreement and Amendment No. 2 being referred to
herein as the “Note Purchase Agreement”), between the Company and Cascade relating to the issuance
and sale by the Company of its 8.89% Senior Note due November 30, 2017 in the aggregate principal
amount of $50,000,000. This opinion is being delivered to you pursuant to Section 3.1(b) of the
Amendment No. 3. Capitalized terms used herein, except as otherwise specifically defined herein,
are used with the same meaning as defined in the Note Purchase Agreement.

     In connection with this opinion I have examined such documents and reviewed such questions of
law as I have considered necessary and appropriate for the purposes of this opinion.

     In rendering my opinions set forth below, I have assumed the authenticity of all documents
submitted to me as originals, the genuineness of all signatures (other than the signatures of
officers of the Company) and the conformity to authentic originals of all documents submitted to me
as copies. I also have assumed the legal capacity for all purposes relevant hereto of all natural
persons and, with respect to all parties to agreements or instruments relevant hereto other than
the Company, that such parties had the requisite power and authority (corporate or otherwise) to
execute, deliver and perform such agreements or instruments, that such agreements or instruments
have been duly authorized by all requisite action (corporate or otherwise), executed and delivered
by such parties and that such agreements or instruments are the valid, binding and enforceable
obligations of such parties. I have also assumed that all conditions precedent to the
effectiveness of Amendment No. 3 have been satisfied or waived contemporaneously with the delivery
of this opinion letter. As to questions of fact material to my opinion, I have relied upon
representations and certificates of officers and other employees of the Company and its
subsidiaries (in each case known by me to have authority to make such representations and
certifications on behalf of the Company), and certificates of public officials.

 

 

June 23, 2010

Page 2

     Based on the foregoing, I am of the opinion that:

	 	1.	 	The Company is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation and is duly licensed or
qualified and is in good standing in each jurisdiction in which the character of the
properties owned or leased by it or the nature of the business transacted by it makes
such licensing or qualification necessary, except where failure to be so licensed or to
so qualify or to be in good standing would not result in a Material Adverse Effect.
	 
	 	2.	 	No approval or consent of, filing with, notification to, or waiver or exemption
from, any Minnesota or North Dakota governmental authority or any Minnesota, North
Dakota or other federal governmental authority regulating public utilities or public
utility holding companies, is required to be obtained or made by the Company in
connection with its execution and delivery of Amendment No. 3 or the performance by the
Company of its obligations pursuant to the Note Purchase Agreement, as amended by
Amendment No. 3, except for such approvals, consents, filings, notifications, waivers
or exemptions as have been obtained or made.
	 
	 	3.	 	The execution and delivery by the Company of Amendment No. 3 and the
performance by the Company of its obligations under Amendment No. 3 will not (a)
violate the articles of incorporation or bylaws of the Company, (b) violate Section 673
of the Minnesota Business Corporation Act or Minnesota Statutes Section 216B.48, or (c)
violate, result in the breach or modification of, conflict with, constitute a default
or result in an acceleration of any obligation under, result in the imposition of any
encumbrance pursuant to, or affect the validity or effectiveness of, any contract,
permit, order or other law applicable to the Company, except (as to clause (c) only)
for any violation, breach, modification, conflict, default, acceleration, encumbrance
or effect which would not have a Material Adverse Effect and except that I express no
opinion regarding any federal securities laws or the securities or “Blue Sky” laws of
any state.
	 
	 	4.	 	The execution and delivery by the Company of Amendment No. 3 and the
performance by the Company of its obligations under the Note Purchase Agreement, as
amended by Amendment No. 3, have been duly authorized by all requisite corporate
actions on the part of the Company, and Amendment No. 3 and has been duly executed and
delivered by the Company.
	 
	 	5.	 	There is no litigation pending or, to the best of my knowledge, threatened
which in my opinion could reasonably be expected to have a Material Adverse Effect on
the Company or that would impair the ability of the Company to comply with the
provisions of the Note Purchase Agreement.

 

 

June 23, 2010

Page 3

	 	6.	 	Notwithstanding the execution of the Amendment, pursuant to Sections 4(a) and
4(c) of the Guaranty Agreement, the guaranty under the Guaranty Agreement by each of
the Subsidiary Guarantors listed in Schedule 5.4 to the Amendment remains in full force
and effect.

     The opinions expressed above are limited to the laws of the States of Minnesota and North
Dakota and the federal laws of the United States. I express no opinion as to the laws of any other
jurisdiction.

     The foregoing opinions are being furnished to you solely for your benefit (and the benefit of
your successors and assigns) and may not be relied upon by, nor may copies be delivered to, any
other person without my prior written consent.

Very truly yours,

George A. Koeck

General Counsel and Corporate Secretary

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00175-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00175-of-00352.parquet"}]]