Document:

Exhibit

10.1

 

 

 

ELECTRIC CITY CORP.

 

SECURITIES PURCHASE AGREEMENT

 

Dated as of June 27, 2003

 

 

 

 

SECURITIES PURCHASE AGREEMENT

 

This Securities Purchase

Agreement (as it may be amended from time to time, this “Agreement”), is

entered into as of June 27, 2003 by Electric City Corp., a Delaware corporation

(the “Company”), and the purchasers whose names appear on the signature

page of this Agreement (each, a “Purchaser” and collectively, the “Purchasers”).

 

W I T N E S S E T H:

 

WHEREAS, the Company

desires to sell and issue to the Purchasers shares of its Series D Convertible

Preferred Stock, par value $0.01 par value per share (“Series D Preferred

Stock”), warrants to purchase shares of Series D Preferred Stock, shares of

the Company’s common stock, par value $0.0001 (“Common Stock”), and

warrants to purchase shares of its Common Stock, all as more fully described

herein; and

 

WHEREAS, each Purchaser

severally and jointly desires to purchase such securities from the Company in

the amounts and for the purchase price and otherwise on the terms and subject

to the conditions set forth herein.

 

NOW, THEREFORE, in

consideration of the premises and the mutual agreements contained herein, the

parties hereto hereby agree as follows:

 

ARTICLE I

DEFINITIONS

 

1.1                                 The

following terms when used in this Agreement, including its preamble and

recitals, shall, except where the context otherwise requires, have the

following meanings, such meanings to be equally applicable to the singular and

plural forms thereof:

 

“Affiliate”

means, as applied to any Person, any other Person that, directly or indirectly,

controls, is controlled by or is under common control with such Person.  For the purposes of this definition,

“control” (including, with correlative meanings, the terms “controlled by” and

“under common control with”), as applied to any Person, shall mean the

possession, directly or indirectly, of the power to direct or cause the

direction of the management and policies of such Person, whether through the

ownership of voting securities or by contract or otherwise.

 

“Agreement”

shall have the meaning set forth in the preamble of this Agreement.

 

“Ancillary

Agreements” means the Series D Warrants, the Common Stock Warrants, the

Joinder to the Investor Rights Agreement (and the Investor Rights Agreement as

amended thereby) and the Stock Trading Agreement.

 

“Assets”

shall have the meaning set forth in Section 5.5 hereof.

 

“Business

Day” means any day other than a Saturday, Sunday or other day on which

commercial banks in the City of Chicago are authorized or required by law or

executive order to close.

 

“Certificate

of Designation” means the Certificate of Designations, Preferences and

Relative, Participating, Optional and Other Special Rights of Preferred Stock

and

 

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Qualifications,

Limitations and Restrictions Thereof of Series D Convertible Preferred Stock of

Electric City Corp., in substantially the form of Exhibit A hereto, as

the same is filed with the Secretary of State of Delaware and as it may be

amended from time to time.

 

“Certificate

of Incorporation” means the Certificate of Incorporation of the Company, as

amended or restated from time to time.

 

“Closing”

shall have the meaning set forth in Section 2.2 hereof.

 

“Closing

Date” shall have the meaning set forth in Section 2.2 hereof.

 

“Code”

means the Internal Revenue Code of 1986, as amended.

 

“Commission”

means the United States Securities and Exchange Commission or any other

governmental authority at the time administering the Securities Act or the

Exchange Act.

 

“Commission

Documents” shall have the meaning set forth in Section 5.16 hereof.

 

“Common

Shares” means the shares of Common Stock to be issued by the Company to the

Purchasers hereunder.

 

“Common

Stock” shall have the meaning set forth in the Recitals hereof.

 

“Common

Stock Warrants” means the warrants to be issued by the Company to

Purchasers to purchase an aggregate of 210,938 shares of Common Stock, as

evidenced by Warrant Certificates, as any of the same may be amended from time

to time in accordance with the terms thereof.

 

“Common

Stock Warrants Issued to Existing Preferred Holders” means the warrants to

purchase common stock of the Company which have been issued to each of the

Series A Preferred Stock Holders and the Series C Preferred Stock Holder.

 

“Company”

shall have the meaning set forth in the preamble of this Agreement.

 

“Company

IP” shall have the meaning set forth in Section 5.13 hereof.

 

“Exchange

Act” means the Securities Exchange Act of 1934, as amended, or any similar

or successor federal statute, and the rules and regulations of the Commission

thereunder, all as the same shall be in effect from time to time.

 

“Governmental

Authority” means the government of any nation, state or other political

subdivision thereof, any entity exercising executive, legislative, judicial,

regulatory or administrative functions of or pertaining to government, and any

corporation or other entity owned or controlled, through stock or capital

ownership or otherwise, by any of the foregoing.

 

“Investor

Rights Agreement” means the Investor Rights Agreement dated as of July 31,

2001, by and among the Company and the Series A Preferred Stock Holders, as

amended by the Consent and Amendment of Securities Purchase Agreement, Stock

 

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Trading Agreement,

Stockholders Agreement and Investor Rights Agreement dated as of November 29,

2001 among the same parties and certain other Persons and by the Joinder and

First Amendment to Investor Rights Agreement dated as of June 4, 2002, by and

among the same parties, certain other Persons named therein and Richard P.

Kiphart, an individual, as amended, restated, modified or supplemented and in

effect from time to time.

 

“Joinder

to Investor Rights Agreement” means that certain Joinder and Second

Amendment to Investor Rights Agreement, substantially in the form of Exhibit

B hereto, to be executed and delivered by the parties thereto in connection

with Closing hereunder.

 

“Liquidation

Amount” shall have the meaning set forth in the Certificate of

Designations.

 

“Litigation”

shall have the meaning set forth in Section 3.1(e) hereof.

 

“Losses”

shall have the meaning set forth in Section 7.1 hereof.

 

“Officer’s

Certificate” means a certificate of the Company signed by its Chief

Executive Officer or Chief Financial Officer.

 

“Person”

means an individual, a corporation, a limited liability company, an

association, a partnership, a trust or estate, a government or any department

or agency thereof.

 

“Placement

Agent” shall mean Delano Group Securities, LLC.

 

“Preferred

Stock Certificates of Designation” means, collectively, (i) the Certificate

of Designations, (ii) the Series A Certificate of Designations, and (iii) the

Series C Certificate of Designations.

 

“Purchaser”

shall have the meaning set forth in the preamble of this Agreement.

 

“Registration

Statement” shall have the meaning set forth in Section 4.4 hereof.

 

“Regulatory

Approvals” means (a) any and all certificates, permits, licenses,

franchises, concessions, grants, consents, approvals, orders, registrations,

authorizations, waivers, variances, exemptions, declarations, or clearances

from, or filings or registrations with, or reports or notices to, any

Governmental Authority, and (b) any and all waiting periods imposed by

applicable laws.

 

“Securities”

shall have the meaning set forth in Section 2.1 hereof.

 

“Securities

Act” means the Securities Act of 1933, as amended, and any similar or

successor federal statute, and the rules and regulations of the Commission

thereunder, all as the same may be in effect from time to time.

 

“Series

A Preferred Stock Holders” means, collectively, Newcourt Capital USA Inc.,

a Delaware corporation, Newcourt Capital Securities, Inc., a Delaware

corporation, EP Power Finance L.L.C., a Delaware limited liability company,

Morgan Stanley Dean Witter Equity Funding, Inc., a Delaware corporation,

Originators Investment Plan, L.P., a

 

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Delaware limited

partnership, Duke Capital Partners, LLC, a Delaware limited liability company

and Leaf Mountain Company, LLC, an Illinois limited liability company.

 

“Series

A Certificate of Designations” means the Certificate of Designations,

Preferences and Relative, Participating, Optional and Other Special Rights of

Preferred Stock and Qualifications, Limitations and Restrictions Thereof of

Series A Convertible Preferred Stock of Electric City Corp. which has been

filed by the Company with the Secretary of State of Delaware, as it may be amended

from time to time.

 

“Series

C Preferred Stock Holder” means Richard P. Kiphart, an individual.

 

“Series

C Certificate of Designations” means the Certificate of Designations,

Preferences and Relative, Participating, Optional and Other Special Rights of

Preferred Stock and Qualifications, Limitations and Restrictions Thereof of

Series A Convertible Preferred Stock of Electric City Corp. which has been

filed by the Company with the Secretary of State of Delaware, as it may be

amended from time to time.

 

“Series

D Preferred Stock” shall have the meaning set forth in the Recitals to this

Agreement.

 

“Series

D Warrants” shall mean the warrants to be issued by the Company to

Purchasers to purchase an aggregate of 37,500 shares of Series D Preferred

Stock, as evidenced by Warrant Certificates, as any of the same may be amended

from time to time in accordance with the terms thereof.

 

“Stated

Value” of the Series D Preferred Stock shall mean $10.00 per share.

 

“Stock

Trading Agreement” means a Stock Trading Agreement, substantially in the

form of Exhibit C hereto, dated as of the Closing Date and entered into by the

Company and the Purchasers, as the same may be amended from time to time in

accordance with the terms thereof.

 

“Subsidiary”

of a Person means any corporation, association, partnership, joint venture or

other business entity of which more than 50% of the voting stock or other

equity interests (in the case of Persons other than corporations), is owned or

controlled, directly or indirectly, by the Person, or one or more of the

Subsidiaries of the Person, or a combination thereof.

 

“Taxes”

means any federal, state, county, local or foreign taxes, charges, fees,

levies, or other assessments, including, without limitation, all net income,

gross income, sales and use, ad valorem, transfer, gains, profits, excise,

franchise, real and personal property, gross receipt, capital stock, business

and occupation, disability, employment, payroll, license, estimated, or

withholding taxes or charges imposed by any governmental entity, and includes

any interest and penalties on or additions to any such taxes (and, in the case

of the Company and its Subsidiaries, Taxes for which the Company or any of its

Subsidiaries may be liable in its own right, or as the transferee of the assets

of, or as successor to, any other corporation, association, partnership, joint

venture, or other entity, or under Treasury Regulation Section 1.1502-6 or any

similar provision of state or local law).

 

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“Tax

Return” means a report, return or other information required to be supplied

to a Governmental Authority with respect to Taxes including, where permitted or

required, combined, unitary, group or consolidated returns for any group of

entities that includes the Company or any of its Subsidiaries.

 

“Transactions”

shall have the meaning set forth in Section 3.1(e).

 

“Transaction

Documents” shall have the meaning set forth in Section 5.1(b)

hereof.

 

“Warrant

Certificate” means a warrant certificate evidencing Common Stock Warrants

or Series D Warrants, duly executed by the Company and delivered to the

Purchaser pursuant to this Agreement, and any replacement certificate issued by

the Company in respect thereof pursuant to partial exercise, transfer, loss or

mutilation of such warrant certificate, as such original or replacement

certificate may be amended and in effect from time to time.

 

ARTICLE II

ISSUE, PURCHASE AND SALE OF THE SECURITIES

 

2.1           Authorization

of Issuance of Securities.  The

Company has authorized the initial issuance of (a) 150,000 shares of Series D

Preferred Stock, (b) the Series D Warrants, (c) 22,562 Common Shares to be

issued hereunder, and (d) the Common Stock Warrants, collectively referred to

herein as the “Securities”.

 

2.2           Purchase

and Sale of Securities; Closing. 

Subject to the terms and conditions herein set forth, the Company hereby

agrees to sell to each Purchaser, and each Purchaser severally and not jointly

agrees to purchase from the Company, at the Closing (as defined herein), shares

of Series D Preferred Stock, Series D Warrants, Common Shares and Common Stock

Warrants in the amounts indicated on Schedule I attached hereto with respect to

such Purchaser for the aggregate purchase price set forth on Schedule I to be

paid by such Purchaser.  Subject to the

satisfaction or waiver of the parties’ respective conditions to closing set

forth in Sections 3.1 and 3.2, the closing of the purchase and sale of the

Securities (the “Closing”) shall take place on June 27, 2003, or at such other

time and on such other date as the Purchasers and the Company may agree (the “Closing

Date”), at the offices of the Company or at such other location as the

Purchasers and the Company may agree. 

At the Closing, the Company will deliver to each Purchaser two or more

stock certificates, as such Purchaser may request, registered in such

Purchaser’s name (or in its nominee name if designated by Purchaser) evidencing

the shares of Series D Preferred Stock and Common Stock to be purchased by

Purchaser, together with the Series D Warrants and Common Stock Warrants to be

purchased by such Purchaser, against payment of the applicable purchase price

therefore by wire transfer of immediately available funds to or upon the order

by the Company.

 

ARTICLE III

CONDITIONS OF CLOSING

 

3.1                                 Purchasers’

Conditions to Closing.  Each

Purchaser’s obligation to purchase and pay for the Securities to be purchased

by such Purchaser at the Closing is subject to the satisfaction, as determined

by, or waived by, such Purchaser on or before the Closing Date, of the

following conditions:

 

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(a)                                  Receipt of

Securities.  Such

Purchaser shall have received delivery of the stock certificates and Warrant

Certificates evidencing the Securities to be purchased by such Purchaser, duly

issued by the Company;

 

(b)                                 Opinion of

the Company’s Counsel. 

Such Purchaser shall have received from Schwartz, Cooper, Greenberger

& Krauss, Chartered, special counsel to the Company in connection with this

transaction, an opinion dated on the Closing Date in form and substance

reasonably satisfactory to such Purchaser;

 

(c)                                  Stock

Trading Agreement. 

The Stock Trading Agreement shall have been entered into by the Company

and each Purchaser hereunder;

 

(d)                                 No Litigation;

No Order.  No action, suit or

proceeding relating to the transactions contemplated by this Agreement or any

Ancillary Agreement (the “Transactions”) shall be pending that in the

reasonable good faith judgment of such Purchaser (i) seeks to restrain or

prevent any of the Transactions and has a reasonable probability of success or

(ii) is reasonably likely to have a material adverse effect on the assets,

business, prospects, properties, operations or conditions (financial or

otherwise) of the Company and its Subsidiaries, taken as a whole, and no order

(including, without limitation, a temporary restraining order), decree, writ,

judgment or injunction shall be in effect that restrains, enjoins or prevents

the consummation of the transactions contemplated by this Agreement or any

Ancillary Agreement (collectively, “Litigation”);

 

(e)                                  Proceedings.  On or prior to the Closing Date, all

corporate and other proceedings required to be taken under applicable laws,

rules and all regulations and all rules of The American Stock Exchange in

connection with the transactions contemplated by this Agreement or any

Ancillary Agreement shall have been taken and all filings and documents

incident thereto shall be reasonably satisfactory in form and substance to such

Purchaser;

 

(f)                                    Compliance

with this Agreement. 

The Company shall have performed and complied with all of its agreements

and conditions set forth or contemplated herein that are required to be

performed or complied with by the Company on or before the Closing Date;

 

(g)                                 Officer’s

Certificate.  Such

Purchaser shall have received a certificate, dated the Closing Date and signed

by the Chief Executive Officer of the Company, certifying that the conditions

set forth in Sections 3.1(d), 3.1(e), 3.1(f), 3.1(g),

3.1(k), and 3.1(l) hereof have been satisfied on and as of such

date;

 

(h)                                 Secretary’s

Certificate.  Such

Purchaser shall have received a certificate, dated the Closing Date and signed

by the Secretary of the Company, attaching good standing certificates from the

Delaware Secretary of State with respect to the Company and from the respective

Secretaries of State for the jurisdictions of incorporation for its

Subsidiaries and certifying the authenticity of attached copies of (i) the

Certificate of Incorporation and by-laws of the Company and the certificate of

incorporation and by-laws of each of its Subsidiaries, in each case as amended;

(ii) resolutions of the Board of Directors of the Company approving this

Agreement and the Ancillary Agreements and the transactions contemplated by

this Agreement and the Ancillary Agreements;

 

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(i)                                     Purchase

Permitted by Applicable Laws; Legal Investment.  The acquisition by such Purchaser of and

payment for the Securities to be purchased by such Purchaser and the

consummation of the transactions contemplated by this Agreement and the

Ancillary Agreements (i) shall not be prohibited by any applicable law or

governmental regulation, (ii) shall not subject such Purchaser to any penalty

or, in its reasonable judgment, other onerous conditions under or pursuant to

any applicable law or governmental regulation and (iii) shall be permitted by

the laws and regulations of the jurisdictions to which such Purchaser is

subject;

 

(j)                                     Consents and

Approvals.  All

consents, waivers, approvals, exemptions, authorizations, or other actions by,

or notices to, or filings with, Governmental Authorities and other Persons

necessary or required in connection with the execution, delivery or performance

by the Company or enforcement against the Company of this Agreement (including,

without limitation, the issuance of the Securities contemplated hereunder), any

Ancillary Agreement or any other document executed in connection with the

consummation of the transactions contemplated by this Agreement or any

Ancillary Agreement shall have been obtained and be in full force and effect,

and Purchaser and its special counsel shall have been furnished with

appropriate evidence thereof; and

 

(k)                                  Insolvency.  The Company shall not have made an

assignment for the benefit of creditors, nor shall it have filed with a court

of competent jurisdiction an application for appointment of a receiver or

similar official with respect to it or any substantial part of its assets, nor

shall there have been filed by the Company or any of its Subsidiaries a

petition seeking relief under any provision of the Federal Bankruptcy Code or

any other federal or state statute now or hereafter in effect affording relief

to debtors, nor shall there have been filed against the Company or any of its

Subsidiaries any such application or petition.

 

3.2                                 Company

Conditions to Closing.  The

Company’s obligation to issue and sell the Securities to each Purchaser

hereunder at the Closing is subject to the satisfaction, on or before the

Closing Date, of the following conditions:

 

(a)                                  Receipt of

Purchase Price. 

The Company shall have received from such Purchaser payment of the

purchase price to be paid by such Purchaser hereunder by wire transfer of

immediately available funds;

 

(b)                                 Acknowledgement

and Agreement.  The Stock

Trading Agreement shall have been entered into and delivered by the Company and

all the Purchasers;

 

(c)                                  No

Litigation; No Order. 

No action, suit or proceeding relating to the Transactions shall be

pending that in the reasonable good faith judgment of the Company seeks to

restrain or prevent any of the Transactions and has a reasonable probability of

success;

 

(d)                                 Purchase

Permitted by Applicable Laws; Legal Investment.  The acquisition by such Purchaser of and

payment for the Securities and the consummation of the transactions

contemplated by this Agreement and the Ancillary Agreements (i) shall not be

prohibited by any applicable law or governmental regulation, and (ii) shall not

subject the Company to any penalty or, in its reasonable judgment, other

onerous conditions under or pursuant to any applicable law or governmental

regulation; and

 

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(e)                                  Consents and

Approvals.  All

consents, waivers, approvals, exemptions, authorizations, or other actions by,

or notices to, or filings with, Governmental Authorities and other Persons

necessary or required in connection with the execution, delivery or performance

by the Company or enforcement against the Company of this Agreement (including,

without limitation, the issuance of the Securities contemplated hereunder), any

Ancillary Agreement or any other document executed in connection with the

consummation of the transactions contemplated by this Agreement or any

Ancillary Agreement shall have been obtained and be in full force and effect.

 

ARTICLE IV

CERTAIN COVENANTS

 

4.1                                 Financial

Statements and Other Reports.  After

the Closing Date, the Company agrees to send the following reports to each

holder of Series D Preferred Stock:

 

(a)                                  so

long as the Company is subject to the requirements of, or otherwise making

filings pursuant to, Section 13 or 15(d) of the Exchange Act, within three (3)

days after the filing with the Commission, a copy of its Annual Report on Form

10-KSB or Form 10-K, its Quarterly Reports on Form 10-QSB or Form 10-Q, any

proxy statements or information statements and any Current Reports on Form 8-K,

together in each case with amendments thereto;

 

(b)                                 within

one (1) day after release, copies of all press releases issued by the Company

or any of its Subsidiaries;

 

(c)                                  promptly

upon receipt thereof, copies of reports, if any, submitted to the Company by

independent accountants in connection with each annual or interim audit of the

books of the Company made by such accountants; and

 

(d)                                 all

other information sent to holders of the Common Stock or any other equity

security holder.

 

Without limiting the

foregoing, the Company shall deliver to each Purchaser until such Purchaser

transfers, assigns (except in the case of an assignment to an Affiliate) or

sells all of its Series D Preferred Stock (i) as soon as practicable and in any

event within 45 days after the end of each fiscal quarter, the following

information: consolidated statements of income, stockholders’ equity and cash

flows of the Company and its Subsidiaries for such fiscal period and for the

period from the beginning of the then current fiscal year to the end of such

fiscal period and a comparison of each such item to the then current budget,

and the balance sheet of the Company and its Consolidated Subsidiaries as at

the end of such fiscal period, setting forth in each case in comparative form

figures for the corresponding periods in the preceding fiscal year, all in

reasonable detail, prepared in accordance with generally accepted accounting

principles consistently applied throughout the periods involved, certified as

to fair presentation by the principal financial officer of the Company and

accompanied by a written discussion of operations in summary form; and (ii) as

soon as practicable and in any event within 90 days after the end of each

fiscal year of the Company, the following information: statements of income,

stockholders’ equity and cash flows of the Company and its consolidated

Subsidiaries for such year, and a consolidated balance sheet of the Company and

its consolidated Subsidiaries as at the end of such year, setting forth in each

case in comparative form corresponding figures from the preceding fiscal year,

prepared in accordance with generally accepted accounting principles

 

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consistently applied

throughout the periods involved, and accompanied by an opinion of BDO Siedman

LP, or another firm of independent public accountants of recognized national

standing selected by the Company, to the effect that the consolidated financial

statements have been prepared in accordance with generally accepted accounting

principles consistently applied (except for changes in application in which

such accountants concur and as are noted therein) and present fairly the

financial condition of the Company and its consolidated Subsidiaries and that

the examination of such accountants in connection with such financial

statements has been made in accordance with generally accepted auditing

standards and accordingly included such tests of the accounting records and

such other auditing procedures as were considered necessary in the

circumstances; and accompanied by a written discussion of operations by

management in summary form with respect to such fiscal year, including a

comparison to budget.

 

Each Purchaser is hereby

authorized to deliver a copy of any financial statement delivered to it

pursuant to this Section 4.1 to any regulatory body having jurisdiction

over it that requests such information. 

Subject to compliance with reasonable confidentiality requirements

imposed by the Company, each Purchaser shall have reasonable access to the

Company, including its management, and its books and records during regular

business hours and is further authorized to request information from and to

have access to, at the Company’s expense, the Company’s independent public

accountants.  The Company shall request

such accountants to make available to any Purchaser such information as such

Purchaser may reasonably request.

 

Notwithstanding the

foregoing, the Company need not provide any Purchaser with any information

pursuant to this Section 4.1 which the Company reasonably believes constitutes

material, non-public information, unless such Purchaser has entered into an

acceptable written confidentiality agreement with the Company.

 

4.2                                 Corporate

Existence; Licenses and Permits; Maintenance of Properties.  The Company shall at all times use

commercially reasonable efforts to do or cause to be done all things necessary

to maintain, preserve and renew its existence as a corporation organized under

the laws of a state of the United States of America, and to preserve and keep

in force and effect, and cause each of its consolidated Subsidiaries to apply

for on a timely basis, all licenses and permits necessary and material to the

conduct of the business of the Company and its Subsidiaries, taken as a whole.

 

4.3                                 Securities

Exchange.  The Company shall use its

reasonable best efforts to maintain its Common Stock listing and to continue to

have its Common Stock be quoted on The American Stock Exchange or on another

national securities exchange, so long as it is subject to Section 13 or 15(d)

of the Exchange Act.

 

4.4                                 Best

Efforts.  The Company agrees to use

its reasonable best efforts to take, or cause to be taken, all actions, and to

do, or cause to be done, all things reasonably necessary, proper or advisable

under applicable laws, rules and regulations to consummate and make effective

the transactions contemplated by this Agreement as promptly as

practicable.  In case at any time after

the Closing any further action is reasonably necessary to carry out the

purposes of this Agreement, the proper agents, officers and directors of the

Company shall take such action.

 

4.5                                 Insurance.  The Company shall at all times maintain

customary directors and officers insurance in amounts as are customary for

other publicly traded companies of similar size.

 

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4.6                                 Public

Disclosure.  The Company shall: (i)

on the Closing Date issue a press release disclosing the material terms of the

transactions contemplated hereby (including at least the number of shares sold

and proceeds therefrom) and

any information disclosed to Purchaser which the Company believes may

constitute material, non-public information, and (ii) make such other

filings and notices in the manner and time required by the Commission,

(including filing of this Agreement with the Commission pursuant to the

Exchange Act and other actions required to comply with Section 4.3 hereof).

 

ARTICLE V

REPRESENTATIONS, COVENANTS AND WARRANTIES

 

The Company represents,

covenants and warrants to the Purchaser as follows:

 

5.1                                 Organization;

Standing and Qualification of Company and its Subsidiaries; Corporate Authority.

 

(a)                                  Each

of the Company and each of its Subsidiaries is a corporation duly organized and

existing in good standing under the laws of the jurisdiction of its organization, and has the corporate

power to own its property and to carry on its business as now being conducted,

is duly qualified and in good standing as a foreign corporation to do business

in every jurisdiction where the character of the properties owned or leased by

it or the nature of any business transacted by it makes such qualification

necessary, except where such nonqualification or lack of good standing would

not have a material adverse effect on the business of the Company and its

Subsidiaries, taken as a whole.

 

(b)                                 The

execution and delivery by the Company of this Agreement and the Ancillary

Agreements (collectively, the “Transaction Documents”), and the

performance by the Company of all transactions and obligations contemplated

hereby and thereby are within its corporate authority.  The execution, delivery and performance of

the Transaction Documents and each other agreement contemplated by the terms

hereof and thereof and the issuance of the Securities have been duly authorized

by all necessary corporate proceedings on the part of the Company.  Each of the Transaction Documents

constitutes the legal, valid and binding obligation of the Company, enforceable against

the Company in accordance with its terms, subject to applicable bankruptcy,

insolvency, reorganization, moratorium and similar laws affecting creditors’

rights and remedies generally and to equitable principles relating to

enforceability.  The Common Shares are

duly authorized and, when issued, will be validly issued, fully paid and

nonassessable and subject to no preemptive rights in favor of other Persons

which have not been waived.  Assuming

the accuracy of the representations of each Purchaser in this Agreement, the

Series D Preferred Stock and the Common Shares issuable hereunder will be

issued in compliance with all applicable federal and state securities

laws.  The shares of Series D Preferred

Stock issuable upon the exercise of the Series D Warrants are duly authorized

and reserved for issuance, and, when issued upon such exercise, will be validly

issued, fully paid and nonassessable, and subject to no preemptive rights in

favor of other Persons which have not been waived.  The shares of Common Stock issuable upon the exercise of the

Common Stock Warrants, or the conversion of shares of the Series D Preferred

Stock to be issued at Closing hereunder or upon the conversion of shares of the

Series D Preferred Stock issuable upon exercise of the Series D Warrants, are

duly authorized and reserved for issuance, and, when issued upon such exercise,

will be validly issued, fully paid and nonassessable, and subject to no

preemptive rights in favor of other Persons which have not been waived.  Assuming the accuracy of the representations

of each of the Purchasers in this Agreement, when such shares of Series D

Preferred Stock and such shares 

 

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of Common Stock are

issued, such shares will be issued in compliance with all applicable federal

and state securities laws.  The Company

has reserved for issuance (i) 210,938  shares of Common Stock issuable upon

exercise of the Common Stock Warrants, (ii) 37,500 shares of Series D Preferred

Stock issuable upon exercise of the Series D Warrants, (iii) 1,500,000 shares

of Common Stock issuable upon conversion of the Series D Preferred Stock to be

issued hereunder, and (iv) 375,000 shares of Common Stock issuable upon

conversion of the shares of Series D Preferred Stock issuable upon exercise of

the Series D Warrants.

 

(c)                                  Great

Lakes Controlled Energy Corporation and Switchboard Apparatus, Inc. are the

only Subsidiaries of the Company.  Each such Subsidiary is wholly

owned by the Company.

 

5.2                                  Capital

Stock.

 

(a)                                  As

of the date hereof, the Company has authorized 120,000,000 shares of Common

Stock and 5,000,000 shares of preferred stock.  As of the date hereof, the Company has

34,125,460 issued and outstanding shares of Common Stock, 2,225,471 issued and

outstanding shares of Series A Convertible Preferred Stock and 216,933 issued

and outstanding shares of Series C Convertible Preferred Stock.  All outstanding shares of the Company Common

Stock, the Series A Convertible Preferred Stock and the Series C Convertible

Preferred Stock have been duly authorized, validly issued and are fully paid

and nonassessable and free of preemptive rights and were issued in compliance

with all applicable federal and state securities laws.

 

(b)                                 Except

as otherwise stated in this Section 5.2 or in Schedule 5.2 and except for

shares of capital stock reserved for issuance in connection with the

transactions contemplated by this Agreement and the Ancillary Agreements, the

Company has not granted or issued, or agreed to grant or issue, any options,

warrants or similar rights to acquire or receive any of the authorized but

unissued shares of its capital stock of any class or any securities convertible

into shares of its capital stock of any class or any stock appreciation

rights.  Except as stated in Schedule

5.2, no adjustment to the exercise price of any outstanding options or warrants

of the Company will be required as a result of the issuance of any of the

Securities.

 

(c)                                  Except

as set forth in Schedule 5.2(c), no holder of shares of Common Stock (or

securities convertible into or exchangeable or exercisable for Common Stock)

has any rights to purchase or receive additional or other securities upon the

occurrence of an event that might dilute such holder’s percentage interest in

the Company.

 

5.3                                 No

Defaults.  Except as set forth in Schedule

5.3, neither the Company nor any of its Subsidiaries, to its knowledge, is

in violation of, or in default under, nor has there been  any waiver given with

respect to, any term or provision of any charter, by-law, mortgage, indenture,

agreement, instrument, statute, rule, law, regulation, judgment, decree, order,

writ, or injunction applicable to it, such that such violations and defaults in

the aggregate could reasonably be expected to result in any material adverse

change in the business, assets, properties, condition (financial or otherwise)

or results of operations of the Company and its Subsidiaries, taken as a whole,

or materially adversely affect the ability of the Company to perform in any

material respect its obligations under this Agreement.  All Regulatory Approvals required by the

Company and its Subsidiaries to conduct their respective business as now

conducted by them have been obtained and are in full force and effect, and the

Company and its Subsidiaries are in compliance with the terms and requirements

of such Regulatory Approvals.  Except as

set forth on Schedule 5.3 hereto, since December 31, 2002, none of the

Company or any of its Subsidiaries has received any written notice or other

written communication from any 

 

11

 

Governmental Entity

regarding (i) any revocation, withdrawal, suspension, termination or

modification of, or the imposition of any material conditions with respect to,

any Regulatory Approval, (ii) any violation of any law by the Company or any of

its Subsidiaries, or (iii) any other limitations on the conduct of business by

the Company or any of its Subsidiaries.

 

5.4                                 Burdensome

and Conflicting Agreements and Charter Provisions.  Neither the execution or delivery of the

Transaction Documents by the Company, nor the offering, issuance and sale of the

Securities by the Company, nor fulfillment of, or compliance with, the terms

and provisions of the Transaction Documents, nor the issuance by the Company of

shares of Series D Preferred Stock upon exercise of the Series D Warrants,

shares of Common Stock upon exercise of the Common Stock Warrants and shares of

Common Stock upon conversion of shares of Series D Preferred Stock will, except

as set forth in Schedule 5.4, conflict with, or result in a breach of

the terms, conditions or provisions of, or constitute a default under, or

result in any violation of, or result in the creation of any lien upon any of

the properties or assets of the Company or any of its Subsidiaries, or require

any consent, approval or other action by, or notice to, or filing with, any

court or administrative or governmental body or any other Person or pursuant to

the Certificate of Incorporation or by-laws of the Company or the certificate

of incorporation or by-laws of any of the Company’s Subsidiaries, any award of

any arbitrator or any material agreement (including any agreement with

stockholders), instrument, order, judgment, decree, statute, law, rule or

regulation to which the Company or any of its Subsidiaries is subject.

 

5.5                                 Title

to Assets, Etc.  The Company has

good and marketable fee simple title to the assets reflected on the balance

sheet set forth on Schedule 5.5 (the “Assets”).  Except as set forth in Schedule 5.5,

none of the Assets is subject to any encumbrances, except for minor liens that

in the aggregate are not substantial in amount, do not materially detract from

the value of the property or assets subject thereto or interfere with the

present use thereof and have not arisen other than in the ordinary course of

business.  There are no pending or

threatened condemnation proceedings relating to any of the facilities of the

Company.  The real property improvements

(including leasehold improvements) and fixtures and equipment of the Company

are adequately insured and are structurally sound with no known material defects.  The facilities, fixtures and equipment of

the Company are in good operating condition and repair (except for ordinary

wear and tear and any defect for which the cost of repairing would not be

material), are sufficient for the operation of the Company’s business as

presently conducted and are in conformity in all material respects with all

applicable laws, ordinances, orders, regulations and other requirements

(including applicable zoning, environmental, motor vehicle safety or standards,

occupational safety and health laws and regulations) relating thereto currently

in effect, except where the failure to conform would not have a material

adverse effect on the business or financial condition of the Company.  The Assets are valued on the Company’s books

at or below actual cost less an adequate and proper depreciation charge.  The Company has not depreciated any of the

Assets on an accelerated basis or in any other manner inconsistent with

applicable Internal Revenue Service tax and fiscal guidelines, if any.

 

5.6                                 Leases.  Each of the Company and Great Lakes

Controlled Energy Corporation enjoy peaceful and undisturbed possession of all

leases material to them.  All such

leases are valid and subsisting and are in full force and effect.

 

5.7                                 Contracts.  Except as set forth in Schedule 5.7,

there is no contract, agreement or understanding required to be described in or

filed as an exhibit to any Commission Documents that is not described in or

filed as required by the Securities Act or the Exchange Act, as the case

 

12

 

may be.  Except as set forth in Schedule 5.7,

each such contract, agreement and understanding is valid and binding and is in

full force and effect and enforceable in accordance with its terms (except as

enforceability may be limited by applicable bankruptcy, insolvency or similar

laws affecting the enforcement of creditors’ rights generally or as may be

limited by equitable principles relating to enforceability), except in the case

of such contracts, agreements or understandings that are by their terms no

longer in force or effect.  Except as

set forth on Schedule 5.7, (a) no approval or consent of, or notice to,

any Person is needed in order that such contract, agreement or understanding

shall continue in full force and effect in accordance with its terms without

penalty, acceleration or rights of early termination following the consummation

of the transactions contemplated by the Transaction Documents, other than such

notices, consents and approvals as have been obtained and (b) the Company

and/or its Subsidiaries are not in violation of, breach of, or default under

any such contract, agreement or understanding nor, to the Company’s knowledge,

is any other party to any such contract, agreement or understanding.

 

5.8                                 Financial

Statements.  The Company has

furnished the Purchasers with (a) the balance sheet of the Company and its

consolidated Subsidiaries as at December 31, 2002 and the related statements of

income, stockholders’ equity and cash flows of the Company and its consolidated

Subsidiaries for the fiscal year ended December 31, 2002, all certified by BDO

Seidman LLP, including in each case the related schedules and notes, and (b) an

unaudited balance sheet of the Company and its consolidated Subsidiaries as at

March 31, 2003 and statements of income, stockholders’ equity and cash flows of

the Company and its consolidated Subsidiaries for the interim period ended on

such date, prepared by the Company and certified by its principal financial

officer (item (b) is referred to as the “Interim Financial Statements”).

 

All such financial

statements (including any related schedules and notes) have been prepared in

accordance with generally accepted accounting principles consistently applied,

except to the extent set forth in the notes to such financial statements and

except for the absence of footnotes to the Interim Financial Statements and

except that the Interim Financial Statements are subject to normal year-end

adjustments and to adjustments made in the course of an audit that would not in

the aggregate be material, throughout the periods involved and to the extent

required by such principles show all liabilities, direct and contingent, of the

Company and its Subsidiaries required to be shown thereon in accordance with

generally accepted accounting principles. 

The balance sheets and the related schedules and notes fairly present

the financial condition of the Company and its consolidated Subsidiaries.  Except as set forth in Schedule 5.8,  the Company has incurred no material

liabilities since March 31, 2003, other than those incurred in the

ordinary course.  The net income and

stockholders’ equity statements and the related schedules and notes fairly

present the results of the operations of the Company and its consolidated

Subsidiaries for the periods indicated.

 

Except as set forth in Schedule

5.8, there has been no material adverse change in the assets, business,

prospects, properties, operations or condition, financial or otherwise, of the

Company and its Subsidiaries, taken as a whole, since March 31, 2003.

 

5.9                                 Actions

Pending.  Except as set forth in Schedule

5.9 hereto, there is no action, suit, investigation or proceeding pending

or, to the knowledge of the Company, threatened against the Company or any of

its Subsidiaries before any court, arbitrator or administrative or governmental

body that (a) seeks to enjoin or otherwise prevent the consummation of the sale

or issuance of the Securities or (b) materially and adversely affects, or as to

which there is a reasonable possibility of an adverse decision that would

materially and adversely affect, either individually or collectively, the

assets, business, properties, prospects, operations or condition,

 

13

 

financial or otherwise,

of the Company and its Subsidiaries, taken as a whole.  Neither the Company nor any of its

Subsidiaries is in violation of any judgment, order, writ, injunction, decree,

rule or regulation of any court or governmental department, commission, board,

bureau, agency or instrumentality, the violation of which reasonably could be

expected to, either individually or collectively, materially and adversely

affect the business, property, assets, prospects, operations or condition (financial

or otherwise) of the Company and its Subsidiaries, taken as a whole.

 

5.10                           Offering

of Securities.  Assuming the

accuracy of the representations of each of the Purchasers in this Agreement,

the offer, sale and issuance of the Securities are exempt from the registration

requirements of the Securities Act. 

Neither the Company nor any agent on its behalf has solicited or will

solicit any offers to sell or has offered to sell or will offer to sell all or

any part of the Securities to any Person so as to bring the offering and sale

of such Securities by the Company within the registration provisions of the

Securities Act.  The Company has filed

all notices and satisfied all registration or qualification requirements of any

state securities or Blue Sky law of any applicable jurisdiction with respect to

the offer, issuance and sale of the Securities or required by the Ancillary

Agreements.

 

5.11                           Placement

Agent Fees; Broker’s or Finder’s Commissions.  The Company will pay the Placement Agent a fee equal to 8% of the

gross proceeds received from the sale of the Securities at the Closing

hereunder.  The Placement Agent is

controlled by David Asplund, a director of the Company.  Other than the fee payable by the Company to

the Placement Agent, no broker’s or finder’s or placement fee or commission

will be payable with respect to the sale or the issuance of the Securities

contemplated hereby or by the Ancillary Agreements as a result of any act or

omission by the Company, and the Company will hold the Purchasers harmless from

any claim, demand or liability for broker’s or finder’s or placement fees or

commissions alleged to have been incurred in connection with the sale or the

issuance of the Securities due to any actions or omissions by the Company or

its Subsidiaries or any of their respective directors, officers or agents.

 

The

Company acknowledges that the Placement Agent has served as placement agent for

the Company, Duke Capital Partners, LLC, and EP Power Finance, L.L.C. with

respect to the sale of securities of the Company (including the securities to

be sold hereunder) and that Mr. Asplund is a Purchaser under this Agreement and

an Investor under that certain Duke Securities Purchase and Sale Agreement of

even date herewith.    The Company

hereby waives any and all conflict of interest claims against the Placement

Agent and/or Mr. Asplund arising from the Placement Agent’s simultaneous agency

relationship with the Company, Duke Capital Partners, LLC, and EP Power

Finance, L.L.C., his status as a Purchaser hereunder and Mr. Asplund’s status

as a director of the Company.

 

5.12                           Application

of Proceeds.  The net proceeds of

the sale of the Securities will be used by the Company for working capital and

for general corporate purposes.

 

5.13                           Intellectual

Property.

 

(a)                                  The

Company and its Subsidiaries exclusively own or possess the requisite licenses

or rights (on reasonable commercial terms) to use all patents, trade secrets,

trademarks, service marks, service names, trade names, copyrights and other

intellectual property

rights necessary to enable each of them to conduct their respective businesses

as now operated (collectively, the “Company IP”).  Schedule 5.13(a) sets forth a full

and complete list of all 

 

14

 

intellectual property

rights of the Company and its Subsidiaries. 

There is no claim or action by any Person pertaining to, or proceeding

pending, or to the Company’s knowledge threatened, that challenges the rights

of the Company or its Subsidiaries with respect to any Company IP.  To the Company’s knowledge, neither the

Company’s nor any of its Subsidiaries’ current and intended products and

services infringe on any patents, licenses, trademarks, service marks, service

names, trade names, copyrights or other intellectual property rights held by

any Person and neither the Company nor any of its Subsidiaries is aware of any

facts or circumstances that might give rise to any of the foregoing.

 

(b)                                 Except

as set forth in Schedule 5.13(b), no proceedings or claims in which the Company

alleges that any Person is infringing upon, or otherwise violating, any Company

IP are pending, and none has been served by, instituted or asserted by the

Company or any of its

Subsidiaries, nor are any proceedings threatened alleging any such violation or

infringement.

 

(c)                                  The

Company has taken and will take all commercially reasonable actions that are

necessary or advisable in order to fully protect the Company IP, in a manner consistent with prudent

commercial practice.

 

5.14                           Taxes.  The Company and each of its Subsidiaries has

timely filed (or caused to be filed) all Tax Returns that are required to be

filed by (or with respect to) it on or before the date hereof and has paid all

Taxes due on or before the date hereof whether or not reflected on such Tax

Returns, including pursuant to any assessment received by it.  All such Tax Returns were true, correct and

complete in all material respects.  None

of such Tax Returns has been audited by the relevant taxing authority, and no

taxing authority has notified (or threatened) the Company or any of its

Subsidiaries, orally or in writing, that such taxing authority will or may

audit any such return.  The Company and

its Subsidiaries have complied with all requirements of the Code, the Treasury Regulations

and any state, local or foreign law relating to the payment and withholding of

Taxes relating to them, and the Company and each of its Subsidiaries have,

within the time and in the manner prescribed by applicable law, paid over to

the proper taxing authorities all amounts required to be so withheld and paid

over relating to them.  The charges,

accruals and reserves on the books of the Company and its Subsidiaries in

respect of Taxes or other governmental charges are adequate to cover any

liability of the Company and its Subsidiaries for Taxes through the date

hereof.  There are no liens for Taxes

with respect to any asset of the Company or any of its Subsidiaries, except for

liens with respect to Taxes that are not yet due and payable.  No taxing authority in a jurisdiction where

the Company or any of its Subsidiaries, as the case may be, does not file tax

returns has made a claim, assertion or threat that the Company or any of its

Subsidiaries is or may be subject to taxation in such jurisdiction.

 

5.15                           Insurance.  The Company maintains or is covered by valid

policies of workers’ compensation insurance, product liability insurance, and

insurance with respect to its properties and business.  The Company currently maintains in full

force insurance covering the respective risks of the Company and its

Subsidiaries of such types and in such amounts, with such deductibles and with

such insurance companies as are customary for other companies engaged in

similar lines of business.  The Company

currently maintains key man life insurance for John Mitola in the amount of

$5,000,000, which is and will remain in full force and effect through December

31, 2005.

 

5.16                           Commission

Documents.  Except as set forth in Schedule

5.16, the Company has filed all registration statements, proxy statements,

information statements, reports and other documents required to be filed by it

under the Securities Act or the Exchange Act, and all 

 

15

 

amendments thereto

(collectively, the “Commission Documents”).  Each Commission Document when filed with the Commission was true

and accurate in all material respects and in compliance in all material

respects with the requirements of its respective report form and the rules and

regulations of the Commission.  No

Commission Document 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 contained therein, in light of the circumstances

under which made, not misleading.

 

5.17                           Disclosure.  Neither this Agreement nor any other

document, certificate or statement prepared by or on behalf of the Company by

its authorized representatives or agents and furnished to or made available to

the Purchaser in writing by or on behalf of the Company by its authorized

representatives or agents in connection herewith, contains any untrue statement

of a material fact or omits to state a material fact required to be stated

therein or necessary in order to make the statements contained herein and

therein, in the light of the circumstances under which made, not misleading.

 

ARTICLE VI

REPRESENTATIONS OF THE PURCHASERS

 

Each Purchaser represents

and warrants, as to itself only, as follows:

 

6.1                                 Investment

Purpose.  Such Purchaser is

purchasing the Securities for such Purchaser’s own account for investment only

and not with a view toward or in connection with the public sale or

distribution thereof.  Such Purchaser

will not resell the Securities except pursuant to sales that are exempt from

the registration requirements of the Securities Act and all applicable state

securities laws, and/or sales registered under the Securities Act and all

applicable state securities laws.  Such

Purchaser understands that such Purchaser may bear the economic risk of this

investment indefinitely, unless the Securities are registered pursuant to the

Securities Act and any applicable state securities laws or an exemption from

such registration is available.

 

6.2                                 Accredited

Investor Status/Organization.  Such

Purchaser is an “accredited investor” as that term is defined in Rule 501(a) of

Regulation D promulgated under the Securities Act.  By reason of his or its business and financial experience,

sophistication and knowledge, such Purchaser is capable of evaluating the risks

and merits of the investment made pursuant to this Agreement.

 

6.3                                 Authorization;

Enforcement.  This Agreement has

been duly and validly authorized, executed and delivered on behalf of such

Purchaser and is the legally valid and binding agreement of such Purchaser

enforceable in accordance with its terms, except as enforceability may be

limited by applicable bankruptcy, insolvency, or similar laws affecting the

enforcement of creditors’ rights generally or by equitable principles relating

to enforceability.  As of the Closing

Date, each Ancillary Agreement to which such Purchaser is a party will be the

legally valid and binding agreement of such Purchaser enforceable in accordance

with its terms, except as enforceability may be limited by applicable

bankruptcy, insolvency, or similar laws affecting the enforcement of creditors’

rights generally or by equitable principles relating to enforceability.

 

6.4                                 Broker’s

or Finder’s Commissions.  Other than

the fee payable to the Placement Agent (which will be paid by the Company) no

broker’s or finder’s or placement fee or commission will be payable with

respect to the sale or the issuance of the Securities as a result of

 

16

 

any act or omission by

such Purchaser, and such Purchaser will hold the Company harmless from any

claim, demand or liability for broker’s or finder’s or placement fees or

commissions alleged to have been incurred in connection with the sale or the

issuance of the Securities due to any actions of such Purchaser.

 

The

Purchasers acknowledge that the Placement Agent has served as placement agent

for the Company, Duke Capital Partners, LLC, and EP Power Finance, L.L.C. with

respect to the sale of certain securities of the Company (including the

securities to be sold hereunder) and that Mr. Asplund is a Purchaser under this

Agreement and an Investor under that certain Duke Securities Purchase and Sale

Agreement of even date herewith.  The

Purchasers hereby waive any and all conflict of interest claims against the

Placement Agent and/or Mr. Asplund arising from the Placement Agent’s

simultaneous agency relationship with Company, Duke Capital Partners, LLC, and

EP Power Finance, L.L.C., his status as a Purchaser hereunder and Mr. Asplund’s

status as a director of the Company.

 

ARTICLE VII

INDEMNIFICATION

 

7.1                                 Indemnification

by Company.  In addition to all

other sums due hereunder or provided for in this Agreement, the Company agrees

to indemnify and hold harmless each Purchaser and its officers, directors,

agents, employees and partners (each, an “indemnified party”) to the

fullest extent permitted by law from and against any and all losses, claims,

damages, expenses (including reasonable fees, disbursements and other charges

of counsel), damages or other liabilities (“Losses”) resulting from:

 

(i)                                     any

breach of any representation or warranty, covenant or agreement of the Company

in this Agreement, or

 

(ii)                                  any

legal, administrative or other actions (including actions brought by any

equityholders of the Company or derivative actions brought by any Person

claiming through the Company or in the Company’s name), proceedings or

investigations (whether formal or informal), or written threats thereof, based

upon, relating to or arising out of any of the Transaction Documents or the

Securities, the transactions contemplated hereby or thereby, or any indemnified

person’s role therein;

 

provided,

however, that the Company shall not be liable under this Section 7.1:

(a) for any amount paid in settlement of claims without the Company’s consent

(which consent shall not be unreasonably withheld or delayed) or (b) to the

extent that it is finally judicially determined that such Losses resulted

primarily from the willful misconduct, bad faith or gross negligence of such

indemnified party or a breach of such Purchaser’s representations in Article

VI; provided, further, that if and to the extent that such

indemnification is unenforceable for any reason, the Company shall make the

maximum contribution to the payment and satisfaction of such indemnified

liability that shall be permissible under applicable laws.  In connection with the obligation of the

Company to indemnify for expenses as set forth above, the Company further

agrees to reimburse each indemnified party for all such expenses (including

reasonable fees, disbursements and other charges of counsel) as they are

incurred by such indemnified party; provided, however, that in no

event shall the Company be required to pay fees and expenses under this Article

VII for more than one firm of attorneys in addition to the firm of

attorneys representing the Company in any jurisdiction in any one legal action

or group of related legal actions; provided, further, that if an

indemnified party is reimbursed hereunder for any expenses, 

 

17

 

such reimbursement of

expenses shall be refunded to the extent it is finally judicially determined

that the Losses in question resulted primarily from the willful misconduct, bad

faith or gross negligence of such indemnified party.

 

7.2                                 Notification.  Each indemnified party under this Article

VII shall, promptly (and in any event within 20 days), after the receipt of

notice of the commencement of any action or other proceeding against such

indemnified party in respect of which indemnity may be sought from the Company

under this Article VII, notify the Company in writing of the

commencement thereof.  The failure of

any indemnified party so to notify the Company of any such action shall not

relieve the Company from any liability that it may have to such indemnified

party pursuant to this Article VII, except to the extent that such

failure causes material prejudice to the Company.  In case any such action or other proceeding shall be brought

against any indemnified party and it shall notify the Company of the

commencement thereof, the Company shall be entitled to participate therein and,

to the extent that it may wish, to assume the defense thereof, with counsel

reasonably satisfactory to such indemnified party; provided, however,

that any indemnified party may, at its own expense, retain separate counsel to

participate in such defense. 

Notwithstanding the foregoing, in any action or proceeding in which both

the Company and an indemnified party is, or is reasonably likely to become, a

party, such indemnified party shall have the right to employ separate counsel

at the Company’s expense and to control its own defense of such action or

proceeding if, in the reasonable written opinion of counsel to such indemnified

party (obtained at the expense of the Company), (a) there are or may be legal

defenses available to such indemnified party or to other indemnified parties

that are different from or additional to those available to the Company or (b)

any conflict or potential conflict exists between the Company and such

indemnified party that would make such separate representation advisable; provided,

however, that in no event shall the Company be required to pay fees and

expenses under this Article VII  for more than one firm of attorneys in

addition to the firm of attorneys representing the Company in any jurisdiction

in any one legal action or group of related legal actions.  The Company shall not, without the consent

of the indemnified party (which consent shall not be unreasonably withheld),

consent to the entry of any judgment or enter into any settlement that does not

include as an unconditional term thereof the giving by the claimant or

plaintiff to such indemnified party of a release from all liability in respect

to such claim or litigation or that requires action other than the payment of

money by the Company.  The rights

accorded to indemnified parties hereunder shall be in addition to any rights

that any indemnified party may have at common law, by separate agreement or

otherwise.

 

7.3                                 Payment.  No indemnifying party shall be liable for

any amounts paid in a settlement effected without the consent of such

indemnifying party, which consent shall not be unreasonably withheld or delayed.  No indemnifying party shall, without the

indemnified party’s prior written consent, consent to entry of any judgment or

enter into any settlement that does not include as an unconditional term

thereof the giving by the plaintiff to the indemnified party of a release from

all liability in respect of such claim or litigation.

 

7.4                                 Investor

Rights Agreement.  Notwithstanding

anything to the contrary in this Article VII, the indemnification and

contribution provisions of the Investor Rights Agreement shall govern any claim

made with respect to registration statements filed pursuant thereto or sales

made thereunder.

 

7.5                                 Survival

of Provisions of Article VII.  The

obligations of the Company under this Article VII shall survive

indefinitely.

 

18

 

ARTICLE VIII

MISCELLANEOUS

 

8.1                                 Expenses.  The Company agrees to pay, and save each

Purchaser harmless against liability for the payment of, all reasonable

out-of-pocket expenses arising in connection with:

 

(a)                                  the

negotiation and execution of the Transaction Documents and the issuance of the

Securities, including all taxes (including any intangible personal property

tax, together in each case with interest and penalties, if any, and also

including any filing fees payable to any governmental authority, and any income

tax payable by any Purchaser in respect of any reimbursement for any such tax

or fee) that may be payable in respect of the execution and delivery of the

Transaction Documents or the issuance, delivery or acquisition (but not the

holding, ownership or transfer) of any of the Securities issued pursuant to

this Agreement or any Series D Preferred Stock issuable upon exercise of the

Series D Warrants or any of the shares of Common Stock issuable upon exercise

of the Common Stock Warrants or pursuant to conversion of shares of Series D

Preferred;

 

(b)                                 the

cost and expenses, including reasonable attorney’s fees, incurred by any

Purchaser in enforcing any of his or its rights hereunder, including, without

limitation, costs and expenses incurred in any bankruptcy case.

 

The obligations of the

Company under this Section 8.1 shall survive the transfer of any

Securities by the Purchasers.

 

8.2                                 Restrictive

Legends.  The Securities shall each

bear a legend in substantially the following form:

 

THE SECURITIES

REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED, QUALIFIED, APPROVED

OR DISAPPROVED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES

LAWS OF ANY STATE AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT

TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE

SECURITIES LAWS OR AN APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS

OF SUCH ACT OR SUCH LAWS AND NEITHER THE UNITED STATES SECURITIES AND EXCHANGE

COMMISSION NOR ANY OTHER FEDERAL OR STATE REGULATORY AUTHORITY HAS PASSED ON OR

ENDORSED THE MERITS OF THESE SECURITIES.

 

THE SECURITIES

REPRESENTED HEREBY ARE SUBJECT TO A STOCK TRADING AGREEMENT, AS IT MAY BE

AMENDED FROM TIME TO TIME, A COPY OF WHICH IS AVAILABLE FOR INSPECTION AT THE

PRINCIPAL OFFICES OF THE COMPANY.

 

Said legends shall be

removed by the Company, upon the request of the holder thereof, at such time as

the restrictions on the transfer of the applicable Security under applicable

securities laws and the obligations imposed on the holder thereof under the

Investor Rights Agreement and Stock Trading Agreement, as applicable, shall

have terminated.

 

19

 

8.3                                 Consent

to Amendments.  This Agreement may

be amended, and the Company may take any action herein prohibited, or omit to

perform any act herein required to be performed by it, if the Company shall

obtain the written consent of each Purchaser affected thereby to such

amendment, action or omission to act.

 

8.4                                 Survival

of Representations, Warranties and Indemnities.  All representations, warranties, covenants and agreements

contained herein or made in writing by the Company in connection herewith shall

survive the execution, delivery and performance of this Agreement and the

Ancillary Agreements, regardless of any investigation made by the Purchasers or

on the Purchasers’ behalf.

 

8.5                                 Successors

and Assigns.  Except as otherwise

provided herein, all covenants and agreements contained in this Agreement by or

on behalf of any of the parties hereto shall bind and inure to the benefit of

the respective successors and assigns of the parties hereto whether so

expressed or not.

 

8.6                                 Notices.  All notices, consents and other

communications under this Agreement shall be in writing and shall be deemed to

have been duly given when (a) delivered by hand, (b) sent by telecopier (with

receipt confirmed), provided that a copy is mailed by certified mail,

return receipt requested or (c) when received by the addressee, if sent by

Express Mail, Federal Express or other express delivery service (receipt

requested), in each case to the appropriate addresses and telecopier numbers

set forth below (or to such other addresses and telecopier numbers as a party

may designate as to itself by notice to the other parties):

 

	

  (i)

  	

  If to the Company, to:

  	

  1280 Landmeier Road

  Elk Grove Village, IL  60007

  Fax No. 847-437-4969

  Attention:  Chief Executive Officer

  

 

	

  (ii)

  	

   

  	

  If to a Purchaser:  at the address for such Purchaser set

  forth on Schedule II hereto.

  

 

8.7                                 Accounting

Terms.  Unless otherwise set forth

herein, all accounting terms and provisions in this Agreement or any Ancillary

Agreement shall be construed to be as determined in accordance with generally

accepted accounting principles in the United States then in effect.

 

8.8                                 Governing

Law.  This Agreement shall be

construed and enforced in accordance with, and the rights of the parties shall

be governed by, the laws of the State of Illinois.  This Agreement may not be changed orally, but only by an

agreement in writing signed by the party against whom enforcement is sought.

 

8.9                                 Headings.  The descriptive headings of the several

paragraphs of this Agreement and the table of contents are inserted for

convenience only and do not constitute a part of this Agreement.

 

8.10                           Counterparts.  This Agreement may be executed in two or

more counterparts, all of which shall be deemed but one and the same instrument

and each of which shall be deemed an original, and it shall not be necessary in

making proof of this Agreement to produce or account for more than one such

counterpart for each of the parties hereto. 

Delivery by facsimile by any of the parties hereto of an executed

counterpart of this Agreement shall be effective as an

 

20

 

original executed

counterpart hereof and shall be deemed a representation that an original

executed counterpart hereof will be delivered.

 

8.11                           Non-Business

Days.  If the date for making any

payment or the last date for performance of any act or the exercising of any

right, as provided in this Agreement, shall not be a Business Day, such payment

may be made or act performed or right exercised on the next succeeding Business

Day, with the same force and effect as if done on the nominal date provided in

this Agreement.

 

8.12                           Further

Assurances.  The Company shall from

time to time and at all times hereafter make, do, execute or cause or procure

to be made, done and executed such further acts, deeds, conveyances, consents

and assurances, without further consideration, that may reasonably be required

to effect the transactions contemplated by this Agreement or any Ancillary

Agreement.

 

8.13                           Integration.  This Agreement and the Ancillary Agreements,

together with the exhibits hereto and thereto, embody the entire agreement by

and among the parties hereto with respect to the matters set forth herein and

supersede any and all previous agreements, whether oral or written, on the same

subject matter.

 

8.14                           Obligations

Several Not Joint.  This The

obligations of each Investor under any Transaction Document are several and not

joint with the obligations of any other Investor, and no Investor shall be

responsible in any way for the performance of the obligations of any other

Investor under any Transaction Document. 

Nothing contained herein or in any Transaction Document, and no action

taken by any Investor or other party hereto pursuant thereto, shall be deemed

to constitute the Investors and such parties as a partnership, an association,

a joint venture or any other kind of entity, or create a presumption that such

parties are in any way acting in concert or as a group with respect to such

obligations or the transactions contemplated by the Transaction Documents.

 

[BALANCE OF PAGE

INTENTIONALLY LEFT BLANK; SIGNATURE PAGE FOLLOWS.]

 

21

 

IN WITNESS WHEREOF, the

parties hereto have executed this Securities Purchase Agreement as of the day

and year first above written.

 

 

	

  COMPANY:

  	

  PURCHASERS:

  
	

   

  	

   

  
	

  ELECTRIC CITY CORP.,

  	

  CINERGY VENTURES II,

  LLC

  
	

  a Delaware corporation

  	

   

  
	

   

  	

   

  
	

   

  	

   

  
	

  By:

  	

   

  	

  /s/ John P. Mitola

  	

   

  	

  By:

  	

   

  	

  /s/ R. Foster Duncan

  	

   

  
	

  Name:

  	

  John Mitola

  	

  Name:

  	

   

  	

  R. Foster Duncan

  	

   

  
	

  Title:

  	

  Chief Executive Officer

  	

  Title:

  	

   

  	

  President

  	

   

  
	

   

  	

   

  
	

   

  	

   

  
	

   

  	

    /s/ Richard

  P. Kiphart

  	

   

  
	

   

  	

  Richard P. Kiphart

  
	

   

  	

   

  
	

   

  	

   

  
	

   

  	

  SF CAPITAL PARTNERS

  
	

   

  	

   

  
	

   

  	

   

  
	

   

  	

  By:

  	

    /s/

  	

  Brian H. Davidson

  	

   

  
	

   

  	

  Name:

  	

   

  	

  Brian H. Davidson

  	

   

  
	

   

  	

  Title:

  	

   

  	

  Authorized Signatory

  	

   

  
	

   

  	

   

  
	

   

  	

   

  
	

   

  	

  JOHN THOMAS HURVIS

  REVOCABLE

  TRUST

  
	

   

  	

   

  
	

   

  	

   

  
	

   

  	

  By:

  	

    /s/ John

  Thomas Hurvis

  	

   

  
	

   

  	

  Name:

  	

   John Thomas Hurvis

  	

   

  
	

   

  	

  Title:

  	

   Trustee

  	

   

  
	

   

  	

   

  
	

   

  	

   

  
	

   

  	

    /s/ David

  R. Asplund

  	

   

  
	

   

  	

  David R. Asplund

  
												

 

 

SCHEDULE I

 

Securities

Being Purchased

 

	

  Purchaser

  	

   

  	

  Shares of

  Series D

  Preferred

  	

   

  	

  Shares of

  Series D

  Warrants

  	

   

  	

  Shares of

  Common

  Stock

  	

   

  	

  Common

  Stock

  Warrants

  	

   

  	

  Purchase

  Price

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  Cinergy Ventures II, LLC

  	

   

  	

  60,000

  	

   

  	

  15,000

  	

   

  	

  9,025

  	

   

  	

  84,375

  	

   

  	

  $

  	

  600,000

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  Richard P. Kiphart

  	

   

  	

  52,500

  	

   

  	

  13,125

  	

   

  	

  7,897

  	

   

  	

  73,829

  	

   

  	

  $

  	

  525,000

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  SF Capital Partners

  	

   

  	

  30,000

  	

   

  	

  7,500

  	

   

  	

  4,512

  	

   

  	

  42,188

  	

   

  	

  $

  	

  300,000

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  John Thomas Hurvis Revocable

  Trust

  	

   

  	

  3,750

  	

   

  	

  938

  	

   

  	

  564

  	

   

  	

  5,273

  	

   

  	

  $

  	

  37,500

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  David R Asplund

  	

   

  	

  3,750

  	

   

  	

  937

  	

   

  	

  564

  	

   

  	

  5,273

  	

   

  	

  $

  	

  37,500

  	

   

  

 

 

SCHEDULE II

 

Purchasers’

Addresses for Notices

 

	

  Name of

  Purchaser

  	

   

  	

  Address For Notices

  
	

   

  	

   

  	

   

  
	

  Cinergy Ventures, LLC

  	

   

  	

   

  
	

   

  	

   

  	

   

  
	

  Richard P. Kiphart

  	

   

  	

   

  
	

   

  	

   

  	

   

  
	

  SF Capital Partners,

  Ltd.

  	

   

  	

   

  
	

   

  	

   

  	

   

  
	

  David R. Asplund

  	

   

  	

   

  
	

   

  	

   

  	

   

  
	

  John Thomas Hurvis

  Revocable Trust Dated March 8, 2002

  	

   

  	

   

  

 

22

 

EXHIBIT A

 

Certificate of Designations

 

 

EXHIBIT

B

 

Joinder to

Investor Rights Agreement

 

 

EXHIBIT

C

 

Stock Trading

AgreementExhibit
10.2

 

CERTIFICATE OF DESIGNATIONS

 

CERTIFICATE OF
DESIGNATIONS, PREFERENCES

AND RELATIVE, PARTICIPATING, OPTIONAL AND

OTHER SPECIAL RIGHTS OF PREFERRED STOCK

AND QUALIFICATIONS, LIMITATIONS

AND RESTRICTIONS THEREOF

 

 

OF

 

 

SERIES D
CONVERTIBLE

PREFERRED STOCK

 

 

OF

 

ELECTRIC CITY
CORP.

 

 

PURSUANT TO
SECTION 151 OF THE

GENERAL CORPORATION LAW OF THE STATE OF DELAWARE

 

Electric City Corp., a
Delaware corporation (the “Corporation”), certifies that pursuant to the
authority contained in Article 4 of its Amended and Restated Certificate of
Incorporation (the “Certificate of Incorporation”) and in accordance
with the provisions of Section 151 of the General Corporation Law of the State
of Delaware, the Board of Directors of the Corporation by unanimous written
consent dated June 26, 2003 adopted the following resolution, which remains in
full force and effect on the date hereof:

 

RESOLVED, that there is
hereby established a series of authorized preferred stock having a par value of
$.01 per share, which series shall be designated as “Series D Convertible
Preferred Stock,” shall consist of 253,000 shares and shall have the
following voting powers, preferences and relative, participating, optional and
other special rights, and qualifications, limitations and restrictions thereof
as follows:

 

1.             Definitions.  The following terms when used herein shall,
except where the context otherwise requires, have the following meanings, such
meanings to be equally applicable to the singular and plural forms thereof:

 

“Board”
means Board of Directors of the Corporation.

 

 

“Business
Day” means a day other than a Saturday or Sunday, or other day on which
commercial banks in the City of New York are authorized or required by law or
executive order to close.

 

“By-laws”
means the by-laws of the Corporation.

 

“Change
of Control Transaction” means a transaction which results in the occurrence
of any of the following events: (i) any “person” or “group” (as such terms are
used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the
“Exchange Act”)) is or becomes the “beneficial owner” (as defined in Rules
13d-3 and 13d-5 under the Exchange Act, except that a person shall be deemed to
have “beneficial ownership” of all securities that such person has the right to
acquire, whether such right is exercisable immediately or only after the
passage of time), directly or indirectly, of more than 40% of the total
outstanding voting stock of the Corporation; (ii) the Corporation consolidates
with or merges with or into another person or conveys, transfers, leases or
otherwise disposes of all or substantially all of its assets to any person, or
any person consolidates with or merges with or into the Corporation, in any
such event, pursuant to a transaction in which the outstanding voting stock of
the Corporation is converted into or exchanged for cash, securities or other
property; (iii) any person consolidates with or merges with or into a
subsidiary of the Corporation and such consolidation or merger results in the
transfer of fifty percent (50%) or more of the outstanding voting power of the
Corporation or results in the holders of the outstanding voting securities of
this Corporation immediately prior to such transaction holding less than a
majority of the voting securities of this Corporation or the surviving entity
immediately thereafter; or (iv) the Corporation is liquidated or dissolved or a
special resolution is passed by the stockholders of the Corporation approving
the plan of liquidation or dissolution.

 

“Closing
Price” means the closing price of the Common Stock as reported on The
American Stock Exchange (or, if not traded on the American Stock Exchange, any
national security exchange or automated quotation services on which the Common
Stock is then listed for trading).

 

“Common
Stock” means the Corporation’s authorized common stock, par value $.0001
per share.

 

“Conversion
Date” shall have the meaning set forth in Section 7(c) hereof.

 

“Conversion
Price” shall have the meaning set forth in Section 7(a) hereof.

 

“Conversion
Shares” shall have the meaning set forth in Section 7(a) hereof.

 

“Convertible
Securities” shall have the meaning set forth in Section 7(e)(i)
hereof.

 

“Dividend
Payment Date” shall have the meaning set forth in Section 3(a)
hereof.

 

“Dividend
Rate” shall have the meaning set forth in Section 3(a) hereof.

 

“Dividend
Record Date” shall have the meaning set forth in Section 3(a)
hereof.

 

2

 

“Junior
Stock” shall have the meaning set forth in Section 3(b) hereof.

 

“Liquidation
Amount” means the higher of (i) 200% of the Stated Value plus any accrued
but unpaid dividends, and (ii) the Market Price of the number of shares of
Common Stock into which one (1) share of Series D Preferred Stock is
convertible.

 

“Market
Price” shall have the meaning set forth in Section 7(e)(vi) hereof.

 

“Notice
of Redemption” shall have the meaning set forth in Section 5(c)
hereof.

 

“Parity
Stock” means the Company’s Series A Preferred Stock, the Company’s Series C
Preferred Stock and any class or series of stock of the Corporation authorized
after the date of issuance of the Series D Preferred Stock in accordance with Section
6(b) hereof ranking on a parity with the Series D Preferred Stock in
respect of the right to receive dividends or the right to participate in any
distribution upon liquidation.

 

“Person”
means an individual, a corporation, a limited liability company, an
association, a partnership, a trust or estate, a government or any department
or agency thereof.

 

“Purchase
Rights” shall have the meaning set forth in Section 7(f)(ii) hereof.

 

“Redemption
Date” shall have the meaning set forth in Section 5(c) hereof.

 

“Redemption
Price” shall have the meaning set forth in Section 5(b) hereof.

 

“Securities
Purchase Agreement” means that certain Securities Purchase Agreement dated
as of June 20, 2003 by and among the Corporation and certain investors party
thereto, as the same may be amended from time to time.

 

“Senior
Stock” means any class or series of stock of the Corporation authorized
after the date of issuance of the Series D Preferred Stock in accordance with Section
6(e) hereof ranking senior to the Series D Preferred Stock in respect of
the right to receive dividends or the right to participate in any distribution
upon liquidation.

 

“Series
A Preferred Stock” means the Corporation’s Series A Convertible Preferred
Stock, par value $0.01 per share.

 

“Series
A Certificate of Designations” means the Certificate of Designations,
Preferences And Relative, Participating, Optional And Other Special Rights of
Preferred Stock and Qualifications, Limitations and Restrictions Thereof of the
Corporation filed with the Secretary of State of Delaware on or about September
7, 2001.

 

“Series
C Preferred Stock” means the Corporation’s Series C Convertible Preferred
Stock, par value $0.01 per share.

 

“Series
C Certificate of Designations” means the Certificate of Designations,
Preferences And Relative, Participating, Optional And Other Special Rights of
Preferred

 

3

 

Stock and Qualifications,
Limitations and Restrictions Thereof of the Corporation filed with the
Secretary of State of Delaware on or about June 3, 2002.

 

“Series
D Preferred Stock” shall have the meaning set forth in Section 2
hereof.

 

“Series
D Preferred Stock Issue Date” means the date of the initial Closing (as
defined therein) under the Securities Purchase Agreement.

 

“Stated
Value” shall have the meaning set forth in Section 2 hereof.

 

2.             Designation
and Amount.  The designation of the
series of the Preferred Stock shall be “Series D Convertible Preferred Stock,”
par value $.01 per share (the “Series D Preferred Stock”).  The number of shares of Series D Preferred
Stock shall be 253,000.  The Series D
Preferred Stock shall be assigned a stated value of $10.00 per share (as
adjusted for stock splits, stock combinations, recapitalizations and the like,
the “Stated Value”).

 

3.             Dividends.

 

(a)           Rate,
etc.  The holders of shares of
Series D Preferred Stock shall be entitled to receive, when and if declared by
the Board of Directors out of funds legally available therefor, cumulative
dividends from the date of issue thereof, on the Stated Value plus any accrued
but unpaid dividends, at an annual rate equal to ten percent (10%) (the “Dividend
Rate”) through and including the first Dividend Payment Date following the
third anniversary of the Series D Preferred Stock Issue Date, after which the
Dividend Rate shall increase by one-half of one percent (0.5%) every six months
up to a maximum rate of fifteen percent (15%) per annum.  Dividends hereunder shall be calculated on
the basis of a 360-day year consisting of twelve 30-day months, accruing and
payable quarterly, in arrears, on the last day in June, September, December and
March of each year (each a “Dividend Payment Date”), commencing on June
30, 2003 until such time as the Series D Preferred Stock is retired in
full.  If any Dividend Payment Date
occurs on a day that is not a Business Day, any accrued dividends otherwise
payable on such Dividend Payment Date shall be paid on the next succeeding
Business Day with the same effect as though made on such Dividend Payment
Date.  Through and including the first
Dividend Payment Date following the third anniversary of the Series D Preferred
Stock Issue Date, dividends on the Series D Preferred Stock may be paid in cash
or additional shares of Series D Preferred Stock at the sole discretion of the
Board.  The cash equivalent of a share
of Series D Preferred Stock shall be the Stated Value.  After the first Dividend Payment Date
following the third anniversary of the Series D Preferred Stock Issue Date,
dividends on the Series D Preferred Stock shall be paid by the Corporation in
cash only.  Dividends shall accrue and
be cumulative with respect to each share of Series D Preferred Stock from the
date of original issuance whether or not earned or declared.  Except as otherwise required by law, the “Dividend
Record Date” with respect to the next succeeding Dividend Payment Date
shall be the date ten (10) Business Days prior to such Dividend Payment
Date.  Upon conversion of any shares of
Series D Preferred Stock, dividends shall be paid as provided in Section 7
hereof.

 

(b)           Rank,
etc.  Unless full dividends, if
applicable, on all outstanding shares of Series D Preferred Stock that have
previously become due and payable, have been paid or are contemporaneously
declared and paid (or declared and a sum sufficient for the payment thereof

 

4

 

is set apart for such payment), the Corporation shall not (i) declare
or pay any dividend on (A) the Series D Preferred Stock, except if such
dividend is allocated pro rata on a share-by-share basis among all shares of
Series D Preferred Stock at that time outstanding, (B) any other class of
Parity Stock, except if such dividend is allocated pro rata on a share-by-share
basis among all shares of Series D Preferred Stock and any other class of
Parity Stock at that time outstanding taken together as a class, (C) the Common
Stock or (D) on any other class or series of stock ranking junior to the Series
D Preferred Stock as to dividends or upon liquidation (the Common Stock and any
such junior class or series being the “Junior Stock”) or make any
payment on account of, or set apart money for, a sinking or other analogous
fund for the purchase, redemption or other retirement of, any Parity Stock or
Junior Stock or make any distribution in respect thereof, either directly or
indirectly and whether in cash or property or in obligations or shares of the
Corporation, or (ii) purchase or redeem any of the shares of Series D Preferred
Stock, unless such purchase or redemption is pursuant to Section 5 or Section
6(b)(i)(4), or purchase or redeem any shares of Parity Stock or Junior
Stock then outstanding, unless such purchase or redemption is approved in
accordance with Section 6(b) hereof. 
If any dividend is paid on the Common Stock, the holders of shares of
Series D Preferred Stock shall be entitled to receive, in addition to dividends
as provided in Section 3(a) hereof, additional dividends to the extent
necessary so that the aggregate dividends paid on Series D Preferred Stock from
the issue date thereof shall not be less than the aggregate dividends paid on
Common Stock during the corresponding period.

 

4.             Liquidation.

 

(a)           Preference
Upon Liquidation, Dissolution or Winding Up.  In the event of any liquidation, dissolution or winding up of the
affairs of the Corporation (any or all of such events, a “liquidation”),
whether voluntary or involuntary, subject to the prior preferences and other
rights of any Senior Stock, if any, as to liquidation preferences, the holders
of shares of Series D Preferred Stock then outstanding shall be entitled first
as if members of a single class of securities with the holders of any Parity
Stock, if any, to be paid out of the assets of the Corporation, before any
payment shall be made to the holders of the Junior Stock, the Liquidation
Amount per outstanding share.  Except as
provided in this Section 4(a), holders of Series D Preferred Stock shall
not be entitled to any distribution in the event of a liquidation.

 

(b)           Insufficient
Assets.  If, upon any liquidation
pursuant to Section 4(a), the assets of the Corporation are insufficient
to pay the holders of shares of the Series D Preferred Stock and any Parity
Stock, if any, then outstanding the full amount to which they shall be
entitled, such assets shall be distributed to each holder of the Series D
Preferred Stock and Parity Stock, if any, pro-rata based on the number of
shares of Series D Preferred Stock and Parity Stock, if any, held by each.

 

(c)           Rights
of Other Holders.  In the event of
any liquidation pursuant to Section 4(a), after payment shall have been
made to the holders of the Series D Preferred Stock and Parity Stock, if any,
of all preferential amounts to which they shall be entitled, the holders of
shares of Junior Stock shall receive such amounts as to which they are entitled
by the terms thereof.

 

5

 

5.             Redemption.

 

(a)           Mandatory
Redemption.  The Series D Preferred
Stock shall not be subject to mandatory redemption by the Corporation.

 

(b)           Optional
Redemption.  Through and including
the third anniversary of the Series D Preferred Stock Issue Date, the shares of
Series D Preferred Stock may not be redeemed by the Corporation.   At any time after the third anniversary of
the Series D Preferred Stock Issue Date, all, but not less than all, of the
outstanding shares of Series D Preferred Stock may be redeemed, at the option
of the Corporation, at a price per share equal to and in the form of cash in an
amount equal to the Stated Value plus any accrued but unpaid dividends (the “Redemption
Price”) if (A) the Closing Price exceeds $7.50 per share (as adjusted for
stock splits, stock combinations, recapitalizations and the like) for at least
the twenty (20) consecutive trading days immediately preceding the date the
Corporation sends a Notice of Redemption to all holders of record of the Series
D Preferred Stock and (B) the average daily trading volume for such twenty (20)
trading day period (as adjusted to exclude the highest and lowest volume
trading days during such period) exceeds 500,000 shares.

 

(c)           Mechanics
of Redemption.  A notice of
redemption (“Notice of Redemption”) shall be sent by or on behalf of the
Corporation not less than fifteen (15) Business Days nor more than thirty (30)
days prior to the date specified for redemption in such notice (the “Redemption
Date”), by first class mail, postage prepaid, to all holders of record of
the Series D Preferred Stock at their last addresses as they shall appear on
the books of the Corporation; provided, however, that no failure
to give such notice or any defect therein or in the mailing thereof shall
affect the validity of the proceedings for the redemption of any shares of
Series D Preferred Stock except as to the holder to whom the Corporation has
failed to give notice or except as to the holder to whom notice was defective.  In addition to any information required by
law or by the applicable rules of any exchange upon which the Series D
Preferred Stock or the Common Stock may be listed or admitted to trading, such
notice shall state: (i) that such redemption is being made pursuant to the
optional redemption provisions hereof; (ii) the Redemption Date; (iii) a
calculation of the Redemption Price as of the date of the Notice of Redemption;
(iv) that all the outstanding shares of Series D Preferred Stock are to be
redeemed; (v) the place or places where certificates for such shares are to be
surrendered for payment of the Redemption Price; and (vi) that dividends on the
shares of Series D Preferred Stock will cease to accumulate on the Redemption
Date.  Upon the mailing of any such
Notice of Redemption, the Corporation shall become obligated to redeem at the
time of redemption specified therein all shares of Series D Preferred Stock.

 

(d)           If
a Notice of Redemption has been mailed in accordance with Section 5(c)
above and if all funds and shares of Common Stock necessary for such redemption
shall have been set aside by the Corporation on or before the Redemption Date,
separate and apart from its other funds in trust for the benefit of the holders
of the outstanding shares of Series D Preferred Stock, so as to be, and to
continue to be available therefor, then dividends on the shares of the Series D
Preferred Stock so called for redemption shall cease to accrue or accumulate on
the Redemption Date, and such shares shall no longer be deemed to be
outstanding and shall not have the status of shares of Series D Preferred Stock
on the Redemption Date, and all rights of the holders thereof as stockholders
of the Corporation (except the right to receive from the Corporation the
Redemption Price) shall cease on the Redemption Date.  Upon surrender, in accordance with such Notice of Redemption, of
the certificates for any shares of Series D

 

6

 

Preferred Stock so redeemed (properly endorsed or assigned
for transfer, if the Corporation shall so require and the Notice shall so
state), such shares of Series D Preferred Stock shall be redeemed by the
Corporation at the Redemption Price.

 

(e)           Option
to Convert.  Notwithstanding the
delivery by the Corporation of a Notice of Redemption, each holder of Series D
Preferred Stock may convert all or any portion of his, her or its shares of
Series D Preferred Stock into shares of Common Stock in accordance with Section
7(a) and Section 7(c) hereof until the close of business on the day
prior to the Redemption Date.

 

6.             Voting
Rights.

 

(a)           General.  Except as to the election of directors and
as to any special approvals required under Section 6(b), as to which Section
6(b) and (c) shall apply to the exclusion of any voting rights under
this Section 6(a), the holder of record of each share of Series D
Preferred Stock shall have the right to one vote for each share of Common Stock
into which such share of Series D Preferred Stock could then be converted, and
with respect to such vote, such holder of record shall have full voting rights
and powers equal to the voting rights and powers of the holders of Common
Stock, and shall be entitled to notice of any stockholders’ meeting in
accordance with the bylaws of the Corporation, and shall be entitled to vote
together with the holders of Common Stock as a single class, with respect to
any question upon which holders of record of Common Stock have the right to
vote, except as otherwise required by applicable law.  Fractional votes shall not, however, be permitted and any
fractional voting rights available on an as-converted basis (after aggregating
all shares into which shares of Series D Preferred Stock held by each holder of
record could be converted) shall be rounded to the nearest whole number (with one-half
being rounded upward).

 

(b)           Special
Approval Rights.

 

(i)            For so long as any shares of Series
D Preferred Stock remain issued and outstanding, the Corporation shall not,
without the affirmative written consent or approval of the holders of record
representing 51% or more of the aggregate number of shares of Series D
Preferred Stock then outstanding (such consent or approval to be given by
written consent in lieu of a meeting if allowable under the Corporation’s
Certificate of Incorporation or by vote at a meeting called for such purpose
for which notice shall have been given to the holders of the Series D Preferred
Stock):

 

(A)          enter into any agreement that would
restrict the Corporation’s ability to perform under the Securities Purchase
Agreement;

 

(B)           amend its Certificate of
Incorporation (including this resolution) or Bylaws in any way that could
adversely affect, alter or change the rights, powers or preferences of the
Series D Preferred Stock; or

 

(C)           engage in any transaction that would
impair or reduce the rights, powers or preferences of the Series D Preferred
Stock as a class.

 

7

 

(ii)           For so long as at least 800,000
shares in the aggregate of Series A Preferred Stock, Series C Preferred Stock
and Series D Preferred Stock remain issued and outstanding (as adjusted for
stock splits, stock combinations, recapitalizations and the like), the
Corporation shall not, without the affirmative written consent or approval of
the holders of record of shares representing 66-2/3% of the aggregate number of
shares of Series A Preferred Stock, Series C Preferred Stock and Series D
Preferred Stock then outstanding, voting as a single class to the exclusion of
all other classes of the Corporation’s capital stock (such consent or approval
to be given by written consent in lieu of a meeting if allowable under the
Corporation’s Certificate of Incorporation or by vote at a meeting called for
such purpose for which notice shall have been given to the holders of the Series
A Preferred Stock, the holders of the Series C Preferred Stock and to the
holders of the Series D Preferred Stock):

 

(A)          authorize or issue any Senior Stock or
Parity Stock or any securities convertible, exercisable or exchangeable into
such securities, other than:

 

(1)           Series A Preferred Stock issued as
payment in kind of any accrued but unpaid dividends on the Series A Preferred
Stock;

 

(2)           Series C Preferred Stock issued as
payment in kind of any accrued but unpaid dividends on the Series C Preferred
Stock;

 

(3)           Series D Preferred Stock issued at
closing under the Securities Purchase Agreement;

 

(4)           Series D Preferred Stock issued upon
exercise of the Series D Preferred Stock Warrants issued pursuant to the
Securities Purchase Agreement; or

 

(5)           Series D Preferred Stock issued as
payment in kind of any accrued but unpaid dividends on the Series D Preferred
Stock;

 

(B)           purchase, redeem, or otherwise
acquire any of the Corporation’s capital stock, other than (x) the redemption
of the Series A Preferred Stock pursuant to section 5 or section 6(e)(i)(D) of
the Series A Certificate of Designations, or (y) the redemption of the Series C
Preferred Stock pursuant to section 5 or section 6(b)(i)(4) of the Series C
Certificate of Designations; or

 

(C)           declare or pay any cash dividends or
make any distributions on any of its capital stock, other than on the Series A
Preferred Stock, the Series C Preferred Stock and the Series D Preferred Stock.

 

Notwithstanding any other
provision in this Certificate of Designations, (I) upon the consent or approval
of the holders of record of the required numbers of shares of Series D
Preferred Stock (or, where applicable, holders of Series A Preferred Stock,
holders of Series C Preferred Stock and holders of Series D Preferred Stock),
with respect to Section 6(b)(i) and Section 6(b)(ii), and (II)
with such other votes or consents as may be required by Delaware law, the rules
and regulations of the Securities and Exchange Commission, the regulations of
the American Stock Exchange or other securities exchange applicable to the
Corporation or pursuant to the

 

8

 

Corporation’s Certificate
of Incorporation, the Corporation may take any such action referenced in this Section
6(b).

 

7.             Conversion
Rights.

 

(a)           Optional Conversion of Series D
Preferred Stock.  The holder of any
shares of Series D Preferred Stock shall have the right, at such holder’s
option, at any time or from time to time after sixty (60) days from the Series
D Preferred Stock Issue Date to convert any or all of such holder’s shares of
Series D Preferred Stock into such number of fully paid and nonassessable
shares of Common Stock (the “Conversion Shares”) as determined for each
share of Series D Preferred Stock by dividing the Stated Value by the “Conversion
Price” in effect at the time of such conversion.  The initial “Conversion Price” shall be $1.00 (One
Dollar).  The Conversion Shares and the
Conversion Price are subject to certain adjustments as set forth herein, and
the terms Conversion Shares and Conversion Price as used herein shall as of any
time be deemed to include all such adjustments to be given effect as of such
time in accordance with the terms hereof; provided, that under no
circumstances shall the Conversion Price be reduced to a level that is less
than the par value of the Common Stock.

 

Upon the exercise of the
option of the holder of any shares of Series D Preferred Stock to convert
Series D Preferred Stock into Common Stock, the holder of such shares of Series
D Preferred Stock to be converted shall surrender the certificates representing
the shares of Series D Preferred Stock so to be converted in the manner
provided in Section 7(c) hereof. 
Immediately following such conversion, the rights of the holders of converted
Series D Preferred Stock (other than the right to receive dividends accrued to
the date of such conversion) shall cease and the persons entitled to receive
the Common Stock upon the conversion of Series D Preferred Stock shall be
treated for all purposes (other than the right to receive dividends accrued to
the date of such conversion) as having become the owners of such Common Stock.

 

(b)           Automatic
Conversion.  Each share of Series D
Preferred Stock shall be automatically converted into such number of fully paid
and nonassessable shares of Common Stock as determined by dividing the Stated
Value by the Conversion Price in effect at the time of such conversion:  (i) at such time as the Closing Price
exceeds $12.00 per share (as adjusted appropriately for stock splits, stock
combinations, recapitalizations and the like) for twenty (20) consecutive
trading days and the average daily trading volume for such twenty (20) trading
day period (as adjusted to exclude the highest and lowest volume trading days during
such period) exceeds  500,000  shares; or (ii) in the event
of the consummation of a firmly underwritten primary public offering of Common
Stock by the Corporation that results in aggregate gross proceeds of not less
than $35 million, at a price per share of not less than $5.00 (as adjusted
appropriately for stock splits, stock combinations, recapitalizations and the
like).  All accrued but unpaid dividends
shall be payable immediately prior to conversion, either in cash or, at the
option of the Corporation if such conversion occurs prior to the third
anniversary of the Series D Preferred Stock Issue Date, in additional shares of
Series D Preferred Stock.

 

(c)           Delivery
of Stock Certificates.  The holder
of any shares of Series D Preferred Stock may exercise the optional conversion
right pursuant to Section 7(a) by delivering to the Corporation during
regular business hours the certificate or certificates for the shares to be
converted, duly endorsed or assigned either in blank or to the Corporation (if
required by it),

 

9

 

accompanied by written notice stating that such holder elects to
convert such shares and shall provide a certificate to the Corporation as to
the date of such conversion.  Upon the
occurrence of an automatic conversion pursuant to Section 7(b), the
Corporation shall deliver notice to each holder of Series D Preferred Stock and
each holder of any shares of Series D Preferred Stock shall deliver to the
Corporation at the office of the Corporation the certificate or certificates
for all shares of Series D Preferred Stock then held by such holder, duly
endorsed or assigned either in blank or to the Corporation (if requested by
it).  Conversion shall be deemed to have
been effected (i) in the case of an optional conversion, on the date when the
aforesaid delivery of stock certificates accompanied by written notice of
conversion is made if such day is a Business Day and otherwise on the Business
Day following the date of the aforesaid delivery, and (ii) in the case of an
automatic conversion pursuant to Section 7(b), upon the date of the
event triggering the automatic conversion. 
In each case, such date is referred to herein as the “Conversion Date.”
As promptly as practicable thereafter, the Corporation, through its transfer
agent, shall issue and deliver to or upon the written order of such holder, to
the place designated by such holder, a certificate or certificates for the
number of full shares of Common Stock to which such holder is entitled and a
check or cash in respect of any fractional interest in a share of Common Stock,
as provided below; provided, however, that in the case of a
conversion in connection with liquidation, no such certificates need be
issued.  The person in whose name the certificate
or certificates for Common Stock are to be issued shall be deemed to have
become the stockholder of record in respect of such Common Stock on the
applicable Conversion Date unless the transfer books of the Corporation are
closed on that date, in which event such holder shall be deemed to have become
the stockholder of record in respect of such Common Stock on the next
succeeding date on which the transfer books are open, but the Conversion Price
shall be that in effect on the Conversion Date.  Upon conversion of only a portion of the number of shares covered
by a stock certificate representing shares of Series D Preferred Stock
surrendered for conversion, the Corporation shall issue and deliver to or upon
the written order of the holder of the stock certificate so surrendered for
conversion, at the expense of the Corporation, a new stock certificate covering
the number of shares of Series D Preferred Stock representing the unconverted
portion of the certificate so surrendered. 
The Corporation shall not be required to pay any tax that may be payable
in respect of any transfer involved in the issuance and delivery of Common
Stock or the reissuance of the Series D Preferred Stock in a name other than
that in which the shares of Series D Preferred Stock so converted were
registered, and no such issuance or delivery shall be made unless and until the
person requesting such issuance has paid to the Corporation the amount of any
such tax or has established to the satisfaction of the Corporation that such tax,
if any, has been paid.

 

(d)           No
Fractional Shares of Common Stock.

 

(i)            No
fractional shares of Common Stock shall be issued upon conversion of shares of
Series D Preferred Stock and in lieu thereof, the Corporation shall pay a cash
adjustment in respect of such fractional interest in an amount equal to the
then current Market Price (as defined in Section 7(e)(vi) below) of a
share of Common Stock multiplied by such fractional interest.  The holders of fractional interests shall
not be entitled to any rights as stockholders of the Corporation in respect of
such fractional interests.  In
determining the number of shares of Common Stock and the payment, if any, in
lieu of fractional shares that a holder of Series D Preferred Stock shall
receive, the total number of shares of Series D Preferred Stock surrendered for
conversion by such holder shall be aggregated.

 

10

 

(ii)           On
the first Dividend Payment Date on which accrued dividends are paid in full to
holders of Series D Preferred Stock following the optional conversion pursuant
to Section 7(a) of all or any portion of the Series D Preferred Stock,
the Corporation shall pay any dividends accrued on such converted Series D
Preferred Stock to the date of such conversion.  Accrued dividends with respect to all shares converted pursuant
to Section 7(b) hereof shall be paid in full on the Conversion Date out
of funds legally available therefor or, at the option of the Corporation if
such conversion occurs prior to the third anniversary of the Series D Preferred
Stock Issue Date, in additional shares of Series D Preferred Stock.

 

(e)           Adjustment
of Conversion Price Upon Issuance of Common Stock.  If and whenever after the Series D Preferred
Stock Issue Date the Corporation shall issue or sell any shares of its Common
Stock for a price per share less than, under certain circumstances (including,
without limitation, those circumstances described in paragraphs (i) through
(vii) below), the Conversion Price in effect immediately prior to the time of
such issue or sale, then immediately upon such issue or sale, the Conversion
Price then in effect shall be reduced to such lower price per share.

 

For the purposes of this Section
7(e), the following paragraphs (i) through (vii) shall also be applicable:

 

(i)            Issuance
of Rights or Options.  In case at
any time after the date hereof the Corporation shall in any manner grant
(whether directly or by assumption in a merger or otherwise, except in the
circumstances described in Section 7(f) below) any rights to subscribe
for or to purchase, or any options or warrants for the purchase of, Common
Stock or any stock, notes or securities convertible into or exchangeable for
Common Stock (such convertible or exchangeable stock, notes or securities being
herein called “Convertible Securities”), whether or not such rights,
options or warrants or the right to convert or exchange any such Convertible
Securities are immediately exercisable, such grant shall be deemed a sale by
the Corporation of its Common Stock and the price per share for such deemed
sale of Common Stock shall be determined by dividing (A) the total amount, if
any, in cash or property received or receivable by the Corporation as
consideration for the granting of such rights, options or warrants, plus the
minimum aggregate amount of additional consideration, if any, payable to the
Corporation upon the exercise of such rights, options or warrants, plus, in the
case of such rights, options or warrants that relate to Convertible Securities,
the minimum aggregate amount of additional consideration, if any, payable upon
the issue or sale of such Convertible Securities and upon the conversion or
exchange thereof, by (B) the total maximum number of shares of Common Stock
issuable upon the exercise of such rights, options or warrants or upon the
conversion or exchange of all such Convertible Securities issuable upon the
exercise of such rights, options or warrants. 
Except as provided in Section 7(e)(iii), no further adjustment of
the Conversion Price shall be made upon the actual issue of such Common Stock
or of such Convertible Securities upon exercise of such rights, options or
warrants or upon the actual issue of such Common Stock upon conversion or
exchange of such Convertible Securities.

 

(ii)           Issuance
of Convertible Securities.  In case
at any time after the date hereof the Corporation shall in any manner issue
(whether directly or by assumption in a merger or otherwise) or sell any
Convertible Securities, whether or not the rights to exchange or convert
thereunder are immediately exercisable, such issuance or sale of Convertible
Securities shall be

 

11

 

deemed to be a sale by the Corporation of its Common Stock and the
price per share for such Common Stock shall be determined by dividing (A) the
total amount in cash or in property received or receivable by the Corporation
as consideration for the issue or sale of such Convertible Securities, plus the
minimum aggregate amount of additional consideration, if any, payable to the
Corporation upon the conversion or exchange thereof, by (B) the total maximum
number of shares of Common Stock issuable upon the conversion or exchange of
all such Convertible Securities; provided, however, that (I)
except as otherwise provided in Section 7(e)(iii), no further adjustment
of the Conversion Price shall be made upon the actual issue of such Common
Stock upon conversion or exchange of such Convertible Securities, and (II) if
any such issue or sale of such Convertible Securities is made upon exercise of
any rights to subscribe for or to purchase or any option to purchase any such
Convertible Securities for which adjustments of the Conversion Price have been
or are to be made pursuant to other provisions of this Section 7(e), no
further adjustment of the Conversion Price shall be made by reason of such
issue or sale.

 

(iii)          Change
in Option Price or Conversion Price. 
If the purchase price provided for in any right or option referred to in
Section 7(e)(i), the additional consideration, if any, payable upon the
conversion or exchange of any Convertible Securities referred to in Section
7(e)(i) or 7(e)(ii), or the rate at which any Convertible Securities
referred to in Section 7(e)(i) or 7(e)(ii) are convertible into
or exchangeable for Common Stock shall change (other than under or by reason of
provisions designed to protect against dilution), the Conversion Price then in
effect hereunder shall forthwith be readjusted (increased or decreased, as the
case may be) to the Conversion Price that would have been in effect at such
time had such rights, options or Convertible Securities still outstanding
provided for such changed purchase price, additional consideration or
conversion rate, as the case may be, at the time initially granted, issued or
sold.  No readjustment pursuant to the
preceding sentence shall have the effect of increasing the Conversion Price by
an amount in excess of the amount of the adjustment thereof originally made in
respect of the issue, sale, grant or assumption of rights, options or
Convertible Securities.  On the
expiration of any such option or right referred to in Section 7(e)(i) or
the termination of any such right to convert or exchange any such Convertible
Securities referred to in Section 7(e)(i) or 7(e)(ii), the
Conversion Price then in effect hereunder shall forthwith be readjusted
(increased or decreased, as the case may be) to the Conversion Price that would
have been in effect at the time of such expiration or termination had such
right, option or Convertible Securities, to the extent outstanding immediately
prior to such expiration or termination, never been granted, issued or
sold.  If the purchase price provided
for in any such right or option referred to in Section 7(e)(i) or the
rate at which any Convertible Securities referred to in Section 7(e)(i)
or Section 7(e)(ii) are convertible into or exchangeable for Common
Stock shall be reduced at any time under or by reason of provisions with
respect thereto designed to protect against dilution, then in case of the
delivery of shares of Common Stock upon the exercise of any such right or
option or upon conversion or exchange of any such Convertible Securities, the
Conversion Price then in effect hereunder shall, if not already adjusted, forthwith
be adjusted to such amount as would have obtained had such right, option or
Convertible Securities never been issued as to such shares of Common Stock and
had adjustments been made upon the issuance of the shares of Common Stock
delivered as aforesaid, but only if as a result of such adjustment the
Conversion Price then in effect hereunder is thereby reduced.

 

12

 

(iv)          Consideration
for Stock.  Anything herein to the
contrary notwithstanding, in case at any time any shares of Common Stock or
Convertible Securities or any rights, options or warrants to purchase any such
Common Stock or Convertible Securities shall be issued or sold for cash, the
consideration received therefor shall be deemed to be the amount received by
the Corporation therefor, without deduction therefrom of any expenses incurred
or any underwriting commissions or concessions paid or allowed by the
Corporation in connection therewith.

 

In case at any time any
shares of Common Stock or Convertible Securities or any rights, options or
warrants to purchase any such shares of Common Stock or Convertible Securities
shall be issued or sold for a consideration other than cash, in whole or in
part, the amount of the consideration other than cash received by the
Corporation shall be deemed to be the fair value of such consideration as
determined reasonably and in good faith by the Board of Directors of the
Corporation, without deduction of any expenses incurred or any underwriting
commissions or concessions paid or allowed by the Corporation in connection
therewith.  In case at any time any
shares of Common Stock or Convertible Securities or any rights, options or
warrants to purchase such shares of Common Stock or Convertible Securities
shall be issued in connection with any merger or consolidation in which the
Corporation is the surviving corporation, the amount of consideration received
therefor shall be deemed to be the fair value as determined reasonably and in
good faith by the Board of Directors of the Corporation of such portion of the
assets and business of the nonsurviving corporation as such Board may determine
to be attributable to such shares of Common Stock, Convertible Securities,
rights, options or warrants, as the case may be.  In case at any time any rights, options or warrants to purchase
any shares of Common Stock or Convertible Securities shall be issued in
connection with the issue and sale of other securities of the Corporation,
together comprising one integral transaction in which no consideration is
allocated to such rights, options or warrants by the parties thereto, such
rights, options or warrants shall be deemed to have been issued for an amount
of consideration equal to the fair value thereof as determined reasonably and in
good faith by the Board of Directors of the Corporation.

 

(v)           Record
Date.  In case the Corporation shall
take a record of the holders of its Common Stock for the purpose of entitling
them to subscribe for or purchase shares of Common Stock or Convertible
Securities, then such record date shall be deemed to be the date of the issue
or sale of the shares of Common Stock deemed to have been issued or sold as a
result of the granting of such right of subscription or purchase.

 

(vi)          Definition
of Market Price.  Unless otherwise
set forth in this resolution, “Market Price” shall mean the last
reported sale price of the applicable security as reported by the American
Stock Exchange, the National Association of Securities Dealers, Inc. Automatic
Quotations System, or, if the applicable security is listed or admitted for
trading on another securities exchange, the last reported sales price of the
applicable security on the principal exchange on which the applicable security
is listed or admitted for trading (which shall be for consolidated trading if
applicable to such exchange), or if neither so reported or listed or admitted
for trading, the last reported bid price of the applicable security in the
over-the-counter market.  In the event
that the Market Price cannot be determined as aforesaid, the Board of Directors
of the Corporation shall determine the Market Price on the basis of such
quotations as it in good faith considers appropriate, in consultation with a
nationally recognized investment bank. 
The Market Price shall be such price averaged over a period of ten (10)
consecutive

 

13

 

Business
Days ending two (2) days prior to the day as of which “Market Price” is being
determined.

 

(vii)         Adjustment
to Determination of Conversion Price. 
When making the calculations and determinations described in this Section
7(e), there shall not be taken into account (A) the issuance of Common
Stock upon the exercise of outstanding options or warrants outstanding on the
Series D Preferred Stock Issue Date, (B) the issuance of Common Stock upon
conversion of the Series A Preferred Stock or the Series C Preferred Stock or
the Series D Preferred Stock, (C) the issuance of Common Stock upon exercise of
any warrants issued pursuant to the Securities Purchase Agreement, (D) the
issuance of Series D Preferred Stock upon exercise of the Series D Preferred
Stock Warrants (as defined in the Securities Purchase Agreement), and (E) the
issuance of 22,562 shares of Common Stock pursuant to the Securities Purchase
Agreement.

 

(f)            Dividends
and Distributions; Purchase Rights.

 

(i)            In case at any time after the date
hereof the Corporation shall declare a dividend or other distribution upon the
shares of Common Stock of any class payable otherwise than in shares of Common
Stock or Convertible Securities and otherwise than in the securities to which
the provisions of Section 7(f)(ii) hereof apply, the Corporation shall
pay over to each holder of Series D Preferred Stock, upon conversion thereof on
or after the dividend payment date, the securities and other property
(including cash) that such holder would have received (together with all
distributions thereon) if such holder had converted the Series D Preferred
Stock held by it on the record date fixed in connection with such dividend, and
the Corporation shall take whatever steps are necessary or appropriate to keep
in trust for the holders of the Series D Preferred Stock at all times such
securities and other property as shall be required to fulfill its obligations
hereunder in respect of the shares issuable upon the exercise or conversion of
all the Series D Preferred Stock.

 

(ii)           If
at any time or from time to time on or after the Series D Preferred Stock Issue
Date, the Corporation grants, issues or sells any options or rights (other than
Convertible Securities) to purchase stock, warrants, securities or other
property pro rata to the holders of Common Stock of all classes (“Purchase
Rights”), and if the holder shall be entitled to an adjustment pursuant to Section
7(e) above, then in lieu of such adjustment, each holder of Series D
Preferred Stock shall be entitled, at such holder’s option, to acquire (whether
or not such holder’s Series D Preferred Stock shall have been converted), upon
the terms applicable to such Purchase Rights, the aggregate Purchase Rights
that such holder could have acquired if such holder had held the number of
shares of Common Stock issuable upon conversion of such Series D Preferred
Stock immediately prior to the time or times at which the Corporation granted,
issued or sold such Purchase Rights.

 

(g)           Subdivision
or Combination of Stock or Stock Dividends.  In case the Corporation shall at any time subdivide its
outstanding shares of Common Stock into a greater number of shares, by split or
otherwise, or issue additional shares of Common Stock as a dividend (other than
a dividend in accordance with Section 3 hereof), or make any other
distribution upon any class or series of stock payable in shares of Common
Stock or Convertible Securities, the Conversion Price in effect immediately
prior to such subdivision shall be

 

14

 

proportionately
reduced and, conversely, in case the outstanding shares of Common Stock of the
Corporation shall be combined into a smaller number of shares, the Conversion
Price in effect immediately prior to such combination shall be proportionately
increased.

 

(h)           Changes
in Common Stock.  If any capital
reorganization or reclassification of the capital stock of the Corporation, or
consolidation or merger of the Corporation with or into another Person, or the
sale, transfer or other disposition of all or substantially all of its assets
to another corporation for cash or stock of such other corporation, shall be
effected, then, as a condition of such reorganization, reclassification,
consolidation, merger, sale, transfer or other disposition, lawful and adequate
provision shall be made whereby each holder of Series D Preferred Stock shall
thereafter have the right to purchase and receive upon the basis and upon the
terms and conditions herein specified and in lieu of the shares of the Common
Stock of the Corporation immediately theretofore issuable upon conversion of
the Series D Preferred Stock, such kind and amount of shares of stock,
securities (of the Corporation or another issuer) or property or cash as may be
issuable or payable with respect to or in exchange for a number of outstanding
shares of such Common Stock equal to the number of shares of such Common Stock
immediately theretofore issuable upon conversion of the Series D Preferred
Stock had such reorganization, reclassification, consolidation, merger, sale,
transfer or other disposition not taken place, and in any such case appropriate
provisions shall be made with respect to the rights and interests of each
holder of Series D Preferred Stock to the end that the provisions hereof
(including without limitation provisions for adjustment of the Conversion
Price) shall thereafter be applicable, as nearly equivalent as may be
practicable in relation to any shares of stock, securities or property or cash
thereafter deliverable upon the conversion thereof.  The Corporation shall not effect any such reorganization, reclassification,
consolidation, merger, sale, transfer or other disposition, unless prior to or
simultaneously with the consummation thereof the successor corporation (if
other than the Corporation) resulting from such reorganization,
reclassification, consolidation or merger or the corporation purchasing or
otherwise acquiring such properties shall assume, by written instrument
executed and mailed or delivered to the holders of Series D Preferred Stock at
the last address of such holders appearing on the books of the Corporation, the
obligation to deliver to such holders such shares of stock, securities or
properties or cash as, in accordance with the foregoing provisions, such
holders may be entitled to acquire.  The
above provisions of this subparagraph shall similarly apply to successive
reorganizations, reclassifications, consolidations, mergers, sales, transfers
or other dispositions.

 

(i)            Certain
Events.  If any event occurs as to
which in the reasonable opinion of the Board of Directors of the Corporation,
in good faith, the other provisions of this Section 7 are not strictly
applicable or if strictly applicable would not fairly protect the conversion
rights of the holders of the Series D Preferred Stock in accordance with the
essential intent and principles of such provisions, then such Board of Directors,
acting by a vote of at least a majority of the members thereof, shall provide
for the benefit of holders of shares of Series D Preferred Stock an adjustment,
if any, on a basis consistent with such essential intent and principles,
necessary to preserve, without dilution, the rights of the holders of the
Series D Preferred Stock.  Upon such
vote by the Board of Directors, the Corporation shall forthwith make the
adjustments described therein; provided, however, that no such
adjustments shall have the effect of increasing the Conversion Price as
otherwise determined pursuant to this Section 7 except in the event of a

 

15

 

combination
of shares of the type contemplated in Section 7(g) and then in no event
to an amount larger than the Conversion Price as adjusted pursuant to Section
7(g).

 

(j)            Prohibition
of Certain Actions.  The Corporation
will not take any action that would result in any adjustment of the Conversion
Price pursuant to the terms hereof if the total number of shares of Common
Stock issuable after such action upon conversion of all the Series D Preferred
Stock would exceed the total number of shares of Common Stock then authorized
by the Corporation’s Certificate of Incorporation.

 

(k)           Common
Stock to be Reserved.  The
Corporation will at all times reserve and keep available out of its authorized
Common Stock, solely for the purpose of issue upon the conversion of Series D
Preferred Stock as herein provided, such number of shares of Common Stock as
shall then be issuable upon the conversion of all outstanding Series D
Preferred Stock.  The Corporation
covenants that all shares of Common Stock that shall be so issuable shall, upon
issuance, be duly authorized, validly issued, fully paid and nonassessable,
free from preemptive or similar rights on the part of the holders of any shares
of capital stock or securities of the Corporation, and free from all liens and
charges with respect to the issue thereof; and without limiting the generality
of the foregoing, the Corporation covenants that it will from time to time take
all such action as may be requisite to assure that the par value, if any, per
share of the Common Stock is at all times equal to or less than the then
effective Conversion Price.  The
Corporation will take all such action as may be necessary to assure that such
shares of Common Stock may be so issued without violation by the Corporation of
any applicable law or regulation or agreement, or of any requirements of any
domestic securities exchange upon which the Series D Preferred Stock or Common
Stock may be listed.  Without limiting
the foregoing, the Corporation will take all such action as may be necessary to
assure that, upon conversion of any of the Series D Preferred Stock, an amount
equal to the lesser of (i) the par value of each share of Common Stock
outstanding immediately prior to such conversion, or (ii) the Conversion Price
shall be credited to the Corporation’s stated capital account for each share of
Common Stock issued upon such conversion, and that, if Section 7(k)(i)
above is applicable, the balance of the Conversion Price of Series D Preferred
Stock converted shall be credited to the Corporation’s capital surplus
account.  If at any time the Corporation
should not have a sufficient number of authorized shares of Common Stock to
issue upon conversion of all then outstanding shares of Series D Preferred
Stock or the shares of Series D Preferred Stock issuable upon exercise of
outstanding options, rights or warrants to purchase Series D Preferred Stock,
the Corporation covenants to take all steps necessary to amend its Certificate
of Incorporation to increase the number of shares of authorized Common Stock to
the extent necessary.

 

(l)            Preferred
Stock to be Reserved.  The Corporation
will at all times reserve and keep available out of its authorized Series D
Preferred Stock, solely for the purpose of issue upon the declaration of a
dividend on the outstanding Series D Preferred Stock, such number of shares of
Series D Preferred Stock as shall then be issuable as a dividend on the Series
D Preferred Stock.  The Corporation
covenants that all shares of Series D Preferred Stock that shall be issued as
such dividends shall, upon issuance, be duly authorized, validly issued, fully paid
and nonassessable, free from preemptive or similar rights on the part of the
holders of any shares of capital stock or securities of the Corporation, and
free from all liens and charges with respect to the issue thereof.  The Corporation will take all such action as
may be necessary to assure that such shares of Series D Preferred Stock may be
so issued without violation by the Corporation of

 

16

 

any
applicable law or regulation or agreement, or of any requirements of any
domestic securities exchange upon which the Series D Preferred Stock or the
Common Stock may be listed.  If at any
time the Corporation should not have a sufficient number of authorized shares
of Series D Preferred Stock to issue as dividends on the then outstanding
shares of Series D Preferred Stock, the Corporation covenants to amend this
resolution to increase the number of shares of authorized Series D Preferred
Stock to the extent necessary.

 

(m)          Registration
and Listing of Common Stock.  If any
shares of Common Stock required hereunder to be reserved for purposes of
conversion of Series D Preferred Stock require registration with or approval of
any governmental authority under any Federal or state law (other than the
Securities Act) before such shares may be issued upon conversion, the
Corporation will, at its expense and as expeditiously as possible, use its best
efforts to cause such shares to be duly registered or approved, as the case may
be.  If and so long as the Common Stock
is listed on any national securities exchange, the Corporation will, at its
expense, obtain promptly and maintain the approval for listing on each such
exchange upon official notice of issuance, of shares of Common Stock issuable
upon conversion of the then outstanding Series D Preferred Stock and the shares
of Series D Preferred Stock then issuable upon the exercise of options, rights
or warrants to purchase Series D Preferred Stock, and maintain the listing of
such shares after their issuance; and the Corporation will also list on such
national securities exchange, will register under the Exchange Act and will
maintain such listing of, any other securities that at any time are issuable
upon conversion of the Series D Preferred Stock, if and at the time that any
securities of the same class shall be listed on such national securities
exchange by the Corporation.

 

(n)           Closing
of Books.  The Corporation will at
no time close its transfer books against the transfer of any Series D Preferred
Stock or of any shares of Common Stock issued or issuable upon the conversion
of any Series D Preferred Stock in any manner that interferes with the timely
conversion of such Series D Preferred Stock.

 

(o)           Statement
of Adjustment of Conversion Price. 
Whenever the Conversion Price shall be adjusted as provided in Section
7(e), Section 7(g), Section 7(h) or Section 7(i)
above, the Corporation shall forthwith file at its office a statement, signed
by its independent certified public accountants, showing in detail the facts
requiring such adjustment and the Conversion Price that shall be in effect
after such adjustment.  The Corporation
shall also cause a copy of such statement to be sent by certified mail, return
receipt requested, to each holder of shares of Series D Preferred Stock to such
holder’s address appearing on the Corporation’s records.  When appropriate, such copy may be given in
advance and may be included as part of a notice required to be mailed under the
provisions of Section 7(p) below.

 

(p)           Notice.  In the event the Corporation shall propose
to take any action of the types described in Section 7(e), Section
7(f), Section 7(g) or Section 7(h) above, the Corporation
shall give notice to each holder of shares of Series D Preferred Stock.  The notice shall specify the record date, if
any, with respect to any such action and the date on which such action is to
take place.  Such notice shall also set
forth such facts with respect thereto as shall be reasonably necessary to
indicate the effect of such action (to the extent such effect may be known at
the date of such notice) on the Conversion Price and the number, kind or class
of shares or other securities or property or cash that shall be deliverable or
purchasable upon the

 

17

 

occurrence
of such action or deliverable upon conversion of shares of Series D Preferred
Stock.  In the case of any action that
would require the fixing of a record date, such notice shall be given at least
twenty (20) days prior to the date so fixed, and in case of all other action,
such notice shall be given at least thirty (30) days prior to the taking of
such proposed action.

 

(q)           Taxes.  The Corporation shall pay all documentary,
stamp or other transactional taxes attributable to the issuance or delivery of
shares of capital stock of the Corporation upon conversion of any shares of
Series D Preferred Stock.  The
Corporation shall not, however, be required to pay any tax that may be payable
in respect of any transfer involved in the issuance and delivery of Common
Stock or the reissuance of the Series D Preferred Stock in a name other than
that in which the shares of Series D Preferred Stock so converted were
registered, and no such issuance or delivery shall be made unless and until the
person requesting such issuance has paid to the Corporation the amount of any
such tax or has established to the satisfaction of the Corporation that such
tax, if any, has been paid.

 

8.             Exclusion
of Other Rights.  Except as may
otherwise be required by law, the shares of Series D Preferred Stock shall not
have any voting powers, preferences and relative, participating, optional or
other special rights, other than those specifically set forth in this
resolution and in the Certificate of Incorporation.

 

9.             Headings
of Subdivisions.  The headings of
the various subdivisions hereof are for convenience of reference only and shall
not affect the interpretation of any of the provisions hereof.

 

10.           Reissuance
of Preferred Stock.  Shares of
Series D Preferred Stock that have been issued and reacquired in any manner,
including shares purchased or exchanged or converted, shall (upon compliance
with any applicable provisions of the laws of Delaware) have the status of
authorized but unissued shares of preferred stock of the Corporation
undesignated as to series and may be designated or redesignated and issued or
reissued, as the case may be, as part of any series of preferred stock of the
Corporation, provided that any issuance of such shares as preferred
stock must be in compliance with the terms hereof.

 

11.           Mutilated
or Missing Preferred Stock Certificates. 
If any of the Series D Preferred Stock certificates shall be mutilated,
lost, stolen or destroyed, the Corporation shall issue, in exchange and in
substitution for and upon cancellation of the mutilated Series D Preferred
Stock certificate, or in lieu of and substitution for the Series D Preferred
Stock certificate lost, stolen or destroyed, a new Series D Preferred Stock
certificate of like tenor and representing an equivalent amount of shares of
Series D Preferred Stock, but only upon receipt of evidence of such loss, theft
or destruction of such Series D Preferred Stock certificate and indemnity, if
requested, reasonably satisfactory to the Corporation and the transfer agent
(if other than the Corporation), or, in the case of mutilation, upon surrender
and cancellation of such mutilated certificate.

 

[SIGNATURE PAGE
FOLLOWS]

 

18

 

IN WITNESS WHEREOF,
Electric City Corp. has caused these presents to be signed in its name and on
its behalf by its Chief Financial Officer on June, 26, 2003.

 

 

	
   

  	
  ELECTRIC CITY CORP.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By 

  	
  /s/ Jeffrey Mistarz

  	
   

  
	
   

  	
  Name: Jeffrey Mistarz

  
	
   

  	
  Title:  Chief Financial Officer

  

 

 

[Signature
Page To Certificate Of Designations]

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