Document:

EX-10.1 Securities Purchase Agreement

 

     EXHIBIT 10.1

SECURITIES PURCHASE AGREEMENT

     This Securities Purchase Agreement (this “Agreement”) is dated as of May 25, 2007,
among Akeena Solar, Inc., a Delaware corporation (the “Company”), and each purchaser
identified on the signature pages hereto (each, including its successors and assigns, a
“Purchaser” and collectively the “Purchasers”).

     WHEREAS, subject to the terms and conditions set forth in this Agreement and pursuant to
Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”) and Rule 506
promulgated thereunder, the Company desires to issue and sell to each Purchaser, and each
Purchaser, severally and not jointly, desires to purchase from the Company, securities of the
Company as more fully described in this Agreement.

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

ARTICLE I.

DEFINITIONS

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

     “Action” shall have the meaning ascribed to such term in Section 3.1(j).

     “Affiliate” means any Person that, directly or indirectly through one or more
intermediaries, controls or is controlled by or is under common control with a Person as
such terms are used in and construed under Rule 144 under the Securities Act. With respect
to a Purchaser, any investment fund or managed account that is managed on a discretionary
basis by the same investment manager as such Purchaser will be deemed to be an Affiliate of
such Purchaser.

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

     “Class C Warrants” shall have the meaning set forth in Section 2.2(a)(iv).

     “Closing” means the closing of the purchase and sale of the Securities pursuant
to Section 2.1.

     “Closing Date” means the Trading Day when all of the Transaction Documents have
been executed and delivered by the applicable parties thereto, and all conditions precedent
to (i) the Purchasers’ obligations to pay the Subscription Amount and (ii) the Company’s
obligations to deliver the Securities have been satisfied or waived.

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     “Closing Price” means on any particular date (a) the last reported closing bid
price per share of Common Stock on such date on the Trading Market (as reported by Bloomberg
L.P. at 4:15 PM (New York time)), or (b) if there is no such price on such date, then the
closing bid price on the Trading Market on the date nearest preceding such date (as reported
by Bloomberg L.P. at 4:15 PM (New York time)), or (c) if the Common Stock is not then
listed or quoted on the Trading Market and if prices for the Common Stock are then reported
in the “pink sheets” published by Pink Sheets LLC (or a similar organization or agency
succeeding to its functions of reporting prices), the most recent bid price per share of the
Common Stock so reported, or (d) if the shares of Common Stock are not then publicly traded
the fair market value of a share of Common Stock as determined by an appraiser selected in
good faith by the Purchasers of a majority in interest of the Shares then outstanding.

     “Commission” means the Securities and Exchange Commission.

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

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

     “Company Counsel” means Haynes and Boone, LLP with offices located at 153 East
53rd Street, New York, New York 10022.

     “Disclosure Schedules” means the Disclosure Schedules of the Company delivered
concurrently herewith.

     “Effective Date” means the date that the initial Registration Statement filed
by the Company pursuant to the Registration Rights Agreement is first declared effective by
the Commission.

     “Empire Financial” shall mean Empire Financial Group, Inc.

     “Escrow Agreement” means the Escrow Agreement between the Company, the
Purchasers and the Escrow Agent in the form of Exhibit E.

     “Escrow Agent” means Continental.

     “Evaluation Date” shall have the meaning ascribed to such term in Section
3.1(r).

     “Exchange Act” means the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder.

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     “Exempt Issuance” means the issuance of (a) shares of Common Stock or options
to employees, officers or directors of the Company pursuant to any stock or option plan duly
adopted by a majority of the non-employee members of the Board of Directors of the Company
or a majority of the members of a committee of non-employee directors established for such
purpose, (b) securities (including shares of Common Stock) upon the exercise or exchange of
or conversion of any Securities issued hereunder and/or other securities exercisable or
exchangeable for or convertible into shares of Common Stock issued and outstanding on the
date of this Agreement, provided that such securities have not been amended since the date
of this Agreement to increase the number of such securities or to decrease the exercise,
exchange or conversion price of such securities, (c) shares issuable upon exercise of the
Company’s Class C Warrants, (d) securities issued pursuant to acquisitions or strategic
transactions approved by a majority of the disinterested directors of the Company, provided
that any such issuance shall only be to a Person which is, itself or through its
subsidiaries, an operating company in a business synergistic with the business of the
Company and in which the Company receives benefits in addition to the investment of funds,
but shall not include a transaction in which the Company is issuing securities primarily for
the purpose of raising capital or to an entity whose primary business is investing in
securities and (e) for purposes of Sections 4.13 and 4.14 only and with the prior written
consent of the Placement Agents, up to an amount of Common Stock and warrants equal to the
difference between $10,000,000 and the aggregate Subscription Amounts hereunder, on
substantially the same terms and conditions hereunder, which investors shall execute
definitive agreements for the purchase of such securities and such transactions shall have
closed on or before the earlier of (i) the Filing Date (as defined in the Registration
Rights Agreement) or (ii) the date the initial Registration Statement is first filed with
the Commission.

     “GAAP” shall have the meaning ascribed to such term in Section 3.1(h).

     “Indebtedness” shall have the meaning ascribed to such term in Section 3.1(aa).

     “Intellectual Property Rights” shall have the meaning ascribed to such term in
Section 3.1(o).

     “Legend Removal Date” shall have the meaning ascribed to such term in Section
4.1(c).

     “Liens” means a lien, charge, security interest, encumbrance, right of first
refusal, preemptive right or other restriction.

     “Material Adverse Effect” shall have the meaning ascribed to such term in
Section 3.1(b).

     “Material Permits” shall have the meaning ascribed to such term in Section
3.1(m).

     “Participation Maximum” shall have the meaning ascribed to such term in Section
4.13.

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     “Per Share Purchase Price” equals $                     [85% of the ten (10) day VWAP for the
ten (10) days preceding the Closing Date], subject to adjustment for reverse and forward
stock splits, stock dividends, stock combinations and other similar transactions of the
Common Stock that occur after the date of this Agreement.

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

     “Placement Agent” means Empire Financial.

     “Pre-Notice” shall have the meaning ascribed to such term in Section 4.13.

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

     “Purchaser Party” shall have the meaning ascribed to such term in Section 4.9.

     “Registration Rights Agreement” means the Registration Rights Agreement, dated
the date hereof, among the Company and the Purchasers, in the form of Exhibit A
attached hereto.

     “Registration Statement” means a registration statement meeting the
requirements set forth in the Registration Rights Agreement and covering the resale by the
Purchasers of the Shares and the Warrant Shares.

     “Required Approvals” shall have the meaning ascribed to such term in Section
3.1(e).

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

     “SEC Reports” shall have the meaning ascribed to such term in Section 3.1(h).

     “Securities” means the Shares, the Warrants and the Warrant Shares.

     “Securities Act” means the Securities Act of 1933, as amended, and the rules
and regulations promulgated thereunder.

     “Shares” means the shares of Common Stock issued or issuable to each Purchaser
pursuant to this Agreement.

     “Short Sales” means all “short sales” as defined in Rule 200 of Regulation SHO
under the Exchange Act (but shall not be deemed to include the location and/or reservation
of borrowable shares of Common Stock).

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     “SRFF” means Sichenzia Ross Friedman Ference LLP with offices at 61 Broadway,
New York, New York 10006.

     “Subscription Amount” means, as to each Purchaser, the aggregate amount to be
paid for Shares and Warrants purchased hereunder as specified below such Purchaser’s name on
the signature page of this Agreement and next to the heading “Subscription Amount”, in
United States dollars and in immediately available funds. Except with the consent of Empire
Financial, in no event shall a Purchaser’s Subscription Amount be less than $50,000.

     “Subsequent Financing” shall have the meaning ascribed to such term in Section
4.13.

     “Subsequent Financing Notice” shall have the meaning ascribed to such term in
Section 4.13.

     “Subsidiary” means any subsidiary of the Company as set forth on Schedule
3.1(a).

     “Trading Day” means a day on which the Common Stock is traded on a Trading
Market.

     “Trading Market” means the following markets or exchanges on which the Common
Stock is listed or quoted for trading on the date in question: the American Stock Exchange,
the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the
New York Stock Exchange or the OTC Bulletin Board.

     “Transaction Documents” means this Agreement, the Warrants, the Registration
Rights Agreement, the Escrow Agreement and any other documents or agreements executed in
connection with the transactions contemplated hereunder.

     “Transfer Agent” means Empire Stock Transfer Inc., with a mailing address of
2470 St. Rose Parkway, Suite 304, Henderson, Nevada 89075 and a facsimile number of (702)
974-1444, and any successor transfer agent of the Company.

     “Warrants” means collectively the Common Stock purchase warrants delivered to
the Purchasers at the Closing in accordance with Section 2.2(a) hereof, which Warrants shall
be exercisable immediately and have a term of exercise equal to three years, in the form of
Exhibit C attached hereto.

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

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ARTICLE II.

PURCHASE AND SALE

     2.1 Closing. On the Closing Date, upon the terms and subject to the conditions set
forth herein, substantially concurrent with the execution and delivery of this Agreement by the
parties hereto, the Company agrees to sell, and each Purchaser agrees to purchase in the aggregate,
severally and not jointly, up to $10,000,000 of Shares and Warrants. Each Purchaser shall deliver
to the Escrow Agent, via wire transfer (in accordance with the wiring instructions set forth on
Exhibit D attached hereto) or a certified check, immediately available funds equal to its
Subscription Amount and the Company shall deliver to each Purchaser its respective Shares and
Warrants as determined pursuant to Section 2.2(a), and the Company and each Purchaser shall deliver
the other items set forth in Section 2.2 deliverable at the Closing. Upon satisfaction of the
conditions set forth in Sections 2.2 and 2.3, the Closing shall occur at the offices of SRFF, or
such other location as the parties shall mutually agree.

     2.2 Deliveries.

     (a) On or prior to the Closing Date, the Company shall deliver or cause to be delivered
to each Purchaser the following:

     (i) this Agreement duly executed by the Company;

     (ii) a legal opinion of Company Counsel, in the form of Exhibit B
attached hereto;

     (iii) a copy of the irrevocable instructions to the Transfer Agent instructing
the Transfer Agent to deliver, on an expedited basis, a certificate evidencing a
number of Shares equal to such Purchaser’s Subscription Amount divided by the Per
Share Purchase Price, registered in the name of such Purchaser; provided that in the
event the funds delivered by a Purchaser are not evenly divisible by the Per Share
Purchase Price, the Company may round down to the nearest whole number the number of
Shares to be sold to such Purchaser and the Company shall be entitled to retain any
additional funds remaining due to such rounding;

     (iv) a Warrant, designated as the Company’s Class C Common Stock Purchase
Warrant (a “Class C Warrant(s)”), registered in the name of such Purchaser
to purchase up to a number of shares of Common Stock equal to 20% of the Shares
purchased by such Purchaser hereunder, with an exercise price equal to 120% of the
ten day VWAP, subject to adjustment therein. The VWAP will be calculated using ten
(10) trading days preceding the Closing Date;

     (v) the Escrow Agreement duly executed by the Company, the Escrow Agent and
Empire Financial; and

     (vi) the Registration Rights Agreement duly executed by the Company.

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     (b) On or prior to the Closing Date, each Purchaser shall deliver or cause to be
delivered to the Company the following:

     (i) this Agreement duly executed by such Purchaser;

     (ii) such Purchaser’s Subscription Amount by wire transfer or certified check
to the account as specified in writing by the Escrow Agent ; and

     (iii) the Registration Rights Agreement duly executed by such Purchaser.

     2.3 Closing Conditions.

     (a) The obligations of the Company hereunder in connection with the Closing are subject
to the following conditions being met:

     (i) the accuracy in all material respects when made and on the Closing Date of
the representations and warranties of the Purchasers contained herein;

     (ii) all obligations, covenants and agreements of the Purchasers required to be
performed at or prior to the Closing Date shall have been performed; and

     (iii) the delivery by the Purchasers of the items set forth in Section 2.2(b)
of this Agreement.

     (b) The respective obligations of the Purchasers hereunder in connection with the
Closing are subject to the following conditions being met:

     (i) the accuracy in all material respects on the Closing Date of the
representations and warranties of the Company contained herein;

     (ii) all obligations, covenants and agreements of the Company required to be
performed at or prior to the Closing Date shall have been performed;

     (iii) the delivery by the Company of the items set forth in Section 2.2(a) of
this Agreement;

     (iv) there shall have been no Material Adverse Effect with respect to the
Company since the date hereof; and

     (v) from the date hereof to the Closing Date, trading in the Common Stock shall
not have been suspended by the Commission or the Company’s principal Trading Market
(except for any suspension of trading of limited duration agreed to by the Company,
which suspension shall be terminated prior to the Closing), and, at any time prior
to the Closing Date, trading in securities generally as reported by Bloomberg L.P.
shall not have been suspended or limited, or minimum prices shall not have been
established on securities whose trades are

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reported by such service, or on any Trading Market, nor shall a banking
moratorium have been declared either by the United States or New York State
authorities nor shall there have occurred any material outbreak or escalation of
hostilities or other national or international calamity of such magnitude in its
effect on, or any material adverse change in, any financial market which, in each
case, in the reasonable judgment of each Purchaser, makes it impracticable or
inadvisable to purchase the Shares at the Closing.

ARTICLE III.

REPRESENTATIONS AND WARRANTIES

     3.1 Representations and Warranties of the Company. Except as set forth under the
corresponding section of the Disclosure Schedules which Disclosure Schedules shall be deemed a part
hereof and to qualify any representation or warranty otherwise made herein to the extent of such
disclosure, the Company hereby makes the following representations and warranties to each
Purchaser:

     (a) Subsidiaries. All of the direct and indirect subsidiaries of the Company
are set forth on Schedule 3.1(a). The Company owns, directly or indirectly, all of
the capital stock or other equity interests of each Subsidiary free and clear of any Liens,
and all of the issued and outstanding shares of capital stock of each Subsidiary are validly
issued and are fully paid, non-assessable and free of preemptive and similar rights to
subscribe for or purchase securities. If the Company has no subsidiaries, then all other
references to the Subsidiaries or any of them in the Transaction Documents shall be
disregarded.

     (b) Organization and Qualification. The Company and each of the Subsidiaries
is an entity duly incorporated or otherwise organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation or organization (as applicable),
with the requisite power and authority to own and use its properties and assets and to carry
on its business as currently conducted. Neither the Company nor any Subsidiary is in
violation or default of any of the provisions of its respective certificate or articles of
incorporation, bylaws or other organizational or charter documents. Each of the Company and
the Subsidiaries is duly qualified to conduct business and is in good standing as a foreign
corporation or other entity in each jurisdiction in which the nature of the business
conducted or property owned by it makes such qualification necessary, except where the
failure to be so qualified or in good standing, as the case may be, could not have or
reasonably be expected to result in (i) a material adverse effect on the legality, validity
or enforceability of any Transaction Document, (ii) a material adverse effect on the results
of operations, assets, business, prospects or condition (financial or otherwise) of the
Company and the Subsidiaries, taken as a whole, or (iii) a material adverse effect on the
Company’s ability to perform in any material respect on a timely basis its obligations under
any Transaction Document (any of (i), (ii) or (iii), a “Material Adverse Effect”)
and no Proceeding has been instituted in any such jurisdiction revoking, limiting or
curtailing or seeking to revoke, limit or curtail such power and authority or qualification.

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     (c) Authorization; Enforcement. The Company has the requisite corporate power
and authority to enter into and to consummate the transactions contemplated by each of the
Transaction Documents and otherwise to carry out its obligations hereunder and thereunder.
The execution and delivery of each of the Transaction Documents by the Company and the
consummation by it of the transactions contemplated hereby and thereby have been duly
authorized by all necessary action on the part of the Company and no further action is
required by the Company, its board of directors or its stockholders in connection therewith
other than in connection with the Required Approvals. Each Transaction Document has been
(or upon delivery will have been) duly executed by the Company and, when delivered in
accordance with the terms hereof and thereof, will constitute the valid and binding
obligation of the Company enforceable against the Company in accordance with its terms
except (i) as limited by general equitable principles and applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting enforcement of
creditors’ rights generally, (ii) as limited by laws relating to the availability of
specific performance, injunctive relief or other equitable remedies and (iii) insofar as
indemnification and contribution provisions may be limited by applicable law.

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

     (e) Filings, Consents and Approvals. The Company is not required to obtain any
authorization or order of, give any notice to, or make any filing or registration with, any
court or other federal, state, local or other governmental authority in connection with the
execution, delivery and performance by the Company of the Transaction Documents, other than
(i) filings required pursuant to Section 4.4 of this Agreement, (ii) the filing with the
Commission of the Registration Statement, (iii) application(s) to each applicable Trading
Market for the listing of the Securities for trading thereon in the time and manner required
thereby and (iv) the filing of Form D with the Commission and such filings as

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are required to be made under applicable state securities laws (collectively, the
“Required Approvals”).

     (f) Issuance of the Securities. The Securities are duly authorized and, when
issued and paid for in accordance with the applicable Transaction Documents, will be duly
and validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the
Company other than restrictions on transfer provided for in the Transaction Documents. The
Company has reserved from its duly authorized capital stock the maximum number of shares of
Common Stock issuable pursuant to this Agreement and the Warrants.

     (g) Capitalization. The capitalization of the Company is as set forth on
Schedule 3.1(g). Except as set forth on Schedule 3.1(g), (i) the Company
has not issued any capital stock since its most recently filed periodic report under the
Exchange Act, other than pursuant to the exercise of employee stock options under the
Company’s stock option plans, the issuance of shares of Common Stock to employees pursuant
to the Company’s stock incentive plan and pursuant to the conversion or exercise of Common
Stock Equivalents outstanding as of the date of the most recently filed periodic report
under the Exchange Act, (ii) no Person has any right of first refusal, preemptive right,
right of participation, or any similar right to participate in the transactions contemplated
by the Transaction Documents, (iii) except as a result of the purchase and sale of the
Securities, there are no outstanding options, warrants, script rights to subscribe to, calls
or commitments of any character whatsoever relating to, or securities, rights or obligations
convertible into or exercisable or exchangeable for, or giving any Person any right to
subscribe for or acquire, any shares of Common Stock, or contracts, commitments,
understandings or arrangements by which the Company or any Subsidiary is or may become bound
to issue additional shares of Common Stock or Common Stock Equivalents and (iv) the issuance
and sale of the Securities will not obligate the Company to issue shares of Common Stock or
other securities to any Person (other than the Purchasers) and will not result in a right of
any holder of Company securities to adjust the exercise, conversion, exchange or reset price
under any of such securities. All of the outstanding shares of capital stock of the Company
are validly issued, fully paid and nonassessable, have been issued in compliance with all
federal and state securities laws, and none of such outstanding shares was issued in
violation of any preemptive rights or similar rights to subscribe for or purchase
securities. No further approval or authorization of any stockholder, the Board of Directors
of the Company or others is required for the issuance and sale of the Securities. There are
no stockholders agreements, voting agreements or other similar agreements with respect to
the Company’s capital stock to which the Company is a party or, to the knowledge of the
Company, between or among any of the Company’s stockholders.

     (h) SEC Reports; Financial Statements. Except as set forth in Schedule 3.1(h),
the Company has filed all reports, schedules, forms, statements and other documents required
to be filed by the Company under the Securities Act and the Exchange Act, including pursuant
to Section 13(a) or 15(d) thereof, for the two years preceding the date hereof (or such
shorter period as the Company was required by law or regulation to file such material) (the
foregoing materials, including the exhibits thereto

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and documents incorporated by reference therein, being collectively referred to herein
as the “SEC Reports”) on a timely basis or has received a valid extension of such
time of filing and has filed any such SEC Reports prior to the expiration of any such
extension. As of their respective dates, the SEC Reports complied in all material respects
with the requirements of the Securities Act and the Exchange Act, as applicable, and none of
the SEC Reports, when filed, contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were made, not
misleading. The financial statements of the Company included in the SEC Reports comply in
all material respects with applicable accounting requirements and the rules and regulations
of the Commission with respect thereto as in effect at the time of filing. Such financial
statements have been prepared in accordance with United States generally accepted accounting
principles applied on a consistent basis during the periods involved (“GAAP”),
except as may be otherwise specified in such financial statements or the notes thereto and
except that unaudited financial statements may not contain all footnotes required by GAAP,
and fairly present in all material respects the financial position of the Company and its
consolidated subsidiaries as of and for the dates thereof and the results of operations and
cash flows for the periods then ended, subject, in the case of unaudited statements, to
normal, immaterial, year-end audit adjustments.

     (i) Material Changes; Undisclosed Events, Liabilities or Developments. Since
the date of the latest audited financial statements included within the SEC Reports, except
as specifically disclosed in a subsequent SEC Report filed prior to the date hereof, (i)
there has been no event, occurrence or development that has had or that could reasonably be
expected to result in a Material Adverse Effect, (ii) the Company has not incurred any
liabilities (contingent or otherwise) other than (A) trade payables and accrued expenses
incurred in the ordinary course of business consistent with past practice and (B)
liabilities not required to be reflected in the Company’s financial statements pursuant to
GAAP or disclosed in filings made with the Commission, (iii) the Company has not altered its
method of accounting, (iv) the Company has not declared or made any dividend or distribution
of cash or other property to its stockholders or purchased, redeemed or made any agreements
to purchase or redeem any shares of its capital stock and (v) the Company has not issued any
equity securities to any officer, director or Affiliate, except pursuant to existing Company
stock incentive plans. The Company does not have pending before the Commission any request
for confidential treatment of information. Except for the issuance of the Securities
contemplated by this Agreement or as set forth on Schedule 3.1(i), no event,
liability or development has occurred or exists with respect to the Company or its
Subsidiaries or their respective business, properties, operations or financial condition,
that would be required to be disclosed by the Company under applicable securities laws at
the time this representation is made that has not been publicly disclosed at least 1 Trading
Day prior to the date that this representation is made.

     (j) Litigation. There is no action, suit, inquiry, notice of violation,
proceeding or investigation pending or, to the knowledge of the Company, threatened against
or affecting the Company, any Subsidiary or any of their respective properties before or by
any court, arbitrator, governmental or administrative agency or regulatory authority
(federal, state, county, local or foreign) (collectively, an “Action”) which (i)
adversely

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affects or challenges the legality, validity or enforceability of any of the
Transaction Documents or the Securities or (ii) could, if there were an unfavorable
decision, have or reasonably be expected to result in a Material Adverse Effect. Neither
the Company nor any Subsidiary, nor any director or officer thereof, is or has been the
subject of any Action involving a claim of violation of or liability under federal or state
securities laws or a claim of breach of fiduciary duty. There has not been, and to the
knowledge of the Company, there is not pending or contemplated, any investigation by the
Commission involving the Company or any current or former director or officer of the
Company. The Commission has not issued any stop order or other order suspending the
effectiveness of any registration statement filed by the Company or any Subsidiary under the
Exchange Act or the Securities Act.

     (k) Labor Relations. No material labor dispute exists or, to the knowledge of
the Company, is imminent with respect to any of the employees of the Company which could
reasonably be expected to result in a Material Adverse Effect. None of the Company’s or its
Subsidiaries’ employees is a member of a union that relates to such employee’s relationship
with the Company, and neither the Company or any of its Subsidiaries is a party to a
collective bargaining agreement, and the Company and its Subsidiaries believe that their
relationships with their employees are good. No executive officer, to the knowledge of the
Company, is, or is now expected to be, in violation of any material term of any employment
contract, confidentiality, disclosure or proprietary information agreement or
non-competition agreement, or any other contract or agreement or any restrictive covenant,
and the continued employment of each such executive officer does not subject the Company or
any of its Subsidiaries to any liability with respect to any of the foregoing matters. The
Company and its Subsidiaries are in compliance with all U.S. federal, state, local and
foreign laws and regulations relating to employment and employment practices, terms and
conditions of employment and wages and hours, except where the failure to be in compliance
could not, individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.

     (l) Compliance. Neither the Company nor any Subsidiary (i) is in default under
or in violation of (and no event has occurred that has not been waived that, with notice or
lapse of time or both, would result in a default by the Company or any Subsidiary under),
nor has the Company or any Subsidiary received notice of a claim that it is in default under
or that it is in violation of, any indenture, loan or credit agreement or any other
agreement or instrument to which it is a party or by which it or any of its properties is
bound (whether or not such default or violation has been waived), (ii) is in violation of
any order of any court, arbitrator or governmental body, or (iii) is or has been in
violation of any statute, rule or regulation of any governmental authority, including
without limitation all foreign, federal, state and local laws applicable to its business and
all such laws that affect the environment, except in each case as could not have or
reasonably be expected to result in a Material Adverse Effect.

     (m) Regulatory Permits. The Company and the Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal, state, local or
foreign regulatory authorities necessary to conduct their respective businesses as described
in the SEC Reports, except where the failure to possess such permits could not

12

 

have or reasonably be expected to result in a Material Adverse Effect (“Material
Permits”), and neither the Company nor any Subsidiary has received any notice of
proceedings relating to the revocation or modification of any Material Permit.

     (n) Title to Assets. Except as set forth in Schedule 3.1(n), the
Company and the Subsidiaries have good and marketable title in fee simple to all real
property owned by them that is material to the business of the Company and the Subsidiaries
and good and marketable title in all personal property owned by them that is material to the
business of the Company and the Subsidiaries, in each case free and clear of all Liens,
except for Liens as do not materially affect the value of such property and do not
materially interfere with the use made and proposed to be made of such property by the
Company and the Subsidiaries and Liens for the payment of federal, state or other taxes, the
payment of which is neither delinquent nor subject to penalties. Any real property and
facilities held under lease by the Company and the Subsidiaries are held by them under
valid, subsisting and enforceable leases with which the Company and the Subsidiaries are in
compliance.

     (o) Patents and Trademarks. The Company and the Subsidiaries have, or have
rights to use, all patents, patent applications, trademarks, trademark applications, service
marks, trade names, trade secrets, inventions, copyrights, licenses and other intellectual
property rights and similar rights necessary or material for use in connection with their
respective businesses as described in the SEC Reports and which the failure to so have could
have a Material Adverse Effect (collectively, the “Intellectual Property Rights”).
Neither the Company nor any Subsidiary has received a notice (written or otherwise) that the
Intellectual Property Rights used by the Company or any Subsidiary violates or infringes
upon the rights of any Person. To the knowledge of the Company, all such Intellectual
Property Rights are enforceable and there is no existing infringement by another Person of
any of the Intellectual Property Rights. The Company and its Subsidiaries have taken
reasonable security measures to protect the secrecy, confidentiality and value of all of
their intellectual properties, except where failure to do so could not, individually or in
the aggregate, reasonably be expected to have a Material Adverse Effect.

     (p) Insurance. The Company and the Subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks and in such amounts as are
prudent and customary in the businesses in which the Company and the Subsidiaries are
engaged, including, but not limited to, directors and officers insurance coverage equal to
$5,000,000. Neither the Company nor any Subsidiary has any reason to believe that it will
not be able to renew its existing insurance coverage as and when such coverage expires or to
obtain similar coverage from similar insurers as may be necessary to continue its business
without a significant increase in cost.

     (q) Transactions With Affiliates and Employees. Except as set forth in the SEC
Reports, none of the officers or directors of the Company and, to the knowledge of the
Company, none of the employees of the Company is presently a party to any transaction with
the Company or any Subsidiary (other than for services as employees, officers and
directors), including any contract, agreement or other arrangement providing

13

 

for the furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer, director or
such employee or, to the knowledge of the Company, any entity in which any officer,
director, or any such employee has a substantial interest or is an officer, director,
trustee or partner, in each case in excess of $60,000 other than (i) for payment of salary
or consulting fees for services rendered, (ii) reimbursement for expenses incurred on behalf
of the Company and (iii) for other employee benefits, including stock option agreements
under any stock option plan of the Company.

     (r) Sarbanes-Oxley; Internal Accounting Controls. Except as set forth on
Schedule 3.1(r), the Company is in material compliance with all provisions of the
Sarbanes-Oxley Act of 2002, which are applicable to it as of the Closing Date. The Company
and the Subsidiaries maintain a system of internal accounting controls sufficient to provide
reasonable assurance that (i) transactions are executed in accordance with management’s
general or specific authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with GAAP and to maintain asset
accountability, (iii) access to assets is permitted only in accordance with management’s
general or specific authorization, and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action is taken
with respect to any differences. The Company has established disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and
designed such disclosure controls and procedures to ensure that information required to be
disclosed by the Company in the reports it files or submits under the Exchange Act is
recorded, processed, summarized and reported, within the time periods specified in the
Commission’s rules and forms. The Company’s certifying officers have evaluated the
effectiveness of the Company’s disclosure controls and procedures as of the end of the
period covered by the Company’s most recently filed periodic report under the Exchange Act
(such date, the “Evaluation Date”). The Company presented in its most recently
filed periodic report under the Exchange Act the conclusions of the certifying officers
about the effectiveness of the disclosure controls and procedures based on their evaluations
as of the Evaluation Date. Since the Evaluation Date, there have been no changes in the
Company’s internal control over financial reporting (as such term is defined in the Exchange
Act) that has materially affected, or is reasonably likely to materially affect, the
Company’s internal control over financial reporting.

     (s) Certain Fees. All brokerage or finder’s fees or commissions payable by the
Company to any broker, financial advisor or consultant, finder, placement agent, investment
banker, bank or other Person with respect to the transactions contemplated by the
Transaction Documents are as set forth on Schedule 3.1(s). The Purchasers shall have no
obligation with respect to any fees or with respect to any claims made by or on behalf of
other Persons for fees of a type contemplated in this Section that may be due in connection
with the transactions contemplated by the Transaction Documents.

     (t) Private Placement. Assuming the accuracy of the Purchasers representations
and warranties set forth in Section 3.2, no registration under the Securities Act is
required for the offer and sale of the Securities by the Company to the Purchasers

14

 

as contemplated hereby. The issuance and sale of the Securities hereunder does not
contravene the rules and regulations of the Trading Market.

     (u) Investment Company. The Company is not, and is not an Affiliate of, and
immediately after receipt of payment for the Securities, will not be or be an Affiliate of,
an “investment company” within the meaning of the Investment Company Act of 1940, as
amended. The Company shall conduct its business in a manner so that it will not become
subject to the Investment Company Act of 1940, as amended.

     (v) Registration Rights. Except as set forth on Schedule 3.1(v), other
than each of the Purchasers, no Person has any right to cause the Company to effect the
registration under the Securities Act of any securities of the Company.

     (w) Listing and Maintenance Requirements. The Company’s Common Stock is
registered pursuant to Section 12(b) or 12(g) of the Exchange Act, and the Company has taken
no action designed to, or which to its knowledge is likely to have the effect of,
terminating the registration of the Common Stock under the Exchange Act nor has the Company
received any notification that the Commission is contemplating terminating such
registration. The Company has not, in the 12 months preceding the date hereof, received
notice from any Trading Market on which the Common Stock is or has been listed or quoted to
the effect that the Company is not in compliance with the listing or maintenance
requirements of such Trading Market. The Company is, and has no reason to believe that it
will not in the foreseeable future continue to be, in compliance with all such listing and
maintenance requirements.

     (x) Application of Takeover Protections. The Company and its Board of
Directors have taken all necessary action, if any, in order to render inapplicable any
control share acquisition, business combination, poison pill (including any distribution
under a rights agreement) or other similar anti-takeover provision under the Company’s
Certificate of Incorporation (or similar charter documents) or the laws of its state of
incorporation that is or could become applicable to the Purchasers as a result of the
Purchasers and the Company fulfilling their obligations or exercising their rights under the
Transaction Documents, including without limitation as a result of the Company’s issuance of
the Securities and the Purchasers’ ownership of the Securities.

     (y) Disclosure. Except to a Purchaser who has entered into a non-disclosure
agreement with the Company and except with respect to the material terms and conditions of
the transactions contemplated by the Transaction Documents, the Company confirms that
neither it nor any other Person acting on its behalf has provided any of the Purchasers or
their agents or counsel with any information that it believes constitutes or might
constitute material, non-public information. The Company understands and confirms that the
Purchasers will rely on the foregoing representation in effecting transactions in securities
of the Company. All disclosure furnished by or on behalf of the Company to the Purchasers
regarding the Company, its business and the transactions contemplated hereby, including the
Disclosure Schedules to this Agreement, is true and correct and does not contain any untrue
statement of a material fact or omit to state any material fact necessary in order to make
the statements made therein, in light of the

15

 

circumstances under which they were made, not misleading. The press releases
disseminated by the Company during the twelve months preceding the date of this Agreement
taken as a whole do not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the statements, in
light of the circumstances under which they were made and when made, not misleading. The
Company acknowledges and agrees that no Purchaser makes or has made any representations or
warranties with respect to the transactions contemplated hereby other than those
specifically set forth in Section 3.2 hereof.

     (z) No Integrated Offering. Assuming the accuracy of the Purchasers’
representations and warranties set forth in Section 3.2, neither the Company, nor any of its
Affiliates, nor any Person acting on its or their behalf has, directly or indirectly, made
any offers or sales of any security or solicited any offers to buy any security, under
circumstances that would cause this offering of the Securities to be integrated with prior
offerings by the Company for purposes of the Securities Act in a manner that would require
the registration under the Securities Act of the sale of the Securities to the Purchasers or
any applicable shareholder approval provisions of any Trading Market on which any of the
securities of the Company are listed or designated.

     (aa) Solvency. Based on the financial condition of the Company as of the
Closing Date, after giving effect to the receipt by the Company of the proceeds from the
sale of the Securities hereunder, (i) the fair saleable value of the Company’s assets
exceeds the amount that will be required to be paid on or in respect of the Company’s
existing debts and other liabilities (including known contingent liabilities) as they
mature; (ii) the Company’s assets do not constitute unreasonably small capital to carry on
its business as now conducted and as proposed to be conducted including its capital needs
taking into account the particular capital requirements of the business conducted by the
Company, and projected capital requirements and capital availability thereof; and (iii) the
current cash flow of the Company, together with the proceeds the Company would receive, were
it to liquidate all of its assets, after taking into account all anticipated uses of the
cash, would be sufficient to pay all amounts on or in respect of its liabilities when such
amounts are required to be paid. The Company does not intend to incur debts beyond its
ability to pay such debts as they mature (taking into account the timing and amounts of cash
to be payable on or in respect of its debt). The Company has no knowledge of any facts or
circumstances which lead it to believe that it will file for reorganization or liquidation
under the bankruptcy or reorganization laws of any jurisdiction within one year from the
Closing Date. Schedule 3.1(aa) sets forth all outstanding secured and unsecured
Indebtedness of the Company or any Subsidiary, or for which the Company or any Subsidiary
has commitments. For the purposes of this Agreement, “Indebtedness” shall mean (a)
any liabilities for borrowed money or amounts owed in excess of $50,000 (other than trade
accounts payable incurred in the ordinary course of business), (b) all guaranties,
endorsements and other contingent obligations in respect of Indebtedness of others, whether
or not the same are or should be reflected in the Company’s balance sheet (or the notes
thereto), except guaranties by endorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of business; and (c) the present
value of any lease payments in excess of $50,000

16

 

due under leases required to be capitalized in accordance with GAAP. Neither the
Company nor any Subsidiary is in default with respect to any Indebtedness.

     (bb) Tax Status. Except for matters that would not, individually or in the
aggregate, have or reasonably be expected to result in a Material Adverse Effect, the
Company and each Subsidiary has filed all necessary federal, state and foreign income and
franchise tax returns and has paid or accrued all taxes shown as due thereon, and the
Company has no knowledge of a tax deficiency which has been asserted or threatened against
the Company or any Subsidiary.

     (cc) No General Solicitation. Neither the Company nor any person acting on
behalf of the Company has offered or sold any of the Securities by any form of general
solicitation or general advertising. The Company has offered the Securities for sale only
to the Purchasers and certain other “accredited investors” within the meaning of Rule 501
under the Securities Act.

     (dd) Foreign Corrupt Practices. Neither the Company, nor to the knowledge of
the Company, any agent or other person acting on behalf of the Company, has (i) directly or
indirectly, used any funds for unlawful contributions, gifts, entertainment or other
unlawful expenses related to foreign or domestic political activity, (ii) made any unlawful
payment to foreign or domestic government officials or employees or to any foreign or
domestic political parties or campaigns from corporate funds, (iii) failed to disclose fully
any contribution made by the Company (or made by any person acting on its behalf of which
the Company is aware) which is in violation of law, or (iv) violated in any material
respect any provision of the Foreign Corrupt Practices Act of 1977, as amended.

     (ee) Accountants. The Company’s accountants are set forth on Schedule
3.1(ee) of the Disclosure Schedule. To the knowledge of the Company, such accountants,
who the Company expects will express their opinion with respect to the financial statements
to be included in the Company’s Annual Report on Form 10-KSB for the year ending December
31, 2006, are a registered public accounting firm as required by the Exchange Act.

     (ff) No Disagreements with Accountants and Lawyers. Except as set forth on
Schedule 3.1(ff), there are no disagreements of any kind presently existing, or
reasonably anticipated by the Company to arise, between the Company and the accountants and
lawyers formerly or presently employed by the Company and the Company is current with
respect to any fees owed to its accountants and lawyers.

     (gg) Acknowledgment Regarding Purchasers’ Purchase of Securities. To the
Company’s knowledge, each of the Purchasers is acting solely in the capacity of an arm’s
length purchaser with respect to the Transaction Documents and the transactions contemplated
thereby. The Company acknowledges that no Purchaser is acting as a financial advisor or
fiduciary of the Company (or in any similar capacity) with respect to the Transaction
Documents and the transactions contemplated thereby and any advice given by any Purchaser or
any of their respective representatives or agents in connection with the Transaction
Documents and the transactions contemplated thereby is merely

17

 

incidental to the Purchasers’ purchase of the Securities. The Company further
represents to each Purchaser that the Company’s decision to enter into this Agreement and
the other Transaction Documents has been based solely on the independent evaluation of the
transactions contemplated hereby by the Company and its representatives.

     (hh) Acknowledgement Regarding Purchaser’s Trading Activity. Anything in this
Agreement or elsewhere herein to the contrary notwithstanding (except for Section 4.15), it
is understood and acknowledged by the Company (i) that none of the Purchasers have been
asked to agree, nor has any Purchaser agreed, to desist from purchasing or selling, long
and/or short, securities of the Company, or “derivative” securities based on securities
issued by the Company or to hold the Securities for any specified term; (ii) that past or
future open market or other transactions by any Purchaser, including Short Sales, and
specifically including, without limitation, Short Sales or “derivative” transactions, before
or after the closing of this or future private placement transactions, may negatively impact
the market price of the Company’s publicly-traded securities; (iii) that any Purchaser, and
counter-parties in “derivative” transactions to which any such Purchaser is a party,
directly or indirectly, presently may have a “short” position in the Common Stock, and (iv)
that each Purchaser shall not be deemed to have any affiliation with or control over any
arm’s length counter-party in any “derivative” transaction. The Company further understands
and acknowledges that (a) one or more Purchasers may engage in hedging activities at various
times during the period that the Securities are outstanding, including, without limitation,
during the periods that the value of the Warrant Shares deliverable with respect to
Securities are being determined and (b) such hedging activities (if any) could reduce the
value of the existing stockholders’ equity interests in the Company at and after the time
that the hedging activities are being conducted. The Company acknowledges that such
aforementioned hedging activities do not constitute a breach of any of the Transaction
Documents.

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

     3.2 Representations and Warranties of the Purchasers. Each Purchaser hereby, for itself
and for no other Purchaser, represents and warrants as of the date hereof and as of the Closing
Date to the Company as follows:

     (a) Organization; Authority. If such Purchaser is an entity, such Purchaser is
an entity duly organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with full right, corporate or partnership power and
authority to enter into and to consummate the transactions contemplated by the Transaction
Documents and otherwise to carry out its obligations hereunder and

18

 

thereunder. The execution, delivery and performance by such Purchaser of the
transactions contemplated by this Agreement have been duly authorized by any necessary
corporate or similar action on the part of such Purchaser. Each Transaction Document to
which it is a party has been duly executed by such Purchaser, and when delivered by such
Purchaser in accordance with the terms hereof, will constitute the valid and legally binding
obligation of such Purchaser, enforceable against it in accordance with its terms, except
(i) as limited by general equitable principles and applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting enforcement of
creditors’ rights generally, (ii) as limited by laws relating to the availability of
specific performance, injunctive relief or other equitable remedies and (iii) insofar as
indemnification and contribution provisions may be limited by applicable law.

     (b) Own Account. Such Purchaser understands that the Securities are
“restricted securities” and have not been registered under the Securities Act or any
applicable state securities law and is acquiring the Securities as principal for its own
account and not with a view to or for distributing or reselling such Securities or any part
thereof in violation of the Securities Act or any applicable state securities law, has no
present intention of distributing any of such Securities in violation of the Securities Act
or any applicable state securities law and has no direct or indirect arrangement or
understandings with any other persons to distribute or regarding the distribution of such
Securities (this representation and warranty not limiting such Purchaser’s right to sell the
Securities pursuant to the Registration Statement or otherwise in compliance with applicable
federal and state securities laws) in violation of the Securities Act or any applicable
state securities law. If such Purchaser is not an individual, such Purchaser is acquiring
the Securities hereunder in the ordinary course of its business. If such Purchaser is an
individual, such Purchaser must fill out an individual investor questionnaire provided by
Empire Financial and deliver such questionnaire if requested by Empire Financial.

     (c) Purchaser Status. At the time such Purchaser was offered the Securities,
it was, and at the date hereof it is, and on each date on which it exercises any Warrants,
it will be either: (i) an “accredited investor” as defined in Rule 501(a) under the
Securities Act or (ii) a “qualified institutional buyer” as defined in Rule 144A(a) under
the Securities Act. Such Purchaser is not required to be registered as a broker-dealer
under Section 15 of the Exchange Act.

     (d) Experience of Such Purchaser. Such Purchaser, either alone or together
with its representatives, has such knowledge, sophistication and experience in business and
financial matters so as to be capable of evaluating the merits and risks of the prospective
investment in the Securities, and has so evaluated the merits and risks of such investment.
Such Purchaser is able to bear the economic risk of an investment in the Securities and, at
the present time, is able to afford a complete loss of such investment.

     (e) General Solicitation. Such Purchaser is not purchasing the Securities as a
result of any advertisement, article, notice or other communication regarding the Securities
published in any newspaper, magazine or similar media or broadcast over

19

 

television or radio or presented at any seminar or any other general solicitation or
general advertisement.

     (f) Information on Company. Such Purchaser has been furnished with or has had
access at the EDGAR Website of the Commission to the Company’s periodic reports filed with
the Commission. In addition, the Purchaser has received in writing from the Company such
other information concerning its operations, financial condition and other matters as the
Purchaser has requested, and considered all factors such Purchaser deems material in
deciding on the advisability of investing in the Securities.

     (g) Fees. Such Purchaser is not required to pay fees to any broker or finder
with respect to the transactions contemplated by the Transaction Documents.

ARTICLE IV.

OTHER AGREEMENTS OF THE PARTIES

     4.1 Transfer Restrictions.

     (a) The Securities may only be disposed of in compliance with state and federal
securities laws. In connection with any transfer of Securities other than pursuant to an
effective registration statement or Rule 144, to the Company or to an Affiliate of a
Purchaser or in connection with a pledge as contemplated in Section 4.1(b), the Company may
require the transferor thereof to provide to the Company an opinion of counsel selected by
the transferor and reasonably acceptable to the Company, the form and substance of which
opinion shall be reasonably satisfactory to the Company, to the effect that such transfer
does not require registration of such transferred Securities under the Securities Act. As a
condition of transfer, any such transferee shall agree in writing to be bound by the terms
of this Agreement and shall have the rights of a Purchaser under this Agreement and the
Registration Rights Agreement.

     (b) The Purchasers agree to the imprinting, so long as is required by this Section 4.1,
of a legend on any of the Securities in the following form:

THIS SECURITY HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION
OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”),
AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS
EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE
SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY MAY
BE PLEDGED

20

 

IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR
OTHER LOAN WITH A FINANCIAL INSTITUTION THAT IS AN “ACCREDITED INVESTOR” AS DEFINED
IN RULE 501(a) UNDER THE SECURITIES ACT OR OTHER LOAN SECURED BY SUCH SECURITIES.

     The Company acknowledges and agrees that a Purchaser may from time to time pledge
pursuant to a bona fide margin agreement with a registered broker-dealer or grant a security
interest in some or all of the Securities to a financial institution that is an “accredited
investor” as defined in Rule 501(a) under the Securities Act and who agrees to be bound by
the provisions of this Agreement and the Registration Rights Agreement and, if required
under the terms of such arrangement, such Purchaser may transfer pledged or secured
Securities to the pledgees or secured parties. Such a pledge or transfer would not be
subject to approval of the Company and no legal opinion of legal counsel of the pledgee,
secured party or pledgor shall be required in connection therewith. Further, no notice
shall be required of such pledge. At the appropriate Purchaser’s expense, the Company will
execute and deliver such reasonable documentation as a pledgee or secured party of
Securities may reasonably request in connection with a pledge or transfer of the Securities,
including, if the Securities are subject to registration pursuant to the Registration Rights
Agreement, the preparation and filing of any required prospectus supplement under Rule
424(b)(3) under the Securities Act or other applicable provision of the Securities Act to
appropriately amend the list of Selling Stockholders thereunder.

     (c) Certificates evidencing the Shares and Warrant Shares shall not contain any legend
(including the legend set forth in Section 4.1(b)), (i) while a registration statement
(including the Registration Statement) covering the resale of such security is effective
under the Securities Act, or (ii) following any sale of such Shares or Warrant Shares
pursuant to Rule 144, or (iii) if such Shares or Warrant Shares are eligible for sale under
Rule 144(k), or (iv) if such legend is not required under applicable requirements of the
Securities Act (including judicial interpretations and pronouncements issued by the staff of
the Commission). The Company shall cause its counsel to issue a legal opinion to the
Transfer Agent promptly after the Effective Date if required by the Transfer Agent to effect
the removal of the legend hereunder. If all or any portion of a Warrant is exercised at a
time when there is an effective registration statement to cover the resale of the Warrant
Shares, such Warrant Shares shall be issued free of all legends. The Company agrees that
following the Effective Date or at such time as such legend is no longer required under this
Section 4.1(c), it will, no later than three Trading Days following the delivery by a
Purchaser to the Company or the Transfer Agent of a certificate representing Shares or
Warrant Shares, as the case may be, issued with a restrictive legend (such third Trading
Day, the “Legend Removal Date”), deliver or cause to be delivered to such Purchaser
a certificate representing such shares that is free from all restrictive and other legends.
The Company may not make any notation on its records or give instructions to any Transfer
Agent of the Company that enlarge the restrictions on transfer set forth in this Section.
Certificates for Securities subject to legend removal hereunder shall be transmitted by the
Transfer Agent of the Company to the Purchasers

21

 

by crediting the account of the Purchaser’s prime broker with the Depository Trust
Company System.

     (d) In addition to such Purchaser’s other available remedies, the Company shall pay to
a Purchaser, in cash, as partial liquidated damages and not as a penalty, for each $1,000 of
Shares or Warrant Shares (based on the Closing Price of the Common Stock on the date such
Securities are submitted to the Transfer Agent) delivered for removal of the restrictive
legend and subject to Section 4.1(c), $10 per Trading Day (increasing to $20 per Trading Day
five (5) Trading Days after such damages have begun to accrue) for each Trading Day after
the Legend Removal Date until such certificate is delivered without a legend. Nothing herein
shall limit such Purchaser’s right to pursue actual damages for the Company’s failure to
deliver certificates representing any Securities as required by the Transaction Documents,
and such Purchaser shall have the right to pursue all remedies available to it at law or in
equity including, without limitation, a decree of specific performance and/or injunctive
relief.

     (e) Each Purchaser, severally and not jointly with the other Purchasers, agrees that
the removal of the restrictive legend from certificates representing Securities as set forth
in this Section 4.1 is predicated upon the Company’s reliance that the Purchaser will sell
any Securities pursuant to either the registration requirements of the Securities Act,
including any applicable prospectus delivery requirements, or an exemption therefrom, and
that if Securities are sold pursuant to a Registration Statement, they will be sold in
compliance with the plan of distribution set forth therein.

     4.2 Furnishing of Information. As long as any Purchaser owns Securities, the Company
covenants to timely file (or obtain extensions in respect thereof and file within the applicable
grace period) all reports required to be filed by the Company after the date hereof pursuant to the
Exchange Act. As long as any Purchaser owns Securities, if the Company is not required to file
reports pursuant to the Exchange Act, it will prepare and furnish to the Purchasers and make
publicly available in accordance with Rule 144(c) such information as is required for the
Purchasers to sell the Securities under Rule 144. The Company further covenants that it will take
such further action as any holder of Securities may reasonably request, to the extent required from
time to time to enable such Person to sell such Securities without registration under the
Securities Act within the requirements of the exemption provided by Rule 144.

     4.3 Integration. The Company shall not sell, offer for sale or solicit offers to buy or
otherwise negotiate in respect of any security (as defined in Section 2 of the Securities Act) that
would be integrated with the offer or sale of the Securities in a manner that would require the
registration under the Securities Act of the sale of the Securities to the Purchasers or that would
be integrated with the offer or sale of the Securities for purposes of the rules and regulations of
any Trading Market such that it would require shareholder approval prior to the closing of such
other transaction unless shareholder approval is obtained before the closing of such subsequent
transaction.

     4.4 Securities Laws Disclosure; Publicity. The Company shall, by 8:30 a.m. New York
City time on the Trading Day immediately following the date hereof, issue a press release,

22

 

disclosing the material terms of the transactions contemplated hereby, and file a Current
Report on Form 8-K disclosing the same and filing the Transaction Documents as exhibits thereto
within the time period required by law. The Company and each Purchaser shall consult with each
other in issuing any other press releases with respect to the transactions contemplated hereby, and
neither the Company nor any Purchaser shall issue any such press release or otherwise make any such
public statement without the prior consent of the Company, with respect to any press release of any
Purchaser, or without the prior consent of each Purchaser, with respect to any press release of the
Company, which consent shall not unreasonably be withheld or delayed, except if such disclosure is
required by law, in which case the disclosing party shall promptly provide the other party with
prior notice of such public statement or communication. Notwithstanding the foregoing, the Company
shall not publicly disclose the name of any Purchaser, or include the name of any Purchaser in any
filing with the Commission or any regulatory agency or Trading Market, without the prior written
consent of such Purchaser, except (i) as required by federal securities law in connection with (A)
any registration statement contemplated by the Registration Rights Agreement and (B) the filing of
final Transaction Documents (including signature pages thereto) with the Commission and (ii) to the
extent such disclosure is required by law or Trading Market regulations, in which case the Company
shall provide the Purchasers with prior notice of such disclosure permitted under this subclause
(ii).

     4.5 Shareholder Rights Plan. No claim will be made or enforced by the Company or,
with the consent of the Company, any other Person, that any Purchaser is an “Acquiring Person”
under any control share acquisition, business combination, poison pill (including any distribution
under a rights agreement) or similar anti-takeover plan or arrangement in effect or hereafter
adopted by the Company, or that any Purchaser could be deemed to trigger the provisions of any such
plan or arrangement, by virtue of receiving Securities under the Transaction Documents or under any
other agreement between the Company and the Purchasers.

     4.6 Non-Public Information. Except with respect to the material terms and conditions
of the transactions contemplated by the Transaction Documents, the Company covenants and agrees
that neither it nor any other Person acting on its behalf will provide any Purchaser or its agents
or counsel with any information that the Company believes constitutes material non-public
information, unless prior thereto such Purchaser shall have executed a written agreement regarding
the confidentiality and use of such information. The Company understands and confirms that each
Purchaser shall be relying on the foregoing representations in effecting transactions in securities
of the Company.

     4.7 Use of Proceeds. The use of proceeds is set forth on Schedule 4.7
attached hereto. Except as set forth on Schedule 4.7 attached hereto, the Company shall
use the net proceeds from the sale of the Securities hereunder for working capital purposes and not
for the satisfaction of any portion of the Company’s debt (other than payment of trade payables in
the ordinary course of the Company’s business and prior practices), to redeem any Common Stock or
Common Stock Equivalents or to settle any outstanding litigation.

     4.8 [Reserved].

     4.9 Indemnification of Purchasers. Subject to the provisions of this Section 4.9,
the Company will indemnify and hold each Purchaser and its directors, officers, shareholders,

23

 

members, partners, employees and agents (and any other Persons with a functionally equivalent
role of a Person holding such titles notwithstanding a lack of such title or any other title), each
Person who controls such Purchaser (within the meaning of Section 15 of the Securities Act and
Section 20 of the Exchange Act), and the directors, officers, shareholders, agents, members,
partners or employees (and any other Persons with a functionally equivalent role of a Person
holding such titles notwithstanding a lack of such title or any other title) of such controlling
persons (each, a “Purchaser Party”) harmless from any and all losses, liabilities,
obligations, claims, contingencies, damages, costs and expenses, including all judgments, amounts
paid in settlements, court costs and reasonable attorneys’ fees and costs of investigation that any
such Purchaser Party may suffer or incur as a result of or relating to (a) any breach of any of the
representations, warranties, covenants or agreements made by the Company in this Agreement or in
the other Transaction Documents or (b) any action instituted against a Purchaser, or any of them or
their respective Affiliates, by any stockholder of the Company who is not an Affiliate of such
Purchaser, with respect to any of the transactions contemplated by the Transaction Documents
(unless such action is based upon a breach of such Purchaser’s representations, warranties or
covenants under the Transaction Documents or any agreements or understandings such Purchaser may
have with any such stockholder or any violations by the Purchaser of state or federal securities
laws or any conduct by such Purchaser which constitutes fraud, gross negligence, willful misconduct
or malfeasance). If any action shall be brought against any Purchaser Party in respect of which
indemnity may be sought pursuant to this Agreement, such Purchaser Party shall promptly notify the
Company in writing, and the Company shall have the right to assume the defense thereof with counsel
of its own choosing reasonably acceptable to the Purchaser Party. Any Purchaser Party shall have
the right to employ separate counsel in any such action and participate in the defense thereof, but
the fees and expenses of such counsel shall be at the expense of such Purchaser Party except to the
extent that (i) the employment thereof has been specifically authorized by the Company in writing,
(ii) the Company has failed after a reasonable period of time to assume such defense and to employ
counsel or (iii) in such action there is, in the reasonable opinion of such separate counsel, a
material conflict on any material issue between the position of the Company and the position of
such Purchaser Party, in which case the Company shall be responsible for the reasonable fees and
expenses of no more than one such separate counsel. The Company will not be liable to any
Purchaser Party under this Agreement (i) for any settlement by a Purchaser Party effected without
the Company’s prior written consent, which shall not be unreasonably withheld or delayed; or (ii)
to the extent, but only to the extent that a loss, claim, damage or liability is attributable to
any Purchaser Party’s breach of any of the representations, warranties, covenants or agreements
made by such Purchaser Party in this Agreement or in the other Transaction Documents.

     4.10 Reservation of Common Stock. As of the date hereof, the Company has reserved and
the Company shall continue to reserve and keep available at all times, free of preemptive rights, a
sufficient number of shares of Common Stock for the purpose of enabling the Company to issue Shares
pursuant to this Agreement and Warrant Shares pursuant to any exercise of the Warrants. 

     4.11 Listing of Common Stock. The Company hereby agrees to use best efforts to
maintain the listing of the Common Stock on a Trading Market (or, if the Common Stock is then
quoted for trading on the OTC Bulletin Board, the eligibility for such quotation), and as soon as
reasonably practicable following the Closing (but not later than the earlier of the Effective Date

24

 

and the first anniversary of the Closing Date) to list (or to have included for quotation on
the OTC Bulletin Board) all of the Shares and Warrant Shares on such Trading Market. The Company
further agrees, if the Company applies to have the Common Stock traded on any other Trading Market,
it will include in such application all of the Shares and Warrant Shares, and will take such other
action as is necessary to cause all of the Shares and Warrant Shares to be listed on such other
Trading Market as promptly as possible. The Company will take all action reasonably necessary to
continue the listing and trading of its Common Stock on a Trading Market (or, if the Common Stock
is then quoted for trading on the OTC Bulletin Board, the eligibility for such quotation) and will
comply in all respects with the Company’s reporting, filing and other obligations under the bylaws
or rules of the Trading Market.

     4.12 Equal Treatment of Purchasers. No consideration shall be offered or paid to any
Person to amend or consent to a waiver or modification of any provision of any of the Transaction
Documents unless the same consideration is also offered to all of the parties to the Transaction
Documents. For clarification purposes, this provision constitutes a separate right granted to each
Purchaser by the Company and negotiated separately by each Purchaser, and is intended to treat for
the Company the Purchasers as a class and shall not in any way be construed as the Purchasers
acting in concert or as a group with respect to the purchase, disposition or voting of Securities
or otherwise.

     4.13 Participation in Future Financing.

     (a) From the date hereof until the date that is the 6-month anniversary of the
Effective Date, upon any issuance by the Company or any of its Subsidiaries of Common Stock
or Common Stock Equivalents for cash consideration (a “Subsequent Financing”), each
Purchaser shall have the right to participate in up to an amount of the Subsequent Financing
equal to 100% of the Subsequent Financing (the “Participation Maximum”) on the same
terms, conditions and price provided for in the Subsequent Financing; provided, however,
that no Purchaser shall have such right of participation if such offering of Common Stock or
Common Stock Equivalents is made by way of a public offering.

     (b) At least 5 Trading Days prior to the closing of the Subsequent Financing, the
Company shall deliver to each Purchaser a written notice of its intention to effect a
Subsequent Financing (“Pre-Notice”), which Pre-Notice shall ask such Purchaser if it
wants to review the details of such financing (such additional notice, a “Subsequent
Financing Notice”). Upon the request of a Purchaser, and only upon a request by such
Purchaser, for a Subsequent Financing Notice, the Company shall promptly, but no later than
1 Trading Day after such request, deliver a Subsequent Financing Notice to such Purchaser.
The Subsequent Financing Notice shall describe in reasonable detail the proposed terms of
such Subsequent Financing, the amount of proceeds intended to be raised thereunder, the
Person or Persons through or with whom such Subsequent Financing is proposed to be effected,
and attached to which shall be a term sheet or similar document relating thereto.

     (c) Any Purchaser desiring to participate in such Subsequent Financing must provide
written notice to the Company by not later than 5:30 p.m. (New York City time) on the
5th Trading Day after all of the Purchasers have received the Pre-Notice that the

25

 

Purchaser is willing to participate in the Subsequent Financing, the amount of the
Purchaser’s participation, and that the Purchaser has such funds ready, willing, and
available for investment on the terms set forth in the Subsequent Financing Notice. If the
Company receives no notice from a Purchaser as of such 5th Trading Day, such
Purchaser shall be deemed to have notified the Company that it does not elect to
participate.

     (d) If by 5:30 p.m. (New York City time) on the 5th Trading Day after all of
the Purchasers have received the Pre-Notice, notifications by the Purchasers of their
willingness to participate in the Subsequent Financing (or to cause their designees to
participate) is, in the aggregate, less than the total amount of the Subsequent Financing,
each Purchasers shall be deemed to have notified the Company that it does not elect to
participate and the Company may effect the Subsequent Financing on the terms and with the
Persons set forth in the Subsequent Financing Notice.

     (e) If by 5:30 p.m. (New York City time) on the 5th Trading Day after all of
the Purchasers have received the Pre-Notice, the Company receives responses to a Subsequent
Financing Notice from Purchasers seeking to purchase more than the aggregate amount of the
Participation Maximum, each such Purchaser shall have the right to purchase the greater of
(a) their Pro Rata Portion (as defined below) of the Participation Maximum and (b) the
difference between the Participation Maximum and the aggregate amount of participation by
all other Purchasers. “Pro Rata Portion” is the ratio of (x) the Subscription
Amount of Securities purchased on the Closing Date by a Purchaser participating under this
Section 4.13 and (y) the sum of the aggregate Subscription Amounts of Securities purchased
on the Closing Date by all Purchasers participating under this Section 4.13.

     (f) The Company must provide the Purchasers with a second Subsequent Financing Notice,
and the Purchasers will again have the right of participation set forth above in this
Section 4.13, if the Subsequent Financing subject to the initial Subsequent Financing Notice
is not consummated for any reason on the terms set forth in such Subsequent Financing Notice
within 60 Trading Days after the date of the initial Subsequent Financing Notice.

     (g) Notwithstanding the foregoing, this Section 4.13 shall not apply in respect of (i)
an Exempt Issuance or (ii) an underwritten public offering of Common Stock.

     4.14 Subsequent Equity Sales.

     (a) From the date hereof until 30 days after the Effective Date, neither the Company
nor any Subsidiary shall issue shares of Common Stock or Common Stock Equivalents;
provided, however, the 30 day period set forth in this Section 4.14 shall be
extended for the number of Trading Days during such period in which (i) trading in the
Common Stock is suspended by any Trading Market, or (ii) following the Effective Date, the
Registration Statement is not effective or the prospectus included in the Registration
Statement may not be used by the Purchasers for the resale of the Shares and Warrant Shares.

26

 

     (b) From the date hereof until the six-month anniversary of the date hereof, neither
the Company nor any Subsidiary shall issue shares of Common Stock or Common Stock
Equivalents for an effective per share of Common Stock purchase price (including conversion,
exercise or other price) less than the Per Share Purchase Price.

     (c) From the date hereof until 180 days following the Effective Date, the Company shall
be prohibited from effecting or entering into an agreement to effect any Subsequent
Financing involving a “Variable Rate Transaction”. The term “Variable Rate
Transaction” shall mean a transaction in which the Company issues or sells (i) any debt
or equity securities that are convertible into, exchangeable or exercisable for, or include
the right to receive additional shares of Common Stock either (A) at a conversion, exercise
or exchange rate or other price that is based upon and/or varies with the trading prices of
or quotations for the shares of Common Stock at any time after the initial issuance of such
debt or equity securities, or (B) with a conversion, exercise or exchange price that is
subject to being reset at some future date after the initial issuance of such debt or equity
security or upon the occurrence of specified or contingent events directly or indirectly
related to the business of the Company or the market for the Common Stock or (ii) enters
into any agreement, including, but not limited to, an equity line of credit, whereby the
Company may sell securities at a future determined price. Any Purchaser shall be entitled
to obtain injunctive relief against the Company to preclude any such issuance, which remedy
shall be in addition to any right to collect damages.

     (d) Notwithstanding the foregoing, this Section 4.14 shall not apply in respect of an
Exempt Issuance, except that no Variable Rate Transaction shall be an Exempt Issuance.

     4.15 Short Sales and Confidentiality After The Date Hereof. Each Purchaser, severally
and not jointly with the other Purchasers, covenants that until such time as the transactions
contemplated by this Agreement are publicly disclosed by the Company as described in Section 4.4,
such Purchaser will maintain the confidentiality of all disclosures made to it in connection with
this transaction (including the existence and terms of this transaction). Each Purchaser
understands and acknowledges, severally and not jointly with any other Purchaser, that the
Commission currently takes the position that coverage of short sales of shares of the Common Stock
“against the box” prior to the Effective Date of the Registration Statement with the Securities is
a violation of Section 5 of the Securities Act, as set forth in Item 65, Section A, of the Manual
of Publicly Available Telephone Interpretations, dated July 1997, compiled by the Office of Chief
Counsel, Division of Corporation Finance.

     4.16 Form D; Blue Sky Filings. The Company agrees to timely file a Form D with
respect to the Securities as required under Regulation D and to provide a copy thereof, promptly
upon request of any Purchaser. The Company shall take such action as the Company shall reasonably
determine is necessary in order to obtain an exemption for, or to qualify the Securities for, sale
to the Purchasers at the Closing under applicable securities or “Blue Sky” laws of the states of
the United States, and shall provide evidence of such actions promptly upon request of any
Purchaser.

27

 

     4.17 Capital Changes. Until the one year anniversary of the Effective Date, the
Company shall not undertake a reverse or forward stock split or reclassification of the Common
Stock without the prior written consent of the Purchasers holding a majority in interest of the
Shares.

ARTICLE V.

MISCELLANEOUS

     5.1 Termination. This Agreement may be terminated by any Purchaser, as to such
Purchaser’s obligations hereunder only and without any effect whatsoever on the obligations between
the Company and the other Purchasers, by written notice to the other parties, if the Closing has
not been consummated on or before May 29, 2007, provided that such date may be extended by the
mutual, written consent of the Company and Empire Financial but in no event beyond June 5, 2007;
provided, however, that no such termination will affect the right of any party to
sue for any breach by the other party (or parties).

     5.2 Fees and Expenses. At the Closing, in addition to the fees and expenses payable
to Empire Financial as set forth on Schedule 3.1(s) attached hereto, the Company has agreed
to reimburse Empire Financial the sum of $15,000, for its legal fees and expenses. Except as
expressly set forth in the Transaction Documents to the contrary, each party shall pay the fees and
expenses of its advisers, counsel, accountants and other experts, if any, and all other expenses
incurred by such party incident to the negotiation, preparation, execution, delivery and
performance of this Agreement. The Company shall pay all Escrow Agent fees, Transfer Agent fees,
stamp taxes and other taxes and duties levied in connection with the delivery of any Securities to
the Purchasers.

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

     5.4 Notices. Any and all notices or other communications or deliveries required or
permitted to be provided hereunder shall be in writing and shall be deemed given and effective on
the earliest of (a) the date of transmission, if such notice or communication is delivered via
facsimile at the facsimile number set forth on the signature pages attached hereto prior to 5:30
p.m. (New York City time) on a Trading Day, (b) the next Trading Day after the date of
transmission, if such notice or communication is delivered via facsimile at the facsimile number
set forth on the signature pages attached hereto on a day that is not a Trading Day or later than
5:30 p.m. (New York City time) on any Trading Day, (c) the 2nd Trading Day following the
date of mailing, if sent by U.S. nationally recognized overnight courier service, or (d) upon
actual receipt by the party to whom such notice is required to be given. The address for such
notices and communications shall be as set forth on the signature pages attached hereto.

     5.5 Amendments; Waivers. No provision of this Agreement may be waived or amended
except in a written instrument signed, in the case of an amendment, by the Company and Purchasers
then holding at least 67% of the Securities or, in the case of a waiver, by the

28

 

party against whom enforcement of any such waived provision is sought. No waiver of any
default with respect to any provision, condition or requirement of this Agreement shall be deemed
to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any
other provision, condition or requirement hereof, nor shall any delay or omission of any party to
exercise any right hereunder in any manner impair the exercise of any such right.

     5.6 Headings. The headings herein are for convenience only, do not constitute a part
of this Agreement and shall not be deemed to limit or affect any of the provisions hereof.

     5.7 Successors and Assigns. This Agreement shall be binding upon and inure to the
benefit of the parties and their successors and permitted assigns. The Company may not assign this
Agreement or any rights or obligations hereunder without the prior written consent of each
Purchaser (other than by merger). Any Purchaser may assign any or all of its rights under this
Agreement to any Person to whom such Purchaser assigns or transfers any Securities, provided such
transferee agrees in writing to be bound, with respect to the transferred Securities, by the
provisions of the Transaction Documents that apply to the “Purchasers.”

     5.8 No Third-Party Beneficiaries. This Agreement is intended for the benefit of the
parties hereto and their respective successors and permitted assigns and is not for the benefit of,
nor may any provision hereof be enforced by, any other Person, except as otherwise set forth in
Section 4.9.

     5.9 Governing Law. All questions concerning the construction, validity, enforcement
and interpretation of the Transaction Documents shall be governed by and construed and enforced in
accordance with the internal laws of the State of New York, without regard to the principles of
conflicts of law thereof. Each party agrees that all legal proceedings concerning the
interpretations, enforcement and defense of the transactions contemplated by this Agreement and any
other Transaction Documents (whether brought against a party hereto or its respective affiliates,
directors, officers, shareholders, employees or agents) shall be commenced exclusively in the state
and federal courts sitting in the City of New York. Each party hereby irrevocably submits to the
exclusive jurisdiction of the state and federal courts sitting in the City of New York, borough of
Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein (including with respect to the enforcement of
any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any
suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any
such court, that such suit, action or proceeding is improper or is an inconvenient venue for such
proceeding. Each party hereby irrevocably waives personal service of process and consents to
process being served in any such suit, action or proceeding by mailing a copy thereof via
registered or certified mail or overnight delivery (with evidence of delivery) to such party at the
address in effect for notices to it under this Agreement and agrees that such service shall
constitute good and sufficient service of process and notice thereof. Nothing contained herein
shall be deemed to limit in any way any right to serve process in any other manner permitted by
law. The parties hereby waive all rights to a trial by jury. If either party shall commence an
action or proceeding to enforce any provisions of the Transaction Documents, then the prevailing
party in such action or proceeding shall be reimbursed by the other party for its reasonable
attorneys’ fees and other costs and expenses incurred with the investigation, preparation and
prosecution of such action or proceeding.

29

 

     5.10 Survival. The representations and warranties contained herein shall survive the
Closing and the delivery of the Shares and Warrant Shares for two years following the Closing Date.

     5.11 Execution. This Agreement may be executed in two or more counterparts, all of
which when taken together shall be considered one and the same agreement and shall become effective
when counterparts have been signed by each party and delivered to the other party, it being
understood that both parties need not sign the same counterpart. In the event that any signature
is delivered by facsimile transmission or by e-mail delivery of a “.pdf” format data file, such
signature shall create a valid and binding obligation of the party executing (or on whose behalf
such signature is executed) with the same force and effect as if such facsimile or “.pdf” signature
page were an original thereof.

     5.12 Severability. If any term, provision, covenant or restriction of this Agreement
is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in
full force and effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their commercially reasonable efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be the intention of the parties
that they would have executed the remaining terms, provisions, covenants and restrictions without
including any of such that may be hereafter declared invalid, illegal, void or unenforceable.

     5.13 Rescission and Withdrawal Right. Notwithstanding anything to the contrary
contained in (and without limiting any similar provisions of) any of the other Transaction
Documents, whenever any Purchaser exercises a right, election, demand or option under a Transaction
Document and the Company does not timely perform its related obligations within the periods therein
provided, then such Purchaser may rescind or withdraw, in its sole discretion from time to time
upon written notice to the Company, any relevant notice, demand or election in whole or in part
without prejudice to its future actions and rights; provided, however, in the case
of a rescission of an exercise of a Warrant, the Purchaser shall be required to return any shares
of Common Stock delivered in connection with any such rescinded exercise notice.

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

     5.15 Remedies. In addition to being entitled to exercise all rights provided herein
or granted by law, including recovery of damages, each of the Purchasers and the Company will be
entitled to specific performance under the Transaction Documents. The parties agree that monetary
damages may not be adequate compensation for any loss incurred by reason of any breach of
obligations contained in the Transaction Documents and hereby agrees to waive and

30

 

not to assert in any action for specific performance of any such obligation the defense that a
remedy at law would be adequate.

     5.16 Payment Set Aside. To the extent that the Company makes a payment or payments to
any Purchaser pursuant to any Transaction Document or a Purchaser enforces or exercises its rights
thereunder, and such payment or payments or the proceeds of such enforcement or exercise or any
part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside,
recovered from, disgorged by or are required to be refunded, repaid or otherwise restored to the
Company, a trustee, receiver or any other person under any law (including, without limitation, any
bankruptcy law, state or federal law, common law or equitable cause of action), then to the extent
of any such restoration the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been made or such
enforcement or setoff had not occurred.

     5.17 Independent Nature of Purchasers’ Obligations and Rights. The obligations of
each Purchaser under any Transaction Document are several and not joint with the obligations of any
other Purchaser, and no Purchaser shall be responsible in any way for the performance or
non-performance of the obligations of any other Purchaser under any Transaction Document. Nothing
contained herein or in any other Transaction Document, and no action taken by any Purchaser
pursuant thereto, shall be deemed to constitute the Purchasers as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the Purchasers are in any
way acting in concert or as a group with respect to such obligations or the transactions
contemplated by the Transaction Documents. Each Purchaser shall be entitled to independently
protect and enforce its rights, including without limitation, the rights arising out of this
Agreement or out of the other Transaction Documents, and it shall not be necessary for any other
Purchaser to be joined as an additional party in any proceeding for such purpose. Each Purchaser
has been represented by its own separate legal counsel in their review and negotiation of the
Transaction Documents. For reasons of administrative convenience only, Purchasers and their
respective counsel have chosen to communicate with the Company through SRFF. SRFF does not
represent all of the Purchasers but only Empire Financial. The Company has elected to provide all
Purchasers with the same terms and Transaction Documents for the convenience of the Company and not
because it was required or requested to do so by the Purchasers.

     5.18 Liquidated Damages. The Company’s obligations to pay any partial liquidated
damages or other amounts owing under the Transaction Documents is a continuing obligation of the
Company and shall not terminate until all unpaid partial liquidated damages and other amounts have
been paid notwithstanding the fact that the instrument or security pursuant to which such partial
liquidated damages or other amounts are due and payable shall have been canceled.

     5.19 Construction. The parties agree that each of them and/or their respective counsel
has reviewed and had an opportunity to revise the Transaction Documents and, therefore, the normal
rule of construction to the effect that any ambiguities are to be resolved against the drafting
party shall not be employed in the interpretation of the Transaction Documents or any amendments
hereto.

(Signature Pages Follow)

31

 

     IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase Agreement to be
duly executed by their respective authorized signatories as of the date first indicated above.

	 	 	 
	AKEENA SOLAR, INC.

	 	Address for Notice:
	 

	 	605 University Avenue
	 

	 	Los Gatos, California 95032
	 

	 	Attn: Barry Cinnamon
	By: /s/

	 	Fax:
	 
	 	 
	Name:

	 	e-mail: barry@akeena.net
	Title:

	 	Tel:

With a copy to (which shall not constitute notice):

Haynes and Boone, LLP

153 East 53rd Street, Suite 4900

New York, NY 10022

Attention: Harvey Kesner, Esq.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE PAGE FOR PURCHASER FOLLOWS]

32

 

[PURCHASER SIGNATURE PAGES TO AKNS SECURITIES PURCHASE AGREEMENT]

     IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly
executed by their respective authorized signatories as of the date first indicated above.

			
	Name of Purchaser:	 	

 

			
	Signature of Authorized Signatory of Purchaser:	 	

 

			
	Name of Authorized Signatory:	 	

 

			
	Title of Authorized Signatory:	 	

 

			
	Email Address of Purchaser:	 	

 

			
	Fax Number of Purchaser:	 	

 

Address for Notice of Purchaser:

 

 

 

Address for Delivery of Securities for Purchaser (if not same as above):

 

 

 

Subscription Amount (not less than $50,000):

$:

Shares:

#:

Class C Warrant Shares:

#:

[SIGNATURE PAGES CONTINUE]

33

 

EXHIBIT D

Wiring Instructions

34EX-10.2 Registration Rights Agreement

 

EXHIBIT 10.2

REGISTRATION RIGHTS AGREEMENT

          This Registration Rights Agreement (this “Agreement”) is made and entered into as of
May 25, 2007, among Akeena Solar, Inc., a Delaware corporation (the “Company”), and the
several purchasers signatory hereto (each such purchaser, a “Purchaser” and collectively,
the “Purchasers”).

          This Agreement is made pursuant to the Securities Purchase Agreement, dated as of the date
hereof, between the Company and each Purchaser (the “Purchase Agreement”).

          The Company and each Purchaser hereby agrees as follows:

     1. Definitions. Capitalized terms used and not otherwise defined herein that are
defined in the Purchase Agreement shall have the meanings given such terms in the Purchase
Agreement. As used in this Agreement, the following terms shall have the following meanings:

     “Advice” shall have the meaning set forth in Section 6(d).

     “Effectiveness Date” means, with respect to the initial Registration Statement
required to be filed hereunder, the 90th calendar day following the date hereof
and, with respect to any additional Registration Statements which may be required pursuant
to Section 3(c), the 60th calendar day following the date on which the Company
first knows, or reasonably should have known, that such additional Registration Statement is
required hereunder; provided, however, that in the event the Company is
notified by the Commission that one of the above Registration Statements will not be
reviewed or is no longer subject to further review and comments, the Effectiveness Date as
to such Registration Statement shall be the fifth Trading Day following the date on which
the Company is so notified if such date precedes the dates required above.

     “Effectiveness Period” shall have the meaning set forth in Section 2(a).

     “Event” shall have the meaning set forth in Section 2(b).

     “Event Date” shall have the meaning set forth in Section 2(b).

     “Filing Date” means, with respect to the initial Registration Statement
required hereunder, the 30th calendar day following the date hereof and, with
respect to any additional Registration Statements which may be required pursuant to Section
3(c), the 30th calendar day following the date on which the Company first knows,
or reasonably should have known, that such additional Registration Statement is required
hereunder.

     “Holder” or “Holders” means the holder or holders, as the case may be,
from time to time of Registrable Securities.

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     “Indemnified Party” shall have the meaning set forth in Section 5(c).

     “Indemnifying Party” shall have the meaning set forth in Section 5(c).

     “Losses” shall have the meaning set forth in Section 5(a).

     “Placement Agent” means Empire Financial Group, Inc.

     “Plan of Distribution” shall have the meaning set forth in Section 2(a).

     “Prospectus” means the prospectus included in a Registration Statement
(including, without limitation, a prospectus that includes any information previously
omitted from a prospectus filed as part of an effective registration statement in reliance
upon Rule 430A promulgated under the Securities Act), as amended or supplemented by any
prospectus supplement, with respect to the terms of the offering of any portion of the
Registrable Securities covered by a Registration Statement, and all other amendments and
supplements to the Prospectus, including post-effective amendments, and all material
incorporated by reference or deemed to be incorporated by reference in such Prospectus.

     “Registrable Securities” means all of (i) the Shares issuable, (ii) the Warrant
Shares issuable, (iii) shares of Common Stock issuable to the Placement Agent to the
transactions contemplated under the Purchase Agreement upon the exercise of warrants; (iv)
any additional shares issuable in connection with any anti-dilution provisions in the
Warrants (without giving effect to any limitations on exercise set forth in the Warrant) and
(v) any shares of Common Stock issued or issuable upon any stock split, dividend or other
distribution, recapitalization or similar event with respect to the foregoing.

     “Registration Statement” means the registration statements required to be filed
hereunder and any additional registration statements contemplated by Section 3(c), including
(in each case) the Prospectus, amendments and supplements to such registration statement or
Prospectus, including pre- and post-effective amendments, all exhibits thereto, and all
material incorporated by reference or deemed to be incorporated by reference in such
registration statement.

     “Rule 415” means Rule 415 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar rule or
regulation hereafter adopted by the Commission having substantially the same purpose and
effect as such Rule.

     “Rule 424” means Rule 424 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar rule or
regulation hereafter adopted by the Commission having substantially the same purpose and
effect as such Rule.

     “Selling Shareholder Questionnaire” shall have the meaning set forth in Section
3(a).

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     2. Shelf Registration.

     (a) On or prior to each Filing Date, the Company shall prepare and file with the
Commission a “Shelf” Registration Statement covering the resale of 100% of the Registrable
Securities on such Filing Date for an offering to be made on a continuous basis pursuant to
Rule 415. The Registration Statement shall be on Form SB-2 (except if the Company is not
then eligible to register for resale the Registrable Securities on Form SB-2, in which case
such registration shall be on another appropriate form in accordance herewith) and shall
contain (unless otherwise directed by at least an 85% majority in interest of the Holders)
substantially the “Plan of Distribution” attached hereto as Annex A.
Subject to the terms of this Agreement, the Company shall use its best efforts to cause a
Registration Statement to be declared effective under the Securities Act as promptly as
possible after the filing thereof, but in any event prior to the applicable Effectiveness
Date, and shall use its best efforts to keep such Registration Statement continuously
effective under the Securities Act until all Registrable Securities covered by such
Registration Statement have been sold, or may be sold without volume restrictions pursuant
to Rule 144(k), as determined by the counsel to the Company pursuant to a written opinion
letter to such effect, addressed and acceptable to the Company’s transfer agent and the
affected Holders (the “Effectiveness Period”). The Company shall request
effectiveness of a Registration Statement as of 5:00 p.m. New York City time on a Trading
Day. The Company shall immediately notify the Holders via facsimile of the effectiveness
of a Registration Statement on the same Trading Day that the Company telephonically confirms
effectiveness with the Commission, which shall be the date requested for effectiveness of a
Registration Statement. The Company shall, by 9:30 a.m. New York City time on the Trading
Day after the Effective Date (as defined in the Purchase Agreement), file a final Prospectus
with the Commission as required by Rule 424. Failure to so notify the Holder within 1
Trading Day of such notification of effectiveness or failure to file a final Prospectus as
aforesaid shall be deemed an Event under Section 2(b).

     (b) If: (i) a Registration Statement is not filed on or prior to its Filing Date (if
the Company files a Registration Statement without affording the Holders the opportunity to
review and comment on the same as required by Section 3(a) herein, the Company shall not be
deemed to have satisfied this clause (i)), or (ii) the Company fails to file with the
Commission a request for acceleration in accordance with Rule 461 promulgated under the
Securities Act, within five Trading Days of the date that the Company is notified (orally or
in writing, whichever is earlier) by the Commission that a Registration Statement will not
be “reviewed,” or not subject to further review (unless the failure to make such request for
acceleration is the result of the Company’s determination that events affecting the Company
will require the filing of an amendment to the Registration Statement, which the Company
hereby undertakes to file within five Trading Days after such determination has been made),
or (iii) prior to its Effectiveness Date, the Company fails to file a pre-effective
amendment and otherwise respond in writing to comments made by the Commission in respect of
such Registration Statement within 15 calendar days after the receipt of comments by or
notice from the Commission that such amendment is required in order for a Registration
Statement to be declared effective, or (iv) a Registration Statement filed or required to be
filed hereunder is not declared

3

 

effective by the Commission by its Effectiveness Date, or (v) after the Effectiveness
Date, a Registration Statement ceases for any reason to remain continuously effective as to
all Registrable Securities for which it is required to be effective, or the Holders are
otherwise not permitted to utilize the Prospectus therein to resell such Registrable
Securities for more than 15 consecutive calendar days or more than an aggregate of 20
calendar days during any 12-month period (which need not be consecutive calendar days) (any
such failure or breach being referred to as an “Event”, and for purposes of clause
(i) or (iv) the date on which such Event occurs, or for purposes of clause (ii) the date on
which such five Trading Day period is exceeded, or for purposes of clause (iii) the date
which such 15 calendar day period is exceeded, or for purposes of clause (v) the date on
which such 10 or 15 calendar day period, as applicable, is exceeded being referred to as
“Event Date”), then in addition to any other rights the Holders may have hereunder
or under applicable law, on each such Event Date and on each monthly anniversary of each
such Event Date (if the applicable Event shall not have been cured by such date) until the
applicable Event is cured, the Company shall pay to each Holder an amount in cash, as
partial liquidated damages and not as a penalty, equal to 1% of the aggregate purchase price
paid by such Holder pursuant to the Purchase Agreement for any Registrable Securities then
held by such Holder. The parties agree that (1) the Company will not be liable for
liquidated damages under this Agreement with respect to any Warrants or Warrant Shares, (2)
in no event will the Company be liable for liquidated damages under this Agreement in excess
of 1% of the aggregate Subscription Amount of the Holders in any 30-day period and (3) the
maximum aggregate liquidated damages payable to a Holder under this Agreement shall be nine
percent (9%) of the aggregate Subscription Amount paid by such Holder pursuant to the
Purchase Agreement. If the Company fails to pay any partial liquidated damages pursuant to
this Section in full within seven days after the date payable, the Company will pay interest
thereon at a rate of 18% per annum (or such lesser maximum amount that is permitted to be
paid by applicable law) to the Holder, accruing daily from the date such partial liquidated
damages are due until such amounts, plus all such interest thereon, are paid in full. The
partial liquidated damages pursuant to the terms hereof shall apply on a daily pro-rata
basis for any portion of a month prior to the cure of an Event. Notwithstanding anything
herein to the contrary, to the extent that the registration of any or all of the Shares by
the Company on the Registration Statement is prohibited (the “Non-Registered
Shares”) under Rule 415 in the opinion of the Commission, the liquidated damages
described in this Section 2(b) shall not be applicable to such Non-Registered Shares, in
which case the Company will file additional Registration Statements (each, a “Subsequent
Registration Statement”) each registering the Non-Registered Shares until all of the
Registrable Securities have been registered. The Filing Date and Effective Date of each
such Subsequent Registration Statement shall be, respectively, fourteen (14) and forty-five
(45) days after the first day such Subsequent Registration Statement may be filed without
objection by the Commission under Rule 415. The Company’s failure to meet the Filing Date
and Effective Date as they relate to the Subsequent Registration Statements shall subject it
to all liquidated damage provisions set forth in this Section 2(b).

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     3. Registration Procedures

          In connection with the Company’s registration obligations hereunder, the Company shall:

     (a) Not less than five Trading Days prior to the filing of each Registration Statement
and not less than 1 Trading Day prior to the filing of any related Prospectus or any
amendment or supplement thereto (including any document that would be incorporated or deemed
to be incorporated therein by reference), the Company shall, (i) furnish to Holders drafts
of all such documents proposed to be filed, which documents (other than those incorporated
or deemed to be incorporated by reference) will be subject to the review of the Holders, and
(ii) cause its officers and directors, counsel and independent certified public accountants
to respond to such inquiries as shall be necessary, in the reasonable opinion of respective
counsel to each Holder to conduct a reasonable investigation within the meaning of the
Securities Act. The Company shall not file a Registration Statement or any such Prospectus
or any amendments or supplements thereto to which the Holders of a majority of the
Registrable Securities shall reasonably object in good faith, provided that, the Company is
notified of such objection in writing no later than 5 Trading Days after the Holders have
been so furnished copies of a Registration Statement or 1 Trading Day after the Holders have
been so furnished copies of any related Prospectus or amendments or supplements thereto.
Each Holder agrees to furnish to the Company a completed questionnaire in the form attached
to this Agreement as Annex B (a “Selling Shareholder Questionnaire”) not less than
two Trading Days prior to the Filing Date or by the end of the fourth Trading Day following
the date on which such Holder receives draft materials in accordance with this Section.

     (b) (i) Prepare and file with the Commission such amendments, including post-effective
amendments, to a Registration Statement and the Prospectus used in connection therewith as
may be necessary to keep a Registration Statement continuously effective as to the
applicable Registrable Securities for the Effectiveness Period and prepare and file with the
Commission such additional Registration Statements in order to register for resale under the
Securities Act all of the Registrable Securities; (ii) cause the related Prospectus to be
amended or supplemented by any required Prospectus supplement (subject to the terms of this
Agreement), and as so supplemented or amended to be filed pursuant to Rule 424; (iii)
respond as promptly as reasonably possible to any comments received from the Commission with
respect to a Registration Statement or any amendment thereto and provide as promptly as
reasonably possible to the Holders true and complete copies of all correspondence from and
to the Commission relating to a Registration Statement (provided that the Company may excise
any information contained therein which would constitute material non-public information as
to any Holder which has not executed a confidentiality agreement with the Company); and (iv)
comply in all material respects with the provisions of the Securities Act and the Exchange
Act with respect to the disposition of all Registrable Securities covered by a Registration
Statement during the applicable period in accordance (subject to the terms of this
Agreement) with the intended methods of disposition by the Holders thereof set forth in such
Registration Statement as so amended or in such Prospectus as so supplemented.

5

 

     (c) If during the Effectiveness Period, the number of Registrable Securities at any
time exceeds 90% of the number of shares of Common Stock then registered in a Registration
Statement, then the Company shall file as soon as reasonably practicable but in any case
prior to the applicable Filing Date, an additional Registration Statement covering the
resale by the Holders of not less than 100% of the number of such Registrable Securities.

     (d) Notify the Holders of Registrable Securities to be sold (which notice shall,
pursuant to clauses (iii) through (vi) hereof, be accompanied by an instruction to suspend
the use of the Prospectus until the requisite changes have been made) as promptly as
reasonably possible (and, in the case of (i)(A) below, not less than 1 Trading Day prior to
such filing) and (if requested by any such Person) confirm such notice in writing no later
than one Trading Day following the day (i)(A) when a Prospectus or any Prospectus supplement
or post-effective amendment to a Registration Statement is proposed to be filed; (B) when
the Commission notifies the Company whether there will be a “review” of such Registration
Statement and whenever the Commission comments in writing on such Registration Statement;
and (C) with respect to a Registration Statement or any post-effective amendment, when the
same has become effective; (ii) of any request by the Commission or any other Federal or
state governmental authority for amendments or supplements to a Registration Statement or
Prospectus or for additional information; (iii) of the issuance by the Commission or any
other federal or state governmental authority of any stop order suspending the effectiveness
of a Registration Statement covering any or all of the Registrable Securities or the
initiation of any Proceedings for that purpose; (iv) of the receipt by the Company of any
notification with respect to the suspension of the qualification or exemption from
qualification of any of the Registrable Securities for sale in any jurisdiction, or the
initiation or threatening of any Proceeding for such purpose; (v) of the occurrence of any
event or passage of time that makes the financial statements included in a Registration
Statement ineligible for inclusion therein or any statement made in a Registration Statement
or Prospectus or any document incorporated or deemed to be incorporated therein by reference
untrue in any material respect or that requires any revisions to a Registration Statement,
Prospectus or other documents so that, in the case of a Registration Statement or the
Prospectus, as the case may be, it will not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made, not
misleading; and (vi) the occurrence or existence of any pending corporate development with
respect to the Company that the Company believes may be material and that, in the
determination of the Company, makes it not in the best interest of the Company to allow
continued availability of a Registration Statement or Prospectus, provided that any and all
of such information shall remain confidential to each Holder until such information
otherwise becomes public, unless disclosure by a Holder is required by law;
provided, further, notwithstanding each Holder’s agreement to keep such
information confidential, the Holders make no acknowledgement that any such information is
material, non-public information.

     (e) Use its best efforts to avoid the issuance of, or, if issued, obtain the withdrawal
of (i) any order suspending the effectiveness of a Registration Statement, or

6

 

     (ii) any suspension of the qualification (or exemption from qualification) of any of
the Registrable Securities for sale in any jurisdiction, at the earliest practicable moment.

     (f) Furnish to each Holder, without charge, at least one conformed copy of each such
Registration Statement and each amendment thereto, including financial statements and
schedules, all documents incorporated or deemed to be incorporated therein by reference to
the extent requested by such Person, and all exhibits to the extent requested by such Person
(including those previously furnished or incorporated by reference) promptly after the
filing of such documents with the Commission.

     (g) Subject to the terms of this Agreement, the Company hereby consents to the use of
such Prospectus and each amendment or supplement thereto by each of the selling Holders in
connection with the offering and sale of the Registrable Securities covered by such
Prospectus and any amendment or supplement thereto, except after the giving of any notice
pursuant to Section 3(d).

     (h) If NASDR Rule 2710 requires any broker-dealer to make a filing prior to executing a
sale by a Holder, upon notification, the Company shall (i) make an Issuer Filing with the
NASDR, Inc. Corporate Financing Department pursuant to proposed NASDR Rule
2710(b)(10)(A)(i), (ii) respond within five Trading Days to any comments received from NASDR
in connection therewith, and (iii) pay the filing fee required in connection therewith.

     (i) Prior to any resale of Registrable Securities by a Holder, use its commercially
reasonable efforts to register or qualify or cooperate with the selling Holders in
connection with the registration or qualification (or exemption from the Registration or
qualification) of such Registrable Securities for the resale by the Holder under the
securities or Blue Sky laws of such jurisdictions within the United States as any Holder
reasonably requests in writing, to keep each registration or qualification (or exemption
therefrom) effective during the Effectiveness Period and to do any and all other acts or
things reasonably necessary to enable the disposition in such jurisdictions of the
Registrable Securities covered by each Registration Statement; provided, that the Company
shall not be required to qualify generally to do business in any jurisdiction where it is
not then so qualified, subject the Company to any material tax in any such jurisdiction
where it is not then so subject or file a general consent to service of process in any such
jurisdiction.

     (j) If requested by the Holders, cooperate with the Holders to facilitate the timely
preparation and delivery of certificates representing Registrable Securities to be delivered
to a transferee pursuant to a Registration Statement, which certificates shall be free, to
the extent permitted by the Purchase Agreement, of all restrictive legends, and to enable
such Registrable Securities to be in such denominations and registered in such names as any
such Holders may request.

     (k) Upon the occurrence of any event contemplated by this Section 3, as promptly as
reasonably possible under the circumstances taking into account the Company’s good faith
assessment of any adverse consequences to the Company and its

7

 

stockholders of the premature disclosure of such event, prepare a supplement or
amendment, including a post-effective amendment, to a Registration Statement or a supplement
to the related Prospectus or any document incorporated or deemed to be incorporated therein
by reference, and file any other required document so that, as thereafter delivered, neither
a Registration Statement nor such Prospectus will contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made, not
misleading. If the Company notifies the Holders in accordance with clauses (iii) through
(vi) of Section 3(d) above to suspend the use of any Prospectus until the requisite changes
to such Prospectus have been made, then the Holders shall suspend use of such Prospectus.
The Company will use its best efforts to ensure that the use of the Prospectus may be
resumed as promptly as is practicable. The Company shall be entitled to exercise its right
under this Section 3(k) to suspend the availability of a Registration Statement and
Prospectus, subject to the payment of partial liquidated damages pursuant to Section 2(b),
for a period not to exceed 60 calendar days (which need not be consecutive days) in any 12
month period.

     (l) Comply with all applicable rules and regulations of the Commission.

     (m) The Company may require each selling Holder to furnish to the Company a certified
statement as to the number of shares of Common Stock beneficially owned by such Holder and,
if required by the Commission, the natural persons thereof that have voting and dispositive
control over the Shares. During any periods that the Company is unable to meet its
obligations hereunder with respect to the registration of the Registrable Securities solely
because any Holder fails to furnish such information within three Trading Days of the
Company’s request, any liquidated damages that are accruing at such time as to such Holder
only shall be tolled and any Event that may otherwise occur solely because of such delay
shall be suspended as to such Holder only, until such information is delivered to the
Company.

     4. Registration Expenses. All fees and expenses incident to the performance of or
compliance with this Agreement by the Company shall be borne by the Company whether or not any
Registrable Securities are sold pursuant to a Registration Statement. The fees and expenses
referred to in the foregoing sentence shall include, without limitation, (i) all registration and
filing fees (including, without limitation, fees and expenses (A) with respect to filings required
to be made with any Trading Market on which the Common Stock is then listed for trading, (B) in
compliance with applicable state securities or Blue Sky laws reasonably agreed to by the Company in
writing (including, without limitation, fees and disbursements of counsel for the Company in
connection with Blue Sky qualifications or exemptions of the Registrable Securities) and (C) if not
previously paid by the Company in connection with an Issuer Filing, with respect to any filing that
may be required to be made by any broker through which a Holder intends to make sales of
Registrable Securities with NASD Regulation, Inc. pursuant to the NASD Rule 2710, so long as the
broker is receiving no more than a customary brokerage commission in connection with such sale,
(ii) printing expenses (including, without limitation, expenses of printing certificates for
Registrable Securities), (iii) messenger, telephone and delivery expenses, (iv) fees and
disbursements of counsel for the Company, (v) Securities Act liability insurance, if the Company so
desires such insurance, and (vi) fees and expenses of all

8

 

other Persons retained by the Company in connection with the consummation of the transactions
contemplated by this Agreement. In addition, the Company shall be responsible for all of its
internal expenses incurred in connection with the consummation of the transactions contemplated by
this Agreement (including, without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties), the expense of any annual audit and the fees and
expenses incurred in connection with the listing of the Registrable Securities on any securities
exchange as required hereunder. In no event shall the Company be responsible for any broker or
similar commissions of any Holder or, except to the extent provided for in the Transaction
Documents, any legal fees or other costs of the Holders.

     5. Indemnification

     (a) Indemnification by the Company. The Company shall, notwithstanding any
termination of this Agreement, indemnify and hold harmless each Holder, the officers,
directors, members, partners, agents, brokers (including brokers who offer and sell
Registrable Securities as principal as a result of a pledge or any failure to perform under
a margin call of Common Stock), investment advisors and employees (and any other Persons
with a functionally equivalent role of a Person holding such titles, notwithstanding a lack
of such title or any other title) of each of them, each Person who controls any such Holder
(within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act)
and the officers, directors, members, shareholders, partners, agents and employees (and any
other Persons with a functionally equivalent role of a Person holding such titles,
notwithstanding a lack of such title or any other title) of each such controlling Person, to
the fullest extent permitted by applicable law, from and against any and all losses, claims,
damages, liabilities, costs (including, without limitation, reasonable attorneys’ fees) and
expenses (collectively, “Losses”), as incurred, arising out of or relating to (1)
any untrue or alleged untrue statement of a material fact contained in a Registration
Statement, any Prospectus or any form of prospectus or in any amendment or supplement
thereto or in any preliminary prospectus, or arising out of or relating to any omission or
alleged omission of a material fact required to be stated therein or necessary to make the
statements therein (in the case of any Prospectus or form of prospectus or supplement
thereto, in light of the circumstances under which they were made) not misleading, or (2)
any violation or alleged violation by the Company of the Securities Act, Exchange Act or any
state securities law, or any rule or regulation thereunder, in connection with the
performance of its obligations under this Agreement, except to the extent, but only to the
extent, that (i) such untrue statements or omissions are based solely upon information
regarding such Holder furnished in writing to the Company by such Holder expressly for use
therein, or to the extent that such information relates to such Holder or such Holder’s
proposed method of distribution of Registrable Securities and was reviewed and expressly
approved in writing by such Holder expressly for use in a Registration Statement, such
Prospectus or such form of Prospectus or in any amendment or supplement thereto (it being
understood that the Holder has approved Annex A hereto for this purpose) or (ii) in the case
of an occurrence of an event of the type specified in Section 3(d)(iii)-(vi), the use by
such Holder of an outdated or defective Prospectus after the Company has notified such
Holder in writing that the Prospectus is outdated or defective and prior to the receipt by
such Holder of the Advice contemplated in Section 6(d). The Company shall notify the
Holders promptly of the institution, threat

9

 

or assertion of any Proceeding arising from or in connection with the transactions
contemplated by this Agreement of which the Company is aware.

     (b) Indemnification by Holders. Each Holder shall, severally and not jointly,
indemnify and hold harmless the Company, its directors, officers, agents and employees, each
Person who controls the Company (within the meaning of Section 15 of the Securities Act and
Section 20 of the Exchange Act), and the directors, officers, agents or employees of such
controlling Persons, to the fullest extent permitted by applicable law, from and against all
Losses, as incurred, to the extent arising out of or based solely upon: (x) such Holder’s
failure to comply with the prospectus delivery requirements of the Securities Act or (y) any
untrue or alleged untrue statement of a material fact contained in any Registration
Statement, any Prospectus, or any form of prospectus, or in any amendment or supplement
thereto or in any preliminary prospectus, or arising out of or relating to any omission or
alleged omission of a material fact required to be stated therein or necessary to make the
statements therein not misleading (i) to the extent, but only to the extent, that such
untrue statement or omission is contained in any information so furnished in writing by such
Holder to the Company specifically for inclusion in such Registration Statement or such
Prospectus or (ii) to the extent that such information relates to such Holder’s proposed
method of distribution of Registrable Securities and was reviewed and expressly approved in
writing by such Holder expressly for use in a Registration Statement (it being understood
that the Holder has approved Annex A hereto for this purpose), such Prospectus or
such form of Prospectus or in any amendment or supplement thereto or (iii) in the case of an
occurrence of an event of the type specified in Section 3(d)(iii)-(vi), the use by such
Holder of an outdated or defective Prospectus after the Company has notified such Holder in
writing that the Prospectus is outdated or defective and prior to the receipt by such
Holder of the Advice contemplated in Section 6(d). In no event shall the liability of any
selling Holder hereunder be greater in amount than the dollar amount of the net proceeds
received by such Holder upon the sale of the Registrable Securities giving rise to such
indemnification obligation.

     (c) Conduct of Indemnification Proceedings. If any Proceeding shall be brought
or asserted against any Person entitled to indemnity hereunder (an “Indemnified
Party”), such Indemnified Party shall promptly notify the Person from whom indemnity is
sought (the “Indemnifying Party”) in writing, and the Indemnifying Party shall have
the right to assume the defense thereof, including the employment of counsel reasonably
satisfactory to the Indemnified Party and the payment of all fees and expenses incurred in
connection with defense thereof; provided, that the failure of any Indemnified Party to give
such notice shall not relieve the Indemnifying Party of its obligations or liabilities
pursuant to this Agreement, except (and only) to the extent that it shall be finally
determined by a court of competent jurisdiction (which determination is not subject to
appeal or further review) that such failure shall have prejudiced the Indemnifying Party.

     An Indemnified Party shall have the right to employ separate counsel in any such
Proceeding and to participate in the defense thereof, but the fees and expenses of such
counsel shall be at the expense of such Indemnified Party or Parties unless: (1) the
Indemnifying Party has agreed in writing to pay such fees and expenses; (2) the Indemnifying
Party shall have failed promptly to assume the defense of such Proceeding

10

 

and to employ counsel reasonably satisfactory to such Indemnified Party in any such
Proceeding; or (3) the named parties to any such Proceeding (including any impleaded
parties) include both such Indemnified Party and the Indemnifying Party, and counsel to the
Indemnified Party shall reasonably believe that a material conflict of interest is likely to
exist if the same counsel were to represent such Indemnified Party and the Indemnifying
Party (in which case, if such Indemnified Party notifies the Indemnifying Party in writing
that it elects to employ separate counsel at the expense of the Indemnifying Party, the
reasonable fees and expenses of no more than one separate counsel shall be at the expense of
the Indemnifying Party). The Indemnifying Party shall not be liable for any settlement of
any such Proceeding effected without its written consent, which consent shall not be
unreasonably withheld or delayed. No Indemnifying Party shall, without the prior written
consent of the Indemnified Party, effect any settlement of any pending Proceeding in respect
of which any Indemnified Party is a party, unless such settlement includes an unconditional
release of such Indemnified Party from all liability on claims that are the subject matter
of such Proceeding.

     Subject to the terms of this Agreement, all reasonable fees and expenses of the
Indemnified Party (including reasonable fees and expenses to the extent incurred in
connection with investigating or preparing to defend such Proceeding in a manner not
inconsistent with this Section) shall be paid to the Indemnified Party, as incurred, within
ten Trading Days of written notice thereof to the Indemnifying Party, provided that the
Indemnified Party shall promptly reimburse the Indemnifying Party for that portion of such
fees and expenses applicable to such actions for which such Indemnified Party is judicially
determined to be not entitled to indemnification hereunder.

     (d) Contribution. If the indemnification under Section 5(a) or 5(b) is
unavailable to an Indemnified Party or insufficient to hold an Indemnified Party harmless
for any Losses, then each Indemnifying Party shall contribute to the amount paid or payable
by such Indemnified Party, in such proportion as is appropriate to reflect the relative
fault of the Indemnifying Party and Indemnified Party in connection with the actions,
statements or omissions that resulted in such Losses as well as any other relevant equitable
considerations. The relative fault of such Indemnifying Party and Indemnified Party shall be
determined by reference to, among other things, whether any action in question, including
any untrue or alleged untrue statement of a material fact or omission or alleged omission of
a material fact, has been taken or made by, or relates to information supplied by, such
Indemnifying Party or Indemnified Party, and the parties’ relative intent, knowledge, access
to information and opportunity to correct or prevent such action, statement or omission.
The amount paid or payable by a party as a result of any Losses shall be deemed to include,
subject to the limitations set forth in this Agreement, any reasonable attorneys’ or other
fees or expenses incurred by such party in connection with any Proceeding to the extent such
party would have been indemnified for such fees or expenses if the indemnification provided
for in this Section was available to such party in accordance with its terms.

     The parties hereto agree that it would not be just and equitable if contribution
pursuant to this Section 5(d) were determined by pro rata allocation or by any other method
of allocation that does not take into account the equitable considerations referred

11

 

to in the immediately preceding paragraph. Notwithstanding the provisions of this
Section 5(d), no Holder shall be required to contribute, in the aggregate, any amount in
excess of the amount by which the net proceeds actually received by such Holder from the
sale of the Registrable Securities subject to the Proceeding exceeds the amount of any
damages that such Holder has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission, except in the case of fraud by
such Holder.

     The indemnity and contribution agreements contained in this Section are in addition to
any liability that the Indemnifying Parties may have to the Indemnified Parties.

     6. Miscellaneous

     (a) Remedies. In the event of a breach by the Company or by a Holder of any of
their respective obligations under this Agreement, each Holder or the Company, as the case
may be, in addition to being entitled to exercise all rights granted by law and under this
Agreement, including recovery of damages, shall be entitled to specific performance of its
rights under this Agreement. The Company and each Holder agree that monetary damages would
not provide adequate compensation for any losses incurred by reason of a breach by it of any
of the provisions of this Agreement and hereby further agrees that, in the event of any
action for specific performance in respect of such breach, it shall not assert or shall
waive the defense that a remedy at law would be adequate.

     (b) No Piggyback on Registrations. Except as set forth on Schedule
6(b) attached hereto, neither the Company nor any of its security holders (other than
the Holders in such capacity pursuant hereto) may include securities of the Company in the
initial Registration Statement other than the Registrable Securities. The Company shall not
file any other registration statements until the initial Registration Statement required
hereunder is declared effective by the Commission, provided that this Section 6(b) shall not
prohibit the Company from filing amendments to registration statements filed prior to the
date of this Agreement.

     (c) Compliance. Each Holder covenants and agrees that it will comply with the
prospectus delivery requirements of the Securities Act as applicable to it in connection
with sales of Registrable Securities pursuant to a Registration Statement.

     (d) Discontinued Disposition. By its acquisition of Registrable Securities,
each Holder agrees that, upon receipt of a notice from the Company of the occurrence of any
event of the kind described in Section 3(d), such Holder will forthwith discontinue
disposition of such Registrable Securities under a Registration Statement until it is
advised in writing (the “Advice”) by the Company that the use of the applicable
Prospectus (as it may have been supplemented or amended) may be resumed. The Company will
use its best efforts to ensure that the use of the Prospectus may be resumed as promptly as
is practicable. The Company agrees and acknowledges that any periods during which the
Holder is required to discontinue the disposition of the Registrable Securities hereunder
shall be subject to the provisions of Section 2(b).

12

 

     (e) Piggy-Back Registrations. If at any time during the Effectiveness Period
there is not an effective Registration Statement covering all of the Registrable Securities
and the Company shall determine to prepare and file with the Commission a registration
statement relating to an offering for its own account or the account of others under the
Securities Act of any of its equity securities, other than on Form S-4 or Form S-8 (each as
promulgated under the Securities Act) or their then equivalents relating to equity
securities to be issued solely in connection with any acquisition of any entity or business
or equity securities issuable in connection with the stock option or other employee benefit
plans, then the Company shall send to each Holder a written notice of such determination
and, if within fifteen days after the date of such notice, any such Holder shall so request
in writing, the Company shall include in such registration statement all or any part of such
Registrable Securities such Holder requests to be registered; provided,
however, that, the Company shall not be required to register any Registrable
Securities pursuant to this Section 6(e) that are eligible for resale pursuant to Rule
144(k) promulgated under the Securities Act or that are the subject of a then effective
Registration Statement.

     (f) Amendments and Waivers. The provisions of this Agreement, including the
provisions of this sentence, may not be amended, modified or supplemented, and waivers or
consents to departures from the provisions hereof may not be given, unless the same shall be
in writing and signed by the Company and Holders holding 67% of the then outstanding
Registrable Securities. Notwithstanding the foregoing, a waiver or consent to depart from
the provisions hereof with respect to a matter that relates exclusively to the rights of
Holders and that does not directly or indirectly affect the rights of other Holders may be
given by Holders of all of the Registrable Securities to which such waiver or consent
relates; provided, however, that the provisions of this sentence may not be
amended, modified, or supplemented except in accordance with the provisions of the
immediately preceding sentence.

     (g) Notices. Any and all notices or other communications or
deliveries required or permitted to be provided hereunder shall be delivered as set forth in
the Purchase Agreement.

     (h) Successors and Assigns. This Agreement shall inure to the benefit of and be
binding upon the successors and permitted assigns of each of the parties and shall inure to
the benefit of each Holder. The Company may not assign its rights (except by merger) or
obligations hereunder without the prior written consent of all of the Holders of the
then-outstanding Registrable Securities. Each Holder may assign their respective rights
hereunder in the manner and to the Persons as permitted under the Purchase Agreement.

     (i) No Inconsistent Agreements. Neither the Company nor any of its Subsidiaries
has entered, as of the date hereof, nor shall the Company or any of its Subsidiaries, on or
after the date of this Agreement, enter into any agreement with respect to its securities,
that would have the effect of impairing the rights granted to the Holders in this Agreement
or otherwise conflicts with the provisions hereof. Except as set forth on Schedule
6(i), neither the Company nor any of its subsidiaries has previously entered

13

 

into any agreement granting any registration rights with respect to any of its
securities to any Person that have not been satisfied in full.

     (j) Execution and Counterparts. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each party and
delivered to the other party, it being understood that both parties need not sign the same
counterpart. In the event that any signature is delivered by facsimile transmission or by
e-mail delivery of a “.pdf” format data file, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is executed)
with the same force and effect as if such facsimile or “.pdf” signature page were an
original thereof.

     (k) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York without giving effect (to the extent
permitted by law) to any choice or conflict of law provision or rule (whether of the State
of New York or any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of New York

     (l) Construction. All questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be determined in accordance with the
provisions of the Purchase Agreement.

     (m) Cumulative Remedies. The remedies provided herein are cumulative and not
exclusive of any other remedies provided by law.

     (n) Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or
unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth
herein shall remain in full force and effect and shall in no way be affected, impaired or
invalidated, and the parties hereto shall use their commercially reasonable efforts to find
and employ an alternative means to achieve the same or substantially the same result as that
contemplated by such term, provision, covenant or restriction. It is hereby stipulated and
declared to be the intention of the parties that they would have executed the remaining
terms, provisions, covenants and restrictions without including any of such that may be
hereafter declared invalid, illegal, void or unenforceable.

     (o) Headings. The headings in this Agreement are for convenience only, do not
constitute a part of this Agreement, and shall not be deemed to limit or affect any of the
provisions hereof.

     (p) Independent Nature of Holders’ Obligations and Rights. The obligations of
each Holder hereunder are several and not joint with the obligations of any other Holder
hereunder, and no Holder shall be responsible in any way for the performance of the
obligations of any other Holder hereunder. Nothing contained herein or in any other
agreement or document delivered at any closing, and no action taken by any Holder pursuant
hereto or thereto, shall be deemed to constitute the Holders as a partnership, an

14

 

association, a joint venture or any other kind of entity, or create a presumption that
the Holders are in any way acting in concert with respect to such obligations or the
transactions contemplated by this Agreement. Each Holder shall be entitled to protect and
enforce its rights, including without limitation the rights arising out of this Agreement,
and it shall not be necessary for any other Holder to be joined as an additional party in
any proceeding for such purpose.

*************************

15

 

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

	 	 	 	 	 
	 	AKEENA SOLAR, INC.

 	 
	 	By:  	/s/
 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 

[SIGNATURE PAGE OF HOLDERS FOLLOWS]

16

 

[SIGNATURE PAGE OF HOLDERS TO AKNS RRA]

			
	Name of Holder:	 	
 

			
	Signature of Authorized Signatory of Holder:	 	
 

			
	Name of Authorized Signatory:	 	
 

			
	Title of Authorized Signatory:	 	
 

[SIGNATURE PAGES CONTINUE]

17

 

ANNEX A

Plan of Distribution

     Each Selling Stockholder (the “Selling Stockholders”) of the common stock and any of
their pledgees, assignees and successors-in-interest may, from time to time, sell any or all of
their shares of common stock on the [principal Trading Market] or any other stock exchange, market
or trading facility on which the shares are traded or in private transactions. These sales may be
at fixed or negotiated prices. A Selling Stockholder may use any one or more of the following
methods when selling shares:

	 	•	 	ordinary brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
	 
	 	•	 	block trades in which the broker-dealer will attempt to sell the shares as agent
but may position and resell a portion of the block as principal to facilitate the
transaction;
	 
	 	•	 	purchases by a broker-dealer as principal and resale by the broker-dealer for
its account;
	 
	 	•	 	an exchange distribution in accordance with the rules of the applicable
exchange;
	 
	 	•	 	privately negotiated transactions;
	 
	 	•	 	settlement of short sales entered into after the effective date of the
registration statement of which this prospectus is a part;
	 
	 	•	 	broker-dealers may agree with the Selling Stockholders to sell a specified
number of such shares at a stipulated price per share;
	 
	 	•	 	through the writing or settlement of options or other hedging transactions,
whether through an options exchange or otherwise;
	 
	 	•	 	a combination of any such methods of sale; or
	 
	 	•	 	any other method permitted pursuant to applicable law.

     The Selling Stockholders may also sell shares under Rule 144 under the Securities Act of 1933,
as amended (the “Securities Act”), if available, rather than under this prospectus.

     Broker-dealers engaged by the Selling Stockholders may arrange for other brokers-dealers to
participate in sales. Broker-dealers may receive commissions or discounts from the Selling
Stockholders (or, if any broker-dealer acts as agent for the purchaser of shares, from the
purchaser) in amounts to be negotiated, but, except as set forth in a supplement to this
Prospectus, in the case of an agency transaction not in excess of a customary brokerage commission
in compliance with NASDR Rule 2440; and in the case of a principal transaction a markup or markdown
in compliance with NASDR IM-2440.

18

 

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

     The Selling Stockholders and any broker-dealers or agents that are involved in selling the
shares may be deemed to be “underwriters” within the meaning of the Securities Act in connection
with such sales. In such event, any commissions received by such broker-dealers or agents and any
profit on the resale of the shares purchased by them may be deemed to be underwriting commissions
or discounts under the Securities Act. Each Selling Stockholder has informed the Company that it
does not have any written or oral agreement or understanding, directly or indirectly, with any
person to distribute the Common Stock. In no event shall any broker-dealer receive fees,
commissions and markups which, in the aggregate, would exceed eight percent (8%).

     The Company is required to pay certain fees and expenses incurred by the Company incident to
the registration of the shares. The Company has agreed to indemnify the Selling Stockholders
against certain losses, claims, damages and liabilities, including liabilities under the Securities
Act.

     Because Selling Stockholders may be deemed to be “underwriters” within the meaning of the
Securities Act, they will be subject to the prospectus delivery requirements of the Securities Act
including Rule 172 thereunder. In addition, any securities covered by this prospectus which
qualify for sale pursuant to Rule 144 under the Securities Act may be sold under Rule 144 rather
than under this prospectus. There is no underwriter or coordinating broker acting in connection
with the proposed sale of the resale shares by the Selling Stockholders.

     We agreed to keep this prospectus effective until the earlier of (i) the date on which the
shares may be resold by the Selling Stockholders without registration and without regard to any
volume limitations by reason of Rule 144(k) under the Securities Act or any other rule of similar
effect or (ii) all of the shares have been sold pursuant to this prospectus or Rule 144 under the
Securities Act or any other rule of similar effect. The resale shares will be sold only through
registered or licensed brokers or dealers if required under applicable state securities laws. In
addition, in certain states, the resale shares may not be sold unless they have been registered or
qualified for sale in the applicable state or an exemption from the registration or qualification
requirement is available and is complied with.

     Under applicable rules and regulations under the Exchange Act, any person engaged in the
distribution of the resale shares may not simultaneously engage in market making activities with
respect to the Common Stock for the applicable restricted period, as defined in Regulation

19

 

M, prior to the commencement of the distribution. In addition, the Selling Stockholders will
be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder,
including Regulation M, which may limit the timing of purchases and sales of shares of the common
stock by the Selling Stockholders or any other person. We will make copies of this prospectus
available to the Selling Stockholders and have informed them of the need to deliver a copy of this
prospectus to each purchaser at or prior to the time of the sale (including by compliance with Rule
172 under the Securities Act).

20

 

Annex B

AKEENA SOLAR, INC.

Selling Securityholder Notice and Questionnaire

     The undersigned beneficial owner of common stock (the “Registrable Securities”) of
Akeena Solar, Inc., a Delaware corporation (the “Company”), understands that the
Company has filed or intends to file with the Securities and Exchange Commission (the
“Commission”) a registration statement (the “Registration Statement”) for the
registration and resale under Rule 415 of the Securities Act of 1933, as amended (the
“Securities Act”), of the Registrable Securities, in accordance with the terms of the
Registration Rights Agreement (the “Registration Rights Agreement”) to which this document
is annexed. A copy of the Registration Rights Agreement is available from the Company upon request
at the address set forth below. All capitalized terms not otherwise defined herein shall have the
meanings ascribed thereto in the Registration Rights Agreement.

     Certain legal consequences arise from being named as a selling securityholder in the
Registration Statement and the related prospectus. Accordingly, holders and beneficial owners of
Registrable Securities are advised to consult their own securities law counsel regarding the
consequences of being named or not being named as a selling securityholder in the Registration
Statement and the related prospectus.

NOTICE

     The undersigned beneficial owner (the “Selling Securityholder”) of Registrable
Securities hereby elects to include the Registrable Securities owned by it in the Registration
Statement.

21

 

     The undersigned hereby provides the following information to the Company and represents and
warrants that such information is accurate:

QUESTIONNAIRE

	1.	 	Name.

	 	(a)	 	Full Legal Name of Selling Securityholder

 

	 
	 	(b)	 	Full Legal Name of Registered Holder (if not the same as (a) above) through which
Registrable Securities are held:

 

	 
	 	(c)	 	Full Legal Name of Natural Control Person (which means a natural person who
directly or indirectly alone or with others has power to vote or dispose of the securities
covered by the questionnaire):

 

	2.	 	Address for Notices to Selling Securityholder:
	 

 

 

 

 

 

 

			
	Telephone:	 	
 

			
	Fax:	 	
 

			
	Contact Person:	 	
 

	3.	 	Broker-Dealer Status:

	 	(a)	 	Are you a broker-dealer?

Yes o           No o

	 	(b)	 	If “yes” to Section 3(a), did you receive your
Registrable Securities as compensation for
investment banking services to the Company.

Yes o           No o

22

 

			
	          Note:	 	If no, the Commission’s staff has indicated that you
should be identified as an underwriter in the
Registration Statement.

	 	(c)	 	Are you an affiliate of a broker-dealer?

Yes o           No o

	 	(d)	 	If you are an affiliate of a broker-dealer, do you
certify that you bought the Registrable Securities
in the ordinary course of business, and at the time
of the purchase of the Registrable Securities to be
resold, you had no agreements or understandings,
directly or indirectly, with any person to
distribute the Registrable Securities?

Yes o           No o

			
	          Note:	 	If no, the Commission’s staff has indicated that you
should be identified as an underwriter in the
Registration Statement.

	4.	 	Beneficial Ownership of Other Securities of the Company Owned by the Selling Securityholder.

			
	          	 	Except as set forth below in this Item 4, the undersigned is not the beneficial or
registered owner of any securities of the Company other than the securities issuable
pursuant to the Purchase Agreement.

			
	                    	 	Type and Amount of other securities beneficially owned by the Selling
Securityholder:

			
		 	 

			
		 	 

			
		 	 

	5.	 	Relationships with the Company:

			
	          	 	Except as set forth below, neither the undersigned nor any of its affiliates, officers,
directors or principal equity holders (owners of 5% of more of the equity securities of the
undersigned) has held any position or office or has had any other material relationship with
the Company (or its predecessors or affiliates) during the past three years.

State any exceptions here:

			
		 	 

			
		 	 

			
		 	 

23

 

     The undersigned agrees to promptly notify the Company of any inaccuracies or changes in the
information provided herein that may occur subsequent to the date hereof at any time while the
Registration Statement remains effective.

     By signing below, the undersigned consents to the disclosure of the information contained
herein in its answers to Items 1 through 5 and the inclusion of such information in the
Registration Statement and the related prospectus and any amendments or supplements thereto. The
undersigned understands that such information will be relied upon by the Company in connection with
the preparation or amendment of the Registration Statement and the related prospectus.

     IN WITNESS WHEREOF the undersigned, by authority duly given, has caused this Notice and
Questionnaire to be executed and delivered either in person or by its duly authorized agent.

	 	 	 	 	 
	Dated:                                          	Beneficial Owner:                                                             

 	 
	 	By:  	/s/
 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 

PLEASE FAX A COPY OF THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE, AND RETURN THE ORIGINAL
BY OVERNIGHT MAIL, TO:

			
		 	David “Lad” Wallace

Akeena Solar, Inc.

605 University Avenue

Los Gatos, CA 95032

24

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