-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LsiPzWJC4jlBZA7knzC+YUU7NqzmjH19gV7dHO9Ae5GMDP11xJVGr1xgbul41Wns D5NrRJdc6JOSZAUMjs7bjA== 0000950135-99-005663.txt : 19991222 0000950135-99-005663.hdr.sgml : 19991222 ACCESSION NUMBER: 0000950135-99-005663 CONFORMED SUBMISSION TYPE: SC 13D PUBLIC DOCUMENT COUNT: 6 FILED AS OF DATE: 19991221 GROUP MEMBERS: B III-A CAPITAL PARTNERS, L.P. GROUP MEMBERS: DDJ CAPITAL MANAGEMENT LLC GROUP MEMBERS: GP III-A, LLC SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: METRETEK TECHNOLOGIES INC CENTRAL INDEX KEY: 0000882154 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-BUSINESS SERVICES, NEC [7389] IRS NUMBER: 841169358 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D SEC ACT: SEC FILE NUMBER: 005-42399 FILM NUMBER: 99777792 BUSINESS ADDRESS: STREET 1: WORLD TRADE CTR STREET 2: 1675 BROADWAY STE 2150 CITY: DENVER STATE: CO ZIP: 80202 BUSINESS PHONE: 3035925555 MAIL ADDRESS: STREET 1: 1675 BROADWAY STREET 2: SUITE 2150 CITY: DENVER STATE: CO ZIP: 80202 FORMER COMPANY: FORMER CONFORMED NAME: MARCUM NATURAL GAS SERVICES INC/NEW DATE OF NAME CHANGE: 19930328 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: DDJ CAPITAL MANAGEMENT LLC CENTRAL INDEX KEY: 0001010422 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 043300754 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D BUSINESS ADDRESS: STREET 1: 141 LINDEN STREET STREET 2: SUITE 4 CITY: WELLESLEY STATE: MA ZIP: 02181 BUSINESS PHONE: 617-283-8500 MAIL ADDRESS: STREET 1: 141 LINDEN STREET SUITE 4 STREET 2: SUITE 4 CITY: WELLESLEY STATE: MA ZIP: 02181 SC 13D 1 DDJ CAPITAL MANAGEMENT, LLC 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 SCHEDULE 13D (RULE 13D-101) UNDER THE SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. ___) Metretek Technologies, Inc. --------------------------------------------------- (Name of Issuer) Common Stock, $.01 Par Value --------------------------------------------------- (Title of Class of Securities) 59159Q107 --------------------------------------------------- (CUSIP Number) Wendy Schnipper Clayton, Esq. DDJ Capital Management, LLC 141 Linden Street, Suite 4 Wellesley, MA 02482-7910 781-283-8500 ------------------------------------------------------------------------------- (Name, address and telephone number of person authorized to receive notices and communications) December 9, 1999 ------------------------------------------------------- (Date of Event which Requires filing of this Statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition which is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-1(b) (3) or (4), check the following box [ ]. (Continued on following pages) (Page 1 of 11 Pages) 2 SCHEDULE 13D - ------------------- ------------------ CUSIP NO. 59159Q107 PAGE 2 OF 11 PAGES - -------------------------------------------------------------------------------- 1 NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON DDJ Capital Management, LLC 04-3300754 - -------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* SEE ITEM #5 (a) [X] (b) [ ] - -------------------------------------------------------------------------------- 3 SEC USE ONLY - -------------------------------------------------------------------------------- 4 SOURCE OF FUNDS* OO - -------------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) or 2(e) [ ] - -------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION Commonwealth of Massachusetts - -------------------------------------------------------------------------------- 7 SOLE VOTING POWER 290,000 NUMBER OF -------------------------------------------- SHARES 8 SHARED VOTING POWER BENEFICIALLY OWNED BY EACH -------------------------------------------- REPORTING 9 SOLE DISPOSITIVE POWER PERSON WITH: 290,000 -------------------------------------------- 10 SHARED DISPOSITIVE POWER - -------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 290,000 - -------------------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* [ ] - -------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 7.7% - -------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON * IA ================================================================================ *SEE INSTRUCTIONS BEFORE FILLING OUT! 3 SCHEDULE 13D - ------------------- ------------------ CUSIP NO. 59159Q107 PAGE 3 OF 11 PAGES - -------------------------------------------------------------------------------- 1 NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON B III-A Capital Partners, L.P. (pending) - -------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* SEE ITEM #5 (a) [X] (b) [ ] - -------------------------------------------------------------------------------- 3 SEC USE ONLY - -------------------------------------------------------------------------------- 4 SOURCE OF FUNDS* WC - -------------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) or 2(e) [ ] - -------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION Delaware - -------------------------------------------------------------------------------- 7 SOLE VOTING POWER 48,400 NUMBER OF -------------------------------------------- SHARES 8 SHARED VOTING POWER BENEFICIALLY OWNED BY EACH -------------------------------------------- REPORTING 9 SOLE DISPOSITIVE POWER PERSON WITH: 48,400 -------------------------------------------- 10 SHARED DISPOSITIVE POWER - -------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 48,400 - -------------------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* [ ] - -------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 1.3% - -------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON * PN ================================================================================ *SEE INSTRUCTIONS BEFORE FILLING OUT! 4 SCHEDULE 13D - ------------------- ------------------ CUSIP NO. 59159Q107 PAGE 4 OF 11 PAGES - -------------------------------------------------------------------------------- 1 NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON GP III-A, LLC (pending) - -------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* SEE ITEM #5 (a) [X] (b) [ ] - -------------------------------------------------------------------------------- 3 SEC USE ONLY - -------------------------------------------------------------------------------- 4 SOURCE OF FUNDS* OO - -------------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) or 2(e) [ ] - -------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION Delaware - -------------------------------------------------------------------------------- 7 SOLE VOTING POWER 48,400 NUMBER OF -------------------------------------------- SHARES 8 SHARED VOTING POWER BENEFICIALLY OWNED BY EACH -------------------------------------------- REPORTING 9 SOLE DISPOSITIVE POWER PERSON WITH: 48,400 -------------------------------------------- 10 SHARED DISPOSITIVE POWER - -------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 48,400 - -------------------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* [ ] - -------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 1.3% - -------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON * OO ================================================================================ *SEE INSTRUCTIONS BEFORE FILLING OUT! 5 SCHEDULE 13D CUSIP NO. 59159Q107 PAGE 5 OF 11 PAGES ITEM 1. SECURITY AND ISSUER: This Schedule 13D dated December 9, 1999 ("Schedule 13D") is filed with the Securities and Exchange Commission by DDJ Capital Management, LLC, a Massachusetts limited liability company, and certain affiliates. This filing of Schedule 13D is not, and should not be deemed to be, an admission that the Schedule 13D or any Amendment thereto is required to be filed. This Schedule 13D relates to shares of the Common Stock, $.01 par value (the "Shares") of Metretek Technologies, Inc. (the "Company"). The principal executive offices of the Company are located at 1675 Broadway, Suite 2150, Denver, Colorado, 80202. ITEM 2. IDENTITY AND BACKGROUND: This statement is being filed jointly by DDJ Capital Management, LLC ("DDJ"), a Massachusetts limited liability company, B III-A Capital Partners, L.P., a Delaware limited partnership (the "Fund"), and GP III-A, LLC, a Delaware limited liability company. Each of the aforementioned entities shall be collectively referred to as the "DDJ Affiliates." GP III-A, LLC is the general partner of, and DDJ is the investment manager for, the Fund. DDJ is also the investment manager for an account established for an institutional investor (the "Account") and an investment advisor to DDJ Canadian High Yield Fund, a closed-end investment trust established under the laws of the Province of Ontario Canada ("DDJ Canadian"). The Shares described herein are owned by one or more of the Fund, the Account and DDJ Canadian. The principal office of each of DDJ and the DDJ Affiliates are located at 141 Linden Street, Suite 4, Wellesley, Massachusetts 02482. The name, residence, or business address, principal occupation or employment and citizenship of each of the executive officers and directors of DDJ and each of the DDJ Affiliates are set forth on Schedule A hereto. Within the past five years, none of DDJ or the DDJ Affiliates named in this Item 2 or, to the best of its knowledge, the persons listed on Schedule A has been convicted in any criminal proceeding (excluding traffic violations or similar misdemeanors) or has been a party to any civil proceeding and as a result thereof was or is subject to any judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to federal or state securities laws or finding any violations with respect to such laws. 6 SCHEDULE 13D CUSIP NO. 59159Q107 PAGE 6 OF 11 PAGES ITEM 3. SOURCES AND AMOUNT OF FUNDS OR OTHER CONSIDERATION: On December 9, 1999, the Fund, DDJ Canadian and the Account (collectively, the "Funds") purchased an aggregate of 1,450 Units issued by the Company pursuant to a private placement for a purchase price of $2,000 per Unit for an aggregate purchase price of $2,900,000. Each Unit consists of one share of Series B Preferred Stock, 200 shares of Common Stock and one Warrant to purchase 100 shares of Common Stock. The Units are immediately detachable into their component securities. The Fund purchased 242 Units for cash; DDJ Canadian purchased 725 Units for cash; and the Account purchased 483 Units for cash. Pursuant to the terms of the Certificate of Designation of Series B Preferred Stock, each share of Series B Preferred Stock may be converted any time after June 9, 2000 into that number obtained by dividing the Conversion Value ($1,000 plus accrued and unpaid dividends) by $5.9334 (the "Conversion Price"), subject to adjustment pursuant to certain antidilution and reset provisions. The Warrants may be exercised at any time after March 9, 2000 through December 9, 2004. The initial exercise price for the Warrants is $6.7425 per share, subject to adjustment pursuant to certain antidilution and reset provisions. Given that the Series B Preferred Stock and Warrants may not be converted or exercised within 60 days of the date of this filing, the shares of Common Stock issuable upon conversion of the Series B Preferred Stock and exercise of the Warrants have not been included in the amounts shown in this filing. ITEM 4. PURPOSE OF TRANSACTION: The Shares were purchased in order to establish an equity interest in the Company in pursuit of specified investment objectives established by the investors in the Funds. DDJ and the DDJ Affiliates may continue to have the Fund, the Account and DDJ Canadian purchase Shares subject to a number of factors, including, among others, the availability of Shares for sale at what they consider to be reasonable prices and other investment opportunities that may be available to the Fund, the Account and DDJ Canadian. DDJ and the DDJ Affiliates intend to review continuously the equity position of the Fund, the Account and DDJ Canadian in the Company. Depending upon future evaluations of the business prospects of the Company and upon other developments, including, but not limited to, general economic and business conditions and money market and stock market conditions, DDJ and the DDJ Affiliates may determine to cease making additional purchases of Shares or 7 SCHEDULE 13D CUSIP NO. 59159Q107 PAGE 7 OF 11 PAGES securities convertible into or exercisable for Shares or to increase or decrease the equity interest in the Company by acquiring additional Shares or securities convertible into or exercisable for Shares, or by disposing of all or a portion of the Shares or securities convertible into or exercisable for Shares. As described in Item 3, the Funds own Series B Preferred Stock and Warrants entitling them to convert into, or exercise for, shares of Common Stock pursuant to the terms of such securities. Neither security is convertible or exercisable within 60 days of the date hereof. Pursuant to the Securities Purchase Agreement entered into by and among the Company and each of the Funds dated December 9, 1999 (the "Securities Purchase Agreement"), the Funds have agreed to purchase an aggregate of an additional 1,550 Units, provided certain conditions have been met. Pursuant to the Securities Purchase Agreement, the Company agreed to file a proxy statement and take all necessary actions to call a meeting of its stockholders to approve the issuance of additional Units and the Common Stock to be issued upon exercise of the warrants and conversion of the Series B Preferred Stock. Under the terms of the Certificate of Designation of the Series B Preferred Stock, as long as there are at least 2,000 shares of the Series B Preferred Stock outstanding, the holders thereof are entitled to elect one director to the Board of Directors. The Funds currently intend to participate in the selection of a director in accordance with and to extent permitted by such provision. In addition, pursuant to a side letter among the Company and the Funds, the Company agreed to seek to provide, as a remedy to the holders of the Series B Preferred Stock in the event the Company defaults in its obligations to redeem the Series B Preferred Stock, the right of holders of Series B Preferred Stock to elect a majority of the Board of Directors of the Company. Except as otherwise described in this Schedule 13D, none of DDJ or the DDJ Affiliates has any present plan or proposal which relates to or would result in (i) an extraordinary corporate transaction, such as a merger, reorganization, liquidation, or sale or transfer of a material amount of assets of or involving the Company or any of its subsidiaries, (ii) any change in the Company's present Board of Directors or management, (iii) any material changes in the Company's present capitalization or dividend policy or any other material change in the Company's business or corporate structure, (iv) any change in the Company's charter or bylaws, (v) the Company's Shares becoming eligible for termination of their registration pursuant to Section 12(g)(4) of the 1934 Act, or (vi) any similar action. 8 SCHEDULE 13D CUSIP NO. 59159Q107 PAGE 8 OF 11 PAGES ITEM 5. INTEREST IN SECURITIES OF ISSUER: (a) B III-A Capital Partners, L.P. owns, and GP III-A, LLC and DDJ beneficially own, as general partner and investment manager, respectively of B III-A Capital Partners, L.P. 48,400 Shares or approximately 1.3% of the Company. DDJ, as investment manager to the Account, may be deemed to beneficially own 96,600 Shares, or approximately 2.6% of the outstanding Shares of the Company. DDJ, as investment advisor to DDJ Canadian, may be deemed to beneficially own 145,000 Shares, or approximately 3.8% of the outstanding Shares of the Company. Accordingly, DDJ may be deemed to be the beneficial owner of 290,000 Shares, or approximately 7.7% of the outstanding Shares of the Company. (b) Each of the aforementioned entities has sole power to vote and to dispose of the Shares so indicated. (c) Except as set forth in Item 3, neither DDJ nor any of the DDJ Affiliates, and, to the best knowledge of DDJ and the DDJ Affiliates, none of the persons named in Schedule A hereto, have effected any transaction in the Shares during the past sixty days. ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO SECURITIES OF THE ISSUER: Pursuant to the terms of the Securities Purchase Agreement, the Funds agreed to purchase an aggregate of an additional 1,550 Units, provided certain conditions have been met. The Company is obligated to redeem the Series B Preferred Stock on December 9, 2004 and may redeem such shares earlier under certain circumstances. In addition, under the Securities Purchase Agreement the Funds have the right, under certain circumstances, to put a portion of their Warrants and shares of Series B Preferred Stock to the Company. The Funds are parties to a Registration Rights Agreement by and among the Company dated as of December 9, 1999, obligating the Company to register the Shares, the Series B Preferred Stock and the Shares underlying the Series B Preferred Stock and the Warrants under the Securities Act of 1933, as amended. Other than as described in this Schedule 13D, neither DDJ nor any of the DDJ Affiliates and, to the best knowledge of DDJ and the DDJ Affiliates, none of the persons named in Schedule A hereto have any contract, arrangement, understanding or relationship with any person with respect to any securities of the Company, including respecting voting or transfer of Company securities or joint venture, finder's fee or the like. The Fund, the Account and DDJ Canadian may from time to time own debt securities issued by the Company, and may from time to time purchase and/or sell such debt securities. 9 SCHEDULE 13D CUSIP NO. 59159Q107 PAGE 9 OF 11 PAGES ITEM 7. MATERIAL TO BE FILED AS EXHIBITS: Exhibit 1 - Securities Purchase Agreement dated as of December 9, 1999 by and between the Funds and the Company; Exhibit 2 - Certificate of Designation of Series B Preferred Stock, filed with the Secretary of State of the State of Delaware on December 9, 1999; Exhibit 3 - Form of Common Stock Purchase Warrant dated as of December 9, 1999; Exhibit 4 - Side Letter dated as of December 9, 1999 by and between DDJ Capital Management, LLC and the Company; Exhibit 5 - Side letter dated December 20, 1999 by and between DDJ Capital Management, LLC and the Company. 10 SCHEDULE 13D CUSIP NO. 59159Q107 PAGE 10 OF 11 PAGES SIGNATURE: ========== After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. DDJ CAPITAL MANAGEMENT, LLC BY: /S/ WENDY SCHNIPPER CLAYTON -------------------------------- WENDY SCHNIPPER CLAYTON ATTORNEY-IN-FACT* * LIMITED POWER OF ATTORNEY FILED WITH THE SEC ON JULY 29, 1998 WITH FRONTIER AIRLINES SCHEDULE 13D FRONTIER AIRLINES INC. 11 SCHEDULE 13D CUSIP NO. 56323309 PAGE 11 OF 11 PAGES SCHEDULE A ========== The name and present principal occupation or employment of each executive officer and member of DDJ Capital Management, LLC and each director of the DDJ Affiliates are set forth below. The business address of each person and the address of the corporation or organization in which such employment is conducted is 141 Linden Street, Suite 4, Wellesley, MA 02482. Mr. Breazzano and Ms. Mencher are U. S. citizens. NAME PRINCIPAL OCCUPATION OR EMPLOYMENT ==== ================================== David J. Breazzano Principal of DDJ Capital Management, LLC, DDJ Galileo, LLC, DDJ Copernicus, LLC and GP III-A, LLC Judy K. Mencher Principal of DDJ Capital Management, LLC, DDJ Galileo, LLC, DDJ Copernicus, LLC, GP III-A, LLC, Vice President of DDJ Overseas Corporation and Director of Kepler Overseas Corp. EX-1 2 SECURITIES PURCHASE AGREEMENT 1 EXHIBIT 1 ================================================================================ METRETEK TECHNOLOGIES, INC. ------------------------ SECURITIES PURCHASE AGREEMENT ------------------------ UP TO 6,000 UNITS EACH CONSISTING OF ONE SHARE OF SERIES B PREFERRED STOCK, 200 SHARES OF COMMON STOCK AND ONE WARRANT TO PURCHASE 100 SHARES OF COMMON STOCK OF METRETEK TECHNOLOGIES, INC. Dated as of December 9, 1999 ================================================================================ 2 TABLE OF CONTENTS
Page 1. PURCHASE AND SALE OF THE SHARES..........................................................................1 1.1. Description of Securities.......................................................................1 1.2. Initial Purchase and Sale.......................................................................2 1.3. Second Purchase and Sale........................................................................2 1.4. Closing Expenses................................................................................2 1.5. Use of Proceeds.................................................................................2 2. INITIAL CLOSING AND SECOND CLOSING.......................................................................3 2.1. Initial Closing.................................................................................3 2.2. Second Closing..................................................................................4 3. CONDITIONS OF OBLIGATIONS OF THE PURCHASERS AT THE CLOSING...............................................4 3.1. Representations and Warranties..................................................................4 3.2. Authorization...................................................................................5 3.3. Certificate of Designations.....................................................................5 3.4. Registration Rights Agreement...................................................................5 3.5. Opinion of Counsel..............................................................................5 3.6. Special Stockholders Meeting; Nasdaq Approval...................................................5 3.7. All Proceedings Satisfactory....................................................................5 3.8. No Violation or Injunction......................................................................5 3.9. Delivery of Documents...........................................................................6 3.10. Absence of Certain Changes or Events............................................................6 3.11. Compliance With Securities Laws.................................................................6 3.12. Government and Third Party Permits, Consents, Etc...............................................7 3.13. Stockholder Rights Agreement....................................................................7 3.14. Payment of Out-of-Pocket Expenses...............................................................7 4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY............................................................8 4.1. Organization and Existence......................................................................8 4.2. Power and Authority.............................................................................8 4.3. No Violation....................................................................................8 4.4. Licenses, etc...................................................................................9 4.5. Litigation......................................................................................9 4.6. Commission Filings.............................................................................10 4.7. Material Adverse Change........................................................................11 4.8. Limitation on Subsidiary Payment Restrictions..................................................11 4.9. Tax Returns and Payments.......................................................................11 4.10. Investment Company Act; Public Utility Holding Company Act; Divesture Commerce Act...................................................................................12 4.11. Corporate Structure; Capitalization............................................................12
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Page 4.12. Environmental Matters..........................................................................13 4.13. Properties and Assets..........................................................................13 4.14. No Default.....................................................................................14 4.15. Compliance With Law............................................................................14 4.16. Brokers' Fees..................................................................................14 4.17. Books and Records..............................................................................14 4.18. Outstanding Debt...............................................................................14 4.19. Other Relationships............................................................................14 4.20. Employee Programs..............................................................................15 4.21. Private Offerings..............................................................................17 4.22. Insurance......................................................................................17 4.23. Employment Practices...........................................................................17 4.24. Material Contracts and Obligations.............................................................18 4.25. Intellectual Property..........................................................................18 4.26. Accounts Receivable............................................................................20 5. CONDITIONS OF OBLIGATIONS OF THE COMPANY AT THE CLOSING.................................................20 5.1. Representations and Warranties.................................................................20 5.2. Government and Third Party Permits, Consents, Etc..............................................20 5.3. Certificate of Designations....................................................................20 5.4. Special Stockholders Meeting; Nasdaq Approval..................................................20 5.5. No Violation or Injunction.....................................................................21 6. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.........................................................21 6.1. Status.........................................................................................21 6.2. Power and Authority; Enforceability............................................................21 6.3. Securities Representations.....................................................................22 6.4. Margin Compliance..............................................................................22 6.5. Source of Funds................................................................................23 6.6. Brokers' Fees..................................................................................23 6.7. Post-Reset Standstill..........................................................................23 7. COVENANTS OF THE COMPANY................................................................................23 7.1. Special Stockholders Meeting...................................................................23 7.2. General Covenants of the Company...............................................................24 7.3. Compliance Certificate.........................................................................26 7.4. Restrictions on Action by the Company..........................................................27 7.5. Board of Directors.............................................................................28 7.6. Exchange at Second Closing.....................................................................28 8. RESTRICTIONS ON TRANSFER................................................................................28 8.1. Restrictive Legends............................................................................28 8.2. Removal of Legends.............................................................................29
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Page 8.3. Transfer Information...........................................................................29 9. DEFINITIONS.............................................................................................29 10. INDEMNIFICATION.........................................................................................33 10.1. Indemnification; Expenses, Etc.................................................................33 10.2. Survival of Representations and Warranties.....................................................35 11. MISCELLANEOUS...........................................................................................35 11.1. Notices, Etc...................................................................................35 11.2. Severability...................................................................................36 11.3. Amendment and Waiver...........................................................................37 11.4. Successors and Assigns.........................................................................37 11.5. Descriptive Headings...........................................................................37 11.6. Governing Law..................................................................................37 11.7. Service of Process.............................................................................37 11.8. Counterparts...................................................................................38 11.9. Disclosure to Other Persons....................................................................38 11.10. Waiver of Jury Trial...........................................................................38
(iii) 5 SCHEDULES Schedule 1.2 Initial Purchase Schedule 1.3 Second Purchase Schedule 1.5 Use of Proceeds Schedule 3.10 Absence of Certain Changes Schedule 4.1 Subsidiaries; Qualifications Schedule 4.6 Commission Reports Schedule 4.7 Material Adverse Change Schedule 4.8 Subsidiary Payment Restrictions Schedule 4.9 Tax Matters Schedule 4.11 Capitalization Schedule 4.12 Environmental Matters Schedule 4.13 Properties and Assets Schedule 4.16 Finder's Fees Schedule 4.18 Outstanding Debt Schedule 4.19 Other Relationships Schedule 4.20 Employee Programs Schedule 4.22 Insurance Schedule 4.24 Material Contracts Schedule 4.25 Intellectual Property Schedule 4.26 Accounts Receivable Schedule 7.1(b) Stockholders Meeting Matters Schedule 7.4 Subsidiary Security Issuances Schedule L Liens (iv) 6 EXHIBITS EXHIBIT A Certificate of Designations EXHIBIT B Registration Rights Agreement EXHIBIT C Opinion of Kegler, Brown, Hill & Ritter Co., LPA. EXHIBIT D Indemnification Agreement EXHIBIT E Amendment to Rights Agreement EXHIBIT F Joinder Agreement (v) 7 SECURITIES PURCHASE AGREEMENT SECURITIES PURCHASE AGREEMENT (the "AGREEMENT") dated as of December 9, 1999 by and among METRETEK TECHNOLOGIES, INC., a Delaware corporation (the "COMPANY"), and each of the purchasers listed on the signature pages hereto (each, a "PURCHASER," and collectively, the "PURCHASERS"). Unless otherwise defined, capitalized terms used in this Agreement are defined in Section 9 hereof; references to a "SCHEDULE" or an "EXHIBIT" are, unless otherwise specified, to a Schedule or an Exhibit attached to this Agreement; references to a "section," a "subsection," a "paragraph" or a "clause" are, unless otherwise specified, to a section, a subsection, a paragraph or a clause, respectively, of this Agreement. WITNESSETH WHEREAS, the Company wishes to sell up to 6,000 investment units ("UNITS") each consisting of (i) one share of its "Series B Preferred Stock" par value $.01 per share (the "CONVERTIBLE PREFERRED STOCK"), (ii) 200 shares of its common stock, par value $.01 per share ("COMMON STOCK"), and (iii) warrants to purchase 100 shares of Common Stock ("WARRANTS"), in each case, in the amounts and on the terms and conditions set forth herein; WHEREAS, the Company has duly authorized the issuance of up to 6,000 shares of Convertible Preferred Stock, the issuance of up to 1,200,000 shares of Common Stock, the issuance of Warrants to purchase up to 600,000 shares of Common Stock, and the execution and delivery of this Agreement, upon the terms and subject to the conditions set forth herein; and WHEREAS, the Purchasers are willing to purchase and the Company is willing to sell the aggregate number of shares of Convertible Preferred Stock and Common Stock and Warrants set forth herein; NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. PURCHASE AND SALE OF THE SHARES. 1.1. DESCRIPTION OF SECURITIES. For purposes of this Agreement, the shares of Convertible Preferred Stock to be acquired by the Purchasers from the Company hereunder are referred to as the "CONVERTIBLE PREFERRED SHARES," the shares of Common Stock to be acquired by the Purchasers from the Company hereunder are referred to as the "INITIAL COMMON SHARES," the shares of Common Stock issuable upon conversion of the Convertible Preferred Shares and exercise of the Warrants are referred to as the "CONVERSION SHARES," and the Convertible Preferred Shares, the Initial Common Shares, the Warrants and the Conversion Shares are sometimes referred to herein as the "SECURITIES." 8 1.2. INITIAL PURCHASE AND SALE. Upon the terms and subject to the conditions set forth herein, and in reliance on the representations and warranties set forth in Section 4 hereof, each Purchaser shall severally purchase from the Company, and the Company shall issue and sell to each of the Purchasers, at the Initial Closing (as defined in Section 2.1), the number of Units set forth opposite the name of such Purchaser in SCHEDULE 1.2 at a purchase price of $2,000 per Investment Unit for an aggregate purchase price in the amount set forth opposite the name of such Purchaser in SCHEDULE 1.2, and the Company shall without further action grant the Purchasers the rights set forth herein. All Units sold hereunder shall be immediately detachable into their component Securities. All payments under this Agreement shall be made by wire transfer of immediately available funds to an account designated by the Company. 1.3. SECOND PURCHASE AND SALE. Upon the terms and subject to the conditions contained herein, and in reliance on the representations and warranties set forth in Sections 4 and 5, on the fifth business day after the Special Stockholders' Meeting (as defined on Section 7.1(b)) or such other place and on such date as agreed upon by the parties hereto, each Purchaser shall severally purchase from the Company, and the Company shall issue and sell to each of the Purchasers, at the Second Closing (as defined in Section 2.2), the number of Units set forth opposite the name of such Purchaser in SCHEDULE 1.3 (which Schedule will be completed after the date of this Agreement pursuant to the joinder agreement attached hereto as EXHIBIT F) at a purchase price of $2,000 per Unit for an aggregate purchase price in the amount set forth opposite the name of such Purchaser in SCHEDULE 1.3. Such Units are referred to herein as the "Additional Units." 1.4. CLOSING EXPENSES. The Company agrees to pay, prior to or on the Initial Closing and Second Closing, as applicable, to the Purchasers an amount equal to all reasonable documented fees, expenses and disbursements of the Purchasers and the Purchasers' Special Counsel reflected in statements of the Purchasers and such counsel rendered prior to or on the date of such Closing; PROVIDED, HOWEVER, that such statements provided prior to or on the such date may be a good faith estimate of such expenses and the Purchasers and Purchasers' Special Counsel reserve the right to balance such statements within thirty (30) days following such date. 1.5. USE OF PROCEEDS. The proceeds from the issuance of the Units at the Initial Closing and Second Closing shall be used by the Company in accordance with SCHEDULE 1.5. 1.6. NASDAQ LIMITATION. (a) Notwithstanding any provision to the contrary in this Agreement, the Certificate of Designations for the Convertible Preferred Stock or in the Warrants, in no event shall (i) Purchasers be entitled to convert any shares of Convertible Preferred Stock into shares of Common Stock, or to purchase any shares of Common Stock upon the exercise of any Warrants, to the extent that, after such conversion or exercise, the sum of (A) the number of shares of Common Stock issued by the Company in connection with the transactions contemplated by this Agreement, and (B) the number of shares of Common Stock issuable upon the conversion of the shares of Convertible Preferred Stock or upon the exercise of the 2 9 Warrants with respect to which the determination of this provision is being made, would equal or exceed 696,809 shares of Common Stock, such amount being equal to 20.0% of the shares of Common Stock of the Company outstanding on the date prior to the date of this Agreement, unless and until the stockholders of the Company authorize and approve the Stockholder Meeting Matter at the Special Stockholders' Meeting. (b) If at any time the Purchasers are prohibited from converting Convertible Preferred Stock or exercising Warrants by the provisions of Section 1.6(a), then (i) the Company shall use its best efforts to obtain all approvals (including without limitation stockholder approvals) that may be necessary to remove such prohibition and (ii) the Purchasers shall have the right, but not the obligation, at any time and from time to time as long as the prohibition of Section 1.6(a) is in effect, to sell to the Company, and the Company shall be obligated to purchase upon receiving written notice thereof from the Purchasers (the "Put Notice"), the Purchasers' pro rata share of any or all shares of Convertible Preferred Stock and Warrants that the Purchasers may not then convert or exercise by reason of Section 1.6(a) (a "Put"). The closing of a Put shall take place by mail within five (5) business days after receipt by the Company of the related Put Notice. At the closing of a Put, the Purchasers shall deliver (1) a certificate or certificates representing at least that number of shares of Convertible Preferred Stock to be purchased by the Company and (2) certificates representing at least that number of Warrants to be purchased by the Company, and the Company shall deliver to the Purchasers (i) by wire transfer of immediately available funds to an account or accounts designated in writing by the Purchasers, the Put Purchase Price and (ii) certificates and Warrants representing the balance of the shares of Convertible Preferred Stock and Warrants not purchased hereunder but delivered pursuant to subclause (1) immediately above. The "Put Purchase Price" shall be equal to the sum of (1) the number of shares of Convertible Preferred Stock being purchased by the Company multiplied by the Convertible Preferred Stock Put Price, plus (2) the number of Warrants being purchased by the Company multiplied by the Warrant Put Price. The "Convertible Preferred Stock Put Price" shall be equal to the greater of (A) the Convertible Liquidation Preference Amount (as defined in Section A.4(a) of the Certificate of Designations) and (B) the product of (x) the number of shares into which one share of Convertible Preferred Stock may be converted (assuming the prohibition of Section 1.6(a) is not in effect) times (y) the Current Market Price (as defined in the Warrants). The "Warrant Put Price" shall be equal to the Current Market Price (as defined in the Warrants) minus the Exercise Price (as defined in the Warrants) then in effect. (c) If at any time the Company is prohibited by the terms of any agreement with its senior lender from purchasing shares of Convertible Preferred Stock or Warrant under Section 1.6(b), then from and after the date of the applicable Put Notice, the Company shall pay to the Purchasers exercising the Put Notice, compounding on a quarterly basis (pro-rated for the first quarter) on each March 31, June 30, September 30 and December 31, an amount equal to the Rate (as defined below) times the applicable Put Purchase Price (calculated as if the purchase 3 10 were not prohibited). The "Rate" shall initially be one percent (1%) and shall increase at the beginning of each quarter by a further one percent (1%) up to the maximum amount permitted by law until the securities covered in the Put Notice have been duly redeemed, converted or exercised. 2. INITIAL CLOSING AND SECOND CLOSING. 2.1. INITIAL CLOSING. The closing of the purchase and sale of the Units pursuant to Section 1.2 hereof and the other transactions contemplated hereby (the "INITIAL CLOSING") shall take place at the offices of Goodwin, Procter & Hoar LLP, Exchange Place, Boston, Massachusetts on the date hereof, or such other place and on such date as agreed upon by the parties hereto (such date on which the Closing shall have actually occurred, the "INITIAL CLOSING DATE"). At or before the Initial Closing, the Company will take all steps necessary to have the Certificate of Designations attached hereto as EXHIBIT A (the "CERTIFICATE OF DESIGNATIONS") duly approved by its Board of Directors and, if necessary, its stockholders, and duly filed with the Secretary of State of the State of Delaware. At the Initial Closing, the Company will deliver or cause to be delivered to each of the Purchasers, a single share certificate representing that number of shares of Convertible Preferred Stock specified opposite such Purchaser's name on SCHEDULE 1.2, a single share certificate representing that number of shares of Common Stock specified opposite such Purchaser's name on SCHEDULE 1.2, and a warrant certificate or certificates exercisable for the aggregate number of shares of Common Stock specified opposite such Purchaser's name on SCHEDULE 1.2 in such denominations as such Purchaser may specify, each dated the Initial Closing Date and registered in such Purchaser's name or its nominee as directed by the Purchaser, against payment in full of the purchase price therefor in the amount specified in Section 1.2 hereof. 2.2. SECOND CLOSING. The closing of the purchase and sale of the Additional Units pursuant to Section 1.3 hereof (the "SECOND CLOSING") shall take place at the offices of Goodwin, Procter & Hoar LLP, Exchange Place, Boston, Massachusetts on the fifth business day after the Special Stockholders' Meeting (as defined in Section 7.1(b), or such other place and on such date as agreed upon by the parties hereto (the "SECOND CLOSING DATE"). At the Second Closing, the Company will deliver or cause to be delivered to each of the Purchasers, a single share certificate representing that number of shares of Convertible Preferred Stock specified opposite such Purchaser's name on SCHEDULE 1.3, a single share certificate representing that number of shares of Common Stock specified opposite such Purchaser's name on SCHEDULE 1.3, and a warrant certificate or certificates exercisable for the aggregate number of shares of Common Stock specified opposite such Purchaser's name on SCHEDULE 1.3 in such denominations as such Purchaser may specify, each dated the Second Closing Date and registered in such Purchaser's name or its nominee as directed by such Purchaser, against payment of the purchase price therefor in the amount specified in Section 1.3 hereof. 4 11 3. CONDITIONS OF OBLIGATIONS OF THE PURCHASERS AT THE CLOSING. The Purchasers' obligation to purchase and pay for the Units at the Initial Closing and the Second Closing, as applicable (in either case, referred to hereinafter as the "Closing") shall be subject to compliance by the Company with its agreements and covenants herein contained required to be performed prior to or concurrent with the applicable Closing and to the fulfillment, to the Purchasers' satisfaction, on or before and at the Initial Closing Date or the Second Closing Date, as applicable (in either case, referred to hereinafter as the "Closing Date") of the following conditions, provided that any or all of the following conditions may be waived with respect to a particular Closing, in whole or in part, by the Purchasers in their sole and absolute discretion: 3.1. REPRESENTATIONS AND WARRANTIES. The representations and warranties of the Company made in Section 4 hereof shall have been true and correct when made and on and as of the Closing Date (except to the extent any of the representations and warranties specifically apply or relate to a prior date, in which case such representations and warranties shall have been true and correct as of such prior date). 3.2. AUTHORIZATION. The Board of Directors and, to the extent required by law, the rules of the Nasdaq Stock Market Inc.'s National Market ("NASDAQ") or the terms of the Company's Charter Documents, the stockholders of the Company shall have duly adopted resolutions in form reasonably satisfactory to the Purchasers authorizing, and shall have taken all action necessary for the purpose of, consummating the transactions contemplated hereby and in the Other Transaction Documents in accordance with the terms hereof and thereof, respectively. 3.3. CERTIFICATE OF DESIGNATIONS. The Board of Directors and, if necessary, the stockholders of the Company shall have duly adopted the Certificate of Designations and the Certificate of Designations shall have been duly filed with the Secretary of State of the State of Delaware. 3.4. REGISTRATION RIGHTS AGREEMENT. The Company and the Purchasers shall have duly entered into the Registration Rights Agreement substantially in the form of Exhibit B, the Purchasers shall have received fully-executed counterparts of the Registration Rights Agreement, and such agreement shall be in full force and effect. 3.5. OPINION OF COUNSEL. The Purchasers shall have received from counsel for the Company, Kegler, Brown, Hill & Ritter Co., L.P.A., dated the Closing Date, an opinion in the form attached hereto as EXHIBIT C. 3.6. SPECIAL STOCKHOLDERS MEETING; NASDAQ APPROVAL. On or prior to the Second Closing Date, the Company's stockholders shall have duly approved by the requisite vote under applicable Nasdaq rules the Stockholder Meeting Matter (as defined in Section 7.1(b)) at the Special Stockholders Meeting. 5 12 3.7. ALL PROCEEDINGS SATISFACTORY. All corporate, organizational and other proceedings taken prior to or at the Closing in connection with the transactions contemplated by this Agreement and the Other Transaction Documents, and all documents and evidences incident hereto and thereto, shall be reasonably satisfactory in form and substance to the Purchasers, and the Purchasers shall have received copies thereof and other materials as they may reasonably request in connection therewith. 3.8. NO VIOLATION OR INJUNCTION. The consummation of the transactions contemplated by this Agreement and the Other Transaction Documents shall not be in violation of any law or regulation and shall not be subject to any injunction, stay or restraining order that has not been reversed or overturned. 3.9. DELIVERY OF DOCUMENTS. The Company shall have executed and delivered to the Purchasers (or shall have caused to be executed and delivered to the Purchasers by the appropriate Persons) the following: (a) Certificate(s) for the Convertible Preferred Shares; (b) Certificate(s) for the Initial Common Shares; (c) Warrants executed by the Company; (d) a certificate of the Secretary of the Company setting forth (i) copies of the resolutions referred to in Section 3.2 hereof and confirming that such resolutions have not been modified, rescinded or amended and are in full force and effect as of the Closing Date, (ii) a copy of the Company's Certificate of Incorporation (certified by the Secretary of State of the State of Delaware as of a recent date) and By-laws, each as in effect on and immediately following the Closing Date, and (iii) such other matters as the Purchasers may reasonably request; (e) a certificate as to the matters described in Section 3.1 hereof executed by the President, the Chief Financial Officer or any Vice President of the Company; (f) a copy of a certificate issued by the Secretary of State of the State of Delaware certifying that the Company is in good standing as of a date reasonably close to the Closing Date; and (g) a copy of a certificate issued by the appropriate Secretary of State of the state of organization of each Subsidiary certifying that, to the extent applicable, each such Subsidiary is in good standing in such state. 3.10. ABSENCE OF CERTAIN CHANGES OR EVENTS. Since September 30, 1999, except as set forth on SCHEDULE 3.10, the Company shall have conducted its business only in the ordinary course and there shall not have been any event, act or condition which has had, or can 6 13 reasonably be expected to have, a Material Adverse Effect. As a condition to the Second Closing, (i) market conditions at the time of the Second Closing shall not be such that, in the reasonable judgment of the Purchasers, the purchase and sale of the Additional Units on the terms set forth in this Agreement does not reflect appropriate market terms and (ii) the Company shall have sold at the Second Closing a number of Units equal to 6,000 minus the number of Units sold at the Initial Closing. 3.11. COMPLIANCE WITH SECURITIES LAWS. The offering, issuance and sale of the Convertible Preferred Shares, the Initial Common Shares and the Warrants under this Agreement shall have complied with (or be exempt from) all applicable requirements of the U.S. Federal securities laws and any applicable state securities or Blue Sky laws. 3.12. GOVERNMENT AND THIRD PARTY PERMITS, CONSENTS, ETC. The Company shall have duly applied for and obtained all material approvals from each Government Authority, or pursuant to any material agreement to which the Company is a party or to which it or any of its material assets is subject, which are required to be applied for and obtained by the Company in connection with this Agreement, the Other Transaction Documents or any other agreements and documents contemplated hereby or thereby and in connection herewith or therewith; and such approvals shall remain in effect upon consummation of the transactions contemplated by this Agreement and the Other Transaction Documents, and all applicable waiting periods, including, without limitation, the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), if required, with respect to such contemplated transactions, shall have expired without any action being taken by any competent Government Authority and no law or regulation shall be applicable which restrains or prevents, or imposes adverse conditions upon, such contemplated transactions. 3.13. STOCKHOLDER RIGHTS AGREEMENT. The Rights Agreement dated December 2, 1991 (the "Rights Agreement"), between Marcum Natural Gas Services, Inc. and American Securities Transfer, Inc. (the "Rights Agent") is in full force and effect and shall not be modified, amended or supplemented without the consent of the Purchasers, except as provided below. The Board of Directors of the Company has taken all necessary action under the Rights Agreement such that neither the Purchasers nor any of their respective Affiliates or Associates (as such terms are defined in the Rights Agreement) will become an "Acquiring Person" under the Rights Agreement, no "Shares Acquisition Date" or "Distribution Date" (as such terms are defined in the Rights Agreement) will occur under the Rights Agreement, and no holder of any Rights (as such term is defined in the Rights Agreement) issued pursuant to the Rights Agreement will be entitled to receive any benefits under the Rights Agreement, in each case as a result of the approval, execution or delivery of, or performance by the parties under, this Agreement or the consummation of the transactions contemplated by this Agreement, including without limitation, the issuance of the Securities or conversion or exercise of any Securities. From and after the date of this Agreement, the Company shall not take any action that would cause anything in the preceding sentence to no longer be true. At the Closing, the Company and the Rights Agent shall enter into an amendment to the Rights Agreement in the form set forth in Exhibit E attached hereto, which provides, among other things, that the Purchasers' ownership of the Securities will not cause either of the Purchasers or any of their respective Affiliates or Associates to become an 7 14 "Acquiring Person" under the Rights Agreement, and that no "Shares Acquisition Date" or "Distribution Date" will occur under the Rights Agreement as a result of the Purchasers' ownership of the Securities. 3.14. PAYMENT OF OUT-OF-POCKET EXPENSES. The Company shall have paid contemporaneously with the Closing, the reasonable, documented, out-of-pocket fees and expenses actually incurred by the Purchasers in connection with the transactions and other matters contemplated by this Agreement and the Other Transaction Documents (including without limitation the reasonable, documented fees, expenses and disbursements of Purchasers' Special Counsel, accountants and other advisors and professional consultants and all costs relating to any required filings under the HSR Act). 4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. In order to induce the Purchasers to enter into this Agreement and the Other Transaction Documents and to purchase the Units, the Company represents and warrants to the Purchasers, as of the date hereof and as of the Closing Date (except to the extent any of the following representations or warranties specifically apply or relate to a prior date, in which event the Company represents and warrants as of such prior date), as follows: 4.1. ORGANIZATION AND EXISTENCE. Each of the Company and its Subsidiaries (i) is a duly organized and validly existing corporation in good standing under the laws of the jurisdiction of its incorporation, (ii) has the requisite corporate power and authority to own its material properties and assets and to transact the business in which it is engaged or presently proposes to engage and (iii) has duly qualified, registered, is licensed and authorized to do business and is in good standing as a foreign corporation in every jurisdiction in which it owns or leases real property or in which the nature of its business requires it to be so qualified, registered, licensed and/or authorized, except where the failure to be so qualified, registered, licensed or authorized would not have a Material Adverse Effect. The Company has heretofore delivered to the Purchasers complete and correct copies of the Certificate of Incorporation and By-Laws of the Company and all Subsidiaries, each as amended to date and as presently in effect (collectively, with respect to any such Person, "CHARTER DOCUMENTS"). A list of all Subsidiaries of the Company and all jurisdictions in which the Company or any Subsidiary is qualified, registered or licensed to do business is disclosed in SCHEDULE 4.1. 4.2. POWER AND AUTHORITY; ENFORCEABILITY. The execution, delivery and performance by the Company of its obligations under the Transaction Documents and the issuance and sale to the Purchasers of the Convertible Preferred Shares, the Initial Common Shares and the Warrants pursuant to this Agreement and the authorization, issuance and delivery by the Company of the Conversion Shares are within the Company's corporate power and have been duly authorized by all necessary corporate action on the part of the Company. The Company has, or on the Closing Date will have, duly executed and delivered each Transaction Document and each Transaction Document constitutes, or will constitute, the legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms 8 15 except to the extent that its enforceability may be subject to applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws now or hereafter in effect affecting creditor's rights generally and to general equitable principles. 4.3. NO VIOLATION. Neither the execution, delivery or performance by the Company of its obligations under the Transaction Documents nor compliance by it with the terms and provisions thereof nor the consummation of the transactions contemplated thereunder, (i) contravene or violate the Charter Documents of the Company or any Subsidiary, (ii) require any authorization, approval, qualification or formal exemption from, or other action by or in respect of, or filing of a declaration or registration with, any court, Government Authority, agency or official or other Person (except for (A) such as have been obtained or will be obtained at the Special Stockholders Meeting prior to consummation of any sale or issuance requiring such authorization, (B) such as may be required under the Securities Act or state securities or Blue Sky laws, (C) such as may be required for the redemption of the Convertible Preferred Shares under the Loan and Security Agreement, dated as of April 14, 1998, as amended, among National Bank of Canada, the Company and certain of its subsidiaries or (D) such as would not have a Material Adverse Effect); (iii) will contravene any applicable provision of any law, statute, rule, regulation, order, writ, injunction or decree of any court or Government Authority or (iv) will conflict or be inconsistent with or result in any breach of, or require the consent of any Person under, any of the terms, covenants, conditions or provisions of, or constitute a default under, or result in the creation or imposition of (or the obligation to create or impose) any Lien upon any of the property or assets of the Company or any Subsidiary pursuant to the terms of any indenture, mortgage, deed of trust, agreement or other instrument to which the Company or any Subsidiary is a party or by which it or any of its material property or assets is bound or to which it may be subject, except in the case of clause (iv) for such conflicts, inconsistencies, breaches, defaults, events of default or Liens which would not have a Material Adverse Effect. 4.4. LICENSES, ETC. Each of the Company and its Subsidiaries have obtained and hold in full force and effect, all franchises, licenses, permits, certificates, authorizations, qualifications, accreditations, easements, rights of way and other rights, consents and approvals, and made all filings, which are necessary for the operation of their respective businesses as presently conducted (individually, a "LICENSE" and collectively, "LICENSES"), except where such failure to do so would not have a Material Adverse Effect. Except as would not have a Material Adverse Effect, each License is valid and current and the Company and its Subsidiaries are in compliance with the terms thereof, with to the Company's knowledge, no conflict with the valid rights of others. Except as would not have a Material Adverse Effect, (i) no event has occurred which permits, or after notice or lapse of time or both would permit, the revocation or termination of any License and (ii) the Company and its Subsidiaries have filed all applications currently necessary for renewal or extension of the Licenses and all such applications have been granted without conditions. To the Company's knowledge, there exists no fact that would result in the denial of an application or renewal, or the revocation, modification, nonrenewal or suspension of any of the Licenses. 9 16 4.5. LITIGATION. Except as set forth in SCHEDULE 4.5, there is no action, suit, proceeding or investigation pending or, to the Company's knowledge after due inquiry, threatened against or affecting the Company or any Subsidiary, any of their Properties, or any director or executive officer of the Company or any Subsidiary in their capacity as such, before or by any court or arbitrator or any Government Authority within the United States which (individually or in the aggregate) (i) will result in an impairment or loss of the Company's or any Subsidiary title to any material Property or diminish the value thereof or impede the operation of any such material Property, (ii) has resulted in or has impaired or will impair the ability of the Company or any Subsidiary's to perform in all material respects any obligation which the Company or any Subsidiary has or will have under any Transaction Document to which the Company or any Subsidiary is a party, or (iii) otherwise could have a Material Adverse Effect. Neither the Company nor any Subsidiary has violated or is in default under (except as set forth in SCHEDULE 4.5) and there does not exist any event or condition which, after notice or lapse of time or both, would constitute such a default under), any term of its Charter Documents, or, except as would not have a Material Adverse Effect, of any term of any agreement, instrument, judgment, decree, order, statute, exemption, injunction, law or other Government regulation, rule or ordinance applicable to the Company or any Subsidiary or to which the Company or any Subsidiary is bound, or to any Properties of the Company or any Subsidiary. 4.6. COMMISSION FILINGS. (a) The Company has heretofore delivered to the Purchasers true and complete copies of its (i) Annual Report on Form 10-KSB for the fiscal year ended December 31, 1998, (ii) Quarterly Report on Form 10-QSB for each of the fiscal quarters ended March 31, and June 30, 1999 and September 30, 1999, (iii) Proxy Statement for the annual meeting of stockholders held on June 7, 1999, and (iv) all other reports or registration statements filed by the Company with the Securities and Exchange Commission (the "COMMISSION") since January 1, 1999, in each case as filed with the Commission. (b) Except as set forth in SCHEDULE 4.6, the Company has filed all required forms, reports and documents with the Commission since February 13, 1992 (collectively, the "COMMISSION REPORTS"), all of which were prepared in accordance with the applicable requirements of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, in all material respects. Except to the extent, if any, as may have been appropriately disclosed in a Commission Report filed subsequent thereto and prior to the date hereof as of their respective dates, the Commission Reports did not, at the time they were filed, contain any 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, and complied as to form and substance in all material respects with all applicable requirements of law. (c) Each of the consolidated financial statements (including, in each case, any related notes thereto) contained in the Commission Reports has been prepared in 10 17 accordance with GAAP applied on a consistent basis throughout the periods involved, and each fairly presents in accordance with the consolidated financial position of the Company and its Subsidiaries as at the date thereof and the consolidated results of their operations and changes in cash flow for the periods indicated [in all material respects,] except as may be indicated in the consolidated financial statements contained in a Commission Report filed subsequent thereto and prior to the date hereof, and except that the unaudited interim financial statements were or are subject to normal and recurring year-end adjustments which were not or are not expected to be material in amount. (d) Except as set forth in the Commission Reports, neither the Company nor any of its Subsidiaries has any liabilities or obligations of any nature (whether accrued, absolute, contingent or otherwise) which would be required to be reflected on a consolidated balance sheet of the Company and its subsidiaries, or in the notes thereto, prepared in accordance with GAAP, except for liabilities or obligations (a) incurred in the ordinary course of business since September 30, 1999, or (b) any liability or obligation existing at September 30, 1999 which, individually or in the aggregate, is not material to the Company and its Subsidiaries taken as a whole as of such date. 4.7. MATERIAL ADVERSE CHANGE. Except as set forth in the Commission Reports or in SCHEDULE 4.7, since September 30, 1999, there has been (a) to the best knowledge of the Company, no event, act or condition which has had, or could reasonably be expected to have, a Material Adverse Effect, (b) no obligation or liability (contingent or other) incurred by the Company or any of its Subsidiaries, other than obligations and liabilities incurred in the ordinary course of business, and no Lien placed on any of the properties of the Company which remains in existence on the date hereof, other than Permitted Liens, (c) no acquisition or disposition of any material assets by the Company or any Subsidiary (or any contract or arrangement therefor), or any other material transaction, otherwise than for fair value in the ordinary course of business and (d) no declaration or payment of any dividends or other distributions upon the Capital Stock of the Company or redemption, retirement, repurchase or other acquisition by the Company or any Subsidiary of any of the Company's Capital Stock. 4.8. LIMITATION ON SUBSIDIARY PAYMENT RESTRICTIONS. Except as set forth on SCHEDULE 4.8, neither the Company nor any of its Subsidiaries is subject to any consensual restriction on the ability of any Subsidiary (a) to pay dividends or make any other distributions on such Subsidiary's Capital Stock to, or pay any indebtedness owing to, or repurchase or redeem any of such Subsidiary's Capital Stock from, the Company or any other Subsidiary of the Company, (b) to make any loans or advances to the Company or any other Subsidiary of the Company, or (c) to transfer any of its Property or assets to the Company or any other Subsidiary. 4.9. TAX RETURNS AND PAYMENTS. The Company, its Subsidiaries, and any predecessors to the Company or any Subsidiary, have filed or obtained extensions of all Tax Returns heretofore required by law to be filed by any of them and all such Tax Returns were correct and complete in all material respects. All Taxes for which the Company or any 11 18 Subsidiary is liable have been paid in full or are adequately provided for in accordance with GAAP on the financial statements of the applicable Person, except to the extent such failure would not have a Material Adverse Effect. All amounts required by law to be withheld, collected or provided for by the Company or any Subsidiary, including deposits with respect to Taxes constituting employees' income withholding taxes, have been duly withheld, collected or provided for and have been paid over to the proper federal, provincial, state, municipal or local authority, to the extent due and payable, or are held by the applicable Person for such payment. No Liens arising from or in connection with Taxes have been filed and are currently in effect against the Company or any Subsidiary, except for Liens for Taxes which are not yet due or which are being contested in good faith and as to which reserves have been set aside on the books of the Company or such Subsidiary, as applicable, to the extent required by GAAP. The Company and its Subsidiaries, including any predecessors thereto, have not executed or filed with any taxing authority any agreement or document extending, or having the effect of extending, the period for assessment or collection of any Taxes. The federal income Tax Returns of the Company and its Subsidiaries, and any predecessors thereto, have been examined by the IRS, or the statute of limitations with respect to federal income Taxes has expired, for all tax years to and including the fiscal year ended December 31, 1998 and any deficiencies have been paid in full or appropriate action or appropriate reserves therefor in accordance with GAAP have been established on the Company's or such Subsidiary's books. Except as set forth in SCHEDULE 4.9, neither the Company nor any Subsidiary is a party to any tax sharing agreement or arrangement. Except as set forth in SCHEDULE 4.9, no audits or investigations are pending or, to the Company's knowledge, threatened with respect to any Tax Returns or Taxes of the Company or any Subsidiary, or any predecessor thereto. 4.10. INVESTMENT COMPANY ACT; PUBLIC UTILITY HOLDING COMPANY ACT; DIVESTURE COMMERCE ACT. Neither the Company nor any of its Subsidiaries is, or will be (i) an "investment company" or a company "controlled" by an "investment company," within the meaning of the Investment Company Act, (ii) a "holding company" or a "subsidiary company" of a "holding company" or an "affiliate" of either a "holding company" or a "subsidiary company" within the meaning of the Public Utility Holding Company Act of 1935, as amended, or (iii) a "rail carrier," or a Person controlled by or affiliated with a "rail carrier," within the meaning of Title 49, U.S.C. Neither the Company nor any of its Subsidiaries is a "carrier" or other Person to which 49 U.S.C. Section 11301(b)(1) is applicable. 4.11. CORPORATE STRUCTURE; CAPITALIZATION. As of the date hereof and as of the Closing Date, SCHEDULE 4.11 sets forth, both before and after giving effect to the transactions contemplated under the Transaction Documents, the number of authorized and issued shares of Capital Stock of each of the Company and its Subsidiaries, the par value thereof, and the registered owner(s) of the shares of Capital Stock of each subsidiary thereof. All of such Capital Stock has been duly and validly issued and is fully paid and non-assessable and, in the case of Capital Stock of the Subsidiaries, is owned of record and beneficially by the Company. The Convertible Preferred Shares and the Initial Common Shares are, and, upon conversion of the Convertible Preferred Shares and exercise of the Warrants, the Conversion Shares will be, duly and validly issued, fully-paid and non-assessable. As of the date hereof and as of the 12 19 Closing Date, except as set forth in SCHEDULE 4.11, neither the Company nor any Subsidiary has outstanding any securities convertible into or exchangeable for its Capital Stock or any other equity interest nor does the Company or any Subsidiary have outstanding any rights to subscribe for or to purchase, or any options for the purchase of, or any agreements providing for the issuance (contingent or otherwise) of, or any calls, commitments or claims of any character relating to, its Capital Stock or other obligations or commitments of any kind whatsoever to issue, sell or otherwise dispose of, any shares of or other equity interests in the Company or any of its Subsidiaries. Except as contemplated by the Transaction Documents, neither the Company or any of its Subsidiaries are subject to any obligation (contingent or otherwise) to repurchase or otherwise acquire or retire any of their Capital Stock. There are no voting trusts or other agreements or understandings to which the Company or any of its Subsidiaries is a party with respect to the voting of its Capital Stock. 4.12. ENVIRONMENTAL MATTERS. (a) Neither the Company nor any Subsidiary (i) has any liability under any Environmental Law which could have a Material Adverse Effect, or has not violated any Environmental Law which violation could have a Material Adverse Effect; (ii) has entered into or been subject to any judgment, consent decree, compliance order, or administrative order with respect to any environmental or health and safety matter which could have a Material Adverse Effect and (iii) has received any request for information, notice, demand letter, administrative inquiry, or formal or informal complaint or claim from any Person with respect to any environmental or health and safety matter or the enforcement of any Environmental Law which could have a Material Adverse Effect. (b) (i) All properties owned, operated, leased, or used by the Company and its Subsidiaries and any facilities and operations thereon comply with applicable Environmental Laws except for such non-compliance as would not have a Material Adverse Effect; (ii) the Company and its Subsidiaries have not generated, transported, used, stored, treated, manufactured, refined, transferred, produced, processed, disposed of, or managed any Hazardous Materials, except in accordance with applicable Environmental Laws [or except as would not have a Material Adverse Effect]; (iii) the Company and its Subsidiaries have not effected, and have no knowledge of, any release of a Hazardous Material at, on, in or under any property presently or formerly owned, operated, leased, or used by the Company or any Subsidiary and (iv) no Lien has been imposed by any Government Authority on any property, facility, machinery, or equipment owned, operated, leased, or used by the Company or any Subsidiary in connection with the presence of any Hazardous Material. (c) Except as set forth in SCHEDULE 4.12, the Company and its Subsidiaries (i) do not presently own, operate, lease or use any property on which underground storage tanks are or, to the Company's knowledge, were located; (ii) have never placed underground storage tanks on any property owned, operated, leased or used by the Company or any Subsidiary; (iii) have never removed underground storage tanks from any property presently or 13 20 formerly owned, operated, leased or used by the Company, except in compliance with all Environmental Laws or except as would not have a Material Adverse Effect. 4.13. PROPERTIES AND ASSETS. The Company and each Subsidiary has good record and marketable title to all material real Property which it owns in fee and has good record and defensible title to all of its other material Properties and assets (tangible or intangible) which it owns, in each case free and clear of all Liens, other than Permitted Liens. All of the material leases for the operation of their respective properties and assets under which the Company and its Subsidiaries hold any material Property or assets, real or personal, are valid, subsisting and enforceable and afford peaceful and undisturbed possession of the subject matter of the lease, and no material default by the Company or any Subsidiary exists under any of the provisions thereof. All buildings, machinery and equipment of the Company and its Subsidiaries are in good repair and working order, except for ordinary wear and tear, and except as could have a Material Adverse Effect. All material current and proposed uses of such property or assets of the Company and its Subsidiaries are permitted as of right and no regulation or ordinance interferes with such current or proposed uses. To the knowledge of the Company, there is no pending or formally proposed change in any such laws, regulations or ordinances which could have a Material Adverse Effect. No condemnation, appropriation or similar proceeding is pending or, to the Company's knowledge, threatened against any material real Property owned by the Company or any Subsidiary. Except as disclosed in SCHEDULE 4.13 or as would not have a Material Adverse Effect, the Property of the Company and its Subsidiaries is not subject to any agreements containing preferential purchase rights or consent to assignment provisions that must be complied with prior to the consummation of this Agreement and the other Transaction Documents and the transactions contemplated hereby and thereby. 4.14. NO DEFAULT. Neither the Company nor any Subsidiary is in default under or with respect to any material agreement, instrument or undertaking to which it is a party or by which it or any of its property is bound, except where, in the aggregate, all such defaults would not have a Material Adverse Effect. 4.15. COMPLIANCE WITH LAW. Each of the Company and its Subsidiaries is in full compliance with all laws, rules, regulations, orders, judgments, writs and decrees, except where the failure to be in compliance would not have a Material Adverse Effect. 4.16. BROKERS' FEES. Except as set forth on Schedule 4.16, neither the Company nor any Subsidiary has any obligation to any Person in respect of any finder's, brokers', investment banking or other similar fees in connection with any of the Transaction Documents. 4.17. BOOKS AND RECORDS. The minute books of the Company contain complete and accurate records of all meetings and other corporate actions of the Company's Board of Directors and committees thereof and accurately reflect in all material respects all transactions referred to therein. 14 21 4.18. OUTSTANDING DEBT. Except as set forth on SCHEDULE 4.18, at and as of the date hereof and as of the Closing Date, neither the Company nor any of its Subsidiaries will have outstanding any debt for borrowed money, or obligations or liabilities evidenced by bonds, debentures, notes or other similar instruments or under capital leases. SCHEDULE 4.18 contains a complete and accurate list of all material guaranties, assumptions, purchase agreements and similar agreements and arrangements whereby the Company or any of its Subsidiaries is or may become directly or indirectly liable or responsible for the indebtedness or other obligations of another Person, except for negotiable instruments endorsed for collection or deposit in the ordinary course of its business. 4.19. OTHER RELATIONSHIPS. Except as set forth in SCHEDULE 4.19: (a) None of the Company or any of its Subsidiaries nor any officer of any of the foregoing has any interest (other than as non-controlling holders of securities of a publicly-traded company), either directly or indirectly, in any Person (whether as an employee, officer, director, more than five percent (5%) shareholder, agent, independent contractor, security holder, creditor, consultant or otherwise) that presently (i) provides any services or engages in any activity which is the same or competitive with any activity or business in which the Company or any of its Subsidiaries is now engaged, (ii) is a supplier of, customer of, creditor of, or has an existing contractual relationship with, the Company or any of its Subsidiaries, or (iii) has any direct or indirect interest in any asset or property used by the Company or any of its Subsidiaries or any property, real or personal, tangible or intangible, that is necessary for the conduct of the business of the Company or any of its Subsidiaries; and (b) No stockholder, director, officer or employee of the Company or any of its Subsidiaries of any such Person is a party to any transaction (other than as a stockholder, director, officer or employee) with the Company or any of its Subsidiaries providing for the furnishing of services by, or rental of real or personal property from, or otherwise requiring cash payments to any such Person. 4.20. EMPLOYEE PROGRAMS. SCHEDULE 4.20 sets forth a list of every Employee Program (as defined below) maintained by the Company or any of its Subsidiaries at any time during the six-year period ending on the Closing Date or with respect to which a liability of the Company or any of its Subsidiaries exists. Except as set forth on SCHEDULE 4.20, each Employee Program (other than a Multiemployer Plan (as defined below)) which has been maintained by the Company during the six-year period ending on the Closing Date and which has been intended to qualify under Section 401(a) or Section 501(c)(9) of the Code has received a favorable determination or approval letter from the IRS regarding its qualification under such Section or the remedial amendment period under Section 401(b) of the Code has not yet expired with respect to such Employee Program and, to the Company's knowledge, nothing has occurred that would adversely affect such qualification since the date of such letter or application for a determination or approval letter has been timely made and, to the Company's knowledge, no reason exists why a favorable determination or approval shall not be granted. Except as set forth on SCHEDULE 4.20, the Company and its Subsidiaries do not know of any 15 22 failure of any party to comply with any laws applicable with respect to the Employee Programs that have been maintained by the Company or any of its Subsidiaries, and no such failure will result from completion of the transactions contemplated hereby. Except as set forth on SCHEDULE 4.20 with respect to any Employee Program ever maintained by the Company or any of its Subsidiaries, there has been no "prohibited transaction," as defined in Section 406 of ERISA or Code Section 4975, or breach of any duty under ERISA or other applicable law or any agreement which in any such case could subject the Company or any of its Subsidiaries to material liability either directly or indirectly (including, without limitation, through any obligation of indemnification or contribution) for any damages, penalties, or taxes, or any other loss or expense. No litigation or Government administrative proceeding (or investigation) or other proceeding (other than those relating to routine claims for benefits) is pending or threatened with respect to any such Employee Program (other than a Multiemployer Plan). No event or omission has occurred which would cause any Employee Program to lose its qualification or otherwise fail to satisfy the relevant requirements to provide tax-favored benefits under the applicable Code Section (including without limitation Code Sections 105, 125, 401(a) and 501(c)(9)). Each asset held under any such Employee Program may be liquidated or terminated without the imposition of any redemption fee, surrender charge or comparable liability. None of the Company or its Subsidiaries have incurred any liability under Title IV of ERISA which has not been paid in full prior to the Closing. None of the Company or any of its Subsidiaries participates currently or has ever participated in or is required currently or has ever been required to contribute to or otherwise participate in any plan, program or arrangement subject to Title IV of ERISA or Code Section 412. None of the Company or its Subsidiaries participates currently or has ever participated in or is required currently or has ever been required to contribute to or otherwise participate in any Multiemployer Plan (as defined below). Except as disclosed on SCHEDULE 4.20, none of the Employee Programs which is a welfare plan maintained by the Company or any of its Subsidiaries provides health care or any other non-pension benefits to any employees after their employment is terminated (other than as required by Part 6 of Subtitle B of Title I of ERISA or comparable statutes or regulations) or has ever promised to provide such post-termination benefits. Each Employee Program required to be listed on SCHEDULE 4.20 may be amended, terminated, or otherwise modified by the Company or its Subsidiaries to the greatest extent permitted by applicable law, including the elimination of any and all future benefit accruals under any Employee Program and no employee communications or provision of any Employee Program document has failed to effectively reserve the right of the Company or its Subsidiaries to so amend, terminate or otherwise modify such Employee Program. For purposes of this Section 4.20: (a) "EMPLOYEE PROGRAM" means (A) any employee benefit plan within the meaning of Section 3(3) of ERISA and employee benefit plans (such as foreign or excess benefit plans) which are not subject to ERISA, and (B) if for employees generally or any subgroup of employees generally, any stock option plans, bonus or incentive award plans, 16 23 severance pay policies or agreements, deferred compensation arrangements, supplemental income arrangements, vacation plans, and all other employee benefit plans, agreements, and arrangements not described in (A) above, and (C) any trust used to fund benefits under the foregoing maintained by the Company or any of its Subsidiaries. (b) An entity "MAINTAINS" an Employee Program if such entity sponsors, contributes to, or provides benefits under such Employee Program, or has any obligation (by agreement or under applicable law) to contribute to or provide benefits under such Employee Program, or if such Employee Program provides benefits to or otherwise covers employees of such entity (or, in respect of such employees, their spouses, dependents, or beneficiaries). (c) "MULTIEMPLOYER PLAN" means a (pension or non-pension) employee benefit plan to which more than one employer contributes and which is maintained pursuant to one or more collective bargaining agreements. (d) Each reference to the "Company" or any "Subsidiary" includes any entity which has ever been considered a single employer with such entity under ERISA Section 4001(b) or part of the same "controlled group" as such entity for purposes of ERISA Section 302(d)(8)(C). 4.21. PRIVATE OFFERINGS. No form of general solicitation or general advertising, including, but not limited to, advertisements, articles, notices or other communications, published in any newspaper, magazine or similar medium or broadcast over television or radio, or any seminar or meeting whose attendees have been invited by any general solicitation or general advertising, was used by the Company or any of its Subsidiaries or any of their respective representatives, or, to the Company's knowledge, any other Person acting on behalf of the Company or any of its Subsidiaries in connection with the offering of the Securities. Neither the Company nor any of its Subsidiaries nor any Person acting on the Company's or any such Subsidiaries' behalf, has directly or indirectly offered Securities for sale to, or sold or solicited any offer to buy any of the same from, or otherwise approached or negotiated in respect thereof with any Person or Persons other than the Purchasers and other investors who the Company reasonably believed had such knowledge and experience in financial and business matters that they were capable of evaluating the merits and risks of purchasing the Securities. The Company further represents to the Purchasers that, assuming the accuracy of the representations of the Purchasers as set forth in Section 6 hereof, neither the Company nor any of its Subsidiaries, nor any Person acting on the Company's or any such Subsidiary's behalf, as applicable, has taken or will take any action which would subject the issue and sale of the Securities to the provisions of Section 5 of the Securities Act, except as contemplated by the Transaction Documents. The Company and its Subsidiaries have not sold the Securities to anyone other than the Purchasers designated in this Agreement. No shares of Convertible Preferred Stock and no securities containing the same terms as the Warrants have been issued and sold by the Company or any of its Subsidiaries prior to the date hereof. 17 24 4.22. INSURANCE. Except as set forth on SCHEDULE 4.22 attached hereto, the Company maintains in full force and effect policies of insurance and bonds of the type and in amounts customarily carried by Persons conducting business similar to that currently conducted by the Company and its Subsidiaries. There is no claim in excess of $15,000 by the Company or any of its Subsidiaries pending under any of such policies or bonds as to which coverage has been questioned, reserved, denied or disputed by the underwriters of such policies or bonds or their agents. The Company has no knowledge of any threatened termination of any such policies or bonds. 4.23. EMPLOYMENT PRACTICES. Neither the Company nor any Subsidiary is a party to or in the process of negotiating any collective bargaining or labor agreement or union contract. As of the date of this Agreement, except as would not have a Material Adverse Effect, there is no (a) charge, complaint or suit pending or, to the Company's knowledge, threatened against the Company or any Subsidiary respecting employment, hiring for employment, terminating from employment, employment practices, employment discrimination, terms and conditions of employment, safety, wrongful termination, or wages and hours, (b) unfair labor practice charge or complaint pending or, to the Company's knowledge, threatened against, or decision or order in effect and binding on, the Company or any Subsidiary before or of the National Labor Relations Board, (c) grievance or arbitration proceeding arising out of or under collective bargaining agreements pending or, to the Company's knowledge, threatened against the Company or any Subsidiary (d) strike, labor dispute, slow-down, work stoppage or other interference with work pending or, to the Company's knowledge, threatened against the Company or any Subsidiary, or (e) to the Company's knowledge, union organizing activities or union representation question threatened or existing with respect to any groups of employees of the Company or any Subsidiary. All payments due from the Company or any Subsidiary on account of employee health and welfare insurance and vacation pay have been paid or accrued as a liability on the books of the Company or any Subsidiary. There are no complaints or charges against the Company or any Subsidiary pending or, to the best of the Company's knowledge after due inquiry, threatened to be filed with any Government Authority based on, arising out of, in connection with, or otherwise relating to the employment or termination of employment by the Company or any Subsidiary which could have a Material Adverse Effect. 4.24. MATERIAL CONTRACTS AND OBLIGATIONS. Set out on SCHEDULE 4.24 hereto is a list of all material agreements of any nature to which the Company or any of its Subsidiaries are a party or by which they are bound, including without limitation (a) each agreement which requires future expenditures by the Company or any of its Subsidiaries in any one year in excess of $250,000 and (b) all employment and consulting agreements, employee benefit, bonus, pension, profit-sharing, stock option and stock purchase and similar plans and arrangements. The Company, each Subsidiary and, to the Company's knowledge, each other party thereto have in all material respects performed all the obligations required to be performed by them to date, have received no notice of default and are not in default (with due notice or lapse of time or both) under any lease, agreement or contract described in subsections (a) or (b) above that could have a Material Adverse Effect. All of the agreements and contracts described above are valid, binding and in full force and effect with respect to the Company or 18 25 the respective Subsidiary, except as would not have a Material Adverse Effect. Neither the Company nor any of its Subsidiaries has any present expectation or intention of not fully performing all its obligations under each such lease, contract or other agreement, and the Company has no knowledge of any breach or anticipated breach by the other party to any contract or commitment to which the Company or any Subsidiary is a party. 4.25. INTELLECTUAL PROPERTY. (a) Except as described in SCHEDULE 4.25 and except as would not have a Material Adverse Effect, the Company has exclusive ownership of, or exclusive license to use, all patent, copyright, trade secret, trademark, or other proprietary rights used in the business of the Company and its Subsidiaries (collectively, "INTELLECTUAL PROPERTY"). There are no claims or demands of any other Person pertaining to any of such Intellectual Property and no proceedings have been instituted, or are pending or, to the Company's knowledge, threatened, which challenge the rights of the Company in respect thereof. Except as would not have a Material Adverse Effect the Company has the right to use, free and clear of claims or rights of other Persons, all customer lists, billing systems or other processes, computer software systems, data compilations, and other information required for or incident to their business as presently conducted or contemplated. (b) All trademarks, trademark applications and registrations and registered copyrights which are owned by or licensed to the Company or its Subsidiaries or used or to be used by the Company or its Subsidiaries in their business as presently conducted, and which are material to the Company, are listed in SCHEDULE 4.25. All of such trademarks and trade names, trademark applications and registrations and registered copyrights have been duly registered in, filed in or issued by the United States Patent and Trademark Office, the United States Register of Copyrights, or the corresponding offices of other jurisdictions as identified in SCHEDULE 4.25, and have been properly maintained and renewed in accordance with all applicable provisions of law and administrative regulations in the United States and each such jurisdiction, except when the failure to do so would not have a Material Adverse Effect. (c) All material licenses or other agreements under which the Company or any of its Subsidiaries is granted rights in Intellectual Property are listed in SCHEDULE 4.25. All such licenses or other agreements are in full force and effect and there is no default by any party thereto. (d) Except as would not have a Material Adverse Effect, the Company has taken all steps required in accordance with sound business practice and business judgment to establish and preserve its ownership of all material copyright, trade secret and other proprietary rights with respect to their products and technology. To the Company's knowledge, the Company has not made any such information available to any Person other than employees of the Company or its Subsidiaries except pursuant to written agreements requiring the recipients to maintain the confidentiality of such information and appropriately 19 26 restricting the use thereof. To the Company's knowledge, there are no material infringements by others of any of its Intellectual Property rights. (e) Except as set forth on Schedule 4.25, to the Company's knowledge, the present business, activities and products of the Company and its Subsidiaries does not infringe any intellectual property of any other Person, except as would not have a Material Adverse Effect. Except as set forth on SCHEDULE 4.25, no proceeding charging the Company or any of its Subsidiaries with infringement of any adversely held Intellectual Property has been filed or is, to the Company's knowledge, threatened to be filed, except as would not have a Material Adverse Effect. To the Company's knowledge, the Company and its Subsidiaries are not making any unauthorized use of any confidential information or trade secrets of any Person, including without limitation any former employer of any past or present employee of the Company and its Subsidiaries. Neither the Company nor, to the Company's knowledge, any of its employees have any agreements or arrangements with any Persons other than the Company related to confidential information or trade secrets of such Persons or restricting any such employee's engagement in business activities of any nature. 4.26. ACCOUNTS RECEIVABLE. Except as set forth on SCHEDULE 4.26, all accounts receivable of the Company that are reflected in the Commission Reports represent, and as of the Closing Date (except to the extent collected in cash before such date) will represent, valid obligations to the Company of third parties (who are unrelated to the Company, or any Affiliate thereof) arising from sales actually made or services actually performed by the Company and its Subsidiaries in the ordinary course of business. To the best of the Company's knowledge, each such account receivable is a valid obligation of the account debtor enforceable in accordance with its terms, free and clear of all encumbrances, set-offs, adverse claims, assessments, defaults, prepayment, defenses and conditions precedent. The Company is the true and lawful owner of each such account receivable and has good and clear title to each such receivable, free and clear of all Liens other than Permitted Liens. 5. CONDITIONS OF OBLIGATIONS OF THE COMPANY AT THE CLOSING. The Company's obligation to issue and sell the Units and to enter this Agreement and the Other Transaction Documents at the Closing shall be subject to compliance by each Purchaser with its agreements and covenants herein contained and to the fulfillment, to the Company's satisfaction, on or before and at the Closing Date of the following conditions, provided that any or all of the following conditions may be waived, in whole or in part, by the Company in its sole and absolute discretion: 5.1. REPRESENTATIONS AND WARRANTIES. The representations and warranties of each Purchaser made in Section 6 hereof shall have been true and correct when made and on and as of the Closing Date. 5.2. GOVERNMENT AND THIRD PARTY PERMITS, CONSENTS, ETC. The Company shall have duly applied for and obtained all material approvals from each Government Authority, or 20 27 pursuant to any material agreement to which the Company is a party or to which it or any of its material assets is subject, which are required in connection with this Agreement or the Other Transaction Documents and such approvals shall remain in effect upon consummation of the transactions contemplated by this Agreement and the Other Transaction Documents, and all applicable waiting periods, including, without limitation, the waiting period required under the HSR Act with respect to such contemplated transactions, shall have expired without any action being taken by any competent Government Authority and no law or regulation shall be applicable which restrains or prevents, or imposes adverse conditions upon, such contemplated transactions. 5.3. CERTIFICATE OF DESIGNATIONS. The Board of Directors and, if necessary, the stockholders of the Company shall have duly adopted the Certificate of Designations and the Certificate of Designations shall have been duly filed with the Secretary of State of the State of Delaware. 5.4. SPECIAL STOCKHOLDERS MEETING; NASDAQ APPROVAL. On or prior to the Second Closing Date, the Company's stockholders shall have duly approved by the requisite vote under applicable Nasdaq rules the Stockholder Meeting Matter (as defined in Section 7.1(b)) at the Special Stockholders Meeting. 5.5. NO VIOLATION OR INJUNCTION. The consummation of the transactions contemplated by this Agreement and the Other Transaction Documents shall not be in violation of any law or regulation and shall not be subject to any injunction, stay or restraining order that has not been reversed or overturned. 5.6. PURCHASE PRICE. The Purchasers shall have paid the applicable purchase price to the Company in accordance with Section 1 hereof. 5.7. FAIRNESS OPINION. The Company shall have received an opinion, prior to the Second Closing Date, from Hanifen, Imhoff, Inc., Investment Bankers, in form and substance reasonably satisfactory to the Company, substantially to the effect that the consideration to be received by the Company at the Second Closing under the terms of this Agreement is fair, from a financial point of view, to the Company. 6. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. In order to induce the Company to enter into this Agreement and the Other Transaction Documents and to issue and sell the Units, each Purchaser severally represents and warrants to the Company, as of the date hereof and as of the Closing Date (except to the extent that any of the following representations or warranties specifically apply or relate to a prior date, in which event such Purchaser represents and warrants as of such prior date), as to itself only, as follows: 21 28 6.1. STATUS. Such Purchaser (i) is a duly organized and validly existing limited liability company, partnership or trust fund in good standing under the laws of the jurisdiction of its incorporation or formation and (ii) has the requisite power and authority to acquire and own the Securities. 6.2. POWER AND AUTHORITY; ENFORCEABILITY. The execution, delivery and performance by such Purchaser of its obligations under the Transaction Documents to which such Purchaser is a party and the purchase by such Purchaser of the Units Securities pursuant to this Agreement are within such Purchaser's corporate, limited liability company or partnership power and have been duly authorized by all necessary corporate, limited liability or partnership action on the part of such Purchaser. Such Purchaser has, or on the Closing Date will have, duly executed and delivered each Transaction Document to which it is a party and each such Transaction Document constitutes or will constitute such Purchaser's legal, valid and binding obligation, enforceable in accordance with its terms except to the extent that its enforceability may be subject to applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws affecting creditor's rights generally and to general equitable principles. 6.3. SECURITIES REPRESENTATIONS. (a) Such Purchaser is (i) an "accredited investor" as that term is defined in Rule 501 promulgated under the Securities Act, (ii) knowledgeable, sophisticated and experienced in financial and business matters as to be capable of evaluating the merits and risks of its investment in the Securities, (iii) capable of bearing the economic risk of such investments, including a complete loss of its investment in the Securities, and (iv) able, by reason of the business and financial experience of its officers, partners, and, employees and agents and professional advisors (who are not affiliated with or compensated in any way by the Company or any of its affiliates or selling agents) to protect its own interests in connection with the transactions described in this agreement and the related documents. (b) Such Purchaser is acquiring the Securities for its own account and not with a view towards the public sale or distribution of such Securities, unless such public sale or distribution is properly registered under the Securities Act or exempt from the registration requirements thereof. (c) Such Purchaser understands that the Securities are being offered and sold to it pursuant to and a reliance upon certain exemptions from the registration requirements of the Securities Act and applicable state securities laws and that the Company is relying upon the truth and accuracy of, and the Purchaser's compliance with, the representation, warranties, agreements, acknowledgments and understandings of such Purchaser set forth herein in order to determine the availability of such exemptions and the eligibility of such Purchaser to acquire the Securities. 22 29 (d) Such Purchaser understands that any subsequent offer or sale of the securities by the Purchaser must be registered under the Securities Act and applicable state, securities laws or exempt from the registration requirements thereof. (e) The Company has furnished or otherwise made available to such Purchaser or its agents, all documents, information and materials relating to the business, affairs, operations or condition of the Company and to this transaction which have been requested by or on behalf of such Purchaser. In addition, such Purchaser and its agents have been given the opportunity to ask questions of, and to receive the answers from, the Company concerning its business, affairs, operations and conditions, as well as the terms and conditions of the Securities and other related matters, and has received complete and satisfactory answers to all such inquiries. In evaluating the suitability of an investment in the Securities, the Purchaser has not relied upon any representations or other information (whether oral or written) made by or on behalf of the Company other than as expressly set forth in this Agreement. 6.4. MARGIN COMPLIANCE. Such Purchaser is not relying, directly or indirectly, on any "margin stock" (as defined in Regulation U of the Federal Reserve Board) as collateral for the Securities. Such Purchaser is not a broker-dealer subject to Regulation T of the Federal Reserve Board. 6.5. SOURCE OF FUNDS. If any part of the funds to be used to purchase the Securities constitutes assets of any employee benefit plan within the meaning of Section 3 of ERISA, either (i) such Securities are being purchased pursuant to an available exemption from the provisions of 406 of ERISA and Section 4975 of the Code or (ii) the assets do not constitute "plan assets" as defined in ERISA. 6.6. BROKERS' FEES. No Purchaser has any obligation to any Person in respect of any finder's, brokers', investment banking or other similar fees in connection with any of the Transaction Documents. 6.7. POST-RESET STANDSTILL. If the Exercise Price (as defined in the Warrants) or the Conversion Price (as defined in the Certificate of Designations) is adjusted pursuant to Section 2.2 of the Warrants or Section A.7(a) of the Certificate of Designations, respectively, then the Purchasers and their assigns shall not, for a period of ninety (90) days after such adjustment, sell, pledge or otherwise transfer any Capital Stock of the Company (other than to their respective Affiliates) and shall not, for a period of thirty (30) days after such adjustment, purchase any Capital Stock of the Company (except that they may exercise Warrants or convert Convertible Preferred Shares) for the purpose of covering a "short" position; provided, however, that the restrictions of this Section 6.7 shall terminate prior to the end of the foregoing periods upon written notice of redemption of the Convertible Preferred Stock given by the Company pursuant to Section A.5(a)(iii) of the Certificate of Designations. Notwithstanding the foregoing, State Street Bank & Trust, in its capacity as Trustee for General 23 30 Motors Employees Global Group Pension Trust, shall only be subject to the limitations of this Section 6.7 with respect to accounts managed or advised by DDJ Capital Management, LLC. 7. COVENANTS OF THE COMPANY. 7.1. SPECIAL STOCKHOLDERS MEETING. (a) PROXY STATEMENT; OTHER FILINGS. As promptly as practicable, the Company shall (i) prepare and file with the Commission under the Exchange Act a Proxy Statement with respect to the Special Stockholders Meeting containing the information required to be included therein, (ii) after consultation with the Purchasers, use its best efforts to promptly respond to any comments by the Commission with respect to the Proxy Statement and any preliminary version thereof and (iii) promptly after clearance by the Commission, mail the Proxy Statement to its stockholders. The term "PROXY STATEMENT" shall mean such proxy statement, as the case may be, and all related proxy materials at the time such documents initially are mailed to the Company's stockholders, and all amendments or supplements thereto, if any, similarly filed and mailed. The Company shall give the Purchasers and the Purchasers' Special Counsel a reasonable opportunity to review and comment upon the Proxy Statement prior to its being filed with the Commission and shall give the Purchasers and the Purchasers' Special Counsel a reasonable opportunity to review all amendments and supplements to the Proxy Statement and all responses to requests for additional information and replies to comments prior to their being filed with, or sent to, the Commission and, in the case of the Proxy Statement and any amendments or supplements thereto, prior to its being disseminated to the Company's stockholders. The Company shall promptly notify the Purchasers of the receipt of any comments on, or any request for amendments or supplements to, the Proxy Statement by the Commission or any other governmental entity or official, and the Company shall supply the Purchasers with copies of all correspondence between it and each of its Subsidiaries and representatives, on the one hand, and the Commission or the members of its staff or any other appropriate governmental official, on the other hand, with respect to the Proxy Statement. The information provided and to be provided by the Purchasers and the Company, respectively, for use in the Proxy Statement shall, on both the date the Proxy Statement is first mailed to the Company's stockholders as referred to in Section 7.1(b) hereof and the date the Special Stockholders Meeting is held, not contain any 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 are made, not misleading, or necessary to correct any statement in any earlier communication with respect to the solicitation of proxies for the stockholders' meeting which shall have become false or misleading, and shall comply in all material respects as to form and substance with all applicable requirements of law. The Purchasers and the Company agree to correct promptly any such information provided by them for use in the Proxy Statement which, to their respective knowledge, shall have become false or misleading. (b) SPECIAL STOCKHOLDERS MEETING. In order to consummate the issuance of the Additional Units and the transactions contemplated hereby in connection therewith (the 24 31 "STOCKHOLDERS MEETING MATTER"), the Company, acting through the Board of Directors, shall take all action necessary in accordance with applicable law and the Company's Charter Documents to duly call, give notice of, convene and hold a special meeting of its stockholders as promptly as practicable (but in no event later than 90 days after the Initial Closing Date) to consider and vote upon the approval of the Stockholders Meeting Matter and to take such other action as is necessary or desirable to consummate the transactions contemplated hereby (the "SPECIAL STOCKHOLDERS MEETING"). Except to the extent required by law or the Company's Charter Documents or as set forth in SCHEDULE 7.1(b), the Company shall not present any other matter at the Special Stockholders Meeting except for the matters contemplated by this Agreement. The Proxy Statement shall contain the determination and the recommendation of the Board of Directors that the stockholders of the Company approve the Stockholders Meeting Matter and the transactions contemplated hereby and the Company, acting through the Board of Directors, shall use its best efforts to obtain such approval. The Purchasers and the Company shall coordinate and cooperate with respect to the foregoing matters at the Company's expense. 7.2. GENERAL COVENANTS OF THE COMPANY. (a) The Company covenants and agrees that so long as at least 1,000 shares of Convertible Preferred Stock are outstanding, the Company shall file with the Commission the annual reports and quarterly reports and the information, documents and other reports that are required to be filed with the Commission pursuant to Sections 13 and 15 of the Exchange Act, whether or not the Company has or is required to have a class of securities registered under the Exchange Act and whether or not the Company is then subject to the reporting requirements of the Exchange Act, at the time the Company is or would be required to file the same with the Commission and, promptly after the Company is or would be required to file such reports, information or documents with the Commission, to mail copies of such reports, information and documents to the holders of the Convertible Preferred Stock and the Conversion Shares. (b) USE OF PROCEEDS. The Company shall use all of the proceeds from the Closing in the manner set forth in SCHEDULE 1.5 hereto. (c) COMPLIANCE WITH LAW. The Company shall, and shall cause each of its Subsidiaries to, comply with all applicable laws, rules, statutes, regulations, decrees and orders of, and all applicable restrictions imposed by, all Government bodies, domestic or foreign, in respect of the conduct of their business and the ownership of their properties, except where the failure to comply could not reasonably be expected to have a Material Adverse Effect. (d) CORPORATE EXISTENCE AND OTHER INTANGIBLES. The Company shall do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence and the corporate, partnership or other existence of each of its material Subsidiaries in accordance with the respective organizational documents of such Subsidiary and the rights (charter and statutory), licenses and franchises of the Company and each of its Subsidiaries; 25 32 PROVIDED, HOWEVER, that the Company shall not be required to preserve any such right, license or franchise, or the corporate, partnership or other existence of any Subsidiary, if the Board of Directors of the Company shall determine, in the exercise of business judgment, that the preservation thereof is no longer desirable in the conduct of the business of the Company and its Subsidiaries taken as a whole. The Company shall, and shall cause each of its Subsidiaries to, do or cause to be done, all things necessary to preserve and keep in full force and effect its patents, trademarks, service marks, trade names, copyrights, franchises, licenses, permits, certificates, authorizations, qualifications, accreditations, easements, rights of way and other rights, consents and approvals, except where the failure to so preserve any of the foregoing could not reasonably be expected to, individually or in the aggregate, result in a Material Adverse Effect. (e) ACCOUNTING METHODS. Unless consistent with GAAP, the Company will not, and it will not permit any Subsidiary to, change or introduce any new method of accounting which differs in any substantive respect from the accounting as reflected in the Commission Reports. (f) INDEMNIFICATION OF DIRECTORS; PAYMENT OF DIRECTORS' EXPENSES. The Company shall (i) at all times maintain provisions in its By-laws (as they may be amended from time to time) indemnifying any member of the Board of Directors of the Company chosen by the Purchasers pursuant to Section 7.5 against liability and limiting such liability, both to the maximum extent permitted under the laws of the State of Delaware, (ii) enter into an Indemnification Agreement in the form attached hereto as EXHIBIT D with any such member of the Board of Directors, and (iii) promptly reimburse any such member of the Board of Directors of the Company for his or her reasonable out-of-pocket expenses in accordance with the regular policies of the Company's Board of Directors incurred in attending each meeting of the Board of Directors of the Company or any committee thereof of which he or she is a member. (g) DIRECTORS AND OFFICERS LIABILITY INSURANCE. The Company shall obtain and maintain standard directors and officers liability insurance coverage with a financially sound and reputable insurance company to the extent such coverage is available on commercially reasonable terms. (h) CONFLICTING AGREEMENTS. The Company shall not, and shall not permit any of its Subsidiaries to, enter into any agreement or instrument (or amend any existing agreement or instrument) that prohibits the Company from repurchasing or redeeming the Convertible Preferred Stock in accordance with the terms of the Certificate of Incorporation or issuing Common Stock upon conversion of the Convertible Preferred Stock or exercise of the Warrants. 26 33 (i) INVESTMENT COMPANY ACT. The Company shall not become an "investment company" subject to registration under the Investment Company Act of 1940, as amended. (j) FURTHER INSTRUMENTS AND ACTS. The Company shall, and shall cause each of its Subsidiaries to, execute and deliver such further instruments and do such further acts as any holder of Securities acquired directly or indirectly pursuant to this Agreement may deem reasonably necessary or proper to carry out more effectively the purposes of this Agreement and the Other Transaction Documents. 7.3. COMPLIANCE CERTIFICATE. So long as at least 1,000 shares of Convertible Preferred Stock shall remain outstanding, the Company shall deliver to the Purchasers (or their assignees), within forty-five (45) days after the end of each fiscal year of the Company, and within forty-five (45) days after the end of each of the first three quarters of each fiscal year of the Company, an Officers' Certificate stating that (i) a review of the activities of the Company and its Subsidiaries during the preceding fiscal year or quarter, as the case may be, has been made to determine whether the Company has kept, observed, performed and fulfilled all of its obligations under this Agreement and the Securities, (ii) such review was supervised by the Officers of the Company signing such certificate, and (iii) to the best knowledge of each Officer signing such certificate, the Company has in all material respects kept, observed, performed and fulfilled the covenants contained in this Agreement and is not in default in any material respect in the performance or observance of any of the terms, provisions and conditions of this Agreement. 7.4. RESTRICTIONS ON ACTION BY THE COMPANY. As long as (i) at least 1,000 shares of Convertible Preferred Stock are held by the Purchasers, or (ii) Warrants or shares representing at least 1,000 shares of Common Stock are held by the Purchasers and there is not a registration statement in effect covering all such shares of Common Stock, without the prior written consent of Purchasers holding at least a majority of the Common Stock represented by the Securities held by the Purchasers (which consent shall not be unreasonably withheld), the Company shall not, and the Company shall cause the Company's Subsidiaries not to, directly or indirectly, enter into an agreement with respect to, or effect, or permit, any: (i) merger or consolidation of the Company or any Subsidiary with any other Person, recapitalization, reorganization or other like transaction involving the Company or any Subsidiary, or liquidation or dissolution of the Company or any Subsidiary; (ii) sale or transfer of all or substantially all of the Company's consolidated properties or assets; (iii) disposition of assets in one or more transactions for consideration in excess of $1,000,000 without the approval of the Board of Directors of the Company; 27 34 (iv) issuance of any equity securities or any securities exchangeable or convertible into equity securities or measured by earnings or profit of the Company or any Subsidiary, provided that the Company (and the Subsidiaries set forth on Schedule 7.4) may issue securities that rank junior to the Convertible Preferred Stock as to liquidation, dividend and redemption rights; (v) redemption, repurchase or other acquisition for value of any equity security of the Company; (vi) amendment of the Company's or any Subsidiary's Charter Documents; or (vii) incurrence of indebtedness for money borrowed, except for borrowings under the Company's primary credit agreement of up to $3,000,000. The restriction on repurchases contained in Section 7.4(v) shall not apply to the repurchase by the Company of up to 250,000 shares of Common Stock pursuant to the terms of restrictive agreements under which the Corporation has the option to repurchase such shares from employees, officers, directors, consultants, or other persons performing services for the Company or any Subsidiary upon the occurrence of certain events. 7.5. BOARD OF DIRECTORS. So long as any at least 2,000 shares of Convertible Preferred Stock are outstanding, Purchasers (or their transferees) holding a majority of the outstanding Convertible Preferred Stock shall have the right to designate one person as a Director of the Company in accordance with the Certificate of Designations. The Company shall use its best efforts to cause any such designee to be nominated, elected and continued as a Director of the Company and not to be removed for any reason other than in connection with the designation and election of a successor in accordance with the Certificate of Designations. 7.6. EXCHANGE AT SECOND CLOSING. If for any reason the economic terms of the transactions to be consummated at the Second Closing are more favorable to the Purchasers than the economic terms of the Initial Closing (other than the fact that, solely because the Second Closing will occur after the First Closing, the Convertible Preferred Stock issued at the Second Closing will become convertible, and the Warrants issued at the Second Closing will become exercisable, sooner than the Convertible Preferred Stock and Warrants issued at the First Closing), then the Purchasers who purchased Securities at the Initial Closing shall be entitled to receive the economic benefit of the Second Closing with respect to such initially purchased securities, whether through refund, redemption, exchange or otherwise. 8. RESTRICTIONS ON TRANSFER. 8.1. RESTRICTIVE LEGENDS. Except as otherwise permitted by this Section 8.1, each Convertible Preferred Share, Initial Common Share, Warrant and Conversion Share issued 28 35 pursuant to this Agreement shall be stamped or otherwise imprinted with a legend in substantially the following form: THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, NOR PURSUANT TO THE SECURITIES OR "BLUE SKY" LAWS OF ANY STATE. SUCH SECURITIES MAY NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE ASSIGNED, EXCEPT IN ACCORDANCE WITH APPLICABLE "BLUE SKY" LAWS AND PURSUANT TO A REGISTRATION STATEMENT WITH RESPECT TO SUCH SECURITIES WHICH IS EFFECTIVE UNDER SUCH ACT OR AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT. The Company shall maintain a copy of this Agreement and any amendments thereto on file in its principal office, and will make such copy available during normal business hours for inspection to any party thereto or will provide such copy to any holder of Convertible Preferred Shares, Initial Common Shares, Warrants or Conversion Shares upon such holder's request. The legend requirement of this Section 8.1 shall terminate when the applicable securities are transferred pursuant to an effective registration statement under the Securities Act or may be sold pursuant to Rule 144(k) under the Securities Act without regard to the volume or manner of sale limitations set forth therein. 8.2. REMOVAL OF LEGENDS. Whenever the legend requirement imposed by Section 8.1 shall terminate, the respective holders of Convertible Preferred Shares, Initial Common Shares, Warrants or Conversion Shares for which such legend requirements have terminated shall be entitled to receive from the Company, at the Company's expense, new certificates representing such Convertible Preferred Shares, Initial Common Shares, Warrants or Conversion Shares, as applicable, without such legend. 8.3. TRANSFER INFORMATION. The holder of each Convertible Preferred Share, Initial Common Share, Warrants or Conversion Share bearing the restrictive legend set forth in Section 8.1 above agrees with respect to any transfer of such security, upon reasonable request from the Company to such holder, to give to the Company written information describing the transferee and the circumstances of such transfer necessary to establish the availability of an exemption from the registration requirements of the Securities Act. 29 36 9. DEFINITIONS. As used herein the following terms have the following respective meanings: "AFFILIATE" means with respect to any Person, any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act) directly or indirectly controlling or controlled by or under common control with such Person, provided that, for purposes of this definition, "control" (including, with correlative meanings, the terms "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities or by contract or otherwise. "AGREEMENT" means this Agreement, as amended, modified or supplemented from time to time, together with any exhibits, schedules or other attachments thereto. "BOARD OF DIRECTORS" means the Board of Directors of the Company or any committee thereof duly authorized to act on behalf of such Board. "BUSINESS DAY" means any day other than a day on which banks are authorized or required to be closed in the State of New York. "CAPITAL STOCK" means any and all shares, interests, participations, rights in or other equivalents (however designated) of capital stock of a corporation, and any rights, warrants or options exchangeable for or convertible into such capital stock and any and all equivalent ownership interests in a Person (other than a Corporation). "CODE" means the Internal Revenue Code of 1986, and the rules and regulations thereunder, as amended from time to time. "COMMISSION" means the United States Securities and Exchange Commission or any other Federal agency at the time administering the Securities Act, the Exchange Act and other securities laws. "COMPANY" has the meaning ascribed thereto in the introduction hereof, and shall include all successors and assigns of the Company. "ENVIRONMENTAL LAWS" means all federal, state, local and foreign laws and regulations relating to pollution or protection of human health or the environment (including, without limitation, ambient air, surface water, ground water, land surface or subsurface strata), including without limitation, laws and regulations relating to emissions, discharges, releases or threatened releases of Materials of Environmental Concern, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Materials of Environmental Concern. 30 37 "ERISA" means the Employee Retirement Income Security Act of 1974, and the rules and regulations thereunder, as amended from time to time. "EXCHANGE ACT" means the Securities Exchange Act of 1934 and the rules and regulations of the Commission promulgated thereunder, as amended. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession of the United States, which are applicable as of the date of determination. "GOVERNMENT AUTHORITY" means any nation or government, any state, provincial or political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "HAZARDOUS MATERIAL" means and includes any hazardous waste as defined or regulated under any Environmental Law. "INVESTMENT ADVISERS ACT" shall mean the Investment Advisors Act of 1940, and the rules and regulations promulgated thereunder, as such may be amended or supplemented from time to time. "IRS" means the Internal Revenue Service or any successor agency. "LIEN" means any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), or preference, priority or other security agreement of any kind or nature whatsoever, including, without limitation, any conditional sale or other title retention agreement, any financing lease having substantially the same effect as any of the foregoing. "MATERIAL ADVERSE EFFECT" means a material adverse effect on the financial condition, revenues, properties, assets, business or operations of the Company and its Subsidiaries taken as a whole. "MATERIALS OF ENVIRONMENTAL CONCERN" means and includes chemicals, pollutants, contaminants, wastes, toxic substances, petroleum and petroleum products. "OTHER TRANSACTION DOCUMENTS" means, collectively, the Securities and any and all agreements, certificates, instruments and other documents contemplated thereby or executed and delivered in connection therewith or with this Agreement. 31 38 "PERMITTED LIENS" means (i) any minor imperfection of title with respect to such asset which does materially adversely affect the value of such asset or materially interfere with the present use and continuation of such present use of such asset in the business of the Company; (ii) Liens that are not related to mortgages or other financial encumbrances, and any other stated effects, which do not, individually or in the aggregate, materially detract from the value, or, as presently used or occupied, materially interfere with the present occupancy or use of such asset; (iii) Liens in favor of the Company or any of its Subsidiaries; (iv) Liens on property of a Person existing at the time such Person is merged into or consolidated with, or acquired by, the Company or any of its Subsidiaries, provided that such Liens were in existence prior to the contemplation of such merger, consolidation or acquisition and do not extend to any assets other than those of the Person merged into, consolidated with or acquired by the Company or any such Subsidiary; (v) Liens on property existing at the time of acquisition thereof by the Company or any of its Subsidiaries, provided that such Liens were in existence prior to the contemplation of such acquisition; (vi) Liens to secure the performance of statutory obligations, surety or appeal bonds, performance bonds, reimbursement obligations in respect of letters of credit and self-insurance programs or other obligations of a like nature incurred in the ordinary course of business; (vii) Liens existing on the date of this Agreement and set forth on SCHEDULE L hereto; (viii) (A) Liens for taxes, assessments or Government charges or claims and (B) mechanics', materialmen's and similar Liens, in each case that are not yet delinquent or that are being contested in good faith by appropriate proceedings promptly instituted and diligently concluded, provided that any reserve or other appropriate provision as shall be required in conformity with GAAP shall have been made therefor; and (ix) Liens in respect of extensions, renewals, refundings or refinancings of any Indebtedness secured by the Liens referred to in clauses (iii), (iv), (v) and (vii) above; provided that the Liens in connection with such renewal, extensions, renewals, refundings or refinancings shall be limited to all or part of the specific property which was subject to the original Lien and shall not secure an aggregate principal amount of indebtedness which is greater than the aggregate principal amount of indebtedness previously secured (together with any interest capitalized in connection with such refinancing). "PERSON" means any natural person, sole proprietorship, partnership, joint venture, trust, incorporated organization, limited liability company, association, corporation, institution, public benefit corporation, entity or government body (whether federal, state, county, city, municipal or otherwise, including, without limitation, any instrumentality, division, agency, commission or department thereof). "PROPERTY" or "PROPERTY" means any assets or property of any kind or nature whatsoever, real, personal, or mixed (including fixtures), whether tangible or intangible. "PURCHASERS" has the meaning ascribed thereto in the introduction hereof, and shall include all successors and permitted assigns of the Purchasers. 32 39 "PURCHASERS' SPECIAL COUNSEL" means Goodwin, Procter & Hoar LLP, a limited liability partnership including professional corporations, acting as counsel to the Purchasers in connection with the transactions contemplated hereunder. "SECURITIES ACT" means the Securities Act of 1933, and the rules and regulations of the Commission promulgated thereunder, as amended. "SUBSIDIARY" means with respect to any Person, any corporation, association or other business entity of which securities representing more than fifty percent (50%) of the combined voting power of the total Voting Stock (or in the case of an association or other business entity which is not a corporation, more than fifty percent (50%) of the equity interest) is at the time owned or controlled, directly or indirectly, by that Person or one or more Subsidiaries of that Person or a combination thereof. When used herein without reference to any Person, Subsidiary means a Subsidiary of the Company. "TAX RETURN" means any return, declaration, report, claim for refund or information, return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof. "TAX" and "TAXES" means all present and future taxes, surtaxes, duties, levies, imposts, rates, fees, assessments, withholdings and other charges of any nature (including income, corporate, capital (including large corporations), net worth, sales, consumption, use, transfer, goods and services, value-added, stamp, registration, franchise, withholding, payroll, employment, excise, business, and property) imposed by any Government Entity, including without limitation any ad valorem, property, production, excise, severance, windfall profit and similar taxes, together with any fines, interest, penalties or other additions on, to, in lieu, for non-collection of or in respect of those taxes, surtaxes, duties, levies, imposts, rates, fees, assessments, withholdings and other charges. "TRANSACTION DOCUMENTS" means, collectively, this Agreement and the Other Transaction Documents. 33 40 In addition to the foregoing, the following terms are defined in the following Sections of this Agreement:
Term Defined in Section ---- ------------------ "Charter Documents"....................................................4.1 "Closing"..............................................................3 "Closing Date".........................................................3 "Commission"...........................................................4.6(a) "Commission Reports"...................................................4.6(b) "Common Stock".........................................................1.1 "Conversion Shares"....................................................1.1 "Convertible Preferred Stock"..........................................1.1 "Convertible Preferred Stock"..........................Introductory Statement "Employee Program".....................................................4.30(a) "HSR Act"..............................................................3.12 "Indemnified Party" and "Indemnified Parties".........................10.1(a) "Initial Closing"......................................................2.1 "Initial Closing Date".................................................2.1 "Initial Common Shares"................................................1.1 "Intellectual Property"................................................4.25 "License"..............................................................4.4 "Losses"..............................................................10.1(a) "Multiemployer Plan"...................................................4.20(c) "Proxy Statement"......................................................7.1(a) "Purchasers"...........................................Introductory Statement "Securities"...........................................................1.1 "Second Closing".......................................................2.2 "Second Closing Date"..................................................2.2 "Special Stockholders Meeting".........................................7.1(b) "Stockholders Meeting Matter"..........................................7.1(b) "Units"...............................................Introductory Statement
10. INDEMNIFICATION 10.1. INDEMNIFICATION; EXPENSES, ETC. (a) The Company agrees to indemnify and hold harmless the Purchasers, their respective Affiliates, and the employees, officers, partners, members, directors, and agents of the Purchasers and their respective Affiliates (individually, an "INDEMNIFIED PARTY" and, collectively the "INDEMNIFIED PARTIES") from and against any and all losses, claims, damages, liabilities, costs (including the costs of preparation and reasonable attorneys' fees) and expenses (including expenses of investigation) (collectively, "LOSSES") incurred or suffered by an Indemnified Party (i) in connection with or arising out of any breach of any warranty, or 34 41 the inaccuracy of any representation, as the case may be, made by the Company, or the failure of the Company to fulfill any agreement or covenant contained in this Agreement or (ii) in connection with any proceeding against the Company or any Indemnified Party brought by any third party arising out of or in connection with the Transaction Documents or the transactions contemplated hereby or thereby, as the case may be, or any action taken in connection herewith or therewith (or any other document or instrument executed herewith or pursuant hereto or thereto), whether or not the transactions contemplated by this Agreement are consummated or whether or not any Indemnified Party is a formal party to any proceeding; PROVIDED, HOWEVER, that the Company shall not be liable for any losses resulting from action on the part of any Indemnified Party which is finally determined in such proceeding to be an act of gross negligence or willful misconduct by such Indemnified Party. The Company agrees promptly to reimburse any Indemnified Party for all such Losses as they are incurred or suffered by such Indemnified Party which are demonstrated to the reasonable satisfaction of the Company. Except as otherwise provided herein, the Company agrees (for the benefit of the Purchasers) to pay, and to hold each of the Purchasers harmless from and against, all costs and expenses (including, without limitation, reasonable attorneys' fees, expenses and disbursements), if any, incurred in connection with the enforcement against the Company of this Agreement or any Other Transaction Document to which the Company is a party or in connection herewith or therewith in any action in which a Purchaser shall prevail or in any action in which a Purchaser shall in good faith assert any provision of any of the foregoing as a defense. (b) If any Indemnified Party is entitled to indemnification hereunder, such Indemnified Party shall give prompt notice to the Company of any claim or of the commencement of any proceeding against the Company or any Indemnified Party brought by any third party with respect to which such Indemnified Party seeks indemnification pursuant hereto; PROVIDED, HOWEVER, that the failure so to notify the Company shall not relieve the Company from any obligation or liability except to the extent the Company is prejudiced by such failure. The Company shall have the right, exercisable by giving written notice to an Indemnified Party promptly after the receipt of written notice from such Indemnified Party of such claim or proceeding, to assume, at the expense of the Company, the defense of any such claim or proceeding with counsel reasonably satisfactory to such Indemnified Party. The Indemnified Party or Parties will not be subject to any liability for any settlement made without its or their consent (but such consent will not be unreasonably withheld). The Company shall not consent to entry of any judgment or enter into any settlement that does not include as an unconditional term thereof the giving by claimant or plaintiff to such Indemnified Party or Parties of a release, in form and substance satisfactory to the Indemnified Party or Parties, from all liability in respect of such claim, litigation or proceeding. (c) In addition to any other obligations of the Company to indemnify the Purchasers pursuant to any of the Transaction Documents, the Company will pay, and will save the Purchasers and each other holder of any of the Securities harmless from liability for 35 42 the payment of, all expenses arising in connection with the transactions contemplated by the Transaction Documents, including, without limitation: (a) all document production and duplication charges and the reasonable fees, charges and expenses of Purchaser's Special Counsel (whether arising before or after the Closing Date), the transactions contemplated hereby and any subsequent proposed modification of, or proposed consent under, this Agreement, whether or not such proposed modification shall be effected or such proposed consent granted; (b) the costs of obtaining a private placement CUSIP number from Standard & Poor's Corporation for the Securities; (c) the costs and expenses, including attorneys' fees, incurred by the Purchasers in enforcing any rights under this Agreement or in responding to any subpoena or other legal process issued in connection with this Agreement or the transactions contemplated hereby or thereby or by reason of the Purchasers' having acquired any of the Securities, including, without limitation, costs and expenses incurred by the Purchasers in any bankruptcy case; (d) the cost of delivering to the Purchasers' principal office, insured to its satisfaction, the Units delivered to the Purchasers hereunder and any Securities delivered to the Purchasers upon any substitution of Securities pursuant to this Agreement or any of the Transaction Documents and of the Purchasers' delivering any Securities, insured to their satisfaction, upon any such substitution; and (e) the reasonable out-of-pocket expenses incurred by the Purchasers in connection with such transactions and any such amendments or waivers. 10.2. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and warranties contained in this Agreement or the Other Transaction Documents or made in writing by or on behalf of the Company in connection with the transactions contemplated by this Agreement or the Other Transaction Documents shall survive for the duration of any statutes of limitation applicable thereto, the execution and delivery of this Agreement, any investigation at any time made by the Purchasers or on the Purchasers' behalf, the purchase of the Securities by the Purchasers under this Agreement and any disposition of or payment on the Securities. 11. MISCELLANEOUS 11.1. NOTICES, ETC. Any notice or communication under this Agreement shall be duly given if in writing and delivered in person, mailed by registered or certified mail, postage prepaid, return receipt requested or delivered by telecopier or overnight air courier guaranteeing next day delivery to the other's address: If to the Company: Metretek Technologies, Inc. World Trade Center 1675 Broadway Suite 2150 Denver, CO 80202 Fax: (303) 592-5556 Tel: (303) 592-5555 Attn: W. Phillip Marcum, Chairman 36 43 With a copy to: Kegler, Brown, Hill & Ritter Co, L.P.A. Capitol Square Suite 1800 65 East State Street Columbus, OH 43215-4294 Attn: Paul R. Hess, Esq. If to the Purchasers: c/o DDJ Capital Management, LLC 141 Linden Street, Suite S-4 Wellesley, Massachusetts 02181 Attn: General Counsel Fax: (617) 283-8555 Tel: (617) 283-8500 With a copy to: Goodwin, Procter & Hoar LLP Exchange Place Boston, Massachusetts 02109 Attn: Laura Hodges Taylor, P.C. Fax: (617) 570-8150 Tel: (617) 570-1536 The Company or the Purchaser by notice to the other may designate additional or different addresses for subsequent notices or communications. All notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; the date receipt is acknowledged, if mailed by registered or certified mail; when answered back, if telecopied; and the next Business Day after timely delivery to the courier, if sent by overnight air courier guaranteeing next day delivery. 11.2. SEVERABILITY. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or affecting the validity or enforceability of such provisions in any other jurisdiction. 11.3. AMENDMENT AND WAIVER. This Agreement may be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may be given, provided that the same are in writing and signed by the Company and Purchasers (or their assignees) holding at least a majority of the Common Stock issued or issuable pursuant to this Agreement (including upon exercise of the Warrants and conversion of the Convertible Preferred Stock). 11.4. SUCCESSORS AND ASSIGNS. Whenever in this Agreement any of the parties hereto are referred to, such reference shall be deemed to include the successors and assigns of such 37 44 party; and all covenants, promises and agreements by or on behalf of the respective parties which are contained in this Agreement shall bind and inure to the benefit of the successors and assigns of all other parties. The terms and provisions of this Agreement and the Other Transaction Documents shall inure to the benefit of and shall be binding upon any assignee or transferee of a Purchaser, and in the event of such transfer or assignment, the rights and privileges herein conferred upon a Purchaser shall automatically extend to and be vested in, and become an obligation of, such transferee or assignee, all subject to the terms and conditions hereof. In connection therewith, such transferee or assignee may disclose all documents and information which such transferee or assignee now or hereafter may have relating to the Transaction Documents, the Company, any other Persons referred to herein or any of the business of any of the foregoing entities, subject to full compliance with Section 11.9 hereof. 11.5. DESCRIPTIVE HEADINGS. The headings in this Agreement are for purposes of reference only and shall not limit or otherwise affect the meaning hereof. 11.6. GOVERNING LAW. THIS AGREEMENT AND THE SECURITIES SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE INTERNAL LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAW. 11.7. SERVICE OF PROCESS. The Company (a) hereby irrevocably submits itself to the jurisdiction of the state courts of the Commonwealth of Massachusetts and to the jurisdiction of the United States District Court for the District of Massachusetts for the purpose of any suit, action or other proceeding arising out of or based upon this Agreement, the Other Transaction Documents or the subject matter hereof or thereof brought by the Purchaser or its successors or assigns and (b) hereby waives, and agrees not to assert, by way of motion, as a defense, or otherwise, in any such suit, action or proceeding, any claim that it is not subject personally to the jurisdiction of the above-named courts, that its property is exempt or immune from attachment or execution, that the suit, action or proceeding is brought in an inconvenient forum, that the venue of the suit, action or proceeding is improper or that this Agreement or the subject matter hereof may not be enforced in or by such court. The Company hereby consents to service of process by registered mail at the address to which notices are to be given. The Company agrees that its submission to jurisdiction and its consent to service of process by mail is made for the express benefit of the Purchasers. Final judgment against the Company in any such action, suit or proceeding shall be conclusive and may be enforced in other jurisdictions (a) by suit, action or proceeding on the judgment, a certified or true copy of which shall be conclusive evidence of the fact and of the amount of any indebtedness or liability of the Company therein described or (b) in any other manner provided by or pursuant to the laws of such other jurisdiction; PROVIDED, HOWEVER, that the Purchasers may at their option bring suit or institute other judicial proceedings against the Company or any of the Company's assets in any state or federal court of the United States or in any country or place where the Company or such assets may be found. 38 45 11.8. COUNTERPARTS. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, and it shall not be necessary in making proof of this Agreement to produce or account for more than one such counterpart. 11.9. DISCLOSURE TO OTHER PERSONS. The Purchasers agree to keep confidential any financial information delivered by the Company pursuant to this Agreement (other than information that is publicly available) and such other non-public proprietary information delivered by the Company that is clearly designated in writing to be or otherwise known by the Purchasers to be confidential; PROVIDED, HOWEVER, that nothing herein shall prevent the Purchasers from disclosing such information: (a) to any prospective purchaser who agrees in writing to be bound by this Section 11.9, (b) to any Affiliate, director, officer, employee, agent and professional consultant of any prospective purchasers, in its capacity as such or any actual purchaser, participant, assignee, or transferee of the Purchasers' or prospective purchaser's rights under any Securities that agrees in writing to be bound by this Section 11.9, (c) upon order of any court or administrative agency having jurisdiction over such party, (d) upon the request or demand of any regulatory agency or authority having jurisdiction over such party, (e) which has been publicly disclosed through no breach of the Purchasers, (f) which has been obtained from any Person that is not a party hereto or an Affiliate of any such party, (g) in connection with the exercise of any remedy hereunder, (h) to the certified public accountants for the Purchasers or as required in summary financial or descriptive business information disclosed by the Purchasers as part of their regular reports to investors or partners, or (i) as otherwise expressly contemplated by this Agreement. In order to permit the Company to remove or limit any order, request or demand or to obtain confidential treatment for any disclosure pursuant to (c) or (d) above, the Purchasers will use reasonable efforts to inform the Company of any such request for disclosure prior to disclosure. Nothing in this Section 11.9 shall be construed to create or give rise to any fiduciary duty on the part of the Purchasers to the Company. 11.10. WAIVER OF JURY TRIAL. THE PARTIES HERETO HEREBY WAIVE TRIAL BY JURY IN ANY LITIGATION, SUIT OR PROCEEDING, IN ANY COURT WITH RESPECT TO, IN CONNECTION WITH, OR ARISING OUT OF THIS AGREEMENT, ANY OTHER TRANSACTION DOCUMENTS, OR ANY INSTRUMENT OR DOCUMENT DELIVERED PURSUANT TO THIS AGREEMENT OR ANY OTHER TRANSACTION DOCUMENTS, OR THE VALIDITY, PROTECTION, INTERPRETATION, COLLECTION OR ENFORCEMENT THEREOF, PROVIDED, HOWEVER, THAT WITH RESPECT TO ANY COMPULSORY COUNTERCLAIM (I.E., A CLAIM BY ONE PARTY AGAINST ANOTHER PARTY WHICH IF NOT BROUGHT IN SUCH ACTION WOULD RESULT IN THE PARTY BRINGING SUCH CLAIM BEING FOREVER BARRED FROM BRINGING SUCH CLAIM), THE PARTY BRING SUCH CLAIM SHALL HAVE THE RIGHT TO RAISE SUCH COMPULSORY COUNTERCLAIM IN ANY SUCH LITIGATION. [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK] 39 46 SECURITIES PURCHASE AGREEMENT COMPANY SIGNATURE PAGE IN WITNESS WHEREOF, the undersigned, being duly authorized, has executed this Agreement on behalf of the Company as of the date first above written. METRETEK TECHNOLOGIES, INC., a Delaware corporation By: /s/ A. Bradley Gabbard ---------------------------------- Name: A. Bradley Gabbard Title: Executive Vice President S-1 47 SECURITIES PURCHASE AGREEMENT PURCHASER SIGNATURE PAGE State Street Bank & Trust, solely in its capacity as Trustee for General Motors Employees Global Group Pension Trust as directed by DDJ Capital Management, LLC, and not in its individual capacity By: /s/ Michael Connors -------------------------------- Name: Michael Connors Title: Assistant Vice President S-2 48 DDJ Canadian High Yield Fund By: DDJ Capital Management, LLC, its attorney-in-fact By: /s/ David J. Breazzano --------------------------------- Name: David J. Breazzano Title: Member S-3 49 B III-A Capital Partners, L.P. By: GP III-A, LLC, its General Partner By: DDJ Capital management, LLC, Manager By: /s/ David J. Breazzano --------------------------------- Name: David J. Breazzano Title: Member S-4 EX-2 3 CERTIFICATE OF DESIGNATION OF SERIES B STOCK 1 Exhibit 2 CERTIFICATE OF DESIGNATION OF SERIES B PREFERRED STOCK OF METRETEK TECHNOLOGIES, INC. Pursuant to Series 151 of the General Corporation Law of the State of Delaware Metretek Technologies, Inc., a Delaware corporation (the "Corporation"), does hereby certify that, pursuant to the authority contained in Article Fourth of its Restated Certificate of Incorporation, as amended, and in accordance with the provisions of Section 151 of the General Corporation Law of the State of Delaware, the Board of Directors of the Corporation has duly adopted the following resolution: RESOLVED, that pursuant to the authority vested in the Board of Directors by the Restated Certificate of Incorporation, as amended (the "Restated Certificate"), the Board of Directors hereby authorizes the issuance of shares of Series B Preferred Stock, par value $.01 per share, of the Corporation and hereby fixes the designation, powers, preferences and relative, participating, optional and other rights of such shares, and the qualification, limitations and restrictions thereof, in addition to those set forth in the Restated Certificate, as follows: PREFERRED SERIES B - ------------------ 1. DESIGNATION. A total of 1,000,000 shares of the Corporation's Preferred Stock shall be designated as a class known as Series B Preferred Stock, par value $0.01 per share (the "Convertible Preferred Stock"). All of the preferential amounts to be paid to the holders of the Convertible Preferred Stock as provided in this Section A shall be paid or set apart for payment before the payment or setting apart for payment of any amount for, or the distribution of any property of the Corporation to, the holders of any other equity securities of the Corporation, whether now or hereafter authorized. 2. ELECTION OF DIRECTORS. So long as an aggregate of at least 2,000 shares of Convertible Preferred Stock remain outstanding, the holders of outstanding shares of Convertible Preferred Stock shall, voting together as a separate class, be entitled to elect one (1) Director. Such Director shall be the individual receiving the greatest number of affirmative votes of the outstanding shares of Convertible Preferred Stock (the "Convertible Preferred Stock Director Designee"), with each share of Convertible Preferred Stock entitled to one (1) vote, and with votes cast against such person and votes withheld having no legal effect. Each Director so elected shall hold office in accordance with the terms for directors elected at such meeting as provided by law, the Certificate of Incorporation, as amended, or the by-laws of the Corporation in effect at the time, provided that such Director shall in any event cease to hold office at such time as the holders of Convertible Preferred Stock are no longer entitled to elect a Director in accordance with this Section A.2. The election of the Convertible Preferred Stock Director Designee by the holders of the Convertible Preferred Stock shall occur (i) at the annual meeting of holders of capital stock, (ii) at any special meeting of holders of capital stock, (iii) at any special meeting of holders of Convertible Preferred Stock called by holders of a majority of the outstanding shares of Convertible Preferred Stock (a "Majority Interest") or (iv) by the written consent of holders of not less than sixty-six and two-thirds percent (662/3%) of the outstanding shares of Convertible Preferred Stock (a "Two Thirds Interest"). If at any time when any share of Convertible Preferred Stock is outstanding the Convertible Preferred Stock Director Designee should cease to be a Director for any reason, the vacancy shall only be filled by the vote or written consent of holders of the outstanding shares of Convertible Preferred Stock, voting together as a separate class, in the manner and on the basis specified above. The holders of a majority of the outstanding shares of Convertible Preferred Stock, may, in their sole discretion, determine to elect fewer than one (1) Convertible Preferred Stock Director Designee from time to time, and during any such period the Board of Directors nonetheless shall be deemed duly constituted. The holders of Common Stock and the holders of any other class of capital stock of the Company with the right to vote in the election of directors, voting together as a single class, shall be entitled to elect the remaining members of the Board of Directors. 3. DIVIDENDS. The holders of shares of Convertible Preferred Stock shall be entitled, in preference to the holders of any and all other classes of capital stock of the Corporation, to receive, when, as and if declared by the Board of Directors, out of funds legally available therefor, cumulative dividends on the Convertible Preferred Stock in cash at the rate per annum of eight percent (8%) (the "Dividend Rate") of the Initial Liquidation 2 Preference or $80.00 per share of Convertible Preferred Stock (adjusted appropriately for stock splits, stock dividends, recapitalizations and the like with respect to the Convertible Preferred Stock, and subject to adjustment pursuant to Section A.5(e) hereof) as of the original issuance date of the Convertible Preferred Stock (for any such issuance, the "Convertible Preferred Original Issuance Date"), subject to proration for partial years on the basis of a 365-day year, compounded quarterly on March 31, June 30, September 30 and December 31 of each year (the "Convertible Cumulative Dividend"). Such dividends will accumulate commencing as of the Convertible Preferred Original Issuance Date and shall be cumulative, to the extent unpaid, whether or not they have been declared and whether or not the Corporation may legally pay the dividends. Such dividends shall become due and payable with respect to any shares of Convertible Preferred Stock as provided in Sections A.4, A.5 and A.6. Dividends paid in an amount less than the total amount of such dividends at the time accumulated and payable on all outstanding shares of Convertible Preferred Stock shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. So long as at least 1,000 shares of Convertible Preferred Stock are outstanding and the Convertible Cumulative Dividends have not been paid in full: (a) no dividend whatsoever (other than dividends paid in stock) shall be paid or declared, and no distribution shall be made, on any Common Stock or other capital stock of the Corporation ranking with regard to dividend rights, rights upon a Liquidation Event (as defined in Section A.4 below) or an Extraordinary Transaction (as defined in Section A.5(a)(ii) below) or redemption rights junior to or on a parity with the Convertible Preferred Stock; and (b) except as provided in Section A.8(c), no shares of Common Stock or other capital stock of the Corporation ranking with regard to dividend rights, rights upon a Liquidation Event or an Extraordinary Transaction or redemption rights junior to or on a parity with the Convertible Preferred Stock shall be purchased, redeemed or acquired by the Corporation and no monies shall be paid into or set aside or made available for a sinking fund for the purchase, redemption or acquisition thereof. In addition to Convertible Cumulative Dividends, the holders of Convertible Preferred Stock shall be entitled to receive dividends out of funds legally available therefor at such times and in such amounts as the Board of Directors may determine in its sole discretion; PROVIDED, HOWEVER, that no cash or Common Stock dividend may be declared or paid on any shares of Common Stock unless at the same time a dividend is declared or paid on all outstanding shares of Convertible Preferred Stock, with holders of Convertible Preferred Stock and Common Stock sharing in any such dividends as if they constituted a single class of stock and with each holder of shares of Convertible Preferred Stock entitled to receive such dividends based on the number of shares of Common Stock into which such shares of Convertible Preferred Stock are then convertible in accordance with Section A.6 hereof. 4. LIQUIDATION. (a) LIQUIDATION PREFERENCE. Upon any liquidation, dissolution or winding up of the Corporation and its subsidiaries, whether voluntary or involuntary (a "Liquidation Event"), each holder of outstanding shares of Convertible Preferred Stock shall be entitled to be paid out of the assets of the Corporation available for distribution to stockholders, whether 2 3 such assets are capital, surplus or earnings, and before any amount shall be paid or distributed to the holders of Common Stock or of any other stock ranking on liquidation junior to the Convertible Preferred Stock, an amount in cash, equal to (i) $1,000 per share of Convertible Preferred Stock held by such holder (adjusted appropriately for stock splits, stock dividends, recapitalizations and the like with respect to the Convertible Preferred Stock) (the "Initial Liquidation Preference"), plus (ii) any accumulated but unpaid dividends to which such holder of outstanding shares of Convertible Preferred Stock is then entitled, if any, pursuant to Sections A.3, A.5(e) and A.5(f) hereof (the sum of clauses (i) and (ii) being referred to herein as the "Convertible Liquidation Preference Amount"); PROVIDED, HOWEVER, that if upon any Liquidation Event, the amounts payable with respect to the Convertible Liquidation Preference Amount are not paid in full, the holders of the Convertible Preferred Stock shall share ratably in any distribution of assets in proportion to the full respective preferential amounts to which they are entitled; and provided further, however, that if upon any Liquidation Event the holders of the outstanding shares of Convertible Preferred Stock would have received more than the Convertible Liquidation Preference Amount in the event their shares were converted into Common Stock immediately prior to such Liquidation Event and such shares of Common Stock pursuant to Section A.6(a) received a liquidating distribution or distributions from the Corporation, then each holder of Convertible Preferred Stock shall receive as a distribution from the Corporation in connection with such Liquidation Event an amount equal to the amount that would be paid if such holder's shares of Convertible Preferred Stock were converted into Common Stock immediately prior to such Liquidation Event pursuant to A.6(a). The provisions of this Section A.4 shall not in any way limit the right of the holders of Convertible Preferred Stock to elect to convert their shares of Convertible Preferred Stock into Common Stock pursuant to Section A.6 prior to or in connection with any Liquidation Event. Upon any Liquidation Event, holders of fractional shares of Convertible Preferred Stock shall receive proportionate payments in respect thereof. (b) NOTICE. Prior to the occurrence of any Liquidation Event, the Corporation will furnish each holder of Convertible Preferred Stock notice in accordance with Section A.9 hereof, together with a certificate prepared by the chief financial officer of the Corporation describing in detail the facts of such Liquidation Event, stating in detail the amount(s) per share of Convertible Preferred Stock each holder of Convertible Preferred Stock would receive pursuant to the provisions of Section A.4(a) hereof pursuant to clauses (i), (ii) and (iii) or the proviso of Section A.4(a) and stating in detail the facts upon which such amounts were determined. 5. REDEMPTION; PREFERENTIAL PAYMENT IN EXTRAORDINARY TRANSACTIONS. (a) REDEMPTION. (i) TIME BASED REDEMPTION. On December 9, 2004, the Corporation shall redeem all of the outstanding shares of Convertible Preferred Stock held by each holder of Convertible Preferred Stock. The redemption price for each share of Convertible Preferred Stock redeemed pursuant to this Section A.5(a)(i) shall be the per share Convertible 3 4 Liquidation Preference Amount (as defined in Section A.4(a) above) (the "Convertible Redemption Price"). (ii) REDEMPTION UPON EXTRAORDINARY TRANSACTIONS. Upon the occurrence of an "Extraordinary Transaction," the holders of not less than a Majority Interest may elect (i) to have the Convertible Preferred Stock redeemed in connection with the Extraordinary Transaction or (ii) otherwise to participate in the Extraordinary Transaction. "Extraordinary Transaction" means any of the following: (A) a merger or consolidation of the Corporation with or into another corporation (with respect to which less than a majority of the outstanding voting power of the surviving or consolidated corporation is held by stockholders of the Corporation immediately prior to such event), (B) the sale or transfer of all or substantially all of the properties and assets of the Corporation and its subsidiaries, (C) any purchase by any party (or group of affiliated parties) of shares of capital stock of the Corporation (either through a negotiated stock purchase or a tender for such shares), the effect of which is that such party (or group of affiliated parties) that did not beneficially own a majority of the voting power of the outstanding shares of capital stock of the Corporation immediately prior to such purchase beneficially owns at least a majority of such voting power immediately after such purchase, or (D) the redemption or repurchase of shares representing a majority of the voting power of the outstanding shares of capital stock of the Corporation immediately prior to such redemption. As a condition to the effectiveness of any Extraordinary Transaction, unless the holders of Convertible Preferred Stock shall have elected to convert their shares of Convertible Preferred Stock into Common Stock in accordance with the provisions of Section A.6 prior to the effective date of such Extraordinary Transaction, the Corporation shall either (1) if redemption is elected, on the effective date of such Extraordinary Transaction, redeem all (but not less than all) of the outstanding shares of Convertible Preferred Stock held by each holder of Convertible Preferred Stock for an amount equal to the Convertible Redemption Price, such amount to be payable in cash or, at the election of such holder or holders, in the same form of consideration as is paid to the holders of Common Stock in such Extraordinary Transaction, or (2) if the holders elect to participate in the relevant transaction (such as a merger) on terms acceptable to them, take such actions as shall be sufficient to facilitate such participation (including executing a merger agreement including an exchange ratio reflecting the provisions hereof) (on terms giving such holders the right to the Convertible Redemption Price as a preferential amount, in which event such amount shall be paid in cash or, at the election of such holders, in the same form of consideration as is paid to the holders of Common Stock in such Extraordinary Transaction, but in preference to and before any amount is paid or otherwise distributed to the holders of the Common Stock or any other stock ranking with regard to dividend rights, rights upon a Liquidation Event or an Extraordinary Transaction, or redemption rights junior to the Convertible Preferred Stock, in which event such preferential amount shall be deemed to have been distributed to the holders of the Convertible Preferred Stock as if in a Liquidation Event). For purposes of this Section A.5(a)(ii), a sale of substantially all of the assets of the Corporation and its subsidiaries shall mean the sale or other 4 5 disposition other than in the ordinary course of business of more than 75% of such assets, by reference to the book value or the fair market value of such assets, determined on a consolidated basis under generally accepted accounting principles. Notwithstanding the foregoing, if upon any Extraordinary Transaction the holders of the outstanding shares of Convertible Preferred Stock would receive more than the Convertible Redemption Price in the event their shares were converted into Common Stock immediately prior to such Extraordinary Transaction and such shares of Common Stock were purchased or otherwise participated in such Extraordinary Transaction, then each holder of Convertible Preferred Stock shall receive from the Corporation or the relevant purchaser, as applicable, upon the election by a Majority Interest to redeem or otherwise participate in such Extraordinary Transaction, an amount equal to the amount per share that would be paid if the shares of Common Stock receivable upon conversion of the Convertible Preferred Stock were being acquired in the Extraordinary Transaction at the same price per share as is paid for other shares of Common Stock, which amount shall be paid in the same form of consideration as is paid to holders of Common Stock, as if each share of Convertible Preferred Stock had been converted into the number of shares of Common Stock issuable upon the conversion of such share of Convertible Preferred Stock immediately prior to such Extraordinary Transaction. Also, notwithstanding the foregoing, in connection with the acquisition of the Convertible Preferred Stock in an Extraordinary Transaction which is to be accounted for by the acquiring entity as a pooling of interests, the holders of shares of Convertible Preferred Stock shall receive upon such election to redeem or otherwise participate, if so required for the application of such accounting treatment, and in lieu of cash, the number of shares of common stock of such entity having a value equal to the amount otherwise payable to the holders of Convertible Preferred Stock in such Extraordinary Transaction pursuant to this Section A.5(a)(ii) and having the same registered status or registration rights as any other shares in such transaction. The Corporation shall not participate in any Extraordinary Transaction or make or agree to have made any payments to the holders of shares of Common Stock or any other stock ranking junior to the Convertible Preferred Stock unless the holders of the Convertible Preferred Stock shall have received the full preferential amount to which they are entitled hereunder in an Extraordinary Transaction. The foregoing election shall be made by such holders giving the Corporation and each other holder of Convertible Preferred Stock not less than five (5) business days prior written notice, which notice shall set forth the date for such redemption or participation in an Extraordinary Transaction, as applicable. The provisions of this Section A.5 shall not in any way limit the right of the holders of Convertible Preferred Stock to elect to convert their shares into shares of Common Stock pursuant to Section A.6 prior to or in connection with any Extraordinary Transaction. (iii) REDEMPTION AT THE OPTION OF THE COMPANY. In the event that, at any time commencing on the Anniversary Date (as defined in Section A.7(a)), the market price of the Common Stock equals or exceeds 200% of the Conversion Price then in effect for 20 out of a period of 30 consecutive trading days (any period of 30 days where this condition has been 5 6 met being referred to herein as a "Redemption Period"), then the Company shall have the right, in its discretion during any Redemption Period or within the 30 days immediately following the Redemption Period, to send 30 days' prior written notice to each holder of Convertible Preferred Stock and after such 30-day period, to redeem all outstanding shares of Convertible Preferred Stock at a redemption price equal to the Convertible Redemption Price; provided, that no such redemption may be effected if at any time between the giving of the notice of redemption and the date on which redemption is to occur there is not in effect a registration statement covering the sale by the holders thereof of all shares of Common Stock issuable upon conversion of the Convertible Preferred Stock. (b) VALUATION OF DISTRIBUTION SECURITIES. Any securities or other consideration to be delivered to the holders of the Convertible Preferred Stock, if so elected in connection with a redemption or upon any Extraordinary Transaction in accordance with the terms hereof, shall be valued as follows: (i) If traded on a nationally recognized securities exchange or inter-dealer quotation system, the value shall be deemed to be the average of the closing prices of the securities on such exchange or system over the 30-day period ending three (3) business days prior to the closing of such Extraordinary Transaction; (ii) If traded over-the-counter, the value shall be deemed to be the average of the closing bid prices over the 30-day period ending three (3) business days prior to the closing of such Extraordinary Transaction; and (iii) If there is no active public market, the value shall be the fair market value thereof, as mutually determined by the Corporation and the holders of not less than a Two Thirds Interest, provided that if the Corporation and the holders of not less than a Two Thirds Interest are unable to reach agreement, then by independent appraisal by a mutually agreed to investment banker, the fees of which shall be paid by the Corporation. (c) NOTICE BY CORPORATION. Prior to the occurrence of any Extraordinary Transaction, the Corporation will furnish each holder of Convertible Preferred Stock notice in accordance with Section A.9 hereof, together with a certificate prepared by the chief financial officer of the Corporation describing in detail all material terms of such Extraordinary Transaction, including without limitation the consideration to be delivered in connection with such Extraordinary Transaction, the valuation of the Corporation at the time of such Extraordinary Transaction and the identities of the parties to the Extraordinary Transaction. (d) PURCHASE DATE AND PRICE. Upon the election of the holders of not less than a Majority Interest to cause the Corporation to redeem Convertible Preferred Stock or otherwise to participate in an Extraordinary Transaction pursuant to Section A.5(a)(ii), each holder of Convertible Preferred Stock shall be deemed to have elected to cause the shares held by such holder to be so redeemed or to so participate. Any date upon which a redemption or other acquisition is to occur in accordance with Section A.5(a) shall be referred to as a 6 7 "Redemption Date." If at a Redemption Date shares of Convertible Preferred Stock are unable to be redeemed (as contemplated by Section A.5(e) below), then holders of Convertible Preferred Stock shall also be entitled to interest and dividends pursuant to Sections A.5(e) and (f) below. The aggregate applicable redemption price elected to be payable in cash pursuant to Section A.5(a) shall be payable in cash in immediately available funds to the respective holders on the Redemption Date (subject to Section A.5(e)), except as otherwise contemplated by Section A.5(a)(ii). Upon any redemption as provided herein, holders of fractional shares shall receive proportionate amounts in respect thereof. Until the aggregate applicable redemption price has been paid for all shares of Convertible Preferred Stock being redeemed or acquired: (A) no dividend whatsoever shall be paid or declared, and no distribution shall be made, on any capital stock of the Corporation; and (B) except as permitted by Section A.8(c), no shares of capital stock of the Corporation (other than in accordance with this Section A.5) shall be purchased, redeemed or acquired by the Corporation and no monies shall be paid into or set aside or made available for a sinking fund for the purchase, redemption or acquisition thereof. (e) REDEMPTION PROHIBITED. If, at a Redemption Date, the Corporation is prohibited under Section 160 of the General Corporation Law of the State of Delaware from redeeming all shares of Convertible Preferred Stock for which redemption is required hereunder, then it shall redeem such shares on a pro-rata basis among the holders of Convertible Preferred Stock in proportion to the full respective redemption amounts to which they are entitled hereunder to the extent possible and shall redeem the remaining shares to be redeemed as soon as the Corporation is not prohibited from redeeming some or all of such shares under Section 160 of the General Corporation Law of the State of Delaware, subject to the last paragraph of Section A.8. Any shares of Convertible Preferred Stock not redeemed shall remain outstanding and entitled to all of the rights and preferences provided in this Section A. The Corporation shall take such action as shall be necessary or appropriate to review and promptly remove any impediment to its ability to redeem Convertible Preferred Stock under the circumstances contemplated by this Section A.5(e). In the event that the Corporation fails for any reason to redeem shares for which redemption is required pursuant to this Section A.5, including without limitation due to a prohibition of such redemption under the General Corporation Law of the State of Delaware, then during the period from the applicable Redemption Date through the date on which such shares are redeemed, the applicable Dividend Rate shall increase by 2% per annum and shall increase by an additional .5% at the end of each six (6) month period thereafter until the Redemption Price (as so increased) is paid in full, subject to a maximum rate of 15% per annum. (f) DIVIDEND AFTER REDEMPTION DATE. From and after a Redemption Date, no shares of Convertible Preferred Stock subject to redemption shall be entitled to dividends, if any, as contemplated by Section A.3; PROVIDED, HOWEVER, that in the event that shares of Convertible Preferred Stock are unable to be redeemed and continue to be outstanding in accordance with Section A.5(e), such shares shall continue to be entitled to dividends and interest thereon as provided in Sections A.3 and A.5(e) until the date on which such shares are actually redeemed by the Corporation. 7 8 (g) SURRENDER OF CERTIFICATES. Upon receipt of the applicable Convertible Redemption Price by certified check or wire transfer (in the event such price is to be paid in cash), each holder of shares of Convertible Preferred Stock to be redeemed shall surrender the certificate or certificates representing such shares to the Corporation, duly assigned or endorsed for transfer (or accompanied by duly executed stock powers relating thereto), or, in the event the certificate or certificates are lost, stolen or missing, shall deliver an affidavit or agreement satisfactory to the Corporation to indemnify the Corporation from any loss incurred by it in connection therewith (an "Affidavit of Loss") with respect to such certificates at the principal executive office of the Corporation or the office of the transfer agent for the Convertible Preferred Stock or such office or offices in the continental United States of an agent for redemption as may from time to time be designated by notice to the holders of Convertible Preferred Stock, and each surrendered certificate shall be canceled and retired; PROVIDED, HOWEVER, that if the Corporation is prohibited from redeeming all shares of Convertible Preferred Stock as provided in Section A.5(e) or such redemption is a partial redemption of the shares of Convertible Preferred Stock held by a holder, the holder shall not be required to surrender said certificate(s) to the Corporation until said holder has received a new stock certificate for those shares of Convertible Preferred Stock not so redeemed. (h) FURTHER RESTRICTIONS ON REDEMPTION. Notwithstanding anything herein to the contrary, the Convertible Preferred Stock shall not be redeemed hereunder unless (i) all obligations of the Corporation under the Loan and Security Agreement dated April 14, 1998 among the Corporation, certain of its subsidiaries, and National Bank of Canada, as agent and as a lender, and the other lenders from time to time party thereto (collectively, the "Lender") shall have been or is concurrently paid in full, or (ii) the Lenders shall have consented to such redemption. If the Corporation is prohibited from redeeming the Convertible Preferred Stock hereunder, the holders of Convertible Preferred Stock shall be entitled to the provisions of Section A.5(e) and A.5(f) hereof. 6. CONVERSION. The holders of the Convertible Preferred Stock shall have the following conversion rights: (a) CONVERSION UPON ELECTION OF HOLDER. Any holder of shares of Convertible Preferred Stock shall be entitled at any time after June 9, 2000, upon written election and without the payment of any additional consideration, to cause any or all of such holder's shares of Convertible Preferred Stock to be converted into the number of shares of Common Stock resulting from dividing the Conversion Value (as defined in this Section A.6(a)) per share in effect for the Convertible Preferred Stock at the time of conversion, as the numerator, by the per share Conversion Price (as defined in this Section A.6(a)) of the Convertible Preferred Stock, as the denominator, with fractional shares treated proportionately. The number of shares of Common Stock into which a share of a Convertible Preferred Stock is convertible is hereinafter referred to as the "Conversion Rate." Upon the filing of this Certificate of Designation with the Secretary of State of Delaware the "Conversion Price" per share of Convertible Preferred Stock shall be $5.9334, and the per share "Conversion Value" of Convertible Preferred Stock shall be the sum of $1,000 plus per 8 9 share accumulated but unpaid dividends on the Convertible Preferred Stock at the time of conversion. The Conversion Price per share of Convertible Preferred Stock and the Conversion Rate shall be subject to adjustment from time to time as provided in Section A.7 hereof. (b) PROCEDURE FOR CONVERSION. Upon election to convert pursuant to Section A.6(a), the relevant holder of Convertible Preferred Stock shall surrender the certificate or certificates representing the Convertible Preferred Stock being converted, duly assigned or endorsed for transfer to the Corporation (or accompanied by duly executed stock powers relating thereto), at the principal executive office of the Corporation or the offices of the transfer agent for the Convertible Preferred Stock or such office or offices in the continental United States of an agent for conversion as may from time to time be designated by notice to the holders of the Convertible Preferred Stock by the Corporation, or shall deliver an Affidavit of Loss with respect to such certificates. The issuance by the Corporation of Common Stock upon a conversion of Convertible Preferred Stock pursuant to Section A.6(a) hereof shall be effective as of the surrender of the certificate or certificates for the Convertible Preferred Stock to be converted, duly assigned or endorsed for transfer to the Corporation (or accompanied by duly executed stock powers relating thereto), or as of the delivery of an Affidavit of Loss. Upon surrender of a certificate representing Convertible Preferred Stock for conversion, or delivery of an Affidavit of Loss, the Corporation shall issue and send by hand delivery, by courier or by first class mail (postage prepaid) to the holder thereof or to such holder's designee, at the address designated by such holder, certificates for the number of shares of Common Stock to which such holder shall be entitled upon conversion (rounded to the nearest whole share) plus, if applicable, a cash payment in the amount of any accumulated but unpaid dividends and other amounts as contemplated by Section A.6(a) in respect of the shares of Convertible Preferred Stock. The issuance of certificates for Common Stock upon conversion of Convertible Preferred Stock will be made without charge to the holders of such shares for any issuance tax in respect thereof or other costs incurred by the Corporation in connection with such conversion and the related issuance of such stock. If a conversion of Convertible Preferred Stock upon a Liquidation Event or an Extraordinary Transaction occurs and the holders of the Common Stock issued on such conversion elect to participate, the Corporation shall make appropriate provisions for the Common Stock issued upon such conversion to be treated on the same basis as all other Common Stock in such Liquidation Event or Extraordinary Transaction. (c) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock solely for the purpose of effecting the conversion of the shares of Convertible Preferred Stock such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of Convertible Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all of the then outstanding shares of Convertible Preferred Stock, the Corporation will take such corporate action as may be necessary to increase its authorized but 9 10 unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose. (d) NO CLOSING OF TRANSFER BOOKS. The Corporation shall not close its books against the transfer of shares of Convertible Preferred Stock in any manner which would interfere with the timely conversion of any shares of Convertible Preferred Stock. 7. ADJUSTMENTS. The Conversion Price in effect from time to time shall be subject to adjustment from and after the Convertible Preferred Original Issuance Date and regardless of whether any shares of Convertible Preferred Stock are then issued and outstanding as follows: (a) ADJUSTMENT UPON CHANGE IN MARKET VALUE. If on December 9, 2000 (the "Anniversary Date") the product of (a) 1.10 multiplied by (b) the sum of (i) the average closing bid price of the Common Stock for the 30 trading days immediately preceding the Anniversary Date, plus (ii) on an as-converted, per share basis, the fair market value on the Anniversary Date (as determined in good faith by the Board of Directors and reasonably agreed to by a Two-Thirds Interest, except that if the distribution includes any securities, the fair market value of such securities shall be determined by reference to Section A.5(b) hereof) of any securities, cash or assets (excluding any dividend or distribution paid exclusively in cash or in Common Stock) which prior to the Anniversary Date are distributed or made payable to the holders of Convertible Preferred Stock (such product the "Reset Price"), is less than the Conversion Price then in effect, then the Conversion Price shall be adjusted to equal the Reset Price and shall be subject to further adjustment as provided herein; provided, however, that in no event shall the Conversion Price be reduced by more than 50% pursuant to this Section A.7(a). Any dispute as to fair market value hereunder shall be resolved by independent appraisal by a mutually agreed investment banker, the fees of which shall be paid by the Corporation. (b) DIVIDENDS AND STOCK SPLITS. If the number of shares of Common Stock (which term for purposes of this Section A.7 shall include all common stock of the Corporation) outstanding at any time after the date hereof is increased by a stock dividend or distribution payable in shares of Common Stock or by a subdivision or split-up of shares of Common Stock, then, on the date such payment is made or such change is effective, the Conversion Price shall be appropriately decreased so that the number of shares of Common Stock issuable on conversion of any shares of Convertible Preferred Stock shall be increased in proportion to such increase of outstanding shares of Common Stock. (c) REVERSE STOCK SPLITS. If the number of shares of Common Stock outstanding at any time after the date hereof is decreased by a combination or reverse split of the outstanding shares of Common Stock, then, on the effective date of such combination or reverse split, the Conversion Price shall be appropriately increased so that the number of shares of Common Stock issuable on conversion of any shares of Convertible Preferred Stock shall be decreased in proportion to such decrease in outstanding shares of Common Stock. 10 11 (d) SALE OF COMMON STOCK. In the event the Corporation shall at any time, or from time to time, issue, sell or exchange any shares of Common Stock (including shares held in the Corporation's treasury but excluding (I) up to 1,211,236 shares and options issued to officers, directors or employees of the Corporation or upon the exercise of options or other rights issued to such officers, directors or employees pursuant to the Corporation's stock option, stock purchase and related employee plans (II) up to 1,555,150 shares issuable upon exercise of warrants or other rights issued by the Company prior to the first date any shares of Convertible Preferred Stock are issued or (III) any securities issuable upon conversion of the Convertible Preferred Stock or exercise of warrants issued pursuant to the Securities Purchase Agreement dated December 9, 1999 (the "Purchase Agreement") (the "Excluded Shares")), for a consideration per share (the "Purchase Price") less than the greater of (a) the Market Price (as hereinafter defined) of the Common Stock in effect immediately prior to the issuance, sale or exchange of such shares or (b) the Conversion Price in effect immediately prior to the issuance, sale or exchange of such shares, then, and thereafter successively upon each such issuance, sale or exchange, the Conversion Price in effect immediately prior to the issuance, sale or exchange of such shares shall be reduced to an amount determined by multiplying such Conversion Price by a fraction: (i) the numerator of which shall be (X) the number of shares of Common Stock of all classes outstanding immediately prior to the issuance of such additional shares of Common Stock (excluding treasury shares but including all shares of Common Stock issuable upon conversion or exercise of any outstanding Convertible Preferred Stock, options, warrants, rights or convertible securities having an exercise or conversion price less than such Purchase Price), plus (Y) the number of shares of Common Stock which the net aggregate consideration received by the Corporation for the total number of such additional shares of Common Stock so issued would purchase at the Conversion Price (prior to adjustment), and (ii) the denominator of which shall be (X) the number of shares of Common Stock of all classes outstanding immediately prior to the issuance of such additional shares of Common Stock (excluding treasury shares but including all shares of Common Stock issuable upon conversion or exercise of any outstanding Convertible Preferred Stock, options, warrants, rights or convertible securities having an exercise or conversion price less than such Purchase Price), plus (Y) the number of such additional shares of Common Stock so issued. The "Market Price" of the Common Stock on any date shall mean the last sale price, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange or, if the Common Stock is not listed or admitted to trading on the New York Stock Exchange, as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which the Common Stock is listed or admitted to trading or, if the Common Stock is not listed or admitted to trading on any national securities exchange, the last quoted price, or if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as 11 12 reported by the Nasdaq Stock Market, Inc.'s Automated Quotation System or, if such system is no longer in use, the principal other automated quotation system that may then be in use, or if the Common Stock is not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the Common Stock that is selected by the Board of Directors of the Company, or, if there is no such professional market maker, such amount as an independent investment banking firm selected by the Board of Directors of the Company determines to be the value of a share of Common Stock. (e) SALE OF OPTIONS, RIGHTS OR CONVERTIBLE SECURITIES. In the event the Corporation shall at any time or from time to time, issue options, warrants or rights to subscribe for shares of Common Stock, or issue any securities convertible into or exchangeable for shares of Common Stock (other than any options or warrants for Excluded Shares), for a Purchase Price (determined by dividing the Net Aggregate Consideration (as determined below) by the aggregate number of shares of Common Stock that would be issued if all such options, warrants, rights or convertible securities were exercised or converted to the fullest extent permitted by their terms) less than the greater of (a) the Market Price in effect immediately prior to the issuance, sale or exchange of such shares or (b) the Conversion Price in effect immediately prior to the issuance of such options or rights or convertible or exchangeable securities, then the Conversion Price in effect immediately prior to the issuance of such options, warrants or rights or securities shall be reduced to an amount determined by multiplying such Conversion Price by a fraction: (i) the numerator of which shall be (X) the number of shares of Common Stock of all classes outstanding immediately prior to the issuance of such options, rights or convertible securities (excluding treasury shares but including all shares of Common Stock issuable upon conversion or exercise of any outstanding Convertible Preferred Stock, options, warrants, rights or convertible securities having an exercise or conversion price less than such Purchase Price), plus (Y) the number of shares of Common Stock which the total amount of consideration received by the Corporation for the issuance of such options, warrants, rights or convertible securities plus the minimum amount set forth in the terms of such security as payable to the Corporation upon the exercise or conversion thereof (the "Net Aggregate Consideration") would purchase at the Conversion Price prior to adjustment, and (ii) the denominator of which shall be (X) the number of shares of Common Stock of all classes outstanding immediately prior to the issuance of such options, warrants, rights or convertible securities (excluding treasury shares but including all shares of Common Stock issuable upon conversion or exercise of any outstanding Convertible Preferred Stock, options, warrants, rights or convertible securities having an exercise or conversion price less than such Purchase Price), plus (Y) the aggregate number of shares of Common Stock that would be issued if all such options, warrants, rights or convertible securities were exercised or converted. 12 13 (f) EXPIRATION OR CHANGE IN PRICE. If the consideration per share provided for in any options or rights to subscribe for shares of Common Stock or any securities exchangeable for or convertible into shares of Common Stock, changes at any time (other than as a result of the operation of the antidilution provision of this Section A.7 or the antidilution provisions of certain Warrants issued by the Corporation pursuant to the Purchase Agreement), the Conversion Price in effect at the time of such change shall be readjusted to the Conversion Price which would have been in effect at such time had such options or convertible securities provided for such changed consideration per share (determined as provided in Section A.7(d) hereof), at the time initially granted, issued or sold; PROVIDED, that such adjustment of the Conversion Price will be made only as and to the extent that the Conversion Price effective upon such adjustment remains less than or equal to the Conversion Price that would be in effect if such options, rights or securities had not been issued. No adjustment of the Conversion Price shall be made under this Section A.7 upon the issuance of any additional shares of Common Stock which are issued pursuant to the exercise of any warrants, options or other subscription or purchase rights or pursuant to the exercise of any conversion or exchange rights in any convertible securities if an adjustment shall previously have been made upon the issuance of such warrants, options or other rights. Any adjustment of the Conversion Price shall be disregarded if, as, and when the rights to acquire shares of Common Stock upon exercise or conversion of the warrants, options, rights or convertible securities which gave rise to such adjustment expire or are canceled without having been exercised, so that the Conversion Price effective immediately upon such cancellation or expiration shall be equal to the Conversion Price in effect at the time of the issuance of the expired or canceled warrants, options, rights or convertible securities, with such additional adjustments as would have been made to that Conversion Price had the expired or canceled warrants, options, rights or convertible securities not been issued. (g) OTHER ADJUSTMENTS. In case the Company shall, by dividend, distribution or otherwise, distribute to all holders of its Common Stock evidences of its indebtedness, shares of any class or series of capital stock, other securities, cash or assets (excluding (i) any options, rights or warrants referred to in Section A.7(e), and (ii) any dividend or distribution paid exclusively in cash or in Common Stock), then, at the election of a Majority Interest, either (A) adequate provision shall be made so that holders of Convertible Preferred Stock shall receive upon conversion thereof, in addition to the number of shares of Common Stock receivable thereupon, the evidence of indebtedness, shares of any class or series of capital stock, securities of any issuer other than the Corporation, cash or assets which they would have received had the Convertible Preferred Stock been converted into Common Stock as to the date referenced for the payment of such distribution (the "Reference Date"), or (B) the Conversion Price shall be reduced so that such price shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the effectiveness of the Conversion Price reduction contemplated by this Section A.7(g) by a fraction, the numerator of which shall be the Market Price (determined as provided in Section A.7(d) per share of the Common Stock on the Reference Date less the fair market value (as determined, subject to the last sentence of this Section A.7(g), in good faith by the Board of Directors, whose determination shall be conclusive and described in a resolution of the Board of Directors), on 13 14 the Reference Date, of such number or amount of the evidences of indebtedness, shares of capital stock, securities, cash and assets that is so distributed to a holder of one share of Common Stock, and the denominator shall be such Market Price per share of the Common Stock, such reduction to become effective immediately prior to the opening of business on the day following the Reference Date. Notwithstanding any other provision of this Section A.7(g), if any shares of capital stock distributed to a holder of Common Stock are listed or admitted to trading on any national securities exchange or on the Nasdaq Stock Market, or quoted on any other automated quotation system that may then be in use, for the five consecutive trading days prior to and including the Reference Date, or will be listed or admitted to trading or quoted thereon as of (but not prior to) the Reference Date for the ten consecutive trading days subsequent to and including the Reference Date, then, the Board of Directors, in making its determination of the fair market value of such number of shares of capital stock that are so distributed to a holder of one share of Common Stock, shall make such determination by reference to the Market Price (as determined by reference to Section 7(d)) of such shares of capital stock as of the Reference Date. (h) REORGANIZATION, ETC. If the Common Stock issuable upon the conversion of the Convertible Preferred Stock shall be changed into the same or different number of shares of any class or classes of stock, whether by reclassification or otherwise (other than a subdivision or combination of shares or stock dividend provided for above, or a reorganization, merger, consolidation or sale of assets provided for elsewhere in this Section A.7), then and in each such event the holder of each share of Convertible Preferred Stock shall have the right thereafter to convert such share into the kind and amount of shares of stock and other securities and property receivable upon such reorganization, reclassification or other change, by holders of the number of shares of Common Stock into which such shares of Convertible Preferred Stock might have been converted immediately prior to such reorganization, reclassification or change, all subject to further adjustment as provided herein. (i) MERGERS AND OTHER REORGANIZATIONS. Unless such transaction is an Extraordinary Transaction in which the holders of the Convertible Preferred Stock elect redemption or otherwise participate (in which case Section A.5(a)(ii) shall apply and this subsection shall not apply), if at any time or from time to time there shall be a capital reorganization of the Common Stock (other than a subdivision, combination, reclassification or exchange of shares provided for elsewhere in this Section A.7) or a merger or consolidation of the Corporation with or into another corporation or the sale of all or substantially all of the Corporation's properties and assets to any other person, then, to the extent permitted by law, as part of and as a condition to the effectiveness of such reorganization, merger, consolidation or sale, lawful and adequate provision shall be made so that the holders of the Convertible Preferred Stock shall thereafter be entitled to receive upon conversion of the Convertible Preferred Stock the number of shares of stock or other securities or property of the Corporation, or of the successor corporation resulting from such merger or consolidation or sale, to which a holder of Common Stock would have been entitled in connection with such capital reorganization, merger, consolidation, or sale. In any such case, appropriate provisions shall be made with respect to the rights of the holders of the Convertible Preferred Stock after 14 15 the reorganization, merger, consolidation or sale to the end that the provisions of this Section A.7 (including, without limitation, provisions for adjustment of the applicable Conversion Price and the number of shares purchasable upon conversion of the Convertible Preferred Stock) shall thereafter be applicable, as nearly as may be, with respect to any shares of stock, securities or assets to be deliverable thereafter upon the conversion of the Convertible Preferred Stock. (j) CALCULATIONS. All calculations under this Section A.7 shall be made to the nearest cent or to the nearest one hundredth (1/100) of a share, as the case may be. (k) CERTIFICATE. Upon the occurrence of each adjustment or readjustment pursuant to this Section A.7, the Corporation at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and prepare and furnish to each holder of Convertible Preferred Stock a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Corporation shall, upon written request at any time of any holder of Convertible Preferred Stock, furnish or cause to be furnished to such holder a like certificate setting forth (i) such adjustments and readjustments, (ii) the Conversion Price before and after such adjustment or readjustment, and (iii) the number of shares of Common Stock and the amount, if any, of other property which at the time would be received upon the conversion of such holder's shares of Convertible Preferred Stock. (l) DISPUTES. In the event of a dispute in connection with an adjustment hereunder, the Corporation will cause independent certified public accountants of recognized national standing (which may be the regular auditors of the Corporation) selected by the Corporation to verify such computation (other than any computation of the fair value of property as determined in good faith by the Board of Directors of the Corporation) and prepare a report setting forth such adjustment or readjustment and showing in reasonable detail the method of calculation thereof and the facts upon which such adjustment or re-adjustment is based. The Corporation will forthwith mail a copy of each such report to the holders of Convertible Preferred Stock and will, upon the written request at any time of any such holder, furnish to such holder a like report setting forth the Conversion Price at the time in effect and showing in reasonable detail how it was calculated. The Corporation will also keep copies of all such reports at its principal office and will cause the same to be available for inspection at such office during normal business hours by any holder of Convertible Preferred Stock or any prospective purchaser of such stock designated by the holder thereof. (m) MULTIPLE ADJUSTMENTS. If any single transaction or event would require adjustment of the Conversion Price pursuant to more than one of the provisions described above, only one adjustment shall be made and such adjustment shall be in the amount of the adjustment having the highest absolute value to the holders of the Convertible Preferred Stock. (n) MINIMUM ADJUSTMENT. No adjustment in the Conversion Price shall be required to be made unless and until such adjustment would require a change of at least one 15 16 percent (1%) of the Conversion Price then in effect; provided, however, that any adjustment that would not be required to be made shall be taken into account and in subsequent adjustment. 8. COVENANTS. (a) So long as at least 1,000 shares of Convertible Preferred Stock shall be outstanding, the Corporation shall not, without first having provided written notice of such proposed action to each holder of outstanding shares of Convertible Preferred Stock and having obtained the affirmative vote or written consent of the holders of not less than a Majority Interest, voting as a single class, with each share of Convertible Preferred Stock entitling the holder thereof to one vote per share of Convertible Preferred Stock held by such holder, directly or indirectly (which consent shall not be unreasonably withheld), enter into an agreement with respect to, or effect, or permit, any: (i) merger or consolidation of the Corporation or any of its subsidiaries with any other person or entity, recapitalization, reorganization or other like transaction involving the Corporation or any of its subsidiaries, or liquidation or dissolution of the Corporation or any of its subsidiaries; (ii) sale or transfer of all or substantially all of the Corporation's consolidated properties or assets; (iii) disposition of assets in one or more transactions for consideration in excess of $1,000,000 without the approval of the Board of Directors of the Corporation; or (iv) incurrence of indebtedness for money borrowed, except for borrowings under the Corporation's primary credit agreement of up to $3,000,000. (b) So long as any shares of Convertible Preferred Stock shall be outstanding, the Corporation shall not, without first having provided written notice of such proposed action to each holder of outstanding shares of Convertible Preferred Stock and having obtained the affirmative vote or written consent of the holders of not less than a Majority Interest, voting as a single class, with each share of Convertible Preferred Stock entitling the holder thereof to one vote per share of Convertible Preferred Stock held by such holder, directly or indirectly, enter into an agreement with respect to, or effect, or permit, any: (i) issuance of any equity securities (including Convertible Preferred Stock, except as contemplated by the Purchase Agreement) or any securities exchangeable or convertible into equity securities or measured by earnings or profit of the Corporation or any of its subsidiaries (other than Series C Preferred Stock); provided, that the Corporation or any subsidiary permitted to do so 16 17 under the Purchase Agreement may issue securities that rank junior to the Convertible Preferred Stock as to liquidation, dividend and redemption rights; (ii) redemption, repurchase or other acquisition for value of any equity security of the Corporation (other than redemption of the Convertible Preferred Stock in accordance with the terms hereof); or (iii) amendment of the Corporation's or any of its subsidiaries' certificate of incorporation, bylaws or other charter documents as in effect on the date of filing of this Certificate of Designations. (c) The prohibition on repurchases contained in Section A.8(b)(i) shall not apply to the repurchase by the Corporation of up to 250,000 shares of Common Stock pursuant to the terms of restrictive agreements under which the Corporation has the option to repurchase such shares from employees, officers, directors, consultants, or other persons performing services for the Corporation or any subsidiary upon the occurrence of certain events. Further, the Corporation shall not, by amendment of its Certificate of Incorporation or through any Extraordinary Transaction or other reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities, agreement or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation but shall at all times in good faith assist in the carrying out of all the provisions of this Section A and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the holders of the Convertible Preferred Stock against impairment. Without limitation of the foregoing, the Corporation shall take such action as shall be necessary or appropriate, to the extent reasonably within its control, to remove promptly any impediments to its ability to redeem Convertible Preferred Stock under the circumstances contemplated by Section A.5(e). Any successor to the Corporation shall agree, as a condition to such succession, to carry out and observe the obligations of the Corporation hereunder with respect to the Convertible Preferred Stock. 9. NOTICE. (a) LIQUIDATION EVENTS, EXTRAORDINARY TRANSACTIONS, ETC. In the event (i) the Corporation establishes a record date to determine the holders of any class of securities who are entitled to receive any dividend or other distribution or who are entitled to vote at a meeting (or by written consent) in connection with any of the transactions identified in clause (ii) hereof, or (ii) any Liquidation Event (as defined in Section A.4) or any Extraordinary Transaction (as defined in Section A.5), becomes reasonably likely to occur, the Corporation shall mail or cause to be mailed by first class mail (postage prepaid) to each holder of Convertible Preferred Stock at least twenty (20) days prior to such record date specified therein or the expected effective date of any such transaction, whichever is earlier, a notice specifying (A) the date of such record date for the purpose of such dividend or distribution or meeting or consent and a description of such dividend or distribution or the action to be taken at such 17 18 meeting or by such consent, (B) the date on which any such Liquidation Event, Extraordinary Transaction or public offering is expected to become effective, and (C) the date on which the books of the Corporation shall close or a record shall be taken with respect to any such event. (b) WAIVER OF NOTICE. The holder or holders of not less than a Two Thirds Interest of the outstanding shares of Convertible Preferred Stock may, at any time upon written notice to the Corporation, waive any notice provisions specified herein for the benefit of such holders, and any such waiver shall be binding upon all holders of such securities. (c) GENERAL. In the event that the Corporation provides any notice, report or statement to any holder of Common Stock, the Corporation shall at the same time provide a copy of any such notice, report or statement to each holder of outstanding shares of Convertible Preferred Stock. 10. NO REISSUANCE OF CONVERTIBLE PREFERRED STOCK. No share or shares of Convertible Preferred Stock acquired by the Corporation by reason of redemption, purchase, conversion or otherwise shall be reissued, and all such shares shall be canceled, retired and eliminated from the shares which the Corporation shall be authorized to issue. 11. CONTRACTUAL RIGHTS OF HOLDERS. The various provisions set forth herein for the benefit of the holders of the Convertible Preferred Stock shall be deemed contract rights enforceable by them, including without limitation, one or more actions for specific performance. 12. NOTICES. Any notice required by any provision of this Section A to be given to the holders of shares of Convertible Preferred Stock shall be deemed given three (3) business days after being deposited in the United States mail, postage pre-paid and registered or certified, and addressed to each holder of record at such holder's address appearing on the stock records of the Company. IN WITNESS WHEREOF, the Corporation has caused this Certificate of Designation of Series B Preferred Stock to be duly executed by its Executive Vice President and attested to by its Secretary this 9th day of December, 1999. METRETEK TECHNOLOGIES, INC. By /s/ A. Bradley Gabbard ---------------------------- A. Bradley Gabbard Executive Vice President ATTEST: /s/ Gary J. Zuiderveen - -------------------------------- Gary J. Zuiderveen, Secretary 18 EX-3 4 COMMON STOCK PURCHASE WARRANT 1 EXHIBIT 3 THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, NOR PURSUANT TO THE SECURITIES OR "BLUE SKY" LAWS OF ANY STATE AND MAY NOT BE OFFERED, ASSIGNED, TRANSFERRED, SOLD, OR OTHERWISE DISPOSED OF, EXCEPT IN ACCORDANCE WITH APPLICABLE "BLUE SKY" LAWS AND PURSUANT TO A REGISTRATION STATEMENT WITH RESPECT TO SUCH SECURITIES WHICH IS EFFECTIVE UNDER SUCH ACT OR AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT. No. ____ December 9, 1999 COMMON STOCK PURCHASE WARRANT ----------------------- THIS CERTIFIES THAT ______________________ (the "Holder"), for value received and subject to the terms and conditions set forth in this Warrant (the "Warrant"), is entitled to purchase at any time prior to the Expiration Date (as defined herein) from Metretek Technologies, Inc., a Delaware corporation (the "Company"), any or all of _____________ duly authorized, validly issued, fully paid and nonassessable shares of common stock, par value $.01 per share (the "Common Stock"), at a purchase price of $6.7425 per share (the "Initial Exercise Price"). This Warrant is originally issued in connection with the execution and delivery of the Securities Purchase Agreement dated as of December 9, 1999 (the "Securities Purchase Agreement") by and among the Company, the Holder and the other purchasers named therein. This Warrant evidences the right to purchase an aggregate of _______________ shares of Common Stock, subject to adjustment as provided herein. Certain capitalized terms used in this Warrant are defined in Section 12 hereof. 1. EXERCISE OF WARRANT. 1.1 MANNER OF EXERCISE; PAYMENT. 1.1.1 This Warrant may be exercised by the Holder, in whole or in part, during normal business hours on any Business Day after March 9, 2000 and on or prior to the Expiration Date, by surrender of this Warrant to the Company at its principal office identified in Section 11.2(a) hereof, accompanied by a subscription in substantially the form attached to this Warrant duly executed by the Holder and accompanied by payment as follows, at the option of the Holder: either (i) by certified or bank cashier's check made payable to the 2 Company or by wire transfer of immediately available funds to an account designated by the Company in an amount equal to, or (ii) shares of Common Stock with an aggregate Current Market Price equal to, the product of (a) the number of shares of Common Stock for which this Warrant is being exercised multiplied by (b) the Exercise Price (such product the "Total Exercise Price"). The Holder shall thereupon be entitled to receive the number of duly authorized, validly issued, fully paid and nonassessable shares of Common Stock (or Other Securities) determined as provided in Sections 2 through 4 hereof. 1.1.2 As an alternative to paying the Total Exercise Price in cash or Common Stock, the Holder may elect instead to receive upon exercise of this Warrant, upon surrender of this Warrant to the Company at its principal office identified in Section 11.2(a) hereof, accompanied by a subscription in substantially the form attached to this Warrant duly executed by the Holder, a number of duly authorized, validly issued, fully paid and nonassessable shares of Common Stock (or Other Securities) equal to (a) the difference between (x) the product of (aa) the number of shares of Common Stock (or Other Securities) which the Holder would as of the date of exercise be entitled to receive upon exercise of this Warrant, multiplied by (bb) the Current Market Price as of the date of exercise of each such share of Common Stock (or such Other Securities) so receivable upon such exercise, minus (y) the product of (aa) the number of shares determined in (x)(aa) above, multiplied by (bb) the Exercise Price, such difference divided by (b) the Current Market Price of the Common Stock (or Other Securities) as of the date of exercise. 1.2 EXPIRATION DATE. This Warrant shall expire at 5:00 p.m. Eastern Daylight Time on December 9, 2004 (the "Expiration Date"). 1.3 EFFECTIVENESS OF EXERCISE. The exercise of this Warrant shall be deemed to have been effected immediately prior to the close of business on the Business Day on which this Warrant shall have been surrendered to the Company as provided in Section 1.1 hereof, and at such time the Person or Persons in whose name or names any certificate or certificates for shares of Common Stock (or Other Securities) shall be issuable upon such exercise as provided in Section 1.4 hereof shall be deemed to have become the holder or holders of record thereof. 1.4 DELIVERY OF STOCK CERTIFICATES AND CASH. As soon as practicable after the exercise of this Warrant, and in any event within three (3) Business Days thereafter, the Company will deliver to the Holder any cash to be paid to the Holder pursuant to Section 1.1 hereof and, at its expense (including the payment by it of any applicable issue taxes), will cause to be issued in the name of and delivered to the Holder or, subject to Section 8 hereof, as the Holder (upon payment by the Holder of any applicable transfer taxes) may direct, a certificate or certificates for the number of duly authorized, validly issued, fully paid and nonassessable shares of Common Stock (or Other Securities) to which the Holder shall be entitled upon such exercise (rounded to the nearest whole share) plus, in lieu of any fractional share to which the Holder would otherwise be entitled, cash in an amount equal to the same 2 3 fraction of the Current Market Price per share on the Business Day next preceding the date of such exercise. If the Warrant has been exercised in part, the Company shall also deliver at such time to the Holder a new Warrant of like tenor exercisable for the balance of the shares of Common Stock for which this Warrant may be exercised. 2. ADJUSTMENT OF STOCK ISSUABLE UPON EXERCISE 2.1 GENERAL; NUMBER OF SHARES; EXERCISE PRICE. The number of shares of Common Stock which the Holder shall be entitled to receive upon the exercise hereof shall be the number of shares of Common Stock originally issuable upon the exercise of this Warrant as adjusted, from time to time, pursuant to this Section 2. The "Exercise Price," which shall initially be the Initial Exercise Price, shall be adjusted and readjusted from time to time as provided in this Section 2 and, as so adjusted and readjusted, shall remain in effect until a further adjustment or readjustment thereof is required by this Section 2. 2.2 ADJUSTMENT UPON CHANGE IN MARKET VALUE. If on December 9, 2000 (the "Anniversary Date"), the product of (a) 1.25 multiplied by (b) the average closing bid price of the Common Stock for the 30 trading days immediately preceding the Anniversary Date (the "Reset Price"), is less than the Exercise Price then in effect, then the Exercise Price shall be adjusted to equal the Reset Price and shall be subject to further adjustment as provided herein. 2.3 The Exercise Price in effect and number of shares for which this Warrant is exercisable shall be subject to adjustment from and after the date of issuance of this Warrant as follows: 2.3.1 DIVIDENDS AND STOCK SPLITS; REVERSE STOCK SPLITS. If the number of shares of Common Stock (which term for purposes of this Section 2.3 shall include all common stock of the Company) outstanding at any time after the date hereof is increased by a stock dividend payable in shares of Common Stock or by a subdivision or split-up of shares of Common Stock or decreased by a combination or reverse split of the outstanding shares of Common Stock, then, on the date such payment is made or such change is effective, the Exercise Price in effect immediately prior to such action shall be adjusted by multiplying such Exercise Price by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately before such event, and the denominator of which is the number of shares of Common Stock outstanding immediately after such event. 2.3.2 SALE OF COMMON STOCK. In the event the Company shall at any time, or from time to time, issue, sell or exchange any shares of Common Stock (including shares held in the Company's treasury but excluding up to (I) 1,211,236 shares and options issued to officers, directors or employees of the Company or upon the exercise of options or other rights issued to such officers, directors or employees pursuant to the Company's stock option, stock purchase and related employee plans (II) up to 1,555,150 shares issuable upon exercise of warrants or other rights issued by the Company prior to the date this Warrant was issued, or 3 4 (III) any securities issuable upon conversion of the Company's Series B Preferred Stock or exercise of warrants issued pursuant to the Securities Purchase Agreement (the "Excluded Shares")), for a consideration per share (the "Purchase Price") less than the greater of (a) the Market Price of the Common Stock in effect immediately prior to the issuance, sale or exchange of such shares or (b) the Exercise Price in effect immediately prior to the issuance, sale or exchange of such shares, then, and thereafter successively upon each such issuance, sale or exchange, the Exercise Price in effect immediately prior to the issuance, sale or exchange of such shares shall be reduced to an amount determined by multiplying such Exercise Price by a fraction: (A) the numerator of which shall be (X) the number of shares of Common Stock of all classes outstanding immediately prior to the issuance of such additional shares of Common Stock (excluding treasury shares but including all shares of Common Stock issuable upon conversion or exercise of any outstanding options, warrants, rights or convertible securities having an exercise or purchase price less than such Purchase Price), plus (Y) the number of shares of Common Stock which the net aggregate consideration received by the Company for the total number of such additional shares of Common Stock so issued would purchase at the Exercise Price (prior to adjustment), and (B) the denominator of which shall be (X) the number of shares of Common Stock of all classes outstanding immediately prior to the issuance of such additional shares of Common Stock (excluding treasury shares but including all shares of Common Stock issuable upon conversion or exercise of any outstanding options, warrants, rights or convertible securities having an exercise or purchase price less than such Purchase Price), plus (Y) the number of such additional shares of Common Stock so issued. 2.3.3 SALE OF OPTIONS, RIGHTS OR CONVERTIBLE SECURITIES. In the event the Company shall at any time or from time to time, issue options, warrants or rights to subscribe for shares of Common Stock, or issue any securities convertible into or exchangeable for shares of Common Stock (other than any options or warrants for Excluded Shares), for a Purchase Price (determined by dividing the Net Aggregate Consideration (as determined below) by the aggregate number of shares of Common Stock that would be issued if all such options, warrants, rights or convertible securities were exercised or converted to the fullest extent permitted by their terms) less than the greater of (a) the Market Price in effect immediately prior to the issuance, sale or exchange of such shares or (b) the Exercise Price in effect immediately prior to the issuance of such options or rights or convertible or exchangeable securities, then the Exercise Price in effect immediately prior to the issuance of such options, warrants or rights or securities shall be reduced to an amount determined by multiplying such Exercise Price by a fraction: 4 5 (A) the numerator of which shall be (X) the number of shares of Common Stock of all classes outstanding immediately prior to the issuance of such options, rights or convertible securities (excluding treasury shares but including all shares of Common Stock issuable upon conversion or exercise of any outstanding options, warrants, rights or convertible securities having an exercise or purchase price less than such Purchase Price), plus (Y) the number of shares of Common Stock which the total amount of consideration received by the Company for the issuance of such options, warrants, rights or convertible securities plus the minimum amount set forth in the terms of such security as payable to the Company upon the exercise or conversion thereof (the "Net Aggregate Consideration") would purchase at the Exercise Price prior to adjustment, and (B) the denominator of which shall be (X) the number of shares of Common Stock of all classes outstanding immediately prior to the issuance of such options, warrants, rights or convertible securities (excluding treasury shares but including all shares of Common Stock issuable upon conversion or exercise of any outstanding options, warrants, rights or convertible securities having an exercise or purchase price less than such Purchase Price), plus (Y) the aggregate number of shares of Common Stock that would be issued if all such options, warrants, rights or convertible securities were exercised or converted. 2.3.4 EXPIRATION OR CHANGE IN PRICE. If the consideration per share provided for in any options or rights to subscribe for shares of Common Stock or any securities exchangeable for or convertible into shares of Common Stock, changes at any time (other than as a result of the operation of the antidilution provisions of this Section 2 or the antidilution provisions relating to the Company's preferred stock), the Exercise Price in effect at the time of such change shall be readjusted to the Exercise Price which would have been in effect at such time had such options or convertible securities provided for such changed consideration per share, at the time initially granted, issued or sold; PROVIDED, that such adjustment of the Exercise Price will be made only as and to the extent that the Exercise Price effective upon such adjustment remains less than or equal to the Exercise Price that would be in effect if such options, rights or securities had not been issued. No adjustment of the Exercise Price shall be made under this Section 2.3.4 upon the issuance of any additional shares of Common Stock which are issued pursuant to the exercise of any warrants, options or other subscription or purchase rights or pursuant to the exercise of any conversion or exchange rights in any convertible securities if an adjustment shall previously have been made upon the issuance of such warrants, options or other rights. Any adjustment of the Exercise Price shall be disregarded if, as, and when the rights to acquire shares of Common Stock upon exercise or conversion of the warrants, options, rights or convertible securities which gave rise to such adjustment expire or are canceled without having been exercised, so that the Exercise Price effective immediately upon such cancellation or expiration shall be equal to the Exercise Price in effect at the time of the issuance of the expired or canceled warrants, options, rights or convertible securities, with such additional adjustments as would have been made to that 5 6 Exercise Price had the expired or canceled warrants, options, rights or convertible securities not been issued. 2.3.5 ADJUSTMENT OF NUMBER OF SHARES FOR WHICH WARRANT IS EXERCISABLE. Upon each adjustment in the Exercise Price pursuant to this Section 2, the number of shares of Common Stock purchasable hereunder shall be adjusted, to the next larger whole share, to the product obtained by multiplying the number of shares purchasable immediately prior to such adjustment in the Exercise Price by a fraction (i) the numerator of which shall be the Exercise Price immediately prior to such adjustment and (ii) the denominator of which shall be the Exercise Price immediately thereafter. 2.3.6 OTHER ADJUSTMENTS. In the event the Company shall make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in securities of the Company other than shares of Common Stock, then and in each such event lawful and adequate provision shall be made so that the Holder of this Warrant shall receive upon exercise hereof in addition to the number of shares of Common Stock receivable thereupon, the number of securities of the Company which the Holder would have received had the Warrant been exercised in full on the date of such event and had the Holder thereafter, during the period from the date of such event to and including the date of conversion, retained such securities receivable by the Holder as aforesaid during such period, giving application to all adjustments called for during such period under this Section 2 as applied to such distributed securities. 2.3.7 REORGANIZATION, ETC. If the Common Stock issuable upon the exercise of this Warrant shall be changed into the same or different number of shares of any class or classes of stock, whether by reclassification or otherwise (other than a subdivision or combination of shares or stock dividend provided for above, or a reorganization, merger, consolidation or sale of assets provided for elsewhere in this Section 2), then and in each such event the Holder of this Warrant shall have the right thereafter to receive upon exercise hereof the kind and amount of shares of stock and other securities and property receivable upon such reorganization, reclassification or other change, by holders of the number of shares of Common Stock for which this Warrant might have been exercised immediately prior to such reorganization, reclassification or change, all subject to further adjustment as provided herein. 2.3.8 MERGERS AND OTHER REORGANIZATIONS. If at any time or from time to time there shall be a capital reorganization of the Common Stock (other than a subdivision, combination, reclassification or exchange of shares provided for elsewhere in this Section 2) or a merger or consolidation of the Company with or into another Company or the sale of all or substantially all of the Company's properties and assets to any other person, then, as part of and as a condition to the effectiveness of such reorganization, merger, consolidation or sale, lawful and adequate provision shall be made so that the Holder of this Warrant shall thereafter be entitled to receive upon exercise hereof the number of shares of stock or other securities or property of the Company, or of the successor Company resulting from such merger or 6 7 consolidation or sale, to which a holder of Common Stock would have been entitled in connection with such capital reorganization, merger, consolidation, or sale. In any such case, appropriate provisions shall be made with respect to the rights of the Holder of this Warrant after the reorganization, merger, consolidation or sale to the end that the provisions of this Section 2 (including, without limitation, provisions for adjustment of the applicable Exercise Price and the number of shares purchasable upon exercise of this Warrant) shall thereafter be applicable, as nearly as may be, with respect to any shares of stock, securities or assets to be deliverable thereafter upon the exercise of this Warrant. 2.3.9 CALCULATIONS. All calculations under this Section 2 shall be made to the nearest cent or to the nearest one hundredth (1/100) of a share, as the case may be. 2.3.10 MULTIPLE ADJUSTMENTS. If any single transaction or event would require adjustment of the Exercise Price pursuant to more than one of the provisions described above, only one adjustment shall be made and such adjustment shall be in the amount of the adjustment having the highest absolute value to the Holder. 2.3.11 MINIMUM ADJUSTMENT. No adjustment in the Exercise Price shall be required to be made unless and until such adjustment would require a change of at least one percent (1%) of the Exercise Price then in effect; provided, however, that any adjustment that would not be required to be made shall be taken into account and in subsequent adjustment. 2.3.12 CERTIFICATE. Upon the occurrence of each adjustment or readjustment pursuant to this Section 2, the Company at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and prepare and furnish to the Holder a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Company shall, upon written request at any time of the Holder, furnish or cause to be furnished to such holder a like certificate setting forth (i) such adjustments and readjustments, (ii) the Exercise Price before and after such adjustment or readjustment, and (iii) the number of shares of Common Stock and the amount, if any, of other property which at the time would be received upon the exercise of this Warrant. 3. OTHER DILUTIVE EVENTS. In case any event shall occur as to which the provisions of Section 2 hereof are not strictly applicable but the failure to make any adjustment would not, in the opinion of the Holder, fairly protect the purchase rights represented by this Warrant in accordance with the essential intent and principles of such Section, then, in each such case, at the request of the Holder, the Company shall appoint a firm of independent investment bankers of recognized national standing (which shall be completely independent of the Company and shall be reasonably satisfactory to the Holder), which shall give their opinion upon the adjustment, if any, on a basis consistent with the essential intent and principles established in Section 2 hereof, necessary to preserve, without dilution or expansion, the 7 8 purchase rights represented by this Warrant. Upon receipt of such opinion, the Company shall promptly mail a copy thereof to the Holder and shall make the adjustments described therein. 4. NO DILUTION OR IMPAIRMENT. The Company will not, by amendment of its certificate of incorporation or through any consolidation, merger, reorganization, transfer of assets, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the holder of this Warrant against dilution or other impairment. Without limiting the generality of the foregoing, the Company (a) will not permit the par value of any shares of stock receivable upon the exercise of this Warrant to exceed the amount payable therefor upon such exercise, (b) will take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of stock on the exercise of the Warrants from time to time outstanding, and (c) will not take any action which results in any adjustment of the Exercise Price if the total number of shares of Common Stock (or Other Securities) issuable after the action upon the exercise of all of the Warrants would exceed the total number of shares of Common Stock (or Other Securities) then authorized by the Company's certificate of incorporation and available for the purpose of issue upon such exercise. 5. DISPUTES REGARDING ADJUSTMENTS. In the event of a dispute in connection with an adjustment under this Warrant, the Company will cause independent certified public accountants of recognized national standing (which may be the regular auditors of the Company) selected by the Company to verify such computation (other than any computation of the fair value of property as determined in good faith by the Board of Directors of the Company) and prepare a report setting forth such adjustment or readjustment and showing in reasonable detail the method of calculation thereof and the facts upon which such adjustment or re-adjustment is based. The Company will forthwith mail a copy of each such report to the Holder and will, upon the written request at any time of the Holder, furnish to the Holder a like report setting forth the Exercise Price at the time in effect and showing in reasonable detail how it was calculated. The Company will also keep copies of all such reports at its office maintained pursuant to Section 11.2(a) hereof and will cause the same to be available for inspection at such office during normal business hours by the Holder or any prospective purchaser of a Warrant designated by the holder thereof. 6. NOTICES OF CORPORATE ACTION. In the event of (a) any taking by the Company of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend or other distribution, or any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right, or 8 9 (b) any capital reorganization of the Company, any reclassification or recapitalization of the capital stock of the Company or any consolidation or merger involving the Company and any other Person or any transfer of all or substantially all the assets of the Company to any other Person, or (c) any voluntary or involuntary dissolution, liquidation or winding-up of the Company, the Company will mail to the Holder a notice specifying (i) the date or expected date on which any such record is to be taken for the purpose of such dividend, distribution or right, and the amount and character of such dividend, distribution or right and (ii) the date or expected date on which any such reorganization, reclassification, recapitalization, consolidation, merger, transfer, dissolution, liquidation or winding-up is to take place, the time, if any such time is to be fixed, as of which the holders of record of Common Stock (or Other Securities) shall be entitled to exchange their shares of Common Stock (or Other Securities) for the securities or other property deliverable upon such reorganization, reclassification, recapitalization, consolidation, merger, transfer, dissolution, liquidation or winding-up and a description in reasonable detail of the transaction. Such notice shall be mailed at least twenty (20) days prior to the date specified in (i) or (ii) above. 7. REGISTRATION OF COMMON STOCK. The shares of Common Stock (and Other Securities) issuable upon exercise of this Warrant shall constitute Securities (as such term is defined in the Registration Rights Agreement). The Holder of this Warrant shall be entitled to all of the benefits afforded to a holder of any such Securities under the Registration Rights Agreement and the Holder, by its acceptance of this Warrant, agrees to be bound by and agrees to the terms and conditions of the Registration Rights Agreement applicable to the Holder as a holder of such Securities. 8. RESTRICTIVE LEGENDS. Except as otherwise permitted by this Section 8, each certificate for Common Stock (or Other Securities) issued upon the exercise of this Warrant, each certificate issued upon the direct or indirect transfer of any such Common Stock (or Other Securities), this Warrant originally issued pursuant to the Securities Purchase Agreement and each Warrant issued upon direct or indirect transfer or in substitution for any Warrant pursuant to Section 11 hereof shall be transferable only upon satisfaction of the conditions specified in Section 8 of the Securities Purchase Agreement and in this Section 8 and shall be stamped or otherwise imprinted with legends in substantially the form required by Section 8 of the Securities Purchase Agreement. Notwithstanding any other provision of this Section 8 or of the Securities Purchase Agreement, no opinion of counsel shall be necessary for a transfer of Restricted Securities by the holder thereof to a subsidiary, shareholder, partner or other affiliate of such holder, if the transferee agrees in writing to be subject to the terms hereof to the same extent as if such transferee were the original Holder of this Warrant. 9 10 9. AVAILABILITY OF INFORMATION. The Company will use its best efforts to comply with the reporting requirements of Sections 13 and 15 of the Exchange Act and will use its best efforts to comply with all other public information reporting requirements of the Commission (including pursuant to Rule 144 and 144A promulgated by the Commission under the Securities Act) from time to time in effect and relating to the availability of an exemption from the Securities Act for the sale of any Restricted Securities. The Company will also cooperate with each holder of any Restricted Securities in supplying such information as may be necessary for such holder to complete and file any information reporting forms presently or hereafter required by the Commission as a condition to the availability of an exemption from the Securities Act for the sale of any Restricted Securities. The Company will furnish to the Holder of this Warrant, promptly upon their becoming available, copies of all financial statements, reports, notices and proxy statements sent or made available generally by the Company to its stockholders, and copies of all regular and periodic reports and all registration statements and prospectuses filed by the Company with any securities exchange or with the Commission. 10. RESERVATION OF STOCK. The Company will at all times reserve and keep available, solely for issuance and delivery upon exercise of this Warrant, the number of shares of Common Stock (or Other Securities) from time to time issuable upon exercise of this Warrant. All shares of Common Stock (or Other Securities) issuable upon exercise of this Warrant shall be duly authorized and, when issued upon such exercise, shall be validly issued and, in the case of shares, fully paid and nonassessable with no liability on the part of the holders thereof. 11. OWNERSHIP, TRANSFER AND SUBSTITUTION OF WARRANTS. 11.1 OWNERSHIP OF WARRANTS. The Company may treat the person in whose name this Warrant is registered on the register kept at the office of the Company or at the office of its transfer agent maintained pursuant to Section 11.2(a) hereof as the owner and Holder thereof for all purposes, notwithstanding any notice to the contrary. This Warrant may be exercised by a new Holder without a new Warrant first having been issued. 11.2 OFFICE; TRANSFER AND EXCHANGE OF WARRANTS: (a) Company will maintain an office in Denver, Colorado where notices, presentations and demands in respect of this Warrant may be made upon it. Such office shall be maintained at World Trade Center, 1675 Broadway, Suite 2150, Denver, Colorado 80202 until such time as the Company shall notify the holders of this Warrant of any change of location of such office. (b) The Company shall cause to be kept at its office maintained pursuant to Section 11.2(a) hereof or at the office of its transfer agent a register for the registration and transfer of this Warrant. The name and address of the Holder of this Warrant, the 10 11 transfers thereof and the names and addresses of transferees of this Warrant shall be registered in such register. The Person in whose name this Warrant shall be so registered shall be deemed and treated as the owner and Holder thereof for all purposes of this Warrant, and the Company shall not be affected by any notice or knowledge to the contrary. (c) Upon the surrender of this Warrant, properly endorsed, for registration of transfer or for exchange at the office of the Company maintained pursuant to Section 11.2(a) hereof, the Company at its expense will execute and deliver to or upon the order of the Holder thereof a new Warrant or Warrants of like tenor, in the name of such Holder or as such Holder (upon payment by such holder of any applicable transfer taxes) may direct, calling in the aggregate on the face thereof for the number of shares of Common Stock called for on the face of the Warrant so surrendered. 11.3 REPLACEMENT OF WARRANT. Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of any such mutilation, upon surrender of such Warrant for cancellation at the office of the Company maintained pursuant to Section 11.2(a) hereof, and, if reasonably requested by the Company, upon receipt of an indemnity (which may include a bond or other surety at the request of the Company) reasonably acceptable to the Company, the Company at its expense will execute and deliver, in lieu thereof, a new Warrant of like tenor and denomination and dated the date hereof. 11.4 SECURITIES LAW REPRESENTATIONS. The Holder and each transferee of this Warrant or of the securities issuable upon the exercise of this Warrant, by its acceptance of this Warrant or the transfer thereof or of any shares of Common Stock (or Other Securities) issuable upon exercise of this Warrant, each hereby represents and warrants that this Warrant and the shares of Common Stock (or Other Securities) issuable upon exercise of this Warrant are being acquired and will be acquired for investment purposes for the account of the Holder of such securities, without intention of resale or distribution thereof that is not in compliance with the Securities Act and applicable state securities laws. 11.5 TRANSFER TAXES. The Company shall not be required to pay any federal or state transfer tax or charge that may be payable in respect of any transfer involved in the transfer or delivery of this Warrant or the issuance or delivery of certificates for Common Stock (or Other Securities) in a name other than that of the registered Holder of this Warrant unless and until any and all such taxes and charges shall have been paid by the Holder of this Warrant or until it has been established to the Company's reasonable satisfaction that no such tax or charge is due. 12. DEFINITIONS. Anniversary Date. As defined in Section 2.2. 11 12 Business Day. Any day other than a Saturday or Sunday or a day on which commercial banking institutions in Boston, Massachusetts, New York, New York or Denver, Colorado are authorized by law to be closed. Any reference to "days" (unless Business Days are specified) shall mean calendar days. Commission. The Securities and Exchange Commission or any other federal agency at the time administering the Securities Act. Common Stock. As defined in the introduction to this Warrant, such term to include any stock into which such Common Stock shall have been changed or any stock resulting from any reclassification of such Common Stock, and all other stock of any class or classes (however designated) of the Company the holders of which have the right, without limitation as to amount, either to all or to a share of the balance of current dividends and liquidating dividends after the payment of dividends and distributions on any shares entitled to preference. Company. As defined in the introduction to this Warrant, such term to include any corporation which shall succeed to or assume the obligations of the Company hereunder in compliance with Section 2 hereof. Current Market Price. With respect to the Common Stock, on any date specified herein, the average of the Market Price during the period of the most recent 10 consecutive trading days ending on such date. Exchange Act. The Securities Exchange Act of 1934, or any similar federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. Excluded Shares. As defined in Section 2.3.2. Exercise Price. As defined in Section 2.1. Expiration Date. As defined in Section 1.2. Holder. The original holder of this Warrant identified in the introduction and any Person to whom this Warrant is transferred. Initial Exercise Price. As defined in the introduction to this Warrant. Market Price. With respect to the Common Stock, on any date shall mean the last sale price, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange or, if the Common Stock is not listed or admitted to trading on the New 12 13 York Stock Exchange, as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which the Common Stock is listed or admitted to trading or, if the Common Stock is not listed or admitted to trading on any national securities exchange, the last quoted price, or if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by the Nasdaq Stock Market, Inc.'s Automated Quotation System or, if such system is no longer in use, the principal other automated quotation system that may then be in use, or if the Common Stock is not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the Common Stock that is selected by the Board of Directors of the Company, or, if there is no such professional market maker, such amount as an independent investment banking firm selected by the Board of Directors of the Company determines to be the value of a share of Common Stock. Other Securities. Any stock (other than Common Stock) and other securities of the Company or any other Person which the Holder at any time shall be entitled to receive, or shall have received, upon the exercise of the Warrant, in lieu of or in addition to Common Stock, or which at any time shall be issuable or shall have been issued in exchange for or in replacement of Common Stock, or Other Securities pursuant to Section 3 hereof or otherwise. Person. A corporation, an association, a partnership, a limited liability company, an organization, a business, an individual, a government or political subdivision thereof or a governmental agency. Purchase Price. As defined in Section 2.3.2. Registration Rights Agreement. The Registration Rights Agreement in the form of EXHIBIT B to the Securities Purchase Agreement, as from time to time in effect. Reset Price. As defined in Section 2.2. Restricted Securities. All of the following: (a) this Warrant, (b) any shares of Common Stock (or Other Securities) which have been issued upon the exercise of this Warrant, and (c) unless the context otherwise requires, any shares of Common Stock (or Other Securities) which are at the time issuable upon the exercise of this Warrant. Securities Act. The Securities Act of 1933, or any similar federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. Securities Purchase Agreement. As defined in the introduction to this Warrant. Total Exercise Price. As defined in Section 1.1. 13 14 13. REMEDIES. The Company stipulates that the remedies at law of the Holder in the event of any default or threatened default by the Company in the performance of or compliance with any of the terms of this Warrant are not and will not be adequate and that such terms may be specifically enforced by a decree for the specific performance of any agreement contained herein or by an injunction but only in the event of and against a violation by the Company of any of the terms hereof or otherwise. 14. NO RIGHTS OR LIABILITIES AS STOCKHOLDER. Nothing contained in this Warrant shall be construed as conferring upon the Holder any rights as a stockholder of the Company (including but not limited to voting or receiving distributions to stockholders) or as imposing any obligation on the Holder to purchase any securities or as imposing any liabilities on the Holder as a stockholder of the Company, whether such obligation or liabilities are asserted by the Company or by creditors of the Company. 15. NOTICES. Except as otherwise provided in this Warrant, notices and other communications under this Warrant shall be in writing and shall be delivered, or mailed by registered or certified mail, return receipt requested, or by a nationally recognized overnight courier, postage prepaid, addressed, (a) if to the Holder, at the address set forth in the register kept at the office of the Company maintained pursuant to Section 11.2(a) hereof or such other address as the Holder shall have furnished to the Company in writing, or (b) if to the Company, at its address maintained pursuant to Section 11.2(a) hereof, to the attention of the President, or at such other address, or to the attention of such other officer, the Company shall have furnished to the Holder in writing. This Warrant and all other documents delivered in connection with the transactions contemplated by the Securities Purchase Agreement embody the entire agreement and understanding between the Holder and the Company and supersede all prior agreements and understandings relating to the subject matter hereof. 16. GOVERNING LAW. This Warrant shall be construed and enforced in accordance with and governed by the laws of the State of Delaware without regard to its conflict of laws provisions. 17. AMENDMENTS. This Warrant and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought. 14 15 18. HEADINGS. The Section headings in this Warrant are for purposes of convenience only and shall not constitute a part hereof. METRETEK TECHNOLOGIES, INC. By:________________________ Name: Title: 15 16 FORM OF SUBSCRIPTION Date: Metretek Technologies, Inc. World Trade Center 1675 Broadway Suite 2150 Denver, CO 80202 The undersigned registered Holder of the within Warrant hereby irrevocably exercises such Warrant for, and purchases thereunder, ___________ shares of COMMON STOCK [pursuant to Section 1.1.2 of the Warrant] [pursuant to Section 1.1.1 of the Warrant and herewith makes payment of [cash equal to] [________ shares of Common Stock with a value of] $__________ therefor], and requests that a certificate for such shares be issued in the name of _________________ and be delivered to ________________ at the address stated below. Signed: [ ] By:______________________ Name: Title: Address: [ ] Address for delivery of certificate:[ ] EX-4 5 SIDE LETTER DATED DECEMBER 09, 1999 1 EXHIBIT 4 December 9, 1999 DDJ Capital Management, LLC 141 Linden Street Wellesley, MA 02482 Re: METRETEK TECHNOLOGIES, INC. --------------------------- Ladies and Gentlemen: Reference is made to the Securities Purchase Agreement between Metretek Technologies, Inc. (the "Company") and the Purchasers named therein, dated the date hereof (the "Purchase Agreement"). Capitalized terms not defined herein have the meanings given them in the Purchase Agreement. The parties acknowledge and agree that, in the event of a failure by the Company to redeem the Convertible Preferred Stock in accordance with Section A.5(a) of the Certificate of Designations, considerable harm would be caused to the Purchasers. The parties further agree that it is their intention, on or before December 17, 1999, to enter into an amendment to the Securities Purchase Agreement and amend the Certificate of Designations to provide the Purchasers with a sufficient remedy. The remedy is intended to consist of a provision for majority representation of the Purchasers on the board of directors and interest payment provisions economically equivalent to those contained in Section 1.6(c) of the Purchase Agreement. If for any reason provisions for majority representation are not made, other remedies shall be provided, including board representation and additional interest payments. The parties will negotiate in good faith to arrive at a mutually satisfactory solution. The Company agrees that it is a condition to the obligation of the Purchasers to purchase Securities at the Second Closing that a mutually satisfactory remedy have been agreed upon pursuant hereto. 2 Sincerely, METRETEK TECHNOLOGIES, INC. By: /s/ A. Bradley Gabbard --------------------------- Name: A. Bradley Gabbard Title: Executive Vice President Acknowledge and agreed: DDJ CAPITAL MANAGEMENT By: /s/ Judy K. Mencher ------------------------------ Name: Judy K. Mencher Title: Member EX-5 6 SIDE LETTER DATED DECEMBER 20, 1999 1 Exhibit 4 December 20, 1999 DDJ Capital Management, LLC 141 Linden Street Wellesley, MA 02482 Re: Metretek Technologies, Inc. --------------------------- Ladies and Gentlemen: Reference is made to the Securities Purchase Agreement between Metretek Technologies, Inc. (the "Company") and the Purchasers named therein, dated December 9, 1999 (the "Purchase Agreement"). Capitalized terms not defined herein have the meanings given them in the Purchase Agreement. Reference is also made to the letter agreement between the Company and DDJ Capital Management, LLC dated December 9, 1999 (the "Side Letter"). In furtherance of the transactions contemplated by the Side Letter, and in consideration of the agreement of funds and accounts managed by DDJ Capital Management, LLC to purchase Units at the Initial Closing and conditional agreement to purchase Units at the Second Closing and the Company's agreements herein, the parties hereto agree as follows: 1. The Company shall include in the Proxy Statement, and recommend that the stockholders of the Company approve as part of the Stockholders Meeting Matter, the amendments to the Company's Certificate of Incorporation described herein. The Company shall use its best efforts to obtain the approval of its stockholders (whether at the Special Stockholders Meeting or otherwise) and the Bank of Canada. 2. Immediately after the Special Stockholders Meeting the Company shall make all filings with the Delaware Secretary of State necessary to amend and restate Section A.2 of the Series B Preferred Stock to read as follows if the stockholders of the Company have approved such amendments: "2. Election of Directors. ---------------------- (a) So long as an aggregate of at least 2,000 shares of Convertible Preferred Stock remain outstanding, the holders of outstanding shares of Convertible Preferred Stock shall, voting together as a separate class, be entitled to elect one (1) Director. Such Director shall be the individual receiving the greatest number of affirmative votes of the outstanding shares of Convertible Preferred Stock (the "Convertible Preferred Stock Director Designee"), with each share of Convertible Preferred Stock entitled to one (1) vote, and with votes cast 2 against such person and votes withheld having no legal effect. Each Director so elected shall hold office until a new Convertible Preferred Stock Director Designee is elected Director as provided below, provided that such Director shall in any event cease to hold office at such time as the holders of Convertible Preferred Stock are no longer entitled to elect a Director in accordance with this Section A.2. The election of the Convertible Preferred Stock Director Designee by the holders of the Convertible Preferred Stock shall occur (i) at the annual meeting of holders of Common Stock, (ii) if there is then no Convertible Preferred Stock Director Designee serving as a Director, at any special meeting of holders of capital stock, (iii) if there is then no Convertible Preferred Stock Director Designee serving as a Director, at any special meeting of holders of Convertible Preferred Stock called by holders of a majority of the outstanding shares of Convertible Preferred Stock (a "Majority Interest") or (iv) in lieu of an election at a meeting, by the written consent of holders of not less than sixty-six and two-thirds percent (662/3%) of the outstanding shares of Convertible Preferred Stock (a "Two Thirds Interest"). If at any time when any share of Convertible Preferred Stock is outstanding the Convertible Preferred Stock Director Designee should cease to be a Director for any reason, the vacancy shall only be filled by the vote or written consent of holders of the outstanding shares of Convertible Preferred Stock, voting together as a separate class, in the manner and on the basis specified above. The holders of a majority of the outstanding shares of Convertible Preferred Stock, may, in their sole discretion, determine to elect fewer than one (1) Convertible Preferred Stock Director Designee from time to time, and during any such period the Board of Directors nonetheless shall be deemed duly constituted. The holders of Common Stock and the holders of any other class or series of capital stock of the Company with the right to vote in the election of directors shall be entitled to elect the remaining members of the Board of Directors. (b) Notwithstanding the provisions of paragraph 2(a) above, in the event that the Corporation fails for any reason to redeem the Convertible Preferred Stock in full in accordance with the terms of Section A.5(a) hereof, then the number of Directors on the Corporation's Board of Directors shall immediately and without any action taken by the Corporation or any of its stockholders, be increased by the minimum such number as is necessary to ensure that the directors elected under this paragraph 2(b) (the "Default Preferred Directors") will constitute a majority of the Corporation's Board of Directors, and the holders of the Convertible Preferred Stock shall be entitled to elect the Default Preferred Directors, with each share of Convertible Preferred Stock entitled to one (1) vote. Each Default Preferred Director so elected shall hold office in accordance with the terms for directors elected at such meeting as provided by law, the Certificate of Incorporation, as amended, or the by-laws of the Corporation in effect at the time, provided that such Director shall in any event cease to hold office at such time as the holders of Convertible Preferred Stock are no longer entitled to elect Default Preferred Directors in accordance with this Section A.2(b). The election of the Default Preferred Directors by the holders of the Convertible Preferred Stock shall occur (i) at the annual meeting of holders of Common Stock, (ii) if there is then no Convertible Preferred Stock Director Designee serving as a Director, at any special meeting of holders of capital stock, (iii) if there is then no Convertible Preferred Stock Director Designee serving as a Director, at any special meeting of holders of Convertible Preferred Stock called by a Majority Interest or (iv) in lieu of an election at a meeting, by the written consent of holders of a Two 3 Thirds Interest. If at any time when any share of Convertible Preferred Stock is outstanding any Default Preferred Director should cease to be a Director for any reason, the vacancy shall only be filled by the vote or written consent of holders of the outstanding shares of Convertible Preferred Stock, voting together as a separate class, in the manner and on the basis specified above. The holders of a majority of the outstanding shares of Convertible Preferred Stock may, in their sole discretion, determine to elect fewer than all of the Default Preferred Directors from time to time, and during any such period the Board of Directors nonetheless shall be deemed duly constituted. Upon full payment by the Corporation of all amounts payable to the holders of the Convertible Preferred Stock pursuant to Section A.5(a) hereof, including any interest thereon, which the Board of Directors shall cause to be made by the Corporation as soon as is lawful and practicable, the right of the holders of Convertible Preferred Stock to elect Default Preferred Directors under this paragraph 2(a) shall terminate, the terms of all such Default Preferred Directors shall forthwith cease, and the number of Directors shall forthwith be reduced by an amount equal to the number of Default Preferred Directors which the holders of the Convertible Preferred Stock were previously entitled to elect hereunder. (c) Whenever the holders of Convertible Preferred Stock are entitled to take any action under either paragraph (a) or (b) of this Section A.2(b), a Majority Interest shall have the right to fix any record date and the date, time and location, to the extent applicable, of any meeting or written consent referred to therein and to send any required notices. If a Majority Interest requests that the Corporation take any of such actions, it will do so immediately. The Corporation will not take any action, including amending its Certificate of Incorporation or bylaws, which is inconsistent with the intent or purposes of Section A.2." 3. The terms of the Side Letter shall remain in full force and effect unless and until the amendments referred to in paragraph 2. above have been filed with the Secretary of State of Delaware and have become effective in accordance with applicable law. 4 Sincerely, METRETEK TECHNOLOGIES, INC. By: /s/ A. Bradley Gabbard ---------------------------- Name: A. Bradley Gabbard Title: Executive Vice President Acknowledge and agreed: DDJ CAPITAL MANAGEMENT By: /s/ Judy K. Mencher ---------------------------- Name: Judy K. Mencher Title: Member -----END PRIVACY-ENHANCED MESSAGE-----