Exhibit 10.2

 

[FORM OF SUBORDINATED CONVERTIBLE NOTE]

 

NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION
OF COUNSEL TO THE HOLDER (IF REQUESTED BY THE COMPANY), IN A FORM REASONABLY
ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR
(II) UNLESS SOLD OR ELIGIBLE TO BE SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER
SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING
ARRANGEMENT SECURED BY THE SECURITIES. ANY TRANSFEREE OF THIS NOTE SHOULD
CAREFULLY REVIEW THE TERMS OF THIS NOTE, INCLUDING SECTIONS 3(c)(iii) AND
20(a) HEREOF.  THE PRINCIPAL AMOUNT REPRESENTED BY THIS NOTE AND, ACCORDINGLY,
THE SECURITIES ISSUABLE UPON CONVERSION HEREOF MAY BE LESS THAN THE AMOUNTS SET
FORTH ON THE FACE HEREOF PURSUANT TO SECTION (3)(c)(iii) OF THIS NOTE.

 

THE INDEBTEDNESS REPRESENTED BY THIS NOTE IS SUBORDINATED PURSUANT TO THE TERMS
OF A SUBORDINATION AGREEMENT BETWEEN HOLDER AND SILICON VALLEY BANK DATED AS OF
JUNE     , 2011 AND A SUBORDINATION AGREEMENT BETWEEN HOLDER, HORIZON CREDIT I
LLC AND VELOCITY VENTURE FUNDING, LLC DATED AS OF JUNE     , 2011.

 

SATCON TECHNOLOGY CORPORATION

 

SUBORDINATED CONVERTIBLE NOTE

 

Issuance Date:  June     , 2011

Original Principal Amount: $16,000,000

 

FOR VALUE RECEIVED, Satcon Technology Corporation, a Delaware corporation (the
“Company”), hereby promises to pay to                                  or
registered assigns (the “Holder”) the amount set out above as the Original
Principal Amount (as reduced pursuant to the terms hereof pursuant to
redemption, conversion or otherwise, the “Principal”) when due, whether upon the
Maturity Date (as defined below), on any Installment Date with respect to the
Installment Amount due on such Installment Date acceleration, redemption or
otherwise (in each case in accordance with the terms hereof) and to pay interest
(“Interest”) on any outstanding Principal at the applicable Interest Rate from
the date set out above as the Issuance Date (the “Issuance Date”) until the same
becomes due and payable, whether upon an Interest Date (as defined below), any
Installment Date, the Maturity Date, acceleration,

 

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conversion, redemption or otherwise (in each case in accordance with the terms
hereof).  This Subordinated Convertible Note (including all Subordinated
Convertible Notes issued in exchange, transfer or replacement hereof, this
“Note”) is the Subordinated Convertible Note issued pursuant to the Securities
Purchase Agreement on the Closing Date.  Certain capitalized terms used herein
are defined in Section 30.

 

(1)                       PAYMENTS OF PRINCIPAL.  On each Installment Date, the
Company shall pay to the Holder an amount equal to the Installment Amount due on
such Installment Date in accordance with Section 8.  On the Maturity Date, the
Company shall pay to the Holder an amount in cash representing all outstanding
Principal and accrued and unpaid Interest (other than such amounts converted
pursuant to Section 3 below and/or in a Company Conversion (as defined below) on
such date).  The “Maturity Date” shall be             , 2013, as may be extended
at the option of the Holder (i) in the event that, and for so long as, an Event
of Default (as defined in Section 4(a)) shall have occurred and be continuing on
the Maturity Date (as may be extended pursuant to this Section 1) and
(ii) through the date that is ten (10) Business Days after the consummation of a
Change of Control in the event that a Change of Control is publicly announced or
a Change of Control Notice (as defined in Section 5(b)) is delivered prior to
the Maturity Date.  Other than as specifically permitted by this Note, the
Company may not prepay any portion of the outstanding Principal and accrued and
unpaid Interest.

 

(2)                         INTEREST; INTEREST RATE.  (a) Interest on this Note
shall commence accruing on the Issuance Date and shall be computed on the basis
of a 360-day year and twelve 30-day months and the actual number of days elapsed
and shall be payable in arrears every month on each Installment Date during the
period beginning on the Issuance Date and ending on, and including, the Maturity
Date (each, an “Interest Date”), to the record holder of this Note on the
applicable Installment Date, with the first Interest Date being the first
Installment Date.  Interest shall be paid on each Installment Date occurring on
an Interest Date in accordance with Section 8.  In the event that any Interest
Date falls after the last Installment Date, the Interest shall be paid in cash
on the Maturity Date.

 

(b)               From and after the occurrence and during the continuance of an
Event of Default, the Interest Rate shall be increased to fifteen percent
(15.0%) per annum.  In the event that such Event of Default is subsequently
cured, the adjustment referred to in the preceding sentence shall cease to be
effective as of the date of such cure; provided that the Interest as calculated
and unpaid at such increased rate during the continuance of such Event of
Default shall continue to apply to the extent relating to the days after the
occurrence of such Event of Default through and including the date of cure of
such Event of Default.

 

(3)                         CONVERSION OF NOTES.  This Note shall be convertible
into shares of the Company’s Common Stock, par value $0.01 per share (the
“Common Shares”), on the terms and conditions set forth in this Section 3.

 

(a)               Conversion Right.  Subject to the provisions of Section 3(d),
at any time or times on or after the Issuance Date, the Holder shall be entitled
to convert any portion of the outstanding and unpaid Conversion Amount (as
defined below) into fully paid and nonassessable Common Shares in accordance
with Section 3(c), at the Conversion Rate (as

 

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defined below).  The Company shall not issue any fraction of a Common Share upon
any conversion.  If the issuance would result in the issuance of a fraction of a
Common Share, the Company shall round such fraction of a share to the nearest
whole share.  The Company shall pay any and all transfer, stamp and similar
taxes that may be payable with respect to the issuance and delivery of Common
Shares upon conversion of any Conversion Amount.

 

(b)               Conversion Rate.  The number of Common Shares issuable upon
conversion of any Conversion Amount pursuant to Section 3(a) (the “Conversion
Shares”) shall be determined by dividing (x) such Conversion Amount by (y) the
Conversion Price (the “Conversion Rate”).

 

(i)            “Conversion Amount” means the portion of the Principal to be
converted, redeemed or otherwise with respect to which this determination is
being made plus all accrued and unpaid Interest with respect to such portion of
the Principal amount.

 

(ii)           “Conversion Price” means, as of any Conversion Date (as defined
below) or other date of determination (x) prior to the eleventh (11th) Trading
Day following the public announcement of the Company’s financial results for the
quarter ending September 30, 2011 (the “Adjustment Date”), $2.92 and (y) on or
after the Adjustment Date, the lower of (A) the Conversion Price then in effect
and (B) 110% of the Market Price on the Adjustment Date, in each case, subject
to adjustment as provided herein.

 

(c)                 Mechanics of Conversion.

 

(i)            Optional Conversion.  To convert any Conversion Amount into
Common Shares on any date (a “Conversion Date”), the Holder shall (A) transmit
by facsimile (or otherwise deliver), for receipt on or prior to 11:59 p.m., New
York Time, on such date, a copy of an executed notice of conversion in the form
attached hereto as Exhibit I (the “Conversion Notice”) to the Company and (B) if
required by Section 3(c)(iii), surrender this Note to a common carrier for
delivery to the Company as soon as practicable on or following such date (or an
indemnification undertaking with respect to this Note in the case of its loss,
theft or destruction).  On or before the first (1st) Business Day following the
date of receipt of a Conversion Notice, the Company shall transmit by facsimile
a confirmation of receipt of such Conversion Notice to the Holder and the
Transfer Agent.  On or before the third (3rd) Business Day following the date of
receipt of a Conversion Notice (the “Share Delivery Date”), the Company shall
(A) provided that the Transfer Agent is participating in the DTC Fast Automated
Securities Transfer Program, credit such aggregate number of Common Shares to
which the Holder shall be entitled to the Holder’s or its designee’s balance
account with DTC through its Deposit/Withdrawal at Custodian system or (B) if
the Transfer Agent is not participating in the DTC Fast Automated Securities
Transfer Program, issue and deliver to the address as specified in the
Conversion Notice, a certificate, registered in the name of the Holder or its
designee, for the number of Common Shares to which the Holder shall be
entitled.  If this Note is physically surrendered for conversion as required by
Section 3(c)(iii) and the outstanding Principal of this Note is greater than the
Principal portion of the Conversion Amount being converted, then the Company
shall as soon as practicable and in no event later than three (3) Business Days
after receipt of this Note and at its own expense, issue and deliver to the
holder a new Note (in accordance with Section 20(d)) representing the
outstanding Principal not converted.  The Person

 

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or Persons entitled to receive the Common Shares issuable upon a conversion of
this Note shall be treated for all purposes as the record holder or holders of
such Common Shares on the Conversion Date.  In the event of a partial conversion
of this Note pursuant hereto, the principal amount converted shall be deducted
from the Installment Amounts relating to the Installment Dates as set forth in
the Conversion Notice.

 

(ii)           Company’s Failure to Timely Convert.  If the Company shall fail
to issue a certificate to the Holder or credit the Holder’s balance account with
DTC, as applicable, for the number of Common Shares to which the Holder is
entitled upon conversion of any Conversion Amount on or prior to the date which
is three (3) Trading Days after the Conversion Date, other than due to
circumstances outside of the Company’s control (a “Conversion Failure”), and if
on or after such Trading Day the Holder purchases (in an open market transaction
or otherwise) Common Shares to deliver in satisfaction of a sale by the Holder
of Common Shares issuable upon such conversion that the Holder anticipated
receiving from the Company (a “Buy-In”), then the Company shall, within three
(3) Trading Days after the Holder’s request and in the Holder’s discretion,
either (A) pay cash to the Holder in an amount equal to the Holder’s total
purchase price (including brokerage commissions and other out of pocket
expenses, if any) for the Common Shares so purchased (the “Buy-In Price”), at
which point the Company’s obligation to deliver such certificate (and to issue
such Common Shares) shall terminate, or (B) promptly honor its obligation to
deliver to the Holder a certificate or certificates representing such Common
Shares and pay cash to the Holder in an amount equal to the excess (if any) of
the Buy-In Price over the product of (1) such number of Common Shares, times
(2) the Closing Bid Price on the Conversion Date.

 

(iii)          Registration; Book-Entry.  The Company shall maintain a register
(the “Register”) for the recordation of the names and addresses of the holders
of each Note and the principal amount of the Notes held by such holders (the
“Registered Notes”).  The entries in the Register shall be conclusive and
binding for all purposes absent manifest error.  The Company and the holders of
the Notes shall treat each Person whose name is recorded in the Register as the
owner of a Note for all purposes, including, without limitation, the right to
receive payments of Principal and Interest hereunder, notwithstanding notice to
the contrary.  A Registered Note may be assigned or sold in whole or in part
only by registration of such assignment or sale on the Register.  Upon its
receipt of a request to assign or sell all or part of any Registered Note by a
Holder, the Company shall record the information contained therein in the
Register and issue one or more new Registered Notes in the same aggregate
principal amount as the principal amount of the surrendered Registered Note to
the designated assignee or transferee pursuant to Section 20.  Notwithstanding
anything to the contrary set forth herein, upon conversion of any portion of
this Note in accordance with the terms hereof, the Holder shall not be required
to physically surrender this Note to the Company unless (A) the full Principal
amount represented by this Note is being converted or (B) the Holder has
provided the Company with prior written notice (which notice may be included in
a Conversion Notice) requesting reissuance of this Note upon physical surrender
of this Note.  The Holder and the Company shall maintain records showing the
Principal and Interest, converted and the dates of such conversions or shall use
such other method, reasonably satisfactory to the Holder and the Company, so as
not to require physical surrender of this Note upon conversion.

 

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(iv)          Pro Rata Conversion; Disputes.  In the event that the Company
receives a Conversion Notice from more than one holder of Notes for the same
Conversion Date and the Company can convert some, but not all, of such portions
of the Notes submitted for conversion, the Company, subject to Section 3(d),
shall convert from each holder of Notes electing to have Notes converted on such
date a pro rata amount of such holder’s portion of its Notes submitted for
conversion based on the principal amount of Notes submitted for conversion on
such date by such holder relative to the aggregate principal amount of all Notes
submitted for conversion on such date.  In the event of a dispute as to the
number of Common Shares issuable to the Holder in connection with a conversion
of this Note, the Company shall issue to the Holder the number of Common Shares
not in dispute and resolve such dispute in accordance with Section 25.

 

(d)                   Limitations on Conversion.

 

(i)            Beneficial Ownership. Notwithstanding anything to the contrary
contained in this Note, this Note shall not be convertible by the Holder hereof,
and the Company shall not effect any conversion of this Note or otherwise issue
any Common Shares pursuant hereto, to the extent (but only to the extent) that
after giving effect to such conversion or other share issuance hereunder the
Holder (together with its affiliates and joint actors) would beneficially own in
excess of 4.99% (the “Maximum Percentage”) of the Common Shares.  To the extent
the above limitation applies, the determination of whether this Note shall be
convertible (vis-à-vis other convertible, exercisable or exchangeable securities
owned by the Holder or any of its affiliates) and of which such securities shall
be convertible (as among all such securities owned by the Holder) shall, subject
to such Maximum Percentage limitation, be made on the basis of the first
submission to the Company for conversion, exercise or exchange (as the case may
be).  For purposes of the first sentence of this paragraph, the aggregate number
of Common Shares beneficially owned by such Person and its affiliates and joint
actors shall include the number of Common Shares issuable upon conversion of
this Note with respect to which the determination of such sentence is being
made, but shall exclude Common Shares which would be issuable upon
(i) conversion of the remaining, unconverted portion of this Note beneficially
owned by such Person and its affiliates or joint actors and (ii) exercise or
conversion of the unexercised or unconverted portion of any other securities of
the Company beneficially owned by such Person and its affiliates or joint actors
(including, without limitation, any other convertible notes or convertible
preferred shares), which in each case is subject to a limitation on conversion
or exercise analogous to the limitation contained herein.  For the purposes of
this paragraph, beneficial ownership and all determinations and calculations
(including, without limitation, with respect to calculations of percentage
ownership) shall be determined in accordance with Section 13(d) of the 1934 Act
(as defined in the Securities Purchase Agreement) and the rules and regulations
promulgated thereunder except as set forth in the preceding sentence.  No prior
inability to convert this Note pursuant to this paragraph shall have any effect
on the applicability of the provisions of this paragraph with respect to any
subsequent determination of convertibility.  The provisions of this paragraph
shall be implemented in a manner otherwise than in strict conformity with the
terms of this paragraph to correct this paragraph (or any portion hereof) which
may be defective or inconsistent with the intended Maximum Percentage beneficial
ownership limitation herein contained or to make changes or supplements
necessary or desirable to properly give effect to such Maximum Percentage
limitation. The limitations contained in this paragraph shall apply to a
successor Holder of this

 

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Note.  The holders of Common Shares shall be third party beneficiaries of this
paragraph and the Company may not waive this paragraph without the consent of
holders of a majority of its Common Shares.  For any reason at any time, upon
the written or oral request of the Holder, the Company shall within one
(1) Business Day confirm orally and in writing to the Holder the number of
Common Shares then outstanding, including by virtue of any prior conversion or
exercise of convertible or exercisable securities into Common Shares, including,
without limitation, pursuant to this Note or securities issued pursuant to the
Securities Purchase Agreement.  By written notice to the Company, any Holder may
increase or decrease the Maximum Percentage to any other percentage not in
excess of 9.99% or less than 4.99% specified in such notice; provided that
(i) any such increase will not be effective until the 61st day after such notice
is delivered to the Company, and (ii) any such increase or decrease will apply
only to the Holder sending such notice and not to any other holder of Notes.

 

(ii)           Market Regulation.  Notwithstanding any other provision of this
Note, the Company will not issue any Common Shares upon conversion or otherwise
pursuant to the terms of this Note if the issuance of such Common Shares would
exceed the aggregate number of Common Shares which the Company may issue upon
conversion of the Notes or otherwise pursuant to the terms of this Note without
breaching the Company’s obligations under the rules or regulations of the
Principal Market (the number of shares which may be issued without violating
such rules and regulations, the “Exchange Cap”), except that such limitation
shall not apply in the event that the Company obtains the approval of its
stockholders as required by the applicable rules of the Principal Market and any
such Eligible Market on which the Company’s stock is listed or admitted for
trading for issuances of Common Shares in excess of such amount.  Until such
approval is obtained, no Buyer shall be issued in the aggregate, upon conversion
or exercise (as the case may be) of any Notes or otherwise pursuant to the terms
of this Note, Common Shares in an amount greater than the product of (i) the
Exchange Cap multiplied by (ii) the quotient of (1) the original principal
amount of Notes issued to such Buyer pursuant to the Securities Purchase
Agreement on the Closing Date divided by (2) the aggregate original principal
amount of all Notes issued to the Buyers pursuant to the Securities Purchase
Agreement on the Closing Date (with respect to each Buyer, the “Exchange Cap
Allocation”). In the event that any Buyer shall sell or otherwise transfer any
of such Buyer’s Notes, the transferee shall be allocated a pro rata portion of
such Buyer’s Exchange Cap Allocation with respect to such portion of such Notes
so transferred, and the restrictions of the prior sentence shall apply to such
transferee with respect to the portion of the Exchange Cap Allocation so
allocated to such transferee.  Upon conversion in full of a holder’s Notes, the
difference (if any) between such holder’s Exchange Cap Allocation and the number
of Common Shares actually issued to such holder upon such holder’s conversion in
full of such holder’s Notes shall be allocated to the respective Exchange Cap
Allocations of the remaining holders of Notes on a pro rata basis in proportion
to the Common Shares underlying the Notes then held by each such holder.  In the
event that the Company is prohibited from issuing any Common Shares pursuant to
this Section 3(d)(ii) (the “Exchange Cap Shares”), the Company shall pay cash in
exchange for cancellation of such Common Shares at a price equal to the product
of (x) such number of Exchange Cap Shares and (y) the Closing Sale Price on the
Trading Day immediately preceding the date such Exchange Cap Shares would
otherwise be required to be delivered to the Holder hereunder.

 

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(4)                         RIGHTS UPON EVENT OF DEFAULT.

 

(a)               Event of Default.  Each of the following events shall
constitute an “Event of Default”:

 

(i)            the suspension from trading or failure of the Common Shares to be
listed on an Eligible Market for a period of five (5) consecutive Trading Days
or for more than an aggregate of ten (10) Trading Days in any 365-day period;

 

(ii)           the Company’s (A) failure to cure a Conversion Failure by
delivery of the required number of Common Shares within ten (10) Business Days
after the applicable Conversion Date or (B) notice, written or oral, to any
holder of the Notes, including by way of public announcement or through any of
its agents, at any time, of its intention not to comply with a request for
conversion of any Notes into Common Shares that is tendered in accordance with
the provisions of the Notes, other than pursuant to Section 3(d);

 

(iii)          at any time following the tenth (10th) consecutive Business Day
that the Holder’s Authorized Share Allocation is less than the number of Common
Shares that the Holder would be entitled to receive upon a conversion of the
full Conversion Amount of this Note;

 

(iv)          the Company’s failure to pay to the Holder any amount of
Principal, Interest, or other amounts when and as due under this Note
(including, without limitation, the Company’s failure to pay any redemption
payments or amounts hereunder) or any other Transaction Document (as defined in
the Securities Purchase Agreement) or any other agreement, document, certificate
or other instrument delivered in connection with the transactions contemplated
hereby and thereby to which the Holder is a party, except, in the case of a
failure to pay Interest when and as due, in which case only if such failure
continues for a period of at least five (5) Business Days;

 

(v)           the Company and/or any Subsidiary, individually or in the
aggregate, either (i) fails to pay, when due, or within any applicable grace
period, any payment with respect to any Indebtedness (as defined in the
Securities Purchase Agreement) in excess of $1,000,000 due to any third party
(other than payments contested by the Company and/or such Subsidiary (as the
case may be) in good faith by proper proceedings and with respect to which
adequate reserves have been set aside for the payment thereof in accordance with
GAAP) or is otherwise in breach or violation of any agreement for monies owed or
owing in an amount in excess of $1,000,000, which breach or violation permits
the other party thereto to declare a default or otherwise accelerate amounts due
thereunder;

 

(vi)          the Company fails to remove any restrictive legend on any Common
Shares issued to the Holder upon conversion of this Note as and when required by
the terms and conditions of the Securities Purchase Agreement, unless otherwise
then prohibited by applicable federal securities laws, and any such failure
remains uncured for at least five (5) days;

 

(vii)         bankruptcy, insolvency, reorganization or liquidation proceedings
or other proceedings for the relief of debtors shall be instituted by or against
the

 

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Company or any Subsidiary and, if instituted against the Company or any
Subsidiary by a third party, shall not be dismissed within thirty (30) days of
their initiation;

 

(viii)        the commencement by the Company or any Subsidiary of a voluntary
case or proceeding under any applicable federal, state or foreign bankruptcy,
insolvency, reorganization or other similar law or of any other case or
proceeding to be adjudicated a bankrupt or insolvent, or the consent by it to
the entry of a decree, order, judgment or other similar document in respect of
the Company or any Subsidiary in an involuntary case or proceeding under any
applicable federal, state or foreign bankruptcy, insolvency, reorganization or
other similar law or to the commencement of any bankruptcy or insolvency case or
proceeding against it, or the filing by it of a petition or answer or consent
seeking reorganization or relief under any applicable federal, state or foreign
law, or the consent by it to the filing of such petition or to the appointment
of or taking possession by a custodian, receiver, liquidator, assignee, trustee,
sequestrator or other similar official of the Company or any Subsidiary or of
any substantial part of its property, or the making by it of an assignment for
the benefit of creditors, or the execution of a composition of debts, or the
occurrence of any other similar federal, state or foreign proceeding, or the
admission by it in writing of its inability to pay its debts generally as they
become due, the taking of corporate action by the Company or any Subsidiary in
furtherance of any such action or the taking of any action by any Person to
commence a UCC foreclosure sale or any other similar action under federal, state
or foreign law;

 

(ix)           the entry by a court of (i) a decree, order, judgment or other
similar document in respect of the Company or any Subsidiary of a voluntary or
involuntary case or proceeding under any applicable federal, state or foreign
bankruptcy, insolvency, reorganization or other similar law or (ii) a decree,
order, judgment or other similar document adjudging the Company or any
Subsidiary as bankrupt or insolvent, or approving as properly filed a petition
seeking liquidation, reorganization, arrangement, adjustment or composition of
or in respect of the Company or any Subsidiary under any applicable federal,
state or foreign law or (iii) a decree, order, judgment or other similar
document appointing a custodian, receiver, liquidator, assignee, trustee,
sequestrator or other similar official of the Company or any Subsidiary or of
any substantial part of its property, or ordering the winding up or liquidation
of its affairs, and the continuance of any such decree, order, judgment or other
similar document or any such other decree, order, judgment or other similar
document unstayed and in effect for a period of thirty (30) consecutive days;

 

(x)            a final judgment or judgments for the payment of money
aggregating in excess of $1,000,000 are rendered against the Company and/or any
of its Subsidiaries and which judgments are not, within thirty (30) days after
the entry thereof, paid, bonded, discharged or stayed pending appeal, or are not
discharged within thirty (30) days after the expiration of such stay; provided,
however, any judgment which is covered by insurance or an indemnity from a
credit worthy party shall not be included in calculating the $1,000,000 amount
set forth above so long as the Company provides the Holder a written statement
from such insurer or indemnity provider (which written statement shall be
reasonably satisfactory to the Holder) to the effect that such judgment is
covered by insurance or an indemnity and the Company or such Subsidiary (as the
case may be) will receive the proceeds of such insurance or indemnity within
thirty (30) days of the issuance of such judgment; and

 

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(xi)           the Company breaches in any material respect any provision of
Section 16 of this Note, except, in the case of a breach of a covenant or other
term or condition that is curable, only if such breach remains uncured for a
period of five (5) consecutive Trading Days.

 

(b)               Redemption Right.  Upon the occurrence of an Event of Default
with respect to this Note, the Company shall within one (1) Business Day deliver
written notice thereof via facsimile and overnight courier (an “Event of Default
Notice”) to the Holder.  At any time after the earlier of the Holder’s receipt
of an Event of Default Notice and the Holder becoming aware of an Event of
Default, but prior to the date of cure of any such Event of Default, the Holder
may require the Company to redeem all or any portion of this Note by delivering
written notice thereof (the “Event of Default Redemption Notice”) to the
Company, which Event of Default Redemption Notice shall indicate the Conversion
Amount of this Note the Holder is electing to require the Company to redeem. 
Each portion of this Note subject to redemption by the Company pursuant to this
Section 4(b) shall be redeemed by the Company at a price equal to the greater of
120% of (i) the Conversion Amount to be redeemed (as calculated through the
redemption date) and (ii) the product of (A) the Conversion Rate with respect to
such Conversion Amount in effect at such time as the Holder delivers an Event of
Default Redemption Notice and (B) the greatest Closing Sale Price of the Common
Stock on any Trading Day during the period commencing on the date immediately
preceding such Event of Default and ending on the Trading Day immediately prior
to the date the Company is required to make the entire payment under this
Section 4(b)(the “Event of Default Redemption Price”).  Redemptions required by
this Section 4(b) shall be made in accordance with the provisions of
Section 14.  To the extent redemptions required by this Section 4(b) are deemed
or determined by a court of competent jurisdiction to be prepayments of the Note
by the Company, such redemptions shall be deemed to be voluntary prepayments. In
the event of a partial redemption of this Note pursuant hereto, the principal
amount redeemed shall be deducted from the Installment Amounts relating to the
applicable Installment Dates as set forth in the Event of Default Redemption
Notice.  The parties hereto agree that in the event of the Company’s redemption
of any portion of the Note under this Section 4(b), the Holder’s damages would
be uncertain and difficult to estimate because of the parties’ inability to
predict future interest rates and the uncertainty of the availability of a
suitable substitute investment opportunity for the Holder.  Accordingly, any
redemption premium due under this Section 4(b) is intended by the parties to be,
and shall be deemed, a reasonable estimate of the Holder’s actual loss of its
investment opportunity and not as a penalty.

 

(5)                         RIGHTS UPON FUNDAMENTAL TRANSACTION AND CHANGE OF
CONTROL.

 

(a)               Assumption.  The Company shall not enter into or be party to a
Fundamental Transaction unless the Successor Entity assumes in writing all of
the obligations of the Company under this Note and the other Transaction
Documents in accordance with the provisions of this Section 5(a), including
agreements to deliver to each holder of Notes in exchange for such Notes a
security of the Successor Entity evidenced by a written instrument substantially
similar in form and substance to the Notes, including, without limitation,
having a principal amount and interest rate equal to the principal amounts and
the interest rates of the Notes then outstanding held by such holder, having
similar conversion rights and having similar

 

9

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ranking to the Notes.  Upon the occurrence of any Fundamental Transaction, the
Successor Entity shall succeed to, and be substituted for (so that from and
after the date of such Fundamental Transaction, the provisions of this Note
referring to the “Company” shall refer instead to the Successor Entity), and may
exercise every right and power of the Company and shall assume all of the
obligations of the Company under this Note with the same effect as if such
Successor Entity had been named as the Company herein.  Upon consummation of the
Fundamental Transaction, the Successor Entity shall deliver to the Holder
confirmation that there shall be issued upon conversion or redemption of this
Note at any time after the consummation of the Fundamental Transaction, in lieu
of the shares of the Company’s Common Shares (or other securities, cash, assets
or other property) issuable upon the conversion or redemption of the Notes prior
to such Fundamental Transaction, such shares of the publicly traded common stock
(or their equivalent) of the Successor Entity (including its Parent Entity), as
adjusted in accordance with the provisions of this Note.  In the event of Change
of Control where the Successor Entity is not a publicly traded company, the
Holder shall be required to elect to receive the Change of Control Redemption
Price in lieu of leaving the Note outstanding following such Change of Control. 
The provisions of this Section shall apply similarly and equally to successive
Fundamental Transactions and shall be applied without regard to any limitations
on the conversion or redemption of this Note.

 

(b)           Redemption Right.  No sooner than fifteen (15) days nor later than
ten (10) days prior to the consummation of a Change of Control, but not prior to
the public announcement of such Change of Control, the Company shall deliver
written notice thereof via facsimile and overnight courier to the Holder (a
“Change of Control Notice”).  At any time during the period beginning after the
Holder’s receipt of a Change of Control Notice and ending twenty (20) Trading
Days after the date of the consummation of such Change of Control, the Holder
may require the Company to redeem all or any portion of this Note by delivering
written notice thereof (“Change of Control Redemption Notice”) to the Company,
which Change of Control Redemption Notice shall indicate the Conversion Amount
the Holder is electing to require the Company to redeem.  The portion of this
Note subject to redemption pursuant to this Section 5 shall be redeemed by the
Company in cash at a price equal to the greater of 120% of (i) the Conversion
Amount being redeemed and (ii) the product of (A) the Conversion Amount being
redeemed (as calculated through the redemption date) multiplied by (B) the
quotient determined by dividing (1) the aggregate cash consideration and the
aggregate cash value of any non-cash consideration per Common Share to be paid
to the holders of the Common Shares upon consummation of the Change of Control
(any such non-cash consideration consisting of marketable securities to be
valued at the greatest Closing Sale Price of such securities during the period
beginning on the date immediately preceding the public announcement of such
Change of Control and ending on the Trading Day immediately prior to the date of
the consummation of such Change of Control) by (2) the Conversion Price (the
“Change of Control Redemption Price”).  Redemptions required by this Section 5
shall be made in accordance with the provisions of Section 14 and shall have
priority to payments to stockholders in connection with a Change of Control.  To
the extent redemptions required by this Section 5(b) are deemed or determined by
a court of competent jurisdiction to be prepayments of the Note by the Company,
such redemptions shall be deemed to be voluntary prepayments.  Notwithstanding
anything to the contrary in this Section 5, but subject to Section 3(d), until
the Change of Control Redemption Price (together with any interest thereon) is
paid in full, the Conversion Amount submitted for redemption under this
Section 5(c) (together with any interest thereon) may be converted, in

 

10

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whole or in part, by the Holder into Common Shares pursuant to Section 3.  In
the event of a partial redemption of this Note pursuant hereto, the principal
amount redeemed shall be deducted from the Installment Amounts relating to the
applicable Installment Dates as set forth in the Change of Control Redemption
Notice.  The parties hereto agree that in the event of the Company’s redemption
of any portion of the Note under this Section 5(b), the Holder’s damages would
be uncertain and difficult to estimate because of the parties’ inability to
predict future interest rates and the uncertainty of the availability of a
suitable substitute investment opportunity for the Holder.  Accordingly, any
Change of Control redemption premium due under this Section 5(b) is intended by
the parties to be, and shall be deemed, a reasonable estimate of the Holder’s
actual loss of its investment opportunity and not as a penalty.

 

(6)                         RIGHTS UPON ISSUANCE OF PURCHASE RIGHTS AND OTHER
CORPORATE EVENTS.

 

(a)               Purchase Rights.  If at any time the Company grants, issues or
sells any Options, Convertible Securities or rights to purchase stock, warrants,
securities or other property pro rata to the record holders of any class of
Common Shares (the “Purchase Rights”), then the Holder will be entitled to
acquire, upon the terms applicable to such Purchase Rights, the aggregate
Purchase Rights which the Holder could have acquired if the Holder had held the
number of Common Shares acquirable upon complete conversion of this Note
(without taking into account any limitations or restrictions on the
convertibility of this Note) immediately before the date on which a record is
taken for the grant, issuance or sale of such Purchase Rights, or, if no such
record is taken, the date as of which the record holders of Common Shares are to
be determined for the grant, issue or sale of such Purchase Rights.

 

(b)               Other Corporate Events.  In addition to and not in
substitution for any other rights hereunder, prior to the consummation of any
Fundamental Transaction pursuant to which holders of Common Shares are entitled
to receive securities or other assets with respect to or in exchange for Common
Shares (a “Corporate Event”), the Company shall make appropriate provision to
insure that the Holder will thereafter have the right to receive upon a
conversion of this Note, at the Holder’s option, in lieu of the Common Shares
otherwise receivable upon such conversion, such securities or other assets
received by the holders of Common Shares in connection with the consummation of
such Corporate Event in such amounts as the Holder would have been entitled to
receive had this Note initially been issued with conversion rights for the form
of such consideration (as opposed to Common Shares at a conversion rate for such
consideration commensurate with the Conversion Rate).  Provision made pursuant
to the preceding sentence shall be in a form and substance satisfactory to the
Holder.  The provisions of this Section shall apply similarly and equally to
successive Corporate Events and shall be applied without regard to any
limitations on the conversion or redemption of this Note.

 

(7)                         RIGHTS UPON ISSUANCE OF OTHER SECURITIES.

 

(a)               Record Date.  If the Company takes a record of the holders of
Common Shares for the purpose of entitling them (A) to receive a dividend or
other distribution payable in Common Shares, Options or in Convertible
Securities or (B) to subscribe for or purchase Common Shares, Options or
Convertible Securities, then such record date will be

 

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deemed to be the date of the issue or sale of the Common Shares deemed to have
been issued or sold upon the declaration of such dividend or the making of such
other distribution or the date of the granting of such right of subscription or
purchase, as the case may be.

 

(b)               Adjustment of Conversion Price upon Subdivision or Combination
of Common Shares.  If the Company at any time on or after the Subscription Date
subdivides (by any stock split, stock dividend, recapitalization or otherwise)
one or more classes of its outstanding Common Shares into a greater number of
shares, the Conversion Price in effect immediately prior to such subdivision
will be proportionately reduced.  If the Company at any time on or after the
Subscription Date combines (by combination, reverse stock split or otherwise)
one or more classes of its outstanding Common Shares into a smaller number of
shares, the Conversion Price in effect immediately prior to such combination
will be proportionately increased.

 

(8)                         COMPANY INSTALLMENT CONVERSION OR REDEMPTION.

 

(a)               General.  On each applicable Installment Date, provided there
has been no Equity Conditions Failure, the Company shall pay to the Holder of
this Note the Installment Amount due on such date by converting such Installment
Amount, in accordance with this Section 8 (a “Company Conversion”); provided,
however, that the Company may, at its option following notice to the Holder, pay
the Installment Amount by redeeming such Installment Amount (a “Company
Redemption”) or by any combination of a Company Conversion and a Company
Redemption so long as all of the outstanding applicable Installment Amount shall
be converted and/or redeemed by the Company on the applicable Installment Date,
subject to the provisions of this Section 8.  On or prior to the date which is
the fifth (5th) Trading Day prior to each Installment Date (each, an
“Installment Notice Due Date”), the Company shall deliver written notice (each,
a “Company Installment Notice” and the date the Holder receives such notice is
referred to as to the “Company Installment Notice Date”), to the Holder which
Company Installment Notice shall (i) either (A) confirm that the applicable
Installment Amount of such holder’s Note shall be converted in whole pursuant to
a Company Conversion (such amount to be converted, the “Company Conversion
Amount”) or (B) (1) state that the Company elects to redeem, or is required to
redeem in accordance with the provisions of the Notes, in whole or in part, the
applicable Installment Amount pursuant to a Company Redemption and (2) specify
the portion (including Interest) which the Company elects or is required to
redeem pursuant to a Company Redemption (such amount to be redeemed, the
“Company Redemption Amount”) and the portion (including Interest), if any, that
the Company elects to convert pursuant to a Company Conversion (such amount
also, a “Company Conversion Amount”) which amounts when added together, must
equal the applicable Installment Amount and (ii) if the Installment Amount is to
be paid, in whole or in part, pursuant to a Company Conversion, certify that the
Equity Conditions have been satisfied as of the date of the Company Installment
Notice.  Each Company Installment Notice shall be irrevocable.  If the Company
does not timely deliver a Company Installment Notice in accordance with this
Section 8, then the Company shall be deemed to have delivered an irrevocable
Company Installment Notice confirming a Company Conversion and shall be deemed
to have certified that the Equity Conditions in connection with any such
conversion have been satisfied. The Company Conversion Amount (whether set forth
in the Company Installment Notice or by operation of this

 

12

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Section 8) shall be converted in accordance with Section 8(b) and the Company
Redemption Amount shall be redeemed in accordance with Section 8(c).

 

(b)               Mechanics of Company Conversion.  If the Company delivers a
Company Installment Notice and confirms, or is deemed to have confirmed, in
whole or in part, a Company Conversion in accordance with Section 8(a), then on
the Installment Date the Company shall, or shall direct the Transfer Agent to,
deliver to the Holder’s account with DTC a number of Common Shares equal to the
quotient of (A) such Company Conversion Amount divided by (B) the Company
Conversion Price (the “ Installment Conversion Shares”).

 

(c)               Mechanics of Company Redemption.  If the Company elects a
Company Redemption in accordance with Section 8(a), then the Company Redemption
Amount which is to be paid to the Holder on the applicable Installment Date
shall be redeemed by the Company, and the Company shall pay to the Holder on
such Installment Date, by wire transfer of immediately available funds, an
amount in cash (the “Company Installment Redemption Price”) equal to 100% of the
Company Redemption Amount.  If the Company fails to redeem the Company
Redemption Amount on the applicable Installment Date by payment of the Company
Installment Redemption Price within three (3) days following the Installment
Date, then at the option of the Holder designated in writing to the Company (any
such designation shall be deemed a “Conversion Notice” pursuant to
Section 3(c) for purposes of this Note), the Holder may require the Company to
convert all or any part of the Company Redemption Amount at 90% of the Company
Conversion Price.  Conversions required by this Section 8(c) shall be made in
accordance with the provisions of Section 3(c).  Notwithstanding anything to the
contrary in this Section 8(c), but subject to Section 3(d), until the Company
Installment Redemption Price (together with any interest thereon) is paid in
full, the Company Redemption Amount (together with any interest thereon) may be
converted, in whole or in part, by the Holder into Common Shares pursuant to
Section 3.  In the event the Holder elects to convert all or any portion of the
Company Redemption Amount prior to the applicable Installment Date as set forth
in the immediately preceding sentence, the Company Redemption Amount so
converted shall be deducted from the Installment Amounts relating to the
applicable Installment Dates as set forth in the applicable Conversion Notice.

 

(d)               Deferred Installment Amount.  Notwithstanding any provision of
this Section 8(d) to the contrary, the Holder may, at its option and in its sole
discretion, deliver a written notice to the Company at least two (2) days prior
to any Installment Date electing to have the payment of all or any portion of an
Installment Amount payable on such Installment Date deferred (such amount
deferred, the “Deferral Amount”) until any subsequent Installment Date selected
by the Holder, in its sole discretion, in which case, the Deferral Amount shall
be added to, and become part of, such subsequent Installment Amount and such
Deferral Amount shall continue to accrue Interest hereunder.  Any notice
delivered by the Holder pursuant to this Section 8(d) shall set forth (i) the
Deferral Amount and (ii) the date that such Deferral Amount shall now be
payable.  In the event that the Equity Conditions were satisfied with respect to
any Deferral Amount were satisfied on the original Installment Date, they shall
be deemed to be satisfied on the date that such Deferral Amount shall now be
payable.

 

(9)           AUTOMATIC CONVERSION.  At any time after the Adjustment Date (the
“Automatic Conversion Eligibility Date”), (i) the Closing Sale Price of the
Common

 

13

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Shares listed on the Principal Market exceeds 175% of the Initial Conversion
Price for thirty (30) consecutive Trading Days (the “Automatic Conversion
Measuring Period”) and (ii) no Equity Conditions Failure has occurred and is
continuing, the Company shall have the right to elect to automatically convert
some or all of the Conversion Amount then remaining under this Note (the
“Automatic Conversion Amount”) as designated in an Automatic Conversion Notice
(as defined below) on the Automatic Conversion Date (each as defined below) (an
“Automatic Conversion”).  Upon an Automatic Conversion, the Holder shall be
entitled to receive the Conversion Shares and all other amounts, and shall be
entitled to any and all other rights and benefits under the Note and the other
Transaction Documents, as though such holder had delivered a Conversion Notice
on the Automatic Conversion Date with respect to the Automatic Conversion
Amount. The Company may exercise its right to require Automatic Conversion under
this Section 9 by delivering a written notice thereof by facsimile and overnight
courier to the Holder (the “Automatic Conversion Notice” and the date the Holder
received such notice is referred to as the “Automatic Conversion Notice Date”). 
The Automatic Conversion Notice shall be irrevocable.  The Automatic Conversion
Notice shall (x) state the date on which the Automatic Conversion shall occur
(the “Automatic Conversion Date”), which shall be on the fifteenth (15th)
Trading Day following the Automatic Conversion Notice Date, (y) certify that
there has been no Equity Conditions Failure and (z) state the aggregate
Conversion Amount of the Notes which the Company has elected to be subject to
Automatic Conversion from the Holder pursuant to this Section 9 on the Automatic
Conversion Date.  The Company may not effect more than one (1) Automatic
Conversion (except with respect to any Blocked Automatic Conversion Amount, all
of which may be included in one or more Automatic Conversion Notices delivered
to the Holder at least fifteen Trading Days after any previous Automatic
Conversion Date).  Notwithstanding anything to the contrary in this Section 9,
at any time prior to the Automatic Conversion Date, the Automatic Conversion
Amount may be converted, in whole or in part, by the Holder into Common Shares
pursuant to Section 3.  Except as otherwise provided in this Section 9, (i) if
an Equity Conditions Failure occurs at any time after the Automatic Conversion
Notice Date and prior to the Automatic Conversion Date, (A) the Company shall
provide the Holder a subsequent notice to that effect and (B) unless the Holder
waives the applicable Equity Conditions Failure, the Automatic Conversion shall
be cancelled and the applicable Automatic Conversion Notice shall be null and
void, provided that the Company shall continue to have the right to initiate an
Automatic Conversion thereafter in accordance with the terms hereof.  All
Conversion Amounts converted by the Holder after the Automatic Conversion Notice
Date shall reduce the Automatic Conversion Amount of this Note required to be
converted on the Automatic Conversion Date.  The Automatic Conversion Date shall
be treated as a Conversion Date for purposes of this Note.  Notwithstanding
anything herein to the contrary, to the extent the Company delivers an Automatic
Conversion Notice and the Holder notifies the Company that such Automatic
Conversion would violate Section 3(d) hereof, the applicable Automatic
Conversion Amount shall automatically be reduced to such aggregate Conversion
Amount that is eligible to be converted hereunder without violating
Section 3(d) and such portion of Automatic Conversion Amount that was unable to
be converted (the “Blocked Automatic Conversion Amount”) shall cease to accrue
Interest hereunder.

 

(10)                       COMPANY OPTIONAL REDEMPTION.  If at any time after
the sixtieth (60th) calendar day after the Applicable Date (as defined in the
Securities Purchase Agreement), the Company shall have the right to redeem all,
but not less than all, of the Conversion Amount then remaining under this Note
(the “Company Optional Redemption

 

14

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Amount”) on a Company Optional Redemption Date (each as defined below) (a
“Company Optional Redemption”).  The portion of this Note subject to redemption
pursuant to this Section 10 shall be redeemed by the Company in cash at a price
(the “Company Optional Redemption Price”) equal to the greater of 125% of
(i) the Conversion Amount to be redeemed (as calculated through the redemption
date) and (ii) the product of (A) the Conversion Rate with respect to such
Conversion Amount in effect at such time as the Company delivers a Company
Optional Redemption Notice (as defined below) and (B) the greatest Closing Sale
Price of the Common Stock on any Trading Day during the period commencing on the
Company Optional Redemption Notice Date and ending on the date immediately prior
to the Company Optional Redemption Date.  The Company may exercise its right to
require redemption under this Section 10 by delivering an irrevocable written
notice thereof by facsimile, electronic mail and overnight courier to all, but
not less than all, of the holders of Notes (the “Company Optional Redemption
Notice” and the date all of the holders of Notes received such notice is
referred to as the “Company Optional Redemption Notice Date”).  The Company may
deliver only one Company Optional Redemption Notice hereunder.  The Company
Optional Redemption Notice shall (x) state the date on which the Company
Optional Redemption shall occur (the “Company Optional Redemption Date”) which
date shall not be less than ten (10) calendar days nor more than thirty (30)
Trading Days following the Company Optional Redemption Notice Date, and
(y) state the aggregate Conversion Amount of the Notes which is being redeemed
in such Company Optional Redemption from the Holder and all of the other holders
of the Notes pursuant to this Section 10 (and analogous provisions under the
Other Notes) on the Company Optional Redemption Date.  Notwithstanding anything
herein to the contrary, at any time prior to the date the Company Optional
Redemption Price is paid, in full, the Company Optional Redemption Amount may be
converted, in whole or in part, by the Holders into shares of Common Stock
pursuant to Section 3.  All Conversion Amounts converted by the Holder after the
Company Optional Redemption Notice Date shall reduce the Company Optional
Redemption Amount of this Note required to be redeemed on the Company Optional
Redemption Date.  Redemptions made pursuant to this Section 10 shall be made in
accordance with Section 14.

 

(11)                       RESERVED

 

(12)                       NONCIRCUMVENTION.  The Company hereby covenants and
agrees that the Company will not, by amendment of its Certificate of
Incorporation, Bylaws or through any reorganization, transfer of assets,
consolidation, merger, scheme of arrangement, 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 Note, and will at all times in good
faith carry out all of the provisions of this Note and take all action as may be
required to protect the rights of the Holder of this Note.

 

(13)                       RESERVATION OF AUTHORIZED SHARES AND CONTINGENT
CAPITAL.

 

(a)   Reservation.  The Company shall initially reserve out of its authorized
shares a number of Common Shares for each of the Notes equal to 125% of the
Conversion Rate with respect to the Conversion Amount of each such Note as of
the Issuance Date.  So long as any of the Notes are outstanding, the Company
shall take all action necessary to reserve and keep available out of its
authorized shares, solely for the purpose of effecting the

 

15

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conversion of the Notes, 125% of the number of Common Shares as shall from time
to time be necessary to effect the conversion of all of the Notes then
outstanding; provided that at no time shall the number of Common Shares so
reserved be less than the number of shares required to be reserved by the
previous sentence (without regard to any limitations on conversions) (the
“Required Reserve Amount”).

 

(b)               Insufficient Authorized Shares.  If at any time while any of
the Notes remain outstanding the Company does not have a sufficient number of
authorized and unreserved Common Shares to satisfy its obligation to reserve for
issuance upon conversion of the Notes at least a number of Common Shares equal
to the Required Reserve Amount (an “Authorized Share Failure”), then the Company
shall immediately take all action necessary to increase the Company’s authorized
Common Shares to an amount sufficient to allow the Company to reserve the
Required Reserve Amount for the Notes then outstanding.  Without limiting the
generality of the foregoing sentence, as soon as practicable after the date of
the occurrence of an Authorized Share Failure, but in no event later than sixty
(60) days after the occurrence of such Authorized Share Failure, the Company
shall hold a meeting of its stockholders for the approval of an increase in the
number of authorized shares.  In connection with such meeting, the Company shall
provide each stockholder with a proxy statement and shall use its best efforts
to solicit its stockholders’ approval of such increase in authorized shares and
to cause its board of directors to recommend to the stockholders that they
approve such proposal.

 

(14)                       REDEMPTIONS.

 

(a)               Mechanics.  The Company shall deliver the applicable Event of
Default Redemption Price to the Holder within five (5) Business Days after the
Company’s receipt of the Holder’s Event of Default Redemption Notice.  If the
Holder has submitted a Change of Control Redemption Notice in accordance with
Section 5(b), the Company shall deliver the applicable Change of Control
Redemption Price to the Holder (i) concurrently with the consummation of such
Change of Control if such notice is received prior to the consummation of such
Change of Control and (ii) within five (5) Business Days after the Company’s
receipt of such notice otherwise.  The Company shall deliver the applicable
Company Installment Redemption Price to the Holder on the applicable Installment
Date.  The Company shall deliver the applicable Company Optional Redemption
Price to the Holder on the applicable Company Optional Redemption Date. In the
event of a redemption of less than all of the Conversion Amount of this Note,
the Company shall promptly cause to be issued and delivered to the Holder a new
Note (in accordance with Section 20(d)) representing the outstanding Principal
which has not been redeemed.  In the event that the Company does not pay the
applicable Redemption Price to the Holder within the time period required, at
any time thereafter and until the Company pays such unpaid Redemption Price in
full, the Holder shall have the option, in lieu of redemption, to require the
Company to promptly return to the Holder all or any portion of this Note
representing the Conversion Amount that was submitted for redemption and for
which the applicable Redemption Price has not been paid.  Upon the Company’s
receipt of such notice, (x) the applicable Redemption Notice shall be null and
void with respect to such Conversion Amount, (y) the Company shall immediately
return this Note, or issue a new Note (in accordance with Section 20(d)) to the
Holder representing such Redemption Price and (z) the Conversion Price of this
Note or such new Notes shall be adjusted to the lesser of (A) the Conversion
Price as in effect on the date on which the applicable Redemption Notice

 

16

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is voided and (B) 90% of the lowest Closing Bid Price of the Common Shares
during the period beginning on and including the date on which the applicable
Redemption Notice is delivered to the Company and ending on and including the
date on which the applicable Redemption Notice is voided.

 

(15)                       VOTING RIGHTS.  The Holder shall have no voting
rights as the holder of this Note, except as required by law, including, but not
limited to, the General Corporation Law of the State of Delaware, and as
expressly provided in this Note.

 

(16)                       COVENANTS.

 

(a)               Rank.  All payments due under this Note shall be senior to all
other Indebtedness of the Company and its Subsidiaries other than Permitted
Indebtedness.

 

(b)               Incurrence of Indebtedness. The Company shall not, and the
Company shall cause each of its Subsidiaries to not, directly or indirectly,
incur or guarantee, assume or suffer to exist any Indebtedness (other than
(i) the Indebtedness evidenced by this Note and (ii) Permitted Indebtedness).

 

(c)               Existence of Liens. The Company shall not, and the Company
shall cause each of its Subsidiaries to not, directly or indirectly, allow or
suffer to exist any mortgage, lien, pledge, charge, security interest or other
encumbrance upon or in any property or assets (including accounts and contract
rights) owned by the Company or any of its Subsidiaries (collectively, “Liens”)
other than Permitted Liens.

 

(d)               Restricted Payments. The Company shall not, and the Company
shall cause each of its Subsidiaries to not, directly or indirectly, redeem,
defease, repurchase, repay or make any payments in respect of, by the payment of
cash or cash equivalents (in whole or in part, whether by way of open market
purchases, tender offers, private transactions or otherwise), all or any portion
of any Indebtedness (other than Permitted Indebtedness), whether by way of
payment in respect of principal of (or premium, if any) or interest on, such
Indebtedness if at the time such payment is due or is otherwise made or, after
giving effect to such payment, (i) an event constituting an Event of Default has
occurred and is continuing or (ii) an event that with the passage of time and
without being cured would constitute an Event of Default has occurred and is
continuing.

 

(e)               Restriction on Redemption and Cash Dividends.  Until all of
the Notes have been converted, redeemed or otherwise satisfied in accordance
with their terms, the Company shall not, directly or indirectly, redeem,
repurchase or declare or pay any cash dividend or distribution on its capital
stock without the prior express written consent of the Holder.

 

(17)                       PARTICIPATION.  The Holder, as the holder of this
Note, shall be entitled to receive such dividends paid and distributions made to
the holders of Common Shares to the same extent as if the Holder had converted
this Note into Common Shares and had held such Common Shares on the record date
for such dividends and distributions.  Payments under the preceding sentence
shall be made concurrently with the dividend or distribution to the holders of
Common Shares.

 

17

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(18)                       VOTE TO ISSUE, OR CHANGE THE TERMS OF, NOTES.  The
consent of the Holder shall be required for any change or amendment to this
Note.

 

(19)                       TRANSFER.  This Note and any Common Shares issued
upon conversion of this Note may be offered, sold, assigned or transferred by
the Holder without the consent of the Company, subject only to the provisions of
Section 2(g) of the Securities Purchase Agreement.

 

(20)                       REISSUANCE OF THIS NOTE.

 

(a)               Transfer.  If this Note is to be transferred, the Holder shall
surrender this Note to the Company, whereupon the Company will forthwith issue
and deliver upon the order of the Holder a new Note (in accordance with
Section 20(d)), registered as the Holder may request, representing the
outstanding Principal being transferred by the Holder and, if less then the
entire outstanding Principal is being transferred, a new Note (in accordance
with Section 20(d)) to the Holder representing the outstanding Principal not
being transferred.  The Holder and any assignee, by acceptance of this Note,
acknowledge and agree that, by reason of the provisions of
Section 3(c)(iii) following conversion or redemption of any portion of this
Note, the outstanding Principal represented by this Note may be less than the
Principal stated on the face of this Note.

 

(b)               Lost, Stolen or Mutilated Note.  Upon receipt by the Company
of evidence reasonably satisfactory to the Company of the loss, theft,
destruction or mutilation of this Note, and, in the case of loss, theft or
destruction, of any indemnification undertaking by the Holder to the Company in
customary form and, in the case of mutilation, upon surrender and cancellation
of this Note, the Company shall execute and deliver to the Holder a new Note (in
accordance with Section 20(d)) representing the outstanding Principal.

 

(c)               Note Exchangeable for Different Denominations.  This Note is
exchangeable, upon the surrender hereof by the Holder at the principal office of
the Company, for a new Note or Notes (in accordance with Section 20(d) and in
principal amounts of at least $100,000) representing in the aggregate the
outstanding Principal of this Note, and each such new Note will represent such
portion of such outstanding Principal as is designated by the Holder at the time
of such surrender.

 

(d)               Issuance of New Notes.  Whenever the Company is required to
issue a new Note pursuant to the terms of this Note, such new Note (i) shall be
of like tenor with this Note, (ii) shall represent, as indicated on the face of
such new Note, the Principal remaining outstanding (or in the case of a new Note
being issued pursuant to Section 20(a) or Section 20(c), the Principal
designated by the Holder which, when added to the principal represented by the
other new Notes issued in connection with such issuance, does not exceed the
Principal remaining outstanding under this Note immediately prior to such
issuance of new Notes), (iii) shall have an issuance date, as indicated on the
face of such new Note, which is the same as the Issuance Date of this Note,
(iv) shall have the same rights and conditions as this Note, and (v) shall
represent accrued and unpaid Interest.

 

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(21)                       REMEDIES, CHARACTERIZATIONS, OTHER OBLIGATIONS,
BREACHES AND INJUNCTIVE RELIEF.  The remedies provided in this Note shall be
cumulative and in addition to all other remedies available under this Note and
any of the other Transaction Documents at law or in equity (including a decree
of specific performance and/or other injunctive relief), and nothing herein
shall limit the Holder’s right to pursue actual and consequential damages for
any failure by the Company to comply with the terms of this Note.  Amounts set
forth or provided for herein with respect to payments, conversion and the like
(and the computation thereof) shall be the amounts to be received by the Holder
and shall not, except as expressly provided herein, be subject to any other
obligation of the Company (or the performance thereof).  The Company
acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to the Holder and that the remedy at law for any such breach
may be inadequate.  The Company therefore agrees that, in the event of any such
breach or threatened breach, the Holder shall be entitled, in addition to all
other available remedies, to an injunction restraining any breach, without the
necessity of showing economic loss and without any bond or other security being
required.

 

(22)                       PAYMENT OF COLLECTION, ENFORCEMENT AND OTHER COSTS. 
If (a) this Note is placed in the hands of an attorney for collection or
enforcement or is collected or enforced through any legal proceeding or the
Holder otherwise takes action to collect amounts due under this Note or to
enforce the provisions of this Note or (b) there occurs any bankruptcy,
reorganization, receivership of the Company or other proceedings affecting
Company creditors’ rights and involving a claim under this Note, then the
Company shall pay the costs incurred by the Holder for such collection,
enforcement or action or in connection with such bankruptcy, reorganization,
receivership or other proceeding, including, but not limited to, attorneys’ fees
and disbursements.

 

(23)                       CONSTRUCTION; HEADINGS.  This Note shall be deemed to
be jointly drafted by the Company and all the Purchasers and shall not be
construed against any person as the drafter hereof.  The headings of this Note
are for convenience of reference and shall not form part of, or affect the
interpretation of, this Note.

 

(24)                       FAILURE OR INDULGENCE NOT WAIVER.  No failure or
delay on the part of the Holder in the exercise of any power, right or privilege
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such power, right or privilege preclude other or further
exercise thereof or of any other right, power or privilege.

 

(25)                       DISPUTE RESOLUTION.  In the case of a dispute as to
the determination of the Closing Bid Price, the Closing Sale Price or the
Weighted Average Price or the arithmetic calculation of the Conversion Rate, the
Conversion Price, the Company Conversion Price or any Redemption Price, the
Company shall submit the disputed determinations or arithmetic calculations via
facsimile within one (1) Business Day of receipt, or deemed receipt, of the
Conversion Notice or Redemption Notice or other event giving rise to such
dispute, as the case may be, to the Holder.  If the Holder and the Company are
unable to agree upon such determination or calculation within one (1) Business
Day of such disputed determination or arithmetic calculation being submitted to
the Holder, then the Company shall, within one Business Day submit via facsimile
(a) the disputed determination of the Closing Bid Price, the Closing Sale Price,
the Company Conversion Price or the Weighted Average Price to an independent,
reputable investment bank selected by the Company and approved by the Holder

 

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or (b) the disputed arithmetic calculation of the Conversion Rate, Conversion
Price or any Redemption Price to the Company’s independent, outside accountant. 
The Company, at the Company’s expense, shall cause the investment bank or the
accountant, as the case may be, to perform the determinations or calculations
and notify the Company and the Holder of the results no later than five
(5) Business Days from the time it receives the disputed determinations or
calculations.  Such investment bank’s or accountant’s determination or
calculation, as the case may be, shall be binding upon all parties absent
demonstrable error.

 

(26)                       NOTICES; PAYMENTS.

 

(a)               Notices.  Whenever notice is required to be given under this
Note, unless otherwise provided herein, such notice shall be given in accordance
with Section 9(f) of the Securities Purchase Agreement.  The Company shall
provide the Holder with prompt written notice of all actions taken pursuant to
this Note, including in reasonable detail a description of such action and the
reason therefore.  Without limiting the generality of the foregoing, the Company
will give written notice to the Holder (i) immediately upon any adjustment of
the Conversion Price, setting forth in reasonable detail, and certifying, the
calculation of such adjustment and (ii) at least ten (10) days prior to the date
on which the Company closes its books or takes a record (A) with respect to any
dividend or distribution upon the Common Shares, (B) with respect to any pro
rata subscription offer to holders of Common Shares or (C) for determining
rights to vote with respect to any Fundamental Transaction, dissolution or
liquidation, provided in each case that such information shall be made known to
the public prior to or in conjunction with such notice being provided to the
Holder.

 

(b)               Payments.  Whenever any payment of cash is to be made by the
Company to any Person pursuant to this Note, such payment shall be made in
lawful money of the United States of America by a check drawn on the account of
the Company and sent via overnight courier service to such Person at such
address as previously provided to the Company in writing (which address, in the
case of each of the Purchasers, shall initially be as set forth on the Schedule
of Buyers attached to the Securities Purchase Agreement); provided that the
Holder may elect to receive a payment of cash via wire transfer of immediately
available funds by providing the Company with prior written notice setting out
such request and the Holder’s wire transfer instructions.  Whenever any amount
expressed to be due by the terms of this Note is due on any day which is not a
Business Day, the same shall instead be due on the next succeeding day which is
a Business Day and, in the case of any Interest Date which is not the date on
which this Note is paid in full, the extension of the due date thereof shall not
be taken into account for purposes of determining the amount of Interest due on
such date.

 

(27)                       CANCELLATION.  After all Principal, accrued Interest
and other amounts at any time owed on this Note have been paid in full, this
Note shall automatically be deemed canceled, shall be surrendered to the Company
for cancellation and shall not be reissued.

 

(28)                       WAIVER OF NOTICE.  To the extent permitted by law,
the Company hereby waives demand, notice, protest and all other demands and
notices in connection with the delivery, acceptance, performance, default or
enforcement of this Note and the Securities Purchase Agreement.

 

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(29)                       GOVERNING LAW.  This Note shall be construed and
enforced in accordance with, and all questions concerning the construction,
validity, interpretation and performance of this Note shall be governed by, the
internal laws of the State of New York, without giving effect to any choice of
law or conflict of law provision or rule (whether of the State of New York or
any other jurisdictions) that would cause the application of the laws of any
jurisdictions other than the State of New York.  The Company hereby irrevocably
submits to the exclusive jurisdiction of the state and federal courts sitting in
The City of New York, Borough of Manhattan, for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby
or discussed herein, and hereby irrevocably waives, and agrees not to assert in
any suit, action or proceeding, any claim that it is not personally subject to
the jurisdiction of any such court, that such suit, action or proceeding is
brought in an inconvenient forum or that the venue of such suit, action or
proceeding is improper.  Nothing contained herein shall be deemed to limit in
any way any right to serve process in any manner permitted by law.  In the event
that any provision of this Note is invalid or unenforceable under any applicable
statute or rule of law, then such provision shall be deemed inoperative to the
extent that it may conflict therewith and shall be deemed modified to conform
with such statute or rule of law.  Any such provision which may prove invalid or
unenforceable under any law shall not affect the validity or enforceability of
any other provision of this Note.  Nothing contained herein shall be deemed or
operate to preclude the Holder from bringing suit or taking other legal action
against the Company in any other jurisdiction to collect on the Company’s
obligations to the Holder, to realize on any collateral or any other security
for such obligations, or to enforce a judgment or other court ruling in favor of
the Holder.  THE COMPANY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND
AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE
HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS NOTE OR ANY TRANSACTION
CONTEMPLATED HEREBY.

 

(30)                       CERTAIN DEFINITIONS.  For purposes of this Note, the
following terms shall have the following meanings:

 

(a)           “Bloomberg” means Bloomberg Financial Markets.

 

(b)           “Business Day” means any day other than Saturday, Sunday or other
day on which commercial banks in The City of New York are authorized or required
by law to remain closed.

 

(c)               “Change of Control” means any Fundamental Transaction other
than (i) any reorganization, recapitalization or reclassification of the Common
Shares in which holders of the Company’s voting power immediately prior to such
reorganization, recapitalization or reclassification continue after such
reorganization, recapitalization or reclassification to hold publicly traded
securities and, directly or indirectly, the voting power of the surviving entity
or entities necessary to elect a majority of the members of the board of
directors (or their equivalent if other than a corporation) of such entity or
entities, (ii) pursuant to a migratory merger effected solely for the purpose of
changing the jurisdiction of incorporation of the Company, (iii) any merger of
the Company or any of its, direct or indirect, wholly-owned Subsidiaries with or
into any of the foregoing Persons, or (iv) a merger in connection with a bona
fide acquisition by the Company of any Person in which (x) the gross
consideration paid, directly

 

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or indirectly, by the Company in such acquisition is not greater than 20% of the
Company’s market capitalization as calculated on the date of the consummation of
such merger and (y) such merger does not contemplate a change to the identity of
a majority of the board of directors of the Company.

 

(d)               “Closing Bid Price” and “Closing Sale Price” means, for any
security as of any date, the last closing bid price and last closing trade
price, respectively, for such security on the Principal Market, as reported by
Bloomberg, or, if the Principal Market begins to operate on an extended hours
basis and does not designate the closing bid price or the closing trade price,
as the case may be, then the last bid price or last trade price, respectively,
of such security prior to 4:00:00 p.m., New York Time, as reported by Bloomberg,
or, if the Principal Market is not the principal securities exchange or trading
market for such security, the last closing bid price or last trade price,
respectively, of such security on the principal securities exchange or trading
market where such security is listed or traded as reported by Bloomberg, or if
the foregoing do not apply, the last closing bid price or last trade price,
respectively, of such security in the over-the-counter market on the electronic
bulletin board for such security as reported by Bloomberg, or, if no closing bid
price or last trade price, respectively, is reported for such security by
Bloomberg, the average of the bid prices, or the ask prices, respectively, of
any market makers for such security as reported in the “pink sheets” by Pink
Sheets LLC (formerly the National Quotation Bureau, Inc.).  If the Closing Bid
Price or the Closing Sale Price cannot be calculated for a security on a
particular date on any of the foregoing bases, the Closing Bid Price or the
Closing Sale Price, as the case may be, of such security on such date shall be
the fair market value as mutually determined by the Company and the Holder.  If
the Company and the Holder are unable to agree upon the fair market value of
such security, then such dispute shall be resolved pursuant to Section 25.  All
such determinations to be appropriately adjusted for any stock dividend, stock
split, stock combination or other similar transaction during the applicable
calculation period.

 

(e)               “Closing Date” shall have the meaning set forth in the
Securities Purchase Agreement, which date is the date the Company initially
issued Notes pursuant to the terms of the Securities Purchase Agreement.

 

(f)                “Company Conversion Price” means, the lower of (i) the then
current Conversion Price and (ii) 88% of the Market Price as of the applicable
Installment Date, with all such determinations to be appropriately adjusted for
any stock split, stock dividend, stock combination or other similar
transaction).

 

(g)               “Convertible Securities” means any stock or securities (other
than Options) directly or indirectly convertible into or exercisable or
exchangeable for Common Shares.

 

(h)               “Eligible Market” means the The New York Stock Exchange, the
NYSE Amex, the Nasdaq Global Select Market, the Nasdaq Capital Market or the
Principal Market.

 

(i)                “Equity Conditions” means (i) either (x) one or more
Registration Statements filed pursuant to the Registration Rights Agreement
shall be effective

 

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and the prospectus contained therein shall be available for the resale by the
Holder of all of the Registrable Securities (which, solely for clarification
purposes, includes all Common Shares issuable upon conversion of this Note or
otherwise pursuant to the terms of this Note) in accordance with the terms of
the Registration Rights Agreement or (y) all Registrable Securities shall be
eligible for sale under Rule 144 (as defined in the Securities Purchase
Agreement) and, if applicable, the Company shall have satisfied the current
public information requirement of Rule 144(c)(1) (and 144(i)(2), if applicable)
and without the need for registration under any applicable federal or state
securities laws (in each case, disregarding any limitation on conversion of the
Notes, other issuance of securities with respect to the Notes); (ii) on each day
during the period beginning two months prior to the applicable date of
determination and ending on and including the applicable date of determination
(the “Equity Conditions Measuring Period”), the Common Shares are listed or
designated for quotation (as applicable) on an Eligible Market and shall not
have been suspended from trading on an Eligible Market (other than suspensions
of not more than two (2) days and occurring prior to the applicable date of
determination due to business announcements by the Company) nor shall delisting
or suspension by an Eligible Market have been threatened (with a reasonable
prospect of delisting occurring) or pending either (A) in writing by such
Eligible Market or (B) by falling below the minimum listing maintenance
requirements of the Eligible Market on which the Common Shares are then listed
or designated for quotation (as applicable); (iii) any Common Shares to be
issued in connection with the event requiring determination may be issued in
full without violating Section (3)(d) hereof; (iv) any Common Shares to be
issued in connection with the event requiring determination may be issued in
full without violating the rules or regulations of the Eligible Market on which
the Common Shares is then listed or designated for quotation (as applicable);
(v) on each day during the Equity Conditions Measuring Period, no public
announcement of a pending, proposed or intended Fundamental Transaction shall
have occurred which has not been abandoned, terminated or consummated; (vi) the
Company shall have no knowledge of any fact that would reasonably be expected to
cause any Common Shares to not be eligible for sale pursuant to the Registration
Statement or pursuant to Rule 144 or any applicable state securities laws (in
each case, disregarding any limitation on conversion of the Notes, other
issuance of securities with respect to the Notes); (vii) the Holder shall not be
in possession of any material, non-public information provided to any of them by
the Company, any of its affiliates or any of their respective employees,
officers, representatives, agents or the like; (viii) no Volume Failure exists;
and (ix) on each day during the Equity Conditions Measuring Period, there shall
not have occurred an Event of Default or an event that with the passage of time
or giving of notice would constitute an Event of Default.

 

(j)                “Equity Conditions Failure” means, with respect to a
particular date of determination, that on any day during the period commencing
twenty (20) Trading Days immediately prior to such date of determination, the
Equity Conditions have not been satisfied (or waived in writing by the Holder).

 

(k)               “Fundamental Transaction” means that the Company shall,
directly or indirectly, in one or more related transactions, (i) consolidate or
merge with or into (whether or not the Company is the surviving corporation)
another Person or Persons, or (ii) sell, assign, transfer, convey or otherwise
dispose of all or substantially all of the properties or assets of the Company
to another Person, or (iii) allow another Person to make a purchase, tender or
exchange offer that is accepted by the holders of more than 50% of the
outstanding shares of

 

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Voting Stock (not including any shares of Voting Stock held by the Person or
Persons making or party to, or associated or affiliated with the Persons making
or party to, such purchase, tender or exchange offer), or (iv) consummate a
stock purchase agreement or other business combination (including, without
limitation, a reorganization, recapitalization, spin-off or scheme of
arrangement) with another Person whereby such other Person acquires more than
the 50% of the outstanding shares of Voting Stock (not including any shares of
Voting Stock held by the other Person or other Persons making or party to, or
associated or affiliated with the other Persons making or party to, such stock
purchase agreement or other business combination), or (v) reorganize,
recapitalize or reclassify its Common Shares or (vi) any “person” or “group” (as
these terms are used for purposes of Sections 13(d) and 14(d) of the Exchange
Act) is or shall become the “beneficial owner” (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of 50% of the aggregate Voting Stock
of the Company.

 

(l)                “GAAP” means United States generally accepted accounting
principles, consistently applied.

 

(m)              “Installment Amount” means (i) with respect to any Installment
Date, the lesser of (A) $761,904.76, and (B) the Principal amount under this
Note as of such Installment Date, as any such Installment Amount may be reduced
pursuant to the terms of this Note, whether upon conversion, redemption or
otherwise, together with, in each case of clauses (i) and (ii), any accrued and
unpaid Interest as of such Installment Date under this Note , if any, under this
Note as of such Installment Date and (C) any Deferral Amount (including
Interest) being added to such Installment Amount.  In the event the Holder shall
sell or otherwise transfer any portion of this Note, the transferee shall be
allocated a pro rata portion of the each unpaid Installment Amount hereunder.

 

(n)               “Installment Date” means, November 1, 2011 and, thereafter,
the first Trading Day of each month thereafter, with the last Installment Date
being           , 2013.   If any Installment Date falls on a date other than a
Trading Day, the Installment Date shall be the next succeeding Trading Day.

 

(o)               “Interest Rate” means, 7% per annum, subject to adjustment as
set forth in Section 2.

 

(p)               “Market Price” means the arithmetic average of the Weighted
Average Price of the Common Shares for the ten (10) consecutive Trading Day
period (a “Market Price Measuring Period”) ending on the Trading Day immediately
preceding the applicable date, but in no event greater than the Weighted Average
Price of the Common Shares on the Trading Day (a “Market Price Measuring Date”)
immediately preceding the applicable date.

 

(q)               “Options” means any rights, warrants or options to subscribe
for or purchase Common Shares or Convertible Securities.

 

(r)                “Parent Entity” of a Person means an entity that, directly or
indirectly, controls the applicable Person and whose common stock or equivalent
equity security is quoted or listed on an Eligible Market, or, if there is more
than one such Person or Parent

 

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Entity, the Person or Parent Entity with the largest public market
capitalization as of the date of consummation of the Fundamental Transaction.

 

(s)               “Person” means an individual, a limited liability company, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization, any other entity and a government or any department or agency
thereof.

 

(t)                “Permitted Indebtedness” means (i) Indebtedness incurred by
the Company or any of its Subsidiaries that is made expressly subordinate in
right of payment to the Indebtedness evidenced by this Note, as reflected in a
written agreement acceptable to the Holder and approved by the Holder in
writing, and which Indebtedness does not provide at any time for (1) the
payment, prepayment, repayment, repurchase or defeasance, directly or
indirectly, of any principal or premium, if any, thereon until ninety-one (91)
days after the Maturity Date or later and (2) total interest and fees at a rate
in excess of seven percent (7.0%) per annum (collectively, the “Subordinated
Indebtedness”), (ii) Indebtedness secured by Permitted Liens, (iii) Indebtedness
evidenced by this Note and the Other Notes, (iv) Indebtedness outstanding
incurred by the Company or any of its Subsidiaries as of the Subscription Date
and described in the SEC Documents (as defined in the Securities Purchase
Agreement), (v) the Permitted Senior Indebtedness, (vi) operating leases
incurred by the Company or any of its Subsidiaries in the ordinary course of
business and (vii) extensions, refinancings and renewals of any items in clauses
(i) through (vi) above.

 

(u)               “Permitted Liens” means  (i) any Lien for taxes not yet due or
delinquent or being contested in good faith by appropriate proceedings for which
adequate reserves have been established in accordance with GAAP, (ii) any
statutory Lien arising in the ordinary course of business by operation of law
with respect to a liability that is not yet due or delinquent, (iii) any Lien
created by operation of law, such as materialmen’s liens, mechanics’ liens and
other similar liens, arising in the ordinary course of business with respect to
a liability that is not yet due or delinquent or that are being contested in
good faith by appropriate proceedings, (iv) Liens (A) upon or in any equipment
acquired or held by the Company or any of its Subsidiaries to secure the
purchase price of such equipment or indebtedness incurred solely for the purpose
of financing the acquisition or lease of such equipment, or (B) existing on such
equipment at the time of its acquisition, provided that the Lien is confined
solely to the property so acquired and improvements thereon, and the proceeds of
such equipment, (v) Liens incurred in connection with the extension, renewal or
refinancing of the indebtedness secured by Liens of the type described in clause
(iv) above, provided that any extension, renewal or replacement Lien shall be
limited to the property encumbered by the existing Lien and the principal amount
of the Indebtedness being extended, renewed or refinanced does not increase,
(vi) leases or subleases and licenses and sublicenses granted to others in the
ordinary course of the Company’s business, not interfering in any material
respect with the business of the Company and its Subsidiaries taken as a whole,
(vii) Liens in favor of customs and revenue authorities arising as a matter of
law to secure payments of custom duties in connection with the importation of
goods, (viii) Liens arising from judgments, decrees or attachments and (ix)
Liens securing Permitted Senior Indebtedness.

 

(v)               “Permitted Senior Indebtedness” means (i) Indebtedness to
Silicon Valley Bank or one or more commercial lenders in a principal amount not
to exceed

 

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$50,000,000, in the aggregate, (ii) Indebtedness to Horizon Credit I LLC and
Velocity Venture Funding, LLC (the “Senior Subordinated Indebtedness”) in a
principal amount not to exceed $11,100,000 and (iii) and extensions,
refinancings and renewals of any items in clauses (i) through (iii) above.

 

(w)              “Principal Market” means the Nasdaq Capital Market.

 

(x)                “Redemption Notices” means, collectively, the Event of
Default Redemption Notices, the Change of Control Redemption Notices, the
Company Optional Redemption Price, the Company Installment Notice (if a Company
Redemption has been elected), each of the foregoing, individually, a Redemption
Notice.

 

(y)               “Redemption Prices” means, collectively, the Event of Default
Redemption Price, Change of Control Redemption Price, the Company Optional
Redemption Price and the Company Installment Redemption Price, each of the
foregoing, individually, a Redemption Price.

 

(z)                “Securities Purchase Agreement” means that certain securities
purchase agreement dated as of the Subscription Date by and among the Company
and the Holder pursuant to which the Company issued the Note.

 

(aa)             “Subscription Date” means June 29, 2011.

 

(bb)             “Successor Entity” means the Person, which may be the Company,
formed by, resulting from or surviving any Fundamental Transaction or the Person
with which such Fundamental Transaction shall have been made, provided that if
such Person is not a publicly traded entity whose common stock or equivalent
equity security is quoted or listed for trading on an Eligible Market, Successor
Entity shall mean such Person’s Parent Entity.

 

(cc)             “Trading Day” means any day on which the Common Shares are
traded on the Principal Market, or, if the Principal Market is not the principal
trading market for the Common Shares, then on the principal securities exchange
or securities market on which the Common Shares are then traded; provided that
“Trading Day” shall not include any day on which the Common Shares are scheduled
to trade on such exchange or market for less than 4.5 hours or any day that the
Common Shares are suspended from trading during the final hour of trading on
such exchange or market (or if such exchange or market does not designate in
advance the closing time of trading on such exchange or market, then during the
hour ending at 4:00:00 p.m., New York Time).

 

(dd)             “Volume Failure” means, with respect to a particular date of
determination, the average daily volume (as reported on Bloomberg) of the Common
Shares on the Eligible Market on which the Common Shares is listed or designated
for quotation as of such date of determination over the five (5) consecutive
Trading Day period ending on the Trading Day immediately preceding such date of
determination is less than $1,000,000 per day (adjusted for any stock dividend,
stock split, stock combination or other similar transaction during such period).

 

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(ee)             “Voting Stock” of a Person means capital stock of such Person
of the class or classes pursuant to which the holders thereof have the general
voting power to elect, or the general power to appoint, at least a majority of
the board of directors, managers or trustees of such Person (irrespective of
whether or not at the time capital stock of any other class or classes shall
have or might have voting power by reason of the happening of any contingency).

 

(ff)               “Weighted Average Price” means, for any security as of any
date, the dollar volume-weighted average price for such security on the
Principal Market during the period beginning at 9:30:01 a.m., New York Time (or
such other time as the Principal Market publicly announces is the official open
of trading), and ending at 4:00:00 p.m., New York Time (or such other time as
the Principal Market publicly announces is the official close of trading) as
reported by Bloomberg through its “Volume at Price” functions, or, if the
foregoing does not apply, the dollar volume-weighted average price of such
security in the over-the-counter market on the electronic bulletin board for
such security during the period beginning at 9:30:01 a.m., New York Time (or
such other time as such market publicly announces is the official open of
trading), and ending at 4:00:00 p.m., New York Time (or such other time as such
market publicly announces is the official close of trading) as reported by
Bloomberg, or, if no dollar volume-weighted average price is reported for such
security by Bloomberg for such hours, the average of the highest closing bid
price and the lowest closing ask price of any of the market makers for such
security as reported in the “pink sheets” by Pink Sheets LLC (formerly the
National Quotation Bureau, Inc.).  If the Weighted Average Price cannot be
calculated for a security on a particular date on any of the foregoing bases,
the Weighted Average Price of such security on such date shall be the fair
market value as mutually determined by the Company and the Holder.  If the
Company and the Holder are unable to agree upon the fair market value of such
security, then such dispute shall be resolved pursuant to Section 25.  All such
determinations to be appropriately adjusted for any stock dividend, stock split,
stock combination or other similar transaction during the applicable calculation
period.

 

(31)                       DISCLOSURE. Upon receipt or delivery by the Company
of any notice in accordance with the terms of this Note, unless the Company has
in good faith determined that the matters relating to such notice do not
constitute material, nonpublic information relating to the Company or its
Subsidiaries, the Company shall within one (1) Business Day after any such
receipt or delivery publicly disclose such material, nonpublic information on a
Current Report on Form 8-K or otherwise.  In the event that the Company believes
that a notice contains material, nonpublic information relating to the Company
or its Subsidiaries, the Company so shall indicate to such Holder
contemporaneously with delivery of such notice, and in the absence of any such
indication, the Holder shall be allowed to presume that all matters relating to
such notice do not constitute material, nonpublic information relating to the
Company or its Subsidiaries.

 

[Signature Page Follows]

 

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IN WITNESS WHEREOF, the Company has caused this Note to be duly executed as of
the Issuance Date set out above.

 

 

 

SATCON TECHNOLOGY CORPORATION

 

 

 

 

 

By:

 

 

 

Name:

 

 

Title:

 

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