Exhibit 10.2

NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN COMPLIANCE WITH APPLICABLE STATE
SECURITIES LAWS OR BLUE SKY LAWS.  NOTWITHSTANDING THE FOREGOING, THESE
SECURITIES AND THE SECURITIES ISSUABLE UPON CONVERSION OF THESE SECURITIES MAY
BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR
FINANCING ARRANGEMENT SECURED BY SUCH SECURITIES.

No. [               ]

 

$[                ]

Date: July 19, 2006

 

 

 

SATCON TECHNOLOGY CORPORATION
SENIOR SECURED CONVERTIBLE NOTE DUE
July 19, 2011

THIS NOTE is one of a series of duly authorized and issued Notes of SatCon
Technology Corporation, a Delaware corporation (the “Company”), designated as
its Senior Secured Convertible Notes due July 19, 2011, in the aggregate
principal amount of $12,000,000 (the “Notes”).

FOR VALUE RECEIVED, the Company promises to pay to the order of [Holder] or its
registered assigns (the “Holder”), the principal sum of [__________]
$(__________) on July 19, 2011 (the “Maturity Date”), or such earlier date as
the Notes are required or permitted to be repaid as provided hereunder, and to
pay interest to the Holder on the aggregate unconverted and then outstanding
principal amount of this Note in accordance with the provisions hereof.  The
principal amount of this Note may be increased as set forth in Section 2(d)
below. Notwithstanding the foregoing, the Company hereby unconditionally
promises to pay to the order of the Holder interest on any principal or interest
payable hereunder that shall not be paid in full when due, whether at the time
of any stated interest payment date or principal payment date or maturity or by
prepayment, acceleration or declaration or otherwise, for the period from and
including the due date of such payment to but excluding the date the same is
paid in full, at a rate of 18% per annum (but in no event in excess of the
maximum rate permitted under applicable law).

Interest payable under this Note shall be computed on the basis of a year of 360
days and actual days elapsed (including the first day but excluding the last
day) occurring in the period for which interest is payable.

Payments of principal and interest shall be made in lawful money of the United
States of America to the Holder at its address as provided in Section 13 or by
wire transfer to such account specified from time to time by the Holder hereof
for such purpose as provided in Section 13.

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1.             DEFINITIONS.  IN ADDITION TO THE TERMS DEFINED ELSEWHERE IN THIS
NOTE, (A) CAPITALIZED TERMS THAT ARE NOT OTHERWISE DEFINED HEREIN HAVE THE
MEANINGS GIVEN TO SUCH TERMS IN THE SECURITIES PURCHASE AGREEMENT, DATED AS OF
JULY 19, 2006, AMONG THE COMPANY AND THE PURCHASERS IDENTIFIED THEREIN (THE
“PURCHASE AGREEMENT”), AND (B) THE FOLLOWING TERMS HAVE THE MEANINGS INDICATED:

“Conversion Date” means either (i) the date a Conversion Notice is delivered to
the Company together with the Conversion Schedule pursuant to Section 6(a) or
(ii) the date a conversion takes place pursuant to Section 6(b).

“Conversion Notice” means a written notice in the form attached hereto as
Schedule 1.

“Conversion Price” means $1.65, subject to adjustment from time to time pursuant
to Section 10.

“Equity Conditions” means, with respect to a specified issuance of Common Stock,
that each of the following conditions is satisfied: (i) the number of authorized
but unissued and otherwise unreserved shares of Common Stock is sufficient for
such issuance; (ii) such shares of Common Stock are registered for resale by the
Holder and may be sold by the Holder pursuant to an effective Registration
Statement covering the applicable Underlying Shares or all such shares may be
sold without volume restrictions pursuant to Rule 144(k) under the Securities
Act; (iii) the Common Stock is listed or quoted (and is not suspended from
trading) on an Eligible Market and such shares of Common Stock are approved for
listing upon issuance; (iv) such issuance would be permitted in full without
violating Section 6(c) hereof or the rules or regulations of any Trading Market;
(v) no Bankruptcy Event has occurred; (vi) the Company is not in default with
respect to any material obligation hereunder or under any other Transaction
Document; and (vii) no public announcement of a pending or proposed Change of
Control transaction has occurred that has not been consummated.

“Event Equity Value” means 115% of the arithmetic average of the VWAP for each
of the five Trading Days preceding the date of delivery of the notice requiring
payment of the Event Equity Value, provided that if the Company does not make
such required payment (together with any other payments, expenses and liquidated
damages then due and payable under the Transaction Documents) when due or, in
the event the Company disputes in good faith the occurrence of the Triggering
Event pursuant to which such notice relates, does not instead deposit such
required payment (together with such other payments, expenses and liquidated
damages then due) in escrow with an independent third-party escrow agent within
five Trading Days of the date such required payment is due, then the Event
Equity Value shall be 115% of the greater of (a) the arithmetic average of the
VWAP for each of the five Trading Days preceding the date of delivery of the
notice requiring payment of the Event Equity Value and (b) the arithmetic
average of the VWAP for each of the five Trading Days preceding the date on
which such required payment (together with such other payments, expenses and
liquidated damages) is paid in full.

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“Initial Interest Period” means the period beginning on the Closing Date and
ending on October 31, 2006.

“Interest Period” means a period of six months for the calculation of the
interest on the Note, provided that any such period (i) shall start on the last
day of the preceding period (other than the Initial Interest Period); (ii) which
would otherwise end on a day which is not a Trading Day shall be extended to the
next succeeding day which is a Trading Day and the following interest period
shall then end on the day on which it would have ended if the preceding interest
period had not been so extended; and (iii) which would otherwise overrun the
Maturity Date shall be shortened to end on the Maturity Date.

“Interest Rate” has the meaning set forth in Section 2(a) herein.

“LIBOR” means, in respect of a six-month Interest Period (i) the rate of
interest per annum  (expressed with a maximum of 4 decimals) offered for
deposits in the relevant currency and amount which appears on Telerate page 3750
or on any other relevant Telerate, Bloomberg or Reuter page as of 11:00 a.m.
London time two (2) Business Days prior to the commencement of the relevant
Interest Period; or (ii) should such quotation not be published on the relevant
day and time such interest rate per annum according to such other widely
published LIBOR quotation as the Company may select for the relevant Interest
Period as of 11:00 a.m. London time two (2) Business Days prior to the
commencement of the Interest Period.

“Original Issue Date” means the date of the first issuance of any Notes,
regardless of the number of transfers of any particular Note.

“Principal Payment Date” means any date on which payment of a principal amount
of this Note shall be due and payable by the Company in accordance with Section
2(b).

“Triggering Event” means any of the following events: (a) the Company fails for
any reason to deliver a certificate evidencing any Securities to a Purchaser
within seven Trading Days after delivery of such certificate is required
pursuant to any Transaction Document or the exercise or conversion rights of the
Holders pursuant to any Transaction Document are otherwise suspended for any
reason (except as the result of restrictions on exercise or conversion set forth
in the Transaction Documents); (b) the Company fails to have available a
sufficient number of authorized but unissued and otherwise unreserved shares of
Common Stock available to issue Underlying Shares upon any exercise of the Note;
(c) at any time after the Closing Date, any Common Stock issuable pursuant to
the Transaction Documents is not listed on an Eligible Market; (d) the
effectiveness of the Registration Statement lapses for any reason or the Holder
shall not be permitted to resell any applicable Underlying Shares under the
Registration Statement, in either case, for 10 or more Trading Days (which need
not be consecutive Trading Days), except in connection with a Suspension Event
in accordance with Section 6.1(g) of the Purchase Agreement; (e) the Company
fails to make any cash payment required under the Transaction Documents and such
failure is not cured within five days after notice of such

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default is first given to the Company by a Purchaser; (f) a breach of Section
3(d) or Section 10(d) herein (provided that a breach of Section 10(d) shall not
be a Triggering Event if the proceeds from such transaction are used to prepay
the Notes in full under Section 12(b) hereof), or (g) the Company breaches any
representation, warranty or covenant or defaults in the timely performance of
any other obligation or covenant under the Transaction Documents and such breach
or default continues uncured for a period of 20 days after the date on which
notice of such breach or default is first given to the Company by a Purchaser
(it being understood that no prior notice need be given in the case of a breach
or default that cannot reasonably be cured within 20 days).

2.             PRINCIPAL AND INTEREST.

(A)         THE COMPANY SHALL PAY INTEREST TO THE HOLDER ON THE AGGREGATE
UNCONVERTED AND THEN OUTSTANDING PRINCIPAL AMOUNT OF THIS NOTE FOR EACH INTEREST
PERIOD AT A RATE (THE “INTEREST RATE”) WHICH IS THE GREATER OF (I) 7% PER ANNUM,
(II) FOLLOWING A BREACH OF SECTION 10(D) HEREIN, 15% PER ANNUM OR (III) LIBOR
PLUS 350 BASIS POINTS PER ANNUM.  EACH INTEREST PERIOD, OTHER THAN THE INITIAL
INTEREST PERIOD SHALL BEGIN ON APRIL 30, JULY 31, OCTOBER 31 AND JANUARY 31 OF
EACH YEAR OCCURRING PRIOR TO THE MATURITY DATE. INTEREST SHALL BE PAYABLE
QUARTERLY IN ARREARS ON EACH APRIL 30, JULY 31, OCTOBER 31 AND JANUARY 31,
EXCEPT IF SUCH DATE IS NOT A TRADING DAY, IN WHICH CASE SUCH INTEREST SHALL BE
PAYABLE ON THE NEXT SUCCEEDING TRADING DAY (EACH, AN “INTEREST PAYMENT DATE”). 
THE FIRST INTEREST PAYMENT DATE SHALL BE OCTOBER 31, 2006.  THE AMOUNT OF
INTEREST PAID ON EACH INTEREST PAYMENT DATE SHALL BE REFERRED TO AS THE
“INTEREST PAYMENT AMOUNT”).

(B)        BEGINNING ON FEBRUARY 28, 2007 AND ON THE FIRST TRADING DAY FOR EACH
OF THE NEXT 17 MONTHS THEREAFTER (EACH, A “PRINCIPAL PAYMENT DATE”), THE COMPANY
SHALL PAY 4.167% OF THE ORIGINAL PRINCIPAL AMOUNT OF THIS NOTE TO THE HOLDER
(EACH, A “MONTHLY INSTALLMENT”).

(C)         SUBJECT TO THE CONDITIONS AND LIMITATIONS SET FORTH BELOW, THE
COMPANY MAY PAY INTEREST OR PRINCIPAL ON THIS NOTE IN (I) CASH OR (II) SHARES OF
COMMON STOCK.  THE COMPANY MUST DELIVER WRITTEN NOTICE TO THE HOLDER INDICATING
THE MANNER IN WHICH IT INTENDS TO PAY INTEREST AND PRINCIPAL AT LEAST 20 TRADING
DAYS PRIOR TO EACH INTEREST PAYMENT DATE (A “INTEREST PAYMENT NOTICE”) OR
PRINCIPAL PAYMENT DATE (A “PRINCIPAL PAYMENT NOTICE”, AND TOGETHER WITH THE
INTEREST PAYMENT NOTICE, EACH A “PAYMENT NOTICE”), AS APPLICABLE, BUT THE
COMPANY MAY INDICATE IN ANY SUCH NOTICE THAT THE ELECTION CONTAINED THEREIN
SHALL CONTINUE FOR SUBSEQUENT INTEREST PAYMENT DATES OR PRINCIPAL PAYMENT DATES
UNTIL REVISED.  FAILURE TO TIMELY PROVIDE SUCH WRITTEN NOTICE SHALL BE DEEMED AN
ELECTION BY THE COMPANY TO PAY THE AMOUNT OF ANY INTEREST OR PRINCIPAL IN CASH.

(D)        NOTWITHSTANDING THE FOREGOING, THE COMPANY MAY NOT PAY INTEREST OR
PRINCIPAL BY ISSUING SHARES OF COMMON STOCK UNLESS (I) ALL OF THE EQUITY
CONDITIONS ARE THEN SATISFIED WITH RESPECT TO ALL SHARES OF COMMON STOCK THEN
ISSUABLE UPON CONVERSION OF ALL OUTSTANDING NOTES; PROVIDED, HOWEVER, THAT,
NOTWITHSTANDING THE FOREGOING, THE CONVERSION RESTRICTIONS SET FORTH IN SECTION
6(C)(I) SHALL NOT LIMIT THE COMPANY’S ABILITY TO PAY INTEREST OR PRINCIPAL BY
ISSUING SHARES OF COMMON STOCK, AND (II) AS TO SUCH INTEREST PAYMENT DATE AND
PRINCIPAL PAYMENT DATE, PRIOR TO OR ON THE DATE OF THE APPLICABLE PAYMENT NOTICE
OR IF ANY

4

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PAYMENT NOTICE INDICATES THAT SUCH ELECTION CONTAINED THEREIN SHALL CONTINUE FOR
SUBSEQUENT INTEREST PAYMENT DATES OR PRINCIPAL PAYMENT DATES, PRIOR TO OR ON THE
20TH TRADING DAY PRIOR TO SUCH INTEREST PAYMENT DATE OR PRINCIPAL DATE (IN EACH
CASE, A “SHARE DELIVERY DATE”), AS THE CASE MAY BE, THE COMPANY SHALL HAVE
DELIVERED TO THE HOLDER’S ACCOUNT WITH THE DEPOSITORY TRUST COMPANY (“DTC”) (OR
BY PHYSICAL CERTIFICATE IF THE HOLDER DOES NOT HAVE AN ACCOUNT WITH THE DTC) A
NUMBER OF SHARES OF COMMON STOCK (THE “CONVERSION SHARES”) TO BE APPLIED AGAINST
SUCH INTEREST PAYMENT AMOUNT OR MONTHLY INSTALLMENT, AS APPLICABLE, EQUAL TO:

(A)  with respect to an Interest Payment Amount, the quotient of (x) the
applicable Interest Payment Amount divided by (y) 90% of the arithmetic average
of the VWAP for each of the 20 Trading Days ending immediately prior to the 23rd
Trading Day that is immediately prior to the applicable Interest Payment Date
(subject to adjustment for any stock dividend, stock split, stock combination or
other similar event affecting the Common Stock during such 20 Trading Day
period); and

(B)  with respect to a Monthly Installment, the quotient of (x) the applicable
Monthly Installment divided by (y) the lesser of (I) the then Conversion Price
and (II) 90% of the arithmetic average of the VWAP for each of the 20 Trading
Days ending immediately prior to the 23rd Trading Day that is immediately prior
to the applicable Principal Payment Date (subject to adjustment for any stock
dividend, stock split, stock combination or other similar event affecting the
Common Stock during such 20 Trading Day period).

Within 3 Trading Days of each Interest Payment Date or Principal Payment Date,
as applicable, the Company shall pay to the Holder additional shares of Common
Stock required to meet its obligations under Section 2(e) below (to the extent
the previously delivered Conversion Shares were not sufficient), or credit
against future interest or principal payments to be made on subsequent Interest
Payment Dates or Principal Payment Dates or Share Delivery Dates, as the case
may be, the excess of the Conversion Shares delivered to the Holders pursuant to
this Section 2(d) over the amount of shares of Common Stock due under Section
2(e).  If the Company is required to pay interest in cash on any Interest
Payment Date but fails to do so, the Holder may (but shall not be required to)
treat such interest as if it had been added to the principal amount of this Note
as of such Interest Payment Date or accept any number of shares of Common Stock
in lieu of such interest payment.

(E)         IN THE EVENT THAT THE COMPANY ELECTS TO PAY INTEREST OR PRINCIPAL ON
ANY INTEREST PAYMENT DATE OR PRINCIPAL PAYMENT DATE, AS APPLICABLE, IN SHARES OF
COMMON STOCK, THE NUMBER OF SHARES OF COMMON STOCK TO BE ISSUED TO EACH HOLDER
AS SUCH INTEREST OR PRINCIPAL SHALL BE (I) WITH RESPECT TO INTEREST, DETERMINED
BY DIVIDING THE AGGREGATE AMOUNT OF INTEREST THEN PAYABLE TO SUCH HOLDER BY THE
MARKET PRICE (AS DEFINED BELOW) AS OF THE APPLICABLE INTEREST PAYMENT DATE, AND
ROUNDING UP TO THE NEAREST WHOLE SHARE, (II) WITH RESPECT TO PRINCIPAL,
DETERMINED BY DIVIDING THE TOTAL PRINCIPAL THEN PAYABLE TO SUCH HOLDER BY THE
LOWER OF (Y) THE CONVERSION PRICE (AS ADJUSTED IN ACCORDANCE HEREWITH) AND (Z)
THE MARKET PRICE AS OF THE APPLICABLE PRINCIPAL PAYMENT DATE, AND ROUNDING UP TO
THE NEAREST WHOLE SHARE, AND (III) PAID TO SUCH HOLDER IN ACCORDANCE WITH
SECTION 2(F) BELOW, TAKING INTO ACCOUNT THE CONVERSION SHARES DELIVERED PURSUANT
TO SECTION 2(D).  THE TERM “MARKET PRICE” SHALL MEAN 90% OF THE ARITHMETIC
AVERAGE OF THE VWAP FOR EACH OF THE 20 TRADING DAYS ENDING IMMEDIATELY PRIOR TO
THE

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APPLICABLE INTEREST PAYMENT DATE OR PRINCIPAL PAYMENT DATE, AS THE CASE MAY BE
(NOT INCLUDING SUCH DATE).

(F)         IN THE EVENT THAT ANY INTEREST OR PRINCIPAL IS PAID IN COMMON STOCK,
THE COMPANY SHALL WITHIN THREE TRADING DAYS OF SUCH INTEREST PAYMENT DATE OR
PRINCIPAL PAYMENT DATE OR ON OR BEFORE THE SHARE DELIVERY DATE (I) ISSUE AND
DELIVER TO SUCH HOLDER A CERTIFICATE, FREE OF RESTRICTIVE LEGENDS, REGISTERED IN
THE NAME OF THE HOLDER OR ITS DESIGNEE, FOR THE NUMBER OF SHARES OF COMMON STOCK
TO WHICH THE HOLDER SHALL BE ENTITLED, OR (II) AT ALL TIMES AFTER THE HOLDER HAS
NOTIFIED THE COMPANY THAT THIS CLAUSE (II) SHALL APPLY, CREDIT THE NUMBER OF
SHARES OF COMMON STOCK TO WHICH THE HOLDER SHALL BE ENTITLED TO THE HOLDER’S OR
ITS DESIGNEE’S BALANCE ACCOUNT WITH THE DTC THROUGH ITS DEPOSIT WITHDRAWAL AGENT
COMMISSION SYSTEM.

(G)        EXCEPT AS OTHERWISE SET FORTH HEREIN, THE NOTES MAY NOT BE PREPAID IN
WHOLE OR PART ABSENT WRITTEN CONSENT FROM THE HOLDER.

3.             RANKING AND COVENANTS.

(A)                                      EXCEPT AS SET FORTH IN SCHEDULE 3.1(DD)
OR AS OTHERWISE PERMITTED IN SECTION 4.10(A) OF THE PURCHASE AGREEMENT (THE
“EXISTING INDEBTEDNESS”), NO INDEBTEDNESS OF THE COMPANY IS SENIOR TO, OR PARI
PASSU WITH, THIS NOTE IN RIGHT OF PAYMENT, WHETHER WITH RESPECT TO INTEREST,
DAMAGES OR UPON LIQUIDATION OR DISSOLUTION OR OTHERWISE.  OTHER THAN THE
EXISTING INDEBTEDNESS AND ANY RENEWAL, REFINANCING OR REPLACEMENT THEREOF THAT
DOES NOT EXCEED THE AGGREGATE AMOUNT OF THE EXISTING INDEBTEDNESS AND THE
BORROWING AVAILABILITY UNDER THE RELATED CREDIT OR LOAN AGREEMENTS ON THE DATE
HEREOF, THE COMPANY WILL NOT, AND WILL NOT PERMIT ANY SUBSIDIARY TO, DIRECTLY OR
INDIRECTLY, ENTER INTO, CREATE, INCUR, ASSUME OR SUFFER TO EXIST ANY
INDEBTEDNESS OF ANY KIND, THAT IS SENIOR OR PARI PASSU IN ANY RESPECT TO THE
COMPANY’S OBLIGATIONS UNDER THE NOTES, OTHER THAN INDEBTEDNESS SECURED BY
PURCHASE MONEY SECURITY INTERESTS (WHICH WILL BE SENIOR ONLY AS TO THE
UNDERLYING ASSETS COVERED THEREBY) AND INDEBTEDNESS UNDER CAPITAL LEASE
OBLIGATIONS (WHICH WILL BE SENIOR ONLY AS TO THE ASSETS COVERED THEREBY); AND
THE COMPANY WILL NOT, AND WILL NOT PERMIT ANY SUBSIDIARY TO, DIRECTLY OR
INDIRECTLY, INCUR ANY LIEN ON OR WITH RESPECT TO ANY OF ITS PROPERTY OR ASSETS
NOW OWNED OR HEREAFTER ACQUIRED OR ANY INTEREST THEREIN OR ANY INCOME OR PROFITS
THEREFROM, EXCEPT WITH RESPECT TO EXISTING INDEBTEDNESS.

(B)                                      SO LONG AS ANY NOTES ARE OUTSTANDING,
NEITHER THE COMPANY NOR ANY SUBSIDIARY SHALL, DIRECTLY OR INDIRECTLY, (I)
REDEEM, PURCHASE OR OTHERWISE ACQUIRE ANY CAPITAL STOCK OR SET ASIDE ANY MONIES
FOR SUCH A REDEMPTION, PURCHASE OR OTHER ACQUISITION (EXCEPT AS PERMITTED BY
SECTION 4.13(A)(I) OF THE PURCHASE AGREEMENT) OR (II) ISSUE ANY COMMON STOCK
EQUIVALENTS WITH AN EFFECTIVE PRICE OR A NUMBER OF UNDERLYING SHARES THAT FLOATS
OR RESETS OR OTHERWISE VARIES OR IS SUBJECT TO ADJUSTMENT BASED (DIRECTLY OR
INDIRECTLY) ON MARKET PRICES OF THE COMMON STOCK (A “FLOATING PRICE SECURITY).

(C)                                      THE COMPANY COVENANTS THAT IT WILL AT
ALL TIMES RESERVE AND KEEP AVAILABLE OUT OF ITS AUTHORIZED BUT UNISSUED AND
OTHERWISE UNRESERVED COMMON STOCK, SOLELY FOR THE PURPOSE OF ENABLING IT TO
ISSUE UNDERLYING SHARES AS REQUIRED HEREUNDER, THE NUMBER OF UNDERLYING SHARES
WHICH ARE THEN ISSUABLE AND DELIVERABLE UPON THE CONVERSION OF (AND OTHERWISE IN
RESPECT OF) THIS ENTIRE NOTE (TAKING INTO ACCOUNT THE ADJUSTMENTS SET FORTH IN
SECTION 10 AND DISREGARDING ANY LIMITATIONS SET FORTH IN SECTION 6(C)), FREE
FROM PREEMPTIVE RIGHTS OR

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ANY OTHER CONTINGENT PURCHASE RIGHTS OF PERSONS OTHER THAN THE HOLDER.  THE
COMPANY COVENANTS THAT ALL UNDERLYING SHARES SO ISSUABLE AND DELIVERABLE SHALL,
UPON ISSUANCE IN ACCORDANCE WITH THE TERMS HEREOF, BE DULY AND VALIDLY
AUTHORIZED AND ISSUED AND FULLY PAID AND NONASSESSABLE.

(D)                                      THE COMPANY COVENANTS THAT FOR SO LONG
AS ANY NOTES ARE OUTSTANDING, THE COMPANY’S AGGREGATE CASH AND CASH EQUIVALENTS
SHALL AT ALL TIMES EQUAL THE GREATER OF (I) $1,000,000 OR (II) THE AMOUNT
DETERMINED BY THE FOLLOWING CALCULATION: (A) $3,000,000 MINUS (B) 80.0% OF THE
COMPANY’S ELIGIBLE RECEIVABLES (AS DEFINED BELOW).

For the purpose of this Section 3(d), the following terms shall have the
following meanings (for the purpose of these definitions, the term “Company”
shall mean the Company and each of its subsidiaries):

“Account Debtor” means the obligor on a Receivable.

“Eligible Receivables” means Receivables arising in the ordinary course of the
Company’s business from the sale of goods or rendition of services; provided,
however, that for a Receivable to be an Eligible Receivable the following must
be true: (i) the Receivable must not be outstanding for more than 90 days from
its invoice date, (ii) the Receivable must not represent progress billings, or
be due under a fulfillment or requirements contract with the Account Debtor,
(iii) the Receivable must not be subject to any contingencies (including
Receivables arising from sales on consignment, guaranteed sale or other terms
pursuant to which payment by the Account Debtor may be conditional), (iv) the
Receivable must not be owing from an Account Debtor with whom the Company has
any dispute (whether or not relating to the particular Receivable), (v) the
Receivable must not be owing from an Affiliate of the Company, (vi) the
Receivable must not be owing from an Account Debtor which is subject to any
insolvency or bankruptcy proceeding, or which fails or goes out of a material
portion of its business, (vii) the Receivable must not be owing from the United
States or any department, agency or instrumentality thereof (unless there has
been compliance with the United States Assignment of Claims Act), (viii) the
Receivable must not be owing from an Account Debtor located outside the United
States or Canada (unless it is backed by a letter of credit or FCIA credit
insurance), and (ix) the Receivable must not be owing from an Account Debtor to
whom the Company is or may be liable for goods purchased from such Account
Debtor or otherwise.  Receivables owing from one Account Debtor will not be
deemed Eligible Receivables to the extent they exceed 25% of the total
Receivables outstanding. In addition, if more than 50% of the Receivables owing
from an Account Debtor are outstanding more than 90 days from their invoice date
(without regard to unapplied credits) or are otherwise not eligible Receivables,
then all Receivables owing from that Account Debtor will be deemed not to be
Eligible Receivables.

“Receivables” means all of the Company’s now owned and hereafter acquired
accounts (whether or not earned by performance), accounts receivable,
health-care insurance receivables, rights to payment, letters of credit,
contract rights, chattel paper, instruments, securities, securities accounts,
investment property, documents and all other forms of obligations at any time
owing to the Company, all guaranties and other security therefor, all
merchandise returned to or repossessed by the Company, and all rights of
stoppage in transit and all other rights or remedies of an unpaid vendor, lienor
or secured party.

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4.             REGISTRATION OF NOTES.  THE COMPANY SHALL REGISTER THE NOTES UPON
RECORDS TO BE MAINTAINED BY THE COMPANY FOR THAT PURPOSE (THE “NOTE REGISTER”)
IN THE NAME OF EACH RECORD HOLDER THEREOF FROM TIME TO TIME.  THE COMPANY MAY
DEEM AND TREAT THE REGISTERED HOLDER OF THIS NOTE AS THE ABSOLUTE OWNER HEREOF
FOR THE PURPOSE OF ANY CONVERSION HEREOF OR ANY PAYMENT OF INTEREST OR PRINCIPAL
HEREON, AND FOR ALL OTHER PURPOSES, ABSENT ACTUAL NOTICE TO THE CONTRARY.

5.             REGISTRATION OF TRANSFERS AND EXCHANGES.  THE COMPANY SHALL
REGISTER THE TRANSFER OF ANY PORTION OF THIS NOTE IN THE NOTE REGISTER UPON
SURRENDER OF THIS NOTE TO THE COMPANY AT ITS ADDRESS FOR NOTICE SET FORTH
HEREIN.  UPON ANY SUCH REGISTRATION OR TRANSFER, A NEW NOTE, IN SUBSTANTIALLY
THE FORM OF THIS NOTE (ANY SUCH NEW NOTE, A “NEW NOTE”), EVIDENCING THE PORTION
OF THIS NOTE SO TRANSFERRED SHALL BE ISSUED TO THE TRANSFEREE AND A NEW NOTE
EVIDENCING THE REMAINING PORTION OF THIS NOTE NOT SO TRANSFERRED, IF ANY, SHALL
BE ISSUED TO THE TRANSFERRING HOLDER.  THE ACCEPTANCE OF THE NEW NOTE BY THE
TRANSFEREE THEREOF SHALL BE DEEMED THE ACCEPTANCE BY SUCH TRANSFEREE OF ALL OF
THE RIGHTS AND OBLIGATIONS OF A HOLDER OF A NOTE.  THIS NOTE IS EXCHANGEABLE FOR
AN EQUAL AGGREGATE PRINCIPAL AMOUNT OF NOTES OF DIFFERENT AUTHORIZED
DENOMINATIONS, AS REQUESTED BY THE HOLDER SURRENDERING THE SAME.  NO SERVICE
CHARGE OR OTHER FEE WILL BE IMPOSED IN CONNECTION WITH ANY SUCH REGISTRATION OF
TRANSFER OR EXCHANGE.

6.             CONVERSION.

(A)                                      AT THE OPTION OF THE HOLDER.  ALL OR
ANY PORTION OF  THIS NOTE SHALL BE CONVERTIBLE INTO SHARES OF COMMON STOCK
(SUBJECT TO THE LIMITATIONS SET FORTH IN SECTION 6(C)), AT THE OPTION OF THE
HOLDER, AT ANY TIME AND FROM TIME TO TIME FROM AND AFTER THE ORIGINAL ISSUE
DATE.  THE NUMBER OF UNDERLYING SHARES ISSUABLE UPON ANY CONVERSION HEREUNDER
SHALL EQUAL THE OUTSTANDING PRINCIPAL AMOUNT OF THIS NOTE TO BE CONVERTED, PLUS
THE AMOUNT OF ANY ACCRUED BUT UNPAID INTEREST ON THIS NOTE THROUGH THE
CONVERSION DATE, DIVIDED BY THE CONVERSION PRICE ON THE CONVERSION DATE.  THE
HOLDER SHALL EFFECT CONVERSIONS UNDER THIS SECTION 6(A) BY DELIVERING TO THE
COMPANY A CONVERSION NOTICE TOGETHER WITH A SCHEDULE IN THE FORM OF SCHEDULE 2
ATTACHED HERETO (THE “CONVERSION SCHEDULE”).  IF THE HOLDER IS CONVERTING LESS
THAN ALL OF THE PRINCIPAL AMOUNT OF THIS NOTE, OR IF A CONVERSION HEREUNDER MAY
NOT BE EFFECTED IN FULL DUE TO THE APPLICATION OF SECTION 6(C), THE COMPANY
SHALL HONOR SUCH CONVERSION TO THE EXTENT PERMISSIBLE HEREUNDER AND SHALL
PROMPTLY DELIVER TO THE HOLDER A CONVERSION SCHEDULE INDICATING THE PRINCIPAL
AMOUNT (AND ACCRUED INTEREST) WHICH HAS NOT BEEN CONVERTED.

(B)                                      AT THE OPTION OF THE COMPANY.

(I)            IF, AT ANY TIME FOLLOWING THE ONE YEAR ANNIVERSARY OF THE
EFFECTIVE DATE, THE VWAP FOR ANY 20 CONSECUTIVE TRADING DAYS EXCEEDS 175% OF THE
CONVERSION PRICE (THE “THRESHOLD PRICE”), THEN THE COMPANY MAY REQUIRE THE
HOLDER TO CONVERT ALL OR ANY PART OF THE OUTSTANDING PRINCIPAL AMOUNT OF THE
NOTES INTO COMMON STOCK BASED ON THE CONVERSION PRICE (THE “CONVERSION RIGHT”).

(II)           THE COMPANY MAY REQUIRE A CONVERSION PURSUANT TO SECTION 6(B)(I)
ABOVE BY DELIVERING TO THE HOLDER AN IRREVOCABLE WRITTEN NOTICE OF ITS EXERCISE
OF ITS CONVERSION RIGHT NOT MORE THAN 20 TRADING DAYS AFTER THE END OF THE 20
CONSECUTIVE TRADING DAY PERIOD CONTEMPLATED BY SECTION 6(B)(I), AND THE
15TH TRADING DAY AFTER THE

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DATE ANY SUCH NOTICE IS DELIVERED TO THE HOLDER WILL BE THE “CONVERSION DATE”
FOR SUCH REQUIRED CONVERSION.

(III)          NOTWITHSTANDING ANYTHING TO THE CONTRARY, THE COMPANY MAY NOT
REQUIRE ANY CONVERSION UNDER THIS SECTION 6 (AND ANY NOTICE THEREOF WILL BE
VOID), UNLESS  FROM THE BEGINNING OF THE 20 CONSECUTIVE TRADING DAYS USED TO
DETERMINE WHETHER THE COMMON STOCK HAS ACHIEVED THE THRESHOLD PRICE THROUGH THE
CONVERSION DATE (THE “CONVERSION PERIOD”) (I) THE VWAP FOR EACH TRADING DAY
DURING SUCH CONVERSION PERIOD EXCEEDS THE THRESHOLD PRICE, (II) THE EQUITY
CONDITIONS ARE SATISFIED (OR WAIVED IN WRITING BY THE APPLICABLE HOLDER) ON EACH
TRADING DAY WITH THE RESPECT TO ALL UNDERLYING SHARES ISSUABLE UPON CONVERSION
OF THE PORTION OF THE NOTES BEING CONVERTED, AND (III) THE AVERAGE DAILY TRADING
VOLUME AS REPORTED ON BLOOMBERG, L.P. DURING SUCH CONVERSION PERIOD (DETERMINED
BY CALCULATING THE ARITHMETIC AVERAGE OF THE DAILY TRADING VOLUME FOR EACH
TRADING DAY IN SUCH CONVERSION PERIOD) IS GREATER THAN 100,000 SHARES.  ANY
CONVERSION PURSUANT TO THIS SECTION 6(B) SHALL BE PRO RATA AMONG ALL OF THE
HOLDERS, BASED ON SUCH HOLDERS THEN OUTSTANDING PRINCIPAL AMOUNT OF NOTES.

(C)                                      CERTAIN CONVERSION RESTRICTIONS.

 (I)  SUBJECT TO SECTION 6(C)(II), THE NUMBER OF SHARES OF COMMON STOCK THAT MAY
BE ACQUIRED BY A HOLDER UPON ANY CONVERSION OF NOTES (OR OTHERWISE IN RESPECT
HEREOF) SHALL BE LIMITED TO THE EXTENT NECESSARY TO INSURE THAT, FOLLOWING SUCH
CONVERSION (OR OTHER ISSUANCE), THE TOTAL NUMBER OF SHARES OF COMMON STOCK THEN
BENEFICIALLY OWNED BY SUCH HOLDER AND ITS AFFILIATES AND ANY OTHER PERSONS WHOSE
BENEFICIAL OWNERSHIP OF COMMON STOCK WOULD BE AGGREGATED WITH SUCH HOLDER’S FOR
PURPOSES OF SECTION 13(D) OF THE EXCHANGE ACT, DOES NOT EXCEED 4.999%  (THE
“THRESHOLD PERCENTAGE”) OR 9.999% (THE “MAXIMUM PERCENTAGE”) OF THE TOTAL NUMBER
OF ISSUED AND OUTSTANDING SHARES OF COMMON STOCK (INCLUDING FOR SUCH PURPOSE THE
SHARES OF COMMON STOCK ISSUABLE UPON SUCH CONVERSION). FOR SUCH PURPOSES,
BENEFICIAL OWNERSHIP SHALL BE DETERMINED IN ACCORDANCE WITH SECTION 13(D) OF THE
EXCHANGE ACT AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER.  EACH
DELIVERY OF A CONVERSION NOTICE HEREUNDER WILL CONSTITUTE A REPRESENTATION BY
THE APPLICABLE HOLDER THAT IT HAS EVALUATED THE LIMITATIONS SET FORTH IN THIS
SECTION 6(C)(I) AND HAS DETERMINED THAT ISSUANCE OF THE FULL NUMBER OF
UNDERLYING SHARES ISSUABLE IN RESPECT OF SUCH CONVERSION NOTICE DOES NOT VIOLATE
THE RESTRICTIONS CONTAINED IN THIS SECTION 6(C)(I).

(II) NOTWITHSTANDING THE PROVISIONS OF SECTION 6(C)(I), BY WRITTEN NOTICE TO THE
COMPANY, THE HOLDER SHALL HAVE THE RIGHT (X) AT ANY TIME AND FROM TIME TO TIME
TO REDUCE ITS MAXIMUM PERCENTAGE IMMEDIATELY UPON NOTICE TO THE COMPANY IN THE
EVENT AND ONLY TO THE EXTENT THAT SECTION 16 OF THE EXCHANGE ACT OR THE RULES
PROMULGATED THEREUNDER (OR ANY SUCCESSOR STATUTE OR RULES) IS CHANGED TO REDUCE
THE BENEFICIAL OWNERSHIP PERCENTAGE THRESHOLD THEREUNDER TO A PERCENTAGE LESS
THAN 9.999% AND (Y) AT ANY TIME AND FROM TIME TO TIME, TO WAIVE THE PROVISIONS
OF THIS SECTION INSOFAR AS THEY RELATE TO THE THRESHOLD PERCENTAGE OR TO
INCREASE ITS THRESHOLD PERCENTAGE (BUT NOT IN EXCESS OF THE MAXIMUM PERCENTAGE)
UNLESS THE HOLDER SHALL HAVE, BY WRITTEN INSTRUMENT DELIVERED TO THE COMPANY,
IRREVOCABLY WAIVED ITS RIGHTS TO SO INCREASE ITS THRESHOLD PERCENTAGE, BUT (I)
ANY SUCH WAIVER OR INCREASE WILL NOT BE EFFECTIVE UNTIL THE 61ST DAY AFTER SUCH
NOTICE IS

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DELIVERED TO THE COMPANY, AND (II) ANY SUCH WAIVER OR INCREASE OR DECREASE WILL
APPLY ONLY TO THE HOLDER AND NOT TO ANY OTHER HOLDER OF NOTES.

(iii)  If the Company has not previously obtained Shareholder Approval (as
defined below), then the Company may not issue in excess of the Issuable Maximum
upon conversions or redemptions of the Notes or as payment of principal or
interest on the Notes.  The “Issuable Maximum” means a number of shares equal to
19.99% of the of the Company’s outstanding shares on the Closing Date.  Each
Holder shall be entitled to a portion of the Issuable Maximum equal to the
quotient obtained by dividing: (x) the principal amount of Notes issued and sold
to such Holder on the Original Issue Date by (y) the aggregate principal amount
of Notes issued and sold by the Company on the Original Issue Date.  If any
Holder shall no longer hold Notes, then such Holder’s remaining portion of the
Issuable Maximum shall be allocated pro-rata among the remaining Holders. If on
any Conversion Date: (A) the aggregate number of shares of Common Stock that
would then be issuable upon conversion in full of all then outstanding principal
amount of Notes would exceed the Issuable Maximum, and (B) the Company shall not
have previously obtained the vote of shareholders to approve the issuance of
shares of Common Stock in excess of the Issuable Maximum pursuant to the terms
hereof (the “Shareholder Approval”), then, the Company shall issue to the
converting Holder a number of shares of Common Stock equal to such Holder’s
pro-rata portion (which shall be calculated pursuant to the terms hereof) of the
Issuable Maximum and, with respect to the remainder of the principal amount of
Notes then held by such Holder for which a conversion would result in an
issuance of shares of Common Stock in excess of such Holder’s pro-rata portion
(which shall be calculated pursuant to the terms hereof) of the Issuable Maximum
(the “Excess Principal Amount”), the applicable Holder shall have the right to
require the Company to either: (1) obtain the Shareholder Approval applicable to
such issuance as soon as is possible, but in any event not later than the 90th
day after such request, or (2) pay cash, in an amount equal to the Excess
Principal Amount (and accrued and unpaid interest thereon).  If a Holder shall
have elected the first option pursuant to the immediately preceding sentence and
the Company shall have failed to obtain Shareholder Approval on or prior to the
90th day after such request, then such Holder shall have the right to require
the Company to again seek Shareholder Approval as soon as is possible, but in
any event not later than the 90th day after such request (and such Holder may
continue to make subsequent requests thereafter if Shareholder Approval is not
obtained).  The outstanding principal amount of Notes shall be reduced by the
Excess Principal Amount upon the Holder’s receipt of the Excess Principal Amount
pursuant to the terms hereof. The Company and the Holder understand and agree
that shares of Common Stock issued to and then held by the Holder as a result of
conversions or redemptions of Notes or as payment of principal or interest on
the Notes shall not be entitled to cast votes on any resolution to obtain
Shareholder Approval pursuant hereto.

(iv)          Notwithstanding anything to the contrary set forth herein, the
number of shares of Common Stock that may be acquired by a Holder upon any
conversion or redemption of Notes (or otherwise in respect hereof, including,
without limitation, as interest and principal payments) shall be limited to the
extent necessary to insure that, following such conversion, redemption or other
issuance, the total number of shares of

10

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Common Stock then beneficially owned by such Holder and its Affiliates and any
other Persons whose beneficial ownership of Common Stock would be aggregated
with such Holder’s for purposes of Section 13(d) of the Exchange Act, does not
exceed 19.999% of the total number of issued and outstanding shares of Common
Stock at that time (including for such purpose the shares of Common Stock
issuable upon such conversion, redemption or principal or interest payments). 
For such purposes, beneficial ownership shall be determined in accordance with
Section 13(d) of the Exchange Act and the rules and regulations promulgated
thereunder.

7.             MECHANICS OF CONVERSION.

(A)                                      UPON CONVERSION OF THIS NOTE, THE
COMPANY SHALL PROMPTLY (BUT IN NO EVENT LATER THAN THREE TRADING DAYS AFTER THE
CONVERSION DATE) ISSUE OR CAUSE TO BE ISSUED AND CAUSE TO BE DELIVERED TO OR
UPON THE WRITTEN ORDER OF THE HOLDER AND IN SUCH NAME OR NAMES AS THE HOLDER MAY
DESIGNATE A CERTIFICATE FOR THE UNDERLYING SHARES ISSUABLE UPON SUCH CONVERSION,
FREE OF RESTRICTIVE LEGENDS UNLESS A REGISTRATION STATEMENT COVERING THE RESALE
OF THE UNDERLYING SHARES AND NAMING THE HOLDER AS A SELLING STOCKHOLDER
THEREUNDER IS NOT THEN EFFECTIVE AND SUCH UNDERLYING SHARES ARE NOT THEN FREELY
TRANSFERABLE WITHOUT VOLUME RESTRICTIONS PURSUANT TO RULE 144 UNDER THE
SECURITIES ACT.  THE HOLDER, OR ANY PERSON SO DESIGNATED BY THE HOLDER TO
RECEIVE UNDERLYING SHARES, SHALL BE DEEMED TO HAVE BECOME HOLDER OF RECORD OF
SUCH UNDERLYING SHARES AS OF THE CONVERSION DATE.  THE COMPANY SHALL, UPON
REQUEST OF THE HOLDER, USE ITS BEST EFFORTS TO DELIVER UNDERLYING SHARES
HEREUNDER ELECTRONICALLY THROUGH THE DTC OR ANOTHER ESTABLISHED CLEARING
CORPORATION PERFORMING SIMILAR FUNCTIONS.

(B)                                      THE HOLDER SHALL NOT BE REQUIRED TO
DELIVER THE ORIGINAL NOTE IN ORDER TO EFFECT A CONVERSION HEREUNDER.  EXECUTION
AND DELIVERY OF THE CONVERSION NOTICE SHALL HAVE THE SAME EFFECT AS CANCELLATION
OF THE ORIGINAL NOTE AND ISSUANCE OF A NEW NOTE REPRESENTING THE REMAINING
OUTSTANDING PRINCIPAL AMOUNT.  UPON SURRENDER OF THIS NOTE FOLLOWING ONE OR MORE
PARTIAL CONVERSIONS, THE COMPANY SHALL PROMPTLY DELIVER TO THE HOLDER A NEW NOTE
REPRESENTING THE REMAINING OUTSTANDING PRINCIPAL AMOUNT.

(C)                                      THE COMPANY’S OBLIGATIONS TO ISSUE AND
DELIVER UNDERLYING SHARES UPON CONVERSION OF THIS NOTE IN ACCORDANCE WITH THE
TERMS HEREOF ARE ABSOLUTE AND UNCONDITIONAL, IRRESPECTIVE OF ANY ACTION OR
INACTION BY THE HOLDER TO ENFORCE THE SAME, ANY WAIVER OR CONSENT WITH RESPECT
TO ANY PROVISION HEREOF, THE RECOVERY OF ANY JUDGMENT AGAINST ANY PERSON OR ANY
ACTION TO ENFORCE THE SAME, OR ANY SET-OFF, COUNTERCLAIM, RECOUPMENT, LIMITATION
OR TERMINATION, OR ANY BREACH OR ALLEGED BREACH BY THE HOLDER OR ANY OTHER
PERSON OF ANY OBLIGATION TO THE COMPANY OR ANY VIOLATION OR ALLEGED VIOLATION OF
LAW BY THE HOLDER OR ANY OTHER PERSON, AND IRRESPECTIVE OF ANY OTHER
CIRCUMSTANCE WHICH MIGHT OTHERWISE LIMIT SUCH OBLIGATION OF THE COMPANY TO THE
HOLDER IN CONNECTION WITH THE ISSUANCE OF SUCH UNDERLYING SHARES.

(D)                                      IF BY THE THIRD TRADING DAY AFTER A
CONVERSION DATE THE COMPANY FAILS TO DELIVER TO THE HOLDER SUCH UNDERLYING
SHARES IN SUCH AMOUNTS AND IN THE MANNER REQUIRED PURSUANT TO SECTION 7(A), THEN
THE HOLDER WILL HAVE THE RIGHT TO RESCIND SUCH CONVERSION.

(E)                                      IF BY THE THIRD TRADING DAY AFTER A
CONVERSION DATE THE COMPANY FAILS TO DELIVER TO THE HOLDER SUCH UNDERLYING
SHARES IN SUCH AMOUNTS AND IN THE MANNER REQUIRED

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pursuant to Section 7(a), and if after such third Trading Day the Holder
purchases (in an open market transaction or otherwise) shares of Common Stock to
deliver in satisfaction of a sale by such Holder of the Underlying Shares which
the Holder anticipated receiving upon such conversion (a “Buy-In”), then the
Company shall either (i) pay cash to such Purchaser in an amount equal to such
Purchaser’s total purchase price (including brokerage commissions, if any) for
the shares of Common Stock so purchased (the “Buy-In Price”), at which point the
Company’s obligation to deliver such certificate (and to issue such Common
Stock) shall terminate, or (ii) promptly honor its obligation to deliver to such
Purchaser a certificate or certificates representing such Common Stock and pay
cash to such Purchaser in an amount equal to the excess (if any) of the Buy-In
Price over the product of (A) such number of shares of Common Stock, times (B)
the Closing Price on the date of the event giving rise to the Company’s
obligation to deliver such certificate.

8.             EVENTS OF DEFAULT.

(A)                                      “EVENT OF DEFAULT” MEANS ANY ONE OF THE
FOLLOWING EVENTS (WHATEVER THE REASON AND WHETHER IT SHALL BE VOLUNTARY OR
INVOLUNTARY OR EFFECTED BY OPERATION OF LAW OR PURSUANT TO ANY JUDGMENT, DECREE
OR ORDER OF ANY COURT, OR ANY ORDER, RULE OR REGULATION OF ANY ADMINISTRATIVE OR
GOVERNMENTAL BODY):

(I)            ANY DEFAULT IN THE PAYMENT (FREE OF ANY CLAIM OF SUBORDINATION)
OF PRINCIPAL, INTEREST OR LIQUIDATED DAMAGES IN RESPECT OF ANY NOTES, AS AND
WHEN THE SAME BECOMES DUE AND PAYABLE (WHETHER ON A DATE SPECIFIED FOR THE
PAYMENT OF INTEREST OR THE DATE ON WHICH THE OBLIGATIONS UNDER THE NOTE MATURE
OR BY ACCELERATION, REDEMPTION, PREPAYMENT OR OTHERWISE), WHICH, IN THE CASE OF
PAYMENTS MADE IN SHARES OF COMMON STOCK, IS NOT CURED WITHIN 2 TRADING DAYS;

(II)           THE COMPANY OR ANY SUBSIDIARY DEFAULTS IN ANY OF ITS OBLIGATIONS
UNDER ANY OTHER NOTE OR ANY MORTGAGE, CREDIT AGREEMENT OR OTHER FACILITY,
INDENTURE AGREEMENT, FACTORING AGREEMENT OR OTHER INSTRUMENT UNDER WHICH THERE
MAY BE ISSUED, OR BY WHICH THERE MAY BE SECURED OR EVIDENCED, ANY INDEBTEDNESS
FOR BORROWED MONEY OR MONEY DUE UNDER ANY LONG TERM LEASING OR FACTORING
ARRANGEMENT OF THE COMPANY OR ANY SUBSIDIARY IN AN AMOUNT EXCEEDING $1,000,000,
WHETHER SUCH INDEBTEDNESS NOW EXISTS OR IS HEREAFTER CREATED, AND SUCH DEFAULT
RESULTS IN SUCH INDEBTEDNESS BECOMING OR BEING DECLARED DUE AND PAYABLE PRIOR TO
THE DATE ON WHICH IT WOULD OTHERWISE BECOME DUE AND PAYABLE;

(III)          THE OCCURRENCE OF A TRIGGERING EVENT; OR

(IV)          THE OCCURRENCE OF A BANKRUPTCY EVENT.

(B)                                      AT ANY TIME OR TIMES FOLLOWING THE
OCCURRENCE OF AN EVENT OF DEFAULT, THE HOLDER SHALL HAVE THE OPTION TO ELECT, BY
NOTICE TO THE COMPANY (AN “EVENT NOTICE”), TO REQUIRE THE COMPANY TO REPURCHASE
ALL OR ANY PORTION OF THE OUTSTANDING PRINCIPAL AMOUNT OF THIS NOTE, AT A
REPURCHASE PRICE EQUAL TO THE GREATER OF (A) 115% OF SUCH OUTSTANDING PRINCIPAL
AMOUNT, PLUS ALL ACCRUED BUT UNPAID INTEREST THEREON THROUGH THE DATE OF
PAYMENT, OR (B) THE

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Event Equity Value of the Underlying Shares issuable upon conversion of such
principal amount and all such accrued but unpaid interest thereon.  The
aggregate amount payable pursuant to the preceding sentence is referred to as
the “Event Price.”  The Company shall pay the Event Price to the Holder no later
than the third Trading Day following the date of delivery of the Event Notice,
and upon receipt thereof the Holder shall deliver this Note.

(C)                                      UPON THE OCCURRENCE OF ANY BANKRUPTCY
EVENT, ALL AMOUNTS PURSUANT TO SECTION 8(B) SHALL IMMEDIATELY BECOME DUE AND
PAYABLE IN FULL IN CASH, WITHOUT ANY FURTHER ACTION BY THE HOLDER.

(D)                                      IN CONNECTION WITH ANY EVENT OF
DEFAULT, THE HOLDER NEED NOT PROVIDE AND THE COMPANY HEREBY WAIVES ANY
PRESENTMENT, DEMAND, PROTEST OR OTHER NOTICE OF ANY KIND, AND THE HOLDER MAY
IMMEDIATELY AND WITHOUT EXPIRATION OF ANY GRACE PERIOD ENFORCE ANY AND ALL OF
ITS RIGHTS AND REMEDIES HEREUNDER AND ALL OTHER REMEDIES AVAILABLE TO IT UNDER
APPLICABLE LAW.  ANY SUCH DECLARATION MAY BE RESCINDED AND ANNULLED BY THE
HOLDER AT ANY TIME PRIOR TO PAYMENT HEREUNDER. NO SUCH RESCISSION OR ANNULMENT
SHALL AFFECT ANY SUBSEQUENT EVENT OF DEFAULT OR IMPAIR ANY RIGHT CONSEQUENT
THERETO.

9.             CHARGES, TAXES AND EXPENSES.  ISSUANCE OF CERTIFICATES FOR
UNDERLYING SHARES UPON CONVERSION OF (OR OTHERWISE IN RESPECT OF) THIS NOTE
SHALL BE MADE WITHOUT CHARGE TO THE HOLDER FOR ANY ISSUE OR TRANSFER TAX,
WITHHOLDING TAX, TRANSFER AGENT FEE OR OTHER INCIDENTAL TAX OR EXPENSE IN
RESPECT OF THE ISSUANCE OF SUCH CERTIFICATE, ALL OF WHICH TAXES AND EXPENSES
SHALL BE PAID BY THE COMPANY; PROVIDED, HOWEVER, THAT THE COMPANY SHALL NOT BE
REQUIRED TO PAY ANY TAX WHICH MAY BE PAYABLE IN RESPECT OF ANY TRANSFER INVOLVED
IN THE REGISTRATION OF ANY CERTIFICATES FOR UNDERLYING SHARES OR NOTES IN A NAME
OTHER THAN THAT OF THE HOLDER.  THE HOLDER SHALL BE RESPONSIBLE FOR ALL OTHER
TAX LIABILITY THAT MAY ARISE AS A RESULT OF HOLDING OR TRANSFERRING THIS NOTE OR
RECEIVING UNDERLYING SHARES IN RESPECT HEREOF.

10.           CERTAIN ADJUSTMENTS.  THE CONVERSION PRICE IS SUBJECT TO
ADJUSTMENT FROM TIME TO TIME AS SET FORTH IN THIS SECTION 10.

(A)                                      STOCK DIVIDENDS AND SPLITS.  IF THE
COMPANY, AT ANY TIME WHILE THIS NOTE IS OUTSTANDING, (I) PAYS A STOCK DIVIDEND
ON ITS COMMON STOCK OR OTHERWISE MAKES A DISTRIBUTION ON ANY CLASS OF CAPITAL
STOCK THAT IS PAYABLE IN SHARES OF COMMON STOCK, (II) SUBDIVIDES OUTSTANDING
SHARES OF COMMON STOCK INTO A LARGER NUMBER OF SHARES, OR (III) COMBINES
OUTSTANDING SHARES OF COMMON STOCK INTO A SMALLER NUMBER OF SHARES, THEN IN EACH
SUCH CASE THE CONVERSION PRICE SHALL BE MULTIPLIED BY A FRACTION OF WHICH THE
NUMERATOR SHALL BE THE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING IMMEDIATELY
BEFORE SUCH EVENT AND OF WHICH THE DENOMINATOR SHALL BE THE NUMBER OF SHARES OF
COMMON STOCK OUTSTANDING IMMEDIATELY AFTER SUCH EVENT.  ANY ADJUSTMENT MADE
PURSUANT TO CLAUSE (I) OF THIS SECTION 10(A) SHALL BECOME EFFECTIVE IMMEDIATELY
AFTER THE RECORD DATE FOR THE DETERMINATION OF STOCKHOLDERS ENTITLED TO RECEIVE
SUCH DIVIDEND OR DISTRIBUTION, AND ANY ADJUSTMENT PURSUANT TO CLAUSE (II) OR
(III) OF THIS SECTION 10(A) SHALL BECOME EFFECTIVE IMMEDIATELY AFTER THE
EFFECTIVE DATE OF SUCH SUBDIVISION OR COMBINATION.

(B)                                      PRO RATA DISTRIBUTIONS.  IF THE
COMPANY, AT ANY TIME WHILE THIS NOTE IS OUTSTANDING, DISTRIBUTES TO HOLDERS OF
COMMON STOCK (I) EVIDENCES OF ITS INDEBTEDNESS, (II) ANY SECURITY (OTHER THAN A
DISTRIBUTION OF COMMON STOCK COVERED BY THE PRECEDING PARAGRAPH),

13

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(iii) rights or warrants to subscribe for or purchase any security, or (iv) any
other asset (in each case, “Distributed Property”), then in each such case the
Conversion Price in effect immediately prior to the record date fixed for
determination of stockholders entitled to receive such distribution shall be
adjusted (effective on such record date) to equal the product of such Conversion
Price times a fraction of which the denominator shall be the average of the
Closing Prices for the five Trading Days immediately prior to (but not
including) such record date and of which the numerator shall be such average
less the then fair market value of the Distributed Property distributed in
respect of  one outstanding share of Common Stock, as determined by the
Company’s independent certified public accountants that regularly examine the
financial statements of the Company, (an “Appraiser”).  In such event, the
Holder, after receipt of the determination by the Appraiser, shall have the
right to select an additional appraiser (which shall be a nationally recognized
accounting firm), in which case such fair market value shall be deemed to equal
the average of the values determined by each of the Appraiser and such
appraiser.  As an alternative to the foregoing adjustment to the Conversion
Price, at the request of the Holder delivered to the Company in writing before
the 45th day after such record date, the Company will deliver to such Holder,
within five Trading Days after such request (or, if later, on the effective date
of such distribution), the Distributed Property that such Holder would have been
entitled to receive in respect of the Underlying Shares for which this Note
could have been exercised immediately prior to such record date.  If such
Distributed Property is not delivered to a Holder pursuant to the preceding
sentence, then upon conversion of this Note that occurs after such record date,
such Holder shall remain entitled to receive, in addition to the Underlying
Shares otherwise issuable upon such conversion (if applicable), such Distributed
Property.

(C)                                      FUNDAMENTAL CHANGES.  IF, AT ANY TIME
WHILE THIS NOTE IS OUTSTANDING, (I) THE COMPANY EFFECTS ANY MERGER OR
CONSOLIDATION OF THE COMPANY WITH OR INTO ANOTHER PERSON, (II) THE COMPANY
EFFECTS ANY SALE OF ALL OR SUBSTANTIALLY ALL OF ITS ASSETS IN ONE OR MORE
TRANSACTIONS, (III) ANY TENDER OFFER OR EXCHANGE OFFER (WHETHER BY THE COMPANY
OR ANOTHER PERSON) IS COMPLETED PURSUANT TO WHICH HOLDERS OF COMMON STOCK ARE
PERMITTED TO TENDER OR EXCHANGE THEIR SHARES FOR OTHER SECURITIES, CASH OR
PROPERTY, OR (IV) THE COMPANY EFFECTS ANY RECLASSIFICATION OF THE COMMON STOCK
OR ANY COMPULSORY SHARE EXCHANGE PURSUANT TO WHICH THE COMMON STOCK IS
EFFECTIVELY CONVERTED INTO OR EXCHANGED FOR OTHER SECURITIES, CASH OR PROPERTY
(OTHER THAN AS A RESULT OF A SUBDIVISION OR COMBINATION OF SHARES OF COMMON
STOCK DESCRIBED IN SECTION 10(A)) (IN ANY SUCH CASE, A “FUNDAMENTAL CHANGE”),
THEN UPON ANY SUBSEQUENT CONVERSION OF THIS NOTE, THE HOLDER SHALL HAVE THE
RIGHT TO RECEIVE, FOR EACH UNDERLYING SHARE THAT WOULD HAVE BEEN ISSUABLE UPON
SUCH CONVERSION ABSENT SUCH FUNDAMENTAL CHANGE, THE SAME KIND AND AMOUNT OF
SECURITIES, CASH OR PROPERTY AS IT WOULD HAVE BEEN ENTITLED TO RECEIVE UPON THE
OCCURRENCE OF SUCH FUNDAMENTAL CHANGE IF IT HAD BEEN, IMMEDIATELY PRIOR TO SUCH
FUNDAMENTAL CHANGE, THE HOLDER OF ONE SHARE OF COMMON STOCK (THE “ALTERNATE
CONSIDERATION”).  IF HOLDERS OF COMMON STOCK ARE GIVEN ANY CHOICE AS TO THE
SECURITIES, CASH OR PROPERTY TO BE RECEIVED IN A FUNDAMENTAL CHANGE, THEN THE
HOLDER SHALL BE GIVEN THE SAME CHOICE AS TO THE ALTERNATE CONSIDERATION IT
RECEIVES UPON ANY CONVERSION OF THIS NOTE FOLLOWING SUCH FUNDAMENTAL CHANGE.  IN
THE EVENT OF A FUNDAMENTAL CHANGE, THE COMPANY OR THE SUCCESSOR OR PURCHASING
PERSON, AS THE CASE MAY BE, SHALL EXECUTE WITH THE HOLDER A WRITTEN AGREEMENT
PROVIDING THAT:

(x)   this Note shall thereafter entitle the Holder to purchase the Alternate
Consideration,

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(y)  in the case of any such successor or purchasing Person, upon such
consolidation, merger, statutory exchange, combination, sale or conveyance such
successor or purchasing Person shall be jointly and severally liable with the
Company for the performance of all of the Company’s obligations under this Note
and the Purchase Agreement, and

(z)   if registration or qualification is required under the Exchange Act or
applicable state law for the public  resale by the Holder of shares of stock and
other securities so issuable upon exercise of this Note, such registration or
qualification shall be completed prior to such reclassification, change,
consolidation, merger, statutory exchange, combination or sale.

IF, IN THE CASE OF ANY FUNDAMENTAL CHANGE, THE ALTERNATE CONSIDERATION INCLUDES
SHARES OF STOCK, OTHER SECURITIES, OTHER PROPERTY OR ASSETS OF A PERSON OTHER
THAN THE COMPANY OR ANY SUCH SUCCESSOR OR PURCHASING PERSON, AS THE CASE MAY BE,
IN SUCH FUNDAMENTAL CHANGE, THEN SUCH WRITTEN AGREEMENT SHALL ALSO BE EXECUTED
BY SUCH OTHER PERSON AND SHALL CONTAIN SUCH ADDITIONAL PROVISIONS TO PROTECT THE
INTERESTS OF THE HOLDER AS THE BOARD OF DIRECTORS OF THE COMPANY SHALL
REASONABLY CONSIDER NECESSARY BY REASON OF THE FOREGOING.  AT THE HOLDER’S
REQUEST,  ANY SUCCESSOR TO THE COMPANY OR SURVIVING PERSON IN SUCH FUNDAMENTAL
CHANGE SHALL ISSUE TO THE HOLDER A NEW NOTE CONSISTENT WITH THE FOREGOING
PROVISIONS AND EVIDENCING THE HOLDER’S RIGHT TO CONVERT SUCH NOTE INTO ALTERNATE
CONSIDERATION. THE TERMS OF ANY AGREEMENT PURSUANT TO WHICH A FUNDAMENTAL CHANGE
IS EFFECTED SHALL INCLUDE TERMS REQUIRING ANY SUCH SUCCESSOR OR SURVIVING PERSON
TO COMPLY WITH THE PROVISIONS OF THIS SECTION 10(C) AND INSURING THAT THIS NOTE
(OR ANY SUCH REPLACEMENT SECURITY) WILL BE SIMILARLY ADJUSTED UPON ANY
SUBSEQUENT TRANSACTION ANALOGOUS TO A FUNDAMENTAL CHANGE. IF ANY FUNDAMENTAL
CHANGE CONSTITUTES OR RESULTS IN A CHANGE OF CONTROL, THEN AT THE REQUEST OF THE
HOLDER DELIVERED TO THE COMPANY IN WRITING BEFORE THE 45TH DAY AFTER SUCH
FUNDAMENTAL CHANGE, THE COMPANY (OR ANY SUCH SUCCESSOR OR SURVIVING ENTITY) WILL
PURCHASE THIS NOTE FROM THE HOLDER FOR A PURCHASE PRICE, PAYABLE IN CASH WITHIN
FIVE TRADING DAYS AFTER SUCH REQUEST (OR, IF LATER, ON THE EFFECTIVE DATE OF THE
FUNDAMENTAL TRANSACTION), EQUAL TO 115% OF THE OUTSTANDING PRINCIPAL AMOUNT,
PLUS ALL ACCRUED BUT UNPAID INTEREST THEREON THROUGH THE DATE OF PAYMENT.

(D)                                      SUBSEQUENT EQUITY SALES.

(I)            FOR SO LONG AS THIS NOTE IS OUTSTANDING, THE COMPANY OR ANY
SUBSIDIARY SHALL NOT ISSUE ADDITIONAL SHARES OF COMMON STOCK OR RIGHTS,
WARRANTS, OPTIONS OR OTHER SECURITIES OR DEBT CONVERTIBLE, EXERCISABLE OR
EXCHANGEABLE FOR SHARES OF COMMON STOCK OR OTHERWISE ENTITLING ANY PERSON TO
ACQUIRE SHARES OF COMMON STOCK (COLLECTIVELY, “COMMON STOCK EQUIVALENTS”) AT AN
EFFECTIVE PRICE PER SHARE OF COMMON STOCK (PRIOR TO DEDUCTING FEES, COMMISSIONS
AND OTHER EXPENSES RELATED TO SUCH ISSUANCE) (THE “EFFECTIVE PRICE”) LESS THAN
THE CONVERSION PRICE (AS ADJUSTED HEREUNDER TO SUCH DATE).  FOR PURPOSES OF THIS
PARAGRAPH, IN CONNECTION WITH ANY ISSUANCE OF ANY COMMON STOCK EQUIVALENTS, (A)
THE MAXIMUM NUMBER OF SHARES OF COMMON STOCK POTENTIALLY ISSUABLE AT ANY TIME
UPON CONVERSION, EXERCISE OR EXCHANGE OF SUCH COMMON STOCK EQUIVALENTS (THE
“DEEMED NUMBER”) SHALL BE DEEMED TO BE OUTSTANDING UPON ISSUANCE OF SUCH COMMON
STOCK EQUIVALENTS, (B) THE EFFECTIVE PRICE APPLICABLE TO SUCH COMMON STOCK SHALL
EQUAL THE MINIMUM DOLLAR VALUE OF CONSIDERATION PAYABLE TO THE COMPANY TO

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PURCHASE SUCH COMMON STOCK EQUIVALENTS AND TO CONVERT, EXERCISE OR EXCHANGE THEM
INTO COMMON STOCK (PRIOR TO DEDUCTING ANY FEES, COMMISSIONS AND OTHER EXPENSES
RELATED THERETO), DIVIDED BY THE DEEMED NUMBER, AND (C) THE ACTUAL ISSUANCE OF
COMMON STOCK UPON CONVERSION, EXERCISE OR EXCHANGE OF SUCH COMMON STOCK
EQUIVALENTS SHALL NOT BE SUBJECT AGAIN TO THIS SECTION 10(D)(I).

(II)           IF, AT ANY TIME WHILE THIS NOTE IS OUTSTANDING, THE COMPANY OR
ANY SUBSIDIARY ISSUES COMMON STOCK EQUIVALENTS WITH AN EFFECTIVE PRICE OR A
NUMBER OF UNDERLYING SHARES THAT FLOATS OR RESETS OR OTHERWISE VARIES OR IS
SUBJECT TO ADJUSTMENT BASED (DIRECTLY OR INDIRECTLY) ON MARKET PRICES OF THE
COMMON STOCK (A “FLOATING PRICE SECURITY”), THEN FOR PURPOSES OF APPLYING THE
PRECEDING PARAGRAPH, WHETHER SECTION 10(D)(I) HAS BEEN VIOLATED WILL BE
DETERMINED SEPARATELY EACH TIME SUCH ADJUSTMENT OCCURS.

(III)          NOTWITHSTANDING THE FOREGOING, THE COMPANY SHALL BE PERMITTED TO
ISSUE EXCLUDED STOCK.

(E)                                      CALCULATIONS.  ALL CALCULATIONS UNDER
THIS SECTION 10 SHALL BE MADE TO THE NEAREST CENT OR THE NEAREST 1/100TH OF A
SHARE, AS APPLICABLE.  THE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING AT ANY
GIVEN TIME SHALL NOT INCLUDE SHARES OWNED OR HELD BY OR FOR THE ACCOUNT OF THE
COMPANY, AND THE DISPOSITION OF ANY SUCH SHARES SHALL BE CONSIDERED AN ISSUE OR
SALE OF COMMON STOCK.

(F)                                       NOTICE OF ADJUSTMENTS.  UPON THE
OCCURRENCE OF EACH ADJUSTMENT PURSUANT TO THIS SECTION 10, THE COMPANY AT ITS
EXPENSE WILL PROMPTLY COMPUTE SUCH ADJUSTMENT IN ACCORDANCE WITH THE TERMS
HEREOF AND PREPARE AND DELIVER TO THE HOLDER A CERTIFICATE DESCRIBING IN
REASONABLE DETAIL SUCH ADJUSTMENT AND THE TRANSACTIONS GIVING RISE THERETO,
INCLUDING ALL FACTS UPON WHICH SUCH ADJUSTMENT IS BASED.

(G)                                      NOTICE OF CORPORATE EVENTS.  IF THE
COMPANY (I) DECLARES A DIVIDEND OR ANY OTHER DISTRIBUTION OF CASH, SECURITIES OR
OTHER PROPERTY IN RESPECT OF ITS COMMON STOCK, INCLUDING WITHOUT LIMITATION ANY
GRANTING OF RIGHTS OR WARRANTS TO SUBSCRIBE FOR OR PURCHASE ANY CAPITAL STOCK OF
THE COMPANY OR ANY SUBSIDIARY, (II) AUTHORIZES OR APPROVES, ENTERS INTO ANY
AGREEMENT CONTEMPLATING OR SOLICITS STOCKHOLDER APPROVAL FOR ANY FUNDAMENTAL
CHANGE OR (III) AUTHORIZES THE VOLUNTARY DISSOLUTION, LIQUIDATION OR WINDING UP
OF THE AFFAIRS OF THE COMPANY, THEN THE COMPANY SHALL DELIVER TO THE HOLDER A
NOTICE DESCRIBING THE MATERIAL TERMS AND CONDITIONS OF SUCH TRANSACTION, AT
LEAST 20 CALENDAR DAYS PRIOR TO THE APPLICABLE RECORD OR EFFECTIVE DATE ON WHICH
A PERSON WOULD NEED TO HOLD COMMON STOCK IN ORDER TO PARTICIPATE IN OR VOTE WITH
RESPECT TO SUCH TRANSACTION, AND THE COMPANY WILL TAKE ALL STEPS REASONABLY
NECESSARY IN ORDER TO INSURE THAT THE HOLDER IS GIVEN THE PRACTICAL OPPORTUNITY
TO CONVERT THIS NOTE PRIOR TO SUCH TIME SO AS TO PARTICIPATE IN OR VOTE WITH
RESPECT TO SUCH TRANSACTION; PROVIDED, HOWEVER, THAT THE FAILURE TO DELIVER SUCH
NOTICE OR ANY DEFECT THEREIN SHALL NOT AFFECT THE VALIDITY OF THE CORPORATE
ACTION REQUIRED TO BE DESCRIBED IN SUCH NOTICE.

11.           NO FRACTIONAL SHARES.  THE COMPANY SHALL NOT ISSUE OR CAUSE TO BE
ISSUED FRACTIONAL UNDERLYING SHARES ON CONVERSION OF THIS NOTE.  IF ANY FRACTION
OF AN UNDERLYING SHARE

16

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would, except for the provisions of this Section 11, be issuable upon conversion
of this Note, the number of Underlying Shares to be issued will be rounded up to
the nearest whole share.

12.           REDEMPTION.

(A)                                      HOLDER REDEMPTION.

(I)            AT ANY TIME FOLLOWING THE 24 MONTH ANNIVERSARY OF THE ORIGINAL
ISSUE DATE (ANY SUCH DAY,  A “HOLDER REDEMPTION DATE”), THE HOLDER SHALL HAVE
THE RIGHT TO REQUIRE THE COMPANY TO REDEEM ALL OR ANY PORTION OF THE OUTSTANDING
PRINCIPAL AMOUNT OF THE NOTES, PLUS ALL ACCRUED BUT UNPAID INTEREST THEREON TO
THE DATE OF PAYMENT (FOR EACH REDEMPTION ON A HOLDER REDEMPTION DATE, THE
“HOLDER REDEMPTION PRICE”) ON EACH SUCH HOLDER REDEMPTION DATE; PROVIDED,
HOWEVER, THAT ON THE 60TH MONTH ANNIVERSARY OF THE ORIGINAL ISSUE DATE, THE
COMPANY SHALL REDEEM 100% OF ANY REMAINING OUTSTANDING PRINCIPAL AMOUNT OF THE
NOTES, PLUS ACCRUED BUT UNPAID INTEREST THEREON TO THE DATE OF PAYMENT.  THE
HOLDER MUST DELIVER A NOTICE OF THE REDEMPTION AT LEAST TWENTY (20) TRADING DAYS
PRIOR TO THE HOLDER REDEMPTION DATE, WHICH NOTICE SHALL STATE THE AGGREGATE
PRINCIPAL AMOUNT OF THE NOTES TO BE REDEEMED.

(II)           THE COMPANY SHALL PAY THE HOLDER REDEMPTION PRICE IN CASH.

(B)                                      COMPANY PREPAYMENT.

(i)            At any time following the one year anniversary of the Effective
Date, upon delivery of an irrevocable written notice to the Holder (a “Company
Prepayment Notice” and the date such notice is delivered by the Company, the
“Company Notice Date”) delivered at least 20 Trading Days prior to the date of
the prepayment (the “Company Prepayment Date”), the Company shall be entitled to
prepay all of the outstanding principal amount of this Note plus any accrued and
unpaid interest thereon for an amount in cash equal to the Company Prepayment
Price (as defined below).  Notwithstanding anything to the contrary, the Company
shall only be entitled to deliver a Company Prepayment Notice pursuant to the
terms hereof if the Equity Conditions are satisfied (or waived in writing by the
applicable Holder) with the respect to all Underlying Shares issuable upon
conversion of the Notes on the Company Notice Date.  If any of the Equity
Conditions shall cease to be in effect during the period between the Company
Notice Date and the date the Company Prepayment Price is paid in full, then the
Holder subject to such prepayment may elect by written notice to the Company
given at any time after any of the Equity Conditions shall cease to be in
effect, to invalidate ab initio such optional prepayment, notwithstanding
anything herein contained to the contrary. The Holder may, at any time prior to
the payment of the Company Prepayment Price, convert any portion of the
outstanding principal amount of this Note and any accrued and unpaid interest
thereon subject to a Company Prepayment Notice. Once delivered, the Company
shall not be entitled to rescind a Company Prepayment Notice.

(ii)           The Company Prepayment Price shall be due in cash on the Company
Prepayment Date.  Any such prepayment shall be free of any claim of

17

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subordination. If any portion of the Company Prepayment Price shall not be
timely paid by the Company, interest shall accrue thereon at the rate of 18% per
annum (or the maximum rate permitted by applicable law, whichever is less) until
the Company Prepayment Price plus all such interest is paid in full, which
payment shall constitute liquidated damages and not a penalty.  In addition, if
any portion of the Company Prepayment Price remains unpaid after such date, the
Holder subject to such prepayment may elect by written notice to the Company to
invalidate ab initio such Company Prepayment Notice with respect to the unpaid
amount, notwithstanding anything herein contained to the contrary and no
interest shall be owed to the Holder in respect thereof. If the Holder makes
such an election, the principal amount of this Note, together with the accrued
and unpaid interest thereon shall be reinstated with respect to such unpaid
amount and the Company shall no longer have any prepayment rights under this
Section 12(b).

(iii)          Notwithstanding anything to the contrary herein, the Company may
not elect a prepayment pursuant to Section 12(b) unless the Company makes such
prepayment election to all of the Holder’s of the Notes and for all of each such
Holders  then outstanding principal amount of Notes.

(IV)          FOR THE PURPOSES OF THIS SECTION 12(B), THE TERM “COMPANY
PREPAYMENT PRICE” SHALL MEAN 120% OF THE AGGREGATE OUTSTANDING PRINCIPAL AMOUNT
OF THIS NOTE PLUS ANY ACCRUED AND UNPAID INTEREST THEREON.

13.           NOTICES.  ANY AND ALL NOTICES OR OTHER COMMUNICATIONS OR
DELIVERIES HEREUNDER (INCLUDING ANY CONVERSION NOTICE) SHALL BE IN WRITING AND
SHALL BE DEEMED GIVEN AND EFFECTIVE ON THE EARLIEST OF (I) THE DATE OF
TRANSMISSION, IF SUCH NOTICE OR COMMUNICATION IS DELIVERED VIA FACSIMILE AT THE
FACSIMILE NUMBER SPECIFIED IN THIS SECTION 13 PRIOR TO 6:30 P.M. (NEW YORK CITY
TIME) ON A TRADING DAY, (II) THE NEXT TRADING DAY AFTER THE DATE OF
TRANSMISSION, IF SUCH NOTICE OR COMMUNICATION IS DELIVERED VIA FACSIMILE AT THE
FACSIMILE NUMBER SPECIFIED IN THIS SECTION 13 ON A DAY THAT IS NOT A TRADING DAY
OR LATER THAN 6:30 P.M. (NEW YORK CITY TIME) ON ANY TRADING DAY, (III) THE
TRADING DAY FOLLOWING THE DATE OF MAILING, IF SENT BY NATIONALLY RECOGNIZED
OVERNIGHT COURIER SERVICE, OR (IV) UPON ACTUAL RECEIPT BY THE PARTY TO WHOM SUCH
NOTICE IS REQUIRED TO BE GIVEN.  THE ADDRESSES FOR SUCH COMMUNICATIONS SHALL BE:
(I) IF TO THE COMPANY, TO SATCON TECHNOLOGY CORPORATION, 27 DRYDOCK AVENUE,
BOSTON, MA 02210, FACSIMILE: (617) 897-2401, ATTENTION CHIEF EXECUTIVE OFFICER,
OR (II) IF TO THE HOLDER, TO THE ADDRESS OR FACSIMILE NUMBER APPEARING ON THE
COMPANY’S NOTEHOLDER RECORDS OR SUCH OTHER ADDRESS OR FACSIMILE NUMBER AS THE
HOLDER MAY PROVIDE TO THE COMPANY IN ACCORDANCE WITH THIS SECTION 13.

14.           MISCELLANEOUS.

(A)                                      THIS NOTE SHALL BE BINDING ON AND INURE
TO THE BENEFIT OF THE PARTIES HERETO AND THEIR RESPECTIVE SUCCESSORS AND
PERMITTED ASSIGNS.  THE COMPANY SHALL NOT BE PERMITTED TO ASSIGN THIS NOTE.

(B)                                      SUBJECT TO SECTION 14(A), NOTHING IN
THIS NOTE SHALL BE CONSTRUED TO GIVE TO ANY PERSON OR CORPORATION OTHER THAN THE
COMPANY AND THE HOLDER ANY LEGAL OR EQUITABLE RIGHT, REMEDY OR CAUSE UNDER THIS
NOTE.

18

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(C)                                      GOVERNING LAW; VENUE; WAIVER OF JURY
TRIAL.  ALL QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY, ENFORCEMENT AND
INTERPRETATION OF THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO
THE PRINCIPLES OF CONFLICTS OF LAW THEREOF.  EACH PARTY HEREBY IRREVOCABLY
SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS SITTING IN
THE CITY OF NEW YORK, BOROUGH OF MANHATTAN, FOR THE ADJUDICATION OF ANY DISPUTE
HEREUNDER OR IN CONNECTION HEREWITH OR WITH ANY TRANSACTION CONTEMPLATED HEREBY
OR DISCUSSED HEREIN (INCLUDING WITH RESPECT TO THE ENFORCEMENT OF ANY OF THE
TRANSACTION DOCUMENTS), AND HEREBY IRREVOCABLY WAIVES, AND AGREES NOT TO ASSERT
IN ANY SUIT, ACTION OR PROCEEDING, ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT
TO THE JURISDICTION OF ANY SUCH COURT, THAT SUCH SUIT, ACTION OR PROCEEDING IS
IMPROPER.  EACH PARTY HEREBY IRREVOCABLY WAIVES PERSONAL SERVICE OF PROCESS AND
CONSENTS TO PROCESS BEING SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING BY
MAILING A COPY THEREOF VIA REGISTERED OR CERTIFIED MAIL OR OVERNIGHT DELIVERY
(WITH EVIDENCE OF DELIVERY) TO SUCH PARTY AT THE ADDRESS IN EFFECT FOR NOTICES
TO IT UNDER THIS AGREEMENT AND AGREES THAT SUCH SERVICE SHALL CONSTITUTE GOOD
AND SUFFICIENT SERVICE OF PROCESS AND NOTICE THEREOF. NOTHING CONTAINED HEREIN
SHALL BE DEEMED TO LIMIT IN ANY WAY ANY RIGHT TO SERVE PROCESS IN ANY MANNER
PERMITTED BY LAW.  THE COMPANY HEREBY WAIVES ALL RIGHTS TO A TRIAL BY JURY.

(D)                                      THE HEADINGS HEREIN ARE FOR CONVENIENCE
ONLY, DO NOT CONSTITUTE A PART OF THIS NOTE AND SHALL NOT BE DEEMED TO LIMIT OR
AFFECT ANY OF THE PROVISIONS HEREOF.

(E)                                      IN CASE ANY ONE OR MORE OF THE
PROVISIONS OF THIS NOTE SHALL BE INVALID OR UNENFORCEABLE IN ANY RESPECT, THE
VALIDITY AND ENFORCEABILITY OF THE REMAINING TERMS AND PROVISIONS OF THIS NOTE
SHALL NOT IN ANY WAY BE AFFECTED OR IMPAIRED THEREBY AND THE PARTIES WILL
ATTEMPT IN GOOD FAITH TO AGREE UPON A VALID AND ENFORCEABLE PROVISION WHICH
SHALL BE A COMMERCIALLY REASONABLE SUBSTITUTE THEREFOR, AND UPON SO AGREEING,
SHALL INCORPORATE SUCH SUBSTITUTE PROVISION IN THIS NOTE.

(F)                                       IN THE EVENT OF ANY STOCK SPLIT,
SUBDIVISION, DIVIDEND OR DISTRIBUTION PAYABLE IN SHARES OF COMMON STOCK (OR
OTHER SECURITIES OR RIGHTS CONVERTIBLE INTO, OR ENTITLING THE HOLDER THEREOF TO
RECEIVE DIRECTLY OR INDIRECTLY SHARES OF COMMON STOCK), COMBINATION OR OTHER
SIMILAR RECAPITALIZATION OR EVENT OCCURRING AFTER THE DATE HEREOF, EACH
REFERENCE IN THIS NOTE TO A PRICE SHALL BE AMENDED TO APPROPRIATELY ACCOUNT FOR
SUCH EVENT.

(G)                                      NO PROVISION OF THIS NOTE MAY BE WAIVED
OR AMENDED EXCEPT IN A WRITTEN INSTRUMENT SIGNED, IN THE CASE OF AN AMENDMENT,
BY THE COMPANY AND THE HOLDER OR, OR, IN THE CASE OF A WAIVER, BY THE HOLDER. 
NO WAIVER OF ANY DEFAULT WITH RESPECT TO ANY PROVISION, CONDITION OR REQUIREMENT
OF THIS NOTE SHALL BE DEEMED TO BE A CONTINUING WAIVER IN THE FUTURE OR A WAIVER
OF ANY SUBSEQUENT DEFAULT OR A WAIVER OF ANY OTHER PROVISION, CONDITION OR
REQUIREMENT HEREOF, NOR SHALL ANY DELAY OR OMISSION OF EITHER PARTY TO EXERCISE
ANY RIGHT HEREUNDER IN ANY MANNER IMPAIR THE EXERCISE OF ANY SUCH RIGHT.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOLLOWS]

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IN WITNESS WHEREOF, the Company has caused this Note to be duly executed by a
duly authorized officer as of the date first above indicated.

SATCON TECHNOLOGY CORPORATION

 

 

 

 

 

 

 

By

 

 

Name: David B. Eisenhaure

 

Title: Chief Executive Officer

 

 

 

 

 

 

 

By

 

 

Name: David E. O’Neil

 

Title: Vice President of Finance and Treasurer

 

20

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Schedule 1

FORM OF CONVERSION NOTICE

(To be executed by the registered Holder
in order to convert Note)

The undersigned hereby elects to convert the specified principal amount of 
Senior Secured Convertible Notes (the “Notes”) into shares of common stock,
$0.01 par value (the “Common Stock”), of SatCon Technology Corporation, a
Delaware corporation, according to the conditions hereof, as of the date written
below.

 

 

 

 

Date to Effect Conversion

 

 

 

 

 

 

 

 

 

Principal amount of Notes owned prior to conversion

 

 

 

 

 

 

 

 

 

Principal amount of Notes to be converted
(including accrued but unpaid interest thereon)

 

 

 

 

 

 

 

 

 

Number of shares of Common Stock to be Issued

 

 

 

 

 

 

 

 

 

Applicable Conversion Price

 

 

 

 

 

 

 

 

 

Principal amount of Notes owned subsequent to Conversion

 

 

 

 

 

 

 

 

 

Name of Holder

 

 

 

 

 

 

 

 

 

 

By

 

 

Name:

 

Title:

 

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Schedule 2

CONVERSION SCHEDULE

This Conversion Schedule reflects conversions of the Senior Secured Convertible
Notes issued by SatCon Technology Corporation.

Date of Conversion

Amount of Conversion

Aggregate Principal Amount
Remaining Subsequent to Conversion

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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