Exhibit 10.3

EXECUTION COPY

SECURED PROMISSORY NOTE

THE SECURITIES REPRESENTED BY THIS SECURED PROMISSORY NOTE (THE “NOTE”) HAVE
BEEN ACQUIRED BY THE HOLDER FOR ITS OWN ACCOUNT, FOR INVESTMENT PURPOSES AND NOT
WITH A VIEW TO THE DISTRIBUTION OF SUCH SECURITIES. THE SECURITIES HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”),
OR ANY APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE SOLD OR OTHERWISE
TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT AND COMPLIANCE WITH SUCH STATE SECURITIES LAWS, IN COMPLIANCE
WITH RULE 144 UNDER THE SECURITIES ACT, OR UPON THE RECEIPT BY THE BORROWERS OF
AN OPINION OF COUNSEL OR OTHER EVIDENCE REASONABLY SATISFACTORY TO THE BORROWERS
THAT SUCH REGISTRATION AND/OR COMPLIANCE IS NOT REQUIRED.

June 24, 2008

Wallingford, Connecticut

FOR VALUE RECEIVED, EACH OF DISTRIBUTED ENERGY SYSTEMS CORP., a corporation
incorporated under the Laws of the State of Delaware (“DESC”), and NORTHERN
POWER SYSTEMS, INC., a corporation incorporated under the Laws of the State of
Delaware (together with DESC, each individually, a “Borrower” and, collectively,
the “Borrowers”), jointly and severally, promises to pay to the order of Perseus
Partners VII, L.P., or its registered assigns (the “Holder”), the Principal
Amount (as defined below), or such lesser amount as shall then equal the
outstanding Principal Amount, together with interest on the outstanding portion
of the Principal Amount from the date of the issuance of the Note until the
earlier of (i) the Maturity Date and (ii) the date that the entire Principal
Amount is repaid in full at a rate equal to 16.5% per annum, and computed on the
basis of a year consisting of 365 days in accordance with the terms set forth in
the Secured Debtor-In-Possession Loan Agreement, dated as of June 24, 2008 (as
amended, restated, modified and/or supplemented from time to time, the “Loan
Agreement”), by and among the Borrowers, Proton Energy Systems, Inc., Technology
Drive, LLC, Northern Power Systems Commercial Condominium Owners Association,
DESC WTE Energy LLC, and NP Canada, Inc., as Guarantors, and the Holder. As used
in this Note, “Principal Amount” means the aggregate amount loaned to either of
the Borrowers by the Holder as reflected on Schedule A hereto, such amount not
to exceed TWO MILLION DOLLARS AND NO/100THS DOLLARS ($2,000,000.00) excluding
any accrued interest, fees and other expenses. The Holder shall amend Schedule A
to reflect each Loan made to either Borrower by the Holder; provided, however,
that the failure to amend or update such Schedule A shall not release either
Borrower from its obligation to repay any Loan to the Holder. Schedule A shall
be correct absent manifest error. For the avoidance of doubt, all indebtedness
evidenced by this Note is separate from, in addition to, and not in substitution
of, any indebtedness evidenced by any other promissory note issued by either
Borrower to the Holder.

This Note is issued pursuant to the Loan Agreement.

 

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The terms, covenants and conditions of the Loan Agreement are by this reference
incorporated into this Note, including without limitation, the provisions with
respect to acceleration of the maturity of this Note upon the occurrence of an
Event of Default. All terms not defined herein shall have the meaning ascribed
to them in the Loan Agreement.

Any provision of this Note may be amended, waived or modified upon the written
consent of both Borrowers and the Holder.

This Note may not be transferred in violation of any restrictive legend set
forth hereon. Each new Note issued upon transfer of this Note shall bear a
legend as to the applicable restrictions on transferability in order to ensure
compliance with the Securities Act, unless in the opinion of counsel for the
Borrowers such legend is not required in order to ensure compliance with the
Securities Act. The Borrowers may issue stop transfer instructions to its
transfer agent, if any, in connection with such restrictions. Subject to the
foregoing, transfers of this Note shall be registered upon registration books
maintained for such purpose by or on behalf of the Borrowers. Prior to
presentation of this Note for registration of transfer, the Borrowers shall
treat the registered holder hereof as the owner and holder of this Note for the
purpose of receiving all payments of principal and interest hereon and for all
other purposes whatsoever, whether or not this Note shall be overdue and the
Borrowers shall not be affected by notice to the contrary.

Neither this Note nor any of the rights, interests or obligations hereunder may
be assigned, by operation of law or otherwise, as a whole or in part, by either
Borrower without the prior written consent of the Holder. The Holder may assign
the rights, interests or obligations under this Note, as a whole or in part, at
any time, subject to compliance with the provisions of the Loan Agreement, upon
written notice to the Borrowers of such assignment. Notwithstanding the
foregoing, until the Borrowers receive notice in accordance with this provision,
the Borrowers shall treat the registered holder hereof as the owner and holder
of this Note for the purpose of receiving all payments of principal and interest
on this Note and for all other purposes whatsoever, whether or not this Note
shall be overdue.

Any notice, request or other communication required or permitted hereunder shall
be in writing and shall be delivered as provided in Section 8.7 of the Loan
Agreement.

If action is instituted to collect this Note, the Borrowers shall pay all costs
and expenses, including, without limitation, reasonable attorneys’ fees and
costs, incurred in connection with such action. Each Borrower hereby waives
notice of default, presentment or demand for payment, protest or notice of
nonpayment or dishonor and all other notices or demands relative to this
instrument.

Subject to the restrictions on transfer described in this Note, the rights and
obligations of the Borrowers and the Holder of this Note shall be binding upon
and benefit the successors, assigns, heirs, administrators and transferees of
the parties.

This Note and all actions arising out of or in connection with this Note shall
be governed by and construed in accordance with the Laws of the United States of
America, including but not limited to the Bankruptcy Code, and to the extent
those Laws do not have an applicable rule, in

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which case the Laws of the State of New York, without regard to the conflict of
laws provisions thereof, shall apply. IN THE EVENT OF ANY DISPUTE AMONG OR
BETWEEN ANY OF THE PARTIES TO THIS NOTE ARISING OUT OF THE TERMS OF THIS NOTE,
THE PARTIES HEREBY CONSENT TO THE EXCLUSIVE JURISDICTION OF THE BANKRUPTCY
COURT; PROVIDED THAT THE PARTIES ACKNOWLEDGE THAT ANY APPEALS FROM THE
BANKRUPTCY COURT MAY HAVE TO BE HEARD BY A COURT OTHER THAN THE BANKRUPTCY
COURT; PROVIDED FURTHER, THAT NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR
OPERATE TO PRECLUDE THE HOLDER FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION
IN ANY OTHER JURISDICTION TO REALIZE ON ANY SECURITY FOR OBLIGATIONS EVIDENCED
BY THIS NOTE, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF THE
HOLDER. EACH OF THE PARTIES HEREBY WAIVES ANY OBJECTION THAT SUCH PARTY MAY HAVE
BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS
AND HEREBY CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS
DEEMED APPROPRIATE BY SUCH COURT. SERVICE OF PROCESS ON THE PARTIES IN ANY
ACTION ARISING OUT OF OR RELATING TO THIS NOTE SHALL BE EFFECTIVE IF MAILED TO
THE PARTIES IN ACCORDANCE WITH SECTION 8.7 OF THE LOAN AGREEMENT.

[signatures appear on following page]

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IN WITNESS WHEREOF, each of the Borrowers has caused this Note to be issued as
of the date first written above.

 

DISTRIBUTED ENERGY SYSTEMS CORP. By:  

/s/ Peter J. Tallian

Name:   Peter J. Tallian Title:   Chief Financial Officer NORTHERN POWER
SYSTEMS, INC. By:  

/s/ Peter J. Tallian

Name:   Peter J. Tallian Title:   Officer

[Signature Page for DIP Note]

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SCHEDULE A

 

Date

   Principal Amount of Loan

June 24, 2008

   $ 500,000    $      $      $  

Total

   $ 500,000

[Signature Page for DIP Note]