Exhibit 10.3

[DESC Letterhead]

August 24, 2007

Perseus Partners VII, L.P.

c/o Perseus, L.L.C.

2099 Pennsylvania Avenue, NW

Suite 900

Washington, DC 20006-1813

Attention:   John C. Fox   Senior Managing Director

 

  Re: Securities Purchase Agreement (as amended through the date hereof, the
“Purchase Agreement”) dated as of May 10, 2007 by and between Distributed Energy
Systems Corp. (the “Company”), and Perseus Partners VII, L.P. (the “Purchaser”)

Dear Ladies and Gentlemen:

The Company and the Purchaser (collectively, the “Parties”) have agreed that the
Subsequent Investment Closing under the Purchase Agreement will be held on the
date hereof. In connection with the Subsequent Investment Closing and to induce
the other Party to consummate the transactions contemplated to be consummated at
the Subsequent Investment Closing, the Parties hereby agree as follows:

1. All capitalized terms defined in the Purchase Agreement and used herein
without definition have the same meanings herein as in the Purchase Agreement.

2. The Purchaser hereby waives satisfaction of the condition specified in
Section 2.3(k) of the Purchase Agreement that the size of the Board be reduced
to five members effective as of the Subsequent Investment Closing. The Parties
hereby agree that the size of the Board, as of the Subsequent Investment
Closing, shall be seven. After the Subsequent Investment Closing, the Company
shall not permit the size of the Board to be increased without the prior written
consent of the Purchaser. Moreover, in the event the Purchaser delivers to the
Company a written notice (a “Reduction Notice”) requesting that the size of the
Board be reduced to five members, the Company shall take all actions within its
control to reduce the size of the Board to five members as promptly as
practicable after receipt of such Reduction Notice and in any event by no later
than the date of the Company’s next annual meeting of stockholders.

3. The Parties hereby agree that, notwithstanding anything to the contrary in
Section 5.6 of the Purchase Agreement, the Requisite Number of Perseus Directors
shall initially be two and that, effective as of the Subsequent Investment
Closing, John C. Fox

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and Michael L. Miller shall be appointed as Perseus Directors. Such appointment
shall be a condition to the obligations of the Purchaser to consummate the
transactions contemplated at the Subsequent Investment Closing. The Parties
further agree that at any time the Purchaser shall have right to increase the
Requisite Number of Perseus Directors to a number not in excess of the
“Requisite Number” determined under Section 5.6(b)(i) of the Purchase Agreement
(without giving effect to this letter agreement) by delivering to the Company a
written notice requesting such increase and specifying the names of the
additional Perseus Directors (an “Increase Notice”). Upon the receipt of an
Increase Notice, the Company shall take all actions required under Section 5.6
of the Purchase Agreement to appoint such additional directors as Perseus
Directors as promptly as practicable.

4. The Parties further agree that, notwithstanding anything to the contrary in
Section 5.6 of the Purchase Agreement, the Purchaser shall continue to be
allowed one Perseus Observer of its choice, who shall be Teresa Y. Bernstein or
another person reasonably acceptable to the Board, to attend all meetings of the
Board in a nonvoting capacity. In connection therewith, the Company shall
provide the Perseus Observer with copies of all notices, minutes, consents and
other materials, financial or otherwise, which the Company provides to its
Board. The Company reserves the right to exclude such Perseus Observer from
access to any material or meeting or portion thereof if the Company in good
faith believes that such exclusion is necessary to preserve the attorney-client
privilege or for other similar reasons. The Perseus Observer shall be entitled
to reimbursement for reasonable out-of-pocket expenses (including but not
limited to travel and lodging) incurred in connection with attendance at
meetings of the Board. The Company shall pay all reimbursement for expenses for
the Perseus Observer in accordance with the terms set forth in Section 5.6(c) of
the Purchase Agreement. This right shall terminate at such time as Perseus’
right to have a Perseus Director on the Board terminates.

5. The Purchaser hereby waives the closing conditions for the Subsequent
Investment Closing set forth in Sections 2.3(c) and (j) of the Purchase
Agreement with regard to the default caused by the Company’s breach of the
covenant set forth in sub-section 2(a) of the Pre-Closing Waivers and
Post-Closing Agreement, dated June 1, 2007, by and between the Purchaser and the
Company, as amended, due to the Company’s failure to close all accounts not
covered by a deposit control agreement in favor of the Purchaser and transfer
all funds in such accounts to another commercial bank located in the United
States that is subject to an account control agreement in favor of the Purchaser
that is reasonably satisfactory to the Purchaser. The parties agree that the
Company’s failure to comply with this covenant constitutes and shall continue to
constitute an Event of Default under the provisions of the Promissory Notes.

6. This letter agreement shall be governed by, and construed in accordance with,
the laws of the State of New York without regard to principles of conflicts of
laws. All notices hereunder shall be provided in accordance with Section 8.7 of
the Purchase Agreement. This letter agreement may be executed in any number of
counterparts. Signatures on this letter agreement may be communicated by
facsimile or electronic transmission and shall be binding upon the Parties so
transmitting their signatures.

 

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Counterparts with original signatures shall be provided to the other Party
following the applicable facsimile or electronic transmission, provided that the
failure to provide the original counterpart shall have no effect on the validity
or the binding nature of this letter agreement. No Party shall raise facsimile
or electronic delivery of a signature or the fact that any signature or
agreement or instrument was transmitted or communicated by a facsimile or e-mail
as a defense to the formation or enforceability of a contract and each such
Party forever waives any such defense. This letter agreement shall be deemed to
be an amendment to, and constitute part of, the Purchase Agreement and any
breach of this letter agreement shall be deemed to be a breach of the Purchase
Agreement for all purposes.

[Remainder of this Page Intentionally Left Blank]

 

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If the foregoing accurately sets forth the agreements of the Parties with
respect to the subject matter hereof, please sign this letter agreement in the
space indicated below.

 

Very truly yours, DISTRIBUTED ENERGY SYSTEMS CORP.

By:

 

/s/ Ambrose L. Schwallie

Name:   Ambrose L. Schwallie Title:   Chief Executive Officer

ACCEPTED AND AGREED TO:

 

PERSEUS PARTNERS VII, L.P.

By:

 

Perseus Partners VII GP, L.P., 

its general partner

By:

 

Perseus Partners VII GP, L.L.C.,

its general partner

By:

 

/s/ Rona Kennedy

  Rona Kennedy   Chief Financial Officer, Treasurer and Secretary