Exhibit 10.6


 


Execution
Copy


 


CERTIFICATE OF DESIGNATION OF THE
RELATIVE RIGHTS AND PREFERENCES


OF THE


SERIES C CONVERTIBLE PREFERRED
STOCK


OF


SATCON TECHNOLOGY CORPORATION


 


The undersigned, the Chief Executive Officer of SatCon
Technology Corporation, a Delaware corporation (the “Company”),
in accordance with the provisions of the Delaware General Corporation Law, does
hereby certify that, pursuant to the authority conferred upon the Company’s
Board of Directors (the “Board”) by the
Certificate of Incorporation of the Company, the following resolution creating
a series of Series C Convertible Preferred Stock, was duly adopted on November 6,
2007:


 


RESOLVED,
that pursuant to the authority expressly granted to and vested in the Board by
provisions of the Certificate of Incorporation of the Company (the “Certificate of Incorporation”), there hereby is created out
of the shares of Preferred Stock, par value $.01 per share, of the Company
authorized in Article IV of the Certificate of Incorporation (the “Preferred Stock”), a series of Preferred Stock of the
Company, to be named “Series C Convertible Preferred Stock,” consisting of 30,000  shares, which series shall have the following
designations, powers, preferences and relative and other special rights and the
following qualifications, limitations and restrictions:


 


1.             Designation and Rank.  The designation of such series of the
Preferred Stock shall be the Series C Convertible Preferred Stock, par value
$.01 per share (the “Series C Preferred Stock”).  The maximum number of shares of Series C
Preferred Stock shall be 30,000 shares. 
The Series C Preferred Stock shall rank senior to the common stock, par
value $.01 per share (the “Common Stock”),
and to all other classes and series of equity securities of the Company which
by their terms rank junior to the Series C Preferred Stock (“Junior Stock”).  The
Series C Preferred Stock shall rank on parity with the Company’s Series B
Convertible Preferred Stock, par value $.01 per share (the “Series B Preferred Stock”), and all other classes and series
of equity securities of the Company created after the Issuance Date, if any,
which by their terms rank on parity with the Series C Preferred Stock (the
Series B Preferred Stock and such other classes and series of equity securities
are collectively referred to herein as “Parity Stock”).  The Series C Preferred Stock shall be
subordinate to and rank junior to all indebtedness of the Company now or
hereafter outstanding.


 


2.             Dividends.


 


(a)           The holders of record of shares of
Series C Preferred Stock shall be entitled to receive, out of any assets at the
time legally available therefor and when and as 


 

















 


declared by the Board, dividends at the rate of five percent  (5%) of the Stated Liquidation Preference Amount (defined
below) per share per annum commencing on the date of issuance (the “Issuance Date”) of the Series C Preferred Stock.  Dividends on the Series C Preferred Stock
shall be cumulative, shall accrue, whether or not declared, and be payable
quarterly in cash or, at the Company’s option, added to the Stated Liquidation
Preference Amount (as defined in Section 4(a) below).


 


(b)           So long as any shares of Series C
Preferred Stock are outstanding, the Company shall not declare, pay or set
apart for payment any dividend or make any Distribution (defined below) on any
Series B Preferred Stock (other than dividends or Distributions paid on the
Series B Preferred Stock in Common Stock in accordance with the terms of the
Series B Preferred Stock) or Junior Stock (other than dividends or Distributions on
Common Stock payable solely in shares of Common Stock), unless at the
time of such dividend or Distribution the Company shall have paid all accrued
and unpaid dividends on the outstanding shares of Series C Preferred Stock.


 


(c)           In addition, so long as any shares of
Series C Preferred Stock are outstanding, the Company shall not declare, pay or
set apart for payment any dividend or make any Distribution on any Common Stock
(other than dividends or Distributions on Common Stock payable solely in shares of Common Stock),
unless at the time of such dividend or Distribution the Company simultaneously
pays a dividend or Distribution on each outstanding share of Series C Preferred
Stock in an amount equal to the product of (i) the dividend or Distribution
payable on each share of Common Stock and (ii) the number of shares of Common
Stock issuable upon conversion of a share of Series C Preferred Stock,
calculated on the record date for determination of holders entitled to receive
such dividend or Distribution.


 


(d)           Whenever a Distribution provided for
in this Section 2 shall be payable in property other than cash, such property
shall be valued at its fair market value as determined by an independent
appraiser appointed by the Board and reasonably acceptable to the holders of a
majority of the shares of Series C Preferred Stock then outstanding.  For purposes hereof, “Distribution”
shall mean the transfer of cash or other property without consideration,
whether by way of dividend or otherwise, other than dividends on Common Stock
payable in Common Stock, dividends on the Series B Preferred Stock payable in
Common Stock, or the purchase or redemption of shares of the Company for cash
or property other than: (i) repurchases of Common Stock issued to or held by
employees, officers, directors or consultants of the Company upon termination
of their employment or services pursuant to agreements providing for the right
of said repurchase at the lower of the original purchase price or the
then-current fair market value thereof, (ii) the redemption of the Series B
Preferred Stock or (iii) the redemption of the Series C Preferred Stock
provided in Section 7 below.


 


3.             Voting Rights.


 


(a)           General.  The holders of Series C Preferred Stock shall
be entitled to notice of all meetings of stockholders in accordance with the
Company’s Bylaws. On any matter presented to the stockholders of the Company
for their action or consideration at any meeting of 


 

















 


stockholders of the Company (or by written consent of stockholders in
lieu of meeting), each holder of outstanding shares of Series C Preferred Stock
shall be entitled to cast the number of votes equal to quotient determined by
dividing (i) the Series C Original Issue Price of the shares of Series C
Preferred Stock held by such holder as of the record date for determining
stockholders entitled to vote on such matter by (ii) $1.44 (as adjusted for any
stock dividends, combinations, splits and the like with respect to shares of
Common Stock).  Except as provided by law
or by Section 3(b) below, holders of Series C Preferred Stock shall vote
together with the holders of Common Stock as a single class.  Notwithstanding the foregoing, neither the
shares of Series C Preferred Stock nor any shares of Common Stock issued or issuable
thereunder shall be entitled to cast votes on any resolution to obtain
Stockholder Approval (as defined in Section 6(b)).


 


(b)           Class Voting Rights.  The Series C Preferred Stock shall have the
following class voting rights.  So long
as any shares of the Series C Preferred Stock remain outstanding, the Company
shall not take, and shall not permit any subsidiary of the Company to take the
actions listed below, including
in each case by means of merger, consolidation, reclassification or otherwise,
without the affirmative vote or consent of the Requisite Majority (defined
below), given in person or by proxy, either in writing or at a meeting, in
which the holders of the Series C Preferred Stock vote separately as a class.  The “Requisite Majority”
shall mean, with respect to subsections (iv), (v) and (xiii) below, the holders
of at least 50.0% of the shares of the Series C Preferred Stock outstanding at
the time, and otherwise, the holders of at least 67.0% of the shares of the
Series C Preferred Stock outstanding at the time.


 


(i)            Authorize, create or issue (A) any
class or series of preferred stock or other equity securities having rights,
preferences or privileges on a parity with or senior to the Series C Preferred
Stock in any respect, or (B) any securities convertible into, exchangeable for
or evidencing the right to purchase or otherwise receive any such preferred
stock or equity securities;


 


(ii)           increase or decrease the total number
of authorized shares of Series C Preferred Stock;


 


(iii)          amend or modify the Certificate of
Incorporation (including this Certificate of Designation) or By-Laws of the
Company so as to adversely affect any right, preference, privilege or voting
power of the Series C Preferred Stock;


 


(iv)          repurchase or redeem any shares of the
Company’s Series B Preferred Stock or Junior Stock (other than (i) repurchases
of stock from former employees, officers, directors, consultants or other
persons who performed services for the Company or any subsidiary in connection
with the cessation of such employment or service at the lower of the original
purchase price or the then-current fair market value thereof and (ii)
redemptions of the Series B Preferred Stock pursuant to Section 8(a) or Section
8(b) of the Certificate of Designation setting forth the rights and preferences
of the Series B Preferred Stock);


 

















 


(v)           pay or declare any dividend or make
any distribution on, any shares of the Company’s Junior Stock (other than
dividends or other distributions payable on the Common Stock solely in the form
of additional shares of Common Stock);


 


(vi)          incur or permit any subsidiary to
incur any indebtedness for borrowed money, if the aggregate indebtedness of the
Company and its subsidiaries for borrowed money following such action would
exceed the sum of five million dollars ($5,000,000) plus the
indebtedness of the Company that exists on the First Tranche Closing Date (as
defined in that certain Stock and Warrant Purchase Agreement by and among the
Company and the initial holders of Series C Preferred Stock, dated November 8,
2007 (the “Purchase Agreement”));


 


(vii)         effect a Liquidation (defined in
Section 4(a) below), consummate a Reorganization Event (defined in Section 4(b)
below) or dispose, transfer or license any material assets, technology or
intellectual property of the Company or a subsidiary, other than non-exclusive
licenses in connection with sales of Company or subsidiary products in the
ordinary course of business;


 


(viii)        consummate any transaction that results
in the transfer or issuance of securities, or options, warrants or other rights
to receive securities of a subsidiary or any other transaction following which
a subsidiary no longer remains wholly owned by the Corporation or pursuant to
which any third party has a right to purchase securities of a subsidiary;


 


(ix)           increase or decrease the authorized
number of directors constituting the Board;


 


(x)            encumber or grant a security
interest in all or substantially all or a material part of the assets of the
Company or a subsidiary except to secure indebtedness permitted under clause (vi)
above, provided that such indebtedness is approved by the Board;


 


(xi)           acquire a material amount of assets
of another entity, through a merger, purchase of assets, purchase of capital
stock or otherwise;


 


(xii)          prior to obtaining Stockholder
Approval (as defined in Section 6(b)), (A) issue any Additional Shares of
Common Stock (as defined in Section 5(e)(iv)) at a price less than the
Conversion Price then in effect or (B) issue any Convertible Securities or
Common Stock Equivalents with an Aggregate Per Common Share Price (as such
terms are defined in Section 5(e)) less than the Conversion Price then in
effect; provided, however, that this Section 3(b)(xii) shall not apply with
respect to issuances of Excluded Securities (as defined in Section 5(e)(viii);
or


 


(xiii)         enter into any agreement to do or cause
to be done any of the foregoing.


 


(c)           Renunciation under Section 122(17).  Pursuant to Section 122(17) of the General
Corporation Law of the State of Delaware, the Company renounces any interest or



 

















 


expectancy of the Company in, or being offered an opportunity to
participate in, business opportunities that are presented to one or more of the
Series C Directors (defined below) in such person’s capacity as a partner,
employee or affiliate of an entity that is a holder of Series C Preferred Stock
and that is in the business of investing and reinvesting in other
entities.  “Series C
Directors” shall mean the directors nominated to the Board by the
holders of Series C Preferred Stock.


 


4.             Liquidation Preference.


 


(a)           In the event of the liquidation,
dissolution or winding up of the affairs of the Company, whether voluntary or
involuntary (a “Liquidation”), the holders of
shares of the Series C Preferred Stock then outstanding shall be entitled to
receive, out of the assets of the Company available for distribution to its
stockholders before any payment shall be made to the holders of Junior Stock by
reason of their ownership thereof, an amount per share equal to the greater of
(i) the Series C Original Issue Price (defined below) plus any dividends
accrued but unpaid thereon (the “Stated Liquidation
Preference Amount”) or (ii) such amount per share as would have
been payable had all shares of Series C Preferred Stock been converted into
Common Stock pursuant to Section 5 immediately prior to such Liquidation (the
amount payable to the holders of Series C Preferred Stock pursuant to clause
(i) or (ii) of this sentence is hereinafter referred to as the “Series C Liquidation Amount”).  If upon any such
Liquidation, the assets of the Company available for distribution to its
stockholders shall be insufficient to pay the holders of shares of Series C
Preferred Stock the full amount to which they shall be entitled under this
Section 4(a) and the holders of shares of Parity Stock the full amount to which
they shall be entitled pursuant to the terms of such Parity Stock, the holders
of shares of Series C Preferred Stock and the holders of shares of Parity Stock
shall share ratably in any distribution of the assets available for
distribution in proportion to the respective amounts which would otherwise be
payable in respect of the shares held by them upon such distribution if all
amounts payable on or with respect to such shares were paid in full.  The liquidation payment with respect to each
outstanding fractional share of Series C Preferred Stock shall be equal to a
ratably proportionate amount of the liquidation payment with respect to each
outstanding share of Series C Preferred Stock. 
All payments for which this Section 4(a) provides shall be in cash,
property (valued at its fair market value as determined by an independent
appraiser reasonably acceptable to the holders of a majority of the shares of
Series C Preferred Stock then outstanding) or a combination thereof; provided,
however, that no cash shall be paid to holders of Junior Stock unless
each holder of the outstanding shares of Series C Preferred Stock has been paid
in cash the full amount to which such holder shall be entitled under this
Section 4(a).  After payment of the full
Series C Liquidation Amount, such holders of shares of Series C Preferred Stock
will not be entitled to any further participation as such in any distribution
of the assets of the Company.  The “Series C Original Issue Price” shall be $1,000 per share of
Series C Preferred Stock and shall be adjusted for any stock dividends,
combinations, splits, recapitalizations and the like with respect to such
shares.


 


(b)           For purposes hereof, (i) the sale,
conveyance, exchange, exclusive license, lease or other transfer of all or
substantially all of the intellectual property or assets of the Company and its
subsidiaries taken as a whole, (ii) any acquisition of the Company by means of 


 

















 


a consolidation, stock exchange, stock sale, merger or other form of
corporate reorganization of the Company with any other entity in which the
Company’s stockholders prior to the consolidation or merger own less than a
majority of the voting securities of the surviving entity (or, if the surviving
entity is a wholly-owned subsidiary of another corporation following such
merger or consolidation, the parent corporation of such surviving entity),
(iii) the sale or disposition (whether by merger or otherwise) of one or more
subsidiaries of the Corporation if substantially all of the assets of the
Company and its subsidiaries taken as a whole are held by such subsidiary or
subsidiaries, except where such sale, disposition, conveyance, exchange,
excusive license, lease or other transfer is to a wholly-owned subsidiary of
the Company or (iv) any transaction or series of related transactions following
which the Company’s stockholders prior to such transaction or series of related
transactions own less than a majority of the voting securities of the Company
or surviving entity (or, if the surviving entity is a wholly-owned subsidiary
of another corporation following such transaction, the parent corporation of
such surviving entity) (any such event, a “Reorganization Event”)
shall be deemed to be a Liquidation unless otherwise determined by the holders
of 67.0% of the shares of the Series C Preferred Stock then outstanding.
Notwithstanding the foregoing, any merger or reorganization exclusively between
the Company and a subsidiary shall not be deemed to be a Reorganization Event.


 


(c)           Written notice of any Liquidation,
stating a payment date and the place where the distributable amounts shall be
payable, shall be given by mail, postage prepaid, no less than thirty (30) days
prior to the payment date stated therein, to the holders of record of the
Series C Preferred Stock at their respective addresses as the same shall appear
on the books of the Company.


 


5.             Conversion.  The holder of Series C Preferred Stock shall
have the following conversion rights (the “Conversion Rights”):


 


(a)           Holder’s Right to Convert.  Subject to the restrictions contained in
Section 6 hereof, at any time on or after the Issuance Date, the holder of any
such shares of Series C Preferred Stock may, at such holder’s option, elect to
convert (a “Voluntary Conversion”) all or any
portion of the shares of Series C Preferred Stock held by such person into a
number of fully paid and nonassessable shares of Common Stock equal to the
quotient of (i) the Stated Liquidation Preference Amount of the shares of
Series C Preferred Stock being converted divided by (ii) the Conversion Price
(as defined in Section 5(d) below) then in effect as of the date of the
delivery by such holder of its notice of election to convert.  In the event of a notice of redemption of any
shares of Series C Preferred Stock pursuant to Section 7 hereof, the Conversion
Rights of the shares designated for redemption shall terminate at the close of
business on the last full day preceding the date fixed for redemption, unless
the redemption price is not paid on such redemption date, in which case the
Conversion Rights for such shares shall continue until such price is paid in
full.  In the event of a Liquidation, the
Conversion Rights shall terminate at the close of business on the last full day
preceding the date fixed for the payment of any such amounts distributable on
such event to the holders of Series C Preferred Stock.


 

















 


(b)           Mechanics of Voluntary Conversion.  The Voluntary Conversion of Series C Preferred
Stock shall be conducted in the following manner:


 


(i)            Holder’s Delivery Requirements.  To convert Series C Preferred Stock into full
shares of Common Stock on any date (the “Voluntary Conversion Date”),
the holder thereof shall (A) transmit by facsimile (or otherwise deliver), for
receipt on or prior to 5:00 p.m., New York time on such date, a copy of a fully
executed notice of conversion in the form attached hereto as Exhibit I
(the “Conversion Notice”), to the Company,
and (B) surrender to a common carrier for delivery to the Company as soon as
practicable following such Voluntary Conversion Date but in no event later than
three (3) Business Days (as defined in Section 7(f) herein) after such date the
original certificates representing the shares of Series C Preferred Stock being
converted (or an indemnification undertaking with respect to such shares in the
case of their loss, theft or destruction) (the “Preferred
Stock Certificates”) and the originally executed Conversion Notice.


 


(ii)           Company’s Response.  Upon receipt by the Company of a facsimile
copy of a Conversion Notice, the Company shall immediately send, via facsimile,
a confirmation of receipt of such Conversion Notice to such holder.  Upon receipt by the Company of a copy of the
fully executed Conversion Notice, the Company or its designated transfer agent
(the “Transfer Agent”), as applicable, shall,
within three (3) Business Days following the date of receipt by the Company of
the fully executed Conversion Notice (so long as the applicable Preferred Stock
Certificates and original Conversion Notice are received by the Company on or
before such third Business Day), issue and deliver to the Depository Trust
Company (“DTC”) account on the holder’s behalf
via the Deposit Withdrawal Agent Commission System (“DWAC”)
as specified in the Conversion Notice, 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.  Notwithstanding the
foregoing to the contrary, the Company or its designated transfer agent shall
only be required to issue and deliver the shares to the DTC on a holder’s
behalf via DWAC if such conversion is in connection with a sale and all
requirements to effect such DWAC have been met, including, but not limited to,
such shares being registered for resale pursuant to an effective registration
statement and satisfaction of applicable prospectus delivery requirements, if
any.  If the Company or its designated
transfer agent cannot issue the shares to a holder via DWAC because the
aforementioned conditions are not satisfied, the Company shall deliver physical
certificates to the holder or its designee. 
If the number of shares of Series C Preferred Stock represented by the
Preferred Stock Certificate(s) submitted for conversion is greater than the
number of shares of Series C Preferred Stock being converted, then the Company
shall, as soon as practicable and in no event later than three (3) Business
Days after receipt of the Preferred Stock Certificate(s) and at the Company’s
expense, issue and deliver to the holder a new Preferred Stock Certificate
representing the number of shares of Series C Preferred Stock not converted.


 


(iii)          Dispute Resolution.  In the case of a dispute as to the arithmetic
calculation of the number of shares of Common Stock to be issued upon
conversion, the Company shall cause its Transfer Agent to promptly issue to the
holder the number of shares of Common Stock that is not disputed and shall
submit the arithmetic calculations to the holder via 


 

















 


facsimile as soon as possible, but in no event later than two (2)
Business Days after receipt of such holder’s Conversion Notice.  If such holder and the Company are unable to
agree upon the arithmetic calculation of the number of shares of Common Stock
to be issued upon such conversion within one (1) Business Day of such disputed
arithmetic calculation being submitted to the holder, then the Company shall
within one (1) Business Day submit via facsimile the disputed arithmetic
calculation of the number of shares of Common Stock to be issued upon such
conversion to the Company’s independent, outside accountant.  The Company shall cause the accountant to
perform the calculations and notify the Company and the holder of the results
no later than seventy-two (72) hours from the time it receives the disputed
calculations.  Such accountant’s
calculation shall be binding upon all parties absent manifest error.  The reasonable expenses of such accountant in
making such determination shall be paid by the Company, in the event the holder’s
calculation was correct, or by the holder, in the event the Company’s
calculation was correct, or equally by the Company and the holder in the event
that neither the Company’s or the holder’s calculation was correct.  The period of time in which the Company is
required to effect conversions or redemptions under this Certificate of
Designation shall be tolled with respect to the subject conversion or
redemption pending resolution of any dispute by the Company made in good faith
and in accordance with this Section 5(b)(iii).


 


(iv)          Record Holder.  The person or persons entitled to receive the
shares of Common Stock issuable upon a conversion of the Series C Preferred
Stock shall be treated for all purposes as the record holder or holders of such
shares of Common Stock on the Conversion Date.


 


(v)           Company’s Failure to Timely
Convert.  Other than as a result of
the restrictions contained in Section 6 hereof, if within three (3) Business
Days of the Company’s receipt of an executed copy of the Conversion Notice (so
long as the applicable Preferred Stock Certificates and original Conversion
Notice are received by the Company on or before such third Business Day) (the “Share Delivery Period”) the Transfer Agent shall fail to
issue and deliver to a holder the number of shares of Common Stock to which
such holder is entitled upon such holder’s conversion of the Series C Preferred
Stock or to issue a new Preferred Stock Certificate representing the number of
shares of Series C Preferred Stock to which such holder is entitled pursuant to
Section 5(b)(ii) (a “Conversion Failure”),
in addition to all other available remedies which such holder may pursue
hereunder and under the Purchase Agreement (including indemnification pursuant
to Article VII thereof), the Company shall pay additional damages to such
holder on each Business Day after such third (3rd) Business Day that
such conversion is not timely effected in an amount equal 0.5% of the product
of (A) the sum of the number of shares of Common Stock not issued to the holder
on a timely basis pursuant to Section 5(b)(ii) and to which such holder is
entitled and, in the event the Company has failed to deliver a Preferred Stock
Certificate to the holder on a timely basis pursuant to Section 5(b)(ii), the
number of shares of Common Stock issuable upon conversion of the shares of
Series C Preferred Stock represented by such Preferred Stock Certificate, as of
the last possible date which the Company could have issued such Preferred Stock
Certificate to such holder without violating Section 5(b)(ii) and (B) the
highest Closing Price (as defined in Section 5(c)(i) below) of the Common Stock
during the period commencing on such third (3rd) Business Day that
such conversion is not timely effected and ending on the date of delivery of
such Common Stock and such Preferred 


 

















 


Stock Certificate, as the case may be, to such holder without violating
Section 5(b)(ii).  If the Company fails
to pay the additional damages set forth in this Section 5(b)(v) within five (5)
Business Days of the date incurred, then such payment shall bear interest at
the rate of 2.0% per month (pro rated for partial months) until such payments
are made.


 


(c)           Company’s Right to Convert.


 


(i)            Subject to the restrictions
contained in Section 6 hereof, at any time on or after the second anniversary
of the Issuance Date, if the average Closing Price (as defined below) of the
Company’s Common Stock for any immediately preceding 180-day period exceeds
$7.00 (subject to appropriate adjustment in the event of any stock dividend,
stock split, combination or other similar recapitalization with respect to the
Common Stock), the Company will have the right, but not the obligation, to
convert (the “Company Conversion Right”) each
outstanding share of Series C Preferred Stock into a number of fully paid and
nonassessable shares of Common Stock equal to the quotient of (i) the Stated
Liquidation Preference Amount divided by (ii) the Conversion Price in effect as
of the Company Conversion Date (as defined below).  As used herein, “Closing Price”
means, for any date, the price determined by the first of the following clauses
that applies:  (a) if the Common Stock is then listed or quoted on a
national securities exchange, the closing bid price per share of the Common
Stock for such date (or the nearest preceding date) on the primary exchange on
which the Common Stock is then listed or quoted; (b) if prices for the Common
Stock are then quoted on the OTC Bulletin Board, the closing bid price per
share of the Common Stock for such date (or the nearest preceding date) so
quoted; or (c) if prices for the Common Stock are then reported in the “Pink
Sheets” published by the National Quotation Bureau Incorporated (or a similar
organization or agency succeeding to its functions of reporting prices), the
most recent closing bid price per share of the Common Stock so reported.


 


(ii)           To exercise a Company Conversion Right, the Company shall deliver to each
holder of record of Series C Preferred Stock an irrevocable written notice (a “Company Conversion Notice”), indicating the effective date of the conversion (the “Company Conversion Date”).


 


(iii)          On the Company Conversion Date, the
outstanding shares of Series C Preferred Stock shall be converted automatically
without any further action by the holders of such shares and whether or not the
certificates representing such shares are surrendered to the Company or its
Transfer Agent; provided, however, that the Company shall not be
obligated to issue the shares of Common Stock issuable upon conversion of any
shares of Series C Preferred Stock unless certificates evidencing such shares
of Series C Preferred Stock are either delivered to the Company or the holder
notifies the Company that such certificates have been lost, stolen, or
destroyed, and executes an agreement satisfactory to the Company to indemnify
the Company from any loss incurred by it in connection therewith.  Upon the occurrence of the conversion of the
Series C Preferred Stock pursuant to this Section 5(c), the holders of the
Series C Preferred Stock shall surrender the certificates representing the
Series C Preferred Stock for which the Company Conversion Date has occurred to
the Company and the Company shall cause its Transfer Agent to deliver the
shares of Common Stock issuable upon such conversion (in the 


 

















 


same manner set forth in Section 5(b)(ii)) to the holder within three
(3) Business Days of the holder’s delivery of the applicable Preferred Stock
Certificates.


 


(d)           Conversion Price.  The term “Conversion Price” shall mean $1.04
per share, subject to adjustment under Section 5(e) hereof.


 


(e)           Adjustments of Conversion Price.


 


(i)            Adjustments for Stock Splits and
Combinations.  If the Company shall
at any time or from time to time after the Issuance Date, effect a stock split
of the outstanding Common Stock, the Conversion Price shall be proportionately
decreased.  If the Company shall at any
time or from time to time after the Issuance Date, combine the outstanding
shares of Common Stock, the Conversion Price shall be proportionately
increased.  Any adjustments under this
Section 5(e)(i) shall be effective at the close of business on the date the
stock split or combination becomes effective.


 


(ii)           Adjustments for Dividends and
Distributions of Common Stock.  If
the Company shall at any time or from time to time after the Issuance Date,
make or issue or set a record date for the determination of holders of Common
Stock entitled to receive a dividend or other distribution payable in shares of
Common Stock, then, and in each event, the Conversion Price shall be decreased
as of the time of such issuance or, in the event such record date shall have
been fixed, as of the close of business on such record date, by multiplying the
Conversion Price then in effect by a fraction:


 


(1)           the numerator of which shall be the
total number of shares of Common Stock issued and outstanding immediately prior
to the time of such issuance or the close of business on such record date; and


 


(2)           the denominator of which shall be the
total number of shares of Common Stock issued and outstanding immediately prior
to the time of such issuance or the close of business on such record date plus
the number of shares of Common Stock issuable in payment of such dividend or
distribution.


 


(iii)          Adjustment for Merger or
Reorganization, etc.  If at any time
or from time to time after the Issuance Date there shall occur any
reorganization, recapitalization, reclassification, consolidation or merger
involving the Company (other than a Reorganization Event deemed to be a
Liquidation pursuant to Section 4(b)) in which the Common Stock (but not the
Series C Preferred Stock) is converted into or exchanged for securities, cash
or other property (other than a transaction covered by Section 5(e)(i), Section
5(e)(ii) or Section 5(e)(iv)), then, following any such reorganization,
recapitalization, reclassification, consolidation or merger, each share of
Series C Preferred Stock shall thereafter be convertible in lieu of the Common
Stock into which it was convertible prior to such event into the kind and
amount of securities, cash or other property which a holder of the number of
shares of Common Stock of the Company issuable upon conversion of one share of
Series C Preferred Stock immediately prior to such reorganization,
recapitalization, reclassification, consolidation or merger would have been 


 

















 


entitled to receive pursuant to such transaction; and, in such case,
appropriate adjustment (as determined in good faith by the Board) shall be made
in the application of the provisions in this Section 5(e) with respect to the
rights and interests thereafter of the holders of the Series C Preferred Stock,
to the end that the provisions set forth in this Section 5(e) (including
provisions with respect to changes in and other adjustments of the Conversion
Price) shall thereafter be applicable, as nearly as reasonably may be, in
relation to any securities or other property thereafter deliverable upon the
conversion of the Series C Preferred Stock.


 


(iv)          Adjustments for Issuance of
Additional Shares of Common Stock. 
In the event the Company, shall, at any time and from time to time after
obtaining Stockholder Approval, issue or sell any additional shares of Common
Stock (otherwise than as provided in the foregoing subsections (i) through
(iii) of this Section 5(e)) (the “Additional Shares of
Common Stock”), at a price per share less than the Conversion Price
then in effect, or without consideration, the Conversion Price then in effect
upon each such issuance shall be adjusted to that price (rounded to the nearest
cent) determined by multiplying the Conversion Price by a fraction:


 


(1)           the numerator of which shall be equal
to the sum of (A) the number of shares of Common Stock outstanding immediately
prior to the issuance of such Additional Shares of Common Stock plus (B)
the number of shares of Common Stock (rounded to the nearest whole share) which
the aggregate consideration for the total number of such Additional Shares of
Common Stock so issued would purchase at a price per share equal to the
Conversion Price then in effect, and


 


(2)           the denominator of which shall be
equal to the number of shares of Common Stock outstanding immediately after the
issuance of such Additional Shares of Common Stock.


 


No adjustment of the number of shares of Common Stock shall be made
pursuant to this Section 5(e)(iv) upon the issuance of any Additional Shares of
Common Stock which are issued pursuant to the exercise of any warrants or other
subscription or purchase rights or pursuant to the exercise of any conversion
or exchange rights in any Common Stock Equivalents, if any such adjustment
shall previously have been made upon the issuance of such warrants or other
rights or upon the issuance of such Common Stock Equivalents (or upon the issuance
of any warrant or other rights therefore) pursuant to Section 5(e)(v).


 


(v)           Issuance of Common Stock
Equivalents.  If the Company, at any
time and from time to time after obtaining Stockholder Approval, shall issue
any securities convertible into or exchangeable for, directly or indirectly,
Common Stock (“Convertible Securities”), other
than the Series C Preferred Stock, or any rights or warrants or options to
purchase any such Common Stock or Convertible Securities, shall be issued or
sold (collectively, the “Common Stock Equivalents”)
and the aggregate of the price per share for which Additional Shares of Common
Stock may be issuable thereafter pursuant to such 


 

















 


Common Stock Equivalent, plus the consideration received by the Company
for issuance of such Common Stock Equivalent divided by the number of shares of
Common Stock issuable pursuant to such Common Stock Equivalent (the “Aggregate Per Common Share Price”) shall be less than the
Conversion Price then in effect, or if, after any such issuance of Common Stock
Equivalents, the price per share for which Additional Shares of Common Stock
may be issuable thereafter is amended or adjusted, and such price as so amended
or adjusted shall make the Aggregate Per Common Share Price be less than
Conversion Price in effect at the time of such amendment or adjustment, then
the Conversion Price then in effect shall be adjusted pursuant to
Section (5)(e)(iv) above assuming that all Additional Shares of Common
Stock have been issued pursuant to the Convertible Securities or Common Stock
Equivalents for a purchase price equal to the Aggregate Per Common Share
Price.  No adjustment of the Conversion
Price shall be made under this subsection (v) upon the issuance of any Convertible
Security which is issued pursuant to the exercise of any warrants or other
subscription or purchase rights therefor, if any adjustment shall previously
have been made to the exercise price of such warrants then in effect upon the
issuance of such warrants or other rights pursuant to this subsection (v).  No adjustment shall be made to the Conversion
Price upon the issuance of Common Stock pursuant to the exercise, conversion or
exchange of any Convertible Security or Common Stock Equivalent where an adjustment
to the Conversion Price was made as a result of the issuance or purchase of any
Convertible Security or Common Stock Equivalent.


 


(vi)          Consideration for Stock.  In the event any consideration received by
the Company for any securities consists of property other than cash, the fair
market value thereof at the time of issuance or as otherwise applicable shall
be as determined in good faith by the Board. 
In the event any Additional Shares of Common Stock or Common Stock
Equivalents are issued with other assets of the Company for consideration which
covers both, the consideration computed as provided in this Section (5)(e)(vi)
shall be allocated among such securities and assets as determined in good faith
by the Board.


 


(vii)         Record Date.  In case the Company shall take record of the
holders of its Common Stock or any other Preferred Stock for the purpose of
entitling them to subscribe for or purchase Common Stock or Convertible
Securities, then the date of the issue or sale of the shares of Common Stock
shall be deemed to be such record date.


 


(viii)        Certain Issues Excepted.  Notwithstanding anything herein to the
contrary, the Company shall not be required to make any adjustment to the
Conversion Price upon (i) the Company’s issuance of any Additional Shares of
Common Stock and warrants therefor in connection with the acquisition of
another corporation by the Company by merger, consolidation, reorganization or
purchase of all or substantially all of the other corporation’s assets that is
approved by the holders of at least 50% of the then outstanding shares of
Series C Preferred Stock, (ii) the Company’s issuance of Additional Shares of
Common Stock or warrants therefor in connection with strategic license
agreements that is approved by the holders of at least 50% of the then
outstanding shares of Series C Preferred Stock so long as such issuances are
not for the purpose of raising capital, (iii) the Company’s issuance of Common
Stock or the issuance or grants of options to purchase Common Stock pursuant to
the Company’s stock option plans and employee stock purchase plans as they
currently exist, (iv) the Company’s issuance of Common Stock or the issuance or
grants of options to purchase Common Stock pursuant to any future stock option
plan or employee stock purchase plan that is approved by the holders of at 


 

















 


least 50% of the then outstanding shares of Series C Preferred Stock or
any amendment to the Company’s existing stock option plans and employee stock
purchase plans that is approved by the holders of at least 50% of the then
outstanding shares of Series C Preferred Stock, (v) the issuance of Common
Stock or warrants therefor in connection with any acquisition of assets,
product lines or businesses that is approved by the holders of at least 50% of
the then outstanding shares of Series C Preferred Stock, (vi) any issuances of
Common Stock pursuant to Company 401(k) matches, (vii) any issuances of
securities to consultants, financial advisers, public relations consultants or
secured lenders to the Company that are approved by the holders of at least 50%
of the then outstanding shares of Series C Preferred Stock, (viii) any
issuances of warrants to a “Purchaser” pursuant to the Purchase Agreement
(including, without limitation, any additional warrants issued as a result of
the exercise of currently outstanding warrants), (ix)  the payment of any dividends on the Series C
Preferred Stock or any Parity Stock, (x) any securities issued to the holders
of Series C Preferred Stock or Parity Stock upon redemption of such shares of
Series C Preferred Stock or Parity Stock, (xi) any securities issued pursuant
to the exercise or conversion of Common Stock Equivalents granted or issued
prior to the Issuance Date, and (xii) the issuance of Common Stock upon the
exercise or conversion of any securities described in clauses (i) through (xi)
above.  The securities described in
clauses (i) through (xii) above shall be referred to herein as “Excluded Securities.”


 


(ix)           No Adjustment of Conversion Price.  No adjustment in the Conversion Price shall
be made as the result of the issuance or deemed issuance of Additional Shares
of Common Stock if the Company receives written notice from the holders of at
least 50% of the then outstanding shares of Series C Preferred Stock agreeing
that no such adjustment shall be made as the result of the issuance or deemed
issuance of such Additional Shares of Common Stock.


 


(f)            No Impairment.  The Company shall not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, 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 to be observed or performed hereunder by the Company, but will at
all times in good faith, assist in the carrying out of all the provisions of
this Section 5 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of the
Series C Preferred Stock against impairment.


 


(g)           Certificates as to Adjustments.  Upon occurrence of each adjustment or
readjustment of the Conversion Price, or number of shares of Common Stock
issuable upon conversion of the Series C Preferred Stock pursuant to this
Section 5, the Company at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of
such Series C Preferred Stock a certificate setting forth such adjustment and
readjustment, showing in detail the facts upon which such adjustment or readjustment
is based.  The Company shall, upon
written request of the holder of such affected Series C Preferred Stock, at any
time, furnish or cause to be furnished to such holder a like certificate
setting forth such adjustments and readjustments, the Conversion Price in
effect at the time, and the number of shares of Common Stock and the amount, if
any, of other securities or property which at the time would be received upon
the conversion of a share of such Series C Preferred 


 

















 


Stock.  Notwithstanding the
foregoing, the Company shall not be obligated to deliver a certificate unless
such certificate would reflect an increase or decrease of at least one percent
of such adjusted amount.


 


(h)           Issue Taxes.  The Company shall pay any and all issue and
other taxes, excluding federal, state or local income taxes, that may be
payable in respect of any issue or delivery of shares of Common Stock on
conversion of shares of Series C Preferred Stock pursuant thereto; provided,
however, that the Company shall not be obligated to pay any transfer
taxes resulting from any transfer requested by any holder in connection with
any such conversion.


 


(i)            Notices.  All notices and other communications
hereunder shall be in writing and shall be deemed given if delivered personally
or by facsimile or three (3) Business Days following being mailed by certified
or registered mail, postage prepaid, return-receipt requested, addressed to the
holder of record at its address appearing on the books of the Company.  The Company will give written notice to each
holder of Series C Preferred Stock at least twenty (20) 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 Stock, (B) with respect to any pro
rata subscription offer to holders of Common Stock or (C) for determining
rights to vote with respect to any Liquidation, Reorganization Event or other
reorganization, recapitalization, reclassification, consolidation or merger,
and in no event shall such notice be provided to such holder prior to such
information being made known to the public. 
The Company will also give written notice to each holder of Series C
Preferred Stock at least twenty (20) days prior to the date on which any
Liquidation, Reorganization Event or other reorganization, recapitalization,
reclassification, consolidation or merger will take place and in no event shall
such notice be provided to such holder prior to such information being made
known to the public.


 


(j)            Fractional Shares.  No fractional shares of Common Stock shall be
issued upon conversion of the Series C Preferred Stock.  In lieu of any fractional shares to which the
holder would otherwise be entitled, the Company shall pay cash equal to the
product of such fraction multiplied by the average of the Closing Prices of the
Common Stock for the five (5) consecutive trading days immediately preceding
the Voluntary Conversion Date or Company Conversion Date, as applicable.


 


(k)           Reservation of Common Stock.  The Company shall, so long as any shares of
Series C Preferred Stock are outstanding, reserve and keep available out of its
authorized and unissued Common Stock, solely for the purpose of effecting the
conversion of the Series C Preferred Stock, such number of shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
of the Series C Preferred Stock then outstanding; provided that the number of
shares of Common Stock so reserved shall at no time be less than 120% of the
number of shares of Common Stock for which the shares of Series C Preferred
Stock are at any time convertible.  The
initial number of shares of Common Stock reserved for conversion of the Series
C Preferred Stock and each increase in the number of shares so reserved shall
be allocated pro rata among the holders of the Series C Preferred Stock based
on the number of shares of Series C Preferred Stock held by each holder of
record at the time of 


 

















 


issuance of the Series C Preferred Stock or increase in the number of
reserved shares, as the case may be.  In
the event a holder shall sell or otherwise transfer any of such holder’s shares
of Series C Preferred Stock, each transferee shall be allocated a pro rata
portion of the number of reserved shares of Common Stock reserved for such
transferor.  Any shares of Common Stock
reserved and which remain allocated to any person or entity which does not hold
any shares of Series C Preferred Stock shall be allocated to the remaining
holders of Series C Preferred Stock, pro rata based on the number of shares of
Series C Preferred Stock then held by such holder.  If at any time the number of authorized but
unissued shares of Common Stock shall not be sufficient to effect the
conversion of all then outstanding shares of the Series C Preferred Stock, the
Company shall take such corporate action as may be necessary to increase its
authorized but unissued shares of Common Stock to such number of shares as
shall be sufficient for such purposes, including, without limitation, engaging
in best efforts to obtain the requisite stockholder approval of any necessary
amendment to the Certificate of Incorporation.


 


(l)            Retirement of Series C Preferred
Stock.  Conversion of Series C
Preferred Stock shall be deemed to have been effected on the applicable
Voluntary Conversion Date or Company Conversion Date, and such date is referred
to herein as the “Conversion Date.”  Upon conversion of only a portion of the
number of shares of Series C Preferred Stock represented by a certificate
surrendered for conversion, the Company shall issue and deliver to such holder
at the expense of the Company, a new certificate covering the number of shares
of Series C Preferred Stock representing the unconverted portion of the
certificate so surrendered as required by Section 5(b)(ii).


 


(m)          Regulatory Compliance.  If any shares of Common Stock to be reserved
for the purpose of conversion of Series C Preferred Stock require registration
or listing with or approval of any governmental authority, stock exchange or
other regulatory body under any federal or state law or regulation or otherwise
before such shares may be validly issued or delivered upon conversion, the
Company shall, at its sole cost and expense, in good faith and as expeditiously
as possible, endeavor to secure such registration, listing or approval, as the
case may be.


 


6.             Conversion Restrictions.


 


(a)           Notwithstanding anything to the
contrary set forth herein, until the Stockholder Meeting (as defined in the
Purchase Agreement) has been held, no shares of Common Stock may be issued as a
result of conversion or redemption of the Series C Preferred Stock.


 


(b)           Notwithstanding anything to the
contrary set forth herein, unless and until Stockholder Approval is obtained,
the Company shall not be obligated to issue in excess of an aggregate of 9,952,226
shares of Common Stock upon conversion or redemption of the Series C Preferred
Stock, which number of shares shall be subject to adjustment for any stock
dividends, combinations, splits and the like with respect to shares of Common
Stock (the “Issuable Maximum”). The Issuable
Maximum equals 19.99% of the number of shares of Common Stock outstanding
immediately prior to the initial Issuance Date.    Each holder of Series C Preferred 


 

















 


Stock shall be entitled to a pro rata portion of the Issuable Maximum
equal to the quotient obtained by dividing: (x) the number of shares of Series
C Preferred Stock purchased by such holder pursuant to the Purchase Agreement
by (y) the total number of shares of Series C Preferred Stock sold pursuant to
the Purchase Agreement.  If on any
Conversion Date (i) the Conversion Price then in effect is such that the number
of shares of Common Stock issuable upon conversion of all outstanding shares of
Series C Preferred Stock, when aggregated with shares of Common Stock
previously issued upon conversion or redemption of the Series B Preferred
Stock, would equal or exceed the Issuable Maximum and (ii) the Company shall
not have previously obtained the vote of stockholders to approve the issuance
of shares of Common Stock in excess of the Issuable Maximum pursuant to the
terms hereof (“Stockholder Approval”), then the
Company shall issue to the holder so requesting that number of shares of Common
Stock that equals the lesser of (i) the number of shares of Common Stock
issuable upon conversion of the shares of Series C Preferred Stock being
converted pursuant to Section 5 hereof and (ii) the difference between (A) such
holder’s pro rata portion of the Issuable Maximum minus (B) the number of
shares of Common Stock previously issued to such holder hereunder.


 


(c)           Notwithstanding anything to the
contrary set forth herein, unless and until Stockholder Approval is obtained,
the number of shares of Common Stock that may be acquired by a holder of Series
C Preferred Stock upon any conversion or redemption of Series C Preferred Stock
shall be limited to the extent necessary to insure that, following such
conversion or redemption, the total number of shares of Common Stock then
beneficially owned by such holder and its Affiliates (as defined in the
Purchase Agreement) and any other persons whose beneficial ownership of Common
Stock would be aggregated with such holder for purposes of Section 13(d) of the
Securities Exchange Act of 1934, as amended (the “Exchange Act”),
does not exceed 19.99% 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 or redemption).  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.


 


(d)           If on a Conversion Date, a holder is
prohibited from converting all of its shares of Series C Preferred Stock as a
result of the restrictions contained in this Section 6, such shares of Series C
Preferred Stock shall not be converted, shall remain issued and outstanding and
shall continue to accrue dividends thereon.


 


7.             Redemption.


 


(a)           Redemption.  At any time and from time to time on or after
the fourth anniversary of the Issuance Date, the holders of at least 67.0% of
the then outstanding shares of Series C Preferred Stock (a “Two-Thirds Interest”) may elect to have all or any portion
of the outstanding shares of Series C Preferred Stock redeemed.  Any election by a Two-Thirds Interest
pursuant to this Section 7(a) shall be made by written notice to the Company (a
“Redemption Election”) at least
forty-five (45) days prior to the elected redemption date (a “Redemption Date”), which notice shall include the total
number of shares of Series C Preferred Stock to be 


 

















 


redeemed on the Redemption Date (the “Redemption
Amount”).  The Company shall
effect the redemption on a Redemption Date by paying cash or, at the Company’s
election, shares of Common Stock (valued in the manner described below).  If such redemption shall be for cash, the
Company shall effect the redemption, out of funds legally available therefor,
by paying in cash in exchange for each share of Series C Preferred Stock to be
redeemed a sum equal to the product of (i) 1.2 multiplied by (ii) the
Stated Liquidation Preference Amount.  If
such redemption shall be for shares of Common Stock, the Company shall effect
the redemption by issuing, in exchange for each share of Series C Preferred
Stock to be redeemed, that number of shares of Common Stock equal to (A) the
product of (i) 1.4 multiplied by (ii) the Stated Liquidation Preference
Amount divided by (B) the Market Price (as defined in Section 7(f)
below) as of the Redemption Date, and rounding up to the nearest whole
share.  Notwithstanding the foregoing, if
the Company is limited with respect to the number of shares of Common Stock
that it may issue upon such redemption pursuant to Section 6 hereof, then the
Company may issue as many shares of Common Stock as is permissible under
Section 6 with respect to a portion of the Stated Liquidation Preference Amount
and the remainder of the Stated Liquidation Preference Amount shall be paid in
cash (in each case, using the applicable formula set forth above with respect
to the applicable portion of the Stated Liquidation Preference Amount).  The total amount to be paid, in either cash or shares of Common Stock,
for the Series C Preferred Stock is hereinafter referred to as the “Redemption Price.”  If
the Redemption Price is to be paid in cash and the Company does not have
sufficient funds legally available to redeem all shares of Series C Preferred
Stock to be redeemed on such Redemption Date, the Company shall redeem a pro rata portion of each holder’s redeemable shares of
Series C Preferred Stock out of funds legally available therefor, based on the
respective amounts which would otherwise be payable in respect of the shares to
be redeemed if the legally available funds were sufficient to redeem all such
shares.  At any time thereafter when
additional funds of the Company are legally available for the redemption of
shares of Series C Preferred Stock, such funds will immediately be used to redeem
the balance of the shares which the Company has become obliged to redeem on the
Redemption Date, but which it has not redeemed. 
Upon a Redemption Election by a Two-Thirds Interest pursuant to this
Section 7(a), all holders of Series C Preferred Stock shall be deemed to have
elected to have their pro rata share of the Redemption Amount redeemed pursuant
to this Section 7(a) and such election shall bind all holders of Series C
Preferred Stock.


 


(b)           Redemption Procedure.  Within twenty (20) days following its receipt
of the Redemption Election, the Company shall mail a written notice, first
class postage prepaid, to each holder of record (at the close of business on
the Business Day next preceding the day on which notice is given) of Series C
Preferred Stock, at the address last shown on the records of the Company for
such holder, notifying such holder of the receipt of such Redemption
Election.  Such notice shall state the
total number of shares of Series C Preferred Stock to be redeemed from such
holder (based on such holder’s pro rata share or the Redemption Amount), state
whether the Company intends to redeem the shares of Series C Preferred Stock in
cash or shares of Common Stock, identify the place at which payment may be
obtained and call upon such holder to surrender to the Company, in the manner
and at the place designated, such holder’s certificate or certificates
representing the shares to be redeemed (the “Redemption
Notice”).  Failure of the
Company to specify in the Redemption Notice whether the redemption shall be in
cash or shares of Common Stock shall be deemed an election by the Company to
pay the 


 

















 


redemption price in cash. 
Notwithstanding anything to the contrary contained herein, each holder
of shares of Series C Preferred Stock shall have the right to elect to give
effect to the conversion rights contained in Section 5 instead of giving effect
to the provisions contained in this Section 7(a) with respect to the shares of
Series C Preferred Stock held by such holder.


 


(c)           Surrender of Certificates; Payment.  On or before a Redemption Date, each holder
of shares of Series C Preferred Stock to be redeemed on such Redemption Date
shall surrender the certificate or certificates representing such shares (or,
if such registered holder alleges that such certificate has been lost, stolen
or destroyed, a lost certificate affidavit and agreement reasonably acceptable
to the Company to indemnify the Company against any claim that may be made
against the Company on account of the alleged loss, theft or destruction of
such certificate) to the Company, at the principal executive office of the
Company or such other place as the Company may from time to time designate by
notice to the holders of Series C Preferred Stock, and thereupon the applicable
redemption price (cash or shares of Common Stock) for such shares shall be
payable to the order of the person whose name appears on such certificate or
certificates as the owner thereof.  In
the event less than all of the shares of Series C Preferred Stock represented
by a certificate are redeemed, a new certificate representing the unredeemed
shares of Series C Preferred Stock shall promptly be issued to such
holder.  On or prior to the Redemption
Date, the Company shall, to the extent sufficient funds are legally available,
deposit the Redemption Price of all shares to be redeemed on the Redemption
Date with a bank or trust corporation having aggregate capital and surplus in
excess of $100,000,000, as a trust fund, with irrevocable instructions and
authority to the bank or trust corporation to pay, on and after the Redemption
Date, the Redemption Price of the shares to their respective holders upon the
surrender of their stock certificates. 
The balance of any funds deposited by the Company pursuant to this Section
7(c) remaining unclaimed at the expiration of three (3) months following the
Redemption Date shall be returned by the bank or trust corporation to the
Company promptly upon the Company’s written request.


 


(d)           Rights Subsequent to Redemption.  If on a Redemption Date the applicable
redemption price payable upon redemption of the shares of Series C Preferred
Stock to be redeemed on a Redemption Date is paid (in cash or shares of Common
Stock), then notwithstanding that the certificates evidencing any of the shares
of Series C Preferred Stock so called for redemption shall not have been
surrendered, dividends with respect to such shares of Series C Preferred Stock
shall cease to accrue after a Redemption Date and all rights with respect to
such shares shall forthwith after a Redemption Date terminate, except only the
right of the holders to receive the applicable redemption price upon surrender
of their certificate or certificates therefor. 
Notwithstanding the foregoing, if the funds of the Corporation legally
available for redemption of shares of Series C Preferred Stock on the
Redemption Date are insufficient to redeem the total number of shares of any
Series C Preferred Stock to be redeemed on that Redemption Date, the shares of
Series C Preferred Stock not redeemed shall remain outstanding and entitled to
all the rights and preferences (including without limitation, accrued
dividends) provided herein.


 


(e)           Redeemed or
Otherwise Acquired Shares.  Any
shares of Series C Preferred Stock that are redeemed or otherwise acquired by
the Company shall be automatically 


 

















 


and immediately cancelled and retired and shall not be reissued, sold
or transferred.  The Company may not
exercise any voting or other rights granted to the holders of Series C
Preferred Stock following redemption.


 


(f)            Definitions.  For the purposes of this Certificate of
Designation, the following terms shall
have the meanings set forth in this Section 7(f):


 


(i)            “Business Day” means
any day except Saturday, Sunday and any day which shall be a federal legal
holiday or a day on which banking institutions in the State of New York are
authorized or required by law or other governmental action to close.


 


(ii)           “Market
Price” shall mean the fair market value of a share of Common Stock,
which shall mean, (A) if the Common Stock is traded on a Trading Market, the
arithmetic average of the VWAP for each of the 10 Trading Days ending on the
third Trading Day immediately prior to the Redemption Date and (B) if the
Common Stock is not then traded on a Trading Market, the fair market value of a
share of Common Stock as determined by an independent appraiser selected in
good faith by the holders of at least 50% of the then outstanding shares of
Series C Preferred Stock and reasonably acceptable to the Company.


 


(iii)          “Trading Day” means
(a) any day on which the Common Stock is listed or quoted and traded on its
primary Trading Market, or (b) if the Common Stock is not then listed or quoted
and traded on any Trading Market, then any Business Day.


 


(iv)          “Trading Market”
means any national securities exchange, market or trading or quotation facility
on which the Common Stock is then listed or quoted.


 


(v)           “VWAP” means on any
particular Trading Day the volume weighted average trading price per share of
Common Stock on such date on a Trading Market as reported by Bloomberg L.P., or
any successor performing similar functions; provided,
however, that during any period the VWAP is being determined, the
VWAP shall be subject to adjustment from time to time for stock splits, stock
dividends, combinations and similar events as applicable.


 


8.             Lost or Stolen Certificates.  Upon receipt by the Company of evidence
satisfactory to the Company of the loss, theft, destruction or mutilation of
any Preferred Stock Certificates representing the shares of Series C Preferred Stock,
and, in the case of loss, theft or destruction, of any indemnification
undertaking by the holder to the Company and, in the case of mutilation, upon
surrender and cancellation of the Preferred Stock Certificate(s), the Company
shall execute and deliver new preferred stock certificate(s) of like tenor and
date; provided, however, the Company shall not be obligated to
re-issue Preferred Stock Certificates if the holder contemporaneously requests
the Company to convert such shares of Series C Preferred Stock into Common
Stock.


 


9.             Remedies, Characterizations,
Other Obligations, Breaches and Injunctive  Relief.  The remedies provided in this Certificate of
Designation shall be cumulative and in addition to 


 

















 


all other remedies available under this Certificate of Designation, at
law or in equity (including a decree of specific performance and/or other
injunctive relief), no remedy contained herein shall be deemed a waiver of
compliance with the provisions giving rise to such remedy and nothing herein shall
limit a holder’s right to pursue actual damages for any failure by the Company
to comply with the terms of this Certificate of Designation.  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 thereof 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 holders of the Series C Preferred Stock 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 holders of the Series C
Preferred Stock 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.


 


10.           Specific Shall Not Limit General;
Construction.  No specific provision
contained in this Certificate of Designation shall limit or modify any more
general provision contained herein.  This
Certificate of Designation shall be deemed to be jointly drafted by the Company
and all initial purchasers of the Series C Preferred Stock and shall not be
construed against any person as the drafter hereof.


 


11.           Failure or Indulgence Not Waiver.  No failure or delay on the part of a holder
of Series C Preferred Stock 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.


 


[Remainder
of Page Intentionally Left Blank]


 

















 


IN WITNESS WHEREOF, the undersigned has executed and
subscribed this Certificate and does affirm the foregoing as true this 8th
day of November, 2007.


 


	
   

  	
  SATCON TECHNOLOGY CORPORATION

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
  David B. Eisenhaure

  
	
   

  	
   

  	
  Title:

  	
  President and Chief Executive Officer

  
						



 

















 


EXHIBIT I


 


SATCON TECHNOLOGY
CORPORATION


CONVERSION NOTICE


 


Reference is made to the Certificate of Designation of the Relative
Rights and Preferences of the Series C Preferred Stock of SatCon Technology
Corporation (the “Certificate of Designation”).  In accordance with and pursuant to the
Certificate of Designation, the undersigned hereby elects to convert the number
of shares of Series C Preferred Stock, par value $.01 per share (the “Preferred Shares”), of SatCon Technology Corporation, a
Delaware corporation (the “Company”),
indicated below into shares of Common Stock, par value $.01 per share (the “Common Stock”), of the Company, by tendering the stock
certificate(s) representing the share(s) of Preferred Shares specified below as
of the date specified below.


 


	
   

  	
  Date of Conversion:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Number of Preferred Shares to be converted:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Stock certificate no(s). of Preferred Shares to be
  converted:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Please confirm the following information:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Conversion Price:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Number of shares of Common Stock to be issued:

  	
   

  
	
   

  	
   

  	
   

  
	
  Number of shares of Common Stock beneficially owned
  or deemed beneficially owned by the Holder on the Date of Conversion:

  	
   

  



 


Please issue the Common Stock into which the Preferred Shares are being
converted and, if applicable, any check drawn on an account of the Company in
the following name and to the following address:


 


	
   

  	
  Issue to:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Facsimile Number:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Authorization:

  	
   

  
	
   

  	
  By:  

  	
   

  
	
   

  	
  Title:  

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Dated: