Exhibit 10.3


 


 




 





STOCK
AND WARRANT PURCHASE AGREEMENT



among



SATCON TECHNOLOGY CORPORATION



and



THE PURCHASERS NAMED HEREIN


 






 


Dated: November 8, 2007


 








 





 

















 


TABLE OF
CONTENTS


 


	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  ARTICLE I DEFINITIONS

  	
  1

  
	
   

  	
   

  	
   

  
	
  1.1

  	
  Definitions

  	
  1

  
	
   

  	
   

  	
   

  
	
  ARTICLE II PURCHASE AND SALE
  OF PREFERRED STOCK AND WARRANTS

  	
  12

  
	
   

  	
   

  
	
  2.1

  	
  First Tranche

  	
  12

  
	
  2.2

  	
  Second Tranche

  	
  13

  
	
  2.3

  	
  Use of Proceeds

  	
  14

  
	
   

  	
   

  	
   

  
	
  ARTICLE III REPRESENTATIONS
  AND WARRANTIES OF THE COMPANY

  	
  14

  
	
   

  	
   

  
	
  3.1

  	
  Corporate Existence and Power

  	
  14

  
	
  3.2

  	
  Authorization; No Contravention

  	
  14

  
	
  3.3

  	
  Governmental Authorization; Third
  Party Consents

  	
  15

  
	
  3.4

  	
  Binding Effect

  	
  15

  
	
  3.5

  	
  Litigation

  	
  15

  
	
  3.6

  	
  Compliance with Laws

  	
  16

  
	
  3.7

  	
  Capitalization

  	
  16

  
	
  3.8

  	
  No Default or Breach; Contractual
  Obligations; Restrictions on Business

  	
  18

  
	
  3.9

  	
  Title to Properties

  	
  19

  
	
  3.10

  	
  SEC Documents; Proxy Statement;
  Financial Statements

  	
  19

  
	
  3.11

  	
  Taxes

  	
  20

  
	
  3.12

  	
  No Material Adverse Change;
  Ordinary Course of Business

  	
  21

  
	
  3.13

  	
  Investment Company

  	
  21

  
	
  3.14

  	
  Private Offering

  	
  22

  
	
  3.15

  	
  Employment Matters; Labor Relations

  	
  22

  
	
  3.16

  	
  Employee Benefit Plans

  	
  23

  
	
  3.17

  	
  Title to Assets

  	
  24

  
	
  3.18

  	
  Liabilities

  	
  24

  
	
  3.19

  	
  Intellectual Property

  	
  24

  
	
  3.20

  	
  Trade Relations

  	
  28

  
	
  3.21

  	
  Insurance

  	
  28

  
	
  3.22

  	
  Environmental Matters

  	
  28

  
	
  3.23

  	
  Related Party Transactions

  	
  29

  
	
  3.24

  	
  Broker’s, Finder’s or Similar Fees

  	
  29

  
	
  3.25

  	
  Internal Controls and Compliance
  with the Sarbanes-Oxley Act

  	
  29

  
	
  3.26

  	
  Solvency

  	
  30

  
	
  3.27

  	
  Government Contracts and Government
  Bids

  	
  30

  
	
  3.28

  	
  Export Controls

  	
  31

  
	
  3.29

  	
  Foreign Corrupt Practices Act

  	
  31

  
	
  3.30

  	
  Existing Notes

  	
  31

  



 


i

















 


	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  3.31

  	
  Full Disclosure

  	
  31

  
	
   

  	
   

  	
   

  
	
  ARTICLE IV REPRESENTATIONS AND
  WARRANTIES OF THE PURCHASERS

  	
  32

  
	
   

  	
   

  
	
  4.1

  	
  Existence and Power

  	
  32

  
	
  4.2

  	
  Authorization; No Contravention

  	
  32

  
	
  4.3

  	
  Governmental Authorization; Third
  Party Consents

  	
  32

  
	
  4.4

  	
  Binding Effect

  	
  32

  
	
  4.5

  	
  Purchase for Own Account

  	
  32

  
	
  4.6

  	
  Restricted Securities

  	
  33

  
	
  4.7

  	
  Accredited Investor

  	
  33

  
	
  4.8

  	
  Broker’s, Finder’s or Similar Fees

  	
  33

  
	
  4.9

  	
  Stock Ownership

  	
  33

  
	
   

  	
   

  	
   

  
	
  ARTICLE V CONDITIONS TO THE
  OBLIGATION OF THE PURCHASERS TO CLOSE

  	
  34

  
	
   

  	
   

  
	
  5.1

  	
  First Tranche Closing

  	
  34

  
	
  5.2

  	
  Second Tranche Closing

  	
  37

  
	
   

  	
   

  	
   

  
	
  ARTICLE VI CONDITIONS TO THE
  OBLIGATION OF THE COMPANY TO CLOSE

  	
  40

  
	
   

  	
   

  
	
  6.1

  	
  Representations and Warranties

  	
  40

  
	
  6.2

  	
  Payment of Purchase Price

  	
  40

  
	
  6.3

  	
  Registration Rights Agreement

  	
  40

  
	
   

  	
   

  	
   

  
	
  ARTICLE VII INDEMNIFICATION

  	
  40

  
	
   

  	
   

  
	
  7.1

  	
  Indemnification

  	
  40

  
	
  7.2

  	
  Notification

  	
  41

  
	
  7.3

  	
  Contribution

  	
  42

  
	
   

  	
   

  	
   

  
	
  ARTICLE VIII AFFIRMATIVE
  COVENANTS

  	
  42

  
	
   

  	
   

  
	
  8.1

  	
  Preservation of Existence

  	
  42

  
	
  8.2

  	
  Stockholders Meeting

  	
  44

  
	
  8.3

  	
  Board of Directors

  	
  45

  
	
  8.4

  	
  Nasdaq Listing

  	
  47

  
	
  8.5

  	
  Reservation of Common Stock

  	
  48

  
	
  8.6

  	
  Restrictions on Public Sale

  	
  48

  
	
  8.7

  	
  Notification of Certain Matters

  	
  48

  
	
  8.8

  	
  Additional Warrant Triggering Event

  	
  48

  
	
  8.9

  	
  Elimination of Series A Preferred
  Stock

  	
  49

  
	
   

  	
   

  	
   

  
	
  ARTICLE IX PREEMPTIVE RIGHTS

  	
  49

  
	
   

  	
   

  
	
  9.1

  	
  Subsequent Offerings

  	
  49

  
	
  9.2

  	
  Procedure

  	
  49

  
	
  9.3

  	
  Nasdaq Letter

  	
  49

  



 


ii

















 


	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  9.4

  	
  Termination; Transfer or Assignment
  of Rights

  	
  50

  
	
  9.5

  	
  Defined Terms

  	
  50

  
	
   

  	
   

  	
   

  
	
  ARTICLE X TERMINATION OF
  AGREEMENT

  	
  51

  
	
   

  	
   

  
	
  10.1

  	
  Termination

  	
  51

  
	
  10.2

  	
  Survival

  	
  51

  
	
  10.3

  	
  Alternative Transaction Fee

  	
  51

  
	
   

  	
   

  	
   

  
	
  ARTICLE XI MISCELLANEOUS

  	
  52

  
	
   

  	
   

  
	
  11.1

  	
  Survival of Representations and
  Warranties

  	
  52

  
	
  11.2

  	
  Notices

  	
  52

  
	
  11.3

  	
  Successors and Assigns; Third Party
  Beneficiaries

  	
  53

  
	
  11.4

  	
  Amendment and Waiver

  	
  54

  
	
  11.5

  	
  Counterparts

  	
  54

  
	
  11.6

  	
  Headings

  	
  54

  
	
  11.7

  	
  Governing Law; Consent to
  Jurisdiction

  	
  54

  
	
  11.8

  	
  Severability

  	
  54

  
	
  11.9

  	
  Rules of Construction

  	
  55

  
	
  11.10

  	
  Approval or Waiver

  	
  55

  
	
  11.11

  	
  Entire Agreement

  	
  55

  
	
  11.12

  	
  Fees

  	
  55

  
	
  11.13

  	
  Publicity

  	
  55

  
	
  11.14

  	
  Further Assurances

  	
  56

  



 


iii

















 


	
  EXHIBITS

  	
   

  
	
   

  	
   

  	
   

  
	
  A

  	
  Schedule of Purchasers

  	
   

  
	
  B

  	
  Voting Agreement

  	
   

  
	
  C

  	
  Form of By-laws

  	
   

  
	
  D-l

  	
  Certificate of
  Incorporation

  	
   

  
	
  D-2

  	
  Form of Certificate of
  Amendment

  	
   

  
	
  E

  	
  Form of Certificate of
  Designation

  	
   

  
	
  F

  	
  Form of Registration
  Rights Agreement

  	
   

  
	
  G

  	
  Form of Indemnification
  Agreement

  	
   

  
	
  H

  	
  Form of Greenberg
  Traurig, LLP Opinion

  	
   

  
	
  I

  	
  Company Disclosure
  Schedule

  	
   

  
	
  J

  	
  Form of First Tranche
  Warrant

  	
   

  
	
  K

  	
  Form of Second Tranche
  Warrant

  	
   

  
	
  L

  	
  Form of Additional Warrant

  	
   

  
	
   

  	
   

  	
   

  
	
  SCHEDULES

  	
   

  



 


iv

















 


STOCK
AND WARRANT PURCHASE AGREEMENT


 


This STOCK AND WARRANT PURCHASE AGREEMENT, dated
November 8, 2007 (this “Agreement”),
by and among SatCon Technology Corporation, a Delaware corporation (the “Company”) and each other Person (as defined
below) listed on the Schedule of Purchasers attached hereto as Exhibit A
(the “Purchasers”).


 


WHEREAS, upon the terms and conditions set forth in
this Agreement, the Company proposes to issue and sell to each of the
Purchasers in two Closings (as defined below): (i) the aggregate number of
shares, par value $0.01 per share, of Series C Convertible Preferred Stock
of the Company (the “Preferred Stock”)
initially convertible into the aggregate number of shares of Common Stock (the “Underlying Preferred Shares”), each as set
forth on Exhibit A and (ii) the Warrants, initially exercisable for the
aggregate number of shares of Common Stock set forth on Exhibit A
(such transaction, the “Financing”).


 


WHEREAS, upon the terms and conditions set forth in
this Agreement, in the event of an Additional Warrant Triggering Event (as
defined below), the Company shall issue Additional Warrants (as defined below)
to each of the Purchasers.


 


WHEREAS, concurrently with the execution of this
Agreement, as a condition to the willingness of the Purchasers to enter into
this Agreement, certain stockholders of the Company are entering into the
Voting Agreement with the Company, attached hereto as Exhibit B
(the “Voting Agreement”).


 


WHEREAS, as a condition to the issuance and sale of
(i) the Purchased Shares and the Second Tranche Warrants in the Second Tranche
Closing and (ii) any Additional Warrants, the Company shall be required to
obtain approval by the Company’s stockholders of the Stockholder Approval
Resolutions (as such terms are defined below).


 


NOW, THEREFORE, in consideration of the mutual
covenants and agreements set forth herein and for good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
parties hereto agree as follows:


 


ARTICLE I



DEFINITIONS


 


1.1           Definitions. 
As used in this Agreement, and unless the context requires a different meaning,
the following terms have the meanings indicated:


 


“Additional Stockholder Approval” has the meaning set
forth in Section 9.3 of this Agreement.


 

















 


“Additional Stockholders
Meeting” has the meaning set forth in Section 9.3 of this Agreement.


 


“Additional Warrant(s)”
means the warrants to purchase shares of Common Stock in the form attached
hereto as Exhibit L.


 


“Additional Warrant
Shares” means the shares of Common Stock issued or issuable upon exercise of
the Additional Warrants.


 


“Additional Warrant
Triggering Event” has the meaning set forth in Section 8.8 of this
Agreement.


 


“Affiliate” means, with
respect to any Person, (a) each Person that, directly or indirectly, owns or
controls, whether beneficially or as a trustee, guardian or other fiduciary,
twenty percent (20%) or more of any class of Equity Securities of such Person,
(b) each Person that controls, is controlled by or is under common control with
such Person or any Affiliate of such Person or (c) each of such Person’s
officers, directors, joint venturers and partners; provided, however, that in
no case shall a Purchaser be deemed to be an Affiliate of the Company or any of
its Subsidiaries for purposes of this Agreement or the other Transaction
Documents. For the purpose of this definition, “control” of a Person means the
possession, directly or indirectly, of the power to direct or cause the
direction of its management or policies, whether through the ownership of
voting securities, by contract or otherwise.


 


“Agreement” means this
Agreement as the same may be amended, supplemented or modified in accordance
with the terms hereof.


 


“Alternative Transaction”
has the meaning set forth in Section 10.3 of this Agreement.


 


“Alternative Transaction
Fee” has the meaning set forth in Section 10.3 of this Agreement.


 


“Alternative Transaction
Securities” has the meaning set forth in Section 10.3 of this Agreement.


 


“Assets” has the meaning
set forth in Section 3.17 of this Agreement.


 


“Board of Directors”
means the Board of Directors of the Company.


 


“Business Day” means any
day other than a Saturday, Sunday or other day on which commercial banks in the
State of New York are authorized or required by law or executive order to
close.


 


“By-laws” means the
By-laws of the Company, and all amendments thereto, in effect on the applicable
Closing Date substantially in the form attached hereto as Exhibit C,
as the same may be amended from time to time.


 


2

















 


“Certificate of Amendment”
means the Form of Certificate of Amendment attached hereto as Exhibit D-2.


 


“Certificate of
Designation” means the Certificate of Designation with respect to the Preferred
Stock adopted by the Board of Directors and duly filed with the Secretary of
State of the State of Delaware on or before the First Tranche Closing Date
substantially in the form attached hereto as Exhibit E.


 


“Certificate of
Incorporation” means the Certificate of Incorporation of the Company and all
certificates of amendment and certificates of designation thereto, as amended
by the Certificate of Amendment, in effect on the First Tranche Closing Date substantially
in the form attached hereto as Exhibit D-l, as the same may be
amended from time to time.


 


“Claims” has the meaning
set forth in Section 3.5 of this Agreement.


 


“Closing” has the meaning
set forth in Article II of this Agreement.


 


 “Closing Date” has the meaning set forth in
Article II of this Agreement.


 


“Code” means the Internal
Revenue Code of 1986, as amended, or any successor statute thereto.


 


“Commonly Controlled
Entity” means any entity which is under common control with the Company within
the meaning of Code section 414(b), (c), (m) or (o).


 


 “Common Stock” means the common stock, par
value $0.01 per share, of the Company.


 


“Common Stock Equivalents”
means any security or obligation which is by its terms, directly or indirectly,
convertible into or exchangeable or exercisable into or for shares of Common
Stock, including, without limitation, the Purchased Shares, the Warrants and
any option, warrant or other subscription or purchase right with respect to
Common Stock or any Common Stock Equivalent.


 


“Company” has the meaning
set forth in the preamble to this Agreement.


 


“Company Disclosure
Schedule” means the disclosure schedule delivered by the Company to the
Purchasers on the date hereof and attached hereto as Exhibit I.


 


“Company Intellectual
Property” means all Intellectual Property owned by or exclusively licensed to
the Company or its Subsidiaries.


 


“Condition of the Company”
means the assets, business, properties, operations or condition (financial or
otherwise) of the Company and its Subsidiaries, taken as a whole.


 


“Contingent Obligation”
means, as applied to any Person, any direct or indirect liability of that
Person with respect to any Indebtedness, lease, dividend, guaranty, letter of
credit or other 


 


3

















 


obligation, contractual or otherwise (the “primary obligation”) of
another Person (the “primary obligor”), whether or not contingent, (a) to
purchase, repurchase or otherwise acquire such primary obligations or any
property constituting direct or indirect security therefor, (b) to advance
or provide funds (i) for the payment or discharge of any such primary
obligation, or (ii) to maintain working capital or equity capital of the
primary obligor or otherwise to maintain the net worth or solvency or any
balance sheet item, level of income or financial condition of the primary
obligor, (c) to purchase property, securities or services primarily for
the purpose of assuring the owner of any such primary obligation of the ability
of the primary obligor to make payment of such primary obligation, or
(d) otherwise to assure or hold harmless the owner of any such primary
obligation against loss or failure or inability to perform in respect thereof. The
amount of any Contingent Obligation shall be deemed to be an amount equal to
the stated or determinable amount of the primary obligation in respect of which
such Contingent Obligation is made or, if not stated or determinable, the
maximum reasonably anticipated liability in respect thereof.


 


“Contractual Obligations”
means, as to any Person, any provision of any security issued by such Person or
of any agreement, undertaking, contract, indenture, mortgage, deed of trust or
other instrument to which such Person is a party or by which it or any of its
property is bound.


 


“Copyrights” means any
foreign or United States copyrights and mask works, including all renewals and
extensions thereof, copyright registrations and applications for registration
thereof, and any non-registered copyrights.


 


“D&O Policies” has
the meaning set forth in Section 3.21 of this Agreement.


 


“Environmental Laws” are
any Requirement of Law or any agreement with Governmental Authorities which
prohibits, regulates or controls any Hazardous Material or any Hazardous
Material Activity, including, without limitation, the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, the Resource
Recovery and Conservation Act of 1976, the Federal Water Pollution Control Act,
the Clean Air Act, the Hazardous Materials Transportation Act, the Clean Water
Act, all as amended at any time.


 


“Equity Plans” has the
meaning set forth in Section 3.16 of this Agreement.


 


“Equity Securities” of
any Person means (a) all common stock, preferred stock, participations, shares,
partnership interests, membership interests or other equity interests in and of
such Person (regardless of how designated and whether or not voting or
non-voting) and (b) all warrants, options and other rights to acquire any of
the foregoing.


 


“ERISA” means the Employee
Retirement Income Security Act of 1974, as amended.


 


“Exchange Act” means the
Securities Exchange Act of 1934, as amended, and the rules and regulations of
the SEC thereunder.


 


4

















 


“Existing Notes” means
the indebtedness pursuant to that certain Securities Purchase Agreement, dated
as of July 19, 2006, by and among the Company and each of the purchasers
identified on the signature pages thereto.


 


“Financial Statements”
means, with respect to any accounting period for any Person, statements of
income and of cash flow of such Person for such period, and balance sheets of
such Person as of the end of such period, setting forth in each case in
comparative form figures for the corresponding period in the preceding fiscal
year if such period is less than a full fiscal year or, if such period is a
full fiscal year, corresponding figures from the preceding fiscal year, all
prepared in reasonable detail and in accordance with GAAP. Unless otherwise
indicated, each reference to Financial Statements of any Person shall be deemed
to refer to Financial Statements prepared on a consolidated basis.


 


“First Tranche Closing”
has the meaning set forth in Article II of this Agreement.


 


“First Tranche Closing
Date” has the meaning set forth in Article II of this Agreement.


 


“First Tranche Warrant(s)”
means the warrants to purchase shares of Common Stock in the form attached
hereto as Exhibit J.


 


“GAAP” means generally
accepted accounting principles and practices as in effect in the United States
of America from time to time, consistently applied.


 


“Governmental Authority”
means the government of any nation, state, province, city, locality or other
political subdivision thereof, any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to
government, and any corporation or other entity owned or controlled, through
stock or capital ownership or otherwise, by any of the foregoing.


 


“Government Bid(s)” means
any written quotations, bids or proposals that, if accepted, would bind the
Company or its Subsidiaries to perform the resultant Government Contract


 


“Government Contract(s)”
means any prime contract, subcontract, teaming agreement, joint venture, basic
ordering agreement, pricing agreement, letter contract, grant, cooperative
agreement, or other mutually binding legal agreement between the Company and
(i) any Governmental Authority, (ii) any prime contractor of any Governmental
Authority, or (iii) any subcontractor of any Governmental Authority; provided
that a task order, purchase order or delivery order under a Government Contract
shall not constitute a separate Government Contract for purposes of this
definition, but shall be part of the Government Contract to which it relates.


 


“Hazardous Material”
means any material, chemical, emission or substance that has been designated by
any Governmental Authority to be radioactive, toxic, hazardous, a pollutant or
otherwise a danger to health, reproduction or the environment.


 


“Hazardous Materials
Activity” means the transportation, transfer, recycling, storage, use,
treatment, manufacture, removal, remediation, release, exposure of others to,
sale, or distribution of 


 


5

















 


any Hazardous Material or any product or waste containing a Hazardous
Material, or product manufactured with Ozone depleting substances, including,
without limitation, any required labeling, payment of waste fees or charges
(including so-called e-waste fees) and compliance with any product take-back or
product content requirements.


 


“Indebtedness” means (a)
all obligations for borrowed money (including all notes payable and drafts
accepted representing extensions of credit and all obligations evidenced by
bonds, debentures, notes or other similar instruments on which interest charges
are customarily paid), (b) all obligations, including Contingent Obligations,
relative to the face amount of all letters of credit, whether or not drawn, and
banker’s acceptance issued for the account of the Company, any Subsidiary or
any Owned Entity, (c) all capitalized lease obligations, (d) all purchase money
indebtedness, (e) all obligations to pay the deferred purchase price of
property or services (excluding trade accounts payable arising in the ordinary
course of business) and Indebtedness secured by a Lien on property owned or
being purchased (including Indebtedness arising under conditional sales or
other title retention agreements), whether or not such Indebtedness shall have
been assumed by the Company, any Subsidiary or any Owned Entity or is limited
in recourse and (f) all obligations in respect of, and obligations (continent
or otherwise) to purchase or otherwise acquire, or otherwise assure a creditor
against loss in respect of, Indebtedness of another Person of the type
described in clauses (a), (b), (c), (d) or (e) above.


 


“Indemnified Party” has
the meaning set forth in Section 7.1 of this Agreement.


 


“Indemnifying Party” has
the meaning set forth in Section 7.1 of this Agreement.


 


“Independent Designee”
has the meaning set forth in Section ‎8.3 of this
Agreement.


 


“Intellectual Property”
means Technology and Intellectual Property Rights.


 


“Intellectual Property
Rights” means all of the following and all rights associated with the
following, worldwide: (a) Copyrights, (b) Patents, (c) Trademarks,
(d) Trade Secret rights and all other rights in or to confidential
business or technical information, (e) all rights in Internet Assets, and
(f) all proprietary rights that are analogous or similar to any of the
foregoing.


 


“Internet Assets” means
any Internet domain names and other computer user identifiers and any rights in
and to sites on the worldwide web, including rights in and to any text,
graphics, audio and video files and html or other code incorporated in such
sites.


 


“IP Licenses” has the meaning
set forth in Section 3.19 of this Agreement.


 


“Knowledge” means the
knowledge of the directors, officers and other managers of the Company or any
Subsidiary after due inquiry.


 


“Law”
means any federal, state, local, municipal, foreign, international,
multinational, or other administrative statute, regulation, order, rule,
ordinance, constitution, principle of common law or treaty.


 


6

















 


“Leased Real Property”
has the meaning set forth in Section 3.9 of this Agreement.


 


“Lease Agreements” has
the meaning set forth in Section 3.9 of this Agreement.


 


“Liabilities” has the
meaning set forth in Section 3.18 of this Agreement.


 


“Lien” means any security
interest, pledge, bailment, mortgage, hypothecation, deed of trust, conditional
sales and title retention agreement (including any lease in the nature
thereof), charge, encumbrance or other similar arrangement or interest in real
or personal property, whether now or hereafter owned, operated or leased, and
includes conditional sales contracts, title retention agreements, capital
trusts and capital leases.


 


“Losses” has the meaning
set forth in Section 7.1 of this Agreement.


 


“Majority in Interest”
means the Persons holding at least 50% of the then-outstanding Underlying
Shares.


 


“Make-up Purchase” has
the meaning set forth in Section 9.1 of this Agreement.


 


“Minimum Ownership
Percentage” means (i) prior to the Second Tranche Closing, beneficial ownership
in the aggregate of twenty-five percent (25%) of the total number of Underlying
Preferred Shares and Warrant Shares owned by a Purchaser as of the First
Tranche Closing Date and (ii) after the Second Tranche Closing, beneficial
ownership in the aggregate of twenty-five percent (25%) of the total number of
Underlying Preferred Shares and Warrant Shares owned by a Purchaser as of the
Second Tranche Closing Date.


 


“Nasdaq Stock Market”
means The Nasdaq Stock Market, Inc.


 


“Nasdaq Capital Market”
has the meaning set forth in Section 3.6(b) of this Agreement.


 


“Nasdaq Letter” has the
meaning set forth in Section 9.3 of this Agreement.


 


“New Securities” has the
meaning set forth in Section 9.5 of this Agreement.


 


“NGP” means NGP Energy
Technology Partners, L.P.


 


“NGP Designee” has the
meaning set forth in Section 8.3 of this Agreement.


 


“NGP Observer” has the
meaning set forth in Section 8.3(h) of this Agreement.


 


“Note Purchase Agreement”
means that certain Note Purchase Agreement, dated as of October 19, 2007, by
and among the Company and the Purchasers.


 


“Observer(s)” has the
meaning set forth in Section 8.3(h) of this Agreement.


 


“Options” has the meaning
set forth in Section 3.7(a) of this Agreement.


 


7

















 


“Orders” has the meaning
set forth in Section 3.2 of this Agreement.


 


“Outside Date” means
February 19, 2008, or such later date agreed to in writing by the Company,
RockPort and NGP.


 


“Outstanding Warrants”
means the warrants to purchase capital stock of the Company that are
outstanding as of the date of this Agreement.


 


“Patents” means any
foreign or United States patents and patent applications, including any
divisions, continuations, continuations-in-part, substitutions, reissues or
interferences thereof, whether or not patents are issued on such applications
and whether or not such applications are modified, withdrawn or resubmitted.


 


“Payment Date” has the
meaning set forth in Section 10.3 of this Agreement.


 


“Percentage of Ownership”
has the meaning set forth in Section 9.5 of this Agreement.


 


“Permits” has the meaning
set forth in Section 3.6 of this Agreement.


 


“Person” means any
individual, firm, corporation, partnership, trust, incorporated or
unincorporated association, joint venture, joint stock company, limited
liability company, Governmental Authority or other entity of any kind, and
shall include any successor (by merger or otherwise) of such entity.


 


“Plan” means each “employee
benefit plan” within the meaning of section 3(3) of ERISA and all other plans,
arrangements, policies, programs, agreements or other commitments providing for
retirement, employee benefits, compensation, incentive compensation or fringe
benefits, including, without limitation, any employment, consulting or deferred
compensation agreement, executive compensation, bonus, incentive, pension, profit-sharing,
savings, retirement, stock option, stock purchase or severance pay plan, any
life, health, disability or accident insurance plan, whether oral or written,
whether or not subject to ERISA, as to which the Company or any Commonly
Controlled Entity has or could have any direct or indirect, actual or
contingent liability.


 


“Preferred Stock” has the
meaning set forth in the recitals to this Agreement.


 


“Private Placement
Warrants” means the Warrant A’s issued in connection with the sale of the Existing
Notes and the Warrant C’s issued in connection with that certain Amendment and
Exercise Agreement by and among the Company and the Investors (as defined
therein), dated July 17, 2007.


 


“Proxy Statement” has the
meaning set forth in Section 3.10(b) of this Agreement.


 


“Publicly Available
Software” has the meaning set forth on Section 3.19(n) of this Agreement.


 


8

















 


“Purchase Notice” has the
meaning set forth in Section 9.2 of this Agreement.


 


“Purchased Shares” has
the meaning set forth in Section 2.1 of this Agreement.


 


“Purchasers” has the
meaning set forth in the preamble to this Agreement.


 


“Registration Rights
Agreement” means the Registration Rights Agreement substantially in the form
attached hereto as Exhibit F.


 


“Requirement of Law”
means, as to any Person, any law (including common law), statute, treaty, rule,
regulation, code, directive, ordinance, order, right, privilege, qualification,
license or franchise or determination of an arbitrator or a court or other
Governmental Authority or stock exchange, in each case applicable or binding
upon such Person or any of its property or to which such Person or any of its
property is subject or pertaining to any or all of the transactions
contemplated or referred to herein.


 


“Retiree Welfare Plan”
means any welfare plan (as defined in Section 3(1) of ERISA) that provides
benefits to current or former employees beyond their retirement or other
termination of service (other than coverage mandated by Section 4980B of
the Code, commonly referred to as “COBRA”).


 


“RockPort” means RockPort
Capital Partners II, L.P.


 


“RockPort Designee” has
the meaning set forth in Section ‎8.3 of this
Agreement.


 


“RockPort Observer” has
the meaning set forth in Section 8.3(h) of this Agreement.


 


“RoHS Directive” has the
meaning set forth in Section 3.22 of this Agreement.


 


“SEC” means the United
States Securities and Exchange Commission or any similar agency then having
jurisdiction to enforce the Securities Act.


 


“SEC Documents” has the
meaning set forth in Section 3.10(a) of this Agreement.


 


“Second Tranche Closing”
has the meaning set forth in Article II of this Agreement.


 


“Second Tranche Closing
Date” has the meaning set forth in Article II of this Agreement.


 


“Second Tranche
Warrant(s)” means the warrants to purchase shares of Common Stock in the form
attached hereto as Exhibit K.


 


 “Securities Act” means the Securities Act of
1933, as amended, and the rules and regulations of the SEC thereunder.


 


“Search Committee” has
the meaning set forth in Section 8.3(g) of this Agreement.


 


9

















 


“Shrink-Wrap Code” means
generally commercially available binary code where available for an aggregate
cost of not more than U.S. $20,000.


 


“Source Code” has the
meaning set forth in Section 3.19(o) of this Agreement.


 


“Stock Equivalents” means
any security or obligation which is by its terms, directly or indirectly,
convertible into or exchangeable or exercisable for shares of common stock or
other capital stock of the Company, and any option, warrant or other
subscription or purchase right with respect to common stock or such other
capital stock.


 


“Stockholder Approval”
has the meaning set forth in Section 8.2 of this Agreement.


 


“Stockholder Approval
Resolutions” has the meaning set forth in Section 8.2 of this Agreement.


 


“Stockholders Meeting”
has the meaning set forth in Section 8.2 of this Agreement.


 


“Stock Option Plans”
means, collectively, the Company’s 1992 Stock Option Plan, 1994 Stock Option
Plan, 1996 Stock Option Plan, 1998 Stock Incentive Plan, 1999 Stock Incentive
Plan, 2000 Stock Incentive Plan, 2002 Stock Incentive Plan and 2005 Incentive
Compensation Plan.


 


“Subsequent Offering” has
the meaning set forth in Section 9.1 of this Agreement.


 


“Subsidiaries” means, as
of the relevant date of determination, with respect to any Person, a
corporation or other Person of which 50% or more of the voting power of the
outstanding voting Equity Securities or 50% or more of the outstanding economic
equity interest is held, directly or indirectly, by such Person. Unless
otherwise qualified, or the context otherwise requires, all references to a “Subsidiary”
or to “Subsidiaries” in this Agreement shall refer to a Subsidiary or
Subsidiaries of the Company.


 


“Taxes” means any
federal, state, provincial, county, local, foreign and other taxes (including,
without limitation, income, profits, windfall profits, alternative, minimum,
accumulated earnings, personal holding company, capital stock, premium,
estimated, excise, sales, use, occupancy, gross receipts, franchise, ad
valorem, severance, capital levy, production, transfer, withholding,
employment, unemployment compensation, payroll and property taxes, import
duties and other governmental charges and assessments), whether or not measured
in whole or in part by net income, and including deficiencies, interest,
additions to tax or interest, and penalties with respect thereto, and including
expenses associated with contesting any proposed adjustments related to any of
the foregoing.


 


“Tax Return” has the
meaning set forth in Section 3.11 of this Agreement.


 


“Technology” means all
tangible embodiments of technology, including without limitation the following
items or things, in any format: (a) works of authorship including computer
programs, whether in source code or in executable code form, architecture and
documentation, (b) inventions 


 


10

















 


(whether or not patentable), discoveries and improvements,
(c) proprietary and confidential information, Trade Secrets and know how,
(d) databases, data compilations and collections and technical data,
(e)  methods and processes, and (f) devices, prototypes, designs and
schematics.


 


“Trade Secrets” means any
trade secrets, research records, processes, procedures, manufacturing formulae,
technical know-how, technology, blue prints, designs, plans, inventions
(whether patentable and whether reduced to practice), invention disclosures and
improvements thereto.


 


“Trademarks” means any
foreign or United States trademarks, service marks, trade dress, trade names,
brand names, designs and logos, corporate names, product or service
identifiers, whether registered or unregistered, all registrations and
applications for registration thereof and all goodwill related thereto.


 


“Trading Day” means (a)
any day on which the Common Stock is listed or quoted and traded on any
national securities exchange, market or trading or quotation facility on which
the Common Stock is then listed or quoted (an “Eligible Market”), or (b) if the Common Stock is not then
listed or quoted and traded on any Eligible Market, then a day on which trading
occurs on the OTC Bulletin Board (or any successor thereto), or (c) if trading
ceases to occur on the OTC Bulletin Board (or any successor thereto), any
Business Day.


 


“Transaction Documents”
means, collectively, this Agreement, the Warrants, the Additional Warrants, the
Voting Agreement and the Registration Rights Agreement.


 


“Transaction Expenses”
has the meaning set forth in Section 11.12 of this Agreement.


 


“Two-Thirds Interest”
means the Persons holding at least 66.7% of the shares of Common Stock issued
or issuable upon conversion of the Purchased Shares, or if the Purchased Shares
have not yet been issued by the Company, the Purchasers committing to purchase
at least 66.7% of the Purchased Shares, as set forth on Exhibit A
hereto.


 


“Underlying Preferred
Shares” has the meaning set forth in the recitals to this Agreement.


 


“Underlying Shares” means
the Underlying Preferred Shares, the Warrant Shares and the Additional Warrant
Shares.


 


“Voting Agreement” has
the meaning set forth in the recitals to this Agreement.


 


“WARN Act” means the
Worker Adjustment and Retraining Notification Act, as the same may be amended
from time to time.


 


“Warrant(s)” means the
First Tranche Warrants and the Second Tranche Warrants.


 


“Warrant Shares” means
the shares of Common Stock issued or issuable upon exercise of the Warrants.


 


11

















 


“WEEE Directive” has the
meaning set forth in Section 3.22 of this Agreement.


 


ARTICLE II



PURCHASE AND SALE OF PREFERRED STOCK AND WARRANTS


 


2.1           First Tranche.


 


(a)           Purchase and Sale of
Preferred Stock and First Tranche Warrants. Subject to the terms and
conditions set forth herein, the Company agrees to issue and sell to each
Purchaser, and each Purchaser, severally and not jointly, agrees to purchase
from the Company, at the First Tranche Closing (as defined below), the
aggregate number of shares of Preferred Stock and the First Tranche Warrants
with an aggregate purchase price set forth opposite such Purchaser’s name on Exhibit A
attached hereto under the heading “First Tranche Closing.”  The shares of Preferred Stock being issued
and sold pursuant to this Agreement in the First Tranche Closing and the Second
Tranche Closing (as defined below) shall be referred to herein as “Purchased Shares.”


 


(b)           Certificate of
Designation.  The Purchased Shares being issued and sold in the First
Tranche Closing shall have the preferences and rights set forth in the
Certificate of Designation.


 


(c)           First Tranche
Closing.  Unless this Agreement shall have terminated pursuant to
Article X, and subject to the satisfaction or waiver of the conditions set
forth in Section 5.1 and Article VI, the initial closing of the sale and
purchase of the Purchased Shares and the First Tranche Warrants (the “First Tranche  Closing”)
shall take place at the Boston, Massachusetts offices of Greenberg Traurig,
LLP, at 10:00 a.m., local time, on the Business Day following the date
upon which the conditions set forth in Section 5.1 and Article VI shall be
satisfied or waived in accordance with this Agreement, or at such other time,
place and date that the Company and the Purchasers may agree in writing (the “First Tranche  Closing Date”).
On the First Tranche Closing Date, the Company (i) shall deliver to each of the
Purchasers a certificate or certificates with respect to the Purchased Shares
and an instrument or instruments with respect to the First Tranche Warrants, in
definitive form and registered in the name of each such Purchaser, representing
its Purchased Shares and First Tranche Warrants issued and sold at the First
Tranche Closing against delivery by each of the Purchasers to the Company of
the aggregate purchase price therefor by wire transfer of immediately available
funds and (ii) shall pay all Transaction Expenses owed to the Purchasers.


 


(d)           No Change of Control.
Notwithstanding anything to the contrary set forth herein, no Purchaser shall
be entitled to purchase Purchased Shares and First Tranche Warrants at the
First Tranche Closing to the extent (and only to the extent) that such
securities would cause such Purchaser, individually or together with any other
persons whose beneficial ownership of Common Stock would be aggregated with
such Purchaser for purposes of Section 13(d) of the Exchange Act, to
beneficially own in excess of 19.99% of the total number of issued and
outstanding shares of Common Stock immediately after giving effect to the First
Tranche Closing (including for such purpose the shares of Common Stock issued
or issuable upon conversion of the Purchased Shares and exercise of the First Tranche
Warrants). If, as a result, of the preceding sentence, the number of 


 


12

















 


Purchased
Shares and First Tranche Warrants to be purchased by a Purchaser at the First
Tranche Closing must be reduced, appropriate adjustments shall be made to the
purchase price to be paid by such Purchaser at the First Tranche Closing. For
the purposes of this Section 2.1(d), beneficial ownership shall be determined
in accordance with Section 13(d) of the Exchange Act and the rules and
regulations promulgated thereunder (assuming, for this purpose, that the First
Tranche Warrants are immediately exercisable, notwithstanding the fact that
such First Tranche Warrants are not exercisable until six months following the
First Tranche Closing Date).


 


2.2           Second Tranche.


 


(a)           Purchase and Sale of
Preferred Stock and Second Tranche Warrants. Subject to the terms and
conditions set forth herein, the Company agrees to issue and sell to each
Purchaser, and each Purchaser, severally and not jointly, agrees to purchase
from the Company, at the Second Tranche Closing, the aggregate number of shares
of Preferred Stock and the Second Tranche Warrants with an aggregate purchase
price set forth opposite such Purchaser’s name on Exhibit A
attached hereto under the heading “Second Tranche Closing.”


 


(b)           Certificate of
Designation.  The Purchased Shares being issued and sold in the Second
Tranche Closing shall have the preferences and rights set forth in the
Certificate of Designation.


 


(c)           Second Tranche
Closing.  Unless this Agreement shall have terminated pursuant to
Article X, and subject to the satisfaction or waiver of the conditions set
forth in Section 5.2 and Article VI, the second closing of the sale and
purchase of the Purchased Shares and the Second Tranche Warrants (the “Second Tranche  Closing”)
shall take place at the Boston, Massachusetts offices of Greenberg Traurig,
LLP, at 10:00 a.m., local time, on the Business Day following the date
upon which the conditions set forth in Section 5.2 and Article VI shall be
satisfied or waived in accordance with this Agreement, or at such other time,
place and date that the Company and the Purchasers may agree in writing, but in
any event not on a date that is later than the Outside Date (the “Second Tranche  Closing
Date”). On the Second Tranche Closing Date, the Company (i) shall
deliver to each of the Purchasers a certificate or certificates with respect to
the Purchased Shares and an instrument or instruments with respect to the
Second Tranche Warrants, in definitive form and registered in the name of each
such Purchaser, representing its Purchased Shares and Second Tranche Warrants
issued and sold at the Second Tranche Closing against delivery by each of the
Purchasers to the Company of the aggregate purchase price therefor by (x)
first, by cancellation of all indebtedness evidenced by any notes issued to the
Purchasers pursuant to the Note Purchase Agreement and (y) second, by wire
transfer of immediately available funds for the remainder of the purchase
price, if any, and (ii) shall pay all Transaction Expenses owed to the
Purchasers.


 


(d)           Definitions. The
First Tranche Closing and the Second Tranche Closing shall each be referred to
herein as a “Closing” and the First Tranche
Closing Date and the Second Tranche Closing Date shall each be referred to
herein as a “Closing Date.”


 


13

















 


2.3           Use of Proceeds. 
The Company shall use the proceeds from the sale to the Purchasers of the
Purchased Shares and the Warrants to fund the Company’s working capital, to
repurchase any Private Placement Warrants that are put to the Company pursuant
to Section 9(d)(iii) of such Private Placement Warrants and for general
corporate purposes.


 


ARTICLE III


 


REPRESENTATIONS
AND WARRANTIES OF THE COMPANY


 


The Company represents and warrants to each of the
Purchasers as of the date hereof and as of the applicable Closing Date as
follows and acknowledges and confirms that each of the Purchasers are relying
upon the foregoing representations and warranties in connection with the
purchase by the Purchasers of the Purchased Shares and the Warrants (references
to the “Company” in this Article III shall refer, whenever not
inappropriate by reference to the context, to the Company, its Subsidiaries,
its parent entities and its predecessor entities, if any):


 


3.1           Corporate Existence
and Power.  The Company and each Subsidiary (a) is a corporation
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation; (b) has all requisite corporate power
and authority to own, operate its property, to lease the property it operates
as lessee and to conduct the business in which it is currently, or is proposed
to be, engaged; and (c) is duly qualified as a foreign corporation,
licensed and in good standing under the laws of each jurisdiction in which its
ownership, lease or operation of property or the conduct of its business
requires such qualification, except where the failure to be so qualified could
not reasonably be expected to have a material adverse effect on the Condition
of the Company or any Subsidiary. The Company has the corporate power and
authority to execute, deliver and perform its obligations under this Agreement
and each of the other Transaction Documents. Set forth on Section 3.1 of
the Company Disclosure Schedule is a list of all of the Subsidiaries, the
jurisdiction in which it is incorporated or organized and the jurisdictions in
which it is qualified to do business.


 


3.2           Authorization; No Contravention. 
The execution, delivery and performance by the Company of this Agreement and
each of the other Transaction Documents and the transactions contemplated
hereby and thereby, including the issuance and sale of the Purchased Shares,
the Warrants, the Additional Warrants and the issuance of the Underlying
Shares, (a) have been duly authorized by all necessary corporate action of
the Company, including all actions, consents and approvals required by the
Company’s Board of Directors and stockholders, other than Stockholder Approval;
(b) do not contravene the terms of the Certificate of Incorporation or the
By-laws or the organizational documents of any Subsidiary; (c) do not
violate, conflict with or result in any breach, default or contravention of (or
with due notice or lapse of time or both would result in any breach, default or
contravention of), or the creation of any Lien under, any Contractual
Obligation of the Company or any Subsidiary or any Requirement of Law
applicable to the Company or any Subsidiary; and (d) do not violate any
judgment, injunction, writ, award, decree or order of any nature (collectively,
“Orders”) of any Governmental
Authority against, or binding upon, the Company or any Subsidiary. The Board of
Directors, at a meeting duly called and held, has 


 


14

















 


(i) determined
that this Agreement, the other Transaction Documents the issuance and sale of
the Purchased Shares, the Warrants, the Additional Warrants and the issuance of
the Underlying Shares and the transactions contemplated hereby and thereby are
fair to and in the best interests of the Company’s stockholders,
(ii) approved and adopted this Agreement, the other Transaction Documents
and the transactions contemplated hereby and thereby in accordance with all
applicable Requirements of Law, (iii) approved and adopted the Certificate of
Designation and the Certificate of Amendment and (iv) resolved to
recommend that its stockholders approve the issuance and sale of the Purchased Shares,
the Warrants and the Additional Warrants, and approve each of the other
specified Stockholder Approval Resolutions.


 


3.3           Governmental
Authorization; Third Party Consents.  Other than Stockholder Approval
or except as set forth on Section 3.3 of the Company Disclosure Schedule,
no approval, consent, compliance, exemption, authorization or other action by,
or notice to, or filing with, any Governmental Authority or any other Person,
and no lapse of a waiting period under a Requirement of Law, is necessary or
required in connection with the execution, delivery or performance (including,
without limitation, the sale, issuance and delivery of the Purchased Shares,
the Warrants and the Additional Warrants) by, or enforcement against, the
Company of this Agreement and the other Transaction Documents or the
transactions contemplated hereby and thereby.


 


3.4           Binding Effect. 
This Agreement has been, and as of the applicable Closing Date each of the
other Transaction Documents will have been, duly executed and delivered by the
Company, and this Agreement constitutes, and as of the applicable Closing Date
each of the other Transaction Documents will constitute, the legal, valid and
binding obligations of the Company, enforceable against the Company in
accordance with their terms, except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, fraudulent conveyance or
transfer, moratorium or similar laws affecting the enforcement of creditors’
rights generally and by general principles of equity relating to enforceability
(regardless of whether considered in a proceeding at law or in equity).


 


3.5           Litigation. 
There are no actions, suits, proceedings, claims (including, without
limitation, claims involving the prior employment of any of the Company’s or
any Subsidiary’s employees, their use in connection with the Company’s or any
Subsidiary’s business of any information or techniques allegedly proprietary to
any of their former employers or their obligations under any agreements with
prior employers), complaints, disputes, arbitrations or investigations
(collectively, “Claims”) pending
or, to the Knowledge of the Company, threatened, at law, in equity, in
arbitration or before any Governmental Authority against the Company or any
Subsidiary, nor is the Company aware that there is any basis for any of the
foregoing. No Order has been issued by any court or other Governmental
Authority against the Company or any Subsidiary purporting to enjoin or
restrain the execution, delivery or performance of this Agreement or any of the
other Transaction Documents.


 


15

















 


3.6           Compliance with Laws. 


 


(a)           The Company and each
Subsidiary is in compliance in all material respects with all Requirements of
Law and all Orders issued by any court or Governmental Authority against the
Company or any Subsidiary. To the Company’s Knowledge, there is no existing or
proposed Requirement of Law which could reasonably be expected to prohibit or
restrict the Company or any Subsidiary from, or otherwise materially adversely
effect the Company or any Subsidiary in, conducting its business in any
jurisdiction in which it now conducts or proposes to conduct its business.


 


(b)           The Common Stock is
registered pursuant to Section 12(b) of the Exchange Act, and is listed on
The Nasdaq Capital Market (the “Nasdaq
Capital Market”), and neither the Company nor any Subsidiary has
taken any action designed to, or reasonably likely to have the effect of,
terminating the registration of the Common Stock under the Exchange Act or
delisting the Common Stock from the Nasdaq Capital Market. Subject to obtaining
Stockholder Approval, the Company has complied with all requirements of the
Nasdaq Stock Market with respect to the issuance of the Purchased Shares, the
Warrants, the Additional Warrants and any Underlying Shares. Neither the
Company nor any Subsidiary has taken any action designed to or that might
reasonably be expected to cause or result in unlawful manipulation of the price
of the Common Stock to facilitate the sale or resale of the Purchased Shares,
the Warrants, the Additional Warrants or any Underlying Shares.


 


(c)           (i) The Company
and each Subsidiary has all material licenses, permits and approvals of any
Governmental Authority (collectively, “Permits”)
that are necessary for the conduct of the business of the Company and its
Subsidiaries; (ii) such Permits are in full force and effect; and
(iii) no material violations are or have been recorded in respect of any
Permit.


 


3.7           Capitalization.


 


(a)           (a)           As of the date hereof, the authorized
capital stock of the Company shall consist of (i) 100,000,000 shares of Common
Stock, 49,786,024 shares of which are issued and outstanding and (ii) 1,000,000
shares of preferred stock, par value $0.01 per share, (A) 1,600 shares of which
are designated as Series B Convertible Preferred Stock, 340 shares of which are
issued and outstanding (and convertible into 890,053 shares of Common Stock)
and (B) 998,400 of which are undesignated “blank check” preferred stock. As of
the date of this Agreement, the aggregate number of shares of restricted stock
and options to purchase shares of Common Stock which may be issued under the
Stock Option Plans is 7,515,656, of which 4,878,329 are outstanding as of the
date hereof (the “Options”) and 3,999,545 of which outstanding Options have
vested as of the date hereof, and the aggregate number of shares of Common
Stock that may be issued under the Company’s 401(k) Plan is 1,012,100. As of
the date hereof, the Company has issued and outstanding warrants to purchase an
aggregate of 9,279,127 shares of Common Stock.


 


(b)           Excluding the Purchased
Shares, the Warrants, the Additional Warrants and the Underlying Shares, the
number of shares and type of all authorized, issued and outstanding capital
stock, options and other securities of the Company (whether or not presently
convertible into or exercisable or exchangeable for shares of capital stock of
the Company) is set forth in Section 3.7(b) 


 


16

















 


of the
Company Disclosure Schedule. All outstanding shares of capital stock are duly
authorized, validly issued, fully paid and nonassessable and have been issued
in compliance with all applicable securities laws. Except as a result of the purchase
and sale of the Purchased Shares and the Warrants and except as disclosed in
Section 3.7(b) and 3.7(c) of the Company Disclosure Schedule, there are no
outstanding options, warrants, script rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities, rights or
obligations convertible into or exchangeable for, or giving any Person any
right to subscribe for or acquire, any shares of Common Stock, or contracts,
commitments, understandings or arrangements by which the Company or any
Subsidiary is or may become bound to issue additional shares of Common Stock,
or securities or rights convertible or exchangeable into shares of Common Stock.
Except as set forth on Section 3.7(b) of the Company Disclosure Schedule, the
issuance and sale of the Purchased Shares, the Warrants, and the Additional
Warrants and the issuance of the Underlying Shares upon exercise or conversion
thereof will not obligate the Company to issue shares of Common Stock or other
securities to any Person (other than the Purchasers) and will not result in a
right of any holder of Company securities to adjust the exercise, conversion,
exchange or reset price under such securities. Except as set forth on Section
3.7(b) of the Company Disclosure Schedule, no anti-dilution rights of any
capital stock or other securities issued by the Company shall be triggered as a
result of the transactions contemplated hereby. To the Knowledge of the
Company, except as specifically disclosed in Section 3.7(b) of the Company
Disclosure Schedule, no Person or group of related Persons beneficially owns
(as determined pursuant to Rule 13d-3 under the Exchange Act), or has the right
to acquire, by agreement with or by obligation binding upon the Company,
beneficial ownership of in excess of 5% of the outstanding Common Stock,
ignoring for such purposes any limitation on the number of shares of Common
Stock that may be owned at any single time.


 


(c)           Set forth in Section
3.7(c) of the Company Disclosure Schedule is a complete and accurate list of
all securities of the Company that are entitled to preemptive, registration or
similar rights accompanied by a description of such rights. No Person has any
right of (i) first refusal, preemptive right, right of participation, or any
similar right to participate in the issuance and sale of the Purchased Shares,
Warrants and the Additional Warrants and the issuance of the Underlying Shares
upon exercise or conversion thereof in the transactions contemplated by the
Transaction Documents or (ii) registration with respect to the registration of
the Underlying Shares under the Securities Act.


 


(d)           The Purchased Shares,
the Warrants, the Additional Warrants and the Underlying Shares are duly
authorized, and when issued and sold to the Purchasers after payment therefor,
will be validly issued, fully paid and non-assessable, will be issued in
compliance with the registration and qualification requirements of all
applicable federal, state, provincial, and foreign securities laws and will be
free and clear of all other Liens, other than any Liens created by the
Purchasers. Upon the First Tranche Closing, each Purchased Share shall have the
rights, preferences, privileges and restrictions set forth in the Certificate
of Designation. The Underlying Preferred Shares issuable upon conversion of the
Purchased Shares, the Warrant Shares issuable upon exercise of the Warrants,
and the Additional Warrant Shares issuable upon exercise of the Additional
Warrants have been duly reserved for issuance upon conversion or exercise
thereof and, when issued in compliance with the provisions of the Certificate
of Designation, the Warrants and 


 


17

















 


the
Additional Warrants, will be validly issued, fully paid and non-assessable and
not subject to any preemptive rights or similar rights that have not been
satisfied and will be free and clear of all other Liens, other than any Liens
created by the Purchasers. All of the issued and outstanding shares of the
Company’s capital stock are duly authorized, validly issued, fully paid and
non-assessable, and were issued in compliance with the registration and
qualification requirements of all applicable federal, state, provincial, and
foreign securities laws.


 


(e)           Section 3.7(e) of
the Company Disclosure Schedule sets forth a true and complete list of
(x) each of the Subsidiaries of the Company and (y) the aggregate
number of authorized shares of capital stock of such Subsidiary. The Company
owns all of the issued and outstanding capital stock of the Subsidiaries, free
and clear of all Liens. All of such shares of capital stock are duly
authorized, validly issued, fully paid and non-assessable, and were issued in
compliance with the registration and qualification requirements of all applicable
federal, state, provincial, and foreign securities laws. There are no options,
warrants, conversion privileges, subscription or purchase rights or other
rights presently outstanding to purchase or otherwise acquire any authorized
but unissued, unauthorized or treasury shares of capital stock or other
securities of, or any proprietary interest in, any of the Subsidiaries, and
there is no outstanding security of any kind convertible into or exchangeable
for such shares or proprietary interest.


 


3.8           No Default or
Breach; Contractual Obligations; Restrictions on Business.


 


(a)           Except as set forth on
Section 3.8(a) of the Company Disclosure Schedule, neither the Company nor any
Subsidiary has received notice of a default and is not in material default
under, or with respect to, any Contractual Obligation filed as an exhibit to or
described in the SEC Documents or which is otherwise material to the Condition
of the Company, nor does any condition exist that with notice or lapse of time
or both would constitute a material default thereunder. All of such Contractual
Obligations are valid, subsisting, in full force and effect and binding upon
the Company or such Subsidiary and the other parties thereto, and the Company
or such Subsidiary has paid in full or accrued all amounts due thereunder and
has satisfied in full or provided for all of its liabilities and obligations
thereunder. To the Knowledge of the Company, no other party to any such
Contractual Obligation is in material default thereunder, nor does any condition
exist that with notice or lapse of time or both would constitute a material
default by such other party thereunder. There is no agreement (non-competition
or otherwise), commitment, judgment, injunction, order or decree to which the
Company or any of its Subsidiaries is a party or otherwise binding upon the
Company or any of its Subsidiaries which has or may reasonably be expected to
have the effect of (i) prohibiting or impairing (A) any business
practice of the Company or any of its Subsidiaries, (B) any acquisition of
property (tangible or intangible) by the Company or any of its Subsidiaries, or
(C) the conduct of business by the Company or any of its Subsidiaries, or
(ii) otherwise limiting the freedom of the Company or any of its Subsidiaries,
to engage in any line of business or to compete with any Person. Without
limiting the generality of the foregoing, neither the Company nor any of its
Subsidiaries has entered into any Contract under which the Company or any
Subsidiary is, restricted from selling, licensing, manufacturing or otherwise
distributing any of its Company Intellectual Property or Company or Subsidiary
products or from providing services to customers or potential customers or 


 


18

















 


any class
of customers, in any geographic area, during any period of time, or in any
segment of the market.


 


(b)           Section 3.8(b) of the
Company Disclosure Schedule identifies (i) each Contractual Obligation which
involves prospective fixed and/or contingent payments or expenditures by the
Company or its Subsidiaries of more than $250,000, and (ii) each Contractual
Obligation that is material to the Condition of the Company other than those
filed as an exhibit to or described in the SEC Documents.


 


3.9           Title to Properties. 
The Company has provided Purchasers true, correct and complete copies of all
leases, lease guaranties, subleases, agreements for the leasing, use or
occupancy of, or otherwise granting a right in or relating to property leases
or otherwise occupied by the Company or any of its Subsidiaries (the “Leased Real Property”), including all
amendments, terminations and modifications thereof (the “Lease Agreements”); and there are no other
Lease Agreements for real property to which the Company or any of its
Subsidiaries is bound, other than those identified in the Lease Agreements. All
such Lease Agreements are valid,  in full
force and effect, enforceable in accordance with their terms, and (x) with
respect to the Company and its Subsidiaries under any of such leases, no
rentals are past due and there is no existing default or event of default (or
event which with notice or lapse of time, or both, would constitute a default)
and (y) to the Knowledge of the Company, with respect to any other Person under
any of such leases, no rentals are past due and there is no existing default or
event of default (or event which with notice or lapse of time, or both, would
constitute a default). Neither the Company nor any of its Subsidiaries could be
required to expend more than $50,000 in causing any Leased Real Property to
comply with the surrender conditions set forth in the applicable Lease
Agreement. Neither the Company nor or any of its Subsidiaries have received any
notice of a default, alleged failure to perform, or any offset or counterclaim
with respect to any such Lease Agreement, which has not been fully remedied and
withdrawn. There are no other parties occupying, or with a right to occupy, the
Leased Real Property other than the Company and its Subsidiaries.


 


3.10         SEC Documents; Proxy
Statement; Financial Statements.


 


(a)           Since August 1, 2004,
the Company has filed all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC pursuant to the reporting
requirements of the Exchange Act (all of the foregoing filed prior to the date
hereof and all exhibits included therein and financial statements and schedules
thereto and documents incorporated by reference therein being hereinafter
referred to as the “SEC Documents”).
As of their respective dates, the SEC Documents complied with the requirements
of the Exchange Act and the rules and regulations of the SEC promulgated
thereunder applicable to the SEC Documents, and none of the SEC Documents, at
the time they were filed with the SEC, contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.


 


19
















 


(b)           The proxy or
information statement of the Company to be filed with the SEC in connection
with the transactions contemplated herein (the “Proxy Statement”) and any amendments or supplements thereto
will, when filed, comply as to form with the applicable requirements of the
Exchange Act.  At the time the Proxy
Statement or any amendment or supplement thereto is first mailed to
stockholders of the Company, and at the time such stockholders vote on the
matter as described in Section 8.2, the Proxy Statement, as supplemented
or amended, if applicable, will not contain any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements made therein, in the light of the circumstances under which they
were made, not misleading.  


 


(c)           As of their respective
dates, the Financial Statements of the Company and its Subsidiaries included in
the SEC Documents complied as to form with applicable accounting requirements
and the published rules and regulations of the SEC with respect thereto.  The Financial Statements of the Company have
been prepared in accordance with GAAP, consistently applied, during the periods
involved (except in the case of unaudited interim statements, to the extent
they may exclude footnotes or may be condensed or summary statements) and
fairly present the financial position of the Company and its Subsidiaries as of
the dates thereof and the results of its operations and cash flows for the
periods then ended (subject, in the case of unaudited statements, to normal
year-end audit adjustments).


 


3.11         Taxes.  The
Company and each Subsidiary has timely paid all Taxes which have come due and
are required to be paid by it, and all deficiencies or other additions to Tax,
interest and penalties owed by it in connection with any such Taxes, other than
Taxes being disputed by the Company or any Subsidiary in good faith for which
adequate reserves have been made in accordance with GAAP.  The Company and each Subsidiary have timely
paid or withheld with respect to their employees and other third parties (and
timely paid over any withheld amounts to the appropriate Taxing authority) all
federal, state and provincial income taxes, Federal Insurance Contribution Act
amounts, Federal Unemployment Tax Act amounts and other Taxes required to be
withheld.  The Company and each
Subsidiary has timely filed or caused to be filed all Tax returns, reports,
forms and other such documents (“Tax Returns”)
that it is required to file (including all applicable extensions), and all such
Tax Returns are accurate and complete in all material respects.  With respect to all Tax Returns of the
Company and each Subsidiary, (i) there is no unassessed Tax deficiency
proposed or, to the Knowledge of the Company, threatened against the Company or
any Subsidiary and (ii) no audit is in progress with respect to any Tax
Return, no extension of time is in force with respect to any date on which any
Tax Return was or is to be filed and no waiver or agreement is in force for the
extension of time for the assessment or payment of any Tax.  No claim has ever been made by an authority
in a jurisdiction where the Company or any Subsidiary does not file Tax Returns
that the Company or any Subsidiary is or may be subject to taxation by that
jurisdiction.  All provisions for Tax
liabilities of the Company and its Subsidiaries with respect to the Company’s
Financial Statements have been made in accordance with GAAP consistently
applied, and all liabilities for Taxes of the Company and its Subsidiaries
attributable to periods prior to or ending on the applicable Closing Date have
been adequately provided for on the Company’s Financial Statements, and neither
the Company nor any Subsidiary has incurred any liability for Taxes since the
date of the Company’s most recent Financial Statements prior to the date hereof



 


20

















 


other
than in the ordinary course of business. 
There are no Liens for Taxes on the assets of the Company or any
Subsidiary.  The Company is not a “United
States real property holding corporation” as that term is defined in
Section 897(c)(2) of the Code and the regulations promulgated
thereunder.  Neither the Company nor any Subsidiary has (I) ever been a member of an
affiliated group (within the meaning of Code §1504(a)) filing a consolidated
federal income Tax Return (other than a group the common parent of which was
the Company), (II) ever been a party to any Tax sharing, indemnification
or allocation agreement, nor does the Company or any Subsidiary owe any amount
under any such agreement, or (III) any
liability for the Taxes of any person, including under Treas. Reg. § 1.1502-6
(or any similar provision of state, local or foreign law, including any
arrangement for group or consortium relief or similar arrangement), as a
transferee or successor, by contract, or otherwise.  Neither the
Company nor any Subsidiary has constituted a “distributing corporation” or a “controlled
corporation” in a distribution of stock intended to qualify for tax-free treatment
under Section 355 of the Code. 
Neither the Company nor any Subsidiary has engaged in a
reportable transaction under Treas. Reg. § 1.6011-4(b),
including any transaction that is the same as or substantially similar to one
of the types of transactions that the Internal Revenue Service has determined
to be a tax avoidance transaction and identified by notice, regulation, or
other form of published guidance as a listed transaction, as set forth in Treas. Reg. § 1.6011-4(b)(2).  None of the indebtedness of the Company or
any Subsidiary constitutes (i) “corporate acquisition indebtedness” (as defined
in Section 279(b) of the Code) with respect to which any interest deductions
may be disallowed under Section 279 of the Code (ii) an “applicable high yield
discount obligation” under Section 163(i) of the Code or (iii) a “disqualified
debt instrument” under Section 163(l) of the Code.  


 


3.12         No Material Adverse
Change; Ordinary Course of Business.  Since December 31, 2006,
there has not been any material adverse change in the Condition of the Company
or any Subsidiary and no event has occurred or circumstance exists which may
result in such a material adverse change, except to the extent any such change
results from or is attributable to changes in general economic or political
conditions or changes affecting the industry generally in which the Company or
any Subsidiary operates (provided that such changes do not affect the Company
or any Subsidiary in a disproportionate manner).  Except as set forth in the SEC Documents
filed prior to the date hereof or as set forth on Section 3.12 of the
Company Disclosure Schedule, since December 31, 2006, neither the Company
nor any Subsidiary has (a) participated in any transaction material to the
Condition of the Company or any Subsidiary or otherwise acted outside the
ordinary course of business, (b) increased the compensation of any of its
officers or the rate of pay of any of its employees, except as part of regular
compensation increases in the ordinary course of business, (c) created or
assumed any Lien on a material asset of the Company or any Subsidiary,
(d) entered into any material Contractual Obligation, other than in the
ordinary course of business, (e) sold, assigned or transferred any
Intellectual Property Rights of the Company or any Subsidiary or
(f) entered into any agreement or commitment to do any of the
foregoing.  Since December 31, 2006,
there has not occurred a material change in the Company’s or any Subsidiary’s
accounting principles or practice except as required by reason of a change in
GAAP.


 


3.13         Investment Company. 
The Company is not and is not controlled by or affiliated with an “investment
company” within the meaning of the Investment Company Act of 1940, as
amended.  


 


21

















 


3.14         Private Offering. 
No form of general solicitation or general advertising was used by the Company
or its representatives in connection with the offer, sale or issuance of the
Purchased Shares or the Warrants. 
Provided that the representations of the Purchasers set forth in
Article IV of this Agreement are true, correct and complete, no
registration of the Purchased Shares, the Warrants or the Additional Warrants,
pursuant to the provisions of the Securities Act or any state securities or “blue
sky” laws, will be required by the offer, sale or issuance of the Purchased
Shares, the Warrants or the Additional Warrants.  The Company agrees that neither it, nor
anyone acting on its behalf, shall offer to sell the Purchased Shares, the
Warrants or the Additional Warrants or any other securities of the Company so
as to require the registration of the Purchased Shares, the Warrants, the
Additional Warrants or the Underlying Shares pursuant to the provisions of the
Securities Act or any state securities or “blue sky” laws.


 


3.15         Employment Matters;
Labor Relations.  


 


(a)           The Company and its
Subsidiaries are in compliance, in all material respects, with all Laws
concerning employment, including Laws relating to worker classification, wages
and hours, tax withholding, prohibited discrimination, equal employment, fair
employment practices, safety and health, meal and rest periods, and immigration
status, and neither the Company nor any of its Subsidiaries has any material
liability with respect to any misclassification of:  (i) any Person as an independent
contractor rather than as an employee, (ii) any employee leased from
another employer, or (iii) any employee currently or formerly classified
as exempt from overtime wages.  Except as
set forth in Section 3.15 of the Company Disclosure Schedule, the services
provided by each of the Company’s and its Subsidiaries’ employees is terminable
at the will of the Company and its Subsidiaries and any such termination would
result in no severance or separation pay obligations.  There are no pending, threatened, or
reasonably anticipated actions, suits, charges, claims (including workers’
compensation claims), audits, investigations or administrative matters pending
against the Company or its Subsidiaries relating to any of its respective
employees or independent contractors. 
Neither the Company nor any Subsidiary is party to a conciliation
agreement, consent decree or other agreement or order with any federal, state,
or local agency or governmental authority with respect to employment
practices.  Neither the Company nor any
Subsidiary has taken any action which would constitute a “plant closing” or “mass
layoff” within the meaning of the WARN Act or similar Law, issued any
notification of a plant closing or mass layoff required by the WARN Act or
similar Law, and no terminations prior to each Closing would trigger any notice
or other obligations under the WARN Act or similar Law. 


 


(b)           (i) Neither the Company
nor any Subsidiary has engaged in any unfair labor practices; (ii) there
is (A) no grievance, complaint, or arbitration proceeding arising out of
or under collective bargaining agreements pending or, to the Knowledge of the
Company, threatened against the Company or any Subsidiary, and (B) no
strike, labor dispute, slowdown, concerted refusal to work overtime or stoppage
pending or, to the Knowledge of the Company, threatened against the Company or
any Subsidiary; (iii) neither the Company nor any Subsidiary is a party to
any collective bargaining agreement or contract and no collective bargaining
agreement or similar agreement is being negotiated by the Company or its
Subsidiaries; (iv) there is no union representation question existing with
respect to the employees of the Company or any Subsidiary; (v) no union
has applied 


 


22

















 


to have
the Purchaser or any Subsidiary declared a related employer pursuant to the Labour Relations Act (Ontario)
or any similar legislation in any jurisdiction in which the Company or any
Subsidiary carries on business; and (vi) no union organizing activities
are taking place.  


 


3.16         Employee Benefit Plans. 


 


(a)           Neither the company nor
any Commonly Controlled Entity maintains or contributes to, or has within the
preceding six years maintained or contributed to, or may have any liability
with respect to any Plan subject to Title IV of ERISA or Section 412
of the Code or any “multiple employer plan” within the meaning of the Code or
ERISA.  Each Plan (and related trust,
insurance contract or fund) has been established and administered in all
material respects in accordance with its terms, and complies in all material
respects in form and in operation with the applicable requirements of ERISA and
the Code and other applicable Requirements of Law.  All contributions (including all employer
contributions and employee salary reduction contributions) which are due have
been paid to each Plan.


 


(b)           No Claim with respect
to the administration or the investment of the assets of any Plan (other than
routine claims for benefits) is pending.


 


(c)           Each Plan that is
intended to be qualified under Section 401(a) of the Code is so qualified
and has received a favorable determination letter from the Internal Revenue
Service to such effect and no circumstance, fact or event has occurred or
exists that is reasonably likely to adversely affect the qualified status of
any such Plan.  


 


(d)           No Plan is a Retiree
Welfare Plan.


 


(e)           Neither the execution
of this Agreement nor the consummation of the transactions contemplated by this
Agreement will accelerate the time of the payment or vesting of, or increase
the amount of, compensation due to any employee or former employee or director
or independent contractor.  


 


(f)            There are no unfunded
obligations under any Plan which are not fully reflected on the Company’s
Financial Statements.


 


(g)           No insurance policy or
any other agreement affecting any Plan requires or permits a retroactive
increase in contributions, premiums or other payments due under such insurance
policy or agreement.  The level of
insurance reserves under each Plan is reasonable and sufficient to provide for
all incurred but unreported claims.


 


(h)           Neither the Company nor
any Subsidiary has any liability, whether absolute or contingent, including any
obligations under any Plan, with respect to any misclassification of any person
as an independent contractor rather than as an employee.


 


(i)            No Plan that is
subject to Section 409A of the Code has been materially modified (as defined in
Section 409A of the Code) since October 3, 2004 and all such Plans subject 


 


23

















 


to
Section 409A of the Code have been operated and administered in good faith
compliance with Section 409A of the Code from the period beginning December 31,
2004 through the date hereof.


 


(j)            No awards under any
Plan that provides for granting of equity, equity-based rights, or options to
purchase equity (“Equity Plans”)
have been granted with an effective date that is other than the date on which
the committee or other administrator of such Equity Plans with authority
thereunder to make such awards has taken all necessary corporate action to
grant or complete such awards.  No awards
made under the Equity Plans have been (or will be) altered in any manner that
would result in or have the effect of failing to comply with the foregoing
sentence.


 


3.17         Title to Assets. 
The Company and each Subsidiary owns and has good, valid, and marketable title
to all of its properties and assets used in its business and reflected as owned
on the Company’s Financial Statements or so described in any schedule hereto
(collectively, the “Assets”), in
each case free and clear of all Liens, except for Liens specifically described
on the notes to the Company’s Financial Statements or as set forth on
Section 3.17 of the Company Disclosure Schedule.


 


3.18         Liabilities. 
Neither the Company nor any Subsidiary has any direct or indirect obligation or
liability (“Liabilities”) which if
known would be required to be reflected in the Company’s or any Subsidiary’s
Financial Statements in accordance with GAAP other than (a) Liabilities
fully and adequately reflected or reserved against on the Financial Statements
and (b) except as set forth in the SEC Documents, Liabilities incurred
since December 31, 2006 in the ordinary course of business.  Section 3.18 of the Company Disclosure
Schedule sets forth all of the outstanding Indebtedness of the Company and its
Subsidiaries as of the date hereof.


 


3.19         Intellectual Property. 



 


(a)           (i)            Other than (x) Shrink-Wrap Code and (y) the
Intellectual Property licensed to Company under the licenses set forth on
Section 3.19(a)(i) of the Company Disclosure Schedule, the Company
Intellectual Property constitutes all of the Intellectual Property that is used
in, necessary to or would otherwise be infringed by the operation of the
business of Company and its Subsidiaries as presently conducted and as
contemplated in their respective business plans to be conducted, free and clear
of all Liens.  Without limiting the
foregoing, the Company represents that neither it nor any Subsidiary requires a
license to use any of the patent rights subject to the exclusive license
agreements entered into between the Company and Beacon Power Corporation and
the Company and ERM Thermal Technologies for the operation of the business of
the Company and its Subsidiaries as currently conducted or proposed to be
conducted.  


 


(ii)           Section 3.19(a)(ii)
of the Company Disclosure Schedule sets forth all of the Company Intellectual
Property that is the subject of a filing, registration, application or other
document that the Company or a Subsidiary owns or that is issued, filed with or
recorded by any state, government or other public legal authority in the name
of Company or a Subsidiary.  None of the
Company Intellectual Property listed on Section 3.19(a)(ii) of the Company
Disclosure Schedule is subject to any outstanding Order, and no action, suit,
proceeding, hearing, investigation, charge, 


 


24

















 


complaint,
claim or demand is pending or, to the Knowledge of the Company, threatened,
which challenges the validity, enforceability, use or ownership of the item.


 


(iii)          Section 3.19(a)(iii)
of the Company Disclosure Schedule sets forth all Intellectual Property
licenses, sublicenses, distributor agreements and other agreements or
permissions (“IP Licenses”) under
which the Company or one of its Subsidiaries is either a licensor or licensee
of Intellectual Property (including agreements under which Company or one of
its Subsidiaries is a distributor of a third party’s products or services or
under which a third party is a distributor of the Company’s or one of its
Subsidiaries’ products or services), except that Section 3.19(a)(iii) does not
list IP Licenses that consist of (x) in-bound licenses for Shrink-Wrap
Code, (y) non-disclosure agreements, and (z) non-exclusive end-user
licenses (and related end-user agreements) with respect to the Company’s
products (in each case, pursuant to written agreements that have been entered
into in the ordinary course of business that do not materially differ in
substance from the Company’s standard form(s) including attachments).  The Company or its relevant Subsidiary has
substantially performed all obligations imposed upon it under all IP Licenses,
and is not, nor to the Knowledge of the Company is any other party thereto, in
breach of or default under any IP Licenses in any material respect, nor is
there any event which with notice or lapse of time or both would constitute a
default under any IP License.  All of the
IP Licenses to which Company or one of its Subsidiaries is a party are valid,
enforceable and in full force and effect, and will continue to be so on identical
terms immediately following each Closing except as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, fraudulent
conveyance or transfer, moratorium or similar laws affecting the enforcement of
creditors’ rights generally and by general principles of equity relating to
enforceability (regardless of whether considered in a proceeding at law or in
equity).  


 


(b)           The operation of the
business of Company and its Subsidiaries (including without limitation any
divisions thereof), including in connection with the exploitation of the
Company Intellectual Property and the design, development, use, import,
branding, advertising, promotion, marketing, manufacture and sale of any
products or services, has not, does not, and when conducted following each
Closing in the manner presently contemplated in the respective business plans
of the Company and its Subsidiaries, will not, infringe upon, misappropriate or
otherwise violate any Intellectual Property Rights of others. 


 


(c)           Except as set forth on
Section 3.19(c) of the Company Disclosure Schedule, no litigation is
pending and no Claim has been made against the Company or any Subsidiary or, to
the Knowledge of the Company, is threatened, alleging infringement,
misappropriation or other violation by the Company or any Subsidiary of any
Intellectual Property Rights of others (nor does the Company or any Subsidiary
have Knowledge of any reasonable basis therefor).


 


(d)           To the Knowledge of the
Company, no Person is infringing upon, misappropriating or otherwise violating
the Company Intellectual Property.


 


(e)           All the Company
Intellectual Property is valid and enforceable. 
Except as set forth on Section 3.19(e) of the Company Disclosure
Schedule, the Company and its Subsidiaries 


 


25

















 


have
taken all necessary and desirable actions to maintain and protect each item of
Company Intellectual Property Rights, and to protect the secrecy,
confidentiality and value of the Company’s and its Subsidiaries’ Trade Secrets.


 


(f)            No former employer of
any employee of the Company or any Subsidiary, and no current or former client
of any consultant of the Company or any Subsidiary, has made a claim against
the Company or any Subsidiary or, to the Knowledge of the Company, against any
other Person, that such employee or such consultant is utilizing Intellectual
Property of such former employer or client.


 


(g)           Neither the Company nor
any Subsidiary is a party to or bound by any license or other agreement
requiring the payment by the Company or any Subsidiary of any royalty payment,
excluding such agreements relating to Shrink-Wrap Code licensed for use solely
on the computers of the Company or any Subsidiary.


 


(h)           No employee of the
Company or any Subsidiary is in violation of any Requirement of Law applicable
to such employee relating to the Company Intellectual Property, or any term of
any employment agreement, patent or invention disclosure agreement or other
contract or agreement relating to the Company Intellectual Property and the
relationship of such employee with the Company or any Subsidiary or any prior
employer.  


 


(i)            Except as set forth on
Section 3.19(i) of the Company Disclosure Schedule, none of the Company’s
or any Subsidiary’s Trade Secrets, wherever located, has been disclosed to any
Person other than employees, representatives and agents of the Company and its
Subsidiaries, except as required pursuant to the filing of a patent application
by the Company or any Subsidiary.


 


(j)            Except as set forth on
Section 3.19(j) of the Company Disclosure Schedule, no director, officer,
employee or consultant of the Company or any Subsidiary (or persons the Company
or any Subsidiary presently intends to hire) owns any Intellectual Property
that is used in, necessary to or would otherwise be infringed by the operation
of the business of Company and its Subsidiaries as presently conducted and as
contemplated in their respective business plans to be conducted.  Except as set forth on Section 3.19(j)
of the Company Disclosure Schedule, at no time during the conception or
reduction to practice of any of the Company’s or any Subsidiary’s Intellectual
Property was any developer, inventor or other contributor to such Intellectual
Property operating under any grants from any Governmental Authority or subject to
any employment agreement, invention assignment, nondisclosure agreement or
other Contractual Obligation with any Person that could adversely affect the
Company’s or any Subsidiary’s rights to the Company Intellectual Property.


 


(k)           All present and former
employees, consultants and other Person who have developed, or who have any
employment or contractual responsibilities that include the development of, any
Intellectual Property for the Company or any of its Subsidiaries, have executed
and delivered valid and enforceable proprietary invention agreements with the
Company or such Subsidiary, and are obligated under the terms thereof to assign
all right, title and interest to any Intellectual Property 


 


26

















 


developed
by such Person in connection with such Person’s employment or contract to the
Company or any Subsidiary.  Except as set
forth on Section 3.19(k) of the Company Disclosure Schedule, no such
employee, consultant or other Person has excluded works or inventions made
prior to his employment with or work for the Company or such Subsidiary from
his assignment of inventions pursuant to such proprietary invention agreements.


 


(l)            The Company and its
Subsidiaries do not use any information they collect from web site visitors or
other parties in an unlawful manner or in a manner that in any way violates a
stated privacy policy of the Company or any Subsidiary or the privacy rights of
their customers.


 


(m)          (i)  Except as set forth on Section 3.19(m)(i) of
the Company Disclosure Schedule, (a) no government funding, facilities or
resources of a university, college, other educational institution or research
center or funding from third parties was used in the development of the Company
Intellectual Property and (b) no federal, state, county, local or other U.S or
foreign governmental authority, instrumentality, agency or commission, or
university, college, other educational institution or research center has any
claim or right in or to the Company Intellectual Property.  The Company has complied with all material
grant terms and other material requirements, terms and conditions associated
with the foregoing and has not (x) received any notice from any Person that it
is in default of any such requirements, terms or conditions or (y) received any
notice that any Person intends to seek a compulsory license, exercise “march-in”
rights, or take any similar adverse action in connection with any of the
foregoing.  


 


(ii) Except as set forth
on Section 3.19(m)(ii) of the Company Disclosure Schedule, no current or former
employee, consultant or independent contractor of the Company or any of its
Subsidiaries who was involved in, or who contributed to, the creation or
development of any Company Intellectual Property, has performed services for
the government, a university, college or other educational institution, or a
research center, during a period of time during which such employee, consultant
or independent contractor was also performing services for the Company or any
of its Subsidiaries.  In no instance has
any government, university, college or other educational institution or
research center thereby become entitled to any right, title or interest in any
Company Intellectual Property.  


 


(n)           Except as set forth on
Section 3.19(n) of the Company Disclosure Schedule, no past or current
Company or Subsidiary product (including any Company or Subsidiary product
currently under development) contains any code that is, in whole or in part,
subject to the provisions of any license to Publicly Available Software (as
defined below). Except as set forth on Section 3.19(n) of the Company
Disclosure Schedule, all Publicly Available Software used by the Company or any
Subsidiary has been used in its entirety and without modification.  Neither the Company nor any Subsidiary has
incorporated or otherwise used Publicly Available Software in a manner that
would (i) require, or condition the use or distribution of any Company
Intellectual Property on the disclosure, licensing or distribution of any
source code for any portion of such Company Intellectual Property, or
(ii) otherwise impose any limitation, restriction or condition on the
right or ability of the Company or any Subsidiary to use or distribute any
Company Intellectual Property owned by the Company or any Subsidiary or any
Company or Subsidiary products.


 


27

















 


“Publicly Available Software” means (i) any software
that contains, or is derived in any manner (in whole or in part) from, any software
that is distributed as free software, open source software (e.g., GNU General
Public License, Apache Software License), or pursuant to similar licensing and
distribution models; and (ii) any software that requires as a condition of
use, modification, and/or distribution of such software that such software or
other software incorporated into, derived from, or distributed with such
software (a) be disclosed or distributed in source code form; (b) be
licensed for the purpose of making derivative works; or (c) be
redistributable at no or minimal charge.


 


(o)           No computer software
and code that is Company Intellectual Property has been disclosed, delivered or
licensed to any escrow agent or other person in source-code form(together with
any related programmer comments and annotations, help text, data and data
structures, instructions and procedural, object-oriented and other code, which
may be printed out or displayed in human readable form, “Source Code.”  No event has occurred, and no circumstance or
condition exists, that (with or without notice or lapse of time, or both) will,
or would reasonably be expected to, result in the disclosure or delivery by the
Company, any of its Subsidiaries or any person acting on their behalf to any
person of any Source Code that is Company Intellectual Property.  


 


(p)           The Company’s inverter
technology and related patents was not developed pursuant to any Government
Contract or any grant or subsidy with any Governmental Authority.


 


3.20         Trade Relations. 
Except as set forth on Section 3.20 of the Company Disclosure Schedule,
since December 31, 2006, no customer or supplier or group of customers or
suppliers whose purchases or inventories provided to the Company’s or any
Subsidiary’s business are individually or in the aggregate material to the
Condition of the Company or any Subsidiary has (i) terminated, cancelled or
limited, (ii) made any adverse modification or change to or (iii) to the
Knowledge of the Company, threatened termination, cancellation or limitation
of, the business relationship of the Company, or the business of the Company or
any Subsidiary.  Section 3.20 of the
Company Disclosure Schedule sets forth a complete and accurate list of the
Company’s sales orders which have not yet been processed, or backlog.  


 


3.21         Insurance. 
The Company and each Subsidiary maintains and will continue to maintain
insurance of the types and in the amounts that the Company reasonably believes
are adequate for its business, including, but not limited to, directors and
officers insurance (“D&O Policies”)
and insurance covering all real and personal property owned or leased by the
Company or any Subsidiary against theft, damage, destruction, acts of vandalism
and all other risks customarily insured against in the industry, all of which insurance
is in full force and effect. 
Section 3.21 of the Company Disclosure Schedule sets forth a
description and the amounts of the Company’s D&O Policies.  


 


3.22         Environmental Matters. 
The Company and each Subsidiary is and has conducted its Hazardous Materials
Activities in compliance with all applicable Environmental Laws.  Except as set forth on Section 3.22 of the
Company Disclosure Schedule, there is no civil, criminal or administrative
judgment, action, suit, demand, claim, hearing, notice of violation,
investigation, 


 


28

















 


proceeding,
notice or demand letter pending or, to the Knowledge of the Company or any
Subsidiary, threatened against the Company or any Subsidiary pursuant to
Environmental Laws and there are no past or present events, conditions,
circumstances, activities, practices, incidents, agreements, actions or plans
which could reasonably be expected to prevent compliance with, or which have
given rise to or will give rise to liability under, Environmental Laws.  As of each Closing, except in compliance with
Environmental Laws and in a manner that could not reasonably be expected to
subject the Company or any of its Subsidiaries to liability, no Hazardous
Materials are present on any facility currently owned, operated, occupied,
controlled or leased by the Company or any of its Subsidiaries or were present
on any other facility at the time it ceased to be owned, operated, occupied,
controlled or leased by the Company.  The
Hazardous Materials Activities of the Company and its Subsidiaries prior to
each Closing have not resulted in the exposure of any person to a Hazardous
Material in a manner which has caused or could reasonably be expected to cause
an adverse health effect to any such person. 
Neither the Company nor any Subsidiary has entered into any agreement
that may require it to guarantee, reimburse, pledge, defend, hold harmless or
indemnify any other party with respect to liabilities arising out of
Environmental Laws, or the Hazardous Materials Activities of the Company, any
of its Subsidiaries or any other Person. 
The Company and its Subsidiaries have registered as a “producer” where
required in accordance with European Directive 2002/95/EC on the restriction of
the use of certain hazardous substances in electrical and electronic equipment
(“RoHS Directive”) and European
Directive 2002/96/EC on waste electrical and electronic equipment (“WEEE Directive”).  The Seller Parties and the Purchased
Companies have verified with its suppliers that all products that the Company
and its Subsidiaries acquire from its suppliers and sell into the EU comply
with the RoHS Directive.  


 


3.23         Related Party
Transactions.  Except as described in the SEC Documents or except as
contemplated hereby, there are no existing material arrangements or proposed
material transactions between the Company or any Subsidiary and (i) any
officer, director or equityholder of the Company or any Subsidiary or any
member of the immediate family of any of the foregoing Persons or (ii) any
business (corporate or otherwise) which any of the foregoing Persons owns,
directly or indirectly, or in which any of the foregoing Persons has an
ownership interest, or which would otherwise be required to be disclosed
pursuant to Item 404 of Regulation S-K under the Securities Act.


 


3.24         Broker’s, Finder’s or
Similar Fees.  Except as set forth on Section 3.24 of the Company
Disclosure Schedule, there are no brokerage commissions, finder’s fees or
similar fees or commissions payable by the Company in connection with the
transactions contemplated hereby based on any agreement, arrangement or
understanding with the Company or any action taken by any such Person.


 


3.25         Internal Controls and
Compliance with the Sarbanes-Oxley Act.  The Company, its Subsidiaries
and the Board of Directors are in compliance with the Sarbanes-Oxley Act of
2002 and all rules and regulations promulgated thereunder (“Sarbanes-Oxley”) and the rules and
regulations of the Nasdaq Stock Market. 
Except as disclosed in Section 3.25 of the Company Disclosure
Schedule, the Company and its Subsidiaries maintain a system of internal
controls, including, but not limited to, disclosure controls and procedures,
internal controls over accounting matters and financial reporting, an internal
audit function and legal and regulatory compliance controls 


 


29

















 


(collectively,
“Internal Controls”) that comply
with the Securities Act, the Exchange Act, Sarbanes-Oxley, the auditing
principles, rules, standards and practices applicable to auditors of “issuers”
(as defined in Sarbanes-Oxley) promulgated or approved by the Public Company
Accounting Oversight Board and the rules and regulations of the Nasdaq Stock
Market and are sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management’s general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with GAAP and to maintain accountability
for assets, (iii) access to assets is permitted only in accordance with
management’s general or specific authorization and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.  The Internal Controls are overseen by the
Audit Committee of the Board of Directors (the “Audit Committee”) in accordance with the rules and regulations
of the Nasdaq Stock Market.  The Company
has not publicly disclosed or reported to the Audit Committee or the Board of
Directors, and within the next 135 days the Company or any Subsidiary does not
reasonably expect to publicly disclose or report to the Audit Committee or the
Board of Directors, a significant deficiency, material weakness, change in
Internal Controls or fraud involving management or other employees who have a
significant role in Internal Controls, any violation of, or failure to comply
with, the Securities Laws, or any matter which, if determined adversely, would
have a material adverse effect on the Condition of the Company or any
Subsidiary.  


 


3.26         Solvency. 
The Company or any Subsidiary has not: (i) made a general assignment for the
benefit of creditors; (ii) filed any voluntary petition in bankruptcy or
suffered the filing of any involuntary petition by its creditors; (iii)
suffered the appointment of a receiver to take possession of all, or
substantially all, of its assets; (iv) suffered the attachment or other
judicial seizure of all, or substantially all, of its assets; (v) admitted in
writing its inability to pay its debts as they come due; or (vi) made an offer
of settlement, extension or composition to its creditors generally.  


 


3.27         Government Contracts
and Government Bids.  


 


(a)           Except as set forth on
Section 3.27 of the Disclosure Schedule, since September 1, 2001, the Company
and the Subsidiaries has been legally and validly awarded each of the
Government Contracts.  Neither the
Company nor any of its Subsidiaries is subject to any financing arrangement or
assignment of proceeds or claims with respect to the performance of any
Government Contract.  Neither the Company
nor any of its Subsidiaries is a party to any Government Contract which
requires the Company or any of its Subsidiaries to obtain or maintain a
security clearance with any Governmental Authority.  Section 3.27 of the Disclosure Schedule
identifies (i) each fixed price Government Contract which involves prospective
payments or expenditures by the Company or its Subsidiaries of more than
$250,000, and (ii) each Government Contract that is material to the Condition
of the Company other than those filed as an exhibit to or described in the SEC
Documents.  Neither the Company nor any
of its Subsidiaries has received and no basis exists for any of the following
with respect to any of their Government Contracts: (i) a Termination For
Default, (ii) a Termination for Convenience, (iii) a cure or show cause notice,
(iv) a no cost termination, (v) the rescission or cancellation of any contract,
(vi) a Stop-Work or Suspension of Work Order; (vii) the assessment of damages
against the Company or its Subsidiaries, 


 


30

















 


(viii)
any price reductions against the Company or its Subsidiaries for defective cost
or pricing data or, for any GSA Schedule Contract, for incorrect cost or
pricing information or data or (ix) a claim for recoupment or setoff of
payments previously made to the Company or its Subsidiaries.  


 


(b)           All facts set forth by
the Company or its Subsidiaries in any certification, representation or
disclosure, and all test and inspection results, submitted by the Company or
its Subsidiaries with respect to any Government Contract or Government Bid were
current, accurate and complete in all material respects as of the date of
submission and the Company and its Subsidiaries has complied with such
certifications, representations, disclosures, tests and inspections.  


 


3.28         Export Controls. 
Except as set forth in Section 3.28 of the Company Disclosure Schedule,
the Company and each Subsidiary has been and is in compliance in all material
respects with all United States or foreign import and export laws and
regulations (including without limitation those laws under the authority of U.S.
Departments of Commerce (Bureau of Industry and Security) codified at 15 CFR,
Parts 700-799, Homeland Security (Customs and Border Protection) codified at 19
CFR, Parts 1-199, State (Directorate of Defense Trade Controls) codified at 22
CFR, Parts 103, 120-130 and Treasury (Office of Foreign Assets Control)
codified at 31 CFR, Parts 500-599). 
Except as set forth in Section 3.28 of the Company Disclosure
Schedule, neither the Company nor any Subsidiary has, within the last five
years, violated in any material respect any United States or foreign import or
export laws, been the subject of an investigation or inquiry or subject to
civil or criminal penalties imposed by a Governmental Authority or made a
voluntary disclosure with respect to violations of such laws.  Schedule 3.28 of the Company Disclosure
Schedule sets forth all valid and pending export control licenses, agreements
and/or approvals required to be amended, assumed or transferred as a result of,
or in connection with, the transactions contemplated hereby.  


 


3.29         Foreign Corrupt
Practices Act.  The Company, the Subsidiaries and, to the Knowledge of
the Company, their employees are in compliance with the U.S. Foreign Corrupt
Practices Act, as amended, including without limitation the books and records
provisions thereof.


 


3.30         Existing Notes. 
The Existing Notes (including all interest accrued thereunder) have been repaid
in full and have been cancelled and are of no further force and effect.  All Liens securing the Existing Notes
(including without limitation the Liens securing the collateral described in
that certain Security Agreement by and among the Company and the Purchasers (as
defined therein), dated July 19, 2006) have been discharged and terminated
(including without limitation the filing of Uniform Commercial Code termination
statements).  The former holders of the
Existing Notes have no further Lien on or security interest in any of the
property or assets of the Company or the Subsidiaries.  


 


3.31         Full Disclosure. 
The statements by the Company contained in this Agreement, the exhibits to this
Agreement, the certificates and documents required to be delivered by the
Company and its Subsidiaries to the Purchasers under this Agreement and in the
information delivered to the Purchasers and its representatives, taken together
as a whole, do not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements contained 


 


31

















 


in this
Agreement and any other Transaction Documents not materially misleading in
light of the circumstances under which such statements were made.  


 


ARTICLE IV



REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS


 


Each of the Purchasers hereby represents and warrants,
severally and not jointly, to the Company as of the date hereof and as of the
applicable Closing Date as follows:  


 


4.1           Existence and Power. 
Such Purchaser (a) is a limited partnership, corporation, partnership or
limited liability company duly organized and validly existing under the laws of
the jurisdiction of its formation and (b) has the requisite partnership,
corporate or limited liability company, as the case may be, power and authority
to execute, deliver and perform its obligations under this Agreement and each
of the other Transaction Documents to which it is a party.


 


4.2           Authorization; No
Contravention.  The execution, delivery and performance by such
Purchaser of this Agreement and each of the other Transaction Documents to
which it is a party and the transactions contemplated hereby and thereby,
(a) have been duly authorized by all necessary partnership, corporate or
limited liability company, as the case may be, action, (b) do not
contravene the terms of such Purchaser’s organizational documents, or any
amendment thereof, (c) do not violate, conflict with or result in any
breach or contravention of, or the creation of any Lien under, any Contractual
Obligation of such Purchaser or any Requirement of Law applicable to such
Purchaser, and (d) do not violate any Orders of any Governmental Authority
against, or binding upon, such Purchaser.


 


4.3           Governmental
Authorization; Third Party Consents.  No approval, consent,
compliance, exemption, authorization or other action by, or notice to, or
filing with, any Governmental Authority or any other Person, and no lapse of a
waiting period under any Requirement of Law, is necessary or required in
connection with the execution, delivery or performance (including, without
limitation, the purchase of the Purchased Shares or the Warrants) by, or
enforcement against, such Purchaser of this Agreement and each of the other
Transaction Documents to which it is a party or the transactions contemplated
hereby and thereby.


 


4.4           Binding Effect. 
This Agreement and each of the other Transaction Documents to which it is a
party have been duly executed and delivered by such Purchaser and constitutes
the legal, valid and binding obligations of such Purchaser, enforceable against
it in accordance with its terms, except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, fraudulent conveyance or
transfer, moratorium or similar laws affecting the enforcement of creditors’
rights generally or by equitable principles relating to enforceability (regardless
of whether considered in a proceeding at law or in equity).


 


4.5           Purchase for Own
Account.  The Purchased Shares and the Warrants (and, if applicable,
the Additional Warrants) to be purchased by such Purchaser pursuant to this
Agreement 


 


32

















 


are
being or will be acquired for its own account and with no intention of
distributing or reselling such Purchased Shares, Warrants, Additional Warrants
or Underlying Shares or any part thereof in any transaction that would be in
violation of the securities laws of the United States of America, any state of
the United States or any foreign jurisdiction, without prejudice, however, to
the rights of such Purchaser at all times to sell or otherwise dispose of all or
any part of such Purchased Shares, Warrants, Additional Warrants or Underlying
Shares under an effective registration statement under the Securities Act, or
under an exemption from such registration available under the Securities Act,
and subject, nevertheless, to the disposition of such Purchaser’s property
being at all times within its control. 
If such Purchaser should in the future decide to dispose of any of such
Purchased Shares, Warrants, Additional Warrants or Underlying Shares, such
Purchaser understands and agrees that it may do so only in compliance with the
Securities Act and applicable state and foreign securities laws, as then in
effect.  Such Purchaser agrees to the
imprinting, so long as required by law, of a legend on certificates representing
all of its Purchased Shares, Warrants, Additional Warrants and Underlying
Shares, to the following effect:


 


THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”),
OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY FOREIGN
JURISDICTION.  THE SECURITIES MAY NOT BE
TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH
ACT AND APPLICABLE STATE AND FOREIGN SECURITIES LAWS OR PURSUANT TO AN APPLICABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS.


 


4.6           Restricted
Securities.  Such Purchaser understands that the Purchased Shares, the
Warrants and, if applicable, the Additional Warrants to be issued to the
Purchasers pursuant to this Agreement will not be registered at the time of
their issuance under the Securities Act for the reason that the sale provided
for in this Agreement is exempt pursuant to Section 4(2) of the Securities
Act and that the reliance of the Company on such exemption is predicated in
part on such Purchaser’s representations set forth herein.


 


4.7           Accredited Investor. 
Such Purchaser is an “Accredited Investor” within the meaning of Rule 501
of Regulation D under the Securities Act, as presently in effect.


 


4.8           Broker’s, Finder’s
or Similar Fees.  There are no brokerage commissions, finder’s fees or
similar fees or commissions payable by such Purchaser in connection with the
transactions contemplated hereby based on any agreement, arrangement or
understanding with such Purchaser or any action taken by such Purchaser.


 


4.9           Stock Ownership. 
Neither such Purchaser, nor any other Person whose beneficial ownership of
Common Stock would be aggregated with such Purchaser in accordance with Section
13(d) of the Exchange Act, beneficially own any shares of Common Stock
immediately prior to the First Tranche Closing. 



 


33

















 


ARTICLE V



CONDITIONS TO THE OBLIGATION

OF THE PURCHASERS TO CLOSE


 


5.1           First Tranche
Closing.  The obligation of the Purchasers at the First Tranche
Closing (1) to purchase the Purchased Shares and the First Tranche Warrants set
forth under the heading “First Tranche Closing” on Exhibit A hereto, (2)
to pay the purchase price therefor at the First Tranche Closing and (3) to
perform any obligations hereunder shall be subject to the satisfaction as
determined by, or waiver by, each of the Purchasers of the following conditions
on or before the First Tranche Closing Date. 



 


(a)           Representations and
Warranties.  The representations and warranties of the Company
contained in Article III hereof shall be true and correct on and as of the
date of this Agreement and on and as of the First Tranche Closing Date as if
made on and as of such date, except for those representations and warranties
that are expressly limited by their terms to dates or times other than the
First Tranche Closing Date, which representations or warranties need only be
true and correct as aforesaid as of such other dates or times.  


 


(b)           Covenants. 
The Company shall have performed and complied with all of its covenants and
agreements set forth herein that are required to be performed by the Company on
or before the First Tranche Closing Date. 



 


(c)           Officer’s
Certificate.  The Purchasers shall have received a certificate from
the Company, in form and substance satisfactory to the Purchasers, dated the
First Tranche Closing Date, and signed by the Chief Executive Officer and Vice
President of Finance of the Company, certifying as to the matters set forth in
Sections 5.1(a) and 5.1(b).  


 


(d)           Secretary’s
Certificate.  The Purchasers shall have received a certificate from
the Company, in form and substance satisfactory to the Purchasers, dated the
First Tranche Closing Date and signed by the Secretary or an Assistant
Secretary of the Company, certifying (a) that the Company is in good
standing with the Secretary of State of the State of Delaware, (b) that
the attached copies of the Certificate of Incorporation, the By-laws and
resolutions of the Board of Directors of the Company approving this Agreement
and each of the other Transaction Documents and the transactions contemplated
hereby and thereby, are all true, complete and correct and remain unamended and
in full force and effect and (c) as to the incumbency and specimen
signature of each officer of the Company executing this Agreement, each other
Transaction Document and any other document delivered in connection herewith on
behalf of the Company.  


 


(e)           Filing of
Certificate of Designation.  The Certificate of Designation in
substantially the form attached hereto as Exhibit E, shall have
been duly filed by the Company with the Secretary of State of the State of
Delaware in accordance with the General Corporation Law of the State of
Delaware, and the Purchasers shall have received evidence of such filing in
form and substance reasonably satisfactory to the Purchasers.  


 


34

















 


(f)            Certificates of
Good Standing.  The Company shall have delivered to each of the
Purchasers a long-form certificate of good standing from the Secretary of State
of the State of Delaware, and a good standing certificate from each
jurisdiction in which the Company and its Subsidiaries are qualified to do
business, each of which is to be dated within a reasonable period prior to
Closing.


 


(g)           Purchased Shares. 
The Company shall have delivered to each of the Purchasers certificates in
definitive form representing the number of Purchased Shares being purchased by
such Purchaser (as set forth on Exhibit A hereto under the heading “First
Tranche Closing”) registered in the name of such Purchaser.  


 


(h)           First Tranche
Warrants.  The Company shall have duly executed and delivered to each
of the Purchasers the First Tranche Warrants in definitive form exercisable for
the number of Warrant Shares set forth on Exhibit A hereto under the
heading “First Tranche Closing.”  


 


(i)            Registration Rights
Agreement.  The Company shall have duly executed and delivered the
Registration Rights Agreement in substantially the form attached hereto as Exhibit F.  


 


(j)            Indemnification
Agreements.  The Company shall have duly executed and delivered to
each of the designees of the Purchasers elected or appointed to the Board of
Directors pursuant to Section 8.3 hereof an indemnification agreement
substantially in the form attached hereto as Exhibit G.  


 


(k)           Opinion of Counsel. 
The Purchasers shall have received an opinion of Greenberg Traurig, LLP, dated
the First Tranche Closing Date, relating to the transactions contemplated by or
referred to herein, substantially in the form attached hereto as Exhibit H.  


 


(l)            No Material Adverse
Change.  Since the date hereof, there shall have been no material
adverse change in the Condition of the Company or any Subsidiary.


 


(m)          Consents and
Approvals.  All consents, exemptions, authorizations, or other actions
by, or notice to, or filings with, Governmental Authorities and other Persons
in respect of all Requirements of Law and with respect to those Contractual
Obligations of the Company which are necessary or required in connection with
the execution, delivery or performance by, or enforcement against, the Company
of this Agreement and each of the other Transaction Documents shall have been
obtained and be in full force and effect, and the Purchasers shall have been
furnished with appropriate evidence thereof and all applicable waiting periods
shall have expired without any action being taken or threatened which would
have a material adverse effect on the Condition of the Company or any
Subsidiary.  


 


(n)           No Material Judgment
or Order.  There shall not be on the First Tranche Closing Date any
Order of a court of competent jurisdiction or any ruling of any Governmental
Authority or any condition imposed under any Requirement of Law which would
(a) prohibit or restrict (i) the purchase of the Purchased Shares,
the First Tranche Warrants or the Additional Warrants or the 


 


35

















 


issuance
of the Underlying Shares upon exercise or conversion thereof or (ii) the
consummation of the transactions contemplated by this Agreement,
(b) subject the Purchasers to any material penalty or onerous condition
under or pursuant to any Requirement of Law if the Purchased Shares, the First
Tranche Warrants or the Additional Warrants were to be purchased hereunder or
the Underlying Shares issued upon exercise or conversion thereof or
(c) restrict the operation of the business of the Company or any
Subsidiary as conducted on the date hereof in a manner that would have a
material adverse effect on the Condition of the Company or any Subsidiary.


 


(o)           No Litigation. 
No action, suit, proceeding, claim or dispute shall have been brought or
otherwise arisen at law, in equity, in arbitration or before any Governmental
Authority against the Company or any Subsidiary which would, if adversely
determined (a) have a material adverse effect on the Condition of the
Company or any Subsidiary or (b) have a material adverse effect on the
ability of the Company to perform its obligations under this Agreement or each
of the other Transaction Documents.  No
action, suit, proceeding, claim or dispute shall have been brought or otherwise
arisen at law, in equity, in arbitration or before any Governmental Authority
against the Company or any Subsidiary that challenges or seeks to make illegal
the transactions contemplated by this Agreement.  


 


(p)           No Delisting Notice. 
The Company shall not have received any notice from the Nasdaq Stock Market
that the Company may be delisted, which notification has not been resolved in
favor of the Company.  


 


(q)           Board of Directors. 
The Board of Directors shall be comprised of nine (9) directors and the Company
shall have caused David Prend and Philip Deutch to have been elected or
appointed to the Board of Directors effective as of the First Tranche Closing
(with Mr. Deutch being appointed to Class II and Mr. Prend being appointed to
Class III).  


 


(r)            Committees. 
Effective as of the First Tranche Closing, the Board of Directors shall have
appointed at least one designee of RockPort or NGP to the corporate governance
and nominating committee and the compensation committee of the Board of
Directors pursuant to Section 8.3(f). 
The Board of Directors shall, if necessary, have amended the charters to
the corporate governance and nominating committee and the compensation
committee to permit a director who is determined by the Board of Directors not
to be “independent” to serve on such committees under “exceptional and limited
circumstances” (as determined in accordance with the rules and regulations of
the Nasdaq Stock Market).  


 


(s)           Existing Notes. 
The Existing Notes (including all interest accrued thereunder) shall have been
repaid in full and shall have been cancelled and be of no further force and
effect.  All Liens securing the Existing
Notes (including without limitation the Liens securing the collateral described
in that certain Security Agreement by and among the Company and the Purchasers
(as defined therein), dated July 19, 2006) shall have been discharged and
terminated (including without limitation the filing of Uniform Commercial Code
termination statements) and the Purchasers shall have received evidence of the
discharge and termination of such Liens in form and substance reasonably satisfactory
to the Purchasers.  


 


36

















 


(t)            Reimbursement of
Expenses.  The Company shall have tendered payment for reimbursement
of all out-of-pocket fees and expenses incurred by the Purchasers in accordance
with Sections 2.1(c) and 11.12.  


 


5.2           Second Tranche
Closing.  The obligation of the Purchasers at the Second Tranche
Closing (1) to purchase the Purchased Shares and the Second Tranche Warrants
set forth under the heading “Second Tranche Closing” on Exhibit A
hereto, (2) to pay the purchase price therefor at the Second Tranche Closing
and (3) to perform any obligations hereunder shall be subject to the
satisfaction as determined by, or waiver by, each of the Purchasers of the
following conditions on or before the Second Tranche Closing Date.  


 


(a)           Representations and
Warranties.  The representations and warranties of the Company
contained in Article III hereof shall be true and correct in all material
respects (except for any such representations and warranties which are
qualified by their terms by a reference to materiality or material adverse
effect, which representation as so qualified shall be true and correct in all
respects) on and as of the date of this Agreement and on and as of the Second
Tranche Closing Date as if made on and as of such date, except for those
representations and warranties that are expressly limited by their terms to
dates or times other than the Second Tranche Closing Date, which
representations or warranties need only be true and correct as aforesaid as of
such other dates or times.  


 


(b)           Covenants. 
The Company shall have performed and complied with all of its covenants and
agreements set forth herein that are required to be performed by the Company on
or before the Second Tranche Closing Date. 



 


(c)           Officer’s
Certificate.  The Purchasers shall have received a certificate from
the Company, in form and substance satisfactory to the Purchasers, dated the
Second Tranche Closing Date, and signed by the Chief Executive Officer and Vice
President of Finance of the Company, certifying as to the matters set forth in
Sections 5.2(a) and 5.2(b).  


 


(d)           Secretary’s
Certificate.  The Purchasers shall have received a certificate from
the Company, in form and substance satisfactory to the Purchasers, dated the
Second Tranche Closing Date and signed by the Secretary or an Assistant
Secretary of the Company, certifying (a) that the Company is in good
standing with the Secretary of State of the State of Delaware, (b) that
the attached copies of the Certificate of Incorporation, the By-laws and
resolutions of the Board of Directors of the Company approving this Agreement
and each of the other Transaction Documents and the transactions contemplated
hereby and thereby, are all true, complete and correct and remain unamended and
in full force and effect and (c) as to the incumbency and specimen
signature of each officer of the Company executing this Agreement, each other
Transaction Document and any other document delivered in connection herewith on
behalf of the Company.


 


(e)           Filing of
Certificate of Amendment and Certificate of Designation.  The
Certificate of Amendment in substantially the form attached hereto as Exhibit D-2
and the Certificate of Designation in substantially the form attached hereto as
Exhibit E, shall have been 


 


37

















 


duly
filed by the Company with the Secretary of State of the State of Delaware in
accordance with the General Corporation Law of the State of Delaware, and the
Purchasers shall have received evidence of such filing in form and substance
reasonably satisfactory to the Purchasers.


 


(f)            Certificates of
Good Standing.  The Company shall have delivered to each of the
Purchasers a long-form certificate of good standing from the Secretary of State
of the State of Delaware, and a good standing certificate from each
jurisdiction in which the Company and its Subsidiaries are qualified to do
business, each of which is to be dated within a reasonable period prior to
Closing.


 


(g)           Purchased Shares. 
The Company shall have delivered to each of the Purchasers certificates in
definitive form representing the number of Purchased Shares being purchased by
such Purchaser (set forth on Exhibit A hereto under the heading “Second
Tranche Closing”), registered in the name of such Purchaser.    


 


(h)           Second Tranche
Warrants.  The Company shall have duly executed and delivered to each
of the Purchasers the Second Tranche Warrants in definitive form exercisable
for the number of Warrant Shares set forth on Exhibit A hereto under the
heading “Second Tranche Closing.”  


 


(i)            Registration Rights
Agreement.  The Registration Rights Agreement attached hereto as Exhibit F
shall be in full force and effect.  


 


(j)            Indemnification
Agreements.  The indemnification agreements by and between the Company
and each of the designees of the Purchasers elected or appointed to the Board
of Directors pursuant to Section 5.1(q) hereof and substantially in the
form attached hereto as Exhibit G shall remain in full force and
effect.    


 


(k)           Opinion of Counsel. 
The Purchasers shall have received an opinion of Greenberg Traurig, LLP, dated
the Second Tranche Closing Date, relating to the transactions contemplated by
or referred to herein, substantially in the form attached hereto as Exhibit H.  


 


(l)            No Material Adverse
Change.  Since the date hereof, there shall have been no material
adverse change in the Condition of the Company or any Subsidiary.  


 


(m)          Consents and
Approvals.  All consents, exemptions, authorizations, or other actions
by, or notice to, or filings with, Governmental Authorities and other Persons
in respect of all Requirements of Law and with respect to those Contractual
Obligations of the Company which are necessary or required in connection with
the execution, delivery or performance by, or enforcement against, the Company
of this Agreement and each of the other Transaction Documents shall have been
obtained and be in full force and effect, and the Purchasers shall have been
furnished with appropriate evidence thereof and all applicable waiting periods
shall have expired without any action being taken or threatened which would
have a material adverse effect on the Condition of the Company or any
Subsidiary.  


 


38

















 


(n)           No Material Judgment
or Order.  There shall not be on the Second Tranche Closing Date any
Order of a court of competent jurisdiction or any ruling of any Governmental
Authority or any condition imposed under any Requirement of Law which would
(a) prohibit or restrict (i) the purchase of the Purchased Shares,
the Second Tranche Warrants or the Additional Warrants or the issuance of the
Underlying Shares upon exercise or conversion thereof or (ii) the
consummation of the transactions contemplated by this Agreement,
(b) subject the Purchasers to any material penalty or onerous condition
under or pursuant to any Requirement of Law if the Purchased Shares, the Second
Tranche Warrants or the Additional Warrants were to be purchased hereunder or
the Underlying Shares issued upon exercise or conversion thereof or
(c) restrict the operation of the business of the Company or any
Subsidiary as conducted on the date hereof in a manner that would have a
material adverse effect on the Condition of the Company or any Subsidiary.


 


(o)           No Litigation. 
No action, suit, proceeding, claim or dispute shall have been brought or
otherwise arisen at law, in equity, in arbitration or before any Governmental
Authority against the Company or any Subsidiary which would, if adversely determined
(a) have a material adverse effect on the Condition of the Company or any
Subsidiary or (b) have a material adverse effect on the ability of the
Company to perform its obligations under this Agreement or each of the other
Transaction Documents.  No action, suit,
proceeding, claim or dispute shall have been brought or otherwise arisen at
law, in equity, in arbitration or before any Governmental Authority against the
Company or any Subsidiary that challenges or seeks to make illegal the
transactions contemplated by this Agreement. 



 


(p)           No Delisting Notice. 
The Company shall not have received any notice from the Nasdaq Stock Market
that the Company may be delisted, which notification has not been resolved in
favor of the Company.  


 


(q)           Stockholder Approval. 
The Company shall have obtained Stockholder Approval in connection with each of
the Stockholder Approval Resolutions in accordance with the terms of this
Agreement at a duly called meeting of the stockholders of the Company no later
than December 31, 2007 (unless the SEC has substantive comments on the Proxy
Statement, in which case the relevant date shall be January 31, 2008).  


 


(r)            Board of Directors. 
The Board of Directors shall be comprised of seven (7) directors and the
Company shall have caused David Prend, Philip Deutch and, if such person has
been designated in accordance with Section 8.3(a), the Independent Designee to
have been elected or appointed to the Board of Directors effective as of the
Second Tranche Closing.  


 


(s)           Committees. 
The Board of Directors shall have appointed at least one designee of RockPort
or NGP to the corporate governance and nominating committee and the
compensation committee of the Board of Directors pursuant to
Section 8.3(f).  The Board of
Directors shall, if necessary, have amended the charters to the corporate
governance and nominating committee and the compensation committee to permit a
director who is determined by the Board of Directors not to be “independent” to
serve on such committees under “exceptional and limited circumstances” (as
determined in accordance with the rules and regulations of the Nasdaq Stock
Market).  


 


39

















 


(t)            Reimbursement of
Expenses.  The Company shall have tendered payment for reimbursement
of all out-of-pocket fees and expenses incurred by the Purchasers in accordance
with Sections 2.1(c) and 11.12.  


 


(u)           Elimination of
Series A Preferred Stock.  The
Company shall have retired or filed a certificate of elimination with respect
to the Company’s Series A preferred stock. 



 


ARTICLE VI



CONDITIONS TO THE OBLIGATION 

OF THE COMPANY TO CLOSE


 


The obligation of the Company to issue and sell the
Purchased Shares and the Warrants and the obligation of the Company to perform
its other obligations hereunder shall be subject to the satisfaction as
determined by, or waiver by, the Company of the following conditions on or
before each Closing Date:  


 


6.1           Representations and
Warranties.  The representations and warranties of each Purchaser
contained in Article IV hereof shall be true and correct in all material
respects (except for any such representations and warranties which are
qualified by their terms by a reference to materiality or material adverse
effect, which representation as so qualified shall be true and correct in all
respects) on and as of each Closing Date as if made on and as of such date,
except for those representations and warranties that are expressly limited by
their terms to dates or times other than the applicable Closing Date, which
representations or warranties need only be true and correct as aforesaid as of
such other dates or times.  


 


6.2           Payment of Purchase
Price.  Each Purchaser shall be prepared to pay the aggregate purchase
price for the Purchased Shares and the Warrants to be purchased by such
Purchaser.  


 


6.3           Registration Rights
Agreement.  Each Purchaser shall have duly executed and delivered the
Registration Rights Agreement.  


 


ARTICLE VII



INDEMNIFICATION


 


7.1           Indemnification. 
Except as otherwise provided in this Article VII, the Company (the “Indemnifying Party”) agrees to indemnify,
defend and hold harmless each of the Purchasers and its Affiliates and their
respective officers, directors, agents, employees, subsidiaries, partners,
members and controlling persons (each, an “Indemnified
Party”) to the fullest extent permitted by law from and against any
and all losses, claims, or written threats thereof (including, without
limitation, any Claim by a third party), damages, expenses (including
reasonable fees, disbursements and other charges of counsel incurred by the
Indemnified Party in any action between the Indemnifying Party and the
Indemnified Party or between the Indemnified Party and any third party 


 


40

















 


or otherwise)
or other liabilities (collectively, “Losses”)
resulting from or arising out of any breach of any representation or warranty,
covenant or agreement by the Company in this Agreement or the other Transaction
Documents or the matters set forth on Schedule 7.1 hereto.  The amount of any payment to any Indemnified
Party herewith in respect of any Loss shall be of sufficient amount to make
such Indemnified Party whole for any diminution in value of the Purchased Shares,
the Warrants, the Additional Warrants (if applicable) or the Underlying Shares
to the extent such diminution in value is attributable to such breach but not
in excess of the applicable Purchase Price for the affected Purchased Shares,
Warrants, Additional Warrants (if applicable) or Underlying Shares plus any
expenses incurred by an Indemnified Party in connection with such transaction,
except in the case of fraud or willful misrepresentation in which case there
shall be no cap on Losses.  In connection
with the obligation of the Indemnifying Party to indemnify for expenses as set
forth above, the Indemnifying Party shall, upon presentation of appropriate
invoices containing reasonable detail, reimburse each Indemnified Party for all
such expenses (including reasonable fees, disbursements and other charges of
counsel incurred by the Indemnified Party in any action between the
Indemnifying Party and the Indemnified Party or between the Indemnified Party
and any third party) as they are incurred by such Indemnified Party.


 


7.2           Notification. 
Each Indemnified Party under this Article VII shall, promptly after the
receipt of notice of the commencement of any Claim against such Indemnified
Party in respect of which indemnity may be sought from the Indemnifying Party
under this Article VII, notify the Indemnifying Party in writing of the
commencement thereof.  The omission of
any Indemnified Party to so notify the Indemnifying Party of any such action
shall not relieve the Indemnifying Party from any liability which it may have
to such Indemnified Party (a) other than pursuant to this Article VII
or (b) under this Article VII unless, and only to the extent that,
such omission results in the Indemnifying Party’s forfeiture of substantive
rights or defenses.  In case any such
Claim shall be brought against any Indemnified Party, and it shall notify the
Indemnifying Party of the commencement thereof, the Indemnifying Party shall be
entitled to assume the defense thereof at its own expense, with counsel
satisfactory to such Indemnified Party in its reasonable judgment; provided,
however, that any Indemnified Party may retain separate counsel to participate
in such defense at its own expense. 
Notwithstanding the foregoing, in any Claim in which both the
Indemnifying Party, on the one hand, and an Indemnified Party, on the other
hand, are, or are reasonably likely to become, a party, such Indemnified Party
shall have the right to employ separate counsel and to control its own defense
of such Claim if, in the reasonable opinion of counsel to such Indemnified Party,
either (x) one or more defenses are available to the Indemnified Party
that are not available to the Indemnifying Party or (y) a conflict or potential
conflict exists between the Indemnifying Party, on the one hand, and such
Indemnified Party, on the other hand, that would make such separate
representation advisable; provided, however, that the Indemnifying Party
(i) shall not be liable for the fees and expenses of more than one counsel
to all Indemnified Parties and (ii) shall reimburse the Indemnified
Parties for all of such fees and expenses of such counsel incurred in any
action between the Indemnifying Party and the Indemnified Parties or between
the Indemnified Parties and any third party, as such expenses are incurred.  The Indemnifying Party agrees that it will
not, without the prior written consent of a Majority in Interest, settle,
compromise or consent to the entry of any judgment in any pending or threatened
Claim relating to the matters contemplated hereby (if any Indemnified Party is
a party thereto or has been actually threatened to 


 


41

















 


be made
a party thereto) unless such settlement, compromise or consent includes an
unconditional release of each Indemnified Party from all liability arising or
that may arise out of such claim.  The
Indemnifying Party shall not be liable for any settlement of any Claim effected
against an Indemnified Party without its written consent.  The rights accorded to an Indemnified Party
hereunder shall be in addition to any rights that any Indemnified Party may
have at common law, by separate agreement or otherwise; provided, however, that
notwithstanding the foregoing or anything to the contrary contained in this
Agreement, nothing in this Article VII shall restrict or limit any rights
that any Indemnified Party may have to seek equitable relief.


 


7.3           Contribution. 
If the indemnification provided for in this Article VII from the
Indemnifying Party is unavailable to an Indemnified Party hereunder in respect
of any Losses referred to herein, then the Indemnifying Party, in lieu of
indemnifying such Indemnified Party, shall contribute to the amount paid or
payable by such Indemnified Party as a result of such Losses in such proportion
as is appropriate to reflect the relative fault of the Indemnifying Party and
Indemnified Party in connection with the actions which resulted in such Losses,
as well as any other relevant equitable considerations.  The relative faults of such Indemnifying
Party and Indemnified Party shall be determined by reference to, among other
things, whether any action in question, including any untrue or alleged untrue
statement of a material fact or omission or alleged omission to state a
material fact, has been made by, or relates to information supplied by, such
Indemnifying Party or Indemnified Party, and the parties’ relative intent,
knowledge, access to information and opportunity to correct or prevent such
action.  The amount paid or payable by a
party as a result of the Losses referred to above shall be deemed to include,
subject to the limitations set forth in Sections 7.1 and 7.2, any legal or
other fees, charges or expenses reasonably incurred by such party in connection
with any investigation or proceeding.


 


ARTICLE VIII


 


AFFIRMATIVE
COVENANTS


 


The Company hereby covenants and agrees with the
Purchasers as follows:


 


8.1           Preservation of
Existence.  Between the date hereof and either (i) if Stockholder
Approval of the Second Tranche Closing is not obtained at the Stockholders
Meeting, the date of the Stockholders Meeting (unless RockPort and NGP request
that the Company seek Stockholder Approval again in accordance with Section
8.2(b), in which case the relevant date shall be the date of such subsequent
Stockholders Meeting) and (ii) if Stockholder Approval of the Second Tranche
Closing is obtained at the Stockholders Meeting, the Second Tranche Closing
Date, the Company and each Subsidiary shall:


 


(a)           preserve and maintain
in full force and effect its existence and good standing under the laws of its
jurisdiction of formation or organization;


 


(b)           preserve and maintain
in full force and effect all material rights, privileges, qualifications,
applications, licenses and franchises necessary in the normal conduct of its
business;


 


42

















 


(c)           use its reasonable best
efforts to preserve its business organization;


 


(d)           conduct its business in
the ordinary course in accordance with sound business practices, keep its
properties in good working order and condition (normal wear and tear excepted),
and from time to time make all needed repairs to, renewals of or replacements
of its properties so that the efficiency of its business operation shall be
reasonably maintained and preserved;


 


(e)           take all reasonable
actions to protect and maintain the Company Intellectual Property, including,
without limitation, prosecuting all pending applications for Patents or
registration of Trademarks and Copyrights and maintaining, to the extent
permitted by law, each Patent or registration owned by the Company or any
Subsidiary;


 


(f)            comply in all material
respects with all Requirements of Law and with the directions of any
Governmental Authority having jurisdiction over the Company or any Subsidiary
or its business or property, and shall not take any action designed to or that
might reasonably be expected to cause or result in unlawful manipulation of the
price of the Common Stock to facilitate the sale or resale of the Purchased
Shares, the Warrants, the Additional Warrants (if applicable) or the Underlying
Shares;


 


(g)           file or cause to be
filed in a timely manner all reports, applications, estimates and licenses that
shall be required by a Governmental Authority;


 


(h)           conduct its business in
a manner such that the representations and warranties of the Company contained
in Article III shall continue to be true and correct in all material
respects on and as of the Second Tranche Closing Date as if made on and as of
the Second Tranche Closing Date, and shall not undertake, without the written
consent of the Purchasers, any of the actions specified in the last two
sentences of Section 3.12;


 


(i)            use its best efforts
to cause the closing conditions contained in Article V to be satisfied on
or before the applicable Closing Date;


 


(j)            not issue, deliver,
sell or authorize, or propose the issuance, delivery, sale or purchase of, any
additional shares of capital stock, Stock Equivalents or any other security of
the Company or such Subsidiary, other than (i) the issuance of Common
Stock pursuant to the exercise of any Options outstanding as of the date
hereof, the exercise of outstanding warrants or the conversion of the Existing
Notes, (ii) the increase in the aggregate number of options which may be
issued under the Stock Option Plans in an amount not to exceed ten million
(10,000,000) shares, (iii) the issuance of options to purchase shares of
Common Stock issued under the Stock Option Plans in an amount not to exceed
twenty-five thousand (25,000) shares in an individual grant or one hundred thousand
(100,000) shares in the aggregate (except with the prior written consent of
RockPort and NGP) and (iv) Purchased Shares and Warrants to be sold at the
First Tranche Closing;


 


43
















 


(k)           without the prior
written consent of RockPort and NGP which shall not be unreasonably withheld,
not incur any Indebtedness, guarantee any Indebtedness of any Person, issue or
sell debt securities, or guarantee any debt securities of any Person;


 


(l)            without the prior
written consent of RockPort and NGP, not increase the salary or other
compensation payable or to become payable to any officer, director, employee or
advisor, or make any declaration, payment or commitment or obligation of any
kind for the payment (whether in cash or equity) of a severance payment,
termination payment, bonus or other additional salary or compensation to any
such person, except for payments made pursuant to written agreements
outstanding on the date hereof and disclosed in the Company Disclosure
Schedule; and


 


(m)          without the prior
written consent of RockPort and NGP, not amend any option agreements that are
outstanding on the date of this Agreement to provide for the acceleration of
vesting or to extend the exercise period during which an option can be
exercised following the termination of an optionee’s service provider status.


 


8.2           Stockholders Meeting.


 


(a)           The Company shall cause
a meeting of its stockholders (the “Stockholders
Meeting”) to be duly called and held as soon as reasonably
practicable after the date hereof, but in any event not later than December 31,
2007 (unless the SEC has substantive comments on the Proxy Statement, in which
case the relevant date shall be January 31, 2008), for the purpose of voting
for the approval of (i) the issuance and sale of the Purchased Shares and
the Warrants in the Second Tranche Closing, the issuance and sale of the
Additional Warrants, the issuance of the Underlying Shares issuable upon
exercise or conversion thereof and the repricing of the exercise price of the
Warrants to $1.25 per Warrant Share if such exercise price is initially set
above $1.25 per Warrant Share (which vote shall be taken in a manner that
complies with the rules and regulations of the Nasdaq Stock Market), (ii) the
filing of the Certificate of Amendment with the Secretary of State of the State
of Delaware and (iii) the increase in the aggregate number of options
which may be issued under the Stock Option Plans in accordance with the
limitations set forth in Section 8.1(j) (together, the “Stockholder Approval Resolutions”). At the Stockholders
Meeting, the Board of Directors shall recommend approval by the Company’s
stockholders of the Stockholder
Approval Resolutions.


 


(b)           In connection with the
Stockholders Meeting, the Company will (A) promptly, but in no event more
than three (3) Business Days following the date hereof, engage a nationally
recognized proxy solicitation firm, and prepare and file with the SEC a
preliminary Proxy Statement; (B) use its reasonable best efforts to have the
Proxy Statement cleared by the SEC and shall respond to any comments from the
SEC regarding the Proxy Statement within two (2) Business Days after receipt
thereof; (C) as promptly as practicable thereafter, but not later than two (2)
Business Days after obtaining clearance from the SEC or determining that no
comments of the SEC are forthcoming, mail such Proxy Statement (and all other
proxy materials for such meeting) to its stockholders in substantially the form
which has been previously reviewed by RockPort, NGP and their counsel;
(D) use its reasonable best efforts to obtain stockholder approval of the
Stockholder Approval Resolutions (“Stockholder
Approval”) as soon as practicable after the mailing of the


 


44

















 


Proxy Statement; and (E) otherwise comply with
all legal requirements applicable to the Stockholders Meeting. The Company
shall provide a draft of the proposed Proxy Statement for the proposed
Stockholder Approval Resolutions to each of RockPort, NGP and their counsel at
least two (2) Business Days prior to the earlier of any filing of the Proxy
Statement with the SEC or any intended distribution of such Proxy Statement to
the stockholders of the Company, and to give reasonable consideration to any
comments by RockPort, NGP and their counsel to such Proxy Statement prior to
such filing or distribution. In the event that Stockholder Approval is not
obtained at the Stockholders Meeting, RockPort and NGP shall have the right to
require the Company to use its best efforts to seek Stockholder Approval as
soon as practicable but in any event not later than the 60th day
after such request (and RockPort and NGP may continue to make subsequent
requests thereafter for so long as Stockholder Approval is not obtained).


 


(c)           As soon as practicable,
but in no event later than two (2) Business Days following receipt of
Stockholder Approval, the Company shall file the Certificate of Amendment with
the Delaware Secretary of State and will, promptly thereafter, provide to each
Purchaser satisfactory evidence of each such filing. Following receipt of
Stockholder Approval, the Company shall promptly take, or cause to be taken,
all actions, and to do promptly, or cause to be done, all things necessary,
proper or advisable under applicable laws and regulations to satisfy the
conditions to the obligations to effect the Second Tranche Closing, to obtain
all necessary waivers, consents and approvals and to effect all necessary
registrations and filings and to remove any injunctions or other impediments or
delays, legal or otherwise, in order to consummate the Second Tranche Closing.


 


8.3           Board of Directors.


 


(a)           For so long as RockPort
continues to beneficially own not less than the Minimum Ownership Percentage,
RockPort shall be entitled to designate one designee to be nominated by the
Company to serve as a director of the Company (the “RockPort Designee”). For so long as NGP continues to
beneficially own not less than the Minimum Ownership Percentage, NGP shall be
entitled to designate one designee to be nominated by the Company to serve as a
director of the Company (the “NGP Designee”).
For purposes of determining whether RockPort or NGP continues to own not less
than the Minimum Ownership Percentage, any shares of Common Stock, Common Stock
Equivalents or Preferred Stock beneficially owned by Affiliates of such Person
shall be included in such determination.


 


(b)           Following the receipt
of Stockholder Approval and upon the Second Tranche Closing:  (i) the Company and the Board of Directors
shall take all appropriate action to establish and maintain the size of the
Board of Directors at seven (7) directors; (ii) for so long as either RockPort
or NGP continues to beneficially own not less than the Minimum Ownership
Percentage, RockPort and/or NGP together (depending on whether such entity owns
at least the Minimum Ownership Percentage) shall be entitled to designate an
additional designee (the “Independent
Designee”) who shall be an independent director reasonably
acceptable to the Company and shall be nominated by the Company to serve as a
director of the Company; and (iii) in the event that the size of the Board of
Directors is increased to nine (9) in order to comply with the applicable
regulations of the Nasdaq Stock Market (as determined in good faith by the
Board of Directors after consultation


 


45

















 


with legal counsel) and for so long as either RockPort
or NGP continues to beneficially own not less than the Minimum Ownership
Percentage, RockPort and NGP together shall be entitled to designate an
additional designee (who shall be an independent director reasonably acceptable
to the Company) to be nominated by the Company to serve as a director of the
Company.


 


(c)           The Company shall take
all actions within its control to provide RockPort and NGP with the
representation on the Board of Directors contemplated by this Section 8.3,
including without limitation, (i) causing each designee to be included in the
slate of nominees recommended by the Board of Directors to the Company’s
stockholders for election as a director and (ii) causing the election of each
such designee, including using its reasonable best efforts to cause officers of
the Company who hold proxies (unless otherwise directed by the stockholder
submitting such proxy) to vote such proxies in favor of the election of each
such designee. For so long as RockPort and/or NGP continue(s) to beneficially
own not less than the Minimum Ownership Percentage, upon the written request of
RockPort or NGP (or in the case of the Independent Designee, both RockPort and
NGP), the Company shall use its reasonable best efforts to cause the Board of
Directors to remove the RockPort Designee, the NGP Designee or the Independent
Designee, as the case may be, from the Board of Directors (with or without
cause), and (ii) in the event that a designee shall cease to serve as a
director for any reason, the Company shall use its reasonable best efforts to
cause any vacancy resulting thereby to be filled by another designee designated
by RockPort, NGP or RockPort and NGP, as the case may be.


 


(d)           Notwithstanding the
foregoing, the number of designees to the Board of Directors to which the
Purchasers shall have the right to nominate shall be appropriately adjusted to
the extent required by the applicable regulations of the Nasdaq Stock Market
(as determined in good faith by the Board of Directors based on the advice of
legal counsel).


 


(e)           Notwithstanding
anything to the contrary contained in this Agreement, the Company shall provide
such reimbursement and compensation to the RockPort Designee, the NGP Designee
and the Independent Designee as is consistent with the reimbursement and
compensation provided to other members of the Board of Directors. The Company
shall maintain its D&O Policies in such amounts and on such terms as
approved by the Board of Directors, including the RockPort Designee and the NGP
Designee.


 


(f)            For so long as
RockPort and/or NGP continue(s) to beneficially own not less than the Minimum
Ownership Percentage, the Board of Directors shall have appointed at least one
designee of RockPort or NGP to the corporate governance and nominating
committee and the compensation committee of the Board of Directors; provided however,
that if the Board of Directors determines based upon applicable regulations of
the Nasdaq Stock Market (as determined in good faith by the Board of Directors
after consultation with legal counsel), that a Rockport designee or an NGP
designee cannot serve as a member of such committee the Company shall permit
such Rockport designee or Rockport Observer (as defined below) and such NGP
designee or NGP Observer (as defined below), as applicable, to attend all
meetings of such committees in a nonvoting capacity. In addition, a Rockport
designee or Rockport Observer and an NGP designee or NGP Observer, as
applicable, shall have the right to attend all meetings of the audit committee
of the


 


46

















 


Board of Directors in a nonvoting capacity. In
connection therewith, the Company shall provide the Observers (as defined
below) with copies of all notices, minutes, consents and other materials,
financial or otherwise, which are provided to the members of such committee; provided,
however, that the Company reserves the right to exclude such Observers 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.


 


(g)           The Board of Directors
shall establish and maintain the existence of a special committee of the Board
of Directors (the “Search Committee”)
consisting of four directors, two of whom shall be the RockPort Designee and
the NGP Designee, with (i) the power to initiate searches for, and to recruit,
retain and replace the chief executive officer of the Company and (ii) the
ability to retain an executive search firm to manage any search for a chief
executive officer initiated by the Search Committee; provided, that such
committee in its sole discretion may elect to refer a decision on such matters
to the Board of Directors.


 


(h)           Effective as of the
First Tranche Closing Date, each of RockPort and NGP shall be allowed one
representative (the “RockPort Observer”
and the “NGP Observer,”
respectively, and together, the “Observers”)
of its choice, to attend all meetings of the Board of Directors in a nonvoting
capacity. In connection therewith, the Company shall provide the Observers with
copies of all notices, minutes, consents and other materials, financial or
otherwise, which the Company provides to its Board of Directors; provided,
however, that the Company reserves the right to exclude such Observers 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. This right shall expire as to RockPort or NGP at such time that such
entity no longer holds fifty percent (50%) of its Minimum Ownership Percentage.
Notwithstanding the foregoing, (i) Rockport shall not be entitled to exercise
the observer rights set forth herein at any time that a Rockport Designee is
then serving on the Board of Directors; and (ii) NGP shall not be entitled to
exercise the observer rights set forth herein at any time that an NGP Designee
is then serving on the Board of Directors.


 


(i)            None of the parties
hereto and no officer, director, stockholder, partner, employee or agent of any
party makes any representation or warranty as to the fitness or competence of
the nominee of any party hereunder to serve on the Board of Directors by virtue
of such party’s execution of this Agreement or by the act of such party in
voting for such nominee pursuant to this Agreement.


 


8.4           Nasdaq Listing. 
The Company shall use its reasonable best efforts to maintain the listing of
the Common Stock on the Nasdaq Stock Market, including, without limitation,
(i) taking all actions reasonably related to maintaining Nasdaq Stock
Market listing standards, including, but not limited to, the actions required
pursuant to Section 8.2 and (ii) refraining from taking actions
reasonably expected to cause the Company to not meet Nasdaq Stock Market
listing standards. The Company shall provide the Purchasers copies of all correspondence
between the Company and the Nasdaq Stock Market promptly upon receipt thereof. If
required by the Nasdaq Stock Market, the Company shall apply to list the Common
Stock on The Nasdaq Global Market promptly (but in no event later than fifteen (15)
Business Days) upon becoming eligible to do so.


 


47

















 


8.5           Reservation of
Common Stock.  The Company shall at all times reserve and keep
available out of its authorized shares of Common Stock, solely for the purpose
of issue or delivery upon conversion of the Purchased Shares and upon exercise
of the Warrants and the Additional Warrants, as provided in the Certificate of
Designation, the Warrants and the Additional Warrants, the maximum number of
Underlying Shares that may be issuable or deliverable upon such conversion or
exercise. Such Underlying Shares are duly authorized and, when issued or
delivered in accordance with the Certificate of Designation, the Warrants and
the Additional Warrants, shall be validly issued, fully paid and non-assessable.
The Company shall issue such Underlying Shares in accordance with the terms of
the Certificate of Designation, the Warrants and the Additional Warrants, and
otherwise comply with the terms hereof and thereof.


 


8.6           Restrictions on
Public Sale.  The Company agrees (i) not to effect any public
offering or distribution of any Equity Securities of the Company, and
(ii) not to register any shares of Equity Securities of the Company
(except pursuant to registration on Form S-8 or any successor thereto), in
each case, during the period beginning on the date hereof and ending on the
earlier to occur of the termination of this Agreement pursuant to
Section 10.1 or 90 days after the effective date of the shelf
registration statement to be filed in accordance with Article III of the
Registration Rights Agreement, except as part of such registration.


 


8.7           Notification of
Certain Matters.  The Company shall give prompt notice to the
Purchasers of: (i) the occurrence or non-occurrence of any event, the
occurrence or non-occurrence of which is likely to cause any representation or
warranty of the Company contained in this Agreement to be untrue or inaccurate
at or prior to the Second Tranche Closing Date, (ii) any failure of the Company
to comply with or satisfy any covenant, condition or agreement to be complied
with or satisfied by it hereunder and (iii) any communication, whether written
or oral, by or on behalf of the Company, with the holders of the Existing
Notes; provided, however, that the delivery of any notice pursuant to this
Section 8.7 shall not (a) limit or otherwise affect any remedies available to
the party receiving such notice or (b) constitute an acknowledgment or
admission of a breach of this Agreement. No disclosure by the Company pursuant
to this Section 8.7 shall be deemed to amend or supplement the Company
Disclosure Schedule or prevent or cure any misrepresentations, breach of
warranty or breach of covenant.


 


8.8           Additional Warrant
Triggering Event.  At any time and from time to time after the date of
this Agreement, upon the exercise of any Outstanding Warrants (an “Additional Warrant Triggering Event”), the
Company shall issue to the Purchasers Additional Warrants exercisable for that
number of Additional Warrant Shares equal to one-half (and rounding up with
respect to any fractional shares) of the number of shares of Common Stock
issued upon exercise of such Outstanding Warrant(s). The number of Additional
Warrant Shares shall be allocated pro rata among the Purchasers in accordance
with the ratio of the number of Underlying Preferred Shares held by such
Purchaser on the date of the Additional Warrant Triggering Event to the total
number of Underlying Preferred Shares held by all Purchasers on the date of the
Additional Warrant Triggering Event. The exercise price of each Additional
Warrant Share shall be $1.25. Notwithstanding the foregoing, the Company shall
have no obligation to issue Additional Warrants to the Purchasers until the
Second Tranche Closing and thereafter.


 


48

















 


8.9           Elimination of
Series A Preferred Stock.  Promptly following the First Tranche
Closing, the Company shall take appropriate action to the reasonable
satisfaction of the Purchasers, to retire or to file a certificate of
elimination with respect to the Company’s Series A preferred stock.


 


ARTICLE IX



PREEMPTIVE RIGHTS


 


9.1           Subsequent Offerings. 
Following the First Tranche Closing, upon the consummation of the issuance and
sale by the Company of any New Securities (a “Subsequent
Offering”), the Company shall grant each Purchaser the right to
purchase (the “Make-up Purchase”)
all or some of that number of New Securities required for the Purchaser to,
after giving effect to the Make-up Purchase, maintain its Percentage of
Ownership (as defined below) interest in the Company, at the price and upon the
same terms and conditions as such Subsequent Offering. Each Purchaser shall be
entitled to apportion the right to purchase New Securities among itself and its
general partners, limited partners, members and Affiliates in such proportions
as it deems appropriate.


 


9.2           Procedure. 
Upon the consummation of a Subsequent Offering, the Company shall promptly give
each Purchaser written notice of the consummation of such Subsequent Offering
describing the New Securities, the price and the terms and conditions upon
which the Company issued the same and the amount of New Securities that such
Purchaser has the right to purchase. Each Purchaser shall have thirty (30) days
from the giving of such notice to agree to purchase such New Securities by
giving written notice to the Company (the “Purchase
Notice”) and stating therein the quantity of New Securities to be
purchased. The Company and such Purchaser shall use commercially reasonable
efforts to promptly consummate the sale of such New Securities upon the receipt
by the Company of the Purchase Notice.


 


9.3           Nasdaq Letter. 
Prior to the consummation of the Make-up Purchase, the Company shall use its
reasonable best efforts to obtain an interpretive letter from the Nasdaq Stock
Market (a “Nasdaq Letter”) on the
issue of whether such sale to the Purchasers requires the approval of the
stockholders of the Company, unless counsel for the Company determines such
Nasdaq Letter to be unnecessary in order to consummate the Make-up Purchase. If,
pursuant to the Nasdaq Letter, approval of the stockholders of the Company is
recommended, the Company shall cause a meeting of its stockholders (the “Additional  Stockholders Meeting”) to be duly called and held as soon as
reasonably practicable for the purpose of voting on the approval of the Make-up
Purchase. At the Additional Stockholders Meeting, the Board of Directors shall
recommend approval by the Company’s stockholders of the Make-up Purchase (the “Additional  Stockholder Approval”). In connection with the Additional
Stockholders Meeting, the Company will (i) promptly, but in no event more
than 30 days, following the date hereof, prepare and file with the SEC,
use its commercially reasonable efforts to have cleared by the SEC and
thereafter mail to its stockholders as promptly as practicable the proxy or
information statement of the Company to be filed with the SEC in connection
with the Make-up Purchase and all other proxy materials for such meeting,
(ii) use its reasonable best efforts to obtain the Additional Stockholder
Approval and (iii) otherwise comply with all legal requirements applicable
to the Additional Stockholders Meeting.


 


49

















 


9.4           Termination;
Transfer or Assignment of Rights.  The
preemptive rights provided in this Article IX shall terminate on the
second anniversary of the date of the Stockholders Meeting. The preemptive
rights provided in this Article IX may be transferred or assigned to any
Affiliate of the Purchasers or to any transferee or assignee of Purchased
Shares that are convertible into not less than 1,000,000 shares of Common
Stock.


 


9.5           Defined Terms.  For the purposes of this Article IX:


 


(a)         “Percentage of Ownership” means the number,
expressed as a percentage, equal to the number of shares of Common Stock and
Common Stock Equivalents held by the Purchaser immediately prior to the
issuance of the New Securities in such Subsequent Offering divided by the aggregate
number of outstanding shares of Common Stock and Common Stock Equivalents
immediately prior to such issuance.


 


(b)           “New Securities” means, whether or not
authorized on the date hereof, any Common Stock, Common Stock Equivalent,
Preferred Stock or any other security of the Company or any of its
subsidiaries; provided, however, that “New Securities” do not include the
following:


 


(i)    any securities that are issued
or granted, to officers, directors and employees of, or consultants or advisors
to, the Company pursuant to a stock grant, employee restricted stock purchase
agreement, option plan or purchase plan or other stock incentive program or
otherwise as part of their compensation arrangement, where such issuance and
grants are approved by the Board of Directors, or any securities issued in
respect of the exercise of any such securities;


 


(ii)   any securities issued in
connection with any stock split, stock dividend, reclassification,
reorganization or similar event by the Company;


 


(iii)  any securities issued or to be
issued pursuant to an acquisition or merger of another company that is approved
by the Board of Directors (not primarily for the purpose of obtaining cash);


 


(iv)  any securities issued upon the
conversion of convertible securities or upon the exercise of rights, options or
warrants or as dividends on the Company’s Series B Convertible Preferred Stock,
in each case outstanding as of the First Tranche Closing Date, provided that
such exercise, conversion or dividend occurs in accordance with the terms
thereof without amendment or modification;


 


(v)   securities issued in connection
with a bona fide joint venture, strategic partnership or strategic alliance
approved by the Board of Directors, the primary purpose of which is not to
raise capital;


 


(vi)  any Common Stock or Common Stock
Equivalents issued upon exercise or conversion of the Preferred Stock, the
Warrants or the Additional Warrants; and


 


50

















 


(vii) any Common Stock or Common Stock
Equivalents issued pursuant to a bona fide firm commitment underwritten public
offering with a nationally recognized underwriter in an aggregate offering
amount greater than $20,000,000.


 


ARTICLE X



TERMINATION OF AGREEMENT


 


10.1         Termination. 
This Agreement may be terminated on (or at such earlier time as provided below)
or prior to (or such later time as provided below) the Outside Date:


 


(a)           by mutual written
consent of the Company and each of the Purchasers;


 


(b)           at the election of the
Company or both of the Purchasers by written notice to the other parties, if
(i) any Governmental Authority shall have enacted, entered, promulgated, issued
or enforced a final statute, rule, regulation, executive order, decree, ruling
or injunction or taken any other final action restraining, enjoining or
otherwise prohibiting any of the transactions contemplated by the Transaction
Documents and such order, decree, ruling or other action is or shall have
become final and nonappealable, or (ii) the Second Tranche Closing Date shall
not have occurred on or before the Outside Date; provided, that the right to
terminate this Agreement under this clause (ii) shall not be available to any
party hereto whose failure to fulfill any obligation under this Agreement has
been the cause of, or resulted in, the failure of the Second Tranche Closing
Date to occur on or before the Outside Date;


 


If this Agreement so
terminates, it shall become null and void and have no further force or effect,
except as provided in Section 10.2.


 


10.2         Survival.  If
this Agreement is terminated and the transactions contemplated hereby are not
consummated as described above, this Agreement shall become void and of no
further force and effect, except for the provisions of Article I, this
Section 10.2, Section 10.3, Section 11.7, Section 11.11 and
Section 11.12; provided, however, that, except for the payment of the
Alternative Transaction Fee in accordance with Section 10.3 and the
payment of fees and expenses pursuant to Section 11.12, none of the
parties hereto shall have any liability in respect of a termination of this
Agreement pursuant to Section 10.1(a) or Section 10.1(b); and
provided, further, that none of the parties hereto shall have any liability for
speculative, indirect, unforeseeable or consequential damages or lost profits
resulting from any legal action relating to any termination of this Agreement.


 


10.3         Alternative
Transaction Fee.  The Company agrees that, from the date hereof
through the Second Tranche Closing Date or the termination of this Agreement,
whichever occurs first, it will not initiate, solicit, encourage, discuss,
negotiate or accept any offers from any third party or indicate any interest to
any third party with respect to (i) the sale of capital stock of the
Company, (ii) the sale of all or substantially all of the assets of the
Company, (iii) any merger or consolidation of the Company with any other
person or (iv) any material financing transaction (each, an “Alternative Transaction”); provided,
however, that the Company may, if the Board of Directors of


 


51

















 


the Company determines in
good faith, based upon the advice of its outside legal counsel, that the
failure to do so would be reasonably likely to result in a breach of its
fiduciary duties under applicable law, participate in discussions regarding any
such Alternative Transaction and furnish information with respect to the
Company and its Subsidiaries pursuant to a customary confidentiality agreement.
The Company agrees to notify the Purchasers promptly if any third party
contacts the Company regarding any Alternative Transaction and to provide to
the Purchasers such information with respect thereto as the Purchasers request.
In the event that (i) (x) the Company terminates this Agreement for any
reason, including the failure to obtain Stockholder Approval, or (y) any
of the conditions to the obligations of the Purchasers set forth in
Article V shall not be fulfilled prior to the Outside Date, and
(ii) the Company enters into any binding or non-binding term sheet, letter
of intent or agreement relating to an Alternative Transaction on or prior to
July 19, 2008, then, at the election of RockPort, either (A) the Company shall
pay an alternative transaction fee equal to, at the Company’s option, either
$2,000,000 if paid in shares of Common Stock (based on the lower of the closing
price of the Common Stock on the trading date preceding the Payment Date or the
volume weighted average price of the Common Stock for the ten (10) Trading Days
prior to the Payment Date) or $1,500,000 if paid in cash (in either case, the “Alternative Transaction Fee”) on the
closing date of the Alternative Transaction (the “Payment Date”) or (B) the Company shall use its best efforts
to provide the Purchasers with the opportunity to invest up to fifty percent
(50%) of the aggregate amount being invested and on the same terms and
conditions as the other investors or participants in such Alternative
Transaction (any securities of the Company issued in connection therewith, the “Alternative Transaction Securities”);
provided that if the Purchasers elect to invest in the Alternative Transaction
in accordance with clause (B) of this sentence, but do not have the opportunity
to so invest, the Purchasers shall be paid the Alternative Transaction Fee on
the Payment Date. Such Alternative Transaction Fee shall be paid to the
Purchasers pro rata based on their respective commitments set forth on Exhibit
A hereto. The Company also shall be obligated to reimburse the Purchasers
for their out-of-pocket fees and expenses as provided in Section 11.12. From
and after the Payment Date, to the extent that the Alternative Transaction Fee
has not been paid, the Company shall continue to be obligated to immediately
pay the Alternative Transaction Fee and such payment will be made together with
interest at 10% annual rate compounded daily beginning on the Payment Date and
ending on the date of payment. Payments must be made by wire transfer of cash
or other immediately available funds.


 


ARTICLE XI


 


MISCELLANEOUS


 


11.1         Survival of
Representations and Warranties.  All of the representations and
warranties made herein shall survive the execution and delivery of this
Agreement.


 


11.2         Notices.  All
notices, demands and other communications provided for or permitted hereunder
shall be made in writing and shall be by registered or certified first-class
mail, return receipt requested, telecopier, courier service or personal
delivery:


 


52

















 


if to the Company:


 


SatCon Technology
Corporation


27 Drydock Avenue


Boston, MA  02110


Telephone: (617) 897-2400


Facsimile: (617) 897-2401


Attention:  David B. Eisenhaure


 


with a copy to:


 


Greenberg Traurig, LLP


One International Place


Boston, MA 02110


Telephone: (617) 310-6000


Facsimile: (617) 310-6001


Attention: Jonathan Bell,
Esq.


 


if to the Purchasers:


 


to the address set forth
under each Purchaser’s name on the signature pages hereto


 


with a copy to:


 


Wilson Sonsini Goodrich
& Rosati, P.C.


One Market Street


Spear Tower, Suite 3300


San Francisco, California
94105-1126


Telephone:  (415) 947-2000


Facsimile:  (415) 947-2099


Attention: Robert G. O’Connor,
Esq.


 


All such notices, demands
and other communications shall be deemed to have been duly given when delivered
by hand, if personally delivered; when delivered by courier, if delivered by
commercial courier service; five (5) Business Days after being deposited in the
mail, postage prepaid, if mailed; and when receipt is mechanically
acknowledged, if sent by facsimile. Any party may by notice given in accordance
with this Section 11.2 designate another address or Person for receipt of
notices hereunder.


 


11.3         Successors and
Assigns; Third Party Beneficiaries.  This Agreement shall inure to the
benefit of and be binding upon the successors and permitted assigns of the
parties hereto. Subject to applicable securities laws and the terms and
conditions thereof, the Purchasers may assign any of their rights under this
Agreement or the other Transaction Documents to any of their respective
Affiliates. The Company may not assign any of its rights under this Agreement
without the written


 


53

















 


consent of the Purchasers.
Except as provided in Article VII, no Person other than the parties hereto
and their successors and permitted assigns is intended to be a beneficiary of
this Agreement.


 


11.4         Amendment and Waiver.


 


(a)           No failure or delay on
the part of the Company or the Purchasers in exercising any right, power or
remedy hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right, power or remedy preclude any other or
further exercise thereof or the exercise of any other right, power or remedy. The
remedies provided for herein are cumulative and are not exclusive of any
remedies that may be available to the Company or the Purchasers at law, in
equity or otherwise.


 


(b)           Any amendment,
supplement or modification of or to any provision of this Agreement, any waiver
of any provision of this Agreement, and any consent to any departure by the
Company or the Purchasers from the terms of any provision of this Agreement,
shall be effective (i) only if it is made or given in writing and signed
by the Company and the Two-Thirds Interest and (ii) only in the specific
instance and for the specific purpose for which made or given. Except where
notice is specifically required by this Agreement, no notice to or demand on
the Company in any case shall entitle the Company to any other or further
notice or demand in similar or other circumstances.


 


11.5         Counterparts. 
This Agreement may be executed in any number of counterparts and by the parties
hereto in separate counterparts, each of which when so executed shall be deemed
to be an original and all of which taken together shall constitute one and the
same agreement.


 


11.6         Headings. 
The headings in this Agreement are for convenience of reference only and shall
not limit or otherwise affect the meaning hereof.


 


11.7         Governing Law; Consent
to Jurisdiction.  THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE
PRINCIPLES OF CONFLICTS OF LAW THEREOF. The parties hereto irrevocably submit
to the non-exclusive jurisdiction of any state or federal court sitting in the
County of New York, in the State of New York over any suit, action or
proceeding arising out of or relating to this Agreement, the other Transaction
Documents, the Purchased Shares, the Warrants, the Additional Warrants and the
Underlying Shares or the affairs of the Company. To the fullest extent they may
effectively do so under applicable law, the parties hereto irrevocably waive
and agree not to assert, by way of motion, as a defense or otherwise, any claim
that they are not subject to the jurisdiction of any such court, any objection
that they may now or hereafter have to the laying of the venue of any such
suit, action or proceeding brought in any such court and any claim that any
such suit, action or proceeding brought in any such court has been brought in
an inconvenient forum.


 


11.8         Severability. 
If any one or more of the provisions contained herein, or the application
thereof in any circumstance, is held invalid, illegal or unenforceable in any
respect for any reason,


 


54

















 


the validity, legality
and enforceability of any such provision in every other respect and of the
remaining provisions hereof shall not be in any way impaired, unless the
provisions held invalid, illegal or unenforceable shall substantially impair
the benefits of the remaining provisions hereof.


 


11.9         Rules of Construction. 
Unless the context otherwise requires, references to sections or subsections
refer to sections or subsections of this Agreement.


 


11.10       Approval or Waiver. 
Whenever pursuant to any provision of this Agreement any consent, approval or
waiver is required to be made or given by the Purchasers, including, without
limitation, (i) the determination of the satisfaction or waiver of any
condition pursuant to Article V, (ii) the approval of any amendment,
supplement or modification of or to any provision of this Agreement pursuant to
Section 11.4 and (iii) the approval of any publicity release or
announcement pursuant to Section 11.13, such consent, approval or waiver
shall be deemed made or given when made or given in writing by the Two-Thirds
Interest; provided, that if any proposed waiver, amendment or departure by the
Company or the Purchasers from the terms of any provision of this Agreement, or
any other proposed action requiring the consent, approval or waiver by the
Purchasers hereunder, would adversely affect the rights, preferences or
privileges of any Purchaser disproportionately with respect to the rights,
preferences and privileges of the other Purchasers, such Purchaser’s consent,
approval or waiver shall be required.


 


11.11       Entire Agreement. 
This Agreement, together with the exhibits and schedules hereto, and the other
Transaction Documents are intended by the parties as a final expression of
their agreement and intended to be a complete and exclusive statement of the
agreement and understanding of the parties hereto in respect of the subject
matter contained herein and therein. There are no restrictions, promises,
representations, warranties or undertakings, other than those set forth or
referred to herein or therein. This Agreement, together with the exhibits and
schedules hereto, and the other Transaction Documents supersede all prior
agreements and understandings among the parties with respect to such subject
matter.


 


11.12       Fees.  At each
Closing, the Company shall reimburse each of the Purchasers for their
reasonable out-of-pocket fees and expenses incurred in connection with the
transactions contemplated by this Agreement, including the reasonable fees,
disbursements and other charges of Wilson Sonsini Goodrich & Rosati, P.C.,
counsel to the Purchasers (the “Transaction
Expenses”).


 


11.13       Publicity.  The
initial publicity release or announcement concerning this Agreement and the
transactions contemplated hereby shall be in a form mutually agreed by the
parties hereto and shall be issued by the Company not later than 9:00 a.m. New
York time on the first Business Day following the date of this Agreement. Except
as may be required by applicable Requirements of Law, the parties agree that no
other publicity release or announcement concerning this Agreement or the
transactions contemplated hereby shall be made without prior approval thereof
by the other parties hereto. If any public announcement is required by any
applicable Requirement of Law or any listing agreement with any national
securities exchange to be made by any party hereto (including without
limitation any Form 8-K filing required by the SEC in connection with this
Agreement and the transactions contemplated hereby), prior to making such
announcement, such party will deliver a


 


55

















 


draft of such
announcement to the other parties hereto and shall give the other parties
reasonable opportunity to comment thereon (in any event, no less than two (2)
Business Days advance opportunity). Notwithstanding the foregoing, the Company
shall not publicly disclose the name of a Purchaser, or include the name of a
Purchaser in any filing with the SEC, without the prior written consent of such
Purchaser, except (i) as required by the Securities Act in connection with the
registration statement(s) contemplated by the Registration Rights Agreement and
(ii) to the extent that such disclosure is required by applicable laws, rules
or regulations (as determined in a written opinion of counsel to the Company),
in which case the Company shall provide the Purchaser with prior written notice
of such disclosure.


 


11.14       Further Assurances. 
Each of the parties shall execute such documents and perform such further acts
(including, without limitation, obtaining any consents, exemptions,
authorizations or other actions by, or giving any notices to, or making any
filings with, any Governmental Authority or any other Person) as may be reasonably
required or desirable to carry out or to perform the provisions of this
Agreement.


 


[Remainder of page
intentionally left blank]


 


56

















 


IN WITNESS WHEREOF, the
undersigned have executed, or have caused to be executed, this Stock and
Warrant Purchase Agreement on the date first written above.


 


	
   

  	
  COMPANY:

  
	
   

  	
   

  
	
   

  	
  SATCON
  TECHNOLOGY CORPORATION

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  



 


[Signature
Page to Stock and Warrant Purchase Agreement]


 

















 


	
   

  	
  PURCHASER:

  
	
   

  	
   

  
	
   

  	
  ROCKPORT
  CAPITAL PARTNERS II, L.P.

  
	
   

  	
   

  
	
   

  	
  By:  RockPort
  Capital II, LLC

  
	
   

  	
  Its:  General Partner

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  



 


 


	
   

  	
  Address:

  
	
   

  	
  RockPort
  Capital Partners II, L.P.

  
	
   

  	
  160
  Federal Street

  
	
   

  	
  18th
  Floor

  
	
   

  	
  Boston,
  MA 02110—1700

  
	
   

  	
  Phone:  (617) 912-1420

  
	
   

  	
  Fax:  (617) 912-1449

  



 


[Signature
Page to Stock and Warrant Purchase Agreement]


 

















 


	
   

  	
  PURCHASER:

  
	
   

  	
   

  
	
   

  	
  NGP
  ENERGY TECHNOLOGY PARTNERS,

  L.P.

  
	
   

  	
   

  
	
   

  	
  By:
   NGP ETP, L.L.C.

  
	
   

  	
  Its:  General Partner

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  



 


 


	
   

  	
  Address:

  
	
   

  	
  NGP Energy Technology Partners, L.P.

  
	
   

  	
  1700
  K Street NW, Suite 750

  
	
   

  	
  Washington,
  D.C. 20006

  
	
   

  	
  Phone:  (202) 536-3920

  
	
   

  	
  Fax:  (202) 536-3921

  



 


[Signature
Page to Stock and Warrant Purchase Agreement]


 

















 


Exhibit
A


 


Schedule of
Purchasers


 


FIRST TRANCHE CLOSING


 


	
  Purchaser

  	
   

  	
  Number of Shares

  of Series C

  Preferred Stock

  	
   

  	
  Initial Number

  of Underlying

  Preferred

  Shares

  	
   

  	
  Initial Number of

  Warrant Shares

  Underlying First

  Tranche

  Warrants

  	
   

  	
  Closing Purchase

  Price*

  	
   

  
	
  RockPort
  Capital Partners II, L.P.

  	
   

  	
  5,000

  	
   

  	
  4,807,692

  	
   

  	
  7,631,036

  	
   

  	
  $

  	
  5,000,000.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  NGP
  Energy Technology Partners, L.P.

  	
   

  	
  5,000

  	
   

  	
  4,807,692

  	
   

  	
  7,631,036

  	
   

  	
  $

  	
  5,000,000.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Subtotal – First Tranche:

  	
   

  	
  10,000

  	
   

  	
  9,615,384

  	
   

  	
  15,262,072

  	
   

  	
  $

  	
  10,000,000.00

  	
   

  



 


SECOND TRANCHE CLOSING


 


	
  Purchaser

  	
   

  	
  Number of Shares

  of Series C

  Preferred Stock

  	
   

  	
  Initial Number

  of Underlying

  Preferred

  Shares

  	
   

  	
  Initial Number of

  Warrant Shares

  Underlying

  Second Tranche

  Warrants

  	
   

  	
  Closing Purchase

  Price*

  	
   

  
	
  RockPort
  Capital Partners II, L.P.

  	
   

  	
  10,000

  	
   

  	
  9,615,384

  	
   

  	
  4,195,887

  	
   

  	
  $

  	
  10,000,000.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  NGP
  Energy Technology Partners, L.P.

  	
   

  	
  5,000

  	
   

  	
  4,807,692

  	
   

  	
  253,580

  	
   

  	
  $

  	
  5,000,000.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Subtotal – Second Tranche:

  	
   

  	
  15,000

  	
   

  	
  14,423,076

  	
   

  	
  4,449,467

  	
   

  	
  $

  	
  15,000,000.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  TOTAL:

  	
   

  	
  25,000

  	
   

  	
  24,038,460

  	
   

  	
  19,711,539

  	
   

  	
  $

  	
  25,000,000.00

  	
   

  



 






*
Method of payment to be indicated.


 


Please
Note:  The number of Underlying Preferred
Shares and Warrant Shares assumes that the anti-dilution provisions of the
Series C Preferred Stock and the Warrants have not been triggered.