2. Interest. Upon the maturity of this Note, the Company shall pay interest at therate of ten percent (10.0%) per annum (the “Initial Interest Rate”) on the principaloutstanding during the period beginning on the date of issuance of this Note and ending on the datethat the principal amount of this Note becomes due and payable. In the event that the principalamount of this Note is not paid in full when such amount becomes due and payable, interest at therate equal to the lesser of (a) the Initial Interest Rate plus three percent (3.0%) or (b) thehighest rate then permitted by law shall continue to accrue on the balance of any unpaid principaluntil such balance is paid.3. Events of Default. If any of the events specified in this Section 3 shalloccur (herein individually referred to as an “Event of Default”), the Holder of the Notemay, so long as such condition exists, declare the entire principal and unpaid accrued interesthereon immediately due and payable, by notice in writing to the Company:(i) Default in the payment of the principal and unpaid accrued interest of this Notewhen due and payable if such default is not cured by the Company within ten (10) days afterthe Holder has given the Company written notice of such default; or(ii) The institution by the Company of proceedings to be adjudicated as bankrupt orinsolvent, or the consent by it to institution of bankruptcy or insolvency proceedingsagainst it or the filing by it of a petition or answer or consent seeking reorganization orrelease under the federal Bankruptcy Act, or any other applicable federal or state law, orthe consent by it to the filing of any such petition or the appointment of a receiver,liquidator, assignee, trustee, or other similar official of the Company, or of anysubstantial part of its property, or the making by it of an assignment for the benefit ofcreditors, or the taking of corporate action by the Company in furtherance of any suchaction; or(iii) If, within sixty (60) days after the commencement of an action against theCompany (and service of process in connection therewith on the Company) seeking anybankruptcy, insolvency, reorganization, liquidation, dissolution, or similar relief underany present or future statute, law, or regulation, such action shall not have been resolvedin favor of the Company or all orders or proceedings thereunder affecting the operations orthe business of the Company stayed, or if the stay of any such order or proceeding shallthereafter be set aside, or if, within sixty (60) days after the appointment without theconsent or acquiescence of the Company of any trustee, receiver, or liquidator of theCompany or of all or any substantial part of the properties of the Company, such appointmentshall not have been vacated; or(iv) Any declared default of the Company under any Senior Indebtedness (as definedbelow) that gives the holder thereof the right to accelerate such Senior Indebtedness, andsuch Senior Indebtedness is in fact accelerated by the holder.4. Subordination. The indebtedness evidenced by this Note is hereby expresslysubordinated, to the extent and in the manner hereinafter set forth, in right of payment to theprior payment in full of all the Company’s Senior Indebtedness, as hereinafter defined.4.1 Senior Indebtedness. As used in this Note, the term “Senior Indebtedness” shallmean the principal of and unpaid accrued interest on: (i) all indebtedness of the Company to banks,commercial finance lenders, insurance companies, or other financial institutions regularly engagedin the business of lending money, which is for money borrowed by the Company (whether or notsecured), and (ii) any such indebtedness or any debentures, notes, or other evidence ofindebtedness issued in exchange for or to refinance such Senior Indebtedness, or any indebtednessarising from the satisfaction of such Senior Indebtedness by a guarantor; provided,however, that the aggregate balance of all Senior Indebtedness outstanding at any given time shall not exceed $65.0 million in principal amountunless the Holder consents in writing to an amount of Senior Indebtedness in excess of this amount.
 
2

 
4.2 Default on Senior Indebtedness. If there should occur any receivership,insolvency, assignment for the benefit of creditors, bankruptcy, reorganization, or arrangementswith creditors (whether or not pursuant to bankruptcy or other insolvency laws), sale of all orsubstantially all of the assets, dissolution, liquidation, or any other marshalling of the assetsand liabilities of the Company, or if this Note shall be declared due and payable upon theoccurrence of an event of default with respect to any Senior Indebtedness, then (i) no amount shallbe paid by the Company in respect of the principal of or interest on this Note at the timeoutstanding, unless and until the principal of and interest on the Senior Indebtedness thenoutstanding shall be paid in full, and (ii) no claim or proof of claim shall be filed with theCompany by or on behalf of the Holder of this Note that shall assert any right to receive anypayments in respect of the principal of and interest on this Note, except subject to the payment infull of the principal of and interest on all of the Senior Indebtedness then outstanding. If thereoccurs an event of default that has been declared in writing with respect to any SeniorIndebtedness, or in the instrument under which any Senior Indebtedness is outstanding, permittingthe holder of such Senior Indebtedness to accelerate the maturity thereof, then, unless and untilsuch event of default shall have been cured or waived or shall have ceased to exist, or all SeniorIndebtedness shall have been paid in full, no payment shall be made in respect of the principal ofor interest on this Note, unless within three (3) months after the happening of such event ofdefault, the maturity of such Senior Indebtedness shall not have been accelerated.4.3 Effect of Subordination. Subject to the rights, if any, of the holders of SeniorIndebtedness under this Section 4, including the right to receive cash, securities, orother properties otherwise payable or deliverable to the Holder of this Note, nothing contained inthis Section 4 shall impair, as between the Company and the Holder, the obligation of theCompany, subject to the terms and conditions hereof, to pay to the Holder the principal hereof andinterest hereon as and when the same become due and payable, or shall prevent the Holder of thisNote, upon default hereunder, from exercising all rights, powers, and remedies otherwise providedherein or by applicable law.4.4 Subrogation. Subject to the payment in full of all Senior Indebtedness and untilthis Note shall be paid in full, the Holder shall be subrogated to the rights of the holders ofSenior Indebtedness (to the extent of payments or distributions previously made to such holders ofSenior Indebtedness pursuant to the provisions of Section 4.2 above) to receive payments ordistributions of assets of the Company applicable to the Senior Indebtedness. No such payments ordistributions applicable to the Senior Indebtedness shall, as between the Company and itscreditors, other than the holders of Senior Indebtedness and the Holder, be deemed to be a paymentby the Company to or on account of this Note; and for the purpose of such subrogation, no paymentsor distributions to the holders of Senior Indebtedness to which the Holder would be entitled exceptfor the provisions of this Section 4 shall, as between the Company and its creditors, otherthan the holders of Senior Indebtedness and the Holder, be deemed to be a payment by the Company toor on account of the Senior Indebtedness.4.5 Undertaking. By its acceptance of this Note, the Holder agrees to execute anddeliver such documents as may be reasonably requested from time to time by the Company or thelender of any Senior Indebtedness in order to implement the foregoing provisions of thisSection 4.5. Prepayment. Upon prior written notice to the Holder, the Company may at any timeprepay in whole or in part the principal sum, plus accrued interest to date of payment, of thisNote.
 
3

 
6. Conversion.6.1 Voluntary Conversion. Commencing on December 31, 2008, the Holder of this Notehas the right, at the Holder’s option and by delivering notice to the Company pursuant toSection 6.3.1, to convert the outstanding principal and accrued interest under this Note,in whole but not in part, into fully paid and nonassessable shares of the Company’s Common Stock,par value $0.001 per share (“Common Stock”) at a per share conversion price equal to theclosing price of the Company’s Common Stock as quoted on the Nasdaq Capital Market (or such othernational securities exchange or other quotation medium that publishes quotes of the Common Stock)on the date prior to the date of such notice of conversion; provided, however, thatHolder’s right to convert this Note pursuant to Section 6.1, shall be subject at all timesto applicable Marketplace Rules of the Nasdaq Stock Market, LLC regarding stockholder approval (forso long as the Company’s securities are subject to such rules). The conversion price of this Notedetermined pursuant to this Section 6.1 shall be referred to herein as the “ConversionPrice.”6.2 Automatic Conversion. If, prior to December 31, 2009, (x) the Company obtains atleast $5,000,000 of equity financing pursuant to the Company’s issuance of equity securities of theCompany (or securities convertible into equity securities of the Company) pursuant to a privateplacement to one or more bona fide third-party investors (an “Equity Funding Event”), thenupon the completion of the Equity Funding Event, the entire principal amount of this Note togetherwith accrued interest thereon shall be automatically converted as part of such financing into thesame type of securities issued in the Equity Funding Event and at the same purchase price and onthe same terms as such equity securities issued in the Equity Funding Event.6.3 Conversion Procedure.6.3.1 Notice of Conversion Pursuant to Section 6.1. Before the Holder shall beentitled to convert this Note into shares of Common Stock pursuant to Section 6.1, it shallsurrender this Note at the office of the Company and shall give written notice by mail, postageprepaid, to the Company at its principal corporate office, of the election to convert the samepursuant to Section 6.1, and shall state therein the name or names in which the certificateor certificates for shares of Common Stock are to be issued. The Company shall, as soon aspracticable thereafter, issue and deliver at such office to the Holder of this Note a certificateor certificates for the number of shares of Common Stock to which the Holder of this Note shall beentitled as aforesaid. Such conversion shall be deemed to have been made immediately prior to theclose of business on the date of such surrender of this Note, and the person or persons entitled toreceive the shares of Common Stock issuable upon such conversion shall be treated for all purposesas the record holder or holders of such shares of Common Stock as of such date.6.3.2 Notice of Conversion Pursuant to Section 6.2. If this Note is automaticallyconverted pursuant to Section 6.2, written notice shall be delivered to the Holder of thisNote at the address last shown on the records of the Company for the Holder or given by the Holderto the Company for the purpose of notice or, if no such address appears or is given, at the placewhere the principal executive office of the Company is located, notifying the Holder of theconversion to be effected, specifying the type and amount of the equity securities into which theNote will be converted, the principal amount of the Note to be converted, the amount of accruedinterest to be converted, the date on which such conversion will occur and calling upon such Holderto surrender to the Company, in the manner and at the place designated, the Note. Upon suchconversion of this Note, Holder agrees to execute and deliver to the Company all transactiondocuments entered into by other purchasers participating in the Equity Funding Event, provided thatHolder shall have the right to review and comment on such transaction documents during thetransaction process.
 
4

 
6.4 Mechanics and Effect of Conversion. No fractional shares of Common Stock or otherequity securities shall be issued upon conversion of this Note. In lieu of the Company issuing anyfractional shares to the Holder upon the conversion of this Note, the Company shall pay to theHolder the amount of outstanding principal that is not so converted, such payment to be in the formas provided below. Upon the conversion of this Note pursuant to Section 6.1 or 6.2above, the Holder shall surrender this Note, duly endorsed, at the principal office of the Company.At its expense, the Company shall, as soon as practicable thereafter, issue and deliver to suchHolder at such principal office a certificate or certificates for the number of shares of suchCommon Stock or other equity securities which the Holder shall be entitled upon such conversion(bearing such legends as are required by applicable state and federal securities laws in theopinion of counsel to the Company), together with any other securities and property to which theHolder is entitled upon such conversion under the terms of this Note, including a check payable tothe Holder for any cash amounts payable as described above. In the event of any conversion of thisNote pursuant to Section 6.2 above, such conversion shall be deemed to have been madeimmediately prior to the event causing the automatic conversion, and on and after such date theHolder of this Note entitled to receive the shares of Common Stock or other equity securitiesissuable upon such conversion shall be treated for all purpose as the record Holder of such shares.Upon conversion of this Note, the Company shall be forever released from all its obligations andliabilities under this Note, except that the Company shall be obligated to pay the Holder, withinten (10) days after the date of such conversion, any interest accrued and unpaid or unconverted toand including the date of such conversion, and no more.7. Conversion Price Adjustments.7.1 Adjustments for Stock Splits and Subdivisions. In the event the Company should atany time or from time to time after the date of issuance hereof fix a record date for theeffectuation of a split or subdivision of the outstanding shares of Common Stock or thedetermination of holders of Common Stock entitled to receive a dividend or other distributionpayable in additional shares of Common Stock or other securities or rights convertible into, orentitling the holder thereof to receive directly or indirectly, additional shares of Common Stock(hereinafter referred to as “Common Equivalents”) without payment of any consideration bysuch holder for the additional shares of Common Stock or the Common Equivalents, then, as of suchrecord date (or the date of such dividend distribution, split, or subdivision if no record date isfixed), the Conversion Price of this Note shall be appropriately decreased so that the number ofshares of Common Stock issuable upon conversion of this Note shall be increased in proportion tosuch increase of outstanding shares.7.2 Adjustments for Reverse Stock Splits. If the number of shares of Common Stockoutstanding at any time after the date hereof is decreased by a combination of the outstandingshares of Common Stock, then, following the record date of such combination, the Conversion Pricefor this Note shall be appropriately increased so that the number of shares of Common Stockissuable on conversion hereof shall be decreased in proportion to such decrease in outstandingshares.7.3 Notices of Record Date, etc. In the event of:7.3.1 Any taking by the Company of a record of the holders of any class of securities of theCompany for the purpose of determining the holders thereof who are entitled to receive any dividend(other than a cash dividend payable out of earned surplus at the same rate as that of the last suchcash dividend theretofore paid) or other distribution, or any right to subscribe for, purchase orotherwise acquire any shares of stock of any class or any other securities or property, or toreceive any other right; or
 
5

 
7.3.2 Any capital reorganization of the Company, any reclassification or recapitalization ofthe capital stock of the Company, or any transfer of all or substantially all of the assets of theCompany to any other person or any consolidation or merger involving the Company; or7.3.3 Any voluntary or involuntary dissolution, liquidation, or winding up of the Company,then the Company will mail to the holder of this Note at least ten (10) days prior to the earliestdate specified therein, a notice specifying:7.3.3.1 The date on which any such record is to be taken for the purpose of such dividend,distribution, or right, and the amount and character of such dividend, distribution, or right; and7.3.3.2 The date on which any such reorganization, reclassification, transfer, consolidation,merger, dissolution, liquidation, or winding up is expected to become effective and the record datefor determining stockholders entitled to vote thereon.7.4 Reservation of Stock Issuable Upon Conversion. The Company shall at all timesreserve and keep available out of its authorized but unissued shares of Common Stock or otherequity securities solely for the purpose of effecting the conversion of the Note such number of itsshares of Common Stock or other equity securities as shall from time to time be sufficient toeffect the conversion of the Note; and if at any time the number of authorized but unissued sharesof Common Stock or other equity securities shall not be sufficient to effect the conversion of theentire outstanding principal amount and accrued interest of this Note, in addition to such otherremedies as shall be available to the holder of this Note, the Company will use its best efforts totake such corporate action as may, in the opinion of its counsel, be necessary to increase itsauthorized but unissued shares of Common Stock or other equity securities) to such number of sharesas shall be sufficient for such purposes.8. Assignment. Subject to the restrictions on transfer described in Section10 below, the rights and obligations of the Company and the Holder of this Note shall bebinding upon and benefit the successors, assigns, heirs, administrators, and transferees of theparties.9. Waiver and Amendment. Any provision of this Note may be amended, waived, ormodified upon the written consent of the Company and Holder.10. Transfer of This Note or Securities Issuable on Conversion Hereof. With respectto any offer, sale, or other disposition of this Note or securities into which such Note may beconverted, the Holder will give written notice to the Company prior thereto, describing briefly themanner thereof, together with a written opinion of such Holder’s counsel, to the effect that suchoffer, sale, or other distribution may be effected without registration or qualification (under anyfederal or state law then in effect). Promptly upon receiving such written notice and reasonablysatisfactory opinion, if so requested, the Company shall notify such Holder that such Holder maysell or otherwise dispose of this Note or such securities, all in accordance with the terms of thenotice delivered to the Company. If a determination has been made pursuant to this Section10 that the opinion of counsel for the Holder is not reasonably satisfactory to the Company,the Company shall so notify the Holder promptly after such determination has been made. Each Notethus transferred and each certificate representing the securities thus transferred shall bear alegend as to the applicable restrictions on transferability in order to ensure compliance with theSecurities Act, unless in the opinion of counsel for the Company such legend is not required. TheCompany may issue stop transfer instructions to its transfer agent in connection with suchrestrictions.
 
6

 
11. Treatment of Note. To the extent permitted by generally accepted accountingprinciples and applicable tax laws, the Company will treat, account, and report the Note as debtand not equity for accounting purposes and with respect to any returns filed with federal, state,or local tax authorities.12. Notices. Any notice, request, or other communication required or permittedhereunder shall be in writing and shall be deemed to have been duly given on the date of service ifpersonally served on the party to whom such notice is to be given, on the date of transmittal ofservice via telecopy to the party to whom notice is to be given (with a confirming copy deliveredwithin 24 hours thereafter), or on the third day after mailing if mailed to the party to whomnotice is to be given, by first class mail, registered or certified mail, postage prepaid, or via arecognized overnight courier providing a receipt for delivery and properly addressed at therespective addresses of the parties as set forth herein. Any party hereto may by notice so givenchange its address for future notice hereunder.13. No Stockholder Rights. Nothing contained in this Note shall be construed asconferring upon the Holder or any other person the right to vote or to consent or to receive noticeas a stockholder in respect of meetings of stockholders for the election of directors of theCompany or any other matters or any rights whatsoever as a stockholder of the Company; and nodividends or interest shall be payable or accrued in respect of the Common Stock or other equitysecurities obtainable hereunder until, and only to the extent that, this Note shall have beenconverted.14. Governing Law. This Agreement shall be governed by and construed in accordancewith the laws of the State of Arizona, excluding that body of law relating to conflict of laws.15. Heading; References. All headings used herein are used for convenience only andshall not be used to construe or interpret this Note. Except where otherwise indicated, allreferences herein to Sections refer to Sections hereof.[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
 
7

 
IN WITNESS WHEREOF, the Company has caused this Note to be issued this 13 day of August, 2008.      RENEGY HOLDINGS, INC.