Senior Secured Promissory Note dated June 1, 2007



 Exhibit 10.1 
 EXECUTION COPY 
 SENIOR SECURED PROMISSORY NOTE 
 THE SECURITIES REPRESENTED BY THIS NOTE HAVE BEEN ACQUIRED BY THE HOLDER FOR ITS OWN ACCOUNT, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO THE DISTRIBUTION OF SUCH
SECURITIES. THE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND COMPLIANCE WITH SUCH STATE SECURITIES LAWS, IN COMPLIANCE WITH RULE 144 UNDER THE SECURITIES ACT, OR AN OPINION OF COUNSEL OR OTHER EVIDENCE REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION AND/OR COMPLIANCE IS NOT REQUIRED. 
  

			
	$12,500,000 (the “Principal Amount”)	 	June 1, 2007
		 	Wallingford, Connecticut

 FOR VALUE RECEIVED, DISTRIBUTED ENERGY SYSTEMS CORP., a corporation incorporated under the Laws of
the State of Delaware (the “Company”), promises to pay to the order of Perseus Partners VII, L.P., or its registered assigns (the “Holder”), the Principal Amount, or such lesser amount as shall then equal the
outstanding Principal Amount, together with interest thereon at a rate equal to 12.5% per annum, and computed on the basis of a year consisting of 365 days in accordance with the terms set forth in Section 2 of this senior secured
promissory note (this “Note”). 
 This Note is issued pursuant to the Securities Purchase Agreement
(the “Purchase Agreement”) dated as of May 10, 2007 by and between Perseus Partners VII, L.P. and the Company. 
 The following is a statement of the rights of the Holder and the conditions to which this Note is subject, and to which the Holder hereof, by the acceptance of this Note, agrees: 
 1. Definitions. Capitalized terms defined in the Purchase Agreement and used herein without definition have the same meaning herein as in the
Purchase Agreement. In addition, as used in this Note, the following capitalized terms have the following meanings. 
 (a) “Additional
Secured Note” shall have the meaning set forth in Section 2(a). 
 (b) “Change of Control” means any of the
following: 
 (i) any merger, consolidation, reorganization, recapitalization, or other business combination involving the Company or any
Material Subsidiary, in which the shareholders of the Company immediately prior thereto do not own, directly or indirectly, outstanding voting securities representing more than 50% of the combined outstanding voting power of the surviving entity in
such merger, consolidation, reorganization, recapitalization or other business combination; 
  

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 (ii) the sale of all, or substantially all, of the assets of the Company or any Material Subsidiary to a
third party not wholly owned, directly or indirectly, by the Company; 
 (iii) the sale of voting securities of the Company in a transaction
or a series of related transactions to any Person (or group of Persons acting in concert), other than any Affiliates of the Holder or any Person who is or has been a Holder, that results in such Person (or group of Persons) (together with their
Affiliates) owning more than 50% of the outstanding voting securities of the Company or any Material Subsidiary; or 
 (iv) the termination
or removal of either Ambrose L. Schwallie from his position as Chief Executive Officer or Peter Tallian from his position as Chief Financial Officer with the Company without cause, unless approved by holders of a majority of the outstanding
principal amount of the Senior Secured Note(s). For purposes of clause 1(b)(iv), “cause” shall mean any (i) willful failure, which failure is not cured within 30 days of written notice to Ambrose L. Schwallie or Peter Tallian, as
applicable, to perform his material responsibilities to the Company or (ii) willful misconduct which materially and adversely affects the business reputation of the Company. 
 (c) “Closing Price” means the closing price of the Common Shares as reported on the Nasdaq Global Market. 
 (d) “Common Shares” means shares of the common stock, par value $0.01 per share, of the Company. 
 (e) “Date of Issuance” means the date of issuance of this Note by the Company under the Purchase Agreement. 
 (f) “Default Interest Rate” means the lesser of 20% or the maximum rate allowed by applicable Law. 
 (g) “Lien” means any lien, security interest, mortgage, pledge, charge, license, adverse claim, reversion or encumbrance of any kind,
and includes conditional sales contracts, title retention agreements and capital leases. 
 (h) “Maturity Date” means March
1, 2008. 
 (i) “Normal Course Liens” means: 
 (i) any builder’s, mechanic’s, materialman’s, worker’s, repairman’s or other similar statutory Lien incurred in the ordinary course of business, that has not at the time been filed pursuant to
applicable Laws and any such Lien that, although filed, relates solely to an obligation not overdue or, if overdue, is being contested in good faith or is bonded or in respect of which the appropriate amount has been withheld in accordance with
applicable Laws; 
 (ii) any right reserved to, or vested in, any applicable Governmental Entity by the terms of any applicable Laws, any
applicable authorization by a Governmental 

  

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Entity, or any property interest, easement, right-of-way or servitude issued or granted by applicable Laws or by any applicable authorization by a
Governmental Entity, to terminate any such authorization, easement, right-of-way or servitude or to purchase, expropriate, appropriate or recapture or designate a purchaser of any property; 
 (iii) any Lien for Taxes, assessment, water or sewer, or other rents or charges not at the time overdue or, if overdue, being contested in good faith;

 (iv) any Lien arising in connection with workers’ compensation, unemployment or employment insurance or other social benefits
required by applicable Laws not at the time overdue or, if overdue, being contested in good faith; 
 (v) Liens, deposits or pledges to
secure statutory obligations or performance of bids, tenders, contracts (other than for the repayment of money) or leases, in an aggregate amount not to exceed $50,000; 
 (vi) involuntary Liens (including the Lien of an attachment, judgment or execution) in an aggregate amount not to exceed $10,000 and not at the time overdue or, if overdue, contested in good faith; 
 (vii) Purchase Money Liens; 
 (viii) Liens
granted or created by the Transaction Documents; and 
 (ix) any other Liens consented to by the Holder or approved pursuant to
Section 6(b); 
 provided that in each case where it is in good faith contesting any obligations, Taxes or assessments as contemplated herein,
(A) it shall have established to the satisfaction of the Holder (acting reasonably) a reserve in accordance with GAAP unless there is a reasonable likelihood that the amount will be required to be paid, in which case it shall establish
sufficient reserve for or deposit with a court of competent jurisdiction or the assessing authority, or to such other Person as is acceptable to the Holder, acting reasonably, sufficient funds or a surety bond, for the total amount claimed to be
secured by such Liens, where the application of such reserve, funds or bond would result in their discharge, and (B) such Lien shall only be a Permitted Lien for so long as such contestation effectively postpones or stays the enforcement of the
rights of the holder thereof. 
 (j) “Obligations” means the principal, interest and other amounts payable under this Note.

 (k) “Permitted Indebtedness” means (i) the amount permitted by (A) the Permitted Existing Secured Indebtedness
and (ii) indebtedness permitted to be incurred under the terms of the Purchase Agreement. 
 (l) “Permitted Liens”
means Liens granted pursuant to the Permitted Existing Secured Indebtedness or a Normal Course Lien. 
  

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 (m) “Purchase Money Lien” means a Lien incurred in the ordinary course of business only
to secure the purchase price of an asset, or to secure debt used only to finance or refinance the purchase of an asset, in the aggregate amount not to exceed $50,000. 
 (n) “Secured Note” means this Note, any Additional Secured Notes issued or any notes issued in replacement of the foregoing. 
 (o) “Trading Day” means any day on which Nasdaq is open for trading. 
 (p) “Transaction Documents” shall mean each of the Promissory Notes, the Purchase Agreement, the Warrants, the Security and Pledge
Agreement, the Subsidiary Security and Pledge Agreements, the Guaranties, the Registration Rights Agreement, the Intercreditor Agreement, the Management Rights Letter and any other instrument or agreement at any time delivered in connection with the
foregoing to secure the Obligations. 
 (q) “Warrants” shall mean warrants to purchase Common Shares issued pursuant to the
Purchase Agreement. 
 2. Interest. 
 (a) All unpaid principal, together with any accrued but unpaid interest and other amounts payable under this Note, shall be due and payable on (i) the Maturity Date, or (ii) when such amounts are declared
due and payable by the Holder or made automatically due and payable upon or after (A) the occurrence of an Event of Default (as defined below), (B) the liquidation or dissolution of the Company, or (C) any Change of Control. Interest
on this Note shall be payable (and if not paid when due, shall be compounded) quarterly in arrears on each September 1, December 1, March 1 and June 1 after the date of issuance of this Note and shall be payable at the
option of the Company either (i) in lawful money of the United States of America, or (ii) or by the issuance of an additional senior secured promissory note identical in all respects to this Note except that it shall have a principal
amount equal to such interest payment and a different date of issuance (each, an “Additional Secured Note”). 
 (b) If the
Company elects to pay interest by issuing an Additional Secured Note, it shall give notice to the Holder on the day such payment is due and deliver such Additional Secured Note to the Holder within five Business Days. 
 (c) Interest shall be calculated based on the weighted average principal outstanding for such period. The first payment of interest shall be on
September 1, 2007 and shall be calculated from the Date of Issuance to August 31, 2007. 
 3. Secured Obligations;
Collateral. In order to secure the Company’s payment and performance of the Obligations and to secure the Company’s prompt, full and faithful performance and observance of all of the provisions under this Note and the other Transaction
Documents, the Company has delivered to the Holder, the Security and Pledge Agreement, pursuant to which the Company has granted to the Holder as security and collateral for the payment and performance of the Obligations, a security interest in all
of the property and assets of the Company, whether now existing or hereafter arising, and all as more specifically described, and on the terms and conditions set forth in, the Security and Pledge Agreement. The 

  

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Company’s Material Subsidiaries have also entered into and delivered to the Holder, as further protection, the Guaranties and the Subsidiary Security
and Pledge Agreements. The security interest granted by the Company under the Security and Pledge Agreement, and by the Company’s Material Subsidiaries under the Subsidiary Security and Pledge Agreement, securing the indebtedness evidenced by
this Note, including all Obligations, is senior to all other liens, security interests or encumbrances securing any other indebtedness of each of the Company and its Material Subsidiaries other than the Permitted Existing Secured Indebtedness
(pursuant to the Intercreditor Agreement). 
 4. Events of Default. The occurrence of any of the following shall constitute an
“Event of Default” under this Note: 
 (a) Failure to Pay. The Company shall fail to pay when due any principal
payment on this Note, or any interest or other payment required under the terms of this Note, and such failure continues for three Business Days thereafter; 
 (b) Breaches of Representations and Warranties. Any representation or warranty made by the Company in this Note or in any of the other Transaction Documents shall not have been true in any material respect when
made; provided, that if the facts or events making such representation or warranty untrue are capable of correction or cure, then the Company shall have ten Business Days after notice of the breach is delivered to the Company to correct or
cure such breach; 
 (c) Breaches of Other Covenants. The Company shall fail to observe or to perform any other covenant, obligation,
condition or agreement in any material respect contained in this Note or the other Transaction Documents, other than those specified in Section 4(a) of this Note, and such failure continues for ten Business Days after notice of the breach is
delivered to the Company; 
 (d) Cross-Default. (i) The Company shall default under (A) any Secured Note, or (B) its
payment obligations pursuant to any Transaction Document, and such failure continues for five Business Days thereafter, or (ii) the Company or any of its Subsidiaries shall default under any other agreement, bond, debenture, note or other
evidence of indebtedness for money borrowed, under any guaranty or under any mortgage, or indenture pursuant to which there shall be issued or by which there shall be secured or evidenced any indebtedness for money borrowed by the Company or any of
its Subsidiaries, whether such indebtedness now exists or shall hereafter be created, including but not limited to, default under the Permitted Existing Secured Indebtedness, which default (other than a default under a Secured Note) pursuant to
clause (ii) shall have resulted in indebtedness of at least $250,000 being due and payable prior to the date on which it would otherwise become due and payable; 
 (e) Undischarged Judgment. One or more judgments for the payment of money in an amount in excess of $250,000 in the aggregate shall be rendered against the Company or any of its Material Subsidiaries (or any
combination thereof) and shall remain undischarged for a period of ten consecutive Business Days during which execution shall not be effectively stayed, or any action is legally taken by a judgment creditor to levy upon any such judgment;

  

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 (f) Voluntary Bankruptcy or Insolvency Proceedings. The Company (or any Subsidiary thereof) shall
(i) apply for or consent to the appointment of a receiver, trustee, liquidator or custodian of itself or of all or a substantial part of its property, (ii) be unable, or admit in writing its inability, to pay its debts generally as they
mature, (iii) make a general assignment for the benefit of its or any of its creditors, (iv) be dissolved or liquidated in full or in part, (v) become insolvent (as such term may be defined or interpreted under any applicable
statute), (vi) commence a voluntary case or other Proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar Law now or hereafter in effect or consent to
any such relief or to the appointment of or taking possession of its property by any official in an involuntary case or other Proceeding commenced against it or (vii) take any action for the purpose of effecting any of the foregoing;

 (g) Involuntary Bankruptcy or Insolvency Proceedings. Proceedings for the appointment of a receiver, trustee, liquidator or
custodian of the Company (or any Subsidiary thereof) or of all or a substantial part of the property thereof, or an involuntary case or other Proceeding seeking liquidation, reorganization or other relief with respect to the Company (or any
Subsidiary thereof) or the debts thereof under any bankruptcy, insolvency or other similar Law now or hereafter in effect shall be commenced and an order for relief entered, or such case or Proceeding shall not be dismissed or discharged within 30
days of commencement; 
 (h) Board Observer; Protective Provisions. Any of the following conditions exist: (i) the Company shall
have failed to allow the Perseus Observer to attend and observe any meeting of the Board, pursuant to and subject to the limitations set forth in Section 5.6(a) of the Purchase Agreement or (ii) the Company breaches any of its obligations
under Section 5.6 or 5.14 of the Purchase Agreement; and, in the case of any such breach described in this clause (ii) that is reasonably susceptible to cure, such breach continues uncured for ten Business Days after notice of such breach
is delivered to such Company; or 
 (i) Stockholder Approval. The Board shall fail to recommend to the Company’s stockholders
that they grant the Stockholder Approval (or shall revoke or rescind its recommendation), the Board shall otherwise advise the Company’s stockholders not to grant the Stockholder Approval or the Company shall fail to include the Board’s
recommendation in its proxy solicitation materials delivered to the Company’s stockholders. 
 5. Rights of Holder upon Default.

 (a) Upon the occurrence or existence of any Event of Default (other than an Event of Default referred to in Section 4(f) or 4(g) of
this Note) and at any time thereafter during the continuance of such Event of Default, holders of a majority of the outstanding principal amount of the Senior Secured Note(s) may declare all outstanding Obligations payable by the Company under this
Note to be immediately due and payable without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived, anything contained in this Note or in the other Transaction Documents to the contrary
notwithstanding. Upon the occurrence or existence of any Event of Default described in Sections 4(f) or 4(g) of this Note, immediately and without notice, all outstanding Obligations payable by the Company hereunder shall automatically become
immediately due and payable, without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived, 

  

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anything contained in this Note or in the other Transaction Documents to the contrary notwithstanding. In addition to the foregoing remedies, upon the
occurrence or existence of any Event of Default, the Holder may exercise any other right, power or remedy granted to it by the Transaction Documents or otherwise permitted to it by Law, either by suit in equity or by action at Law, or both.

 (b) Notwithstanding anything to the contrary contained in this Note, in addition to the rights of the Holder specified in
subsection (a) of this Section 5, on the date an Event of Default under this Note occurs, the interest rate on this Note shall increase, from that date forward, to the Default Interest Rate, which interest shall be compounded quarterly and
payable solely in lawful money of the United States of America. 
 6. Covenants. 
 (a) Affirmative Covenants. The Company covenants that, so long as any Obligations remain outstanding, the Company shall: 
 (i) Security and Pledge Agreement. Grant to the Holder, and maintain for the benefit of the Holder, a lien on and security interest in all of its
assets and properties, whether now or hereafter existing, owned or acquired, which the Company shall perfect by filing UCC-1 financing statements in the appropriate jurisdictions and taking other actions to perfect the security interest as the
Holder may reasonably request, all in accordance with the terms of the Security and Pledge Agreement, and cause its Material Subsidiaries to do the same. 
 (ii) Preservation of Corporate Existence. Preserve and maintain its and its Material Subsidiaries’ corporate existence, rights, franchises and privileges in the jurisdiction of its incorporation, and
qualify and remain qualified as a foreign corporation in each jurisdiction in which such qualification is required, unless the failure to so preserve, maintain or qualify does not and will not have a Material Adverse Effect, and preserve and
maintain all of its Proprietary Assets that are material to it and its Subsidiaries’ business. 
 (iii) Compliance with Laws.
Comply with all applicable Laws of any Governmental Entity, except non-compliance being contested in good faith through appropriate Proceedings so long as the Company shall have set up and funded sufficient reserves, if any, required under GAAP with
respect to such items. 
 (iv) Performance Under the Note. Pay, observe or perform any other covenant, obligation, condition or
agreement contained in this Note. 
 (v) Payment Defaults on Other Indebtedness. If the Company defaults on a payment required under
any indebtedness (other than any indebtedness owed to the Holder) and, pursuant to a binding agreement, the Company is or would be precluded from making a payment in cash to the Holder during the continuance of such default (a “Payment
Default”), or the Company believes that a Payment Default may occur, (A) consult with the Holder prior to the occurrence of such Payment Default and (B) during the continuance of such Payment Default pay interest on this Note only
in the form of Additional Secured Notes. 
  

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 (b) Negative Covenants. The Company covenants that so long as any Obligations remain outstanding,
neither the Company nor any Subsidiary shall directly or indirectly take any of the following actions without the prior written consent of the Holder: 
 (i) Create, incur, assume, guarantee or be or remain liable for, contingently or otherwise, or suffer to exist any indebtedness for borrowed money, except Indebtedness incurred pursuant to the Transaction Documents or
Permitted Indebtedness; 
 (ii) Create, incur, assume or suffer to exist any Lien of any kind on any of its assets, except for Liens created
in connection with the Transaction Documents or Permitted Liens; 
 (iii) Enter into any transaction, or a series of related transactions,
which would result in a Change of Control; 
 (iv) Amend the Permitted Existing Secured Indebtedness, except as otherwise permitted pursuant
to the terms of this Note; or 
 (v) Alter the Business Plan in a manner that is material and adverse to the Company. 
 7. Prepayment. The Company shall have no right to prepay this Note or any interest or fees accruing or incurred with respect to this Note, without
the prior written consent of the Holder. 
 8. Waiver and Amendment. Any provision of this Note may be amended, waived or modified
upon the written consent of both the Company and the holders of a majority of the outstanding principal amount of the Senior Secured Note(s). Additionally, the holders of a majority of the outstanding principal amount of the Secured Note(s) shall be
deemed to have waived any breach of any covenant set forth in Section 6(b) hereof in the event that each Perseus Director votes in favor of the action that causes such breach, provided that all material terms related to the cause thereof
were disclosed to such Board members. 
 9. Transfer of this Note or Payment Hereunder. This Note may not be transferred in violation
of any restrictive legend set forth hereon. Each new Note issued upon transfer of this Note shall bear a legend as to the applicable restrictions on transferability in order to ensure compliance with the Securities Act, unless in the opinion of
counsel for the Company such legend is not required in order to ensure compliance with the Securities Act. The Company may issue stop transfer instructions to its transfer agent in connection with such restrictions. Subject to the foregoing,
transfers of this Note shall be registered upon registration books maintained for such purpose by or on behalf of the Company. Prior to presentation of this Note for registration of transfer, the Company shall treat the registered holder hereof as
the owner and holder of this Note for the purpose of receiving all payments of principal and interest hereon and for all other purposes whatsoever, whether or not this Note shall be overdue and the Company shall not be affected by notice to the
contrary. 
 10. Assignment. Neither this Note nor any of the rights, interests or obligations hereunder may be assigned, by operation
of law or otherwise, as a whole or in part, by the 

  

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Company without the prior written consent of the Holder. The Holder may assign the rights, interests or obligations under this Note, as a whole or in part,
at any time, subject to compliance with Section 9 of this Note, upon written notice to the Company of such assignment. Notwithstanding the foregoing, until the Company receives notice in accordance with this Section 10, the Company shall
treat the registered holder hereof as the owner and holder of this Note for the purpose of receiving all payments of principal and interest on this Note and for all other purposes whatsoever, whether or not this Note shall be overdue. 
 11. Treatment of Note. To the extent permitted by GAAP, the Company will treat, account and report the Note as debt and 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 permitted hereunder shall be in writing and shall be deemed to have been duly given if personally delivered or mailed by registered or certified mail, postage prepaid, or by recognized overnight courier, personal
delivery or facsimile transmission at the respective addresses or facsimile number of the parties as set forth in or otherwise designated by either party pursuant to the Purchase Agreement or on the register maintained by the Company. Any party
hereto may by notice so given change its address or facsimile number for future notice hereunder. Notice shall conclusively be deemed to have been given when received if received prior to 4:00 p.m. (local time) otherwise it shall be deemed to have
been received the following Business Day. 
 13. Interaction with other Secured Notes. The Company and the Holder agree that all
Secured Notes shall rank pari passu notwithstanding date of issue. 
 14. Expenses; Waivers. If action is instituted to collect
this Note, the Company shall pay all costs and expenses, including, without limitation, reasonable attorneys’ fees and costs, incurred in connection with such action. The Company hereby waives notice of default, presentment or demand for
payment, protest or notice of nonpayment or dishonor and all other notices or demands relative to this instrument. 
 15. Successors and
Assigns. Subject to the restrictions on transfer described in Sections 9 and 10 of this Note, the rights and obligations of the Company and the Holder of this Note shall be binding upon and benefit the successors, assigns, heirs, administrators
and transferees of the parties. 
 16. Governing Law; Jury Waiver. This Note and all actions arising out of or in connection with this
Note shall be governed by and construed in accordance with the Laws of the State of New York, without regard to conflict of laws provisions of the State of New York or of any other state. IN THE EVENT OF ANY DISPUTE AMONG OR BETWEEN ANY OF THE
PARTIES TO THIS NOTE ARISING OUT OF THE TERMS OF THIS NOTE, THE PARTIES HEREBY CONSENT TO THE EXCLUSIVE JURISDICTION OF THE COURTS LOCATED IN THE COUNTY OF NEW YORK, STATE OF NEW YORK, OR THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF
NEW YORK FOR RESOLUTION OF SUCH DISPUTE, AND AGREE NOT TO CONTEST SUCH EXCLUSIVE JURISDICTION OR SEEK TO TRANSFER ANY ACTION RELATING TO SUCH DISPUTE TO ANY OTHER JURISDICTION. THE COMPANY AND THE HOLDER AGREE TO 

  

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ACCEPT SERVICE OF PROCESS PURSUANT TO THE PROCEDURES SET FORTH IN SECTION 14. THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION OR
PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS NOTE. 
 [signatures appear on following page] 
  

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

			
	DISTRIBUTED ENERGY SYSTEMS CORP.
		
	By:	 	 /s/ Ambrose L. Schwallie

	Name:	 	Ambrose L. Schwallie
	Title:	 	Chief Executive Officer


 [Signature Page to Senior Secured Promissory Note]