Document:

Exhibit 10.2

NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH
THESE SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON
AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR
PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO,
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN COMPLIANCE WITH
APPLICABLE STATE SECURITIES LAWS OR BLUE SKY LAWS.  NOTWITHSTANDING THE FOREGOING, THESE
SECURITIES AND THE SECURITIES ISSUABLE UPON CONVERSION OF THESE SECURITIES MAY
BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR
FINANCING ARRANGEMENT SECURED BY SUCH SECURITIES.

	
  No.
  [               ]

  	
   

  	
  $[                ]

  
	
  Date: July 19, 2006

  	
   

  	
   

  

 

SATCON TECHNOLOGY CORPORATION

SENIOR SECURED CONVERTIBLE NOTE DUE

July 19, 2011

THIS NOTE is one of a series of duly authorized and
issued Notes of SatCon Technology Corporation, a Delaware corporation (the “Company”), designated as its Senior Secured
Convertible Notes due July 19, 2011, in the aggregate principal amount of
$12,000,000 (the “Notes”).

FOR VALUE RECEIVED, the Company promises to pay to the
order of [Holder] or its registered assigns (the “Holder”), the principal sum of [__________] $(__________) on
July 19, 2011 (the “Maturity Date”),
or such earlier date as the Notes are required or permitted to be repaid as
provided hereunder, and to pay interest to the Holder on the aggregate
unconverted and then outstanding principal amount of this Note in accordance
with the provisions hereof.  The
principal amount of this Note may be increased as set forth in Section 2(d)
below. Notwithstanding the foregoing, the Company hereby unconditionally
promises to pay to the order of the Holder interest on any principal or
interest payable hereunder that shall not be paid in full when due, whether at
the time of any stated interest payment date or principal payment date or
maturity or by prepayment, acceleration or declaration or otherwise, for the
period from and including the due date of such payment to but excluding the
date the same is paid in full, at a rate of 18% per annum (but in no event in
excess of the maximum rate permitted under applicable law).

Interest payable under this Note shall be computed on
the basis of a year of 360 days and actual days elapsed (including the first
day but excluding the last day) occurring in the period for which interest is
payable.

Payments of principal and interest shall be made in
lawful money of the United States of America to the Holder at its address as provided
in Section 13 or by wire transfer to such account specified from
time to time by the Holder hereof for such purpose as provided in Section 13.

 

1.             Definitions.  In addition to the terms defined elsewhere in
this Note, (a) capitalized terms that are not otherwise defined herein
have the meanings given to such terms in the Securities Purchase Agreement,
dated as of July 19, 2006, among the Company and the Purchasers identified
therein (the “Purchase Agreement”),
and (b) the following terms have the meanings indicated:

“Conversion
Date” means either (i) the date a Conversion Notice is delivered to
the Company together with the Conversion Schedule pursuant to Section 6(a)
or (ii) the date a conversion takes place pursuant to Section 6(b).

“Conversion
Notice” means a written notice in the form attached hereto as Schedule 1.

“Conversion
Price” means $1.65, subject to adjustment from time to time pursuant
to Section 10.

“Equity Conditions”
means, with respect to a specified issuance of Common Stock, that each of the
following conditions is satisfied: (i) the number of authorized but unissued
and otherwise unreserved shares of Common Stock is sufficient for such
issuance; (ii) such shares of Common Stock are registered for resale by the
Holder and may be sold by the Holder pursuant to an effective Registration
Statement covering the applicable Underlying Shares or all such shares may be
sold without volume restrictions pursuant to Rule 144(k) under the Securities
Act; (iii) the Common Stock is listed or quoted (and is not suspended from
trading) on an Eligible Market and such shares of Common Stock are approved for
listing upon issuance; (iv) such issuance would be permitted in full without
violating Section 6(c) hereof or the rules or regulations of any Trading
Market; (v) no Bankruptcy Event has occurred; (vi) the Company is not in
default with respect to any material obligation hereunder or under any other
Transaction Document; and (vii) no public
announcement of a pending or proposed Change of Control transaction has
occurred that has not been consummated.

“Event Equity Value”
means 115% of the arithmetic average of the VWAP for each of the five Trading
Days preceding the date of delivery of the notice requiring payment of the
Event Equity Value, provided that if the Company does not make such
required payment (together with any other payments, expenses and liquidated
damages then due and payable under the Transaction Documents) when due or, in
the event the Company disputes in good faith the occurrence of the Triggering
Event pursuant to which such notice relates, does not instead deposit such
required payment (together with such other payments, expenses and liquidated
damages then due) in escrow with an independent third-party escrow agent within
five Trading Days of the date such required payment is due, then the Event
Equity Value shall be 115% of the greater of (a) the arithmetic average of the
VWAP for each of the five Trading Days preceding the date of delivery of the
notice requiring payment of the Event Equity Value and (b) the arithmetic
average of the VWAP for each of the five Trading Days preceding the date on
which such required payment (together with such other payments, expenses and
liquidated damages) is paid in full.

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“Initial Interest
Period” means the period beginning on the Closing Date and ending on
October 31, 2006.

“Interest Period”
means a period of six months for the calculation of the interest on the Note,
provided that any such period (i) shall start on the last day of the preceding
period (other than the Initial Interest Period); (ii) which would otherwise end
on a day which is not a Trading Day shall be extended to the next succeeding
day which is a Trading Day and the following interest period shall then end on
the day on which it would have ended if the preceding interest period had not
been so extended; and (iii) which would otherwise overrun the Maturity Date
shall be shortened to end on the Maturity Date.

“Interest Rate”
has the meaning set forth in Section 2(a) herein.

“LIBOR”
means, in respect of a six-month Interest Period (i) the rate of interest
per annum  (expressed with a maximum of 4 decimals) offered for deposits
in the relevant currency and amount which appears on Telerate page 3750 or on
any other relevant Telerate, Bloomberg or Reuter page as of 11:00 a.m. London
time two (2) Business Days prior to the commencement of the relevant Interest
Period; or (ii) should such quotation not be published on the relevant day
and time such interest rate per annum according to such other widely published
LIBOR quotation as the Company may select for the relevant Interest Period as
of 11:00 a.m. London time two (2) Business Days prior to the commencement of
the Interest Period.

“Original Issue Date”
means the date of the first issuance of any Notes, regardless of the number of
transfers of any particular Note.

“Principal Payment
Date” means any date on which payment of a principal amount of this
Note shall be due and payable by the Company in accordance with Section 2(b).

“Triggering Event”
means any of the following events: (a) the Company fails for any reason to
deliver a certificate evidencing any Securities to a Purchaser within seven
Trading Days after delivery of such certificate is required pursuant to any
Transaction Document or the exercise or conversion rights of the Holders
pursuant to any Transaction Document are otherwise suspended for any reason
(except as the result of restrictions on exercise or conversion set forth in
the Transaction Documents); (b) the Company fails to have available a
sufficient number of authorized but unissued and otherwise unreserved shares of
Common Stock available to issue Underlying Shares upon any exercise of the
Note; (c) at any time after the Closing Date, any Common Stock issuable
pursuant to the Transaction Documents is not listed on an Eligible Market; (d) the effectiveness of the Registration Statement
lapses for any reason or the Holder shall not be permitted to resell any
applicable Underlying Shares under the Registration Statement, in either case,
for 10 or more Trading Days (which need not be consecutive Trading Days),
except in connection with a Suspension Event in accordance with Section 6.1(g)
of the Purchase Agreement; (e) the Company fails to make any cash
payment required under the Transaction Documents and such failure is not cured
within five days after notice of such 

 3
 

 

default is first given to
the Company by a Purchaser; (f) a breach of Section 3(d) or Section
10(d) herein (provided that a breach of Section 10(d) shall not be a Triggering
Event if the proceeds from such transaction are used to prepay the Notes in
full under Section 12(b) hereof), or (g) the Company breaches any
representation, warranty or covenant or defaults in the timely performance of
any other obligation or covenant under the Transaction Documents and such
breach or default continues uncured for a period of 20 days after the date on
which notice of such breach or default is first given to the Company by a
Purchaser (it being understood that no prior notice need be given in the case
of a breach or default that cannot reasonably be cured within 20 days).

2.             Principal and Interest.

(a)         The
Company shall pay interest to the Holder on the aggregate unconverted and then
outstanding principal amount of this Note for each Interest Period at a rate
(the “Interest
Rate”) which is the greater
of (i) 7% per annum, (ii) following a breach of Section 10(d) herein, 15% per
annum or (iii) LIBOR plus 350 basis points per annum.  Each Interest Period, other than the Initial
Interest Period shall begin on April 30, July 31, October 31 and January 31 of
each year occurring prior to the Maturity Date. Interest shall be payable
quarterly in arrears on each April 30, July 31, October 31 and January 31,
except if such date is not a Trading Day, in which case such interest shall be
payable on the next succeeding Trading Day (each, an “Interest Payment Date”). 
The first Interest Payment Date shall be October 31, 2006.  The amount of interest paid on each Interest
Payment Date shall be referred to as the “Interest
Payment Amount”).

(b)        Beginning
on February 28, 2007 and on the first Trading Day for each of the next 17
months thereafter (each, a “Principal
Payment Date”), the Company
shall pay 4.167% of the original principal amount of this Note to the Holder
(each, a “Monthly Installment”).

(c)         Subject
to the conditions and limitations set forth below, the Company may pay interest
or principal on this Note in (i) cash or (ii) shares of Common Stock.  The Company must deliver written notice to
the Holder indicating the manner in which it intends to pay interest and
principal at least 20 Trading Days prior to each Interest Payment Date (a “Interest Payment Notice”) or Principal
Payment Date (a “Principal Payment Notice”,
and together with the Interest Payment Notice, each a “Payment Notice”), as applicable, but the
Company may indicate in any such notice that the election contained therein
shall continue for subsequent Interest Payment Dates or Principal Payment Dates
until revised.  Failure to timely provide
such written notice shall be deemed an election by the Company to pay the
amount of any interest or principal in cash.

(d)        Notwithstanding
the foregoing, the Company may not pay interest or principal by issuing shares
of Common Stock unless (i) all of the Equity Conditions are then satisfied with
respect to all shares of Common Stock then issuable upon conversion of all
outstanding Notes; provided, however, that, notwithstanding the foregoing, the
conversion restrictions set forth in Section 6(c)(i) shall not limit the
Company’s ability to pay interest or principal by issuing shares of Common
Stock, and (ii) as to such Interest Payment Date and Principal Payment Date,
prior to or on the date of the applicable Payment Notice or if any 

 4
 

 

Payment Notice indicates that such election contained therein shall
continue for subsequent Interest Payment Dates or Principal Payment Dates,
prior to or on the 20th Trading Day prior to such Interest Payment
Date or Principal Date (in each case, a “Share
Delivery Date”), as the case may be, the Company shall have
delivered to the Holder’s account with The Depository Trust Company (“DTC”) (or by physical certificate if the
Holder does not have an account with the DTC) a number of shares of Common
Stock (the “Conversion Shares”) to
be applied against such Interest Payment Amount or Monthly Installment, as
applicable, equal to:

(A)  with respect to an Interest Payment Amount,
the quotient of (x) the applicable Interest Payment Amount divided by (y)
90% of the arithmetic average of the VWAP for each of the 20 Trading Days
ending immediately prior to the 23rd Trading Day that is immediately prior to
the applicable Interest Payment Date (subject to adjustment for any stock
dividend, stock split, stock combination or other similar event affecting the
Common Stock during such 20 Trading Day period); and

(B)  with respect to a Monthly Installment, the
quotient of (x) the applicable Monthly Installment divided by (y) the
lesser of (I) the then Conversion Price and (II) 90% of the arithmetic average
of the VWAP for each of the 20 Trading Days ending immediately prior to the
23rd Trading Day that is immediately prior to the applicable Principal Payment
Date (subject to adjustment for any stock dividend, stock split, stock
combination or other similar event affecting the Common Stock during such 20
Trading Day period).

Within 3 Trading Days of
each Interest Payment Date or Principal Payment Date, as applicable, the
Company shall pay to the Holder additional shares of Common Stock required to
meet its obligations under Section 2(e) below (to the extent the
previously delivered Conversion Shares were not sufficient), or credit against
future interest or principal payments to be made on subsequent Interest Payment
Dates or Principal Payment Dates or Share Delivery Dates, as the case may be,
the excess of the Conversion Shares delivered to the Holders pursuant to this Section
2(d) over the amount of shares of Common Stock due under Section 2(e).  If the Company is required to pay interest in
cash on any Interest Payment Date but fails to do so, the Holder may (but shall
not be required to) treat such interest as if it had been added to the
principal amount of this Note as of such Interest Payment Date or accept any
number of shares of Common Stock in lieu of such interest payment.

(e)         In
the event that the Company elects to pay interest or principal on any Interest
Payment Date or Principal Payment Date, as applicable, in shares of Common
Stock, the number of shares of Common Stock to be issued to each Holder as such
interest or principal shall be (i) with respect to interest, determined by
dividing the aggregate amount of interest then payable to such Holder by the
Market Price (as defined below) as of the applicable Interest Payment Date, and
rounding up to the nearest whole share, (ii) with respect to principal,
determined by dividing the total principal then payable to such Holder by the
lower of (y) the Conversion Price (as adjusted in accordance herewith) and (z)
the Market Price as of the applicable Principal Payment Date, and rounding up
to the nearest whole share, and (iii) paid to such Holder in accordance with Section
2(f) below, taking into account the Conversion Shares delivered pursuant to
Section 2(d).  The term “Market Price” shall mean 90% of the arithmetic average of
the VWAP for each of the 20 Trading Days ending immediately prior to the 

 5
 

 

applicable Interest Payment
Date or Principal Payment Date, as the case may be (not including such date).

(f)         In
the event that any interest or principal is paid in Common Stock, the Company
shall within three Trading Days of such Interest Payment Date or Principal
Payment Date or on or before the Share Delivery Date (i) issue and deliver to
such Holder a certificate, free of restrictive legends, registered in the name
of the Holder or its designee, for the number of shares of Common Stock to
which the Holder shall be entitled, or (ii) at all times after the Holder has
notified the Company that this clause (ii) shall apply, credit the number of
shares of Common Stock to which the Holder shall be entitled to the Holder’s or
its designee’s balance account with The DTC through its Deposit Withdrawal
Agent Commission System.

(g)        Except
as otherwise set forth herein, the Notes may not be prepaid in whole or part
absent written consent from the Holder.

3.             Ranking and
Covenants.

(a)                                      Except as set
forth in Schedule 3.1(dd) or as otherwise permitted in Section
4.10(a) of the Purchase Agreement (the “Existing Indebtedness”),
no indebtedness of the Company is senior to, or pari passu with, this Note in
right of payment, whether with respect to interest, damages or upon liquidation
or dissolution or otherwise.  Other than
the Existing Indebtedness and any renewal, refinancing or replacement thereof
that does not exceed the aggregate amount of the Existing Indebtedness and the
borrowing availability under the related credit or loan agreements on the date
hereof, the Company will not, and will not permit any Subsidiary to, directly
or indirectly, enter into, create, incur, assume or suffer to exist any
indebtedness of any kind, that is senior or pari passu in any respect to the
Company’s obligations under the Notes, other than indebtedness secured by
purchase money security interests (which will be senior only as to the
underlying assets covered thereby) and indebtedness under capital lease
obligations (which will be senior only as to the assets covered thereby); and
the Company will not, and will not permit any subsidiary to, directly or indirectly,
incur any Lien on or with respect to any of its property or assets now owned or
hereafter acquired or any interest therein or any income or profits therefrom,
except with respect to Existing Indebtedness.

(b)                                      So long as
any Notes are outstanding, neither the Company nor any Subsidiary shall,
directly or indirectly, (i) redeem, purchase or otherwise acquire any capital
stock or set aside any monies for such a redemption, purchase or other
acquisition (except as permitted by Section 4.13(a)(i) of the Purchase
Agreement) or (ii) issue any Common Stock Equivalents with an effective price
or a number of underlying shares that floats or resets or otherwise varies or
is subject to adjustment based (directly or indirectly) on market prices of the
Common Stock (a “Floating
Price Security).

(c)                                      The Company covenants that it will at all
times reserve and keep available out of its authorized but unissued and
otherwise unreserved Common Stock, solely for the purpose of enabling it to
issue Underlying Shares as required hereunder, the number of Underlying Shares
which are then issuable and deliverable upon the conversion of (and otherwise
in respect of) this entire Note (taking into account the adjustments set forth
in Section 10 and disregarding any limitations set forth in Section
6(c)), free from preemptive rights or 

 6
 

 

any
other contingent purchase rights of Persons other than the Holder.  The Company covenants that all Underlying
Shares so issuable and deliverable shall, upon issuance in accordance with the
terms hereof, be duly and validly authorized and issued and fully paid and
nonassessable.

(d)                                      The Company covenants that for so
long as any Notes are outstanding, the Company’s aggregate cash and cash
equivalents shall at all times equal the greater of (i) $1,000,000 or (ii) the
amount determined by the following calculation: (A) $3,000,000 minus (B)
80.0% of the Company’s Eligible Receivables (as defined below).

For the purpose of this
Section 3(d), the following terms shall have the following meanings (for the
purpose of these definitions, the term “Company” shall mean the Company and
each of its subsidiaries):

“Account
Debtor” means the obligor on a Receivable.

“Eligible
Receivables” means Receivables arising in the ordinary course of the
Company’s business from the sale of goods or rendition of services; provided,
however, that for a Receivable to be an Eligible Receivable the following must
be true: (i) the Receivable must not be outstanding for more than 90 days from
its invoice date, (ii) the Receivable must not represent progress billings, or
be due under a fulfillment or requirements contract with the Account Debtor,
(iii) the Receivable must not be subject to any contingencies (including
Receivables arising from sales on consignment, guaranteed sale or other terms
pursuant to which payment by the Account Debtor may be conditional), (iv) the
Receivable must not be owing from an Account Debtor with whom the Company has
any dispute (whether or not relating to the particular Receivable), (v) the Receivable
must not be owing from an Affiliate of the Company, (vi) the Receivable must
not be owing from an Account Debtor which is subject to any insolvency or
bankruptcy proceeding, or which fails or goes out of a material portion of its
business, (vii) the Receivable must not be owing from the United States or any
department, agency or instrumentality thereof (unless there has been compliance
with the United States Assignment of Claims Act), (viii) the Receivable must
not be owing from an Account Debtor located outside the United States or Canada
(unless it is backed by a letter of credit or FCIA credit insurance), and (ix)
the Receivable must not be owing from an Account Debtor to whom the Company is
or may be liable for goods purchased from such Account Debtor or
otherwise.  Receivables owing from one
Account Debtor will not be deemed Eligible Receivables to the extent they
exceed 25% of the total Receivables outstanding. In addition, if more than 50%
of the Receivables owing from an Account Debtor are outstanding more than 90
days from their invoice date (without regard to unapplied credits) or are
otherwise not eligible Receivables, then all Receivables owing from that
Account Debtor will be deemed not to be Eligible Receivables.

“Receivables”
means all of the Company’s now owned and hereafter acquired accounts (whether
or not earned by performance), accounts receivable, health-care insurance
receivables, rights to payment, letters of credit, contract rights, chattel
paper, instruments, securities, securities accounts, investment property,
documents and all other forms of obligations at any time owing to the Company,
all guaranties and other security therefor, all merchandise returned to or
repossessed by the Company, and all rights of stoppage in transit and all other
rights or remedies of an unpaid vendor, lienor or secured party.

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4.             Registration of Notes.  The Company shall register the Notes upon
records to be maintained by the Company for that purpose (the “Note Register”) in the name of each record holder
thereof from time to time.  The Company
may deem and treat the registered Holder of this Note as the absolute owner
hereof for the purpose of any conversion hereof or any payment of interest or
principal hereon, and for all other purposes, absent actual notice to the
contrary.

5.             Registration of Transfers and
Exchanges.  The Company shall
register the transfer of any portion of this Note in the Note Register upon
surrender of this Note to the Company at its address for notice set forth
herein.  Upon any such registration or
transfer, a new Note, in substantially the form of this Note (any such new
Note, a “New Note”), evidencing
the portion of this Note so transferred shall be issued to the transferee and a
New Note evidencing the remaining portion of this Note not so transferred, if
any, shall be issued to the transferring Holder.  The acceptance of the New Note by the
transferee thereof shall be deemed the acceptance by such transferee of all of
the rights and obligations of a holder of a Note.  This Note is exchangeable for an equal
aggregate principal amount of Notes of different authorized denominations, as
requested by the Holder surrendering the same. 
No service charge or other fee will be imposed in connection with any
such registration of transfer or exchange.

6.             Conversion.

(a)                                      At the
Option of the Holder.  All or any
portion of  this Note shall be
convertible into shares of Common Stock (subject to the limitations set forth
in Section 6(c)), at the option of the Holder, at any time and from time
to time from and after the Original Issue Date. 
The number of
Underlying Shares issuable upon any conversion hereunder shall equal the
outstanding principal amount of this Note to be converted, plus the amount of
any accrued but unpaid interest on this Note through the Conversion Date,
divided by the Conversion Price on the Conversion Date.  The Holder
shall effect conversions under this Section 6(a) by delivering to the
Company a Conversion Notice together with a schedule in the form of Schedule
2 attached hereto (the “Conversion Schedule”).  If the Holder is
converting less than all of the principal amount of this Note, or if a
conversion hereunder may not be effected in full due to the application of Section
6(c), the Company shall honor such conversion to the extent permissible
hereunder and shall promptly deliver to the Holder a Conversion Schedule
indicating the principal amount (and accrued interest) which has not been
converted.

(b)                                      At the Option of the Company.

(i)            If, at any time following the one year anniversary of the
Effective Date, the VWAP for any 20 consecutive Trading Days exceeds 175% of
the Conversion Price (the “Threshold Price”),
then the Company may require the Holder to convert all or any part of the
outstanding principal amount of the Notes into Common Stock based on the
Conversion Price (the “Conversion Right”).

(ii)           The Company may require a conversion pursuant to Section
6(b)(i) above by delivering to the Holder an irrevocable written notice of
its exercise of its Conversion Right not more than 20 Trading Days after the
end of the 20 consecutive Trading Day period contemplated by Section 6(b)(i),
and the 15th Trading Day after the 

 8
 

 

date any such notice is
delivered to the Holder will be the “Conversion
Date” for such required conversion.

(iii)           Notwithstanding anything to the contrary, the Company may
not require any conversion under this Section 6 (and any notice thereof will be
void), unless  from the beginning of the
20 consecutive Trading Days used to determine whether the Common Stock has
achieved the Threshold Price through the Conversion Date (the “Conversion Period”) (i) the VWAP for each Trading Day during
such Conversion Period exceeds the Threshold Price, (ii) the Equity Conditions
are satisfied (or waived in writing by the applicable Holder) on each Trading
Day with the respect to all Underlying Shares issuable upon conversion of the
portion of the Notes being converted, and (iii) the average daily trading
volume as reported on Bloomberg, L.P. during such Conversion Period (determined
by calculating the arithmetic average of the daily trading volume for each
Trading Day in such Conversion Period) is greater than 100,000 shares.  Any conversion pursuant to this Section 6(b)
shall be pro rata among all of the Holders, based on such Holders then
outstanding principal amount of Notes.

(c)                                      Certain
Conversion Restrictions.

 (i) 
Subject to Section 6(c)(ii), the number of shares of Common Stock that
may be acquired by a Holder upon any conversion of Notes (or otherwise in
respect hereof) shall be limited to the extent necessary to insure that,
following such conversion (or other issuance), the total number of shares of
Common Stock then beneficially owned by such Holder and its Affiliates and any
other Persons whose beneficial ownership of Common Stock would be aggregated
with such Holder’s for purposes of Section 13(d) of the Exchange Act, does not
exceed 4.999%  (the “Threshold
Percentage”) or 9.999% (the “Maximum Percentage”) of the total number of issued and outstanding shares of
Common Stock (including for such purpose the shares of Common Stock issuable
upon such conversion). For such purposes, beneficial ownership shall be
determined in accordance with Section 13(d) of the Exchange Act and the rules
and regulations promulgated thereunder. 
Each delivery of a Conversion Notice hereunder will constitute a
representation by the applicable Holder that it has evaluated the limitations
set forth in this Section 6(c)(i) and has determined that issuance
of the full number of Underlying Shares issuable in respect of such Conversion
Notice does not violate the restrictions contained in this Section 6(c)(i).

(ii) Notwithstanding the
provisions of Section 6(c)(i), by written notice to the Company, the
Holder shall have the right (x) at any time and from time to time to reduce its
Maximum Percentage immediately upon notice to the Company in the event and only
to the extent that Section 16 of the Exchange Act or the rules promulgated
thereunder (or any successor statute or rules) is changed to reduce the
beneficial ownership percentage threshold thereunder to a percentage less than
9.999% and (y) at any time and from time to time, to waive the provisions of
this Section insofar as they relate to the Threshold Percentage or to increase
its Threshold Percentage (but not in excess of the Maximum Percentage) unless
the Holder shall have, by written instrument delivered to the Company,
irrevocably waived its rights to so increase its Threshold Percentage, but (i)
any such waiver or increase will not be effective until the 61st day after such
notice is 

 9
 

 

delivered to the Company, and (ii) any such waiver
or increase or decrease will apply only to the Holder and not to any other
holder of Notes.

(iii)  If the Company has not previously obtained
Shareholder Approval (as defined below), then the Company may not issue in
excess of the Issuable Maximum upon conversions or redemptions of the Notes or
as payment of principal or interest on the Notes.  The “Issuable
Maximum” means a number of shares equal to 19.99% of the of the
Company’s outstanding shares on the Closing Date.  Each Holder shall be entitled to a portion of
the Issuable Maximum equal to the quotient obtained by dividing: (x) the
principal amount of Notes issued and sold to such Holder on the Original Issue
Date by (y) the aggregate principal amount of Notes issued and sold by the
Company on the Original Issue Date.  If
any Holder shall no longer hold Notes, then such Holder’s remaining portion of
the Issuable Maximum shall be allocated pro-rata among the remaining Holders.
If on any Conversion Date: (A) the aggregate number of shares of Common Stock
that would then be issuable upon conversion in full of all then outstanding
principal amount of Notes would exceed the Issuable Maximum, and (B) the
Company shall not have previously obtained the vote of shareholders to approve
the issuance of shares of Common Stock in excess of the Issuable Maximum
pursuant to the terms hereof (the “Shareholder
Approval”), then, the Company shall issue to the converting Holder a
number of shares of Common Stock equal to such Holder’s pro-rata portion (which
shall be calculated pursuant to the terms hereof) of the Issuable Maximum and,
with respect to the remainder of the principal amount of Notes then held by
such Holder for which a conversion would result in an issuance of shares of
Common Stock in excess of such Holder’s pro-rata portion (which shall be
calculated pursuant to the terms hereof) of the Issuable Maximum (the “Excess Principal Amount”), the applicable
Holder shall have the right to require the Company to either: (1) obtain
the Shareholder Approval applicable to such issuance as soon as is possible,
but in any event not later than the 90th day after such request, or (2) pay
cash, in an amount equal to the Excess Principal Amount (and accrued and unpaid
interest thereon).  If a Holder shall
have elected the first option pursuant to the immediately preceding sentence
and the Company shall have failed to obtain Shareholder Approval on or prior to
the 90th day after such request, then such Holder shall
have the right to require the Company to again seek Shareholder Approval as
soon as is possible, but in any event not later than the 90th day after such
request (and such Holder may continue to make subsequent requests thereafter if
Shareholder Approval is not obtained). 
The outstanding principal amount of Notes shall be reduced by the Excess
Principal Amount upon the Holder’s receipt of the Excess Principal Amount
pursuant to the terms hereof. The Company and the Holder understand and agree
that shares of Common Stock issued to and then held by the Holder as a result
of conversions or redemptions of Notes or as payment of principal or interest
on the Notes shall not be entitled to cast votes on any resolution to obtain
Shareholder Approval pursuant hereto.

(iv)          Notwithstanding
anything to the contrary set forth herein, the
number of shares of Common Stock that may be acquired by a Holder upon any
conversion or redemption of Notes (or otherwise in respect hereof, including,
without limitation, as interest and principal payments) shall be limited to the
extent necessary to insure that, following such conversion, redemption or other
issuance, the total number of shares of

 10

 

 

Common Stock then beneficially owned
by such Holder and its Affiliates and any other Persons whose beneficial
ownership of Common Stock would be aggregated with such Holder’s for purposes
of Section 13(d) of the Exchange Act, does not exceed 19.999% of the total
number of issued and outstanding shares of Common Stock at that time (including
for such purpose the shares of Common Stock issuable upon such conversion,
redemption or principal or interest payments). 
For such purposes, beneficial ownership shall be determined in
accordance with Section 13(d) of the Exchange Act and the rules and regulations
promulgated thereunder.

7.             Mechanics
of Conversion.

(a)                                      Upon
conversion of this Note, the Company shall promptly (but in no event later than
three Trading Days after the Conversion Date) issue or cause to be issued and
cause to be delivered to or upon the written order of the Holder and in such
name or names as the Holder may designate a certificate for the Underlying
Shares issuable upon such conversion, free of restrictive legends unless a
registration statement covering the resale of the Underlying Shares and naming
the Holder as a selling stockholder thereunder is not then effective and such
Underlying Shares are not then freely transferable without volume restrictions
pursuant to Rule 144 under the Securities Act. 
The Holder, or any Person so designated by the Holder to receive
Underlying Shares, shall be deemed to have become holder of record of such
Underlying Shares as of the Conversion Date. 
The Company shall, upon request of the Holder, use its best efforts to
deliver Underlying Shares hereunder electronically through the DTC or another
established clearing corporation performing similar functions.

(b)                                      The
Holder shall not be required to deliver the original Note in order to effect a
conversion hereunder.  Execution and
delivery of the Conversion Notice shall have the same effect as cancellation of
the original Note and issuance of a New Note representing the remaining
outstanding principal amount.  Upon
surrender of this Note following one or more partial conversions, the Company
shall promptly deliver to the Holder a New Note representing the remaining
outstanding principal amount.

(c)                                      The
Company’s obligations to issue and deliver Underlying Shares upon conversion of
this Note in accordance with the terms hereof are absolute and unconditional,
irrespective of any action or inaction by the Holder to enforce the same, any
waiver or consent with respect to any provision hereof, the recovery of any
judgment against any Person or any action to enforce the same, or any set-off,
counterclaim, recoupment, limitation or termination, or any breach or alleged
breach by the Holder or any other Person of any obligation to the Company or
any violation or alleged violation of law by the Holder or any other Person,
and irrespective of any other circumstance which might otherwise limit such
obligation of the Company to the Holder in connection with the issuance of such
Underlying Shares.

(d)                                      If
by the third Trading Day after a Conversion Date the Company fails to deliver
to the Holder such Underlying Shares in such amounts and in the manner required
pursuant to Section 7(a), then the Holder will have the right to rescind
such conversion.

(e)                                      If by the third Trading Day after a Conversion Date
the Company fails to deliver to the Holder such Underlying Shares in such
amounts and in the manner required

 11
 

 

 

pursuant
to Section 7(a), and if after such third Trading Day the Holder
purchases (in an open market transaction or otherwise) shares of Common Stock
to deliver in satisfaction of a sale by such Holder of the Underlying Shares
which the Holder anticipated receiving upon such conversion (a “Buy-In”), then the Company shall either
(i) pay cash to such Purchaser in an amount equal to such Purchaser’s total
purchase price (including brokerage commissions, if any) for the shares of
Common Stock so purchased (the “Buy-In Price”),
at which point the Company’s obligation to deliver such certificate (and to
issue such Common Stock) shall terminate, or (ii) promptly honor its obligation
to deliver to such Purchaser a certificate or certificates representing such
Common Stock and pay cash to such Purchaser in an amount equal to the excess
(if any) of the Buy-In Price over the product of (A) such number of shares of
Common Stock, times (B) the Closing Price on the date of the event giving rise
to the Company’s obligation to deliver such certificate.

8.             Events
of Default.

(a)                                      “Event of Default” means any one of the following events
(whatever the reason and whether it shall be voluntary or involuntary or
effected by operation of law or pursuant to any judgment, decree or order of
any court, or any order, rule or regulation of any administrative or
governmental body):

(i)            any
default in the payment (free of any claim of subordination) of principal,
interest or liquidated damages in respect of any Notes, as and when the same
becomes due and payable (whether on a date specified for the payment of
interest or the date on which the obligations under the Note mature or by
acceleration, redemption, prepayment or otherwise), which, in the case of
payments made in shares of Common Stock, is not cured within 2 Trading Days;

(ii)           the
Company or any Subsidiary defaults in any of its obligations under any other
note or any mortgage, credit agreement or other facility, indenture agreement,
factoring agreement or other instrument under which there may be issued, or by
which there may be secured or evidenced, any indebtedness for borrowed money or
money due under any long term leasing or factoring arrangement of the Company
or any Subsidiary in an amount exceeding $1,000,000, whether such indebtedness
now exists or is hereafter created, and such default results in such
indebtedness becoming or being declared due and payable prior to the date on
which it would otherwise become due and payable;

(iii)          the occurrence of a
Triggering Event; or

(iv)          the
occurrence of a Bankruptcy Event.

(b)                                      At
any time or times following the occurrence of an Event of Default, the Holder
shall have the option to elect, by notice to the Company (an “Event Notice”), to require the Company to repurchase all or
any portion of the outstanding principal amount of this Note, at a repurchase
price equal to the greater of (A) 115% of such outstanding principal amount,
plus all accrued but unpaid interest thereon through the date of payment, or
(B) the

 12
 

 

 

Event Equity Value of the Underlying Shares issuable
upon conversion of such principal amount and all such accrued but unpaid interest
thereon.  The aggregate amount payable
pursuant to the preceding sentence is referred to as the “Event Price.”  The Company shall pay the Event Price to the
Holder no later than the third Trading Day following the date of delivery of
the Event Notice, and upon receipt thereof the Holder shall deliver this Note.

(c)                                      Upon
the occurrence of any Bankruptcy Event, all amounts pursuant to Section 8(b)
shall immediately become due and payable in full in cash, without any further
action by the Holder.

(d)                                      In
connection with any Event of Default, the Holder need not provide and the
Company hereby waives any presentment, demand, protest or other notice of any
kind, and the Holder may immediately and without expiration of any grace period
enforce any and all of its rights and remedies hereunder and all other remedies
available to it under applicable law. 
Any such declaration may be rescinded and annulled by the Holder at any
time prior to payment hereunder. No such rescission or annulment shall affect
any subsequent Event of Default or impair any right consequent thereto.

9.             Charges,
Taxes and Expenses.  Issuance of
certificates for Underlying Shares upon conversion of (or otherwise in respect
of) this Note shall be made without charge to the Holder for any issue or
transfer tax, withholding tax, transfer agent fee or other incidental tax or
expense in respect of the issuance of such certificate, all of which taxes and
expenses shall be paid by the Company; provided, however, that
the Company shall not be required to pay any tax which may be payable in
respect of any transfer involved in the registration of any certificates for
Underlying Shares or Notes in a name other than that of the Holder.  The Holder shall be responsible for all other
tax liability that may arise as a result of holding or transferring this Note
or receiving Underlying Shares in respect hereof.

10.           Certain
Adjustments.  The Conversion Price is
subject to adjustment from time to time as set forth in this Section 10.

(a)                                      Stock
Dividends and Splits.  If the
Company, at any time while this Note is outstanding, (i) pays a stock dividend
on its Common Stock or otherwise makes a distribution on any class of capital
stock that is payable in shares of Common Stock, (ii) subdivides outstanding shares
of Common Stock into a larger number of shares, or (iii) combines outstanding
shares of Common Stock into a smaller number of shares, then in each such case
the Conversion Price shall be multiplied by a fraction of which the numerator
shall be the number of shares of Common Stock outstanding immediately before
such event and of which the denominator shall be the number of shares of Common
Stock outstanding immediately after such event. 
Any adjustment made pursuant to clause (i) of this Section 10(a)
shall become effective immediately after the record date for the determination
of stockholders entitled to receive such dividend or distribution, and any
adjustment pursuant to clause (ii) or (iii) of this Section 10(a) shall
become effective immediately after the effective date of such subdivision or
combination.

(b)                                      Pro
Rata Distributions.  If the Company,
at any time while this Note is outstanding, distributes to holders of Common
Stock (i) evidences of its indebtedness, (ii) any security (other than a
distribution of Common Stock covered by the preceding paragraph),

 13
 

 

 

(iii) rights or warrants to subscribe for or
purchase any security, or (iv) any other asset (in each case, “Distributed Property”), then in each such
case the Conversion Price in effect immediately prior to the record date fixed
for determination of stockholders entitled to receive such distribution shall
be adjusted (effective on such record date) to equal the product of such
Conversion Price times a fraction of which the denominator shall be the average
of the Closing Prices for the five Trading Days immediately prior to (but not
including) such record date and of which the numerator shall be such average
less the then fair market value of the Distributed Property distributed in
respect of  one outstanding share of
Common Stock, as determined by the Company’s independent certified public
accountants that regularly examine the financial statements of the Company, (an
“Appraiser”).  In such event, the Holder, after receipt of
the determination by the Appraiser, shall have the right to select an
additional appraiser (which shall be a nationally recognized accounting firm),
in which case such fair market value shall be deemed to equal the average of
the values determined by each of the Appraiser and such appraiser.  As an alternative to the foregoing adjustment
to the Conversion Price, at the request of the Holder delivered to the Company
in writing before the 45th day after such record date, the Company will deliver
to such Holder, within five Trading Days after such request (or, if later, on
the effective date of such distribution), the Distributed Property that such
Holder would have been entitled to receive in respect of the Underlying Shares
for which this Note could have been exercised immediately prior to such record
date.  If such Distributed Property is
not delivered to a Holder pursuant to the preceding sentence, then upon
conversion of this Note that occurs after such record date, such Holder shall
remain entitled to receive, in addition to the Underlying Shares otherwise
issuable upon such conversion (if applicable), such Distributed Property.

(c)                                      Fundamental
Changes.  If, at any time while this
Note is outstanding, (i) the Company effects any merger or consolidation of the
Company with or into another Person, (ii) the Company effects any sale of all
or substantially all of its assets in one or more transactions, (iii) any
tender offer or exchange offer (whether by the Company or another Person) is
completed pursuant to which holders of Common Stock are permitted to tender or
exchange their shares for other securities, cash or property, or (iv) the
Company effects any reclassification of the Common Stock or any compulsory
share exchange pursuant to which the Common Stock is effectively converted into
or exchanged for other securities, cash or property (other than as a result of
a subdivision or combination of shares of Common Stock described in Section
10(a)) (in any such case, a “Fundamental
Change”), then upon any subsequent conversion of this Note, the
Holder shall have the right to receive, for each Underlying Share that would
have been issuable upon such conversion absent such Fundamental Change, the
same kind and amount of securities, cash or property as it would have been entitled
to receive upon the occurrence of such Fundamental Change if it had been,
immediately prior to such Fundamental Change, the holder of one share of Common
Stock (the “Alternate Consideration”).  If holders of Common Stock are given any
choice as to the securities, cash or property to be received in a Fundamental
Change, then the Holder shall be given the same choice as to the Alternate
Consideration it receives upon any conversion of this Note following such
Fundamental Change.  In the event of a
Fundamental Change, the Company or the successor or purchasing Person, as the
case may be, shall execute with the Holder a written agreement providing that:

(x)   this Note
shall thereafter entitle the Holder to purchase the Alternate Consideration,

 14
 

 

 

(y)  in the case
of any such successor or purchasing Person, upon such consolidation, merger,
statutory exchange, combination, sale or conveyance such successor or
purchasing Person shall be jointly and severally liable with the Company for
the performance of all of the Company’s obligations under this Note and the
Purchase Agreement, and

(z)   if
registration or qualification is required under the Exchange Act or applicable
state law for the public  resale by the
Holder of shares of stock and other securities so issuable upon exercise of
this Note, such registration or qualification shall be completed prior to such
reclassification, change, consolidation, merger, statutory exchange,
combination or sale.

If, in the case of any Fundamental Change,
the Alternate Consideration includes shares of stock, other securities, other
property or assets of a Person other than the Company or any such successor or
purchasing Person, as the case may be, in such Fundamental Change, then such
written agreement shall also be executed by such other Person and shall contain
such additional provisions to protect the interests of the Holder as the Board
of Directors of the Company shall reasonably consider necessary by reason of
the foregoing.  At the Holder’s
request,  any successor to the Company or
surviving Person in such Fundamental Change shall issue to the Holder a new
Note consistent with the foregoing provisions and evidencing the Holder’s right
to convert such Note into Alternate Consideration. The terms of any agreement
pursuant to which a Fundamental Change is effected shall include terms
requiring any such successor or surviving Person to comply with the provisions
of this Section 10(c) and insuring that this Note (or any such
replacement security) will be similarly adjusted upon any subsequent
transaction analogous to a Fundamental Change. If any Fundamental Change
constitutes or results in a Change of Control, then at the request of the
Holder delivered to the Company in writing before the 45th day after such
Fundamental Change, the Company (or any such successor or surviving entity)
will purchase this Note from the Holder for a purchase price, payable in cash
within five Trading Days after such request (or, if later, on the effective
date of the Fundamental Transaction), equal to 115% of the outstanding
principal amount, plus all accrued but unpaid interest thereon through the date
of payment.

(d)                                      Subsequent
Equity Sales.

(i)            For
so long as this Note is outstanding, the Company or any Subsidiary shall not
issue additional shares of Common Stock or rights, warrants, options or other
securities or debt convertible, exercisable or exchangeable for shares of
Common Stock or otherwise entitling any Person to acquire shares of Common
Stock (collectively, “Common Stock Equivalents”)
at an effective price per share of Common Stock (prior to deducting fees,
commissions and other expenses related to such issuance) (the “Effective Price”) less than the Conversion Price (as
adjusted hereunder to such date).  For
purposes of this paragraph, in connection with any issuance of any Common Stock
Equivalents, (A) the maximum number of shares of Common Stock potentially
issuable at any time upon conversion, exercise or exchange of such Common Stock
Equivalents (the “Deemed Number”)
shall be deemed to be outstanding upon issuance of such Common Stock
Equivalents, (B) the Effective Price applicable to such Common Stock shall
equal the minimum dollar value of consideration payable to the Company to

 15
 

 

 

purchase such Common Stock Equivalents and to
convert, exercise or exchange them into Common Stock (prior to deducting any
fees, commissions and other expenses related thereto), divided by the Deemed
Number, and (C) the actual issuance of Common Stock upon conversion, exercise
or exchange of such Common Stock Equivalents shall not be subject again to this
Section 10(d)(i).

(ii)           If,
at any time while this Note is outstanding, the Company or any Subsidiary
issues Common Stock Equivalents with an Effective Price or a number of
underlying shares that floats or resets or otherwise varies or is subject to
adjustment based (directly or indirectly) on market prices of the Common Stock
(a “Floating Price Security”),
then for purposes of applying the preceding paragraph, whether Section
10(d)(i) has been violated will be determined separately each time such
adjustment occurs.

(iii)          Notwithstanding
the foregoing, the Company shall be permitted to issue Excluded Stock.

(e)                                      Calculations.  All calculations under this Section 10
shall be made to the nearest cent or the nearest 1/100th of a share, as
applicable.  The number of shares of
Common Stock outstanding at any given time shall not include shares owned or
held by or for the account of the Company, and the disposition of any such
shares shall be considered an issue or sale of Common Stock.

(f)                                       Notice
of Adjustments.  Upon the occurrence
of each adjustment pursuant to this Section 10, the Company at its
expense will promptly compute such adjustment in accordance with the terms
hereof and prepare and deliver to the Holder a certificate describing in
reasonable detail such adjustment and the transactions giving rise thereto,
including all facts upon which such adjustment is based.

(g)                                      Notice
of Corporate Events.  If the Company
(i) declares a dividend or any other distribution of cash, securities or other
property in respect of its Common Stock, including without limitation any
granting of rights or warrants to subscribe for or purchase any capital stock
of the Company or any Subsidiary, (ii) authorizes or approves, enters into any
agreement contemplating or solicits stockholder approval for any Fundamental
Change or (iii) authorizes the voluntary dissolution, liquidation or winding up
of the affairs of the Company, then the Company shall deliver to the Holder a
notice describing the material terms and conditions of such transaction, at
least 20 calendar days prior to the applicable record or effective date on
which a Person would need to hold Common Stock in order to participate in or
vote with respect to such transaction, and the Company will take all steps
reasonably necessary in order to insure that the Holder is given the practical
opportunity to convert this Note prior to such time so as to participate in or
vote with respect to such transaction; provided, however, that the failure to
deliver such notice or any defect therein shall not affect the validity of the
corporate action required to be described in such notice.

11.           No
Fractional Shares.  The Company shall
not issue or cause to be issued fractional Underlying Shares on conversion of
this Note.  If any fraction of an
Underlying Share

 16
 

 

 

would, except for the provisions of this Section 11, be issuable upon conversion of this Note, the
number of Underlying Shares to be issued will be rounded up to the nearest
whole share.

12.           Redemption.

(a)                                      Holder
Redemption.

(i)            At any time following the 24 month
anniversary of the Original Issue Date (any such day,  a “Holder
Redemption Date”), the Holder shall have the right to require the
Company to redeem all or any portion of the outstanding principal amount of the
Notes, plus all accrued but unpaid interest thereon to the date of payment (for
each redemption on a Holder Redemption Date, the “Holder Redemption Price”) on each such Holder Redemption Date;
provided, however, that on the 60th month anniversary of the Original Issue Date,
the Company shall redeem 100% of any remaining outstanding principal amount of
the Notes, plus accrued but unpaid interest thereon to the date of payment.  The Holder must deliver a notice of the redemption
at least twenty (20) Trading Days prior to the Holder Redemption Date, which
notice shall state the aggregate principal amount of the Notes to be redeemed.

(ii)           The Company shall pay the Holder
Redemption Price in cash.

(b)                                      Company
Prepayment.

(i)            At any time following the one year
anniversary of the Effective Date, upon delivery of an irrevocable written
notice to the Holder (a “Company Prepayment Notice”
and the date such notice is delivered by the Company, the “Company
Notice Date”) delivered at least 20 Trading Days prior to the date
of the prepayment (the “Company Prepayment Date”),
the Company shall be entitled to prepay all of the outstanding principal amount
of this Note plus any accrued and unpaid interest thereon for an amount in cash
equal to the Company Prepayment Price (as defined below).  Notwithstanding anything to the contrary, the
Company shall only be entitled to deliver a Company Prepayment Notice pursuant
to the terms hereof if the Equity Conditions are satisfied (or waived in writing
by the applicable Holder) with the respect to all Underlying Shares issuable
upon conversion of the Notes on the Company Notice Date.  If any of the Equity Conditions shall cease
to be in effect during the period between the Company Notice Date and the date
the Company Prepayment Price is paid in full, then the Holder subject to such
prepayment may elect by written notice to the Company given at any time after
any of the Equity Conditions shall cease to be in effect, to invalidate ab initio such optional prepayment, notwithstanding anything
herein contained to the contrary. The Holder may, at any time prior to the
payment of the Company Prepayment Price, convert any portion of the outstanding
principal amount of this Note and any accrued and unpaid interest thereon
subject to a Company Prepayment Notice. Once delivered, the Company shall not
be entitled to rescind a Company Prepayment Notice.

(ii)           The Company Prepayment Price shall be
due in cash on the Company Prepayment Date. 
Any such prepayment shall be free of any claim of

 17
 

 

 

subordination. If any portion of the Company
Prepayment Price shall not be timely paid by the Company, interest shall accrue
thereon at the rate of 18% per annum (or the maximum rate permitted by
applicable law, whichever is less) until the Company Prepayment Price plus all
such interest is paid in full, which payment shall constitute liquidated
damages and not a penalty.  In addition,
if any portion of the Company Prepayment Price remains unpaid after such date,
the Holder subject to such prepayment may elect by written notice to the
Company to invalidate ab initio such
Company Prepayment Notice with respect to the unpaid amount, notwithstanding
anything herein contained to the contrary and no interest shall be owed to the
Holder in respect thereof. If the Holder makes such an election, the principal
amount of this Note, together with the accrued and unpaid interest thereon
shall be reinstated with respect to such unpaid amount and the Company shall no
longer have any prepayment rights under this Section 12(b).

(iii)          Notwithstanding anything to the
contrary herein, the Company may not elect a prepayment pursuant to Section
12(b) unless the Company makes such prepayment election to all of the
Holder’s of the Notes and for all of each such Holders  then outstanding principal amount of Notes.

(iv)          For the purposes of this Section
12(b), the term “Company Prepayment Price”
shall mean 120% of the aggregate outstanding principal amount of this Note plus
any accrued and unpaid interest thereon.

13.           Notices.  Any and all notices or other communications
or deliveries hereunder (including any Conversion Notice) shall be in writing
and shall be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number specified in this Section 13 prior to 6:30 p.m.
(New York City time) on a Trading Day, (ii) the next Trading Day after the date
of transmission, if such notice or communication is delivered via facsimile at
the facsimile number specified in this Section 13 on a day that is not a
Trading Day or later than 6:30 p.m. (New York City time) on any Trading Day,
(iii) the Trading Day following the date of mailing, if sent by nationally
recognized overnight courier service, or (iv) upon actual receipt by the party
to whom such notice is required to be given. 
The addresses for such communications shall be: (i) if to the Company,
to SatCon Technology Corporation, 27 Drydock Avenue, Boston, MA 02210,
facsimile: (617) 897-2401, attention Chief Executive Officer, or (ii) if to the
Holder, to the address or facsimile number appearing on the Company’s
Noteholder records or such other address or facsimile number as the Holder may
provide to the Company in accordance with this Section 13.

14.           Miscellaneous.

(a)                                      This
Note shall be binding on and inure to the benefit of the parties hereto and
their respective successors and permitted assigns.  The Company shall not be permitted to assign
this Note.

(b)                                      Subject
to Section 14(a), nothing in this Note shall be construed to give to any
person or corporation other than the Company and the Holder any legal or
equitable right, remedy or cause under this Note.

 18
 

 

 

(c)                                      GOVERNING
LAW; VENUE; WAIVER OF JURY TRIAL. 
ALL QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY, ENFORCEMENT AND
INTERPRETATION OF THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO
THE PRINCIPLES OF CONFLICTS OF LAW THEREOF. 
EACH PARTY HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF
THE STATE AND FEDERAL COURTS SITTING IN THE CITY OF NEW YORK, BOROUGH OF
MANHATTAN, FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION
HEREWITH OR WITH ANY TRANSACTION CONTEMPLATED HEREBY OR DISCUSSED HEREIN
(INCLUDING WITH RESPECT TO THE ENFORCEMENT OF ANY OF THE TRANSACTION
DOCUMENTS), AND HEREBY IRREVOCABLY WAIVES, AND AGREES NOT TO ASSERT IN ANY
SUIT, ACTION OR PROCEEDING, ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE
JURISDICTION OF ANY SUCH COURT, THAT SUCH SUIT, ACTION OR PROCEEDING IS
IMPROPER.  EACH PARTY HEREBY IRREVOCABLY
WAIVES PERSONAL SERVICE OF PROCESS AND CONSENTS TO PROCESS BEING SERVED IN ANY
SUCH SUIT, ACTION OR PROCEEDING BY MAILING A COPY THEREOF VIA REGISTERED OR
CERTIFIED MAIL OR OVERNIGHT DELIVERY (WITH EVIDENCE OF DELIVERY) TO SUCH PARTY
AT THE ADDRESS IN EFFECT FOR NOTICES TO IT UNDER THIS AGREEMENT AND AGREES THAT
SUCH SERVICE SHALL CONSTITUTE GOOD AND SUFFICIENT SERVICE OF PROCESS AND NOTICE
THEREOF. NOTHING CONTAINED HEREIN SHALL BE DEEMED TO LIMIT IN ANY WAY ANY RIGHT
TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW.  THE COMPANY HEREBY WAIVES ALL RIGHTS TO A
TRIAL BY JURY.

(d)                                      The
headings herein are for convenience only, do not constitute a part of this Note
and shall not be deemed to limit or affect any of the provisions hereof.

(e)                                      In
case any one or more of the provisions of this Note shall be invalid or
unenforceable in any respect, the validity and enforceability of the remaining
terms and provisions of this Note shall not in any way be affected or impaired
thereby and the parties will attempt in good faith to agree upon a valid and
enforceable provision which shall be a commercially reasonable substitute
therefor, and upon so agreeing, shall incorporate such substitute provision in
this Note.

(f)                                       In
the event of any stock split, subdivision, dividend or distribution payable in
shares of Common Stock (or other securities or rights convertible into, or
entitling the holder thereof to receive directly or indirectly shares of Common
Stock), combination or other similar recapitalization or event occurring after
the date hereof, each reference in this Note to a price shall be amended to
appropriately account for such event.

(g)                                      No
provision of this Note may be waived or amended except in a written instrument
signed, in the case of an amendment, by the Company and the Holder or, or, in
the case of a waiver, by the Holder.  No
waiver of any default with respect to any provision, condition or requirement
of this Note shall be deemed to be a continuing waiver in the future or a
waiver of any subsequent default or a waiver of any other provision, condition
or requirement hereof, nor shall any delay or omission of either party to
exercise any right hereunder in any manner impair the exercise of any such
right.

[REMAINDER OF PAGE
INTENTIONALLY LEFT BLANK

SIGNATURE PAGE FOLLOWS]

 19
 

 

 

IN WITNESS WHEREOF, the
Company has caused this Note to be duly executed by a duly authorized officer
as of the date first above indicated.

	
  

  	
  SATCON TECHNOLOGY CORPORATION

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By

  	
   

  
	
   

  	
  Name: David B. Eisenhaure

  
	
   

  	
  Title: Chief Executive Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By

  	
   

  
	
   

  	
  Name: David E. O’Neil

  
	
   

  	
  Title: Vice President of Finance and Treasurer

  

 

 20
 

 

 

Schedule 1

FORM OF
CONVERSION NOTICE

(To be executed by the
registered Holder

in order to convert Note)

The undersigned hereby
elects to convert the specified principal amount of  Senior Secured Convertible Notes (the “Notes”) into shares of common stock, $0.01 par
value (the “Common Stock”), of
SatCon Technology Corporation, a Delaware corporation, according to the
conditions hereof, as of the date written below.

	
  

  	
   

  	
  

  
	
   

  	
   

  
	
   

  	
  Date to Effect Conversion

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Principal amount of Notes owned prior to conversion

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Principal amount of Notes to be converted

  (including accrued but unpaid interest thereon)

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Number of shares of Common Stock to be Issued

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Applicable Conversion Price

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Principal amount of Notes owned subsequent to
  Conversion

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Name of Holder

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  

 

 21
 

 

 

Schedule 2

CONVERSION SCHEDULE

This
Conversion Schedule reflects conversions of the Senior Secured Convertible
Notes issued by SatCon Technology Corporation.

	
  Date of Conversion

  	
  Amount of Conversion

  	
  Aggregate Principal Amount

  Remaining Subsequent to Conversion

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  

 

 22Exhibit
10.3

NEITHER THESE SECURITIES NOR THE
SECURITIES FOR WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED WITH
THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY
STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE
OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT
AND IN COMPLIANCE WITH APPLICABLE STATE SECURITIES OR BLUE SKY LAWS.  THESE SECURITIES AND THE SECURITIES ISSUABLE
UPON EXERCISE OF THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE
MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES, SUBJECT TO THE TERMS
OF THIS LEGEND AND THE SECURITIES ACT.

SATCON TECHNOLOGY CORPORATION

WARRANT A

	
  Warrant A No. [ ]

  	
   

  	
  Dated: July 19, 2006

  

 

SatCon Technology Corporation, a Delaware corporation
(the “Company”), hereby certifies
that, for value received, [Name of Holder] or its registered assigns (the “Holder”), is entitled to purchase from the
Company up to a total of [          ]
shares of common stock, $0.01 par value per share (the “Common Stock”), of the Company (each such
share, a “Warrant Share” and all
such shares, the “Warrant Shares”)
at an exercise price equal to $1.815 per share (as adjusted from time to time
as provided in Section 9, the “Exercise
Price”), at any time and from time to time from and after the six
month anniversary of the Closing Date and through and including the date that
is seven years from the date of issuance hereof (the “Expiration Date”), and subject to the
following terms and conditions.  This
Warrant (this “Warrant”) is one of
a series of similar warrants issued pursuant to that certain Securities
Purchase Agreement, dated as of July 19, 2006, by and among the Company and the
Purchasers identified therein (the “Purchase
Agreement”).  All such
warrants are referred to herein, collectively, as the “Warrants.”

1.             Definitions.  In addition to the terms defined elsewhere in
this Warrant, capitalized terms that are not otherwise defined herein have the
meanings given to such terms in the Purchase Agreement.

2.             Registration
of Warrant.  The Company shall
register this Warrant, upon records to be maintained by the Company for that
purpose (the “Warrant Register”),
in the name of the record Holder hereof from time to time.  The Company may deem and treat the registered
Holder

 

of this Warrant as the
absolute owner hereof for the purpose of any exercise hereof or any
distribution to the Holder, and for all other purposes, absent actual notice to
the contrary.

3.             Registration
of Transfers.  The Company shall
register the assignment and transfer of any portion of this Warrant in the
Warrant Register, upon surrender of this Warrant, with the Form of Assignment
attached hereto on Annex B duly completed and signed, to the Company at
its address specified herein.  Upon any
such registration or transfer, a new warrant to purchase Common Stock, in
substantially the form of this Warrant (any such new warrant, a “New Warrant”), evidencing the portion of
this Warrant so transferred shall be issued to the transferee and a New Warrant
evidencing the remaining portion of this Warrant not so transferred, if any,
shall be issued to the transferring Holder. 
The acceptance of the New Warrant by the transferee thereof shall be
deemed the acceptance by such transferee of all of the rights and obligations
of a holder of a Warrant.

4.             Exercise
and Duration of Warrants.

(a)           This Warrant shall be exercisable by the
registered Holder at any time and from time to time on or after the six month
anniversary of the Closing Date to and including the Expiration Date.  At 6:30 P.M., New York City time on the
Expiration Date, the portion of this Warrant not exercised prior thereto shall
be and become void and of no value; provided that, if the average of the Closing
Prices for the five Trading Days immediately prior to (but not including) the
Expiration Date exceeds the Exercise Price on the Expiration Date, then this
Warrant shall be deemed to have been exercised in full (to the extent not
previously exercised) on a “cashless exercise” basis at 6:30 P.M. New York City
time on the Expiration Date if a “cashless exercise” may occur at such time
pursuant to Section 10 below.

(b)           A Holder may exercise this Warrant by
delivering to the Company (i) an exercise notice, in the form attached hereto
on Annex A (the “Exercise
Notice”), appropriately completed and duly signed, and
(ii) payment of the Exercise Price for the number of Warrant Shares as to
which this Warrant is being exercised (which may take the form of a “cashless
exercise” if so indicated in the Exercise Notice and if a “cashless exercise”
may occur at such time pursuant to this Section 10 below), and the date such
items are delivered to the Company (as determined in accordance with the notice
provisions hereof) is an “Exercise Date.”  The Holder shall not be required to deliver
the original Warrant in order to effect an exercise hereunder.  Execution and delivery of the Exercise Notice
shall have the same effect as cancellation of the original Warrant and issuance
of a New Warrant evidencing the right to purchase the remaining number of
Warrant Shares.

5.             Delivery
of Warrant Shares.

(a)           Upon exercise of this Warrant, the
Company shall promptly (but in no event later than three Trading Days after the
Exercise Date) issue or cause to be issued and cause to be delivered to or upon
the written order of the Holder and in such name or names as the Holder may
designate, a certificate for the Warrant Shares issuable upon such exercise,
free of restrictive legends unless a registration statement covering the resale
of the Warrant Shares and naming the Holder as a selling stockholder thereunder
is not then effective and the Warrant Shares are not freely transferable
without volume restrictions pursuant to Rule 144 under the 

 2
  
 

 

Securities Act.  The Holder, or
any Person so designated by the Holder to receive Warrant Shares, shall be
deemed to have become holder of record of such Warrant Shares as of the
Exercise Date.  The Company shall, upon
request of the Holder, use its best efforts to deliver Warrant Shares hereunder
electronically through the Depository Trust Corporation or another established
clearing corporation performing similar functions.

(b)           This Warrant is exercisable, either in
its entirety or, from time to time, for a portion of the number of Warrant
Shares.  Upon surrender of this Warrant
following one or more partial exercises, the Company shall issue or cause to be
issued, at its expense, a New Warrant evidencing the right to purchase the
remaining number of Warrant Shares.

(c)           In addition to any other rights
available to a Holder, if the Company fails to deliver to the Holder a
certificate representing Warrant Shares by the third Trading Day after exercise
of this Warrant in full compliance with Section 4(b), and if after such third
Trading Day the Holder purchases (in an open market transaction or otherwise)
shares of Common Stock to deliver in satisfaction of a sale by the Holder of
the Warrant Shares that the Holder anticipated receiving from the Company (a “Buy-In”), then the Company shall, within three Trading Days
after the Holder’s request and in the Holder’s discretion, either (i) pay cash
to the Holder in an amount equal to the Holder’s total purchase price
(including brokerage commissions, if any) for the shares of Common Stock so
purchased (the “Buy-In Price”), at which point
the Company’s obligation to deliver such certificate (and to issue such Common
Stock) shall terminate, or (ii) promptly honor its obligation to deliver to the
Holder a certificate or certificates representing such Common Stock and pay
cash to the Holder in an amount equal to the excess (if any) of the Buy-In
Price over the product of (A) such number of shares of Common Stock, times (B)
the Closing Price on the date of the event giving rise to the Company’s
obligation to deliver such certificate.

(d)           The Company’s obligations to issue and
deliver Warrant Shares in accordance with the terms hereof are absolute and
unconditional, irrespective of any action or inaction by the Holder to enforce
the same, any waiver or consent with respect to any provision hereof, the
recovery of any judgment against any Person or any action to enforce the same,
or any setoff, counterclaim, recoupment, limitation or termination, or any breach
or alleged breach by the Holder or any other Person of any obligation to the
Company or any violation or alleged violation of law by the Holder or any other
Person, and irrespective of any other circumstance which might otherwise limit
such obligation of the Company to the Holder in connection with the issuance of
Warrant Shares.  Nothing herein shall
limit a Holder’s right to pursue any other remedies available to it hereunder,
at law or in equity including, without limitation, a decree of specific performance
and/or injunctive relief with respect to the Company’s failure to timely
deliver certificates representing shares of Common Stock upon exercise of the
Warrant  as required pursuant to the
terms hereof.

6.             Charges,
Taxes and Expenses.   Issuance and
delivery of certificates for shares of Common Stock upon exercise of this
Warrant shall be made without charge to the Holder for any issue or transfer
tax, withholding tax, transfer agent fee or other incidental tax or expense in
respect of the issuance of such certificates, all of which taxes and expenses
shall be paid by the Company; provided, however, that the Company shall not be
required to pay any tax which may be payable in respect of any transfer
involved in the registration of any certificates for Warrant 

 3
  
 

 

Shares or Warrants in a
name other than that of the Holder or an Affiliate thereof.  The Holder shall be responsible for all other
tax liability that may arise as a result of holding or transferring this
Warrant or receiving Warrant Shares upon exercise hereof.

7.             Replacement
of Warrant.  If this Warrant is
mutilated, lost, stolen or destroyed, the Company shall issue or cause to be
issued in exchange and substitution for and upon cancellation hereof, or in
lieu of and substitution for this Warrant, a New Warrant, but only upon receipt
of evidence reasonably satisfactory to the Company of such loss, theft or
destruction and customary and reasonable indemnity, if requested.

8.             Reservation
of Warrant Shares.  The Company
covenants that it will at all times reserve and keep available out of the
aggregate of its authorized but unissued and otherwise unreserved Common Stock,
solely for the purpose of enabling it to issue Warrant Shares upon exercise of
this Warrant as herein provided, the number of Warrant Shares which are then
issuable and deliverable upon the exercise of this entire Warrant, free from
preemptive rights or any other contingent purchase rights of persons other than
the Holder (taking into account the adjustments and restrictions of Section
9). The Company covenants that all Warrant Shares so issuable and
deliverable shall, upon issuance and the payment of the applicable Exercise
Price in accordance with the terms hereof, be duly and validly authorized,
issued and fully paid and nonassessable. 
The Company will take all such action as may be necessary to assure that
such shares of Common Stock may be issued as provided herein without violation
of any applicable law or regulation, or of any requirements of any securities
exchange or automated quotation system upon which the Common Stock may be
listed.

9.             Certain
Adjustments.  The Exercise Price and
number of Warrant Shares issuable upon exercise of this Warrant are subject to
adjustment from time to time as set forth in this Section 9.

(a)           Stock Dividends and Splits.  If the Company, at any time while this
Warrant is outstanding, (i) pays a stock dividend on its Common Stock or
otherwise makes a distribution on any class of capital stock that is payable in
shares of Common Stock, (ii) subdivides outstanding shares of Common Stock into
a larger number of shares, or (iii) combines outstanding shares of Common Stock
into a smaller number of shares, then in each such case the Exercise Price
shall be multiplied by a fraction of which the numerator shall be the number of
shares of Common Stock outstanding immediately before such event and of which
the denominator shall be the number of shares of Common Stock outstanding
immediately after such event.  Any
adjustment made pursuant to clause (i) of this paragraph shall become effective
immediately after the record date for the determination of stockholders
entitled to receive such dividend or distribution, and any adjustment pursuant
to clause (ii) or (iii) of this paragraph shall become effective immediately
after the effective date of such subdivision or combination.

(b)           Pro Rata Distributions.  If the Company, at any time while this
Warrant is outstanding, distributes to holders of Common Stock (i) evidences of
its indebtedness, (ii) any security (other than a distribution of Common Stock
covered by the preceding paragraph), (iii) rights or warrants to subscribe
for or purchase any security, or (iv) any other asset (in each case, “Distributed Property”), then in each such case the Exercise
Price in effect immediately prior to the record date fixed for determination of
stockholders entitled to receive such 

 4
  
 

 

distribution shall be adjusted (effective on such record date) to equal
the product of such Exercise Price times a fraction of which the denominator
shall be the average of the Closing Prices for the five Trading Days
immediately prior to (but not including) such record date and of which the
numerator shall be such average less the then fair market value of the
Distributed Property distributed in respect of 
one outstanding share of Common Stock, as determined by the Company’s
independent certified public accountants that regularly examine the financial
statements of the Company, (an “Appraiser”).  In such event, the Holder, after receipt of
the determination by the Appraiser, shall have the right to select an
additional appraiser (which shall be a nationally recognized accounting firm),
in which case such fair market value shall be deemed to equal the average of
the values determined by each of the Appraiser and such appraiser.  As an alternative to the foregoing adjustment
to the Exercise Price, at the request of the Holder delivered to the Company in
writing before the 45th day after such record date, the Company will deliver to
such Holder, within five Trading Days after such request (or, if later, on the
effective date of such distribution), the Distributed Property that such Holder
would have been entitled to receive in respect of the Warrant Shares for which
this Warrant could have been exercised immediately prior to such record
date.  If such Distributed Property is
not delivered to a Holder pursuant to the preceding sentence, then upon
expiration of or any exercise of the Warrant that occurs after such record
date, such Holder shall remain entitled to receive, in addition to the Warrant
Shares otherwise issuable upon such exercise (if applicable), such Distributed
Property.

(c)           Fundamental Transactions.  If, at any time while this Warrant is
outstanding, (i) the Company effects any merger or consolidation of the Company
with or into another Person, (ii) the Company effects any sale of all or
substantially all of its assets in one or a series of related transactions,
(iii) any tender offer or exchange offer (whether by the Company or another
Person) is completed pursuant to which holders of Common Stock are permitted to
tender or exchange their shares for other securities, cash or property, or (iv)
the Company effects any reclassification of the Common Stock or any compulsory share
exchange pursuant to which the Common Stock is effectively converted into or
exchanged for other securities, cash or property (other than as a result of a
subdivision or combination of shares of Common Stock covered by Section 9(a)
above) (in any such case, a “Fundamental
Transaction”), then the Holder shall have the right thereafter to
receive, upon exercise of this Warrant, the same amount and kind of securities,
cash or property as it would have been entitled to receive upon the occurrence
of such Fundamental Transaction if it had been, immediately prior to such
Fundamental Transaction, the holder of the number of Warrant Shares then
issuable upon exercise in full of this Warrant (the “Alternate
Consideration”).  The
aggregate Exercise Price for this Warrant will not be affected by any such
Fundamental Transaction, but the Company shall apportion such aggregate
Exercise Price among the Alternate Consideration in a reasonable manner
reflecting the relative value of any different components of the Alternate
Consideration.  If holders of Common
Stock are given any choice as to the securities, cash or property to be
received in a Fundamental Transaction, then the Holder shall be given the same
choice as to the Alternate Consideration it receives upon any exercise of this
Warrant following such Fundamental Transaction. 
In the event of a Fundamental Transaction, the Company or the successor
or purchasing Person, as the case may be, shall execute with the Holder a
written agreement providing that:

 5
  
 

 

(x)   this Warrant shall thereafter entitle the
Holder to purchase the Alternate Consideration in accordance with this section
9(c),

(y)  in the case of any such successor or
purchasing Person, upon such consolidation, merger, statutory exchange,
combination, sale or conveyance such successor or purchasing Person shall be
jointly and severally liable with the Company for the performance of all of the
Company’s obligations under this Warrant and the Purchase Agreement, and

(z)   if registration or qualification is required
under the Exchange Act or applicable state law for the public  resale by the Holder of shares of stock and
other securities so issuable upon exercise of this Warrant, such registration
or qualification shall be completed prior to such reclassification, change,
consolidation, merger, statutory exchange, combination or sale.

If, in the
case of any Fundamental Transaction, the Alternate Consideration includes
shares of stock, other securities, other property or assets of a Person other
than the Company or any such successor or purchasing Person, as the case may
be, in such Fundamental Transaction, then such written agreement shall also be
executed by such other Person and shall contain such additional provisions to
protect the interests of the Holder as the Board of Directors of the Company
shall reasonably consider necessary by reason of the foregoing.  At the Holder’s request, any successor to the
Company or surviving entity in such Fundamental Transaction shall issue to the
Holder a new warrant consistent with the foregoing provisions and evidencing
the Holder’s right to purchase the Alternate Consideration for the aggregate
Exercise Price upon exercise thereof. 
The terms of any agreement pursuant to which a Fundamental Transaction
is effected shall include terms requiring any such successor or surviving
entity to comply with the provisions of this paragraph (c) and insuring that
the Warrant (or any such replacement security) will be similarly adjusted upon
any subsequent transaction analogous to a Fundamental Transaction. If any
Fundamental Transaction constitutes or results in a Change of Control, then at
the request of the Holder delivered to the Company in writing before the 45th
day after such Fundamental Transaction, the Company (or any such successor or
surviving entity) will purchase this Warrant from the Holder for a purchase
price, payable in cash within five Trading Days after such request (or, if
later, on the effective date of the Fundamental Transaction), equal to the
Black-Scholes value of the remaining unexercised portion of this Warrant on the
date of such request.

(d)           Subsequent Equity Sales.

(i)            For so long as this Warrant is
outstanding, the Company or any Subsidiary shall not issue additional shares of
Common Stock or rights, warrants, options or other securities or debt
convertible, exercisable or exchangeable for shares of Common Stock or
otherwise entitling any Person to acquire shares of Common Stock (collectively,
“Common Stock Equivalents”)
at an effective price per share of Common Stock (prior to deducting fees,
commissions and other expenses related to such issuance) (the “Effective Price”) less than the Conversion Price (as defined
in the Notes) (as adjusted to such date) (a “Prohibited
Issuance”).  For purposes of
this paragraph, in connection with any issuance of any Common Stock
Equivalents, (A) the maximum number of shares of Common Stock potentially
issuable at any time upon conversion, exercise or exchange of 

 6
  
 

 

such Common
Stock Equivalents (the “Deemed
Number”) shall be deemed to be outstanding upon issuance of such
Common Stock Equivalents, (B) the Effective Price applicable to such Common
Stock shall equal the minimum dollar value of consideration payable to the
Company to purchase such Common Stock Equivalents and to convert, exercise or
exchange them into Common Stock (prior to deducting any fees, commissions and
other expenses related thereto), divided by the Deemed Number, and (C) the
actual issuance of Common Stock upon conversion, exercise or exchange of such
Common Stock Equivalents shall not be subject again to this Section 9(d)(i).

(ii)           If, at any time while this Warrant is
outstanding, the Company or any Subsidiary issues Common Stock Equivalents with
an Effective Price or a number of underlying shares that floats or resets or
otherwise varies or is subject to adjustment based (directly or indirectly) on
market prices of the Common Stock (a “Floating
Price Security”), then for purposes of applying the preceding
paragraph, whether Section 9(d)(i) has been violated will be determined
separately each time such adjustment occurs.

(iii)          In the event the Company breaches Section
9(d)(i), then at the request of the Holder delivered to the Company in
writing before the 45th day after such Prohibited Issuance, the Company (or any
such successor or surviving entity) will purchase this Warrant from the Holder
for a purchase price, payable in cash within five Trading Days after such
request, equal to the Black-Scholes value of the remaining unexercised portion
of this Warrant on the date of such request.

(iv)          Notwithstanding the foregoing, the
Company shall be permitted to issue Excluded Stock.

(e)           Number of Warrant Shares.  Simultaneously with any adjustment to the
Exercise Price pursuant to paragraphs (a) or (b) of this Section, the number of
Warrant Shares that may be purchased upon exercise of this Warrant shall be
increased or decreased proportionately, so that after such adjustment the
aggregate Exercise Price payable hereunder for the increased or decreased
number of Warrant Shares shall be the same as the aggregate Exercise Price in
effect immediately prior to such adjustment.

(f)            Calculations.  All calculations under this Section 9
shall be made to the nearest cent or the nearest 1/100th of a share, as
applicable.  The number of shares of
Common Stock outstanding at any given time shall not include shares owned or
held by or for the account of the Company, and the disposition of any such
shares shall be considered an issue or sale of Common Stock.

(g)           Notice of Adjustments.  Upon the occurrence of each adjustment
pursuant to this Section 9, the Company at its expense will promptly
compute such adjustment in accordance with the terms of this Warrant and
prepare a certificate setting forth such adjustment, including a statement of
the adjusted Exercise Price and adjusted number or type of Warrant Shares or
other securities issuable upon exercise of this Warrant (as applicable),
describing the transactions giving rise to such adjustments and showing in
detail the facts upon which such adjustment is based.  The Company will promptly deliver a copy of
each such certificate to the Holder within 10 Trading Days of the occurrence of
such adjustment.

 7
  
 

 

(h)           Notice of Corporate Events.  If the Company  (i) declares a dividend or any other
distribution of cash, securities or other property in respect of its Common
Stock, including without limitation any granting of rights or warrants to
subscribe for or purchase any capital stock of the Company or any Subsidiary,
(ii) authorizes or approves, enters into any agreement contemplating or
solicits stockholder approval for any Fundamental Transaction or (iii)
authorizes the voluntary dissolution, liquidation or winding up of the affairs
of the Company, then the Company shall deliver to the Holder a notice
describing the material terms and conditions of such transaction, at least 20
calendar days prior to the applicable record or effective date on which a
Person would need to hold Common Stock in order to participate in or vote with
respect to such transaction, and the Company will take all steps reasonably
necessary in order to insure that the Holder is given the practical opportunity
to exercise this Warrant prior to such time so as to participate in or vote
with respect to such transaction; provided, however, that the failure to
deliver such notice or any defect therein shall not affect the validity of the
corporate action required to be described in such notice.

10.           Payment
of Exercise Price.  The Holder shall
pay the Exercise Price in cash in immediately available funds; provided,
however, that if a Registration Statement covering the resale of the
Warrant Shares is not effective at the time of exercise, the Holder may satisfy
its obligation to pay the Exercise Price through a “cashless exercise,” in
which event the Company shall issue to the Holder the number of Warrant Shares
determined as follows:

	
  

  	
   

  	
  X = Y [(A-B)/A]

  
	
  where:

  	
   

  	
   

  
	
   

  	
   

  	
  X = the number of Warrant Shares to be issued to the
  Holder.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Y = the number of Warrant Shares with respect to
  which this Warrant is being exercised.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  A = the arithmetic average of the VWAP for the five
  Trading Days immediately prior to (but not including) the Exercise Date.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  B = the Exercise Price.

  

 

For purposes of
Rule 144 promulgated under the Securities Act, it is intended, understood and
acknowledged that the Warrant Shares issued in a cashless exercise transaction
shall be deemed to have been acquired by the Holder, and the holding period for
the Warrant Shares shall be deemed to have commenced, on the date this Warrant
was originally issued pursuant to the Purchase Agreement.

11.           Limitation on Exercise.

(a)           Notwithstanding
anything to the contrary contained herein, the
number of shares of Common Stock that may be acquired by the Holder upon any
exercise of this Warrant (or otherwise in respect hereof) shall be limited to
the extent necessary to insure that, following such exercise (or other
issuance), the total number of shares of Common Stock then beneficially owned
by such Holder and its Affiliates and any other Persons whose beneficial
ownership of 

 8
  
 

 

Common Stock would be aggregated
with the Holder’s for purposes of Section 13(d) of the Exchange Act, does not
exceed 4.999%  (the “Threshold Percentage”) or 9.999% (the “Maximum Percentage”) of the
total number of issued and outstanding shares of Common Stock (including for
such purpose the shares of Common Stock issuable upon such exercise).  For such purposes, beneficial ownership shall
be determined in accordance with Section 13(d) of the Exchange Act and the
rules and regulations promulgated thereunder. 
Each delivery of an Exercise Notice hereunder will constitute a
representation by the Holder that it has evaluated the limitations set forth in
this paragraph and determined that issuance of the full number of Warrant
Shares requested in such Exercise Notice is permitted under this
paragraph.  The Company’s obligation to
issue shares of Common Stock in excess of the limitation referred to in this
Section shall be suspended (and shall not terminate or expire notwithstanding
any contrary provisions hereof) until such time, if any, as such shares of
Common Stock may be issued in compliance with such limitation.  By written notice to the Company, the Holder
shall have the right (x) at any time and from time to time to reduce its
Maximum Percentage immediately upon notice to the Company in the event and only
to the extent that Section 16 of the Exchange Act or the rules promulgated thereunder
(or any successor statute or rules) is changed to reduce the beneficial
ownership percentage threshold thereunder to a percentage less than 9.999% and
(y) at any time and from time to time, to waive the provisions of this Section
insofar as they relate to the Threshold Percentage or to increase or decrease
its Threshold Percentage (but not in excess of the Maximum Percentage) unless
the Holder shall have, by written instrument delivered to the Company,
irrevocably waived its rights to so increase or decrease its Threshold
Percentage, but (i) any such waiver, increase or decrease will not be effective
until the 61st day after such notice is delivered to the Company, and (ii) any
such waiver or increase or decrease will apply only to the Holder and not to
any other holder of Warrants.

(b)           Notwithstanding anything to the contrary
contained herein, the number of shares of
Common Stock that may be acquired by the Holder upon any exercise of this
Warrant (or otherwise in respect hereof) shall be limited to the extent
necessary to insure that, following such exercise (or other issuance), the
total number of shares of Common Stock then beneficially owned by such Holder
and its Affiliates and any other Persons whose beneficial ownership of Common
Stock would be aggregated with the Holder’s for purposes of Section 13(d) of
the Exchange Act, does not exceed 19.999% of the total number of issued and
outstanding shares of Common Stock (including for such purpose the shares of
Common Stock issuable upon such exercise).  For such purposes, beneficial ownership shall
be determined in accordance with Section 13(d) of the Exchange Act and the
rules and regulations promulgated thereunder.

12.           Fractional
Shares.  The Company shall not be
required to issue or cause to be issued fractional Warrant Shares on the
exercise of this Warrant.  If any
fraction of a Warrant Share would, except for the provisions of this Section,
be issuable upon exercise of this Warrant, the number of Warrant Shares to be
issued will be rounded up to the nearest whole share or right to purchase the nearest whole
share, as the case may be.

13.           Notices.  Any and all notices or other communications
or deliveries hereunder (including without limitation any Exercise Notice)
shall be in writing and shall be deemed given and effective on the earliest of
(i) the date of transmission, if such notice or communication is delivered via
facsimile at the facsimile number specified in this Section prior to 6:30 p.m.
(New York City time) on a Trading Day, (ii) the next Trading Day after the date
of transmission, if such notice or communication is delivered via facsimile at
the facsimile number specified in this Section on a day that is not a Trading
Day or later than 6:30 p.m. (New 

 9
  
 

 

York City time) on any Trading Day, (iii) the Trading
Day following the date of mailing, if sent by a nationally recognized overnight
courier service, or (iv) upon actual receipt by the party to whom such notice
is required to be given.  The address for
such notices or communications shall be as set forth in the Purchase Agreement.

14.           Call Right.

(a)           If following the later of the (i)
Effective Date and (ii) the six month anniversary of the date hereof, the
Closing Prices for any 20 consecutive Trading Days exceeds 200% of the Exercise
Price (the “Threshold I Price”,
and such 20 day period, the “Threshold I
Period”), then the Company will have the right, but not obligation
(the “Call I Right”), on prior
written notice in accordance with Section 14(c) below to require the Holder to
exercise up to 50% of any unexercised portion of this Warrant for which an
Exercise Notice has not yet been delivered (the “Call I Amount”); provided that the Call I Right must be
exercised within 20 Trading Days of the last day of the Threshold I Period.

(b)           If following the 24 month anniversary of
the date hereof, the Closing Prices for any 20 consecutive Trading Days exceeds
300% of the Exercise Price (the “Threshold II
Price”, and together with the Threshold I Price, each a “Threshold Price” and such 20 day period,
the “Threshold II Period”), then
the Company will have the right, but not obligation (the “Call II Right”, and together with the Call
I Right, each a “Call Right”), on
prior written notice in accordance with Section 14(c) below to require the
Holder to exercise any unexercised portion of this Warrant for which an
Exercise Notice has not yet been delivered (the “Call II Amount”, and together with the Call I Amount, each a “Call Amount”); provided that the Call II
Right must be exercised within 20 Trading Days of the last day of the Threshold
II Period.

(c)           To exercise a Call Right, the Company
shall deliver to the Holder an irrevocable written notice (a “Call Notice”), indicating the applicable Call Amount.  The date that the Company delivers the Call
Notice to the Holders will be referred to as the “Call Date.” Within 15 Trading Days of receipt of the Call
Notice, the Holder shall exercise this Warrant for up to the applicable Call
Amount in accordance with Section 4(b) above. 
Any portion of the Call Amount that is not exercised by 6:30 p.m. (New
York City time) on the 15th Trading Day following the date of receipt of the
Call Notice (the “Forced Exercise Date”)
shall be cancelled.  Any unexercised
portion of this Warrant to which the Call Notice does not pertain (the “Remaining Portion”) will be unaffected by such Call
Notice.  The Company covenants and agrees
that it will honor any Exercise Notice with respect to the Call Amount that are
tendered from the Call Date through and including 6:30 p.m. (New York City
time) on the Forced Exercise Date.

(d)           Notwithstanding anything to the contrary
set forth in this Warrant, the Company may not require the cancellation of any
unexercised Call Amount (and any Call Notice will be void), unless from the
beginning of the 20 consecutive Trading Days used to determine whether the
Common Stock has achieved the applicable Threshold Price through the Forced 

 10
  
 

 

Exercise Date (the “Call Period”)
(i) the Closing Prices for each Trading Day during such Call Period exceeds
such Threshold Price, (ii) the Company shall have honored in accordance with
the terms of this Warrant any Exercise Notice delivered by 6:30 p.m. (New York
City time) on the Forced Exercise Date, (iii) the Equity Conditions (as defined
in the Notes) are satisfied (or waived in writing by the applicable Holder) on
each Trading Day with respect to all Underlying Shares issuable upon exercise
of the Call Amount, and (iv) the average daily trading volume as reported on
Bloomberg, L.P. during such Call Period (determined by calculating the
arithmetic average of the daily trading volume for each Trading Day in such
Call Period) is greater than 100,000 shares.

(e)           Notwithstanding anything herein to the
contrary, (i) in connection with the Company’s exercise of a Call Right, the
Threshold Percentage limitation on exercise set forth in Section 11 shall not
apply and (ii) if after the Call Right is exercised, the stated Expiration Date
of this Warrant would occur prior to the Forced Exercise Date, the “Expiration
Date” hereof shall be extended to end of the Forced Exercise Date solely to the
extent necessary to enable this Warrant to be exercised for the Call Amount on
the Forced Exercise Date.

15.           Warrant
Agent.  The Company shall serve as
warrant agent under this Warrant.  Upon
30 days’ notice to the Holder, the Company may appoint a new warrant
agent.  Any corporation into which the
Company or any new warrant agent may be merged or any corporation resulting
from any consolidation to which the Company or any new warrant agent shall be a
party or any corporation to which the Company or any new warrant agent
transfers substantially all of its corporate trust or stockholders services
business shall be a successor warrant agent under this Warrant without any
further act.  Any such successor warrant
agent shall promptly cause notice of its succession as warrant agent to be
mailed (by first class mail, postage prepaid) to the Holder at the Holder’s
last address as shown on the Warrant Register.

16.           Miscellaneous.

(a)           Subject to the restrictions on transfer
set forth on the first page hereof, this Warrant may be assigned by the
Holder.  This Warrant may not be assigned
by the Company except to a successor in the event of a Fundamental
Transaction.  This Warrant shall be
binding on and inure to the benefit of the parties hereto and their respective
successors and assigns.  Subject to the
preceding sentence, nothing in this Warrant shall be construed to give to any
Person other than the Company and the Holder any legal or equitable right,
remedy or cause of action under this Warrant. 
This Warrant may be amended only in writing signed by the Company and
the Holder and their successors and assigns.

(b)           The Company will not, by amendment of
its governing documents or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any
of the terms of this Warrant, but will at all times in good faith assist in the
carrying out of all such terms and in the taking of all such action as may be
necessary or appropriate in order to protect the rights of the Holder against
impairment.  Without limiting the
generality of the foregoing, the Company (i) will not increase the par value of
any Warrant Shares above the amount payable therefor on such exercise, (ii)
will take all such action as may be reasonably necessary or appropriate in
order that the Company may validly and legally issue fully paid and 

 11
  
 

 

nonassessable Warrant Shares on the exercise of this Warrant, and (iii)
will not close its stockholder books or records in any manner which interferes
with the timely exercise of this Warrant.

(C)           GOVERNING LAW; VENUE; WAIVER OF JURY
TRIAL.  ALL QUESTIONS CONCERNING THE
CONSTRUCTION, VALIDITY, ENFORCEMENT AND INTERPRETATION OF THIS WARRANT SHALL BE
GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF NEW YORK.  EACH PARTY HEREBY
IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL
COURTS SITTING IN THE CITY OF NEW YORK, BOROUGH OF MANHATTAN, FOR THE
ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR WITH ANY
TRANSACTION CONTEMPLATED HEREBY OR DISCUSSED HEREIN (INCLUDING WITH RESPECT TO
THE ENFORCEMENT OF ANY OF THE TRANSACTION DOCUMENTS), AND HEREBY IRREVOCABLY
WAIVES, AND AGREES NOT TO ASSERT IN ANY SUIT, ACTION OR PROCEEDING, ANY CLAIM
THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF ANY SUCH COURT, THAT SUCH
SUIT, ACTION OR PROCEEDING IS IMPROPER. 
EACH PARTY HEREBY IRREVOCABLY WAIVES PERSONAL SERVICE OF PROCESS AND
CONSENTS TO PROCESS BEING SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING BY
MAILING A COPY THEREOF VIA REGISTERED OR CERTIFIED MAIL OR OVERNIGHT DELIVERY
(WITH EVIDENCE OF DELIVERY) TO SUCH PARTY AT THE ADDRESS IN EFFECT FOR NOTICES
TO IT UNDER THIS AGREEMENT AND AGREES THAT SUCH SERVICE SHALL CONSTITUTE GOOD
AND SUFFICIENT SERVICE OF PROCESS AND NOTICE THEREOF. NOTHING CONTAINED HEREIN
SHALL BE DEEMED TO LIMIT IN ANY WAY ANY RIGHT TO SERVE PROCESS IN ANY MANNER
PERMITTED BY LAW.  THE COMPANY HEREBY
WAIVES ALL RIGHTS TO A TRIAL BY JURY.

(d)           The headings herein are for convenience
only, do not constitute a part of this Warrant and shall not be deemed to limit
or affect any of the provisions hereof.

(e)           In case any one or more of the
provisions of this Warrant shall be invalid or unenforceable in any respect,
the validity and enforceability of the remaining terms and provisions of this
Warrant shall not in any way be affected or impaired thereby and the parties
will attempt in good faith to agree upon a valid and enforceable provision
which shall be a commercially reasonable substitute therefor, and upon so
agreeing, shall incorporate such substitute provision in this Warrant.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK,

SIGNATURE PAGE FOLLOWS]

 12
  
 

 

IN WITNESS WHEREOF, the Company has caused this
Warrant A to be duly executed by its authorized officer as of the date first
indicated above.

	
   

  	
   

  
	
   

  	
  SATCON TECHNOLOGY CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:                                                                                          

  
	
   

  	
  Name:  David
  B. Eisenhaure

  
	
   

  	
  Title:  Chief
  Executive Officer

  
	
   

  	
   

  
	
   

  	
  By                                                                                           

  
	
   

  	
  Name:  David
  E. O’Neil

  
	
   

  	
  Title:  Vice
  President of Finance and Treasurer

  

 

 

 13
  

 

 

Annex A

FORM OF EXERCISE NOTICE

(To be executed by the Holder to exercise the right to
purchase shares of Common Stock under the foregoing Warrant)

To:  SATCON
TECHNOLOGY CORPORATION

The undersigned is the Holder of Warrant A No. _______
(the “Warrant”) issued by SatCon
Technology Corporation, a Delaware corporation (the “Company”).  Capitalized
terms used herein and not otherwise defined have the respective meanings set
forth in the Warrant.

1.                               The Warrant is currently
exercisable to purchase a total of ______________ Warrant Shares.

2.                               The undersigned Holder
hereby exercises its right to purchase _________________ Warrant Shares
pursuant to the Warrant.

3.                               The Holder intends that
payment of the Exercise Price shall be made as (check one):

____       “Cash Exercise” under Section 10

____       “Cashless Exercise” under Section 10 (if
permitted)

4.                               If the holder has elected a
Cash Exercise, the holder shall pay the sum of $____________ to the Company in
accordance with the terms of the Warrant.

5.                               Pursuant to this exercise,
the Company shall deliver to the holder _______________ Warrant Shares in
accordance with the terms of the Warrant.

6.                               Following this exercise, the
Warrant shall be exercisable to purchase a total of ______________ Warrant Shares.

	
  

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Dated: ________________,
  ___

  	
   

  	
  Name of Holder:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (Print)   _____________________________

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:   ________________________________

  
	
   

  	
   

  	
  Name:   ______________________________

  
	
   

  	
   

  	
  Title:   _______________________________

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (Signature must conform in all respects to name of
  holder as specified on the face of the Warrant)

  

 

 

Annex B

FORM OF ASSIGNMENT

[To be completed and signed only upon transfer of
Warrant]

FOR VALUE RECEIVED, the undersigned hereby sells,
assigns and transfers unto ________________________________ the right
represented by the within Warrant to purchase 
____________ shares of Common Stock of SatCon Technology Corporation to
which the within Warrant relates and appoints ________________ attorney to
transfer said right on the books of SatCon Technology Corporation with full
power of substitution in the premises.

	
  Dated:  _________________, _____

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (Signature must conform in all respects to name of
  holder as specified on the face of the Warrant)

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Address of Transferee

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  In the presence
  of:

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