Document:

Exhibit 10.6

 

Execution
Copy

 

CERTIFICATE OF DESIGNATION OF THE
RELATIVE RIGHTS AND PREFERENCES

OF THE

SERIES C CONVERTIBLE PREFERRED
STOCK

OF

SATCON TECHNOLOGY CORPORATION

 

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

 

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

 

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

 

2.             Dividends.

 

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

 

 

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

 

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

 

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

 

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

 

3.             Voting Rights.

 

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

 

 

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

 

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

 

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

 

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

 

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

 

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

 

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

 

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

 

4.             Liquidation Preference.

 

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

 

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

 

 

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

 

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

 

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

 

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

 

 

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

 

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

 

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

 

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

 

 

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

 

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

 

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

 

 

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

 

(c)           Company’s Right to Convert.

 

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

 

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

 

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

 

 

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

 

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

 

(e)           Adjustments of Conversion Price.

 

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

 

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

 

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

 

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

 

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

 

 

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

 

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

 

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

 

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

 

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

 

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

 

 

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

 

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

 

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

 

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

 

 

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

 

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

 

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

 

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

 

 

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

 

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

 

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

 

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

 

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

 

 

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

 

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

 

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

 

6.             Conversion Restrictions.

 

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

 

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

 

 

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

 

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

 

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

 

7.             Redemption.

 

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

 

 

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

 

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

 

 

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

 

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

 

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

 

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

 

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

 

all other remedies available under this Certificate of Designation, at
law or in equity (including a decree of specific performance and/or other
injunctive relief), no remedy contained herein shall be deemed a waiver of
compliance with the provisions giving rise to such remedy and nothing herein shall
limit a holder’s right to pursue actual damages for any failure by the Company
to comply with the terms of this Certificate of Designation.  Amounts set forth or provided for herein with
respect to payments, conversion and the like (and the computation thereof)
shall be the amounts to be received by the holder thereof and shall not, except
as expressly provided herein, be subject to any other obligation of the Company
(or the performance thereof).  The
Company acknowledges that a breach by it of its obligations hereunder will
cause irreparable harm to the holders of the Series C Preferred Stock and that
the remedy at law for any such breach may be inadequate.  The Company therefore agrees that, in the
event of any such breach or threatened breach, the holders of the Series C
Preferred Stock shall be entitled, in addition to all other available remedies,
to an injunction restraining any breach, without the necessity of showing
economic loss and without any bond or other security being required.

 

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

 

11.           Failure or Indulgence Not Waiver.  No failure or delay on the part of a holder
of Series C Preferred Stock in the exercise of any power, right or privilege
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such power, right or privilege preclude other or further
exercise thereof or of any other right, power or privilege.

 

[Remainder
of Page Intentionally Left Blank]

 

 

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

 

	
   

  	
  SATCON TECHNOLOGY CORPORATION

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
  David B. Eisenhaure

  
	
   

  	
   

  	
  Title:

  	
  President and Chief Executive Officer

  
						

 

 

EXHIBIT I

 

SATCON TECHNOLOGY
CORPORATION

CONVERSION NOTICE

 

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

 

	
   

  	
  Date of Conversion:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Number of Preferred Shares to be converted:

  	
   

  
	
   

  	
   

  	
   

  
	
   

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

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Please confirm the following information:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Conversion Price:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Number of shares of Common Stock to be issued:

  	
   

  
	
   

  	
   

  	
   

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

  	
   

  

 

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

 

	
   

  	
  Issue to:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Facsimile Number:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Authorization:

  	
   

  
	
   

  	
  By:  

  	
   

  
	
   

  	
  Title:  

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Dated:Exhibit 10.7

 

Execution Copy

 

REGISTRATION
RIGHTS AGREEMENT

 

This REGISTRATION RIGHTS
AGREEMENT, dated November 8, 2007 (this “Agreement”),
by and among SatCon Technology Corporation, a Delaware corporation (the “Company”) and the Persons listed on the Schedule
of Investors attached hereto as Exhibit A who are signatories to
this Agreement (each an “Investor,”
and together the “Investors”). Unless
otherwise provided in this Agreement, capitalized terms used herein have the
respective meanings given to them in Section 1.1 hereof.

 

WHEREAS, pursuant to the
Stock and Warrant Purchase Agreement, dated as of November 8, 2007 (the “Purchase Agreement”), by and among the
Company and the Investors, the Company has agreed to issue and sell to the
Investors shares of Series C Preferred Stock and the Warrants;

 

WHEREAS, upon the terms
and conditions set forth in the Purchase Agreement, in the event of an
Additional Warrant Triggering Event, the Company shall issue Additional
Warrants to the Investors.

 

WHEREAS, the obligations
of the Company and the Investors under the Purchase Agreement are conditioned
upon, among other things, the execution and delivery of this Agreement by the
Company and the Investors.

 

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

 

ARTICLE I

DEFINITIONS

 

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

 

“Additional Warrant(s)”
has the meaning set forth in the Purchase Agreement.

 

“Additional Warrant
Shares” has the meaning set forth in the Purchase Agreement.

 

“Additional Warrant
Triggering Event” has the meaning set forth in the Purchase Agreement.

 

“Affiliate” means any
Person who is an “affiliate” as defined in Rule 12b-2 of the General Rules
and Regulations under the Exchange Act.

 

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

 

 

“Alternative Transaction
Securities” has the meaning set forth in the Purchase Agreement.

 

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

 

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

 

“Certificate of
Designation” has the meaning set forth in the Purchase Agreement.

 

“Charter Documents” means
the Certificate of Incorporation and the By-laws of the Company.

 

“Closing Date” has the
meaning set forth in the Purchase Agreement.

 

“Common Stock” means the
common stock, par value $0.01 per share, of the Company and any other capital
stock of the Company into which such stock is reclassified or reconstituted.

 

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

 

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

 

“Company Underwriter” has
the meaning set forth in Section 5.1.

 

“Designated Holder” means
the Investors and any permitted transferee of the Investors to whom Registrable
Securities have been transferred in accordance with Section 8.5 of this
Agreement, other than a transferee to whom Registrable Securities have been
transferred pursuant to a Registration Statement under the Securities Act or
Rule 144 or Regulation S under the Securities Act (or any successor
rule thereto), but in each case solely for so long as such Investor or
transferee continues to be a holder of Registrable Securities.

 

“Effectiveness Period”
has the meaning set forth in Section 3.2(a).

 

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

 

“Holders’ Counsel” has
the meaning set forth in Section 5.1(a).

 

“Incidental Registration”
has the meaning set forth in Section 4.1.

 

“Indemnified Party” has
the meaning set forth in Section 6.3.

 

“Indemnifying Party” has
the meaning set forth in Section 6.3.

 

“Inspector” has the
meaning set forth in Section 5.1(h).

 

2

 

“Investors” has the
meaning set forth in the preamble to this Agreement and shall also include any
permitted transferee thereof.

 

“Knowledge” has the
meaning set forth in the Purchase Agreement.

 

“Liability” has the
meaning set forth in Section 6.1.

 

“Majority in Interest”
means the Designated Holders holding at least 50% of the then-outstanding
Registrable Securities.

 

“NASD” means the National
Association of Securities Dealers, Inc.

 

“New Securities” has the
meaning set forth in the Purchase Agreement.

 

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

 

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

 

“Records” has the meaning
set forth in Section 5.1(h).

 

“Registrable Securities”
means, subject to Section 2.2 below, (a) shares of Common Stock
issued or issuable upon conversion of the Series C Preferred Stock and
upon exercise of the Warrants and Additional Warrants; (b) shares of Common
Stock issued as Alternative Transaction Securities pursuant to the Purchase
Agreement (or if such Alternative Transaction Securities are not issued in the
form of Common Stock, the Common Stock issued or issuable upon conversion or
exercise of the Alternative Transaction Securities, as the case may be);
(c) shares of Common Stock issued as New Securities to the Investors (or
if such New Securities are not issued in the form of Common Stock, the Common
Stock issued or issuable upon conversion or exercise of the New Securities, as
the case may be); and (d) any Common Stock issued as (or issuable upon the
conversion or exercise of any warrant, right or other security which is issued
as) a dividend or other distribution with respect to, or in exchange for or in
replacement of the securities referenced in clauses (a), (b) and (c)
above.

 

“Registration Expenses”
has the meaning set forth in Section 5.3.

 

“Registration Statement”
means a registration statement filed pursuant to the Securities Act.

 

“Required Effectiveness
Date” means (i) with respect to the initial Shelf Registration Statement
required to be filed hereunder, the earlier of (A) the date that is sixty (60)
days from the Required Filing Date or (B) five (5) Business Days following the
date the SEC or the Staff notifies the Company that it will not review the
Registration Statement or that the Company may request effectiveness of the Registration
Statement, and (ii) with respect to any additional Registration Statements that
may be required to be filed hereunder (including without limitation pursuant to
Section 3.2), the 60th day (or in the event of a review of such
additional Registration Statement by 

 

3

 

the SEC, the 90th day) following the date on which the
Company first knows, or reasonably should have known, that such additional
Registration Statement is required and may be filed with the SEC.

 

“Required Filing Date”
has the meaning set forth in Section 3.1.

 

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

 

“SEC Approved Registrable
Securities” means Registrable Securities other than SEC Non-Registrable
Securities.

 

“SEC Non-Registrable
Securities” means the Registrable Securities excluded from the Registration
Statement either (i) pursuant to Section 3.2(b) because the SEC or the Staff
has indicated through comment letters or otherwise that such securities are not
eligible to be resold under Rule 415 of the Securities Act, (ii) pursuant to
Section 3.2(c) or (iii) pursuant to Section 3.2(d).

 

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

 

“Series C Preferred
Stock” means the Series C Convertible Preferred Stock, par value $0.01 per
share, of the Company.

 

“Shelf Registration
Statement” has the meaning set forth in Section 3.1.

 

“Staff” has the meaning
set forth in Section 3.2(b).

 

“Stockholder Approval”
has the meaning set forth in the Purchase Agreement.

 

“Stockholders Meeting”
has the meaning set forth in the Purchase Agreement.

 

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

 

“Warrant(s)” has the meaning
set forth in the Purchase Agreement.

 

ARTICLE II

GENERAL; SECURITIES SUBJECT TO THIS AGREEMENT

 

2.1           Grant of Rights.
The Company hereby grants registration rights to the Designated Holders upon
the terms and conditions set forth in this Agreement.

 

4

 

2.2           Registrable
Securities. For the purposes of this Agreement, securities of the Company
listed in clauses (a), (b), (c) and (d) of the definition of “Registrable
Securities” in Section 1.1 hereof will cease to be Registrable Securities, when
(i) a Registration Statement covering such Registrable Securities has been
declared effective under the Securities Act by the SEC and such Registrable
Securities have been disposed of pursuant to such effective Registration
Statement, (ii) the entire amount of the Registrable Securities owned by a
Designated Holder may be sold in a single sale, in the opinion of counsel
satisfactory to the Company and such Designated Holder, each in their
reasonable judgment (it being agreed that Greenberg Traurig, LLP shall be
satisfactory counsel), without any limitation as to volume pursuant to
Rule 144(k) (or any successor provision then in effect) under the
Securities Act or (iii) such Registrable Securities have been sold pursuant
to Rule 144 under the Securities Act.

 

2.3           Holders of
Registrable Securities. A Person is deemed to be a holder of Registrable
Securities whenever such Person owns of record Registrable Securities, or holds
an option to purchase, or a security convertible into or exercisable or
exchangeable for, Registrable Securities whether or not such acquisition or
conversion has actually been effected. If the Company receives conflicting
instructions, notices or elections from two or more Persons with respect to the
same Registrable Securities, the Company may act upon the basis of the
instructions, notice or election received from the registered owner of such
Registrable Securities.

 

ARTICLE III

SHELF REGISTRATION STATEMENT

 

3.1           Shelf Registration
Statement. To the greatest extent legally permissible, not later than
thirty (30) days after the earlier to occur of (i) the Second Tranche Closing
Date (as defined in the Purchase Agreement) or (ii) in the event that the
Company fails to obtain Stockholder Approval at the Stockholders Meeting, the
date of the Stockholders Meeting (such 30th day, the “Required  Filing Date”),
the Company shall file with the SEC a shelf registration statement pursuant to
Rule 415 of the Securities Act (the “Shelf
Registration Statement”) on Form S-3 (or any successor form
thereto), or if Form S-3 may not be used by the Company, on Form S-1
or SB-2 (or any successor forms thereto), as selected by the Company, with
respect to the resale, from time to time, covering all of the Registrable
Securities held by the Designated Holders. The Shelf Registration Statement
shall contain substantially the “Plan of Distribution” attached hereto as Exhibit
B. The disposition of Registrable Securities from the Shelf Registration
Statement may occur in one or more underwritten offerings, block transactions,
broker transactions, at-market transactions or in such other manner or manners
as may be specified by the Designated Holders.

 

3.2           Effective Shelf
Registration Statement.

 

(a)         The Company shall use its
reasonable best efforts to cause the Shelf Registration Statement to become
effective as soon as practicable after the earlier to occur of (i) the Second
Tranche Closing Date or (ii) in the event that the Company fails to obtain
Stockholder Approval at the Stockholders Meeting, the date of the Stockholders
Meeting (but not later than the Required Effectiveness Date), and shall use its
reasonable best efforts to keep the Shelf Registration Statement continuously
effective under the Securities Act, subject to the provisions of Sections 5.4

 

5

 

and 5.5 hereof, until the earlier of (i) such
time as the Company delivers an opinion of counsel reasonably acceptable to the
Designated Holders holding a majority of the then-outstanding Registrable
Securities (it being agreed that Greenberg Traurig, LLP shall be satisfactory
counsel) that each Designated Holder may sell in the open market in a single
transaction all Registrable Securities then held by each such Designated Holder
pursuant to Rule 144(k) of the Securities Act (or any similar provision
then in force) without being subject to the volume limitations thereof or
otherwise under an applicable exemption from the registration requirements of
the Securities Act, as amended, and all other applicable securities and blue
sky laws, (ii) all Registrable Securities covered by such Shelf
Registration Statement have been sold pursuant to such Shelf Registration
Statement or (iii) all Registrable Securities have been sold pursuant to Rule
144 (such period being the “Effectiveness Period”).

 

(b)         Notwithstanding anything
to the contrary in this Agreement, in the event the staff of the SEC (the “Staff”) or the SEC seeks to characterize any offering
pursuant to a Registration Statement filed pursuant to this Agreement as
constituting an offering of securities by or on behalf of the Company such that
Rule 415 is not available to the Company to register the resale of such
Registrable Securities and as a result the Staff or the SEC does not permit
such Registration Statement to become effective and used for resales in a
manner that permits the continuous resale at the market by the Designated
Holders participating therein (or as otherwise may be acceptable to each
Designated Holder) without being named therein as an “underwriter,” then the
Company shall reduce the number of shares to be included in such Registration
Statement by all Designated Holders until such time as the Staff and the SEC
shall so permit such Registration Statement to become effective as aforesaid. In
making such reduction, the Company shall reduce the number of Registrable
Securities to be included by all Designated Holders on a pro rata basis (based
upon the number of Registrable Securities otherwise required to be included for
each Designated Holder) unless the inclusion of shares by a particular
Designated Holder or a particular set of Designated Holders results in the
Staff or the SEC’s taking the position that the inclusion of such Registrable
Securities by such Designated Holders would constitute a registration “by or on
behalf of the Company,” in which event the shares held by such Designated
Holder or set of Designated Holders shall be the only shares subject to
reduction (and if by a set of Designated Holders on a pro rata basis by such
Designated Holders or on such other basis as would result in the exclusion of
the least number of shares by all such Designated Holders). In addition, in the
event that the Staff or the SEC requires any Designated Holder seeking to sell securities
under a Registration Statement filed pursuant to this Agreement to be
specifically identified as an “underwriter” (an “Underwriter
Identification”) in order to permit such Registration Statement to
become effective, and such Designated Holder does not consent to being so named
as an underwriter in such Registration Statement, then, in each such case, the
Company shall reduce the total number of Registrable Securities to be
registered on behalf of such Designated Holder, until such time as the Staff or
the SEC does not require such Underwriter Identification or until such
Designated Holder accepts such Underwriter Identification and the manner
thereof. In the event of any reduction in Registrable Securities pursuant to
this Section 3.2(b), if requested by a Designated Holder holding Registrable
Securities that were so excluded from such registration, the Company shall use
its reasonable best efforts to cause such Registrable Securities to be
registered to the greatest extent and at the earliest opportunity practicable
and in any event not later 30 days after the earliest practicable date
permitted under applicable guidance of the SEC and the Staff (and shall use its
reasonable best 

 

6

 

efforts to effect
additional registrations of Registrable Securities until all such securities
have been included in additional Registration Statements).

 

(c)         Notwithstanding anything
to the contrary in this Agreement, in the event the SEC or the Staff does not
permit inclusion of Additional Warrant Shares in a Registration Statement until
such time that the related Additional Warrants are outstanding, then such
Additional Warrant Shares may be excluded from the initial Shelf Registration
Statement. Thereafter, on a semi-annual basis (by June 30 and December 31 of
each year), the Company shall be obligated to file a Registration Statement
covering the resale of any Additional Warrant Shares underlying Additional
Warrants that are outstanding at such time; provided, however, that the Company
shall not be required to file such a Registration Statement if the total number
of Additional Warrant Shares to be included in such Registration Statement is
less than 100,000 (as adjusted for stock dividends, splits, combinations and the
like) or if the Additional Warrant Shares have been registered on a prior
Registration Statement.

 

(d)         Notwithstanding anything
to the contrary in this Agreement, a Designated Holder shall have the right to
require the Company to exclude all or any portion of such Designated Holder’s
Registrable Securities from any Registration Statement, by written notice to
the Company upon such Designated Holder’s reasonable belief that (i) inclusion
of such Registrable Securities in the Registration Statement could subject such
Designated Holder to underwriter liability, or (ii) the SEC or the Staff will
impose restrictions and terms on the disposition of such Registrable Securities
that are materially inconsistent with the Plan of Distribution attached hereto
as Exhibit B. In such event, the Company shall be required to file a new
registration statement for such excluded shares in accordance with Section
3.2(b).

 

(e)         Notwithstanding anything
to the contrary in this Agreement, in the event Rule 415 is not available to the
Company to register the resale of such Registrable Securities or if the Shelf
Registration Statement is not effective or is otherwise subject to suspension
for 20 or more consecutive Trading Days or more than 60 Trading Days, in the
aggregate, in any 365 day period, the Designated Holders may submit a written
request (a “Demand Notice”) to the Company
that the Company register all or part of the Registrable Securities under and
in accordance with the Securities Act with an anticipated aggregate offering price
of at least $3,000,000 (a “Demand Registration”).
Such Demand Notice shall specify the number and description of Registrable
Securities to be sold. Upon receipt of the Demand Notice, the Company shall (i)
within five Business Days after receipt of such Demand Notice, give written
notice of the proposed registration to all other Designated Holders; and (ii)
as soon as practicable, use reasonable best efforts to effect such registration
as may be so requested and as would permit or facilitate the sale and
distribution of all or such portion of such Registrable Securities as are
specified in such request, together with all or such portion of the Registrable
Securities of any Designated Holders joining in such request as are specified
in written requests received by the Company within 20 Business Days after the
date the Company mails the written notice referred to in clause (i) above. The
Company shall not be required to effect or take any action to effect a Demand
Registration after the Company has effected two Demand Registrations pursuant
to this Section 3.2(e). Section 3.3 shall not apply with respect to Demand
Registrations.

 

7

 

3.3           Event Payments. Should
an Event (as defined below) occur, then upon each monthly anniversary of the
occurrence of such Event (an “Event Payment Date”)
until the applicable Event is cured, as relief for the damages suffered
therefrom by the Designated Holders (the parties hereto agreeing that the
liquidated damages provided for in this Section 3.3 constitute a reasonable
estimate of the damages that may be incurred by the Designated Holders by
reason of such Event and that such liquidated damages represent the exclusive
monetary remedy for the Designated Holders for damages suffered due to such
Event), the Company shall pay to each Designated Holder an amount in cash, as
liquidated damages and not as a penalty, equal to one-twentieth of a percent
(0.0005) of (i) the number of SEC Approved Registrable Securities then held by
such Designated Holder as of the date of such Event, multiplied by (ii) the
purchase price paid by such Designated Holder for such SEC Approved Registrable
Securities then held, for each day that such Event continues, excluding the day
on which such Event has been cured. The payments to which a Designated Holder
shall be entitled pursuant to this Section 3.3 are referred to herein as “Event Payments.” In the event the Company
fails to make Event Payments to a Designated Holder within two (2) Business
Days after an Event Payment Date, such Event Payments owed to such Designated
Holder shall bear interest at the rate of one percent (1.0%) per month
(prorated for partial months) until paid in full. All pro rated calculations
made pursuant to this paragraph shall be based upon the actual number of days
in such pro rated month. Notwithstanding the foregoing provisions, in no event
shall the Company be obligated to pay such liquidated damages (a) to more than
one Designated Holder in respect of the same Registrable Securities for the
same period of time or (b) in an aggregate amount that exceeds 9.9% of the
purchase price paid by such Designated Holder for its Registrable Securities
pursuant to the Purchase Agreement.

 

For such purposes, each of the following shall
constitute an “Event”:

 

(a)         the Registration
Statement is not filed on or prior to the Required Filing Date or is not
declared effective on or prior to the Required Effectiveness Date except (A) as
provided for in Section 5.5, (B) in the event that the SEC or the Staff
(whether by means of a comment letter provided by the SEC or the Staff relating
to the Registration Statement or otherwise) makes a determination that the
registration of the Registrable Securities under the Registration Statement may
not be appropriately characterized as secondary offerings that are eligible to
be made on a shelf basis under Rule 415 or that one or more of the Designated
Holders should be named as an underwriter therein, (C) if the Company is
involved in a “Rule 13e-3 transaction” as defined in Rule 13e-3 under the
Exchange Act or (D) in the event of a merger or consolidation of the Company or
a sale, license or other disposition of more than fifty percent (50%) of the
assets of the Company or one of its material subsidiaries in one or a series of
related transactions; or

 

(b)         on and after the
effective date of a Registration Statement filed hereunder, a Designated Holder
is not permitted to sell SEC Approved Registrable Securities under the
Registration Statement (or a subsequent Registration Statement filed in
replacement thereof) for any reason (other than the fault of such Designated
Holder) for twenty (20) or more consecutive Trading Days or more than sixty
(60) Trading Days, in the aggregate, in any 365 day period, except as provided
in Section 5.5.

 

8

 

ARTICLE IV

INCIDENTAL OR “PIGGY-BACK” REGISTRATION

 

4.1           Request for
Incidental Registration. At any time after the date hereof until the end of
the Effectiveness Period, if (i) the Company proposes to file a Registration
Statement under the Securities Act with respect to an offering by the Company
for its own account (other than a Registration Statement on Form S-4 or S-8
or any successor thereto), or (ii) the Company proposes to file a Registration
Statement under the Securities Act with respect to an offering for the account
of any stockholder of the Company other than any Designated Holder, then in
each case the Company shall give written notice of such proposed filing to each
of the Designated Holders at least twenty (20) days before the anticipated
filing date, and such notice shall describe the proposed registration and
distribution and offer such Designated Holders the opportunity to register the
number of Registrable Securities as each such Designated Holder may request (an
“Incidental Registration”);
provided, however, that the Designated Holders shall only have the right to
register shares pursuant to clause (ii) of this sentence if the Shelf
Registration Statement is not effective or is otherwise subject to suspension
(or if the Company reasonably foresees that such Registration Statement will be
subject to suspension within thirty (30) days following such determination)
under Sections 5.4 or 5.5 hereof. The Company shall use its reasonable best
efforts (within twenty (20) days of the notice by the Designated Holders
provided for below in this sentence) to cause the managing underwriter or
underwriters in the case of a proposed underwritten offering (the “Company Underwriter”) to permit each of the
Designated Holders who have requested in writing to the Company within ten (10)
Business Days of the giving of the notice by the Company to participate in the
Incidental Registration to include its, his or her Registrable Securities in such
offering on the same terms and conditions as the securities of the Company or
the account of such other stockholder, as the case may be, included therein. In
connection with any Incidental Registration under this Section 4.1
involving an underwritten offering, the Company shall not be required to
include any Registrable Securities in such underwritten offering unless the
Designated Holders thereof accept the terms of the underwritten offering as
agreed upon between the Company, such other stockholders, if any, and the
Company Underwriter. If the Company Underwriter determines that the
registration of all or part of the Registrable Securities which the Designated
Holders have requested to be included in an offering by the Company for its own
account (other than a Registration Statement on Form S-4 or S-8 or any
successor thereto) would materially adversely affect the success of such
offering, then the Company shall be required to include in such Incidental
Registration, to the extent of the amount that the Company Underwriter believes
may be sold without causing such adverse effect, first, all of the securities
to be offered for the account of the Company, second, the Registrable
Securities to be offered for the account of the Designated Holders pursuant to
this Article IV, as a group, which Registrable Securities shall be
allocated pro rata among such Designated Holders based on the number of
Registrable Securities requested to be included in such offering by each such
Designated Holder, and third, other securities requested to be included in such
offering; provided, however,
that no such reduction shall reduce the shares of Registrable Securities held
by the Designated Holders included in the registration to below 10% of the
total amount of securities included in such registration, unless such adverse
effect is related to any of the matters contemplated by Section 3.2(b) hereof,
in which case such 10% floor shall not apply and such Registrable Securities
may be excluded pursuant to the provisions of Section 3.2(b) hereof. If the
Company Underwriter determines that the registration of all or part of the
Registrable Securities which the Designated 

 

9

 

Holders
have requested to be included in an offering for the account of any stockholder
of the Company other than any Designated Holders (“Other
Stockholders”) would materially adversely affect the success of such
offering, then the Company shall be required to include in such Incidental
Registration, to the extent of the amount that the Company Underwriter believes
may be sold without causing such adverse effect, first, all of the securities
to be offered for the account of such Other Stockholders, second, the
Registrable Securities to be offered for the account of the Designated Holders
pursuant to this Article IV, as a group, which Registrable Securities shall be
allocated pro rata among such Designated Holders based on the number of
Registrable Securities requested to be included in such offering by each such
Designated Holder, third, all of the securities to be offered for the account
of the Company, and fourth, other securities requested to be included in such
offering; provided, however,
that no such reduction shall reduce the shares of Registrable Securities held
by the Designated Holders included in the registration to below 30% of the
total amount of securities included in such registration unless such adverse
effect is related to any of the matters contemplated by Section 3.2(b) above,
in which case such 30% floor shall not apply and such Registrable Securities
may be excluded pursuant to the provisions of Section 3.2(b).

 

4.2           Right to Terminate
Registration. The Company shall have the right to terminate or withdraw any
registration initiated by it under Section 4.1 prior to the effectiveness
of such registration whether or not any Designated Holder has elected to
include Registrable Securities in such registration. A Designated Holder shall
have the right, by written notice to the Company, to exclude all or any portion
of such Designated Holder’s Registrable Securities from any Registration
Statement effected pursuant to this Article IV at any time prior to its
effectiveness.

 

4.3           Expenses. The
Company shall bear all Registration Expenses in connection with any Incidental
Registration pursuant to this Article IV, whether or not such Incidental
Registration becomes effective.

 

ARTICLE V

REGISTRATION PROCEDURES

 

5.1           Obligations of the
Company. Whenever registration of Registrable Securities has been requested
pursuant to Article III or Article IV of this Agreement, the Company
shall use its reasonable best efforts to effect the registration of such
Registrable Securities in accordance with the intended method of distribution
thereof, and in connection with any such request, the Company shall, as
expeditiously as possible:

 

(a)         before filing a
Registration Statement or prospectus or any amendments or supplements thereto
relating to Registrable Securities, the Company shall provide a single counsel
selected by the Designated Holders holding a majority of the Registrable
Securities being registered in such registration (“Holders’ Counsel”) with an adequate and appropriate
opportunity to review and comment on such Registration Statement and each
prospectus included therein (and each amendment or supplement thereto) to be
filed with the SEC, subject to such documents being under the Company’s
control, provided, that in no event shall such
review period be required to be more than five (5) days, and the Company shall
notify the Holders’ Counsel and each seller of Registrable Securities of any
stop order issued or threatened by the SEC relating to Registrable 

 

10

 

Securities and use all
reasonable efforts to prevent the entry of such stop order or to remove it if
entered;

 

(b)         prepare and file with the
SEC such amendments and supplements to such Registration Statement and the
prospectus used in connection therewith as may be reasonably necessary to keep
such Registration Statement effective for the period specified in such Article
III, or with respect to Article IV and if not so specified therein, the lesser
of (A) 180 days and (B) such shorter period which will terminate
when all Registrable Securities covered by such Registration Statement have
been sold and shall comply with the provisions of the Securities Act with
respect to the disposition of all securities covered by such Registration
Statement during such period in accordance with the intended methods of
disposition by the sellers thereof set forth in such Registration Statement;

 

(c)         furnish to each seller of
Registrable Securities, prior to filing a Registration Statement relating to
Registrable Securities, at least one copy of such Registration Statement as is
proposed to be filed, and thereafter such number of copies of such Registration
Statement, each amendment and supplement thereto (in each case including all
exhibits thereto), the prospectus included in such Registration Statement
(including each preliminary prospectus) and any prospectus filed under
Rule 424 under the Securities Act as each such seller may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such seller;

 

(d)         register or qualify such
Registrable Securities under such other securities or “blue sky” laws of such
jurisdictions as any seller of Registrable Securities may reasonably request,
and continue such registration or qualification in effect in such jurisdiction
for as long as permissible pursuant to the laws of such jurisdiction, or for as
long as any such seller reasonably requests or until all of such Registrable
Securities are sold, whichever is shortest, and do any and all other acts and
things which may be reasonably necessary or advisable to enable any such seller
to consummate the disposition in such jurisdictions of the Registrable
Securities owned by such seller; provided,
however, that the Company shall
not be required to (A) qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
Section 5.1(d), (B) subject itself to taxation in any such
jurisdiction or (C) consent to general service of process in any such
jurisdiction;

 

(e)         notify each seller of
Registrable Securities: (i) when a prospectus, any prospectus supplement,
a Registration Statement or a post-effective amendment to a Registration
Statement (but only if relating to Registrable Securities) has been filed with
the SEC, and, with respect to a Registration Statement or any post-effective
amendment (but only if relating to Registrable Securities), when the same has
become effective; (ii) of any request by the SEC or any other federal or
state governmental authority for amendments or supplements to a Registration
Statement or related prospectus or for additional information (but only if
relating to Registrable Securities); (iii) of the issuance by the SEC or
any other federal or state governmental authority of any stop order suspending
the effectiveness of a Registration Statement relating to Registrable
Securities or the initiation or threatening of any proceedings for that
purpose; (iv) of the receipt by the Company of any notification with
respect to the suspension of the qualification or exemption from qualification
of any of the Registrable Securities for sale in any jurisdiction or the
initiation or threatening of any proceedings for such purpose; (v) of the
existence of any fact or happening of 

 

11

 

any event (including the
passage of time) of which the Company has Knowledge which makes any statement
of a material fact in such Registration Statement or related prospectus or any
document incorporated or deemed to be incorporated therein by reference untrue
or which would require the making of any changes in the Registration Statement
or prospectus in order that, in the case of the Registration Statement, it will
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading, and that in the case of such prospectus, it will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading; and
(vi) determination by counsel of the Company that a post-effective
amendment to a Registration Statement relating to Registrable Securities is
advisable;

 

(f)          upon the occurrence of
any event contemplated by clause (v) of Section 5.1(e), as promptly
as practicable, prepare a supplement or amendment to such Registration
Statement or related prospectus and furnish to each seller of Registrable
Securities a reasonable number of copies of such supplement to or an amendment
of such Registration Statement or prospectus as may be necessary so that, after
delivery to the purchasers of such Registrable Securities, in the case of the
Registration Statement, it will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, and that in the case
of such prospectus, it will not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading.

 

(g)         enter into and perform
customary agreements and take such other actions as reasonably required in
order to expedite or facilitate the disposition of such Registrable Securities,
including causing its officers to participate in “road shows” and other
information meetings organized by the underwriter, if applicable;

 

(h)         make available at
reasonable times for inspection by any Designated Holder, any managing
underwriter participating in any disposition of such Registrable Securities
pursuant to a Registration Statement, Holders’ Counsel and any attorney,
accountant or other agent retained by any such Designated Holder or any
managing underwriter (each, an “Inspector”
and collectively, the “Inspectors”),
all financial and other records, pertinent corporate documents and properties
of the Company and its subsidiaries (collectively, the “Records”) as shall be reasonably necessary
to enable them to exercise their due diligence responsibility, and cause the
Company’s and its subsidiaries’ officers, directors and employees, and the
independent public accountants of the Company, to supply all information
reasonably requested by any such Inspector in connection with such Registration
Statement. Notwithstanding the foregoing, Records and other information that
the Company determines, in good faith, to be confidential and which it notifies
the Inspectors are confidential shall not be disclosed by the Inspectors or
used for any purpose other than as necessary or appropriate for the purpose of
such inspection (and the Inspectors shall confirm their agreement in writing in
advance to the Company if the Company shall so request) unless (A) the
disclosure of such Records is necessary, in the Company’s judgment, to avoid or
correct a misstatement or omission in the Registration Statement, (B) the
release of such Records is ordered pursuant to a subpoena or other order from a
court of competent jurisdiction after exhaustion of all appeals therefrom or
(C) the information in such Records was known to the Inspectors on a non-

 

12

 

confidential basis prior
to its disclosure by the Company or has been made generally available to the
public. Each Designated Holder agrees that it shall promptly, upon learning
that disclosure of such Records is sought in a court of competent jurisdiction,
give notice to the Company and allow the Company, at the Company’s expense, to
undertake appropriate action to prevent disclosure of the Records deemed
confidential, and such Designated Holder shall reasonably cooperate with the
Company in connection therewith;

 

(i)          if such sale is pursuant
to an underwritten offering, (A) obtain “comfort” letters dated the effective
date of the Registration Statement and the date of the closing under the
underwriting agreement from the Company’s independent public accountants in
customary form and covering such matters of the type customarily covered by “comfort”
letters as Holders’ Counsel or the managing underwriter reasonably requests;
(B) enter into a customary underwriting agreement or purchase agreement with
the underwriter containing representations and warranties, covenants and legal
opinion addressed to the Designated Holders and the underwriters in form,
substance and scope as would be customarily made by the Company to underwriters
and Designated Holders in similar offerings of securities; or (C) deliver such
documents and certificates as may be reasonably requested and as are
customarily delivered in similar offerings to the Designated Holders and to the
underwriter(s);

 

(j)          furnish, at the request
of any seller of Registrable Securities on the date such securities are
delivered to the underwriters for sale pursuant to such registration or, if
such securities are not being sold through underwriters, on the date the
Registration Statement with respect to such securities becomes effective and
dated as of such date, an opinion of counsel representing the Company for the
purposes of such registration, addressed to the underwriters, if any, and to
the seller making such request, covering such legal matters with respect to the
registration in respect of which such opinion is being given as the
underwriters, if any, and such seller may reasonably request and are
customarily included in such opinions;

 

(k)         comply with all
applicable rules and regulations of the SEC, and make generally available to
its security holders, as soon as reasonably practicable but no later than
fifteen (15) months after the effective date of the Registration Statement, an
earnings statement covering a period of twelve (12) months beginning after the
effective date of the Registration Statement, in a manner which satisfies the
provisions of Section 11(a) of the Securities Act and Rule 158
thereunder;

 

(l)          cause all such
Registrable Securities to be listed on each securities exchange on which
similar securities issued by the Company are then listed; provided, that the applicable listing
requirements are satisfied;

 

(m)        keep Holders’ Counsel
reasonably advised in writing as to the initiation and progress of any
registration under Article III or Article IV hereunder; provided, that the Company shall provide
Holders’ Counsel with all correspondence with the SEC in connection with any
Registration Statement filed hereunder to the extent that such Registration
Statement has not been declared effective on or prior to the date required
hereunder;

 

13

 

(n)         provide reasonable
cooperation to each seller of Registrable Securities and each underwriter
participating in the disposition of such Registrable Securities and their
respective counsel in connection with any filings required to be made with the
NASD; provided, that the Company shall not be
required to incur material expenses or obligations in connection with its
obligations under this Section 5.1(n); and

 

(o)         take all other steps
reasonably necessary to effect the registration of the Registrable Securities
contemplated hereby.

 

5.2           Seller Information.
The Company may require each seller of Registrable Securities as to which any
registration is being effected to furnish, and such seller shall furnish, to
the Company such information regarding the distribution of such securities as
the Company may from time to time reasonably request in writing. The furnishing
of such information shall be a condition to the inclusion of the seller’s
shares in such registration.

 

5.3           Registration
Expenses. The Company shall pay all expenses arising from or incident to
its performance of, or compliance with, this Agreement, including, without
limitation, (i) SEC, stock exchange and NASD registration and filing fees,
(ii) all fees and expenses incurred in complying with securities or “blue
sky” laws (including reasonable fees, charges and disbursements of counsel to
any underwriter incurred in connection with “blue sky” qualifications of the
Registrable Securities as may be set forth in any underwriting agreement),
(iii) all printing, messenger and delivery expenses, (iv) the fees,
charges and expenses of the Holders’ Counsel (including without limitation the
fees charges and expenses incurred in connection with any amendments to a
Registration Statement), but in no event shall the Company be required to pay
more than $15,000 in the aggregate for such fees, charges and expenses, and
(v) the fees, charges and expenses of counsel to the Company and of its independent
public accountants and any other accounting fees, charges and expenses incurred
by the Company (including, without limitation, any expenses arising from any “cold
comfort” letters or any special audits incident to or required by any
registration or qualification), regardless of whether such Registration
Statement is declared effective. All of the expenses described in the preceding
sentence of this Section 5.3 are referred to herein as “Registration Expenses.”  The Designated Holders of Registrable
Securities sold pursuant to a Registration Statement shall bear the expense of
any broker’s commission or underwriter’s discount or commission relating to
registration and sale of such Designated Holders’ Registrable Securities.

 

5.4           Notice to Discontinue.
Each Designated Holder agrees that, upon receipt of any notice from the Company
of the happening of any event of the kind described in clause (v) of
Section 5.1(e) and Section 5.5 hereof, such Designated Holder shall
forthwith discontinue disposition of Registrable Securities pursuant to the
Registration Statement covering such Registrable Securities until such
Designated Holder’s receipt of the copies of the supplemented or amended
prospectus contemplated by Section 5.1(f) and, if so directed by the Company,
such Designated Holder shall deliver to the Company (at the Company’s expense)
all copies, other than permanent file copies then in such Designated Holder’s
possession, of the prospectus covering such Registrable Securities which is
current at the time of receipt of such notice. If the Company shall give any
such notice, the Company shall extend the period during which such Registration
Statement shall be maintained effective pursuant to this Agreement (including,
without limitation, the period referred to in Section 5.1(b)) by the
number of days during the period from and including the date of 

 

14

 

the
giving of such notice pursuant to clause (v) of Section 5.1(e) to and
including the date when sellers of such Registrable Securities under such
Registration Statement shall have received the copies of the supplemented or
amended prospectus contemplated by, and meeting the requirements of,
Section 5.1(f).

 

5.5           Suspension of Sales.
Notwithstanding anything in this Agreement to the contrary, so long as the
Registration Statement is on Form S-1 or on any other form that does not allow
for forward incorporation by reference of reports and other materials filed by
the Company pursuant to Section 13(a) or 15(d) of the Exchange Act, the Company
may suspend sales under such Registration Statement as follows:  (i) for the period commencing at the time
that the Company disseminates a press release announcing its preliminary financial
results for any fiscal period and ending on the third Business Day after the
earlier of (A) the date that the related report on Form 10-K or 10-Q, as
applicable, under the Exchange Act is filed with the SEC and (B) the date on
which such report is required to be filed under the Exchange Act (giving effect
to Rule 12b-25 promulgated thereunder); (ii) for the period commencing at the
time that the Company disseminates a press release announcing a material
development that would make a statement of a material fact in such Registration
Statement untrue or misleading and ending on the third Business Day after the
earlier of (A) the date that the related report on Form 8-K is filed with the
SEC and (B) the date on which such report is required to be filed under the
Exchange Act (giving effect to Rule 12b-25 promulgated thereunder), and (iii)
to the extent necessary to allow any post-effective amendment to the
Registration Statement or supplement to the prospectus to be prepared and, if
necessary, filed with the SEC and, in the case of a post-effective amendment,
declared effective. In addition, the Company may suspend sales under any
Registration Statement for a period during which the Company, in the good faith
opinion of the Board of Directors, determines that the disclosure of material,
non-public information concerning the Company or any of its subsidiaries would
be materially detrimental to the Company; provided, that
the Company shall promptly notify the Designated Holders in writing (I) of the
existence of such material, non-public information (provided that in each
notice the Company will not disclose the content of such material, non-public
information to the Designated Holders) and the date on which such suspension
will begin and (II) of the date on which such suspension ends; provided  further, that
such right to suspend sales shall not exceed sixty (60) Trading Days in any 365
day period without such suspension being deemed an Event pursuant to which the
Company is required to make Event Payments pursuant to Section 3.3. The Company
will use its reasonable best efforts to minimize periods during which the
Registration Statement is not effective.

 

ARTICLE VI

INDEMNIFICATION; CONTRIBUTION

 

6.1           Indemnification by
the Company. The Company agrees to indemnify and hold harmless each
Designated Holder, its general or limited partners, members, directors,
officers, Affiliates and each Person who controls (within the meaning of
Section 15 of the Securities Act) any of the foregoing from and against
any and all losses, claims, damages, liabilities and expenses (including
reasonable costs of investigation) (each, a “Liability”
and collectively, “Liabilities”),
(i) arising out of or based upon any untrue, or allegedly untrue,
statement of a material fact contained in any Registration Statement,
prospectus or preliminary, final or summary prospectus or notification or 

 

15

 

offering
circular (as amended or supplemented if the Company shall have furnished any
amendments or supplements thereto) or (ii) arising out of or based upon
any omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading in
light of the circumstances under which such statements were made, except insofar
as such Liability arises out of or is based upon any untrue statement or
omission contained in such Registration Statement, preliminary prospectus or
final prospectus in reliance and in conformity with information concerning such
Designated Holder furnished in writing to the Company by such Designated Holder
specifically for use therein or is due to the grossly negligent wrongful action
or wrongful inaction of such Designated Holder, to deliver or to cause to be
delivered the prospectus, including a corrected prospectus, furnished by the
Company to such Designated Holder (or made available by the Company if such
Designated Holder is notified of its availability in writing in a timely
manner); provided, however, that the foregoing indemnity with
respect to any preliminary prospectus shall not inure to the benefit of any
indemnified Person from whom the Person asserting such losses, claims, damages,
liabilities, expenses and judgments purchased securities if such untrue
statement or omission or alleged untrue statement or omission made in such
preliminary prospectus is eliminated or remedied in the prospectus and a copy
of the prospectus shall not have been furnished to such Person in a timely
manner due to the wrongful action or wrongful inaction of such indemnified
Person, whether as a result of negligence or otherwise. The Company shall also
provide customary indemnities to any underwriters of the Registrable
Securities, their officers, directors and employees and each Person who
controls such underwriters (within the meaning of Section 15 of the
Securities Act) to the same extent as provided above with respect to the
indemnification of the Designated Holders of Registrable Securities.

 

6.2           Indemnification by
Designated Holders. In connection with any Registration Statement in which
a Designated Holder is participating pursuant to Article III or Article IV
hereof, each such Designated Holder shall promptly furnish to the Company in
writing such information with respect to such Designated Holder as the Company may
reasonably request or as may be required by law for use in connection with any
such Registration Statement or prospectus and all information required to be
disclosed in order to make the information previously furnished to the Company
by such Designated Holder not materially misleading or necessary to cause such
Registration Statement or prospectus not to omit a material fact with respect
to such Designated Holder necessary in order to make the statements therein not
misleading. Each Designated Holder agrees to indemnify and hold harmless the
Company, its directors, officers, Affiliates, any underwriter retained by the
Company and each Person who controls the Company or such underwriter (within
the meaning of Section 15 of the Securities Act) to the same extent as the
foregoing indemnity from the Company to the Designated Holders, but only if
such untrue statement or omission was made in reliance upon and in conformity
with information with respect to such Designated Holder furnished in writing to
the Company by such Designated Holder specifically for use in such Registration
Statement or preliminary, final or summary prospectus or amendment or
supplement, or a document incorporated by reference into any of the foregoing
or, due to the grossly negligent wrongful action or wrongful inaction of such
Designated Holder, to deliver or to cause to be delivered the prospectus,
including a corrected prospectus, furnished by the Company to such Designated
Holder (or made available by the Company if such Designated Holder is notified
of its availability in writing in a timely manner); provided, however,
that the total amount to be indemnified by such Designated Holder pursuant to
this Section 6.2 shall be limited to the net proceeds (after deducting the
underwriters’ discounts and 

 

16

 

commissions)
received by such Designated Holder in the offering to which the Registration
Statement or prospectus relates.

 

6.3           Conduct of
Indemnification Proceedings. Any Person entitled to indemnification
hereunder (the “Indemnified Party”)
agrees to give prompt written notice to the indemnifying party (the “Indemnifying Party”) after the receipt by
the Indemnified Party of any written notice of the commencement of any action,
suit, proceeding or investigation or threat thereof made in writing for which
the Indemnified Party intends to claim indemnification or contribution pursuant
to this Agreement; provided, however, that the failure to so notify the
Indemnifying Party shall not relieve the Indemnifying Party of any Liability
that it may have to the Indemnified Party hereunder (except to the extent that
the Indemnifying Party is materially prejudiced or otherwise forfeits
substantive rights or defenses by reason of such failure). If notice of
commencement of any such action is given to the Indemnifying Party as above
provided, the Indemnifying Party shall be entitled to participate in and, to
the extent it may wish, jointly with any other Indemnifying Party similarly
notified, to assume the defense of such action at its own expense, with counsel
chosen by it and reasonably satisfactory to such Indemnified Party. The
Indemnified Party shall have the right to employ separate counsel in any such
action and participate in the defense thereof, but the fees and expenses of
such counsel shall be paid by the Indemnified Party unless (i) the
Indemnifying Party agrees to pay the same, (ii) the Indemnifying Party
fails to assume the defense of such action with counsel reasonably satisfactory
to the Indemnified Party or (iii) the named parties to any such action
(including any impleaded parties) include both the Indemnifying Party and the
Indemnified Party and such parties have been advised by such counsel that
either (x) representation of such Indemnified Party and the Indemnifying
Party by the same counsel would be inappropriate under applicable standards of
professional conduct or (y) there may be one or more legal defenses
available to the Indemnified Party which are different from or additional to those
available to the Indemnifying Party, in any of such cases, the Indemnifying
Party shall not have the right to assume the defense of such action on behalf
of such Indemnified Party, it being understood, however, that the Indemnifying
Party shall not be liable for the fees and expenses of more than one separate
firm of attorneys (in addition to any local counsel) for all Indemnified
Parties. No Indemnifying Party shall be liable for any settlement entered into
without its written consent, which consent shall not be unreasonably withheld. No
Indemnifying Party shall, without the consent of such Indemnified Party, effect
any settlement of any pending or threatened proceeding in respect of which such
Indemnified Party is a party and indemnity has been sought hereunder by such
Indemnified Party, unless such settlement includes an unconditional release of
such Indemnified Party from all liability for claims that are the subject
matter of such proceeding.

 

6.4           Contribution.

 

(a)         If the indemnification
provided for in this Article VI from the Indemnifying Party is unavailable
to an Indemnified Party hereunder in respect of any Liabilities referred to
herein, then the Indemnifying Party, in lieu of indemnifying such Indemnified
Party, shall contribute to the amount paid or payable by such Indemnified Party
as a result of such Liabilities in such proportion as is appropriate to reflect
the relative fault of the Indemnifying Party and Indemnified Party in
connection with the actions which resulted in such Liabilities, as well as any
other relevant equitable considerations. The relative faults of such
Indemnifying Party and Indemnified Party shall be determined by reference to,
among other things, whether any action in 

 

17

 

question, including any
untrue or alleged untrue statement of a material fact or omission or alleged
omission to state a material fact, has been made by, or relates to information
supplied by, such Indemnifying Party or Indemnified Party, and the parties’
relative intent, knowledge, access to information and opportunity to correct or
prevent such action. The amount paid or payable by a party as a result of the
Liabilities referred to above shall be deemed to include, subject to the
limitations set forth in Sections 6.1 and 6.2, any legal or other fees,
charges or expenses reasonably incurred by such party in connection with any
investigation or proceeding; provided,
that the total amount to be contributed by such Designated Holder shall be
limited to the net proceeds (after deducting the underwriters’ discounts and
commissions) received by such Designated Holder in the offering. No Person
involved in the sale of Registrable Securities who is guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
in connection with such sale shall be entitled to indemnification or
contribution from any Person involved in such sale of Registrable Securities
who is not guilty of fraudulent misrepresentation.

 

(b)         The parties hereto agree
that it would not be just and equitable if contribution pursuant to this
Section 6.4 were determined by pro rata allocation or by any other method
of allocation which does not take account of the equitable considerations
referred to in Section 6.4(a). No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities
Act) shall be entitled to contribution from any Person who was not guilty of
such fraudulent misrepresentation.

 

ARTICLE VII

COVENANTS

 

7.1           Rule 144. The
Company covenants that from and after the date hereof it shall use its
reasonable best efforts to (a) file any reports required to be filed by it
under the Exchange Act and (b) take such further action as each Designated
Holder may reasonably request (including providing any information necessary to
comply with Rule 144 under the Securities Act), all to the extent required
from time to time to enable such Designated Holder to sell Registrable
Securities without registration under the Securities Act within the limitation
of the exemptions provided by (i) Rule 144 under the Securities Act,
as such rule may be amended from time to time, or Regulation S under the
Securities Act or (ii) any similar rules or regulations hereafter adopted
by the SEC. The Company shall, upon the request of any Designated Holder,
deliver to such Designated Holder a written statement as to whether it has
complied with such requirements.

 

7.2           Limitations on
Registration Rights. No Person shall, without the prior written consent of
a Majority in Interest, be permitted to include securities of the Company in
any registration filed under Article III hereto.

 

ARTICLE VIII

 

MISCELLANEOUS

 

8.1           Recapitalizations,
Exchanges, etc. The provisions of this Agreement shall apply to the full
extent set forth herein with respect to (i) the shares of Common stock and
the Common Stock 

 

18

 

Equivalents,
(ii) any and all shares of voting common stock of the Company into which
the shares of Common Stock or Common Stock Equivalents are converted, exchanged
or substituted in any recapitalization or other capital reorganization by the
Company and (iii) any and all equity securities of the Company or any
successor or assign of the Company (whether by merger, consolidation, sale of
assets or otherwise) which may be issued in respect of, in conversion of, in
exchange for or in substitution of, the shares of Common Stock or Common Stock
Equivalents and shall be appropriately adjusted for any stock dividends, splits,
reverse splits, combinations, recapitalizations and the like occurring after
the date hereof. The Company shall use its reasonable best efforts to cause any
successor or assign (whether by merger, consolidation, sale of assets or
otherwise) to enter into a new registration rights agreement with the
Designated Holders on terms substantially the same as this Agreement as a
condition of any such transaction.

 

8.2           No Inconsistent
Agreements. The Company shall not enter into any agreement with respect to
its securities that is inconsistent with the rights granted to the Designated
Holders in this Agreement or grant any additional registration rights to any
Person or with respect to any securities which are not Registrable Securities
which are prior in right to or inconsistent with the rights granted in this
Agreement, except with the prior written consent of a Majority in Interest. No
holder of the securities of the Company has the right to register securities of
the Company on the initial or any subsequent Shelf Registration Statement.

 

8.3           Remedies. The
Designated Holders, in addition to being entitled to exercise all rights
granted by law, including recovery of damages, shall be entitled to specific
performance of their rights under this Agreement. The Company agrees that
monetary damages (including those specified in Section 3.3) would not be
adequate compensation for any loss incurred by reason of a breach by it of the
provisions of this Agreement and hereby agrees to waive in any action for
specific performance the defense that a remedy at law would be adequate.

 

8.4           Notices. All
notices, demands and other communications provided for or permitted hereunder
shall be made in the manner provided for under the Purchase Agreement.

 

8.5           Successors and
Assigns; Third Party Beneficiaries. This Agreement shall inure to the
benefit of and be binding upon the successors and permitted assigns of the
parties hereto as hereinafter provided. The rights of the Designated Holders
contained in this Agreement shall be automatically transferred to the
transferee of any Registrable Security, provided,
that (i) such transferee agrees to become a party to this Agreement and be
fully bound by, and subject to, all of the terms and conditions of the
Agreement as though an original party hereto; (ii) the Company is, within a
reasonable time after such transfer, furnished with written notice of (a) the
name and address of such transferee, and (b) the securities with respect to
which such registration rights are being transferred; (iii) immediately
following such transfer the further disposition of such securities by the
transferee is restricted under the Securities Act or applicable state
securities laws if so required; and (iv) such transfer shall have been
conducted in accordance with all applicable federal and state securities laws. All
of the obligations of the Company hereunder shall survive any such transfer. Except
as provided in Article VI, no Person other than the parties hereto and
their successors and permitted assigns are intended to be a beneficiary of this
Agreement.

 

19

 

8.6           Amendments and
Waivers. Except as otherwise provided herein, the provisions of this
Agreement may not be amended, modified or supplemented, and waivers or consents
to departures from the provisions hereof may not be given unless consented to
in writing by (i) the Company and (ii) the Designated Holders holding
at least 66.7% of the then-outstanding Registrable Securities; provided, that if any such amendment, modification,
supplement, waiver, consent or departure would adversely affect the rights,
preferences or privileges of any Investor disproportionately with respect to
the rights, preferences and privileges of the other Investors, such Investor’s
consent in writing shall be required; provided further,
any party hereto may give a waiver in writing as to itself. Notwithstanding the
foregoing, a Person who purchases Registrable Securities in the Second Tranche
Closing (as defined in the Purchase Agreement) may become a party to this
Agreement as an “Investor” and “Designated Holder” by executing a counterpart
of this Agreement without any amendment of this Agreement pursuant to this
Section or consent or approval of the Company (and Exhibit A shall be
updated accordingly).

 

8.7           Aggregation of Stock.
All shares of Registrable Securities held or acquired by Affiliated entities or
Persons or entities or Persons under common management or control shall be
aggregated together for the purpose of determining the availability of any
rights under this Agreement.

 

8.8           Counterparts. This
Agreement may be executed in any number of counterparts and by the parties
hereto in separate counterparts, each of which when so executed shall be deemed
to be an original and all of which taken together shall constitute one and the
same agreement. The parties hereto confirm that any facsimile copy of another
party’s executed counterpart of this Agreement (or its signature page thereof)
will be deemed to be an executed original thereof.

 

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

 

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

 

8.11         Severability. If
any one or more of the provisions contained herein, or the application thereof
in any circumstance, is held invalid, illegal or unenforceable in any respect
for any reason, the validity, legality and enforceability of any such provision
in every other respect and of the remaining provisions hereof shall not be in
any way impaired, unless the provisions held invalid, illegal or unenforceable
shall substantially impair the benefits of the remaining provisions hereof.

 

20

 

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

 

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

 

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

 

8.15         Other Agreements. Nothing
contained in this Agreement shall be deemed to be a waiver of, or release from,
any obligations any party hereto may have under, or any restrictions on the
transfer of Registrable Securities or other securities of the Company imposed
by, any other agreement including, but not limited to, the Charter Documents
and the Purchase Agreement.

 

8.16         Termination. Except
for the liabilities or obligations under Section 5.3 or Article VI,
all of which shall remain in effect in accordance with their terms, this
Agreement and the obligations of the parties hereunder shall terminate upon the
end of the Effectiveness Period.

 

[Remainder of page
intentionally left blank]

 

21

 

IN WITNESS WHEREOF, the
undersigned have executed, or have caused to be executed, this Registration
Rights Agreement on the date first written above.

 

 

	
   

  	
  COMPANY:

  
	
   

  	
   

  
	
   

  	
  SATCON
  TECHNOLOGY CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

[Signature Page to Registration
Rights Agreement]

 

 

	
   

  	
  INVESTOR:

  
	
   

  	
   

  
	
   

  	
  ROCKPORT
  CAPITAL PARTNERS II, L.P.

  
	
   

  	
   

  
	
   

  	
  By:  RockPort Capital II, LLC

  
	
   

  	
  Its:
   General Partner

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

[Signature
Page to Registration Rights Agreement]

 

 

	
   

  	
  INVESTOR:

  
	
   

  	
   

  
	
   

  	
  NGP
  ENERGY TECHNOLOGY PARTNERS,

  L.P.

  
	
   

  	
   

  
	
   

  	
  By:  NGP ETP, L.L.C.

  
	
   

  	
  Its:
   General Partner

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

[Signature
Page to Registration Rights Agreement]

 

 

Exhibit
A

 

Schedule of
Investors

 

RockPort
Capital Partners II, L.P.

160
Federal Street, 18th floor

Boston,
MA 02110

Telephone:  (617) 912-1420

Facsimile:  (617) 912-1449

 

NGP
Energy Technology Partners, L.P.

1700 K
Street NW, Suite 750

Washington,
D.C. 20006

Telephone:  (202) 536-3920

Facsimile:  (202) 536-3921

 

 

Exhibit B

 

Plan of
Distribution

 

The selling stockholders
may, from time to time, sell any or all of their shares of common stock on any
stock exchange, market or trading facility on which the shares are traded or in
private transactions. These sales may be at fixed or negotiated prices. The
selling stockholders may use any one or more of the following methods when
selling shares:

 

•      ordinary
brokerage transactions and transactions in which the broker-dealer solicits
purchasers;

 

•      block
trades in which the broker-dealer will attempt to sell the shares as agent but
may position and resell a portion of the block as principal to facilitate the
transaction;

 

•      purchases
by a broker-dealer as principal and resale by the broker-dealer for its
account;

 

•      an
exchange distribution in accordance with the rules of the applicable exchange;

 

•      privately
negotiated transactions;

 

•      short
sales;

 

•      through
the writing or settlement of options or other hedging transactions, whether
through an options exchange or otherwise;

 

•      broker-dealers
may agree with the selling stockholders to sell a specified number of such
shares at a stipulated price per share;

 

•      one
or more underwritten offerings on a firm commitment or best efforts basis;

 

•      a
combination of any such methods of sale; and

 

•      any
other method permitted pursuant to applicable law.

 

The selling stockholders
may also sell shares under Rule 144 under the Securities Act, if available,
rather than under this prospectus.

 

Broker-dealers engaged by
the selling stockholders may arrange for other brokers-dealers to participate
in sales. Broker-dealers may receive commissions or discounts from the selling
stockholders (or, if any broker-dealer acts as agent for the purchaser of
shares, from the purchaser) in amounts to be negotiated, which commissions or
discounts may be less than or in excess of those customary in the types of
transactions involved. Any profits on the resale of shares of common stock by a
broker-dealer acting as principal might be deemed to be underwriting discounts
or commissions under the Securities Act. Discounts, concessions, commissions
and similar selling expenses, if any, attributable to the sale of shares will
be borne by a selling stockholder. The selling 

 

 

stockholders may agree to
indemnify any agent, dealer or broker-dealer that participates in transactions
involving sales of the shares if liabilities are imposed on that person under
the Securities Act.

 

The selling stockholders
may from time to time pledge or grant a security interest in some or all of the
shares of common stock owned by them and, if they default in the performance of
their secured obligations, the pledgees or secured parties may offer and sell
the shares of common stock from time to time under this prospectus after we
have filed a supplement to this prospectus under Rule 424(b)(3) or other
applicable provision of the Securities Act of 1933 supplementing or amending
the list of selling stockholders to include the pledgee, transferee or other
successors in interest as selling stockholders under this prospectus.

 

The selling stockholders
also may transfer the shares of common stock in other circumstances, in which
case the transferees, pledgees or other successors in interest will be the
selling beneficial owners for purposes of this prospectus and may sell the shares
of common stock from time to time under this prospectus after we have filed a
supplement to this prospectus under Rule 424(b)(3) or other applicable
provision of the Securities Act of 1933 supplementing or amending the list of
selling stockholders to include the pledgee, transferee or other successors in
interest as selling stockholders under this prospectus.

 

The selling stockholders
and any broker-dealers or agents that are involved in selling the shares of
common stock may be deemed to be “underwriters” within the meaning of the
Securities Act in connection with such sales. In such event, any commissions
received by such broker-dealers or agents and any profit on the resale of the
shares of common stock purchased by them may be deemed to be underwriting commissions
or discounts under the Securities Act.

 

We are required to pay
all fees and expenses incident to the registration of the shares of common
stock. We have agreed to indemnify the selling stockholders against certain
losses, claims, damages and liabilities, including liabilities under the
Securities Act.

 

The selling stockholders
have advised us that they have not entered into any agreements, understandings
or arrangements with any underwriters or broker-dealers regarding the sale of
their shares of common stock, nor is there an underwriter or coordinating
broker acting in connection with a proposed sale of shares of common stock by
any selling stockholder. If we are notified by any selling stockholder that any
material arrangement has been entered into with a broker-dealer for the sale of
shares of common stock, if required, we will file a supplement to this
prospectus.

 

The anti-manipulation
rules of Regulation M under the Securities Exchange Act of 1934 may apply to
sales of our common stock and activities of the selling stockholders.

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