Document:

Exhibit 10.1

 

AMENDMENT AND EXCHANGE AGREEMENT

This Amendment and
Exchange Agreement (the “Agreement”), dated effective as of March 30, 2011, is by and between Balqon corporation,
a Nevada corporation (the “Company”), and the holder identified on the signature page hereto (“Holder”).

R E C I T A L S

A.Between March
20, 2009 and June 30, 2009, pursuant to the terms and conditions of a Confidential Private Placement Memorandum dated March 23,
2009 (the “2009 Memorandum”), the Company issued (i) $1,000,000 in aggregate principal amount of its 10% Unsecured
Subordinated Convertible Promissory Notes of which $916,500 in aggregate principal amount is currently outstanding (the “2009
Notes”) and (ii) warrants (the “2009 Warrants”) to purchase shares of the Company’s common stock,
$0.001 par value per share (the “Common Stock”) to certain investors (“the 2009 Investors”).

B.Between February
5, 2010 and April 12, 2010, pursuant to the terms of a Confidential Private Placement Memorandum dated September 1, 2009, as supplemented
by that certain Supplement No. 1 to Confidential Private Placement Memorandum dated January 22, 2010 (the “2010 Memorandum”),
the Company issued (i) $1,500,000 in aggregate principal amount of its 10% Unsecured Subordinated Convertible Promissory Notes
of which $1,300,000 in aggregate principal amount is currently outstanding (the “2010 Notes”) and (ii) warrants
(the “2010 Warrants”) to purchase shares of Common Stock to certain investors (the “2010 Investors”).

C.On or about
«A», subject to the terms and conditions of a certain Securities Purchase Agreement (the “Existing Securities
Purchase Agreement”) and pursuant to the terms and conditions of the 2009 Memorandum, the Company issued to the Holder
(i) $«B» in aggregate principal amount of its 2009 Notes (the “Note”) and (ii) a 2009 Warrant (the
“Warrant”) to purchase up to «C» shares of Common Stock. Capitalized terms not defined herein shall
have the meaning as set forth in the Existing Securities Purchase Agreement as amended hereby.

D.The Company
and the Holder desire to enter into this Agreement, pursuant to which, among other things, (i) the Company and the Holder shall
exchange the Holder’s Note with a current aggregate principal amount of $«D» (the “Existing Note”)
for a 10% Secured Subordinated Convertible Promissory Note (the “Exchanged Note”), with the same outstanding
aggregate principal amount as the Existing Note, convertible into Common Stock in accordance therewith (the Exchanged Note as converted,
the “Exchanged Note Conversion Shares”) and (ii) the Company and the Holder shall exchange the Holder’s
Warrant (“Existing Warrant”) currently exercisable into «C» shares of Common Stock for a warrant
to purchase Common Stock of the Company (the “Exchanged Warrant”), exercisable into «C» shares of
Common Stock (the Exchanged Warrant as exercised, the “Exchanged Warrant Shares”).

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E.The Company
desires to enter into separate Amendment and Exchange Agreements with each of the 2009 Investors and the 2010 Investors. The 2009
Investors that enter into such Amendment and Exchange Agreements, in addition to participating in an exchange transaction, will
agree to amend the 2009 Note held by such 2009 Investor to extend the 2009 Note’s maturity date from March 31, 2012 until
the Closing Date (as defined below).

A G R E E M E N T

1.Exchange.
At the Closing, the Holder and the Company shall exchange (i) the Existing Note for the Exchanged Note and (ii) the Existing Warrant
for the Exchanged Warrant. At the Closing (as defined below), the following transactions shall occur (such transactions in this
Section 1, the “Exchange”):

1.1Delivery.
In exchange for (i) the Existing Note, the Company shall deliver or cause to be delivered to the Holder the Exchanged Note and
(ii) the Existing Warrant, the Company shall deliver or cause to be delivered to the Holder the Exchanged Warrant. The Holder shall
deliver or cause to be delivered to the Company (or its designee) the Existing Note and the Existing Warrant, as soon as commercially
practicable following the Closing. As of the Closing Date, all of the Holder’s rights under the Existing Note and the Existing
Warrant shall be extinguished.

1.2Other Documents.
At the Closing, the Company and the Holder shall execute and/or deliver such other documents and agreements as are customary and
reasonably necessary to effectuate the Exchange, including, without limitation, a Security Agreement (as defined below).

1.3Purchase
Price. The Exchanged Note shall be issued to the Holder in exchange for the Existing Note and the Exchanged Warrant shall be
issued to the Holder in exchange for the Existing Warrant, in each case, without the payment of any additional consideration.

1.4Closing.
The closing of the Exchange (the “Closing”) shall occur on April 30, 2012 if the conditions to closing
specified in this Agreement have been satisfied or duly waived (or such other date and time as is mutually agreed to by the Company
and holders of 50% of the outstanding principal amount of the 2009 Notes and 2010 Notes) (the “Closing Date”).

2.Amendments
to Transaction Documents.

2.1Ratifications.
Except as otherwise expressly provided herein, the Existing Securities Purchase Agreement and each other Transaction Document,
is, and shall continue to be, in full force and effect and is hereby ratified and confirmed in all respects, except that on and
after the Closing Date: (i) all references in the Existing Securities Purchase Agreement to “this Agreement”, “hereto”,
“hereof”, “hereunder” or words of like import referring to the Existing Securities Purchase Agreement shall
mean the Existing Securities Purchase Agreement as amended by this Agreement and (ii) all references in the other Transaction Documents,
to the “Securities Purchase Agreement”, “thereto”, “thereof”, “thereunder” or words
of like import referring to the Securities Purchase Agreement shall mean the Existing Securities Purchase Agreement as amended
by this Agreement.

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2.2Amendment
to 2009 Notes. To the extent the Existing Note is a 2009 Note, the defined term “Note Maturity Date” under the
Existing Note shall be hereby amended to mean April 30, 2012.

2.3Exchanged
Note. The Exchanged Note will be issued on the Closing Date and will be substantially similar to the Existing Note, with the
following material differences:

(a)The
initial Conversion Price under the Exchanged Note shall be $0.40 per share of Common Stock.

(b)The
defined term “Note Maturity Date” under the Exchanged Note shall mean the earlier of (i) March 31, 2013, or (ii)
the date as of which the outstanding principal and accrued interest on the Exchanged Note and all other payments payable thereunder
are due and payable to the Holder pursuant to a provision similar to Section 5.2 of the Existing Note.

(c)The
Exchanged Note shall be secured by a lien on all of the Company’s assets (the “Lien”), which lien shall
be subordinated to (i) all of the Company’s secured indebtedness existing on the Closing Date and (ii) money borrowed (or
to be borrowed) by the Company from any bank, savings and loan or other commercial or financial institutions in an amount of up
to $2,500,000. The Exchanged Note shall rank pari passu with (i) all 10% Secured Subordinated Convertible Promissory
Notes exchanged for 2009 Notes and (ii) all 10% Secured Subordinated Convertible Promissory Notes exchanged for 2010 Notes.

(d)The
term “Conversion Price” will be subject to a standard “full ratchet” anti-dilution adjustment which, in
the event that the Company issues or is deemed to have issued securities, except for customary excluded securities, at a price
lower than the then applicable Conversion Price, the Conversion Price shall be reduced to equal the price at which the Company
issued or is deemed to have issued its Common Stock.

2.4Exchanged
Warrant. The Exchanged Warrant will be issued on the Closing Date and will be substantially similar to the Existing Warrant,
with the following material differences:

(a)The
initial Exercise Price of one share of Common Stock under the Exchanged Warrant shall be $0.40.

(b)The
Exchanged Warrant shall be void if the purchase rights represented by the Exchanged Warrant are not exercised before the close
of business on March 31, 2015.

(c) The
Exercise Price will be subject to a standard “full ratchet” anti-dilution adjustment which, in the event that the Company
issues or is deemed to have issued securities, except for customary excluded securities, at a price lower than the then applicable
Exercise Price, the Exercise Price shall be reduced to equal the price at which the Company issued or is deemed to have issued
its Common Stock.

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2.5Amendments
to Transaction Documents. On and after the Closing Date, each of the Transaction Documents shall be amended as follows:

(a)The
defined term “Note” shall be amended and restated as “Exchanged Note (as defined in the Amendment and Exchange
Agreement)”.

(b)The
defined term “Conversion Shares” shall be amended and restated as “Exchanged Note Conversion Shares (as defined
in the Amendment and Exchange Agreement)”.

(c)The
defined term “Warrant” shall be amended and restated as “Exchanged Warrant (as defined in the Amendment and Exchange
Agreement)”.

(d)The
defined term “Warrant Shares” shall be amended and restated as “Exchanged Warrant Shares (as defined in the Amendment
and Exchange Agreement)”.

(e)The
defined term “Amendment and Exchange Agreement” shall mean “that certain Amendment and Exchange Agreement, dated
as of March 30, 2012, by and between the Company and the Purchaser”.

(f)The
defined term “Transaction Documents” shall be amended to include the Amendment and Exchange Agreement and the Security
Agreement.

3.Holder’s
Representations and Warranties. As a material inducement to the Company to enter into this Agreement and consummate the Exchange,
the Holder represents, warrants and covenants with and to the Company as of the date hereof and as of the Closing Date as follows:

3.1Ownership
of Existing Note. The Holder owns the Existing Note free and clear of any liens (other than the obligations pursuant to this
Agreement and applicable securities laws).

3.2Reliance
on Exemptions. The Holder understands that the Exchanged Note and the Exchanged Warrant (collectively, the “Exchanged
Securities”) are being offered and exchanged in reliance on specific exemptions from the registration requirements of
United States federal and state securities laws and that the Company is relying in part upon the truth and accuracy of, and the
Holder’s compliance with, the representations, warranties, agreements, acknowledgments and understandings of the Holder set
forth herein in order to determine the availability of such exemptions and the eligibility of the Holder to acquire the Exchanged
Securities.

3.3No Governmental
Review. The Holder understands that no United States federal or state agency or any other government or governmental agency
has passed on or made any recommendation or endorsement of the Securities or the fairness or suitability of the investment in the
Exchanged Securities nor have such authorities passed upon or endorsed the merits of the offering of the Exchanged Securities.

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3.4Validity;
Enforcement. This Agreement to which the Holder is a party have been duly and validly authorized, executed and delivered on
behalf of the Holder and shall constitute the legal, valid and binding obligations of the Holder enforceable against the Holder
in accordance with their respective terms, except as such enforceability may be limited by general principles of equity or to applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation and other similar laws relating to, or affecting generally, the
enforcement of applicable creditors’ rights and remedies.

3.5No Conflicts.
The execution, delivery and performance by the Holder of this Agreement and the consummation by the Holder of the transactions
contemplated hereby will not (i) result in a violation of the organizational documents of the Holder or (ii) conflict with, or
constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which the Holder is
a party, or (iii) result in a violation of any law, rule, regulation, order, judgment or decree (including federal and state securities
laws) applicable to the Holder, except in the case of clauses (ii) and (iii) above, for such conflicts, defaults, rights or violations
which would not, individually or in the aggregate, reasonably be expected to have a material adverse effect on the ability of the
Holder to perform its obligations hereunder.

3.6Investment
Representations.

(a)The
Company has made available to the Holder all the information reasonable available to the Company that the Holder has requested
for deciding whether to acquire the Exchanged Securities. The Holder confirms that it has been given sufficient access to information
regarding the Company in connection with its decision to acquire the Exchanged Securities, including the opportunity to ask questions
of, and receive answers from, persons acting on behalf of the Company and concerning the Company’s financial affairs, prospects
and condition.

(b)The
Holder (i) is resident in or otherwise subject to the securities legislation of the United States, and the issuance of the Exchanged
Securities to the Holder has occurred only in the United States; (ii) by reason of its or his business or financial expertise,
has the capacity to protect its or his own interests in connection with its or his acquisition of the Securities; and (iii) is
an “accredited investor” as defined in Rule 501 of Regulation D of the Securities Act. The Holder is not a registered
broker dealer registered under Section 15(a) of the Exchange Act, or a member of the Financial Industry Regulatory Authority (“FINRA”),
or an entity engaged in the business of being a broker dealer. Except as otherwise disclosed in writing to the Company on or prior
to the date of this Agreement, the Holder is not affiliated with any broker dealer registered under Section 15(a) of the Exchange
Act, or a member of FINRA or an entity engaged in the business of being a broker dealer.

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(c)The
Holder is (i) acquiring the Exchanged Securities, (ii) upon conversion of the Exchanged Note will acquire the Exchanged Conversion
Shares issuable upon conversion thereof, and (iii) upon exercise of the Exchanged Warrant will acquire the Exchanged Warrant
Shares issuable upon exercise thereof, in the ordinary course of business for its own account and not with a view towards, or for
resale in connection with, the public sale or distribution thereof, except pursuant to sales registered under the Securities Act
or under an exemption from such registration and in compliance with applicable federal and state securities laws, and the Holder
does not have a present arrangement to effect any distribution of the Securities to or through any person or entity.

(d)The
Holder acknowledges that (i) a limited public market exists for the shares of Common Stock, and no assurances can be given by the
Company that any of the Exchanged Conversion Shares or Exchanged Warrant Shares will be registered for resale under the Securities
Act, (ii) he, she or it must and shall bear the economic risk of holding the Exchanged Securities, which may be for an indefinite
period of time, because at the time such Exchanged Securities are issued they will not have been registered under the Securities
Act or any other securities law and, therefore, cannot be sold unless they are subsequently registered under applicable federal
and state securities laws or an exemption from such registration is available; (iii) the Exchanged Securities may not be resold
or transferred on the official stock transfer records of Company without furnishing to Company an opinion of counsel reasonably
acceptable to Company that such sale or transfer of the Exchanged Securities will not violate the registration provisions of applicable
federal and state securities laws; and (iv) certificates representing the Securities shall have endorsed on them a restrictive
legend to this effect as set forth in Section 3.3 of the Existing Securities Purchase Agreement.

(e)The
Holder acknowledges that: (i) there is no government or other insurance covering such Exchanged Securities; and (ii) there are
risks associated with the acquisition of the Exchanged Securities.

(f)The
Holder, either alone or together with its representatives, has such knowledge, sophistication and experience in business and financial
matters so as to be capable of evaluating the merits and risks of the prospective investment in the Exchanged Securities, and has
so evaluated the merits and risks of such investment. Such Holder understands that it must bear the economic risk of this investment
in the Exchanged Securities indefinitely, and is able to bear such risk and is able to afford a complete loss of such investment.

(g)If
the Holder is not a United States person (as defined by Section 7701(a)(30) of the Code), the Holder hereby represents that
it has satisfied itself as to the full observance of the laws of its jurisdiction in connection with any invitation to subscribe
for the Exchanged Securities or any use of this Agreement, including (i) the legal requirements within its jurisdiction for the
purchase of the Exchanged Securities, (ii) any foreign exchange restrictions applicable to such purchase, (iii) any governmental
or other consents that may need to be obtained, and (iv) the income tax and other tax consequences, if any, that may be relevant
to the purchase, holding, redemption, sale, or transfer of the Exchanged Securities. The Holder’s acquisition of and continued
beneficial ownership of the Exchanged Securities will not violate any applicable securities or other laws of the Holder’s
jurisdiction.

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3.7Exculpation.
The Holder acknowledges that it is not relying upon any Person, other than the Company and its officers and directors, in making
its investment or decision to invest in the Company.

3.8Residence.
If the Holder is an individual, then the Holder resides in the state or province identified in the address of the Holder set forth
on the Holder’s signature page hereto; if the Holder is a partnership, corporation, limited liability company or other entity,
then the office or offices of the Holder in which its principal place of business is identified in the address or addresses of
the Holder set forth on the Holder’s signature page hereto.

4.Conditions
to Company’s Obligations Hereunder.

The obligations
of the Company to the Holder hereunder are subject to the satisfaction of each of the following conditions, provided that these
conditions are for the Company's sole benefit and may be waived by the Company at any time in its sole discretion by providing
the Holder with prior written notice thereof:

4.1The Holder
shall have duly executed this Agreement and delivered the same to the Company.

4.2The Holder
shall have duly executed the Accredited Investor Questionnaire attached as Exhibit A hereto and delivered the same to the
Company.

4.3The representations
and warranties of the Holder shall be true and correct in all material respects as of the date when made and as of the Closing
Date as though made at that time (except for representations and warranties that speak as of a specific date which shall be true
and correct as of such specified date), and the Holder shall have performed, satisfied and complied in all material respects with
the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Holder at
or prior to the Closing Date.

4.4The Company
shall have obtained all governmental, regulatory or third party consents and approvals, if any, necessary for the consummation
of the Exchange.

4.5The Company’s
board of directors shall have duly authorized the Exchange.

4.6The Holder
shall have duly executed and delivered a security agreement evidencing the Lien (the “Security Agreement”).

5.Conditions
to Holder’s Obligations Hereunder.

The obligations
of the Holder hereunder are subject to the satisfaction of each of the following conditions, provided that these conditions are
for the Holder's sole benefit and may be waived by the Holder at any time in its sole discretion by providing the Company with
prior written notice thereof:

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5.1The Company
shall have duly executed and delivered this Agreement to the Holder.

5.2The Company
shall have duly executed and delivered to the Holder the Exchanged Note and the Exchanged Warrant.

5.3The Company
shall have obtained all governmental, regulatory or third party consents and approvals, if any, necessary for the consummation
of the Exchange.

5.4The Company
shall have duly executed and delivered the Security Agreement.

6.Miscellaneous.

6.1Termination.
This Agreement may be terminated by the Company or the Holder if the Closing does not occur on or before April 30, 2012.

6.2Miscellaneous
Provisions. Section 9 of the Existing Securities Purchase Agreement (as amended hereby) is hereby incorporated by reference
herein, mutatis mutandis.

 

[The remainder of the page is intentionally
left blank]

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IN WITNESS WHEREOF, the
parties hereto have executed this Amendment and Exchange Agreement to be effective as of the day and year first above written.

 

	 	COMPANY:

	 	BALQON CORPORATION

	 	By:  /s/ Balwinder Samra        
	 	Name: Balwinder Samra
	 	Title: President and Chief Executive Officer
	 	

Date: April 12, 2012

 

 

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IN WITNESS WHEREOF,
the parties hereto have executed this Amendment and Exchange Agreement to be effective as of the day and year first above written.

 

	 	HOLDER:
	 	 
	 	[                ]
	 	By:___________________
	 	Name: ________________
	 	Title: __________________

    
	10Exhibit 10.2

 

NEITHER THESE SECURITIES NOR THE SECURITIES
ISSUABLE UPON THE EXERCISE OR CONVERSION OF THESE SECURITIES HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE “SECURITIES ACT”), OR ANY STATE SECURITIES LAWS. THE SECURITIES REPRESENTED HEREBY MAY NOT BE EXERCISED,
CONVERTED, OFFERED, SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE ASSIGNED (EACH A “TRANSFER”) EXCEPT
(A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN
A TRANSFER NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND (B) TO THE EXTENT THE TRANSFER DOES NOT CONSTITUTE
AND WILL NOT RESULT IN A VIOLATION OF APPLICABLE FEDERAL OR STATE SECURITIES LAWS, AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO
THE TRANSFEROR TO SUCH EFFECT (TO THE EXTENT REQUESTED BY COUNSEL OF THE COMPANY), THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE
TO THE COMPANY. THE HOLDER HEREOF AGREES THAT IT WILL DELIVER, OR CAUSE TO BE DELIVERED, TO EACH PERSON TO WHOM THE SECURITIES
HEREBY REPRESENTED ARE TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. THESE SECURITIES AND THE SECURITIES ISSUABLE
UPON EXERCISE OR CONVERSION OF THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT SECURED BY SUCH SECURITIES.

 

10% SECURED SUBORDINATED CONVERTIBLE
PROMISSORY NOTE

 

	Note No.: E-«Note»	April 30, 2012
	$«IPrincipal»	Harbor City, California

 

THIS 10% SECURED SUBORDINATED
CONVERTIBLE NOTE is one of a series of duly authorized and validly issued 10% Secured Subordinated Convertible Notes of Balqon
Corporation, a Nevada corporation, (the “Company”), having its principal place of business at 1420 240th
Street, Harbor City, CA 90710, issued pursuant to the terms and conditions contained in those certain Amendment and Exchange Agreements
(collectively, the “Exchange Agreements”), dated effective as of March 30, 2012, entered into between the Company
and each of the holders of $916,500 in aggregate principal amount outstanding under those certain Unsecured Subordinated Convertible
Promissory Notes issued pursuant to the Company’s Confidential Private Placement Memorandum dated March 23, 2009 (this note,
the “Note” and, collectively with the other notes of such series, the “Notes”).

 

THE OBLIGATIONS
DUE UNDER THIS NOTE ARE SECURED BY A SECURITY AGREEMENT (THE “SECURITY AGREEMENT”) DATED AS OF THE ORIGINAL
ISSUE DATE AND EXECUTED BY THE COMPANY FOR THE BENEFIT OF THE HOLDERS OF THE NOTES. ADDITIONAL RIGHTS OF THE HOLDER ARE SET FORTH
IN THE SECURITY AGREEMENT.

 

    	-1-

    	 

    

FOR VALUE RECEIVED,
BALQON CORPORATION, a Nevada corporation (“Company”), promises to pay to «Name» (“Holder”),
or its registered assigns, the principal sum of «IPrincipal2» THOUSAND DOLLARS ($«IPrincipal»), or such
lesser amount as shall equal the outstanding principal amount hereof, together with interest from the date of this 10% Secured
Subordinated Convertible Promissory Note (this “Note”) on the unpaid principal balance at a rate equal to 10%
per annum, computed on the basis of the actual number of days elapsed and a year of three hundred sixty-five (365) days. Interest
on the outstanding principal balance of this Note shall be payable quarterly as described in Section 2. Subject to
Section 6, all unpaid principal, together with any then unpaid and accrued interest and other amounts payable hereunder,
shall be due and payable on the Note Maturity Date (as defined below). Subject to Section 6, any unpaid principal and
accrued and unpaid interest on the Note Maturity Date shall be payable in cash. Upon payment in full of all principal and interest
payable hereunder, this Note shall be surrendered to the Company for cancellation.

 

The following is a
statement of the rights of the Holder and the conditions to which this Note is subject, and to which the Holder, by the acceptance
of this Note, agrees:

 

1.              
Certain Definitions. For purposes of this Note, the following terms shall have the following respective meanings:

 

“Business
Day” means any day except any Saturday, any Sunday, any day which is a federal legal holiday in the United States or
any day on which banking institutions in the State of California are authorized or required by law or other governmental action
to close.

 

Closing
Bid Price” and “Closing Sales Price” means, for any security as of any date, the last closing bid
price and last closing trade price, respectively, for such security on the principal securities exchange or trading market where
such security is listed or traded as reported by Bloomberg, or, if such principal market begins to operate on an extended hours
basis and does not designate the closing bid price or the closing trade price, as the case may be, then the last bid price or the
last trade price, respectively, of such security prior to 4:00:00 p.m., New York time, as reported by Bloomberg, or, if the foregoing
do not apply, the last closing bid price or last trade price, respectively, of such security in the OTC Bulletin Board for such
security as reported by Bloomberg, or, if no closing bid price or last trade price, respectively, is reported for such security
by Bloomberg, the average of the bid prices, or the ask prices, respectively, of any market makers for such security as reported
in the “pink sheets” by Pink OTC Markets. If the Closing Bid Price or the Closing Sale Price cannot be calculated for
a security on a particular date on any of the foregoing bases, the Closing Bid Price or the Closing Sale Price, as the case may
be, of such security on such date shall be the fair market value as mutually determined by the Company and the Holder. All such
determinations to be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction
during the applicable calculation period.

 

“Common
Stock” means the common stock of the Company, par value $0.001 per share, and any other class of securities into which
such securities may hereafter be reclassified or changed.

 

    	-2-

    	 

    

“Common
Stock Equivalents” means any securities of the Company which would entitle the holder thereof to acquire at any time
Common Stock, including, without limitation, any debt, preferred stock, rights, options, warrants or other instrument that is at
any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock.

 

“Conversion
Shares” means the shares of Common Stock issuable upon conversion of this Note.

 

“Event
of Default” means any of the events specified as such in Section 5.1.

 

“Exempt
Issuance” means the issuance of (a) shares of Common Stock or options to employees, consultants, officers or directors
of the Company pursuant to any stock or option plan duly adopted for such purpose, by a majority of the non-employee members of
the Board of Directors or a majority of the members of a committee of non-employee directors established for such purpose, (b)
securities upon the exercise or exchange of or conversion of any Securities issued hereunder and/or other securities exercisable
or exchangeable for or convertible into shares of Common Stock issued and outstanding on the date of this Agreement, provided that
such securities have not been amended since the date of this Agreement to increase the number of such securities or to decrease
the exercise price, exchange price or conversion price of such securities, and (c) securities issued pursuant to acquisitions or
strategic transactions approved by a majority of the disinterested directors of the Company, provided, however, that
any such issuance shall only be to a Person (or to the equity-holders of a Person) which is an operating company or an asset in
a business synergistic with the business of the Company and shall provide to the Company additional benefits in addition to the
investment of funds, but shall not include a transaction in which the Company is issuing securities primarily for the purpose of
raising capital or to an entity whose primary business is investing in securities.

 

“GAAP”
means the United States generally accepted accounting principles applied on a consistent basis during the periods involved.

 

“Holder”
means the person or entity specified in the introductory paragraph of this Note or any transferee that is at the time the registered
holder of this Note. The Holder or any transferee is an “accredited investor” as defined under U.S. federal securities
laws or otherwise will qualify to allow this offering to take place as a private placement under applicable securities laws.

 

“Indebtedness”
means (x) any liabilities for borrowed money or amounts owed in excess of $50,000 (other than trade accounts payables incurred
in the ordinary course of business), (y) all guaranties, endorsements and other contingent obligations in respect of indebtedness
of others, whether or not the same are or should be reflected in the Company’s balance sheet (or the notes thereto), except
guaranties by endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of
business; and (z) the present value of any lease payments in excess of $50,000 due under leases required to be capitalized in accordance
with GAAP.

 

    	-3-

    	 

    

 

 

“Insolvency
or Liquidation Proceeding” shall mean (i) any insolvency or bankruptcy case or proceeding, or any receivership, liquidation,
reorganization or other similar case or proceeding, relative to the Company or to its creditors, as such, or to its assets, or
(ii) any liquidation, dissolution, reorganization or winding up of the Company, whether voluntary or involuntary and whether or
not involving insolvency or bankruptcy, or (iii) any assignment for the benefit of creditors or any other marshaling of assets
and liabilities of the Company.

 

“Note
Maturity Date” shall mean the earlier of (i) March 31, 2013, or (ii) the date as of which the outstanding principal
and accrued interest on this Note and all other payments payable hereunder are due and payable to the Holder pursuant to Section 5.2.

 

“Original
Issue Date” means the date of the first issuance of this Note, regardless of any transfers of this Note and regardless
of the number of instruments which may be issued to evidence this Note.

 

“Person”
means any individual, corporation, partnership, trust, limited liability company, association or other entity.

 

“Reorganization
Securities” shall mean shares of stock of the Company, or its successor, as reorganized, or other securities of the Company
or any other person provided for by a plan of reorganization, the payment of which is subordinated, at least to the same extent
as this Note, to the payment of all Senior Indebtedness which may at the time be outstanding and the principal of which is due
no earlier than the principal of this Note, provided that the rights of the holders of the Senior Indebtedness are not impaired
thereby or such holders as a class shall have approved such plan of reorganization.

 

“Representative”
shall mean the trustee, agent or other representative for holders of all or any of the Senior Indebtedness, if any, designated
in the indenture, agreement or other document creating, evidencing or governing such Senior Indebtedness or pursuant to which it
was issued, or otherwise duly designated by the holders of such Senior Indebtedness.

 

“Senior
Indebtedness” shall mean the principal of and unpaid interest on all Indebtedness of the Company (i) incurred on, before
or after the date of this Note for money borrowed from any bank, savings and loan or other commercial or financial institution
in an amount of up to $2,500,000 in the aggregate, and is evidenced by promissory notes, bonds, debentures or other written obligations,
(ii) incurred before the date of this Note and listed on Schedule A to this Note, and (iii) incurred on, before or after
the date of this Note in connection with any renewals or extensions of any Indebtedness described in (i) and (ii) above; provided,
however, that the term shall not include (a) any lease financing arrangement involving the Company and (b) Indebtedness
which by the terms of the instrument creating or evidencing it is subordinated to or on parity with this Note. For the avoidance
of doubt, Senior Indebtedness shall include Indebtedness of the Company incurred pursuant to the Company’s agreement with
Bridge Bank, National Association, as such agreement may be amended from time to time.

 

    	-4-

    	 

    

“Trading
Day” means a day on which the principal Trading Market is open for trading.

 

“Trading
Market” means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on
the date in question: the NYSE AMEX, the NASDAQ Capital Market, the NASDAQ Global Market, the NASDAQ Global Select Market, the
New York Stock Exchange or the OTC Bulletin Board (or any successors to any of the foregoing).

 

Other capitalized terms
not defined in this Note have the same meaning as in the Securities Purchase Agreement.

 

2.              
Interest. This Note will bear interest at a rate of 10% per annum. Accrued interest on this Note shall be
due and payable quarterly on the fifth (5th) day after the last Business Day of each calendar quarter beginning with
the quarter ended June 30, 2012, with a final installment due on the Note Maturity Date, whether by acceleration, scheduled
maturity or otherwise, unless such amounts are converted into Common Stock pursuant to the terms set forth herein. Subject to Section 6,
any accrued interest on this Note that is due on or prior to the Note Maturity Date shall be payable in cash.

 

3.              
Prepayment. At any time upon fifteen (15) days prior written notice to the Holder, the Company may prepay
this Note in whole or in part; provided, however, that: (i) any prepayment of this Note may only be made in connection
with the prepayment of all Notes on a pro rata basis, based on the respective aggregate outstanding principal amounts of each such
Note, and (ii) any such prepayment will be applied first to the payment of expenses due under this Note, second to interest accrued
on this Note and third, if the amount of prepayment exceeds the amount of all such expenses and accrued interest, to the payment
of principal of this Note.

 

4.              
Subordination.

 

4.1           
Subordinated Notes Subordinate to Senior Indebtedness. The provisions of this Section 4 apply
notwithstanding anything to the contrary contained in this Note. The Company covenants and agrees, and the Holder, by such Holder’s
acceptance hereof, likewise covenants and agrees, that, to the extent and in the manner hereinafter set forth in this Section,
the indebtedness represented by this Note and the payment of the principal of and interest on this Note are hereby expressly made
subordinate and subject in right of the prior payment in full of all Senior Indebtedness. This Section 4 constitutes
a continuing offer to all persons who become holders of, or continue to hold, Senior Indebtedness, each of whom is an obligee hereunder
and is entitled to enforce such holder’s rights hereunder, subject to the provisions hereof, without any act or notice of
acceptance hereof or reliance hereon.

 

4.2           
Payment Over of Proceeds Upon Dissolution, Etc. 

 

(a)            
In the event of any Insolvency or Liquidation Proceeding, all Senior Indebtedness shall first be paid in full before the
Holder is entitled to receive any direct or indirect payment or distribution of any cash, property or securities (excluding Reorganization
Securities) on account of the principal of or interest on this Note.

 

    	-5-

    	 

    

 

 

(b)           
The holders of Senior Indebtedness (or their respective Representatives) shall be entitled to receive directly, for application
to the payment thereof (to the extent necessary to pay all such Senior Indebtedness in full after giving effect to any substantially
concurrent payment or distribution to the holders of such Senior Indebtedness), any payment or distribution of any kind or character,
whether in cash, property or securities (excluding Reorganization Securities but including any payment or distribution, except
Reorganization Securities, which may be payable or deliverable by reason of the payment of any other indebtedness of the Company
being subordinated to the payment of this Note) which may be payable or deliverable in respect of this Note in any such Insolvency
or Liquidation Proceeding.

 

(c)            
In the event that, notwithstanding the foregoing provisions of this Section 4.2, the Holder shall have received
any payment from or distribution of assets of the Company in an Insolvency or Liquidation Proceeding or the estate created by the
commencement of any such Insolvency or Liquidation Proceeding, of any kind or character in respect of this Note whether in cash,
property or securities (excluding Reorganization Securities but including any payment or distribution, except Reorganization Securities,
which may be payable or deliverable by reason of the payment of any other indebtedness of the Company being subordinated to the
payment of this Note) before all Senior Indebtedness is paid in full, then and in such event such payment or distribution shall
be received and held in trust for and shall be paid over to the holders of the Senior Indebtedness remaining unpaid (or their respective
Representatives), to the extent necessary to pay all such Senior Indebtedness in full after giving effect to any substantially
concurrent payment or distribution to the holders of such Senior Indebtedness, for application to the payment in full of such Senior
Indebtedness.

 

4.3           
Default on Senior Indebtedness.

 

(a)            
If there exists a default in the payment when due (whether at maturity or upon acceleration or mandatory repayment, or on
any principal installment payment date or interest payment date, or otherwise) of any Senior Indebtedness (a “Payment
Default”) and such default shall not have been cured or waived in writing by or on behalf of the requisite percentage
of the holders of such Senior Indebtedness (or their Representative, if any), then any payment on account of principal of or interest
on this Note which the Holder would then be entitled to receive, but for the provisions of this Section 4.3(a), shall
instead be paid over to the holders of such Senior Indebtedness (or their Representative, if any) until all amounts of Senior Indebtedness
then due and payable have been paid in full, prior to any direct or indirect payment by or on behalf of the Company to the holder
of any principal of or interest on this Note.

 

    	-6-

    	 

    

(b)           
The Company may not, directly or indirectly, make, and the Holder may not ask, demand, take or receive from or on behalf
of the Company, any payment on account of the principal of or interest on this Note during the period (a “Deferral Period”)
from the date the Company and/or the Holder receive from a holder of Senior Indebtedness a notice (a “Deferral Notice”)
of:

 

(i)             
the existence of a Payment Default; or

 

(ii)           
the existence of any event of default (other than a Payment Default) under any agreement or instrument pursuant to which
any Senior Indebtedness is issued, in each instance as now in effect or as hereafter from time to time modified or amended, without
the necessity of any consent by or notice to the Holders (a “Specified Covenant Default”);

 

until the earlier of (i) the date
such Payment Default or Specified Covenant Default is cured, waived in writing or otherwise ceases to exist and (ii) the one hundred
eightieth (180th) day after receipt by the Company and/or by the holder of this Note of such Deferral Notice; provided,
however, that (x) only one Deferral Notice relating to the same Payment Default or Specified Covenant Default may be given,
(y) no subsequent Deferral Notice may be given with respect to any Payment Default or Specified Covenant Default existing at the
time an effective Deferral Notice is given and (z) if any such Deferral Notice has been given, no subsequent Deferral Notice with
respect to any number of different Payment Defaults or Specified Covenant Defaults shall be effective until the later of (1) the
date such subsequent Deferral Notice is received by the Company and the holders of Subordinated Notes and (2) the three hundred
sixty-fifth (365th) day after receipt of the then most recent prior effective Deferral Notice. So long as any Senior
Indebtedness is outstanding, the Holder shall give the holders of the Senior Indebtedness five (5) Business Days prior written
notice of any proposed demand for payment or institution of proceedings with respect to this Note (which notice may be given during
a Deferral Period provided that the proposed demand for payment is not to be made or the proposed proceedings are not to be instituted
until the expiration of such Deferral Period).

 

(c)            
Upon termination of any Deferral Period the Company shall resume payments on account of the principal of and interest on
this Note subject to the obligation of the Company and the Holder to pay over to the holders of Senior Indebtedness amounts otherwise
payable on account of the principal of and interest on this Note pursuant to the provisions of, and in the circumstances specified
in, this Section 4.

 

(d)           
During the first one hundred twenty (120) days of any Deferral Period, payment on account of this Note may not be accelerated
unless a voluntary Insolvency or Liquidation Proceeding shall be instituted by the Company or an involuntary Insolvency or Liquidation
Proceeding shall be instituted against the Company and such proceeding remains undismissed for a period of sixty (60) days. So
long as any Senior Indebtedness is outstanding, the Holder shall give the holders of the Senior Indebtedness five (5) Business
Days’ prior written notice of any proposed acceleration with respect to this Note (which notice may be given during a Deferral
Period provided that the proposed acceleration is not to be effective until the expiration of such Deferral Period).

 

    	-7-

    	 

    

(e)            
In the event that, notwithstanding the foregoing provisions of this Section 4.3, any payment shall be made by
or on behalf of the Company and received by the Holder at a time after the giving of a Deferral Notice and during a Deferral Period,
then such payment shall be held in trust for the benefit of and shall be immediately paid over to the holders of Senior Indebtedness
remaining unpaid or their respective Representatives, for application to the payment in full of all Senior Indebtedness in accordance
with its terms (after giving effect to any prior or substantially concurrent payment to the holders of such Senior Indebtedness).

 

4.4           
Subrogation to Rights of Holders of Senior Indebtedness. After all amounts payable under or in respect of
Senior Indebtedness are paid in full, the Holder shall be subrogated to the extent of the payments or distributions made to the
holders of, or otherwise applied to payment of, such Senior Indebtedness pursuant to the provisions of this Section 4
(equally and ratably with the holders of all indebtedness of the Company which by its express terms is subordinate and subject
in right of payment to Senior Indebtedness to substantially the same extent as this Note is so subordinate and subject in right
of payment and which is entitled to like rights of subrogation), to the rights of the holders of such Senior Indebtedness (or their
respective Representatives) to receive payments and distributions of cash, property and securities applicable to the Senior Indebtedness
until the principal of and interest on this Note shall be paid in full. For purposes of such subrogation, no payments or distributions
to the holders of the Senior Indebtedness (or their respective Representatives) of any cash, property or securities to which the
Holder would be entitled except for the provisions of this Section 4, and no payments over pursuant to the provisions
of this Section 4 to the holders of Senior Indebtedness (or their respective Representatives) by the Company or the
Holder shall, as among the Company and its creditors (other than holders of Senior Indebtedness and the Holder), be deemed to be
a payment or distribution by the Company to or on account of Senior Indebtedness it being understood that the provisions of this
Section 4 are solely for the purpose of defining the relative rights of the holders of Senior Indebtedness on the one
hand and the Holder on the other hand.

 

If any payment
or distribution to which the Holder would otherwise have been entitled but for the provisions of this Section 4 shall
have been applied, pursuant to the provisions of this Section 4, to the payment of all amounts payable under the Senior
Indebtedness, then and in such case, the Holder shall be entitled to receive (equally and ratably with the holders of all indebtedness
of the Company which by its express terms is subordinate and subject in right of payment to Senior Indebtedness to substantially
the same extent as this Note is subordinate and subject in right of payment and which is entitled to like rights) from the holders
of such Senior Indebtedness (or their respective Representatives) any substantially contemporaneous payments or distributions received
by such holders of Senior Indebtedness (or their respective Representatives) in excess of the amount sufficient to pay in full
all obligations payable under or in respect of such Senior Indebtedness.

 

    	-8-

    	 

    

4.5           
Rights of Holders Not to Be Impaired. Nothing contained in this Section 4 or elsewhere in this
Note is intended to or shall:

 

(a)            
impair, as among the Company, its creditors other than holders or Senior Indebtedness and the Holder, the obligation of
the Company, which is absolute and unconditional, to pay to the Holder the principal of and premium, if any, and interest on this
Note as and when the same shall become due and payable in accordance with their terms; or

 

(b)           
affect the relative rights against the Company of the Holder of this Note and creditors of the Company other than the holders
of Senior Indebtedness; or

 

(c)            
prevent the Holder from exercising all remedies otherwise permitted by applicable law upon default subject to the rights,
if any, under this Section 4 of the holders of Senior Indebtedness to receive payments or distributions otherwise payable
or deliverable to, or received by, such holder upon the exercise of any such remedy and subject to the restriction on acceleration
set forth in Section 4.3(d).

 

4.6           
Effectuation of Subordination. If the Holder does not file a proper claim or proof of debt in the form required
in any Insolvency or Liquidation Proceeding prior to thirty (30) days before the expiration of the time to file such claims or
proofs, then the holders of the Senior Indebtedness, or their Representatives, are hereby authorized, and shall have the right
(without any duty), to file an appropriate claim for and on behalf of such holder.

 

4.7           
No Waiver of Subordination Provisions. No right of any present or future holder of any Senior Indebtedness,
or Representative thereof, to enforce subordination as herein provided shall at any time in any way be prejudiced or impaired by
any act or failure to act on the part of the Company or by any act or failure to act by any such holder or Representative thereof,
or by any noncompliance by the Company with the terms, provisions and covenants of this Note regardless of any knowledge thereof
which any such holder or Representative thereof may have or be otherwise charged with.

 

Without in
any way limiting the generality of the foregoing paragraph, the holders of Senior Indebtedness (or their Representatives, if applicable)
may, at any time and from time to time, without the consent of or notice to the Holder, without incurring responsibility to the
Holder and without impairing or releasing the subordination and other benefits provided in this Section 4 or the obligations
hereunder of the Holder to the holders of Senior Indebtedness, do any one or more of the following all without notice to the Holder
and even if any right of reimbursement or subrogation or other right or remedy of the Holder is affected, impaired or extinguished
thereby:

 

    	-9-

    	 

    

 

 

(a)            
change the manner, place or terms of payment or change or extend the time of payment of, or renew, exchange, amend or alter,
the terms of any Senior Indebtedness, any security therefor or guaranty thereof or any liability of the Company or any guarantor
to such holder, or any liability incurred directly or indirectly in respect thereof, or otherwise amend, renew, exchange, modify
or supplement in any manner Senior Indebtedness or any instrument evidencing or guaranteeing or securing the same or any agreement
under which Senior Indebtedness is outstanding;

 

(b)           
sell, exchange, release, surrender, realize upon, enforce or otherwise deal with in any manner and any order any property
pledged, mortgaged or otherwise securing Senior Indebtedness or any liability of the Company or any guarantor to such holder, or
any liability incurred directly or indirectly in respect thereof;

 

(c)            
settle or compromise any Senior Indebtedness or any other liability of the Company or any guarantor of the Senior Indebtedness
to such holder or any security therefor or any liability incurred directly or indirectly in respect thereof and apply any sums
by whomsoever paid and however realized to any liability (including, without limitation, Senior Indebtedness) in any manner or
order; and

 

(d)           
fail to take or to record or otherwise perfect, for any reason or for no reason, any lien or security interest securing
Senior Indebtedness by whomsoever granted, exercise or delay in or refrain from exercising any right or remedy against the Company
or any security or any guarantor or any other person, elect any remedy and otherwise deal freely with the Company and any security
and any guarantor of the Senior Indebtedness or any liability of the Company or any guarantor to such holder or any liability incurred
directly or indirectly in respect thereof.

 

4.8           
Reliance on Court Orders; Evidence of Status. Upon any payment or distribution of assets of the Company referred
to in Section 4.2, the Holder shall be entitled to rely upon a certificate of the receiver, trustee in bankruptcy,
liquidating trustee, agent or other person making such payment or distribution delivered to the Holder for the purpose of ascertaining
the persons entitled to participate in such payment or distribution, the holders of Senior Indebtedness and other indebtedness
of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent
thereto or to this Section 4.

 

In the absence
of any such receiver, trustee in bankruptcy, liquidating trustee, agent or other person, the holder of this Note shall be entitled
to rely upon a written notice by a person representing himself to be a holder of Senior Indebtedness (or a Representative on behalf
of such holder) as evidence that such person is a holder of Senior Indebtedness (or is such a Representative) for any relevant
purpose. In the event that any holder determines in good faith that further evidence is required with respect to the right of any
person as a holder of Senior Indebtedness (or such a Representative), as to the extent to which such person is entitled to participate
in such payment or distribution, and as to other facts pertinent to the rights of such person under this Section 4,
such holder may request such person to furnish evidence to the reasonable satisfaction of such holder as to the amount of Senior
Indebtedness held by such person, the extent to which such person is entitled to participate in such payment or distribution and
any other facts pertinent to the rights of such person under this Section 4, and if such evidence is not furnished
such holder may defer (without liability to any holder of Senior Indebtedness or any Representative of such holder) any payment
to such person pending judicial determination as to the right of such person to receive such payment or until such time as such
holder shall be otherwise satisfied as to the right of such person to receive such payment.

 

    	-10-

    	 

    

4.9           
Not to Prevent Events of Default. The failure to make a payment on account of the principal of or interest
on this Note by reason of any provision of this Section 4 shall not be construed as preventing the occurrence of a
default or an Event of Default under this Note. Except as expressly provided in Section 4.3(d), nothing in this Section 4
shall affect the rights of the Holder to accelerate the maturity of this Note in accordance with its terms.

 

4.10        
Amendments. Without the prior written consent of the holders of the Senior Indebtedness, the Company and the
Holder shall not amend, supplement or otherwise modify any provision of this Section 4 if such amendment would have
a material adverse effect on the holders of the Senior Indebtedness, amend, supplement or otherwise modify any other provision
of this Note.

 

5.              
Default.

 

5.1           
Events of Default. If any of the following events (each, an “Event of Default” and collectively,
“Events of Default”) shall occur:

 

(a)            
the Company shall default in the payment of any part of the principal of this Note or the other Notes;

 

(b)           
the Company shall default in the payment of any installment of interest on this Note or the other Notes for more than fifteen
(15) days after the same shall become due and payable;

 

(c)            
the Company shall breach or default in the performance of any covenant or warranty of the Company in this Note, and continuance
of such breach for a period of thirty (30) days after there has been given, by registered or certified mail, to the Company by
the holder of this Note, a written notice specifying such breach or default and requiring it to be remedied;

 

(d)           
a court having jurisdiction in the premises shall enter a decree or order for relief in respect of the Company in an involuntary
case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or appointing a receiver, liquidator,
assignee, custodian, trustee, sequestrator (or similar official) of the Company or for any substantial part of its property, or
ordering the winding-up or liquidation of its affairs, and such decree or order shall remain unstayed and in effect for a period
of sixty (60) consecutive days; or

 

    	-11-

    	 

    

(e)            
the Company shall commence a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter
in effect, shall consent to the entry of an order for relief in an involuntary case under any such law, or shall consent to the
appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian, sequestrator (or other similar official)
of the Company or for any substantial part of its property, or shall make any general assignment for the benefit of creditors,
or shall fail generally to pay its debts as they become due, or shall take any corporate action in furtherance of any of the foregoing;

 

then and in any such event the
Holder of this Note may at any time (unless all defaults theretofore or thereupon shall have been remedied) at its option, by written
notice to the Company, declare this Note to be due and payable, whereupon the same shall forthwith mature and become due and payable
without presentment, demand, protest or other notice, all of which are hereby waived.

 

5.2           
Remedies on and Notices of Default. Subject to the provisions of Section 4, in case any one or
more Events of Default shall occur, the Holder may, with the consent of the holders of 67% of the then outstanding principal amount
of the Notes, proceed to protect and enforce the rights of such holder by a suit in equity, action at law or other appropriate
proceeding, whether for the specific performance of any agreement contained in this Note, or for an injunction against a violation
of any of the terms or provisions hereof or thereof, or in aid of the exercise of any power granted hereby or thereby or by law.
In case of a default under this Note, the Company will pay to the Holder such further amount as shall be sufficient to cover the
reasonable cost and expense of enforcement, including, without limitation, reasonable attorneys’ fees. If the Holder shall
give any notice or take any other action in respect of a claimed default, the Company shall forthwith give written notice thereof
to all other holders of similarly subordinated notes at the time outstanding, describing the notice or action and the nature of
the claimed default. No course of dealing and no delay on the part of any Holder of this Note in exercising any right shall operate
as a waiver thereof or otherwise prejudice such Holder’s rights or the rights of the holder of any similarly subordinated
notes. No remedy conferred by this Note upon the Holder shall be exclusive of any other remedy referred to herein or now or hereafter
available at law, in equity, by statute or otherwise. In addition to the foregoing remedies, upon the occurrence or existence of
any Event of Default, the Holder may exercise any other right, power or remedy granted to the Holder as set forth in the Security
Agreement.

 

6.              
Conversion.

 

6.1           
Automatic Conversion. If at any time after one hundred eighty (180) days after the issuance of this Note the
Closing Bid Price or Closing Sales Price, as the case may be, of a share of the Company’s Common Stock equals or exceeds
$4.50 (subject to appropriate adjustment in the event of a stock split, stock dividend, combination or similar event) for twenty
(20) consecutive Trading Days, then the principal amount of this Note shall automatically convert into shares of Common Stock at
the Conversion Price (as defined below). Accrued and unpaid interest on the date of such automatic conversion shall be paid in
cash by the Company. The conversion will be deemed to have occurred as of the close of business on such twentieth (20th)
consecutive Trading Day. The Company shall notify the Holder in writing within one (1) Trading Day after any automatic conversion,
and will cause certificate representing the Conversion Shares to be issued within three (3) Trading Days after automatic conversion,
and will deliver those certificates to the Holder by overnight courier immediately after receipt of the original of this Note for
cancellation.

 

    	-12-

    	 

    

6.2           
Conversion Procedure in the Event of Automatic Conversion. In the event of automatic conversion, the outstanding
principal under this Note will convert automatically without any further action by the Company whether or not the Note is surrendered
to the Company or its transfer agent. The Company will not be obligated to issue certificates evidencing the securities issuable
upon automatic conversion of this Note unless this Note is either delivered to the Company or its transfer agent, or the Holder
notifies the Company or its transfer agent that this Note has been mutilated, lost, stolen or destroyed and executes an agreement
reasonably satisfactory to the Company to indemnify the Company from any loss incurred by it in connection with this Note. At its
expense, the Company will, as soon as reasonably practicable thereafter, issue and deliver to the Holder a certificate for the
number of shares of Common Stock to which the Holder will be entitled upon conversion (bearing such legends as are required by
applicable state and federal securities laws in the opinion of counsel to the Company), together with a check payable to the Holder
for any cash amounts payable as described in Section 6.1 (with respect to accrued and unpaid interest) and Section 6.5
(with respect to fractional shares).

 

6.3           
Voluntary Conversion. The Holder may, at any time before this Note has been repaid in full, elect to convert
all or any portion of the outstanding principal into shares of Common Stock at the Conversion Price.

 

6.4           
Conversion Procedure in the Event of Voluntary Conversion.

 

(a)            
Each voluntary conversion of this Note shall be effected by the surrender of this Note at the principal office of the Company
at any time during normal business hours, together with a written notice by the Holder stating that the Holder desires to convert
the entire, or a specified increment of, principal of this Note into Common Stock. Each conversion of a Note will be deemed to
have been effected as of the close of business on the date on which this Note has been surrendered and the notice has been received,
and at that time, the rights of the Holder of this Note will cease and the person or persons in whose name or names any certificate
or certificates for Common Stock are to be issued upon conversion will be deemed to have become the Holder or Holders of record
of the shares of Common Stock represented thereby.

 

    	-13-

    	 

    

(b)           
Within two (2) Trading Days after a conversion has been effected, the Company will deliver to the converting Holder:

 

(i)             
a certificate or certificates representing the number of shares of Common Stock issuable by reason of conversion in such
name or names and such denomination or denominations as the converting Holder has specified; and

 

(ii)           
a replacement Note representing the principal amount of this Note delivered to the Company in connection with the conversion
but which was not converted.

 

(c)            
The issuance of certificates for Common Stock upon conversion of this Note will be made without charge to the Holder for
any tax in respect thereof or other cost incurred by the Company in connection with conversion and the related issuance of Common
Stock. Upon conversion of any portion of this Note, the Company will take all actions as are necessary in order to ensure that
the Common Stock issuable with respect to conversion will be validly issued, fully paid and nonassessable.

 

(d)           
The Company will not close its books against the transfer of this Note or of the shares of Common Stock issued or issuable
upon conversion of this Note in any manner which interferes with the timely conversion of this Note, and will at all times reserve
for issuance the maximum number of shares of Common Stock into which this Note is convertible.

 

6.5           
Fractional Shares; Interest. No fractional shares shall be issued upon conversion of this Note. In lieu of
the Company issuing any fractional shares to Holder upon the conversion of this Note, the Company shall pay to Holder an amount
in cash equal to the product obtained by multiplying the Conversion Price applied to effect such conversion by the fraction of
a share not issued pursuant to the previous sentence. Upon conversion of this Note in full or the payment of outstanding amounts
specified in this Note, the Company shall be released from all its obligations and liabilities under this Note.

 

6.6           
Conversion Price. The initial Conversion Price shall be $0.40 per share of Common Stock. The Conversion Price
shall be subject to adjustment as described in Section 7.

 

7.              
Conversion Price Adjustments.

 

7.1           
Adjustments for Stock Splits and Subdivisions. In the event the Company should at any time or from time to
time after the date of issuance hereof fix a record date for the effectuation of a split or subdivision of the outstanding shares
of Common Stock or the determination of holders of Common Stock entitled to receive a dividend or other distribution payable in
additional shares of Common Stock without payment of any consideration by such holders for the additional shares of Common Stock,
then, as of such record date (or the date of such dividend distribution, split or subdivision if no record date is fixed), the
Conversion Price shall be appropriately decreased so that the number of shares of Common Stock issuable upon conversion of this
Note shall be increased in proportion to such increase of outstanding shares.

 

    	-14-

    	 

    

7.2           
Adjustments for Reverse Stock Splits. If the number of shares of Common Stock outstanding at any time after
the date hereof is decreased by a combination of the outstanding shares of Common Stock, then, following the record date of such
combination, the Conversion Price shall be appropriately increased so that the number of shares of Common Stock issuable on conversion
hereof shall be decreased in proportion to such decrease in outstanding shares.

 

7.3           
Subsequent Equity Sales. 

 

(a)            
If, at any time while this Note is outstanding, the Company sells or grants any option to purchase or sells or grants any
right to reprice, or otherwise disposes of or issues (or announces any sale, grant or any option to purchase or other disposition),
any Common Stock or Common Stock Equivalents entitling any Person to acquire shares of Common Stock at an effective price per share
that is lower than the then Conversion Price (such lower price, the “Base Conversion Price” and such issuances,
collectively, a “Dilutive Issuance”) (if the holder of the Common Stock or Common Stock Equivalents so issued
shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange
prices or otherwise, or due to warrants, options or rights per share which are issued in connection with such issuance, be entitled
to receive shares of Common Stock at an effective price per share that is lower than the Conversion Price, such issuance shall
be deemed to have occurred for less than the Conversion Price on such date of the Dilutive Issuance), then the Conversion Price
shall be reduced to equal the Base Conversion Price. Such adjustments shall be made whenever such Common Stock or Common Stock
Equivalents are issued.

 

(b)           
Notwithstanding the foregoing, no adjustment will be made under this Section 7.3 in respect of an Exempt Issuance.
The Company shall notify the Holder in writing, no later than the Trading Day following the issuance of any Common Stock or Common
Stock Equivalents subject to this Section 7.3, indicating therein the applicable issuance price, or applicable reset
price, exchange price, conversion price and other pricing terms (such notice, the “Dilutive Issuance Notice”).
For purposes of clarification, whether or not the Company provides a Dilutive Issuance Notice pursuant to this Section 7.3,
upon the occurrence of any Dilutive Issuance, the Holder is entitled to receive a number of Conversion Shares based upon the Base
Conversion Price on or after the date of such Dilutive Issuance.

 

(c)            
Calculations. All calculations under this Section 7 shall be made to the nearest cent or the nearest
1/100th of a share, as the case may be. For purposes of this Section 7, the number of shares of Common Stock deemed
to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding treasury shares,
if any) issued and outstanding.

 

    	-15-

    	 

    

7.4           
Notices of Record Date, Etc. In the event of:

 

(a)            
Any taking by the Company of a record of the holders of any class of securities of the Company for the purpose of determining
the holders thereof who are entitled to receive any dividend (other than a cash dividend payable out of earned surplus at the same
rate as that of the last such cash dividend theretofore paid) or other distribution or any right to subscribe for, purchase or
otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right; or

 

(b)           
Any capital reorganization of Company, any reclassification or recapitalization of the capital stock of Company or any transfer
of all or substantially all of the assets of the Company to any other Person or any consolidation or merger involving the Company;
or

 

(c)            
Any voluntary or involuntary dissolution, liquidation or winding-up of the Company,

 

the Company will mail to the
Holder at least ten (10) days prior to the earliest date specified therein, a notice specifying (A) the date on which any such
record is to be taken for the purpose of such dividend, distribution or right and the amount and character of such dividend, distribution
or right; and (B) the date on which any such reorganization, reclassification, transfer, consolidation, merger, dissolution, liquidation
or winding-up is expected to become effective and the record date for determining shareholders entitled to vote thereon.

 

7.5           
Reservation of Stock Issuable Upon Conversion. The Company shall at all times reserve and keep available out
of its authorized but unissued shares of Common Stock for the purpose of effecting the conversion of this Note such number of its
shares of Common Stock as shall from time to time be sufficient to effect the conversion of this Note; and if at any time the number
of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of the entire outstanding principal
amount of this Note, without limitation of such other remedies as shall be available to the Holder of this Note, the Company will
use its best efforts to take such corporate action as may, in the opinion of counsel, be necessary to increase its authorized but
unissued shares of Common Stock to such number of shares as shall be sufficient for such purposes.

 

8.              
Successors and Assigns. Subject to the restrictions on transfer described in Sections 10 and 11,
the rights and obligations of Company and the Holder shall be binding upon and benefit the successors, assigns, heirs, administrators
and transferees of the parties.

 

9.              
Waiver and Amendment. Any provision of this Note may be amended, waived or modified upon the written consent
of Company and the holders of a majority in principal amount of the Notes.

 

    	-16-

    	 

    

10.           
Transfer of this Note or Securities Issuable on Conversion Hereof. With respect to any offer, sale or other
disposition of this Note or securities into which such Note may be converted, the Holder will give written notice to the Company
prior thereto, describing briefly the manner thereof, together with a written opinion of the Holder’s counsel, or other evidence
if reasonably satisfactory to the Company, to the effect that such offer, sale or other distribution may be effected without registration
or qualification (under any federal or state law then in effect). Upon receiving such written notice and reasonably satisfactory
opinion, if so requested, or other evidence, the Company, as promptly as practicable, shall notify the Holder that the Holder may
sell or otherwise dispose of this Note or such securities, all in accordance with the terms of the notice delivered to Company.
If a determination has been made pursuant to this Section 10 that the opinion of counsel for the Holder, or other evidence,
is not reasonably satisfactory to the Company, the Company shall so notify the Holder promptly after such determination has been
made. Each Note thus transferred and each certificate representing the securities thus transferred shall bear a legend as to the
applicable restrictions on transferability in order to ensure compliance with the Securities Act, unless in the opinion of counsel
for the Company such legend is not required in order to ensure compliance with the Securities Act. The Company may issue stop transfer
instructions to its transfer agent in connection with such restrictions. Subject to the foregoing transfers of this Note shall
be registered upon registration books maintained for such purpose by or on behalf of the Company as provided in the Securities
Purchase Agreement. Prior to presentation of this Note for registration of transfer, the Company shall treat the registered Holder
hereof as the owner and the Holder of this Note for the purpose of receiving all payments of principal and interest hereon and
for all other purposes whatsoever, whether or not this Note shall be overdue and the Company shall not be affected by notice to
the contrary.

 

11.           
Assignment by the Company. Neither this Note nor any of the rights, interests or obligations hereunder may
be assigned, by operation of law or otherwise, in whole or in part, by Company without the prior written consent of the Holder.

 

12.           
Notices. All notices, requests, demands, consents, instructions or other communications required or permitted
hereunder shall in writing and faxed, mailed or delivered to each party at the respective addresses of the parties as set forth
in the Securities Purchase Agreement, or at such other address or facsimile number as the Company shall have furnished to Holder
in writing. All such notices and communications shall be effective (i) when sent by Federal Express or other overnight service
of recognized standing, on the Business Day following the deposit with such service; (ii) when mailed, by registered or certified
mail, first class postage prepaid and addressed as aforesaid through the United States Postal Service, upon receipt; (iii) when
delivered by hand, upon delivery; and (iv) when faxed, upon confirmation of receipt.

 

13.           
Secured Obligation. The obligations of the Company under this Note are secured by all assets of the Company
and pursuant to the Security Agreement between the Company and the Secured Parties (as defined therein).

 

14.           
Pari Passu Notes. This Note ranks pari passu with all other Notes now or hereafter issued in
connection with the Exchange Agreements. The Holder acknowledges and agrees that the payment of all or any portion of the outstanding
principal amount of this Note and all interest hereon shall be pari passu in right of payment and in all other respects
to the other Notes. In the event the Holder receives payments in excess of its pro rata share of the Company’s payments to
the holders of all of the Notes, then the Holder shall hold in trust all such excess payments for the benefit of the holders of
the other Notes and shall pay such amounts held in trust to such other holders upon demand by such holders.

 

    	-17-

    	 

    

15.           
Payment. Payment shall be made in lawful tender of the United States.

 

16.           
Usury. In the event any interest is paid on this Note which is deemed to be in excess of the then legal maximum
rate, then that portion of the interest payment representing an amount in excess of the then legal maximum rate shall be deemed
a payment of principal and applied against the principal of this Note.

 

17.           
Waivers. The Company hereby waives notice of default, presentment or demand for payment, protest or notice
of nonpayment or dishonor and all other notices or demands relative to this instrument.

 

18.           
Governing Law. This Note and all actions arising out of or in connection with this Note shall be governed
by and construed in accordance with the laws of the State of California, without regard to the conflicts of law provisions of the
State of California, or of any other state.

 

[signature page follows]

 

    	-18-

    	 

    

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

 

	 	BALQON CORPORATION,
	 	a Nevada corporation
	 	 
	 	By:  /s/ Balwinder Samra         
	 	       Balwinder Samra, Chief Executive Officer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    	-19-

    	 

    

Schedule
A

 

Certain Senior
Indebtedness

 

		1.	Indebtedness of the Company incurred pursuant to those certain 10% Senior Secured Subordinated
Convertible Debentures initially due on September 30, 2012 issued by the Company pursuant to the terms of the Company’s Confidential
Private Placement Memorandum dated May 25, 2010, as amended by Supplement No. 1 to Confidential Private Placement Memorandum dated
July 21, 2010. As of the date of this Note, there is $775,000 in outstanding principal under these 10% Senior Secured Subordinated
Convertible Debentures.

 

		2.	Indebtedness of the Company incurred pursuant to the Company’s agreement with Bridge Bank,
National Association, as such agreement may be amended from time to time.

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