Document:

Exhibit 10.1

 

January 21, 2008

 

Holly Grey

 

RE:     OFFER OF EMPLOYMENT AND EMPLOYMENT TERMS

 

Dear
Holly,

 

Accuray
Incorporated (the “Company”) is
pleased to offer you employment as our Senior
Vice President of Finance on the terms and conditions set forth in this
letter, effective as of March 3, 2008
(the “Effective Date”). Your
employment Start Date will be the Effective Date.  In the event that you do not commence
employment with the Company on the Effective Date, this Agreement shall be of
no further force or effect, and you shall have no rights to compensation,
benefits or other consideration hereunder. 
This offer of employment is contingent upon successful completion of a reference
and background check as mentioned in the release you submitted.

 

1.                         TERM.  The
employment relationship between you and the Company will be at-will.  You and the Company will have the right to
terminate the employment relationship at any time and for any reason
whatsoever, with or without cause, and without any liability or obligation
except as may be expressly provided herein.

 

2.                         POSITION, DUTIES AND
RESPONSIBILITIES.  During the period of the employment
relationship between you and the Company (the “Term”),
the Company will employ you, and you agree to be employed by the Company, as Senior Vice President, Finance.  In the capacity of Senior Vice President, Finance, you will have such duties and
responsibilities as are normally associated with such position and will devote
your full business time and attention serving the Company in such
position.  Your duties may be changed
from time to time by the Company, consistent with your position.  You will report to Robert E. McNamara, Chief Financial Officer (the “CFO”) of the Company, and will work full-time at our
principal offices located at 1310 Chesapeake Terrace, Sunnyvale, California
94089 (or any other location the Company may utilize as its principal offices),
except for travel to other locations as may be necessary to fulfill your
responsibilities.

 

 

3.                         BASE COMPENSATION.  During
the Term, the Company will pay you a base salary of $230,000 per year, less payroll deductions and all required
withholdings, payable in accordance with the Company’s normal payroll practices
and prorated for any partial month of employment.  Your base salary may be subject to increase
pursuant to the Company’s policies as in effect from time to time.

 

4.                         ANNUAL BONUS.  In
addition to the base salary set forth above, during the Term, you will be
eligible to participate in the Company’s executive bonus plan applicable to
similarly situated executives of the Company. 
The amount of your annual bonus will be based on the attainment of
performance criteria established and evaluated by the Company in accordance
with the terms of such bonus plan as in effect from time to time, provided
that, subject to the terms of such bonus plan, your target (but not necessarily
maximum) annual bonus shall be 40% of
your base salary actually paid for such year.

 

In  addition to the executive bonus plan you will also have an
opportunity to realize     an additional
one time bonus of $10,000, if you meet specific goals set for your first six
months with the company.

 

5.                         STOCK OPTIONS.  As an
added incentive, we will recommend to the Compensation Committee of the Board
of Directors that you be granted an option (the “Option”) to purchase 50,000 shares of Accuray common stock at a per
share exercise price equal to the fair market value of a share of our common
stock on the date of the grant, as determined in accordance with the Accuray
Incorporated 2007 Incentive Award Plan (the “Incentive Plan”).   The grant of the Option is subject to and
conditioned on approval of the grant and its terms by the Compensation
Committee, and will be made as soon as practicable following your Start Date.  Subject to your continued employment, the
Option would vest with respect to 25% of the shares subject thereto on the
first anniversary of your Start Date, and with respect to an additional 1/48th
of the shares subject thereto on each monthly anniversary thereafter, such that
the entire Option would be vested on the fourth anniversary of your Start
Date.  The Option will be subject to the
terms and conditions of the Incentive Plan and a stock option agreement in a
form prescribed by Accuray, which you will be required to sign as a condition
to receiving the Option (the “Option Agreement”).

 

6.                         RESTRICTED STOCK UNITS.  We
will recommend to the Compensation Committee of the Board of Directors that you
be granted 6,000 restricted stock units (“RSUs”)
under the Accuray 2007 Incentive Award Plan. The grant of the RSUs is subject
to and conditioned on approval of the grant and its terms by the Compensation
Committee, and will be made as soon as practicable following your Start Date.  Subject to the your continued service as an
Employee through the applicable vesting date, twenty-five percent (25%) of the
RSUs shall vest on the first anniversary of the Grant Date and an additional
twenty-five percent (25%) of the RSUs shall vest on each of the second, third
and fourth anniversaries of the Grant Date.

 

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Payment
in respect of any RSUs that vest in accordance with the grant agreement will be
made to you in whole shares of our common stock as soon as practicable after
the applicable vesting date, but in no event later than 60 days after such
vesting date.  The RSUs will be subject
to the terms and conditions of the Incentive Plan and a restricted stock unit
grant agreement in a form prescribed by Accuray, which you will be required to
sign as a condition to receiving the RSUs (the “RSU Agreement”).

 

7.                         BENEFITS AND PAID TIME OFF. 
During the Term, you will be eligible to participate in all incentive,
savings and retirement plans, practices, policies and programs maintained or
sponsored by the Company from time to time which are applicable to other
similarly situated executives of the Company, subject to the terms and
conditions thereof.  During the Term, you
will also be eligible for standard benefits, such as medical, vision and dental
insurance, paid time off, and holidays to the extent applicable generally to
other similarly situated executives of the Company, subject to the terms and
conditions of the applicable Company plans or policies.  The benefits described in this Section 7
will be subject to change from time to time as deemed appropriate and necessary
by the Company.

 

8.        TERMINATION OF EMPLOYMENT.

 

(a)     In the
event of a termination of your employment by the Company without Cause or by
you for Good Reason (each as defined below) then, in addition to any other
accrued amounts payable to you through the date of termination of your
employment (including any earned but unpaid bonus),

 

i)    the Company will no later than the date that
is six (6) months and one (1) day after the date of your termination
of employment, or the last day of such shorter period upon such termination of
employment that is sufficient to avoid the imposition of additional tax under Section 409A(a)(l)(B) of
the Internal Revenue Code of 1986, as amended (the “Code”),
or any other taxes or penalties imposed under Section 409A of the Code,
pay you a lump-sum severance payment (the “Severance Payment”)
in an amount equal to the sum of (x) six (6) months of your annual
base salary as in effect on the date of termination plus (y) a pro rata
portion of your target annual bonus for the fiscal year of the Company in which
such termination occurs, calculated based on the number of days elapsed in such
fiscal year through the date of termination plus (z) 50% of your target
annual bonus for the fiscal year of the Company in which such termination
occurs, and

 

ii)   provided that you properly elect COBRA
continuation coverage, the Company will pay the COBRA premium for health care
coverage for you and your spouse and children, as applicable and to the extent
eligible (the “Severance Benefits”), for the six (6) month
period immediately following the date of such termination of your employment.
Such payments for the Severance Benefits will begin no later than the date that
is six (6) months 

 

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and
one (1) day after the date of your termination of employment, or the last
day of such shorter period upon such termination of employment that is
sufficient to avoid the imposition of additional tax under Section 409A(a)(l)(B) of
the Code or any other taxes or penalties imposed under Section 409A of the
Code (the “Deferred COBRA Payment Date”), and
on the Deferred COBRA Payment Date, the Company will pay you an amount equal to
the Severance Benefits for the period beginning on the date of your termination
of employment and ending on the Deferred COBRA Payment Date.

 

(b)    If a Change in Control (as defined in Exhibit A hereto) occurs within the first thirty-six (36) months of employment
(measured from the Effective Date) and your employment with the Company is
terminated by the Company without Cause or by you for Good Reason, in each case
within the twelve (12) month period immediately following the effective date of
the Change in Control, then, in addition to the amounts payable to you pursuant
to paragraph (a) of this Section 8, each of your then outstanding
stock options and Restricted Stock Units (“RSUs”) to
purchase shares and units of the Company’s common stock and RSUs shall become
fully vested and exercisable immediately prior to the effective time of the
termination of your employment.

 

(c)     Notwithstanding the foregoing, your right to receive the payments and
benefits set forth in this Section 8 is conditioned on and subject to your
execution and non-revocation of a general release of claims against the Company
and its affiliates, in a form prescribed by the Company.  In no event shall you or your estate or
beneficiaries be entitled to any of the payments or benefits set forth in this Section 8
upon any termination of your employment by reason of your total and permanent
disability or your death.

 

(d)    For purposes of this letter:

 

i)    “Cause” shall mean (i) your
commission of a felony, (ii) your commission of a crime involving moral
turpitude or your commission of any other act or omission involving dishonesty,
disloyalty, breach of fiduciary duty or fraud with respect to the Company or
any of its subsidiaries or any of their customers or suppliers, or (iii) your
failure to perform the normal and customary duties of your position with the
Company as reasonably directed by the CFO, provided, that any of the acts or
omissions described in the foregoing clauses (i), (ii) or (iii) are
not cured to the Company’s reasonable satisfaction within thirty (30) days
after written notice thereof is given to you; and

 

ii)   “Good Reason” shall mean the occurrence
of any one or more of the following events without your prior written consent,
unless the Company fully corrects the circumstances constituting Good Reason
within 30 days after notice from you that Good Reason exists:  (i) a material reduction of 

 

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your duties and responsibilities hereunder; (ii) a relocation of
your principal workplace more than 35 miles outside the Company’s Sunnyvale
corporate headquarters; or (iii) the Company’s reduction of your annual
base salary or bonus opportunity, each as in effect on the date hereof or as
the same may be increased from time to time; provided that written notice of
your resignation for Good Reason must be delivered to the Company within 30
days after the date you first know or should reasonably know of the occurrence
of any such event in order for your resignation with Good Reason to be effective
hereunder.

 

9.        CODE SECTION 280G.

 

(a)     In the event it shall be determined that any payment or distribution to
you or for your benefit which is in the nature of compensation and is
contingent on a change in the ownership or effective control of the Company or
the ownership of a substantial portion of the assets of the Company (within the
meaning of Section 280G(b)(2) of the Code), whether paid or payable
pursuant to this letter or otherwise (a “Payment”),
would constitute a “parachute payment” under Section 280G(b)(2) of
the Code and would be subject to the excise tax imposed by Section 4999 of
the Code (together with any interest or penalties imposed with respect to such
excise tax, the “Excise Tax”),
then the Payments shall be reduced to the extent necessary so that no portion
thereof shall be subject to the excise tax imposed by Section 4999 of the
Code but only if, by reason of such reduction, the net after-tax benefit
received by you shall exceed the net after-tax benefit received by you if no
such reduction was made.  For purposes of
this Section 9(a), “net after-tax benefit” shall mean (i) the
Payments which you receive or are then entitled to receive from the Company
that would constitute “parachute payments” within the meaning of Section 280G
of the Code, less (ii) the amount of all federal, state and local income
taxes payable with respect to the Payments calculated at the maximum marginal
income tax rate for each year in which the Payments shall be paid to you (based
on the rate in effect for such year as set forth in the Code as in effect at
the time of the first payment of the foregoing), less (iii) the amount of
Excise Taxes imposed with respect to the Payments.

 

(b)    All determinations required to be made under this Section 9 shall
be made by such nationally recognized accounting firm as may be selected by the
Audit Committee of the Board of Directors of the Company as constituted
immediately prior to the change in control transaction (the “Accounting Firm”), provided, that the Accounting Firm’s determination shall be made
based upon “substantial authority” within the meaning of Section 6662 of
the Code.  The Accounting Firm shall
provide its determination, together with detailed supporting calculations and
documentation, to you and the Company within 15 business days following the
date of termination of your employment, if applicable, or such other time as
requested by you (provided that you reasonably believe that any of the Payments
may be subject to the Excise Tax) 

 

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or the Company.  All fees and
expenses of the Accounting Firm shall be borne solely by the Company.

 

10.      RESTRICTIVE COVENANTS.

 

(a)     As a condition of your employment with the Company, you agree that
during the Term and thereafter, you will not directly or indirectly disclose or
appropriate to your own use, or the use of any third party, any trade secret or
confidential information concerning the Company or its subsidiaries or
affiliates (collectively, the “Company Group”)
or their businesses, whether or not developed by you, except as it is required
in connection with your services rendered for the Company.  You further agree that, upon termination of
your employment, you will not receive or remove from the files or offices of
the Company Group any originals or copies of documents or other materials
maintained in the ordinary course of business of the Company Group, and that
you will return any such documents or materials otherwise in your
possession.  You further agree that, upon
termination of your employment, you will maintain in strict confidence the
projects in which any member of the Company Group is involved or contemplating.

 

(b)    You further agree that during the Term and continuing through the first anniversary
of the date of termination of your employment, you will not directly or
indirectly solicit, induce, or encourage any employee, consultant, agent,
customer, vendor, or other parties doing business with any member of the
Company Group to terminate their employment, agency, or other relationship with
the Company Group or such member or to render services for or transfer their
business from the Company Group or such member and you will not initiate
discussion with any such person for any such purpose or authorize or knowingly cooperate
with the taking of any such actions by any other individual or entity.

 

(c)     While employed by the Company, you agree that
you will not engage in any business activity in competition with any member of
the Company Group nor make preparations to do so.

 

(d)    Upon the termination of your relationship
with the Company, you agree that you will promptly return to the Company, and
will not take with you or use, all items of any nature that belong to the
Company, and all materials (in any form, format, or medium) containing or
relating to the Company’s business.

 

(e)     In recognition of the facts that irreparable injury will result to the
Company in the event of a breach by you of your obligations under Sections
10(a), (b), (c) or (d) above, that monetary damages for such breach
would not be readily calculable, and that the Company would not have an
adequate remedy at law therefore, you acknowledge, consent and agree that in
the event of such breach, or the threat thereof, the Company shall be entitled,
in addition to any other 

 

6

 

legal remedies and damages available, to specific performance thereof
and to temporary and permanent injunctive relief (without the necessity of
posting a bond) to restrain the violation or threatened violation of such
obligations by you.

 

11.      COMPANY RULES AND REGULATIONS.  As an employee of the Company,
you agree to abide by Company policies, procedures, rules and regulations
as set forth in the Company’s Employee Handbook, Code of Conduct and Ethics, or
as otherwise promulgated.  In addition,
as a condition of your employment, you will be required to complete, sign,
return, and abide by the Employee Confidentiality and Inventions Agreement.

 

12.      WITHHOLDING.  The Company may withhold from any amounts
payable under this letter such federal, state, local or foreign taxes as shall
be required to be withheld pursuant to any applicable law or regulation.

 

13.      ARBITRATION.  Except as set forth in Section 10(e) above,
any disagreement, dispute, controversy or claim arising out of or relating to
this letter or the interpretation of this letter or any arrangements relating
to this letter or contemplated in this letter or the breach, termination or
invalidity thereof shall be settled by final and binding arbitration
administered by JAMS/Endispute in Santa Clara County, California in accordance
with the then existing JAMS/Endispute Arbitration Rules and Procedures for
Employment Disputes.  Except as provided
herein, the Federal Arbitration Act shall govern the interpretation,
enforcement and all proceedings.  The
arbitrator shall apply the substantive law (and the law of remedies, if
applicable) of the state of California, or federal law, or both, as applicable,
and the arbitrator is without jurisdiction to apply any different substantive
law.  The arbitrator shall have the
authority to entertain a motion to dismiss and/or a motion for summary judgment
by any party and shall apply the standards governing such motions under the
Federal Rules of Civil Procedure. 
Judgment upon the award may be entered in any court having jurisdiction
thereof.  Each party shall pay his or its
own attorneys’ fees and expenses associated with such arbitration to the extent
permitted by applicable law.

 

14.      ENTIRE AGREEMENT.  As of the Effective Date, this letter
constitutes the final, complete and exclusive agreement between you and the
Company with respect to the subject matter hereof and replaces and supersedes
any and all other agreements, offers or promises, whether oral or written, made
to you by any member of the Company Group.

 

15.      SEVERABILITY.  Whenever possible, each provision of this
letter will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this letter is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in
any jurisdiction, such invalidity, illegality or unenforceability will not
affect any other provision of this letter, but such invalid, illegal or
unenforceable provision will be reformed, construed and enforced so as to 

 

7

 

render it valid, legal, and enforceable consistent with the intent of
the parties insofar as possible.

 

16.      ACKNOWLEDGEMENT.  You hereby acknowledge (a) that
you have consulted with or have had the opportunity to consult with independent
counsel of your own choice concerning this letter, and have been advised to do
so by the Company, and (b) that you have read and understand this letter,
are fully aware of its legal effect, and have entered into it freely based on
your own judgment.

 

17.      SECTION 409A OF THE CODE.  To
the extent that any payments or benefits under this letter are deemed to be
subject to Section 409A of the Code, this letter will be interpreted in
accordance with Section 409A of the Code and Department of Treasury
regulations and other interpretive guidance issued there under in order to (a) preserve
the intended tax treatment of the benefits provided with respect to such
payments and (b) comply with the requirements of Section 409A of the
Code.

 

[SIGNATURE PAGE FOLLOWS]

 

8

 

Please
confirm your agreement to the foregoing by signing and dating the enclosed
duplicate original of this letter in the space provided below for your
signature and returning it to us in the enclosed, self-addressed stamped
envelope.  Please retain one fully-executed original for
your files.

 

Sincerely,

 

ACCURAY INCORPORATED, a Delaware corporation

 

 

	
  /s/
  Robert E. McNamara

  	
   

  
	
  Robert
  E. McNamara

  	
   

  
	
  Chief
  Financial Officer

  	
   

  

 

 

Accepted
and Agreed,

 

 

	
  /s/
  Holly Grey

  	
   

  
	
  Signature

  	
   

  
	
   

  	
   

  
	
  1-22-08

  	
   

  
	
  Date

  	
   

  

 

9

 

EXHIBIT
A

 

For purposes of this letter,
“Change in Control” means and includes
each of the following:

 

(a)     A transaction or series of transactions (other than an offering of the
Company’s common stock to the general public through a registration statement
filed with the Securities and Exchange Commission) whereby any “person” or
related “group” of “persons” (as such terms are used in Sections 13(d) and
14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) (other than the Company, any of its
subsidiaries, an employee benefit plan maintained by the Company or any of its
subsidiaries or a “person” that, prior to such transaction, directly or
indirectly controls, is controlled by, or is under common control with, the
Company) directly or indirectly acquires beneficial ownership (within the
meaning of Rule 13d-3 under the Exchange Act) of securities of the Company
possessing more than 50% of the total combined voting power of the Company’s
securities outstanding immediately after such acquisition; or

 

(b)    During any period of two consecutive years, individuals who, at the
beginning of such period, constitute the Board of Directors of the Company
together with any new director(s) (other than a director designated by a
person who shall have entered into an agreement with the Company to effect a
transaction described in clause (a) or clause (c) hereof) whose
election by the Board of Directors of the Company or nomination for election by
the Company’s stockholders was approved by a vote of at least two-thirds of the
directors then still in office who either were directors at the beginning of
the two-year period or whose election or nomination for election was previously
so approved, cease for any reason to constitute a majority thereof; or

 

(c)     The consummation by the Company (whether directly involving the Company
or indirectly involving the Company through one or more intermediaries) of (x) a
merger, consolidation, reorganization, or business combination or (y) a
sale or other disposition of all or substantially all of the Company’s assets
in any single transaction or series of related transactions or (z) the
acquisition of assets or stock of another entity, in each case other than a
transaction:

 

i)    Which results in the Company’s voting securities outstanding
immediately before the transaction continuing to represent (either by remaining
outstanding or by being converted into voting securities of the Company or the
person that, as a result of the transaction, controls, directly or indirectly,
the Company or owns, directly or indirectly, all or substantially all of the
Company’s assets or otherwise succeeds to the business of the Company (the
Company or such person, the “Successor Entity”))
directly or indirectly, at 

 

10

 

least a majority of the
combined voting power of the Successor Entity’s outstanding voting securities
immediately after the transaction, and

 

ii)   After which no person or group beneficially owns voting securities
representing 50% or more of the combined voting power of the Successor Entity; provided, however, that no person or group
shall be treated for purposes of this clause (c) (ii) as beneficially
owning 50% or more of combined voting power of the Successor Entity solely as a
result of the voting power held in the Company prior to the consummation of the
transaction; or

 

(d)    The Company’s stockholders approve a liquidation or dissolution of the
Company.

 

11Exhibit
4.25

 

LOAN AND SECURITY AGREEMENT

 

THIS
LOAN AND SECURITY AGREEMENT (this “Agreement”) dated as of April 30,
2008, entered into by and among Open Energy Corporation, a Nevada corporation (“Borrower”),
and The Quercus Trust (“Lender”), sets forth the agreement
pursuant to which Borrower  is borrowing
funds from Lender, pledging its interest in, and granting a security interest
and general Lien (as defined in Section 14.2 below) in and upon, the
Collateral (as defined in Section 14.2 below) as security for satisfaction
of any and all obligations of Borrower arising out of or related to that
certain Secured Promissory Note made by Borrower in favor of Lender and dated
as of the date hereof (the “Note”) or
arising out of or related to this Agreement  or any of the Loan Documents (the “Obligations”).

 

WHEREAS,
Lender is the holder of a Series B Convertible Note payable by Borrower in
the principal amount of $20,000,000 (the “Series B Convertible
Note”).

 

WHEREAS,
Borrower seeks to borrow additional funds from Lender on a short term basis in
order to pay off the Cornell Loan (as defined in Section 14.2 below) and to
provide working capital for Borrower.

 

WHEREAS, Lender is willing to
lend to Borrower up to $3,500,000.00 subject to the terms and conditions herein.

 

WHEREAS,
as consideration to induce the Lender to loan funds pursuant to this Agreement,
Borrower executes this Agreement in favor of the Lender.

 

NOW
THEREFORE, in consideration of the premises and mutual covenants contained
herein and for other good, valuable, and binding consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending to
be legally bound hereby, agree as follows:

 

1.             Loan.      Subject to the terms and
conditions of this Agreement, the Note and the Deposit Account Control Agreement
executed concurrently herewith among Borrower, Lender and California Bank &
Trust, a California banking corporation (“CB&T”) (collectively,
and together with any and all financing statements and any other agreements or
instruments executed by Borrower at Lender’s request the “Loan
Documents”), and subject to there being no Event of Default (as
defined herein) under any of the Loan Documents, (or event which would, with
the giving of notice or the passage of time, mature into an Event of Default),
Lender agrees to lend to Borrower an amount not to exceed the principal sum of
THREE MILLION FIVE HUNDRED THOUSAND DOLLARS ($3,500,000.00) (the “Loan”).

 

1.1           Purpose and Use of Borrowing. 
Advances hereunder shall be used solely to enable Borrower to pay off
the Cornell Loan and to provide working capital for Borrower.  Any advances hereunder shall be conclusively
presumed to have been made to or for the benefit of Borrower when Lender
believes in good faith that such requests and directions have been made by an authorized
person.

 

1

 

1.2           Advances.  Subject to
the terms and conditions contained herein (and so long as no Event of Default has
occurred and is continuing ), Lender shall make advances hereunder up to the
total amount of the principal sum stated above, as follows: At closing, Lender shall
advance to Borrower the initial principal amount of One Million Five Hundred
Fifty Thousand Dollars ($1,550,000.00) (the “Initial Advance”).  In addition to the Initial Advance, Lender
agrees to make additional advances (each a “Subsequent
Advance”) in minimum amounts of at
least Two Hundred Thousand Dollars ($200,000) to Borrower, within five (5) Business
Days of receipt of a written request therefor from the date hereof until June 30,
2008, provided that (A) the Borrowing Conditions (as defined herein) are
satisfied as of the date of the Initial Advance and each Subsequent Advance,
and (B) the aggregate principal amount of the Initial Advance and
Subsequent Advances shall not exceed Three Million Five Hundred Thousand
Dollars ($3,500,000).

 

1.3           Interest.  The Loan
shall bear interest at the rate of 18% per annum payable as follows:  Lender shall receive warrants (“Interest Warrants”) in the form attached hereto as Exhibit A
to purchase that number of shares of common stock of the Borrower (“Common Stock”) that will equate to an 18% annual percentage
rate return on the Loan, assuming it is repaid upon maturity (which  equates to 1,389,096  shares of Common Stock as of the date hereof
assuming the Loan is fully funded at $3.5 million), at an exercise price per
share of $0.506, exercisable for seven (7) years commencing six months
from the closing of the Loan.  In the
event that the Loan is funded at less than $3.5 million, a ratably lower number
of Interest Warrants shall be issued.  In
the event Subsequent Advances are made, Borrower shall issue to Lender a
ratable number of additional Interest Warrants.

 

1.4           Maturity Date. 
The maturity date of the Loan shall be October 30, 2008 (“Maturity Date”) unless such Maturity Date is extended in
writing by Lender in its sole and absolute discretion.

 

1.5           Repayment.  On the
Maturity Date, Borrower shall pay to Lender in cash all outstanding principal
under the Note.   In addition to the foregoing, the following
mandatory repayment terms shall apply:

 

(i)            Prepayments Upon Failure of Meet
Borrowing Conditions.  For so long as any amount remains outstanding
under this Note, Borrower shall provide Lender with a written report (each a “Borrowing Base Report”) within five (5) Business Days
immediately following the end of each week, which Borrowing Base Report shall
specify the carried value of the Qualified Accounts Receivable, Inventory and
cash accounts on Borrower’s financial records as of the last day of the
applicable week (each a “Reporting Date”),
and shall certify that the Borrowing Conditions continue to be satisfied as of
such Reporting Date.  In the event that
any Borrowing Base Report indicates that the Borrowing Conditions are not
satisfied as of the applicable Reporting Date, then, within five (5) Business
Days immediately following such Reporting Date (each a “Mandatory
Prepayment Date”), Borrower shall prepay an amount of principal
under the Loan as shall be required to satisfy the Borrowing Conditions in full
as of such Mandatory Prepayment Date.

 

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(ii)           Prepayments Upon Receipt of Rebates. 
Upon the receipt by Borrower of funds in respect of Rebates (as defined
in Section 14.2), Borrower shall prepay an amount of principal under the
Loan equal to such funds received in respect of such Rebates.  Prepayments pursuant to this Section 1.5(ii) shall
be made within five (5) Business Days of the receipt of the applicable
Rebate funds.

 

1.6           Notwithstanding the foregoing, upon the
occurrence of an Event of Default, the principal of the Note, together with all
Interest Warrants required to be granted to Lender under Section 1.3  hereof, all of Lender’s reasonable attorneys’
fees and costs incurred in connection with enforcement of the terms hereof and
of the Note, and any other liabilities and obligations of Borrower accrued
under the Loan Documents, shall become, at the election of Lender in writing pursuant
to the terms of this Agreement, immediately due and payable without
presentment, demand, protest, notice of dishonor, or any other notice of any
kind, all of which are expressly waived by Borrower, anything contained herein
notwithstanding.

 

1.7           Prepayment Privilege. 
The Obligations under this Agreement evidenced by the Note may be
prepaid in full at any time, without penalty or premium.

 

2.             Grant
of Liens.  As security for the due
and punctual payment and performance in full of all Obligations (whether at the
stated maturity, by acceleration, or otherwise), Borrower hereby pledges, and
grants to the Lender a continuing security interest in and a general Lien (as
hereinafter defined) upon the Collateral and all additions thereto and
substitutions therefor, whether heretofore, now or hereafter received by or
delivered or transferred to the Lender hereunder, and all proceeds of the
foregoing.

 

3.             Continuing
Security Interest.

 

3.1           This Agreement creates an assignment,
pledge, charge, continuing security interest in, and general Lien upon, the
Collateral and shall (a) remain in full force and effect until all
Obligations under the Note have been indefeasibly paid in full, (b) be
binding upon Borrower and its successors, transferees, and assigns, and (c) inure,
together with the rights and remedies of Lender hereunder, to the benefit of
the Lender and its successors, transferees, and assigns.

 

3.2           Upon the indefeasible satisfaction in
full of all Obligations due under the Loan Documents, the pledge, Lien, and
security interest granted hereunder shall terminate and, all rights to the
Collateral shall revert to Borrower. 
Upon such termination, the Lender will execute and deliver to Borrower
such documents as Borrower shall reasonably request to evidence such termination
and the Lender shall deliver and transfer such Collateral to Borrower.

 

4.             Delivery
and Perfection; Further Action. 
Borrower hereby irrevocably authorizes Lender to file one or more
financing or continuation statements, and amendments thereto, relating to all
or any part of the Collateral, and agrees itself to take all such other actions
and to execute and deliver and file or cause to be filed such other
instruments, agreements or documents, as Lender may reasonably require in order
to establish and maintain a perfected, valid, and continuing first priority
security interest and Lien in the Collateral in accordance with this Agreement
and the UCC and other applicable law.  Borrower,
Lender and CB&T are executing the Deposit Account Control Agreement concurrently
herewith.

 

3

 

5.             Proceeds
of Sale.  Nothing contained in this
Agreement shall limit or restrict in any way Lender’s right to receive Proceeds
(as defined in Section 14.2  below)
of the Collateral in any form in accordance with the provisions of this
Agreement.

 

6.             Representations
and Warranties.  To induce Lender to
enter into the Loan Documents and to agree to make the Loan described herein,
Borrower, and the individuals executing this Agreement and the Note on its
behalf, represent and warrant, and seek to have Lender rely on the statements
as set forth herein, that as of the date hereof and as of the date of any
Subsequent Advances (except as otherwise described or set forth in any of the
Borrower’s filings with the Securities and Exchange Commission pursuant to the
Exchange Act of 1934, as amended):

 

6.1           Power and Authority. 
Borrower has the power to take all actions contemplated hereby.  The Loan Documents when executed and
delivered by Borrower will constitute the legal, valid and binding obligation
of Borrower, and will be upon execution, enforceable against Borrower in
accordance with their respective terms.

 

6.2           No Violation.  The
execution, delivery or performance of the obligations by Borrower and compliance
by Borrower with the terms and provisions hereof and thereof, (a) do not
contravene any provision of any law, statute, rule or regulation or any
order, writ, injunction or decree of any court or governmental instrumentality
applicable to Borrower,  (b) do not
conflict with or result in any breach of any of the terms, covenants,
conditions or provisions of, or constitute a default under, or result in the
creation or imposition of (or the obligation to create or impose) any Lien
(other than as contemplated by the Loan Documents) upon any of the property or
assets of Borrower pursuant to the terms of any material indenture, mortgage,
deed of trust, credit agreement, loan agreement or other agreement, contract or
instrument to which Borrower is a party or by which Borrower or any of its
properties or assets are bound or to which any Borrower may be subject and (c) do
no violate any provision of Borrower’s organizational documents or other
agreements or understandings, including but not limited to, the provisions of
the Borrower’s articles of incorporation, by-laws, or any amendments thereto.

 

6.3           Governmental Approvals.  Except
for (1) any filings with the Secretary of State or county clerk’s office
in connection with the security interests covering any of the Collateral, and (2) any
state or federal securities filings required by this transaction,  no order, consent, approval, license,
authorization or validation of, or filing, recording or registration with, or
exemption by, or other act by (except as have been obtained or made), any
governmental or public body or authority, or any subdivision thereof, is
required to authorize, or is required in connection with, (a) the
execution, delivery and performance by Borrower of the Loan Documents or (b) the
legality, validity, binding effect or enforceability against Borrower of the
Loan Documents.

 

6.4           Tax Returns and Payments.  Borrower
has filed all tax returns required to be filed by it and has paid all income
and franchise taxes payable by it which have become due pursuant to such tax
returns and all other taxes and assessments payable by it which have become
due, other than those not yet delinquent and except for those contested in good
faith and by 

 

4

 

appropriate
proceedings.  The amounts shown on those
tax returns fairly present the tax position of the Borrower, and the
undersigned officer(s) of Borrower do not expect any material adjustments
or any amounts shown on such tax returns. 
Borrower has paid, or has provided adequate reserves for the payment of,
all foreign, federal and state income and franchise taxes, all employer and
employee withholding taxes and all appropriate withholding required under state
or federal law, applicable for all prior fiscal years and for the current
fiscal year to the date hereof.  As of
the date hereof, no tax lien has been filed, and, to the knowledge of Borrower,
no claim is being asserted, with respect to any tax, fee or other charge.

 

6.5           Compliance with Laws, etc. 
Borrower is in compliance with all applicable statutes, laws,
regulations and orders of, and all applicable restrictions imposed by, all
governmental bodies, domestic or foreign, in respect of the conduct of its
business and the ownership of its properties, except such noncompliance as
would not, in the aggregate, reasonably be expected to have a material adverse
effect on the condition (financial or otherwise), prospects, assets or
properties of Borrower.

 

6.6           Name; Location of Offices and Records.  Borrower
has never conducted business under any names other than Open Energy Corporation,
Barnabus Enterprises Ltd and Barnabus Energy, Inc.  The chief executive offices and the chief
place of business for Borrower and the office where Borrower keeps its books
and records, are located at the addresses set forth in Section 14.3 hereof.

 

6.7           Borrower’s Organization.  Borrower
is a corporation duly formed under the laws of the State of Nevada.

 

6.8           Subsidiaries. 
Borrower has no Subsidiary and does not own any shares of capital stock
or other securities of or equity interest in any other Person.

 

6.9           Collateral.  Borrower is
and will be the sole legal and beneficial owners of all of the Collateral now
owned or hereafter acquired free and clear of any Lien, security interest,
assignment, option, or other charge or encumbrance, other than the Lien or
security interest created by this Agreement in favor of Lender and any
Permitted Liens.

 

6.10         Borrower’s Authorization. 
The Loan Documents have been duly and validly authorized by Borrower and
executed and delivered by Borrower.

 

6.11         Borrower’s Solvency. 
As of the date hereof:

 

(i)            Borrower is not insolvent and the
granting of the security interest in the Collateral shall not render Borrower
insolvent (as defined in Title 11, United States Code Section 101(32));

 

(ii)           the property remaining with Borrower is
not unreasonably small for the conduct of Borrower’s business; and

 

(iii)          Borrower
does not intend to incur, and does not believe it will incur debts that would
be beyond the Borrower’s ability to pay as such debts mature.

 

5

 

6.12         Indebtedness. 
All financial statements of the Borrower and all related financial data
set forth in the Borrower’s Quarterly Report on Form 10-QSB for the
quarterly period ended February 29, 2008 (the “Form 10-QSB”)were
true and correct in all material respects as of their respective dates and for
the periods covered, and no material adverse change has occurred in the
financial condition presented therein since the respective dates thereof.  Since the date of the latest balance sheet
set forth in the Form 10-QSB, the Borrower has incurred no indebtedness
other than in the ordinary course of business.

 

7.             Covenants.  In consideration of the Loan described
herein, Borrower covenants and agrees that, from the date of this Agreement
until the indebtedness represented by the Note and all other amounts owed under
the Loan Documents are paid in full in cash, Borrower shall comply with the
following provisions:

 

7.1           No Disposition. 
Borrower will not sell, assign, transfer, exchange, or otherwise dispose
of, or grant any option with respect to, any of the Collateral, nor will it
create, incur, or permit to exist any Lien on or with respect to any of the Collateral,
any interest therein, or any Proceeds thereof, other than in the ordinary
course of business.  Borrower covenants
and agrees that it  will take all action
necessary to remove any claims to, interest in, or Lien upon the Collateral and
the security interest granted hereby, and shall defend the right, title and
interest of Lender in and to the Collateral against claims and demands of all
persons and entities at any time claiming the same or any interest therein.

 

7.2           Use of Proceeds. 
All proceeds of the Loan will be used by Borrower exclusively as
provided in Section 1.1 .

 

7.3           Taxes, Assessments and Liabilities. 
Borrower shall pay all taxes, assessments, and other liabilities when
due, except for those which are contested in good faith.

 

7.4           Good Standing. 
Borrower shall remain in good standing under the laws of each
jurisdiction where Borrower is duly qualified to conduct business.

 

7.5           Further Assurances. 
Borrower shall provide Lender with such additional information or
documentation as Lender may reasonably request from time to time.

 

7.6           Records and Information. 
Borrower agrees to keep records concerning the Collateral, including
without limitation, the Borrowing Base Records. 
Borrower agrees to promptly furnish to the Lender such information
concerning Borrower, the Collateral, the Borrowing Base and any Account Debtor
as the Lender may reasonably request

 

7.7           Incurrence of
Indebtedness.  Borrower
shall not, incur or guarantee or assume any indebtedness, other than the indebtedness
evidenced by the Note and Permitted Indebtedness without the prior written
consent of the Lender.

 

7.8           Restricted
Payments.  Borrower
shall not directly or indirectly, redeem, defease, repurchase, repay or make
any payments in respect of, by the payment of cash or cash equivalents (in
whole or in part, whether by way of open market purchases, tender offers,
private transactions or otherwise), all or any portion of any Permitted
Indebtedness (other than the indebtedness outstanding pursuant to the Cornell
Loan), whether by way of payment in respect 

 

6

 

of principal of (or premium, if any) or interest on such indebtedness,
if at the time such payment is due or is otherwise made or after giving effect
to such payment, an event constituting, or that with the passage of time and
without being cured would constitute, an Event of Default has occurred and is
continuing.

 

7.9           Restriction on
Redemption and Cash Dividends.  Borrower shall not, directly or indirectly,
redeem, repurchase or declare or pay any cash dividend or distribution on its
capital stock without the prior express written consent of the Lender.

 

7.10         Additional
Collateral Covenants.

 

(i)            Borrower
will maintain and keep the Collateral in good condition, repair and working
order, ordinary wear and tear excepted, and will not commit or permit any waste
or unreasonable depreciation.  Borrower will not alter, remove, or demolish
any Collateral without the Lender’s prior written consent, except as may be
required by law or in the ordinary course of business or with respect to
Collateral which is worn out, obsolete or of inconsequential value.

 

(ii)           Borrower will comply in
all material respects with all applicable laws and requirements of governmental
authorities affecting the Collateral.

 

(iii)          The
Lender may enter Borrower’s chief executive office (and any other place where
any of the Collateral is or may be located) at all reasonable times and upon
reasonable notice to attend to the Lender’s interests and to
inspect the Collateral.

 

(iv)          Borrower
will, at its own expense, procure and maintain policies of fire, extended
coverage, providing
coverage of the Collateral as is commercially reasonable for businesses such as
that operated by Borrower.

 

(v)           If Borrower
fails to make any payment, perform any obligation, or do any act set forth in
or secured by
this Note, the Lender, at its option, without releasing Borrower from the duty
to make such payments, perform such obligations, or do such acts, then or in
the future, may make such payment, perform such obligation or do such act in
such manner and to such extent as the Lender may deem necessary to protect its
interest in the Collateral.

 

(vi)          At least ten (10) days prior to the
occurrence of any of the following events, Borrower shall deliver to Lender, at
the address set forth in Section 14.3 hereof, notice of the following
impending events: (i) a change in Borrower’s principal place of business
or chief executive office; and (ii) a change in Borrower’s’ name, identity
or corporate structure.

 

7

 

8.             Events
of Default.  The occurrence of any of
the following events or conditions shall constitute an event of default (each
an “Event of Default”) under this
Agreement:

 

8.1           Borrower’s failure to pay to the Lender
any amount of principal, interest (in the form of the Interest Warrants) or
other amounts when and as due under the Note.

 

8.2           Borrower defaults under the Note, under
the Series B Convertible Note, or any of Borrower’s material contracts (as
such term is construed in Item 601 of Regulation S-B under the Securities Act
of 1933, as amended), unless such default of a material contract would not have
a material adverse effect on the Borrower or the Borrower’s ability to fulfill
its obligations under the Loan Documents.

 

8.3           Borrower uses the Loan proceeds for any
purpose except as expressly authorized under the Loan Documents.

 

8.4           Any representation or warranty made by
Borrower herein or in any Loan Document or any statement or representation made
in any certificate, report or opinion delivered in connection therewith shall
prove to have been incorrect or misleading in any material respect when made or
repeated and such failure continues unremedied for five (5) business days
after notice of such failure is given to Borrower.

 

8.5           The Lender shall fail to have a valid and
enforceable perfected Lien in any Collateral other than solely by reason of any
action on the part of the Lender.

 

8.6           Any settlement, compromise, abandonment,
or disposition by Borrower of the Collateral (other than in the ordinary course
of business) without the prior written consent of Lender, provided such written
consent is not unreasonably withheld by Lender.

 

8.7           Without the prior written consent of
Lender, any act or omission of Borrower that in any way impairs or reduces the
value of the Collateral or any action of Borrower with respect to the
Collateral which interferes with Lender’s ability to realize on the Collateral
or makes such realization more costly for Lender.

 

8.8           The failure or refusal by Borrower to
perform, or the breach or violation of any of the terms, obligations,
covenants, or warranties of this Agreement or the Note and that failure or
refusal continues unremedied for five (5) business days after notice of
such failure or refusal is given to Borrower.

 

8.9           the suspension from trading or failure of
the Common Stock to be listed on the Principal Market or an Eligible Market for
a period of five (5) consecutive Trading Days or for more than an aggregate
of ten (10) Trading Days in any 365-day period. Capitalized terms used in
this Section 8.9 shall have the meanings given to them in the Note.

 

8.10         Borrower, pursuant to or within the
meaning of Title 11, U.S. Code, or any similar Federal, foreign or state law
for the relief of debtors (collectively, “Bankruptcy Law”),
(A) commences a voluntary case, (B) consents to the entry of an order
for relief against it in an involuntary case, (C) consents to the
appointment of a receiver, trustee, assignee, liquidator or similar official (a
“Custodian”), (D) makes a general
assignment for the benefit of its creditors or (E) admits in writing that
it is generally unable to pay its debts as they become due.

 

8

 

8.11         a court of competent jurisdiction enters
an order or decree under any Bankruptcy Law that (A) is for relief against
Borrower in an involuntary case, (B) appoints a Custodian of Borrower or (C) orders
the liquidation of Borrower.

 

8.12         a final judgment or judgments for the
payment of money aggregating in excess of $250,000 are rendered against Borrower
and which judgments are not, within sixty (60) days after the entry thereof,
bonded, discharged or stayed pending appeal, or are not discharged within sixty
(60) days after the expiration of such stay; provided, however, that any
judgment which is covered by insurance or an indemnity from a credit worthy
party shall not be included in calculating the $250,000 amount, provided that
the creditworthiness of any such party shall be determined by Lender in its
reasonable judgment.

 

9.             Remedies
upon an Event of Default.  Upon the
occurrence of, and during the continuance of, any Event of Default hereunder,
Lender shall be entitled, at its option and without notice, in its discretion,
to:

 

9.1           declare the Note immediately due and
payable and add expenses, and fees (including, but not limited to reasonable
attorneys’ fees) to principal whereupon the principal of the Note, together
with fees thereon and other liabilities and obligations of Borrower accrued
hereunder, shall become immediately due and payable, without presentment,
demand, protest, notice of dishonor, or any other notice of any kind, all of
which are expressly waived by Borrower, anything contained herein notwithstanding;

 

9.2           declare null and void any obligation of
Lender in the Loan Documents to make Subsequent Advances and declare this Note
immediately due and payable.

 

9.3           enforce collection of any of the
Collateral by suit or any other lawful means available to the Lender, or
demand, collect, or receive any money or property at any time payable or
receivable on account of or in exchange for any of the Collateral;

 

9.4           surrender, release, or exchange or
otherwise modify the terms of all or any part of the Collateral, or compromise
or extend or renew for any period any indebtedness thereunder or evidenced
thereby;

 

9.5           assert all other rights and remedies of a
Lender under the UCC (whether or not in effect in any applicable jurisdiction)
and all other applicable law, including, without limitation, the right to take
possession of, hold, collect, sell, lease, deliver, grant options to purchase,
or otherwise retain, liquidate, or dispose of all or any portion of the
Collateral.  The Proceeds of any
collection, liquidation, or other disposition of the Collateral shall be
applied by the Lender first to the payment of all expenses (including, without
limitation, all fees, taxes, reasonable attorneys’ fees and legal expenses)
incurred by the Lender in connection with retaking, holding, collecting, or
liquidating the Collateral.  The balance
of such Proceeds, if any, shall, to the extent permitted by law, be applied to
the payment of the Obligations in such order of application as determined by
the Lender in its sole discretion to the extent such order of application is
not inconsistent with applicable law.  If
notice prior to disposition of the Collateral or any portion thereof is
necessary under applicable law, written notice mailed to Borrower at its notice
address ten (10) days prior to the date of such disposition shall
constitute reasonable 

 

9

 

notice.  Without precluding any other methods of sale
or other disposition, the sale or other disposition of the Collateral or any
portion thereof shall have been made in a commercially reasonable manner if
conducted in conformity with reasonable commercial practices of creditors
disposing of similar property.

 

10.           Rights
Cumulative.  All rights, powers and
remedies may be exercised at any time by Lender after the occurrence of any
such Event of Default while said Event of Default continues.  The rights, powers, and remedies of the
Lender under this Agreement shall be in addition to all rights, powers, and
remedies given to the Lender by virtue of any statute or rule of law or
any agreement, all of which rights, powers and remedies shall be cumulative and
may be exercised successively or concurrently without impairing the Lender’s
security interest, Lien, and assignment in the Collateral.

 

11.           No
Waiver.  No failure or delay on the
part of the Lender in exercising any right, power or privilege hereunder or
under the UCC or any other applicable law shall operate as a waiver hereof or
thereof; nor shall any single or partial exercise of any right, power, or
privilege hereunder or under the UCC or any other applicable law preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege hereunder or thereunder.  No
notice to or demand on the Lender in any case shall entitle Borrower to any
other or further notice or demand in similar or other circumstances or
constitute a waiver of the rights of the Lender to any other or further action
in any circumstances without notice or demand.

 

12.           Waivers.  To the extent necessary to allow Lender to
exercise any and all of its rights and remedies under the Loan Documents,
Borrower hereby waives each of the following to the fullest extent allowed by
law:

 

12.1         All statutes of limitations as a defense
to any cause of action brought by Lender against Borrower hereunder.

 

12.2         Any defense to payment or performance by
Borrower hereunder based upon the enforceability or invalidity of all or any
part of the Obligations.

 

12.3         Any defense that arises from the modification,
adjustment, renegotiation or forbearance of any of the Obligations of Borrower
to Lender, even if Borrower’s exposure as a surety is materially affected
thereby.

 

12.4         Any defense arising from any release of
Borrower from any of its  Obligations to
Lender.

 

12.5         Any right (whether now or hereafter
existing) to require Lender, as a condition to the enforcement of the
obligations hereunder, to:

 

(i)            accelerate the Obligations; or

 

(ii)           proceed against Borrower or compel
performance by Borrower, or any other person or entity, in any manner,
sequence, or fashion;

 

10

 

(iii)          Proceed
against or exhaust any security held from Borrower or any other person or
entity; or

 

(iv)          pursue any other remedy in Lender’s power
whatsoever.

 

12.6         Presentment, demand, protest and notice
of any kind, including without limitation notices of default and notice of
presentment, demand, protest or acceptance, except for any notice expressly
required in this Agreement;

 

12.7         Any defense based upon genuineness,
validity, regularity or enforceability of the Loan Documents.

 

13.           Conditions
to Close.  The obligation of Lender
to make any Advances under this Agreement are subject to the satisfaction of
each of the following conditions:

 

13.1         Loan Documents. 
The Lender shall have received executed counterparts of all of the Loan
Documents from Borrower, and no default which if any of the Loan Documents were
executed and enforceable, would constitute an Event of Default hereunder shall
exist.

 

13.2         Organizational Documents. 
If requested by Lender, Borrower shall have provided to Lender a copy of
Borrower’s by-laws and each amendment, if any, thereto.

 

13.3         Good Standing Certificates. 
If requested by Lender, Borrower shall have provided certificates of
good standing for Borrower from the Secretaries of State for each state where
Borrower is organized and where Borrower conducts its principal operations,
certifying that they are in good standing in such states (as of a date
reasonably near the date of execution hereof).

 

13.4         Governmental Action. 
No governmental action shall have been taken and no legal or arbitration
actions shall have been filed which seeks to enjoin or restrain the extension
of credit to Borrower hereunder or compliance by any of Borrower with the terms
and conditions of the Loan Documents.

 

13.5         Borrowing Conditions Met.  With
respect to the Initial Advance, the Borrowing Conditions have been met.

 

14.           Miscellaneous.

 

14.1         Amendment.  This
Agreement may not be amended or modified except by a writing signed by all of
the parties hereto.

 

14.2         Definitions. 
Capitalized terms used herein and not otherwise defined herein shall
have the meanings provided in the Note. 
To the extent that any terms or concepts defined or used herein are
defined or used in the UCC (as defined below), such terms or concepts shall be
interpreted for purposes hereof in a manner that is consistent with such
definition or use in the UCC.  The
following terms shall have the meanings set forth below:

 

11

 

(i)            “Account Debtor”
has the meaning given such term in Section 9102(a)(3) of the UCC.

 

(ii)           “Accounts” has
the meaning given such term in Section 9102(a)(2) of the UCC and
includes accounts receivables of the Borrower.

 

(iii)          “Borrowing Base” means an amount equal to the lower of (1) 100%
of the aggregate Qualified Accounts Receivable and (2) 50% of the sum of (A) the
aggregate Qualified Accounts Receivable, (B) the Inventory, and (C) the
Borrower’s cash account balances

 

(iv)          “Borrowing Conditions”
means that the amount of the Initial Advance plus the amount of any proposed
Subsequent Advance does not exceed the Borrowing Base.

 

(v)           “Collateral”
shall mean all right, title, and interest of Borrower in and to all of the
following property of Borrower, whether now owned or hereafter acquired and
whether now existing or hereafter coming into existence:

 

(a)           Accounts, including but not limited to
Qualified Accounts Receivable;

 

(b)           all inventory of Borrower reflected in
the its financial records from time to time, to the extent the same qualify as “goods”
under the Uniform Commercial Code of California (the “UCC”)

 

(c)           All money and deposit accounts, as those
terms are defined in the UCC, and all proceeds thereof;

 

(d)           cash and non-cash Proceeds of any and all
of the foregoing.

 

(vi)          “Cornell Loan”
means that certain loan made by  Cornell
Capital Partners, L.P.  to Borrower evidenced
by a Secured Convertible Debenture dated as of March 30, 2007 in favor of
Cornell Capital Partners, L.P. (or any successor), in the principal amount of
$3,000,000.

 

(vii)         “Event of Default” shall have the meaning specified in Section 8
of this Agreement.

 

(viii)        “GAAP” means United States generally accepted accounting
principles, consistently applied.

 

(ix)           “Governmental Body”
means any nation, state, county, city, town, borough, village, district or
other jurisdiction; federal, state, local, municipal, foreign or other
government; governmental or quasi-governmental authority of any nature (including
any agency, branch, department, board, commission, court, tribunal or other
entity exercising 

 

12

 

governmental or quasi-governmental powers);
multinational organization or body; body exercising, or entitled or purporting
to exercise, any administrative, executive, judicial, legislative, police,
regulatory or taxing authority or power; or official of any of the foregoing.

 

(x)            “Inventory”
means all inventory of the Borrower carried on the Borrower’s financial
statements, to the extent the same qualify as “goods” under the UCC.

 

(xi)           “Lien” shall
mean a pledge, assignment, lien, charge, mortgage, encumbrance, or other
security interest obtained under this Agreement or under any other agreement or
instrument with respect to any present or future assets, property, contract
rights, or revenues in order to secure the payment of indebtedness of the party
referred to in the context in which the term is used.

 

(xii)          “Person” means an individual, partnership, corporation,
business trust, limited liability company, limited liability partnership, joint
stock company, trust, unincorporated association, joint venture or other entity
or a Governmental Body.

 

(xiii)         “Permitted Indebtedness” means (A) indebtedness incurred
by the Borrower that is made expressly subordinate in right of payment to the indebtedness
evidenced by this Note, as reflected in a written agreement acceptable to the
Lender and approved by the Lender in writing, and which indebtedness does not
provide at any time for (1) the payment, prepayment, repayment, repurchase
or defeasance, directly or indirectly, of any principal or premium, if any,
thereon until ninety-one (91) days after the maturity date or later and (2) total
interest and fees at a rate in excess of three percent (3%) over the greater of
the interest rate and the rate for U.S. treasury notes with comparable maturity
per annum; (B) indebtedness existing as of the date hereof ; (C) indebtedness
issued in exchange for, or the net proceeds of which are used to extend,
refund, renew, refinance, defease or replace Permitted Indebtedness; (D) indebtedness
incurred in the ordinary course of business by the Borrower or its subsidiaries
including, without limitation, trade payables, revolving credit card accounts
and similar credit arrangements; (E) indebtedness of the Borrower or any
subsidiary to financial institutions or similar entities in connection with
commercial credit arrangements, equipment financings, commercial property lease
transactions or similar transactions; and (F) indebtedness represented by
this Note.

 

(xiv)        Permitted Liens” means:

 

(a)       any Lien for taxes, assessments or
governmental charges or claims not yet due or delinquent or being contested in
good faith by appropriate proceedings for which adequate reserves have been
established in accordance with GAAP;

 

13

 

(b)       any statutory Lien arising in the
ordinary course of business by operation of law with respect to a liability
that is not yet due or delinquent;

 

(c)       any Lien imposed by law or created by
operation of law, including, without limitation, materialmen’s mechanics’,
landlords’, carriers’, warehousemen’s, suppliers’ and vendors’ Liens, Liens for
master’s and crew’s wages and other similar Liens, arising in the ordinary
course of business with respect to a liability that is not yet due or
delinquent or that are being contested in good faith by appropriate
proceedings;

 

(d)       Liens incurred or deposits and
pledges made in connection with (1) obligations incurred in respect of
workers’ compensation, unemployment insurance or other forms of governmental
insurance or benefits or legislation, (2) the performance of letters of
credits, bids, tenders, leases, contracts (other than for the payment of money)
and statutory obligations or (3) obligations on surety or appeal bonds,
but only to the extent such deposits, pledges or Liens are made or otherwise
arise in the ordinary course of business and secure obligations not past due;
and

 

(e)       Liens securing Borrower’s obligations
under the Note.

 

(xv)         “Proceeds” has
the meaning given such term in Section 9102(a)(64) of the UCC.

 

(xvi)        “Qualified Accounts Receivable” shall mean all accounts
receivable of Borrower reflected in its financial records from time to time, to
the extent such accounts receivable meet one or more of the following
qualifications:

 

(a)           accounts receivable from Borrower’s
customers that have not been outstanding for more than sixty (60) days from the
applicable invoice date;

 

(b)           rebates from the California Solar
Initiative that have been assigned to Borrower in connection with sales of its
products and reserved with the State of California; and

 

(c)           rebates that have not been reserved with
the State of California, if the applicable customer of Borrower has guaranteed
the payment of such Rebate or receipt by Borrower of all necessary
documentation and information to submit a claim for such Rebate on or prior to
a date within 180 days of the later of April 10, 2008 or the applicable
invoice date.  Section 13(b) and
(c) shall together be referred to herein as “Rebates”.

 

(xvii)       “Subsidiary” means any Person of
which (i) a majority of the outstanding share capital, voting securities
or other equity interests are owned, directly or indirectly, by another Person
or (ii) such other Person is entitled, directly or indirectly, to appoint
a majority of the board of directors or managers or comparable supervisory body
of the Person.

 

14

 

14.3         Notices.  All notices, requests and other communications provided for or
permitted to be given under this Agreement must be in writing and shall be
given by personal delivery, by certified or registered United States mail
(postage prepaid, return receipt requested), by a nationally recognized
overnight delivery service for next day delivery, or by facsimile transmission,
as follows (or to such other address as any party may give in a notice given in

accordance with the provisions hereof):

 

If to Borrower:

Open Energy Corporation

514 via de la Valle, Suite 200

Solana Beach, California 92075

Facsimile No.: (858) 794-8811

 

If to Lender:

 

The Quercus Trust

1835 Newport Blvd.

A109 — PMB 467

Costa Mesa, CA 92627

Facsimile No.: (949) 631-2325

All notices, requests or other communications will be
effective and deemed given only as follows: 
(i) if given by personal delivery, upon such personal delivery, (ii) if
sent by certified or registered mail, on the fifth business day after being
deposited in the United States mail, (iii) if sent for next day delivery
by overnight delivery service, on the date of delivery as confirmed by written
confirmation of delivery, (iv) if sent by facsimile, upon the transmitter’s
confirmation of receipt of such facsimile transmission, except that if such
confirmation is received after 5:00 p.m. (in the recipient’s time zone) on
a business day, or is received on a day that is not a business day, then such
notice, request or communication will not be deemed effective or given until
the next succeeding business day. 
Notices, requests and other communications sent in any other manner,
including by electronic mail, will not be effective.

 

14.4         Agents and Attorneys-in-Fact. 
Lender may employ agents and attorneys-in-fact in connection herewith
and shall not be responsible for the negligence or misconduct of any such
agents or attorneys-in-fact selected in good faith.

 

14.5         Severability
of Provisions.  If any provision or any part of any provision
of this Agreement shall for any reason be held to be invalid, unenforceable, or
contrary to public policy or any law, then the remainder of the Agreement shall
not be affected thereby and shall remain in full force and effect.

 

14.6         Assignment; Binding Effect. 
Borrower may not assign either this Agreement or any of its rights,
interests or obligations hereunder without the prior written approval of
Lender, and any such assignment by a party without prior written approval of
Lender will be deemed invalid and not binding on Lender.  All of the terms, agreements, covenants,
representations, warranties and conditions of this Agreement are binding upon,
and inure to the benefit of and are enforceable by, the parties and their
respective successors and permitted assigns.

 

15

 

14.7         Integration Clause. 
This Agreement and the Note contain the entire agreement between the
parties pertaining to the subject matter contained herein and supersede any and
all prior and/or contemporaneous oral or written negotiations, agreements,
representations, and understandings with regard to the substance of this
Agreement and the Note.  The parties, and
each of them, understand that this Agreement and the Note are made without
reliance upon any inducement, statement, promise, or representation other than
those contained therein.

 

14.8         Governing Law. 
This Agreement will be governed by and construed in accordance with the
laws of the State of California, without giving effect to any choice of law
principles.

 

14.9         Advice of Counsel. 
Each of the parties acknowledges that they have either sought and
received the advice of legal counsel or have been afforded an opportunity to
seek the advice of counsel regarding this Agreement and the Note prior to their
execution.  Neither this Agreement nor
the Note, nor any provision hereof, shall be deemed prepared or drafted by one
party or another, or its attorneys, and shall not be construed more strongly
against any party.

 

14.10       Voluntary
Execution of Agreement.  This Agreement and the Note are
executed voluntarily and without any duress or undue influence on the part or
behalf of the parties hereto.  Each party
acknowledges that it: (i)  has read this Agreement and the Note; (ii) 
has been represented in the preparation, negotiation, and execution of this
Agreement and the Note by legal counsel of its own choice or that it has
voluntarily declined to seek such counsel; (iii)  understands the terms
and consequences of this Agreement and the Note; and (iv) is fully aware
of the legal and binding effect of this Agreement and the Note.

 

14.11       Headings.  The section
headings contained in this Agreement are inserted for convenience only and will
not affect in any way the meaning or interpretation of this Agreement.

 

14.12       Costs; Expenses. 
Except upon the occurrence of an Event of Default, the parties hereto
shall each bear their own costs, attorneys’ fees and expenses, and other fees
incurred in connection with this Agreement.

 

14.13       Counterparts. 
This Agreement may be executed in one or more counterparts and may
include multiple signature pages, all of which will be deemed to be one
instrument.  Photocopies and facsimiles
of original signature pages may be deemed as originals.

 

14.14       Construction. 
Unless otherwise defined herein, capitalized terms used herein shall
have the meaning set forth in the Note of even date herewith.  Unless the context clearly indicates
otherwise, the singular shall include the plural and the plural shall include
the singular.  The masculine, feminine
and neuter gender shall each include the other.

 

[Signature Page Follows]

 

16

 

IN WITNESS WHEREOF, the
parties hereto have caused this Agreement to be duly executed and delivered as
of the day and year first written above.

 

	
  BORROWER

  	
   

  
	
   

  	
  OPEN ENERGY CORPORATION, a Nevada Corporation

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  LENDER:

  	
  THE QUERCUS TRUST

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
				

 

17

 

Exhibit A

 

Form of Interest Warrant

 

18

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