10% UNSECURED SUBORDINATED CONVERTIBLE PROMISSORY NOTE

NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON THE EXERCISE 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, 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 OF THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT SECURED BY SUCH SECURITIES.

FOR VALUE RECEIVED, BALQON CORPORATION, a Nevada corporation (“ Company ”), promises to pay to _____________________________________ (“ Holder ”), or its registered assigns, the principal sum of _________________________________________ DOLLARS ($_______), or such lesser amount as shall equal the outstanding principal amount hereof, together with interest from the date of this 10% Unsecured 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.

This Note is being issued pursuant to the terms and conditions contained in that certain Securities Purchase Agreement of even date herewith between the original Holder and the Company (the “ Securities Purchase Agreement ”) and pursuant to the terms and conditions contained in the Company’s Confidential Private Placement Memorandum dated March 23, 2009 (the “ Memorandum ”). This Note, together with the similar 10% Unsecured Subordinated Convertible Promissory Notes issued pursuant to the Securities Purchase Agreements and the Memorandum, are collectively referred to herein as the “ Notes .”

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:

“ 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 shares of the common stock, $0.001 par value per share, of the Company.

“ 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 .

“ 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.

“ 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, 2012, 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 .

“ 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 incurred on, before or after the date of this Note (i) for money borrowed from any bank, savings and loan or other financial institution or any other person, and is evidenced by notes, bonds, debentures or other written obligations and (ii) in connection with any renewals or extensions of any indebtedness described in (i) 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 a parity with this Note.

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 (5 ^th ) day after the last business day of each calendar quarter beginning with the quarter ended June 30, 2009, 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 after March 31, 2010, upon fifteen (15) days prior written notice to the Holder (which notice may be sent to the Holder prior to March 31, 2010), 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 issued under the Memorandum 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.

(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.

(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 (180 ^th ) 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 Debentures and (2) the three hundred sixty-fifth (365 ^th ) 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).

(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