NOTE PURCHASE AGREEMENT

Exhibit 10.1

Execution Copy

NOTE PURCHASE AGREEMENT

among

SATCON TECHNOLOGY CORPORATION

and

THE PURCHASERS NAMED HEREIN

October 19, 2007

Table of Contents

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NOTE PURCHASE AGREEMENT

NOTE PURCHASE AGREEMENT (this “ Agreement ”), dated as of October 19, 2007, by and among  SatCon Technology Corporation, a Delaware corporation (the “ Company ”), and the entities listed on the Schedule of Purchasers attached hereto as Schedule 1.1 (the “ Purchasers ”). The Company and the Purchasers are sometimes referred to in this Agreement, individually, as a “ Party ” and, collectively, as the “ Parties .”  Certain capitalized terms used in this Agreement are defined in Schedule I hereto.

RECITALS

A.                                    To provide the Company with additional funds to repay certain indebtedness and for general corporate purposes, the Purchasers are willing to purchase from the Company, and the Company is willing to issue and sell to the Purchasers, on the terms and subject to the conditions contained in this Agreement, promissory notes that have an aggregate principal amount of up to $10,000,000.

B.                                      Upon the funding of the Tranche 2 Notes (as hereinafter defined), the Notes (as hereinafter defined) and all amounts owing to the Purchasers thereunder or pursuant to this Agreement and any other Transaction Document will be secured by substantially all of the assets of the Company on the terms and subject to the conditions set forth in the Notes and the Security Documents.

C.                                      The Company will also grant to the Purchasers, on the terms and subject to the conditions contained in this Agreement, a right of first refusal with respect to certain subsequent financing transactions.

AGREEMENT

NOW, THEREFORE, in consideration of the foregoing, and the representations, warranties, covenants and conditions set forth below, the Parties, intending to be legally bound by this Agreement, agree as follows:

ARTICLE I

ISSUANCE AND SALE

Section 1.1                                                 Issuance and Sale of the Tranche 1 Notes .

(a)                                   Tranche 1 Notes . In reliance upon the respective representations, warranties and covenants of the Parties contained in this Agreement, and subject to (i) the written consent of the Parties and (ii) the satisfaction of the applicable conditions set forth in Article II of this Agreement, at the Tranche 1 Closing (as defined below), the Company shall issue, sell and deliver to the Purchasers, and the Purchasers shall purchase from the Company, the promissory notes in the form set forth on Exhibit A hereto (each, a “ Tranche 1 Note ”) in the amounts set forth opposite each Purchaser’s respective name on the Schedule of Purchasers attached hereto as Schedule 1.1 for an aggregate purchase price of up to $750,000.

(b)                                  Tranche 1 Closing.

(i)              The initial closing (the “ Tranche 1 Closing ”) shall take place on the closing date (the “ Tranche 1 Closing Date ”), at 10:00 a.m. at the Boston, Massachusetts offices of Greenberg Traurig, LLP, or at such other times and places as shall be mutually agreed to by the Parties.

(ii)           At the Tranche 1 Closing, (i) the Company shall issue and deliver to the Purchasers the Tranche 1 Notes, (ii) the Purchasers shall pay the purchase price for the Tranche 1 Notes by wire transfer of immediately available funds to the account of the Company or to such third party accounts as the Company shall direct and (iii) the Parties (and, as applicable, their Affiliates) shall execute and deliver all other documentation contemplated hereby to be executed and delivered at such Closing.

Section 1.2                                                 Issuance and Sale of the Tranche 2 Notes .

(a)                                   Tranche 2 Notes . In reliance upon the respective representations, warranties and covenants of the Parties contained in this Agreement, and subject to satisfaction of the applicable conditions set forth in Article II of this Agreement, at the Tranche 2 Closing (as defined below), the Company shall issue, sell and deliver to the Purchasers, and the Purchasers shall purchase from the Company, the promissory notes in the form set forth on Exhibit B hereto (each, a “ Tranche 2 Note ”) in the amounts set forth opposite each Purchaser’s respective name on the Schedule of Purchasers attached hereto as Schedule 1.1 for an aggregate purchase price of $10,000,000 less the aggregate principal amount of the Tranche 1 Notes (if any), and each Purchaser shall receive an amended and restated Tranche 1 Note (if applicable) in the form set forth on Exhibit C hereto (the “ Amended and Restated Tranche 1 Notes ” and together with the Tranche 1 Notes and Tranche 2 Notes, the “ Notes ”).

(b)                                  Tranche 2 Closing.

(i)              The subsequent closing (the “ Tranche 2 Closing ” and together with the Tranche 1 Closing, each a “ Closing ”) shall take place on the closing date (the “ Tranche 2 Closing Date ” and together with the Tranche 1 Closing Date, each a “ Closing Date ”), at 10:00 a.m. at the Boston, Massachusetts offices of Greenberg Traurig, LLP, or at such other times and places as shall be mutually agreed to by the Parties.

(ii)           At the Tranche 2 Closing, (i) the Company shall issue and deliver to the Purchasers the Amended and Restated Tranche 1 Notes (if applicable) and the Tranche 2 Notes, (ii) the Purchasers shall deliver to the Company for cancellation the original Tranche 1 Notes (if applicable) and shall pay the purchase price for the Tranche 2 Notes by wire transfer of immediately available funds to the account of the Company or to such third party accounts as the Company shall direct, less amounts deducted pursuant to clause (iii), (iii) the Company shall pay all Transaction Expenses owed to the Purchasers and (iv) the Parties (and, as applicable, their Affiliates) shall execute and deliver all other documentation contemplated hereby to be executed and delivered at such Closing.

Section 1.3                                                 Payment Terms . 

(a)                                   Payments . Payments of principal and interest shall be made as and when specified in the Notes.

(b)                                  Place and Manner . The Company shall make all payments due to the Purchasers in lawful money of the United States, in immediately available funds, or as otherwise specified in the Notes, at the address for payments and in the manner specified in Schedule 1.1 .

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(c)                                   Date . Whenever any payment due hereunder shall fall due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall be included in the computation of interest or fees, as the case may be.

Section 1.4                                                 Use of Proceeds . The net proceeds to the Company from the issuance and sale of the Tranche 1 Notes (if any) shall be used for certain needs specified by the Company and agreed to by the Purchasers in writing. The net proceeds to the Company from the issuance and sale of the Tranche 2 Notes shall be used first , for the repayment of the holders of the Existing Notes in connection with the repayment of the Existing Notes (which such repayment shall be made immediately after receipt of funds from the Purchasers) and second , for general corporate purposes.

ARTICLE II
CONDITIONS TO CLOSING

Section 2.1                                                 Conditions to Each Party’s Obligations . The respective obligations of each Party to consummate the transactions described in this Agreement at each Closing are subject to the satisfaction (or waiver by the respective Party), at or before each Closing, of the following conditions:

(a)                                   No temporary restraining order, preliminary or permanent injunction or other order or decree that has the effect of preventing the consummation of the transactions contemplated in this Agreement and the other Transaction Documents shall have been issued by any court of competent jurisdiction and remain in effect.

(b)                                  All consents of and notices to Governmental Authorities required in connection with the transactions described in this Agreement and the other Transaction Documents shall have been obtained and made, as applicable, and be in full force and effect.

Section 2.2                                                 Conditions to Obligations of the Purchasers at the Tranche 1 Closing . The obligations of each Purchaser to consummate the transactions described in this Agreement at the Tranche 1 Closing are subject to the satisfaction (or waiver by such Purchaser), at or before the Tranche 1 Closing, of the following conditions:

(a)                                   Representations and Warranties Correct . The representations and warranties of the Company contained in this Agreement or in any other Transaction Document that are qualified as to materiality are true and correct, and all other representations and warranties of the Company contained in this Agreement or in any other Transaction Document that are not so qualified are true and correct in all material respects, in each case as of the date of this Agreement and as of the Tranche 1 Closing Date, with the same effect as though made as of the date of this Agreement except that the accuracy of representations and warranties that by their terms speak as of a specified date will be determined as of such date.

(b)                                  Performance of Obligations . The Company shall have performed or complied with in all material respects all agreements and covenants required to be performed or complied with by it under this Agreement or any other Transaction Document at or prior to the Tranche 1 Closing.

(c)                                   Officer’s Certificate . The Company and each Subsidiary party to the Guaranty shall have delivered to the Purchasers a certificate, executed by a duly authorized officer of the Company or such Subsidiary, dated as of the Tranche 1 Closing Date, certifying as to the authenticity and continued

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effectiveness of attached copies of the Certificate of Incorporation, as amended, Bylaws or other organizational documents, as appropriate, and resolutions of the Company’s Board of Directors (the “ Board of Directors ”) and the Board of Directors of each Subsidiary approving the transactions contemplated by this Agreement and by the other Transaction Documents, and authorizing specific officers to execute and deliver this Agreement and each of the other Transaction Documents to which such entity is a party, including the Notes.

(d)                                  Compliance Certificate . The Purchasers shall have received a certificate dated as of the Closing Date and signed by the Chief Executive Officer of the Company on behalf of the Company stating that the conditions specified in Sections 2.2(a) , (b) , (g) , (h) and (i) have been satisfied.

(e)                                   Definitive Transaction Documents . The Tranche 1 Notes shall have been issued and delivered by the Company to each Purchaser.

(f)                                     Certificates of Good Standing . The Company shall have delivered to each of the Purchasers a long-form certificate of good standing from the Secretary of State of the State of Delaware, and a good standing certificate from each jurisdiction in which the Company and its Subsidiaries are qualified to do business, each of which is to be dated within a reasonable period prior to the Tranche 1 Closing.

(g)                                  Opinion of Company’s Counsel . The Purchasers shall have received an opinion of Greenberg Traurig, LLP, outside counsel to the Company, in form and substance reasonably satisfactory to the Purchasers.

(h)                                  Consents and Waivers . The Company shall have received all material consents, approvals, authorizations, permits and waivers of, and delivered all notices to, third parties necessary for the Company to consummate the transactions contemplated by this Agreement and by the Transaction Documents, and all such consents, approvals, authorizations, permits and waivers shall be in full force and effect.

(i)                                      No Material Judgment or Order . There shall not be on the Tranche 1 Closing Date any Order of a court of competent jurisdiction or any ruling of any Governmental Authority or any condition imposed under any Requirement of Law which would (a) subject the Purchasers to any material penalty or onerous condition under or pursuant to any Requirement of Law if the Tranche 1 Notes were to be purchased hereunder or (b) restrict the operation of the business of the Company or any Subsidiary as conducted on the date hereof in a manner that would have a material adverse effect on the Condition of the Company.

(j)                                      No Litigation . No action, suit, proceeding, claim or dispute shall have been brought or otherwise arisen at law, in equity, in arbitration or before any Governmental Authority against the Company or any Subsidiary which would, if adversely determined (a) have a material adverse effect on the Condition of the Company or (b) have a material adverse effect on the ability of the Company to perform its obligations under this Agreement or each of the other Transaction Documents.

(k)                                   No Delisting Notice . The Company shall not have received any notice from the Nasdaq Stock Market that the Company may be delisted, which notification has not been resolved in favor of the Company.

(l)                                      Material Adverse Effect . Since September 30, 2007, no event shall have occurred or be reasonably likely to occur that would reasonably be expected to have a Material Adverse Effect.

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(m)                                Offer to Sell Notes . The Company and each holder of an Existing Note shall have entered into the Offer to Sell Notes providing for the repayment of the Existing Notes on terms and conditions satisfactory to the Purchasers and the Offer to Sell Notes shall be in full force and effect, and the Company shall have delivered to each Investor party thereto a written notice of the Company’s election to effect the purchase as contemplated in the Offer to Sell Notes (the “ Notice of Prepayment ”).

(n)                                  Other Documents . The Purchasers shall have received from the Company such other documents as they may reasonably request.

Section 2.3                                                 Conditions to Obligations of the Purchasers at the Tranche 2 Closing . The obligations of each Purchaser to consummate the transactions described in this Agreement at the Tranche 2 Closing are subject to the satisfaction (or waiver by such Purchaser), at or before the Tranche 2 Closing, of the following conditions:

(a)                                   Representations and Warranties Correct . The representations and warranties of the Company contained in this Agreement or in any other Transaction Document that are qualified as to materiality are true and correct, and all other representations and warranties of the Company contained in this Agreement or in any other Transaction Document that are not so qualified are true and correct in all material respects, in each case as of the date of this Agreement and as of the Tranche 2 Closing Date, with the same effect as though made as of the date of this Agreement except that the accuracy of representations and warranties that by their terms speak as of a specified date will be determined as of such date.

(b)                                  Performance of Obligations . The Company shall have performed or complied with in all material respects all agreements and covenants required to be performed or complied with by it under this Agreement or any other Transaction Document at or prior to the Tranche 2 Closing.

(c)                                   Compliance Certificate . The Purchasers shall have received a certificate dated as of the Closing Date and signed by the Chief Executive Officer of the Company on behalf of the Company stating that the conditions specified in Sections 2.3(a) , (b) , (f) , (h) and (i) have been satisfied.

(d)                                  Definitive Transaction Documents . The Amended and Restated Tranche 1 Notes (if applicable) and the Tranche 2 Notes shall have been issued and delivered by the Company to each Purchaser. The Company and its Subsidiaries, as appropriate, shall have delivered to the Purchasers the Security Agreement, the Pledge Agreement, the Guaranty and each of the other Transaction Documents, in each case duly executed by an authorized officer of the Company and/or, as appropriate, its Subsidiaries.

(e)                                   Security Filings . The Company shall have executed and delivered to the Purchasers all UCC-1 Financing Statements to be filed and such other Security Documents necessary or appropriate for the perfection of the security interests granted by this Agreement or any other Transaction Document and by the Subsidiaries as may be reasonably requested by the Purchasers.

(f)                                     Certificates of Good Standing . The Company shall have delivered to each of the Purchasers a bring-down certificate of good standing from the Secretary of State of the State of Delaware, and a bring-down good standing certificate from each jurisdiction in which the Company and its Subsidiaries are qualified to do business, each of which is to be dated within a reasonable period prior to the Tranche 2 Closing.

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(g)                                  Opinion of Company’s Counsel . The Purchasers shall have received an opinion of Greenberg Traurig, LLP, outside counsel to the Company, in form and substance reasonably satisfactory to the Purchasers (which such opinion shall be governed by New York law).

(h)                                  Consents and Waivers . The Company shall have received all material consents, approvals, authorizations, permits and waivers of, and delivered all notices to, third parties necessary for the Company to consummate the transactions contemplated by this Agreement and by the Transaction Documents, and all such consents, approvals, authorizations, permits and waivers shall be in full force and effect.

(i)                                      No Material Judgment or Order . There shall not be on the Tranche 2 Closing Date any Order of a court of competent jurisdiction or any ruling of any Governmental Authority or any condition imposed under any Requirement of Law which would (a) subject the Purchasers to any material penalty or onerous condition under or pursuant to any Requirement of Law if the Amended and Restated Tranche 1 Notes (if applicable) or Tranche 2 Notes were to be purchased hereunder or (b) restrict the operation of the business of the Company or any Subsidiary as conducted on the date hereof in a manner that would have a material adverse effect on the Condition of the Company.

(j)                                      No Litigation . No action, suit, proceeding, claim or dispute shall have been brought or otherwise arisen at law, in equity, in arbitration or before any Governmental Authority against the Company or any Subsidiary which would, if adversely determined (a) have a material adverse effect on the Condition of the Company or (b) have a material adverse effect on the ability of the Company to perform its obligations under this Agreement or each of the other Transaction Documents.

(k)                                   No Delisting Notice . The Company shall not have received any notice from the Nasdaq Stock Market that the Company may be delisted, which notification has not been resolved in favor of the Company.

(l)                                      Material Adverse Effect . Since September 30, 2007, no event shall have occurred or be reasonably likely to occur that would reasonably be expected to have a Material Adverse Effect.

(m)                                Reimbursement of Expenses . The Company shall have tendered payment for reimbursement of all Transaction Expenses in accordance with Sections 1.4(b) and 9.6 .

(n)                                  Offer to Sell Notes . The Company and each holder of an Existing Note shall have entered into the Offer to Sell Notes and the Offer to Sell Notes shall be in full force and effect, and the Company shall have delivered and not revoked or modified the Notice of Prepayment.

(o)                                  Other Documents . The Purchasers shall have received from the Company such other documents as they may reasonably request.

Section 2.4                                                 Conditions to Obligations of the Company at Each Closing . The obligations of the Company to consummate the transactions described in this Agreement at each Closing are subject to the satisfaction (or waiver by the Company), at or before each Closing, of the following conditions:

(a)                                   Representations and Warranties Correct . The representations and warranties of the Purchasers contained in this Agreement or in any other Transaction Document that are qualified as to materiality are true and correct, and all other representations and warranties of the Purchasers contained in

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this Agreement or in any other Transaction Document that are not so qualified are true and correct in all material respects, in each case as of the date of this Agreement and as of each Closing Date, with the same effect as though made as of such date, except that the accuracy of representations and warranties that by their terms speak as of a specified date will be determined as of such date.

(b)                                  Performance of Obligations . The Purchasers shall have performed or complied with in all material respects all agreements and covenants required to be performed or complied with by them under this Agreement and each other Transaction Document at or prior to each Closing.

(c)                                   Payment . Each Purchaser shall have tendered payment for its Note in accordance with Article I of this Agreement.

ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY

The Company represents and warrants to each of the Purchasers as of the date hereof and as of each Closing Date as follows and acknowledges and confirms that each of the Purchasers are relying upon the foregoing representations and warranties in connection with the purchase by the Purchasers of the Notes (references to the “Company” in this Article III shall refer, whenever not inappropriate by reference to the context, to the Company, its Subsidiaries, its parent entities and its predecessor entities, if any):

Section 3.1                                                 Corporate Existence and Power .  The Company and each Subsidiary (a) is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation; (b) has all requisite corporate power and authority to own, operate its property, to lease the property it operates as lessee and to conduct the business in which it is currently, or is proposed to be, engaged; and (c) is duly qualified as a foreign corporation, licensed and in good standing under the laws of each jurisdiction in which its ownership, lease or operation of property or the conduct of its business requires such qualification, except where the failure to be so qualified could not reasonably be expected to have a material adverse effect on the Condition of the Company or any Subsidiary. The Company has the corporate power and authority to execute, deliver and perform its obligations under this Agreement and each of the other Transaction Documents. Set forth on Section 3.1 of the Disclosure Schedule is a list of all of the Subsidiaries, the jurisdiction in which it is incorporated or organized and the jurisdictions in which it is qualified to do business.

Section 3.2                                                 Authorization; No Contravention .  The execution, delivery and performance by the Company of this Agreement and each of the other Transaction Documents and the transactions contemplated hereby and thereby, including the issuance and sale of the Notes, (a) have been duly authorized by all necessary corporate action of the Company, including all actions, consents and approvals required by the Company’s Board of Directors and stockholders; (b) do not contravene the terms of the Certificate of Incorporation or the By-laws or the organizational documents of any Subsidiary; (c) do not violate, conflict with or result in any breach, default or contravention of (or with due notice or lapse of time or both would result in any breach, default or contravention of), or the creation of any Lien under, any Contractual Obligation of the Company or any Subsidiary or any Requirement of Law applicable to the Company or any Subsidiary; and (d) do not violate any judgment, injunction, writ, award, decree or order of any nature (collectively, “ Orders ”) of any Governmental Authority against, or binding upon, the Company or any Subsidiary. The Board of Directors, at a meeting duly called and held, has (i) determined that this Agreement, the other Transaction Documents the issuance and sale of the Notes and the transactions contemplated hereby and thereby are fair to and in the best interests of the Company’s stockholders and

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(ii) approved and adopted this Agreement, the other Transaction Documents and the transactions contemplated hereby and thereby in accordance with all applicable Requirements of Law. Following approval by the Company’s stockholders of those matters described in the definitive proxy statement filed with the SEC on September 19, 2007, the “Equity Conditions” (as such term is defined in the Existing Notes) shall be satisfied in all respects on the date hereof and on the Tranche 2 Closing Date.

Section 3.3                                                 Governmental Authorization; Third Party Consents .  Except as set forth on Section 3.3 of the Disclosure Schedule, no approval, consent, compliance, exemption, authorization or other action by, or notice to, or filing with, any Governmental Authority or any other Person, and no lapse of a waiting period under a Requirement of Law, is necessary or required in connection with the execution, delivery or performance (including, without limitation, the sale, issuance and delivery of the Notes by, or enforcement against, the Company of this Agreement and the other Transaction Documents or the transactions contemplated hereby and thereby.

Section 3.4                                                 Binding Effect .  This Agreement has been, and as of the Closing Date each of the other Transaction Documents will have been, duly executed and delivered by the Company, and this Agreement constitutes, and as of the Closing Date each of the other Transaction Documents will constitute, the legal, valid and binding obligations of the Company, enforceable against the Company in accordance with their terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, fraudulent conveyance or transfer, moratorium or similar laws affecting the enforcement of creditors’ rights generally and by general principles of equity relating to enforceability (regardless of whether considered in a proceeding at law or in equity).

Section 3.5                                                 Litigation .  There are no actions, suits, proceedings, claims (including, without limitation, claims involving the prior employment of any of the Company’s or any Subsidiary’s employees, their use in connection with the Company’s or any Subsidiary’s business of any information or techniques allegedly proprietary to any of their former employers or their obligations under any agreements with prior employers), complaints, disputes, arbitrations or investigations (collectively, “ Claims ”) pending or, to the Knowledge of the Company, threatened, at law, in equity, in arbitration or before any Governmental Authority against the Company or any Subsidiary, nor is the Company aware that there is any basis for any of the foregoing. No Order has been issued by any court or other Governmental Authority against the Company or any Subsidiary purporting to enjoin or restrain the execution, delivery or performance of this Agreement or any of the other Transaction Documents.

Section 3.6                                                 Compliance with Laws .

(a)                                   The Company and each Subsidiary is in compliance in all material respects with all Requirements of Law and all Orders issued by any court or Governmental Authority against the Company or any Subsidiary. To the Company’s Knowledge, there is no existing or proposed Requirement of Law which could reasonably be expected to prohibit or restrict the Company or any Subsidiary from, or otherwise materially adversely effect the Company or any Subsidiary in, conducting its business in any jurisdiction in which it now conducts or proposes to conduct its business.

(b)                                  The Common Stock is registered pursuant to Section 12(g) of the Exchange Act, and is listed on Nasdaq, and neither the Company nor any Subsidiary has taken any action designed to, or reasonably likely to have the effect of, terminating the registration of the Common Stock under the Exchange Act or delisting the Common Stock from the Nasdaq. The Company has complied with all requirements of the National Association of Securities Dealers, Inc. with respect to the issuance of the Notes. Neither the

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Company nor any Subsidiary has taken any action designed to or that might reasonably be expected to cause or result in unlawful manipulation of the price of the Common Stock to facilitate the sale or resale of the Notes.

(c)                                   (i) The Company and each Subsidiary has all material licenses, permits and approvals of any Governmental Authority (collectively, “ Permits ”) that are necessary for the conduct of the business of the Company and its Subsidiaries; (ii) such Permits are in full force and effect; and (iii) no violations are or have been recorded in respect of any Permit, other than such violations that could not, individually or in the aggregate, reasonably be expected to have a material adverse effect on the Condition of the Company.

Section 3.7                                                 Capitalization .

(a)                                   As of the date hereof, the authorized capital stock of the Company shall consist of (i) 100,000,000 shares of Common Stock, 48,999,973 shares of which are issued and outstanding and (ii) 1,000,000 shares of preferred stock, par value $0.01 per share, (A) 1,600 shares of which are designated as Series B Convertible Preferred Stock, 340 shares of which are issued and outstanding (and convertible into 880,829 shares of Common Stock) and (B) 998,400 of which are undesignated “blank check” preferred stock. As of the date of this Agreement, the aggregate number of shares of restricted stock and options to purchase shares of Common Stock which may be issued under the Stock Option Plans is 7,515,656, of which 4,889,579 are outstanding as of the date hereof (the “ Options ”) and 4,010,204 of which outstanding Options have vested as of the date hereof, and the aggregate number of shares of Common Stock that may be issued under the Company’s 401(k) Plan is 1,012,100. As of the date hereof, the Company has issued and outstanding warrants to purchase an aggregate of 9,279,127 shares of Common Stock.

(b)                                  The number of shares and type of all authorized, issued and outstanding capital stock, options and other securities of the Company (whether or not presently convertible into or exercisable or exchangeable for shares of capital stock of the Company) is set forth in Section 3.7(b) of the Disclosure Schedule. All outstanding shares of capital stock are duly authorized, validly issued, fully paid and nonassessable and have been issued in compliance with all applicable securities laws. Except as a result of the purchase and sale of the Notes and except as disclosed in Schedules 3.7(b) and 3.7(c) of the Disclosure Schedule, there are no outstanding options, warrants, script rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities, rights or obligations convertible into or exchangeable for, or giving any Person any right to subscribe for or acquire, any shares of Common Stock, or contracts, commitments, understandings or arrangements by which the Company or any Subsidiary is or may become bound to issue additional shares of Common Stock, or securities or rights convertible or exchangeable into shares of Common Stock. Except as set forth on Section 3.7(b) of the Disclosure Schedule, the issuance and sale of the Notes will not obligate the Company to issue shares of Common Stock or other securities to any Person (other than the Purchasers) and will not result in a right of any holder of Company securities to adjust the exercise, conversion, exchange or reset price under such securities. No anti-dilution rights of any capital stock or other securities issued by the Company shall be triggered as a result of the transactions contemplated hereby. To the Knowledge of the Company, except as specifically disclosed in Section 3.7(b) of the Disclosure Schedule, no Person or group of related Persons beneficially owns (as determined pursuant to Rule 13d-3 under the Exchange Act), or has the right to acquire, by agreement with or by obligation binding upon the Company, beneficial ownership of in excess of 5% of the outstanding Common Stock, ignoring for such purposes any limitation on the number of shares of Common Stock that may be owned at any single time.

(c)                                   Set forth in Section 3.7(c) of the Disclosure Schedule is a complete and accurate list of all securities of the Company that are entitled to preemptive, registration or similar rights accompanied by

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a description of such rights. No Person has any right of first refusal, preemptive right, right of participation, or any similar right to participate in the issuance and sale of the Notes in the transactions contemplated by the Transaction Documents.

(d)                                  The Notes are duly authorized, will be issued in compliance with the registration and qualification requirements of all applicable federal, state, provincial, and foreign securities laws and will be free and clear of all other Liens, other than any Liens created by the Purchasers. All of the issued and outstanding shares of the Company’s capital stock are duly authorized, validly issued, fully paid and non-assessable, and were issued in compliance with the registration and qualification requirements of all applicable federal, state, provincial, and foreign securities laws.

(e)                                   Section 3.7(e) of the Disclosure Schedule sets forth a true and complete list of (x) each of the Subsidiaries of the Company and (y) the aggregate number of authorized shares of capital stock of such Subsidiary. The Company owns all of the issued and outstanding capital stock of the Subsidiaries, free and clear of all Liens other than Liens in favor of the holders of the Existing Notes. All of such shares of capital stock are duly authorized, validly issued, fully paid and non-assessable, and were issued in compliance with the registration and qualification requirements of all applicable federal, state, provincial, and foreign securities laws. There are no options, warrants, conversion privileges, subscription or purchase rights or other rights presently outstanding to purchase or otherwise acquire any authorized but unissued, unauthorized or treasury shares of capital stock or other securities of, or any proprietary interest in, any of the Subsidiaries, and there is no outstanding security of any kind convertible into or exchangeable for such shares or proprietary interest.

Section 3.8                                                 No Default or Breach; Contractual Obligations; Restrictions on Business .

(a)                                   Except as set forth on Section 3.8(a) of the Disclosure Schedule, neither the Company nor any Subsidiary has received notice of a default and is not in material default under, or with respect to, any Contractual Obligation filed as an exhibit to or described in the SEC Documents or which is otherwise material to the Condition of the Company, nor does any condition exist that with notice or lapse of time or both would constitute a material default thereunder. All of such Contractual Obligations are valid, subsisting, in full force and effect and binding upon the Company or such Subsidiary and the other parties thereto, and the Company or such Subsidiary has paid in full or accrued all amounts due thereunder and has satisfied in full or provided for all of its liabilities and obligations thereunder. To the Knowledge of the Company, no other party to any such Contractual Obligation is in material default thereunder, nor does any condition exist that with notice or lapse of time or both would constitute a material default by such other party thereunder. There is no agreement (non-competition or otherwise), commitment, judgment, injunction, order or decree to which the Company or any of its Subsidiaries is a party or otherwise binding upon the Company or any of its Subsidiaries which has or may reasonably be expected to have the effect of (i) prohibiting or impairing (A) any business practice of the Company or any of its Subsidiaries, (B) any acquisition of property (tangible or intangible) by the Company or any of its Subsidiaries, or (C) the conduct of business by the Company or any of its Subsidiaries, or (ii) otherwise limiting the freedom of the Company or any of its Subsidiaries, to engage in any line of business or to compete with any Person. Without limiting the generality of the foregoing, neither the Company nor any of its Subsidiaries has entered into any Contract under which the Company or any Subsidiary is, restricted from selling, licensing, manufacturing or otherwise distributing any of its Company Intellectual Property or Company or Subsidiary products or from providing services to customers or potential customers or any class of customers, in any geographic area, during any period of time, or in any segment of the market.

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(b)                                  Section 3.8(b) of the Disclosure Schedule identifies (i) each Contractual Obligation which involves prospective fixed and/or contingent payments or expenditures by the Company or its Subsidiaries of more than $250,000, and (ii) each Contractual Obligation that is material to the Condition of the Company other than those filed as an exhibit to or described in the SEC Documents.

Section 3.9                                                 Title to Properties .  The Company has provided Purchasers true, correct and complete copies of all leases, lease guaranties, subleases, agreements for the leasing, use or occupancy of, or otherwise granting a right in or relating to property leases or otherwise occupied by the Company or any of its Subsidiaries (the “ Leased Real Property ”), including all amendments, terminations and modifications thereof (the “ Lease Agreements ”); and there are no other Lease Agreements for real property to which the Company or any of its Subsidiaries is bound, other than those identified in the Lease Agreements. All such Lease Agreements are valid,  in full force and effect, enforceable in accordance with their terms, and (x) with respect to the Company and its Subsidiaries under any of such leases, no rentals are past due and there is no existing default or event of default (or event which with notice or lapse of time, or both, would constitute a default) and (y) to the Knowledge of the Company, with respect to any other Person under any of such leases, no rentals are past due and there is no existing default or event of default (or event which with notice or lapse of time, or both, would constitute a default). Neither the Company nor any of its Subsidiaries could be required to expend more than $50,000 in causing any Leased Real Property to comply with the surrender conditions set forth in the applicable Lease Agreement. Neither the Company nor or any of its Subsidiaries have received any notice of a default, alleged failure to perform, or any offset or counterclaim with respect to any such Lease Agreement, which has not been fully remedied and withdrawn. There are no other parties occupying, or with a right to occupy, the Leased Real Property other than the Company and its Subsidiaries.

Section 3.10                                           SEC Documents; Proxy Statement; Financial Statements .

(a)                                   Since August 1, 2004, the Company has filed all reports, schedules, forms, statements and other documents required to be filed by it with the SEC pursuant to the reporting requirements of the Exchange Act (all of the foregoing filed prior to the date hereof and all exhibits included therein and financial statements and schedules thereto and documents incorporated by reference therein being hereinafter referred to as the “ SEC Documents ”). As of their respective dates, the SEC Documents complied with the requirements of the Exchange Act and the rules and regulations of the SEC promulgated thereunder applicable to the SEC Documents, and none of the SEC Documents, at the time they were filed with the SEC, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading.

(b)                                  As of their respective dates, the Financial Statements of the Company and its Subsidiaries included in the SEC Documents complied as to form with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto. The Financial Statements have been prepared in accordance with GAAP, consistently applied, during the periods involved (except in the case of unaudited interim statements, to the extent they may exclude footnotes or may be condensed or summary statements) and fairly present the financial position of the Company and its Subsidiaries as of the dates thereof and the results of its operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments).

Section 3.11                                           Taxes .  The Company and each Subsidiary has timely paid all Taxes which have come due and are required to be paid by it, and all deficiencies or other additions to Tax,

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interest and penalties owed by it in connection with any such Taxes, other than Taxes being disputed by the Company or any Subsidiary in good faith for which adequate reserves have been made in accordance with GAAP. The Company and each Subsidiary have timely paid or withheld with respect to their employees and other third parties (and timely paid over any withheld amounts to the appropriate Taxing authority) all federal, state and provincial income taxes, Federal Insurance Contribution Act amounts, Federal Unemployment Tax Act amounts and other Taxes required to be withheld. The Company and each Subsidiary has timely filed or caused to be filed all Tax returns, reports, forms and other such documents (“ Tax Returns ”) that it is required to file (including all applicable extensions), and all such Tax Returns are accurate and complete in all material respects. With respect to all Tax Returns of the Company and each Subsidiary, (i) there is no unassessed Tax deficiency proposed or, to the Knowledge of the Company, threatened against the Company or any Subsidiary and (ii) no audit is in progress with respect to any Tax Return, no extension of time is in force with respect to any date on which any Tax Return was or is to be filed and no waiver or agreement is in force for the extension of time for the assessment or payment of any Tax. No claim has ever been made by an authority in a jurisdiction where the Company or any Subsidiary does not file Tax Returns that the Company or any Subsidiary is or may be subject to taxation by that jurisdiction. All provisions for Tax liabilities of the Company and its Subsidiaries with respect to the Financial Statements have been made in accordance with GAAP consistently applied, and all liabilities for Taxes of the Company and its Subsidiaries attributable to periods prior to or ending on the Closing Date have been adequately provided for on the Financial Statements, and neither the Company nor any Subsidiary has incurred any liability for Taxes since the date of the most recent Financial Statements prior to the date hereof other than in the ordinary course of business. There are no Liens for Taxes on the assets of the Company or any Subsidiary. The Company is not a “United States real property holding corporation” as that term is defined in Section 897(c)(2) of the Code and the regulations promulgated thereunder. Neither the Company nor any Subsidiary has (I) ever been a member of an affiliated group (within the meaning of Code §1504(a)) filing a consolidated federal income Tax Return (other than a group the common parent of which was the Company), (II) ever been a party to any Tax sharing, indemnification or allocation agreement, nor does the Company or any Subsidiary owe any amount under any such agreement, or (III) any liability for the Taxes of any person, including under Treas. Reg. § 1.1502-6 (or any similar provision of state, local or foreign law, including any arrangement for group or consortium relief or similar arrangement), as a transferee or successor, by contract, or otherwise. Neither the Company nor any Subsidiary has constituted a “distributing corporation” or a “controlled corporation” in a distribution of stock intended to qualify for tax-free treatment under Section 355 of the Code. Neither the Company nor any Subsidiary has engaged in a reportable transaction under Treas. Reg. § 1.6011-4(b), including any transaction that is the same as or substantially similar to one of the types of transactions that the Internal Revenue Service has determined to be a tax avoidance transaction and identified by notice, regulation, or other form of published guidance as a listed transaction, as set forth in Treas. Reg. § 1.6011-4(b)(2). None of the indebtedness of the Company or any Subsidiary constitutes (i) “corporate acquisition indebtedness” (as defined in Section 279(b) of the Code) with respect to which any interest deductions may be disallowed under Section 279 of the Code (ii) an “applicable high yield discount obligation” under Section 163(i) of the Code or (iii) a “disqualified debt instrument” under Section 163(l) of the Code.

Section 3.12                                           No Material Adverse Change; Ordinary Course of Business .  Since December 31, 2006, there has not been any material adverse change in the Condition of the Company or any Subsidiary and no event has occurred or circumstance exists which may result in such a material adverse change, except to the extent any such change results from or is attributable to changes in general economic or political conditions or changes affecting the industry generally in which the Company or any Subsidiary operates (provided that such changes do not affect the Company or any Subsidiary in a disproportionate manner). Except as set forth in the SEC Documents filed prior to the date hereof or as set forth on Section 3.12 of the Disclosure Schedule, since December 31, 2006, neither the Company nor any

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Subsidiary has (a) participated in any transaction material to the Condition of the Company or any Subsidiary or otherwise acted outside the ordinary course of business, (b) increased the compensation of any of its officers or the rate of pay of any of its employees, except as part of regular compensation increases in the ordinary course of business, (c) created or assumed any Lien on a material asset of the Company or any Subsidiary, (d) entered into any material Contractual Obligation, other than in the ordinary course of business, (e) sold, assigned or transferred any Intellectual Property Rights of the Company or any Subsidiary or (f) entered into any agreement or commitment to do any of the foregoing. Since December 31, 2006, there has not occurred a material change in the Company’s or any Subsidiary’s accounting principles or practice except as required by reason of a change in GAAP.

Section 3.13                                           Investment Company .  The Company is not and is not controlled by or affiliated with an “investment company” within the meaning of the Investment Company Act of 1940, as amended.

Section 3.14                                           Private Offering .  No form of general solicitation or general advertising was used by the Company or its representatives in connection with the offer, sale or issuance of the Notes. Provided that the representations of the Purchasers set forth in Article IV of this Agreement are true, correct and complete, no registration of the Notes, pursuant to the provisions of the Securities Act or any state securities or “blue sky” laws, will be required by the offer, sale or issuance of the Notes. The Company agrees that neither it, nor anyone acting on its behalf, shall offer to sell the Notes or any other securities of the Company so as to require the registration of the Notes pursuant to the provisions of the Securities Act or any state securities or “blue sky” laws.

Section 3.15                                           Employment Matters; Labor Relations .

(a)                                   The Company and its Subsidiaries are in compliance, in all material respects, with all Laws concerning employment, including Laws relating to worker classification, wages and hours, tax withholding, prohibited discrimination, equal employment, fair employment practices, safety and health, meal and rest periods, and immigration status, and neither the Company nor any of its Subsidiaries has any material liability with respect to any misclassification of:  (i) any Person as an independent contractor rather than as an employee, (ii) any employee leased from another employer, or (iii) any employee currently or formerly classified as exempt from overtime wages. Except as set forth in Section 3.15 of the Disclosure Schedule, the services provided by each of the Company’s and its Subsidiaries’ employees is terminable at the will of the Company and its Subsidiaries and any such termination would result in no severance or separation pay obligations. There are no pending, threatened, or reasonably anticipated actions, suits, charges, claims (including workers’ compensation claims), audits, investigations or administrative matters pending against the Company or its Subsidiaries relating to any of its respective employees or independent contractors. Neither the Company nor any Subsidiary is party to a conciliation agreement, consent decree or other agreement or order with any federal, state, or local agency or governmental authority with respect to employment practices. Neither the Company nor any Subsidiary has taken any action which would constitute a “plant closing” or “mass layoff” within the meaning of the WARN Act or similar Law, issued any notification of a plant closing or mass layoff required by the WARN Act or similar Law, and no terminations prior to the Closing would trigger any notice or other obligations under the WARN Act or similar Law.

(b)                                  (i) Neither the Company nor any Subsidiary has engaged in any unfair labor practices; (ii) there is (A) no grievance, complaint, or arbitration proceeding arising out of or under collective bargaining agreements pending or, to the Knowledge of the Company, threatened against the Company or any

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Subsidiary, and (B) no strike, labor dispute, slowdown, concerted refusal to work overtime or stoppage pending or, to the Knowledge of the Company, threatened against the Company or any Subsidiary; (iii) neither the Company nor any Subsidiary is a party to any collective bargaining agreement or contract and no collective bargaining agreement or similar agreement is being negotiated by the Company or its Subsidiaries; (iv) there is no union representation question existing with respect to the employees of the Company or any Subsidiary; (v) no union has applied to have the Purchaser or any Subsidiary declared a related employer pursuant to the Labour Relations Act (Ontario) or any similar legislation in any jurisdiction in which the Company or any Subsidiary carries on business; and (vi) no union organizing activities are taking place.

Section 3.16                                           Employee Benefit Plans .

(a)                                   Neither the company nor any Commonly Controlled Entity maintains or contributes to, or has within the preceding six years maintained or contributed to, or may have any liability with respect to any Plan subject to Title IV of ERISA or Section 412 of the Code or any “multiple employer plan” within the meaning of the Code or ERISA. Each Plan (and related trust, insurance contract or fund) has been established and administered in all material respects in accordance with its terms, and complies in all material respects in form and in operation with the applicable requirements of ERISA and the Code and other applicable Requirements of Law. All contributions (including all employer contributions and employee salary reduction contributions) which are due have been paid to each Plan.

(b)                                  No Claim with respect to the administration or the investment of the assets of any Plan (other than routine claims for benefits) is pending.

(c)                                   Each Plan that is intended to be qualified under Section 401(a) of the Code is so qualified and has received a favorable determination letter from the Internal Revenue Service to such effect and no circumstance, fact or event has occurred or exists that is reasonably likely to adversely affect the qualified status of any such Plan.

(d)                                  No Plan is a Retiree Welfare Plan.

(e)                                   Neither the execution of this Agreement nor the consummation of the transactions contemplated by this Agreement will accelerate the time of the payment or vesting of, or increase the amount of, compensation due to any employee or former employee or director or independent contractor.

(f)                                     There are no unfunded obligations under any Plan which are not fully reflected on the Financial Statements.

(g)                                  No insurance policy or any other agreement affecting any Plan requires or permits a retroactive increase in contributions, premiums or other payments due under such insurance policy or agreement. The level of insurance reserves under each Plan is reasonable and sufficient to provide for all incurred but unreported claims.

(h)                                  Neither the Company nor any Subsidiary has any liability, whether absolute or contingent, including any obligations under any Plan, with respect to any misclassification of any person as an independent contractor rather than as an employee.

(i)                                      No Plan that is subject to Section 409A of the Code has been materially modified (as defined in Section 409A of the Code) since October 3, 2004 and all such Plans subject to Section 409A of the

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Code have been operated and administered in good faith compliance with Section 409A of the Code from the period beginning December 31, 2004 through the date hereof.

(j)                                      No awards under any Plan that provides for granting of equity, equity-based rights, or options to purchase equity (“ Equity Plans ”) have been granted with an effective date that is other than the date on which the committee or other administrator of such Equity Plans with authority thereunder to make such awards has taken all necessary corporate action to grant or complete such awards. No awards made under the Equity Plans have been (or will be) altered in any manner that would result in or have the effect of failing to comply with the foregoing sentence.

Section 3.17                                           Title to Assets .  Except as could not, individually or in the aggregate, reasonably be expected to have a material adverse effect on the Condition of the Company, the Company and each Subsidiary owns and has good, valid, and marketable title to all of its properties and assets used in its business and reflected as owned on the Financial Statements or so described in any schedule hereto (collectively, the “ Assets ”), in each case free and clear of all Liens, except for Liens specifically described on the notes to the Financial Statements.

Section 3.18                                           Liabilities .  Neither the Company nor any Subsidiary has any direct or indirect obligation or liability (“ Liabilities ”) which if known would be required to be reflected in the Company’s or any Subsidiary’s financial statements in accordance with GAAP other than (a) Liabilities fully and adequately reflected or reserved against on the Financial Statements and (b) except as set forth in the SEC Documents, Liabilities incurred since December 31, 2006 in the ordinary course of business. Section 3.18 of the Disclosure Schedule sets forth all of the outstanding Indebtedness of the Company and its Subsidiaries as of the date hereof.

Section 3.19                                           Intellectual Property .

(a)                                   (i)                                      Other than (x) Shrink-Wrap Code and (y) the Intellectual Property licensed to Company under the licenses set forth on Section 3.19(a)(i) of the Disclosure Schedule, the Company Intellectual Property constitutes all of the Intellectual Property that is used in, necessary to or would otherwise be infringed by the operation of the business of Company and its Subsidiaries as presently conducted and as contemplated in their respective business plans to be conducted, free and clear of all Liens. Without limiting the foregoing, the Company represents that neither it nor any Subsidiary requires a license to use any of the patent rights subject to the exclusive license agreements entered into between the Company and Beacon Power Corporation and the Company and ERM Thermal Technologies for the operation of the business of the Company and its Subsidiaries as currently conducted or proposed to be conducted.

(ii)                                   Section 3.19(a)(ii) of the Disclosure Schedule sets forth all of the Company Intellectual Property that is the subject of a filing, registration, application or other document that the Company or a Subsidiary owns or that is issued, filed with or recorded by any state, government or other public legal authority in the name of Company or a Subsidiary. None of the Company Intellectual Property listed on Section 3.19(a)(ii) of the Disclosure Schedule is subject to any outstanding Order, and no action, suit, proceeding, hearing, investigation, charge, complaint, claim or demand is pending or, to the Knowledge of the Company, threatened, which challenges the validity, enforceability, use or ownership of the item.

(iii)                                Section 3.19(a)(iii) of the Disclosure Schedule sets forth all Intellectual Property licenses, sublicenses, distributor agreements and other agreements or permissions (“ IP Licenses ”) under which the Company or one of its Subsidiaries is either a licensor or licensee of Intellectual Property

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(including agreements under which Company or one of its Subsidiaries is a distributor of a third party’s products or services or under which a third party is a distributor of the Company’s or one of its Subsidiaries’ products or services), except that Section 3.19(a)(iii) does not list IP Licenses that consist of (x) in-bound licenses for Shrink-Wrap Code, (y) non-disclosure agreements, and (z) non-exclusive end-user licenses (and related end-user agreements) with respect to the Company’s products (in each case, pursuant to written agreements that have been entered into in the ordinary course of business that do not materially differ in substance from the Company’s standard form(s) including attachments). The Company or its relevant Subsidiary has substantially performed all obligations imposed upon it under all IP Licenses, and is not, nor to the Knowledge of the Company is any other party thereto, in breach of or default under any IP Licenses in any material respect, nor is there any event which with notice or lapse of time or both would constitute a default under any IP License. All of the IP Licenses to which Company or one of its Subsidiaries is a party are valid, enforceable and in full force and effect, and will continue to be so on identical terms immediately following the Closing except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, fraudulent conveyance or transfer, moratorium or similar laws affecting the enforcement of creditors’ rights generally and by general principles of equity relating to enforceability (regardless of whether considered in a proceeding at law or in equity).

(b)                                  The operation of the business of Company and its Subsidiaries, including in connection with the exploitation of the Company Intellectual Property and the design, development, use, import, branding, advertising, promotion, marketing, manufacture and sale of any products or services, has not, does not, and when conducted following the Closing in the manner presently contemplated in the respective business plans of the Company and its Subsidiaries, will not, infringe upon, misappropriate or otherwise violate any Intellectual Property Rights of others.

(c)                                   Except as set forth on Section 3.19(c) of the Disclosure Schedule, no litigation is pending and no Claim has been made against the Company or any Subsidiary or, to the Knowledge of the Company, is threatened, alleging infringement, misappropriation or other violation by the Company or any Subsidiary of any Intellectual Property Rights of others (nor does the Company or any Subsidiary have Knowledge of any reasonable basis therefor).

(d)                                  To the Knowledge of the Company, no Person is infringing upon, misappropriating or otherwise violating the Company Intellectual Property.

(e)                                   All the Company Intellectual Property is valid and enforceable. Except as set forth on Section 3.19(e) of the Disclosure Schedule, the Company and its Subsidiaries have taken all necessary and desirable actions to maintain and protect each item of Company Intellectual Property Rights, and to protect the secrecy, confidentiality and value of the Company’s and its Subsidiaries’ Trade Secrets.

(f)                                     No former employer of any employee of the Company or any Subsidiary, and no current or former client of any consultant of the Company or any Subsidiary, has made a claim against the Company or any Subsidiary or, to the Knowledge of the Company, against any other Person, that such employee or such consultant is utilizing Intellectual Property of such former employer or client.

(g)                                  Neither the Company nor any Subsidiary is a party to or bound by any license or other agreement requiring the payment by the Company or any Subsidiary of any royalty payment, excluding such agreements relating to Shrink-Wrap Code licensed for use solely on the computers of the Company or any Subsidiary.

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(h)                                  No employee of the Company or any Subsidiary is in violation of any Requirement of Law applicable to such employee relating to the Company Intellectual Property, or any term of any employment agreement, patent or invention disclosure agreement or other contract or agreement relating to the Company Intellectual Property and the relationship of such employee with the Company or any Subsidiary or any prior employer.

(i)                                      Except as set forth on Section 3.19(i) of the Disclosure Schedule, none of the Company’s or any Subsidiary’s Trade Secrets, wherever located, has been disclosed to any Person other than employees, representatives and agents of the Company and its Subsidiaries, except as required pursuant to the filing of a patent application by the Company or any Subsidiary.

(j)                                      Except as set forth on Section 3.19(j) of the Disclosure Schedule, no director, officer, employee or consultant of the Company or any Subsidiary (or persons the Company or any Subsidiary presently intends to hire) owns any Intellectual Property that is used in, necessary to or would otherwise be infringed by the operation of the business of Company and its Subsidiaries as presently conducted and as contemplated in their respective business plans to be conducted. Except as set forth on Section 3.19(j) of the Disclosure Schedule, at no time during the conception or reduction to practice of any of the Company’s or any Subsidiary’s Intellectual Property was any developer, inventor or other contributor to such Intellectual Property operating under any grants from any Governmental Authority or subject to any employment agreement, invention assignment, nondisclosure agreement or other Contractual Obligation with any Person that could adversely affect the Company’s or any Subsidiary’s rights to the Company Intellectual Property.

(k)                                   All present and former employees, consultants and other Person who have developed, or who have any employment or contractual responsibilities that include the development of, any Intellectual Property for the Company or any of its Subsidiaries, have executed and delivered valid and enforceable proprietary invention agreements with the Company or such Subsidiary, and are obligated under the terms thereof to assign all right, title and interest to any Intellectual Property developed by such Person in connection with such Person’s employment or contract to the Company or any Subsidiary. Except as set forth on Section 3.19(k) of the Disclosure Schedule, no such employee, consultant or other Person has excluded works or inventions made prior to his employment with or work for the Company or such Subsidiary from his assignment of inventions pursuant to such proprietary invention agreements.

(l)                                      The Company and its Subsidiaries do not use any information they collect from web site visitors or other parties in an unlawful manner or in a manner that in any way violates a stated privacy policy of the Company or any Subsidiary or the privacy rights of their customers.

(m)                                (i)  Except as set forth on Section 3.19(m)(i) of the Disclosure Schedule, (a) no government funding, facilities or resources of a university, college, other educational institution or research center or funding from third parties was used in the development of the Company Intellectual Property and (b) no federal, state, county, local or other U.S or foreign governmental authority, instrumentality, agency or commission, or university, college, other educational institution or research center has any claim or right in or to the Company Intellectual Property. The Company has complied with all material grant terms and other material requirements, terms and conditions associated with the foregoing and has not (x) received any notice from any Person that it is in default of any such requirements, terms or conditions or (y) received any notice that any Person intends to seek a compulsory license, exercise “march-in” rights, or take any similar adverse action in connection with any of the foregoing.

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(ii) Except as set forth on Section 3.19(m)(ii) of the Disclosure Schedule, no current or former employee, consultant or independent contractor of the Company or any of its Subsidiaries who was involved in, or who contributed to, the creation or development of any Company Intellectual Property, has performed services for the government, a university, college or other educational institution, or a research center, during a period of time during which such employee, consultant or independent contractor was also performing services for the Company or any of its Subsidiaries. In no instance has any government, university, college or other educational institution or research center thereby become entitled to any right, title or interest in any Company Intellectual Property.

(n)                                  No past or current Company or Subsidiary product (including any Company or Subsidiary product currently under development) contains any code that is, in whole or in part, subject to the provisions of any license to Publicly Available Software (as defined below). All Publicly Available Software used by the Company or any Subsidiary has been used in its entirety and without modification. Neither the Company nor any Subsidiary has incorporated or otherwise used Publicly Available Software in a manner that would (i) require, or condition the use or distribution of any Company Intellectual Property on the disclosure, licensing or distribution of any source code for any portion of such Company Intellectual Property, or (ii) otherwise impose any limitation, restriction or condition on the right or ability of the Company or any Subsidiary to use or distribute any Company Intellectual Property owned by the Company or any Subsidiary or any Company or Subsidiary products. “ Publicly Available Software ” means (i) any software that contains, or is derived in any manner (in whole or in part) from, any software that is distributed as free software, open source software (e.g., GNU General Public License, Apache Software License), or pursuant to similar licensing and distribution models; and (ii) any software that requires as a condition of use, modification, and/or distribution of such software that such software or other software incorporated into, derived from, or distributed with such software (a) be disclosed or distributed in source code form; (b) be licensed for the purpose of making derivative works; or (c) be redistributable at no or minimal charge.

(o)                                  No computer software and code that is Company Intellectual Property has been disclosed, delivered or licensed to any escrow agent or other person in source-code form (together with any related programmer comments and annotations, help text, data and data structures, instructions and procedural, object-oriented and other code, which may be printed out or displayed in human readable form, “ Source Code .”  No event has occurred, and no circumstance or condition exists, that (with or without notice or lapse of time, or both) will, or would reasonably be expected to, result in the disclosure or delivery by the Company, any of its Subsidiaries or any person acting on their behalf to any person of any Source Code that is Company Intellectual Property.

(p)                                  The Company’s inverter technology and related patents was not developed pursuant to any Government Contract or any grant or subsidy with any Governmental Authority.

Section 3.20                                           Trade Relations . Except as set forth on Section 3.20 of the Disclosure Schedule, since December 31, 2006, no customer or supplier or group of customers or suppliers whose purchases or inventories provided to the Company’s or any Subsidiary’s business are individually or in the aggregate material to the Condition of the Company or any Subsidiary has (i) terminated, cancelled or limited, (ii) made any adverse modification or change to or (iii) to the Knowledge of the Company, threatened termination, cancellation or limitation of, the business relationship of the Company, or the business of the Company or any Subsidiary. Section 3.20 of the Disclosure Schedule sets forth a complete and accurate list of the Company’s sales orders which have not yet been processed, or backlog.

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Section 3.21                                           Insurance . The Company and each Subsidiary maintains and will continue to maintain insurance of the types and in the amounts that the Company reasonably believes are adequate for its business, including, but not limited to, directors and officers insurance (“ D&O Policies ”) and insurance covering all real and personal property owned or leased by the Company or any Subsidiary against theft, damage, destruction, acts of vandalism and all other risks customarily insured against in the industry, all of which insurance is in full force and effect. Section 3.21 of the Disclosure Schedule sets forth a description and the amounts of the Company’s D&O Policies.

Section 3.22                                           Environmental Matters . The Company and each Subsidiary is and has conducted its Hazardous Materials Activities in compliance with all applicable Environmental Laws. Except as set forth on Section 3.22 of the Disclosure Schedule, there is no civil, criminal or administrative judgment, action, suit, demand, claim, hearing, notice of violation, investigation, proceeding, notice or demand letter pending or, to the Knowledge of the Company or any Subsidiary, threatened against the Company or any Subsidiary pursuant to Environmental Laws and there are no past or present events, conditions, circumstances, activities, practices, incidents, agreements, actions or plans which could reasonably be expected to prevent compliance with, or which have given rise to or will give rise to liability under, Environmental Laws. As of the Closing, except in compliance with Environmental Laws and in a manner that could not reasonably be expected to subject the Company or any of its Subsidiaries to liability, no Hazardous Materials are present on any facility currently owned, operated, occupied, controlled or leased by the Company or any of its Subsidiaries or were present on any other facility at the time it ceased to be owned, operated, occupied, controlled or leased by the Company. The Hazardous Materials Activities of the Company and its Subsidiaries prior to the Closing have not resulted in the exposure of any person to a Hazardous Material in a manner which has caused or could reasonably be expected to cause an adverse health effect to any such person. Neither the Company nor any Subsidiary has entered into any agreement that may require it to guarantee, reimburse, pledge, defend, hold harmless or indemnify any other party with respect to liabilities arising out of Environmental Laws, or the Hazardous Materials Activities of the Company, any of its Subsidiaries or any other Person. The Company and its Subsidiaries have registered as a “producer” where required in accordance with European Directive 2002/95/EC on the restriction of the use of certain hazardous substances in electrical and electronic equipment (“ RoHS Directive ”) and European Directive 2002/96/EC on waste electrical and electronic equipment (“ WEEE Directive ”). The Seller Parties and the Purchased Companies have verified with its suppliers that all products that the Company and its Subsidiaries acquire from its suppliers and sell into the EU comply with the RoHS Directive.

Section 3.23                                           Related Party Transactions . Except as described in the SEC Documents or except as contemplated hereby, there are no existing material arrangements or proposed material transactions between the Company or any Subsidiary and (i) any officer, director or equityholder of the Company or any Subsidiary or any member of the immediate family of any of the foregoing Persons or (ii) any business (corporate or otherwise) which any of the foregoing Persons owns, directly or indirectly, or in which any of the foregoing Persons has an ownership interest, or which would otherwise be required to be disclosed pursuant to Item 404 of Regulation S-K under the Securities Act.

Section 3.24                                           Broker’s, Finder’s or Similar Fees . Except as set forth on Section 3.24 of the Disclosure Schedule, there are no brokerage commissions, finder’s fees or similar fees or commissions payable by the Company in connection with the transactions contemplated hereby based on any agreement, arrangement or understanding with the Company or any action taken by any such Person.

Section 3.25                                           Internal Controls and Compliance with the Sarbanes-Oxley Act . The Company, its Subsidiaries and the Board of Directors are in compliance with the Sarbanes-Oxley

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Act of 2002 and all rules and regulations promulgated thereunder (“ Sarbanes-Oxley ”) and the rules and regulations of the Nasdaq. Except as disclosed in Section 3.25 of the Disclosure Schedule, the Company and its Subsidiaries maintain a system of internal controls, including, but not limited to, disclosure controls and procedures, internal controls over accounting matters and financial reporting, an internal audit function and legal and regulatory compliance controls (collectively, “ Internal Controls ”) that comply with the Securities Act, the Exchange Act, Sarbanes-Oxley, the auditing principles, rules, standards and practices applicable to auditors of “issuers” (as defined in Sarbanes-Oxley) promulgated or approved by the Public Company Accounting Oversight Board and the rules and  regulations of the Nasdaq and are sufficient to provide reasonable assurances that (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain accountability for assets, (iii) access to assets is permitted only in accordance with management’s general or specific authorization and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. The Internal Controls are overseen by the Audit Committee of the Board of Directors (the “ Audit Committee ”) in accordance with the rules and regulations of the Nasdaq. The Company has not publicly disclosed or reported to the Audit Committee or the Board of Directors, and within the next 135 days the Company or any Subsidiary does not reasonably expect to publicly disclose or report to the Audit Committee or the Board of Directors, a significant deficiency, material weakness, change in Internal Controls or fraud involving management or other employees who have a significant role in Internal Controls, any violation of, or failure to comply with, the Securities Laws, or any matter which, if determined adversely, would have a material adverse effect on the Condition of the Company or any Subsidiary.

Section 3.26                                           Solvency . The Company or any Subsidiary has not: (i) made a general assignment for the benefit of creditors; (ii) filed any voluntary petition in bankruptcy or suffered the filing of any involuntary petition by its creditors; (iii) suffered the appointment of a receiver to take possession of all, or substantially all, of its assets; (iv) suffered the attachment or other judicial seizure of all, or substantially all, of its assets; (v) admitted in writing its inability to pay its debts as they come due; or (vi) made an offer of settlement, extension or composition to its creditors generally.

Section 3.27                                           Government Contracts and Government Bids .

(a)                                   Except as set forth on Section 3.27 of the Disclosure Schedule, since September 1, 2001, the Company and the Subsidiaries has been legally and validly awarded each of the Government Contracts. Neither the Company nor any of its Subsidiaries is subject to any financing arrangement or assignment of proceeds or claims with respect to the performance of any Government Contract. Neither the Company nor any of its Subsidiaries is a party to any Government Contract which requires the Company or any of its Subsidiaries to obtain or maintain a security clearance with any Governmental Authority. Section 3.27 of the Disclosure Schedule identifies (i) each fixed price Government  Contract which involves prospective payments or expenditures by the Company or its Subsidiaries of more than $250,000, and (ii) each Government  Contract that is material to the Condition of the Company other than those filed as an exhibit to or described in the SEC Documents.

(b)                                  Neither the Company nor any of its Subsidiaries has received and no basis exists for any of the following with respect to any of their Government Contracts: (i) a Termination For Default, (ii) a Termination for Convenience, (iii) a cure or show cause notice, (iv) a no cost termination, (v) the rescission or cancellation of any contract, (vi) a Stop-Work or Suspension of Work Order; (vii) the assessment of damages against the Company or its Subsidiaries, (viii) any price reductions against the Company or its Subsidiaries for defective cost or pricing data or, for any GSA Schedule Contract, for incorrect cost or pricing information

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or data or (ix) a claim for recoupment or setoff of payments previously made to the Company or its Subsidiaries.

(c)                                   All facts set forth by the Company or its Subsidiaries in any certification, representation or disclosure, and all test and inspection results, submitted by the Company or its Subsidiaries with respect to any Government Contract or Government Bid were current, accurate and complete in all material respects as of the date of submission and the Company and its Subsidiaries has complied with such certifications, representations, disclosures, tests and inspections.

Section 3.28                                           Export Controls . Except as set forth in Section 3.28 of the Disclosure Schedule, the Company and each Subsidiary has been and is in compliance in all material respects with all United States or foreign import and export laws and regulations (including without limitation those laws under the authority of U.S. Departments of Commerce (Bureau of Industry and Security) codified at 15 CFR, Parts 700-799, Homeland Security (Customs and Border Protection) codified at 19 CFR, Parts 1-199, State (Directorate of Defense Trade Controls) codified at 22 CFR, Parts 103, 120-130 and Treasury (Office of Foreign Assets Control) codified at 31 CFR, Parts 500-599). Except as set forth in Section 3.28 of the Disclosure Schedule, neither the Company nor any Subsidiary has, within the last five years, violated in any material respect any United States or foreign import or export laws, been the subject of an investigation or inquiry or subject to civil or criminal penalties imposed by a Governmental Authority or made a voluntary disclosure with respect to violations of such laws. Section 3.28 of the Disclosure Schedule sets forth all valid and pending export control licenses, agreements and/or approvals required to be amended, assumed or transferred as a result of, or in connection with, the transactions contemplated hereby.

Section 3.29                                           Foreign Corrupt Practices Act . The Company, the Subsidiaries and, to the Knowledge of the Company, their employees are in compliance with the U.S. Foreign Corrupt Practices Act, as amended, including without limitation the books and records provisions thereof.

Section 3.30                                           Outstanding Obligations . As of, and including, the Effective Date, under the Existing Notes, the outstanding principal balance is $7,558,654 and the outstanding interest due under the Existing Notes is $158,915. Interest on the Existing Notes currently accrues at an annual rate of 8.8269%. The interest payment due to the holders of the Existing Notes on October 31, 2007 equals $181,155; the principal payment due to the holders of the Existing Notes on November 1, 2007 equals $472,115.

Section 3.31                                           Full Disclosure . The statements by the Company contained in this Agreement, the exhibits to this Agreement, the certificates and documents required to be delivered by the Company and its Subsidiaries to the Purchasers under this Agreement and in the information delivered to the Purchasers and its representatives, taken together as a whole, do not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements contained in this Agreement and any other Transaction Documents not materially misleading in light of the circumstances under which such statements were made.

ARTICLE IV
REPRESENTATIONS AND WARRANTIES BY THE PURCHASER

Each of the Purchasers hereby represents and warrants, severally and not jointly, to the Company as of the date hereof and as of each Closing Date as follows:

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Section 4.1                                                 Existence and Power . Such Purchaser (a) is a limited partnership, corporation, partnership or limited liability company duly organized and validly existing under the laws of the jurisdiction of its formation and (b) has the requisite partnership, corporate or limited liability company, as the case may be, power and authority to execute, deliver and perform its obligations under this Agreement and each of the other Transaction Documents to which it is a party.

Section 4.2                                                 Authorization; No Contravention . The execution, delivery and performance by such Purchaser of this Agreement and each of the other Transaction Documents to which it is a party and the transactions contemplated hereby and thereby, (a) have been duly authorized by all necessary partnership, corporate or limited liability company, as the case may be, action, (b) do not contravene the terms of such Purchaser’s organizational documents, or any amendment thereof, (c) do not violate, conflict with or result in any breach or contravention of, or the creation of any Lien under, any Contractual Obligation of such Purchaser or any Requirement of Law applicable to such Purchaser, and (d) do not violate any Orders of any Governmental Authority against, or binding upon, such Purchaser.

Section 4.3                                                 Governmental Authorization; Third Party Consents . No approval, consent, compliance, exemption, authorization or other action by, or notice to, or filing with, any Governmental Authority or any other Person, and no lapse of a waiting period under any Requirement of Law, is necessary or required in connection with the execution, delivery or performance by, or enforcement against, such Purchaser of this Agreement and each of the other Transaction Documents to which it is a party or the transactions contemplated hereby and thereby.

Section 4.4                                                 Binding Effect . This Agreement and each of the other Transaction Documents to which it is a party have been duly executed and delivered by such Purchaser and constitutes the legal, valid and binding obligations of such Purchaser, enforceable against it in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, fraudulent conveyance or transfer, moratorium or similar laws affecting the enforcement of creditors’ rights generally or by equitable principles relating to enforceability (regardless of whether considered in a proceeding at law or in equity).

Section 4.5                                                 Restricted Securities . Such Purchaser understands that the Notes to be issued to the Purchasers pursuant to this Agreement will not be registered at the time of their issuance under the Securities Act for the reason that the sale provided for in this Agreement is exempt pursuant to Section 4(2) of the Securities Act and that the reliance of the Company on such exemption is predicated in part on such Purchaser’s representations set forth herein.

Section 4.6                                                 Accredited Investor . Such Purchaser is an “Accredited Investor” within the meaning of Rule 501 of Regulation D under the Securities Act, as presently in effect.

Section 4.7                                                 Broker’s, Finder’s or Similar Fees . There are no brokerage commissions, finder’s fees or similar fees or commissions payable by such Purchaser in connection with the transactions contemplated hereby based on any agreement, arrangement or understanding with such Purchaser or any action taken by such Purchaser.

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ARTICLE V
COVENANTS

While any Obligations are outstanding, without the prior written consent of the holders of a majority in aggregate principal amount of the outstanding Notes:

Section 5.1                                                 Access . To the extent permitted by Law and not in contravention of the rights of third parties, the Company shall permit representatives of the Purchasers reasonable access to examine the corporate books and make copies or extracts from such corporate books and to discuss the affairs, finances and accounts of the Company and its Subsidiaries with the principal officers and employees of the Company upon request, all during regular business hours, as often as the Purchasers may reasonably request; provided , however , that the Purchasers or their representatives, as the case may be, shall hold all information so received in strict confidence, shall not trade in the Common Shares while in possession of material non-public information, and shall use such information only for the purpose of enforcement of this Agreement or the Transaction Documents and for the valuation of its investment in the Company.

Section 5.2                                                 Tax Law Compliance . The Company shall pay all transfer, excise, withholding and similar Taxes (not including income or franchise Taxes) that it is obligated by applicable Law to so pay in connection with the issuance, sale, delivery or transfer by the Company to the Purchaser of the Notes. The Company shall not be responsible for any Taxes in connection with the transfer by the Purchasers of any Notes or any other Taxes which it is not obligated by applicable Law to pay in its capacity as borrower.

Section 5.3                                                 Security Agreement, Pledge Agreement and Guaranty . Upon the funding of the Tranche 2 Notes, the Company and each domestic Subsidiary shall grant to the Collateral Agent, for the benefit of the Purchasers, a perfected lien on and security interest in, subject to Permitted Liens, all of its assets and properties, whether now or hereafter existing, owned or acquired, all in accordance with the terms of the Security Agreement and Pledge Agreement, as applicable. The Company shall assist the Collateral Agent with any and all filings necessary or appropriate and reasonably requested by the Collateral Agent for the perfection of the security interests granted under this Agreement. Upon the formation of a new domestic Subsidiary, the Company shall cause such Subsidiary to execute the Guaranty and the Security Agreement.

Section 5.4                                                 Stop-Orders . The Company will advise the Purchasers promptly after it receives any notice of issuance by the SEC, any state securities commission or any other regulatory authority of any cease trade order, stop order or of any Order preventing or suspending any offering of or trading in any securities of the Company, or of the suspension of the qualification of the Common Shares for offering or sale in any jurisdiction, or the initiation of any Proceeding for any such purpose.

Section 5.5                                                 Listing . The Company shall use its reasonable best efforts to maintain the listing of the Common Stock on the Nasdaq, including, without limitation, (i) taking all actions reasonably related to maintaining Nasdaq listing standards, and (ii) refraining from taking actions reasonably expected to cause the Company to not meet Nasdaq listing standards. The Company shall provide the Purchasers copies of all correspondence between the Company and the Nasdaq promptly upon receipt thereof. If required by the Nasdaq, the Company shall apply to list the Common Stock on The Nasdaq Global Market promptly (but in no event later than fifteen (15) Business Days) upon becoming eligible to do so.

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Section 5.6                                                 Market Regulations . The Company shall notify Nasdaq of, and make all necessary filings with federal or state securities regulators in accordance with their requirements in connection with, the transactions contemplated by this Agreement and the other Transaction Documents, and shall take all other necessary action and Proceedings as may be required and permitted by applicable Law, for the legal and valid issuance of the Notes to the Purchasers, and promptly provide copies of all such notices and filings to the Purchasers.

Section 5.7                                                 Reporting Requirements . The Company will timely make all filings required to be filed with the SEC or any state securities regulator, including (i) all periodic reports required under the Exchange Act; (ii) definitive proxy statements, (iii) reports on Form 8-K report and (iv) such other reports as the Company may be required to file from time to time pursuant to applicable securities Laws, taking into account any and all extensions granted or permitted by the applicable securities regulator, and refrain from terminating its status as a reporting issuer.

Section 5.8                                                 Information .

(a)                                   The Company shall deliver to the Purchasers within thirty (30) days after the last day of each month, a copy of the Financial Statements of the Company for such month and for the fiscal year to date, certified by the chief financial officer or controller of the Company to present fairly the financial condition, results of operations and other information presented therein and to have been prepared in accordance with GAAP consistently applied, subject to normal year end adjustments and except that no footnotes need be included with such Financial Statements;

(b)                                  The Company shall deliver to the Purchasers within ninety (90) days after the close of each fiscal year of the Company, (i) copies of the audited Financial Statements of the Company for such year, audited by nationally recognized independent certified public accountants, and (ii) copies of the unqualified opinions and management letters delivered by such accountants in connection with such Financial Statements.

(c)                                   The Company shall deliver to the Purchasers as soon as possible and in no event later than five (5) Business Days after they are sent, made available or filed, copies of all registration statements and reports filed by the Company with the Securities and Exchange Commission and all reports, proxy statements and financial statements sent or made available by the Company to its shareholders generally.

(d)                                  All material non-public information and data, in whatever form, obtained by the Purchasers in respect of the Company and the subject-matter of this Agreement (the “ Confidential Information ”) shall be held by the Purchasers in the strictest confidence and shall not be disclosed to any third party; provided , that such Confidential Information may be disclosed if the disclosure (i) is made with the consent of the Company, (ii) is made to an Affiliate (including any general partner, manager, director, officer or employee) of any Purchaser or of any Affiliate, and such Affiliate agrees to be subject to such confidentiality provisions, (iii) is required by Law or by a Governmental Authority, (iv) is in respect of information or data that is in the public domain at the time of the disclosure through no fault of the Purchaser or any party to which it has disclosed the information, (v) is made to the Purchasers’ advisors or representatives, which agree to maintain the confidentiality of the Confidential Information or (vi) is received from a third party not subject to confidentiality obligations with respect to such information. The Purchasers shall use commercially reasonably efforts to cause their Affiliates, employees, members, agents, representatives, advisors and other related parties, to observe the restrictions set forth this Section 5.8(b)  as if

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they were the Purchaser, and the Purchasers shall be responsible to the Company for any breach of the provisions of this Section 5.8(b)  by any of such parties.

Section 5.9                                                 Insurance . The Company shall and shall cause each Subsidiary to maintain insurance (i) covering, without limitation, fire, theft, burglary, public liability, property damage, product liability and workers’ compensation and (ii) on all property and assets material to the operation of the business, all in amounts customary for the Company’s industry. The Company shall, and shall cause each of its Subsidiaries to, pay all insurance premiums payable by them.

Section 5.10                                           Properties . The Company will keep its properties in good repair, working order and condition, reasonable wear and tear excepted, and from time to time make all necessary repairs, renewals, replacements, additions and improvements thereto. The Company will at all times comply in all material respects with each provision of all leases to which it is a party or under which it occupies property.

Section 5.11                                           Notification of Certain Matters . Promptly upon the occurrence thereof, written notice of: (i) the occurrence or non-occurrence of any event, the occurrence or non-occurrence of which is likely to cause any representation or warranty of the Company contained in this Agreement to be untrue or inaccurate at or prior to a Closing Date, (ii) any failure of the Company to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder, (iii) any other Event of Default under the Notes or any other event or circumstance that could reasonably be expected to result in a Material Adverse Effect, or (iv) any holder of an Existing Note electing to convert all or a portion of such Existing Note into shares of Common Stock in accordance with the terms thereof; provided, however, that the delivery of any notice pursuant to this Section 5.11 shall not (a) limit or otherwise affect any remedies available to the party receiving such notice or (b) constitute an acknowledgment or admission of a breach of this Agreement. No disclosure by the Company pursuant to this Section 5.11 shall be deemed to amend or supplement the Disclosure Schedule or prevent or cure any misrepresentations, breach of warranty or breach of covenant.

Section 5.12                                           Taxes and Other Indebtedness . The Company and its Subsidiaries shall promptly pay and discharge when due (i) all Taxes prior to the date upon which penalties accrue thereon, (ii) all Indebtedness which, if unpaid, could become a Lien upon the property of the Company or its Subsidiaries and (iii) all other Indebtedness which, if unpaid, could reasonably be expected to have a Material Adverse Effect, except such Indebtedness as may in good faith be contested or disputed, or for which arrangements for deferred payment have been made, provided that in each such case appropriate reserves are maintained.

Section 5.13                                           General Business Operations . Each of the Company and its Subsidiaries shall (i) preserve and maintain its corporate existence and all of its rights, privileges and franchises reasonably necessary to the conduct of its business, (ii) conduct its business activities in compliance with Law applicable to such Person, the violation of which could reasonably be expected to have a Material Adverse Effect, (iii) maintain its chief executive office and principal place of at the address specified in Section 8.7 unless it shall have given Purchasers thirty (30) days’ prior written notice of its intent to change the location thereof, and (iv) not change its jurisdiction of organization, entity type or any organizational identification number issued by its state of incorporation unless it shall have given Purchasers thirty (30) days’ prior written notice of its intent to make such change.

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Section 5.14                                           Observer Rights . As of the Effective Date, each of RockPort and NGP shall be allowed one representative (the “ RockPort Observer ” and the “ NGP Observer ,” respectively, and together, the “ Observers ”) of its choice, to attend all meetings of the Board of Directors and all meetings of committees of the Board of Directors in a nonvoting capacity. In connection therewith, the Company shall provide the Observers with copies of all notices, minutes, consents and other materials, financial or otherwise, which the Company provides to its Board of Directors; provided, however, that the Company reserves the right to exclude such Observers from access to any material or meeting or portion thereof if the Company in good faith believes that such exclusion is necessary to preserve the attorney-client privilege. This right shall expire as to RockPort or NGP at such time that such entity no longer holds any Notes.

Section 5.15                                           Liquidity Covenant . The Company shall maintain at all times cash and Cash Equivalents, measured on a consolidated basis, of at least $1,000,000. The Company shall notify the Purchasers promptly in the event that (i) the Company’s cash and Cash Equivalents, measured on a consolidated basis, falls below $1,000,000 or (ii) the Company reasonably expects its cash and Cash Equivalents, measured on a consolidated basis, to fall below $1,000,000.

Section 5.16                                           Indebtedness . Neither the Company nor any of its Subsidiaries shall create, incur, assume or permit to exist any Indebtedness other than Permitted Indebtedness.

Section 5.17                                           Liens . Neither the Company nor any of its Subsidiaries shall create, incur, assume or permit to exist any Lien on or with respect to any of its assets or property of any character, whether now owned or hereafter acquired, except for Permitted Liens.

Section 5.18                                           Asset Dispositions . Neither the Company nor any of its Subsidiaries shall sell, lease, transfer, license or otherwise dispose of (collectively, a “ Transfer ”) any of its assets or property, whether now owned or hereafter acquired, except Transfers in the ordinary course of its business consisting of (A) the sale of inventory, (B) the non-exclusive licensing of Intellectual Property, or (C) the sale of worn-out or obsolete equipment.

Section 5.19                                           Mergers, Acquisitions, Etc . . Neither the Company nor any of its Subsidiaries shall consolidate or merge with or into any other Person or permit any other Person to merge into it, or acquire all or substantially all of the assets or the assets constituting a division or the capital stock of any other Person. No Subsidiary shall, nor shall the Company permit any Subsidiary to, issue any Equity Securities other than those in existence as of the Effective Date.

Section 5.20                                           Investments . Neither the Company nor any of its Subsidiaries shall make any Investment except for Permitted Investments. Neither the Company nor any of its Subsidiaries shall create, acquire or permit to exist any Subsidiary other than those in existence as of the Effective Date.

Section 5.21                                           Dividends, Redemptions, Etc . . Other than the issuance of Common Stock upon the conversion of outstanding warrants or options and/or the conversion of convertible securities outstanding as of the date of this Agreement or as a payment of principal or interest on the Existing Notes in accordance with the terms thereof, neither Company nor any of its Subsidiaries shall (i) pay any dividends or make any distributions on its Equity Securities; (ii) purchase, redeem, retire, defease or otherwise acquire for value any of its Equity Securities (other than repurchases pursuant to the terms of employee stock purchase plans, employee restricted stock agreements or similar arrangements in an aggregate

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amount not to exceed One Million Dollars ($1,000,000)); (iii) return any capital to any holder of its Equity Securities; (iv) make any distribution of assets, Equity Securities, obligations or securities to any holder of its Equity Securities; or (v) set apart any sum for any such purpose; provided, however, that any Subsidiary may pay cash dividends to Company and the Company may pay dividends payable solely in Common Stock.

Section 5.22                                           Indebtedness Payments . Neither Company nor any of its Subsidiaries shall (i) prepay, redeem, purchase, defease or otherwise satisfy in any manner prior to the scheduled repayment thereof any Indebtedness for borrowed money (other than amounts due under the Notes or the Existing Notes in accordance with the terms of this Agreement) or lease obligations, (ii) amend, modify or otherwise change the terms of any Indebtedness for borrowed money (other than the Obligations) or lease obligations so as to accelerate the scheduled repayment thereof or (iii) repay any notes to officers, directors or shareholders.

Section 5.23                                           Affiliate Transactions . Neither Company nor any of its Subsidiaries shall enter into any contractual obligation with any Affiliate or engage in any other transaction with any Affiliate except in the ordinary course of business upon terms at least as favorable to the Company or such Subsidiary as an arms-length transaction with unaffiliated Persons.

Section 5.24                                           Option Agreements . Unless otherwise approved by the holders of a majority in aggregate principal amount of the outstanding Notes, the Company shall not amend any option agreements that are outstanding on the date of this Agreement to provide for the acceleration of vesting or to extend the exercise period during which an option can be exercised following the termination of an optionee’s service provider status.

Section 5.25                                           Search Committee . Promptly following the Effective Date, the Board of Directors shall establish and maintain the existence of a special committee of the Board of Directors with (i) the power to initiate searches for, and to recruit, retain and replace the chief executive officer of the Company and (ii) the ability to retain an executive search firm to manage any search for a chief executive officer initiated by the Search Committee; provided, that such committee in its sole discretion may elect to refer a decision on such matters to the Board of Directors.

Section 5.26                                           Offer to Purchase Notes . In the event that the transactions contemplated by the Offer to Purchase Notes are not consummated on or prior to November 9, 2007 for any reason, the Company shall take all actions necessary to effect the prepayment of the Existing Notes in accordance with Section 12(b) thereof as soon as practicable.

Section 5.27                                           Notice of Prepayment . Promptly following the Effective Date, but in no event greater than two (2) Business Days following the Effective Date, the Company shall deliver the Notice of Prepayment to the holders of the Existing Notes.

Section 5.28                                           Termination of Covenants . Other than as provided for by their terms, the covenants set forth in this Article V shall continue in effect until all Obligations, including the full principal amount, all accrued but unpaid interest outstanding and any other amounts owed on the Notes are repaid in full.

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ARTICLE VI
PREEMPTIVE RIGHTS

Section 6.1                                       Subsequent Offerings . Each Purchaser shall have a right of first refusal to purchase its pro rata share of fifty percent (50%) of all New Securities (as defined below) that the Company may, from time to time, propose to sell and issue after the date of this Agreement. Each Purchaser’s pro rata share is based on such Purchaser’s pro rata portion of the aggregate principal amount of the Notes purchased hereunder. Each Purchaser shall be entitled to apportion the right to purchase New Securities among itself and its general partners, limited partners, members and Affiliates in such proportions as it deems appropriate.

Section 6.2                                       Exercise of Rights . If the Company proposes to issue any New Securities, it shall give each Purchaser written notice of its intention, describing the New Securities, the price and the terms and conditions upon which the Company proposes to issue the same. Each Purchaser shall have twenty (20) days from the giving of such notice to agree to purchase its pro rata share of fifty percent (50%) of the New Securities for the price and upon the terms and conditions specified in the notice by giving written notice to the Company and stating therein the quantity of New Securities to be purchased. Notwithstanding the foregoing, the Company shall not be required to offer or sell such New Securities to any Purchaser who would cause the Company to be in violation of applicable federal securities laws by virtue of such offer or sale.

Section 6.3                                       Issuance of New Securities to Other Persons . If not all of the Purchasers elect to purchase their pro rata share of fifty percent (50%) of the New Securities, then the Company shall promptly notify in writing the Purchasers who do so elect and shall offer such Purchasers the right to acquire such unsubscribed shares. Each such Purchaser shall have ten (10) days after receipt of such notice to notify the Company of its election to purchase all or a portion thereof of the unsubscribed shares. If the Purchasers fail to exercise in full the rights of first refusal, the Company shall have ninety (90) days thereafter to sell the New Securities in respect of which the Purchaser’s rights were not exercised, at a price and upon general terms and conditions not more favorable to the purchasers thereof than specified in the Company’s notice to the Purchasers pursuant to Section 6.2 hereof. If the Company has not sold such New Securities within ninety (90) days of the notice provided pursuant to Section 6.2, the Company shall not thereafter issue or sell any New Securities, without first offering such securities to the Purchasers in the manner provided above.

Section 6.4                                       Termination . The preemptive rights provided in this Article VI shall remain in existence until all Obligations hereunder are repaid in full; provided, however, that if the Company does not consummate a bona fide financing transaction involving the issuance and sale of Common Stock or Common Stock Equivalents to the Purchasers prior to the repayment in full of the Obligations hereunder on substantially the terms and conditions set forth in a term sheet dated on or around the date of this Agreement, the preemptive rights provided in this Article VI shall remain in existence until the earlier to occur of November 30, 2009 or the second anniversary of the Tranche 2 Closing Date.

Section 6.5                                       Definition of New Securities . For the purposes of this Article VI, “ New Securities ” shall mean, whether or not authorized on the date hereof, any Common Stock, Common Stock Equivalent or any other security of the Company or any of its subsidiaries; provided, however, that “New Securities” do not include the following:

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(a)                                   any securities that are issued or granted, to officers, directors and employees of, or consultants or advisors to, the Company pursuant to a stock grant, employee restricted stock purchase agreement, option plan or purchase plan or other stock incentive program or otherwise as part of their compensation arrangement, where such issuance and grants are approved by the Board of Directors, or any securities issued in respect of the exercise of any such securities;

(b)                                  any securities issued in connection with any stock split, stock dividend, reclassification, reorganization or similar event by the Company;

(c)                                   any securities issued or to be issued pursuant to an acquisition or merger of another company that is approved by the Board of Directors (not primarily for the purpose of obtaining cash);

(d)                                  any securities issued upon the conversion of convertible securities or upon the exercise or rights, options or warrants, in each case outstanding as of the Closing Date (as defined in the Purchase Agreement), provided that such exercise or conversion occurs in accordance with the terms thereof without amendment or modification;

(e)                                   any securities issued in connection with the payment of principal and/or interest pursuant to the Existing Notes;

(f)                                     securities issued in connection with a bona fide joint venture, strategic partnership or strategic alliance approved by the Board of Directors, the primary purpose of which is not to raise capital; and

(g)                                  any Common Stock or Common Stock Equivalents issued pursuant to a bona fide firm commitment underwritten public offering with a nationally recognized underwriter in an aggregate offering amount greater than $20,000,000.

ARTICLE VII
LEGENDS

Section 7.1                                                 Legends . Each certificate representing any of the Notes shall bear legends substantially in the following form:

“THIS NOTE HAS BEEN ACQUIRED BY THE HOLDER FOR ITS OWN ACCOUNT, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO THE DISTRIBUTION THEREOF. THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”) AND ANY APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND IN COMPLIANCE WITH SUCH STATE SECURITIES LAWS, IN COMPLIANCE WITH RULE 144 UNDER THE SECURITIES ACT, OR AN OPINION OF COUNSEL OR OTHER EVIDENCE REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION AND/OR COMPLIANCE IS NOT REQUIRED.”

The Company may instruct its transfer agent not to register the transfer of the Notes, unless the conditions specified in the foregoing legend are satisfied.

Section 7.2                                                 Removal of Legends . Any legend endorsed on a certificate pursuant to Section 6.1 and the stop transfer instructions with respect to such Notes as it applies to Section 6.1

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shall be removed and the Company shall issue a certificate without such legend to the holder of such Notes (i) if such legend may be properly removed under the terms of Rule 144 promulgated under the Securities Act or another exemption under the Securities Act or (ii) if such holder provides the Company with an opinion of counsel for such holder, reasonably satisfactory to legal counsel for the Company, to the effect that a sale, transfer or assignment of such Notes may be made without Registration.

ARTICLE VIII
INDEMNIFICATION

Section 8.1                                                 Indemnity . The Company agrees to indemnify and defend and hold harmless the Purchasers, their Affiliates, successors and assigns and each of their respective officers, directors, members, partners, employees and agents (each, a “ Indemnified Party ,” and collectively, the “ Indemnified Parties ”) from and against, and agrees to pay or cause to be paid to the Indemnified Parties all amounts equal to the sum of, any and all claims, demands, costs, expenses, losses and other liabilities of any kind (“ Losses ”) that the Indemnified Parties may incur or suffer (including without limitation all reasonable legal fees and expenses) which arise or result from any breach of any of its representations or warranties, or failure by the Company to perform any of its covenants or agreements, in, or any transactions contemplated by, this Agreement or any other Transaction Document or any certificate or document delivered pursuant to this Agreement or any other Transaction Document, including but not limited to any third party claims arising or resulting in connection therewith, except to the extent such Losses arise out of the gross negligence or willful misconduct of such Indemnified Party. The rights of the Purchasers hereunder shall be in addition to, and not in lieu of, any other rights and remedies which may be available to them by law or under this Agreement or the Transaction Documents.

Section 8.2                                                 Procedures . If a third party shall notify an Indemnified Party with respect to any matter that may give rise to a claim for indemnification under the indemnity set forth above in Section 7.1 , the procedures set forth below shall be followed.

(a)                                   Notice . The respective Indemnified Party shall give to the Company (the “ Indemnifying Party ”) written notice of any Claim for which indemnity may be sought under Section 7.1 promptly but in any event within 30 days after the Indemnified Party receives notice thereof, provided , however , that failure by the Indemnified Party to give such notice shall not relieve the Indemnifying Party from any liability it shall otherwise have pursuant to this Agreement except to the extent that the Indemnifying Party is actually prejudiced by such failure. Such notice shall set forth in reasonable detail (x) the basis for such potential claim and (y) the dollar amount, or an estimated dollar amount, as applicable, of such claim. The Indemnifying Party shall have a period of 30 days within which to respond thereto. If the Indemnifying Party does not respond within such 30-day period, the Indemnifying Party shall be deemed to have accepted responsibility for such indemnity.

(b)                                  Defense of Claim . With respect to a claim by a third party against an Indemnified Party for which indemnification may be sought under this Agreement, the Indemnifying Party shall have the right, at its option and subject to the remainder of this Section 7.2 , to be represented by counsel of its choice and to assume the defense or otherwise control the handling of any Claim, which is set forth in the notice sent by the Indemnified Party, by notifying the Indemnified Party in writing to such effect within 30 days of receipt of such notice; provided , however , that the Indemnified Party shall have the right to employ counsel to represent it if, in the Indemnified Party’s reasonable judgment based upon the advice of counsel, it is advisable in light of the separate interests of the Indemnified Party, to be represented by separate counsel (including, as applicable, local counsel), and in that event the reasonable fees and expenses of one such

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separate counsel shall be paid by the Indemnifying Party plus appropriate local counsel, if applicable, for all Indemnified Parties; and, provided further , that the Indemnifying Party shall not have the right to assume the defense of such Claim unless (i) the Indemnifying Party acknowledges fully the rights of the Indemnified Party (and does not contest, as a whole or in part) the Indemnified Party’s indemnification rights for the Claim, (ii) the counsel selected by the Indemnifying Party is reasonably satisfactory to the Indemnified Party, (iii) the Indemnified Party is kept informed of all material developments and is furnished copies of all material papers filed or sent to or from the opposing party or parties and (iv) the Indemnifying Party prosecutes the defense of such Claim with commercially reasonable diligence in a manner which does not materially prejudice the defense of such Claim. If the Indemnifying Party does not give timely notice in accordance with the preceding sentence, the Indemnifying Party shall be deemed to have given notice that it does not wish to control the handling of such Claim. In the event the Indemnifying Party elects (by notice in writing within such 30-day period) to assume the defense of or otherwise control the handling of any such Claim for which indemnity is sought, the Indemnifying Party shall indemnify and hold harmless the Indemnified Party from and against any and all reasonable professional fees (including attorneys’ fees, accountants, consultants and engineering fees) and investigation expenses incurred by the Indemnified Party after it provides notice under clause (a) and prior to such election, notwithstanding the fact that the Indemnifying Party may not have been so liable to the Indemnified Party had the Indemnifying Party not elected to assume the defense of or to otherwise control the handling of such Claim. In the event that the Indemnifying Party does not assume the defense or otherwise control the handling of such matter, the Indemnified Party may retain counsel, as an indemnification expense, to defend such Claim.

(c)                                   Final Authority . The Parties shall cooperate in the defense of any such Claim and each shall make available all books and records which are relevant in connection with such claim or litigation. In connection with any Claim with respect to which the Indemnifying Party has assumed the defense or control, the Indemnifying Party will not consent to the entry of any judgment or enter into any settlement with respect to any matter which does not include a provision whereby the plaintiff or claimant in the matter releases the Indemnified Party from all liability with respect thereto, without the written consent of the Indemnified Party, which shall not be unreasonably withheld. In connection with any Claim with respect to which the Indemnifying Party has not assumed the defense or control, the Indemnified Party may not compromise or settle such Claim without the consent of the Indemnifying Party, which shall not be unreasonably withheld or delayed.

(d)                                  Claims Between the Indemnifying Party and the Indemnified Party . Any Claim for indemnification under this Agreement which does not result from the assertion of a Claim by a third party shall be asserted by written notice given by the Indemnified Party to the Indemnifying Party. The Indemnifying Party shall have a period of 30 days within which to respond thereto.

ARTICLE IX
MISCELLANEOUS

Section 9.1                                                 Waivers and Amendments . Unless otherwise provided, any provision of this Agreement may be amended, waived or modified upon the written consent of the Company and the holders of a majority in aggregate principal amount of the outstanding Notes.

Section 9.2                                                 Governing Law . This Agreement and all actions arising out of or in connection with this Agreement shall be governed by and construed in accordance with the Laws of the State of New York, without regard to the conflict of laws provisions thereof.

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Section 9.3                                                 Exclusive Jurisdiction . In the event of any action or Proceeding brought by a Party arising out of or in connection with this Agreement or any other Transaction Document, the Parties consent to the exclusive jurisdiction of the federal and state courts located in the State of New York for resolutions of such dispute, and agree not to contest such exclusive jurisdiction or seek to transfer any action relating to such dispute to any other jurisdiction. Each of the Parties hereby submits to personal jurisdiction and waives any objection to venue in the County of New York. Service of process on the Parties in any action arising out of or relating to this Agreement shall be effective if mailed to the Parties in accordance with Section 8.7 of this Agreement.

Section 9.4                                                 Jury Waiver . THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AGREEMENT.

Section 9.5                                                 Entire Agreement . This Agreement and the other Transaction Documents constitute the full and entire understanding and agreement among the Parties with regard to the subjects of this Agreement and the other Transaction Documents.

Section 9.6                                                 Fees and Expenses . At the Tranche 2 Closing, the Company shall pay all reasonable out-of-pocket expenses and fees and disbursements, including reasonable attorneys’ and accountants’ fees, incurred by the Purchasers and their representatives in connection with (i) the negotiation and consummation of the transactions contemplated hereunder, including any due diligence or other review conducted prior to the negotiation of this Agreement, up to an aggregate amount of $160,000, (ii) any amendment, modification or waiver, or consent with respect to, any of the Transaction Documents or any documentation or agreements in connection therewith requested by the Company (the “ Transaction Expenses ”) and (iii) in connection with any attempt to enforce any right of the Purchasers against the Company, any Subsidiary, or any Person that may be obligated to the Purchasers by virtue of any of the Transaction Documents.

Section 9.7                                                 Notices . All notices, requests and other communications hereunder shall be in writing and shall be deemed to have been duly given at the time of receipt if delivered by hand, or at the time the sender receives confirmation of the facsimile transaction if transmitted by facsimile, or three days after being mailed, registered or certified mail, return receipt requested, with postage prepaid, or one day after being mailed via overnight courier service, to the applicable Parties at the address or facsimile number, as applicable, stated below or if any Party shall have designated a different address or facsimile number by notice to the other Parties given as provided above, then to the la