-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HUKAypBBUFS68vVEgFXHwIHWvBj0nye1NkvXJOyljgr13ITYoORck/0ZJOVF6b0m b8xc6oZf13cX0Ub9bsk1dg== 0000927016-99-003026.txt : 19990817 0000927016-99-003026.hdr.sgml : 19990817 ACCESSION NUMBER: 0000927016-99-003026 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990816 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SATCON TECHNOLOGY CORP CENTRAL INDEX KEY: 0000889423 STANDARD INDUSTRIAL CLASSIFICATION: SEMICONDUCTORS & RELATED DEVICES [3674] IRS NUMBER: 042857552 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-11512 FILM NUMBER: 99692642 BUSINESS ADDRESS: STREET 1: 161 FIRST STREET CITY: CAMBRIDGE STATE: MA ZIP: 02142 BUSINESS PHONE: 6176610540 MAIL ADDRESS: STREET 1: 161 FIRST STREET CITY: CAMBRIDGE STATE: MA ZIP: 02142 10-Q 1 FORM 10-Q - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ______________________ FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended June 30, 1999 COMMISSION FILE NUMBER 1-11512 ______________________ SATCON TECHNOLOGY CORPORATION (Exact name of registrant as specified in its charter) ______________________ State of Incorporation: DELAWARE I.R.S. Employer ID. No. 04-2857552 161 FIRST STREET CAMBRIDGE, MA 02142-1221 (Address of principal executive offices) (617) 661-0540 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock, $0.01 Par Value, 9,617,009 shares outstanding as of July 31, 1999. ______________________________________________________________________________ TABLE OF CONTENTS
PART I: FINANCIAL INFORMATION Page ----------------------------- ---- ITEM 1: FINANCIAL STATEMENTS Consolidated Balance Sheets (Unaudited)..................................................1 Consolidated Statements of Operations (Unaudited)........................................2 Consolidated Statements of Cash Flows (Unaudited)........................................3 Notes to Interim Consolidated Financial Statements (Unaudited)...........................4 ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.....................................................10 ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK..............................15 PART II: OTHER INFORMATION Items No. 1 through 6...........................................................................16 Signature.......................................................................................17
SATCON TECHNOLOGY CORPORATION CONSOLIDATED BALANCE SHEETS (UNAUDITED)
June 30, SEPTEMBER 30, ---------------- ---------------- 1999 1998 ---------------- ---------------- ASSETS Current assets: Cash and cash equivalents ....................................................... $ 516,610 $ 1,201,610 Marketable securities .......................................................... -- 657,431 Accounts receivable, net of allowance of $239,206 at June 30, 1999 and $51,836 at September 30, 1998 ................................................. 2,984,371 3,347,405 Unbilled contract costs, net of allowance of $688,510 at June 30, 1999 and $57,611 at September 30,1998 851,767 1,196,318 Inventory ........................................................................ 3,851,679 3,678,067 Prepaid expenses and other assets................................................. 442,057 358,308 Amounts due from related party -- 596,453 ------------ ------------ Total current assets........................................................... 8,646,484 11,035,592 Property and equipment, net....................................................... 3,320,909 2,677,786 Intangibles, net ................................................................. 3,246,804 2,967,988 Investment in Beacon Power Corporation............................................ -- 1,458,183 Other assets 64,755 27,041 ------------ ------------ Total assets................................................................... $ 15,278,952 $ 18,166,590 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Line of credit.................................................................... $ 2,617,296 -- Accounts payable.................................................................. 1,847,655 $ 1,447,897 Accrued payroll and payroll related expenses...................................... 635,431 352,701 Deferred liabilities.............................................................. 241,651 197,930 Other accrued expenses............................................................ 980,965 385,999 Current portion of long-term debt................................................. -- 146,594 ------------ ------------ Total current liabilities...................................................... 6,322,998 2,531,121 ------------ ------------ Long-term liabilities: Long-term debt................................................................. -- 221,462 ------------ ------------ Total long-term liabilities.................................................... -- 221,462 ------------ ------------ Commitments and contingencies........................................................ -- -- Stockholders' equity: Preferred stock; $.01 par value, 1,000,000 shares authorized; none issued and outstanding................................................................. -- -- Common stock, $.01 par value, 20,000,000 shares authorized; 9,367,009 shares issued at June 30, 1999 and 9,018,549 shares at September 30, 1998.............. 93,670 90,185 Additional paid-in capital........................................................ 32,886,571 28,377,718 Shares held in escrow, at market; 42,860 shares at June 30, 1999.................. (332,165) -- Amounts receivable from exercise of stock options................................. (750,000) -- Retained earnings/(deficit)....................................................... (22,692,418) (12,870,440) Net unrealized losses on marketable securities, net of tax effect................. -- (10,380) Treasury stock, at cost; 44,500 shares at June 30, 1999 and 28,300 shares at September 30, 1998........................................................... (249,704) (173,076) ------------ ------------ Total stockholders' equity..................................................... 8,955,954 15,414,007 ------------ ------------ Total liabilities and stockholders' equity.................................. $ 15,278,952 $ 18,166,590 ============ ============
The accompanying notes are an integral part of the consolidated financial statements. 1 SATCON TECHNOLOGY CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED JUNE 30, JUNE 30, 1999 1998 1999 1998 --------------- --------------- --------------- --------------- Revenue....................................................... $ 4,091,579 $ 3,643,681 $11,478,898 $11,664,848 ----------- ----------- ----------- ----------- Cost of revenue............................................... 5,194,413 2,406,437 11,375,009 8,137,304 Selling, general and administrative expenses.................. 5,176,010 1,111,644 7,194,338 3,653,939 Research and development expenses............................. 228,672 25,273 381,272 312,303 Amortization.................................................. 101,047 75,468 272,840 213,063 ----------- ----------- ----------- ----------- Total operating expenses...................................... 10,700,142 3,618,822 19,223,459 12,316,609 ----------- ----------- ----------- ----------- Operating income/(loss)....................................... (6,608,563) 24,859 (7,744,561) (651,761) Loss from Investment in Beacon Power Corporation.............. (396,620) (1,269,229) (1,884,803) (2,239,213) Other income/(loss)........................................... (141,452) -- (150,464) -- Interest income/(expense), net................................ (45,672) 36,035 (42,150) 142,398 ----------- ----------- ----------- ----------- Net loss...................................................... $(7,192,307) $(1,208,335) $(9,821,978) $(2,748,576) =========== =========== =========== =========== Net loss per weighted average share, basic and diluted........ $(0.78) $(0.13) $(1.08) $(0.31) =========== =========== =========== =========== Weighted average number of common shares, basic and diluted... 9,176,849 9,018,549 9,072,060 8,939,562
The accompanying notes are an integral part of the consolidated financial statements. 2 SATCON TECHNOLOGY CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the nine months ended June 30, 1999 1998 -------------------- -------------------- Cash flows from operating activities: Net loss .......................................................... $(9,821,978) $(2,748,576) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization.................................... 744,486 651,263 Allowance for unbilled contract costs............................ 630,299 (26,241) Allowance for doubtful accounts.................................. 187,970 (70,807) Allowance for inventory.......................................... 714,536 -- Loss from Investment in Beacon Power Corp........................ 1,884,803 2,239,213 Loss on sale of marketable securities............................ 87,535 -- Write-off of impaired assets..................................... 260,790 -- Non-cash compensation expense related to issuance of common stock options to non-employees......................... 2,183,373 -- Changes in operating assets and liabilities, net of effects of acquisitions: Accounts receivable............................................ 12,954 62,974 Prepaid expenses and other assets.............................. (63,949) 48,590 Unbilled contract costs........................................ (285,748) 194,093 Inventory...................................................... (754,876) (2,025,918) Other assets................................................... 558,739 (101,406) Accounts payable............................................... 284,122 693,963 Accrued expenses and payroll................................... 322,194 (372,097) Deferred liabilities........................................... 43,721 (15,986) ----------- ----------- Total adjustments................................................. 6,810,949 1,277,641 ----------- ----------- Net cash used in operating activities............................... (3,011,029) (1,470,935) ----------- ----------- Cash flows from investing activities: Sales and maturities of marketable securities...................... 580,144 577,867 Patent and intangible expenditures................................. (51,333) (415,867) Capital expenditures............................................... (170,574) (852,321) Cash paid for acquisitions......................................... (995,876) -- Investment in Beacon Power Corporation............................. (155,000) (1,999,781) ----------- ----------- Net cash used in investing activities............................... (792,639) (2,690,102) ----------- ----------- Cash flows from financing activities: Repayment of borrowings........................................... (100,000) (42,842) Proceeds from line of credit....................................... 2,617,296 -- Proceeds from exercise of stock options............................ 678,000 581,739 Proceeds from exercise of warrants................................. -- 1,221,873 Purchase of treasury stock......................................... (76,628) -- ----------- ----------- Net cash provided by financing activities........................... 3,118,668 1,760,770 ----------- ----------- Net decrease in cash and cash equivalents........................... (685,000) (2,400,267) Cash and cash equivalents at beginning of period.................... 1,201,610 4,256,504 ----------- ----------- Cash and cash equivalents at end of period.......................... $ 516,610 $ 1,856,237 =========== ===========
The accompanying notes are an integral part of the consolidated financial statements. 3 SATCON TECHNOLOGY CORPORATION NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS-(UNAUDITED) Note A. Basis of Presentation - ----------------------------- The accompanying unaudited consolidated financial statements include the accounts of SatCon Technology Corporation and its majority-owned subsidiaries (collectively, the "Company") as of June 30, 1999 and 1998 and have been prepared by the Company in accordance with generally accepted accounting principles for interim financial reporting and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. All intercompany accounts and transactions have been eliminated. These consolidated financial statements, which in the opinion of management reflect all adjustments (including normal recurring adjustments) necessary for a fair presentation, should be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended September 30, 1998. Operating results for the three-month and nine-month period ended June 30, 1999 are not necessarily indicative of the results that may be expected for any future interim period or for the entire fiscal year. In May 1999, the Company appointed Arthur Andersen LLP as the Company's independent public accountants. In connection with the finalization of the Company's financial results for the three and nine months ended June 30, 1999, the Company with the assistance of Arthur Andersen LLP, conducted a review of its accounting policies and assessed the realizability of certain assets. As a result of this effort, the Company has: . changed the accounting method for its investment in Beacon Power Corporation from the cost method to the equity method, effective October 23, 1998. See Note B. . provided the following additional valuation reserves and adjustments:
THREE MONTHS NINE MONTHS ENDED ENDED JUNE 30, 1999 JUNE 30, 1999 ------------------------------------- Accounts receivable...................................................... $ 225,000 $ 305,000 Unbilled contract costs.................................................. 2,320,000 2,420,000 Inventory................................................................ 725,000 1,425,000 Intangibles Patents..................................................... 150,000 150,000 Warranty reserve......................................................... 12,000 36,000 Sales return reserve..................................................... 22,000 67,000 Other.................................................................... 10,000 10,000 ------------------------------------- $3,464,000 $4,413,000 =====================================
. written off $196,000 of machinery and equipment, $84,000 of which relates to the first quarter ended December 31, 1998. . accrued rent expense of $90,000, which was recorded ratably over the first three quarters of fiscal 1999. . recorded the fair market value, $56,000, of a warrant granted to a non- employee in November 1998. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. 4 SATCON TECHNOLOGY CORPORATION NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)-(CONTINUED) Note B. Significant Events - -------------------------- BEACON POWER CORPORATION On October 23, 1998, the Company entered into a Securities Purchase Agreement (the "Agreement") with Beacon Power Corporation ("Beacon"), Perseus Capital, L.L.C. ("Perseus"), Duquesne Enterprises, Inc. ("Duquesne") and Micro Generation Technology Fund, L.L.C ("Micro", and together with Perseus and Duquesne the "Purchasers"). Pursuant to the terms of the Agreement, (i) the Purchasers purchased from Beacon and Beacon issued, sold and delivered to the Purchasers 1,900,000 shares (the "Shares") of Beacon's Class D Preferred Stock, $.01 par value per share; (ii) the Purchasers have the right to receive certain warrants to purchase shares of Beacon's common stock, $.01 par value per share ("Beacon's Common Stock"); (iii) the Company granted the Purchasers the right (the "Put Right") to cause the Company, in circumstances described below, to purchase all of the Shares and all of Beacon's Common Stock issuable upon conversion of the Shares; and (iv) upon exercise of the Put Right pursuant to the terms of the Agreement, the Company must pay the consideration contemplated by the Agreement in shares of the Company's common stock, $.01 par value per share (the "Common Stock"), valued at the average fair value for the fifteen trading days before and after notice of exercise of the Put Right. The aggregate consideration received by Beacon was $4,750,000. The Put Right is exercisable within sixty days of the second, third, fourth and fifth anniversary of the closing date of the transaction, upon certain events of bankruptcy of Beacon and upon the occurrence of certain going private transactions involving the Company. If the Put Right were to be exercised, the Company would most likely recognize a loss equal to the value of the Company's shares issued upon exercise of the Put Right. The Company retained approximately .1% of Beacon's outstanding voting stock. The Company owns shares of Series A Preferred stock of Beacon. Series A preferred stock is non-voting and is convertible at anytime into Beacon's Common Stock. On an as converted basis, the Company would own approximately 70% of Beacon's outstanding voting stock. On June 22, 1999, the Company purchased from Beacon a note (the "June 22, 1999 Note") with a principal amount of $125,000 due and payable on the earlier of (i) September 22, 1999 ("Maturity Date") or (ii) upon the occurrence of an event of default, as defined therein. The note bears interest at 12 1/2% per annum; provided that if the note is not repaid in full on or prior to Maturity Date the interest rate would increase to 15% per annum. The June 22, 1999 Note was issued pursuant to the terms of a Note Purchase Agreement, dated as of June 22, 1999, by and among Beacon, the Purchasers named therein and the Company (the "Note Purchase Agreement"). Interest on the June 22, 1999 Note is payable on the Maturity Date. On July 6, 1999, the Company purchased from Beacon an additional note (the "July 6, 1999 Note") with a principal amount of $125,000 due and payable on the earlier of (i) Maturity Date or (ii) upon the occurrence of an event of default. The note bears interest at 12 1/2% per annum; provided that if the note is not repaid in full on or prior to Maturity Date the interest rate would increase to 15% per annum (the "July 6, 1999 Note" and together with with the June 22, 1999 Note, the "Notes"). The July 6, 1999 Note was also issued pursuant to the terms of the Note Purchase Agreement. Interest on the July 6, 1999 Note is payable at the Maturity Date. In early August 1999, the Company exchanged in full the Notes and $83,333.33 for a note with a principal amount of $333,333.33 ("Bridge Note") plus accrued interest due and payable on the earlier of (i) the date of conversion of the note as described below or (ii) upon the occurrence of an event of default. The Bridge Note bears interest at 12 1/2% per annum; provided that if the Funding Date (as defined below) does not occur within six months, such interest rate shall increase effective February 2, 2000 to 15% per annum. The Bridge Note was issued pursuant to the terms of a Note and Warrant Purchase Agreement, dated as of August 2, 1999, by and among Beacon, the Purchasers named therein and the Company (the "Note and Warrant Purchase Agreement"). Interest on the Bridge Note is payable on the Maturity Date. Pursuant to the terms of the Note and Warrant Purchase, the Company is required to purchase two (2) additional notes each with a principal amount of $333,333.33 no earlier than August 4, 1999 and October 1, 1999, respectively, and no later than the earliest of (a) October 15, 1999 and November 15, 1999, respectively, (b) two days after the Company closes on a new equity or debt securities financing or (c) at such other times as mutually agreeable to the Company and Beacon. The Bridge Note and the committed notes of $333,333.33 are collectively referred to as the "Bridge Securities." 5 SATCON TECHNOLOGY CORPORATION NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)-(CONTINUED) BEACON POWER CORPORATION)-(CONTINUED) In the event Beacon obtains a funding commitment for at least $5 million of external funds within four months of the issuance of the first Bridge Security and closes a funding pursuant to such commitment within six months of the first issuance of the first Bridge Security (the date of such funding, the "Funding Date"), all outstanding principal and interest on the Bridge Securities will convert into equity of Beacon at a price and on terms that are equivalent to the securities issued by Beacon pursuant to the funding commitment. If Beacon does not obtain a qualified financing commitment within the four month period referred to above, or close such funding within the six month period referred to above, the Bridge Securities will convert into securities of Beacon pursuant to terms to be agreed to with Beacon, or if no terms are agreed to, the Company has the right to demand payment of all principal and interest on the Bridge Securities. Warrants to purchase shares of Beacon Securities were and will be issued in connection with each issuance of the Bridge Securities. The warrants will be for the purchase of the type of securities to be issued upon conversion of the Bridge Securities or if such securities are not converted, Beacon common stock. The number of shares of Beacon securities that will be subject to the warrants will be determined by dividing (i) 25% of the principal amount of the Bridge Securities issued by (ii) the price per share of the Bridge Securities, or, if the Bridge Securities are not converted, $2.50. After consultation with its new independent public accountants, Arthur Andersen LLP, the Company retroactively changed its method of accounting for its investment in Beacon to the equity method, effective October 23, 1998. This change resulted in an additional $1,614,000 loss in the investment in Beacon. The effect of this change on the quarterly results for fiscal 1999 is as follows:
AS REPORTED AS ADJUSTED -------------------------------------- Equity in the loss of Beacon: Quarter ended December 31, 1998........................ $272,437 $1,064,010 Quarter ended March 31, 1999........................... -- 424,173 Quarter ended June 30, 1999............................ N/A 396,620 -------------------------------------- Nine months ended June 30, 1999........................ N/A $1,884,803 ======================================
At June 30, 1999, the Company has accrued losses of $271,620 which is included in accrued expenses, relating to its share of Beacon losses which it is required to fund pursuant to the terms of the Note and Warrant Purchase Agreement. In future periods, the Company will continue to record its share of Beacon's losses up to the amount of its actual and committed investment. It is anticipated that substantially all of the Company's $603,380 remaining and committed investment in Beacon will be recorded as a loss over the two quarters ending December 31, 1999. ISSUANCE OF COMMON STOCK AND OPTIONS TO PURCHASE COMMON STOCK During the quarter ended quarter June 30, 1999, the Company granted options to purchase 750,000 shares of the Company's common stock to consultants at prices ranging from $5.75 to $10.00 per share. The options are fully vested. The Company has charged the fair market value of the options as determined by using the Black-Scholes option pricing model, of approximately $2,127,000, to selling, general and administrative expenses. Subsequent to these grants, a consultant exercised an option to purchase 200,000 shares at $7.00 per share. The Company received $650,000 of cash and the remaining amount due from the shareholder is classified within stockholders' equity as amounts receivable from exercise of stock options. On March 9, 1999, the Company issued 42,860 shares of Common Stock to an escrow agent in connection with a consulting agreement entered into by the Company and Mr. Albert R. Snider pursuant to which Mr. Snider will perform such consulting, advisory and related services as the Company may reasonably request from time to time between October 1, 1999 and October 1, 2002. These shares were issued in reliance upon the exemptions from registration under Section 4(2) of the Securities Act or Regulation D promulgated thereunder, relative to sales by an issuer not involving any public offering. 6 SATCON TECHNOLOGY CORPORATION NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)-(CONTINUED) ISSUANCE OF COMMON STOCK AND OPTIONS TO PURCHASE COMMON STOCK-(Continued) At March 31, 1999, the Company accounted for the $190,191 initial fair market value of the shares issued to Mr. Snider as a prepaid expense with a corresponding increase to stockholders' equity. In the quarter ended June 30, 1999, the Company has (i) reclassified the prepaid expense to stockholders' equity, and (ii) marked the value of the shares placed in escrow to fair market value at June 30, 1999. As long as the shares remain in escrow, the Company will continue to mark the shares to their fair market value. LINE OF CREDIT The Company has a $3,000,000 demand discretionary line of credit with a bank. The line of credit bears interest at the bank's prime rate plus 1 1/2% (9 1/4% as of June 30, 1999). Available borrowings are based on a formula of eligible accounts receivable and inventory (the "Borrowing Base"). The Company was also permitted to borrow up to $500,000 in excess of the Borrowing Base (such excess, "Over Advances"); provided the Over Advances were fully paid on August 6, 1999. On August 9, 1999, the Company was otherwise required to pay the Over Advances, in full, but received an extension to September 30, 1999 ("the Extension") from the bank in consideration of paying $250,000 of the Over Advances. Under the terms of the Extension, the Company is required to pay all of the remaining Over Advances in full by September 30, 1999. At June 30, 1999, the amount outstanding under this facility exceeded the eligible Borrowing Base, by approximately $500,000. As of August 16, 1999, the amount of the Over Advances is approximately $250,000. Acquisitions On April 12, 1999, the Company executed an agreement to purchase substantially all of the assets and assume certain liabilities of HyComp, Inc. ("HyComp"). This agreement was dated as of March 31, 1999 and was by and between HyComp and HyComp Acquisition Corp., a wholly-owned subsidiary of the Company. On April 12, 1999 (the "Closing Date"), the Company completed the acquisition of HyComp. The aggregate consideration paid by the Company for the acquired assets of HyComp consisted of (i) $750,000 in cash; (ii) the assumption of certain liabilities and obligations of HyComp in the amount of approximately $250,000; (iii) transaction costs of $73,000 and (iv) the Company agreed to pay a 5% royalty to HyComp on certain sales for 52 weeks subsequent to the Closing Date. At June 30, 1999, the Company had recorded $50,000 of accrued royalties. The purchase price has been allocated as follows:
Inventory............................................................... $ 162,825 Deposits................................................................ 19,800 Property and equipment.................................................. 940,500 ------------- $1,123,125 =============
The pro forma financial information has not been presented as the results of HyComp are not material. 7 SATCON TECHNOLOGY CORPORATION NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)-(CONTINUED) Note C. Loss per Share - ---------------------- The following is the reconciliation of the numerators and denominators of the basic and diluted per share computations of loss:
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED JUNE 30, JUNE 30, 1999 1998 1999 1998 ------------- ------------- ------------- ------------- Net loss........................................................ $(7,192,307) $(1,208,335) $(9,821,978) $(2,748,576) BASIC: Common shares outstanding, beginning of period.................. 9,074,049 9,018,549 8,990,249 8,769,146 Weighted average common shares issued during the period......... 102,800 -- 95,378 170,419 Weighted average shares repurchased during the period........... -- -- (13,567) -- ----------- ----------- ----------- ----------- Weighted average shares outstanding--basic...................... 9,176,849 9,018,549 9,072,060 8,939,562 =========== =========== =========== =========== Net loss per weighted average share, basic...................... $ (0.78) $ (0.13) $ (1.08) $ (0.31) =========== =========== =========== =========== DILUTED: Weighted average shares outstanding--basic...................... 9,176,849 9,018,549 9,072,060 8,939,562 Weighted average common stock equivalents (a)................... -- -- -- -- ----------- ----------- ----------- ----------- Weighted average shares outstanding--diluted.................... 9,176,849 9,018,549 9,072,060 8,939,562 =========== =========== =========== =========== Net loss per weighted average share, diluted.................... $ (0.78) $ (0.13) $ (1.08) $ (0.31) =========== =========== =========== ===========
(a) not included if antidilutive As of June 30, 1999 and 1998, 1,327,951 and 943,675 options and warrants, respectively, were excluded from the weighted average common shares outstanding as their effect would be anti-dilutive. Note D. Inventory - ----------------- Inventory consists of the following:
JUNE 30, SEPTEMBER 30, 1999 1998 --------------- -------------- Raw material......................................................... $1,519,934 $1,783,803 Work-in-process...................................................... 1,933,986 1,788,241 Finished goods....................................................... 397,759 106,023 --------------- -------------- $3,851,679 $3,678,067 =============== ==============
During the quarter ended June 30, 1999, the Company performed a review of the inventory valuation methodologies. The Company determined that $725,000 of additional reserves were required for potentially obsolete and excess inventory at June 30, 1999. In addition, the Company determined that adjustments totaling approximately $700,000 were required to reduce inventory and increase cost of revenues for the quarter ended March 31, 1999. 8 SATCON TECHNOLOGY CORPORATION NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)-(CONTINUED) Note E. Comprehensive Income - ---------------------------- As of October 1, 1998, the Company adopted Statement of Financial Accounting Standards No. 130 ("SFAS 130"), "Reporting Comprehensive Income." SFAS 130 requires that changes in comprehensive income be shown in a financial statement that is displayed with the same prominence as other financial statements. Financial statements for prior periods must be restated. The Company's total comprehensive income is as follows:
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED JUNE 30, JUNE 30, 1999 1998 1999 1998 ------------- ------------- ------------- ------------- Net loss.......................................................... $(7,192,307) $(1,208,549) $(9,821,978) $(2,748,576) =========== =========== =========== =========== Other comprehensive income/(loss), net of tax: Unrealized gains/(losses) on securities...................... $ 15,085 $ 547 $ 10,380 $ 6,683 ----------- ----------- ----------- ----------- Other comprehensive income/(loss)................................. $ 15,085 $ 547 $ 10,380 $ 6,683 ----------- ----------- ----------- ----------- Comprehensive loss................................................ $(7,177,222) $(1,208,002) $(9,811,598) $(2,741,893) =========== =========== =========== ===========
9 ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 as amended, and Section 27A of the Securities Act of 1933. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words "believes", "anticipates", "plans", "expects", and similar expressions are intended to identify forward-looking statements. There are a number of important factors that could cause the Company's actual results to differ materially from those indicated by such forward-looking statements. The factors include, without limitation, those set forth below under the caption "Factors Affecting Future Results." RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, the percentage of revenue for certain items in the Company's Statement of Operations for each period:
FOR THE THREE MONTHS FOR THE NINE MONTHS ENDED JUNE 30, ENDED JUNE 30, ------------------------------------------------- 1999 1998 1999 1998 ------------------------------------------------- Revenue........................................................ 100.0% 100.0% 100.0% 100.0% Cost of revenue................................................ 127.0 66.0 99.1 69.8 Selling, general and administrative expenses................... 126.5 30.5 62.7 31.3 Research and development expenses.............................. 5.6 0.7 3.3 2.7 Amortization................................................... 2.5 2.1 2.4 1.8 Total operating expenses (excluding cost of revenue)...................................................... 134.6 33.3 68.4 35.8 Operating income/(loss)........................................ (161.5) 0.7 (67.5) (5.6) Loss from Investment in Beacon Power Corporation............... (9.7) (34.8) (16.4) (19.2) Other income/(loss)............................................ (3.5) - (1.3) - Interest income/(expense), net................................. (1.1) 1.0 (0.4) 1.2 Net loss....................................................... (175.8%) (33.2%) (85.6%) (23.6%)
Three Months Ended June 30, 1999 ("Q3 1999") Compared to the Three Months Ended - ------------------------------------------------------------------------------- June 30, 1998 ("Q3 1998") - ------------------------- Revenue. The Company's revenue increased approximately $448,000 or 12%, from Q3 1998 to Q3 1999. The increase is primarily due to a significant increase in product revenues of approximately $1,000,000 offset by a reduction in product development revenues of $500,000. Cost of revenue. Cost of revenue increased approximately $2,788,000 or 115%, from Q3 1998 to Q3 1999. During the quarter ended June 30, 1999, the Company performed a review of its inventory valuation methodologies. The Company determined that $725,000 of additional reserves was required for potentially obsolete and excess inventory at June 30, 1999. In addition, the Company recorded $350,000 of additional reserve for unbilled contract costs and expensed $150,000 of abandoned patents. The remainder was the result of a change in product mix. Selling, general and administrative expenses. Selling, general and administrative expenses increased approximately $4,064,000 or 366% from Q3 1998 to Q3 1999. During the quarter ended June 30, 1999, the Company granted options to purchase 750,000 shares of common stock to consultants at prices ranging from $5.75 to $10.00 per share, and accordingly, the Company has charged the fair market value of $2,127,000 to selling, general and administrative expenses. The Company also recorded a reserve of $1,280,000 for unbilled contract costs and an additional reserve of $802,000 for accounts receivable. Research and development expenses. Research and development expenses increased approximately $203,000 or 805% from Q3 1998 to Q3 1999. The increase is attributable to the continued development of magnetic bearings and suspension systems and electro-optic and sensor inspection systems. 10 Amortization. Amortization increased approximately $26,000 or 34% from Q3 1998 to Q3 1999. This was primarily the result of goodwill recorded in connection with the acquisition of Inductive and Lighthouse in January 1999. Loss from Investment in Beacon Power Corporation. After consultation with its new independent public accountants, Arthur Andersen LLP, the Company retroactively changed its method of accounting for its investment in Beacon to the equity method, effective October 23, 1998. This change resulted in an additional $1,614,000 loss in the investment in Beacon. The effect of this change on the quarterly results for fiscal 1999 is as follows:
AS REPORTED AS ADJUSTED -------------------------------------- Equity in the loss of Beacon: Quarter ended December 31, 1998........... $272,437 $1,064,010 Quarter ended March 31, 1999.............. -- 424,173 Quarter ended June 30, 1999............... N/A 396,620 -------------------------------------- Nine months ended June 30, 1999........... N/A $1,884,803 ======================================
At June 30, 1999, the Company has accrued losses of $271,620 relating to its share of Beacon losses which it is required to fund pursuant to the terms of the Note Purchase and Warrant Agreement. In future periods, the Company will continue to record its share of Beacon's losses up to the amount of its actual and committed investment. It is anticipated that substantially all of the Company's $603,380 remaining and committed investment in Beacon will be recorded as a loss over the two quarters ending December 31, 1999. Other income/(loss),net. Other income/(loss), net increased approximately $141,000 from Q3 1998 to Q3 1999. The loss was primarily the result of the sale of marketable securities. Interest income/(expense), net. Interest income/(expense), net decreased approximately $82,000 or 227% from Q3 1998 to Q3 1999. The decrease is the result of increased borrowings under the Line of Credit to approximately $2,617,000 at June 30, 1999. Nine Months Ended June 30, 1999 ("Q3 1999 YTD") Compared to the Nine Months - --------------------------------------------------------------------------- Ended June 30, 1998 ("Q3 1998 YTD") - ----------------------------------- Revenue. The Company's revenue decreased approximately $186,000 or 1.6%, from Q3 1998 YTD to Q3 1999 YTD. The decrease is primarily attributable to a reduction in revenue related to research and development contracts of approximately $1,100,000. This decrease in revenue was partially offset by increases of sale of manufactured products of approximately $1,000,000. Cost of revenue. Cost of revenue increased approximately $3,238,000 or 40%, from Q3 1998 YTD to Q3 1999 YTD. During the nine months ended June 30, 1999, the Company performed a review of its inventory valuation methodologies. The Company determined that $725,000 of additional reserves was required for potentially obsolete and excess inventory. In addition, the Company determined that adjustments totaling approximately $700,000 were required to reduce inventory. The Company also recorded $350,000 of additional reserve for unbilled contract costs and expensed $150,000 of abandoned patents. The remainder was the result of a change in product mix. Selling, general and administrative expenses. Selling, general and administrative expenses increased approximately $3,540,000 or 97% from Q3 1998 YTD to Q3 1999 YTD. The increase is primarily due to options granted to purchase 750,000 shares of common stock to consultants at prices ranging from $5.75 to $10.00 per share with a fair market value of $2,127,000. The Company also recorded a reserve of $1,280,000 for unbilled contract costs and an additional reserve of $802,000 for accounts receivable. Research and development. Research and development expenses increased approximately $69,000 or 22% from Q3 1998 YTD to Q3 1999 YTD. The increase is primarily the result of expenses related to the continued development of magnetic bearings and suspension systems and electro-optic and sensor inspection systems. 11 Amortization. Amortization increased approximately $60,000 or 28% from Q3 1998 YTD to Q3 1999 YTD. This was primarily the result of the acquisition of Inductive and Lighthouse in January 1999. Loss from Investment in Beacon Power Corporation. After consultation with its new independent public accountants, Arthur Andersen LLP, the Company retroactively changed its method of accounting for its investment in Beacon to the equity method, effective October 23, 1998. This change resulted in an additional $1,614,000 loss in the investment in Beacon. The effect of this change on the quarterly results for fiscal 1999 is as follows:
AS REPORTED AS ADJUSTED ------------------------------------- Equity in the loss of Beacon: Quarter ended December 31, 1998............... $272,437 $1,064,010 Quarter ended March 31, 1999.................. -- 424,173 Quarter ended June 30, 1999................... N/A 396,620 -------------------------------------- Nine months ended June 30, 1999............... N/A $1,884,803 ======================================
At June 30, 1999, the Company has accrued losses of $271,620 relating to its share of Beacon losses which it is required to fund pursuant to the terms of the Note and Warrant Purchase Agreement. In future periods, the Company will continue to record its share of Beacon's losses up to the amount of its actual and committed investment. It is anticipated that substantially all of the Company's $603,380 remaining and committed investment in Beacon will be recorded as a loss over the two quarters ending December 31, 1999. Other income/(loss),net. Other income, net decreased approximately $150,000 from Q3 1998 YTD to Q3 1999 YTD. The loss was the result of the sale of marketable securities. Interest income/(expense), net. Interest income, net decreased approximately $185,000 or 130% from Q3 1998 YTD to Q3 1999 YTD. The decrease is the result of increased borrowings under the line of credit to approximately $2,617,000 at June 30, 1999. LIQUIDITY AND CAPITAL RESOURCES The Company's cash and cash equivalents was approximately $517,000 as of June 30, 1999, a decrease of approximately $685,000 from September 30, 1998. Cash used in operating activities was approximately $3,011,000 for Q3 1999 YTD, compared to approximately $1,471,000 for Q3 1998 YTD. On June 22, 1999, the Company purchased from Beacon a note with a principal amount of $125,000 due and payable on the earlier of (i) September 22, 1999 ("Maturity Date") or (ii) upon the occurrence of an event of default. The note bears interest at 12 1/2% per annum; provided that if the note is not repaid in full on or prior to Maturity Date the interest rate would increase to 15% per annum (the "June 22, 1999 Note "). The June 22, 1999 Note was issued pursuant to the terms of a Note Purchase Agreement, dated as of June 22, 1999, by and among Beacon, the Purchasers named therein and the Company (the "Note Purchase Agreement"). Interest on the June 22, 1999 Note is payable on the Maturity Date. On July 6, 1999, the Company purchased from Beacon an additional note with a principal amount of $125,000 due and payable on the earlier of (i) Maturity Date or (ii) upon the occurrence of an event of default. The note bears interest at 12 1/2% per annum; provided that if the note is not repaid in full on or prior to Maturity Date the interest rate would increase to 15% per annum (the "July 6, 1999 Note" and together with with the June 22, 1999 Note, the "Notes"). The July 6, 1999 Note was also issued pursuant to the terms of the Note Purchase Agreement. Interest on the July 6, 1999 Note is payable at Maturity Date. In early August 1999, the Company exchanged in full the Notes and $83,333.33 for a note with a principal amount of $333,333.33 ("Bridge Note") plus accrued interest due and payable on the earlier of (i) the date of conversion as described below or (ii) upon the occurrence of an event of default. The Bridge Note bears interest at 12 1/2% per annum; provided that if the Funding Date (defined below) does not occur within six months such interest rate shall increase effective February 2, 2000 to 15% per annum pursuant to the terms of a Note and Warrant Purchase Agreement, dated as of August 2, 1999, by and among Beacon, the Purchasers named therein and the Company (the "Note and Warrant Purchase Agreement"). Interest on the Bridge Note is payable on the Maturity Date. 12 Pursuant to the terms of the Note and Warrant Purchase Agreement, the Company is required to purchase two (2) additional notes each with a principal amount of $333,333.33 and a warrant to purchase a number of shares of Beacon Class E Preferred Stock no earlier than August 4, 1999 and October 1, 1999, respectively, and no later than the earliest of (a) October 15, 1999 and November 15, 1999, respectively, (b) two days after the Company closes on a new equity or debt securities financing or (c) at such other times as mutually agreeable to the Company and Beacon. The Company has $3,000,000 demand discretionary line of credit with a bank. The line of credit bears interest at the bank's prime rate plus 1 1/2% (9 1/4% as of June 30, 1999). Available borrowings are based on a formula of eligible accounts receivable and inventory. At June 30, 1999, the amount outstanding under this facility exceeded the eligible borrowing base (such excess "Over Advances"). On August 9, 1999, the Company was otherwise required to pay the Over Advances, in full, but received an extension to September 30, 1999 ("the Extension") from the bank in consideration of paying $250,000 of the Over Advances. Under the terms of the Extension, the Company is required to pay all of the remaining Over Advances in full by September 30, 1999. The Company anticipates needing approximately $917,000 of external funding over the next 90 days to pay the remaining $250,000 of Over Advances to its bank on September 30, 1999 and to fulfill its commitment to Beacon Power Corporation to advance $333,333 by October 15, 1999 and $333,333 by November 15, 1999. After obtaining these funds, the Company believes that its existing cash resources, cash flow from operations and its line of credit will be sufficient to meet its operations through at least June 30, 2000. Although the Company believes that it will be able to obtain at least $917,000 of funding from external sources or through the exercise of currently outstanding options and warrants, there can be no assurance that the Company will be able to do so on acceptable terms or at all. The Company's ability to generate cash from operations depends upon, among other things, revenue growth, its credit and payment terms with vendors, the collection of accounts receivable and the availability of the Company's demand discretionary line of credit. If such sources of cash prove insufficient or it is otherwise unable to obtain necessary third party funding through the issuance of debt or equity securities or otherwise, the Company will be required to make changes in its operations, sell assets or otherwise seek protection from its creditors. Any of these actions will likely have a material adverse effect on the Company. The Company has currently outstanding a stock repurchase program which authorizes the Company to repurchase up to 5% of its outstanding common stock (the "Repurchase Program"). Under the Repurchase Program the Company is authorized to purchase shares of the Company's common stock on the open market from time to time, depending on market conditions. EFFECTS OF INFLATION The Company believes that inflation and changing prices over the past three years have not had a significant impact on the Company's net sales and revenues or on income from continuing operations. FACTORS AFFECTING FUTURE RESULTS The Company's future results remain difficult to predict and may be affected by a number of factors which could cause actual results to differ materially from forward-looking statements contained in this Quarterly Report on Form 10-Q and presented elsewhere by management from time to time. These factors include business conditions within the automotive, telecommunications, industrial machinery, and semiconductor industries and the world economies as a whole, and competitive pressures that may impact research and development spending. The Company's revenue growth is dependent on technology developments and contract research and development for both the government and commercial sectors and no assurance can be given that such investments will continue or that the Company can successfully obtain such funds. In addition, the Company's future growth opportunities are dependent on the introduction of new products that must penetrate automotive, telecommunications, industrial, and computer market segments. No assurance can be given that new products can be developed, or if developed, will be successful; that competitors will not force prices to an unacceptably low level or take market share from the Company; or that the Company can achieve or maintain profits in these markets. Because of these and other factors, past financial performances should not be considered an indicator of future performance. Investors should not use historical trends to anticipate future results and should be aware that the Company's stock price frequently experiences significant volatility. On October 23, 1998, the Company entered into the Agreement with Beacon, Perseus, Duquesne and Micro. Pursuant to the terms of the agreement, (i) the Purchasers purchased from Beacon and Beacon issued, sold and delivered to the Purchasers the Shares) of Beacon's Class D Preferred Stock, $.01 par value per share; (ii) the Purchasers have the right to receive certain warrants to purchase shares of Beacon's Common Stock; (iii) the Company granted the Purchasers the Put Right to cause the Company, in circumstances described below, to purchase all of the Shares and all of Beacon's Common Stock issuable upon conversion of the 13 Shares; and (iv) upon exercise of the Put Right pursuant to the terms of the agreement, the Company must pay the consideration contemplated by the agreement in shares of the Company's Common Stock, valued at the average fair value for the fifteen trading days before and after notice of exercise of the Put Right. The aggregate consideration received by Beacon was $4,750,000. The Put Right is exercisable within sixty days of the second, third, forth and fifth anniversary of the closing date of the transaction, upon certain events of bankruptcy of Beacon and upon the occurrence of certain going private transactions involving the Company. If the Put Right were to be exercised, the Company would most likely recognize a loss equal to the value of the Company's shares issued upon exercise of the Put Right. EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS In June 1997, the FASB issued Statement of Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosure about Segments of an Enterprise and Related Information." SFAS 131 is effective for fiscal years beginning after December 15, 1997 and establishes annual and interim reporting standards for an enterprise's operating segments and related disclosures about its products and services, geographical areas and major customers. The Company will adopt SFAS 131 in the fiscal year ending September 30, 1999. This Statement need not be applied to interim financial periods in the initial year of application, however, comparative information for interim financial statements in the year of application will be reported in financial statements for interim periods in the second year of application. In June 1998, the FASB issued Statement of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities." SFAS 133 is effective for fiscal years beginning after June 15, 1999 and establishes a new model for accounting for derivatives and hedging activities. The Company will adopt SFAS 133 beginning in the first quarter of the fiscal year ending September 30, 2001. Adoption of SFAS 131 and SFAS 133 are not expected to have a material impact to the Company's consolidated financial position, results of operations or cash flows, and any effect will be limited to the form and content of its disclosures. EFFECTS OF YEAR 2000 The year 2000 ("Y2K") issue is the result of computer programs being written using two digits rather than four digits to define the applicable year. Certain computer programs that have date-sensitive software and use two digits only may recognize a date using "00" as the year 1900 rather than the year 2000. The Company recognizes the need to ensure its operations will not be adversely impacted by the Y2K software failures and has established a project team to address the Y2K risks. The project team has coordinated the identification of, and will coordinate the implementation of, changes to computer hardware and software applications that will attempt to ensure availability and integrity of the Company's information systems and the reliability of its operational systems and manufacturing processes. The Company is also assessing the potential overall impact of Y2K on its business, results of operations and financial position. The Company has reviewed its information and operational systems and manufacturing processes in order to identify those products, services or systems that are not Y2K compliant. As a result of this review, the Company has determined that it will be required to modify or replace certain information and operational systems so that they will be Y2K compliant. These modifications and replacements are being, and will continue to be, made in conjunction with the Company's overall system initiatives. The total cost of these Y2K compliance measures has not been, and is not anticipated to be, material to the Company's financial position or its results of operations. The Company expects to complete its Y2K project during fiscal year 1999. Based on available information, the Company does not believe any material exposure to significant business interruption exists as a result of Y2K compliance issues. Accordingly, the Company has not adopted any formal contingency plan in the event its Y2K project is not completed in a timely manner. These costs and the timing in which the Company plans to complete its Y2K modifications and testing processes are based on management's best estimates. However, there can be no assurance that the Company will timely identify and remediate all significant Y2K problems, that remedial efforts will not involve significant time and expense or that such problems will not have a material adverse effect on the Company's business, results of operations or financial position. The Company also faces risks to the extent that suppliers of products, services and systems purchased by the Company and others with whom the Company transacts business do not comply with the Y2K requirements. The Company is identifying significant suppliers and customers to determine the extent to which the Company is vulnerable to these third parties' failure to remediate their own Y2K issues. In the event any such third party cannot provide the Company the products, services or systems that meet the Y2K requirements on a timely basis, the Company's results of operations could be materially and adversely affected. 14 To the extent Y2K issues cause significant delays in, or cancellation of, decisions to purchase the Company's products or services, the Company's business, results of operations or financial position would be materially adversely affected. ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable. 15 PART II: OTHER INFORMATION Item 1. Legal Proceedings: Not applicable. Item 2. Changes in Securities and Use of Proceeds: Not applicable. Item 3. Defaults upon Senior Securities: Not applicable. Item 4. Submission of Matters to a Vote of Security Holders: Not applicable. Item 5. Other Information: Not applicable. Item 6 Exhibits and Reports on Form 8-K: (a) Exhibits 10.21 Asset Purchase Agreement dated as of March 31, 1999 by and between HyComp, Inc. and HyComp Acquisition Corp., a wholly-owned subsidiary of the Registrant 10.22 Note Purchase Agreement dated as of June 22, 1999 by and among Beacon Power Corporation, Perseus Capital, L.L.C., Duquesne Enterprises, Inc., Micro Generation Technology Fund, L.L.C. and the Registrant 10.23 Note and Warrant Purchase Agreement dated as of August 2, 1999 by and among Beacon Power Corporation, Perseus Capital, L.L.C., Duquesne Enterprises, Inc., Micro Generation Technology Fund, L.L.C. and the Registrant 27 Financial Data Schedule (b) Reports on Form 8-K On May 19, 1999, the Registrant filed a Current Report on Form 8-K, dated May 12, 1999, in connection with the dismissal of PricewaterhouseCoopers LLP from its position as the Registrant's independent auditors. On May 28, 1999, the Registrant filed a Current Report on Form 8-K, dated May 25, 1999, in connection with the engagement of Arthur Andersen LLP as the Registrant's independent auditors. 16 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SATCON TECHNOLOGY CORPORATION Date: August 16, 1999 By: /s/ Michael C. Turmelle ---------------------------------------------- Michael C. Turmelle, Vice President, Chief Financial Officer, Treasurer and Secretary (Principal Financial and Accounting Officer) 17 EX-10.21 2 ASSET PURCHASE AGREEMENT EXHIBIT 10.21 ASSET PURCHASE AGREEMENT Asset Purchase Agreement dated as of March 31, 1999 by and between HyComp, Inc. of 165 Cedar Hill Street, Marlborough, Massachusetts 01752 (the 'Seller') and HyComp Acquisition Corp., c/o SatCon Technology Corporation, 161 First Street, Cambridge, Massachusetts 02141 (the 'Purchaser'), with reference to the following RECITALS: A. Seller is in the business of manufacturing of hybrid circuits, thin film circuits and flip chip assembly; B. Purchaser wishes to purchase certain equipment and other assets which are used by Seller in its business operations, and Seller desires to sell such assets. NOW THEREFORE, in consideration of the recitals and of the respective covenants, representations, warranties, and agreements herein contained, and intending to be legally bound hereby, the parties hereby agree as follows: 1. PURCHASE AND SALE 1.1. Agreement to Sell. At the Closing hereunder ( as defined in ----------------- Section 2.1) and except as specifically provided in Section 1.3, Seller shall grant, sell, convey, assign, transfer and deliver to Purchaser, all right, title and interest of Seller in and to (a) all of the tangible and intangible assets of Seller including those more fully identified in Section 1.2, (b) the name "HyComp" to the extent of the ownership rights of Seller, if any, and all of the good will associated therewith; all of which shall be free and clear of all mortgages, liens, pledges, security interests, charges, claims, restrictions and encumbrances of any nature whatsoever (collectively the "Assets"). 1 1.2 Included Assets. The Assets shall include, without limitation, --------------- the following assets, properties and rights of the Seller, except as otherwise set forth in Section 1.3 hereof. (a) all machinery, equipment, tools, furniture, furnishings, leasehold improvements, goods and other tangible personal property owned by Seller, and shown on Schedule 1.2(a). (b) all prepaid items as shown on Schedule 1.2(b). (c) all supplies, raw materials, work in process, finished goods and other inventory as shown on Schedule 1.2(c). (d) all right title, and interest of the Seller in and to all purchase orders as shown on Schedule 1.2(d). (e) all of Seller's right, title and interest in and to the name "HyComp", to the extent of the ownership rights of Seller, if any, subject to the terms of Section 1.3(e) hereinafter; (f) all rights under any trademark, service mark, trade name or copyright, whether registered or unregistered, and any applications therefore; (g) all technologies, methods, formulations, data bases, trade secrets, know-how, inventions, and other intellectual property used in Seller's business or under development; 2 (h) all information, files, records, data, plans, contracts and recorded knowledge including customer and supplier lists, related to the foregoing. 1.3 Excluded Assets. Notwithstanding the foregoing the Assets shall not --------------- include any of the following (the 'Excluded Assets'): (a) the corporate seal, Articles of Organization, minute books, stock books, tax returns, books of account, accounting records or other records of Seller; (b) any cash in any of Seller's bank accounts or in transit other than cash received by the Sellers on or after April 1, 1999 with respect to receivables that arise on and after April 1, 1999, which Seller shall remit to Buyer promptly after the receipt thereof in accordance with that certain letter executed today between Buyer and Seller; (c) any accounts receivable of Seller as shown on Schedule 1.3(c) other than accounts receivables which arose on and after April 1, 1999; (d) any intercompany receivables of Seller as shown on Schedule 1.3(d); (e) the legal entity, public entity of HyComp, Inc. or its capital stock. It is agreed that Seller, although selling the name "HyComp" herewith, may continue to use the name "HyComp" in connection with the corporation HyComp, Inc. so long as such corporation does not actively conduct business under such name. At such time as Seller may dissolve its corporate entity it shall retain no further right to the use of the name "HyComp". 3 1.4 Assumption of Liability. At the Closing hereunder the Purchaser ----------------------- shall assume and agree to pay, discharge or perform, as appropriate, the following liabilities and obligations the Seller (the "Assumed Liabilities"): (a) all liabilities and obligations of Seller identified on Schedule 1.4(a). All liabilities shall be paid promptly by Purchaser and in all events within the period in which each liability is due. (b) [Intentionally Omitted]; (c) all liabilities under the purchase orders set forth in Schedule 1.4(c); (d) all taxes of Purchaser accruing subsequent to the Closing Date (as defined in Section 2.1); Purchaser shall not at the Closing assume or agree to perform, pay or discharge, and Seller shall remain unconditionally liable for, all obligations, liabilities and commitments, fixed or contingent, of Seller (including without limitation, intercompany accounts payable and notes payable to lenders), other than the Assumed Liabilities (such liabilities, obligations and commitments shall hereinafter be referred to as "Seller Liabilities"). (e) Liability under warranty for all rework and monetary payments to the extent that in the aggregate, for all such liabilities and payments shall be less than $25,000.00. 4 1.5 Agreement to Purchase. At the Closing, Purchaser shall purchase the --------------------- Assets from Seller in exchange for the purchase price payable under Section 1.6 and the assumption of liabilities and obligations of Seller to the extent and as provided in Section 1.4 of this Agreement. 1.6 Purchase Price. As consideration for the Assets, Purchaser shall deliver -------------- to Seller at the Closing: (a) payment to the Seller of $750,000.00 by delivery of a certified check or by wire transfer completed and with funds immediately available as of the time of Closing (the 'Closing Payment'); (b) The Purchaser shall pay to Seller a royalty of 5% of all sales made to customers of Seller who are not also customers as of the Closing Date, of Purchaser ('Eligible Customers') for a period of 52 weeks (the "Royalty Period") subsequent to the Closing date. The Eligible Customers are those identified on Schedule 1.6(b) annexed hereto. During the Royalty Period, Purchaser shall provide to Seller at least quarterly such records as Seller may reasonably require to account for all such sales to Eligible Customers. Payment shall be made by Purchaser to Seller after receipt of payment from Eligible Customers by Purchaser on a quarterly basis. (c) Amounts identified on Schedule 1.4(a) to be paid at Closing, shall be paid at Closing. 1.7 [Intentionally Omitted] 1.8 Notification to Customers. Purchaser shall make timely notification in ------------------------- writing to all customers of Seller giving notice of Purchaser's purchase of 5 assets pursuant to this agreement, such notification to be made no later than two (2) weeks after the Date of Closing. 2. Closing. ------- 2.1 Time and Place of Closing. The closing (the "Closing") of the sale and ------------------------- purchase of the Assets shall take place at 12:00 P.M., Monday, April 12, 1999 (the "Closing Date") at the offices of Hale and Dorr LLP, 60 State Street, Boston, Massachusetts 02109 or at such other time as may be mutually agreed upon by Purchaser and Seller. 2.2 Items to be Delivered at Closing. -------------------------------- (a) Purchaser shall deliver to Seller: (i) The Closing Payment; (ii) A certificate of vote evidencing approval of the transactions contemplated herein; and (iii) Such other documents as Seller may reasonably require; (b) Seller shall deliver to Purchaser: (i) A bill of sale in customary form; (ii) A certificate of vote evidencing approval of the transactions contemplated herein; (iii) Such legal opinions from Seller's counsel as Purchaser shall reasonably request; and (iv) Such other documents as Purchaser may reasonably require. 6 2.3 Delivery of Possession. At the Closing Seller shall put Purchaser in ---------------------- possession and operating control of the Assets, including but not limited to all purchase orders, contracts, licenses, customer lists and all other documents, books, records, files, data and property that are part of the Assets. Seller shall execute and deliver such further documents and instruments as Purchaser shall reasonably request from time to time in order to cause full possession and control of the Assets to be transferred and delivered to Purchaser. 3. REPRESENTATIONS AND WARRANTIES OF SELLER ---------------------------------------- Seller represents and warrants to Purchaser as follows: 3.1 Corporate Existence. Seller is a corporation duly organized, ------------------- validly existing and in good standing under the laws of the Commonwealth of Massachusetts. 3.2 Corporate Power; Authorization; Enforceable Obligation. Seller ------------------------------------------------------ has the corporate power, authority and legal right to execute, deliver and perform this Agreement. The execution, delivery and performance of this Agreement by Seller have been duly authorized by all necessary corporate action. This Agreement has been, and the other agreements, documents and instruments required to be delivered by Seller in accordance with the provisions hereof ("Seller's Documents") will be, duly executed and delivered by Seller and this Agreement constitutes, and Seller's Documents when executed and delivered will constitute, the legal, valid and binding obligations of Seller, enforceable against Seller in accordance with their respective terms. 3.3 Validity of Contemplated Transactions, etc. The execution, ------------------------------------------ delivery and performance of this Agreement by Seller and the consummation of the transactions contemplated hereby, does not and will not violate, conflict with or result in the breach of any term, condition or provision of, or require the 7 consent of any other person under, (a) any existing law, ordinance, or governmental rule or regulation to which Seller is subject, (b) any judgment, order, writ, injunction, decree or award of any court, arbitrator or governmental or regulatory official, body or authority which is applicable to Seller, (c) the Articles of Organization and By-Laws, each as amended to date, of, or any securities issued by Seller, or (d) any mortgage, indenture, agreement, contract, commitment, lease, plan, permit license, or other instrument, document or understanding , oral or written, to which Seller is a party, by which Seller may have rights or by which any of the Assets may be bound or affected, or give any party, by which Seller may have rights or by which any of the Assets may be bound or affected, or give any party the right thereunder the right to terminate, modify, accelerate, cancel or otherwise change the existing rights or obligations of Seller thereunder. Except as disclosed by Seller and agreed to by Purchaser on or before the Closing Date no authorization, approval or consent of, and no resignation or filing with, any governmental or regulatory official, body or authority is required in connection with the execution, delivery or performance of this Agreement by Seller. 3.4. Financial Statements. -------------------- (a) Seller has also previously delivered to Purchaser its Current unaudited Balance Sheet for February 28, 1999, (the Current Financial Statement") attached as Schedule 3.4(a). The Current Financial Statement will be prepared in accordance with generally accepted accounting principles applied consistently with past practice, and have been certified by the Seller's comptroller in the case of the Current Financial Statements. (b) The Financial Statements for February and March fairly present, as of their respective dates, the financial condition of assets and liabilities of Seller; with respect to the contracts and commitments 8 for the sale of goods or the provision of services by Seller, the Financial Statements contain and reflect adequate reserves, which are consistent with previous reserves taken, for all reasonably anticipated material losses and costs and expenses. 3.5 Absence of Undisclosed Liabilities. Except as and to the extent ---------------------------------- (a) reflected and reserved in the Current Balance Sheet, (b) set forth on Schedule 3.5 attached hereto or (c) incurred in the ordinary course of business after the date of the Current Balance Sheet and not material in amount, either individually or in the aggregate, Seller does not have any liability or obligation, secured or unsecured, whether accrued, absolute, contingent, unasserted or otherwise, affecting the Assets. For purposes of this Section 3.5 "material" means any amount in excess of $75,000.00. 3.6 Contracts and Commitments. ------------------------- (a) Schedule 3.6 annexed hereto contains complete and correct list and description of the following contracts and agreements, whether written or oral (collectively, the "Contracts"): (i) Delete (ii) all pledges, conditional sale or title retention agreements, security agreements, equipment obligations, personal property leases and lease purchase agreements relating to any of the Assets to which Seller is a party or by which Seller or any of its property is bound. (iii) all contracts, agreements, commitments, purchase orders or other understandings or arrangements to which Seller is a party or by which Seller or any of its property is bound which (A) involve payments or receipts by Seller of more than $5,000.00 in the case 9 of any single contract, agreement, commitment, understanding or arrangement under which full performance (including payment) has not been rendered by all parties thereto or (B) which may materially adversely affect the condition (financial or otherwise) or the properties, assets, business or prospects of Seller; (iv) Delete (v) all agency, distributor, sales representative and similar agreement to which Seller is a party; (vi) Delete (vii) all leases, whether operating, capital or otherwise, under which Seller is lessor or lessee; (viii) any other material agreement or contract entered into by Seller, including without limitation, the purchase orders which have been committed to or accepted by Seller. (b) Except as set forth on Schedule 3.6(b) annexed hereto: (i) each Contract is a valid and binding agreement of Seller, enforceable against Seller in accordance with its terms, and Seller does not have any knowledge that any Contract is not a valid and binding agreement of the other parties thereto; (ii) Delete (iii) Seller is not in breach of or default under any Contract, and no event has occurred which with the passage of time or giving of 10 notice or both would constitute such a default, result in a loss of rights or result in the creation of any lien, charge or encumbrance, thereunder or pursuant thereto; (iv) to the best knowledge of Seller, there is no existing breach or default by any other party to any Contract, and no event has occurred which with the passage of time or giving of notice or both would constitute a default by such other party, result in a loss of rights or result in the creation of any lien, charge or encumbrance thereunder or pursuant thereto; (v) Seller is not restricted by any Contract except by government regulation as part of military specifications under which certain products are manufactured from carrying on its business anywhere in the world; and (vi) Delete (c) Delete (d) True, correct and complete copies of all Contracts have previously been delivered by Seller to Purchaser. 3.7 Compliance with Agreements of Laws. Seller has all requisite licenses, ---------------------------------- permits, and certificates, including environmental, health and safety permits, from federal, state and local authorities necessary to conduct its business and own and operate its assets (collectively, the "Permits"). Schedule 3.7 annexed hereto sets forth a true, correct and complete list of all such Permits, copies of which have previously been delivered by Seller to Purchaser. All Permits shall inure to the benefit of Purchaser immediately following the Closing without the requirement of obtaining any consent, giving Purchaser the same rights as Seller immediately prior to the Closing. 11 Except as set forth on Schedule 3.7 annexed hereto, Seller has not since January 1, 1996 received any notice or communication from any federal, state or local governmental or regulatory authority or otherwise of any such violation or noncompliance. 3.8 Delete 3.9 Disclaimer of All Other Warranties. EXCEPT AS SET FORTH IN SECTIONS 3.1 ---------------------------------- THROUGH 3.7 HEREOF, THE ASSETS ACQUIRED BY PURCHASER HEREUNDER ARE BEING SOLD "AS IS" AND "WHERE IS" WITH ALL FAULTS THAT MAY EXIST THEREIN. SELLER DISCLAIMS ANY WARRANTY OF ANY OTHER KIND, INCLUDING ANY WARRANTY THAT THE ASSETS ARE FIT FOR A PARTICULAR PURPOSE. 3.10 Security Clearance. Seller received a Facility Security Clearance for ------------------ 165 Cedar Hill Street, Marlborough, Massachusetts 01752 dated July 24, 1998 from the Defense Investigating Service. This clearance is due to expire on July 23, 1999. 4. REPRESENTATIONS AND WARRANTIES OF PURCHASER. ------------------------------------------- Purchaser represents and warrants to Seller as follows: 4.1 Corporate Existence. Purchaser is a corporation duly organized, validly ------------------- existing and in good standing under the laws of the State of Delaware. 4.2 Corporate Power; Authorization; Enforceable Obligations. Purchaser has -------------------------------------------------------- the corporate power, authority and legal right to execute, deliver and perform this Agreement. The execution, delivery and performance of this Agreement by Purchaser has been duly authorized by all necessary corporate action. This Agreement has been, and the other agreements, documents and instruments required to be delivered by Purchaser in accordance with the provisions hereof ("Purchaser's Documents") will be, duly executed and delivered by Purchaser, and this Agreement constitutes, and 12 Purchaser's Documents when executed and delivered will constitute, the legal, valid and binding obligations of Purchaser; enforceable against Purchaser in accordance with their respective terms. 4.3 Purchaser Objective. The Purchaser acknowledges that it is aware and has -------------------- knowledge that shipments and backlog of business of the Seller has declined in volume and that Seller shall have no liability arising from the sales or backlog decline. 4.4. No Reliance. Purchaser represents that it has conducted its own due ------------ diligence and it is relying solely upon such due diligence with which it is satisfied and it is not relying upon any representations of Seller other than the representations contained herein. 5. CONDITIONS PRECEDENT TO THE CLOSING. ----------------------------------- 5.1 Lease Obligations. This Agreement is subject to Purchaser executing with ------------------ Seller's current landlord (the "Landlord"), on or before the Closing Date, a new lease agreement for the period from the Closing Date to the end of the period of Seller's present lease and an additional period of five (5) years thereafter, for the premises located at 165 Cedar. Hill Street, Marlborough, Massachusetts 01752, and that Seller shall have no obligation to the Landlord during any term of Purchaser's lease or extensions thereof as a result of Purchasers actions or omissions post closing. 5.2 Employment Contract of George Riley. This Purchase Agreement is subject to ------------------------------------ the Purchaser executing with George Riley, on or before the Closing Date, an employment contract on terms mutually agreeable to the Purchaser and to George Riley. Further, it is a condition of this Agreement that the Purchaser assumes all liability with respect to all employment benefits and obligations due to George Riley and annexed hereto on Schedule 5.2. 13 5.3 Conditions to Obligations of Seller. The obligations of Seller ------------------------------------ to consummate the transactions contemplated by this Agreement are subject to the satisfaction, on or before the Closing Date, of the following conditions: (a) Representations and Warranties. The representations and ------------------------------- warranties of Purchaser set forth in this Agreement shall be true and correct in all material respects as of the date of this Agreement and as of the Closing Date as though made on and as of the Closing Date. (b) Performance by the Purchaser. On or before Closing Date, ---------------------------- Purchaser shall have performed and complied with all agreements and conditions required by this Agreement. (c) Form and Content of Documents. The form and content of all ------------------------------ documents, certificates and other instruments to be delivered by Purchaser shall be reasonably satisfactory to Seller. (d) Litigation Affecting Closing. No court order shall have ----------------------------- been issued or entered which would be violated by the consummation of the transactions contemplated by this Agreement. No person or entity shall have commenced or threatened to commence any litigation seeking to restrain or prohibit, or to obtain substantial damages in connection with this Agreement or the transactions contemplated by this Agreement. (e) Purchase Price. Seller shall have received the Closing --------------- Payment constituting the purchase price for the Assets. 5.4 Conditions to Obligations of Purchaser. The obligations of --------------------------------------- Purchaser to consummate the transactions contemplated by this Agreement are subject to the satisfaction on or before the Closing Date of the following conditions. 14 (a) Representations and Warranties. The representations and ------------------------------- warranties of Seller set forth in this Agreement shall be true and correct in all material respects as of the date of this Agreement and as of the Closing Date as though made on and as of the Closing Date. (b) Performance by Seller. Seller shall have performed and ---------------------- complied with all agreements and conditions required by this Agreement. (c) No Threatened or Pending Litigation. On or before the Closing Date, ------------------------------------ no suit, action or other proceeding, or injunction or final judgment relating thereto, shall be threatened or pending before any court or governmental or regulatory official, body or authority in which it is sought to restrain or prohibit or to obtain damages or other relief in connection with this Agreement or the consummation of the transactions contemplated hereby, and no investigation that might result in any such suit, action or proceeding shall be pending or threatened. (d) Delete (e) Form and Content Documents. The form and content of all --------------------------- documents, certificates and other instruments to be delivered by Seller shall be reasonably satisfactory to Purchaser. (b) The transactions contemplated by this Agreement shall have been approved by all necessary corporate and stockholder action by Seller. 6. NON COMPETITION. Seller on behalf of itself and its affiliates ---------------- agrees that neither Seller nor its affiliates will for a period of five (5) years from the Closing Date either directly or indirectly engage in the hybrid circuit business, 15 the thin film circuit business or the flip chip assembly business, each of which are businesses in which Seller is presently engaged. 7. TAXES. Seller will, on a timely basis, file all tax returns for and ----- pay any and all taxes which shall become due or shall have accrued (i ) on account of the operation of the business of Seller or the ownership of the Assets during the period on or before the Closing Date or (ii) on account of the sale of the Assets (including a pro-rata portion of all personal property and excise taxes payable with respect to the Assets of Seller). 8. UNITED STATES GOVERNMENT PROPERTY. Purchaser acknowledges that certain --------------------------------- equipment upon Seller's premises is the property of the United States Government. Such equipment is listed on Schedule 8 annexed hereto. At Closing Seller shall transfer all such property to the possession of Purchaser. However, Seller makes no representation with regard to the final disposition of said property including but not limited to the length of time it will remain in the possession of Purchaser. 9. INDEMNIFICATION. --------------- 9.1 Seller hereby indemnifies and holds harmless Purchaser and its affiliates and their respective officers, directors, employees and agents against all claims, damages, losses, liabilities, costs and expenses (including, without limitation, settlement costs and any legal, accounting or other expenses for investigating or defending any actions or threatened actions) reasonably incurred by such persons in connection with each and all of the following: (a) Any breach by Seller of any representation or warranty in this Agreement; 16 (b) Any breach of any covenant, agreement or obligation of Seller contained in this Agreement or any other agreement, instrument or document contemplated by this Agreement; (c) Any liability or obligation relating to a Seller Liability or otherwise relating to an Excluded Asset; (d) Any violation by Seller of, or any failure by Seller to comply with, any law, ruling, order, decree, regulation or zoning, environmental or permit requirement applicable to Seller, the Assets or its business, whether or not any such violation or failure to comply has been disclosed to Purchaser. (e) The failure of Purchaser to obtain the protections afforded by compliance with the notification and other requirements of the bulk sales laws in force in the jurisdictions in which such laws may be applicable to either Seller or the transaction contemplated by this Agreement; (f) Any warranty claim or product liability claim relating to (I) products manufactured or sold by Seller prior to the Closing Date to the extent resulting in costs, expenses or liabilities to Purchases in the aggregate in excess of $25,000. (g) Any tax liabilities or obligations of Seller; (h) Any mortgage, lien, pledge, security interest, charge, claim, restriction or encumbrance of any nature whatsoever effecting or encumbering the Assets; and 17 (i) Any failure of Seller to comply with any applicable federal or state securities laws or applicable laws relating to shareholder appraisal rights. 9.2 By Purchaser. Purchaser hereby indemnifies and holds harmless ------------ Seller and its affiliates and their respective officers, directors, employees and agents from any and all claims, damages, losses, liabilities, costs and expenses (including, without limitation, settlement costs and any legal, accounting or other expenses for investigating or defending any actions or threatened actions) reasonably incurred by such persons, in connection with each and all of the follows: (a) Any breach by Purchaser of any representation or warranty in this Agreement; (b) Any breach of any covenant, agreement or obligation of Purchaser contained in this Agreement or in any other agreement, instrument or document contemplated by this Agreement; (c) Any Assumed Liability; and (d) Any liability relating to the operation of the business purchased by Purchaser pursuant to this Agreement first arising after the Closing Date (other than a liability resulting from a breach of a representation by Seller or with respect to which Purchaser is indemnified pursuant to Section 9.1 of this Agreement. (e) Any liabilities arising out of the operation of the business by Purchaser first occurring on or after the Closing Date relating to any claims of vendors of Seller and any claims of Employees of Seller who are hired by Purchaser. 18 9.3 Claims for Indemnification. Whenever any claim shall arise for -------------------------- indemnification hereunder the party seeking indemnification (the "Indemnified Party"), shall promptly notify the party from whom indemnification is sought (the "Indemnifying Party") of the claim and, when known, the facts constituting the basis for such claim. In the event of any such claim for indemnification hereunder resulting from or in connection with any claim or legal proceedings by a third-party, the notice to the Indemnifying Party shall specify, if known, the amount or an estimate of the amount of the liability arising therefrom. The Indemnified Party shall not settle or compromise any claim by a third party for which it is entitled to Indemnification hereunder without the prior written consent of the Indemnifying Party, which shall not be unreasonably withheld, unless suit shall have been instituted against it and the Indemnifying Party shall not have taken control of such suit after notification thereof as provided in Section 9.4 of this Agreement. 9.4 Defense of Indemnifying Party. In connection with any claim giving rise ----------------------------- to indemnity hereunder resulting from or arising out of any claim or legal preceding by a person who is not a party to this Agreement the Indemnifying Party at its sole cost and expense may, upon written notice to the Indemnified Party, assume the defense of any such claim or legal proceeding if it acknowledges to the Indemnified Party in writing its obligations to indemnify the Indemnified Party with respect to all elements of such claim. The Indemnified Party shall be entitled to participate in (but not control) the defense of any such action, with its counsel and at its own expense. If the Indemnifying Party does not assume the defense of any such claim or litigation resulting therefrom within thirty (30) days after the date such claims is made, (a) the Indemnified Party may defend against such claim or litigation, in such manner as it may deem appropriate, including, but not limited to, settling such claim or litigation, after giving notice of the same to the Indemnifying Party, on such terms as the Indemnified Party may deem appropriate, and (b) the Indemnifying Party shall be entitled to participate in (but not control) the defense of such action, with its counsel and at its own expense. If the indemnifying Party thereafter seeks to question the manner in which the Indemnified Party defended such third party claim or the amount or nature of any such settlement, the Indemnifying Party 19 shall have the burden to prove by a preponderance of the evidence that the Indemnified Party did not defend or settle such third party claim in a reasonably prudent manner. 9.5 Payment of Indemnification Obligation. All indemnification by Purchaser or ------------------------------------- Seller hereunder shall be effected by payment of cash or delivery of a cashier's or certified check in the amount of the indemnification liability. 9.6 Survival of Representations; Claims for Indemnification. All ------------------------------------------------------- representations and warranties made by the parties herein or in any instrument or document furnished in connection herewith shall survive the Closing and any investigation at any time made by or on behalf of the parties hereto. All claims for indemnification relating to a breach of a representation or warranty shall be asserted prior to the end of the twelve month period commencing on the Closing Date. 10. SELLER'S EMPLOYEES. As of the Closing Date, Purchaser shall offer ------------------ employment to the employees of Seller listed on Schedule 10 annexed hereto. As of the Closing Date, all employees who are employed by Purchaser shall no longer be considered employees of Seller for any purposes. 11. MISCELLANEOUS. ------------- 11.1 Amendment. This Agreement may only be amended by an instrument --------- in writing signed on behalf of each of the parties hereto. 11.2 Extension Waiver. At any time prior to the Closing the parties ---------------- hereto may extend the time for the performance of any of the obligations or other acts of the other parties hereto, waive any inaccuracies in the representations and warranties contained herein or in any document delivered pursuant hereto and waive compliance with any of the agreements or conditions contained herein. Any agreement on the part of a party hereto to any such extension or 20 waiver shall be valid only if set forth in a written instrument signed on behalf of both parties. 11.3 Counterparts. This Agreement may be executed in two or more ------------ counterparts, all of which shall be considered one and the same agreement and shall become effective when two or more counterparts have been signed by each of the parties and delivered to the other parties, it being understood that all parties need not sign the same counterpart. 11.4 Governing Law. This Agreement shall be governed and construed ------------- in accordance with the laws of the Commonwealth of Massachusetts. Each party hereby irrevocably submits to the jurisdiction of the Superior Court of the Commonwealth in respect of any suit, action or proceeding arising out of this Agreement, and irrevocably accepts for themselves for and in respect of their property, generally and unconditionally, the jurisdiction of the aforesaid court. 11.5 Notice. Any notice, request, demand, waiver, consent, approval ------ or other communication which is required or permitted hereunder shall be in writing and shall be deemed given only if delivered personally or sent by registered or certified mail, postage prepaid, as follows: If to Seller, to: HyComp, Inc. C/o XIT Corporation 4290 East Brickell St. Ontario, California 91761-1511 Attention: Carmine T. Oliva 21 With a required copy to: Gaffin & Waldstein P.O. Box 886 1101 Worcester Rd. Framingham, Massachusetts 01701 Attention: Thomas G. Waldstein, Esq. If to Purchaser to: HyComp Acquisition Corp. c/o SatCon Technology Corporation 161 First Street Cambridge, Massachusetts 02142 [Remainder of Page Intentionally Left Blank] 22 Attention: David B. Eisenhaure With a required copy to: Hale and Dorr LLP 60 State Street Boston, Massachusetts 02109 Attention: Jeffrey N. Carp, Esq. or to such other address as the addressee may have specified in a notice duly given to the sender as provided herein. 11.6 Assignment and Binding Effect. This Agreement may not be assigned prior ------------------------------ to the Closing by any party hereto without the prior written consent of the other parties. Subject to the foregoing, all of the terms and provision of this Agreement shall be binding upon and inure to the benefit of and be enforceable by the successors and assigns of Seller and Purchaser. 11.7 Brokers and Finders Fees. Seller, on the one hand, and Purchaser, on the ------------------------- other hand, each to the other represent and warrant that any and all broker's or investment banker's fees due and payable as a result of this Agreement shall be the sole and exclusive responsibility of the party who has engaged such broker or investment banker on its behalf. 11.8 Severability. Any provision of this Agreement which is invalid ------------- or unenforceable in any jurisdiction shall be ineffective to the extent of such invalidity or unenforceability without invalidating or rendering unenforceable the remaining provisions hereof, and any such invalidity or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement under seal as of the date set forth above. 23 HyComp, Inc. By: /s/ Carmine T. Oliva -------------------------------- Carmine T. Oliva Chairman and CEO HyComp Acquisition Corp. By: /s/ David B. Eisenhaure -------------------------------- David B. Eisenhaure President and CEO 24 Omitted Schedules ----------------- Pursuant to Item 601(b)(2) of Regulation S-K promulgated by the Securities and Exchange Commission (the "Commission") under the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, SatCon Technology Corporation has, with respect to the Asset Purchase Agreement by and between HyComp, Inc. and HyComp Acquisition Corp., dated as of March 31, 1999, omitted to file the related schedules (listed below). These schedules will be supplementally furnished to the Commission upon request. Schedules 1.2a Machinery and Equipment 1.2b Prepaid Items 1.2c Inventory 1.2d Purchase Orders 1.3c Accounts Receivable 1.3d Intercompany Receivables 1.4a February Balance Sheet 1.4c Liabilities Under Purchase Orders 1.6b Eligible Customers for Royalty 1.6c.i. Employee Severance ii. Vacation Pay iii. J. Madden Bonus iv. C. O'Connell Reimbursement v. Seller Expenses from March 31 to Closing 1.7 Allocation of Purchase Price 3.6a.ii. Pledges on Assets a.iii. Contracts, Commitments, Purchase Orders 25 a.v. Distributors/Sales Representatives a.vii. Leases 3.6b Exceptions re: contracts 3.7 Permits 5.2 G. Riley Benefits and Obligations 8 United States Government Property 10 Purchaser Employees Hired 26 EX-10.22 3 NOTE PURCHASE AGREEMENT EXHIBIT 10.22 NOTE PURCHASE AGREEMENT NOTE PURCHASE AGREEMENT (this "Agreement") made and entered into as of June 22, 1999, by and among Beacon Power Corporation, a Delaware corporation (the "Company"), Perseus Capital, L.L.C., a Delaware limited liability company ("Perseus"), Duquesne Enterprises, a Pennsylvania corporation ("Duquesne"), Micro Generation Technology Fund, L.L.C., a Delaware limited liability company ("Micro"), and SatCon Technology Corporation, a Delaware corporation ("SatCon" and together with Perseus, Duquesne and Micro, the "Purchasers"). Certain capitalized terms used in this Agreement are defined in Exhibit A attached hereto. Recitals A. Perseus, Duquesne and Micro acquired shares of the Company's Class D Preferred Stock pursuant to a Securities Purchase Agreement dated as of October 23, 1998 by and among the Company and the Purchasers (the "October Agreement"). B. The Company plans to raise additional capital through a bridge financing to be consummated promptly after the date hereof having terms substantially as specified in Exhibit B hereto (the "Bridge Financing"). C. The Company needs funds to operate its business operations prior to completion of the Bridge Financing and in furtherance thereof desires to issue and sell to each of the Purchasers one or more promissory notes substantially in the form attached hereto as Exhibit C with the respective principal amounts specified herein (the "Notes"), and the Purchasers are willing to acquire the Notes, all on the terms and subject to the conditions set forth in this Agreement. D. To induce the Purchasers to acquire the Notes, the Company has agreed to issue to each Purchaser, under the circumstances specified herein, a warrant to acquire shares of the Company's Common Stock, par value $0.01 per share (the "Common Stock"), substantially in the form attached hereto as Exhibit D (the "Warrants"). Agreement In consideration of the mutual promises, covenants and conditions hereinafter set forth, the parties hereto mutually agree as follows: 1. Issuance of Securities. 1.1 Purchase and Sale of the Notes. (a) On the terms and subject to the conditions hereof, at the First Closing, the Company shall issue and sell to each of the Purchasers, and each of the Purchasers shall purchase from the Company, a Note with the principal amount specified below for the purchase price specified below: - --------------------------------------------------------------------- Purchaser Principal Amount Purchase Price - --------- ---------------- -------------- Perseus $250,000 $250,000 - --------------------------------------------------------------------- SatCon 125,000 125,000 - --------------------------------------------------------------------- Micro 50,000 50,000 - --------------------------------------------------------------------- Duquesne 50,000 50,000 - --------------------------------------------------------------------- (b) In addition, on the terms and subject to the conditions hereof, at the Second Closing, the Company shall issue and sell to SatCon, and SatCon shall purchase from the Company, an additional Note with a principal amount of $125,000 for a purchase price of $125,000. 1.2 Issuance of Warrants. In the event that the Notes are not repaid or exchanged in full for Bridge Securities on or prior to September 22, 1999 (other than as a result of good faith computation errors), the Company shall issue and deliver to each Purchaser a Warrant to acquire a number of shares of Common Stock equal to the number of dollars constituting the original principal amounts of such Purchaser's Notes (including in the case of SatCon, the Note issued at the Second Closing). Notwithstanding the foregoing, the Company shall not be required to issue any Warrants under this Section 1.2 to any Purchaser that does not use reasonable efforts to consummate its share of the Bridge Financing substantially on the terms set forth in Exhibit B hereto subject to completion of definitive documentation and subject to there being no material adverse change in the business of the Company after the date hereof. 2. Closings. 2.1 Closings. The sales and purchases contemplated by Section 1(a) of this Agreement shall take place at a closing (the "First Closing") to be held at the offices of Arnold & Porter, 555 Twelfth Street, N.W. Washington DC on June 23, 1999, or at such other time, date and place as are mutually agreeable to the Company and to the Purchasers. The sale and purchase contemplated by Section 1(b) of this Agreement shall take place at a closing (the "Second Closing") to be held at the principal executive offices of the Company at 10 a.m. local time on July 6, 1999, or at such other time, date and place as are mutually agreeable to the Company and to the Purchasers. The date of the First Closing is hereinafter referred to as the "First Closing Date." 2.2 Deliveries. At each Closing, the Company will deliver to each Purchaser the Note to be issued to such Purchaser at such Closing fully executed by the Company, and each Purchaser will deliver to the Company the purchase price therefor by wire transfer thereof to the Company Account (or in the case of Micro, by delivery to the Company of a check made payable to the order of the Company). The parties shall also deliver all documents required to be delivered at the First Closing pursuant to Section 2.3 hereof. - 2 - 2.3 Conditions to First Closing. (a) Conditions to Obligations of the Purchaser. The obligations of the Purchasers to purchase the Notes at the First Closing are subject to the fulfillment on or prior to the First Closing Date of the following conditions, any of which may be waived by the Purchasers: (i) Representations and Warranties Correct: Performance of Obligations. The representations and warranties made by the Company in Section 3 hereof shall have been true and correct in all material respects when made, and shall be true and correct in all material respects on the First Closing Date with the same force and effect as if they had been made on and as of such date, and the Company shall have performed all obligations, covenants and agreements herein required to be performed by it on or prior to the First Closing. (ii) Consents and Waivers. The Company shall have obtained any and all consents (including all governmental or regulatory consents, approvals or authorizations required in connection with the valid execution and delivery of this Agreement and the Related Agreements), permits and waivers necessary or appropriate for consummation of the transactions contemplated by this Agreement or any Related Agreement. (iii) Perfection of Security Interests. The Company shall have taken all actions requested by the Purchasers to perfect the security interests granted under the Notes. (iv) Compliance Certificate. The Company shall have delivered to the Purchasers a certificate, executed by its President, dated as of the First Closing Date, certifying the fulfillment of the conditions specified in subsections (a)(i) and (ii) of this Section 2.3. (v) Secretary's Certificate. The Company shall have delivered to the Purchasers a certificate, executed by its Secretary, dated as of the First Closing Date, certifying the authenticity of attached copies of resolutions of its Board of Directors approving the transactions contemplated hereby and by the Related Agreements. (vi) Other Purchasers. The other Purchasers shall have simultaneously consummated their purchases of Notes at the First Closing in accordance with the terms hereof. (vii) Other Documents. The Purchasers shall have received such other certificates and documents as they shall have reasonably requested. (a) Conditions to Obligations of the Company. The Company's obligations to issue and sell the Notes at the First Closing are subject to the fulfillment on or prior to the First Closing Date of the following condition, which may be waived by the Company: the representations and warranties made by the Purchasers in Section 5 hereof shall have been true and - 3 - correct when made, and shall be true and correct on such First Closing Date with the same force and effect as if they had been made on and as of such date. 2.4 Conditions to Second Closing. The obligations of the Company and SataCon to consummate the issuance, sale and purchase of the Note to be issued, sold and purchased at the Second Closing shall be subject to satisfaction of the following condition: the First Closing shall have occurred and the Notes to be issued, sold and purchased at the First Closing shall have been issued, sold and purchased. The obligations of the Company to consummate the issuance and sale of the Note to be issued and sold at the Second Closing shall also be subject to satisfaction of the following additional condition: the representations and warranties made by SatCon in Section 5 hereof shall have been true and correct when made, and shall be true and correct on such Second Closing Date with the same force and effect as if they had been made on and as of such date. 2.5 Registration Rights. Any shares of Common Stock issued upon the exercise or conversion of any Warrants shall constitute "Registrable Securities" under the Registration Rights Statement attached as Exhibit F to the October Agreement, and such definition is hereby amended in such respect. 3. Representations and Warranties Relating to the Company. Except as otherwise set forth in the Disclosure Schedule attached hereto as Exhibit I to the October Agreement, as supplemented by the Supplemental Disclosure Schedule attached hereto as Exhibit E (collectively, the "Company Disclosure Schedule"), the Company represents and warrants to the Purchasers as set forth below. 3.1 Organization and Good Standing. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. The Company has full corporate power and authority to carry on its business as now conducted and as it is proposed to be conducted, and is duly qualified or licensed to do business and in good standing in each jurisdiction in which the nature of its business or properties makes such qualification or licensing necessary, except where the failure to so qualify or be licensed would not have a Material Adverse Effect. 3.2 Power. Authorization and Validity. The Company has the corporate power, legal capacity and corporate authority to enter into and perform its obligations under this Agreement and each of the Related Agreements to which it is a party. The execution, delivery and performance by the Company of this Agreement and each of the Related Agreements to which it is a party have been duly and validly approved and authorized by all necessary corporate action on its part. No authorization, consent, or approval, governmental or otherwise, is necessary to enable the Company to enter into the Agreement or any Related Agreement to which it is a party and to perform its obligations hereunder or thereunder. This Agreement is, and each of the Related Agreements to which it is a party when executed and delivered by the Company will be, the valid and binding obligations of the Company, enforceable in accordance with their respective terms. Upon their issuance pursuant to the Warrants, all shares of Common Stock issued pursuant to the Warrants shall be duly authorized, validly issued, fully-paid and nonassessable. - 4 - 3.3 No Violation of Existing Agreements. Neither the execution and delivery of this Agreement or any Related Agreement to which it is a party nor the consummation of the transactions or performance of the Company's obligations contemplated hereby or thereby will conflict with, result in a material breach or violation of, or cause a default under, any provision of the Company's Certificate of Incorporation or Bylaws, each as is currently in effect, any instrument, contract or agreement that is material to the business of the Company or any judgment, writ, decree, order, law, statute, ordinance, rule or regulation applicable to the Company. 3.4 Financial Statements. (a) The Company's unaudited consolidated balance sheets as of December 31, 1998 and April 30, 1999 and statements of operations and cash flows for the year ended December 31, 1998 and the four months ended April 30, 1999, including the notes thereto (collectively the "Company Financial Statements"), all of which are attached to the Company Disclosure Schedule, have been prepared in all material respects in accordance with GAAP (except that the April 30, 1999 statements may not contain all footnotes required by GAAP). The Company Financial Statements have been prepared in accordance with the books and records of the Company and present fairly in all material respects the financial position, results of operations, cash flows and equity transactions of the Company as of and for the periods ending on their dates. Except and to the extent reflected or reserved against in the Company Financial Statements, the Company does not have, as of the dates of the Company Financial Statements, any liabilities or obligations (absolute or contingent) of a nature required to be or customarily reflected in a balance sheet (or the notes thereto) prepared in accordance with GAAP. The reserves, if any, reflected on the Company Financial Statements are adequate in light of the contingencies with respect to which they are made. There has been no material change in the Company's accounting policies except as described in the notes to the Company Financial Statements. (b) The Company has no debts, liabilities, or obligations in a material amount, either individually or in the aggregate, of any nature, whether accrued, absolute, contingent, or otherwise, and whether due or to become due, that is not reflected or reserved against in the Company Financial Statements. All material debts, liabilities, and obligations incurred after the date of the Company Financial Statements were incurred in the ordinary course of business, and are usual and normal in amount, both individually and in the aggregate. Since December 31, 1998, the Company has not experienced a Material Adverse Change. 3.5 No Brokers. Neither the Company nor, to the Company's knowledge, any Company shareholder is obligated for the payment of fees or expenses of any broker or finder in connection with the origin, negotiation or execution of this Agreement or any Related Agreement or in connection with any transaction contemplated hereby or thereby. 3.6 Disclosure. The statements by the Company contained in this Agreement, the exhibits hereto, and the certificates and documents required to be delivered by the Company to the Purchasers under this Agreement, taken 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 herein and therein not misleading in light of the circumstances under which such statements were - 5 - made. 3.7 Securities Act. Subject to the accuracy of the Purchaser's representations in Section 5 hereof, the offer, sale and issuance of the Notes and the Warrants in conformity with the terms of this Agreement constitute transactions exempt from the registration requirements of Section 5 of the Securities Act of 1933, as amended, and the qualification or registration requirements of any applicable state securities laws as such laws exist on the date hereof. 3.8 Other Representations and Warranties. The representations and warranties of the Company set forth in Section 3 of the October Agreement are true and correct as of the date hereof in all material respects. 4. [INTENTIONALLY OMITTED.] 5. Representations and Warranties of the Purchasers and Restrictions on Transfer Imposed by the Securities Act of 1933 and Applicable State Securities Laws. 5.1 Representations and Warranties by the Purchaser. Each Purchaser represents and warrants to the Company severally as to itself alone and not jointly as follows: (a) The Note to be issued to such Purchaser at each Closing and any Warrants to be issued hereunder will be acquired by such Purchaser for its own account, for investment and not with a view to, or for resale in connection with, any distribution or public offering thereof within the meaning of the Securities Act of 1933, as amended (the "Securities Act"), or applicable state securities laws. (b) Such Purchaser understands that (i) the Note to be issued to it at such Closing and any Warrant issued hereunder have not been, and upon their issuance will not be, registered under the Securities Act by reason of their issuance in a transaction exempt from the registration and prospectus delivery requirements of the Securities Act pursuant to Section 4(2) thereof and have not been, and upon their issuance will not be, qualified under any state securities laws on the grounds that the offering and sale of securities contemplated by this Agreement are exempt from registration thereunder, and (ii) the Company's reliance on such exemptions is predicated on such Purchaser's representations set forth herein. Such Purchaser understands that the resale of its Note and any Warrants may be restricted indefinitely, unless a subsequent disposition thereof is registered under the Securities Act and registered under any state securities law or is exempt from such registration. (c) Such Purchaser is an "Accredited Investor" as that term is defined in Rule 501 of Regulation D promulgated under the Securities Act. Such Purchaser is able to bear the economic risk of the purchase of its Note and any Warrant pursuant to the terms of this Agreement, including a complete loss of the Purchaser's investment therein. (d) Such Purchaser has the full right, power and authority to enter into and perform such Purchaser's obligations under this Agreement and each Related Agreement to - 6 - which it is or becomes a party, and this Agreement and each Related Agreement to which it is or becomes a party constitute valid and binding obligations of such Purchaser enforceable in accordance with their terms. (e) No consent, approval or authorization of or designation, declaration or filing with any Governmental Body on the part of such Purchaser is required in connection with the valid execution and delivery of this Agreement or any Related Agreement to which it or becomes a party. 5.2 Legend. The Notes and any Warrants may be endorsed with the legends appearing on the first page thereof. The Company may instruct its transfer agent not to register the transfer of the Note, unless the conditions specified in the foregoing legends are satisfied. 5.3 Removal of Legend and Transfer Restrictions. Any legend endorsed on any Note or Warrant pursuant to Section 5.2 relating to compliance with federal or state securities laws and the stop transfer instructions with respect to the Notes and the Warrants relating thereto shall be removed and the Company shall issue a new promissory note or warrant, as the case may be, without such legend to the holder thereof (1) if such Note or Warrant is registered under the Securities Act and a prospectus meeting the requirements of Section 10 of the Securities Act is available, (2) if such legend may be properly removed under the terms of Rule 144 promulgated under the Securities Act, or (3) 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 the Note or Warrant may be made without registration. 6. Additional Covenants. 6.1 Use of Proceeds. The Company hereby covenants and agrees that all of the net proceeds received by it from the issuance and sale of the Notes shall be used for the purpose of developing and conducting its business, which is the development, manufacturing and marketing of flywheel energy storage systems for use in energy storage applications, and no part of such net proceeds shall be used to (i) repay any Person any funds expended by it or advanced by it to the Company prior to the First Closing, unless agreed to in writing by the Purchasers or (ii) pay any broker's fees or commissions or similar payments of any kind. 6.2 Bridge Financing. Upon consummation of the Bridge Financing and exchange of the Notes for the Bridge Securities, each Purchaser shall have all of the rights that such Purchaser would have obtained if it had acquired such Bridge Securities as part of the Bridge Financing, including without limitation any security interests, guaranties, co-sale, preemptive, participation, registration, voting, management or other rights, all representations, warranties, and indemnities made to or in favor of an investor in the Bridge Financing shall also be made to or in favor of such Purchaser, and such Purchaser shall be entitled to rely on an opinion of counsel delivered in connection with the Bridge Financing. - 7 - 7. Miscellaneous. 7.1 Waivers and Amendments. Neither this Agreement nor any provision hereof may be changed, waived, discharged or terminated orally, but only by a statement in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought. 7.2 Arbitration. Any controversy or claim arising out of or relating to this Agreement or any of the Related Agreements, or the breach hereof or thereof, shall be settled by arbitration administered by the American Arbitration Association under its Commercial Arbitration Rules, and judgment on the award rendered by the arbitrators may be entered in any court having jurisdiction thereof. Such arbitration shall be conducted by a panel of three arbitrators, each party having the right to select one arbitrator with the third arbitrator to be selected in accordance with the rules of the American Arbitration Association. 7.3 Governing Law. This Agreement shall be governed in all respects by the laws of the State of New York without regards to the principles of conflicts of laws thereof. 7.4 Survival. The representations, warranties, covenants and agreements made herein shall survive the execution of this Agreement and the Closing of the transactions contemplated hereby. 7.5 Successors and Assigns. Except as otherwise expressly provided herein and subject to the Related Agreements and applicable law, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto. 7.6 Entire Agreement. This Agreement, the Related Agreements and other exhibits to this Agreement and the other documents delivered pursuant hereto constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof. 7.7 Notices, etc. 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 by facsimile transmission or three days after being mailed, registered or certified mail, return receipt requested, with postage prepaid, to the address or facsimile number (as the case may be) listed for each such party below or, if any party shall have designated a different address or facsimile number by notice to the other party given as provided above, then to the last address or facsimile number so designated. - 8 - If to the Company: Beacon Power Corporation 6D Gill Street Woburn, MA 01801 Fax No.: (781) 938-9401 Attn: Chief Executive Officer With a required copy to: Albert L. Sokol Edwards & Angell, LLP 101 Federal Street Boston, MA 02110-1800 Fax No.: (617) 439-4170 If to the Perseus: Perseus Capital, L.L.C. The Army and Navy Club Building 1627 I Street, N.W. Suite 610 Washington, D.C. 20006 Attn: Kenneth M. Socha Fax No. (202) 463-6215 With a required copy to: Arnold & Porter 555 l2th Street, N.W. Washington, D.C. 20004 Attn: Robert B. Ott Fax No.: (202) 942-5999 If to SatCon: David Eisenhaure President 161 First Street Cambridge, MA 02142 Fax No.: (617) 661-3373 - 9 - With a required copy to: Jeffrey N. Carp, Esq. Hale and Dorr LLP 60 State Street Boston, MA 02109 Fax No.: (617) 526-5000 If to Duquesne: Rachel Lorey Vice President One Northshore Center Suite 100 12 Federal Street Pittsburgh, PA 15212 Fax No: 412-231-2140 With a required copy to: David J. Lehman, Esq. Kirkpatrick & Lockhart LLP 1500 Oliver Building Pittsburgh, PA 15222 Fax No: 412-255-6501 If to Micro: c/o Robert W. Shaw, Jr. Arete Corporation P.O. Box 1299 Center Harbor, New Hampshire 03226 Fax No.: (603) 253-9799 7.8 Separability. In case any provision of this Agreement shall be declared invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 7.9 Expenses. The Company bear its expenses and legal fees incurred with respect to this Agreement, each of the Related Agreements and the transactions contemplated hereby and thereby. All reasonable costs and expenses of the Purchasers relating to this Agreement, each of the Related Agreements and the transactions contemplated hereby and thereby, including reasonable fees and expenses of legal counsel, shall be promptly paid or reimbursed by the Company. - 10 - 7.10 Titles and Subtitles. The titles of the paragraphs and subparagraphs of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement. 7.11 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument. 7.12 Publicity. None of the parties to this Agreement, nor any of their affiliates, shall issue any press release or otherwise make any public announcement or disclosure with respect to this Agreement, any of the Related Agreements or any of the transactions contemplated hereby or thereby without the prior written consent of each of the Company, and the Purchasers, unless such disclosure is required by applicable law. - 11 - IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. BEACON POWER CORPORATION By: /s/ William E. Stanton ---------------------------------- Name: William E. Stanton -------------------------------- Title: President & CEO ------------------------------- PERSEUS CAPITAL, L.L.C. By: ---------------------------------- Name: -------------------------------- Title: ------------------------------- SATCON TECHNOLOGY CORPORATION By: ---------------------------------- Name: -------------------------------- Title: ------------------------------- 11 IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. BEACON POWER CORPORATION By: ---------------------------------- Name: -------------------------------- Title: ------------------------------- PERSEUS CAPITAL, L.L.C. By: ---------------------------------- Name: -------------------------------- Title: ------------------------------- SATCON TECHNOLOGY CORPORATION By: /s/ David B. Eisenhaure ---------------------------------- Name: David B. Eisenhaure -------------------------------- Title: President, SatCon ------------------------------- 11 IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. BEACON POWER CORPORATION By: ---------------------------------- Name: -------------------------------- Title: ------------------------------- PERSEUS CAPITAL, L.L.C. By: /s/ Philip J. Deutch ---------------------------------- Name: Philip J. Deutch -------------------------------- Title: Managing Director ------------------------------- SATCON TECHNOLOGY CORPORATION By: ---------------------------------- Name: -------------------------------- Title: ------------------------------- 11 DUQUESNE ENTERPRISES By: ---------------------------------- Name: -------------------------------- Title: ------------------------------- MICRO-GENERATION TECHNOLOGY FUND, L.L.C. BY ARETE CORPORATION, ITS MANAGER By: /s/ Robert W. Shaw, Jr. ---------------------------------- Robert W. Shaw, Jr. President 13 EXHIBIT A CERTAIN DEFINITIONS For purposes of the Agreement to which this Exhibit A is attached, the following terms have the following meanings: "Bridge Securities" means the securities issued to investors as part of the Bridge Financing, including without limitation any warranties, options or rights to acquired additional securities of the Company or any of its affiliates. "Business Day" means any day other than a Saturday, Sunday or other day on which the national or state banks located in the State of New York, the State of Massachusetts, or the District of Columbia are authorized to be closed. "Company Account" means an account of the Company designated in a written notice delivered to the Purchasers at least two Business Days prior to the date of any required payment by the Purchasers to the Company under the Agreement. "GAAP" means United States generally accepted accounting principles consistently applied. "Governmental Body" means any: (a) nation, state, commonwealth, province, territory, county, municipality, district or other jurisdiction of any nature; (b) federal, state, local, municipal, foreign or other government; or (c) governmental or quasi-governmental authority of any nature (including any governmental division, department, agency, commission, instrumentality, official, organization, unit, body or entity and any court or other tribunal). "Material Adverse Change" means a change which would have a Material Adverse Effect. "Material Adverse Effect." An event, violation or other matter will be deemed to have a "Material Adverse Effect" on the Company if such event, violation or other matter would be material in impact or amount to the Company's business, intellectual property rights or condition, or, taken as a whole, its assets, liabilities, operations, or financial performance. "Person" means any individual, entity or Governmental Body. "Related Agreements" means (a) the Notes; (b) any Warrants; and (c) any other agreement or document entered into by any of the parties in connection with the Agreement or any of the transactions contemplated thereby. EXHIBIT C SENIOR SECURED CONVERTIBLE PROMISSORY NOTE THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY APPLICABLE STATE SECURITIES LAWS. IT MAY NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND COMPLIANCE WITH SUCH STATE SECURITIES LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION AND/OR COMPLIANCE IS NOT REQUIRED. THE SALE OR TRANSFER AND CERTAIN OTHER RIGHTS RELATING TO THE SECURITIES REPRESENTED BY THIS DOCUMENT ARE SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN SHAREHOLDER AGREEMENT BY AND AMONG THE COMPANY AND CERTAIN SHAREHOLDERS OF THE COMPANY. A COPY OF SUCH AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY. [Principal Amount] June 22, 1999 WOBURN, MA FOR VALUE RECEIVED, Beacon Power Corporation, a Delaware corporation (the "Company"), promises to pay to the order of ____________,or its registered assigns (the "Holder"), the principal sum of $__________ or such lesser amount as shall then equal the outstanding principal amount hereof, together with interest from the date of issuance of this Note on the unpaid principal balance hereof at a rate equal to twelve and one-half percent (12 1/2%) per annum, computed on the basis of the actual number of days elapsed and a year of 365 days; provided that if this Note is not repaid in full on or prior to the Maturity Date, such interest rate shall increase effective as of the close of business on the Maturity Date to fifteen percent (15%) per annum. All unpaid principal, together with any accrued but unpaid interest and other amounts payable hereunder, shall be due and payable on the earlier of (i) September 22, 1999 (the "Maturity Date") or (ii) upon or after the occurrence of an Event of Default (as defined below), when such amounts are declared due and payable by the Holder or made automatically due and payable. Interest on this Note shall be payable on the Maturity Date. This Note is issued pursuant to the Note Purchase Agreement (the "Purchase Agreement") dated as of June 22, 1999 by and among the Company, Perseus Capital, L.L.C., Duquesne Enterprises, Micro Generation Technology Fund, L.L.C. and SatCon Technology Corporation. The following is a statement of the rights of the Holder and the conditions to which this Note is subject, and to which the Holder hereof, by the acceptance of this Note, agrees: 1. Definitions. As used in this Note, the following capitalized terms have the following meanings: (a) "Business Day" means any day other than a Saturday, Sunday or other day on which the national or state banks located in the State of Massachusetts or the State of New York are authorized to be closed. (b) "Bridge Financing" has the meaning specified in the Purchase Agreement. (c) "Bridge Securities" has the meaning specified in the Purchase Agreement. (d) "Obligations" means the principal, interest and other amounts payable under this Note. (e) "Transaction Documents" shall mean this Note, the Purchase Agreement, and any other promissory note issued pursuant to the Purchase Agreement. 2. Events of Default. The occurrence of any of the following shall constitute an "Event of Default" under this Note: (a) Failure to Pay. The Company shall fail to pay (i) when due any principal payment on this Note or (ii) any interest or other payment required under the terms of this Note or any other Transaction Document within five Business Days of its due date; or (b) Breaches of Other Covenants. The Company shall materially fail to observe or to perform any other covenant, obligation, condition or agreement contained in this Note or the other Transaction Documents, other than those specified in Section 2(a) hereof, and such failure shall continue for 30 days after written notice thereof to the Company; or (c) Voluntary Bankruptcy or Insolvency Proceedings. The Company shall (i) apply for or consent to the appointment of a receiver, trustee, liquidator or custodian of itself or of all or a substantial part of its property, (ii) be unable, or admit in writing its inability, to pay its debts generally as they mature, (iii) make a general assignment for the benefit of its or any of its creditors, (iv) be dissolved or liquidated in full or in part, (v) become insolvent (as such term may be defined or interpreted under any applicable statute), (vi) commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or consent to any such relief or to the appointment of or taking possession of its property by any official in an involuntary case or other proceeding commenced against it or (vii) take any action for the purpose of effecting any of the foregoing; or (d) Involuntary Bankruptcy or Insolvency Proceedings. Proceedings for the appointment of a receiver, trustee, liquidator or custodian of the Company or of all or a substantial part of the property thereof, or an involuntary case or other proceedings seeking -2- liquidation, reorganization or other relief with respect to the Company or the debts thereof under any bankruptcy, insolvency or other similar law now or hereafter in effect shall be commenced and an order for relief entered, or such case or proceeding shall not be dismissed or discharged within 45 days of commencement; or (e) Cross-Default. The Company or any of its subsidiaries shall default under any bond, debenture, note or other evidence of indebtedness for money borrowed (excluding any capital lease), under any guarantee or under any mortgage, or indenture pursuant to which there shall be issued or by which there shall be secured or evidenced any indebtedness for money borrowed by the Company or any of its subsidiaries, whether such indebtedness now exists or shall hereafter be created, which default shall have resulted in indebtedness of at least $10,000 being due and payable prior to the date on which it would otherwise become due and payable and shall not have been issued by the Company or waived by the lender; or (f) Undischarged Judgment. One or more judgments for the payment of money in an amount in excess of $10,000 in the aggregate shall be rendered against the Company or any of its subsidiaries (or any combination thereof) and shall remain undischarged for a period of ten consecutive days during which execution shall not be effectively stayed, or any action is legally taken by a judgment creditor to levy upon any such judgment. 3. Rights of Holder Upon Default. Upon the occurrence or existence of any Event of Default (other than an Event of Default referred to in Sections 2(c) and 2(d) hereof) and at any time thereafter during the continuance of such Event of Default, the Holder may declare all outstanding Obligations payable by the Company hereunder to be immediately due and payable without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived, anything contained herein or in the other Transaction Documents to the contrary notwithstanding. Upon the occurrence or existence of any Event of Default described in Sections 2(c) and 2(d) hereof, immediately and without notice, all outstanding Obligations payable by the Company hereunder shall automatically become immediately due and payable, without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived, anything contained herein or in the other Transaction Documents to the contrary notwithstanding. In addition to the foregoing remedies, upon the occurrence or existence of any Event of Default, the Holder may exercise any other right, power or remedy granted to it by the Transaction Documents or otherwise permitted to it by law, either by suit in equity or by action at law, or both. 4. Collateral. To secure the Company's payment and performance of the Obligations and to secure the Company's prompt, full and faithful performance and observance of all of the provisions under this Note and the other Transaction Documents, the Company hereby grants the Holder a security interest in all of the Company's right, title and interest in and to the following, whether now owned or hereafter acquired or existing and wherever located: (a) All inventory and equipment, and all parts thereof, attachments, accessories and accessions thereto, products thereof and documents therefor; (b) All accounts, contract rights, chattel paper, instruments, deposit accounts, general intangibles and other obligations of any kind, and all rights now or hereafter existing in -3- and to all mortgages, security agreements, leases or other contracts securing or otherwise relating to any of the same; (c) All intellectual property and trade secrets, including, without limitation, (i) all patents, patent applications and patentable inventions and (i) the inventions and improvements described and claimed therein; (ii) any continuation, division, renewal, extension, substitute or reissue thereof or any legal equivalent in a foreign country for the full term thereof or the terms for which the same may be granted; (iii) all rights to income, royalties, profits, awards, damages and other rights relating to said patents, applications and inventions, including the right to sue for past, present and future infringement and (iv) any other rights and benefits relating to said patents, applications and inventions including any rights as a licensor or licensee of said patents, applications and inventions (the "Patents"); (ii) all trademarks, trademark registrations, trademark applications, service marks, service mark registrations and service mark applications, trade names, fictitious business name, tradestyles, and the goodwill underlying those trademarks and service marks and (i) any similar marks or amendments, modifications and renewals thereof and the goodwill represented by those and any legal equivalent in a foreign country for the full term or terms for which the same may be granted; (ii) all rights to income, royalties, profits, damages and other rights relating to said trademarks and service marks including the right to sue for past, present or future infringement and (iii) any other rights and benefits relating to said trademarks and service marks including any rights as a licensor or licensee of said trademark and service mark (the "Trademarks"); (iii) all copyrights, copyright registrations and copyright applications, including without limitation those copyrights for computer programs, computer databases, flow diagrams, maskworks, maskwork applications, source codes and object codes, computer software, technical knowledge and processes, trade secrets, know-how, customer lists, franchises, systems, inventions, designs, blueprints, formal or informal licensing arrangements, and all property embodying or incorporating such copyrights and (i) any similar rights or amendments, modifications and renewals thereof and any legal equivalent in a foreign country for the full term or terms for which the same may be granted; (ii) all rights to income, past, present and future infringement and (iii) any other rights and benefits relating to said copyrights (the "Copyrights"); (d) all substitutions and replacements for, and all rights to exploit, all of the foregoing; (e) all books and records pertaining to any of the foregoing; and (f) all proceeds of all of the foregoing and, to the extent not otherwise included, all payments under insurance or any indemnity, warranty or guaranty, payable by reason of loss or damage to or otherwise with respect to any of the foregoing. All of the above assets are hereinafter collectively referred to as "Collateral." -4- The Company covenants and agrees with Holder that: (x) the security interest granted under this Note is in addition to any other security interest from time to time held by the Holder; (y) the Holder may realize upon all or part of any Collateral in any order it desires and any realization by any means upon any Collateral will not bar realization upon any other Collateral; and (z) the security interest hereby created is a continuing security interest and will cover and secure the payment of all Obligations both present and future of the Company to Holder pursuant to this Note and the other Transaction Documents. The Company further covenants and agrees to take all actions requested by the Holder to establish or perfect the security interest granted under this Note. 5. Prepayment. This Note may be prepaid as a whole or in part at any time prior to the Maturity Date upon at least ten Business Days prior written notice to the Holder. Any such prepayment shall be applied first to the payment of expenses due under this Note, second to interest accrued on this Note and third, if the amount of prepayment exceeds the amount of all such expenses and accrued interest, to the payment of principal of this Note. An exchange pursuant to Section 6 hereof shall not constitute a prepayment for purposes of this Section 5. 6. Exchange. (a) Exchange For Bridge Securities. Upon consummation of the Bridge Financing, this Note shall automatically be exchanged for (without any action on the part of the Company or the Holder) the number of Bridge Securities that an investor in the Bridge Financing would acquire for an aggregate purchase price equal to the sum of the then outstanding principal amount of this Note plus all accrued but unpaid interest hereon. (b) Mechanics and Effect of Exchange. No fractional shares of capital stock of the Company shall be issued upon exchange of this Note. Upon such exchange of all of the principal and accrued interest outstanding under this Note, in lieu of the Company issuing any fractional shares to the Holder, the Company shall pay to the Holder the amount of outstanding principal or interest that is not so exchanged. Upon full exchange of this Note, the Company shall be forever released from all its obligations and liabilities under this Note. 7. Successors and Assigns. Subject to the restrictions on transfer described in Sections 9 and 10 hereof, the rights and obligations of the Company and the Holder of this Note shall be binding upon and benefit the successors, assigns, heirs, administrators and transferees of the parties. 8. Waiver and Amendment. Any provision of this Note may be amended, waived or modified only as to the Holder of this Note upon the written consent of the Company and the Holder. 9. Transfer of this Note or Securities Issuable on Conversion Hereof. This Note may not be transferred in violation of any restrictive legend set forth hereon. Each new Note issued upon transfer of this Note shall bear a legend as to the applicable restrictions on transferability in order to ensure compliance with the Securities Act, unless in the opinion of counsel for the Company such legend is not required in order to ensure compliance with the Securities Act. The Company may issue stop transfer instructions to its transfer agent in connection with such -5- restrictions. Subject to the foregoing, transfers of this Note shall be registered upon registration books maintained for such purpose by or on behalf of the Company. Prior to presentation of this Note for registration of transfer, the Company shall treat the registered holder hereof as the owner and holder of this Note for the purpose of receiving all payments of principal and interest hereon and for all other purposes whatsoever, whether or not this Note shall be overdue and the Company shall not be affected by notice to the contrary. 10. Assignment by the Company. Neither this Note nor any of the rights, interests or obligations hereunder may be assigned, by operation of law or otherwise, in whole or in part, by the Company, without the prior written consent of the Holder. 11. Treatment of Note. To the extent permitted by generally accepted accounting principles, the Company will treat, account and report the Note as debt and not equity for accounting purposes and with respect to any returns filed with federal, state or local tax authorities. 12. Notices. Any notice, request or other communication required or permitted hereunder shall be in writing and shall be deemed to have been duly given if personally delivered or mailed by registered or certified mail, postage prepaid, or by recognized overnight courier, personal delivery or facsimile transmission at the respective addresses or facsimile number of the parties as set forth in the Purchase Agreement or on the register maintained by the Company. Any party hereto may by notice so given change its address or facsimile number for future notice hereunder. Notice shall conclusively be deemed to have been given when received. 13. Expenses; Waivers. If action is instituted to collect this Note, the Company promises to pay all costs and expenses, including, without limitation, reasonable attorneys' fees and costs, incurred in connection with such action. The Company hereby waives notice of default, presentment or demand for payment, protest or notice of nonpayment or dishonor and all other notices or demands relative to this instrument. 14. Governing Law. This Note and all actions arising out of or in connection with this Note shall be governed by and construed in accordance with the laws of the State of New York, without regard to conflict of laws provisions of the State of New York or of any other state. In the event of any dispute among or between any of the parties to this Note arising out of the terms of this Note, the parties hereby consent to the exclusive jurisdiction of the federal and state courts located in the State of New York for resolution 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. IN WITNESS WHEREOF, the Company has caused this Note to be issued as of the date first written above. BEACON POWER COPORATION By: ----------------------------- Name: --------------------------- -6- Title: -------------------------- -7- EXHIBIT D THE SECURITIES EVIDENCED BY THIS WARRANT CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE SOLD, TRANSFERRED, OR ASSIGNED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN ACCORDANCE WITH RULE 144 UNDER THE SECURITIES ACT, OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF SUCH SECURITIES REASONABLY SATISFACTORY TO THE COMPANY STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT. THE SALE OR TRANSFER AND CERTAIN OTHER RIGHTS RELATING TO THE SECURITIES REPRESENTED BY THIS DOCUMENT ARE SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN SHAREHOLDER AGREEMENT BY AND AMONG THE COMPANY AND CERTAIN SHAREHOLDERS OF THE COMPANY. A COPY OF SUCH AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY. No.: ---- WARRANT TO PURCHASE COMMON STOCK OF BEACON POWER CORPORATION (void after September 23, 2005) 1. Issuance of Warrant. FOR VALUE RECEIVED, on and after the date of issuance of this Warrant, and subject to the terms and conditions herein set forth, the Holder (as defined below) is entitled to purchase from Beacon Power Corporation, a Delaware corporation (the "Company"), at any time before 5:00 p.m. New York time on September 23, 2005 (the "Termination Date"), at a price per share equal to the Warrant Price (as defined below and subject to adjustment as described below), the Warrant Stock (as defined below and subject to adjustment as described below) upon exercise of this warrant (this "Warrant") pursuant to Section 6 hereof. This Note is issued pursuant to the Note and Warrant Purchase Agreement (as defined below). 2. Definitions. As used in this Warrant, the following terms have the definitions ascribed to them below: (a) "Business Day" means any day other than a Saturday, Sunday or other day on which the national or state banks located in the State of Massachusetts or the State of New York or the District of Columbia are authorized to be closed. (b) "Change-In-Control Event" means the occurrence after the Commencement Date of any of the following: (i) the acquisition of voting securities of the Company by any person or group of persons that results in such person or group, together with its affiliates, becoming, directly or indirectly, the beneficial owner of in excess of 50% of the outstanding voting securities of the Company; (ii) a merger or consolidation of the Company with any other corporation or legal entity regardless of which entity is the survivor, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or being converted into voting securities of the surviving entity) in excess of 50% of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; or (iii) the sale or disposition of all or substantially all of the Company's assets other than in a transaction in which holders of the voting securities of the Company immediately prior to such transaction receive voting securities of the acquiror of such assets or its affiliate that represent in excess of 50% of the voting securities of such entity after consummation of such transaction. (c) "Commencement Date" means September 23, 1999. (d) "Common Stock" means the common stock, par value $0.01 per share, of the Company. (e) "Holder" means _______________,or its assigns. (f) "Note Purchase Agreement" means the Note Purchase Agreement dated as of June 22, 1999 by and among the Company, Perseus Capital, L.L.C., Duquesne Enterprises, Micro Generation Technology Fund, L.L.C., and SatCon Technology Corporation. (g) "Warrant Price" means $1.00 per share, subject to adjustment as described in Section 3 below. (h) "Warrant Stock" means the shares of Common Stock (or other securities) purchasable upon exercise of this Warrant or issuable upon conversion of this Warrant. The total number of shares to be issued upon the exercise of this Warrant shall be _______, subject to adjustment as described in Section 3 below. 3. Adjustments and Notices. The Warrant Price and/or the number of shares of Warrant Stock shall be subject to adjustment from time to time in accordance with this Section 3. The Warrant Price and/or the number of Warrant Shares shall be adjusted to reflect all of the following events that occur on or after June 22, 1999. (a) Subdivision, Stock Dividends or Combinations. In case the Company shall at any time subdivide the outstanding shares of Common Stock or shall issue a stock dividend with -2- respect to the Common Stock, the Warrant Price in effect immediately prior to such subdivision or the issuance of such dividend shall be proportionately decreased, and in case the Company shall at any time combine the outstanding shares of the Common Stock, the Warrant Price in effect immediately prior to such combination shall be proportionately increased, in each case effective at the close of business on the date of such subdivision, dividend or combination, as the case may be. (b) Reclassification, Exchange, Substitution, In-Kind Distribution. Upon any reclassifications, exchange, substitution or other event that results in a change of the number and/or class of the securities issuable upon exercise or conversion of this Warrant or upon the payment of a dividend in securities or property other than shares of Common Stock, the Holder shall be entitled to receive, upon exercise or conversion of this Warrant, the number and kind of securities and property that Holder would have received if this Warrant had been exercised or converted immediately before the record date for such reclassification, exchange, substitution, or other event or immediately prior to the record date for such dividend. The Company or its successor shall promptly issue to Holder a new warrant for such new securities or other property. The new warrant shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 3 including, without limitation, adjustments to the Warrant Price and to the number of securities or property issuable upon exercise or conversion of the new warrant. The provisions of this Section 3(b) shall similarly apply to successive reclassifications, exchanges, substitutions, or other events and successive dividends. (c) Reorganization, Merger etc. In case of any (i) merger or consolidation of the Company into or with another corporation where the Company is not the surviving corporation, (ii) sale, transfer or lease (but not including a transfer or lease by pledge or mortgage to a bona fide lender) of all or substantially all of the assets of the Company or (iii) sale by the Company's shareholders of 50% or more of the Company's outstanding securities in one or more related transactions, the Company, or such successor or purchasing corporation, as the case may be, shall, as a condition to closing any such reorganization, merger or sale, duly execute and deliver to the Holder hereof a new warrant so that the Holder shall have the right to receive, at a total purchase price not to exceed that payable upon the exercise or conversion of the unexercised or unconverted portion of this Warrant, and in lieu of the shares of the Common Stock theretofore issuable upon exercise or conversion of this Warrant, the kind and amount of shares of stock, other securities, money and property receivable upon such reorganization, merger or sale by the Holder of the number of shares of Common Stock then purchasable under this Warrant. Such new warrant shall provide for adjustments that shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 3. The provisions of this subparagraph (c) shall similarly apply to successive reorganizations, mergers and sales. (d) Dilutive Issuances. (i) If the Company, at any time or from time to time after June 22, 1999, shall issue any Additional Stock (as defined below) without consideration or for a consideration per Common Stock Equivalent Share less than the Warrant Price in effect immediately prior to the issuance of such Additional Stock, then the Warrant Price in effect immediately prior to each such issuance shall forthwith be adjusted to a price determined by -3- multiplying such Warrant Price by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such issuance plus the number of shares of Common Stock that the aggregate consideration received by the Company for such issuance would purchase at such Warrant Price; and the denominator of which shall be the number of shares of Common Stock outstanding immediately prior to such issuance plus the number of shares of such Additional Stock. For purposes of this clause (i), the number of shares of Common Stock outstanding at a given time shall be deemed to be the number of shares of Common Stock that are then issued and outstanding plus the number of shares of Common Stock then issuable upon exercise of all then outstanding warrants, options or similar rights to purchase Common Stock or securities convertible into Common Stock plus the number of shares of Common Stock then issuable upon conversion of such convertible securities and all other convertible securities of the Company then outstanding. (ii) In the case of the issuance of Common Stock for cash, the consideration received therefor shall be deemed to be the amount of cash paid therefor before deducting any reasonable discounts, commissions or other expenses allowed, paid or incurred by the company for any underwriting or otherwise in connection with the issuance and sale thereof. (iii) In the case of the issuance of Common Stock for a consideration in whole or in part other than cash, the consideration other than cash received therefor shall be deemed to be the fair value thereof as reasonably determined by the Board of Directors of the Company in its good faith judgment irrespective of any accounting treatment. (iv) In the case of the issuance, whether before, on or after the Commencement Date, of options to purchase or rights to subscribe for Common Stock, securities by their terms convertible into or exchangeable for Common Stock or options to purchase or rights to subscribe for such convertible or exchangeable securities (which are not excluded from the definition of Additional Stock), the following provisions shall apply: (A) The aggregate maximum number of shares of Common Stock deliverable upon exercise of such options to purchase or rights to subscribe for Common Stock shall be deemed to have been issued at the time such options or rights were issued and for a consideration equal to the consideration (determined in the manner provided in clauses (ii) or (iii)), if any, received by the Company upon the issuance of such options or rights plus the minimum purchase price provided in such options or rights (without taking into account potential anti-dilution adjustments) for the Common Stock covered thereby. (B) The aggregate maximum number of shares of Common Stock deliverable upon conversion of or in exchange for any such convertible or exchangeable securities or upon the exercise of options to purchase or rights to subscribe for such convertible or exchangeable securities and subsequent conversion or exchange thereof shall be deemed to have been issued at the time such securities were issued or such options or rights were issued and for a consideration equal to the consideration, if any, received by the corporation for any such securities and related options or rights (excluding any cash received on account of accrued interest or accrued dividends), plus the additional consideration, if any, to be received by the -4- Company upon the conversion or exchange of such securities or the exercise of any related options or rights (the consideration in each case to be determined in the manner provided in clauses (ii) or (iii)). (C) In the event of any change in the number of shares of Common Stock deliverable or any increase in the consideration payable to this corporation upon exercise of such options or rights or upon conversion of or in exchange for such convertible or exchangeable securities, including, but not limited to, a change resulting from the antidilution provisions thereof, the Warrant Price obtained with respect to the adjustment that was made upon the issuance of such options, rights or securities, and any subsequent adjustments based thereon, shall be recomputed to reflect such change, but no further adjustment shall be made for the actual issuance of Common Stock or any payment of such consideration upon the exercise of any such options or rights or the conversion or exchange of such securities. (D) Upon the expiration of any such options or rights, the termination of any such rights to convert or exchange or the expiration of any options or rights related to such convertible or exchangeable securities, the Warrant Price obtained with respect to the adjustment which was made upon the issuance of such options, rights or securities or options or rights related to such securities, and any subsequent adjustments based thereon, shall be recomputed to reflect the issuance of only the number of shares of Common Stock actually issued upon the exercise of such options or rights, upon the conversion or exchange of such securities or upon the exercise of the options or rights related to such securities. Upon the expiration of any such options or rights, the termination of any such rights to convert or exchange or the expiration of any options or rights related to such convertible or exchangeable securities, only the number of shares of Common Stock actually issued upon the exercise of such options or rights, upon the conversion or exchange of such securities or upon the exercise of the options or rights related to such securities shall continue to be deemed to be issued. (E) The number of shares of Common Stock deemed issued and the consideration deemed paid therefor pursuant to clauses (iv)(A) and (iv)(B) of this Section 3(d) shall be appropriately adjusted to reflect any change, termination or expiration of the type described in either clause (iv)(C) or (iv)(D) of this Section 3(d). (v) "Additional Stock" shall mean any shares of Common Stock issued (or deemed to have been issued pursuant to clause (iv) of this Section 3(d)) by the Company after June 22, 1999 other than shares of Common Stock issued or issuable: (A) to officers, directors, employees and consultants of the Company directly or pursuant to a stock option plan or restricted stock plan approved by the Board of Directors of the Company; (B) upon conversion of the Class A, B, C or D Preferred Stock of the Company or the exercise of the Warrants issued under the Securities Purchase Agreement; -5- (C) to persons or entities with which the Company has business relationships provided such issuances are for other than primarily equity financing purposes and provided that at the time of any such issuance, the aggregate of such issuance and similar issuances in the preceding twelve-month period do not exceed 2% of the then outstanding Common Stock of the Company (assuming full conversion and exercise of all convertible and exercisable securities then outstanding) or such issuance is expressly approved by a majority of the director representatives of the holders of Class D Preferred Stock on the Company's Board of Directors. (vi) "Common Stock Equivalent Share" means with respect to any security that is ultimately convertible into shares of Common Stock or ultimately exercisable for shares of Common Stock, the total number of shares of Common Stock that may be acquired upon full exercise of all such rights. (e) Certificate of Adjustment. In each case of an adjustment or readjustment of the Warrant Price, the Corporation, at its own expense, shall cause its Chief Financial Officer to compute such adjustment or readjustment in accordance with the provisions hereof and prepare a certificate showing such adjustment or readjustment, and shall mail such certificate, by first class mail, postage prepaid, to the Holder. The certificate shall set forth such adjustment or readjustment, showing in detail the facts upon which such adjustment or readjustment is based. No adjustment of the Warrant Price shall be required to be made unless it would result in an increase or decrease of at least one cent, but any adjustments not made because of this sentence shall be carried forward and taken into account in any subsequent adjustment otherwise required hereunder. (f) Adjustment to Number of Shares of Warrant Stock. In the event the Warrant Price is adjusted under any provision of this Section 3, the number of shares of Warrant Stock shall be simultaneously adjusted by multiplying the number of shares of Warrant Stock by a fraction, the numerator of which is the Warrant Price in effect immediately prior to such adjustment and the denominator of which is the Warrant Price in effect immediately after such adjustment. (g) No Impairment. The Company shall not, by amendment of its Certificate of Incorporation or through a reorganization, transfer of assets, consolidation, merger, dissolution, issue, or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed under this Warrant by the Company, but shall at all times in good faith assist in carrying out all of the provisions of this Section 3 and in taking all such action as may be necessary or appropriate to protect the Holder's rights under this Section 3 against impairment. If the Company takes any action affecting the Common Stock other than as described above that adversely affects the Holder's rights under this Warrant, the Warrant Price shall be adjusted downward. (h) Fractional Shares. No fractional shares shall be issuable upon exercise or conversion of the Warrant and the number of shares to be issued shall be rounded down to the nearest whole share. If a fractional share interest arises upon any exercise or conversion of the -6- Warrant, the Company shall eliminate such fractional share interest by paying the Holder an amount computed by multiplying the fractional interest by the fair market value of a full share. 4. No Shareholder Rights. This Warrant, by itself, as distinguished from any shares purchased hereunder, shall not entitle its Holder to any of the rights of a shareholder of the Company. 5. Reservation of Stock. On and after the Commencement Date, the Company will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of Warrant Stock upon the exercise or conversion of this Warrant. Issuance of this Warrant shall constitute full authority to the Company's officers who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for shares of Warrant Stock issuable upon the exercise or conversion of this Warrant. 6. Exercise of Warrant. This Warrant may be exercised as a whole or part by the Holder, at any time after the date hereof prior to the termination of this Warrant, by the surrender of this Warrant, together with the Notice of Exercise and Investment Representation Statement in the forms attached hereto as Attachments 1 and 2, respectively, duly completed and executed at the principal office of the Company, specifying the portion of the Warrant to be exercised and accompanied by payment in full of the Warrant Price in cash or by check with respect to the shares of Warrant Stock being purchased. Alternatively, the Holder may pay the Warrant Price as a whole or in part) by surrendering to the Company all or a portion of any Note (as defined in the Note Purchase Agreement), in which case the portion of the Note surrendered plus all accrued but unpaid interest thereon shall be credited towards payment of the Warrant Price. If less the entire Note is surrendered in payment of the Warrant Price, the Company shall issue to the Holder a new promissory note identical to the surrendered Note except that the principal amount thereof shall equal the unsurrendered portion of the principal amount of the surrendered Note. This Warrant shall be deemed to have been exercised immediately prior to the close of business on the date of its surrender for exercise as provided above, and the person entitled to receive the shares of Warrant Stock issuable upon such exercise shall be treated for all purposes as the holder of such shares of record as of the close of business on such date. As promptly as practicable after such date, the Company shall issue and deliver to the person or persons entitled to receive the same a certificate or certificates for the number of full shares of Warrant Stock issuable upon such exercise. If this Warrant shall be exercised for less than the total number of shares of Warrant Stock then issuable upon exercise, promptly after surrender of this Warrant upon such exercise, the Company will execute and deliver a new warrant, dated the date hereof, evidencing the right of the Holder to the balance of this Warrant Stock purchasable hereunder upon the same terms and conditions set forth herein. 7. Conversion. In lieu of exercising this Warrant or any portion hereof, at any time after the occurrence of a Change-In-Control Event or the filing of a registration statement for an initial underwritten public offering of securities by the Company, the Holder hereof shall have the right to convert this Warrant or any portion hereof into Warrant Stock by executing and delivering to the Company at its principal office the written Notice of Conversion and Investment -7- Representation Statement in the forms attached hereto as Attachments 2 and 3, specifying the portion of the Warrant to be converted, and accompanied by this Warrant. The number of shares of Warrant Stock to be issued to Holder upon such conversion shall be computed using the following formula: X=(P)(Y)(A-B)/A where X = the number of shares of Common Stock to be issued to the Holder for the portion of the Warrant being converted. P = the portion of the Warrant being converted expressed as a decimal fraction. Y = the total number of shares of Common Stock issuable upon exercise of the Warrant in full. A = the fair market value of one share of Warrant Stock which means (i) the fair market value of the Warrant Stock as of the last Business Day immediately prior to the date the notice of conversion is received by the Company, as reported in the principal market for such securities or, if no such market exists, as determined in good faith by the Company's Board of Directors, or (ii) if this Warrant is being converted in conjunction with a public offering of stock the price to the public per share pursuant to the offering. B = the Warrant Price on the date of conversion. Any portion of this Warrant that is converted shall be immediately canceled. This Warrant or any portion hereof shall be deemed to have been converted immediately prior to the close of business on the date of its surrender for conversion as provided above, and the person entitled to receive the shares of Warrant Stock issuable upon such conversion shall be treated for all purposes as the holder of such shares of record as of the close of business on such date. As promptly as practicable after such date, the Company shall issue and deliver to the person or persons entitled to receive the same a certificate or certificates for the number of full shares of Warrant Stock issuable upon such conversion. If the Warrant shall be converted for less than the total number of shares of Warrant Stock then issuable upon conversion, promptly after surrender of the Warrant upon such conversion, the Company will execute and deliver a new warrant, dated the date hereof, evidencing the right of the Holder to the balance of the Warrant Stock purchasable hereunder upon the same terms and conditions set forth herein. If this Warrant is converted, as a whole or in part, after the occurrence of a Change-In-Control Event as to which Section 3(c) is applicable, the Holder shall receive the consideration contemplated by Section 3(c) in lieu of Common Stock of the Company. -8- 8. Transfer of Warrant. This Warrant may be transferred or assigned by the Holder hereof in whole or in part, provided that the transferor provides, at the Company's request, an opinion of counsel satisfactory to the Company that such transfer does not require registration under the Securities Act and the securities law applicable with respect to any other applicable jurisdiction. 9. Termination. This Warrant shall terminate on 5:00 p.m. New York time on the Termination Date. 10. Miscellaneous. This Warrant shall be governed by the laws of the State of New York, as such laws are applied to contracts to be entered into and performed entirely in New York by New York residents. In the event of any dispute among the Holder and the Company arising out of the terms of this Warrant, the parties hereby consent to the exclusive jurisdiction of the federal and state courts located in the State of New York for resolution 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. The headings in this Warrant are for purposes of convenience and reference only, and shall not be deemed to constitute a part hereof. Neither this Warrant nor any term hereof may be changed or waived orally, but only by an instrument in writing signed by the Company and the Holder of this Warrant. All notices and other communications from the Company to the Holder of this Warrant shall be delivered personally or by facsimile transmission or mailed by first class mail, postage prepaid, to the address or facsimile number furnished to the Company in writing by the last Holder of this Warrant who shall have furnished an address or facsimile number to the Company in writing, and if mailed shall be deemed given three days after deposit in the United States mail. ISSUED: _______________ BEACON POWER CORPORATION By: ---------------------------------- Name: -------------------------------- Title: ------------------------------- -9- Attachment 1 NOTICE OF EXERCISE TO: BEACON POWER CORPORATION 1. The undersigned hereby elects to purchase ________________ shares of the Warrant Stock of Beacon Power Corporation pursuant to the terms of the attached Warrant, and tenders herewith payment of the purchase price in full, together with all applicable transfer taxes, if any. 2. Please issue a certificate or certificates representing said shares of Warrant Stock in the name of the undersigned or in such other name as is specified below: --------------------------------------- (Name) --------------------------------------- (Address) - ----------------------------------- -------------------------------------- (Date) (Name of Warrant Holder) By: ----------------------------------- Title: -------------------------------- Attachment 2 INVESTMENT REPRESENTATION STATEMENT Shares of the Common Stock (as defined in the attached Warrant) of BEACON POWER CORPORATION In connection with the purchase of the above-listed securities, the undersigned hereby represents to Beacon Power Corporation (the "Company") as follows: (a) The securities to be received upon the exercise of the Warrant (the "Securities") will be acquired for investment for its own account, not as a nominee or agent, and not with a view to the sale or distribution of any part thereof, and the undersigned has no present intention of selling, granting participation in or otherwise distributing the same, but subject, nevertheless, to any requirement of law that the disposition of its property shall at all times be within its control. By executing this statement, the undersigned further represents that it does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer, or grant participations to such person or to any third person, with respect to any Securities issuable upon exercise of the Warrant. (b) The undersigned understands that the Securities issuable upon exercise of the Warrant at the time of issuance may not be registered under the Securities Act of 1933, as amended (the "Securities Act"), and applicable state securities laws, on the ground that the issuance of such securities is exempt pursuant to Section 4(2) of the Securities Act and state law exemptions relating to offers and sales not by means of a public offering, and that the Company's reliance on such exemptions is predicated on the undersigned's representations set forth herein. (c) The undersigned agrees that in no event will it make a disposition of any Securities acquired upon the exercise of the Warrant unless and until (i) it shall have notified the Company of the proposed disposition and shall have furnished the Company with a statement of the circumstances surrounding the proposed disposition, and (ii) it shall have furnished the Company with an opinion of counsel satisfactory to the Company and Company's counsel to the effect that (A) appropriate action necessary for compliance with the Securities Act and any applicable state securities laws has been taken or an exemption from the registration requirements of the Securities Act and such laws is available, and (B) the proposed transfer will not violate any of said laws. (d) The undersigned acknowledges that an investment in the Company is highly speculative and represents that it is able to fend for itself in the transactions contemplated by this statement, has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of its investments, and has the ability to bear the economic risks (including the risk of a total loss) of its investment. The undersigned represents that it has had the opportunity to ask questions of the Company concerning the Company's business and assets and to obtain any additional information which it considered necessary to verify the accuracy of or to amplify the Company's disclosures, and has had all questions which have been asked by it satisfactorily answered by the Company (e) The undersigned acknowledges that the Securities issuable upon exercise or conversion of the Warrant must be held indefinitely unless subsequently registered under the Securities Act or an exemption from such registration is available. The undersigned is aware of the provisions of Rule 144 promulgated under the Securities Act which permit limited resale of shares purchased in a private placement subject to the satisfaction of certain conditions, including, among other things, the existence of a public market for the shares, the availability of certain current public information about the Company, the resale occurring not less than one year after a party has purchased and paid for the security to be sold from the Company or any affiliate of the Company, the sale being through a "broker's transaction" or in transactions directly with a "market maker" (as provided by Rule 144(f)) and the number of shares being sold during any three month period not exceeding specified limitations. Dated: -------------------- -------------------------------------- (Typed or Printed Name) By: ----------------------------------- (Signature) -------------------------------------- (Title) -2- Attachment 3 NOTICE OF CONVERSION TO: BEACON POWER CORPORATION 1. The undersigned hereby elects to acquire _______________ shares of the Warrant Stock of Beacon Power Corporation pursuant to the terms of the attached Warrant, by conversion of _________ percent (_____%) of the Warrant. 2. Please issue a certificate or certificates representing said shares of Warrant Stock in the name of the undersigned or in such other name as is specified below: --------------------------------------- (Name) --------------------------------------- (Address) - ----------------------------- -------------------------------------- (Date) (Name of Warrant Holder) By: ----------------------------------- Title: -------------------------------- (Title and signature of authorized person) Beacon Power Corporation Exhibit D to the Note Purchase Agreement Supplemental Disclosure Schedule [The following numbers correspond to the Section numbers in the Note Purchase Agreement] 3.1 The Company is not in good standing in Massachusetts as it has not filed its Annual Report. The Annual Report is currently being prepared by the Company and will be filed upon completion. 3.4(b) The Company has experienced a Material Adverse Change since December 31, 1998 as it has exhausted all of its working capital. 3.8 Other Representations and Warranties The following exceptions are taken to the representations and warranties of the company set forth in Section 3 of the October Agreement and, where applicable, certain representations and warranties made in the October Agreement (each an "Original Representation and Warrant") have been eliminated and superseded in their entirety by representations and warranties made in this Note Purchase Agreement: [The following numbers correspond to the Section numbers in the October Agreement] 3.1 The Original Representation and Warranty is superseded by the representation and warranty contained in Section 3.1 of this Note Purchase Agreement. 3.2(b) The number of issued and outstanding shares of Common Stock of the Company is 8,409. 3.3 The Original Representation and Warranty is superseded by the representation and warranty contained in Section 3.2 of this Note Purchase Agreement. 3.4 The Original Representation and Warranty is superseded by the representation and warranty contained in Section 3.3 of this Note Purchase Agreement. 3.7 The Original Representation and Warranty is superseded by the representation and warranty contained in Section 3.4 of this Note Purchase Agreement. 3.8(c) The Company has increased the compensation payable to certain executive officers. 3.8(d) The Company has declared and paid a $30,000 dividend to the holders of Class C Preferred Stock. 3.8(j) The Company has entered into a real property lease relating to approximately 4,000 square feet of office space. 3.12 The Company has entered into a Registration Rights Agreement, dated as of May 28, 1997, with Duquesne Enterprises and executed Registration Rights Statements on October 23, 1998 which are attached as Exhibits F and G to the October Agreement. 3.20 The Original Representation and Warranty is superseded by the representation and warranty contained in Section 3.5 of this Note Purchase Agreement. 3.22 The Original Representation and Warranty is superseded by the representation and warranty contained in Section 3.6 of this Note Purchase Agreement. 3.23 The Original Representation and Warranty is superseded by the representation and warranty contained in Section 3.7 of this Note Purchase Agreement. The following amendments are hereby made to the Company's Exhibit I Disclosure Schedule originally delivered as part of the October Agreement. [The following numbers correspond to the Section numbers in Exhibit I to the October Agreement] 3.2(c)(i) The Company has increased the option pool to 1,500,000 shares by vote of the Board of Directors. Of this amount options to purchase 806,438 have been granted and approved by the Board of Directors. 3.2(d) SatCon Technology Corporation holds 1,671 shares of Common Stock on a post-split basis (not 1,686). The total number of shares of Common Stock outstanding on a post split-basis is 8,409 (not 8,424). Annex A is amended to include new shares granted. 3.7 Relates to Section 3.4 of the Note Purchase Agreement and is hereby renumbered to number 3.4. 3.7(b)(ii) Is eliminated in its entirety. 3.7(b)(iii) Is eliminated in its entirety. -2- 3.7(b)(iv) Is eliminated in its entirety 3.8(ii) Is eliminated in its entirety. 3.8(iv) Is eliminated in its entirety. 3.10(e) & 3.11 (ix) The Company has entered into Invention and/or Non-Disclosure Agreements with the members of the Engineering Department and Senior Management. 3.11(x) Is eliminated in its entirety. 3.14 The Company's benefit providers have changed since the October Agreement, however, the current providers provide comparable benefits. 3.15 Insurance coverage has increased since the October Agreement. -3- EXHIBIT I Beacon Power Corporation Exhibit I Beacon Disclosure Schedule 3.2 Capital Structure (c) The outstanding warrants, options, conversion rights, pre-emptive and subscription rights are as follows: (i) The Company has established an option pool of 562,500 shares. Of this amount options to purchase 393,750 shares of Common Stock have been granted and options to purchase 25,313 are in the process of being granted. (ii) A Warrant (the "Duquesne Warrant") held by Duquesne Enterprises ("Duquesne") to purchase 562,500 shares of Common Stock. (iii) Duquesne has pre-emptive rights with respect to issuances of Common Stock and securities convertible into Common Stock pursuant to the Duquesne Warrant. (d) Outstanding Post 1:1.125 Split ----------- ------------------ Common Stock, $0.01 par value per share - --------------------------------------- SatCon Technology Corporation 1,499 1,686 James S. Bezreh 999 1,123 Russel S. Jackson 999 1,123 Russell A. Kelley 999 1,123 Stephen J. O'Connor 999 1,123 Jane E. O'Sullivan 999 1,123 Robert G. Wilkinson 999 1,123 ----- 8,424 Class A Preferred Stock, $0.01 par value per share Convertible into Common Stock on a 1 to 1 basis (subject to adjustment) -1- SatCon Technology Corporation 3,998,501 4,498,313 Class B Preferred Stock, $0.01 par value per share Convertible into Common Stock on a 1 to 1 basis (subject to adjustment) No shares outstanding Class C Preferred Stock, $0.01 par value per share Convertible into Common Stock on a 1 to 1 basis (Subject to adjustment) James S. Bezreh 1 1 Russel S. Jackson 1 1 Russell A. Kelley 1 1 Stephen J. O'Connor 1 1 Jane E. O'Sullivan 1 1 Robert G. Wilkinson 1 1 The Duquesne Warrant entitles Duquesne to purchase up to 562,500 shares of Common Stock. The following person hold options to purchase Common Stock Optionholder Number of Shares of Common Stock Issuable - ------------ ----------------------------------------- See Annex A 3.5 Representations Regarding Preferred Shares (i) Duquesne is entitled to pre-emptive rights pursuant to the Duquesne Warrant. 3.7(b) Financial Statements (i) The Company Financial Statements for the periods ended December 31, 1997 and July 31, 1998 are attached hereto as Annex B and C, respectively. The Company notes that (i) the number of authorized shares reflected in the financial -2- statements is inaccurate, with the correct number being reflected in the Second Amended and Restated Certificate of Incorporation and (ii) the 1:1.125 stock split reflected in the financial statements did not take place until October 23, 1998. (ii) At October 5, 1998, the outstanding indebtedness to Duquesne is $400,000, all of which is outstanding pursuant to the loan agreement, dated July 17, 1998, between the Company and Duquesne. At October 5, 1998, an aggregate of $668,949 (including the $70,000 referred to in (iii) below) of advances to the Company were outstanding from SatCon Technology Corporation. (iii) $70,000 of advances to the Company were outstanding for William Stanton. (iv) The Company has declared but not yet paid a dividend to holders of Class C Preferred Stock on October 23, 1998 in the aggregate amount of $30,000. 3.8 Absence of Certain Changes and Events (i) The Company's cash balance has declined and its financial condition has declined since July 31, 1998. (ii) The Company has declared but not yet paid a dividend to holders of Class C Preferred Stock on October 23, 1998 in the aggregate amount of $30,000. (iii) The Board of Directors and Stockholders of the Company have approved a 1:1.125 stock split. (iv) At October 5, 1998, the outstanding indebtedness to Duquesne is $400,000, all of which is outstanding pursuant to the loan agreement, dated July 17, 1998, between the Company and Duquesne. In connection with such loan, the Company granted a security interest in its assets to Duquesne. At October 5, 1998, an aggregate of $668,949 (including $70,000 advanced as a loan to Mr. Stanton) of advances to the Company were outstanding from SatCon. 3.10 Proprietary Assets (a)(i) None. (a)(ii) See Exhibit A to the Amended and Restated License Agreement, dated May 28, 1997, between the Company and SatCon Technology Corporation. (d) Pursuant to the Securities Purchase Agreement, dated as of May 28, 1997, between Duquesne, SatCon and the Company: -3- SatCon has granted to the Company a perpetual, world-wide, royalty free license to all patents, patent applications, technical knowledge, information and know-how in existence (May 97) which relate to the field of flywheel energy storage products, systems and applications, but not for satellite or other non-terrestrial, stationary applications. The Company does not have the right to sublicense such technology other than in connection with its manufacturing and distribution operations. The Company has granted SatCon a perpetual, royalty free license to use any improvements upon the flywheel energy storage technology for non-terrestrial applications made by the Company. (e) See Section 3.11 for a list of employees of the Company who have entered into Invention and Non-Disclosure Agreements. 3.11 Contracts (i) Amended and Restated License Agreement, dated as of May 28, 1998, between the Company and SatCon. (ii) Securities Purchase Agreement, dated as of May 28, 1997, among the Company, SatCon and Duquesne. (iii) Warrant, dated as of May 28, 1997, issued to Duquesne. (iv) Registration Rights Agreement, dated May 28, 1997, between the Company and Duquesne. (v) The Company is in the process of entering into a registration rights agreement with SatCon. (vi) Consulting Agreement, dated May 28, 1997, between the Company and Duquesne. (vii) Services Agreement, dated May 28, 1997, between SatCon and the Company. (viii) Letter Agreement (relating to exclusive distribution rights granted by the Company to Duquesne), dated May 28, 1997, between the Company and Duquesne. (ix) Invention and Non-disclosure agreements between the Company and the following individuals: William Stanton Joseph Saliba -4- James O'Rourke Richard Hockney Maureen Lister (x) Loan Agreement, dated July 17, 1998, between Duquesne and the Company. (xi) The Company has obligations under a subcontract arrangement with SatCon on a project for the Naval Surface Warfare Center (United States Marine Corp. Contract) (xii) San Diego Gas & Electric, beta site agreement dated December 4, 1996. (xiii) Commercial Lease (as amended), dated December 1, 1997 between the Company and Cummings Properties Management, Inc. (xiv) ABB Power T&D Company, Inc. beta site agreement dated August 1, 1998. (xv) Bell Atlantic beta site agreement dated June 1, 1998. (xvi) GTE Mobile Communications Service Corporation beta site agreement, dated September 3, 1998. 3.12 Registration Rights The Company has granted registration rights to SatCon and Duquesne. 3.13 Tax Matters The Company was included in the consolidated tax returns of SatCon until September, 1997. 3.14 Employee Benefit Plans The Company's benefit brochure is attached as Annex D The Company has employment contracts with the following persons: None 3.15 Insurance Summary of the Company's insurance is attached as Annex E. -5- 3.18 Litigation Certain of the Company's creditors have commenced collection proceedings. 3.21 Related Party Transaction See Sections 3.7(b)(i) and 3.11(i)-(viii) -6- Beacon Power Corporation Exhibit J SatCon Disclosure Schedule 4.2 SatCon may be obligated to reinstate and increase the number of shares issuable under certain warrants issued to the underwriters in connection with SatCon's initial public offering in November 1992. The maximum number of additional shares issuable pursuant to such warrants will not exceed 100,000 shares of Common Stock. 4.6 Litigation matters referred to in SatCon's report under the Securities Exchange Act of 1934, and incorporated by reference in this Schedule. Immediately prior to the filing of SatCon's Form 10-Q for the quarter ended June 30, 1998, a person who sold his business to SatCon commenced litigation relating to the value of certain assets received by SatCon in such transaction. 4.8 SatCon has granted registration rights to Duquesne and the holders of the Warrants referred to in item 4.2 above. -7- Annex A Beacon Power
- -------------------------------------------------------------------------------------------------------------- Summary of Options - -------------------------------------------------------------------------------------------------------------- Granted - -------------------------------------------------------------------------------------------------------------- Pre-Split Post-Split In-Process - -------------------------------------------------------------------------------------------------------------- Options Pool 500,000 562,500 562,500 - -------------------------------------------------------------------------------------------------------------- Options "Granted" 350,000 393,750 419,063 - -------------------------------------------------------------------------------------------------------------- Options available 150,000 168,750 143,438 - -------------------------------------------------------------------------------------------------------------- Strike Price $2.00 $1.78 - -------------------------------------------------------------------------------------------------------------- Prior Grants - -------------------------------------------------------------------------------------------------------------- Granted Granted Granted Pre-Split Post-Split Start Date - -------------------------------------------------------------------------------------------------------------- Dick Hockney 50,000 56,250 6/1/97 - -------------------------------------------------------------------------------------------------------------- Omar Kabir 22,500 25,313 1/14/98 - -------------------------------------------------------------------------------------------------------------- Maureen Lister 40,000 45,000 3/9/98 - -------------------------------------------------------------------------------------------------------------- Pat McDonough 1,000 1,125 6/1/97 - -------------------------------------------------------------------------------------------------------------- Sharard Moghe 5,000 5,625 6/1/97 - -------------------------------------------------------------------------------------------------------------- Emil Muchnik 4,000 4,500 10/27/97 - -------------------------------------------------------------------------------------------------------------- Steve Mullen 2,000 2,250 11/1/97 - -------------------------------------------------------------------------------------------------------------- Jim O'Rourke 50,000 56,250 6/1/97 - -------------------------------------------------------------------------------------------------------------- John Pelligrino 22,500 25,313 7/28/97 - -------------------------------------------------------------------------------------------------------------- Joe Saliba 65,000 73,125 6/1/97 - -------------------------------------------------------------------------------------------------------------- John Shaw 0 0 7/21/97 5000 recovered: termination - -------------------------------------------------------------------------------------------------------------- Bill Stanton 80,000 90,000 6/1/97 - -------------------------------------------------------------------------------------------------------------- Carlene Strangeways 2,000 2,250 11/1/97 - -------------------------------------------------------------------------------------------------------------- Pat Widtfeldt 2,000 2,250 11/1/97 - -------------------------------------------------------------------------------------------------------------- Nathan Woodard 4,000 4,500 1/14/98 - -------------------------------------------------------------------------------------------------------------- Options Granted 350,000 393,750 - -------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------- In-Process - -------------------------------------------------------------------------------------------------------------- Micheal Calla 0 0 4/20/98 - -------------------------------------------------------------------------------------------------------------- Jennny Hezzell 2,000 2,250 2/17/98 Approved not granted - -------------------------------------------------------------------------------------------------------------- David Hezzell 5,000 5,625 2/17/98 Approved not granted - -------------------------------------------------------------------------------------------------------------- Martin Loys 0 0 5/18/98 - -------------------------------------------------------------------------------------------------------------- Steve Piela 4500 5,063 7/27/98 Offered not Approved - -------------------------------------------------------------------------------------------------------------- Saad Putrus 2,000 2,250 3/9/98 Approved not granted - -------------------------------------------------------------------------------------------------------------- Kevin Sicard 0 0 4/27/98 - -------------------------------------------------------------------------------------------------------------- Ken Tran 4,500 5,063 6/22/98 Offered not Approved - -------------------------------------------------------------------------------------------------------------- Ahmed Zaki 4,500 5,063 9/28/98 Offered not Approved - -------------------------------------------------------------------------------------------------------------- 0 - -------------------------------------------------------------------------------------------------------------- 0 - -------------------------------------------------------------------------------------------------------------- Total New Grants 22,500 25,313 - -------------------------------------------------------------------------------------------------------------- Total Grants 372,500 419,063 - --------------------------------------------------------------------------------------------------------------
Notes: 1. Awards do not account for the 9 for 8 stock split o Grants have a $2.00 strike price 2. Following the stock split o Stock amounts are increased by 9/8 o Strike price decreases by 8/9 Annex B BEACON POWER CORPORATION FINANCIAL STATEMENTS For the quarter ended December 31, 1997 and the period May 8, 1997 (Inception) to September 30, 1997 (Unaudited) TABLE OF CONTENTS Page ---- Balance Sheets ............................................. 3 Statements of Operations ................................... 4 Statements of Changes in Stockholders' Equity .............. 5 Statements of Cash Flows ................................... 6 Notes to Financial Statements .............................. 7 2 BEACON POWER CORPORATION BALANCE SHEETS (Unaudited)
December 31, September 30, 1997 1997 ----------- ----------- ASSETS Current assets: Cash and cash equivalents ................... $ 2,078,067 $ 2,929,718 Accounts receivable ......................... 31,437 174,733 Inventory ................................... 16,788 -- Prepaid expenses and other assets ........... 26,588 -- ----------- ----------- Total current assets ..................... 2,152,880 3,104,451 Property and equipment, net ...................... 1,415,786 962,035 ----------- ----------- Total assets ............................. $ 3,568,666 $ 4,066,486 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Customer Advances ............................ $ 95,000 $ 95,000 Accrued expenses ............................. 32,298 -- ----------- ----------- Total current liabilities ................. 127,298 95,000 STOCKHOLDERS' EQUITY Preferred stock; $.01 par value, 5,000,000(1) and 1,000,000 shares authorized; 4,498,319(2) and 0 shares issued and outstanding, at December 31, 1997 and September 30, 1997, respectively .......... 44,983 -- Common stock, $.01 par value, 20,000,000(1) and 5,000,000 shares authorized; 8,424(2) and 4,500,000(2) shares issued and outstanding, at December 31, 1997 and September 30, 1997, respectively .......... 84 45,000 Additional paid-in capital ....................... 4,984,933 4,955,000 Retained earnings/(loss) ......................... (1,588,632) (1,028,514) ----------- ----------- Total stockholders' equity ................ 3,441,368 3,971,486 ----------- ----------- Total liabilities and stockholders' ... $ 3,568,666 $ 4,066,486 =========== ===========
The accompanying notes are an integral part of the financial statements. - --------------------- (1) Amounts have been adjusted to reflect increase in authorized capital (See Note H). (2) Amounts have been adjusted to reflect 1:1.125 stock split (See Note H). 3 BEACON POWER CORPORATION STATEMENTS OF OPERATIONS (Unaudited)
For the For the period For the period Quarter May 8,1997 May 8,1997 ended (Inception) to (Inception) to December 31, September 30, December 31, 1997 1997 1997 ----------- ----------- ----------- Revenue .......................................... $ 1,090 $ 186,226 $ 187,316 ----------- ----------- ----------- Cost of sales .................................... 982 160,812 161,794 Selling, general and administrative expenses ..... 363,846 733,190 1,097,036 Research and development expenses ................ 237,707 396,059 633,766 ----------- ----------- ----------- Total operating expenses ......................... 602,535 1,290,061 1,892,596 ----------- ----------- ----------- Operating loss ................................... (601,445) (1,103,835) (1,705,280) Interest income, net ............................. 41,327 75,321 116,648 ----------- ----------- ----------- Net loss ......................................... $ (560,118) $(1,028,514) $(1,588,632) =========== =========== ===========
The accompanying notes are an integral part of the financial statements. 4 BEACON POWER CORPORATION STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY Since May 8, 1997 (Inception) to December 31,1997 (Unaudited)
Additional Retained Total Common Common Preferred Preferred Paid-In Earnings Stockholders' Shares(1) Stock(1) Shares(1) Stock(1) Capital (Loss) Equity ---------- --------- --------- -------- ----------- ----------- ----------- May 8, 1997 .................. 4,499,999 $ 45,000 -- -- $ 4,955,000 -- $ 5,000,000 Net Loss ..................... $(1,028,514) (1,028,514) ---------- --------- --------- -------- ----------- ----------- ----------- Balance, September 30, 1997 .. 4,499,999 $ 45,000 -- -- $ 4,955,000 $(1,028,514) $ 3,971,486 Net Loss ..................... (560,118) (560,118) Recapitalization ............. (4,491,575) $ (44,916) 4,498,319 $ 44,983 29,933 30,000 ---------- --------- --------- -------- ----------- ----------- ----------- Balance, December 31, 1997 ... 8,424 $ 84 4,498,319 $ 44,983 $ 4,984,933 $(1,588,632) $ 3,441,368 ========== ========= ========= ======== =========== =========== ===========
The accompanying notes are an integral part of the financial statements. - -------------------- (1) Amounts have been adjusted to reflect 1:1.125 stock split (See Note H). 5 BEACON POWER CORPORATION STATEMENTS OF CASH FLOWS (Unaudited)
For the For the Period Quarter May 8,1997 ended (Inception) December to September 30, 1997 30, 1997 ----------- ----------- Cash flows from operating activities: Net income/(loss) .......................................... $ (560,118) $(1,028,514) Adjustments to reconcile net income/(loss) to net cash provided by/(used in) operating activities: Depreciation ...................................... 1,283 126 Changes in operating assets and liabilities: Accounts receivable ............................. 143,296 (174,733) Prepaid expenses and other assets ............... (26,588) -- Inventory ....................................... (16,788) -- Accrued payroll and related expenses ............ 32,298 -- Deferred revenue ................................ -- 95,000 ----------- ----------- Total adjustments ....................................... 93,501 (79,607) ----------- ----------- Net cash provided by/(used in) operating activities ........ (426,617) (1,108,121) ----------- ----------- Cash flows from investing activities: Capital Expenditures .................................... (455,034) (962,161) ----------- ----------- Net cash provided by/(used in) investing activities ........ (455,034) (962,161) ----------- ----------- Cash flows from financing activities: Proceeds from issuance of stock ......................... 30,000 5,000,000 ----------- ----------- Net cash provided by financing activities .................. 30,000 5,000,000 ----------- ----------- Net increase/(decrease) in cash ............................ (851,651) 2,929,718 Cash at beginning of period ................................ 2,929,718 -- ----------- ----------- Cash and cash equivalents at end of period ................. $ 2,078,067 $ 2,929,718 =========== ===========
The accompanying notes are an integral part of the financial statements. 6 BEACON POWER CORPORATION NOTES TO FINANCIAL STATEMENTS A. Summary of Significant Accounting Policies Organization Beacon Power Corporation (the "Company" or "Beacon"), an affiliate of SatCon Technology Corporation ("SatCon") was incorporated in Delaware in May of 1997. Beacon is engaged in the development, marketing and manufacturing of flywheel devices for storing and transmitting kinetic energy. The Company intends initially to market its flywheel energy storage devices and related products to industries which require back-up sources of power to maintain services, specifically the cable television ("cable") and telecommunications industries. The Company believes these industries will accept a flywheel system as a preferable alternative to battery based energy at remote locations. Once the reliability of a flywheel system is demonstrated by its acceptance by cable and telecommunication companies, the Company intends to expand its marketing efforts to the larger uninterruptable power supply ("UPS") market and internationally. Revenue Recognition The Company designs and manufactures flywheel devices. Revenue from product sales is recognized upon shipment. Cash and Cash Equivalents Cash and cash equivalents include cash on hand, demand deposits and highly liquid investments with a maturity of three months or less when acquired. Inventory Inventories are stated at the lower of cost or market and costs are determined based on the first-in, first-out method of accounting. Property and Equipment Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the asset's estimated useful life. The estimated useful lives of property and equipment are as follows: Estimated Lives ------------------------------ Computer equipment and software ........... 3 - 5 Years Electronic laboratory and shop equipment .. 5 Years Mechanical laboratory and shop equipment .. 10 Years Sales and demonstration equipment ......... 3 - 10 Years Furniture and fixtures .................... 7 - 10 Years Leasehold improvements .................... Lesser of the life of the lease or the useful life of the improvement When assets are retired or otherwise disposed of, the cost and related depreciation are eliminated from the accounts and any resulting gain or loss is reflected in other income. 7 BEACON POWER CORPORATION NOTES TO FINANCIAL STATEMENTS A. Summary of Significant Accounting Policies (Continued) Use of estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions and disclosure of contingencies at the date of the financial statements. Actual results could differ from these estimates. Income Taxes The Company accounts for income taxes in accordance with Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109), which requires a balance sheet approach for accounting for income taxes. Under SPAS 109, deferred tax assets and deferred tax liabilities are recognized based on temporary differences between the basis of assets and liabilities using statutory rates. The Company has, as required under the Internal Revenue Code, switched from the cash to accrual method for tax reporting purposes. Concentration of Credit Risk Financial instruments which subject the Company to concentrations of credit risk consist principally of cash equivalents. The Company deposits its cash with a regional commercial bank. Credit exposure to any one entity is limited by Company policy. B. Inventory At December 31, 1997, inventory consists of raw materials. C. Property and Equipment Property and equipment consist of the following: December 31, September 30, 1997 1997 -------------- --------------- Property and equipment, cost ...... $ 1,417,069 $ 962,161 Less accumulated depreciation ..... 1,283 126 -------------- --------------- $ 1,415,786 $ 962,035 ============== =============== D. Preferred Stock At December 31, 1997, the Company was authorized, subject to limitations prescribed by law, to issue, from time to time, up to an aggregate of 4,498,320 shares of Preferred Stock, of which 4,498,313 had been designated Class A Preferred Stock, $0.01 par value per share, one had been designated as Class B Preferred Stock, $0.01 par value per share, and 6 had been designated as Class C Preferred Stock, $0.01 par value per share. (See Note H for change in authorized capital stock subsequent to December 31, 1997). Each series of preferred Stock shall have such number of shares, designations, preferences, powers, qualifications and special or relative rights or priveleges as shall be determined by the Company, which may include, among others, dividend rights, voting rights, redemption and sinking fund provisions, liquidation preferences, conversion rights and preemptive rights. 8 BEACON POWER CORPORATION NOTES TO FINANCIAL STATEMENTS E. Stock Warrant The Company has issued a warrant (the "Warrant") to purchase 562,498 shares of the Company's Common Stock and one share of Class B Preferred Stock at a purchase price of approximately $5.33 per share. The warrant also grants the holder the right to participate in future private equity offerings to the extent necessary to permit the holder to maintain a 20% equity interest in the Company. The Company has also agreed with the holder that as long as the holder maintains 50% of the shares aquired pursuant to the Warrant, the Company will not sell any equity securities in a private transaction to any entity which, directly or through an affiliate, derives revenues during the most recent year of $10 million or more through the distribution of electricity or natural gas. In addition, the Company has agreed that while the holder maintains such an equity interest in the Company, the Company shall not, without the holder's approval, make any material change to its principal business activity or license its flywheel energy storage technology. F. Recapitalization On December 24, 1997, the Company engaged in a recapitalization (the "recapitalization") of the Company pursuant to which SatCon exchanged 4,498,313 shares of the Company's Common Stock for 4,498,313 shares of the Company's Class A Preferred Stock, $0.01 par value per share. In connection with the recapitalization, the Company issued 6,738 shares of the Company's Common Stock, $0.01 par value per share and 6 shares of the Company's Class C Preferred Stock, $0.01 par value per share, for an aggregate purchase price of $30,000 and at a price of $5,000 per unit of 1,123 shares of Common Stock and one share of Class C Preferred Stock. G. Commitments and Contingencies Operating Leases The Company occupies approximately 10,439 square feet of executive and administrative offices and light manufacturing space at 6-D Gill Street, Woburn, Massachesetts under a primary lease expiring on November 30, 1999. The monthly payment is $9,525.58 plus its pro rata share of operating expenses and real estate taxes. 9 BEACON POWER CORPORATION NOTES TO FINANCIAL STATEMENTS H. Subsequent Events Stock Option On January 30, 1998, the Company established an employee stock incentive plan pursuant to which the Company may issue options to purchase up to 562,500 shares of Common Stock. Through March 10, 1998, the Company has issued options to purchase 399,375 shares of Common Stock to certain of its employees at an average purchase price of approximately $1.78 per share. The options vest over a period of three or four years. Options to purchase 163,125 share of Common Stock remain available to issuance to future employees. Stock Split Effective March 11, 1998, the Company effected a 1:1.125 stock split. The amounts presented in the Balance Sheets, Statements of Stockholders' Equity and Notes to the Financial Statements reflect the effect of the stock split for each period presented. Authorized Capital Stock Effective March ii, 1998, the Company's authorized capital stock consists of 20,000,000 shares of Common Stock and 5,000,000 shares of Preferred Stock, $0.01 par value per share of which 4,498,313 shares have been designated Class A Preferred Stock, $0.01 par value, 1 share has been designated Class B Preferred Stock, $0.01 par value, and 6 shares have been designated Class C Preferred Stock, $0.01 par value. 10 Annex C Beacon Power Corporation Balance Sheet as of July 31, 1998 ASSETS ------ Current Assets: Cash $ 70,498 A/R 31,437 1 Intercompany 34,906 Inventory 16,788 Prepaid Expenses 29,500 Placement Fees 84,801 ------------------ Total Current Assets: 267,931 ------------------ Property and Equipment Furniture & Fixtures 50,158 Equipment & Machinery 1,684,283 Computers & Telephone 56,723 LHI 1,741 ------------------ Total Property & Equipment 1,792,905 ------------------ Patents 7,088 ------------------ Total Other Assets 7,088 ------------------ TOTAL ASSETS: $ 2,067,924 ================== LIABILITIES & CAPITAL Current Liabilities: 2 Accounts Payable $ 741,405 Accrued Expenses 54,497 Duquesne Loan 200,000 3 SatCon Loan 65,000 ------------------ Total Current Liabilities 1,060,902 ------------------ 4 Walpole Co-op Lease 54,311 Peoples Heritage Lease 42,026 5 Deferred Revenue 95,000 ------------------ Total Long Term Liabilities 191,338 ------------------ ------------------ TOTAL LIABILITIES 1,252,240 ------------------ Preferred Stock 44,983 Common Stock 84 Paid in Capital 4,984,933 Retained Earnings (1,588,632) Net Income (2,625,684) ------------------ Total Capital 815,684 ------------------ TOTAL LIABILITIES & CAPITAL $ 2,067,924 ================== Beacon Power Corporation Balance Sheet-Notes as of July 31, 1998 SIGNIFICANT ACCOUNTING POLICIES Organization Beacon Power Corp (the "Company" or "Beacon"), an affiliate of Satcon Technology Corporation ("SatCon") was incorporated in Delaware in May of 1997. Beacon is engaged in the development of flywheel devices for storing and transmitting kinetic energy. Cash and Cash Equivalent Beacon considers investments purchased with a maturity of three months or less to be cash equivalents. Accounts receivable Receivables are stated in the balance sheet at their expected realizable value. Plant Assets and Depreciation Plant assets are carried at cost. Maintenance and repairs are expensed as incurred. Inventories Inventories are stated at the lower of cost or market. 1. Intercompany (Related Party Transactions) Remaining balance of Capital Investment from Duquesne Enterprises. Balance represents amounts due SatCon for support and expenditures for May 1998. Balance @ 12/31/97 2,048,067.00 Cash Transfers to Beacon (1,600,000.00) SatCon Expenditures & Support Jan thru April 1998 (413,161.00) ------------- Remaining Balance 34,906.00 ============= 2. Account Payable Includes Related party transactions totaling $ 73.689.25. Amount represents invoices for time and materials of engineering services provided by Satcon Corp. from June 1998. An additional $ 35,000.00 is expected for August. 3. Loan from Satcon 12% interest bearing (same basis as DQE), Unsecured advances of working capital from Satcon corp. Balance is expected to be paid in full upon receipt of funding. An additional $ 240,000. of working capital has been advanced in August and September. 4. Leases Beacon has certain capital lease agreements Amount of Capitalized Lease assets by Major category: Telephone Equipment $22,688 Furniture & Fixtures $44,933 Computer & Machinery $44,198 Minimum monthly lease payments total $ 5,499.29 5. Deferred Revenue Deferred revenue represents monies received for future delivery of a beta unit. - -------------------------------------------------------------------------------- Flexible Reimbursement Accounts These programs let employees pay for health care expenses not covered under the health plans, as well as dependent care expenses with pre-tax dollars. Employee Assistance Program Beacon Power recognizes its employees may experience problems of a personal nature and that at times these problems may interfere with job performance. When this occurs both the employee and Beacon Power suffer. To address these mutual concerns we participate in an Employee Assistance Program which provides problem assessment, short-term counseling, and referral services through an independent counseling agency. - -------------------------------------------------------------------------------- Note: Benefits described pertain to regular full-time employees. The descriptions of the benefits and policies outlined here are summary statements only and are not intended to be definitive. In all instances, the full text of the plan, policy or other appropriate document must be reviewed to determine the rights, benefits, and obligations of employees and Bea- Beacon Power Corporation 6 Gill Street Woburn Industrial Park Woburn, MA 01801-1721 Beacon Power's Benefits in Brief - -------------------------------------------------------------------------------- Vacation - ----------------------------- Length of Service 1 mo. but less than 2 yrs.: 5/6 of a day/mo. (10 days) - ----------------------------- 2 yrs. but less than 9 yrs.: 1-1/4 days/mo. (15 days) - ----------------------------- 9 yrs. or more: 1-2/3 days/mo. (20 days) - ----------------------------- Holidays Beacon Power observes 11 holidays per year. One of these is a floating holiday designated by the employee. Paid Sick Leave Sick leave is a benefit provided to regular full-time employees to assist them with paid time when illness or medical requirements prevent them from working. A maximum of 10 days (accrued at a rate of 6 2/3 hours per month) per calendar year is paid. Long-Term Disability All regular full-time employees are eligible for LTD insurance. These benefits are payable following three months of total disability. Eligible employees receive a monthly disability benefit in the amount equal to 60% of monthly base earnings at the time they become totally disabled, up to a maximum monthly benefit of $7,500. Medical Plan Beacon Power offers two forms of health insurance. The options are: o Blue Cross & Blue Shield Blue Choice New England This Point of Service Plan (POS) combines the managed care full coverage features of HMO Blue with the freedom of choice offered by the Comprehensive Major Medical Plan. o Harvard Community Health Plan This HMO is a complete health care system offering coverage for all health needs. All services are generally performed by or under the direction of a primary care physician. All health coverages: Eligibility: First day actively at work. Cost: Shared by you and Beacon Power. Dental Plan Delta Dental is the dental insurance offered at Beacon Power. The plan has three benefit groups. Preventative benefits such as x-rays, regular exams and fillings, are covered 100%. The basic benefits, which include bondings, extractions, root canals, etc., are covered 80%. The third group, which includes complete or partial dentures, fixed bridges and crowns, inlays and onlays, is covered at 50%. With the exception of preventative services, dental services are subject to a $50 deductible per person and a $150 maximum per family. There is a $1,500 maximum per covered individual per calendar year. Orthodontia is not covered. Eligibility: First day actively at work. Cost: Shared by you and Beacon Power. 401K Plan Beacon Power offers a retirement plan allowing employees to defer up to 15% of salary each year on a tax favorable basis. Beacon Power typically makes a Matching Contribution of .50 on a dollar up to an employee contribution of 6% in any given plan quarter. Eligibility: Plan covers all employees who are age 21 or older who have worked for Beacon Power for at least six months (working 1000 or more hours per year). Employees may participate in the plan on January 1st or July 1st after they meet the eligibility requirements. Group Life Insurance Beacon Power will furnish regular full-time employees with a 2X annual salary life insurance policy. Eligibility: First day actively at work. Cost: Company paid benefit. Accidental Death and Dismemberment Insurance Benefit equal to the amount of your life insurance policy. Eligibility: First day actively at work. Cost: Company paid benefit. - -------------------------------------------------------------------------------- Annex E ---------------------------------------------------------------------------- Executive Risk Specialty Home Office: [GRAPHIC] Insurance Company 82 Hopmeadow Street Simsbury, Connecticut 06070-7883 ----------------------- DECLARATIONS POLICY NUMBER: 751-123394-98 ----------------------- THE POWER(SM) DIRECTORS AND OFFICERS LIABILITY INSURANCE POLICY INCLUDING EMPLOYMENT PRACTICES LIABILITY COVERAGE AND DEFENSE COST COVERAGE NOTICE: THIS IS A CLAIMS MADE INDEMNITY POLICY WHICH APPLIES ONLY TO "CLAIMS" FIRST MADE DURING THE "POLICY PERIOD," OR, IF PURCHASED, THE EXTENDED REPORTING PERIOD. THE LIMIT OF LIABILITY AVAILABLE TO PAY DAMAGES OR SETTLEMENTS WILL BE REDUCED- BY THE PAYMENT OF "DEFENSE EXPENSES," AND "DEFENSE EXPENSES" WILL BE APPLIED AGAINST THE APPLICABLE RETENTION. THE COVERAGE AFFORDED UNDER THIS POLICY DIFFERS IN SOME RESPECTS FROM THAT AFFORDED UNDER OTHER POLICIES. PLEASE READ THE ENTIRE POLICY CAREFULLY. OPTIONAL COVERAGE UNDER INSURING AGREEMENT (D) IS AVAILABLE UNDER THIS POLICY. - --------------------------------------------------------------------------------------------------------------------- ITEM 1. PARENT CORPORATION - NAME AND PRINCIPAL ADDRESS: ITEM 2. POLICY PERIOD: Beacon Power Corp (a) Inception Date: June 2, 1998 6D Gill Street (b) Expiration Date: June 2, 1999 Woburn, MA 01801 at 12:01 a.m. both dates at the Principal Address in ITEM 1. - --------------------------------------------------------------------------------------------------------------------- ITEM 3. LIMITS OF LIABILITY (inclusive of Defense Expenses): (a) $5,000,000.00 maximum aggregate limit of liability for all Claims made under Insuring Agreements (A), (B) (1), (B)(2) and (C). (b) $100,000.00 maximum aggregate limit of liability for all Claims made under Insuring Agreement (D). (c) $5,000,000.00 maximum aggregate limit of liability for all Claims under this Policy. - --------------------------------------------------------------------------------------------------------------------- ITEM 4. PREMIUM: $30,000.00 total prepaid premium. - --------------------------------------------------------------------------------------------------------------------- ITEM 5. RETENTIONS: (a) $0.00 each Insured Person each Claim, but only for Loss as to which indemnification by the Company Is not legally permissible or is not made solely by reason of the Company's financial Insolvency. (b) $25,000.00 each Claim, for Loss as to which indemnification by the Company is legally permissible. (c) $25,000.00 each Claim under Insuring Agreement (B)(2). (d) $5,000.00 each Claim under Insuring Agreement (D). - --------------------------------------------------------------------------------------------------------------------- ITEM 6. LENGTH OF EXTENDED ITEM 7. ADDITIONAL PREMIUM FOR EXTENDED REPORTING PERIOD: REPORTING PERIOD: $22,500.00 365 day - --------------------------------------------------------------------------------------------------------------------- ITEM 8. NOTICE UNDER CONDITIONS (G)(1) AND (G)(2) MUST BE ADDRESSED TO: Vice President of Claims Executive Risk Management Associates P.O. Box 2002 Simsbury, CT 06070-7683 - --------------------------------------------------------------------------------------------------------------------- ITEM 9. ENDORSEMENTS ATTACHED AT ISSUANCE: B22671 D25691 D25024 D26057 D25025 D25064 D25085 - ---------------------------------------------------------------------------------------------------------------------
These Declarations, the signed and completed Application and the Policy, with endorsements, will constitute the entire agreement between the Underwriter, the Company and the Insured Persons. - -------------------------------------------------------------------------------- EXECUTIVE RISK SPECIALTY INSURANCE COMPANY by (Authorized Company Representative): - -------------------------------------------------------------------------------- ACORD(TM) CERTIFICATE OF LIABILITY INSURANCE DATE (MM/DD/YY) 03/12/1998 - -------------------------------------------------------------------------------- PRODUCER (617) 770-2200 FAX (617) 770-2323 Arthur J. Gallagher & Company Harbor South Tower 100 Hancock Street N. Quincy, MA 02171 Attn: Kathy Duchaney Ext: 348 - -------------------------------------------------------------------------------- INSURED Beacon Power Corporation a division of Satcon Technology Corp. 161 First Street Cambridge, MA 02142 - -------------------------------------------------------------------------------- THIS CERTIFICATE IS ISSUED AS A MATTER OF INFORMATION ONLY AND CONFERS NO RIGHTS UPON THE CERTIFICATE HOLDER. THIS CERTIFICATE DOES NOT AMEND, EXTEND OR ALTER THE COVERAGE AFFORDED BY THE POLICIES BELOW. - -------------------------------------------------------------------------------- COMPANIES AFFORDING COVERAGE - -------------------------------------------------------------------------------- COMPANY A St Paul Fire and Marine - -------------------------------------------------------------------------------- COMPANY B General - -------------------------------------------------------------------------------- COMPANY C - -------------------------------------------------------------------------------- COMPANY D - -------------------------------------------------------------------------------- [ILLEGIBLE] - -------------------------------------------------------------------------------- THIS IS TO CERTIFY THAT THE POLICIES OF INSURANCE LISTED BELOW HAVE BEEN ISSUED TO THE INSURED NAMED ABOVE FOR THE POLICY PERIOD INDICATED, NOT WITHSTANDING ANY REQUIREMENT, TERM OR CONDITION OF ANY CONTRACT OR OTHER DOCUMENT WITH RESPECT TO WHICH THIS CERTIFICATE MAY BE ISSUED OR MAY PERTAIN. THE INSURANCE AFFORDED BY THE POLICIES DESCRIBED HEREIN IS SUBJECT TO ALL THE TERMS, EXCLUSIONS AND CONDITIONS OF SUCH POLICIES. LIMITS SHOWN MAY HAVE BEEN REDUCED BY PAID CLAIMS. - --------------------------------------------------------------------------------
POLICY POLICY EFFECTIVE EXPIRATION CO DATE DATE LTR TYPE OF INSURANCE POLICY NUMBER (MM/DD/YY) (MM/DD/YY) LIMITS - ---------------------------------------------------------------------------------------------------------------------------------- GENERAL LIABILITY GENERAL AGGREGATE $2,000,000 -------------------------------------- [X] COMMERCIAL GENERAL LIABILITY PRODUCTS - COMPROP AGG $2,000,000 -------------------------------------- [ ] CLAIMS MADE [X] OCCUR PERSONAL & ADV INJURY $1,000,000 -------------------------------------- A [ ] OWNERS & CONTRACTORS PROT TE06901001 10/30/1997 10/30/1998 EACH OCCURRENCE $1,000,000 -------------------------------------- [ ] FIRE DAMAGE (Any one ind) $ 250,000 ---------------------------- -------------------------------------- [ ] MED EXP (Any one person) $ 10,000 - ---------------------------------------------------------------------------------------------------------------------------------- AUTOMOBILE LIABILITY The limits of liability shown COMBINED SINGLE UNIT $ [ ] ANY AUTO reflect the limits at -------------------------------------- [ ] ALL OWNED AUTOS inception. Arthur L. BODILY INJURY [ ] SCHEDULED AUTOS Gallager & Co. does (Per person) $ [ ] HIRED AUTOS not assume any -------------------------------------- [ ] NON-OWNED AUTOS responsibility for BODILY INJURY [ ] notification in the (Per accident) $ -------------------------------- event of depletion of -------------------------------------- [ ] the aggregate. PROPERTY DAMAGE $ - ---------------------------------------------------------------------------------------------------------------------------------- GARAGE LIABILITY AUTO ONLY - EA ACCIDENT $ -------------------------------------- [ ] ANY AUTO OTHER THAN AUTO ONLY -------------------------------------- [ ] EACH ACCIDENT $ -------------------------------- -------------------------------------- [ ] AGGREGATE $ - ---------------------------------------------------------------------------------------------------------------------------------- EXCESS LIABILITY TE06901001 10/30/1997 10/30/1998 EACH OCCURRENCE $4,000,000 -------------------------------------- A [X] UMBRELLA FORM AGGREGATE $4,000,000 -------------------------------------- [ ] OTHER THAN UMBRELLA FORM Retention $ 10,000 - ---------------------------------------------------------------------------------------------------------------------------------- WORKERS COMPENSATION AND [ ] WC STATU- [ ] OTH- EMPLOYERS' LIABILITY TORY LIMITS ER -------------------------------------- THE PROPRIETOR/ EL EACH ACCIDENT $ PARTNERS/EXECUTIVE [ ] INCL -------------------------------------- OFFICERS ARE [ ] EXCL EL DISEASE - POLICY LIMIT $ -------------------------------------- EL DISEASE - EA EMPLOYEE $ - ---------------------------------------------------------------------------------------------------------------------------------- OTHER - ---------------------------------------------------------------------------------------------------------------------------------- DESCRIPTION OF OPERATIONS & LOCATIONS/VEHICLES/SPECIAL ITEMS - ----------------------------------------------------------------------------------------------------------------------------------
[ILLEGIBLE] - -------------------------------------------------------------------------------- SHOULD ANY OF THE ABOVE DESCRIBED POLICIES BE CANCELLED BEFORE THE EXPIRATION DATE THEREOF, THE ISSUING COMPANY WILL ENDEAVOR TO MAIL 10 DAYS WRITTEN NOTICE TO THE CERTIFICATE HOLDER NAMED TO THE LEFT, BUT FAILURE TO MAIL SUCH NOTICE SHALL IMPOSE NO OBLIGATION OR LIABILITY OF ANY KIND UPON THE COMPANY, ITS AGENTS OR REPRESENTATIVES. - -------------------------------------------------------------------------------- AUTHORIZED REPRESENTATIVE ARTHUR J. GALLAGHER & CO. /s/ BJ Mann AUTHORIZED SIGNATURE - -------------------------------------------------------------------------------- WORKERS COMPENSATION AND EMPLOYERS LIABILITY COVERAGE CERTIFICATE Massachusetts High Technology Self-Insurance Group, Inc., c/o Management Services, Inc. INFORMATION PAGE - Certificate Number WP8-11B-251272-018 Date of Issue: February 2, 1998 1. Name of Member SatCon Technology Corporation Mailing Address: 161 First Street Cambridge, MA 02142 Form of Business Organization: Corporation Workplace: 161 First Street Cambridge, MA 02142 Additional Insureds: K & D Magmotor Corporation Additional Workplaces: P.0. Box 872, Worcester, MA 01613 Additional Insureds: Beacon Power Company Additonal Workplaces: 6D Gill Street, Woburn, MA 01803 2. The certificate period is from 1/1/98 to 1/1/99, standard time at the member's mailing address. 3. A. Workers Compensation Coverage: Part One of the Certificate applies to the Workers Compensation Law of the Commonwealth of Massachusetts. B. Employers Liability Coverage: Part Two of the Certificate applies to the workplace(s) listed under Item 1. The limits of our liability under Part Two are: Bodily Injury by Accident: $1,000,000 each accident Bodily Injury by Disease: $1,000,000 each employee Bodily Injury by Disease: $1,000,000 coverage limit C. This certificate includes the Information Page and the following endorsements and schedules: WC & Employers Liability Coverage, Miscellaneous Duties, Massachusetts Limits Liability For Employers Premium Discount, Voluntary Compensation & Employer Liability, Premium Discount Redetermination, WC & Employers Liability Coverage Policy, WC & Employers Liability Coverage Maritime Exclusion, Longshore & Harbor Workers' Compensation Coverage, and Foreign Coverage 4. The premium for this certificate will be determined by our Manuals of Rule Classifications, Rates and Rating Plans. All information required is subject verification and change by audit. 5. Total Estimated Annual Premium: $29,361.09 MASSACHUSETTS HIGH TECHNOLOGY SELF-INSURANCE GROUP, INC. /s/ Charles R. Fuller BY: /s/ J. C. Durand - ----------------------------------- -------------------------- Clerk President 1 SENIOR SECURED CONVERTIBLE PROMISSORY NOTE THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY APPLICABLE STATE SECURITIES LAWS. IT MAY NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND COMPLIANCE WITH SUCH STATE SECURITIES LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION AND/OR COMPLIANCE IS NOT REQUIRED. THE SALE OR TRANSFER AND CERTAIN OTHER RIGHTS RELATING TO THE SECURITIES REPRESENTED BY THIS DOCUMENT ARE SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN SHAREHOLDER AGREEMENT BY AND AMONG THE COMPANY AND CERTAIN SHAREHOLDERS OF THE COMPANY. A COPY OF SUCH AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY. $250,000.00 June 23, 1999 WOBURN, MA FOR VALUE RECEIVED. Beacon Power Corporation, a Delaware corporation (the "Company"), promises to pay to the order of Perseus Capital, L.L.C., or its registered assigns (the "Holder"), the principal sum of Two Hundred Fifty Thousand Dollars or such lesser amount as shall then equal the outstanding principal amount hereof, together with interest from the date of issuance of this Note on the unpaid principal balance hereof at a rate equal to twelve and one-half percent (12 1/2%) per annum, computed on the basis of the actual number of days elapsed and a year of 365 days; provided that if this Note is not repaid in full on or prior to the Maturity Date, such interest rate shall increase effective as of the close of business on the Maturity Date to fifteen percent (15%) per annum. All unpaid principal, together with any accrued but unpaid interest and other amounts payable hereunder, shall be due and payable on the earlier of(i) September 23, 1999 (the "Maturity Date") or (ii) upon or after the occurrence of an Event of Default (as defined below), when such amounts are declared due and payable by the Holder or made automatically due and payable. Interest on this Note shall be payable on the Maturity Date. This Note is issued pursuant to the Note Purchase Agreement (the "Purchase Agreement") dated as of June 22, 1999 by and among the Company, Perseus Capital, L.L.C., Duquesne Enterprises, Micro Generation Technology Fund, L.L.C. and SatCon Technology Corporation. The following is a statement of the rights of the Holder and the conditions to which this Note is subject, and to which the Holder hereof, by the acceptance of this Note, agrees: 1. Definitions. As used in this Note, the following capitalized terms have the 1. Definitions. As used in this Note, the following capitalized terms have the following meanings: (a) "Business Day" means any day other than a Saturday, Sunday or other day on which the national or state banks located in the State of Massachusetts or the State of New York are authorized to be closed. (b) "Bridge Financing" has the meaning specified in the Purchase Agreement. (c) "Bridge Securities" has the meaning specified in the Purchase Agreement. (d) "Obligations" means the principal, interest and other amounts payable under this Note. (e) "Transaction Documents" shall mean this Note, the Purchase Agreement, and any other promissory note issued pursuant to the Purchase Agreement. 2. Events of Default. The occurrence of any of the following shall constitute an "Event of Default" under this Note: (a) Failure to Pay. The Company shall fail to pay (i) when due any principal payment on this Note or (ii) any interest or other payment required under the terms of this Note or any other Transaction Document within five Business Days of its due date; or (b) Breaches of Other Covenants. The Company shall materially fail to observe or to perform any other covenant, obligation, condition or agreement contained in this Note or the other Transaction Documents, other than those specified in Section 2(a) hereof, and such failure shall continue for 30 days after written notice thereof to the Company; or (c) Voluntary Bankruptcy or Insolvency Proceedings. The Company shall (i) apply for or consent to the appointment of a receiver, trustee, liquidator or custodian of itself or of all or a substantial part of its property, (ii) be unable, or admit in writing its inability, to pay its debts generally as they mature, (iii) make a general assignment for the benefit of its or any of its creditors, (iv) be dissolved or liquidated in full or in part, (v) become insolvent (as such term may be defined or interpreted under any applicable statute), (vi) commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or consent to any such relief or to the appointment of or taking possession of its property by any official in an involuntary case or other proceeding commenced against it or (vii) take any action for the purpose of effecting any of the foregoing; or (d) Involuntary Bankruptcy or Insolvency Proceedings. Proceedings for the appointment of a receiver, trustee, liquidator or custodian of the Company or of all or a substantial part of the property thereof, or an involuntary case or other proceedings seeking liquidation, reorganization or other relief with respect to the Company or the debts thereof under any bankruptcy, insolvency or other similar law now or hereafter in effect shall be commenced and an order for relief entered, or such case or proceeding shall not be dismissed or discharged -2- within 45 days of commencement; or (e) Cross-Default. The Company or any of its subsidiaries shall default under any bond, debenture, note or other evidence of indebtedness for money borrowed (excluding any capital lease), under any guarantee or under any mortgage, or indenture pursuant to which there shall be issued or by which there shall be secured or evidenced any indebtedness for money borrowed by the Company or any of its subsidiaries, whether such indebtedness now exists or shall hereafter be created, which default shall have resulted in indebtedness of at least $10,000 being due and payable prior to the date on which it would otherwise become due and payable and shall not have been issued by the Company or waived by the lender; or (f) Undischarged Judgment. One or more judgments for the payment of money in an amount in excess of $10,000 in the aggregate shall be rendered against the Company or any of its subsidiaries (or any combination thereof) and shall remain undischarged for a period of ten consecutive days during which execution shall not be effectively stayed, or any action is legally taken by a judgment creditor to levy upon any such judgment. 3. Rights of Holder Upon Default. Upon the occurrence or existence of any Event of Default (other than an Event of Default referred to in Sections 2(c) and 2(d) hereof) and at any time thereafter during the continuance of such Event of Default, the Holder may declare all outstanding Obligations payable by the Company hereunder to be immediately due and payable without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived, anything contained herein or in the other Transaction Documents to the contrary notwithstanding. Upon the occurrence or existence of any Event of Default described in Sections 2(c) and 2(d) hereof, immediately and without notice, all outstanding Obligations payable by the Company hereunder shall automatically become immediately due and payable, without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived, anything contained herein or in the other Transaction Documents to the contrary notwithstanding. In addition to the foregoing remedies, upon the occurrence or existence of any Event of Default, the Holder may exercise any other right, power or remedy granted to it by the Transaction Documents or otherwise permitted to it by law, either by suit in equity or by action at law, or both. 4. Collateral. To secure the Company's payment and performance of the Obligations and to secure the Company's prompt, full and faithful performance and observance of all of the provisions under this Note and the other Transaction Documents, the Company hereby grants the Holder a security interest in all of the Company's right, title and interest in and to the following, whether now owned or hereafter acquired or existing and wherever located: (a) All inventory and equipment, and all parts thereof, attachments, accessories and accessions thereto, products thereof and documents therefor; (b) All accounts, contract rights, chattel paper, instruments, deposit accounts, general intangibles and other obligations of any kind, and all rights now or hereafter existing in and to all mortgages, security agreements, leases or other contracts securing or otherwise relating to any of the same; -3- (c) All intellectual property and trade secrets, including, without limitation, (i) all patents, patent applications and patentable inventions and (i) the inventions and improvements described and claimed therein; (ii) any continuation, division, renewal, extension, substitute or reissue thereof or any legal equivalent in a foreign country for the full term thereof or the terms for which the same may be granted; (iii) all rights to income, royalties, profits, awards, damages and other rights relating to said patents, applications and inventions, including the right to sue for past, present and future infringement and (iv) any other rights and benefits relating to said patents, applications and inventions including any rights as a licensor or licensee of said patents, applications and inventions (the "Patents"); (ii) all trademarks, trademark registrations, trademark applications, service marks, service mark registrations and service mark applications, trade names, fictitious business name, tradestyles, and the goodwill underlying those trademarks and service marks and (i) any similar marks or amendments, modifications and renewals thereof and the goodwill represented by those and any legal equivalent in a foreign country for the full term or terms for which the same may be granted; (ii) all rights to income, royalties, profits, damages and other rights relating to said trademarks and service marks including the right to sue for past, present or future infringement and (iii) any other rights and benefits relating to said trademarks and service marks including any rights as a licensor or licensee of said trademark and service mark (the "Trademarks"); (iii) all copyrights, copyright registrations and copyright applications, including without limitation those copyrights for computer programs, computer databases, flow diagrams, maskworks, maskwork applications, source codes and object codes, computer software, technical knowledge and processes, trade secrets, know-how, customer lists, franchises, systems, inventions, designs, blueprints, formal or informal licensing arrangements, and all property embodying or incorporating such copyrights and (i) any similar rights or amendments, modifications and renewals thereof and any legal equivalent in a foreign country for the full term or terms for which the same may be granted; (ii) all rights to income, past, present and future infringement and (iii) any other rights and benefits relating to said copyrights (the "Copyrights"); (d) all substitutions and replacements for, and all rights to exploit, all of the foregoing; (e) all books and records pertaining to any of the foregoing; and (f) all proceeds of all of the foregoing and, to the extent not otherwise included, all payments under insurance or any indemnity, warranty or guaranty, payable by reason of loss or damage to or otherwise with respect to any of the foregoing. All of the above assets are hereinafter collectively referred to as "Collateral." The Company covenants and agrees with Holder that: (x) the security interest granted under this Note is in addition to any other security interest from time to time held by the Holder; (y) the Holder may realize upon all or part of any Collateral in any order it desires and any realization by -4- any means upon any Collateral will not bar realization upon any other Collateral; and (z) the security interest hereby created is a continuing security interest and will cover and secure the payment of all Obligations both present and future of the Company to Holder pursuant to this Note and the other Transaction Documents. The Company further covenants and agrees to take all actions requested by the Holder to establish or perfect the security interest granted under this Note. 5. Prepayment. This Note may be prepaid as a whole or in part at any time prior to the Maturity Date upon at least ten Business Days prior written notice to the Holder. Any such prepayment shall be applied first to the payment of expenses due under this Note, second to interest accrued on this Note and third, if the amount of prepayment exceeds the amount of all such expenses and accrued interest, to the payment of principal of this Note. An exchange pursuant to Section 6 hereof shall not constitute a prepayment for purposes of this Section 5. 6. Exchange. (a) Exchange For Bridge Securities. Upon consummation of the Bridge Financing, this Note shall automatically be exchanged for (without any action on the part of the Company or the Holder) the number of Bridge Securities that an investor in the Bridge Financing would acquire for an aggregate purchase price equal to the sum of the then outstanding principal amount of this Note plus all accrued but unpaid interest hereon. (b) Mechanics and Effect of Exchange. No fractional shares of capital stock of the Company shall be issued upon exchange of this Note. Upon such exchange of all of the principal and accrued interest outstanding under this Note, in lieu of the Company issuing any fractional shares to the Holder, the Company shall pay to the Holder the amount of outstanding principal or interest that is not so exchanged. Upon full exchange of this Note, the Company shall be forever released from all its obligations and liabilities under this Note. 7. Successors and Assigns. Subject to the restrictions on transfer described in Sections 9 and 10 hereof, the rights and obligations of the Company and the Holder of this Note shall be binding upon and benefit the successors, assigns, heirs, administrators and transferees of the parties. 8. Waiver and Amendment. Any provision of this Note may be amended, waived or modified only as to the Holder of this Note upon the written consent of the Company and the Holder. 9. Transfer of this Note or Securities Issuable on Conversion Hereof. This Note may not be transferred in violation of any restrictive legend set forth hereon. Each new Note issued upon transfer of this Note shall bear a legend as to the applicable restrictions on transferability in order to ensure compliance with the Securities Act, unless in the opinion of counsel for the Company such legend is not required in order to ensure compliance with the Securities Act. The Company may issue stop transfer instructions to its transfer agent in connection with such restrictions. Subject to the foregoing, transfers of this Note shall be registered upon registration books maintained for such purpose by or on behalf of the Company. Prior to presentation of this Note for registration of transfer, the Company shall treat the registered holder hereof as the -5- principles, the Company will treat, account and report the Note as debt and not equity for accounting purposes and with respect to any returns filed with federal, state or local tax authorities. 12. Notices. Any notice, request or other communication required or permitted hereunder shall be in writing and shall be deemed to have been duly given if personally delivered or mailed by registered or certified mail, postage prepaid, or by recognized overnight courier, personal delivery or facsimile transmission at the respective addresses or facsimile number of the parties as set forth in the Purchase Agreement or on the register maintained by the Company. Any party hereto may by notice so given change its address or facsimile number for future notice hereunder. Notice shall conclusively be deemed to have been given when received. 13. Expenses: Waivers. If action is instituted to collect this Note, the Company promises to pay all costs and expenses, including, without limitation, reasonable attorneys' fees and costs, incurred in connection with such action. The Company hereby waives notice of default, presentment or demand for payment, protest or notice of nonpayment or dishonor and all other notices or demands relative to this instrument. 14. Governing Law. This Note and all actions arising out of or in connection with this Note shall be governed by and construed in accordance with the laws of the State of New York, without regard to conflict of laws provisions of the State of New York or of any other state. In the event of any dispute among or between any of the parties to this Note arising out of the terms of this Note, the parties hereby consent to the exclusive jurisdiction of the federal and state courts located in the State of New York for resolution 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. IN WITNESS WHEREOF, the Company has caused this Note to be issued as of the date first written above. BEACON POWER COPORATION By: /s/ William E. Stanton ---------------------- Name: William E. Stanton --------------------- Title: President & CEO -------------------- -6- SENIOR SECURED CONVERTIBLE PROMISSORY NOTE THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY APPLICABLE STATE SECURITIES LAWS. IT MAY NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND COMPLIANCE WITH SUCH STATE SECURITIES LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION AND/OR COMPLIANCE IS NOT REQUIRED. THE SALE OR TRANSFER AND CERTAIN OTHER RIGHTS RELATING TO THE SECURITIES REPRESENTED BY THIS DOCUMENT ARE SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN SHAREHOLDER AGREEMENT BY AND AMONG THE COMPANY AND CERTAIN SHAREHOLDERS OF THE COMPANY. A COPY OF SUCH AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY. $125,000.00 June 23, 1999 WOBURN, MA FOR VALUE RECEIVED, Beacon Power Corporation, a Delaware corporation (the "Company"), promises to pay to the order of SatCon Technology Corporation, or its registered assigns (the "Holder"), the principal sum of One Hundred Twenty Five Thousand Dollars or such lesser amount as shall then equal the outstanding principal amount hereof, together with interest from the date of issuance of this Note on the unpaid principal balance hereof at a rate equal to twelve and one-half percent (12 1/2%) per annum, computed on the basis of the actual number of days elapsed and a year of 365 days; provided that if this Note is not repaid in full on or prior to the Maturity Date, such interest rate shall increase effective as of the close of business on the Maturity Date to fifteen percent (15%) per annum. All unpaid principal, together with any accrued but unpaid interest and other amounts payable hereunder, shall be due and payable on the earlier of(i) September 23, 1999 (the "Maturity Date") or (ii) upon or after the occurrence of an Event of Default (as defined below), when such amounts are declared due and payable by the Holder or made automatically due and payable. Interest on this Note shall be payable on the Maturity Date. This Note is issued pursuant to the Note Purchase Agreement (the "Purchase Agreement") dated as of June 22, 1999 by and among the Company, Perseus Capital, L.L.C., Duquesne Enterprises, Micro Generation Technology Fund, L.L.C. and SatCon Technology Corporation. The following is a statement of the rights of the Holder and the conditions to which this Note is subject, and to which the Holder hereof, by the acceptance of this Note, agrees: 1. Definitions. As used in this Note, the following capitalized terms have the following meanings: (a) "Business Day" means any day other than a Saturday, Sunday or other day on which the national or state banks located in the State of Massachusetts or the State of New York are authorized to be closed. (b) "Bridge Financing" has the meaning specified in the Purchase Agreement. (c) "Bridge Securities" has the meaning specified in the Purchase Agreement. (d) "Obligations" means the principal, interest and other amounts payable under this Note. (e) "Transaction Documents" shall mean this Note, the Purchase Agreement, and any other promissory note issued pursuant to the Purchase Agreement. 2. Events of Default. The occurrence of any of the following shall constitute an "Event of Default" under this Note: (a) Failure to Pay. The Company shall fail to pay (i) when due any principal payment on this Note or (ii) any interest or other payment required under the terms of this Note or any other Transaction Document within five Business Days of its due date; or (b) Breaches of Other Covenants. The Company shall materially fail to observe or to perform any other covenant, obligation, condition or agreement contained in this Note or the other Transaction Documents, other than those specified in Section 2(a) hereof, and such failure shall continue for 30 days after written notice thereof to the Company; or (c) Voluntary Bankruptcy or Insolvency Proceedings. The Company shall (i) apply for or consent to the appointment of a receiver, trustee, liquidator or custodian of itself or of all or a substantial part of its property, (ii) be unable, or admit in writing its inability, to pay its debts generally as they mature, (iii) make a general assignment for the benefit of its or any of its creditors, (iv) be dissolved or liquidated in full or in part, (v) become insolvent (as such term may be defined or interpreted under any applicable statute), (vi) commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or consent to any such relief or to the appointment of or taking possession of its property by any official in an involuntary case or other proceeding commenced against it or (vii) take any action for the purpose of effecting any of the foregoing; or (d) Involuntary Bankruptcy or Insolvency Proceedings. Proceedings for the appointment of a receiver, trustee, liquidator or custodian of the Company or of all or a substantial part of the property thereof, or an involuntary case or other proceedings seeking liquidation, reorganization or other relief with respect to the Company or the debts thereof under any bankruptcy, insolvency or other similar law now or hereafter in effect shall be commenced and an order for relief entered, or such case or proceeding shall not be dismissed or discharged within 45 days of commencement; or (e) Cross-Default. The Company or any of its subsidiaries shall default under any bond, debenture, note or other evidence of indebtedness for money borrowed (excluding any capital lease), under any guarantee or under any mortgage, or indenture pursuant to which there shall be issued or by which there shall be secured or evidenced any indebtedness for money borrowed by the Company or any of its subsidiaries, whether such indebtedness now exists or -2- shall hereafter be created, which default shall have resulted in indebtedness of at least $10,000 being due and payable prior to the date on which it would otherwise become due and payable and shall not have been issued by the Company or waived by the lender; or (f) Undischarged Judgment. One or more judgments for the payment of money in an amount in excess of $10,000 in the aggregate shall be rendered against the Company or any of its subsidiaries (or any combination thereof) and shall remain undischarged for a period of ten consecutive days during which execution shall not be effectively stayed, or any action is legally taken by a judgment creditor to levy upon any such judgment. 3. Rights of Holder Upon Default. Upon the occurrence or existence of any Event of Default (other than an Event of Default referred to in Sections 2(c) and 2(d) hereof) and at any time thereafter during the continuance of such Event of Default, the Holder may declare all outstanding Obligations payable by the Company hereunder to be immediately due and payable without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived, anything contained herein or in the other Transaction Documents to the contrary notwithstanding. Upon the occurrence or existence of any Event of Default described in Sections 2(c) and 2(d) hereof, immediately and without notice, all outstanding Obligations payable by the Company hereunder shall automatically become immediately due and payable, without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived, anything contained herein or in the other Transaction Documents to the contrary notwithstanding. In addition to the foregoing remedies, upon the occurrence or existence of any Event of Default, the Holder may exercise any other right, power or remedy granted to it by the Transaction Documents or otherwise permitted to it by law, either by suit in equity or by action at law, or both. 4. Collateral. To secure the Company's payment and performance of the Obligations and to secure the Company's prompt, full and faithful performance and observance of all of the provisions under this Note and the other Transaction Documents, the Company hereby grants the Holder a security interest in all of the Company's right, title and interest in and to the following, whether now owned or hereafter acquired or existing and wherever located: (a) All inventory and equipment, and all parts thereof, attachments, accessories and accessions thereto, products thereof and documents therefor; (b) All accounts, contract rights, chattel paper, instruments, deposit accounts, general intangibles and other obligations of any kind, and all rights now or hereafter existing in and to all mortgages, security agreements, leases or other contracts securing or otherwise relating to any of the same; (c) All intellectual property and trade secrets, including, without limitation, (i) all patents, patent applications and patentable inventions and (i) the inventions and improvements described and claimed therein; (ii) any continuation, division, renewal, extension, substitute or reissue thereof or any legal equivalent in a foreign country for the full term thereof or the terms for which the same may be granted; (iii) all rights to income, royalties, profits, awards, damages and other rights relating to said patents, applications -3- and inventions, including the right to sue for past, present and future infringement and (iv) any other rights and benefits relating to said patents, applications and inventions including any rights as a licensor or licensee of said patents, applications and inventions (the "Patents"); (ii) all trademarks, trademark registrations, trademark applications, service marks, service mark registrations and service mark applications, trade names, fictitious business name, tradestyles, and the goodwill underlying those trademarks and service marks and (i) any similar marks or amendments, modifications and renewals thereof and the goodwill represented by those and any legal equivalent in a foreign country for the full term or terms for which the same may be granted; (ii) all rights to income, royalties, profits, damages and other rights relating to said trademarks and service marks including the right to sue for past, present or future infringement and (iii) any other rights and benefits relating to said trademarks and service marks including any rights as a licensor or licensee of said trademark and service mark (the "Trademarks"); (iii) all copyrights, copyright registrations and copyright applications, including without limitation those copyrights for computer programs, computer databases, flow diagrams, maskworks. maskwork applications, source codes and object codes, computer software, technical knowledge and processes, trade secrets, know-how, customer lists, franchises, systems, inventions, designs, blueprints, formal or informal licensing arrangements, and all property embodying or incorporating such copyrights and (i) any similar rights or amendments, modifications and renewals thereof and any legal equivalent in a foreign country for the full term or terms for which the same may be granted; (ii) all rights to income, past, present and future infringement and (iii) any other rights and benefits relating to said copyrights (the "Copyrights"); (d) all substitutions and replacements for, and all rights to exploit, all of the foregoing; (e) all books and records pertaining to any of the foregoing; and (f) all proceeds of all of the foregoing and, to the extent not otherwise included, all payments under insurance or any indemnity, warranty or guaranty, payable by reason of loss or damage to or otherwise with respect to any of the foregoing. All of the above assets are hereinafter collectively referred to as "Collateral." The Company covenants and agrees with Holder that: (x) the security interest granted under this Note is in addition to any other security interest from time to time held by the Holder; (y) the Holder may realize upon all or part of any Collateral in any order it desires and any realization by any means upon any Collateral will not bar realization upon any other Collateral; and (z) the security interest hereby created is a continuing security interest and will cover and secure the payment of all Obligations both present and future of the Company to Holder pursuant to this Note and the other Transaction Documents. The Company further covenants and agrees to take all actions requested by the Holder to establish or perfect the security interest granted under this Note. 5. Prepayment. This Note may be prepaid as a whole or in part at any time prior to -4- the Maturity Date upon at least ten Business Days prior written notice to the Holder. Any such prepayment shall be applied first to the payment of expenses due under this Note, second to interest accrued on this Note and third, if the amount of prepayment exceeds the amount of all such expenses and accrued interest, to the payment of principal of this Note. An exchange pursuant to Section 6 hereof shall not constitute a prepayment for purposes of this Section 5. 6. Exchange. (a) Exchange For Bridge Securities. Upon consummation of the Bridge Financing, this Note shall automatically be exchanged for (without any action on the part of the Company or the Holder) the number of Bridge Securities that an investor in the Bridge Financing would acquire for an aggregate purchase price equal to the sum of the then outstanding principal amount of this Note plus all accrued but unpaid interest hereon. (b) Mechanics and Effect of Exchange. No fractional shares of capital stock of the Company shall be issued upon exchange of this Note. Upon such exchange of all of the principal and accrued interest outstanding under this Note, in lieu of the Company issuing any fractional shares to the Holder, the Company shall pay to the Holder the amount of outstanding principal or interest that is not so exchanged. Upon full exchange of this Note, the Company shall be forever released from all its obligations and liabilities under this Note. 7. Successors and Assigns. Subject to the restrictions on transfer described in Sections 9 and 10 hereof, the rights and obligations of the Company and the Holder of this Note shall be binding upon and benefit the successors, assigns, heirs, administrators and transferees of the parties. 8. Waiver and Amendment. Any provision of this Note may be amended, waived or modified only as to the Holder of this Note upon the written consent of the Company and the Holder. 9. Transfer of this Note or Securities Issuable on Conversion Hereof. This Note may not be transferred in violation of any restrictive legend set forth hereon. Each new Note issued upon transfer of this Note shall bear a legend as to the applicable restrictions on transferability in order to ensure compliance with the Securities Act, unless in the opinion of counsel for the Company such legend is not required in order to ensure compliance with the Securities Act. The Company may issue stop transfer instructions to its transfer agent in connection with such restrictions. Subject to the foregoing, transfers of this Note shall be registered upon registration books maintained for such purpose by or on behalf of the Company. Prior to presentation of this Note for registration of transfer, the Company shall treat the registered holder hereof as the owner and holder of this Note for the purpose of receiving all payments of principal and interest hereon and for all other purposes whatsoever, whether or not this Note shall be overdue and the Company shall not be affected by notice to the contrary. 10. Assignment by the Company. Neither this Note nor any of the rights, interests or obligations hereunder may be assigned, by operation of law or otherwise, in whole or in part, by the Company, without the prior written consent of the Holder. 11. Treatment of Note. To the extent permitted by generally accepted accounting -5- principles, the Company will treat, account and report the Note as debt and not equity for accounting purposes and with respect to any returns filed with federal, state or local tax authorities. 12. Notices. Any notice, request or other communication required or permitted hereunder shall be in writing and shall be deemed to have been duly given if personally delivered or mailed by registered or certified mail, postage prepaid, or by recognized overnight courier, personal delivery or facsimile transmission at the respective addresses or facsimile number of the parties as set forth in the Purchase Agreement or on the register maintained by the Company. Any party hereto may by notice so given change its address or facsimile number for future notice hereunder. Notice shall conclusively be deemed to have been given when received. 13. Expenses; Waivers. If action is instituted to collect this Note, the Company promises to pay all costs and expenses, including, without limitation, reasonable attorneys' fees and costs, incurred in connection with such action. The Company hereby waives notice of default, presentment or demand for payment, protest or notice of nonpayment or dishonor and all other notices or demands relative to this instrument. 14. Governing Law. This Note and all actions arising out of or in connection with this Note shall be governed by and construed in accordance with the laws of the State of New York, without regard to conflict of laws provisions of the State of New York or of any other state. In the event of any dispute among or between any of the parties to this Note arising out of the terms of this Note, the parties hereby consent to the exclusive jurisdiction of the federal and state courts located in the State of New York for resolution 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. IN WITNESS WHEREOF, the Company has caused this Note to be issued as of the date first written above. BEACON POWER COPORATION By: /s/ William E. Stanton ---------------------- Name: William E. Stanton --------------------- Title: President & CEO -------------------- -6- SENIOR SECURED CONVERTIBLE PROMISSORY NOTE THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY APPLICABLE STATE SECURITIES LAWS. IT MAY NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND COMPLIANCE WITH SUCH STATE SECURITIES LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION AND/OR COMPLIANCE IS NOT REQUIRED. THE SALE OR TRANSFER AND CERTAIN OTHER RIGHTS RELATING TO THE SECURITIES REPRESENTED BY THIS DOCUMENT ARE SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN SHAREHOLDER AGREEMENT BY AND AMONG THE COMPANY AND CERTAIN SHAREHOLDERS OF THE COMPANY. A COPY OF SUCH AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY. $50,000.00 June 23, 1999 WOBURN, MA FOR VALUE RECEIVED, Beacon Power Corporation, a Delaware corporation (the "Company"), promises to pay to the order of Duquesne Enterprises, or its registered assigns (the "Holder"), the principal sum of Fifty Thousand Dollars or such lesser amount as shall then equal the outstanding principal amount hereof, together with interest from the date of issuance of this Note on the unpaid principal balance hereof at a rate equal to twelve and one-half percent (12 1/2%) per annum, computed on the basis of the actual number of days elapsed and a year of 365 days; provided that if this Note is not repaid in full on or prior to the Maturity Date, such interest rate shall increase effective as of the close of business on the Maturity Date to fifteen percent (15%) per annum. All unpaid principal, together with any accrued but unpaid interest and other amounts payable hereunder, shall be due and payable on the earlier of(i) September 23, 1999 (the "Maturity Date") or (ii) upon or after the occurrence of an Event of Default (as defined below), when such amounts are declared due and payable by the Holder or made automatically due and payable. Interest on this Note shall be payable on the Maturity Date. This Note is issued pursuant to the Note Purchase Agreement (the "Purchase Agreement") dated as of June 22, 1999 by and among the Company, Perseus Capital, L.L.C., Duquesne Enterprises, Micro Generation Technology Fund, L.L.C. and SatCon Technology Corporation. The following is a statement of the rights of the Holder and the conditions to which this Note is subject, and to which the Holder hereof, by the acceptance of this Note, agrees: within 45 days of commencement; or (e) Cross-Default. The Company or any of its subsidiaries shall default under any bond, debenture, note or other evidence of indebtedness for money borrowed (excluding any capital lease), under any guarantee or under any mortgage, or indenture pursuant to which there shall be issued or by which there shall be secured or evidenced any indebtedness for money borrowed by the Company or any of its subsidiaries, whether such indebtedness now exists or shall hereafter be created, which default shall have resulted in indebtedness of at least $10,000 being due and payable prior to the date on which it would otherwise become due and payable and shall not have been issued by the Company or waived by the lender; or (f) Undischarged Judgment. One or more judgments for the payment of money in an amount in excess of $10,000 in the aggregate shall be rendered against the Company or any of its subsidiaries (or any combination thereof) and shall remain undischarged for a period of ten consecutive days during which execution shall not be effectively stayed, or any action is legally taken by a judgment creditor to levy upon any such judgment. 3. Rights of Holder Upon Default. Upon the occurrence or existence of any Event of Default (other than an Event of Default referred to in Sections 2(c) and 2(d) hereof) and at any time thereafter during the continuance of such Event of Default, the Holder may declare all outstanding Obligations payable by the Company hereunder to be immediately due and payable without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived, anything contained herein or in the other Transaction Documents to the contrary notwithstanding. Upon the occurrence or existence of any Event of Default described in Sections 2(c) and 2(d) hereof, immediately and without notice, all outstanding Obligations payable by the Company hereunder shall automatically become immediately due and payable, without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived, anything contained herein or in the other Transaction Documents to the contrary notwithstanding. In addition to the foregoing remedies, upon the occurrence or existence of any Event of Default, the Holder may exercise any other right, power or remedy granted to it by the Transaction Documents or otherwise permitted to it by law, either by suit in equity or by action at law, or both. 4. Collateral. To secure the Company's payment and performance of the Obligations and to secure the Company's prompt, full and faithful performance and observance of all of the provisions under this Note and the other Transaction Documents, the Company hereby grants the Holder a security interest in all of the Company's right, title and interest in and to the following, whether now owned or hereafter acquired or existing and wherever located: (a) All inventory and equipment, and all parts thereof, attachments, accessories and accessions thereto, products thereof and documents therefor; (b) All accounts, contract rights, chattel paper, instruments, deposit accounts, general intangibles and other obligations of any kind, and all rights now or hereafter existing in and to all mortgages, security agreements, leases or other contracts securing or otherwise relating to any of the same; -3- (c) All intellectual property and trade secrets, including, without limitation, (i) all patents, patent applications and patentable inventions and (i) the inventions and improvements described and claimed therein; (ii) any continuation, division, renewal, extension, substitute or reissue thereof or any legal equivalent in a foreign country for the full term thereof or the terms for which the same may be granted; (iii) all rights to income, royalties, profits, awards, damages and other rights relating to said patents, applications and inventions, including the right to sue for past, present and future infringement and (iv) any other rights and benefits relating to said patents, applications and inventions including any rights as a licensor or licensee of said patents, applications and inventions (the "Patents"); (ii) all trademarks, trademark registrations, trademark applications, service marks, service mark registrations and service mark applications, trade names, fictitious business name, tradestyles, and the goodwill underlying those trademarks and service marks and (i) any similar marks or amendments, modifications and renewals thereof and the goodwill represented by those and any legal equivalent in a foreign country for the full term or terms for which the same may be granted; (ii) all rights to income, royalties, profits, damages and other rights relating to said trademarks and service marks including the right to sue for past, present or future infringement and (iii) any other rights and benefits relating to said trademarks and service marks including any rights as a licensor or licensee of said trademark and service mark (the "Trademarks"); (iii) all copyrights, copyright registrations and copyright applications, including without limitation those copyrights for computer programs, computer databases, flow diagrams, maskworks, maskwork applications, source codes and object codes, computer software, technical knowledge and processes, trade secrets, know-how, customer lists, franchises, systems, inventions, designs, blueprints, formal or informal licensing arrangements, and all property embodying or incorporating such copyrights and (i) any similar rights or amendments, modifications and renewals thereof and any legal equivalent in a foreign country for the full term or terms for which the same may be granted; (ii) all rights to income, past, present and future infringement and (iii) any other rights and benefits relating to said copyrights (the "Copyrights"); (d) all substitutions and replacements for, and all rights to exploit, all of the foregoing; (e) all books and records pertaining to any of the foregoing; and (f) all proceeds of all of the foregoing and, to the extent not otherwise included, all payments under insurance or any indemnity, warranty or guaranty, payable by reason of loss or damage to or otherwise with respect to any of the foregoing. All of the above assets are hereinafter collectively referred to as "Collateral." The Company covenants and agrees with Holder that: (x) the security interest granted under this Note is in addition to any other security interest from time to time held by the Holder; (y) the Holder may realize upon all or part of any Collateral in any order it desires and any realization by -4- any means upon any Collateral will not bar realization upon any other Collateral; and (z) the security interest hereby created is a continuing security interest and will cover and secure the payment of all Obligations both present and future of the Company to Holder pursuant to this Note and the other Transaction Documents. The Company further covenants and agrees to take all actions requested by the Holder to establish or perfect the security interest granted under this Note. 5. Prepayment. This Note may be prepaid as a whole or in part at any time prior to the Maturity Date upon at least ten Business Days prior written notice to the Holder. Any such prepayment shall be applied first to the payment of expenses due under this Note, second to interest accrued on this Note and third, if the amount of prepayment exceeds the amount of all such expenses and accrued interest, to the payment of principal of this Note. An exchange pursuant to Section 6 hereof shall not constitute a prepayment for purposes of this Section 5. 6. Exchange. (a) Exchange For Bridge Securities. Upon consummation of the Bridge Financing, this Note shall automatically be exchanged for (without any action on the part of the Company or the Holder) the number of Bridge Securities that an investor in the Bridge Financing would acquire for an aggregate purchase price equal to the sum of the then outstanding principal amount of this Note plus all accrued but unpaid interest hereon. (b) Mechanics and Effect of Exchange. No fractional shares of capital stock of the Company shall be issued upon exchange of this Note. Upon such exchange of all of the principal and accrued interest outstanding under this Note, in lieu of the Company issuing any fractional shares to the Holder, the Company shall pay to the Holder the amount of outstanding principal or interest that is not so exchanged. Upon full exchange of this Note, the Company shall be forever released from all its obligations and liabilities under this Note. 7. Successors and Assigns. Subject to the restrictions on transfer described in Sections 9 and 10 hereof, the rights and obligations of the Company and the Holder of this Note shall be binding upon and benefit the successors, assigns, heirs, administrators and transferees of the parties. 8. Waiver and Amendment. Any provision of this Note may be amended, waived or modified only as to the Holder of this Note upon the written consent of the Company and the Holder. 9. Transfer of this Note or Securities Issuable on Conversion Hereof. This Note may not be transferred in violation of any restrictive legend set forth hereon. Each new Note issued upon transfer of this Note shall bear a legend as to the applicable restrictions on transferability in order to ensure compliance with the Securities Act, unless in the opinion of counsel for the Company such legend is not required in order to ensure compliance with the Securities Act. The Company may issue stop transfer instructions to its transfer agent in connection with such restrictions. Subject to the foregoing, transfers of this Note shall be registered upon registration books maintained for such purpose by or on behalf of the Company. Prior to presentation of this Note for registration of transfer, the Company shall treat the registered holder hereof as the -5- principles, the Company will treat, account and report the Note as debt and not equity for accounting purposes and with respect to any returns filed with federal, state or local tax authorities. 12. Notices. Any notice, request or other communication required or permitted hereunder shall be in writing and shall be deemed to have been duly given if personally delivered or mailed by registered or certified mail, postage prepaid, or by recognized overnight courier, personal delivery or facsimile transmission at the respective addresses or facsimile number of the parties as set forth in the Purchase Agreement or on the register maintained by the Company. Any party hereto may by notice so given change its address or facsimile number for future notice hereunder. Notice shall conclusively be deemed to have been given when received. 13. Expenses; Waivers. If action is instituted to collect this Note, the Company promises to pay all costs and expenses, including, without limitation, reasonable attorneys' fees and costs, incurred in connection with such action. The Company hereby waives notice of default, presentment or demand for payment, protest or notice of nonpayment or dishonor and all other notices or demands relative to this instrument. 14. Governing Law. This Note and all actions arising out of or in connection with this Note shall be governed by and construed in accordance with the laws of the State of New York, without regard to conflict of laws provisions of the State of New York or of any other state. In the event of any dispute among or between any of the parties to this Note arising out of the terms of this Note, the parties hereby consent to the exclusive jurisdiction of the federal and state courts located in the State of New York for resolution 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. IN WITNESS WHEREOF, the Company has caused this Note to be issued as of the date first written above. BEACON POWER COPORATION By: /s/ William E. Stanton ---------------------- Name: William E. Stanton --------------------- Title: President & CEO -------------------- -6- SENIOR SECURED CONVERTIBLE PROMISSORY NOTE THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY APPLICABLE STATE SECURITIES LAWS. IT MAY NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND COMPLIANCE WITH SUCH STATE SECURITIES LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION AND/OR COMPLIANCE IS NOT REQUIRED. THE SALE OR TRANSFER AND CERTAIN OTHER RIGHTS RELATING TO THE SECURITIES REPRESENTED BY THIS DOCUMENT ARE SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN SHAREHOLDER AGREEMENT BY AND AMONG THE COMPANY AND CERTAIN SHAREHOLDERS OF THE COMPANY. A COPY OF SUCH AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY. $50,000.00 June 23,1999 WOBURN, MA FOR VALUE RECEIVED, Beacon Power Corporation, a Delaware corporation (the "Company"), promises to pay to the order of Micro Generation Technology Fund, L.L.C., or its registered assigns (the "Holder"), the principal sum of Fifty Thousand Dollars or such lesser amount as shall then equal the outstanding principal amount hereof, together with interest from the date of issuance of this Note on the unpaid principal balance hereof at a rate equal to twelve and one-half percent (12 1/2%) per annum, computed on the basis of the actual number of days elapsed and a year of 365 days; provided that if this Note is not repaid in full on or prior to the Maturity Date, such interest rate shall increase effective as of the close of business on the Maturity Date to fifteen percent (15%) per annum. All unpaid principal, together with any accrued but unpaid interest and other amounts payable hereunder, shall be due and payable on the earlier of (i) September 23, 1999 (the "Maturity Date") or (ii) upon or after the occurrence of an Event of Default (as defined below), when such amounts are declared due and payable by the Holder or made automatically due and payable. Interest on this Note shall be payable on the Maturity Date. This Note is issued pursuant to the Note Purchase Agreement (the "Purchase Agreement") dated as of June 22, 1999 by and among the Company, Perseus Capital, L.L.C., Duquesne Enterprises, Micro Generation Technology Fund, L.L.C. and SatCon Technology Corporation. The following is a statement of the rights of the Holder and the conditions to which this Note is subject, and to which the Holder hereof, by the acceptance of this Note, agrees: 1. Definitions. As used in this Note, the following capitalized terms have the following meanings: (a) "Business Day" means any day other than a Saturday, Sunday or other day on which the national or state banks located in the State of Massachusetts or the State of New York are authorized to be closed. (b) "Bridge Financing" has the meaning specified in the Purchase Agreement. (c) "Bridge Securities" has the meaning specified in the Purchase Agreement. (d) "Obligations" means the principal, interest and other amounts payable under this Note. (e) "Transaction Documents" shall mean this Note, the Purchase Agreement, and any other promissory note issued pursuant to the Purchase Agreement. 2. Events of Default. The occurrence of any of the following shall constitute an "Event of Default" under this Note: (a) Failure to Pay. The Company shall fail to pay (i) when due any principal payment on this Note or (ii) any interest or other payment required under the terms of this Note or any other Transaction Document within five Business Days of its due date; or (b) Breaches of Other Covenants. The Company shall materially fail to observe or to perform any other covenant, obligation, condition or agreement contained in this Note or the other Transaction Documents, other than those specified in Section 2(a) hereof, and such failure shall continue for 30 days after written notice thereof to the Company; or (c) Voluntary Bankruptcy or Insolvency Proceedings. The Company shall (i) apply for or consent to the appointment of a receiver, trustee, liquidator or custodian of itself or of all or a substantial part of its property, (ii) be unable, or admit in writing its inability, to pay its debts generally as they mature, (iii) make a general assignment for the benefit of its or any of its creditors, (iv) be dissolved or liquidated in full or in part, (v) become insolvent (as such term may be defined or interpreted under any applicable statute), (vi) commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or consent to any such relief or to the appointment of or taking possession of its property by any official in an involuntary case or other proceeding commenced against it or (vii) take any action for the purpose of effecting any of the foregoing; or (d) Involuntary Bankruptcy or Insolvency Proceedings. Proceedings for the appointment of a receiver, trustee, liquidator or custodian of the Company or of all or a substantial part of the property thereof, or an involuntary case or other proceedings seeking liquidation, reorganization or other relief with respect to the Company or the debts thereof under any bankruptcy, insolvency or other similar law now or hereafter in effect shall be commenced and an order for relief entered, or such case or proceeding shall not be dismissed or discharged -2- within 45 days of commencement; or (e) Cross-Default. The Company or any of its subsidiaries shall default under any bond, debenture, note or other evidence of indebtedness for money borrowed (excluding any capital lease), under any guarantee or under any mortgage, or indenture pursuant to which there shall be issued or by which there shall be secured or evidenced any indebtedness for money borrowed by the Company or any of its subsidiaries, whether such indebtedness now exists or shall hereafter be created, which default shall have resulted in indebtedness of at least $10,000 being due and payable prior to the date on which it would otherwise become due and payable and shall not have been issued by the Company or waived by the lender; or (f) Undischarged Judgment. One or more judgments for the payment of money in an amount in excess of $10,000 in the aggregate shall be rendered against the Company or any of its subsidiaries (or any combination thereof) and shall remain undischarged for a period of ten consecutive days during which execution shall not be effectively stayed, or any action is legally taken by a judgment creditor to levy upon any such judgment. 3. Rights of Holder Upon Default. Upon the occurrence or existence of any Event of Default (other than an Event of Default referred to in Sections 2(c) and 2(d) hereof) and at any time thereafter during the continuance of such Event of Default, the Holder may declare all outstanding Obligations payable by the Company hereunder to be immediately due and payable without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived, anything contained herein or in the other Transaction Documents to the contrary notwithstanding. Upon the occurrence or existence of any Event of Default described in Sections 2(c) and 2(d) hereof, immediately and without notice, all outstanding Obligations payable by the Company hereunder shall automatically become immediately due and payable, without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived, anything contained herein or in the other Transaction Documents to the contrary notwithstanding. In addition to the foregoing remedies, upon the occurrence or existence of any Event of Default, the Holder may exercise any other right, power or remedy granted to it by the Transaction Documents or otherwise permitted to it by law, either by suit in equity or by action at law, or both. 4. Collateral. To secure the Company's payment and performance of the Obligations and to secure the Company's prompt, full and faithful performance and observance of all of the provisions tinder this Note and the other Transaction Documents, the Company hereby grants the Holder a security interest in all of the Company's right, title and interest in and to the following, whether now owned or hereafter acquired or existing and wherever located: (a) All inventory and equipment, and all parts thereof, attachments, accessories and accessions thereto, products thereof and documents therefor; (b) All accounts, contract rights, chattel paper, instruments, deposit accounts, general intangibles and other obligations of any kind, and all rights now or hereafter existing in and to all mortgages, security agreements, leases or other contracts securing or otherwise relating to any of the same; -3- (c) All intellectual property and trade secrets, including, without limitation, (i) all patents, patent applications and patentable inventions and (i) the inventions and improvements described and claimed therein; (ii) any continuation, division, renewal, extension, substitute or reissue thereof or any legal equivalent in a foreign country for the full term thereof or the terms for which the same may be granted; (iii) all rights to income, royalties, profits, awards, damages and other rights relating to said patents, applications and inventions, including the right to sue for past, present and future infringement and (iv) any other rights and benefits relating to said patents, applications and inventions including any rights as a licensor or licensee of said patents, applications and inventions (the "Patents"); (ii) all trademarks, trademark registrations, trademark applications, service marks, service mark registrations and service mark applications, trade names, fictitious business name, tradestyles, and the goodwill underlying those trademarks and service marks and (i) any similar marks or amendments, modifications and renewals thereof and the goodwill represented by those and any legal equivalent in a foreign country for the full term or terms for which the same may be granted; (ii) all rights to income, royalties, profits, damages and other rights relating to said trademarks and service marks including the right to sue for past, present or future infringement and (iii) any other rights and benefits relating to said trademarks and service marks including any rights as a licensor or licensee of said trademark and service mark (the "Trademarks"); (iii) all copyrights, copyright registrations and copyright applications, including without limitation those copyrights for computer programs, computer databases, flow diagrams, maskworks, maskwork applications, source codes and object codes, computer software, technical knowledge and processes, trade secrets, know-how, customer lists, franchises, systems, inventions, designs, blueprints, formal or informal licensing arrangements, and all property embodying or incorporating such copyrights and (i) any similar rights or amendments, modifications and renewals thereof and any legal equivalent in a foreign country for the full term or terms for which the same may be granted; (ii) all rights to income, past, present and future infringement and (iii) any other rights and benefits relating to said copyrights (the "Copyrights"); (d) all substitutions and replacements for, and all rights to exploit, all o the foregoing; (e) all books and records pertaining to any of the foregoing; and (f) all proceeds of all of the foregoing and, to the extent not otherwise included, all payments under insurance or any indemnity, warranty or guaranty, payable by reason of loss or damage to or otherwise with respect to any of the foregoing. All of the above assets are hereinafter collectively referred to as "Collateral." The Company covenants and agrees with Holder that: (x) the security interest granted under this Note is in addition to any other security interest from time to time held by the Holder; (y) the Holder may realize upon all or part of any Collateral in any order it desires and any realization by -4- any means upon any Collateral will not bar realization upon any other Collateral; and (z) the security interest hereby created is a continuing security interest and will cover and secure the payment of all Obligations both present and future of the Company to Holder pursuant to this Note and the other Transaction Documents. The Company further covenants and agrees to take all actions requested by the Holder to establish or perfect the security interest granted under this Note. 5. Prepayment. This Note may be prepaid as a whole or in part at any time prior to the Maturity Date upon at least ten Business Days prior written notice to the Holder. Any such prepayment shall be applied first to the payment of expenses due under this Note, second to interest accrued on this Note and third, if the amount of prepayment exceeds the amount of all such expenses and accrued interest, to the payment of principal of this Note. An exchange pursuant to Section 6 hereof shall not constitute a prepayment for purposes of this Section 5. 6. Exchange. (a) Exchange For Bridge Securities. Upon consummation of the Bridge Financing, this Note shall automatically be exchanged for (without any action on the part of the Company or the Holder) the number of Bridge Securities that an investor in the Bridge Financing would acquire for an aggregate purchase price equal to the sum of the then outstanding principal amount of this Note plus all accrued but unpaid interest hereon. (b) Mechanics and Effect of Exchange. No fractional shares of capital stock of the Company shall be issued upon exchange of this Note. Upon such exchange of all of the principal and accrued interest outstanding under this Note, in lieu of the Company issuing any fractional shares to the Holder, the Company shall pay to the Holder the amount of outstanding principal or interest that is not so exchanged. Upon full exchange of this Note, the Company shall be forever released from all its obligations and liabilities tinder this Note. 7. Successors and Assigns. Subject to the restrictions on transfer described in Sections 9 and 10 hereof, the rights and obligations of the Company and the Holder of this Note shall be binding upon and benefit the successors, assigns, heirs, administrators and transferees of the parties. 8. Waiver and Amendment. Any provision of this Note may be amended, waived or modified only as to the Holder of this Note upon the written consent of the Company and the Holder. 9. Transfer of this Note or Securities Issuable on Conversion Hereof. This Note may not be transferred in violation of any restrictive legend set forth hereon. Each new Note issued upon transfer of this Note shall bear a legend as to the applicable restrictions on transferability in order to ensure compliance with the Securities Act, unless in the opinion of counsel for the Company such legend is not required in order to ensure compliance with the Securities Act. The Company may issue stop transfer instructions to its transfer agent in connection with such restrictions. Subject to the foregoing, transfers of this Note shall be registered upon registration books maintained for such purpose by or on behalf of the Company. Prior to presentation of this Note for registration of transfer, the Company shall treat the registered holder hereof as the -5- principles, the Company will treat, account and report the Note as debt and not equity for accounting purposes and with respect to any returns filed with federal, state or local tax authorities. 12. Notices. Any notice, request or other communication required or permitted hereunder shall be in writing and shall be deemed to have been duly given if personally delivered or mailed by registered or certified mail, postage prepaid, or by recognized overnight courier, personal delivery or facsimile transmission at the respective addresses or facsimile number of the parties as set forth in the Purchase Agreement or on the register maintained by the Company. Any party hereto may by notice so given change its address or facsimile number for future notice hereunder. Notice shall conclusively be deemed to have been given when received. 13. Expenses; Waivers. If action is instituted to collect this Note, the Company promises to pay all costs and expenses, including, without limitation, reasonable attorneys' fees and costs, incurred in connection with such action. The Company hereby waives notice of default, presentment or demand for payment, protest or notice of nonpayment or dishonor and all other notices or demands relative to this instrument. 14. Governing Law. This Note and all actions arising out of or in connection with this Note shall be governed by and construed in accordance with the laws of the State of New York, without regard to conflict of laws provisions of the State of New York or of any other state. In the event of any dispute among or between any of the parties to this Note arising out of the terms of this Note, the parties hereby consent to the exclusive jurisdiction of the federal and state courts located in the State of New York for resolution 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. IN WITNESS WHEREOF, the Company has caused this Note to be issued as of the date first written above. BEACON POWER COPORATION By: /s/ William E. Stanton ---------------------- Name: William E. Stanton --------------------- Title: President & CEO -------------------- -6- EX-10.23 4 NOTE AND WARRANT PURCHASE AGREEMENT EXHIBIT 10.23 NOTE AND WARRANT PURCHASE AGREEMENT NOTE AND WARRANT PURCHASE AGREEMENT (this "Agreement") made and entered into as of August 2, 1999, by and among Beacon Power Corporation, a Delaware corporation (the "Company"), Perseus Capital, L.L.C., a Delaware limited liability company ("Perseus"), Duquesne Enterprises, Inc. a Pennsylvania corporation ("Duquesne"), Micro Generation Technology Fund, L.L.C., a Delaware limited liability company ("Micro"), and SatCon Technology Corporation, a Delaware corporation ("SatCon" and together with Perseus, Duquesne and Micro, the "Purchasers"). Certain capitalized terms used in this Agreement are defined in Exhibit A attached hereto. Recitals A. Perseus, Duquesne and Micro acquired shares of the Company's Class D Preferred Stock pursuant to a Securities Purchase Agreement dated as of October 23, 1998 by and among the Company and the Purchasers (the "October Agreement"). B. The Purchasers acquired promissory notes from the Company on June 22, 1999 and July 6, 1999 (the "Tranche One Notes") pursuant to a Note Purchase Agreement between the Company and the Purchasers dated June 22, 1999 (the "Tranche One Note Purchase Agreement"). C. The Company needs funds to operate and expand its business operations and in furtherance thereof desires to amend and restate the Tranche One Notes held by each of the Purchasers, to read substantially as attached hereto as Exhibit B-1, with the respective principal amounts specified herein (the "Notes"), and the Purchasers are willing to acquire the Notes, all on the terms and subject to the conditions set forth in this Agreement. D. To induce the Purchasers to acquire the Notes, the Company has agreed to issue to each Purchaser, under the circumstances specified herein, a warrant to acquire shares of the Company's Class E Preferred Stock, the terms and conditions of which will be negotiated at the time the conversion of the Notes take place (the "Class E Preferred Stock"), substantially in the form attached hereto as Exhibit C (the "Warrants"). Agreement In consideration of the mutual promises, covenants and conditions hereinafter set forth, the parties hereto mutually agree as follows: 1. Amendment, Restatement and Issuance of Securities. On the terms and subject to the conditions hereof: (a) At the First Closing (as defined below), the Company shall amend, restate and issue and sell to each of the Purchasers, and each of the Purchasers shall purchase from the Company, a Note with the amended principal amount specified below for the net purchase price shown below, along with a Warrant for the type of shares as specified in the Warrant, in such number of shares as is specified below:
- -------------------------------------------------------------------------------------------------- Purchaser Tranche Amended/Restated Net Purchase Compute Number of Shares Covered One Note Principal Amount Price by Warrant by dividing Warrant Price Amount in Warrant into the Amount Shown Below: (col. 1) (col. 2) (col. 3) (col. 4) (col. 5) - -------------------------------------------------------------------------------------------------- Perseus $250,000 $1,350,000.00 $1,100,000.00 $337,500.00 - -------------------------------------------------------------------------------------------------- SatCon 250,000 333,333.33 83,333.34 83,333.34 - -------------------------------------------------------------------------------------------------- Micro 50,000 150,000.00 100,000.00 37,500.00 - -------------------------------------------------------------------------------------------------- Duquesne 50,000 500,000.00 450,000.00 125,000.00 - -------------------------------------------------------------------------------------------------- Total: 600,000 2,333,333.33 1,733,333.34 583,333.34 - --------------------------------------------------------------------------------------------------
(b) At each Subsequent Closing (as defined below), the Company shall issue and sell to SatCon, and SatCon shall purchase from the Company, a Note in the form attached as Exhibit B-2, with the principal amount of $333,333.33 for the price of $333,333.33 and a Warrant to purchase a number of shares computed by dividing $83,333.34, by the Warrant Price defined in the Warrant, and otherwise on terms as specified in such Warrant. (c) At the Closing, the Purchasers shall surrender the Tranche One Notes and in consideration thereof the new Notes shall be issued. 2. Closings. 2.1 Closings. The sales and purchases contemplated by Section 1 of this Agreement shall take place at a closing (the "First Closing") to be held at the offices of Arnold & Porter, 555 Twelfth Street, N.W. Washington DC as promptly as practicable on or after the date hereof, or at such other time, date and place as are mutually agreeable to the Company and to the Purchasers and at two (2) subsequent closings (the "Subsequent Closings" and with the First Closing, the "Closings") to be held at the principal executive offices of the Company at 10 a.m. local time no earlier than August 4 and October 1, 1999, respectively, and no later than the earliest of (a) October 15, 1999 and November 15, 1999, respectively, (b) two days after SatCon closes on a new equity or debt securities financing after the date hereof, or (c) at such other times, dates and places as are mutually agreeable to the Company and to SatCon. The date of the First Closing is hereinafter referred to as the "First Closing Date" and the date of a Subsequent Closing is hereinafter referred to as a "Subsequent Closing Date." 2.2 Deliveries. At the First Closing (and in the case of SatCon, at each Subsequent Closing), the Company will deliver to each Purchaser the Note and Warrant to be issued to such Purchaser at the First Closing, in each case, fully executed by the Company, and each Purchaser will deliver to the Company the purchase price therefor by wire transfer thereof to the Company Account. The parties shall also deliver all documents required to be delivered at the First Closing pursuant to Section 2.3 hereof. Additionally, as provided in the Tranche One Note Purchase Agreement, at the First Closing, the Tranche One Notes shall be cancelled in exchange for Notes in substantially the form attached hereto as Exhibit B-1. 2.3 Conditions to First Closing. (a) Conditions to Obligations of the Purchaser. The obligations of the Purchasers to purchase the Notes and Warrants at the First Closing are subject to the fulfillment on or prior to the First Closing Date of the following conditions, any of which may be waived by the Purchasers: (i) Representations and Warranties Correct; Performance of Obligations. The representations and warranties made by the Company in Section 3 hereof shall have been true and correct in all material respects when made, and shall be true and correct in all material respects on the First Closing Date with the same force and effect as if they had been made on and as of such date, and the Company shall have performed all obligations, covenants and agreements herein required to be performed by it on or prior to the First Closing. (ii) Consents and Waivers. The Company shall have obtained any and all consents (including all governmental or regulatory consents, approvals or authorizations required in connection with the valid execution and delivery of this Agreement and the Related Agreements), permits and waivers necessary or appropriate for consummation of the transactions contemplated by this Agreement or any Related Agreement. (iii) Perfection of Security Interests. The Company shall have taken all actions requested by the Purchasers to perfect the security interests granted under the Notes. (iv) Compliance Certificate. The Company shall have delivered to the Purchasers a certificate, executed by its President, dated as of the First Closing Date, certifying the fulfillment of the conditions specified in subsections (a)(i) and (ii) of this Section 2.3. -2- (v) Officers' Certificate. The Company shall have delivered to the Purchasers a certificate, executed by one of its Officers, dated as of the First Closing Date, certifying the authenticity of attached copies of resolutions of its Board of Directors approving the transactions contemplated hereby and by the Related Agreements. (vi) Other Purchasers. The other Purchasers shall have simultaneously consummated their purchases of Notes and Warrants at the First Closing in accordance with the terms hereof. (vii) Other Documents. The Purchasers shall have received such other certificates and documents as they shall have reasonably requested, including an opinion of Edwards & Angel, counsel to the Company, in reasonable form and content. (b) Conditions to Obligations of the Company. The Company's obligations to issue and sell the Notes and Warrants at the First Closing are subject to the fulfillment on or prior to the First Closing Date of the following condition, which may be waived by the Company: the representations and warranties made by the Purchasers in Section 5 hereof shall have been true and correct when made, and shall be true and correct on such First Closing Date with the same force and effect as if they had been made on and as of such date. 2.4 Conditions to Subsequent Closings. The obligations of the Company and SatCon to consummate the issuance, sale and purchase of the Notes and Warrants to be issued, sold and purchased at the Subsequent Closings shall be subject to satisfaction of the following condition: the First Closing shall have occurred and the Notes and Warrants to be issued, sold and purchased at the First Closing shall have been issued, sold and purchased. The obligations of the Company to consummate the issuance and sale of the Notes and Warrants to be issued and sold at the Subsequent Closings shall also be subject to satisfaction of the following additional condition: the representations and warranties made by the SatCon in Section 5 hereof shall have been true and correct when made, and shall be true and correct on such Subsequent Closing Dates with the same force and effect as if they had been made on and as of such date. 2.5 Registration Rights. The holder of a Warrant for the issue of shares of Class E Preferred Stock shall obtain registration rights (relating to the registration of the Common Shares issuable upon conversion of the Class F Preferred under the Securities Act of 1933) on a basis consistent with the registration rights which are obtained by other purchasers of such Class E Preferred Stock, so long as the holder signs the appropriate registration rights agreement relating thereto. Moreover, if the Warrant becomes exercisable into shares other than Class E Preferred, measures will be taken so that the Common Shares issued upon exercise of the Warrant (or the Common Shares issued upon conversion of whatever convertible security may be issuable upon such exercise) will constitute "Registrable Securities" under the Registration Rights Statement attached as Exhibit F to the October Agreement. 3. Representations and Warranties Relating to the Company. Except as otherwise set forth in the Disclosure Schedule attached as Exhibit I to the October Agreement, as supplemented by the Supplemental Disclosure Schedule attached hereto as Exhibit D (collectively, the "Company Disclosure Schedule"), the Company represents and warrants to the Purchasers as set forth below. 3.1 Organization and Good Standing. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. The Company has full corporate power and authority to carry on its business as now conducted and as it is proposed to be conducted, and is duly qualified or licensed to do business and in good standing in each jurisdiction in which the nature of its business or properties makes such qualification or licensing necessary, except where the failure to so qualify or be licensed would not have a Material Adverse Effect. 3.2 Power. Authorization and Validity. The Company has the corporate power, legal capacity and corporate authority to enter into and perform its obligations under this Agreement and each of the Related Agreements to which it is a party. The execution, delivery and performance by the Company of this Agreement and each of the Related Agreements to which it is a party have been duly and validly approved and authorized by all necessary corporate action on its part. No authorization, consent, or approval, governmental or otherwise, is -3- necessary to enable the Company to enter into the Agreement or any Related Agreement to which it is a party and to perform its obligations hereunder or thereunder. This Agreement is, and each of the Related Agreements to which it is a party when executed and delivered by the Company will be, the valid and binding obligations of the Company, enforceable in accordance with their respective terms. Upon their issuance pursuant to the Warrants, all shares of Common Stock issued pursuant to the Warrants shall be duly authorized, validly issued, fully paid and nonassessable. 3.3 No Violation of Existing Agreements. Neither the execution and delivery of this Agreement or any Related Agreement to which it is a party nor the consummation of the transactions or performance of the Company's obligations contemplated hereby or thereby will conflict with, result in a material breach or violation of, or cause a default under, any provision of the Company's Certificate of Incorporation or Bylaws, each as is currently in effect, any instrument, contract or agreement that is material to the business of the Company or any judgment, writ, decree, order, law, statute, ordinance, rule or regulation applicable to the Company. 3.4 Financial Statements. (a) The Company's unaudited consolidated balance sheets as of December 31, 1998 and June 30, 1999 and statements of operations and cash flows for the year ended December 31, 1998 and the six months ended June 30, 1999, including the notes thereto (collectively the "Company Financial Statements"), all of which are attached to the Company Disclosure Schedule (or have previously been provided to the Purchasers), have been prepared in all material respects in accordance with GAAP (except that the June 30, 1999 statements may not contain all footnotes required by GAAP). The Company Financial Statements have been prepared in accordance with the books and records of the Company and present fairly in all material respects the financial position, results of operations, cash flows and equity transactions of the Company as of and for the periods ending on their dates. Except and to the extent reflected or reserved against in the Company Financial Statements, the Company does not have, as of the dates of the Company Financial Statements, any liabilities or obligations (absolute or contingent) of a nature required to be or customarily reflected in a balance sheet (or the notes thereto) prepared in accordance with GAAP. The reserves, if any, reflected on the Company Financial Statements are adequate in light of the contingencies with respect to which they are made. There has been no material change in the Company's accounting policies except as described in the notes to the Company Financial Statements. (b) The Company has no debts, liabilities, or obligations in a material amount, either individually or in the aggregate, of any nature, whether accrued, absolute, contingent, or otherwise, and whether due or to become due, that is not reflected or reserved against in the Company Financial Statements. All material debts, liabilities, and obligations incurred after the date of the Company Financial Statements were incurred in the ordinary course of business, and are usual and normal in amount, both individually and in the aggregate. Since December 31, 1998, the Company has not experienced a Material Adverse Change. 3.5 No Brokers. Neither the Company nor, to the Company's knowledge, any Company shareholder is obligated for the payment of fees or expenses of any broker or finder in connection with the origin, negotiation or execution of this Agreement or any Related Agreement or in connection with any transaction contemplated hereby or thereby. 3.6 Disclosure. The statements by the Company contained in this Agreement, the exhibits hereto, and the certificates and documents required to be delivered by the Company to the Purchasers under this Agreement, taken 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 herein and therein not misleading in light of the circumstances under which such statements were made. 3.7 Securities Act. Subject to the accuracy of the Purchaser's representations in Section 5 hereof, the offer, sale and issuance of the Notes and the Warrants in conformity with the terms of this Agreement constitute transactions exempt from the registration requirements of Section 5 of the Securities Act of 1933, as amended, and the qualification or registration requirements of any applicable state securities laws as such laws exist on the date hereof. -4- 3.8 Other Representations and Warranties. The representations and warranties of the Company set forth in Section 3 of the October Agreement are true and correct as of the date hereof in all material respects. 4. [INTENTIONALLY OMITTED.] 5. Representations and Warranties of the Purchasers and Restrictions on Transfer Imposed by the Securities Act of 1933 and Applicable State Securities Laws. 5.1 Representations and Warranties by the Purchaser. Each Purchaser represents and warrants to the Company severally as to itself alone and not jointly as follows: (a) The Note and Warrant to be issued to such Purchaser at each Closing will be acquired by such Purchaser for its own account, for investment and not with a view to, or for resale in connection with, any distribution or public offering thereof within the meaning of the Securities Act of 1933, as amended (the "Securities Act"), or applicable state securities laws. (b) Such Purchaser understands that (i) the Notes and Warrants to be issued to it at such Closing have not been, and upon their issuance will not be, registered under the Securities Act by reason of their issuance in a transaction exempt from the registration and prospectus delivery requirements of the Securities Act pursuant to Section 4(2) thereof and have not been, and upon their issuance will not be, qualified under any state securities laws on the grounds that the offering and sale of securities contemplated by this Agreement are exempt from registration thereunder, and (ii) the Company's reliance on such exemptions is predicated on such Purchaser's representations set forth herein. Such Purchaser understands that the resale of its Notes and Warrants may be restricted indefinitely, unless a subsequent disposition thereof is registered under the Securities Act and registered under any state securities law or is exempt from such registration. (c) Such Purchaser is an "Accredited Investor" as that term is defined in Rule 501 of Regulation D promulgated under the Securities Act. Such Purchaser is able to bear the economic risk of the purchase of its Notes and Warrant pursuant to the terms of this Agreement, including a complete loss of the Purchaser's investment therein. (d) Such Purchaser has the full right, power and authority to enter into and perform such Purchaser's obligations under this Agreement and each Related Agreement to which it is or becomes a party, and this Agreement and each Related Agreement to which it is or becomes a party constitute valid and binding obligations of such Purchaser enforceable in accordance with their terms. (e) No consent, approval or authorization of or designation, declaration or filing with any Governmental Body on the part of such Purchaser is required in connection with the valid execution and delivery of this Agreement or any Related Agreement to which it or becomes a party. 5.2 Legend. The Notes and any Warrants may be endorsed with the legends appearing on the first page thereof. The Company may instruct its transfer agent not to register the transfer of any Note, unless the conditions specified in the foregoing legends are satisfied. 5.3 Removal of Legend and Transfer Restrictions. Any legend endorsed on any Note or Warrant pursuant to Section 5.2 relating to compliance with federal or state securities laws and the stop transfer instructions with respect to the Notes and the Warrants relating thereto shall be removed and the Company shall issue a new promissory note or warrant, as the case may be, without such legend to the holder thereof (1) if such Note or Warrant is registered under the Securities Act and a prospectus meeting the requirements of Section 10 of the Securities Act is available, (2) if such legend may be properly removed under the terms of Rule 144 promulgated under the Securities Act, or (3) 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 the Note or Warrant may be made without registration. -5- 6. Additional Covenants. 6.1 Use of Proceeds. The Company hereby covenants and agrees that all of the net proceeds received by it from the issuance and sale of the Notes and Warrants shall be used for the purpose of developing and conducting its business, which is the development, manufacturing and marketing of flywheel energy storage systems for use in energy storage applications, and no part of such net proceeds shall be used to pay any broker's fees or commissions relating to the transactions contemplated by this Agreement or similar payments of any kind. The above net proceeds shall not be used to repay any obligation incurred by the Company under the Tranche One Notes or the Tranche One Note Purchase Agreement other than legal expenses incurred in connection therewith. 6.2 Special Approvals. Without the consent of 60% in economic interest of the Notes, while the Notes are outstanding, the Company will not (1) pay dividends on any class of its shares of common stock or any class of its preferred stock (except stock dividends to holders of its preferred stock) or (2) issue any securities or incur any indebtedness except for commercial bank and institutional lender financings and equipment leases ranking equivalent or senior to the Notes. 6.3 Best Efforts. The Company will use best efforts to: (a) identify and hire a Chairman of the Company; (b) identify and begin negotiations with a strategic partner; (c) negotiate a significant contract with Bell Atlantic or another significant customer to purchase equipment from the Company; and (d) identify and engage an investment banker with a view to preparing and structuring the Company for an initial public offering within a reasonable period. 7. Miscellaneous. 7.1 Waivers and Amendments. Neither this Agreement nor any provision hereof may be changed, waived, discharged or terminated orally, but only by a statement in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought. 7.2 Arbitration. Any controversy or claim arising out of or relating to this Agreement or any of the Related Agreements, or the breach hereof or thereof, shall be settled by arbitration administered by the American Arbitration Association under its Commercial Arbitration Rules, and judgment on the award rendered by the arbitrators may be entered in any court having jurisdiction thereof. Such arbitration shall be conducted by a panel of three arbitrators, each party having the right to select one arbitrator with the third arbitrator to be selected in accordance with the rules of the American Arbitration Association. 7.3 Governing Law. This Agreement shall be governed in all respects by the laws of the State of Commonwealth of Massachusetts without regards to the principles of conflicts of laws thereof. 7.4 Survival. The representations, warranties, covenants and agreements made herein shall survive the execution of this Agreement and the Closings of the transactions contemplated hereby. 7.5 Successors and Assigns. Except as otherwise expressly provided herein and subject to the Related Agreements and applicable law, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto. 7.6 Entire Agreement. This Agreement, the Related Agreements and other exhibits to this Agreement and the other documents delivered pursuant hereto constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof. 7.7 Notices, etc. 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 by facsimile transmission or three days after being mailed, registered or certified mail, return receipt requested, with postage prepaid, to the address or facsimile number (as the case may be) listed for each such party below or, if any party shall have -6- designated a different address or facsimile number by notice to the other party given as provided above, then to the last address or facsimile number so designated. If to the Company: Beacon Power Corporation 6D Gill Street Woburn, MA 01801 Fax No.: (781) 938-9401 Attn: William Stanton, Chief Executive Officer With a required copy to: Albert L. Sokol Edwards & Angell, LLP 101 Federal Street Boston, MA 02110-1800 Fax No.: (617) 439-4170 If to Perseus: Perseus Capital, L.L.C. The Army and Navy Club Building 1627 I Street, N.W. Suite 610 Washington, D.C. 20006 Attn: Kenneth M. Socha Fax No. (202) 463-6215 With a required copy to: Arnold & Porter 555 12th Street, N.W. Washington, D.C. 20004 Attn: Robert B. Ott Fax No.: (202) 942-5999 If to SatCon: David Eisenhaure President 161 First Street Cambridge, MA 02142 Fax No.: (617) 661-3373 With a required copy to: Jeffrey N. Carp, Esq. Hale and Dorr LLP 60 State Street Boston, MA 02109 Fax No.: (617) 526-5000 -7- If to Duquesne: Rachel Lorey Vice President One Northshore Center Suite 100 12 Federal Street Pittsburgh, PA 15212 Fax No: 412-231-2140 With a required copy to: David J. Lehman, Esq. Kirkpatrick & Lockhart LLP 1500 Oliver Building Pittsburgh, PA 15222 Fax No: 412-255-6501 If to Micro: c/o Robert W. Shaw, Jr. Arete Corporation P.O. Box 1299 Center Harbor, New Hampshire 03226 Fax No.: (603) 253-9799 7.8 Separability. In case any provision of this Agreement shall be declared invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 7.9 Expenses. The Company shall bear its expenses and legal fees incurred with respect to this Agreement, each of the Related Agreements and the transactions contemplated hereby and thereby. All reasonable costs and expenses of the Purchasers relating to this Agreement, each of the Related Agreements and the transactions contemplated hereby and thereby, including reasonable fees and expenses of legal counsel, shall be promptly paid or reimbursed by the Company (but in no event shall the Company be responsible for aggregate expenses of more than $25,000 per Purchaser). 7.10 Titles and Subtitles. The titles of the paragraphs and subparagraphs of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement. 7.11 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument. 7.l2 Publicity. None of the parties to this Agreement, nor any of their affiliates, shall issue any press release or otherwise make any public announcement or disclosure with respect to this Agreement, any of the Related Agreements or any of the transactions contemplated hereby or thereby without the prior written consent of each of the Company, and the Purchasers, unless such disclosure is required by applicable law. -8- IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. BEACON POWER CORPORATION DUQUESNE ENTERPRISES, INC. By: /s/ William E. Stanton By: ---------------------- ---------------------- Name: William E. Stanton Name: -------------------- -------------------- Title: President & CEO Title: ------------------- -------------------- PERSEUS CAPITAL, L.L.C. MICRO-GENERATION TECHNOLOGY FUND, L.L.C. By: ---------------------- Name: By: ARETE CORPORATION, Its Manager --------------------- Title: -------------------- By: --------------------------- Robert W. Shaw, Jr., President SATCON TECHNOLOGY CORPORATION By: ---------------------- Name: --------------------- Title: -------------------- IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. BEACON POWER CORPORATION DUQUESNE ENTERPRISES, INC. By: By: ---------------------- ---------------------- Name: Name: -------------------- -------------------- Title: Title: ------------------- -------------------- PERSEUS CAPITAL, L.L.C. MICRO-GENERATION TECHNOLOGY FUND, L.L.C. By: /s/ Philip J. Deutch ---------------------- Name: Philip J. Deutch By: ARETE CORPORATION, Its Manager --------------------- Title: Managing Director -------------------- By: --------------------------- Robert W. Shaw, Jr., President SATCON TECHNOLOGY CORPORATION By: ---------------------- Name: --------------------- Title: -------------------- IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. BEACON POWER CORPORATION DUQUESNE ENTERPRISES, INC. By: By: ---------------------- ---------------------- Name: Name: -------------------- -------------------- Title: Title: ------------------- -------------------- PERSEUS CAPITAL, L.L.C. MICRO-GENERATION TECHNOLOGY FUND, L.L.C. By: ---------------------- Name: By: ARETE CORPORATION, Its Manager --------------------- Title: -------------------- By: --------------------------- Robert W. Shaw, Jr., President SATCON TECHNOLOGY CORPORATION By: /s/ David Eisenhaure ---------------------- Name: David Eisenhaure --------------------- Title: President -------------------- IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. BEACON POWER CORPORATION DUQUESNE ENTERPRISES, INC. By: By: /s/ Eric R. Stoltz ---------------------- ---------------------- Name: Name: Eric R. Stoltz -------------------- -------------------- Title: Title: Vice President & Treasurer ------------------- --------------------------- PERSEUS CAPITAL, L.L.C. MICRO-GENERATION TECHNOLOGY FUND, L.L.C. By: ---------------------- Name: By: ARETE CORPORATION, Its Manager --------------------- Title: -------------------- By: --------------------------- Robert W. Shaw, Jr., President SATCON TECHNOLOGY CORPORATION By: ---------------------- Name: --------------------- Title: -------------------- IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. BEACON POWER CORPORATION DUQUESNE ENTERPRISES, INC. By: By: ---------------------- ---------------------- Name: Name: -------------------- -------------------- Title: Title: ------------------- -------------------- PERSEUS CAPITAL, L.L.C. MICRO-GENERATION TECHNOLOGY FUND, L.L.C. By: ---------------------- Name: By: ARETE CORPORATION, Its Manager --------------------- Title: -------------------- By: /s/ Robert W. Shaw, Jr. --------------------------- Robert W. Shaw, Jr., President SATCON TECHNOLOGY CORPORATION By: ---------------------- Name: --------------------- Title: -------------------- EXHIBIT A CERTAIN DEFINITIONS For purposes of the Agreement to which this Exhibit A is attached, the following terms have the following meanings: "Business Day" means any day other than a Saturday, Sunday or other day on which the national or state banks located in the State of New York, the Commonwealth of Massachusetts, or the District of Columbia are authorized to be closed. "Company Account" means an account of the Company designated in a written notice delivered to the Purchasers at least two Business Days prior to the date of any required payment by the Purchasers to the Company under the Agreement. "GAAP" means United States generally accepted accounting principles consistently applied. "Governmental Body" means any: (a) nation, state, commonwealth, province, territory, county, municipality, district or other jurisdiction of any nature; (b) federal, state, local, municipal, foreign or other government; or (c) governmental or quasi-governmental authority of any nature (including any governmental division, department, agency, commission, instrumentality, official, organization, unit, body or entity and any court or other tribunal). "Material Adverse Change" means a change which would have a Material Adverse Effect. "Material Adverse Effect." An event, violation or other matter will be deemed to have a "Material Adverse Effect" on the Company if such event, violation or other matter would be material in impact or amount to the Company's business, intellectual property rights or condition, or, taken as a whole, its assets, liabilities, operations, or financial performance. "Person" means any individual, entity or Governmental Body. "Related Agreements" means (a) the Notes; (b) the Warrants; and (c) any other agreement or document entered into by any of the parties in connection with the Agreement or any of the transactions contemplated thereby. EXHIBIT B-1 SENIOR SECURED CONVERTIBLE PROMISSORY NOTE THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY APPLICABLE STATE SECURITIES LAWS. IT MAY NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND COMPLIANCE WITH SUCH STATE SECURITIES LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION AND/OR COMPLIANCE IS NOT REQUIRED. THE SALE OR TRANSFER AND CERTAIN OTHER RIGHTS RELATING TO THE SECURITIES REPRESENTED BY THIS DOCUMENT ARE SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN SHAREHOLDER AGREEMENT BY AND AMONG THE COMPANY AND CERTAIN SHAREHOLDERS OF THE COMPANY. A COPY OF SUCH AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY. [Principal Amount] August ___, 1999 WOBURN, MA FOR VALUE RECEIVED, Beacon Power Corporation, a Delaware corporation (the "Company"), promises to pay to the order of _________________, or its registered assigns (the "Holder"), the principal sum of $__________ or such lesser amount as shall then equal the outstanding principal amount hereof, together with interest computed in the following fashion: (a) Interest accrued to date on the note which this Note amends and restates (and known in the Purchase Agreement referenced below as the Tranche One Note), amounting to $____________; and (b) Interest accruing from the date of issuance of this Note on the unpaid principal balance hereof at a rate equal to twelve and one-half percent (12 1/2%) per annum, computed on the basis of the actual number of days elapsed and a year of 365 days; provided that if the Funding Date does not occur within six (6) months from the date hereof, such interest rate shall increase effective as of the close of business on the such day to occur six (6) months from the date hereof to fifteen percent (15%) per annum. All unpaid principal, together with any accrued but unpaid interest and other amounts payable hereunder, shall be due and payable on the earlier of (i) the date of conversion (or, absent a conversion, demand by the holder) as referenced below in Section 6 (the "Maturity Date") or (ii) upon or after the occurrence of an Event of Default (as defined below), when such amounts are declared due and payable by the Holder or made automatically due and payable. This Note is issued pursuant to the Note and Warrant Purchase Agreement (the "Purchase Agreement") dated as of August 2, 1999 by and among the Company, Perseus Capital, L.L.C., Duquesne Enterprises, Inc., Micro Generation Technology Fund, L.L.C. and SatCon Technology Corporation. The following is a statement of the rights of the Holder and the conditions to which this Note is subject, and to which the Holder hereof, by the acceptance of this Note, agrees: 1. Definitions. As used in this Note, the following capitalized terms have the following meanings: (a) "Business Day" means any day other than a Saturday, Sunday or other day on which the national or state banks located in the State of Massachusetts or the State of New York are authorized to be closed. (b) "Funding Date" means the date on which all or any part of funding of transactions contemplated by the Class E Preferred Commitment are first consummated. (c) "Obligations" means the principal, interest and other amounts payable under this Note. (d) "Class E Preferred Commitment" means a written commitment to the Company by a strategic investor(s), made within four (4) months from the date hereof, to purchase at least $5 million of the Class E Preferred Stock. (e) "Transaction Documents" shall mean this Note, the Purchase Agreement, and any other promissory note issued pursuant to the Purchase Agreement. 2. Events of Default. The occurrence of any of the following shall constitute an "Event of Default" under this Note: (a) Failure to Pay. The Company shall fail to pay (i) when due any principal payment on this Note or (ii) any interest or other payment required under the terms of this Note or any other Transaction Document within five Business Days of its due date; or (b) Breaches of Other Covenants. The Company shall materially fail to observe or to perform any other covenant, obligation, condition or agreement contained in this Note or the other Transaction Documents, other than those specified in Section 2(a) hereof, and such failure shall continue for 10 days after written notice thereof to the Company; or (c) Voluntary Bankruptcy or Insolvency Proceedings. The Company shall (i) apply for or consent to the appointment of a receiver, trustee, liquidator or custodian of itself or of all or a substantial part of its property, (ii) be unable, or admit in writing its inability, to pay its debts generally as they mature, (iii) make a general assignment for the benefit of its or any of its creditors, (iv) be dissolved or liquidated in full or in part, (v) become insolvent (as such term may be defined or interpreted under any applicable statute), (vi) commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or consent to any such relief or to the appointment of or taking possession of its property by any official in an involuntary case or other proceeding commenced against it or (vii) take any action for the purpose of effecting any of the foregoing; or (d) Involuntary Bankruptcy or Insolvency Proceedings. Proceedings for the appointment of a receiver, trustee, liquidator or custodian of the Company or of all or a substantial part of the property thereof, or an involuntary case or other proceedings seeking liquidation, reorganization or other relief with respect to the Company or the debts thereof under any bankruptcy, insolvency or other similar law now or hereafter in effect shall be commenced and an order for relief entered, or such case or proceeding shall not be dismissed or discharged within 45 days of commencement; or (e) Cross-Default. The Company or any of its subsidiaries shall default under any bond, debenture, note or other evidence of indebtedness for money borrowed (excluding any capital lease), under any guarantee or under any mortgage, or indenture pursuant to which there shall be issued or by which there shall be secured or evidenced any indebtedness for money borrowed by the Company or any of its subsidiaries, whether such indebtedness now exists or shall hereafter be created, which default shall have resulted in indebtedness of at least $10,000 being due and payable prior to the date on which it would otherwise become due and payable and shall not have been issued by the Company or waived by the lender; or (f) Undischarged Judgment. One or more judgments for the payment of money in an amount in excess of $10,000 in the aggregate shall be rendered against the Company or any of its subsidiaries (or any combination thereof) and shall remain undischarged for a period of ten consecutive days during which execution shall not be effectively stayed, or any action is legally taken by a judgment creditor to levy upon any such judgment. -2- 3. Rights of Holder Upon Default. Upon the occurrence or existence of any Event of Default (other than an Event of Default referred to in Sections 2(c) and 2(d) hereof) and at any time thereafter during the continuance of such Event of Default, the Holder may declare all outstanding Obligations payable by the Company hereunder to be immediately due and payable without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived, anything contained herein or in the other Transaction Documents to the contrary notwithstanding. Upon the occurrence or existence of any Event of Default described in Sections 2(c) and 2(d) hereof, immediately and without notice, all outstanding Obligations payable by the Company hereunder shall automatically become immediately due and payable, without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived, anything contained herein or in the other Transaction Documents to the contrary notwithstanding. In addition to the foregoing remedies, upon the occurrence or existence of any Event of Default, the Holder may exercise any other right, power or remedy granted to it by the Transaction Documents or otherwise permitted to it by law, either by suit in equity or by action at law, or both. 4. Collateral. To secure the Company's payment and performance of the Obligations and to secure the Company's prompt, full and faithful performance and observance of all of the provisions under this Note and the other Transaction Documents, the Company hereby grants the Holder a security interest, senior to all other security interests except for any now or hereafter existing commercial bank or institutional lender financings and equipment leases, in all of the Company's right, title and interest in and to the following, whether now owned or hereafter acquired or existing and wherever located: (a) All inventory and equipment, and all parts thereof, attachments, accessories and accessions thereto, products thereof and documents therefor; (b) All accounts, contract rights, chattel paper, instruments, deposit accounts, general intangibles and other obligations of any kind, and all rights now or hereafter existing in and to all mortgages, security agreements, leases or other contracts securing or otherwise relating to any of the same; (c) All intellectual property and trade secrets, including, without limitation, (i) all patents, patent applications and patentable inventions and (i) the inventions and improvements described and claimed therein; (ii) any continuation, division, renewal, extension, substitute or reissue thereof or any legal equivalent in a foreign country for the full term thereof or the terms for which the same may be granted; (iii) all rights to income, royalties, profits, awards, damages and other rights relating to said patents, applications and inventions, including the right to sue for past, present and future infringement and (iv) any other rights and benefits relating to said patents, applications and inventions including any rights as a licensor or licensee of said patents, applications and inventions (the "Patents"); (ii) all trademarks, trademark registrations, trademark applications, service marks, service mark registrations and service mark applications, trade names, fictitious business name, tradestyles, and the goodwill underlying those trademarks and service marks and (i) any similar marks or amendments, modifications and renewals thereof and the goodwill represented by those and any legal equivalent in a foreign country for the full term or terms for which the same may be granted; (ii) all rights to income, royalties, profits, damages and other rights relating to said trademarks and service marks including the right to sue for past, present or future infringement and (iii) any other rights and benefits relating to said trademarks and service marks including any rights as a licensor or licensee of said trademark and service mark (the "Trademarks"); (iii) all copyrights, copyright registrations and copyright applications, including without limitation those copyrights for computer programs, computer databases, flow diagrams, maskworks, maskwork applications, source codes and object codes, computer software, technical knowledge and processes, trade secrets, know-how, customer lists, franchises, systems, inventions, designs, blueprints, formal or informal licensing arrangements, and all property embodying or incorporating such copyrights and (i) any similar rights or amendments, modifications and renewals thereof and any legal equivalent in a foreign country for the full term or terms for which the same may be granted; (ii) all rights to income, past, present and future infringement and (iii) any other rights and benefits relating to said copyrights (the "Copyrights"); -3- (d) all substitutions and replacements for, and all rights to exploit, all of the foregoing; (e) all books and records pertaining to any of the foregoing; and (f) all proceeds of all of the foregoing and, to the extent not otherwise included, all payments under insurance or any indemnity, warranty or guaranty, payable by reason of loss or damage to or otherwise with respect to any of the foregoing. All of the above assets are hereinafter collectively referred to as "Collateral." The Company covenants and agrees with Holder that: (x) the security interest granted under this Note is in addition to any other security interest from time to time held by the Holder; (y) the Holder may realize upon all or part of any Collateral in any order it desires and any realization by any means upon any Collateral will not bar realization upon any other Collateral; and (z) the security interest hereby created is a continuing security interest and will cover and secure the payment of all Obligations both present and future of the Company to Holder pursuant to this Note and the other Transaction Documents. The Company further covenants and agrees to take all actions requested by the Holder to establish or perfect the security interest granted under this Note. 5. Prepayment. This Note may be prepaid as a whole or in part at any time prior to the Maturity Date upon at least ten Business Days prior written notice to the Holder, provided that nothing in this Section 5 shall limit the Holder's conversion rights set forth in Section 6 herein during such notice period. Any such prepayment shall be applied first to the payment of expenses due under this Note, second to interest accrued on this Note and third, if the amount of prepayment exceeds the amount of all such expenses and accrued interest, to the payment of principal of this Note. 6. Conversion. If there is a Funding Date within six (6) months of the date hereof, all outstanding principal and accrued interest under this Note will be converted into Class E Preferred Stock on such Funding Date on terms substantially the same as those issued pursuant to the Class E Preferred Commitment. If there is no Class E Preferred Commitment within four (4) months of the date hereof or if a Funding Date does not occur within six (6) months of the date hereof, then at the option of the Holder, (a) all outstanding principal and accrued interest under this Note will convert to the Company's common or preferred stock at a price and on terms to be negotiated at that time between the Holder and the Company, or (b) if no agreement can be reached between the Holder and the Company within 60 days of the expiration of the four (4) month or six (6) month period, as the case may be, at the Holder's option, exercisable by the Holder at any time after expiration of the 60 day period, the Holder may declare in writing that such Note has become a demand obligation, and thereafter may make demand for payment of the Note at any time thereafter. Any such demand shall be in writing, and require payment by the Company no earlier than 10 days after such demand. 7. Successors and Assigns. Subject to the restrictions on transfer described in Sections 9 and 10 hereof, the rights and obligations of the Company and the Holder of this Note shall be binding upon and benefit the successors, assigns, heirs, administrators and transferees of the parties. 8. Waiver and Amendment. Any provision of this Note may be amended, waived or modified only as to the Holder of this Note upon the written consent of the Company and the Holder. 9. Transfer of this Note or Securities Issuable on Conversion Hereof. This Note may not be transferred in violation of any restrictive legend set forth hereon. Each new Note issued upon transfer of this Note shall bear a legend as to the applicable restrictions on transferability in order to ensure compliance with the -4- Securities Act, unless in the opinion of counsel for the Company such legend is not required in order to ensure compliance with the Securities Act. The Company may issue stop transfer instructions to its transfer agent in connection with such restrictions. Subject to the foregoing, transfers of this Note shall be registered upon registration books maintained for such purpose by or on behalf of the Company. Prior to presentation of this Note for registration of transfer, the Company shall treat the registered holder hereof as the owner and holder of this Note for the purpose of receiving all payments of principal and interest hereon and for all other purposes whatsoever, whether or not this Note shall be overdue and the Company shall not be affected by notice to the contrary. 10. Assignment by the Company. Neither this Note nor any of the rights, interests or obligations hereunder may be assigned, by operation of law or otherwise, as a whole or in part, by the Company, without the prior written consent of the Holder. 11. Treatment of Note. To the extent permitted by generally accepted accounting principles, the Company will treat, account and report the Note as debt and not equity for accounting purposes and with respect to any returns filed with federal, state or local tax authorities. 12. Notices. Any notice, request or other communication required or permitted hereunder shall be in writing and shall be deemed to have been duly given if personally delivered or mailed by registered or certified mail, postage prepaid, or by recognized overnight courier, personal delivery or facsimile transmission at the respective addresses or facsimile number of the parties as set forth in the Purchase Agreement or on the register maintained by the Company. Any party hereto may by notice so given change its address or facsimile number for future notice hereunder. Notice shall conclusively be deemed to have been given when received. 13. Expenses: Waivers. If action is instituted to collect this Note, the Company promises to pay all costs and expenses, including, without limitation, reasonable attorneys' fees and costs, incurred in connection with such action. The Company hereby waives notice of default, presentment or demand for payment, protest or notice of nonpayment or dishonor and all other notices or demands relative to this instrument. 14. Governing Law. This Note and all actions arising out of or in connection with this Note shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts, without regard to conflict of laws provisions of the Commonwealth of Massachusetts or of any other state. In the event of any dispute among or between any of the parties to this Note arising out of the terms of this Note, the parties hereby consent to the exclusive jurisdiction of the federal and state courts located in the Commonwealth of Massachusetts for resolution 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. IN WITNESS WHEREOF, the Company has caused this Note to be issued as of the date first written above. BEACON POWER CORPORATION By:________________________________ Name:______________________________ Title:_____________________________ -5- EXHIBIT B-2 SENIOR SECURED CONVERTIBLE PROMISSORY NOTE THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY APPLICABLE STATE SECURITIES LAWS. IT MAY NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND COMPLIANCE WITH SUCH STATE SECURITIES LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION AND/OR COMPLIANCE IS NOT REQUIRED. THE SALE OR TRANSFER AND CERTAIN OTHER RIGHTS RELATING TO THE SECURITIES REPRESENTED BY THIS DOCUMENT ARE SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN SHAREHOLDER AGREEMENT BY AND AMONG THE COMPANY AND CERTAIN SHAREHOLDERS OF THE COMPANY. A COPY OF SUCH AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY. $333,333.33 ____________ ___, 1999 WOBURN, MA FOR VALUE RECEIVED, Beacon Power Corporation, a Delaware corporation (the "Company"), promises to pay to the order of SatCon Technology Corporation or its registered assigns (the "Holder"), the principal sum of $333,333.33 or such lesser amount as shall then equal the outstanding principal amount hereof, together with interest from the date of issuance of this Note on the unpaid principal balance hereof at a rate equal to twelve and one-half percent (12 1/2%) per annum, computed on the basis of the actual number of days elapsed and a year of 365 days; provided that if the Funding Date does not occur within six (6) months from the date hereof, such interest rate shall increase effective as of the close of business on the such day to occur six (6) months from the date hereof to fifteen percent (15%) per annum. All unpaid principal, together with any accrued but unpaid interest and other amounts payable hereunder, shall be due and payable on the earlier of (i) the date of conversion (or absent a conversion, demand by the holder) as referenced below in Section 6 (the "Maturity Date") or (ii) upon or after the occurrence of an Event of Default (as defined below), when such amounts are declared due and payable by the Holder or made automatically due and payable. This Note is issued pursuant to the Note and Warrant Purchase Agreement (the "Purchase Agreement") dated as of August 2, 1999 by and among the Company, Perseus Capital, L.L.C., Duquesne Enterprises, Inc., Micro Generation Technology Fund, L.L.C. and SatCon Technology Corporation. The following is a statement of the rights of the Holder and the conditions to which this Note is subject, and to which the Holder hereof, by the acceptance of this Note, agrees: 1. Definitions. As used in this Note, the following capitalized terms have the following meanings: (a) "Business Day" means any day other than a Saturday, Sunday or other day on which the national or state banks located in the State of Massachusetts or the State of New York are authorized to be closed. (b) "Funding Date" means the date on which all or any part of funding of transactions contemplated by the Class E Preferred Commitment are first consummated. (c) "Obligations" means the principal, interest and other amounts payable under this Note. (d) "Class E Preferred Commitment" means a written commitment to the Company by a strategic investor(s), made within four (4) months from the date hereof, to purchase at least $5 million of the Class E Preferred Stock. (e) "Transaction Documents" shall mean this Note, the Purchase Agreement, and any other promissory note issued pursuant to the Purchase Agreement. 2. Events of Default. The occurrence of any of the following shall constitute an "Event of Default" under this Note: (a) Failure to Pay. The Company shall fail to pay (i) when due any principal payment on this Note or (ii) any interest or other payment required under the terms of this Note or any other Transaction Document within five Business Days of its due date; or (b) Breaches of Other Covenants. The Company shall materially fail to observe or to perform any other covenant, obligation, condition or agreement contained in this Note or the other Transaction Documents, other than those specified in Section 2(a) hereof, and such failure shall continue for 10 days after written notice thereof to the Company; or (c) Voluntary Bankruptcy or Insolvency Proceedings. The Company shall (i) apply for or consent to the appointment of a receiver, trustee, liquidator or custodian of itself or of all or a substantial part of its property, (ii) be unable, or admit in writing its inability, to pay its debts generally as they mature, (iii) make a general assignment for the benefit of its or any of its creditors, (iv) be dissolved or liquidated in full or in part, (v) become insolvent (as such term may be defined or interpreted under any applicable statute), (vi) commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or consent to any such relief or to the appointment of or taking possession of its property by any official in an involuntary case or other proceeding commenced against it or (vii) take any action for the purpose of effecting any of the foregoing; or (d) Involuntary Bankruptcy or Insolvency Proceedings. Proceedings for the appointment of a receiver, trustee, liquidator or custodian of the Company or of all or a substantial part of the property thereof, or an involuntary case or other proceedings seeking liquidation, reorganization or other relief with respect to the Company or the debts thereof under any bankruptcy, insolvency or other similar law now or hereafter in effect shall be commenced and an order for relief entered, or such case or proceeding shall not be dismissed or discharged within 45 days of commencement; or (e) Cross-Default. The Company or any of its subsidiaries shall default under any bond, debenture, note or other evidence of indebtedness for money borrowed (excluding any capital lease), under any guarantee or under any mortgage, or indenture pursuant to which there shall be issued or by which there shall be secured or evidenced any indebtedness for money borrowed by the Company or any of its subsidiaries, whether such indebtedness now exists or shall hereafter be created, which default shall have resulted in indebtedness of at least $10,000 being due and payable prior to the date on which it would otherwise become due and payable and shall not have been issued by the Company or waived by the lender; or (f) Undischarged Judgment. One or more judgments for the payment of money in an amount in excess of $10,000 in the aggregate shall be rendered against the Company or any of its subsidiaries (or any combination thereof) and shall remain undischarged for a period of ten consecutive days during which execution shall not be effectively stayed, or any action is legally taken by a judgment creditor to levy upon any such judgment. 3. Rights of Holder Upon Default. Upon the occurrence or existence of any Event of Default (other than an Event of Default referred to in Sections 2(c) and 2(d) hereof) and at any time thereafter during the continuance of such Event of Default, the Holder may declare all outstanding Obligations payable by the Company hereunder to be immediately due and payable without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived, anything contained herein or in the other Transaction Documents to the -2- contrary notwithstanding. Upon the occurrence or existence of any Event of Default described in Sections 2(c) and 2(d) hereof, immediately and without notice, all outstanding Obligations payable by the Company hereunder shall automatically become immediately due and payable, without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived, anything contained herein or in the other Transaction Documents to the contrary notwithstanding. In addition to the foregoing remedies, upon the occurrence or existence of any Event of Default, the Holder may exercise any other right, power or remedy granted to it by the Transaction Documents or otherwise permitted to it by law, either by suit in equity or by action at law, or both. 4. Collateral. To secure the Company's payment and performance of the Obligations and to secure the Company's prompt, full and faithful performance and observance of all of the provisions under this Note and the other Transaction Documents, the Company hereby grants the Holder a security interest, senior to all other security interests except for any now or hereafter existing commercial bank or institutional lender financings and equipment leases, in all of the Company's right, title and interest in and to the following, whether now owned or hereafter acquired or existing and wherever located: (a) All inventory and equipment, and all parts thereof, attachments, accessories and accessions thereto, products thereof and documents therefor; (b) All accounts, contract rights, chattel paper, instruments, deposit accounts, general intangibles and other obligations of any kind, and all rights now or hereafter existing in and to all mortgages, security agreements, leases or other contracts securing or otherwise relating to any of the same; (c) All intellectual property and trade secrets, including, without limitation, (i) all patents, patent applications and patentable inventions and (i) the inventions and improvements described and claimed therein; (ii) any continuation, division, renewal, extension, substitute or reissue thereof or any legal equivalent in a foreign country for the full term thereof or the terms for which the same may be granted; (iii) all rights to income, royalties, profits, awards, damages and other rights relating to said patents, applications and inventions, including the right to sue for past, present and future infringement and (iv) any other rights and benefits relating to said patents, applications and inventions including any rights as a licensor or licensee of said patents, applications and inventions (the "Patents"); (ii) all trademarks, trademark registrations, trademark applications, service marks, service mark registrations and service mark applications, trade names, fictitious business name, tradestyles, and the goodwill underlying those trademarks and service marks and (i) any similar marks or amendments, modifications and renewals thereof and the goodwill represented by those and any legal equivalent in a foreign country for the full term or terms for which the same may be granted; (ii) all rights to income, royalties, profits, damages and other rights relating to said trademarks and service marks including the right to sue for past, present or future infringement and (iii) any other rights and benefits relating to said trademarks and service marks including any rights as a licensor or licensee of said trademark and service mark (the "Trademarks"); (iii) all copyrights, copyright registrations and copyright applications, including without limitation those copyrights for computer programs, computer databases, flow diagrams, maskworks, maskwork applications, source codes and object codes, computer software, technical knowledge and processes, trade secrets, know-how, customer lists, franchises, systems, inventions, designs, blueprints, formal or informal licensing arrangements, and all property embodying or incorporating such copyrights and (i) any similar rights or amendments, modifications and renewals thereof and any legal equivalent in a foreign country for the full term or terms for which the same may be granted; (ii) all rights to income, past, present and future infringement and (iii) any other rights and benefits relating to said copyrights (the "Copyrights"); (d) all substitutions and replacements for, and all rights to exploit, all of the foregoing; (e) all books and records pertaining to any of the foregoing; and (f) all proceeds of all of the foregoing and, to the extent not otherwise included, all -3- payments under insurance or any indemnity, warranty or guaranty, payable by reason of loss or damage to or otherwise with respect to any of the foregoing. All of the above assets are hereinafter collectively referred to as "Collateral." The Company covenants and agrees with Holder that: (x) the security interest granted under this Note is in addition to any other security interest from time to time held by the Holder; (y) the Holder may realize upon all or part of any Collateral in any order it desires and any realization by any means upon any Collateral will not bar realization upon any other Collateral; and (z) the security interest hereby created is a continuing security interest and will cover and secure the payment of all Obligations both present and future of the Company to Holder pursuant to this Note and the other Transaction Documents. The Company further covenants and agrees to take all actions requested by the Holder to establish or perfect the security interest granted under this Note. 5. Prepayment. This Note may be prepaid as a whole or in part at any time prior to the Maturity Date upon at least ten Business Days prior written notice to the Holder, provided that nothing in this Section 5 shall limit the Holder's conversion rights set forth in Section 6 herein during such notice period. Any such prepayment shall be applied first to the payment of expenses due under this Note, second to interest accrued on this Note and third, if the amount of prepayment exceeds the amount of all such expenses and accrued interest, to the payment of principal of this Note. 6. Conversion. If there is a Funding Date within six (6) months of the date hereof, all outstanding principal and accrued interest under the Note will be converted into Class E Preferred Stock on such Funding Date on terms substantially the same as those issued pursuant to the Class E Preferred Commitment. If there is no Class E Preferred Commitment within four (4) months of the date hereof or if a Funding Date does not occur within six (6) months of the date hereof, then at the option of the Holder, (a) all outstanding principal and accrued interest under this Note will convert to the Company's common or preferred stock at a price and on terms to be negotiated at that time between the Holder and the Company, or (b) if no agreement can be reached between the Holder and the Company within 60 days of the expiration of the four (4) month or six (6) month period, as the case may be, at the Holder's option, exercisable by the Holder at any time after expiration of the 60 day period, the Holder may declare in writing that such Note has become a demand obligation, and thereafter may make demand for payment of the Note at any time thereafter. Any such demand shall be in writing, and require payment by the Company no earlier than 10 days after such demand. 7. Successors and Assigns. Subject to the restrictions on transfer described in Sections 9 and 10 hereof, the rights and obligations of the Company and the Holder of this Note shall be binding upon and benefit the successors, assigns, heirs, administrators and transferees of the parties. 8. Waiver and Amendment. Any provision of this Note may be amended, waived or modified only as to the Holder of this Note upon the written consent of the Company and the Holder. 9. Transfer of this Note or Securities Issuable on Conversion Hereof. This Note may not be transferred in violation of any restrictive legend set forth hereon. Each new Note issued upon transfer of this Note shall bear a legend as to the applicable restrictions on transferability in order to ensure compliance with the Securities Act, unless in the opinion of counsel for the Company such legend is not required in order to ensure compliance with the Securities Act. The Company may issue stop transfer instructions to its transfer agent in connection with such restrictions. Subject to the foregoing, transfers of this Note shall be registered upon registration books maintained for such purpose by or on behalf of the Company. Prior to presentation of this Note for registration of transfer, the Company shall treat the registered holder hereof as the owner and holder of this Note for the purpose of receiving all payments of principal and interest hereon and for all other purposes whatsoever, whether or not this Note shall be overdue and the Company shall not be affected by notice to the contrary. 10. Assignment by the Company. Neither this Note nor any of the rights, interests or obligations -4- hereunder may be assigned, by operation of law or otherwise, in whole or in part, by the Company, without the prior written consent of the Holder. 11. Treatment of Note. To the extent permitted by generally accepted accounting principles, the Company will treat, account and report the Note as debt and not equity for accounting purposes and with respect to any returns filed with federal, state or local tax authorities. 12. Notices. Any notice, request or other communication required or permitted hereunder shall be in writing and shall be deemed to have been duly given if personally delivered or mailed by registered or certified mail, postage prepaid, or by recognized overnight courier, personal delivery or facsimile transmission at the respective addresses or facsimile number of the parties as set forth in the Purchase Agreement or on the register maintained by the Company. Any party hereto may by notice so given change its address or facsimile number for future notice hereunder. Notice shall conclusively be deemed to have been given when received. 13. Expenses: Waivers. If action is instituted to collect this Note, the Company promises to pay all costs and expenses, including, without limitation, reasonable attorneys' fees and costs, incurred in connection with such action. The Company hereby waives notice of default, presentment or demand for payment, protest or notice of nonpayment or dishonor and all other notices or demands relative to this instrument. 14. Governing Law. This Note and all actions arising out of or in connection with this Note shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts, without regard to conflict of laws provisions of the Commonwealth of Massachusetts or of any other state. In the event of any dispute among or between any of the parties to this Note arising out of the terms of this Note, the parties hereby consent to the exclusive jurisdiction of the federal and state courts located in the Commonwealth of Massachusetts for resolution 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. IN WITNESS WHEREOF, the Company has caused this Note to be issued as of the date first written above. BEACON POWER CORPORATION By:_______________________ Name:_____________________ Title:____________________ -5- EXHIBIT C THE SECURITIES EVIDENCED BY THIS WARRANT CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT'), AND MAY NOT BE SOLD, TRANSFERRED, OR ASSIGNED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN ACCORDANCE WITH RULE 144 UNDER THE SECURITIES ACT, OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF SUCH SECURITIES REASONABLY SATISFACTORY TO THE COMPANY STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT. THE SALE OR TRANSFER AND CERTAIN OTHER RIGHTS RELATING TO THE SECURITIES REPRESENTED BY THIS DOCUMENT ARE SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN SHAREHOLDER AGREEMENT BY AND AMONG THE COMPANY AND CERTAIN SHAREHOLDERS OF THE COMPANY. A COPY OF SUCH AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY. No.:___ WARRANT TO PURCHASE CLASS E PREFERRED STOCK OF BEACON POWER CORPORATION (void after August 2, 2004) 1. Issuance of Warrant. FOR VALUE RECEIVED, on and after the date of issuance of this Warrant, and subject to the terms and conditions herein set forth, the Holder (as defined below) is entitled to purchase from Beacon Power Corporation, a Delaware corporation (the "Company"), at any time before 5:00 p.m. New York time on August 2, 2004 (the "Termination Date"), at a price per share equal to the Warrant Price (as defined below and subject to adjustment as described below), the Warrant Stock (as defined below and subject to adjustment as described below) upon exercise of this warrant (this "Warrant") pursuant to Section 6 hereof. This Warrant is issued pursuant to the Note and Warrant Purchase Agreement (as defined below). 2. Definitions. As used in this Warrant, the following terms have the definitions ascribed to them below: (a) "Additional Stock" is defined in Section 3(d)(iv). (b) "Base Price" means as of August 2, 1999, $1.78 per share of Common Stock, which shall be subject to adjustment as provided in Section 3(d). (c) "Business Day" means any day other than a Saturday, Sunday or other day on which the national or state banks located in the State of Massachusetts or the State of New York or the District of Columbia are authorized to be closed. (d) "Change-In-Control Event" means the occurrence after the Commencement Date of any of the following: (i) the acquisition of voting securities of the Company by any person or group of persons that results in such person or group, together with its affiliates, becoming, directly or indirectly, the beneficial owner of in excess of 50% of the outstanding voting securities of the Company; (ii) a merger or consolidation of the Company with any other corporation or legal entity regardless of which entity is the survivor, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or being converted into voting securities of the surviving entity) in excess of 50% of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; or (iii) the sale or disposition of all or substantially all of the Company's assets other than in a transaction in which holders of the voting securities of the Company immediately prior to such transaction receive voting securities of the acquiror of such assets or its affiliate that represent in excess of 50% of the voting securities of such entity after consummation of such transaction. (e) "Commencement Date" means the date of issue of this Warrant. (f) "Common Stock" means the Company's Common Stock, $.0l par value per share. (g) "Holder" means ________________, or its assigns. (h) "Note and Warrant Purchase Agreement" means the Note and Warrant Purchase Agreement dated as of August 2, 1999 by and among the Company, Perseus Capital, L.L.C., Duquesne Enterprises, Inc., Micro Generation Technology Fund, L.L.C., and SatCon Technology Corporation (collectively, the "Purchasers"), and "Note" means the Note issued to the holder pursuant to such Agreement. (i) "Class E Preferred Stock" means the Class E Preferred Stock of the Company proposed to be issued to the Purchasers as part of the equity financing in which the Note is to be converted, as described in the Note and Warrant Purchase Agreement. (j) "Warrant Price" means, (i) in the event that a purchase of at least $5 million of the Class E Preferred Stock is consummated within six (6) months from the date hereof, the per share price at which such purchase is made, or (ii) in the event that no such purchase is consummated, $2.50, in either event subject to adjustment as described in Section 3 below. (k) "Warrant Stock" means the shares of Company stock which are -2- purchasable upon exercise or conversion of this Warrant, consisting of Class E Preferred Stock (or other Company securities) into which the Note is converted if such conversion actually occurs, or consisting of shares of Common Stock if the Note is not so converted. The total number of shares to be issued upon the exercise of this Warrant shall be computed by dividing $____________ by the Warrant Price, subject to adjustment as described in Section 3 below. (l) "Warrant Stock Definition Date" means the date on which the Note is converted (or if not converted, then the date on which the holder of the Note notifies the Company that it has become a demand note, as described in the Note. 3. Adjustments and Notices. The Warrant Price and/or the number of shares of Warrant Stock shall be subject to adjustment from time to time in accordance with this Section 3. The Warrant Price and/or the number of Warrant Shares shall be adjusted to reflect all of the following events that occur on or after the Commencement Date. However, if on the Warrant Stock Definition Date, the Warrant Stock is determined to consist of preferred stock of the Company, then the following provisions in Section 3 shall not apply to shares issued on or after the Warrant Stock Definition Date. (a) Subdivision, Stock Dividends or Combinations. In case the Company shall at any time subdivide the outstanding shares of Warrant Stock or shall issue a stock dividend with respect to the Warrant Stock, the Warrant Price in effect immediately prior to such subdivision or the issuance of such dividend shall be proportionately decreased, and in case the Company shall at any time combine the outstanding shares of the Warrant Stock, the Warrant Price in effect immediately prior to such combination shall be proportionately increased, in each case effective at the close of business on the date of such subdivision, dividend or combination, as the case may be. (b) Reclassification, Exchange, Substitution, In-Kind Distribution. Upon any reclassifications, exchange, substitution or other event that results in a change of the number and/or class of the securities issuable upon exercise or conversion of this Warrant or upon the payment of a dividend in securities or property other than shares of Warrant Stock, the Holder shall be entitled to receive, upon exercise or conversion of this Warrant, the number and kind of securities and property that Holder would have received if this Warrant had been exercised or converted immediately before the record date for such reclassification, exchange, substitution, or other event or immediately prior to the record date for such dividend. The Company or its successor shall promptly issue to Holder a new warrant for such new securities or other property. The new warrant shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 3 including, without limitation, adjustments to the Warrant Price and to the number of securities or property issuable upon exercise or conversion of the new warrant. The provisions of this Section 3(b) shall similarly apply to successive reclassifications, exchanges, substitutions, or other events and successive dividends. (c) Reorganization, Merger etc. In case of any Change-In-Control Event, the Company, or such successor or purchasing corporation, as the case may be, shall, as a condition -3- to closing any such reorganization, merger or sale, duly execute and deliver to the Holder hereof a new warrant so that the Holder shall have the right to receive, at a total purchase price not to exceed that payable upon the exercise or conversion of the unexercised or unconverted portion of this Warrant, and in lieu of the shares of the Warrant Stock theretofore issuable upon exercise or conversion of this Warrant, the kind and amount of shares of stock, other securities, money and property receivable upon such reorganization, merger or sale by the Holder of the number of shares of Warrant Stock then purchasable under this Warrant. Such new warrant shall provide for adjustments that shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 3. The provisions of this subparagraph (c) shall similarly apply to successive Change-In-Control Events. (d) Dilutive Issuances Adjustment of Number of Shares and Warrant Price. In order to prevent dilution of the rights granted under this Warrant, the number of shares of Warrant Stock obtainable upon exercise of this Warrant and the Warrant Price shall be subject to adjustment from time to time as provided in this Section 3(d). (i) Adjustment of Warrant Price upon Issuance of Additional Stock. If and whenever after the Commencement, the Company issues, or in accordance with Section 3(d)(ii) is deemed to have issued, any Additional Stock to any person for a consideration per share less than the Base Price then in effect, then the Warrant Price in effect immediately before each such issuance shall forthwith be adjusted to a price determined by multiplying such Warrant Price by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such issuance plus the number of shares of Common Stock that the aggregate consideration received by the Company for such issuance would purchase at such Warrant Price; and the denominator of which shall be the number of shares of Common Stock outstanding immediately prior to such issuance plus the number of shares of such Additional Stock. (ii) Effect of Certain Events. For purposes of determining under Section (d)(i) the adjusted number of shares of Warrant Stock acquirable upon exercise of this Warrant, the following shall be applicable: (A) Issuance of Rights or Options. If the Company in any manner issues, grants or sells (or otherwise becomes subject to) any options, rights, or warrants (collectively, "Options") to purchase Common Stock or securities that are convertible into or exchangeable for Common Stock ("Convertible Securities"), then the total maximum number of shares of Common Stock issuable upon the exercise of such Options or upon conversion or exchange of the total maximum amount of such Convertible Securities issuable upon the exercise of such Options shall be deemed to have been sold on the date of issuance, grant or sale of such Options and to be outstanding, and the total maximum consideration receivable for such issue, grant and sale of the Options, Convertible Securities and Common Stock shall be deemed to have been received by the Company. -4- (B) Issuance of Convertible Securities. If the Company in any manner grants, issues or sells (or otherwise becomes subject to) any Convertible Securities, then the maximum number of shares of Common Stock issuable upon conversion or exchange of such Convertible Securities shall be deemed to have been sold on the date of issuance, grant or sale of such Convertible Securities and to be outstanding, and the total maximum consideration receivable for such grant, issue and sale of the Convertible Securities and Common Stock shall be deemed to have been received by the Company. (C) Treatment of Expired Options and Unexercised Convertible Securities. Upon the expiration of any Option or the termination of any right to convert or exchange any Convertible Securities without the exercise of such Option or right, the number of shares of Warrant Stock acquirable hereunder shall be adjusted to the number of shares which would have been in effect at the time of such expiration or termination had such Option or Convertible Securities, to the extent outstanding immediately prior to such expiration or termination, never been issued and the consideration for such exercise never been received. (D) Treasury Shares. The number of shares of Common Stock outstanding at any given time does not include shares owned or held by or for the account of the Company or any Subsidiary, and the disposition of any shares so owned or held shall be considered an issuance or sale of Common Stock. (E) Record Date. If the Company takes a record of the holders of Common Stock for the purpose of entitling them (A) to receive a dividend or other distribution payable in Common Stock, Options or in Convertible Securities or (B) to subscribe for or purchase Common Stock, Options or Convertible Securities, then such record date shall be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be. (iii) In the case of the issuance of Additional Stock for cash, the consideration received therefor shall be deemed to be the amount of cash paid therefor before deducting any reasonable discounts, commissions or other expenses allowed, paid or incurred by the company for any underwriting or otherwise in connection with the issuance and sale thereof. In the case of the issuance of Additional Stock for a consideration in whole or in part other than cash, the consideration other than cash received therefor shall be deemed to be the fair value thereof as reasonably determined by the Board of Directors of the Company in its good faith judgment irrespective of any accounting treatment. (iv) "Additional Stock" shall mean any shares of Common Stock issued (or deemed to have been issued pursuant to clause (ii) of this Section 3(d)) by the Company after the Commencement Date, other than shares of Common Stock issued or issuable: -5- (A) to officers, directors, employees and consultants of the Company directly or pursuant to a stock option plan or restricted stock plan approved by the Board of Directors of the Company; (B) upon conversion of the Class A, B, C, or D Preferred Stock (or, if authorized, the Class E Preferred Stock) of the Company or the exercise of warrants issued by the Company before or on the Commencement Date; (C) upon issue of Warrants to be issued to SatCon per the Note and Warrant Purchase Agreement. (v) Certain Events. If any event occurs of the type contemplated by the provisions of this Section 3(d) but not expressly provided for by such provisions (including, without limitation, the granting of stock appreciation rights, phantom stock rights or other rights with equity features), then the Company's board of directors shall make an appropriate adjustment in the number of shares of Warrant Stock obtainable upon exercise of this Warrant and in the Warrant Price so as to protect the rights of the holders of the Warrants; provided that no such adjustment shall decrease the number of shares of Warrant Stock obtainable as otherwise determined pursuant to this Section 3. (e) Certificate of Adjustment. In each case of an adjustment or readjustment of the Warrant Price, the Corporation, at its own expense, shall cause its Chief Financial Officer to compute such adjustment or readjustment in accordance with the provisions hereof and prepare a certificate showing such adjustment or readjustment, and shall mail such certificate, by first class mail, postage prepaid, to the Holder. The certificate shall set forth such adjustment or readjustment, showing in detail the facts upon which such adjustment or readjustment is based. No adjustment of the Warrant Price shall be required to be made unless it would result in an increase or decrease of at least one cent, but any adjustments not made because of this sentence shall be carried forward and taken into account in any subsequent adjustment otherwise required hereunder. (f) No Impairment. The Company shall not, by amendment of its Certificate of Incorporation or through a reorganization, transfer of assets, consolidation, merger, dissolution, issue, or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed under this Warrant by the Company, but shall at all times in good faith assist in carrying out all of the provisions of this Section 3 and in taking all such action as may be necessary or appropriate to protect the Holder's rights under this Section 3 against impairment. If the Company takes any action affecting the Class E Preferred Stock other than as described above that adversely affects the Holder's rights under this Warrant, the Warrant Price shall be adjusted downward. (g) Fractional Shares. No fractional shares shall be issuable upon exercise or conversion of the Warrant and the number of shares to be issued shall be rounded down to the nearest whole share. If a fractional share interest arises upon any exercise or conversion of the Warrant, the Company shall eliminate such fractional share interest by paying the Holder an -6- amount computed by multiplying the fractional interest by the fair market value of a full share. 4. No Shareholder Rights. This Warrant, by itself, as distinguished from any shares purchased hereunder, shall not entitle its Holder to any of the rights of a shareholder of the Company. 5. Reservation of Stock. On and after the Warrant Stock Definition Date, the Company will reserve from its authorized and unissued stock a sufficient number of shares to provide for the issuance of Warrant Stock upon the exercise or conversion of this Warrant. Issuance of this Warrant shall constitute full authority to the Company's officers who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for shares of Warrant Stock issuable upon the exercise or conversion of this Warrant. 6. Exercise of Warrant. This Warrant may be exercised as a whole or part by the Holder, at any time after the date hereof prior to the termination of this Warrant, by the surrender of this Warrant, together with the Notice of Exercise and Investment Representation Statement in the forms attached hereto as Attachments 1 and 2, respectively, duly completed and executed at the principal office of the Company, specifying the portion of the Warrant to be exercised and accompanied by payment in full of the Warrant Price in cash or by check with respect to the shares of Warrant Stock being purchased. Alternatively, the Holder may pay the Warrant Price as a whole or in part) by surrendering to the Company all or a portion of any Note (as defined in the Note and Warrant Purchase Agreement), in which case the portion of the Note surrendered plus all accrued but unpaid interest thereon shall be credited towards payment of the Warrant Price. If less the entire Note is surrendered in payment of the Warrant Price, the Company shall issue to the Holder a new promissory note identical to the surrendered Note except that the principal amount thereof shall equal the unsurrendered portion of the principal amount of the surrendered Note. This Warrant shall be deemed to have been exercised immediately prior to the close of business on the date of its surrender for exercise as provided above, and the person entitled to receive the shares of Warrant Stock issuable upon such exercise shall be treated for all purposes as the holder of such shares of record as of the close of business on such date. As promptly as practicable after such date, the Company shall issue and deliver to the person or persons entitled to receive the same a certificate or certificates for the number of full shares of Warrant Stock issuable upon such exercise. If this Warrant shall be exercised for less than the total number of shares of Warrant Stock then issuable upon exercise, promptly after surrender of this Warrant upon such exercise, the Company will execute and deliver a new warrant, dated the date hereof, evidencing the right of the Holder to the balance of this Warrant Stock purchasable hereunder upon the same terms and conditions set forth herein. 7. Conversion. In lieu of exercising this Warrant or any portion hereof, at any time after the occurrence of a Change-In-Control Event or the filing of a registration statement for an initial underwritten public offering of securities by the Company, the Holder hereof shall have the right to convert this Warrant or any portion hereof into Warrant Stock by executing and delivering to the Company at its principal office the written Notice of Conversion and Investment Representation Statement in the forms attached hereto as Attachments 2 and 3, specifying the portion of the Warrant to be converted, and accompanied by this Warrant. The -7- number of shares of Warrant Stock to be issued to Holder upon such conversion shall be computed using the following formula: X=(P)(Y)(A-B)/A where X = the number of shares of Warrant Stock to be issued to the Holder for the portion of the Warrant being converted. P = the portion of the Warrant being converted expressed as a decimal fraction. Y = the total number of shares of Warrant Stock issuable upon exercise of the Warrant in full. A = the fair market value of one share of Warrant Stock which means (i) the fair market value of the Warrant Stock as of the last Business Day immediately prior to the date the notice of conversion is received by the Company, as reported in the principal market for such securities or, if no such market exists, as determined in good faith by the Company's Board of Directors, or (ii) if this Warrant is being converted in conjunction with a public offering of stock the price to the public per share pursuant to the offering. B = the Warrant Price on the date of conversion. Any portion of this Warrant that is converted shall be immediately canceled. This Warrant or any portion hereof shall be deemed to have been converted immediately prior to the close of business on the date of its surrender for conversion as provided above, and the person entitled to receive the shares of Warrant Stock issuable upon such conversion shall be treated for all purposes as the holder of such shares of record as of the close of business on such date. As promptly as practicable after such date, the Company shall issue and deliver to the person or persons entitled to receive the same a certificate or certificates for the number of full shares of Warrant Stock issuable upon such conversion. If the Warrant shall be converted for less than the total number of shares of Warrant Stock then issuable upon conversion, promptly after surrender of the Warrant upon such conversion, the Company will execute and deliver a new warrant, dated the date hereof, evidencing the right of the Holder to the balance of the Warrant Stock purchasable hereunder upon the same terms and conditions set forth herein. If this Warrant is converted, as a whole or in part, after the occurrence of a Change-In-Control Event as to which Section 3(c) is applicable, the Holder shall receive the consideration contemplated by Section 3(c) in lieu of Warrants Stock of the Company. 8. Transfer of Warrant. This Warrant may be transferred or assigned by the Holder hereof in whole or in part, provided that the transferor provides, at the Company's request, an -8- opinion of counsel satisfactory to the Company that such transfer does not require registration under the Securities Act and the securities law applicable with respect to any other applicable jurisdiction. 9. Termination. This Warrant shall terminate on 5:00 p.m. New York time on the Termination Date. 10. Miscellaneous. This Warrant shall be governed by the laws of the Commonwealth of Massachusetts, as such laws are applied to contracts to be entered into and performed entirely in Massachusetts by Massachusetts residents. In the event of any dispute among the Holder and the Company arising out of the terms of this Warrant, the parties hereby consent to the exclusive jurisdiction of the federal and state courts located in the Commonwealth of Massachusetts for resolution 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. The headings in this Warrant are for purposes of convenience and reference only, and shall not be -9- deemed to constitute a part hereof. Neither this Warrant nor any term hereof may be changed or waived orally, but only by an instrument in writing signed by the Company and the Holder of this Warrant. All notices and other communications from the Company to the Holder of this Warrant shall be delivered personally or by facsimile transmission or mailed by first class mail, postage prepaid, to the address or facsimile number furnished to the Company in writing by the last Holder of this Warrant who shall have furnished an address or facsimile number to the Company in writing, and if mailed shall be deemed given three days after deposit in the United States mail. ISSUED: ________________ BEACON POWER CORPORATION By:____________________________________ Name:________________________________________ Title:_______________________________________ -10- Attachment 1 NOTICE OF EXERCISE TO: BEACON POWER CORPORATION 1. The undersigned hereby elects to purchase ________________ shares of the Warrant Stock of Beacon Power Corporation pursuant to the terms of the attached Warrant, and tenders herewith payment of the purchase price in full, together with all applicable transfer taxes, if any. 2. Please issue a certificate or certificates representing said shares of Warrant Stock in the name of the undersigned or in such other name as is specified below: _______________________________ (Name) _______________________________ (Address) _________________________________ _________________________________ (Date) (Name of Warrant Holder) By:__________________________ Title:_______________________ Attachment 2 INVESTMENT REPRESENTATION STATEMENT Shares of the Class E Preferred Stock (as defined in the attached Warrant) of BEACON POWER CORPORATION In connection with the purchase of the above-listed securities, the undersigned hereby represents to Beacon Power Corporation (the "Company") as follows: (a) The securities to be received upon the exercise of the Warrant (the "Securities") will be acquired for investment for its own account, not as a nominee or agent, and not with a view to the sale or distribution of any part thereof, and the undersigned has no present intention of selling, granting participation in or otherwise distributing the same, but subject, nevertheless, to any requirement of law that the disposition of its property shall at all times be within its control. By executing this statement, the undersigned further represents that it does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer, or grant participations to such person or to any third person, with respect to any Securities issuable upon exercise of the Warrant. (b) The undersigned understands that the Securities issuable upon exercise of the Warrant at the time of issuance may not be registered under the Securities Act of 1933, as amended (the "Securities Act"), and applicable state securities laws, on the ground that the issuance of such securities is exempt pursuant to Section 4(2) of the Securities Act and state law exemptions relating to offers and sales not by means of a public offering, and that the Company's reliance on such exemptions is predicated on the undersigned's representations set forth herein. (c) The undersigned agrees that in no event will it make a disposition of any Securities acquired upon the exercise of the Warrant unless and until (i) it shall have notified the Company of the proposed disposition and shall have furnished the Company with a statement of the circumstances surrounding the proposed disposition, and (ii) it shall have furnished the Company with an opinion of counsel satisfactory to the Company and Company's counsel to the effect that (A) appropriate action necessary for compliance with the Securities Act and any applicable state securities laws has been taken or an exemption from the registration requirements of the Securities Act and such laws is available, and (B) the proposed transfer will not violate any of said laws. (d) The undersigned acknowledges that an investment in the Company is highly speculative and represents that it is able to fend for itself in the transactions contemplated by this statement, has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of its investments, and has the ability to bear the economic risks (including the risk of a total loss) of its investment. The undersigned represents that it has had the opportunity to ask questions of the Company concerning the Company's business and assets and to obtain any additional information which it considered necessary to verify the accuracy of or to amplify the Company's disclosures, and has had all questions which have been asked by it satisfactorily answered by the Company (e) The undersigned acknowledges that the Securities issuable upon exercise or conversion of the Warrant must be held indefinitely unless subsequently registered under the Securities Act or an exemption from such registration is available. The undersigned is aware of the provisions of Rule 144 promulgated under the Securities Act which permit limited resale of shares purchased in a private placement subject to the satisfaction of certain conditions, including, among other things, the existence of a public market for the shares, the availability of certain current public information about the Company, the resale occurring not less than one year after a party has purchased and paid for the security to be sold from the Company or any affiliate of the Company, the sale being through a "broker's transaction" or in transactions directly with a "market maker" (as provided by Rule 144(f)) and the number of shares being sold during any three month period not exceeding specified limitations. Dated:_______________ _________________________________ (Typed or Printed Name) By:______________________________ (Signature) _________________________________ (Title) Attachment 3 NOTICE OF CONVERSION TO: BEACON POWER CORPORATION 1. The undersigned hereby elects to acquire ________________ shares of the Warrant Stock of Beacon Power Corporation pursuant to the terms of the attached Warrant, by conversion of __________ percent(____%) of the Warrant. 2. Please issue a certificate or certificates representing said shares of Warrant Stock in the name of the undersigned or in such other name as is specified below: _______________________________ (Name) _______________________________ (Address) _________________________________ _________________________________ (Date) (Name of Warrant Holder) By:___________________________________________ Title:________________________________________ (Title and signature of authorized person) Beacon Power Corporation Exhibit D to the Note and Warrant Purchase Agreement Supplemental Disclosure Schedule [The following numbers correspond to the Section numbers in the Note and Warrant Purchase Agreement] 3.4(b) Delay in financing has materially delayed the completion of the manufacturing composite laboratory, the hiring of key personnel, and the pursuit of securing intellectual property protection (as detailed below), because such matters could not be advanced without the money with which to fund the company's activities. The IPR delays consist of having temporarily halted (during April 1999) the writing of seven patents, and having similarly halted efforts to file for foreign counterpart patents. With the closing of this bridge financing, the Company has the funds with which to recommence the patent work referenced above, and it has been advised by patent counsel that sufficient time remains before the applicable regulatory deadlines in order to complete the required work. So long as such work is so completed, no Material Adverse Effect is expected to result from such halt in such patent prosecution. 3.8 Other Representations and Warranties The following exceptions are taken to the representations and warranties of the company set forth in Section 3 of the October Agreement and, where applicable, certain representations and warranties made in the October Agreement (each an "Original Representation and Warrant") have been eliminated and superseded in their entirety by representations and warranties made in this Note and Warrant Purchase Agreement: [The following numbers correspond to the Section numbers in the October Agreement] 3.1 The Original Representation and Warranty is superseded by the representation and warranty contained in Section 3.1 of this Note and Warrant Purchase Agreement. 3.2(b) The number of issued and outstanding shares of Common Stock of the Company is 8,409. 3.3 The Original Representation and Warranty is superseded by the representation and warranty contained in Section 3.2 of this Note and Warrant Purchase Agreement. 3.4 The Original Representation and Warranty is superseded by the representation and warranty contained in Section 3.3 of this Note and Warrant Purchase Agreement. 3.7 The Original Representation and Warranty is superseded by the representation and warranty contained in Section 3.4 of this Note and Warrant Purchase Agreement. 3.8(c) The Company has increased the compensation payable to certain executive officers. 3.8(d) The Company has declared and paid a $30,000 dividend to the holders of Class C Preferred Stock. 3.8(j) The Company has entered into a real property lease relating to approximately 4,000 square feet of office space. 3.12 The Company has entered into a Registration Rights Agreement, dated as of May 28, 1997, with Duquesne Enterprises and executed Registration Rights Statements on October 23, 1998 which are attached as Exhibits F and G to the October Agreement. 3.20 The Original Representation and Warranty is superseded by the representation and warranty contained in Section 3.5 of this Note and Warrant Purchase Agreement. 3.22 The Original Representation and Warranty is superseded by the representation and warranty contained in Section 3.6 of this Note and Warrant Purchase Agreement. 3.23 The Original Representation and Warranty is superseded by the representation and warranty contained in Section 3.7 of this Note and Warrant Purchase Agreement. The following amendments are hereby made to the Company's Exhibit I Disclosure Schedule originally delivered as part of the October Agreement. [The following numbers correspond to the Section numbers in Exhibit I to the October Agreement] 3.2(c)(i) The Company has increased the option pool to 1,500,000 shares by vote of the Board of Directors. Of this amount options to purchase 885,094 have been granted and approved by the Board of Directors. 3.2(d) SatCon Technology Corporation holds 1,671 shares of Common Stock on a post-split basis (not 1,686). The total number of shares of Common Stock outstanding on a post split-basis is 8,409 (not 8,424). Annex A is amended to include new shares granted. -2- 3.7 Relates to Section 3.4 of the Note and Warrant Purchase Agreement and is hereby renumbered to number 3.4. 3.7(b)(ii) Is eliminated in its entirety. 3.7(b)(iii) Is eliminated in its entirety. 3.7(b)(iv) Is eliminated in its entirety 3.8(u) Is eliminated in its entirety. 3.8(iv) Is eliminated in its entirety. 3.10(e) & 3.11 (ix) The Company has entered into Invention and/or Non-Disclosure Agreements with the members of the Engineering Department and Senior Management. 3.11(x) Is eliminated in its entirety. 3.14 The Company's benefit providers have changed since the October Agreement, however, the current providers provide comparable benefits. 3.15 Insurance coverage has increased since the October Agreement. -3- SENIOR SECURED CONVERTIBLE PROMISSORY NOTE THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY APPLICABLE STATE SECURITIES LAWS. IT MAY NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND COMPLIANCE WITH SUCH STATE SECURITIES LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION AND/OR COMPLIANCE IS NOT REQUIRED. THE SALE OR TRANSFER AND CERTAIN OTHER RIGHTS RELATING TO THE SECURITIES REPRESENTED BY THIS DOCUMENT ARE SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN SHAREHOLDER AGREEMENT BY AND AMONG THE COMPANY AND CERTAIN SHAREHOLDERS OF THE COMPANY. A COPY OF SUCH AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY. $333,333.33 August 2, 1999 WOBURN, MA FOR VALUE RECEIVED, Beacon Power Corporation, a Delaware corporation (the "Company"), promises to pay to the order of SatCon Technology Corporation, or its registered assigns (the "Holder"), the principal sum of $333,333.33 or such lesser amount as shall then equal the outstanding principal amount hereof, together with interest computed in the following fashion: (a) Interest accrued to date on the note which this Note amends and restates (and known in the Purchase Agreement referenced below as the Tranche One Note), amounting to $2,654.11; and (b) Interest accruing from the date of issuance of this Note on the unpaid principal balance hereof at a rate equal to twelve and one-half percent (12 1/2%) per annum, computed on the basis of the actual number of days elapsed and a year of 365 days; provided that if the Funding Date does not occur within six (6) months from the date hereof, such interest rate shall increase effective as of the close of business on the such day to occur six (6) months from the date hereof to fifteen percent (15%) per annum. All unpaid principal, together with any accrued but unpaid interest and other amounts payable hereunder, shall be due and payable on the earlier of (i) the date of conversion (or, absent a conversion, demand by the holder) as referenced below in Section 6 (the "Maturity Date") or (ii) upon or after the occurrence of an Event of Default (as defined below), when such amounts are declared due and payable by the Holder or made automatically due and payable. This Note is issued pursuant to the Note and Warrant Purchase Agreement (the "Purchase Agreement") dated as of July 30, 1999 by and among the Company, Perseus Capital, L.L.C., Duquesne Enterprises, Inc., Micro Generation Technology Fund, L.L.C. and SatCon Technology Corporation. The following is a statement of the rights of the Holder and the conditions to which this Note is subject, and to which the Holder hereof, by the acceptance of this Note, agrees: 1. Definitions. As used in this Note, the following capitalized terms have the following meanings: (a) "Business Day" means any day other than a Saturday, Sunday or other day on which the national or state banks located in the State of Massachusetts or the State of New York are authorized to be closed. (b) "Funding Date" means the date on which all or any part of funding of transactions contemplated by the Class E Preferred Commitment are first consummated. (c) "Obligations" means the principal, interest and other amounts payable under this Note. (d) "Class E Preferred Commitment" means a written commitment to the Company by a strategic investor(s), made within four (4) months from the date hereof, to purchase at least $5 million of the Class E Preferred Stock. (e) "Transaction Documents" shall mean this Note, the Purchase Agreement, and any other promissory note issued pursuant to the Purchase Agreement. 2. Events of Default. The occurrence of any of the following shall constitute an "Event of Default" under this Note: (a) Failure to Pay. The Company shall fail to pay (i) when due any principal payment on this Note or (ii) any interest or other payment required under the terms of this Note or any other Transaction Document within five Business Days of its due date; or (b) Breaches of Other Covenants. The Company shall materially fail to observe or to perform any other covenant, obligation, condition or agreement contained in this Note or the other Transaction Documents, other than those specified in Section 2(a) hereof, and such failure shall continue for 10 days after written notice thereof to the Company; or (c) Voluntary Bankruptcy or Insolvency Proceedings. The Company shall (i) apply for or consent to the appointment of a receiver, trustee, liquidator or custodian of itself or of all or a substantial part of its property, (ii) be unable, or admit in writing its inability, to pay its debts generally as they mature, (iii) make a general assignment for the benefit of its or any of its creditors, (iv) be dissolved or liquidated in full or in part, (v) become insolvent (as such term may be defined or interpreted under any applicable statute), (vi) commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or consent to any such relief or to the appointment of or taking possession of its property by any official in an involuntary case or other proceeding commenced against it or (vii) take any action for the purpose of effecting any of the foregoing; or (d) Involuntary Bankruptcy or Insolvency Proceedings. Proceedings for the appointment of a receiver, trustee, liquidator or custodian of the Company or of all or a substantial part of the property thereof, or an involuntary case or other proceedings seeking liquidation, reorganization or other relief with respect to the Company or the debts thereof under any bankruptcy, insolvency or other similar law now or hereafter in effect shall be commenced and an order for relief entered, or such case or proceeding shall not be dismissed or discharged within 45 days of commencement; or (e) Cross-Default. The Company or any of its subsidiaries shall default under any bond, debenture, note or other evidence of indebtedness for money borrowed (excluding any capital lease), under any guarantee or under any mortgage, or indenture pursuant to which there shall be issued or by which there shall be secured or evidenced any indebtedness for money borrowed by the Company or any of its subsidiaries, whether such indebtedness now exists or shall hereafter be created, which default shall have resulted in indebtedness of at least $10,000 being due and payable prior to the date on which it would otherwise become due and payable and shall not have been issued by the Company or waived by the lender; or (f) Undischarged Judgment. One or more judgments for the payment of money in an amount in excess of $10,000 in the aggregate shall be rendered against the Company or any of its subsidiaries (or any combination thereof) and shall remain undischarged for a period of ten consecutive days during which execution shall not be effectively stayed, or any action is legally taken by a judgment creditor to levy upon any such judgment. - 2 - 3. Rights of Holder Upon Default. Upon the occurrence or existence of any Event of Default (other than an Event of Default referred to in Sections 2(c) and 2(d) hereof) and at any time thereafter during the continuance of such Event of Default, the Holder may declare all outstanding Obligations payable by the Company hereunder to be immediately due and payable without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived, anything contained herein or in the other Transaction Documents to the contrary notwithstanding. Upon the occurrence or existence of any Event of Default described in Sections 2(c) and 2(d) hereof, immediately and without notice, all outstanding Obligations payable by the Company hereunder shall automatically become immediately due and payable, without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived, anything contained herein or in the other Transaction Documents to the contrary notwithstanding. In addition to the foregoing remedies, upon the occurrence or existence of any Event of Default, the Holder may exercise any other right, power or remedy granted to it by the Transaction Documents or otherwise permitted to it by law, either by suit in equity or by action at law, or both. 4. Collateral. To secure the Company's payment and performance of the Obligations and to secure the Company's prompt, full and faithful performance and observance of all of the provisions under this Note and the other Transaction Documents, the Company hereby grants the Holder a security interest, senior to all other security interests except for any now or hereafter existing commercial bank or institutional lender financings and equipment leases, in all of the Company's right, title and interest in and to the following, whether now owned or hereafter acquired or existing and wherever located: (a) All inventory and equipment, and all parts thereof, attachments, accessories and accessions thereto, products thereof and documents therefor; (b) All accounts, contract rights, chattel paper, instruments, deposit accounts, general intangibles and other obligations of any kind, and all rights now or hereafter existing in and to all mortgages, security agreements, leases or other contracts securing or otherwise relating to any of the same; (c) All intellectual property and trade secrets, including, without limitation, (i) all patents, patent applications and patentable inventions and (i) the inventions and improvements described and claimed therein; (ii) any continuation, division, renewal, extension, substitute or reissue thereof or any legal equivalent in a foreign country for the full term thereof or the terms for which the same may be granted; (iii) all rights to income, royalties, profits, awards, damages and other rights relating to said patents, applications and inventions, including the right to sue for past, present and future infringement and (iv) any other rights and benefits relating to said patents, applications and inventions including any rights as a licensor or licensee of said patents, applications and inventions (the "Patents"); (ii) all trademarks, trademark registrations, trademark applications, service marks, service mark registrations and service mark applications, trade names, fictitious business name, tradestyles, and the goodwill underlying those trademarks and service marks and (i) any similar marks or amendments, modifications and renewals thereof and the goodwill represented by those and any legal equivalent in a foreign country for the full term or terms for which the same may be granted; (ii) all rights to income, royalties, profits, damages and other rights relating to said trademarks and service marks including the right to sue for past, present or future infringement and (iii) any other rights and benefits relating to said trademarks and service marks including any rights as a licensor or licensee of said trademark and service mark (the "Trademarks"); (iii) all copyrights, copyright registrations and copyright applications, including without limitation those copyrights for computer programs, computer databases, flow diagrams, maskworks, maskwork applications, source codes and object codes, computer software, technical knowledge and processes, trade secrets, know-how, customer lists, franchises, systems, inventions, designs, blueprints, formal or informal licensing arrangements, and all property embodying or incorporating such copyrights and (i) any similar rights or amendments, modifications and renewals thereof and any legal equivalent in a foreign country for the full term or terms for which the same may be granted; (ii) all rights to income, past, present and future infringement and (iii) any other rights and benefits relating to said copyrights (the "Copyrights"); - 3 - (d) all substitutions and replacements for, and all rights to exploit, all of the foregoing; (e) all books and records pertaining to any of the foregoing; and (f) all proceeds of all of the foregoing and, to the extent not otherwise included, all payments under insurance or any indemnity, warranty or guaranty, payable by reason of loss or damage to or otherwise with respect to any of the foregoing. All of the above assets are hereinafter collectively referred to as "Collateral." The Company covenants and agrees with Holder that: (x) the security interest granted under this Note is in addition to any other security interest from time to time held by the Holder; (y) the Holder may realize upon all or part of any Collateral in any order it desires and any realization by any means upon any Collateral will not bar realization upon any other Collateral; and (z) the security interest hereby created is a continuing security interest and will cover and secure the payment of all Obligations both present and future of the Company to Holder pursuant to this Note and the other Transaction Documents. The Company further covenants and agrees to take all actions requested by the Holder to establish or perfect the security interest granted under this Note. 5. Prepayment. This Note may be prepaid as a whole or in part at any time prior to the Maturity Date upon at least ten Business Days prior written notice to the Holder, provided that nothing in this Section 5 shall limit the Holder's conversion rights set forth in Section 6 herein during such notice period. Any such prepayment shall be applied first to the payment of expenses due under this Note, second to interest accrued on this Note and third, if the amount of prepayment exceeds the amount of all such expenses and accrued interest, to the payment of principal of this Note. 6. Conversion. If there is a Funding Date within six (6) months of the date hereof, all outstanding principal and accrued interest under this Note will be converted into Class E Preferred Stock on such Funding Date on terms substantially the same as those issued pursuant to the Class E Preferred Commitment. If there is no Class E Preferred Commitment within four (4) months of the date hereof or if a Funding Date does not occur within six (6) months of the date hereof, then at the option of the Holder, (a) all outstanding principal and accrued interest under this Note will convert to the Company's common or preferred stock at a price and on terms to be negotiated at that time between the Holder and the Company, or (b) if no agreement can be reached between the Holder and the Company within 60 days of the expiration of the four (4) month or six (6) month period, as the case may be, at the Holder's option, exercisable by the Holder at any time after expiration of the 60 day period, the Holder may declare in writing that such Note has become a demand obligation, and thereafter may make demand for payment of the Note at any time thereafter. Any such demand shall be in writing, and require payment by the Company no earlier than 10 days after such demand. 7. Successors and Assigns. Subject to the restrictions on transfer described in Sections 9 and 10 hereof, the rights and obligations of the Company and the Holder of this Note shall be binding upon and benefit the successors, assigns, heirs, administrators and transferees of the parties. 8. Waiver and Amendment. Any provision of this Note may be amended, waived or modified only as to the Holder of this Note upon the written consent of the Company and the Holder. 9. Transfer of this Note or Securities Issuable on Conversion Hereof. This Note may not be transferred in violation of any restrictive legend set forth hereon. Each new Note issued upon transfer of this Note shall bear a legend as to the applicable restrictions on transferability in order to ensure compliance with the Securities Act, unless in the opinion of counsel for the Company such legend is not required in order to ensure compliance with the Securities Act. The Company may issue stop transfer instructions to its transfer agent in connection with such restrictions. Subject to the foregoing, transfers of this Note shall be registered upon registration books maintained for such purpose by or on behalf of the Company. Prior to presentation of this Note - 4 - for registration of transfer, the Company shall treat the registered holder hereof as the owner and holder of this Note for the purpose of receiving all payments of principal and interest hereon and for all other purposes whatsoever, whether or not this Note shall be overdue and the Company shall not be affected by notice to the contrary. 10. Assignment by the Company. Neither this Note nor any of the rights, interests or obligations hereunder may be assigned, by operation of law or otherwise, as a whole or in part, by the Company, without the prior written consent of the Holder. 11. Treatment of Note. To the extent permitted by generally accepted accounting principles, the Company will treat, account and report the Note as debt and not equity for accounting purposes and with respect to any returns filed with federal, state or local tax authorities. 12. Notices. Any notice, request or other communication required or permitted hereunder shall be in writing and shall be deemed to have been duly given if personally delivered or mailed by registered or certified mail, postage prepaid, or by recognized overnight courier, personal delivery or facsimile transmission at the respective addresses or facsimile number of the parties as set forth in the Purchase Agreement or on the register maintained by the Company. Any party hereto may by notice so given change its address or facsimile number for future notice hereunder. Notice shall conclusively be deemed to have been given when received. 13. Expenses; Waivers. If action is instituted to collect this Note, the Company promises to pay all costs and expenses, including, without limitation, reasonable attorneys' fees and costs, incurred in connection with such action. The Company hereby waives notice of default, presentment or demand for payment, protest or notice of nonpayment or dishonor and all other notices or demands relative to this instrument. 14. Governing Law. This Note and all actions arising out of or in connection with this Note shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts, without regard to conflict of laws provisions of the Commonwealth of Massachusetts or of any other state. In the event of any dispute among or between any of the parties to this Note arising out of the terms of this Note, the parties hereby consent to the exclusive jurisdiction of the federal and state courts located in the Commonwealth of Massachusetts for resolution 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. IN WITNESS WHEREOF, the Company has caused this Note to be issued as of the date first written above. BEACON POWER CORPORATION By: /s/ William E. Stanton ---------------------------------- Name: William E. Stanton -------------------------------- Title: President & CEO ------------------------------- - 5 - SENIOR SECURED CONVERTIBLE PROMISSORY NOTE THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY APPLICABLE STATE SECURITIES LAWS. IT MAY NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND COMPLIANCE WITH SUCH STATE SECURITIES LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION AND/OR COMPLIANCE IS NOT REQUIRED. THE SALE OR TRANSFER AND CERTAIN OTHER RIGHTS RELATING TO THE SECURITIES REPRESENTED BY THIS DOCUMENT ARE SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN SHAREHOLDER AGREEMENT BY AND AMONG THE COMPANY AND CERTAIN SHAREHOLDERS OF THE COMPANY. A COPY OF SUCH AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY. $1,350,000.00 August 2, 1999 WOBURN, MA FOR VALUE RECEIVED, Beacon Power Corporation, a Delaware corporation (the "Company"), promises to pay to the order of Perseus Capital, L.L.C., or its registered assigns (the "Holder"), the principal sum of $1,350,000.00 or such lesser amount as shall then equal the outstanding principal amount hereof, together with interest computed in the following fashion: (a) Interest accrued to date on the note which this Note amends and restates (and known in the Purchase Agreement referenced below as the Tranche One Note), amounting to $3,424.66; and (b) Interest accruing from the date of issuance of this Note on the unpaid principal balance hereof at a rate equal to twelve and one-half percent (12 1/2%) per annum, computed on the basis of the actual number of days elapsed and a year of 365 days; provided that if the Funding Date does not occur within six (6) months from the date hereof, such interest rate shall increase effective as of the close of business on the such day to occur six (6) months from the date hereof to fifteen percent (15%) per annum. All unpaid principal, together with any accrued but unpaid interest and other amounts payable hereunder, shall be due and payable on the earlier of(i) the date of conversion (or, absent a conversion, demand by the holder) as referenced below in Section 6 (the "Maturity Date") or (ii) upon or after the occurrence of an Event of Default (as defined below), when such amounts are declared due and payable by the Holder or made automatically due and payable. This Note is issued pursuant to the Note and Warrant Purchase Agreement (the "Purchase Agreement") dated as of July 30, 1999 by and among the Company, Perseus Capital, L.L.C., Duquesne Enterprises, Inc., Micro Generation Technology Fund, L.L.C. and SatCon Technology Corporation. The following is a statement of the rights of the Holder and the conditions to which this Note is subject, and to which the Holder hereof, by the acceptance of this Note, agrees: 1. Definitions. As used in this Note, the following capitalized terms have the following meanings: (a) "Business Day" means any day other than a Saturday, Sunday or other day on which the national or state banks located in the State of Massachusetts or the State of New York are authorized to be closed. (b) "Funding Date" means the date on which all or any part of funding of transactions contemplated by the Class E Preferred Commitment are first consummated. (c) "Obligations" means the principal, interest and other amounts payable under this Note. (d) "Class E Preferred Commitment" means a written commitment to the Company by a strategic investor(s), made within four (4) months from the date hereof, to purchase at least $5 million of the Class E Preferred Stock. (e) "Transaction Documents" shall mean this Note, the Purchase Agreement, and any other promissory note issued pursuant to the Purchase Agreement. 2. Events of Default. The occurrence of any of the following shall constitute an "Event of Default" under this Note: (a) Failure to Pay. The Company shall fail to pay (i) when due any principal payment on this Note or (ii) any interest or other payment required under the terms of this Note or any other Transaction Document within five Business Days of its due date; or (b) Breaches of Other Covenants. The Company shall materially fail to observe or to perform any other covenant, obligation, condition or agreement contained in this Note or the other Transaction Documents, other than those specified in Section 2(a) hereof, and such failure shall continue for 10 days after written notice thereof to the Company; or (c) Voluntary Bankruptcy or Insolvency Proceedings. The Company shall (i) apply for or consent to the appointment of a receiver, trustee, liquidator or custodian of itself or of all or a substantial part of its property, (ii) be unable, or admit in writing its inability, to pay its debts generally as they mature, (iii) make a general assignment for the benefit of its or any of its creditors, (iv) be dissolved or liquidated in full or in part, (v) become insolvent (as such term may be defined or interpreted under any applicable statute), (vi) commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or consent to any such relief or to the appointment of or taking possession of its property by any official in an involuntary case or other proceeding commenced against it or (vii) take any action for the purpose of effecting any of the foregoing; or (d) Involuntary Bankruptcy or Insolvency Proceedings. Proceedings for the appointment of a receiver, trustee, liquidator or custodian of the Company or of all or a substantial part of the property thereof, or an involuntary case or other proceedings seeking liquidation, reorganization or other relief with respect to the Company or the debts thereof under any bankruptcy, insolvency or other similar law now or hereafter in effect shall be commenced and an order for relief entered, or such case or proceeding shall not be dismissed or discharged within 45 days of commencement; or (e) Cross-Default. The Company or any of its subsidiaries shall default under any bond, debenture, note or other evidence of indebtedness for money borrowed (excluding any capital lease), under any guarantee or under any mortgage, or indenture pursuant to which there shall be issued or by which there shall be secured or evidenced any indebtedness for money borrowed by the Company or any of its subsidiaries, whether such indebtedness now exists or shall hereafter be created, which default shall have resulted in indebtedness of at least $10,000 being due and payable prior to the date on which it would otherwise become due and payable and shall not have been issued by the Company or waived by the lender; or (f) Undischarged Judgment. One or more judgments for the payment of money in an amount in excess of $10,000 in the aggregate shall be rendered against the Company or any of its subsidiaries (or any combination thereof) and shall remain undischarged for a period of ten consecutive days during which execution shall not be effectively stayed, or any action is legally taken by a judgment creditor to levy upon any such judgment. - 2 - 3. Rights of Holder Upon Default. Upon the occurrence or existence of any Event of Default (other than an Event of Default referred to in Sections 2(c) and 2(d) hereof) and at any time thereafter during the continuance of such Event of Default, the Holder may declare all outstanding Obligations payable by the Company hereunder to be immediately due and payable without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived, anything contained herein or in the other Transaction Documents to the contrary notwithstanding. Upon the occurrence or existence of any Event of Default described in Sections 2(c) and 2(d) hereof, immediately and without notice, all outstanding Obligations payable by the Company hereunder shall automatically become immediately due and payable, without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived, anything contained herein or in the other Transaction Documents to the contrary notwithstanding. In addition to the foregoing remedies, upon the occurrence or existence of any Event of Default, the Holder may exercise any other right, power or remedy granted to it by the Transaction Documents or otherwise permitted to it by law, either by suit in equity or by action at law, or both. 4. Collateral. To secure the Company's payment and performance of the Obligations and to secure the Company's prompt, full and faithful performance and observance of all of the provisions under this Note and the other Transaction Documents, the Company hereby grants the Holder a security interest, senior to all other security interests except for any now or hereafter existing commercial bank or institutional lender financings and equipment leases, in all of the Company's right, title and interest in and to the following, whether now owned or hereafter acquired or existing and wherever located: (a) All inventory and equipment, and all parts thereof, attachments, accessories and accessions thereto, products thereof and documents therefor; (b) All accounts, contract rights, chattel paper, instruments, deposit accounts, general intangibles and other obligations of any kind, and all rights now or hereafter existing in and to all mortgages, security agreements, leases or other contracts securing or otherwise relating to any of the same; (c) All intellectual property and trade secrets, including, without limitation, (i) all patents, patent applications and patentable inventions and (i) the inventions and improvements described and claimed therein; (ii) any continuation, division, renewal, extension, substitute or reissue thereof or any legal equivalent in a foreign country for the full term thereof or the terms for which the same may be granted; (iii) all rights to income, royalties, profits, awards, damages and other rights relating to said patents, applications and inventions, including the right to sue for past, present and future infringement and (iv) any other rights and benefits relating to said patents, applications and inventions including any rights as a licensor or licensee of said patents, applications and inventions (the "Patents"); (ii) all trademarks, trademark registrations, trademark applications, service marks, service mark registrations and service mark applications, trade names, fictitious business name, tradestyles, and the goodwill underlying those trademarks and service marks and (i) any similar marks or amendments, modifications and renewals thereof and the goodwill represented by those and any legal equivalent in a foreign country for the full term or terms for which the same may be granted; (ii) all rights to income, royalties, profits, damages and other rights relating to said trademarks and service marks including the right to sue for past, present or future infringement and (iii) any other rights and benefits relating to said trademarks and service marks including any rights as a licensor or licensee of said trademark and service mark (the "Trademarks"); (iii) all copyrights, copyright registrations and copyright applications, including without limitation those copyrights for computer programs, computer databases, flow diagrams, maskworks, maskwork applications, source codes and object codes, computer software, technical knowledge and processes, trade secrets, know-how, customer lists, franchises, systems, inventions, designs, blueprints, formal or informal licensing arrangements, and all property embodying or incorporating such copyrights and (i) any similar rights or amendments, modifications and renewals thereof and any legal equivalent in a foreign country for the full term or terms for which the same may be granted; (ii) all rights to income, past, present and future infringement and (iii) any other rights and benefits relating to said copyrights (the "Copyrights"); - 3 - (d) all substitutions and replacements for, and all rights to exploit, all of the foregoing; (e) all books and records pertaining to any of the foregoing; and (f) all proceeds of all of the foregoing and, to the extent not otherwise included, all payments under insurance or any indemnity, warranty or guaranty, payable by reason of loss or damage to or otherwise with respect to any of the foregoing. All of the above assets are hereinafter collectively referred to as "Collateral." The Company covenants and agrees with Holder that: (x) the security interest granted under this Note is in addition to any other security interest from time to time held by the Holder; (y) the Holder may realize upon all or part of any Collateral in any order it desires and any realization by any means upon any Collateral will not bar realization upon any other Collateral; and (z) the security interest hereby created is a continuing security interest and will cover and secure the payment of all Obligations both present and future of the Company to Holder pursuant to this Note and the other Transaction Documents. The Company further covenants and agrees to take all actions requested by the Holder to establish or perfect the security interest granted under this Note. 5. Prepayment. This Note may be prepaid as a whole or in part at any time prior to the Maturity Date upon at least ten Business Days prior written notice to the Holder, provided that nothing in this Section 5 shall limit the Holder's conversion rights set forth in Section 6 herein during such notice period. Any such prepayment shall be applied first to the payment of expenses due under this Note, second to interest accrued on this Note and third, if the amount of prepayment exceeds the amount of all such expenses and accrued interest, to the payment of principal of this Note. 6. Conversion. If there is a Funding Date within six (6) months of the date hereof, all outstanding principal and accrued interest under this Note will be converted into Class E Preferred Stock on such Funding Date on terms substantially the same as those issued pursuant to the Class E Preferred Commitment. If there is no Class E Preferred Commitment within four (4) months of the date hereof or if a Funding Date does not occur within six (6) months of the date hereof, then at the option of the Holder, (a) all outstanding principal and accrued interest under this Note will convert to the Company's common or preferred stock at a price and on terms to be negotiated at that time between the Holder and the Company, or (b) if no agreement can be reached between the Holder and the Company within 60 days of the expiration of the four (4) month or six (6) month period, as the case may be, at the Holder's option, exercisable by the Holder at any time after expiration of the 60 day period, the Holder may declare in writing that such Note has become a demand obligation, and thereafter may make demand for payment of the Note at any time thereafter. Any such demand shall be in writing, and require payment by the Company no earlier than 10 days after such demand. 7. Successors and Assigns. Subject to the restrictions on transfer described in Sections 9 and 10 hereof, the rights and obligations of the Company and the Holder of this Note shall be binding upon and benefit the successors, assigns, heirs, administrators and transferees of the parties. 8. Waiver and Amendment. Any provision of this Note may be amended, waived or modified only as to the Holder of this Note upon the written consent of the Company and the Holder. 9. Transfer of this Note or Securities Issuable on Conversion Hereof. This Note may not be transferred in violation of any restrictive legend set forth hereon. Each new Note issued upon transfer of this Note shall bear a legend as to the applicable restrictions on transferability in order to ensure compliance with the Securities Act, unless in the opinion of counsel for the Company such legend is not required in order to ensure compliance with the Securities Act. The Company may issue stop transfer instructions to its transfer agent in connection with such restrictions. Subject to the foregoing, transfers of this Note shall be registered upon registration books maintained for such purpose by or on behalf of the Company. Prior to presentation of this Note - 4 - for registration of transfer, the Company shall treat the registered holder hereof as the owner and holder of this Note for the purpose of receiving all payments of principal and interest hereon and for all other purposes whatsoever, whether or not this Note shall be overdue and the Company shall not be affected by notice to the contrary. 10. Assignment by the Company. Neither this Note nor any of the rights, interests or obligations hereunder may be assigned, by operation of law or otherwise, as a whole or in part, by the Company, without the prior written consent of the Holder. 11. Treatment of Note. To the extent permitted by generally accepted accounting principles, the Company will treat, account and report the Note as debt and not equity for accounting purposes and with respect to any returns filed with federal, state or local tax authorities. 12. Notices. Any notice, request or other conununication required or permitted hereunder shall be in writing and shall be deemed to have been duly given if personally delivered or mailed by registered or certified mail, postage prepaid, or by recognized overnight courier, personal delivery or facsimile transmission at the respective addresses or facsimile number of the parties as set forth in the Purchase Agreement or on the register maintained by the Company. Any party hereto may by notice so given change its address or facsimile number for future notice hereunder. Notice shall conclusively be deemed to have been given when received. 13. Expenses; Waivers. If action is instituted to collect this Note, the Company promises to pay all costs and expenses, including, without limitation, reasonable attorneys' fees and costs, incurred in connection with such action. The Company hereby waives notice of default, presentment or demand for payment, protest or notice of nonpayment or dishonor and all other notices or demands relative to this instrument. 14. Governing Law. This Note and all actions arising out of or in counection with this Note shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts, without regard to conflict of laws provisions of the Commonwealth of Massachusetts or of any other state. In the event of any dispute among or between any of the parties to this Note arising out of the terms of this Note, the parties hereby consent to the exclusive jurisdiction of the federal and state courts located in the Commonwealth of Massachusetts for resolution 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. IN WITNESS WHEREOF, the Company has caused this Note to be issued as of the date first written above. BEACON POWER CORPORATION By: /s/ William E. Stanton ---------------------------------- Name: William E. Stanton --------------------------------- Title: President & CEO -------------------------------- - 5 - SENIOR SECURED CONVERTIBLE PROMISSORY NOTE THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY APPLICABLE STATE SECURITIES LAWS. IT MAY NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND COMPLIANCE WITH SUCH STATE SECURITIES LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION AND/OR COMPLIANCE IS NOT REQUIRED. THE SALE OR TRANSFER AND CERTAIN OTHER RIGHTS RELATING TO THE SECURITIES REPRESENTED BY THIS DOCUMENT ARE SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN SHAREHOLDER AGREEMENT BY AND AMONG THE COMPANY AND CERTAIN SHAREHOLDERS OF THE COMPANY. A COPY OF SUCH AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY. $500,000.00 August 2, 1999 WOBURN, MA FOR VALUE RECEIVED, Beacon Power Corporation, a Delaware corporation (the "Company"), promises to pay to the order of Duquesne Enterprises, Inc., or its registered assigns (the "Holder"), the principal sum of $500,000.00 or such lesser amount as shall then equal the outstanding principal amount hereof, together with interest computed in the following fashion: (a) Interest accrued to date on the note which this Note amends and restates (and known in the Purchase Agreement referenced below as the Tranche One Note), amounting to $684.93; and (b) Interest accruing from the date of issuance of this Note on the unpaid principal balance hereof at a rate equal to twelve and one-half percent (12 1/2%) per annum, computed on the basis of the actual number of days elapsed and a year of 365 days; provided that if the Funding Date does not occur within six (6) months from the date hereof, such interest rate shall increase effective as of the close of business on the such day to occur six (6) months from the date hereof to fifteen percent (15%) per annum. All unpaid principal, together with any accrued but unpaid interest and other amounts payable hereunder, shall be due and payable on the earlier of(i) the date of conversion (or, absent a conversion, demand by the holder) as referenced below in Section 6 (the "Maturity Date") or (ii) upon or after the occurrence of an Event of Default (as defined below), when such amounts are declared due and payable by the Holder or made automatically due and payable. This Note is issued pursuant to the Note and Warrant Purchase Agreement (the "Purchase Agreement") dated as of July 30, 1999 by and among the Company, Perseus Capital, L.L.C., Duquesne Enterprises, Inc., Micro Generation Technology Fund, L.L.C. and SatCon Technology Corporation. The following is a statement of the rights of the Holder and the conditions to which this Note is subject, and to which the Holder hereof, by the acceptance of this Note, agrees: 1. Definitions. As used in this Note, the following capitalized terms have the following meanings: (a) "Business Day" means any day other than a Saturday, Sunday or other day on which the national or state banks located in the State of Massachusetts or the State of New York are authorized to be closed. (b) "Funding Date" means the date on which all or any part of funding of transactions contemplated by the Class E Preferred Commitment are first consummated. (c) "Obligations" means the principal, interest and other amounts payable under this Note. (d) "Class E Preferred Commitment" means a written commitment to the Company by a strategic investor(s), made within four (4) months from the date hereof, to purchase at least $5 million of the Class E Preferred Stock. (e) "Transaction Documents" shall mean this Note, the Purchase Agreement, and any other promissory note issued pursuant to the Purchase Agreement. 2. Events of Default. The occurrence of any of the following shall constitute an "Event of Default" under this Note: (a) Failure to Pay. The Company shall fail to pay (i) when due any principal payment on this Note or (ii) any interest or other payment required under the terms of this Note or any other Transaction Document within five Business Days of its due date; or (b) Breaches of Other Covenants. The Company shall materially fail to observe or to perform any other covenant, obligation, condition or agreement contained in this Note or the other Transaction Documents, other than those specified in Section 2(a) hereof, and such failure shall continue for 10 days after written notice thereof to the Company; or (c) Voluntary Bankruptcy or Insolvency Proceedings. The Company shall (i) apply for or consent to the appointment of a receiver, trustee, liquidator or custodian of itself or of all or a substantial part of its property, (ii) be unable, or admit in writing its inability, to pay its debts generally as they mature, (iii) make a general assignment for the benefit of its or any of its creditors, (iv) be dissolved or liquidated in full or in part, (v) become insolvent (as such term may be defined or interpreted under any applicable statute), (vi) commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or consent to any such relief or to the appointment of or taking possession of its property by any official in an involuntary case or other proceeding commenced against it or (vii) take any action for the purpose of effecting any of the foregoing; or (d) Involuntary Bankruptcy or Insolvency Proceedings. Proceedings for the appointment of a receiver, trustee, liquidator or custodian of the Company or of all or a substantial part of the property thereof, or an involuntary case or other proceedings seeking liquidation, reorganization or other relief with respect to the Company or the debts thereof under any bankruptcy, insolvency or other similar law now or hereafter in effect shall be commenced and an order for relief entered, or such case or proceeding shall not be dismissed or discharged within 45 days of commencement; or (e) Cross-Default. The Company or any of its subsidiaries shall default under any bond, debenture, note or other evidence of indebtedness for money borrowed (excluding any capital lease), under any guarantee or under any mortgage, or indenture pursuant to which there shall be issued or by which there shall be secured or evidenced any indebtedness for money borrowed by the Company or any of its subsidiaries, whether such indebtedness now exists or shall hereafter be created, which default shall have resulted in indebtedness of at least $10,000 being due and payable prior to the date on which it would otherwise become due and payable and shall not have been issued by the Company or waived by the lender; or (f) Undischarged Judgment. One or more judgments for the payment of money in an amount in excess of $10,000 in the aggregate shall be rendered against the Company or any of its subsidiaries (or any combination thereof) and shall remain undischarged for a period of ten consecutive days during which execution shall not be effectively stayed, or any action is legally taken by a judgment creditor to levy upon any such judgment. - 2 - 3. Rights of Holder Upon Default. Upon the occurrence or existence of any Event of Default (other than an Event of Default referred to in Sections 2(c) and 2(d) hereof) and at any time thereafter during the continuance of such Event of Default, the Holder may declare all outstanding Obligations payable by the Company hereunder to be immediately due and payable without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived, anything contained herein or in the other Transaction Documents to the contrary notwithstanding. Upon the occurrence or existence of any Event of Default described in Sections 2(c) and 2(d) hereof, immediately and without notice, all outstanding Obligations payable by the Company hereunder shall automatically become immediately due and payable, without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived, anything contained herein or in the other Transaction Documents to the contrary notwithstanding. In addition to the foregoing remedies, upon the occurrence or existence of any Event of Default, the Holder may exercise any other right, power or remedy granted to it by the Transaction Documents or otherwise permitted to it by law, either by suit in equity or by action at law, or both. 4. Collateral. To secure the Company's payment and performance of the Obligations and to secure the Company's prompt, full and faithful performance and observance of all of the provisions under this Note and the other Transaction Documents, the Company hereby grants the Holder a security interest, senior to all other security interests except for any now or hereafter existing commercial bank or institutional lender financings and equipment leases, in all of the Company's right, title and interest in and to the following, whether now owned or hereafter acquired or existing and wherever located: (a) All inventory and equipment, and all parts thereof, attachments, accessories and accessions thereto, products thereof and documents therefor; (b) All accounts, contract rights, chattel paper, instruments, deposit accounts, general intangibles and other obligations of any kind, and all rights now or hereafter existing in and to all mortgages, security agreements, leases or other contracts securing or otherwise relating to any of the same; (c) All intellectual property and trade secrets, including, without limitation, (i) all patents, patent applications and patentable inventions and (i) the inventions and improvements described and claimed therein; (ii) any continuation, division, renewal, extension, substitute or reissue thereof or any legal equivalent in a foreign country for the full term thereof or the terms for which the same may be granted; (iii) all rights to income, royalties, profits, awards, damages and other rights relating to said patents, applications and inventions, including the right to sue for past, present and future infringement and (iv) any other rights and benefits relating to said patents, applications and inventions including any rights as a licensor or licensee of said patents, applications and inventions (the "Patents"); (ii) all trademarks, trademark registrations, trademark applications, service marks, service mark registrations and service mark applications, trade names, fictitious business name, tradestyles, and the goodwill underlying those trademarks and service marks and (i) any similar marks or amendments, modifications and renewals thereof and the goodwill represented by those and any legal equivalent in a foreign country for the full term or terms for which the same may be granted; (ii) all rights to income, royalties, profits, damages and other rights relating to said trademarks and service marks including the right to sue for past, present or future infringement and (iii) any other rights and benefits relating to said trademarks and service marks including any rights as a licensor or licensee of said trademark and service mark (the "Trademarks"); (iii) all copyrights, copyright registrations and copyright applications, including without limitation those copyrights for computer programs, computer databases, flow diagrams, maskworks, maskwork applications, source codes and object codes, computer software, technical knowledge and processes, trade secrets, know-how, customer lists, franchises, systems, inventions, designs, blueprints, formal or informal licensing arrangements, and all property embodying or incorporating such copyrights and (i) any similar rights or amendments, modifications and renewals thereof and any legal equivalent in a foreign country for the full term or terms for which the same may be granted; (ii) all rights to income, past, present and future infringement and (iii) any other rights and benefits relating to said copyrights (the "Copyrights"); - 3 - (d) all substitutions and replacements for, and all rights to exploit, all of the foregoing; (e) all books and records pertaining to any of the foregoing; and (f) all proceeds of all of the foregoing and, to the extent not otherwise included, all payments under insurance or any indemnity, warranty or guaranty, payable by reason of loss or damage to or otherwise with respect to any of the foregoing. All of the above assets are hereinafter collectively referred to as "Collateral." The Company covenants and agrees with Holder that: (x) the security interest granted under this Note is in addition to any other security interest from time to time held by the Holder; (y) the Holder may realize upon all or part of any Collateral in any order it desires and any realization by any means upon any Collateral will not bar realization upon any other Collateral; and (z) the security interest hereby created is a continuing security interest and will cover and secure the payment of all Obligations both present and future of the Company to Holder pursuant to this Note and the other Transaction Documents. The Company further covenants and agrees to take all actions requested by the Holder to establish or perfect the security interest granted under this Note. 5. Prepayment. This Note may be prepaid as a whole or in part at any time prior to the Maturity Date upon at least ten Business Days prior written notice to the Holder, provided that nothing in this Section 5 shall limit the Holder's conversion rights set forth in Section 6 herein during such notice period. Any such prepayment shall be applied first to the payment of expenses due under this Note, second to interest accrued on this Note and third, if the amount of prepayment exceeds the amount of all such expenses and accrued interest, to the payment of principal of this Note. 6. Conversion. If there is a Funding Date within six (6) months of the date hereof, all outstanding principal and accrued interest under this Note will be converted into Class E Preferred Stock on such Funding Date on terms substantially the same as those issued pursuant to the Class E Preferred Commitment. If there is no Class E Preferred Commitment within four (4) months of the date hereof or if a Funding Date does not occur within six (6) months of the date hereof, then at the option of the Holder, (a) all outstanding principal and accrued interest under this Note will convert to the Company's common or preferred stock at a price and on terms to be negotiated at that time between the Holder and the Company, or (b) if no agreement can be reached between the Holder and the Company within 60 days of the expiration of the four (4) month or six (6) month period, as the case may be, at the Holder's option, exercisable by the Holder at any time after expiration of the 60 day period, the Holder may declare in writing that such Note has become a demand obligation, and thereafter may make demand for payment of the Note at any time thereafter. Any such demand shall be in writing, and require payment by the Company no earlier than 10 days after such demand. 7. Successors and Assigns. Subject to the restrictions on transfer described in Sections 9 and 10 hereof, the rights and obligations of the Company and the Holder of this Note shall be binding upon and benefit the successors, assigns, heirs, administrators and transferees of the parties. 8. Waiver and Amendment. Any provision of this Note may be amended, waived or modified only as to the Holder of this Note upon the written consent of the Company and the Holder. 9. Transfer of this Note or Securities Issuable on Conversion Hereof. This Note may not be transferred in violation of any restrictive legend set forth hereon. Each new Note issued upon transfer of this Note shall bear a legend as to the applicable restrictions on transferability in order to ensure compliance with the Securities Act, unless in the opinion of counsel for the Company such legend is not required in order to ensure compliance with the Securities Act. The Company may issue stop transfer instructions to its transfer agent in connection with such restrictions. Subject to the foregoing, transfers of this Note shall be registered upon registration books maintained for such purpose by or on behalf of the Company. Prior to presentation of this Note - 4 - for registration of transfer, the Company shall treat the registered holder hereof as the owner and holder of this Note for the purpose of receiving all payments of principal and interest hereon and for all other purposes whatsoever, whether or not this Note shall be overdue and the Company shall not be affected by notice to the contrary. 10. Assignment by the Company. Neither this Note nor any of the rights, interests or obligations hereunder may be assigned, by operation of law or otherwise, as a whole or in part, by the Company, without the prior written consent of the Holder. 11. Treatment of Note. To the extent permitted by generally accepted accounting principles, the Company will treat, account and report the Note as debt and not equity for accounting purposes and with respect to any returns filed with federal, state or local tax authorities. 12. Notices. Any notice, request or other communication required or permitted hereunder shall be in writing and shall be deemed to have been duly given if personally delivered or mailed by registered or certified mail, postage prepaid, or by recognized overnight courier, personal delivery or facsimile transmission at the respective addresses or facsimile number of the parties as set forth in the Purchase Agreement or on the register maintained by the Company. Any party hereto may by notice so given change its address or facsimile number for future notice hereunder. Notice shall conclusively be deemed to have been given when received. 13. Expenses; Waivers. If action is instituted to collect this Note, the Company promises to pay all costs and expenses, including, without limitation, reasonable attorneys' fees and costs, incurred in connection with such action. The Company hereby waives notice of default, presentment or demand for payment, protest or notice of nonpayment or dishonor and all other notices or demands relative to this instrument. 14. Governing Law. This Note and all actions arising out of or in counection with this Note shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts, without regard to conflict of laws provisions of the Commonwealth of Massachusetts or of any other state. In the event of any dispute among or between any of the parties to this Note arising Out of the terms of this Note, the parties hereby consent to the exclusive jurisdiction of the federal and state courts located in the Commonwealth of Massachusetts for resolution 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. IN WITNESS WHEREOF, the Company has caused this Note to be issued as of the date first written above. BEACON POWER CORPORATION By: /s/ William E. Stanton ----------------------------------- Name: William E. Stanton --------------------------------- Title: President & CEO -------------------------------- - 5 - SENIOR SECURED CONVERTIBLE PROMISSORY NOTE THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY APPLICABLE STATE SECURITIES LAWS. IT MAY NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND COMPLIANCE WITH SUCH STATE SECURITIES LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION AND/OR COMPLIANCE IS NOT REQUIRED. THE SALE OR TRANSFER AND CERTAIN OTHER RIGHTS RELATING TO THE SECURITIES REPRESENTED BY THIS DOCUMENT ARE SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN SHAREHOLDER AGREEMENT BY AND AMONG THE COMPANY AND CERTAIN SHAREHOLDERS OF THE COMPANY. A COPY OF SUCH AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY. $150,000.00 August 2, 1999 WOBURN, MA FOR VALUE RECEIVED, Beacon Power Corporation, a Delaware corporation (the "Company"), promises to pay to the order of Micro Generation Technology Fund, L.L.C., or its registered assigns (the "Holder"), the principal sum of $150,000.00 or such lesser amount as shall then equal the outstanding principal amount hereof, together with interest computed in the following fashion: (a) Interest accrued to date on the note which this Note amends and restates (and known in the Purchase Agreement referenced below as the Tranche One Note), amounting to $667.81;and (b) Interest accruing from the date of issuance of this Note on the unpaid principal balance hereof at a rate equal to twelve and one-half percent (12 1/2%) per annum, computed on the basis of the actual number of days elapsed and a year of 365 days; provided that if the Funding Date does not occur within six (6) months from the date hereof, such interest rate shall increase effective as of the close of business on the such day to occur six (6) months from the date hereof to fifteen percent (15%) per annum. All unpaid principal, together with any accrued but unpaid interest and other amounts payable hereunder, shall be due and payable on the earlier of (i) the date of conversion (or, absent a conversion, demand by the holder) as referenced below in Section 6 (the "Maturity Date") or (ii) upon or after the occurrence of an Event of Default (as defined below), when such amounts are declared due and payable by the Holder or made automatically due and payable. This Note is issued pursuant to the Note and Warrant Purchase Agreement (the "Purchase Agreement") dated as of July 30, 1999 by and among the Company, Perseus Capital, L.L.C., Duquesne Enterprises, Inc., Micro Generation Technology Fund, L.L.C. and SatCon Technology Corporation. The following is a statement of the rights of the Holder and the conditions to which this Note is subject, and to which the Holder hereof, by the acceptance of this Note, agrees: 1. Definitions. As used in this Note, the following capitalized terms have the following meanings: (a) "Business Day" means any day other than a Saturday, Sunday or other day on which the national or state banks located in the State of Massachusetts or the State of New York are authorized to be closed. (b) "Funding Date" means the date on which all or any part of funding of transactions contemplated by the Class E Preferred Commitment are first consummated. (c) "Obligations" means the principal, interest and other amounts payable under this Note. (d) "Class E Preferred Commitment" means a written commitment to the Company by a strategic investor(s), made within four (4) months from the date hereof, to purchase at least $5 million of the Class E Preferred Stock. (e) "Transaction Documents" shall mean this Note, the Purchase Agreement, and any other promissory note issued pursuant to the Purchase Agreement. 2. Events of Default. The occurrence of any of the following shall constitute an "Event of Default" under this Note: (a) Failure to Pay. The Company shall fail to pay (i) when due any principal payment on this Note or (ii) any interest or other payment required under the terms of this Note or any other Transaction Document within five Business Days of its due date; or (b) Breaches of Other Covenants. The Company shall materially fail to observe or to perform any other covenant, obligation, condition or agreement contained in this Note or the other Transaction Documents, other than those specified in Section 2(a) hereof, and such failure shall continue for 10 days after written notice thereof to the Company; or (c) Voluntary Bankruptcy or Insolvency Proceedings. The Company shall (i) apply for or consent to the appointment of a receiver, trustee, liquidator or custodian of itself or of all or a substantial part of its property, (ii) be unable, or admit in writing its inability, to pay its debts generally as they mature, (iii) make a general assignment for the benefit of its or any of its creditors, (iv) be dissolved or liquidated in full or in part, (v) become insolvent (as such term may be defined or interpreted under any applicable statute), (vi) commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or consent to any such relief or to the appointment of or taking possession of its property by any official in an involuntary case or other proceeding commenced against it or (vii) take any action for the purpose of effecting any of the foregoing; or (d) Involuntary Bankruptcy or Insolvency Proceedings. Proceedings for the appointment of a receiver, trustee, liquidator or custodian of the Company or of all or a substantial part of the property thereof, or an involuntary case or other proceedings seeking liquidation, reorganization or other relief with respect to the Company or the debts thereof under any bankruptcy, insolvency or other similar law now or hereafter in effect shall be commenced and an order for relief entered, or such case or proceeding shall not be dismissed or discharged within 45 days of commencement; or (e) Cross-Default. The Company or any of its subsidiaries shall default under any bond, debenture, note or other evidence of indebtedness for money borrowed (excluding any capital lease), under any guarantee or under any mortgage, or indenture pursuant to which there shall be issued or by which there shall be secured or evidenced any indebtedness for money borrowed by the Company or any of its subsidiaries, whether such indebtedness now exists or shall hereafter be created, which default shall have resulted in indebtedness of at least $10,000 being due and payable prior to the date on which it would otherwise become due and payable and shall not have been issued by the Company or waived by the lender; or (f) Undischarged Judgment. One or more judgments for the payment of money in an amount in excess of $10,000 in the aggregate shall be rendered against the Company or any of its subsidiaries (or any combination thereof) and shall remain undischarged for a period of ten consecutive days during which execution shall not be effectively stayed, or any action is legally taken by a judgment creditor to levy upon any such judgment. - 2 - 3. Rights of Holder Upon Default. Upon the occurrence or existence of any Event of Default (other than an Event of Default referred to in Sections 2(c) and 2(d) hereof) and at any time thereafter during the continuance of such Event of Default, the Holder may declare all outstanding Obligations payable by the Company hereunder to be immediately due and payable without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived, anything contained herein or in the other Transaction Documents to the contrary notwithstanding. Upon the occurrence or existence of any Event of Default described in Sections 2(c) and 2(d) hereof, immediately and without notice, all outstanding Obligations payable by the Company hereunder shall automatically become immediately due and payable, without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived, anything contained herein or in the other Transaction Documents to the contrary notwithstanding. In addition to the foregoing remedies, upon the occurrence or existence of any Event of Default, the Holder may exercise any other right, power or remedy granted to it by the Transaction Documents or otherwise permitted to it by law, either by suit in equity or by action at law, or both. 4. Collateral. To secure the Company's payment and performance of the Obligations and to secure the Company's prompt, full and faithful performance and observance of all of the provisions under this Note and the other Transaction Documents, the Company hereby grants the Holder a security interest, senior to all other security interests except for any now or hereafter existing commercial bank or institutional lender financings and equipment leases, in all of the Company's right, title and interest in and to the following, whether now owned or hereafter acquired or existing and wherever located: (a) All inventory and equipment, and all parts thereof, attachments, accessories and accessions thereto, products thereof and documents therefor; (b) All accounts, contract rights, chattel paper, instruments, deposit accounts, general intangibles and other obligations of any kind, and all rights now or hereafter existing in and to all mortgages, security agreements, leases or other contracts securing or otherwise relating to any of the same; (c) All intellectual property and trade secrets, including, without limitation, (i) all patents, patent applications and patentable inventions and (i) the inventions and improvements described and claimed therein; (ii) any continuation, division, renewal, extension, substitute or reissue thereof or any legal equivalent in a foreign country for the full term thereof or the terms for which the same may be granted; (iii) all rights to income, royalties, profits, awards, damages and other rights relating to said patents, applications and inventions, including the right to sue for past, present and future infringement and (iv) any other rights and benefits relating to said patents, applications and inventions including any rights as a licensor or licensee of said patents, applications and inventions (the "Patents"); (ii) all trademarks, trademark registrations, trademark applications, service marks, service mark registrations and service mark applications, trade names, fictitious business name, tradestyles, and the goodwill underlying those trademarks and service marks and (i) any similar marks or amendments, modifications and renewals thereof and the goodwill represented by those and any legal equivalent in a foreign country for the full term or terms for which the same may be granted; (ii) all rights to income, royalties, profits, damages and other rights relating to said trademarks and service marks including the right to sue for past, present or future infringement and (iii) any other rights and benefits relating to said trademarks and service marks including any rights as a licensor or licensee of said trademark and service mark (the "Trademarks"); (iii) all copyrights, copyright registrations and copyright applications, including without limitation those copyrights for computer programs, computer databases, flow diagrams, maskworks, maskwork applications, source codes and object codes, computer software, technical knowledge and processes, trade secrets, know-how, customer lists, franchises, systems, inventions, designs, blueprints, formal or informal licensing arrangements, and all property embodying or incorporating such copyrights and (i) any similar rights or amendments, modifications and renewals thereof and any legal equivalent in a foreign country for the full term or terms for which the same may be granted; (ii) all rights to income, past, present and future infringement and (iii) any other rights and benefits relating to said copyrights (the "Copyrights"); - 3 - (d) all substitutions and replacements for, and all rights to exploit, all of the foregoing; (e) all books and records pertaining to any of the foregoing; and (f) all proceeds of all of the foregoing and, to the extent not otherwise included, all payments under insurance or any indemnity, warranty or guaranty, payable by reason of loss or damage to or otherwise with respect to any of the foregoing. All of the above assets are hereinafter collectively referred to as "Collateral." The Company covenants and agrees with Holder that: (x) the security interest granted under this Note is in addition to any other security interest from time to time held by the Holder; (y) the Holder may realize upon all or part of any Collateral in any order it desires and any realization by any means upon any Collateral will not bar realization upon any other Collateral; and (z) the security interest hereby created is a continuing security interest and will cover and secure the payment of all Obligations both present and future of the Company to Holder pursuant to this Note and the other Transaction Documents. The Company further covenants and agrees to take all actions requested by the Holder to establish or perfect the security interest granted under this Note. 5. Prepayment. This Note may be prepaid as a whole or in part at any time prior to the Maturity Date upon at least ten Business Days prior written notice to the Holder, provided that nothing in this Section 5 shall limit the Holder's conversion rights set forth in Section 6 herein during such notice period. Any such prepayment shall be applied first to the payment of expenses due under this Note, second to interest accrued on this Note and third, if the amount of prepayment exceeds the amount of all such expenses and accrued interest, to the payment of principal of this Note. 6. Conversion. If there is a Funding Date within six (6) months of the date hereof, all outstanding principal and accrued interest under this Note will be converted into Class E Preferred Stock on such Funding Date on terms substantially the same as those issued pursuant to the Class E Preferred Commitment. If there is no Class E Preferred Commitment within four (4) months of the date hereof or if a Funding Date does not occur within six (6) months of the date hereof, then at the option of the Holder, (a) all outstanding principal and accrued interest under this Note will convert to the Company's common or preferred stock at a price and on terms to be negotiated at that time between the Holder and the Company, or (b) if no agreement can be reached between the Holder and the Company within 60 days of the expiration of the four (4) month or six (6) month period, as the case may be, at the Holder's option, exercisable by the Holder at any time after expiration of the 60 day period, the Holder may declare in writing that such Note has become a demand obligation, and thereafter may make demand for payment of the Note at any time thereafter. Any such demand shall be in writing, and require payment by the Company no earlier than 10 days after such demand. 7. Successors and Assigns. Subject to the restrictions on transfer described in Sections 9 and 10 hereof, the rights and obligations of the Company and the Holder of this Note shall be binding upon and benefit the successors, assigns, heirs, administrators and transferees of the parties. 8. Waiver and Amendment. Any provision of this Note may be amended, waived or modified only as to the Holder of this Note upon the written consent of the Company and the Holder. 9. Transfer of this Note or Securities Issuable on Conversion Hereof. This Note may not be transferred in violation of any restrictive legend set forth hereon. Each new Note issued upon transfer of this Note shall bear a legend as to the applicable restrictions on transferability in order to ensure compliance with the Securities Act, unless in the opinion of counsel for the Company such legend is not required in order to ensure compliance with the Securities Act. The Company may issue stop transfer instructions to its transfer agent in connection with such restrictions. Subject to the foregoing, transfers of this Note shall be registered upon registration books maintained for such purpose by or on behalf of the Company. Prior to presentation of this Note - 4 - for registration of transfer, the Company shall treat the registered holder hereof as the owner and holder of this Note for the purpose of receiving all payments of principal and interest hereon and for all other purposes whatsoever, whether or not this Note shall be overdue and the Company shall not be affected by notice to the contrary. 10. Assignment by the Company. Neither this Note nor any of the rights, interests or obligations hereunder may be assigned, by operation of law or otherwise, as a whole or in part, by the Company, without the prior written consent of the Holder. 11. Treatment of Note. To the extent permitted by generally accepted accounting principles, the Company will treat, account and report the Note as debt and not equity for accounting purposes and with respect to any returns filed with federal, state or local tax authorities. 12. Notices. Any notice, request or other communication required or permitted hereunder shall be in writing and shall be deemed to have been duly given if personally delivered or mailed by registered or certified mail, postage prepaid, or by recognized overnight courier, personal delivery or facsimile transmission at the respective addresses or facsimile number of the parties as set forth in the Purchase Agreement or on the register maintained by the Company. Any party hereto may by notice so given change its address or facsimile number for future notice hereunder. Notice shall conclusively be deemed to have been given when received. 13. Expenses; Waivers. If action is instituted to collect this Note, the Company promises to pay all costs and expenses, including, without limitation, reasonable attorneys' fees and costs, incurred in connection with such action. The Company hereby waives notice of default, presentment or demand for payment, protest or notice of nonpayment or dishonor and all other notices or demands relative to this instrument. 14. Governing Law. This Note and all actions arising out of or in connection with this Note shall be governed by and constmed in accordance with the laws of the Commonwealth of Massachusetts, without regard to conflict of laws provisions of the Commonwealth of Massachusetts or of any other state. In the event of any dispute among or between any of the parties to this Note arising out of the terms of this Note, the parties hereby consent to the exclusive jurisdiction of the federal and state courts located in the Commonwealth of Massachusetts for resolution 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. IN WITNESS WHEREOF, the Company has caused this Note to be issued as of the date first written above. BEACON POWER CORPORATION By: /s/ William E. Stanton ------------------------------------ Name: William E. Stanton ---------------------------------- Title: President & CEO --------------------------------- - 5 - THE SECURITIES EVIDENCED BY THIS WARRANT CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE SOLD, TRANSFERRED, OR ASSIGNED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN ACCORDANCE WITH RULE 144 UNDER THE SECURITIES ACT, OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF SUCH SECURITIES REASONABLY SATISFACTORY TO THE COMPANY STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT. THE SALE OR TRANSFER AND CERTAIN OTHER RIGHTS RELATING TO THE SECURITIES REPRESENTED BY THIS DOCUMENT ARE SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN SHAREHOLDER AGREEMENT BY AND AMONG THE COMPANY AND CERTAIN SHAREHOLDERS OF THE COMPANY. A COPY OF SUCH AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY. No.: 1 WARRANT TO PURCHASE CLASS E PREFERRED STOCK OF BEACON POWER CORPORATION (void after August 2, 2004) 1. Issuance of Warrant. FOR VALUE RECEIVED, on and after the date of issuance of this Warrant, and subject to the terms and conditions herein set forth, the Holder (as defined below) is entitled to purchase from Beacon Power Corporation, a Delaware corporation (the "Company"), at any time before 5:00 p.m. New York time on August 2, 2004 (the "Termination Date"), at a price per share equal to the Warrant Price (as defined below and subject to adjustment as described below), the Warrant Stock (as defined below and subject to adjustment as described below) upon exercise of this warrant (this "Warrant") pursuant to Section 6 hereof. This Warrant is issued pursuant to the Note and Warrant Purchase Agreement (as defined below). 2. Definitions. As used in this Warrant, the following terms have the definitions ascribed to them below: (a) "Additional Stock" is defined in Section 3(d)(iv). (b) "Base Price" means as of August 2, 1999, $1.78 per share of Common Stock, which shall be subject to adjustment as provided in Section 3(d). (c) "Business Day" means any day other than a Saturday, Sunday or other day on which the national or state banks located in the State of Massachusetts or the State of New York or the District of Columbia are authorized to be closed. (d) "Change-In-Control Event" means the occurrence after the Commencement Date of any of the following: (i) the acquisition of voting securities of the Company by any person or group of persons that results in such person or group, together with its affiliates, becoming, directly or indirectly, the beneficial owner of in excess of 50% of the outstanding voting securities of the Company; (ii) a merger or consolidation of the Company with any other corporation or legal entity regardless of which entity is the survivor, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or being converted into voting securities of the surviving entity) in excess of 50% of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; or (iii) the sale or disposition of all or substantially all of the Company's assets other than in a transaction in which holders of the voting securities of the Company immediately prior to such transaction receive voting securities of the acquiror of such assets or its affiliate that represent in excess of 50% of the voting securities of such entity after consummation of such transaction. (e) "Commencement Date" means the date of issue of this Warrant. (f) "Common Stock" means the Company's Common Stock, $.01 par value per share. (g) "Holder" means Perseus Capital, L.L.C., or its assigns. (h) "Note and Warrant Purchase Agreement" means the Note and Warrant Purchase Agreement dated as of August 2, 1999 by and among the Company, Perseus Capital, L.L.C., Duquesne Enterprises, Inc., Micro Generation Technology Fund, L.L.C., and SatCon Technology Corporation (collectively, the "Purchasers"), and "Note" means the Note issued to the holder pursuant to such Agreement. (i) "Class E Preferred Stock" means the Class E Preferred Stock of the Company proposed to be issued to the Purchasers as part of the equity financing in which the Note is to be converted, as described in the above Note and Warrant Purchase Agreement. (j) "Warrant Price" means, (i) in the event that a purchase of at least $5 million of the Class E Preferred Stock is consummated within six (6) months from the date hereof, the per share price at which such purchase is made, or (ii) in the event that no such purchase is consummated, $2.50, in either event subject to adjustment as described in Section 3 below. (k) "Warrant Stock" means the shares of Company stock which are purchasable upon exercise or conversion of this Warrant, consisting of Class E Preferred Stock (or other Company securities) into which the Note is converted if such conversion actually -2- occurs, or consisting of shares of Common Stock if the Note is not so converted. The total number of shares to be issued upon the exercise of this Warrant shall be computed by dividing $337,500.00 by the Warrant Price, subject to adjustment as described in Section 3 below. The "Warrant Stock Definition Date" means the date on which the Note is converted (or if not converted, then the date on which the holder of the Note notifies the Company that it has become a demand note, as described in the Note. 3. Adjustments and Notices. The Warrant Price and/or the number of shares of Warrant Stock shall be subject to adjustment from time to time in accordance with this Section 3. The Warrant Price and/or the number of Warrant Shares shall be adjusted to reflect all of the following events that occur on or after the Commencement Date. However, if the Warrant Stock becomes defined to be preferred stock of the Company, then the following provisions in Section 3 shall not apply to shares issued on or after the Warrant Stock Definition Date. (a) Subdivision, Stock Dividends or Combinations. In case the Company shall at any time subdivide the outstanding shares of Warrant Stock or shall issue a stock dividend with respect to the Warrant Stock, the Warrant Price in effect immediately prior to such subdivision or the issuance of such dividend shall be proportionately decreased, and in case the Company shall at any time combine the outstanding shares of the Warrant Stock, the Warrant Price in effect immediately prior to such combination shall be proportionately increased, in each case effective at the close of business on the date of such subdivision, dividend or combination, as the case may be. (b) Reclassification, Exchange, Substitution, In-Kind Distribution. Upon any reclassifications, exchange, substitution or other event that results in a change of the number and/or class of the securities issuable upon exercise or conversion of this Warrant or upon the payment of a dividend in securities or property other than shares of Warrant Stock, the Holder shall be entitled to receive, upon exercise or conversion of this Warrant, the number and kind of securities and property that Holder would have received if this Warrant had been exercised or converted immediately before the record date for such reclassification, exchange, substitution, or other event or immediately prior to the record date for such dividend. The Company or its successor shall promptly issue to Holder a new warrant for such new securities or other property. The new warrant shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 3 including, without limitation, adjustments to the Warrant Price and to the number of securities or property issuable upon exercise or conversion of the new warrant. The provisions of this Section 3(b) shall similarly apply to successive reclassifications, exchanges, substitutions, or other events and successive dividends. (c) Reorganization, Merger etc. In case of any Change-In-Control Event, the Company, or such successor or purchasing corporation, as the case may be, shall, as a condition to closing any such reorganization, merger or sale, duly execute and deliver to the Holder hereof a new warrant so that the Holder shall have the right to receive, at a total purchase price not to exceed that payable upon the exercise or conversion of the unexercised or unconverted portion of this Warrant, and in lieu of the shares of the Warrant Stock theretofore issuable upon exercise or -3- conversion of this Warrant, the kind and amount of shares of stock, other securities, money and property receivable upon such reorganization, merger or sale by the Holder of the number of shares of Warrant Stock then purchasable under this Warrant. Such new warrant shall provide for adjustments that shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 3. The provisions of this subparagraph (c) shall similarly apply to successive Change-In-Control Events. (d) Dilutive Issuances Adjustment of Number of Shares and Warrant Price. In order to prevent dilution of the rights granted under this Warrant, the number of shares of Warrant Stock obtainable upon exercise of this Warrant and the Warrant Price shall be subject to adjustment from time to time as provided in this Section 3(d). (i) Adjustment of Warrant Price upon Issuance of Additional Stock. If and whenever after the Commencement Date, the Company issues, or in accordance with Section 3(d)(ii) is deemed to have issued, any Additional Stock to any person for a consideration per share less than the Base Price then in effect, then the Warrant Price in effect immediately before each such issuance shall forthwith be adjusted to a price determined by multiplying such Warrant Price by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such issuance plus the number of shares of Common Stock that the aggregate consideration received by the Company for such issuance would purchase at such Warrant Price; and the denominator of which shall be the number of shares of Common Stock outstanding immediately prior to such issuance plus the number of shares of such Additional Stock. (ii) Effect of Certain Events. For purposes of determining under Section (d)(i) the adjusted number of shares of Warrant Stock acquirable upon exercise of this Warrant, the following shall be applicable: (A) Issuance of Rights or Options. If the Company in any manner issues, grants or sells (or otherwise becomes subject to) any Options or Options for Convertible Securities, then the total maximum number of shares of Common Stock issuable upon the exercise of such Options or upon conversion or exchange of the total maximum amount of such Convertible Securities issuable upon the exercise of such Options shall be deemed to have been sold on the date of issuance, grant or sale of such Options and to be outstanding. (B) Issuance of Convertible Securities. If the Company in any manner grants, issues or sells (or otherwise becomes subject to) any Convertible Securities, then the maximum number of shares of Common Stock issuable upon conversion or exchange of such Convertible Securities shall be deemed to have been sold on the date of issuance, grant or sale of such Convertible Securities and to be outstanding. (C) Treatment of Expired Options and Unexercised Convertible Securities. Upon the expiration of any Option or the termination of any right to convert or exchange any Convertible Securities without the exercise of such Option or right, the number of shares of Warrant Stock acquirable hereunder shall be adjusted to the number of shares which would have been in effect at the time of such expiration or termination -4- had such Option or Convertible Securities, to the extent outstanding immediately prior to such expiration or termination, never been issued. (D) Treasury Shares. The number of shares of Common Stock outstanding at any given time does not include shares owned or held by or for the account of the Company or any Subsidiary, and the disposition of any shares so owned or held shall be considered an issuance or sale of Common Stock. (E) Record Date. If the Company takes a record of the holders of Common Stock for the purpose of entitling them (A) to receive a dividend or other distribution payable in Common Stock, Options or in Convertible Securities or (B) to subscribe for or purchase Common Stock, Options or Convertible Securities, then such record date shall be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be. (iii) In the case of the issuance of Additional Stock for cash, the consideration received therefor shall be deemed to be the amount of cash paid therefor before deducting any reasonable discounts, commissions or other expenses allowed, paid or incurred by the company for any underwriting or otherwise in connection with the issuance and sale thereof. In the case of the issuance of Additional Stock for a consideration in whole or in part other than cash, the consideration other than cash received therefor shall be deemed to be the fair value thereof as reasonably determined by the Board of Directors of the Company in its good faith judgment irrespective of any accounting treatment. (iv) "Additional Stock" shall mean any shares of Common Stock issued (or deemed to have been issued pursuant to clause (ii) of this Section 3(d)) by the Company after the Commencement Date, other than shares of Common Stock issued or issuable: (A) to officers, directors, employees and consultants of the Company directly or pursuant to a stock option plan or restricted stock plan approved by the Board of Directors of the Company; (B) upon conversion of the Class A, B, C, or D Preferred Stock (or, if authorized, the Class E Preferred Stock) of the Company or the exercise of warrants issued by the Company before or on the Commencement Date; (v) Certain Events. If any event occurs of the type contemplated by the provisions of this Section 3(d) but not expressly provided for by such provisions (including, without limitation, the granting of stock appreciation rights, phantom stock rights or other rights with equity features), then the Company's board of directors shall make an appropriate adjustment in the number of shares of Warrant Stock obtainable upon exercise of this Warrant and in the Warrant Price so as to protect the rights of the holders of the Warrants; provided that no such adjustment shall decrease the number of shares of Warrant Stock obtainable as otherwise -5- determined pursuant to this Section 3. (e) Certificate of Adjustment. In each case of an adjustment or readjustment of the Warrant Price, the Corporation, at its own expense, shall cause its Chief Financial Officer to compute such adjustment or readjustment in accordance with the provisions hereof and prepare a certificate showing such adjustment or readjustment, and shall mail such certificate, by first class mail, postage prepaid, to the Holder. The certificate shall set forth such adjustment or readjustment, showing in detail the facts upon which such adjustment or readjustment is based. No adjustment of the Warrant Price shall be required to be made unless it would result in an increase or decrease of at least one cent, but any adjustments not made because of this sentence shall be carried forward and taken into account in any subsequent adjustment otherwise required hereunder. (f) No Impairment. The Company shall not, by amendment of its Certificate of Incorporation or through a reorganization, transfer of assets, consolidation, merger, dissolution, issue, or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed under this Warrant by the Company, but shall at all times in good faith assist in carrying out all of the provisions of this Section 3 and in taking all such action as may be necessary or appropriate to protect the Holder's rights under this Section 3 against impairment. If the Company takes any action affecting the Class E Preferred Stock other than as described above that adversely affects the Holder's rights under this Warrant, the Warrant Price shall be adjusted downward. (g) Fractional Shares. No fractional shares shall be issuable upon exercise or conversion of the Warrant and the number of shares to be issued shall be rounded down to the nearest whole share. If a fractional share interest arises upon any exercise or conversion of the Warrant, the Company shall eliminate such fractional share interest by paying the Holder an amount computed by multiplying the fractional interest by the fair market value of a full share. 4. No Shareholder Rights. This Warrant, by itself, as distinguished from any shares purchased hereunder, shall not entitle its Holder to any of the rights of a shareholder of the Company. 5. Reservation of Stock. On and after the Warrant Stock Definition Date, the Company will reserve from its authorized and unissued stock a sufficient number of shares to provide for the issuance of Warrant Stock upon the exercise or conversion of this Warrant. Issuance of this Warrant shall constitute full authority to the Company's officers who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for shares of Warrant Stock issuable upon the exercise or conversion of this Warrant. 6. Exercise of Warrant. This Warrant may be exercised as a whole or part by the Holder, at any time after the date hereof prior to the termination of this Warrant, by the surrender of this Warrant, together with the Notice of Exercise and Investment Representation Statement in the forms attached hereto as Attachments 1 and 2, respectively, duly completed and executed at the principal office of the Company, specifying the portion of the Warrant to be exercised and -6- accompanied by payment in full of the Warrant Price in cash or by check with respect to the shares of Warrant Stock being purchased. Alternatively, the Holder may pay the Warrant Price as a whole or in part) by surrendering to the Company all or a portion of any Note (as defined in the Note and Warrant Purchase Agreement), in which case the portion of the Note surrendered plus all accrued but unpaid interest thereon shall be credited towards payment of the Warrant Price. If less the entire Note is surrendered in payment of the Warrant Price, the Company shall issue to the Holder a new promissory note identical to the surrendered Note except that the principal amount thereof shall equal the unsurrendered portion of the principal amount of the surrendered Note. This Warrant shall be deemed to have been exercised immediately prior to the close of business on the date of its surrender for exercise as provided above, and the person entitled to receive the shares of Warrant Stock issuable upon such exercise shall be treated for all purposes as the holder of such shares of record as of the close of business on such date. As promptly as practicable after such date, the Company shall issue and deliver to the person or persons entitled to receive the same a certificate or certificates for the number of full shares of Warrant Stock issuable upon such exercise. If this Warrant shall be exercised for less than the total number of shares of Warrant Stock then issuable upon exercise, promptly after surrender of this Warrant upon such exercise, the Company will execute and deliver a new warrant, dated the date hereof, evidencing the right of the Holder to the balance of this Warrant Stock purchasable hereunder upon the same terms and conditions set forth herein. 7. Conversion, In lieu of exercising this Warrant or any portion hereof, at any time after the occurrence of a Change-In-Control Event or the filing of a registration statement for an initial underwritten public offering of securities by the Company, the Holder hereof shall have the right to convert this Warrant or any portion hereof into Warrant Stock by executing and delivering to the Company at its principal office the written Notice of Conversion and Investment Representation Statement in the forms attached hereto as Attachments 2 and 3, specifying the portion of the Warrant to be converted, and accompanied by this Warrant. The number of shares of Warrant Stock to be issued to Holder upon such conversion shall be computed using the following formula: X=(P)(Y)(A-B)/A where X = the number of shares of Warrant Stock to be issued to the Holder for the portion of the Warrant being converted. P = the portion of the Warrant being converted expressed as a decimal fraction. Y = the total number of shares of Warrant Stock issuable upon exercise of the Warrant in full. A = the fair market value of one share of Warrant Stock which means (i) the fair market value of the Warrant Stock as of the last Business Day immediately prior to the date the notice of -7- conversion is received by the Company, as reported in the principal market for such securities or, if no such market exists, as determined in good faith by the Company's Board of Directors, or (ii) if this Warrant is being converted in conjunction with a public offering of stock the price to the public per share pursuant to the offering. B = the Warrant Price on the date of conversion. Any portion of this Warrant that is converted shall be immediately canceled. This Warrant or any portion hereof shall be deemed to have been converted immediately prior to the close of business on the date of its surrender for conversion as provided above, and the person entitled to receive the shares of Warrant Stock issuable upon such conversion shall be treated for all purposes as the holder of such shares of record as of the close of business on such date. As promptly as practicable after such date, the Company shall issue and deliver to the person or persons entitled to receive the same a certificate or certificates for the number of full shares of Warrant Stock issuable upon such conversion. If the Warrant shall be converted for less than the total number of shares of Warrant Stock then issuable upon conversion, promptly after surrender of the Warrant upon such conversion, the Company will execute and deliver a new warrant, dated the date hereof, evidencing the right of the Holder to the balance of the Warrant Stock purchasable hereunder upon the same terms and conditions set forth herein. If this Warrant is converted, as a whole or in part, after the occurrence of a Change-In-Control Event as to which Section 3(c) is applicable, the Holder shall receive the consideration contemplated by Section 3(c) in lieu of Warrants Stock of the Company. 8. Transfer of Warrant. This Warrant may be transferred or assigned by the Holder hereof in whole or in part, provided that the transferor provides, at the Company's request, an opinion of counsel satisfactory to the Company that such transfer does not require registration under the Securities Act and the securities law applicable with respect to any other applicable jurisdiction. 9. Termination. This Warrant shall terminate on 5:00 p.m. New York time on the Termination Date. 10. Miscellaneous. This Warrant shall be governed by the laws of the Commonwealth of Massachusetts, as such laws are applied to contracts to be entered into and performed entirely in Massachusetts by Massachusetts residents. In the event of any dispute among the Holder and the Company arising out of the terms of this Warrant, the parties hereby consent to the exclusive jurisdiction of the federal and state courts located in the Commonwealth of Massachusetts for resolution 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. The headings in this Warrant are for purposes of convenience and reference only, and shall not be -8- deemed to constitute a part hereof. Neither this Warrant nor any term hereof may be changed or waived orally, but only by an instrument in writing signed by the Company and the Holder of this Warrant. All notices and other communications from the Company to the Holder of this Warrant shall be delivered personally or by facsimile transmission or mailed by first class mail, postage prepaid, to the address or facsimile number furnished to the Company in writing by the last Holder of this Warrant who shall have furnished an address or facsimile number to the Company in writing, and if mailed shall be deemed given three days after deposit in the United States mail. ISSUED: August 2, 1999 BEACON POWER CORPORATION By: /s/ Willian E. Stanton ------------------------- Name: WILLIAM E. STANTON ----------------------- Title: PRESIDENT & CEO ----------------------- -9- Attachment 1 NOTICE OF EXERCISE TO: BEACON POWER CORPORATION 1. The undersigned hereby elects to purchase ________________ shares of the Warrant Stock of Beacon Power Corporation pursuant to the terms of the attached Warrant, and tenders herewith payment of the purchase price in full, together with all applicable transfer taxes, if any. 2. Please issue a certificate or certificates representing said shares of Warrant Stock in the name of the undersigned or in such other name as is specified below: ________________________ (Name) ________________________ (Address) ___________________________________ ________________________________ (Date) (Name of Warrant Holder) By:___________________________ Title:________________________ Attachment 2 INVESTMENT REPRESENTATION STATEMENT Shares of the Class E Preferred Stock (as defined in the attached Warrant) of BEACON POWER CORPORATION In connection with the purchase of the above-listed securities, the undersigned hereby represents to Beacon Power Corporation (the "Company") as follows: (a) The securities to be received upon the exercise of the Warrant (the "Securities") will be acquired for investment for its own account, not as a nominee or agent, and not with a view to the sale or distribution of any part thereof, and the undersigned has no present intention of selling, granting participation in or otherwise distributing the same, but subject, nevertheless, to any requirement of law that the disposition of its property shall at all times be within its control. By executing this statement, the undersigned further represents that it does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer, or grant participations to such person or to any third person, with respect to any Securities issuable upon exercise of the Warrant. (b) The undersigned understands that the Securities issuable upon exercise of the Warrant at the time of issuance may not be registered under the Securities Act of 1933, as amended (the "Securities Act"), and applicable state securities laws, on the ground that the issuance of such securities is exempt pursuant to Section 4(2) of the Securities Act and state law exemptions relating to offers and sales not by means of a public offering, and that the Company's reliance on such exemptions is predicated on the undersigned's representations set forth herein. (c) The undersigned agrees that in no event will it make a disposition of any Securities acquired upon the exercise of the Warrant unless and until (i) it shall have notified the Company of the proposed disposition and shall have furnished the Company with a statement of the circumstances surrounding the proposed disposition, and (ii) it shall have furnished the Company with an opinion of counsel satisfactory to the Company and Company's counsel to the effect that (A) appropriate action necessary for compliance with the Securities Act and any applicable state securities laws has been taken or an exemption from the registration requirements of the Securities Act and such laws is available, and (B) the proposed transfer will not violate any of said laws. (d) The undersigned acknowledges that an investment in the Company is highly speculative and represents that it is able to fend for itself in the transactions contemplated by this statement, has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of its investments, and has the ability to bear the economic risks (including the risk of a total loss) of its investment. The undersigned represents that it has had the opportunity to ask questions of the Company concerning the Company's business and assets and to obtain any additional information which it considered necessary to verify the accuracy of or to amplify the Company's disclosures, and has had all questions which have been asked by it satisfactorily answered by the Company (e) The undersigned acknowledges that the Securities issuable upon exercise or conversion of the Warrant must be held indefinitely unless subsequently registered under the Securities Act or an exemption from such registration is available. The undersigned is aware of the provisions of Rule 144 promulgated under the Securities Act which permit limited resale of shares purchased in a private placement subject to the satisfaction of certain conditions, including, among other things, the existence of a public market for the shares, the availability of certain current public information about the Company, the resale occurring not less than one year after a party has purchased and paid for the security to be sold from the Company or any affiliate of the Company, the sale being through a "broker's transaction" or in transactions directly with a "market maker" (as provided by Rule 144(f)) and the number of shares being sold during any three month period not exceeding specified limitations. Dated:_________________________ _______________________________ (Typed or Printed Name) By:____________________________ (Signature) _______________________________ (Title) -2- Attachment 3 NOTICE OF CONVERSION TO: BEACON POWER CORPORATION 1. The undersigned hereby elects to acquire ________________ shares of the Warrant Stock of Beacon Power Corporation pursuant to the terms of the attached Warrant, by conversion of _________ percent (____%) of the Warrant. 2. Please issue a certificate or certificates representing said shares of Warrant Stock in the name of the undersigned or in such other name as is specified below: ________________________ (Name) ________________________ (Address) ___________________________________ ________________________________ (Date) (Name of Warrant Holder) By:___________________________ Title:________________________ (Title and signature of authorized person) THE SECURITIES EVIDENCED BY THIS WARRANT CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE SOLD, TRANSFERRED, OR ASSIGNED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN ACCORDANCE WITH RULE 144 UNDER THE SECURITIES ACT, OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF SUCH SECURITIES REASONABLY SATISFACTORY TO THE COMPANY STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT. THE SALE OR TRANSFER AND CERTAIN OTHER RIGHTS RELATING TO THE SECURITIES REPRESENTED BY THIS DOCUMENT ARE SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN SHAREHOLDER AGREEMENT BY AND AMONG THE COMPANY AND CERTAIN SHAREHOLDERS OF THE COMPANY. A COPY OF SUCH AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY. No.: 2 WARRANT TO PURCHASE CLASS E PREFERRED STOCK OF BEACON POWER CORPORATION (void after August 2, 2004) 1. Issuance of Warrant. FOR VALUE RECEIVED, on and after the date of issuance of this Warrant, and subject to the terms and conditions herein set forth, the Holder (as defined below) is entitled to purchase from Beacon Power Corporation, a Delaware corporation (the "Company"), at any time before 5:00 p.m. New York time on August 2, 2004 (the "Termination Date"), at a price per share equal to the Warrant Price (as defined below and subject to adjustment as described below), the Warrant Stock (as defined below and subject to adjustment as described below) upon exercise of this warrant (this "Warrant") pursuant to Section 6 hereof. This Warrant is issued pursuant to the Note and Warrant Purchase Agreement (as defined below). 2. Definitions. As used in this Warrant, the following terms have the definitions ascribed to them below: (a) "Additional Stock" is defined in Section 3(d)(iv). (b) "Base Price" means as of August 2, 1999, $1.78 per share of Common Stock, which shall be subject to adjustment as provided in Section 3(d). (c) "Business Day" means any day other than a Saturday, Sunday or other day on which the national or state banks located in the State of Massachusetts or the State of New York or the District of Columbia are authorized to be closed. (d) "Change-In-Control Event" means the occurrence after the Commencement Date of any of the following: (i) the acquisition of voting securities of the Company by any person or group of persons that results in such person or group, together with its affiliates, becoming, directly or indirectly, the beneficial owner of in excess of 50% of the outstanding voting securities of the Company; (ii) a merger or consolidation of the Company with any other corporation or legal entity regardless of which entity is the survivor, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or being converted into voting securities of the surviving entity) in excess of 50% of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; or (iii) the sale or disposition of all or substantially all of the Company's assets other than in a transaction in which holders of the voting securities of the Company immediately prior to such transaction receive voting securities of the acquiror of such assets or its affiliate that represent in excess of 50% of the voting securities of such entity after consummation of such transaction. (e) "Commencement Date" means the date of issue of this Warrant. (f) "Common Stock" means the Company's Common Stock, $.0l par value per share. (g) "Holder" means SatCon Technology Corporation, or its assigns. (h) "Note and Warrant Purchase Agreement" means the Note and Warrant Purchase Agreement dated as of August 2, 1999 by and among the Company, Perseus Capital, L.L.C., Duquesne Enterprises, Inc., Micro Generation Technology Fund, L.L.C., and SatCon Technology Corporation (collectively, the "Purchasers"), and "Note" means the Note issued to the holder pursuant to such Agreement. (i) "Class E Preferred Stock" means the Class E Preferred Stock of the Company proposed to be issued to the Purchasers as part of the equity financing in which the Note is to be converted, as described in the above Note and Warrant Purchase Agreement. (j) "Warrant Price" means, (i) in the event that a purchase of at least $5 million of the Class E Preferred Stock is consummated within six (6) months from the date hereof, the per share price at which such purchase is made, or (ii) in the event that no such purchase is consummated, $2.50, in either event subject to adjustment as described in Section 3 below. (k) "Warrant Stock" means the shares of Company stock which are purchasable upon exercise or conversion of this Warrant, consisting of Class E Preferred Stock (or other Company securities) into which the Note is converted if such conversion actually -2- occurs, or consisting of shares of Common Stock if the Note is not so converted. The total number of shares to be issued upon the exercise of this Warrant shall be computed by dividing $83,333.34 by the Warrant Price, subject to adjustment as described in Section 3 below. The "Warrant Stock Definition Date" means the date on which the Note is converted (or if not converted, then the date on which the holder of the Note notifies the Company that it has become a demand note, as described in the Note. 3. Adjustments and Notices. The Warrant Price and/or the number of shares of Warrant Stock shall be subject to adjustment from time to time in accordance with this Section 3. The Warrant Price and/or the number of Warrant Shares shall be adjusted to reflect all of the following events that occur on or after the Commencement Date. However, if the Warrant Stock becomes defined to be preferred stock of the Company, then the following provisions in Section 3 shall not apply to shares issued on or after the Warrant Stock Definition Date. (a) Subdivision, Stock Dividends or Combinations. In case the Company shall at any time subdivide the outstanding shares of Warrant Stock or shall issue a stock dividend with respect to the Warrant Stock, the Warrant Price in effect immediately prior to such subdivision or the issuance of such dividend shall be proportionately decreased, and in case the Company shall at any time combine the outstanding shares of the Warrant Stock, the Warrant Price in effect immediately prior to such combination shall be proportionately increased, in each case effective at the close of business on the date of such subdivision, dividend or combination, as the case may be. (b) Reclassification, Exchange, Substitution, In-Kind Distribution. Upon any reclassifications, exchange, substitution or other event that results in a change of the number and/or class of the securities issuable upon exercise or conversion of this Warrant or upon the payment of a dividend in securities or property other than shares of Warrant Stock, the Holder shall be entitled to receive, upon exercise or conversion of this Warrant, the number and kind of securities and property that Holder would have received if this Warrant had been exercised or converted immediately before the record date for such reclassification, exchange, substitution, or other event or immediately prior to the record date for such dividend, The Company or its successor shall promptly issue to Holder a new warrant for such new securities or other property. The new warrant shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 3 including, without limitation, adjustments to the Warrant Price and to the number of securities or property issuable upon exercise or conversion of the new warrant. The provisions of this Section 3(b) shall similarly apply to successive reclassifications, exchanges, substitutions, or other events and successive dividends. (c) Reorganization, Merger etc. In case of any Change-In-Control Event, the Company, or such successor or purchasing corporation, as the case may be, shall, as a condition to closing any such reorganization, merger or sale, duly execute and deliver to the Holder hereof a new warrant so that the Holder shall have the right to receive, at a total purchase price not to exceed that payable upon the exercise or conversion of the unexercised or unconverted portion of this Warrant, and in lieu of the shares of the Warrant Stock theretofore issuable upon exercise or -3- conversion of this Warrant, the kind and amount of shares of stock, other securities, money and property receivable upon such reorganization, merger or sale by the Holder of the number of shares of Warrant Stock then purchasable under this Warrant. Such new warrant shall provide for adjustments that shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 3. The provisions of this subparagraph (c) shall similarly apply to successive Change-In-Control Events. (d) Dilutive Issuances Adjustment of Number of Shares and Warrant Price. In order to prevent dilution of the rights granted under this Warrant, the number of shares of Warrant Stock obtainable upon exercise of this Warrant and the Warrant Price shall be subject to adjustment from time to time as provided in this Section 3(d). (i) Adjustment of Warrant Price upon Issuance of Additional Stock. If and whenever after the Commencement Date, the Company issues, or in accordance with Section 3(d)(ii) is deemed to have issued, any Additional Stock to any person for a consideration per share less than the Base Price then in effect, then the Warrant Price in effect immediately before each such issuance shall forthwith be adjusted to a price determined by multiplying such Warrant Price by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such issuance plus the number of shares of Common Stock that the aggregate consideration received by the Company for such issuance would purchase at such Warrant Price; and the denominator of which shall be the number of shares of Common Stock outstanding immediately prior to such issuance plus the number of shares of such Additional Stock. (ii) Effect of Certain Events. For purposes of determining under Section (d)(i) the adjusted number of shares of Warrant Stock acquirable upon exercise of this Warrant, the following shall be applicable: (A) Issuance of Rights or Options. If the Company in any manner issues, grants or sells (or otherwise becomes subject to) any Options or Options for Convertible Securities, then the total maximum number of shares of Common Stock issuable upon the exercise of such Options or upon conversion or exchange of the total maximum amount of such Convertible Securities issuable upon the exercise of such Options shall be deemed to have been sold on the date of issuance, grant or sale of such Options and to be outstanding. (B) Issuance of Convertible Securities. If the Company in any manner grants, issues or sells (or otherwise becomes subject to) any Convertible Securities, then the maximum number of shares of Common Stock issuable upon conversion or exchange of such Convertible Securities shall be deemed to have been sold on the date of issuance, grant or sale of such Convertible Securities and to be outstanding. (C) Treatment of Expired Options and Unexercised Convertible Securities. Upon the expiration of any Option or the termination of any right to convert or exchange any Convertible Securities without the exercise of such Option or right, the number of shares of Warrant Stock acquirable hereunder shall be adjusted to the number of shares which would have been in effect at the time of such expiration or termination -4- had such Option or Convertible Securities, to the extent outstanding immediately prior to such expiration or termination, never been issued. (D) Treasury Shares. The number of shares of Common Stock outstanding at any given time does not include shares owned or held by or for the account of the Company or any Subsidiary, and the disposition of any shares so owned or held shall be considered an issuance or sale of Common Stock. (E) Record Date. If the Company takes a record of the holders of Common Stock for the purpose of entitling them (A) to receive a dividend or other distribution payable in Common Stock, Options or in Convertible Securities or (B) to subscribe for or purchase Common Stock, Options or Convertible Securities, then such record date shall be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be. (iii) In the case of the issuance of Additional Stock for cash, the consideration received therefor shall be deemed to be the amount of cash paid therefor before deducting any reasonable discounts, commissions or other expenses allowed, paid or incurred by the company for any underwriting or otherwise in connection with the issuance and sale thereof. In the case of the issuance of Additional Stock for a consideration in whole or in part other than cash, the consideration other than cash received therefor shall be deemed to be the fair value thereof as reasonably determined by the Board of Directors of the Company in its good faith judgment irrespective of any accounting treatment. (iv) "Additional Stock" shall mean any shares of Common Stock issued (or deemed to have been issued pursuant to clause (ii) of this Section 3(d)) by the Company after the Commencement Date, other than shares of Common Stock issued or issuable: (A) to officers, directors, employees and consultants of the Company directly or pursuant to a stock option plan or restricted stock plan approved by the Board of Directors of the Company; (B) upon conversion of the Class A, B, C, or D Preferred Stock (or, if authorized, the Class E Preferred Stock) of the Company or the exercise of warrants issued by the Company before or on the Commencement Date; (v) Certain Events. If any event occurs of the type contemplated by the provisions of this Section 3(d) but not expressly provided for by such provisions (including, without limitation, the granting of stock appreciation rights, phantom stock rights or other rights with equity features), then the Company's board of directors shall make an appropriate adjustment in the number of shares of Warrant Stock obtainable upon exercise of this Warrant and in the Warrant Price so as to protect the rights of the holders of the Warrants; provided that no such adjustment shall decrease the number of shares of Warrant Stock obtainable as otherwise -5- determined pursuant to this Section 3. (e) Certificate of Adjustment. In each case of an adjustment or readjustment of the Warrant Price, the Corporation, at its own expense, shall cause its Chief Financial Officer to compute such adjustment or readjustment in accordance with the provisions hereof and prepare a certificate showing such adjustment or readjustment, and shall mail such certificate, by first class mail, postage prepaid, to the Holder. The certificate shall set forth such adjustment or readjustment, showing in detail the facts upon which such adjustment or readjustment is based. No adjustment of the Warrant Price shall be required to be made unless it would result in an increase or decrease of at least one cent, but any adjustments not made because of this sentence shall be carried forward and taken into account in any subsequent adjustment otherwise required hereunder. (f) No Impairment. The Company shall not, by amendment of its Certificate of Incorporation or through a reorganization, transfer of assets, consolidation, merger, dissolution, issue, or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed under this Warrant by the Company, but shall at all times in good faith assist in carrying out all of the provisions of this Section 3 and in taking all such action as may be necessary or appropriate to protect the Holder's rights under this Section 3 against impairment. If the Company takes any action affecting the Class E Preferred Stock other than as described above that adversely affects the Holder's rights under this Warrant, the Warrant Price shall be adjusted downward. (g) Fractional Shares. No fractional shares shall be issuable upon exercise or conversion of the Warrant and the number of shares to be issued shall be rounded down to the nearest whole share. If a fractional share interest arises upon any exercise or conversion of the Warrant, the Company shall eliminate such fractional share interest by paying the Holder an amount computed by multiplying the fractional interest by the fair market value of a full share. 4. No Shareholder Rights. This Warrant, by itself, as distinguished from any shares purchased hereunder, shall not entitle its Holder to any of the rights of a shareholder of the Company. 5. Reservation of Stock. On and after the Warrant Stock Definition Date, the Company will reserve from its authorized and unissued stock a sufficient number of shares to provide for the issuance of Warrant Stock upon the exercise or conversion of this Warrant. Issuance of this Warrant shall constitute full authority to the Company's officers who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for shares of Warrant Stock issuable upon the exercise or conversion of this Warrant. 6. Exercise of Warrant. This Warrant may be exercised as a whole or part by the Holder, at any time after the date hereof prior to the termination of this Warrant, by the surrender of this Warrant, together with the Notice of Exercise and Investment Representation Statement in the forms attached hereto as Attachments 1 and 2, respectively, duly completed and executed at the principal office of the Company, specifying the portion of the Warrant to be exercised and -6- accompanied by payment in full of the Warrant Price in cash or by check with respect to the shares of Warrant Stock being purchased. Alternatively, the Holder may pay the Warrant Price as a whole or in part) by surrendering to the Company all or a portion of any Note (as defined in the Note and Warrant Purchase Agreement), in which case the portion of the Note surrendered plus all accrued but unpaid interest thereon shall be credited towards payment of the Warrant Price. If less the entire Note is surrendered in payment of the Warrant Price, the Company shall issue to the Holder a new promissory note identical to the surrendered Note except that the principal amount thereof shall equal the unsurrendered portion of the principal amount of the surrendered Note. This Warrant shall be deemed to have been exercised immediately prior to the close of business on the date of its surrender for exercise as provided above, and the person entitled to receive the shares of Warrant Stock issuable upon such exercise shall be treated for all purposes as the holder of such shares of record as of the close of business on such date. As promptly as practicable after such date, the Company shall issue and deliver to the person or persons entitled to receive the same a certificate or certificates for the number of full shares of Warrant Stock issuable upon such exercise. If this Warrant shall be exercised for less than the total number of shares of Warrant Stock then issuable upon exercise, promptly after surrender of this Warrant upon such exercise, the Company will execute and deliver a new warrant, dated the date hereof, evidencing the right of the Holder to the balance of this Warrant Stock purchasable hereunder upon the same terms and conditions set forth herein. 7. Conversion, In lieu of exercising this Warrant or any portion hereof, at any time after the occurrence of a Change-In-Control Event or the filing of a registration statement for an initial underwritten public offering of securities by the Company, the Holder hereof shall have the right to convert this Warrant or any portion hereof into Warrant Stock by executing and delivering to the Company at its principal office the written Notice of Conversion and Investment Representation Statement in the forms attached hereto as Attachments 2 and 3, specifying the portion of the Warrant to be converted, and accompanied by this Warrant. The number of shares of Warrant Stock to be issued to Holder upon such conversion shall be computed using the following formula: X=(P)(Y)(A-B)/A where X = the number of shares of Warrant Stock to be issued to the Holder for the portion of the Warrant being converted. P = the portion of the Warrant being converted expressed as a decimal fraction. Y = the total number of shares of Warrant Stock issuable upon exercise of the Warrant in full. A = the fair market value of one share of Warrant Stock which means (i) the fair market value of the Warrant Stock as of the last Business Day immediately prior to the date the notice of -7- conversion is received by the Company, as reported in the principal market for such securities or, if no such market exists, as determined in good faith by the Company's Board of Directors, or (ii) if this Warrant is being converted in conjunction with a public offering of stock the price to the public per share pursuant to the offering. B = the Warrant Price on the date of conversion. Any portion of this Warrant that is converted shall be immediately canceled. This Warrant or any portion hereof shall be deemed to have been converted immediately prior to the close of business on the date of its surrender for conversion as provided above, and the person entitled to receive the shares of Warrant Stock issuable upon such conversion shall be treated for all purposes as the holder of such shares of record as of the close of business on such date. As promptly as practicable after such date, the Company shall issue and deliver to the person or persons entitled to receive the same a certificate or certificates for the number of full shares of Warrant Stock issuable upon such conversion. If the Warrant shall be converted for less than the total number of shares of Warrant Stock then issuable upon conversion, promptly after surrender of the Warrant upon such conversion, the Company will execute and deliver a new warrant, dated the date hereof, evidencing the right of the Holder to the balance of the Warrant Stock purchasable hereunder upon the same terms and conditions set forth herein. If this Warrant is converted, as a whole or in part, after the occurrence of a Change-In-Control Event as to which Section 3(c) is applicable, the Holder shall receive the consideration contemplated by Section 3(c) in lieu of Warrants Stock of the Company. 8. Transfer of Warrant. This Warrant may be transferred or assigned by the Holder hereof in whole or in part, provided that the transferor provides, at the Company's request, an opinion of counsel satisfactory to the Company that such transfer does not require registration under the Securities Act and the securities law applicable with respect to any other applicable jurisdiction. 9. Termination. This Warrant shall terminate on 5:00 p.m. New York time on the Termination Date. 10. Miscellaneous. This Warrant shall be governed by the laws of the Commonwealth of Massachusetts, as such laws are applied to contracts to be entered into and performed entirely in Massachusetts by Massachusetts residents. In the event of any dispute among the Holder and the Company arising out of the terms of this Warrant, the parties hereby consent to the exclusive jurisdiction of the federal and state courts located in the Commonwealth of Massachusetts for resolution 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. The headings in this Warrant are for purposes of convenience and reference only, and shall not be -8- deemed to constitute a part hereof. Neither this Warrant nor any term hereof may be changed or waived orally, but only by an instrument in writing signed by the Company and the Holder of this Warrant. All notices and other communications from the Company to the Holder of this Warrant shall be delivered personally or by facsimile transmission or mailed by first class mail, postage prepaid, to the address or facsimile number furnished to the Company in writing by the last Holder of this Warrant who shall have furnished an address or facsimile number to the Company in writing, and if mailed shall be deemed given three days after deposit in the United States mail. ISSUED: August 2, 1999 BEACON POWER CORPORATION By: /s/ Willian E. Stanton ------------------------- Name: WILLIAM E. STANTON ----------------------- Title: PRESIDENT & CEO ----------------------- -9- Attachment 1 NOTICE OF EXERCISE TO: BEACON POWER CORPORATION 1. The undersigned hereby elects to purchase ________________ shares of the Warrant Stock of Beacon Power Corporation pursuant to the terms of the attached Warrant, and tenders herewith payment of the purchase price in full, together with all applicable transfer taxes, if any. 2. Please issue a certificate or certificates representing said shares of Warrant Stock in the name of the undersigned or in such other name as is specified below: ________________________ (Name) ________________________ (Address) ___________________________________ ________________________________ (Date) (Name of Warrant Holder) By:___________________________ Title:________________________ Attachment 2 INVESTMENT REPRESENTATION STATEMENT Shares of the Class E Preferred Stock (as defined in the attached Warrant) of BEACON POWER CORPORATION In connection with the purchase of the above-listed securities, the undersigned hereby represents to Beacon Power Corporation (the "Company") as follows: (a) The securities to be received upon the exercise of the Warrant (the "Securities") will be acquired for investment for its own account, not as a nominee or agent, and not with a view to the sale or distribution of any part thereof, and the undersigned has no present intention of selling, granting participation in or otherwise distributing the same, but subject, nevertheless, to any requirement of law that the disposition of its property shall at all times be within its control. By executing this statement, the undersigned further represents that it does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer, or grant participations to such person or to any third person, with respect to any Securities issuable upon exercise of the Warrant. (b) The undersigned understands that the Securities issuable upon exercise of the Warrant at the time of issuance may not be registered under the Securities Act of 1933, as amended (the "Securities Act"), and applicable state securities laws, on the ground that the issuance of such securities is exempt pursuant to Section 4(2) of the Securities Act and state law exemptions relating to offers and sales not by means of a public offering, and that the Company's reliance on such exemptions is predicated on the undersigned's representations set forth herein. (c) The undersigned agrees that in no event will it make a disposition of any Securities acquired upon the exercise of the Warrant unless and until (i) it shall have notified the Company of the proposed disposition and shall have furnished the Company with a statement of the circumstances surrounding the proposed disposition, and (ii) it shall have furnished the Company with an opinion of counsel satisfactory to the Company and Company's counsel to the effect that (A) appropriate action necessary for compliance with the Securities Act and any applicable state securities laws has been taken or an exemption from the registration requirements of the Securities Act and such laws is available, and (B) the proposed transfer will not violate any of said laws. (d) The undersigned acknowledges that an investment in the Company is highly speculative and represents that it is able to fend for itself in the transactions contemplated by this statement, has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of its investments, and has the ability to bear the economic risks (including the risk of a total loss) of its investment. The undersigned represents that it has had the opportunity to ask questions of the Company concerning the Company's business and assets and to obtain any additional information which it considered necessary to verify the accuracy of or to amplify the Company's disclosures, and has had all questions which have been asked by it satisfactorily answered by the Company (e) The undersigned acknowledges that the Securities issuable upon exercise or conversion of the Warrant must be held indefinitely unless subsequently registered under the Securities Act or an exemption from such registration is available. The undersigned is aware of the provisions of Rule 144 promulgated under the Securities Act which permit limited resale of shares purchased in a private placement subject to the satisfaction of certain conditions, including, among other things, the existence of a public market for the shares, the availability of certain current public information about the Company, the resale occurring not less than one year after a party has purchased and paid for the security to be sold from the Company or any affiliate of the Company, the sale being through a "broker's transaction" or in transactions directly with a "market maker" (as provided by Rule 144(f)) and the number of shares being sold during any three month period not exceeding specified limitations. Dated:_________________________ _______________________________ (Typed or Printed Name) By:____________________________ (Signature) _______________________________ (Title) -2- Attachment 3 NOTICE OF CONVERSION TO: BEACON POWER CORPORATION 1. The undersigned hereby elects to acquire ________________ shares of the Warrant Stock of Beacon Power Corporation pursuant to the terms of the attached Warrant, by conversion of _________ percent (____%) of the Warrant. 2. Please issue a certificate or certificates representing said shares of Warrant Stock in the name of the undersigned or in such other name as is specified below: ________________________ (Name) ________________________ (Address) ___________________________________ ________________________________ (Date) (Name of Warrant Holder) By:___________________________ Title:________________________ (Title and signature of authorized person) THE SECURITIES EVIDENCED BY THIS WARRANT CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE SOLD, TRANSFERRED, OR ASSIGNED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN ACCORDANCE WITH RULE 144 UNDER THE SECURITIES ACT, OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF SUCH SECURITIES REASONABLY SATISFACTORY TO THE COMPANY STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT. THE SALE OR TRANSFER AND CERTAIN OTHER RIGHTS RELATING TO THE SECURITIES REPRESENTED BY THIS DOCUMENT ARE SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN SHAREHOLDER AGREEMENT BY AND AMONG THE COMPANY AND CERTAIN SHAREHOLDERS OF THE COMPANY. A COPY OF SUCH AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY. No.: 3 WARRANT TO PURCHASE CLASS E PREFERRED STOCK OF BEACON POWER CORPORATION (void after August 2, 2004) 1. Issuance of Warrant. FOR VALUE RECEIVED, on and after the date of issuance of this Warrant, and subject to the terms and conditions herein set forth, the Holder (as defined below) is entitled to purchase from Beacon Power Corporation, a Delaware corporation (the "Company"), at any time before 5:00 p.m. New York time on August 2, 2004 (the "Termination Date"), at a price per share equal to the Warrant Price (as defined below and subject to adjustment as described below), the Warrant Stock (as defined below and subject to adjustment as described below) upon exercise of this warrant (this "Warrant") pursuant to Section 6 hereof. This Warrant is issued pursuant to the Note and Warrant Purchase Agreement (as defined below). 2. Definitions. As used in this Warrant, the following terms have the definitions ascribed to them below: (a) "Additional Stock" is defined in Section 3(d)(iv). (b) "Base Price" means as of August 2, 1999, $1.78 per share of Common Stock, which shall be subject to adjustment as provided in Section 3(d). (c) "Business Day" means any day other than a Saturday, Sunday or other day on which the national or state banks located in the State of Massachusetts or the State of New York or the District of Columbia are authorized to be closed. (d) "Change-In-Control Event" means the occurrence after the Commencement Date of any of the following: (i) the acquisition of voting securities of the Company by any person or group of persons that results in such person or group, together with its affiliates, becoming, directly or indirectly, the beneficial owner of in excess of 50% of the outstanding voting securities of the Company; (ii) a merger or consolidation of the Company with any other corporation or legal entity regardless of which entity is the survivor, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or being converted into voting securities of the surviving entity) in excess of 50% of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; or (iii) the sale or disposition of all or substantially all of the Company's assets other than in a transaction in which holders of the voting securities of the Company immediately prior to such transaction receive voting securities of the acquiror of such assets or its affiliate that represent in excess of 50% of the voting securities of such entity after consummation of such transaction. (e) "Commencement Date" means the date of issue of this Warrant. (f) "Common Stock" means the Company's Common Stock, $.01 par value per share. (g) "Holder" means Duquesne Enterprises, Inc., or its assigns. (h) "Note and Warrant Purchase Agreement" means the Note and Warrant Purchase Agreement dated as of August 2, 1999 by and among the Company, Perseus Capital, L.L.C., Duquesne Enterprises, Inc., Micro Generation Technology Fund, L.L.C., and SatCon Technology Corporation (collectively, the "Purchasers"), and "Note" means the Note issued to the holder pursuant to such Agreement. (i) "Class E Preferred Stock" means the Class E Preferred Stock of the Company proposed to be issued to the Purchasers as part of the equity financing in which the Note is to be converted, as described in the above Note and Warrant Purchase Agreement. (j) "Warrant Price" means, (i) in the event that a purchase of at least $5 million of the Class E Preferred Stock is consummated within six (6) months from the date hereof, the per share price at which such purchase is made, or (ii) in the event that no such purchase is consummated, $2.50, in either event subject to adjustment as described in Section 3 below. (k) "Warrant Stock" means the shares of Company stock which are purchasable upon exercise or conversion of this Warrant, consisting of Class E Preferred Stock (or other Company securities) into which the Note is converted if such conversion actually -2- occurs, or consisting of shares of Common Stock if the Note is not so converted. The total number of shares to be issued upon the exercise of this Warrant shall be computed by dividing $125,000.00 by the Warrant Price, subject to adjustment as described in Section 3 below. The "Warrant Stock Definition Date" means the date on which the Note is converted (or if not converted, then the date on which the holder of the Note notifies the Company that it has become a demand note, as described in the Note. 3. Adjustments and Notices. The Warrant Price and/or the number of shares of Warrant Stock shall be subject to adjustment from time to time in accordance with this Section 3. The Warrant Price and/or the number of Warrant Shares shall be adjusted to reflect all of the following events that occur on or after the Commencement Date. However, if the Warrant Stock becomes defined to be preferred stock of the Company, then the following provisions in Section 3 shall not apply to shares issued on or after the Warrant Stock Definition Date. (a) Subdivision. Stock Dividends or Combinations. In case the Company shall at any time subdivide the outstanding shares of Warrant Stock or shall issue a stock dividend with respect to the Warrant Stock, the Warrant Price in effect immediately prior to such subdivision or the issuance of such dividend shall be proportionately decreased, and in case the Company shall at any time combine the outstanding shares of the Warrant Stock, the Warrant Price in effect immediately prior to such combination shall be proportionately increased, in each case effective at the close of business on the date of such subdivision, dividend or combination, as the case may be. (b) Reclassification, Exchange, Substitution. In-Kind Distribution. Upon any reclassifications, exchange, substitution or other event that results in a change of the number and/or class of the securities issuable upon exercise or conversion of this Warrant or upon the payment of a dividend in securities or property other than shares of Warrant Stock, the Holder shall be entitled to receive, upon exercise or conversion of this Warrant, the number and kind of securities and property that Holder would have received if this Warrant had been exercised or converted immediately before the record date for such reclassification, exchange, substitution, or other event or immediately prior to the record date for such dividend, The Company or its successor shall promptly issue to Holder a new warrant for such new securities or other property. The new warrant shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 3 including, without limitation, adjustments to the Warrant Price and to the number of securities or property issuable upon exercise or conversion of the new warrant. The provisions of this Section 3(b) shall similarly apply to successive reclassifications, exchanges, substitutions, or other events and successive dividends. (c) Reorganization. Merger etc. In case of any Change-In-Control Event, the Company, or such successor or purchasing corporation, as the case may be, shall, as a condition to closing any such reorganization, merger or sale, duly execute and deliver to the Holder hereof a new warrant so that the Holder shall have the right to receive, at a total purchase price not to exceed that payable upon the exercise or conversion of the unexercised or unconverted portion of this Warrant, and in lieu of the shares of the Warrant Stock theretofore issuable upon exercise or -3- conversion of this Warrant, the kind and amount of shares of stock, other securities, money and property receivable upon such reorganization, merger or sale by the Holder of the number of shares of Warrant Stock then purchasable under this Warrant. Such new warrant shall provide for adjustments that shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 3. The provisions of this subparagraph (c) shall similarly apply to successive Change-In-Control Events. (d) Dilutive Issuances Adjustment of Number of Shares and Warrant Price. In order to prevent dilution of the rights granted under this Warrant, the number of shares of Warrant Stock obtainable upon exercise of this Warrant and the Warrant Price shall be subject to adjustment from time to time as provided in this Section 3(d). (i) Adjustment of Warrant Price upon Issuance of Additional Stock. If and whenever after the Commencement Date, the Company issues, or in accordance with Section 3(d)(ii) is deemed to have issued, any Additional Stock to any person for a consideration per share less than the Base Price then in effect, then the Warrant Price in effect immediately before each such issuance shall forthwith be adjusted to a price determined by multiplying such Warrant Price by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such issuance plus the number of shares of Common Stock that the aggregate consideration received by the Company for such issuance would purchase at such Warrant Price; and the denominator of which shall be the number of shares of Common Stock outstanding immediately prior to such issuance plus the number of shares of such Additional Stock. (ii) Effect of Certain Events. For purposes of determining under Section (d)(i) the adjusted number of shares of Warrant Stock acquirable upon exercise of this Warrant, the following shall be applicable: (A) Issuance of Rights or Options. If the Company in any manner issues, grants or sells (or otherwise becomes subject to) any Options or Options for Convertible Securities, then the total maximum number of shares of Common Stock issuable upon the exercise of such Options or upon conversion or exchange of the total maximum amount of such Convertible Securities issuable upon the exercise of such Options shall be deemed to have been sold on the date of issuance, grant or sale of such Options and to be outstanding. (B) Issuance of Convertible Securities. If the Company in any manner grants, issues or sells (or otherwise becomes subject to) any Convertible Securities, then the maximum number of shares of Common Stock issuable upon conversion or exchange of such Convertible Securities shall be deemed to have been sold on the date of issuance, grant or sale of such Convertible Securities and to be outstanding. (C) Treatment of Expired Options and Unexercised Convertible Securities. Upon the expiration of any Option or the termination of any right to convert or exchange any Convertible Securities without the exercise of such Option or right, the number of shares of Warrant Stock acquirable hereunder shall be adjusted to the number of shares which would have been in effect at the time of such expiration or termination -4- had such Option or Convertible Securities, to the extent outstanding immediately prior to such expiration or termination, never been issued. (D) Treasury Shares. The number of shares of Common Stock outstanding at any given time does not include shares owned or held by or for the account of the Company or any Subsidiary, and the disposition of any shares so owned or held shall be considered an issuance or sale of Common Stock. (E) Record Date. If the Company takes a record of the holders of Common Stock for the purpose of entitling them (A) to receive a dividend or other distribution payable in Common Stock, Options or in Convertible Securities or (B) to subscribe for or purchase Common Stock, Options or Convertible Securities, then such record date shall be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be. (iii) In the case of the issuance of Additional Stock for cash, the consideration received therefor shall be deemed to be the amount of cash paid therefor before deducting any reasonable discounts, commissions or other expenses allowed, paid or incurred by the company for any underwriting or otherwise in connection with the issuance and sale thereof. In the case of the issuance of Additional Stock for a consideration in whole or in part other than cash, the consideration other than cash received therefor shall be deemed to be the fair value thereof as reasonably determined by the Board of Directors of the Company in its good faith judgment irrespective of any accounting treatment. (iv) "Additional Stock" shall mean any shares of Common Stock issued (or deemed to have been issued pursuant to clause (ii) of this Section 3(d)) by the Company after the Commencement Date, other than shares of Common Stock issued or issuable: (A) to officers, directors, employees and consultants of the Company directly or pursuant to a stock option plan or restricted stock plan approved by the Board of Directors of the Company; (B) upon conversion of the Class A, B, C, or D Preferred Stock (or, if authorized, the Class E Preferred Stock) of the Company or the exercise of warrants issued by the Company before or on the Commencement Date; (v) Certain Events. If any event occurs of the type contemplated by the provisions of this Section 3(d) but not expressly provided for by such provisions (including, without limitation, the granting of stock appreciation rights, phantom stock rights or other rights with equity features), then the Company's board of directors shall make an appropriate adjustment in the number of shares of Warrant Stock obtainable upon exercise of this Warrant and in the Warrant Price so as to protect the rights of the holders of the Warrants; provided that no such adjustment shall decrease the number of shares of Warrant Stock obtainable as otherwise -5- determined pursuant to this Section 3. (e) Certificate of Adjustment. In each case of an adjustment or readjustment of the Warrant Price, the Corporation, at its own expense, shall cause its Chief Financial Officer to compute such adjustment or readjustment in accordance with the provisions hereof and prepare a certificate showing such adjustment or readjustment, and shall mail such certificate, by first class mail, postage prepaid, to the Holder. The certificate shall set forth such adjustment or readjustment, showing in detail the facts upon which such adjustment or readjustment is based. No adjustment of the Warrant Price shall be required to be made unless it would result in an increase or decrease of at least one cent, but any adjustments not made because of this sentence shall be carried forward and taken into account in any subsequent adjustment otherwise required hereunder. (f) No Impairment. The Company shall not, by amendment of its Certificate of Incorporation or through a reorganization, transfer of assets, consolidation, merger, dissolution, issue, or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed under this Warrant by the Company, but shall at all times in good faith assist in carrying out all of the provisions of this Section 3 and in taking all such action as may be necessary or appropriate to protect the Holder's rights under this Section 3 against impairment. If the Company takes any action affecting the Class E Preferred Stock other than as described above that adversely affects the Holder's rights under this Warrant, the Warrant Price shall be adjusted downward. (g) Fractional Shares. No fractional shares shall be issuable upon exercise or conversion of the Warrant and the number of shares to be issued shall be rounded down to the nearest whole share. If a fractional share interest arises upon any exercise or conversion of the Warrant, the Company shall eliminate such fractional share interest by paying the Holder an amount computed by multiplying the fractional interest by the fair market value of a full share. 4. No Shareholder Rights. This Warrant, by itself, as distinguished from any shares purchased hereunder, shall not entitle its Holder to any of the rights of a shareholder of the Company. 5. Reservation of Stock. On and after the Warrant Stock Definition Date, the Company will reserve from its authorized and unissued stock a sufficient number of shares to provide for the issuance of Warrant Stock upon the exercise or conversion of this Warrant. Issuance of this Warrant shall constitute full authority to the Company's officers who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for shares of Warrant Stock issuable upon the exercise or conversion of this Warrant. 6. Exercise of Warrant. This Warrant may be exercised as a whole or part by the Holder, at any time after the date hereof prior to the termination of this Warrant, by the surrender of this Warrant, together with the Notice of Exercise and Investment Representation Statement in the forms attached hereto as Attachments 1 and 2, respectively, duly completed and executed at the principal office of the Company, specifying the portion of the Warrant to be exercised and -6- accompanied by payment in full of the Warrant Price in cash or by check with respect to the shares of Warrant Stock being purchased. Alternatively, the Holder may pay the Warrant Price as a whole or in part) by surrendering to the Company all or a portion of any Note (as defined in the Note and Warrant Purchase Agreement), in which case the portion of the Note surrendered plus all accrued but unpaid interest thereon shall be credited towards payment of the Warrant Price. If less the entire Note is surrendered in payment of the Warrant Price, the Company shall issue to the Holder a new promissory note identical to the surrendered Note except that the principal amount thereof shall equal the unsurrendered portion of the principal amount of the surrendered Note. This Warrant shall be deemed to have been exercised immediately prior to the close of business on the date of its surrender for exercise as provided above, and the person entitled to receive the shares of Warrant Stock issuable upon such exercise shall be treated for all purposes as the holder of such shares of record as of the close of business on such date. As promptly as practicable after such date, the Company shall issue and deliver to the person or persons entitled to receive the same a certificate or certificates for the number of full shares of Warrant Stock issuable upon such exercise. If this Warrant shall be exercised for less than the total number of shares of Warrant Stock then issuable upon exercise, promptly after surrender of this Warrant upon such exercise, the Company will execute and deliver a new warrant, dated the date hereof, evidencing the right of the Holder to the balance of this Warrant Stock purchasable hereunder upon the same terms and conditions set forth herein. 7. Conversion, In lieu of exercising this Warrant or any portion hereof, at any time after the occurrence of a Change-In-Control Event or the filing of a registration statement for an initial underwritten public offering of securities by the Company, the Holder hereof shall have the right to convert this Warrant or any portion hereof into Warrant Stock by executing and delivering to the Company at its principal office the written Notice of Conversion and Investment Representation Statement in the forms attached hereto as Attachments 2 and 3, specifying the portion of the Warrant to be converted, and accompanied by this Warrant. The number of shares of Warrant Stock to be issued to Holder upon such conversion shall be computed using the following formula: X=(P)(Y)(A-B)/A where X = the number of shares of Warrant Stock to be issued to the Holder for the portion of the Warrant being converted. P = the portion of the Warrant being converted expressed as a decimal fraction. Y = the total number of shares of Warrant Stock issuable upon exercise of the Warrant in full. A = the fair market value of one share of Warrant Stock which means (i) the fair market value of the Warrant Stock as of the last Business Day immediately prior to the date the notice of -7- conversion is received by the Company, as reported in the principal market for such securities or, if no such market exists, as determined in good faith by the Company's Board of Directors, or (ii) if this Warrant is being converted in conjunction with a public offering of stock the price to the public per share pursuant to the offering. B = the Warrant Price on the date of conversion. Any portion of this Warrant that is converted shall be immediately canceled. This Warrant or any portion hereof shall be deemed to have been converted immediately prior to the close of business on the date of its surrender for conversion as provided above, and the person entitled to receive the shares of Warrant Stock issuable upon such conversion shall be treated for all purposes as the holder of such shares of record as of the close of business on such date. As promptly as practicable after such date, the Company shall issue and deliver to the person or persons entitled to receive the same a certificate or certificates for the number of full shares of Warrant Stock issuable upon such conversion. If the Warrant shall be converted for less than the total number of shares of Warrant Stock then issuable upon conversion, promptly after surrender of the Warrant upon such conversion, the Company will execute and deliver a new warrant, dated the date hereof, evidencing the right of the Holder to the balance of the Warrant Stock purchasable hereunder upon the same terms and conditions set forth herein. If this Warrant is converted, as a whole or in part, after the occurrence of a Change-In-Control Event as to which Section 3(c) is applicable, the Holder shall receive the consideration contemplated by Section 3(c) in lieu of Warrants Stock of the Company. 8. Transfer of Warrant. This Warrant may be transferred or assigned by the Holder hereof in whole or in part, provided that the transferor provides, at the Company's request, an opinion of counsel satisfactory to the Company that such transfer does not require registration under the Securities Act and the securities law applicable with respect to any other applicable jurisdiction. 9. Termination. This Warrant shall terminate on 5:00 p.m. New York time on the Termination Date. 10. Miscellaneous. This Warrant shall be governed by the laws of the Commonwealth of Massachusetts, as such laws are applied to contracts to be entered into and performed entirely in Massachusetts by Massachusetts residents. In the event of any dispute among the Holder and the Company arising out of the terms of this Warrant, the parties hereby consent to the exclusive jurisdiction of the federal and state courts located in the Commonwealth of Massachusetts for resolution 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. The headings in this Warrant are for purposes of convenience and reference only, and shall not be -8- deemed to constitute a part hereof. Neither this Warrant nor any term hereof may be changed or waived orally, but only by an instrument in writing signed by the Company and the Holder of this Warrant. All notices and other communications from the Company to the Holder of this Warrant shall be delivered personally or by facsimile transmission or mailed by first class mail, postage prepaid, to the address or facsimile number furnished to the Company in writing by the last Holder of this Warrant who shall have furnished an address or facsimile number to the Company in writing, and if mailed shall be deemed given three days after deposit in the United States mail. ISSUED: August 2, 1999 BEACON POWER CORPORATION By: /s/ Willian E. Stanton ------------------------- Name: WILLIAM E. STANTON ----------------------- Title: PRESIDENT & CEO ----------------------- -9- Attachment 1 NOTICE OF EXERCISE TO: BEACON POWER CORPORATION 1. The undersigned hereby elects to purchase ________________ shares of the Warrant Stock of Beacon Power Corporation pursuant to the terms of the attached Warrant, and tenders herewith payment of the purchase price in full, together with all applicable transfer taxes, if any. 2. Please issue a certificate or certificates representing said shares of Warrant Stock in the name of the undersigned or in such other name as is specified below: ________________________ (Name) ________________________ (Address) ___________________________________ ________________________________ (Date) (Name of Warrant Holder) By:___________________________ Title:________________________ Attachment 2 INVESTMENT REPRESENTATION STATEMENT Shares of the Class E Preferred Stock (as defined in the attached Warrant) of BEACON POWER CORPORATION In connection with the purchase of the above-listed securities, the undersigned hereby represents to Beacon Power Corporation (the "Company") as follows: (a) The securities to be received upon the exercise of the Warrant (the "Securities") will be acquired for investment for its own account, not as a nominee or agent, and not with a view to the sale or distribution of any part thereof, and the undersigned has no present intention of selling, granting participation in or otherwise distributing the same, but subject, nevertheless, to any requirement of law that the disposition of its property shall at all times be within its control. By executing this statement, the undersigned further represents that it does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer, or grant participations to such person or to any third person, with respect to any Securities issuable upon exercise of the Warrant. (b) The undersigned understands that the Securities issuable upon exercise of the Warrant at the time of issuance may not be registered under the Securities Act of 1933, as amended (the "Securities Act"), and applicable state securities laws, on the ground that the issuance of such securities is exempt pursuant to Section 4(2) of the Securities Act and state law exemptions relating to offers and sales not by means of a public offering, and that the Company's reliance on such exemptions is predicated on the undersigned's representations set forth herein. (c) The undersigned agrees that in no event will it make a disposition of any Securities acquired upon the exercise of the Warrant unless and until (i) it shall have notified the Company of the proposed disposition and shall have furnished the Company with a statement of the circumstances surrounding the proposed disposition, and (ii) it shall have furnished the Company with an opinion of counsel satisfactory to the Company and Company's counsel to the effect that (A) appropriate action necessary for compliance with the Securities Act and any applicable state securities laws has been taken or an exemption from the registration requirements of the Securities Act and such laws is available, and (B) the proposed transfer will not violate any of said laws. (d) The undersigned acknowledges that an investment in the Company is highly speculative and represents that it is able to fend for itself in the transactions contemplated by this statement, has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of its investments, and has the ability to bear the economic risks (including the risk of a total loss) of its investment. The undersigned represents that it has had the opportunity to ask questions of the Company concerning the Company's business and assets and to obtain any additional information which it considered necessary to verify the accuracy of or to amplify the Company's disclosures, and has had all questions which have been asked by it satisfactorily answered by the Company (e) The undersigned acknowledges that the Securities issuable upon exercise or conversion of the Warrant must be held indefinitely unless subsequently registered under the Securities Act or an exemption from such registration is available. The undersigned is aware of the provisions of Rule 144 promulgated under the Securities Act which permit limited resale of shares purchased in a private placement subject to the satisfaction of certain conditions, including, among other things, the existence of a public market for the shares, the availability of certain current public information about the Company, the resale occurring not less than one year after a party has purchased and paid for the security to be sold from the Company or any affiliate of the Company, the sale being through a "broker's transaction" or in transactions directly with a "market maker" (as provided by Rule 144(f)) and the number of shares being sold during any three month period not exceeding specified limitations. Dated:_________________________ _______________________________ (Typed or Printed Name) By:____________________________ (Signature) _______________________________ (Title) -2- Attachment 3 NOTICE OF CONVERSION TO: BEACON POWER CORPORATION 1. The undersigned hereby elects to acquire ________________ shares of the Warrant Stock of Beacon Power Corporation pursuant to the terms of the attached Warrant, by conversion of _________ percent (____%) of the Warrant. 2. Please issue a certificate or certificates representing said shares of Warrant Stock in the name of the undersigned or in such other name as is specified below: ________________________ (Name) ________________________ (Address) ___________________________________ ________________________________ (Date) (Name of Warrant Holder) By:___________________________ Title:________________________ (Title and signature of authorized person) THE SECURITIES EVIDENCED BY THIS WARRANT CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE SOLD, TRANSFERRED, OR ASSIGNED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN ACCORDANCE WITH RULE 144 UNDER THE SECURITIES ACT, OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF SUCH SECURITIES REASONABLY SATISFACTORY TO THE COMPANY STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT. THE SALE OR TRANSFER AND CERTAIN OTHER RIGHTS RELATING TO THE SECURITIES REPRESENTED BY THIS DOCUMENT ARE SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN SHAREHOLDER AGREEMENT BY AND AMONG THE COMPANY AND CERTAIN SHAREHOLDERS OF THE COMPANY. A COPY OF SUCH AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY. No.: 4 WARRANT TO PURCHASE CLASS E PREFERRED STOCK OF BEACON POWER CORPORATION (void after August 2, 2004) 1. Issuance of Warrant. FOR VALUE RECEIVED, on and after the date of issuance of this Warrant, and subject to the terms and conditions herein set forth, the Holder (as defined below) is entitled to purchase from Beacon Power Corporation, a Delaware corporation (the "Company"), at any time before 5:00 p.m. New York time on August 2, 2004 (the "Termination Date"), at a price per share equal to the Warrant Price (as defined below and subject to adjustment as described below), the Warrant Stock (as defined below and subject to adjustment as described below) upon exercise of this warrant (this "Warrant") pursuant to Section 6 hereof. This Warrant is issued pursuant to the Note and Warrant Purchase Agreement (as defined below). 2. Definitions. As used in this Warrant, the following terms have the definitions ascribed to them below: (a) "Additional Stock" is defined in Section 3(d)(iv). (b) "Base Price" means as of August 2, 1999, $1.78 per share of Common Stock, which shall be subject to adjustment as provided in Section 3(d). (c) "Business Day" means any day other than a Saturday, Sunday or other day on which the national or state banks located in the State of Massachusetts or the State of New York or the District of Columbia are authorized to be closed. (d) "Change-In-Control Event" means the occurrence after the Commencement Date of any of the following: (i) the acquisition of voting securities of the Company by any person or group of persons that results in such person or group, together with its affiliates, becoming, directly or indirectly, the beneficial owner of in excess of 50% of the outstanding voting securities of the Company; (ii) a merger or consolidation of the Company with any other corporation or legal entity regardless of which entity is the survivor, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or being converted into voting securities of the surviving entity) in excess of 50% of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; or (iii) the sale or disposition of all or substantially all of the Company's assets other than in a transaction in which holders of the voting securities of the Company immediately prior to such transaction receive voting securities of the acquiror of such assets or its affiliate that represent in excess of 50% of the voting securities of such entity after consummation of such transaction. (e) "Commencement Date" means the date of issue of this Warrant. (f) "Common Stock" means the Company's Common Stock, $.01 par value per share. (g) "Holder" means Micro Generation Technology Fund, L.L.C., or its assigns. (h) "Note and Warrant Purchase Agreement" means the Note and Warrant Purchase Agreement dated as of August 2, 1999 by and among the Company, Perseus Capital, L.L.C., Duquesne Enterprises, Inc., Micro Generation Technology Fund, L.L.C., and SatCon Technology Corporation (collectively, the "Purchasers"), and "Note" means the Note issued to the holder pursuant to such Agreement. (i) "Class E Preferred Stock" means the Class E Preferred Stock of the Company proposed to be issued to the Purchasers as part of the equity financing in which the Note is to be converted, as described in the above Note and Warrant Purchase Agreement. (j) "Warrant Price" means, (i) in the event that a purchase of at least $5 million of the Class E Preferred Stock is consummated within six (6) months from the date hereof, the per share price at which such purchase is made, or (ii) in the event that no such purchase is consummated, $2.50, in either event subject to adjustment as described in Section 3 below. (k) "Warrant Stock" means the shares of Company stock which are purchasable upon exercise or conversion of this Warrant, consisting of Class E Preferred Stock -2- (or other Company securities) into which the Note is converted if such conversion actually occurs, or consisting of shares of Common Stock if the Note is not so converted. The total number of shares to be issued upon the exercise of this Warrant shall be computed by dividing $37,500.00 by the Warrant Price, subject to adjustment as described in Section 3 below. The "Warrant Stock Definition Date" means the date on which the Note is converted (or if not converted, then the date on which the holder of the Note notifies the Company that it has become a demand note, as described in the Note. 3. Adjustments and Notices. The Warrant Price and/or the number of shares of Warrant Stock shall be subject to adjustment from time to time in accordance with this Section 3. The Warrant Price and/or the number of Warrant Shares shall be adjusted to reflect all of the following events that occur on or after the Commencement Date. However, if the Warrant Stock becomes defined to be preferred stock of the Company, then the following provisions in Section 3 shall not apply to shares issued on or after the Warrant Stock Definition Date. (a) Subdivision, Stock Dividends or Combinations. In case the Company shall at any time subdivide the outstanding shares of Warrant Stock or shall issue a stock dividend with respect to the Warrant Stock, the Warrant Price in effect immediately prior to such subdivision or the issuance of such dividend shall be proportionately decreased, and in case the Company shall at any time combine the outstanding shares of the Warrant Stock, the Warrant Price in effect immediately prior to such combination shall be proportionately increased, in each case effective at the close of business on the date of such subdivision, dividend or combination, as the case may be. (b) Reclassification, Exchange, Substitution, In-Kind Distribution. Upon any reclassifications, exchange, substitution or other event that results in a change of the number and/or class of the securities issuable upon exercise or conversion of this Warrant or upon the payment of a dividend in securities or property other than shares of Warrant Stock, the Holder shall be entitled to receive, upon exercise or conversion of this Warrant, the number and kind of securities and property that Holder would have received if this Warrant had been exercised or converted immediately before the record date for such reclassification, exchange, substitution, or other event or immediately prior to the record date for such dividend, The Company or its successor shall promptly issue to Holder a new warrant for such new securities or other property. The new warrant shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 3 including, without limitation, adjustments to the Warrant Price and to the number of securities or property issuable upon exercise or conversion of the new warrant. The provisions of this Section 3(b) shall similarly apply to successive reclassifications, exchanges, substitutions, or other events and successive dividends. (c) Reorganization, Merger etc. In case of any Change-In-Control Event, the Company, or such successor or purchasing corporation, as the case may be, shall, as a condition to closing any such reorganization, merger or sale, duly execute and deliver to the Holder hereof a new warrant so that the Holder shall have the right to receive, at a total purchase price not to exceed that payable upon the exercise or conversion of the unexercised or unconverted portion of -3- this Warrant, and in lieu of the shares of the Warrant Stock theretofore issuable upon exercise or conversion of this Warrant, the kind and amount of shares of stock, other securities, money and property receivable upon such reorganization, merger or sale by the Holder of the number of shares of Warrant Stock then purchasable under this Warrant. Such new warrant shall provide for adjustments that shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 3. The provisions of this subparagraph (c) shall similarly apply to successive Change-In-Control Events. (d) Dilutive Issuances Adjustment of Number of Shares and Warrant Price. In order to prevent dilution of the rights granted under this Warrant, the number of shares of Warrant Stock obtainable upon exercise of this Warrant and the Warrant Price shall be subject to adjustment from time to time as provided in this Section 3(d). (i) Adjustment of Warrant Price upon Issuance of Additional Stock. If and whenever after the Commencement Date, the Company issues, or in accordance with Section 3(d)(ii) is deemed to have issued, any Additional Stock to any person for a consideration per share less than the Base Price then in effect, then the Warrant Price in effect immediately before each such issuance shall forthwith be adjusted to a price determined by multiplying such Warrant Price by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such issuance plus the number of shares of Common Stock that the aggregate consideration received by the Company for such issuance would purchase at such Warrant Price; and the denominator of which shall be the number of shares of Common Stock outstanding immediately prior to such issuance plus the number of shares of such Additional Stock. (ii) Effect of Certain Events. For purposes of determining under Section (d)(i) the adjusted number of shares of Warrant Stock acquirable upon exercise of this Warrant, the following shall be applicable: (A) Issuance of Rights or Options. If the Company in any manner issues, grants or sells (or otherwise becomes subject to) any Options or Options for Convertible Securities, then the total maximum number of shares of Common Stock issuable upon the exercise of such Options or upon conversion or exchange of the total maximum amount of such Convertible Securities issuable upon the exercise of such Options shall be deemed to have been sold on the date of issuance, grant or sale of such Options and to be outstanding. (B) Issuance of Convertible Securities. If the Company in any manner grants, issues or sells (or otherwise becomes subject to) any Convertible Securities, then the maximum number of shares of Common Stock issuable upon conversion or exchange of such Convertible Securities shall be deemed to have been sold on the date of issuance, grant or sale of such Convertible Securities and to be outstanding. (C) Treatment of Expired Options and Unexercised Convertible Securities. Upon the expiration of any Option or the termination of any right to convert or exchange any Convertible Securities without the exercise of such Option or right, the number of shares of Warrant Stock acquirable hereunder shall be adjusted to the number -4- of shares which would have been in effect at the time of such expiration or termination had such Option or Convertible Securities, to the extent outstanding immediately prior to such expiration or termination, never been issued. (D) Treasury Shares. The number of shares of Common Stock outstanding at any given time does not include shares owned or held by or for the account of the Company or any Subsidiary, and the disposition of any shares so owned or held shall be considered an issuance or sale of Common Stock. (E) Record Date. If the Company takes a record of the holders of Common Stock for the purpose of entitling them (A) to receive a dividend or other distribution payable in Common Stock, Options or in Convertible Securities or (B) to subscribe for or purchase Common Stock, Options or Convertible Securities, then such record date shall be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be. (iii) In the case of the issuance of Additional Stock for cash, the consideration received therefor shall be deemed to be the amount of cash paid therefor before deducting any reasonable discounts, commissions or other expenses allowed, paid or incurred by the company for any underwriting or otherwise in connection with the issuance and sale thereof. In the case of the issuance of Additional Stock for a consideration in whole or in part other than cash, the consideration other than cash received therefor shall be deemed to be the fair value thereof as reasonably determined by the Board of Directors of the Company in its good faith judgment irrespective of any accounting treatment. (iv) "Additional Stock" shall mean any shares of Common Stock issued (or deemed to have been issued pursuant to clause (ii) of this Section 3(d)) by the Company after the Commencement Date, other than shares of Common Stock issued or issuable: (A) to officers, directors, employees and consultants of the Company directly or pursuant to a stock option plan or restricted stock plan approved by the Board of Directors of the Company; (B) upon conversion of the Class A, B, C, or D Preferred Stock (or, if authorized, the Class E Preferred Stock) of the Company or the exercise of warrants issued by the Company before or on the Commencement Date; (v) Certain Events. If any event occurs of the type contemplated by the provisions of this Section 3(d) but not expressly provided for by such provisions (including, without limitation, the granting of stock appreciation rights, phantom stock rights or other rights with equity features), then the Company's board of directors shall make an appropriate adjustment in the number of shares of Warrant Stock obtainable upon exercise of this Warrant and in the Warrant Price so as to protect the rights of the holders of the Warrants; provided that -5- no such adjustment shall decrease the number of shares of Warrant Stock obtainable as otherwise determined pursuant to this Section 3. (e) Certificate of Adjustment. In each case of an adjustment or readjustment of the Warrant Price, the Corporation, at its own expense, shall cause its Chief Financial Officer to compute such adjustment or readjustment in accordance with the provisions hereof and prepare a certificate showing such adjustment or readjustment, and shall mail such certificate, by first class mail, postage prepaid, to the Holder. The certificate shall set forth such adjustment or readjustment, showing in detail the facts upon which such adjustment or readjustment is based. No adjustment of the Warrant Price shall be required to be made unless it would result in an increase or decrease of at least one cent, but any adjustments not made because of this sentence shall be carried forward and taken into account in any subsequent adjustment otherwise required hereunder. (f) No Impairment, The Company shall not, by amendment of its Certificate of Incorporation or through a reorganization, transfer of assets, consolidation, merger, dissolution, issue, or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed under this Warrant by the Company, but shall at all times in good faith assist in carrying out all of the provisions of this Section 3 and in taking all such action as may be necessary or appropriate to protect the Holder's rights under this Section 3 against impairment. If the Company takes any action affecting the Class E Preferred Stock other than as described above that adversely affects the Holder's rights under this Warrant, the Warrant Price shall be adjusted downward. (g) Fractional Shares. No fractional shares shall be issuable upon exercise or conversion of the Warrant and the number of shares to be issued shall be rounded down to the nearest whole share. If a fractional share interest arises upon any exercise or conversion of the Warrant, the Company shall eliminate such fractional share interest by paying the Holder an amount computed by multiplying the fractional interest by the fair market value of a full share. 4. No Shareholder Rights. This Warrant, by itself, as distinguished from any shares purchased hereunder, shall not entitle its Holder to any of the rights of a shareholder of the Company. 5. Reservation of Stock. On and after the Warrant Stock Definition Date, the Company will reserve from its authorized and unissued stock a sufficient number of shares to provide for the issuance of Warrant Stock upon the exercise or conversion of this Warrant. Issuance of this Warrant shall constitute full authority to the Company's officers who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for shares of Warrant Stock issuable upon the exercise or conversion of this Warrant. 6. Exercise of Warrant. This Warrant may be exercised as a whole or part by the Holder, at any time after the date hereof prior to the termination of this Warrant, by the surrender of this Warrant, together with the Notice of Exercise and Investment Representation Statement in the forms attached hereto as Attachments 1 and 2, respectively, duly completed and executed at -6- the principal office of the Company, specifying the portion of the Warrant to be exercised and accompanied by payment in full of the Warrant Price in cash or by check with respect to the shares of Warrant Stock being purchased. Alternatively, the Holder may pay the Warrant Price as a whole or in part) by surrendering to the Company all or a portion of any Note (as defined in the Note and Warrant Purchase Agreement), in which case the portion of the Note surrendered plus all accrued but unpaid interest thereon shall be credited towards payment of the Warrant Price. If less the entire Note is surrendered in payment of the Warrant Price, the Company shall issue to the Holder a new promissory note identical to the surrendered Note except that the principal amount thereof shall equal the unsurrendered portion of the principal amount of the surrendered Note. This Warrant shall be deemed to have been exercised immediately prior to the close of business on the date of its surrender for exercise as provided above, and the person entitled to receive the shares of Warrant Stock issuable upon such exercise shall be treated for all purposes as the holder of such shares of record as of the close of business on such date. As promptly as practicable after such date, the Company shall issue and deliver to the person or persons entitled to receive the same a certificate or certificates for the number of full shares of Warrant Stock issuable upon such exercise. If this Warrant shall be exercised for less than the total number of shares of Warrant Stock then issuable upon exercise, promptly after surrender of this Warrant upon such exercise, the Company will execute and deliver a new warrant, dated the date hereof, evidencing the right of the Holder to the balance of this Warrant Stock purchasable hereunder upon the same terms and conditions set forth herein. 7. Conversion, In lieu of exercising this Warrant or any portion hereof, at any time after the occurrence of a Change-In-Control Event or the filing of a registration statement for an initial underwritten public offering of securities by the Company, the Holder hereof shall have the right to convert this Warrant or any portion hereof into Warrant Stock by executing and delivering to the Company at its principal office the written Notice of Conversion and Investment Representation Statement in the forms attached hereto as Attachments 2 and 3, specifying the portion of the Warrant to be converted, and accompanied by this Warrant. The number of shares of Warrant Stock to be issued to Holder upon such conversion shall be computed using the following formula: X=(P)(Y)(A-B)/A where X = the number of shares of Warrant Stock to be issued to the Holder for the portion of the Warrant being converted. P = the portion of the Warrant being converted expressed as a decimal fraction. Y = the total number of shares of Warrant Stock issuable upon exercise of the Warrant in full. A = the fair market value of one share of Warrant Stock which means (i) the fair market value of the Warrant Stock as of the last -7- Business Day immediately prior to the date the notice of conversion is received by the Company, as reported in the principal market for such securities or, if no such market exists, as determined in good faith by the Company's Board of Directors, or (ii) if this Warrant is being converted in conjunction with a public offering of stock the price to the public per share pursuant to the offering. B = the Warrant Price on the date of conversion. Any portion of this Warrant that is converted shall be immediately canceled. This Warrant or any portion hereof shall be deemed to have been converted immediately prior to the close of business on the date of its surrender for conversion as provided above, and the person entitled to receive the shares of Warrant Stock issuable upon such conversion shall be treated for all purposes as the holder of such shares of record as of the close of business on such date. As promptly as practicable after such date, the Company shall issue and deliver to the person or persons entitled to receive the same a certificate or certificates for the number of full shares of Warrant Stock issuable upon such conversion. If the Warrant shall be converted for less than the total number of shares of Warrant Stock then issuable upon conversion, promptly after surrender of the Warrant upon such conversion, the Company will execute and deliver a new warrant, dated the date hereof, evidencing the right of the Holder to the balance of the Warrant Stock purchasable hereunder upon the same terms and conditions set forth herein. If this Warrant is converted, as a whole or in part, after the occurrence of a Change-In-Control Event as to which Section 3(c) is applicable, the Holder shall receive the consideration contemplated by Section 3(c) in lieu of Warrants Stock of the Company. 8. Transfer of Warrant. This Warrant may be transferred or assigned by the Holder hereof in whole or in part, provided that the transferor provides, at the Company's request, an opinion of counsel satisfactory to the Company that such transfer does not require registration under the Securities Act and the securities law applicable with respect to any other applicable jurisdiction. 9. Termination. This Warrant shall terminate on 5:00 p.m. New York time on the Termination Date. 10. Miscellaneous. This Warrant shall be governed by the laws of the Commonwealth of Massachusetts, as such laws are applied to contracts to be entered into and performed entirely in Massachusetts by Massachusetts residents. In the event of any dispute among the Holder and the Company arising out of the terms of this Warrant, the parties hereby consent to the exclusive jurisdiction of the federal and state courts located in the Commonwealth of Massachusetts for resolution 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. The headings in this Warrant are for purposes of convenience and reference only, and shall not be -8- deemed to constitute a part hereof Neither this Warrant nor any term hereof may be changed or waived orally, but only by an instrument in writing signed by the Company and the Holder of this Warrant. All notices and other communications from the Company to the Holder of this Warrant shall be delivered personally or by facsimile transmission or mailed by first class mail, postage prepaid, to the address or facsimile number furnished to the Company in writing by the last Holder of this Warrant who shall have furnished an address or facsimile number to the Company in writing, and if mailed shall be deemed given three days after deposit in the United States mail. ISSUED: August 2, 1999 BEACON POWER CORPORATION By: /s/ Willian E. Stanton ------------------------- Name: WILLIAM E. STANTON ----------------------- Title: PRESIDENT & CEO ----------------------- -9- Attachment 1 NOTICE OF EXERCISE TO: BEACON POWER CORPORATION 1. The undersigned hereby elects to purchase ________________ shares of the Warrant Stock of Beacon Power Corporation pursuant to the terms of the attached Warrant, and tenders herewith payment of the purchase price in full, together with all applicable transfer taxes, if any. 2. Please issue a certificate or certificates representing said shares of Warrant Stock in the name of the undersigned or in such other name as is specified below: ________________________ (Name) ________________________ (Address) ___________________________________ ________________________________ (Date) (Name of Warrant Holder) By:___________________________ Title:________________________ Attachment 2 INVESTMENT REPRESENTATION STATEMENT Shares of the Class E Preferred Stock (as defined in the attached Warrant) of BEACON POWER CORPORATION In connection with the purchase of the above-listed securities, the undersigned hereby represents to Beacon Power Corporation (the "Company") as follows: (a) The securities to be received upon the exercise of the Warrant (the "Securities") will be acquired for investment for its own account, not as a nominee or agent, and not with a view to the sale or distribution of any part thereof, and the undersigned has no present intention of selling, granting participation in or otherwise distributing the same, but subject, nevertheless, to any requirement of law that the disposition of its property shall at all times be within its control. By executing this statement, the undersigned further represents that it does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer, or grant participations to such person or to any third person, with respect to any Securities issuable upon exercise of the Warrant. (b) The undersigned understands that the Securities issuable upon exercise of the Warrant at the time of issuance may not be registered under the Securities Act of 1933, as amended (the "Securities Act"), and applicable state securities laws, on the ground that the issuance of such securities is exempt pursuant to Section 4(2) of the Securities Act and state law exemptions relating to offers and sales not by means of a public offering, and that the Company's reliance on such exemptions is predicated on the undersigned's representations set forth herein. (c) The undersigned agrees that in no event will it make a disposition of any Securities acquired upon the exercise of the Warrant unless and until (i) it shall have notified the Company of the proposed disposition and shall have furnished the Company with a statement of the circumstances surrounding the proposed disposition, and (ii) it shall have furnished the Company with an opinion of counsel satisfactory to the Company and Company's counsel to the effect that (A) appropriate action necessary for compliance with the Securities Act and any applicable state securities laws has been taken or an exemption from the registration requirements of the Securities Act and such laws is available, and (B) the proposed transfer will not violate any of said laws. (d) The undersigned acknowledges that an investment in the Company is highly speculative and represents that it is able to fend for itself in the transactions contemplated by this statement, has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of its investments, and has the ability to bear the economic risks (including the risk of a total loss) of its investment. The undersigned represents that it has had the opportunity to ask questions of the Company concerning the Company's business and assets and to obtain any additional information which it considered necessary to verify the accuracy of or to amplify the Company's disclosures, and has had all questions which have been asked by it satisfactorily answered by the Company (e) The undersigned acknowledges that the Securities issuable upon exercise or conversion of the Warrant must be held indefinitely unless subsequently registered under the Securities Act or an exemption from such registration is available. The undersigned is aware of the provisions of Rule 144 promulgated under the Securities Act which permit limited resale of shares purchased in a private placement subject to the satisfaction of certain conditions, including, among other things, the existence of a public market for the shares, the availability of certain current public information about the Company, the resale occurring not less than one year after a party has purchased and paid for the security to be sold from the Company or any affiliate of the Company, the sale being through a "broker's transaction" or in transactions directly with a "market maker" (as provided by Rule 144(f)) and the number of shares being sold during any three month period not exceeding specified limitations. Dated:_________________________ _______________________________ (Typed or Printed Name) By:____________________________ (Signature) _______________________________ (Title) -2- Attachment 3 NOTICE OF CONVERSION TO: BEACON POWER CORPORATION 1. The undersigned hereby elects to acquire ________________ shares of the Warrant Stock of Beacon Power Corporation pursuant to the terms of the attached Warrant, by conversion of _________ percent (____%) of the Warrant. 2. Please issue a certificate or certificates representing said shares of Warrant Stock in the name of the undersigned or in such other name as is specified below: ________________________ (Name) ________________________ (Address) ___________________________________ ________________________________ (Date) (Name of Warrant Holder) By:___________________________ Title:________________________ (Title and signature of authorized person) EX-27 5 FINANCIAL DATA SCHEDULE
5 9-MOS SEP-30-1999 OCT-01-1998 JUN-30-1999 516,610 0 3,223,577 239,206 3,851,679 8,646,484 3,320,909 0 15,278,952 6,322,998 0 0 0 93,670 8,862,284 15,278,952 0 11,478,898 11,375,009 19,223,459 150,464 1,884,803 42,150 (9,821,978) 0 (9,821,978) 0 0 0 (9,821,978) (0.78) (0.78) PP&E is shown net of accumulated depreciation as reported within the Form 10-Q on the Balance Sheet In accordance with SFAS No. 128, "Earnings per share_Basic" is reported as the value for the EPS-PRIMARY tag and "Earnings per share_Diluted" is reported as the value for the EPS-DILUTED tag
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