-----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, NlbP1LYfGbdWdUwqSJ0q8eACSKxF2MP1TiLNjEGlq6yYR4XeJqBFy7QKPcmU8syp NzI+jTU4Zdbd4yNfJQUz6Q== 0000927016-99-003225.txt : 19990915 0000927016-99-003225.hdr.sgml : 19990915 ACCESSION NUMBER: 0000927016-99-003225 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 28 FILED AS OF DATE: 19990914 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PLUG POWER INC CENTRAL INDEX KEY: 0001093691 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRICAL INDUSTRIAL APPARATUS [3620] IRS NUMBER: 223672377 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1/A SEC ACT: SEC FILE NUMBER: 333-86089 FILM NUMBER: 99710806 BUSINESS ADDRESS: STREET 1: 968 ALBANY-SHAKER ROAD CITY: LATHAM STATE: NY ZIP: 12110 BUSINESS PHONE: 5187827700 MAIL ADDRESS: STREET 1: 968 ALBANY-SHAKER ROAD CITY: LATHAM STATE: NY ZIP: 12110 S-1/A 1 FORM S-1/A As filed with the Securities and Exchange Commission on September 13, 1999 Registration Statement No. 333-86089 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------- AMENDMENT NO. 1 TO FORM S-1 REGISTRATION STATEMENT Under The Securities Act of 1933 ---------------- PLUG POWER INC. (Exact Name of Registrant as Specified in its Charter) Delaware 3629 22-3672377 (Primary Standard Industrial (I.R.S. Employer (State or Other Classification Code Number) Identification No.) Jurisdiction of Incorporation or Organization) ---------------- 968 Albany-Shaker Road Latham, NY 12110 (518) 782-7700 (Address, including zip code, and telephone number, including area code, of Registrant's principal executive office) ---------------- Gary Mittleman President and Chief Executive Officer Plug Power Inc. 968 Albany-Shaker Road Latham, NY 12110 (518) 782-7700 (Name, address, including zip code, and telephone number, including area code, of agent for service) ---------------- Copies to: Stuart M. Cable, P.C. David C. Chapin, Esq. Robert P. Whalen, Jr., Esq. Ropes & Gray Goodwin, Procter & Hoar llp One International Place Exchange Place Boston, Massachusetts 02110 Boston, Massachusetts 02109-2881 (617) 951-7000 (617) 570-1000 ---------------- Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [_] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [_] ---------------- The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the SEC, acting pursuant to Section 8(a), may determine. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- EXPLANATORY NOTE Plug Power has prepared this Amendment No. 1 for the purpose of filing with the Securities and Exchange Commission certain exhibits to the Registration Statement. Amendment No. 1 does not modify any provision of the Prospectus included in the Registration Statement; accordingly, the related Cross- Reference Sheet and such Prospectus have not been included herein. PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 13. Other Expenses of Issuance and Distribution The following table sets forth the estimated expenses payable by us in connection with the offering (excluding underwriting discounts and commissions):
Nature of Expense Amount ----------------- ------- SEC Registration Fee................................................... $32,610 NASD Filing Fee........................................................ 12,230 Nasdaq National Market Listing Fee..................................... 66,875 Accounting Fees and Expenses........................................... * Legal Fees and Expenses................................................ * Printing Expenses...................................................... * Blue Sky Qualification Fees and Expenses............................... * Transfer Agent's Fee................................................... * Miscellaneous.......................................................... * ------- TOTAL................................................................ =======
The amounts set forth above, except for the Securities and Exchange Commission and National Association of Securities Dealers, Inc. fees, are in each case estimated. * To be completed by amendment. Item 14. Indemnification of Directors and Officers In accordance with Section 145 of the Delaware General Corporation Law, Article VII of our amended and restated certificate of incorporation provides that no director of Plug Power shall be personally liable to Plug Power or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (1) for any breach of the director's duty of loyalty to Plug Power or its stockholders, (2) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (3) in respect of unlawful dividend payments or stock redemptions or repurchases, or (4) for any transaction from which the director derived an improper personal benefit. In addition, our amended and restated certificate of incorporation provides that if the Delaware General Corporation Law is amended to authorize the further elimination or limitation of the liability of directors, then the liability of a director of the corporation shall be eliminated or limited to the fullest extent permitted by the Delaware General Corporation Law, as so amended. Article V of our amended and restated by-laws provides for indemnification by Plug Power of its officers and certain non-officer employees under certain circumstances against expenses, including attorneys fees, judgments, fines and amounts paid in settlement, reasonably incurred in connection with the defense or settlement of any threatened, pending or completed legal proceeding in which any such person is involved by reason of the fact that such person is or was an officer or employee of the registrant if such person acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of Plug Power, and, with respect to criminal actions or proceedings, if such person had no reasonable cause to believe his or her conduct was unlawful. Item 15. Recent Sales of Unregistered Securities Since its formation in June 1997, Plug Power has issued the following securities that were not registered under the Securities Act of 1933, as amended (the "Securities Act"). The shares of capital 1 stock and other securities issued in the following transactions were offered and sold in reliance upon the following exemptions: (i) in the case of the transactions described in (a) below, Section 4(2) of the Securities Act or Regulation D promulgated thereunder relative to sales by an issuer not involving a public offering; and (ii) in the case of the transactions described in (b) below, Section 3(b) of the Securities Act and Rule 701 promulgated thereunder relative to sales pursuant to certain compensatory benefits plans. (a) Issuance of Capital Stock: (i) In June 1997, Plug Power sold 4,750,000 shares of its common stock for an aggregate purchase price of $4,750,000 to Edison Development. (ii) In June 1997, Plug Power sold 4,750,000 shares of its common stock for an aggregate purchase price of $4,750,000 to Mechanical Technology. (iii) In April 1998, Plug Power sold 2,250,000 shares of its common stock for an aggregate purchase price of $2,250,000 to Edison Development Corporation. (iv) In April 1998, Plug Power sold options to purchase an aggregate of 250,000 shares of its common stock at an exercise price of $1.00 per share to Mechanical Technology for a purchase price of $21,250. (v) In June 1998, Plug Power sold 2,000,000 shares of its common stock for an aggregate purchase price of $2,000,000 to Edison Development. (vi) In June 1998, Plug Power sold 2,000,000 shares of its common stock in consideration of a below-market real estate leasehold interest to Mechanical Technology. (vii) In June 1998, Plug Power sold options to purchase an aggregate of 2,000,000 shares of its common stock at an exercise price of $1.00 per share to Mechanical Technology for a purchase price of $170,000. (viii) In August 1998, Plug Power sold 200,000 shares of its common stock for an aggregate purchase price of $1,000,000 to Edison Development. (ix) In August 1998, Plug Power sold 200,000 shares of its common stock for an aggregate purchase price of $1,000,000 to Mechanical Technology. (x) In October 1998, Plug Power sold 200,000 shares of its common stock for an aggregate purchase price of $1,000,000 to Edison Development. (xi) In October 1998, Plug Power sold 200,000 shares of its common stock for an aggregate purchase price of $1,000,000 to Mechanical Technology. (xii) In November 1998, Plug Power sold 200,000 shares of its common stock for an aggregate purchase price of $1,000,000 to Edison Development. (xiii) In November 1998, Plug Power sold 200,000 shares of its common stock for an aggregate purchase price of $1,000,000. (xiv) In December 1998, Plug Power sold 100,000 shares of its common stock for an aggregate purchase price of $500,000 to Edison Development. (xv) In December 1998, Plug Power sold 100,000 shares of its common stock for an aggregate purchase price of $500,000 to Mechanical Technology. (xvi) In January 1999, Plug Power sold 100,000 shares of Plug Power's common stock for an aggregate purchase price of $500,000 to Edison Development. (xvii) In January 1999, Plug Power sold 100,000 shares of Plug Power's common stock for an aggregate purchase price of $500,000 to Mechanical Technology. 2 (xviii) In January 1999, pursuant to an Equity Contribution and Warrant Agreement, Plug Power granted each of Mechanical Technology and Edison Development warrants to purchase up to 3,000,000 shares of Plug Power's common stock at an exercise price of $7.50 per share. (xix) In February 1999, Plug Power sold 200,000 shares of Plug Power's common stock for an aggregate purchase price of $1,000,000 to Edison Development. (xx) In February 1999, Plug Power sold 200,000 shares of Plug Power's common stock for an aggregate purchase price of $1,000,000 to Mechanical Technology. (xxi) In February 1999, Plug Power sold 2,250,000 shares of Plug Power's common stock to GE On-Site Power, Inc. in consideration of Plug Power's receipt of a 25% interest in GE Fuel Systems, LLC. (xxii) In February 1999, Plug Power sold 1,440,000 shares of Plug Power's common stock for an aggregate purchase price of $9,600,000 to Michael Cudahy. (xxiii) In February 1999, Plug Power granted warrants to purchase an aggregate of 400,000 shares of Plug Power's common stock to Michael Cudahy at an exercise price of $8.50 per share. (xxiv) In February 1999, Plug Power sold 60,000 shares of Plug Power's common stock for an aggregate purchase price of $400,000 to Kevin Lindsey. (xxv) In February 1999, Plug Power granted a warrant to purchase up to 3,000,000 shares of Plug Power's common stock to GE On-Site Power, Inc. at an exercise price of $12.50 per share. (xxvi) In March 1999, Plug Power issued 2,250,000 shares of Plug Power's common stock to Mechanical Technology upon the exercise of its outstanding options in consideration of the application by Mechanical Technology of certain non-cash research credits towards the exercise price. (xxvii) In April 1999, Plug Power sold 299,850 shares of Plug Power's common stock for an aggregate purchase price of $2,000,000 to Antaeus Enterprises, Inc. (xxviii) In April 1999, Plug Power sold 1,000,000 shares of Plug Power's common stock for an aggregate purchase price of $6,670,000 to Southern California Gas Company. (xxix) In April 1999, Plug Power granted warrants to purchase an aggregate of 350,000 shares of Plug Power's common stock to Southern California Gas Company at an exercise price of $8.50 per share. (xxx) In June 1999, Plug Power sold 704,315 shares of Plug Power's common stock for an aggregate purchase price of $4,697,782 to Edison Development. (xxxi) In June 1999, Plug Power sold 704,315 shares of Plug Power's common stock in consideration of the net asset value of certain real estate to Mechanical Technology. (b) Grants of Stock Options (i) As of August 2, 1999, options to purchase 3,346,789 shares of common stock were outstanding under Plug Power's 1999 Stock Option Plan of which options to purchase 1,210,180 shares are exercisable within 60 days of such date. None of the outstanding options had been exercised. All such options were granted between June 1997 and July 1999 to officers, directors, employees, consultants and advisors of Plug Power. 3 Item 16. Exhibits and Financial Statement Schedules
Exhibit Page Number Description No. ------- --------------------------------------------------------------- ---- *1.1 Form of Underwriting Agreement. *2.1 Agreement and Plan of Merger by and between Plug Power and Plug Power, LLC, a Delaware limited liability company, dated as of August 16, 1999 (excluding schedules, which Plug Power agrees to furnish supplementally to the Commission upon request). .3.1 Certificate of Incorporation of Plug Power. *3.2 Amended and Restated Certificate of Incorporation of Plug Power (to be filed immediately prior to the consummation of the offering referred to in the Registration Statement). .3.3 By-laws of Plug Power. *3.4 Amended and Restated By-laws of Plug Power (to be filed immediately prior to the consummation of the Offering Referred to in the Registration Statement). *4.1 Specimen certificate for shares of common stock, $.01 par value, of Plug Power. *5.1 Opinion of Goodwin, Procter & Hoar LLP as to the legality of the securities being offered. +10.1 Amended and Restated Limited Liability Company Agreement of GE Fuel Cell Systems, LLC, dated February 3, 1999, between GE On- Site Power, Inc. and Plug Power, LLC. 10.2 Contribution Agreement, dated as of February 3, 1999, by and between GE On-Site Power, Inc. and Plug Power, LLC. +10.3 Trademark and Trade Name Agreement, dated as of February 2, 1999, between General Electric Company and GE Fuel Cell Systems, LLC. +10.4 Trademark Agreement, dated as of February 2, 1999, between Plug Power LLC and GE Fuel Cell Systems, LLC. +10.5 Distributor Agreement, dated as of February 2, 1999, between GE Fuel Cell Systems, LLC and Plug Power, LLC. 10.6 Side letter agreement, dated February 3, 1999, between General Electric Company and Plug Power LLC. 10.7 Mandatory Capital Contribution Agreement, dated as of January 26, 1999, between Edison Development Corporation, Mechanical Technology Incorporated and Plug Power, LLC and amendments thereto, dated August 25, 1999 and August 26, 1999. 10.8 LLC Interest Purchase Agreement, dated as of February 16, 1999, between Plug Power, LLC and Michael J. Cudahy. 10.9 Warrant Agreement, dated as of February 16, 1999, between Plug Power, LLC and Michael J. Cudahy and amendment thereto, dated July 26, 1999. 10.10 LLC Interest Purchase Agreement, dated as of February 16, 1999, between Plug Power, LLC and Kevin Lindsey. 10.11 LLC Interest Purchase Agreement, dated as of April 1, 1999, between Plug Power, LLC and Antaeus Enterprises, Inc. 10.12 LLC Interest Purchase Agreement, dated as of April 9, 1999, between Plug Power, LLC and Southern California Gas Company. 10.13 Warrant Agreement, dated as of April 9, 1999, between Plug Power, LLC and Southern California Gas Company and amendment thereto, dated August 26, 1999. +10.14 Agreement, dated as of June 26, 1997, between the New York State Energy Research and Development Authority and Plug Power LLC, and amendments thereto dated as of December 17, 1997 and March 30, 1999. +10.15 Agreement, dated as of January 25, 1999, between the New York State Energy Research and Development Authority and Plug Power LLC.
4
Exhibit Page Number Description No. ------- --------------------------------------------------------------- ---- +10.16 Agreement, dated as of September 30, 1997, between Plug Power LLC and the U.S. Department of Energy. +10.17 Cooperative Agreement, dated as of September 30, 1998, between the National Institute of Standards and Technology and Plug Power, LLC, and amendment thereto dated May 10, 1999. 10.18 Joint venture agreement, dated as of June 14, 1999 between Plug Power, LLC, Polyfuel, Inc., and SRI International. +10.19 Cooperative Research and Development Agreement, dated as of February 12, 1999, between Plug Power, LLC and U.S. Army Benet Laboratories. +10.20 Nonexclusive License Agreement, dated as of April 30, 1993, between Mechanical Technology Incorporated and the Regents of the University of California. +10.21 Development Collaboration Agreement, dated as of July 30, 1999, by and between Joh. Vaillant GMBH. U. CO. and Plug Power, LLC. 10.22 Agreement of Sale, dated as of June 23, 1999, between Mechanical Technology, Incorporated and Plug Power LLC. 10.23 Assignment and Assumption Agreement, dated as of July 1, 1999, between the Town of Colonie Industrial Development Agency, Mechanical Technology, Incorporated, Plug Power, LLC, KeyBank, N.A., and First Albany Corporation. 10.24 Replacement Reimbursement Agreement, dated as of July 1, 1999, between Plug Power, LLC and KeyBank, N.A. *10.25 Installment Sale Agreement, dated as of July 1, 1999, between the Town of Colonie Industrial Development Agency and Plug Power LLC. 10.26 Trust Indenture, dated as of December 1, 1998, between the Town of Colonie Industrial Development Agency and Manufacturers and Traders Trust Company, as trustee. +10.27 Distribution Agreement, dated as of June 27, 1997, between Plug Power, LLC and Edison Development Corporation. .10.28 Agreement, dated as of June 27, 1999, between Plug Power, LLC and Gary Mittleman. .10.29 Agreement, dated as of June 8, 1999, between Plug Power, LLC and Louis R. Tomson. .10.30 Agreement, dated as of August 6, 1999, between Plug Power, LLC and Gregory A. Silvestri. .10.31 Agreement, dated as of August 12, 1999, between Plug Power, LLC and William H. Largent. .10.32 Agreement, dated as of August 20, 1999, between Plug Power, LLC and Dr. Manmohan Dhar. *10.33 1999 Stock Option and Incentive Plan *10.34 Employee Stock Purchase Plan +10.35 Agreement, dated as of August 27, 1999, by Plug Power, LLC, Plug Power Inc., GE On-Site Power, Inc., GE Power Systems Business of General Electric Company, and GE Fuel Cell Systems, L.L.C. *11.1 Computation of Income per common share *23.1 Consent of Goodwin, Procter & Hoar LLP (included in Exhibit 5.1 hereto) *23.2 Consent of PricewaterhouseCoopers LLP. .24.1 Powers of Attorney (included on signature page). *27.1 Financial Data Schedule. .99.1 Consent of Robert L. Nardelli.
- -------- * To be filed by amendment to this registration statement. 5 + Confidential Treatment requested. . Previously filed. (b) Financial Statement Schedules All schedules have been omitted because they are not required or because the required information is given in the Financial Statements or Notes to those statements. 6 Item 17. Undertakings The undersigned registrant hereby undertakes to provide to the underwriters at the closing specified in the Underwriting Agreement certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. The undersigned registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. 7 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Amendment No. 1 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Latham, State of New York, on September 9, 1999. PLUG POWER INC. By: /s/ Gary Mittleman ----------------------------- Gary Mittleman President and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 1 to the Registration Statement has been signed below by the following persons in the capacities and on the dates indicated. Signature Title Date /s/ Gary Mittleman President, Chief Executive September 9, - ------------------------- Officer and Director 1999 Gary Mittleman (Principal Executive Officer) /s/ Ana-Maria Galeano Secretary September 9, - ------------------------- 1999 Ana-Maria Galeano
II-8 EXHIBIT INDEX
Exhibit Number Description ------- ---------------------------------------------------------------------- *1.1 Form of Underwriting Agreement. *2.1 Agreement and Plan of Merger by and between Plug Power and Plug Power, LLC, a Delaware limited liability company, dated as of August 16, 1999 (excluding schedules, which Plug Power agrees to furnish supplementally to the Commission upon request). .3.1 Certificate of Incorporation of Plug Power. *3.2 Amended and Restated Certificate of Incorporation of Plug Power (to be filed immediately prior to the consummation of the offering referred to in the Registration Statement). .3.3 By-laws of Plug Power. *3.4 Amended and Restated By-laws of Plug Power (to be filed immediately prior to the consummation of the Offering Referred to in the Registration Statement). *4.1 Specimen certificate for shares of common stock, $.01 par value, of Plug Power. *5.1 Opinion of Goodwin, Procter & Hoar LLP as to the legality of the securities being offered. +10.1 Amended and Restated Limited Liability Company Agreement of GE Fuel Cell Systems, LLC, dated February 3, 1999, between GE On-Site Power, Inc. and Plug Power, LLC. 10.2 Contribution Agreement, dated as of February 3, 1999, by and between GE On-Site Power, Inc. and Plug Power, LLC. +10.3 Trademark and Trade Name Agreement, dated as of February 2, 1999, between General Electric Company and GE Fuel Cell Systems, LLC. +10.4 Trademark Agreement, dated as of February 2, 1999, between Plug Power LLC and GE Fuel Cell Systems, LLC. +10.5 Distributor Agreement, dated as of February 2, 1999, between GE Fuel Cell Systems, LLC and Plug Power, LLC. 10.6 Side letter agreement, dated February 3, 1999, between General Electric Company and Plug Power LLC. 10.7 Mandatory Capital Contribution Agreement, dated as of January 26, 1999, between Edison Development Corporation, Mechanical Technology Incorporated and Plug Power, LLC and amendments thereto, dated August 25, 1999 and August 26, 1999. 10.8 LLC Interest Purchase Agreement, dated as of February 16, 1999, between Plug Power, LLC and Michael J. Cudahy. 10.9 Warrant Agreement, dated as of February 16, 1999, between Plug Power, LLC and Michael J. Cudahy and amendment thereto, dated July 26, 1999. 10.10 LLC Interest Purchase Agreement, dated as of February 16, 1999, between Plug Power, LLC and Kevin Lindsey. 10.11 LLC Interest Purchase Agreement, dated as of April 1, 1999, between Plug Power, LLC and Antaeus Enterprises, Inc. 10.12 LLC Interest Purchase Agreement, dated as of April 9, 1999, between Plug Power, LLC and Southern California Gas Company. 10.13 Warrant Agreement, dated as of April 9, 1999, between Plug Power, LLC and Southern California Gas Company and amendment thereto, dated August 26, 1999. +10.14 Agreement, dated as of June 26, 1997, between the New York State Energy Research and Development Authority and Plug Power LLC, and amendments thereto dated as of December 17, 1997 and March 30, 1999. +10.15 Agreement, dated as of January 25, 1999, between the New York State Energy Research and Development Authority and Plug Power LLC. +10.16 Agreement, dated as of September 30, 1997, between Plug Power LLC and the U.S. Department of Energy.
Exhibit Number Description ------- ---------------------------------------------------------------------- +10.17 Cooperative Agreement, dated as of September 30, 1998, between the National Institute of Standards and Technology and Plug Power, LLC, and amendment thereto dated May 10, 1999. 10.18 Joint venture agreement, dated as of June 14, 1999 between Plug Power, LLC, Polyfuel, Inc., and SRI International. +10.19 Cooperative Research and Development Agreement, dated as of February 12, 1999, between Plug Power, LLC and U.S. Army Benet Laboratories. +10.20 Nonexclusive License Agreement, dated as of April 30, 1993, between Mechanical Technology Incorporated and the Regents of the University of California. +10.21 Development Collaboration Agreement, dated as of July 30, 1999, by and between Joh. Vaillant GMBH. U. CO. and Plug Power, LLC. 10.22 Agreement of Sale, dated as of June 23, 1999, between Mechanical Technology, Incorporated and Plug Power LLC. 10.23 Assignment and Assumption Agreement, dated as of July 1, 1999, between the Town of Colonie Industrial Development Agency, Mechanical Technology, Incorporated, Plug Power, LLC, KeyBank, N.A., and First Albany Corporation. 10.24 Replacement Reimbursement Agreement, dated as of July 1, 1999, between Plug Power, LLC and KeyBank, N.A. *10.25 Installment Sale Agreement, dated as of July 1, 1999, between the Town of Colonie Industrial Development Agency and Plug Power LLC. 10.26 Trust Indenture, dated as of December 1, 1998, between the Town of Colonie Industrial Development Agency and Manufacturers and Traders Trust Company, as trustee. +10.27 Distribution Agreement, dated as of June 27, 1997, between Plug Power, LLC and Edison Development Corporation. .10.28 Agreement, dated as of June 27, 1999, between Plug Power, LLC and Gary Mittleman. .10.29 Agreement, dated as of June 8, 1999, between Plug Power, LLC and Louis R. Tomson. .10.30 Agreement, dated as of August 6, 1999, between Plug Power, LLC and Gregory A. Silvestri. .10.31 Agreement, dated as of August 12, 1999, between Plug Power, LLC and William H. Largent. .10.32 Agreement, dated as of August 20, 1999, between Plug Power, LLC and Dr. Manmohan Dhar. *10.33 1999 Stock Option and Incentive Plan *10.34 Employee Stock Purchase Plan +10.35 Agreement, dated as of August 27, 1999, by Plug Power, LLC, Plug Power Inc., GE On-Site Power, Inc., GE Power Systems Business of General Electric Company, and GE Fuel Cell Systems, L.L.C. *11.1 Computation of Income per common share *23.1 Consent of Goodwin, Procter & Hoar LLP (included in Exhibit 5.1 hereto) *23.2 Consent of PricewaterhouseCoopers LLP. .24.1 Powers of Attorney (included on signature page). *27.1 Financial Data Schedule. .99.1 Consent of Robert L. Nardelli.
- -------- * To be filed by amendment to this registration statement. + Confidential Treatment requested. . Previously filed. EX-10.1 2 LIMITED LIABILITY AGREEMENT CONFIDENTIAL INFORMATION HAS BEEN OMITTED PURSUANT TO RULE 406 UNDER THE SECURITIES ACT AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. THE LOCATIONS OF THE OMITTED INFORMATION HAVE BEEN INDICATED WITH ASTERISKS. EXHIBIT 10.1 AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT OF GE FUEL CELL SYSTEMS, L.L.C. between GE ON-SITE POWER, INC. and PLUG POWER, L.L.C. dated February 3, 1999 TABLE OF CONTENTS
Page ---- ARTICLE I DEFINITIONS 1 Section 1.1 Definitions 1 ARTICLE II ORGANIZATION 1 Section 2.1 Formation; Name 1 Section 2.2 Certificate of Formation; Foreign Qualification 1 Section 2.3 No State Law Partnership; Liability to Third Parties 2 Section 2.4 Registered Office 2 Section 2.5 Representations and Warranties of the Members 2 ARTICLE III PURPOSES AND POWERS; TERM OF COMPANY 2 Section 3.1 Purposes and Powers 2 Section 3.2 Scope 2 Section 3.3 Term 2 ARTICLE IV MEMBERSHIP, DISPOSITIONS OF INTERESTS AND BANKRUPT MEMBER 2 Section 4.1 Members 2 Section 4.2 Additional Members 3 Section 4.3 Withdrawal 3 Section 4.4 Disposition of a Membership Interest 3 ARTICLE V CAPITAL CONTRIBUTIONS 5 Section 5.1 Initial Contributions 5 Section 5.2 Additional Members 5 Section 5.3 Guarantees 5 Section 5.4 Return of Contributions 5 Section 5.5 Member Affiliate Loans 6 ARTICLE VI PROFITS, LOSSES, ACCOUNTING, TAXES AND DISTRIBUTIONS 6 Section 6.1 Allocation of Profits and Losses 6 Section 6.2 Books; Fiscal Year 6 Section 6.3 Capital Accounts 7 Section 6.4 Tax Returns 8 Section 6.5 Tax Matters Partner 8 Section 6.6 Distributions 8 Section 6.7 Withdrawals 8 ARTICLE VII MANAGEMENT; CONDUCT OF BUSINESS 9 Section 7.1 Management by Committee 9 Section 7.2 Establishment of the Committee 9 Section 7.3 Officers 10
-i- Page ---- Section 7.4 Conduct of Business 10 Section 7.5 Conflicts of Interest 11 Section 7.6 Employment and Secondment Matters 11 ARTICLE VIII MEETINGS OF THE COMMITTEE 11 Section 8.1 Regular and Special Meetings 11 Section 8.2 Notices of Meetings 11 Section 8.3 Quorum 11 Section 8.4 Action by Written Consent or Telephone Conference 11 Section 8.5 Substitute Committee Members 12 ARTICLE IX ADDITIONAL COVENANTS 12 Section 9.1 Public Announcements, Etc. 12 Section 9.2 Confidentiality 12 Section 9.3 Protection of Business 13 Section 9.4 Promotion of the Company 14 Section 9.5 Ethical and Environmental Standards 14 Section 9.6 Tax Matters 14 Section 9.7 Other Covenants 15 Section 9.8 Further Assurances 15 Section 9.9 Ancillary Agreements 15 ARTICLE X DEADLOCK; TERMINATION OF THIS LLC AGREEMENT 15 Section 10.1 Resolution of Disputes 15 Section 10.2 Termination 16 Section 10.3 Effect of Termination 16 Section 10.4 Survival of Representations and Warranties 16 Section 10.5 Indemnifiable Claims 16 ARTICLE XI DISSOLUTION, LIQUIDATION AND TERMINATION OF THE COMPANY 18 Section 11.1 Dissolution 18 Section 11.2 Liquidation and Termination 18 Section 11.3 Payment of Debts 18 Section 11.4 Debts to Members 19 Section 11.5 Remaining Distribution 19 Section 11.6 Reserve 19 Section 11.7 Final Accounting 19 ARTICLE XII MISCELLANEOUS 20 Section 12.1 Relationship of the Parties 20 Section 12.2 Performance by the Company 20 Section 12.3 Agreement for Further Execution 20 Section 12.4 Notices 20
-ii- Page ---- Section 12.5 Amendments; No Waivers 21 Section 12.6 Successors and Assigns 21 Section 12.7 Governing Law 21 Section 12.8 Illegality and Severability 21 Section 12.9 Counterparts; Effectiveness 21 Section 12.10 Entire Agreement 22 Section 12.11 Captions 22 Section 12.12 Expenses 22 Section 12.13 Limitation of Liability 22 ANNEX A Definitions ANNEX B Representations and Warranties of the Members ANNEX C Employment and Secondment Matters PP Disclosure Schedule GEOSP Disclosure Schedule EXHIBIT 1 Membership Interests EXHIBIT 2 Allocation and Capital Account Provisions EXHIBIT 3 Strategic Plan and 1999 Operating Plan EXHIBIT 4 GE Company Policies EXHIBIT 5 Form of Contribution Agreement EXHIBIT 6 Form of Promissory Note and Security Agreement EXHIBIT 7 Form of GE Trademark and Tradename Agreement EXHIBIT 8 Form of PP Trademark Agreement EXHIBIT 9 Form of Distributor Agreement
-iii- Exhibit 10.1 [***] CONFIDENTIAL INFORMATION HAS BEEN OMITTED PURSUANT TO RULE 406 UNDER THE SECURITIES ACT AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. THE LOCATIONS OF THE OMITTED INFORMATION HAVE BEEN INDICATED WITH ASTERISKS. AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT OF GE FUEL CELL SYSTEMS, L.L.C. A Delaware Limited Liability Company THIS AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT (this "LLC Agreement") is made and entered into on the 3rd day of February, 1999, by and between GE ON-SITE POWER, INC., a Delaware corporation ("GEOSP"), a wholly owned subsidiary of GENERAL ELECTRIC COMPANY ("GE"), which is controlled by GE's Power Systems business ("GEPS"), having offices at One River Road, Schenectady, New York 12345, and PLUG POWER, L.L.C., a Delaware limited liability company ("PP"), having offices at 968 Albany-Shaker Road, Latham, New York 12110 (GEOSP and PP, collectively the "Members" and each individually, a "Member"), to join together to operate a limited liability company under the laws of the State of Delaware for the purposes and upon the terms and conditions set forth in this LLC Agreement. ARTICLE I DEFINITIONS Section 1.1 Definitions. Capitalized terms used in this LLC ----------- Agreement shall have the meanings specified herein or in Annex A. ARTICLE II ORGANIZATION Section 2.1 Formation; Name. The Members hereby enter into this LLC --------------- Agreement for the purpose of setting forth the rights and obligations of the Members. The name of the Company shall be GE Fuel Cell Systems, L.L.C. Section 2.2 Certificate of Formation; Foreign Qualification. GEOSP ----------------------------------------------- has caused to be filed for record the Certificate of Formation of the Company in the offices of the Secretary of State of the State of Delaware in accordance with (S) 18-201 of the Act. GEOSP shall file such amendments and other documents necessary to give effect to this LLC Agreement. Prior to the Company's conducting business in any jurisdiction other than the State of Delaware, the Members shall cause the Company to comply, to the extent procedures are available and those matters are reasonably within the control of the Members, with all requirements necessary to qualify the Company as a foreign limited liability company in that jurisdiction. Each Member shall execute, acknowledge, swear to, and deliver all certificates and other instruments conforming with this LLC Agreement that are necessary or appropriate to qualify, continue and terminate the Company as a foreign limited liability company in all such jurisdictions in which the Company may conduct business. -1- Section 2.3 No State Law Partnership; Liability to Third Parties. ---------------------------------------------------- The Members intend that the Company not be a partnership (including, without limitation, a limited partnership), and that no Member be a partner or joint venturer of any other Member, for any purposes other than federal and state tax purposes, and that this LLC Agreement not be construed otherwise. No Member shall be liable for the debts, obligations or liabilities of the Company, including under a judgment, decree or order of a court, except for the obligation to fund the working capital needs of the Company as set forth in Article V of this LLC Agreement. Section 2.4 Registered Office. The registered office and principal ----------------- place of business of the Company shall be located at 1 River Road, Schenectady, New York 12345, and the Company will also operate at such other places as it may determine. Section 2.5 Representations and Warranties of the Members. Each --------------------------------------------- Member represents and warrants to the other Member, as of the date of execution of this LLC Agreement, as set forth in Annex B, except as set forth in the applicable Disclosure Schedule. ARTICLE III PURPOSES AND POWERS; TERM OF COMPANY Section 3.1 Purposes and Powers. The Company has been formed for the ------------------- sole purpose of marketing and selling (as a distributor), in the Territory, Products, Pre-Commercial Units, and Test & Evaluation Units and performing Services in the Territory. The Company's business shall be limited to that which is described in this Section 3.1 and in Section 3.2 and any incidental activities. In furtherance of such business, the Company shall have all of the powers granted to a limited liability company under the laws of the State of Delaware, including, without limitation, the powers specifically enumerated in (S) 18-106 of the Act. Section 3.2 Scope. The Company will purchase, from PP, Products, ----- Pre-Commercial Units, Test & Evaluation Units, and such other PP products that the Members mutually agree to be marketed and sold, and will purchase Services from PP, GE and third parties as needed, in order to provide high quality, Products, Pre-Commercial Units, Test & Evaluation Units, such other PP products that the Members mutually agree to be marketed and sold, and Services in the Territory. The Company will hire or contract necessary manpower for distributing Products, Pre-Commercial Units, Test & Evaluation Units, and such other PP products that the Members mutually agree to be marketed and sold, and for providing Services, in accordance with the Strategic Plan and the Distributor Agreement. Section 3.3 Term. The Company as constituted in this LLC Agreement ---- shall continue until dissolved or terminated pursuant to law or the provisions of this LLC Agreement. ARTICLE IV MEMBERSHIP, DISPOSITIONS OF INTERESTS AND BANKRUPT MEMBER Section 4.1 Members. PP shall be admitted to the Company as a Member ------- of the Company effective as of the execution of this LLC Agreement. The Members will then have the Membership Interests set forth on Exhibit 1. -2- Section 4.2 Additional Members. Additional Persons may be admitted ------------------ to the Company as Members and Membership Interests may be created and issued to those Persons with the approval of five (5) members of the Committee on such terms and conditions as the Committee may determine at the time of admission. The terms of admission or issuance must specify the Capital Contribution and Membership Interest applicable thereto and may provide for the creation of different classes or groups of Members having different rights, powers and duties. Any such admission shall be effective only after the new Member has executed and delivered to the Committee a document including the new Member's notice address and its agreement to be bound by this LLC Agreement, with representations and warranties effective as of the date of such new Member's execution of such document. Upon the admission of new Members, Exhibits 1 and 2 shall be amended by the Committee to reflect the new Membership Interests and allocation and capital account provisions. Section 4.3 Withdrawal. Except as set forth in this LLC Agreement, a ---------- Member does not have the right or power to withdraw from the Company as a Member. Section 4.4 Disposition of a Membership Interest. ------------------------------------ (a) Prohibition. No Membership Interest, or any right, title or ----------- interest in or to such Membership Interest, now or hereafter owned, held or acquired by any Member shall be Disposed of voluntarily, involuntarily, by operation of law, with or without consideration, or otherwise except in accordance with the provisions of this Section 4.4. Any Disposition which does not comply with the provisions of this Section 4. 4 shall be void ab initio and -- ------ the Company shall not give effect to such attempted Disposition in its records. (b) Affiliates; Sale of Business. Any Member may Dispose of all ---------------------------- (but not less than all) of its right, title and interest in and to a Membership Interest as follows: (i) to an Affiliate of such Member, provided that such Affiliate is not a GEPS Competitor, (ii) by GEOSP to the purchaser, directly or indirectly, of GEOSP or GEPS (or substantially all of the assets of GEOSP or GEPS), or (iii) by PP to the purchaser, directly or indirectly, of PP (or substantially all of the assets o f PP); provided, however, that any Disposition -------- ------- pursuant to this clause (b) shall be made in compliance with the requirements of clauses (d), (e) and (f). GEOSP and PP shall remain responsible for the performance of this LLC Agreement by each Affiliate of such party to which a Membership Interest is transferred pursuant to this Section 4.4(b). If any Affiliate to which a Membership Interest is transferred pursuant to this Section 4.4 ceases to be an Affiliate of the Member from which it acquired such Membership Interest, such Person shall re-convey such Membership Interest to such transferring Member promptly upon such Person ceasing to be such an Affiliate (unless such Person ceases to be such an Affiliate in connection with a transfer otherwise permitted by this Section 4.4). (c) GEOSP Option to Purchase. ------------------------ (i) PP may, without restriction, Dispose of all or part of PP to a purchaser that is not a GEPS Competitor, and the provisions of this Section 4.4(c) shall not apply in the case of an initial public offering of securities by PP. Notwithstanding the provisions of Section 4.4(b), if: there is a proposal to Dispose, directly or indirectly, of an interest in PP (by merger, sale of stock or assets thereof or otherwise), including its -3- interest in the Company ("PP Interest"), to a GEPS Competitor, then PP shall provide prompt written notice (the "Transfer Notice") to GEOSP. The Transfer Notice shall identify the Person with which such transaction is proposed to be consummated and all other material terms of the proposed transaction, including the consideration to be paid for the PP Interest, and, in the case of an offer in which the consideration payable for the PP Interest consists in whole or in part of consideration other than cash, such information relating to such other consideration as is reasonably necessary for GEOSP to be informed of all material facts relating to such consideration. (ii) GEOSP shall have the right and option, for a period of 30 days after the date on which all information required to be provided to GEOSP has been so provided (the "Notice Period"), to deliver a notice to PP (the "Purchase Notice") of GEOSP's intention to purchase the PP Interest. The consideration to be paid by GEOSP for the PP Interest shall be cash in an amount equal to the price to be paid for the PP Interest by the proposed purchaser thereof. Notwithstanding the preceding sentence, if the consideration to be paid for the PP Interest is wholly or partially non-cash consideration, then GEOSP shall pay cash in lieu of the non-cash consideration, in an amount equal to the fair market value thereof, such amount to be determined by good faith negotiations between the Members (and, in the absence of agreement, using a procedure similar to that used to determine the Fair Market Value of an Interest in the Company). Delivery of the Purchase Notice by GEOSP shall constitute an irrevocable election by GEOSP to purchase the PP Interest for the consideration and on the other terms and conditions set forth in the proposed transaction and in this Section 4.4(c). (iii) The transfer of the PP Interest to GEOSP shall be consummated as soon as practicable following the giving of the Purchase Notice by GEOSP, but in no event more than 30 days thereafter (subject to any extension necessary to comply with any applicable regulatory requirement). If at the end of the Notice Period GEOSP shall not have given a Purchase Notice with respect to the PP Interest, GEOSP will be deemed to have waived its rights under this Section 4.4(c) with respect to the Disposition contemplated by the Transfer Notice. If GEOSP rejects the Transfer Notice, or is deemed to have waived its rights as set forth in the preceding sentence, PP shall have the right, for a period of 180 days following such rejection or waiver (subject to any extension necessary to comply with any applicable regulatory requirement), to dispose of the PP Interest to the proposed transferee identified in the Transfer Notice and on terms no more favorable to the proposed transferee than are set forth in the Transfer Notice. If, at the end of the 180-day period following the rejection or waiver, PP has not completed the sale of the PP Interest, such Disposition may not occur and PP and the PP Interest shall again be subject to the restrictions contained in this Section 4.4(c). (d) Delivery to the Company. The Company shall not recognize for ----------------------- any purpose any purported Disposition of a Membership Interest unless and until all applicable laws, including securities laws, -4- with respect to the Disposition have been complied with and the other applicable provisions of this Section 4.4 have been satisfied and the Committee has received, on behalf of the Company, a document (i) executed by both the Member effecting the Disposition and the Person to which the Membership Interest is transferred, (ii) including the notice address of any Person to be admitted to the Company as a Substitute Member and such Person's agreement to be bound by this LLC Agreement in respect of the Membership Interest being obtained, (iii) setting forth the Membership Interest after the Disposition of the Member effecting the Disposition and the Person to which the Membership Interest is transferred, and (iv) containing a warranty and representation that the Disposition was made in accordance with all applicable laws and regulations. Each Disposition and, if applicable, admission complying with the provisions of this Section 4.4(d) shall be effective as of the first day of the calendar month immediately succeeding the month in which the requirements of this Section 4.4 have been met. (e) Status as a Member. Upon compliance with the other applicable ------------------ requirements of this Section 4.4, the transferee shall be deemed a "Member" for the purposes of this LLC Agreement and a party to this LLC Agreement, and shall have the rights and be subject to the obligations of a Member hereunder and a party hereto with respect to the Membership Interest held by such transferee. (f) Costs. The Member effecting a Disposition and any Person ----- admitted as a Substitute Member in connection therewith shall pay, or reimburse the Company for, all reasonable costs incurred by the Company in connection with the Disposition (including, without limitation, any legal fees incurred in connection with the consideration of the implications thereof under applicable securities laws, the Code and other laws) on or before the tenth day after the receipt by that Person of the Company's invoice for the amount due. ARTICLE V CAPITAL CONTRIBUTIONS Section 5.1 Initial Contributions. GEOSP has previously contributed --------------------- $10,000 cash to the capital of the Company. Section 5.2 Additional Members. Each Additional Member shall make ------------------ the Capital Contribution determined by the Members to be made by such Additional Member at the time such Additional Member is admitted as a Member of the Company in accordance with Section 4.2 of this LLC Agreement. Section 5.3 Guarantees. Should guarantees be required by Customers ---------- to support the contracts entered into by the Company, then the Company shall, to the extent reasonably possible, arrange such guarantees with its own resources. Where necessary, and subject to mutual written agreement on a case by case basis, the Members may, but shall not be obligated to, guarantee the contracts in proportion to their respective interests in the Company. Section 5.4 Return of Contributions. No Member is entitled to the ----------------------- return of any part of its Capital Contributions or to interest in respect of either its Capital Account or its Capital Contributions. An unreturned Capital Contribution is not a liability of the Company or of any Member. -5- Section 5.5 Member Affiliate Loans. ---------------------- (a) GEOSP shall arrange for its Affiliate, GE, to provide, during the period ending December 31, 2000, in the form of loans to the Company (i) capital to fund the Company's purchase of [***] of Pre-Commercial Units in accordance with the Distributor Agreement, and (ii) additional capital as required to fund the Company's operations, in accordance with the Distributor Agreement, in an amount not to exceed [***]. The loans shall be made to the Company pursuant to the terms of a non-recourse promissory note substantially in the form attached to this LLC Agreement as Exhibit 6. The loans referred to in this subsection (b) shall be conditioned upon (i) PP's materially complying with the terms and conditions of the Distributor Agreement so that no event of termination thereunder has occurred, and (ii) PP's remaining on schedule for a January 1, 2001 commercial release of the Products. Within 60 days of the effective date of this Agreement, the Members will mutually agree to a product development schedule for the period ending December 31, 2000, that will include milestones and objective measures of progress towards the January 1, 2001 Product release. The Members will meet not less than quarterly for the purpose of evaluating PP's compliance with the product development schedule. In the event that GEOSP determines, in good faith, that PP is not in material compliance with the product development schedule, GEOSP may after 120 days' written notice to PP (with such notice not to be given earlier than January 1, 2000), terminate this LLC Agreement if such noncompliance remains uncured. (b) In the event that further capital, in addition to that referred to in subsection (a) above, is required by the Company in order to meet any obligation or pay any liability of the Company, the Company may borrow such required capital from any Person, including any Member or any Affiliate of a Member, on such commercially reasonable terms as the Committee may determine; provided, that the Company shall offer to the Members the opportunity to lend such funds on such commercially reasonable terms pro rata in proportion to their respective Membership Interests. Any such transactions with Members or their Affiliates are subject to Section 7.1(b). ARTICLE VI PROFITS, LOSSES, ACCOUNTING, TAXES AND DISTRIBUTIONS Section 6.1 Allocation of Profits and Losses. Except as otherwise -------------------------------- provided in and subject to the provisions of Exhibit 2 to this LLC Agreement, Profits (including items of income and gain) and Losses (including items of expense, deduction and loss) of the Company for each Fiscal Year shall be determined as of the end of the Fiscal Year and shall be allocated to each Member pro rata in accordance with its Membership Interest. Section 6.2 Books; Fiscal Year. ------------------ (a) The Company shall maintain or cause to be maintained proper and complete books and records in which shall be entered fully and accurately all transactions and other matters relating to the Company's business in the detail and completeness customary and usual for businesses of the type engaged in by the Company. The Company's financial statements shall be kept on the accrual basis and in accordance with GE General Accounting Policies (as they may be modified from time to time) and GAAP, consistently applied. The Company's financial statements shall be audited annually by independent public CONFIDENTIAL INFORMATION HAS BEEN OMITTED PURSUANT TO RULE 406 UNDER THE SECURITIES ACT AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. THE LOCATIONS OF THE OMITTED INFORMATION HAVE BEEN INDICATED WITH ASTERISKS. -6- accountants selected by the Committee. The fact that such independent public accountants may audit the financial statements of one or more of the Members or their Affiliates shall not disqualify such accountants from auditing the Company's financial statements. (b) The fiscal year of the Company (the "Fiscal Year") shall be the calendar year (or such other 12-month period as the Committee may select) or, if applicable, that shorter period within the calendar year (or such other period) during which the Company had legal existence. (c) The Company shall prepare and distribute to each Member unaudited quarterly financial statements (including, without limitation, current Capital Account balances), prepared in accordance with Section 6.2(a). Such quarterly financial statements shall be distributed to the Members within a time that will permit, and shall provide such information concerning the operations of the Company as may be required for, the Members to prepare and timely file with the Securities and Exchange Commission their quarterly financial statements. (d) At a minimum, the Company shall keep at its principal executive office such books and records as may be required by the Act and such other books and records as are customary and usual for businesses of the type engaged in by the Company. (e) Each Member or its duly authorized representatives shall have the right, during normal business hours and in accordance with the Act, to inspect and copy the Company's books and records at the requesting Member's expense. Section 6.3 Capital Accounts. ---------------- (a) There shall be maintained a Capital Account for each Member in accordance with this Section 6.3 and the principles set forth in Exhibit 2 attached to this LLC Agreement. The amount of cash or the fair market value of property contributed to the Company by each Member (including the property deemed contributed to the Company by PP pursuant to Section 3 of the Contribution Agreement), net of liabilities assumed by the Company from such Member or to which the contributed property is subject, shall be credited to such Member's Capital Account, and from time to time, but not less often than at the end of each Fiscal Year, the allocations to each Member of Profits and Losses (including any special allocations made pursuant to the provisions of Exhibit 2) and the fair market value of property distributed to each Member, net of liabilities assumed by the Member or to which the property distributed is subject, shall be credited or debited to such Member's Capital Account. The determination of Members' Capital Accounts, and any adjustments thereto, shall be made consistent with tax accounting and other principles set forth in Section 704(b) of the Code and the applicable regulations thereunder. (b) Except as otherwise specifically provided in this LLC Agreement or any Ancillary Agreement, no Member shall be required to make any further contribution to the capital of the Company to restore a loss, to discharge any liability of the Company or for any other purpose, nor shall any Member personally be liable for any liabilities of the Company or of any other Member, except as provided by law. (c) Immediately following a permitted transfer of any Membership Interest, the Capital Account of the transferee Member shall equal the Capital Account of the transferor Member attributable to the -7- transferred Membership Interest and such Capital Account shall not be adjusted to reflect any basis adjustment under Section 743 of the Code. (d) For purposes of computing the amount of any item of income, gain, deduction or loss to be reflected in the Members' Capital Accounts, the determination, recognition and classification of any such item shall be the same as its determination, recognition and classification for federal income tax purposes, taking into account any adjustments required pursuant to Section 704(b) of the Code and the applicable regulations thereunder as more fully described in Exhibit 2. Section 6.4 Tax Returns. The Members, through the Committee, shall ----------- cause to be prepared and filed all necessary federal and state income tax returns for the Company. Such tax returns shall be prepared by the Tax Matters Partner, as defined in Section 6.5. In preparing the tax returns for the Company, the Tax Matters Partner shall at all times act reasonably and in good faith taking into account the interests of all Members. The Tax Matters Partner shall permit any Member upon request reasonable opportunity to review the content of all tax returns at least 45 days prior to filing. The Tax Matters Partner shall be reimbursed, at cost, by the Company for any and all expenses incurred on behalf of the Company by the Tax Matters Partner while acting in its capacity as Tax Matters Partner. Each Member shall furnish to the Committee all pertinent information in its possession relating to Company operations that is necessary to enable the Company's income tax returns to be prepared and filed. Neither the Company, the Committee nor any Member may make an election for the Company to be excluded from the application of the provisions of subchapter K of chapter 1 of subtitle A of the Code or any similar provisions of applicable state law, and no provision of this LLC Agreement shall be construed to sanction or approve such an election. Section 6.5 Tax Matters Partner. GEOSP shall be the "Tax Matters ------------------- Partner" of the Company within the meaning of Section 6231(a)(7) of the Code and shall act in any similar capacity under applicable state, local or foreign law (in such capacity, the "Tax Matters Partner"). The Tax Matters Partner shall take such action as may be reasonably necessary to constitute each of the other Members a "notice partner" within the meaning of Section 6231(a)(8) of the Code. The Tax Matters Partner shall notify the other Members of all material matters that come to its attention in its capacity as Tax Matters Partner. The Tax Matters Partner will give the other Members not less than 15 days' prior notice as to any action to be taken or of any decision not to take action with respect to any such material matter. In acting in its capacity as Tax Matters Partner, GEOSP shall at all times act reasonably and in good faith, taking into account the interests of all Members. Section 6.6 Distributions. Except to the extent prohibited by ------------- applicable law and provided that the Company has positive cash flow from operations (after repayment of amounts due under loans made to the Company by a Member or an Affiliate of a Member, including, without limitation, as provided for in the Promissory Note) and the ability to continue its business without incurring additional debt, the Members, through the Committee, shall cause the Company to distribute available cash to each Member, on or prior to March 31 of each year, pro rata in proportion to its Membership Interest. Section 6.7 Withdrawals. No Member shall be entitled to make ----------- withdrawals from its Capital Account. -8- ARTICLE VII MANAGEMENT; CONDUCT OF BUSINESS Section 7.1 Management by Committee. ----------------------- (a) The powers of the Company shall be exercised by or under the authority of, and the business and affairs of the Company shall be managed under the direction of, the Members. In managing the business and affairs of the Company and exercising its power, the Members shall act through their representatives on the Committee as described in Section 7.2. Any Member who binds or obligates the Company for any debt or liability or causes the Company to act, except in accordance with the immediately preceding sentence, shall be liable to the Company for any such debt, liability or act. Decisions or actions taken by Members in accordance with this LLC Agreement (whether through the Committee or otherwise) shall constitute decisions or actions by the Company and shall be binding on each Member (in its capacity as such). (b) Except as hereinafter provided, all decisions and actions of the Company shall require the approval of a majority of the Committee members meeting in accordance with Article VIII. Notwithstanding the foregoing provisions of this Article VII, the following actions (collectively, "Supermajority Transactions") shall require the consent of five (5) Committee members: (i) any merger/acquisition or sale or purchase of any material assets which are greater than 20% of the fair value of the total assets of the Company; (ii) any transaction with a Member or its Affiliates, except as expressly provided for in this LLC Agreement or in the Ancillary Agreements; (iii) changes, modifications and/or amendments to the Strategic Plan; (iv) approval of the Company's annual Operating Plan only if the aggregate expenditures for such Operating Plan differs by a material amount (e.g., greater than or equal to 20%) from the Strategic Plan; (v) any amendment to the Company's Certificate of Formation, this LLC Agreement, or any of the Ancillary Agreements; (vi) the entering into of any contract valued at more than $10 million; and (vii) the issuance or repurchase of Membership Interests or admission of additional Members in accordance with Section 4.2. Section 7.2 Establishment of the Committee. ------------------------------ (a) GEOSP and PP hereby establish the Committee. The Committee shall consist of seven members, three appointed by each of GEOSP and PP and a seventh member, who shall be the -9- Company's President and who shall be selected in accordance with Section 7.3(a) and treated for all purposes of this LLC Agreement as being appointed to the Committee by GEOSP. At any time the Company does not have a President, GEOSP may designate the seventh member, who shall serve until a President is appointed in accordance with Section 7.3 of this LLC Agreement. The Chairman of the Committee shall be designated by GEOSP from among the members of the Committee appointed by GEOSP, and the Vice-Chairman of the Committee shall be designated by PP from among the members of the Committee appointed by PP. The members of the Committee shall serve at the pleasure and on behalf of the party that appointed such member, until such member resigns or is removed by the party that appointed such member. All such members shall be officers, directors or employees of a Member or the Company. A member of the Committee may be removed, with or without cause, only by the party that appointed such member. (b) The Members shall act through their representatives on the Committee in the manner set forth below. Except as described in Section 7.1(b), decisions by the Committee will require majority approval of a quorum of the Committee members. (c) Each Member shall designate its representatives on the Committee to the other Members in writing, and such designation shall remain in effect until the revocation of such designation has been made in writing. Such writing will be signed by the chief executive officer of PP in the case of PP and by the president of GEOSP in the case of GEOSP. Section 7.3 Officers. -------- (a) The Company shall hire as its President such individual as may be designated from time to time by GEOSP for the compensation and on the other terms and conditions designated by GEOSP. The President shall be vested by the Committee with all necessary powers to conduct the normal business of the Company. The President will be removed at the request of GEOSP with or without cause at any time. Except as otherwise agreed to by GEOSP and PP, other primary management functions of the Company shall be assigned by the President. (b) The Committee may appoint such other officers as it may determine from time to time. Except as otherwise agreed, each officer of the Company shall hold office at the pleasure of the Committee, and the Committee may remove any officer at any time, with or without cause. If appointed by the Committee, the officers shall have the duties assigned to them by the Committee. Section 7.4 Conduct of Business. Except as otherwise specifically ------------------- provided in this LLC Agreement, the Committee shall have the authority to, and shall, conduct the affairs of the Company on behalf of, and as representatives of, the Members. The Committee shall conduct the Company's business and affairs pursuant to, and in accordance with, the Strategic Plan and annual Operating Plan in Exhibit 3 attached hereto and any other goals established by the Committee. The Committee shall review the Strategic Plan and Operating Plan not less frequently than annually and shall establish goals consistent therewith for the next Fiscal Year, not later than three months prior to the commencement of each Fiscal Year, in accordance with the requirements of Section 7.1(b)(iv). The Committee may delegate to such officers as it may appoint from time to time the authority to conduct the day-to-day operations of the Company's business. The Company hereby adopts, and the Committee shall cause the Company to be operated in accordance with, the GE Company Policies, attached hereto as Exhibit 4, and policies consistent with applicable laws, -10- including but not limited to U.S. export control laws. In carrying out their responsibilities, the Committee members and officers of the Company shall be indemnified by the Company to the fullest extent allowed by Delaware law. Section 7.5 Conflicts of Interest. Subject to the other express --------------------- provisions of this LLC Agreement, particularly Section 9.3, each Member and its respective Committee members and Affiliates may engage in and possess interests in other business ventures of any and every type and description, independently or with others, including ones in competition with the Company, with no obligation to offer to the Company or any other Member the right to participate in such other business ventures. Subject to Section 7.1(b)(ii) of this LLC Agreement and the provisions of any Ancillary Agreement, the Company may transact business with any Member, their Affiliates and their respective directors, officers, employees and agents, provided the terms of those transactions are substantially comparable to those the Company could obtain from unrelated third parties. Section 7.6 Employment and Secondment Matters. The Members agree as --------------------------------- to certain employment and employee secondment matters as set forth on Annex C. ARTICLE VIII MEETINGS OF THE COMMITTEE Section 8.1 Regular and Special Meetings. Regular meetings of the ---------------------------- Committee shall be held at such times and places, within or without the State of Delaware, as the Committee may from time to time determine. Special meetings of the Committee may be called by any four Committee Members, and shall be held at such times and places, within or without the State of Delaware, as may be specified in such call. Section 8.2 Notices of Meetings. Notice of the time and place of ------------------- each meeting of the Committee shall be given to each Committee member by the person or persons calling such meeting. Such notice need not specify the purpose or purposes of the meeting (unless a Supermajority Transaction is proposed for consideration) and may be given in any manner or method and at such time so that the Committee member receiving it may have reasonable opportunity to participate in the meeting. The giving of notice shall be deemed to have been waived by any Committee member who shall participate in such meeting and may be waived, in writing, by any Committee member either before or after such meeting. Section 8.3 Quorum. Six Committee members shall constitute a quorum ------ for the transaction of business by the Committee. Whenever less than a quorum is present at the time and place appointed for any meeting of the Committee, a majority of those present may adjourn the meeting from time to time, until a quorum shall be present. Section 8.4 Action by Written Consent or Telephone Conference. Any ------------------------------------------------- action permitted or required by the Act or this LLC Agreement to be taken at a meeting of the Committee may be taken without a meeting if a consent in writing, setting forth the action to be taken, is signed by all the members of the Committee. Such consent shall have the same force and effect as a unanimous vote at a meeting and may be stated as such in any document or instrument filed with the Secretary of State of Delaware, and the -11- execution of such consent shall constitute attendance or presence in person at a meeting of the Committee. Subject to the requirements of the Act or this LLC Agreement, members of the Committee may participate in and hold a meeting of the Committee by means of a conference telephone or similar communications equipment by means of which all participants can hear each other, and participation in such meeting shall constitute attendance and presence in person at such meeting, except where a person participates in the meeting for the express purpose of objecting to the transaction of any business on the ground that the meeting is not lawfully called or convened. Section 8.5 Substitute Committee Members. If a Committee member is ---------------------------- unavailable for any particular Committee meeting, the Member that appointed such Committee member shall have the right to appoint a substitute Committee member for such meeting. ARTICLE IX ADDITIONAL COVENANTS Section 9.1 Public Announcements, Etc. The Members shall consult ------------------------- with each other before issuing any press release or making any public statement with respect to this LLC Agreement or the organization of the Company and, except as may be required by Applicable Law or any national or international securities exchange, will not issue any such press release or make any such public statement without the consent of both Members. Notwithstanding the foregoing, no provision of this LLC Agreement shall relieve a Member from any of its obligations under Section 9.2. Section 9.2 Confidentiality. The Members agree to follow, and to --------------- cause the Company to follow, the following requirements regarding confidentiality: (a) Each Member and the Company (each, for purposes of this Section 9.2, a "Party") expects to furnish to one or more of the other Parties certain confidential information which will constitute trade secrets or other proprietary business or technical information belonging to the disclosing Party (including, but not limited to, components, processes, financial information, drawings, specifications and other data, whether in written, printed, oral or other form) and will be marked "Confidential" or "Proprietary" (such information is hereinafter referred to as "Confidential Information") at the time it is disclosed. Oral information which is confidential or proprietary shall be reduced to writing by the disclosing Party within ten (10) working days after disclosure, which writing shall specifically reference the date of disclosure and otherwise conform to the requirements of this paragraph. Any information which is disclosed in any other manner shall be deemed to be non-confidential. The receiving Party shall not disclose Confidential Information to anyone except its employees who have a need to know such Confidential Information in order to perform their work and shall inform such individuals of the confidential nature of the Confidential Information. Subject to the provisions of subsection (b), below, the receiving Party shall use the Confidential Information only for the purpose of such work and shall use efforts to protect the confidentiality of such Confidential Information commensurate with those which it employs for the protection of its own confidential information, but it shall not be liable for unauthorized revelations of such Confidential Information which occur in spite of such efforts. -12- (b) Notwithstanding the provisions of subsection (a) above, (i) the receiving Party shall not be subject to any restriction hereunder with respect to any part of such Confidential Information which appears in issued patents or publications, which is known or becomes generally known to the relevant public through no fault of the receiving Party, which is independently generated by the receiving Party without use of the Confidential Information, which is furnished to others by the disclosing Party without restriction on disclosure, which was or becomes known to the receiving Party through other sources free of any confidentiality restriction, which must be disclosed by requirements of law or valid legal or regulatory process, in which case the Party intending to make such disclosure shall notify the Party which designated the material as confidential in advance of any such disclosure and reasonably cooperate with any attempt to maintain the confidentiality of such materials; and (ii) any and all restrictions with respect to Confidential Information provided hereunder will expire three (3) years after the date that such Confidential Information is disclosed to the receiving Party. (c) When one Party no longer desires to use the Confidential Information of another Party, it shall return to the other Party any such Confidential Information and shall destroy all copies of such Confidential Information with the exception of one copy which may be retained exclusively for the purpose of documenting the disclosures made hereunder. (d) The Company will restrict access to any Confidential Information made available or disclosed by a Member to the Company hereunder only to those employees of the Company with a need to know such information in performance of their jobs with the Company. Section 9.3 Protection of Business. In consideration of the ---------------------- respective benefits of this LLC Agreement to the Members, and subject to the terms and conditions of the Distributor Agreement, a form of which is attached hereto as Exhibit 9, the Members hereby covenant and agree that during the term of this LLC Agreement (a) PP and its Affiliates will not compete with the Company, directly or indirectly, in the Territory, for the sale of Products, Pre- Commercial Units, and Test & Evaluation Units, and the provision of Services, so long as, and to the extent that, the Company is PP's exclusive distributor in the Territory under the Distributor Agreement (except for sales of Test & Evaluation Units and Pre-Commercial Units to federal, state, municipal and other governmental entities, the Gas Research Institute, Electric Power Research Institute, and such other industry groups mutually agreed to by SUPPLIER and DISTRIBUTOR, to the extent such entities and groups are purchasing the units for their research and development, as opposed to purchasing the units for resale); (b) GEOSP shall not sell PEM Fuel-Cell Powered Generator Sets, replacement parts, upgrades, accessories, and improvements that compete with the Products and Pre-Commercial Units in the Territory, directly or through any Person other than the Company, provided that the Products are competitive, as determined pursuant to this subsection (b), with non-PP manufactured PEM Fuel Cell-Powered Generator Sets. If GEOSP determines, in good faith, that the Products are not competitive, then PP will be allowed a period of 12 months to make the Products competitive, after which, if the products are still not competitive, GEOSP shall not be bound by the non-compete provisions of this subsection (b) and/or GEOSP may terminate this LLC Agreement. If GEOSP decides, in accordance with this subsection (b), to sell PEM Fuel-Cell Powered Generator Sets, replacement parts, upgrades, accessories, and improvements that compete -13- with the Products and Pre-Commercial Units in the Territory directly or through any other Person, then either Member may terminate this LLC Agreement. GEOSP will consider the following factors, in good faith and as a whole, in determining whether the Products are competitive: (i) the wholesale price of Products is no more than 5% greater than such price for non-PP manufactured PEM Fuel Cell-Powered Generator Sets; (ii) the lifetime end user cost per kWh generated by the Products is no more than 5% greater than that for non-PP manufactured PEM Fuel Cell-Powered Generator Sets, where end user cost per kWh will be calculated as the wholesale price plus installation, lifetime operations and maintenance cost, divided by the kWh consumption over the operating life; (iii) the Product's emissions (NOx and CO measured in parts per million), noise (in Db), and size (in cubic feet) are no more than 10% greater than that for non-PP manufactured PEM Fuel Cell-Powered Generator Sets; and (iv) the Product's reliability is no more than 5% worse than that for non-PP manufactured PEM Fuel Cell-Powered Generator Sets. Notwithstanding the preceding paragraph of subsection (b), for any particular year beginning in "2001" (as defined in Schedule D of the Distributor Agreement), if the Company achieves at least 50% of its Major Market Sales Commitment (as defined in Schedule D of the Distributor Agreement) in any Major Market in any year, then the Products will be deemed to be competitive in such Major Market for such year. Notwithstanding the failure of the Company to achieve at least 50% of its Major Market Sales Commitment in any Major Market for such year, if the Company achieves at least 66% of its Global Sales Commitment (as defined in Schedule D of the Distributor Agreement) for such year, then the Products will be deemed to be competitive for the entire Territory for such year. In any part of the Territory outside of the Major Markets, the Products shall be deemed competitive for such part of the Territory for such year if the Company achieves at least 50% of its Global Sales Commitment for such year. Section 9.4 Promotion of the Company. GEOSP and PP will use all ------------------------ reasonable efforts to (a) promote the use of the Products, Pre-Commercial Units, and Services in the Territory, (b) support the Company in obtaining government authorizations as may be necessary or appropriate to operate the Company, and (c) make available support in conducting the day to day operations of the Company, including but not limited to administration, sales support, warehousing administration, and financial planning and budgeting; provided, that all such -------- efforts shall be in accordance with this LLC Agreement and the Ancillary Agreements. This Section will not be construed to expand either party's obligations in respect of matters specifically addressed elsewhere in this LLC Agreement or in any Ancillary Agreement. Section 9.5 Ethical and Environmental Standards. Each Member shall ----------------------------------- ensure that all actions on its behalf in connection with the Company are in compliance with the highest ethical standards. In particular, each party shall ensure that no money or anything of value (such as a bribe or kickback) is offered, given or authorized to be given, directly or indirectly, to a customer or government official to influence or reward action or inaction with regard to the Company. GEOSP shall have the right to cause an environmental baseline study to be prepared, at the Company's cost, for any facilities to be used by the Company. Section 9.6 Tax Matters. The Members agree to cooperate to structure ----------- the operation of the Company in a manner which enables each party and the Company to optimize its tax position with respect to the joint venture. If during the course of the operation of the Company, United States tax laws change so as to have a significant impact on either of the Members or the Company, the Members agree -14- to cooperate to make such mutually acceptable changes to this LLC Agreement insofar as allowed under law as will enable the affected party to optimize its tax position resulting from the change in the law. Section 9.7 Other Covenants. --------------- (a) PP will train sufficient personnel in the Company, PP, GEOSP and GEOSP's Affiliates as may be needed in the conduct of the Company's operations, at terms and prices mutually agreed to between PP and the Company. (b) The Company will use its best efforts to hire marketing, sales, and service personnel and/or contract with third parties to market and sell Products and Pre-Commercial Units in the manner that its Affiliates market and sell similar products, and to provide Services to ensure a level of customer service consistent with that provided for other GE-branded products, taking into consideration the sales volumes of Products and Pre-Commercial Units. (c) Each Member's patents, trademarks, trade names, inventions, copyrights, know-how, trade secrets, licensed rights or other intellectual property rights ("Intellectual Property") now in existence or hereafter lawfully - acquired or developed by such Member shall not be deemed to be transferred to any other Member or to the Company by virtue of this LLC Agreement. Notwithstanding the foregoing provisions of this Section 9.7(c), GEOSP hereby grants to PP a perpetual non-exclusive, non-transferable, irrevocable, royalty- free, fully paid up license to use Product information regarding market size, demographics, demand, segmentation, design parameters sought by the market, and contact information (names, addresses, telephone numbers) for customers, resellers, service providers, code bodies, and similar information acquired or developed by the Company under this LLC Agreement. Section 9.8 Further Assurances. Subject to the terms and conditions ------------------ of this LLC Agreement, each Member will use all reasonable efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary or desirable under Applicable Law and otherwise to consummate the transactions contemplated by this LLC Agreement and to refrain from taking any action that would prevent or delay the consummation of the transactions contemplated by this LLC Agreement. The Members will execute and deliver such other documents, certificates, agreements and other writings and take such other actions as may be reasonable and necessary or desirable in order to consummate or implement expeditiously the transactions contemplated by this LLC Agreement. Section 9.9 Ancillary Agreements. Contemporaneously with or prior to -------------------- the execution of this LLC Agreement, the Members, as applicable, shall enter into or have entered into, or shall cause or have caused their Affiliates, as applicable, to enter into, the Ancillary Agreements. The termination of an Ancillary Agreement, without substitution with an agreement acceptable to the Members, shall result in termination of this LLC Agreement pursuant to Section 10.2. -15- ARTICLE X DISPUTES; TERMINATION OF THIS LLC AGREEMENT Section 10.1 Resolution of Disputes. If there shall exist a dispute ---------------------- between the Members relating to approval of any Supermajority Transaction which substantially impairs the Company's ability to operate and flourish in a manner consistent with that anticipated by this LLC Agreement or substantially constrains the Company's prospects, the Members shall negotiate in good faith for a period of thirty (30) days in an effort to resolve the dispute. If such negotiations are not successful, either party shall have the right and option to notify the other party that the provisions of this Section 10.1 shall be invoked (the "Dispute Notice"). If a Dispute Notice is given and if requested by either party within 10 days thereafter, the Members shall submit the matter in dispute to the chief executive officer of GEOSP and the chief executive officer of PP for their review and resolution in such manner as they deem necessary or appropriate. The Committee will be bound by any resolution reached by the officers to whom such matter is submitted. If such officers cannot resolve such matter within 30 days after submission to them, then this LLC Agreement shall terminate. Section 10.2 Termination. ----------- (a) This LLC Agreement may be terminated by either GEOSP or PP by giving 30 days' notice if (i) the other party is in Material Breach, or (ii) the Distributor Agreement or any other Ancillary Agreement is terminated and not replaced. (b) This LLC Agreement shall automatically be terminated upon: (i) the written consent of all Members; or (ii) the sale, exchange or other disposition of all or substantially all of the assets of the Company. (c) This LLC Agreement may be terminated in accordance with the provisions of Sections 5.5(a), 9.3(b), and 10.1 of this LLC Agreement. Section 10.3 Effect of Termination. If this LLC Agreement is --------------------- terminated, the Members shall have no further obligations hereunder, except that the provisions of Sections 9.1 and 9.2 shall survive the termination of this LLC Agreement. The Members will have additional obligations upon the termination of the Distributor Agreement, as set forth therein. Section 10.4 Survival of Representations and Warranties. ------------------------------------------ Notwithstanding any investigation made by GEOSP, PP or the Company, or such Member's or the Company's representative, with respect to the representations or warranties of the other party, the representations and warranties of the Members contained in this LLC Agreement or in any certificate or other writing delivered pursuant hereto or in connection herewith shall survive until the third anniversary of the execution hereof or (i) in the case of paragraphs 1, 2, 4 and 7 of Annex B, indefinitely, and (ii) in the case of paragraphs 5, 8 and 9 of Annex B, until expiration of the applicable statutory period of limitations (giving effect to any waiver, mitigation or extension thereof), if later. Notwithstanding the preceding sentence, any representation or warranty in respect of which indemnity may be sought under Section 10.5 shall survive the time at which it -16- would otherwise terminate pursuant to the preceding sentence, if notice of the inaccuracy or breach thereof giving rise to such right to indemnity shall have been given to the party against whom such indemnity may be sought prior to such time. All covenants and agreements contained in this LLC Agreement shall survive until fully performed in accordance with their terms. Section 10.5 Indemnifiable Claims. Subject to the limitations set -------------------- forth in any Ancillary Agreement, the Members agree to the following indemnifications and procedures: (a) Indemnification by the Members. Each Member hereby agrees to ------------------------------ indemnify the other Members and the Company (without duplication) and their respective Affiliates, directors, officers and employees against, and agree to hold them harmless from, any and all Damages incurred or suffered by any of them as a result of claims by third parties arising out of or related in any way to (i) any misrepresentation or breach of any representation or warranty made by the Members in this LLC Agreement, and (ii) the breach or non-performance of any covenant or obligation required by this LLC Agreement to be performed or observed the Member, provided, however, that no Member shall be required to pay -------- ------- any Damages arising under clause (i) of this Section 10.5(a) unless and until the aggregate amount of such Damages attributable to such Member shall reach $25,000, at which time such Member shall become responsible for all such Damages (including the initial $25,000); and provided further, that the indemnification -------- ------- obligations of the Members hereunder shall each be limited to $1,000,000. The foregoing indemnification shall not in any manner limit a Member's legal remedies against the other Member under applicable law. (b) Waiver of CERCLA Defense. The Members, on behalf of ------------------------ themselves and their respective Affiliates, and the Company expressly waive any claim or defense that the indemnifications contained in this LLC Agreement or in the Ancillary Documents are unenforceable under Section 107(e) of CERCLA. (c) Notice. Each party to this Agreement agrees to give prompt ------ notice to the other parties to this Agreement of the assertion of any claim, or the commencement of any suit, action or proceeding brought by a Person that is not a party to this Agreement ("Indemnified Claims") in respect of which the Members, the Company or their respective Affiliates, or their respective directors, officers, employees or agents seek indemnity under Section 10.5(a), after such Member of the Company becomes aware of the facts giving rise to such Indemnified Claim. The failure of any party to provide notice pursuant to this Section 10.5(d) shall not constitute a waiver of that party's claims to indemnification pursuant to Section 10.5 in the absence of material prejudice to the party that did not receive such notice. Any such notice to a party shall be accompanied by a copy of any papers theretofore served on the notifying party in connection with the Indemnified Claims. (e) Defense and Settlement of Claims. -------------------------------- (i) Assumption of Defense. Upon receipt of notice from a --------------------- party seeking and entitled to indemnification (an "Indemnified Party") pursuant to this Agreement, the party or parties against whom indemnification is sought (an "Indemnifying Party") will, subject to the provisions of Section 10.5(e)(ii), assume the defense and control of such Indemnified Claims but shall allow the Indemnified Party or Parties a reasonable opportunity to participate in the defense thereof with its -17- or their own counsel and at its or their own expense. The Indemnifying Party shall (A) select counsel, contractors and consultants of recognized standing and competence after consultation with the Indemnified Party or Parties, (B) take all steps necessary in the defense or settlement thereof and (C) at all times diligently and promptly pursue the resolution thereof. The Indemnified Party or Parties shall, and shall cause each of their respective Affiliates and their respective directors, members, officers, employees, and agents to, cooperate fully with the Indemnifying Party in the defense of any Indemnified Claim. (ii) Settlement of Claims. The Indemnifying Party shall be -------------------- authorized to consent to a settlement of, or the entry of any judgment arising from, any Indemnified Claims, without the consent of any Indemnified Party; provided, that the Indemnifying Party shall (A) pay or -------- cause to be paid all amounts arising out of such settlement or judgment concurrently with the effectiveness thereof, (B) not encumber any of the assets of any Indemnified Party or agree to any restriction or condition that would apply to such Indemnified Party or to the conduct of that party's business, (C) obtain, as a condition of any settlement or other solution, a complete release of each Indemnified Party and (D) provide to the Indemnified Party notice of the proposed settlement prior to such settlement. ARTICLE XI DISSOLUTION, LIQUIDATION AND TERMINATION OF THE COMPANY Section 11.1 Dissolution. The Company shall be dissolved and its ----------- affairs wound up on the first to occur of the following: (a) the Members shall agree in writing to dissolve the Company; (b) any Member shall become a Bankrupt Member or dissolve, or there shall occur any other event (other than a transfer of a Membership Interest in accordance with Article IV or Article X) that terminates the continued membership in the Company of any Member; (c) the entry of a decree of judicial dissolution of the Company under (S) 18-802 of the Act; and (d) the termination of this LLC Agreement. Section 11.2 Liquidation and Termination. On dissolution of the --------------------------- Company, the Committee shall appoint as liquidator one or more Persons that are not affiliated with the Members. The liquidator shall proceed diligently to wind up the affairs of the Company and make final distributions as provided in this LLC Agreement and in the Act. The costs of liquidation shall be borne as a Company expense. Until final distribution, the liquidator shall continue to operate the Company properties with all of the power and authority of a Required Interest. A reasonable time shall be allowed for the orderly liquidation of the assets of the Company and the discharge of liabilities to creditors so as to enable the liquidator to minimize any losses resulting from liquidation. The liquidator, as promptly as possible after dissolution and again after final liquidation, shall cause a proper accounting to be made by a recognized firm of certified public accountants of -18- the Company's assets, liabilities, and operations through the last day of the calendar month in which the dissolution occurs or the final liquidation is completed, as applicable, and shall apply the proceeds of liquidation as set forth in the remaining sections of this Article XI. Section 11.3 Payment of Debts. The assets shall first be applied to ---------------- the payment of the liabilities of the Company (other than any loans or advances that may have been made by Members to the Company) and the expenses of liquidation. Section 11.4 Debts to Members. The remaining assets shall next be ---------------- applied to the repayment of any loans made by any Member or Member Affiliate to the Company. Section 11.5 Remaining Distribution. The remaining assets shall then ---------------------- be distributed to the Members in the following order: (a) If non-cash property of the Company is to be distributed, the fair market value of such property as of the date of dissolution shall be determined by the Members pursuant to Part B.7(a) of Exhibit 2 using such reasonable methods of valuation as they may adopt. Such property shall be deemed to have been sold as of the date of dissolution for such fair market value, and the Capital Accounts of the Members shall be adjusted prior to the distribution of such property pursuant to Article VI of this LLC Agreement to reflect the manner in which gain or loss which would have been realized by the Company as a result of such deemed sale would have been allocated under Article VI and Exhibit 2 of this LLC Agreement. (b) Distributions shall be made according to the positive balance(s) (if any) of the Members' Capital Accounts (as determined after taking into account all Capital Account adjustments for the Company's Fiscal Year during which the liquidation occurs), either in cash or in kind, as determined by the Committee, with any assets distributed in kind being valued for this purpose at their fair market value as determined pursuant to Section 11.5(a). Any such distributions to the Members in respect of their Capital Accounts shall be made in accordance with the time requirements set forth in Treas. Reg. (S) 1.704-1(b)(2)(ii)(b)(2). (c) Notwithstanding anything to the contrary in this LLC Agreement, upon a liquidation within the meaning of Treas. Reg. (S) 1.704- 1(b)(2)(ii)(g), if any Member has a deficit Capital Account (after giving effect to all contributions, distributions, allocations, and other Capital Account adjustments for all Fiscal Years, including the year during which such liquidation occurs), the Member shall have no obligation to make any Capital Contribution, and the negative balance of such Capital Account shall not be considered a debt owed by the Member to the Company or to any other Person for any purpose whatsoever. Section 11.6 Reserve. Notwithstanding the provisions of Sections 11.4 ------- and 11.5, the liquidator may retain such amount as it deems necessary as a reserve for any contingent liabilities or obligations of the Company, which reserve, after the passage of a reasonable period of time, shall be distributed pursuant to the provisions of this Article XI. Section 11.7 Final Accounting. Each of the Members shall be ---------------- furnished with a statement prepared by the Company's certified public accountants, which shall set forth the assets and liabilities of the -19- Company as of the date of the complete liquidation. Upon the compliance by the liquidator with the foregoing distribution plan, the liquidator shall execute and cause to be filed a certificate of cancellation and any and all other documents necessary with respect to termination and cancellation of the Company under the Act. ARTICLE XII MISCELLANEOUS Section 12.1 Relationship of the Members. The relationship of the --------------------------- Members shall be limited solely to the purpose and scope of the Company as expressed in this LLC Agreement and in the Ancillary Agreements. This LLC Agreement shall not constitute the appointment of either party to this LLC Agreement as the legal representative or agent of the other party. Neither party to this LLC Agreement shall have any right or authority to assume, create or incur any liability or any obligation of any kind, express or implied, against or in the name of or on behalf of the other party to this LLC Agreement. Except as may be specifically provided in this LLC Agreement or any Ancillary Agreement, neither the Company nor either party shall assume or be responsible for any liability or obligation of any nature of, or any liability or obligation that arises from any act or omission to act of, any other party however or whenever arising. Section 12.2 Performance by the Company. The Members shall cause the -------------------------- Company to perform the obligations on the Company's part to be performed by it under this LLC Agreement and the Ancillary Agreements. Section 12.3 Agreement for Further Execution. At any time or times ------------------------------- upon the request of the Committee or either Member, each Member agrees to sign and swear to any certificate, any amendment to or cancellation of such certificate, acknowledge similar certificates or affidavits or certificates of fictitious firm name or the like (and any amendments or cancellations thereof) required by the laws of the State of Delaware, or any other jurisdiction in which the Company does, or proposes to do, business. This Section 12.3 shall not prejudice or affect the rights of the Members to approve certain amendments to this LLC Agreement pursuant to Section 12.5. Section 12.4 Notices. All notices, requests and other communications ------- to any party or to the Company hereunder shall be in writing (including telex, telecopy or similar writing) and shall be given, if to GEOSP: GE On-Site Power, Inc. One River Road Schenectady, NY 12345 Attention: President Telecopy: (518) 385-5704 with a copy to: GE Power Systems One River Road Schenectady, NY 12345 Attention: General Counsel Telecopy: (518) 385-4725 -20- if to PP: Plug Power, L.L.C. 968 Albany-Shaker Road Latham, NY 12110 Attention: President and CEO Telecopy: (518) 782-7914 or to such other address or telecopy number and with such other copies, as such party may hereafter specify by notice to the other parties. Each such notice, request or other communication shall be effective upon receipt, provided that if the day of receipt is not a Business Day then it shall be deemed to have been received on the next succeeding Business Day. Section 12.5 Amendments; No Waivers. ---------------------- (a) Any provision of this LLC Agreement may be amended or waived if, and only if, such amendment or waiver is in writing and signed, in the case of an amendment, by all the Members, or in the case of a waiver, by the party against whom the waiver is to be effective. (b) No failure or delay by any party in exercising any right, power or privilege under this LLC Agreement shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies in this LLC Agreement provided shall be cumulative and not exclusive of any rights or remedies provided by law. Section 12.6 Successors and Assigns. Neither party shall assign this ---------------------- LLC Agreement or any of its rights in and to this LLC Agreement, except that GEOSP may, upon notice to PP, assign its rights in this LLC Agreement to an Affiliate of GE. Subject to the preceding sentence and other provisions hereof, the provisions of this LLC Agreement shall be binding upon and inure to the benefit of the Members and their respective permitted successors and assigns. Section 12.7 Governing Law. The laws of the State of Delaware shall ------------- govern the validity, interpretation, construction, performance, and enforcement of this LLC Agreement, provided that any provision of such laws (e.g., choice of law provisions) invalidating any provision of this LLC Agreement or modifying the intent of the Members as expressed in the terms of this LLC Agreement shall not apply. It is further agreed that any and all litigation relating to this LLC Agreement or the Company shall be brought in a state or federal court located within the State of New York; and each Member, for the purpose of all such litigation, hereby submits to the exclusive jurisdiction and venue of such courts. Section 12.8 Illegality and Severability. If application of any one --------------------------- or more of the provisions of this LLC Agreement shall be unlawful under applicable law and regulations, then the parties will attempt in good faith to make such alternative arrangements as may be legally permissible and which carry out as nearly as practicable the terms of this LLC Agreement. Should any portion of this LLC Agreement be deemed unenforceable by a court of competent jurisdiction, the remaining portion hereof shall remain unaffected and be interpreted as if such unenforceable portions were initially deleted. -21- Section 12.9 Counterparts; Effectiveness. This LLC Agreement may be --------------------------- signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and to this LLC Agreement were upon the same instrument. This LLC Agreement shall become effective when each party to this LLC Agreement shall have received a counterpart hereof signed by the other party to this LLC Agreement. Section 12.10 Entire Agreement. This LLC Agreement and the Ancillary ---------------- Agreements (and any other agreements contemplated hereby or thereby) constitute the entire agreement among the Members with respect to the subject matter hereof and supersede all prior agreements, understandings and negotiations, both written and oral, between the Members with respect to the subject matter hereof or thereof (including, without limitation, the Memorandum of Understanding of the Members dated July 2, 1998). No representation, inducement, promise, understanding, condition or warranty not set forth in this LLC Agreement has been made or relied upon by any party to this LLC Agreement. This LLC Agreement is not intended to confer upon any Person other than the Members and the Company any rights or remedies hereunder. Section 12.11 Captions. The captions in this LLC Agreement are -------- included for convenience or reference only and shall be ignored in the construction or interpretation hereof. Section 12.12 Expenses. All costs and expenses incurred in -------- connection with the transactions contemplated by this LLC Agreement shall be paid by the Member incurring such cost or expense, except as otherwise provided in this LLC Agreement or any Ancillary Agreement. Section 12.13 Limitation of Liability. In no case will a Member be ----------------------- liable to the other for special, incidental, or consequential damages, including, but not limited to, personal injury, property damage, loss of profit or revenues, or business interruption. IN WITNESS WHEREOF, the Members have hereunto set their hands on the day and year first above written. MEMBERS: ------- GE ON-SITE POWER, INC. By: /s/ Ricardo Artigas ----------------------------------------- Ricardo Artigas, President -22- PLUG POWER, L.L.C. By: /s/ Gary Mittleman ----------------------------------------- Gary Mittleman, President and CEO -23- EXHIBIT 1 --------- MEMBERSHIP INTERESTS NAME AND MEMBERSHIP NOTICE ADDRESS INTEREST - -------------- -------- GE On-Site Power, Inc. 75% One River Road Schenectady, NY 12345 Plug Power, L.L.C. 25% 968 Albany-Shaker Road Albany, NY 12110 -1- EXHIBIT 2 --------- ALLOCATION AND CAPITAL ACCOUNT PROVISIONS For purposes of interpreting and implementing the LLC Agreement, the following rules shall apply and shall be treated as part of the terms of the LLC Agreement: A. Special Allocation Provisions. ----------------------------- 1. For purposes of determining the amount of gain or loss to be allocated pursuant to Article VI of the LLC Agreement, any basis adjustments permitted pursuant to Section 743 of the Code shall be disregarded. 2. Income, loss, deductions and credits shall be allocated to the Members in accordance with the portion of the Fiscal Year during which the Members have held their respective interests. All items of income, loss and deduction shall be considered to have been earned ratably over the period of the Fiscal Year, except that gains and losses arising from the disposition of assets shall be taken into account as of the date thereof. 3. Notwithstanding any other provision of the LLC Agreement, to the extent required by law, income, gain, loss and deduction attributable to property contributed to the Company by a Member shall be allocated among the Members so as to take into account any variation between the basis of the property to the Company and the fair market value of the property at the time of contribution in accordance with the requirements of Section 704(c) of the Code and the applicable Treasury Regulations thereunder, as more fully described in Part B hereof. The Company shall use the traditional method with curative allocations described in Treasury Regulation Section 1.704-3(c) for purposes of complying with Section 704(c)(1)(A) of the Code. 4. Notwithstanding any other provision of the LLC Agreement, in the event the Company is entitled to a deduction for interest imputed under any provision of the Code on any loan or advance from a Member (whether such interest is currently deducted, capitalized or amortized), such deduction shall be allocated solely to such Member. 5. Notwithstanding any provision of the LLC Agreement to the contrary, to the extent any payments in the nature of fees made to a Member are finally determined by the IRS to be distributions to a Member for federal income tax purposes, there will be a gross income allocation to such Member in the amount of such distribution. 6. (a) Notwithstanding any provision of the LLC Agreement to the contrary and subject to the exceptions set forth in Section 1.704-2(f)(2)-(5) of the Treasury Regulations, if there is a net decrease in Partnership Minimum Gain during any Fiscal Year, each Member shall be specially allocated items of Company income and gain for such year (and, if necessary, subsequent years) in an amount equal to such Member's share of the net decrease in Partnership Minimum Gain determined in accordance with Section 1.704-2(g)(2) of the Treasury Regulations. Allocations pursuant to the previous sentence shall be -1- made in proportion to the respective amounts required to be allocated to each Member pursuant thereto. The items to be so allocated shall be determined in accordance with Sections 1.704-2(f)(6) and 1.704-2(j)(2) of the Treasury Regulations. This paragraph 6(a) is intended to comply with the minimum gain chargeback requirement in Section 1.704-2(f) of the Treasury Regulations and shall be interpreted consistently therewith. To the extent permitted by such Section of the Treasury Regulations and for purposes of this paragraph 6(a) only, each Member's Adjusted Capital Account Balance shall be determined prior to any other allocations pursuant to Article VI of the LLC Agreement with respect to such Fiscal Year and without regard to any net decrease in Partner Minimum Gain during such Fiscal Year. (b) Notwithstanding any provision of the LLC Agreement to the contrary, except paragraph 6(a) of this Exhibit 2 and subject to the exceptions set forth in Section 1.704-2(i)(4) of the Treasury Regulations, if there is a net decrease in Partner Nonrecourse Debt Minimum Gain during any Fiscal Year, each Member who has a share of the Partner Nonrecourse Debt Minimum Gain, determined in accordance with Section 1.704-2(i)(5) of the Treasury Regulations, shall be specially allocated items of Company income and gain for such Fiscal Year (and, if necessary, subsequent Fiscal Years) in an amount equal to such Member's share of the net decrease in Partner Nonrecourse Debt Minimum Gain, determined in accordance with Section 1.704-2(i)(4) of the Treasury Regulations. Allocations pursuant to the previous sentence shall be made in proportion to the respective amounts required to be allocated to each Member pursuant thereto. The items to be so allocated shall be determined in accordance with Sections 1.704-2(i)(4) and 1.704-2(j)(2) of the Treasury Regulations. This paragraph 6(b) is intended to comply with the minimum gain chargeback requirement in such Sections of the Treasury Regulations and shall be interpreted consistently therewith. To the extent permitted by such Sections of the Treasury Regulations, and solely for purposes of this paragraph 6(b), each Member's Adjusted Capital Account Balance shall be determined prior to any other allocations pursuant to Article VI of the LLC Agreement with respect to such Fiscal Year, other than allocations pursuant to paragraph 6(a) hereof. 7. (a) Notwithstanding any provision of the LLC Agreement to the contrary, in the event any Member unexpectedly receives any adjustments, allocations or distributions described in Treasury Regulation Section 1.704- 1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5) or 1.704-1(b)(2)(ii)(d)(6), items of Company income and gain shall be specially allocated to such Members in an amount and manner sufficient to eliminate, to the extent required by the Treasury Regulations, the deficits in their Adjusted Capital Account Balances created by such adjustments, allocations or distributions as quickly as possible, provided that an allocation pursuant to this paragraph 7(a) shall be made only if and to the extent that such Members would have a deficit Adjusted Capital Account Balance after all other allocations provided for in the LLC Agreement and this Exhibit 2 have been tentatively made as if this paragraph 7(a) were not in the LLC Agreement or incorporated thereinto. (b) In the event any Member has a deficit Capital Account at the end of any Fiscal Year which is in excess of the sum of (i) the amount such Member is obligated to restore pursuant to any provision of the LLC Agreement, and (ii) the amount such Member is deemed to be obligated to restore pursuant to the penultimate sentences of Sections 1.704-2(g)(1) and 1.704-2(i)(5) of the Treasury Regulations, each such Member shall be specially allocated items of Partnership income and gain in the amount of such excess as quickly as possible, provided that an allocation pursuant to this paragraph 7(b) shall be made only if and to the extent that such Member would have a deficit Capital Account in excess of -2- such sum after all other allocations provided for in the LLC Agreement and this Exhibit 2 have been made as if paragraph 7(a) hereof and this paragraph 7(b) were not in the LLC Agreement or incorporated thereinto. 8. To the extent an adjustment to the adjusted tax basis of any Company asset pursuant to Section 734(b) or Section 743(b) of the Code is required, pursuant to Section 1.704-1(b)(2)(iv)(m)(2) or Section 1.704- 1(b)(2)(iv)(m)(4) of the Treasury Regulations, to be taken into account in determining Capital Accounts as the result of a distribution to a Member in complete liquidation of its interest in the Company, the amount of such adjustment to Capital Accounts shall be treated as a item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases such basis) and such gain or loss shall be specially allocated to the Members in accordance with their interest in the Company in the event that Regulations Section 1.704-1(b)(2)(iv)(m)(2) applies, or to the Member to whom such distribution was made in the event that Section 1.704-1(b)(2)(iv)(m)(4) of the Treasury Regulations applies. 9. No loss shall be allocated to any Member to the extent that such allocation would result in a deficit in its Adjusted Capital Account Balance while any other Member continues to have a positive Adjusted Capital Account Balance; in such event losses shall first be allocated to any Members with positive Adjusted Capital Account Balances, and in proportion to such balances, to the extent necessary to reduce their positive Adjusted Capital Account Balances to zero. Any allocation of loss pursuant to this paragraph 9 shall be offset in subsequent years on a last-in first-out priority basis by special allocations of income in the corresponding amounts. 10. Any special allocations of items pursuant to this Part A (the "Regulatory Allocations") shall be taken into account in computing subsequent allocations so that the net amount of any items so allocated and the Profits, Losses and all other items allocated to each such Member pursuant to Article VI of the LLC Agreement shall, to the extent possible, be equal to the net amount that would have been allocated to each such Member pursuant to the provisions of Article VI of the Agreement if such Regulatory Allocations had not occurred. 11. Notwithstanding any provision of the LLC Agreement to the contrary, Nonrecourse Deductions for any Fiscal Year or other period shall be specially allocated to the Members pro rata in accordance with their respective Membership Interests. 12. Notwithstanding any provision of the LLC Agreement to the contrary, any Member Nonrecourse Deduction for any Fiscal Year or other period shall be specially allocated to the Member who bears the economic risk of loss with respect to the Partner Nonrecourse Debt to which such Partner Nonrecourse Deductions are attributable in accordance with Section 1.704-2(i) of the Treasury Regulations. B. Capital Account Adjustments. --------------------------- 1. For purposes of computing the amount of any item of income, gain, deduction or loss to be reflected in the Members' Capital Accounts, the determination, recognition and classification of any such item shall be the same as its determination, recognition and classification for federal income tax purposes; provided, however, that: -3- (a) Any deductions for depreciation, cost recovery or amortization (other than depletion under Section 611 of the Code) attributable to property contributed by a Member to the capital of the Company shall be determined as if the adjusted basis of such property on the date it was acquired by the Company was equal to the fair market value of the property as determined by the Members pursuant to Part B.7(a) hereof using such reasonable methods of valuation as they may adopt. Upon an adjustment to the Carrying Value of any Company property (other than property subject to depletion under Section 611 of the Code), any further deductions for such depreciation, cost recovery or amortization attributable to such property shall be determined as if the adjusted basis of such property was equal to the Carrying Value of such property immediately following such adjustment. (b) Any income, gain or loss attributable to the taxable disposition of any property (including any property subject to depletion under Section 611 of the Code) shall be determined by the Company as if the adjusted basis of such property as of such date of disposition was equal in amount to the Company's Carrying Value with respect to such property as of such a date. (c) The computation of all items of income, gain, loss and deduction shall be made by the Company and, as to those items described in Section 705(a)(1)(B) or Section 705(a)(2)(B) of the Code, or treated as Section 705(a)(2)(B) expenditures pursuant to Section 1.704-1(b)(2)(iv)(i) of the Treasury Regulations, without regard to the fact that such items are not includable in gross income or are neither currently deductible nor capitalizable for federal income tax purposes. 2. A transferee of a Membership Interest will succeed to the Capital Account relating to the Membership Interest transferred. 3. Upon an issuance of additional Membership Interests for cash or property, the Capital Accounts of all Members (and the Carrying Values of all Company properties) shall, immediately prior to such issuance, be adjusted (consistent with the provisions hereof) upward or downward to reflect any unrealized gain or unrealized loss attributable to each Company property (as if such unrealized gain or unrealized loss had been recognized upon an actual sale of such property at the fair market value thereof, immediately prior to such issuance, and had been allocated to the Members, at such time, pursuant to Article VI of the Agreement). In determining such unrealized gain or unrealized loss attributable to the properties, the fair market value of Company properties shall be determined by the Members pursuant to Part B.7(a) hereof using such reasonable methods of valuation as they may adopt. 4. Immediately prior to the distribution of any Company property in liquidation of the Company, or the distribution by the Company to a Member of any Company property as consideration for an interest in the Company, the capital accounts of all Members (and the Carrying Values of all Company properties) shall be adjusted (consistent with the provisions hereof and Section 704 of the Code) upward or downward to reflect any unrealized gain or unrealized loss attributable to each Company property (as if such unrealized gain or unrealized loss had been recognized upon an actual sale of each such property, immediately prior to such distribution, and had been allocated to the Members, at such time, pursuant to Article VI of the Agreement). In determining such unrealized gain or unrealized loss attributable to the properties, the fair market value of Company properties shall be determined by the Members pursuant to Part B.7(a) hereof using such reasonable methods of valuation as they may adopt. -4- 5. In the event the value of any Company asset is adjusted as described in paragraph 3 or 4 above, subsequent allocations of income, gain, loss and deduction with respect to such asset shall take account of any variation between the value and the adjusted basis of such asset for federal income tax purposes in the same manner as under Section 704(c) of the Code and the Treasury Regulations thereunder. 6. Any elections or other decisions relating to such allocations shall be made by the Committee in any manner that reasonably reflects the purpose and intention of the LLC Agreement. 7. The following actions shall require the consent of the holder(s) of a majority of outstanding membership interests: (a) the valuation of any non-cash property contributed to the Company by a Member, or distributed to a Member by the Company, and the valuation of all the assets of the Company if required for purposes of computing the Members' Capital Accounts pursuant to the Regulations under Section 704 of the Code; and (b) the distribution by the Company to a Member of non-cash property which had been previously contributed by a Member to the capital of the Company, provided such distribution is made within the seven year period following the date on which the property was contributed to the Company and such distribution, if made, would cause the recognition of taxable income or gain under Section 704(c)(1)(B) or Section 737 of the Code. C. Definitions. For the purposes of this Exhibit 2, the following terms ----------- shall have the meanings indicated unless the context clearly indicates otherwise: "Adjusted Capital Account Balance": means the balance in the Capital -------------------------------- Account of a Member as of the end of the relevant Fiscal Year, after giving effect to the following: (a) credit to such Capital Account any amounts the Member is obligated to restore, pursuant to the terms of the Agreement or otherwise, or is deemed obligated to restore pursuant to the penultimate sentences of Sections 1.704-2(g)(1) and 1.704-2(i)(5) of the Treasury Regulations, and (b) debit to such Capital Account the items described in Sections 1.704-1(b)(2)(ii)(d)(4), (5) and (6) of the Treasury Regulations. "Carrying Value": means (a) with respect to property contributed by a -------------- Member to the capital of the Company, the value of such property reduced (but not below zero) by all amortization, depreciation and cost recovery deductions charged to the Members' Capital Accounts with respect to such property, as well as any other charges for sales, retirements and other dispositions of assets included in property, as of the time of determination, and (b) with respect to any other property, the adjusted basis of that property for federal income tax purposes as of the time of determination. The Carrying Value of any property shall be adjusted in accordance with the principles set forth herein. "Nonrecourse Deductions": shall have the meaning set forth in Section ---------------------- 1.704-2(b)(1) of the Treasury Regulations. The amount of Nonrecourse Deductions for a Fiscal Year equals the excess, if any, of the net increase, if any, in the amount of Partnership Minimum Gain during that Fiscal Year over the aggregate amount of any distributions during that Fiscal Year of proceeds of a Nonrecourse Liability that are -5- allocable to an increase in Partnership Minimum Gain, determined according to the provisions of Section 1.704-2(c) of the Treasury Regulations. "Nonrecourse Liability": shall have the meaning set forth in Section --------------------- 1.704-2(b)(3) of the Treasury Regulations. "Partner Nonrecourse Debt Minimum Gain": means an amount, with ------------------------------------- respect to each Partner Nonrecourse Debt, equal to the Partnership Minimum Gain that would result if such Partner Nonrecourse Debt were treated as a Nonrecourse Liability, determined in accordance with Section 1.704-2(i)(3) of the Treasury Regulations. "Partner Nonrecourse Debt": shall have the meaning set forth in ------------------------ Section 1.704-2(b)(4) of the Treasury Regulations. "Partner Nonrecourse Deductions": shall have the meaning set forth in ------------------------------ Sections 1.704-2(i)(1) and (2) of the Treasury Regulations. The amount of Partner Nonrecourse Deductions with respect to a Partner Nonrecourse Debt for a Fiscal Year equals the excess, if any, of the net increase, if any, in the amount of Partner Nonrecourse Debt Minimum Gain attributable to such Partner Nonrecourse Debt during that Fiscal Year over the aggregate amount of any distributions during the Fiscal Year to the Member that bears the economic risk of loss for such Partner Nonrecourse Debt to the extent such distributions are from the proceeds of such Partner Nonrecourse Debt and are allocable to an increase in Partner Nonrecourse Debt Minimum Gain attributable to such Partner Nonrecourse Debt, determined in accordance with Section 1.702-2(i)(2) of the Treasury Regulations. "Partnership Minimum Gain": shall have the meaning set forth in ------------------------ Sections 1.704-2(b)(2) and 1.704-2(d) of the Treasury Regulations. "Treasury Regulations" or "Treas. Reg." shall include temporary and -------------------- ----------- final regulations promulgated under the Code in effect as of the date of filing the Certificate and the corresponding sections of any regulations subsequently issued that amend or supersede those regulations. For purposes of this Exhibit, all other capitalized terms will have the same definition as in the LLC Agreement. -6- EXHIBIT 3 --------- STRATEGIC PLAN AND OPERATING PLAN (See Attached) [***] CONFIDENTIAL INFORMATION HAS BEEN OMITTED PURSUANT TO RULE 406 UNDER THE SECURITIES ACT AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. THE LOCATIONS OF THE OMITTED INFORMATION HAVE BEEN INDICATED WITH ASTERISKS. GE FUEL CELL SYSTEMS, LLC OPERATING PLAN JANUARY 1999 [***] CONFIDENTIAL INFORMATION HAS BEEN OMITTED PURSUANT TO RULE 406 UNDER THE SECURITIES ACT AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. THE LOCATIONS OF THE OMITTED INFORMATION HAVE BEEN INDICATED WITH ASTERISKS. GE FUEL CELL SYSTEMS, LLC STRATEGIC PLAN JANUARY 1999 OVERVIEW GE Fuel Cell Systems, L.L.C. (hereafter the "Company") is being formed to market, install, and service proton exchange membrane (PEM) fuel cell systems designed and manufactured by Plug Power, L.L.C. (hereafter "PP"). The Company will be PP's distributor of fuel cell systems for residential and small commercial and industrial (C&I) power applications less than or equal to 35kW, with certain defined exclusions. Except for the distribution rights previously granted to DTE Energy (parent company of Detroit Edison) for Michigan, Illinois, Indiana, and Ohio, the Company will be PP's exclusive, global distributor. Ownership of the Company is split 75%/25% between GE On-Site Power, Inc. (hereafter "GEOSP") and PP. PRODUCT The Company's initial efforts will focus on PP's residential-sized fuel cell product, the "Plug Power 7000." [***] (7 Pages) CONFIDENTIAL INFORMATION HAS BEEN OMITTED PURSUANT TO RULE 406 UNDER THE SECURITIES ACT AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. THE LOCATIONS OF THE OMITTED INFORMATION HAVE BEEN INDICATED WITH ASTERISKS. EXHIBIT 4 --------- GE COMPANY POLICIES [***] CONFIDENTIAL INFORMATION HAS BEEN OMITTED PURSUANT TO RULE 406 UNDER THE SECURITIES ACT AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. THE LOCATIONS OF THE OMITTED MATERIALS HAVE BEEN INDICATED WITH ASTERISKS. EXHIBIT 5 --------- FORM OF CONTRIBUTION AGREEMENT (See Exhibit 10.2) (See Attached) EXHIBIT 6 --------- PROMISSORY NOTE --------------- *** Schenectady, New York February 2, 1999 1. Payment of Principal and Interest. FOR VALUE RECEIVED, GE FUEL CELL --------------------------------- SYSTEMS, L.L.C., a Delaware limited liability company (the "Maker"), hereby promises to pay to the order of GENERAL ELECTRIC COMPANY, a New York corporation, and any subsequent holder of this Note ("Holder" or "Holders") in the manner hereinafter provided, the principal amount ***(***) or such lesser amount as shall equal the aggregate unpaid principal amount of loans made by Holder to Maker under Section 5.5 of the Amended and Restated Limited Liability Company Agreement dated as of February 3, 1999, by and between GE On-Site Power, Inc., and Plug Power, L.L.C. (the "LLC Agreement"), in the form of cash disbursements (individually a "Disbursement" and collectively "Disbursements"), and to pay interest on the unpaid principal amount of each such Disbursement, for the period commencing on the date of such Disbursement until such Disbursement shall be paid in full, as follows: (a) For each Disbursement, interest will accrue from the date of such Disbursement on the unpaid balance of such Disbursement outstanding from time to time at a rate equal to [***] Holder shall notify Maker monthly of the Contract rate that will apply for the month then ended; (b) [***] (c) On December 31, 2003, Maker will repay the entire unpaid principal amount and any interest accrued but remaining unpaid and all other sums due under this Note. Interest shall be calculated on the basis of a 360-day year containing twelve 30-day months. All such payments on account of the indebtedness evidenced by this Note shall be first applied to all payments other than principal and interest due under this Note, second to interest accrued on the unpaid principal amount, and the remainder toward reduction of the unpaid principal amount. The date, amount, and interest rate of each Disbursement made by Holder to Maker, and each payment made on account of the principal thereof, shall be recorded by Holder on its books and, prior to any transfer of this Note, endorsed by Holder on the schedule attached hereto or any continuation thereof. Holder shall provide written notice to Maker upon each such disbursement. This Note is the Promissory Note referred to in Section 5.5 of the LLC Agreement and evidences the loans made by Holder thereunder. 2. Payment Information. All payments required to be made hereunder shall ------------------- be made during regular business hours to an account designated by Holder from time to time, with sufficient information to identify the source and application of such payment to this Note. All payments shall be made in currency of United States of America without presentment or surrender of this Note. Payments to Holder shall be made by transferring immediately available federal funds by bank wire or interbank transfer for the account of Holder provided, however, that any payment of principal or interest received after 2:00 p.m. New York time shall be deemed to have been received by Holder on the next business day and shall bear interest accordingly. If and so long as Holder directs Maker to make payments to a servicing agent, then payments may be made by check. Payments made by check will not be deemed made until such check has cleared and available funds for such check are received by Holder or the servicing agent. 3. Security For Note. The payment of this Note and all other sums due ----------------- Holder is secured by a Security Agreement of even date herewith between Maker and Holder, as secured party ("Security Agreement"), covering certain tangible and intangible personal property of Maker, and all proceeds thereof, accessions thereto and replacements thereof, wherever situated ("Property"), and described in the Security Agreement. Except as otherwise defined herein, all of the defined terms contained in the Security Agreement are hereby incorporated herein by express reference. 4. Interest Payable Upon Default. If there occurs an Event of Default ----------------------------- under this Note or the Security Agreement, then the unpaid principal amount of this Note, and all accrued and unpaid interest thereon shall bear interest at the lesser of either [***] from the date of expiration of any applicable cure or grace period until such time, if any, as the Event of Default is cured and this Note and the Security Agreement are reinstated as permitted by applicable law, or otherwise until such time as the unpaid principal amount of this Note and all other indebtedness evidenced by this Note are fully repaid, whichever is earlier. The additional payments called for under this paragraph 4 shall be in addition to, and shall in no way limit, any other rights and remedies provided for in this Note or the Security Agreement, as well as all other remedies provided by law. 5. Events of Default. An "Event of Default" shall exist under this Note ----------------- (a) in the event Maker shall fail to make the final payment when such payment is due; or (b) if Maker shall be dissolved. 6. Payment of Taxes and Expenses. ----------------------------- (a) Maker further promises to pay to Holder, immediately upon written notice from Holder: (i) all recordation, transfer, stamp, documentary or other fees or taxes levied on Holder (exclusive of Holder's income taxes) by reason of the making or recording of this Note, the Security Agreement, and any UCC-1 financing statement, and (ii) all intangible property taxes levied upon any Holder of this Note or secured party under the Security Agreement. (b) Maker further promises to pay to Holder, immediately upon written notice from Holder, all actual costs, expenses, disbursements, escrow fees, title charges and reasonable legal fees and expenses actually incurred by Holder and its counsel in (i) the collection, attempted collection, or negotiation and documentation of any settlement or workout of the principal amount of this Note, the interest thereon or any installment or other payment due hereunder, and (ii) any suit or proceeding whatsoever at all trial and appellate levels in regard to this Note or to protect, sustain or enforce the lien of any instrument securing this Note, including, without limitation, in any bankruptcy proceeding or judicial or nonjudicial foreclosure proceeding. It is the intent of the parties that Maker pay all expenses and reasonable attorneys' and paralegals' fees incurred by Holder as a result of Holder's entering into the loan transaction evidenced by this Note. -2- 7. Maker's Covenants. Maker agrees that (a) this instrument and the ----------------- rights and obligations of all parties hereunder shall be governed by and construed under the laws of the State of New York; (b) the obligation evidenced by this Note is an exempted transaction under the Truth-in-Lending Act, 15 U.S.C (S)1601, et seq. (1982); (c) said obligation constitutes a business loan for the -- ---- purpose of the application of any laws that distinguish between consumer loans and business loans and that have as their purpose the protection of consumers in the State of New York; (d) at the option of the Holder, the United States District Court for the Northern District of New York and any court of competent jurisdiction of the State of New York shall have jurisdiction in any action, suit or other proceeding arising out of or relating to any act taken or omitted hereunder or the enforcement of this Note or the Security Agreement, and Maker shall not assert in any such action, suit or other proceeding that it is not personally subject to the jurisdiction of the courts in (d) above, that the action, suit or other proceeding is brought in an inconvenient forum or that the venue of the action, suit or other proceeding is improper; and (e) it hereby waives any objections to venue. 8. Severability. The parties hereto intend and believe that each ------------ provision of this Note comports with all applicable local, state and federal laws and judicial decisions. However, if any provision or any portion of any provision contained in this Note is held by a court of law to be invalid, illegal, unlawful, void or unenforceable as written in any respect, then it is the intent of all parties hereto that such portion or provision shall be given force to the fullest possible extent that it is legal, valid and enforceable, that the remainder of the Note shall be construed as if such illegal, invalid, unlawful, void or unenforceable portion or provision was not contained therein, and that the rights, obligations and interests of Maker and Holder under the remainder of this Note shall continue in full force and effect. 9. Usury Laws. It is the intention of Maker and Holder to conform ---------- strictly to the usury laws now or hereafter in force in the State of New York, and any interest payable under this Note or the Security Agreement shall be subject to reduction to an amount not to exceed the maximum non-usurious amount for commercial loans allowed under the usury laws of the State of New York as now or hereafter construed by the courts having jurisdiction over such matters. In the event such interest (whether designated as interest, service charges, points, or otherwise) does exceed the maximum legal rate, it shall be (a) canceled automatically to the extent that such interest exceeds the maximum legal rate; (b) if already paid, at the option of the Holder, either be rebated to Maker or credited on the principal amount of the Note or (c) if the Note has been prepaid in full, then such excess shall be rebated to Maker. 10. Acceleration. Upon an Event of Default, Holder shall have the right, ------------ without demand or notice, to declare the entire principal amount of this Note then outstanding, all accrued and unpaid interest thereon and all other sums required under this Note or the Security Agreement to be immediately due and payable and, notwithstanding the stated maturity in this Note, all such sums declared due and payable shall thereupon become immediately due and payable. During the existence of such Event of Default, Holder may apply payments received on any amounts due under this Note or the Security Agreement as Holder may determine in its sole discretion. 11. Waivers by Maker. As to this Note, the Security Agreement, and any ---------------- other instruments securing the indebtedness, Maker and all guarantors, sureties and endorsers, severally waive all applicable exemption rights, whether under any state constitution, homestead laws or otherwise, and also severally waive diligence, valuation and appraisement, presentment for payment, protest and demand, notice of protest, demand and dishonor and diligence in collection and nonpayment of this Note and all other notices in connection with the delivery, acceptance, performance, default, or enforcement of the payment of this Note. To the extent permitted by law, Maker further waives all benefit that might accrue to Maker by virtue of any present or future laws exempting the Property, or any other property, real or personal, or the proceeds arising from any sale of any such property, from attachment, levy, or sale under execution, or providing for any stay of execution to be issued on any judgment recovered on this Note or in any action to foreclose the Security Agreement, injunction against sale pursuant to power of sale, exemption from civil process or extension of time for payment. Maker agrees that any real estate or any personalty that may be -3- levied upon pursuant to a judgment obtained by virtue of this Note, or any writ of execution issued thereon, may be sold in whole or in part in any order desired by Holder. 12. Maker Not Released. No delay or omission of Holder to exercise any of ------------------ its rights and remedies under this Note or the Security Agreement at any time following the happening of an Event of Default shall constitute a waiver of the right of Holder to exercise such rights and remedies at a later time by reason of such Event of Default or by reason of any subsequently occurring Event of Default. This Note, or any payment hereunder, may be extended from time to time by agreement in writing between Maker and Holder without in any other way affecting the liability and obligations of Maker and endorsers, if any. 13. Nonrecourse. Except as otherwise set forth in this paragraph, the ----------- liability of Maker under this Note and the Security Agreement shall be limited to and satisfied from the Property and the proceeds thereof, the rents and all other income arising therefrom, the other assets of Maker arising out of the Property which are given as collateral for the Loan, and any other collateral given in writing to Holder as security for repayment of this Note (all of the foregoing are collectively referred to as the "Loan Collateral"); provided, however, that nothing contained in this paragraph shall (a) preclude Holder from foreclosing the lien of the Security Agreement or from enforcing any of its rights or remedies in law or in equity against Maker except as stated in this paragraph, (b) constitute a waiver of any obligation evidenced by this Note or secured by the Security Agreement, (c) limit the right of Holder to name Maker as a party defendant in any action brought under this Note or the Security Agreement, (d) prohibit Holder from pursuing all of its rights and remedies against any guarantor or surety, or (e) limit the personal liability of Maker for misappropriation or misapplication of funds, fraud, waste, willful misrepresentation or willful damage to the Property. 14. Successors and Assigns. The provisions of this Note shall be binding ---------------------- upon Maker and its legal representatives, successors and assigns and shall inure to the benefit of any Holder and its successors and assigns. Holder may assign this Note to any of its wholly-owned subsidiaries. 15. Remedies Cumulative. The remedies of Holder as provided in this Note, ------------------- or in the Security Agreement, and the warranties contained herein shall be cumulative and concurrent, may be pursued singly, successively or together at the sole discretion of Holder, may be exercised as often as occasion for their exercise shall occur and in no event shall the failure to exercise any such right or remedy be construed as a waiver or release of such right or remedy. No remedy under this Note, conferred upon or reserved to Holder is intended to be exclusive of any other remedy provided in this Note or the Security Agreement or provided by law, but each shall be cumulative and shall be in addition to every other remedy given under the Security Agreement or hereunder or now or hereafter existing at law or in equity or by statute. 16. Notices. All notices, written confirmation of wire transfers and all ------- other communications with respect to this Note shall be directed as follows: if to Holder, to General Electric Company, 1 River Road, Schenectady, New York 12345, Attention: Finance Manager, Energy Services, with a copy to GE Power Systems, 1 River Road, Schenectady, New York 12345, Attention: General Counsel; if to Maker, GE Fuel Cell Systems, L.L.C., 1 River Road, Schenectady, New York 12345, Attention: President; or at such other place as Holder or Maker may from time to time designate in writing. All notices shall be in writing and shall be (a) hand-delivered, (b) sent by United States express mail or by private overnight courier, or (c) served by certified mail postage prepaid, return receipt requested, to the appropriate address set forth above. Notices served as provided in (a) and (b) shall be deemed to be effective upon delivery. Any notice served by certified mail shall be deposited in the United States mail with postage thereon fully prepaid and shall be deemed effective on the day of actual delivery as shown by the addressee's return receipt or the expiration of three (3) business days after the date of mailing, whichever is earlier in time. -4- 17. No Oral Modification. This Note may not be modified or discharged -------------------- orally, but only by an agreement in writing signed by the party against whom enforcement of any waiver, modification or discharge is sought. 18. Time. Time is of the essence with regard to the performance of the ---- obligations of Maker in this Note and each and every term, covenant and condition herein by or applicable to Maker. 19. Captions. The captions and headings of the paragraphs of this Note -------- are for convenience only and are not to be used to interpret, define or limit the provisions hereof. 20. Replacement Note. Upon receipt of evidence reasonably satisfactory to ---------------- Maker of the loss, theft, destruction or mutilation of this Note, and in the case of any such loss, theft or destruction, upon delivery of an indemnity agreement reasonably satisfactory to Maker or, in the case of any such mutilation, upon surrender and cancellation of this Note, Maker will execute and deliver to Holder in lieu thereof, a replacement note dated as of the date of this Note, identical in form and substance to this Note and upon such execution and delivery all references in the Security Agreement to this Note shall be deemed to refer to such replacement note. IN WITNESS WHEREOF, Maker has caused this Revolving Promissory Note to be duly executed on the date first written above. MAKER: GE FUEL CELL SYSTEMS, L.L.C. By: ___________________________________ Barry Glickman, President -5- SCHEDULE OF DISBURSEMENTS This Note evidences loan disbursements made to Maker under the LLC Agreement on the dates, in the principal amounts, and bearing interest at the rates set forth below, subject to the payments of principal set forth below: Principal Unpaid Date of Amount of Interest Amount Principal Notation Loan Loan Rate Paid Amount Made By ---- ---- ---- ---- ------ ------- -6- SECURITY AGREEMENT ------------------ In consideration of certain financial accommodations given by General Electric Company, a New York corporation (the "Secured Party"), GE Fuel Cell Systems, L.L.C., a Delaware limited liability company (the "Debtor"), as collateral security for the payment of that certain Promissory Note of Debtor to Secured Party of even date herewith, in the aggregate principal amount of [***], a copy of which is attached hereto as Exhibit "1" (the "Indebtedness"), Debtor, pursuant to the provisions of the Uniform Commercial Code of the State of New York (the "UCC") hereby grants Secured Party a security interest in and to all assets of Debtor whether now owned or hereafter acquired, including, but not limited to, all Accounts, Chattel Paper, Documents, Equipment, Fixtures, General Intangibles, Goods, Instruments, and Inventory (all as defined in the UCC), and all other tangible and intangible personal property of Debtor, and all proceeds thereof, accessions thereto and replacements thereof (the "Collateral"). Debtor hereby warrants and covenants that: 1. The security interest granted to Secured Party by Debtor shall apply to the Collateral whether or not title thereto or any part thereof shall have passed, or shall be deemed to have passed, to Debtor; Debtor is, or to the extent that this Agreement states that the Collateral is to be acquired after the date hereof, will be the owner of the Collateral free from any adverse lien, security interest or encumbrance; and Debtor will defend the Collateral against all claims and demands of all other persons at any time claiming the same or any interest therein. 2. The Collateral will be kept at the addresses designated at the conclusion of this Agreement. 3. At the request of Secured Party, Debtor will join with Secured Party in executing one or more financing statements, amendments, continuations and termination statements pursuant to the Uniform Commercial Code of the State of New York, in which Debtor is conducting business, in form satisfactory to Secured Party. 4. Debtor will not sell or offer to sell, or otherwise transfer the Collateral or any interest therein without having given Secured Party actual notice of any such sale and having received the written consent of Secured Party; provided, however, that if the Collateral is Debtor's merchandise inventory, Debtor shall be entitled to sell that portion of the Collateral which constitutes merchandise and inventory in the ordinary and usual course of business. 5. Debtor will, at all times, maintain in full force and effect insurance with respect to the Collateral against risks encompassed within the standard policy of fire insurance with extended coverage endorsement, theft and other risks as Secured Party may require, and written by such company or companies as may be satisfactory to Secured Party, such insurance to be payable to Secured Party and Debtor as their interests may appear. 6. Debtor will keep the Collateral free from any adverse lien, other than the lien specifically authorized above, security interest or encumbrance and in good order and repair and will not waste or destroy the Collateral or any part thereof (except that if the Collateral is merchandise inventory of Debtor, Debtor shall be entitled to sell that portion of the Collateral which constitutes merchandise and inventory in the ordinary and usual course of business). Secured Party may examine and inspect the Collateral at any reasonable time wherever located, provided, however, that no such inspection --------- ------- shall interfere with or inconvenience Debtor in the operations of its business. 7. Debtor will pay promptly when due all taxes and assessments upon the Collateral or for its use and operation. At its option, upon reasonable notice by Secured Party, and upon the failure of Debtor to comply with the terms set forth herein, Secured Party may discharge taxes, liens, security interests, or other encumbrances at any time levied or placed on the Collateral, may pay for insurance on the Collateral and may pay for the maintenance and preservation of the Collateral. Debtor agrees to reimburse Secured Party on demand for any payment made or any expense incurred by Secured Party pursuant to the foregoing authorization, together with interest thereon at the highest rate permitted by law. 8. Until default, Debtor may have possession of the Collateral and use it in any lawful manner not inconsistent with this Agreement. 9. Debtor shall be in default under this Agreement upon the happening of any of the following events or conditions (each an "Event of Default"): (a) Failure of Debtor to make final payment of the Promissory Note when such payment is due. (b) Dissolution of Debtor. Upon an Event of Default and at any time thereafter, Secured Party may declare the indebtedness secured hereby immediately due and payable and shall have the remedies of a secured party under the Uniform Commercial Code of the State of New York. 10. Should a lawsuit be brought to enforce the terms hereof or for any dispute arising out of this transaction, then the issues in any such action shall be determined pursuant to the laws of the State of New York, without regard to conflict of laws provisions thereof, and the parties hereto hereby consent to jurisdiction and venue in the courts of Schenectady County, New York, or the United States District Court for the Northern District of New York, at the option of Secured Party. The substantially prevailing party in such a lawsuit shall be entitled to recover from the substantially non-prevailing party its reasonable expenses, court costs, including taxed and untaxed costs, and reasonable attorneys' fees, whether suit be brought or not (jointly referred as to "Expenses"). As used herein, Expenses include expenses incurred in any appellate or bankruptcy proceeding. All such Expenses shall bear interest at the highest rate allowable under the laws of the State of New York from the date the substantially prevailing party pays such Expenses until the date the substantially non-prevailing party repays such Expenses. 11. No waiver by Secured Party of any Event of Default shall operate as a waiver of any other Event of Default or of the same Event of Default on a future occasion. 12. All rights of Secured Party hereunder shall inure to the benefit of its successors or assigns; and all obligations of Debtor shall bind Debtor's successors and assigns. Secured Party may assign this Security Agreement to one of its wholly-owned affiliates. 13. Secured Party acknowledges that the Collateral granted by Debtor shall not include any patents, trademarks, trade names, inventions, copyrights, know- how, trade secrets, licensed rights, or other intellectual property rights of any Member of Debtor, including any intellectual property now in existence or hereafter acquired or developed by any such Member. -2- IN WITNESS WHEREOF, Debtor and Secured Party have caused this instrument to be executed in duplicate by their authorized representatives this ____ day of February, 1999. Debtor: Secured Party: GE FUEL CELL SYSTEMS, L.L.C. GENERAL ELECTRIC COMPANY By:_____________________________ By:____________________________________ Barry Glickman, President Ricardo Artigas President and CEO, GE Energy Service Address: 1 River Road Schenectady, New York 12345 -3- EXHIBIT 7 --------- FORM OF GE TRADEMARK AND TRADE NAME AGREEMENT (See Exhibit 10.3) EXHIBIT 8 --------- FORM OF PLUG POWER TRADEMARK AGREEMENT (See Exhibit 10.4) EXHIBIT 9 --------- FORM OF DISTRIBUTOR AGREEMENT (See Exhibit 10.5) Annex A ------- DEFINITIONS ----------- (a) Definitions. The following terms, as used in this LLC Agreement or ----------- any Ancillary Agreement, unless otherwise specifically defined therein, have the following meanings: "Act" means the Delaware Limited Liability Company Act, Del. Stat. (S)(S) 18-101 to 18-1107, inclusive, as in effect from time to time in the State of Delaware. "Additional Member" means any Person admitted as a Member of the Company after the date of original execution of this LLC Agreement in accordance with the provisions of Section 4.2 hereof. "Affiliate" means, with respect to any Person, any Person directly or indirectly controlling, controlled by, or under common control with such other Person, except that an Affiliate of PP shall only include any Person directly or indirectly controlled by PP. As used herein, control shall mean the ownership, either directly or by attribution, of more than 50% of the combined voting rights attributable to the equity interests of a Person or the ability, either direct or indirect, to control the composition of the majority of the Board of Directors or comparable management body of a person. "Ancillary Agreements" means the Contribution Agreement, Promissory Note and Security Agreement, GE Trademark and Tradename Agreement, PP Trademark Agreement, and Distributor Agreement contemplated by and executed in connection with this LLC Agreement, forms of which are attached to this LLC Agreement as Exhibits 5 through 9, respectively. "Applicable Law" means, with respect to any Person, any domestic or foreign, federal, state or local statute, law, ordinance, rule, administrative action, regulation, order, writ, injunction, judgment, decree or other requirement of any Governmental Authority (including any Environmental Law) applicable to such Person or any of its Affiliates or any of their respective properties, assets, officers, directors, employees, consultants or agents (in connection with such officer's, director's, employee's, consultant's or agent's activities on behalf of such Person or any of its Affiliates). "Bankrupt Member" means any Member (i) that (A) makes an assignment for the benefit of creditors; (B) files a voluntary petition in bankruptcy; (C) is adjudged bankrupt or insolvent, or has entered against such Member an order for relief, in any bankruptcy or insolvency proceedings; (D) files a petition or answer seeking for the Member any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any statute, law or regulation; (E) files an answer or other pleading admitting or failing to contest the material allegations of a petition filed against the Member in any proceeding of the type described in subclauses (A) through (D) of this clause (i); or (F) seeks, consents to, or acquiesces in the appointment of a trustee, receiver or liquidator of the Member or of all or any substantial part of the Member's properties; or (ii) against which, a proceeding seeking reorganization, arrangement, composition, readjustment, liquidation, dissolution, or similar relief under any statute, law or regulation has been commenced and one hundred twenty (120) days have expired without dismissal thereof or with respect to which, without the Member's consent or acquiescence, a trustee, receiver or liquidator of the Member or of all or any substantial part of the Member's properties has been appointed and ninety (90) days have expired -1- without the appointment having been vacated or stayed, or ninety (90) days have expired after the date of expiration of a stay, if the appointment has not previously been vacated. "Bankruptcy Code" means the Bankruptcy Reform Act of 1978, as amended, 11 U.S.C. (S)(S) 101 et seq. -- --- "Business Day" means a day other than a Saturday, Sunday or other day on which commercial banks in New York, New York are authorized or required by law to close. "Capital Account" means, as to a Member, the account established and maintained for such Member pursuant to Article VI hereof. "Capital Contribution" means the amount in cash or the value of property contributed by each Member (or its original predecessor in interest) to the capital of the Company in exchange for such Member's interest in the Company. "Code" means the Internal Revenue Code of 1986, as amended, together with the rules and regulations promulgated thereunder. "Committee" means the committee established pursuant to Section 7.2 hereof. "Company" means "GE Fuel Cell Systems, L.L.C.," a Delaware limited liability company. "Contemplated Transactions" means the transactions contemplated by this LLC Agreement and the Ancillary Agreements. "Damages" means all assessments, losses, damages, costs, expenses, liabilities, judgments, awards, fines, sanctions, penalties, charges and amounts paid in settlement, including, without limitation, reasonable costs, fees and expenses of attorneys, experts, accountants, appraisers, consultants, witnesses, investigators and any other agents or representatives (with such amounts to be determined net of any resulting tax benefit and net of any refund or reimbursement of any portion of such amounts including, without limitation, reimbursement by way of third party insurance or third party indemnification) arising from or incurred in connection with any demand, claim, action, cause of action or proceeding. "Dispose," "Disposing," or "Disposition" means a sale, assignment, transfer, exchange, mortgage, pledge, grant of a security interest, or other disposition or encumbrance (including, without limitation, by operation of law). "Fair Market Value" means, with respect to a Membership Interest in the Company, the cash price that an unrelated party would pay for such Membership Interest, in light of all relevant factors in an arm's length transaction in which neither party is compelled to buy or sell. The Fair Market Value of Membership Interest in the Company shall be determined pursuant to the procedure set forth in the balance of this paragraph. Each party shall submit simultaneously to the other party a sealed proposal for the Fair Market Value within 30 days after the event which triggers the valuation. Following the delivery of the two proposals, -2- the amounts of the two proposals shall be compared. If the lower of the proposals is equal to or more than 90% of the higher of the proposals, the Fair Market Value shall be deemed to be the average of the two proposals. If the lower of the proposals is more than 10% less than the higher of the two proposals, the parties shall negotiate in good faith to determine the Fair Market Value. If the parties cannot agree on the Fair Market Value within 30 days of the opening of the sealed proposals, the parties shall each appoint, within ten days after the end of such period, an investment banking firm or other firm with significant experience in the valuation of businesses, in either case, of recognized standing, which firms need not be independent of the Company, PP and GE. Such firms shall negotiate in good faith to determine the Fair Market Value. If the firms cannot agree on the Fair Market Value within 30 days after the latter of them to be appointed, the two firms shall, within 10 days after the end of such 30-day period, (i) appoint a third such firm with significant experience in the valuation of businesses, of recognized standing, and independent of the Company, PP and GE, and (ii) share the results of their valuation analysis with such third firm. The third firm shall determine the Fair Market Value within 45 days after being appointed. The determination of Fair Market Value by this third firm shall be final and conclusive. The parties shall share equally the costs of compensating all of the foregoing firms. "Fiscal Year" has the meaning set forth in Section 6.2(b) of this LLC Agreement. "GAAP" means generally accepted accounting principles. "GE Company Policies" means the corporate policy statements relating to compliance with law, GE's General Accounting Practices and other matters adopted and published by GE, which are attached to this LLC Agreement as Exhibit 4, as amended and supplemented from time to time, or any successor policies adopted by GE. "GEOSP Disclosure Schedule" means the Disclosure Schedule provided by GEOSP to PP on the date of signing of this LLC Agreement. "GEPS Competitor" means any of the following Persons, provided that GEOSP may revise this list upon written notice to PP to include additional Persons involved directly, or indirectly through an Affiliate, in the manufacture, assembly, or provision of O & M services for, gas or steam turbines, regardless of origin or design: AAR Engine Group - USA; ABB - Switzerland; Advanced Materials Technologies, Inc. - USA; Aero & Industrial Technology - UK; Aetc Ltd./ - UK; Alfa Laval - UK; AlliedSignal - US; Bailey Automation PLC - UK; Baird Analtical - USA; Baker/MO Services Inc. - USA; Bales Scientific Inc. - USA; Bently Nevada - USA; Bosman Powersource B.V. - Netherlands; Boyce Engineering Int'l. Ltd. - UK; Boyce Engineering International - - USA; Brush Electrical Machines Ltd. - UK; Chromalloy Gas Turbine - USA; Concepts ETI, Inc. - USA; Conmec, Inc. - USA; Cooper Energy Services - USA; Cooper Rolls - USA; Demag Delaval Turbomachinery Corp. - USA; Dresser Rand Turbo Products Division - USA; Ebara Corporation - Japan; Elbar BV - Netherlands; European Gas Turbines Ltd. - UK; Fern Engineering, Inc. - USA; Fiat Avio S.P.A. - - Italy; Gas-Path Technology, Inc. - USA; Hickham Industries, Inc. - USA; Hitachi - Japan; Honeywell Solid State Electric Center - USA; HSDE - UK; IHI- Japan; John Brown / Kvearner Engineering - UK; Kawasaki - Japan; Liburdi Engineering Ltd. - Canada; Man Gutehoffnungshutte AG - Germany; Mannesmann Demag Veidichter - Germany; McGuffy Systems, Inc. - USA; Mitsubishi Heavy Industries - Japan; Moog Controls - USA; Natole Turbine Enterprises, Inc. - USA; Ormat Industries Ltd. - Israel; Petrotech, Inc. - USA; Polytec P.I. Inc. - USA; Powmat Ltd - USA; -3- Pratt & Whitney - USA; Precision Castparts Corp. - USA; Preco Turbine Services Inc. - USA; Rolls-Royce Industrial & Marine - UK; Senior Thermal Engineering - UK; Sermatech International Inc. - USA; Siemens-Westinghouse Power Corp. - USA; Solar Turbines Incorporated - USA; SPE Mashproekt - Ukraine; Stork RMO BV - Netherlands; Sulzer Turbo - Germany; Thomassen International B.V. -Netherlands; Toshiba - Japan; Triconex Systems, Inc. - USA; Turbine Controls Ltd. - UK; Turbine Technology Services Corp. - USA; Wilson & Daleo Inc. -Canada; Wood Group Gas Turbines Ltd. - UK. "Governmental Authority" means any foreign, federal, territorial, state or local governmental authority, quasi-governmental authority, instrumentality, court, commission or tribunal or any regulatory, administrative or other agency, or any political or other subdivision, department or branch of any of the foregoing. "IRS" means the U.S. Internal Revenue Service. "LLC Agreement" means this Amended and Restated Limited Liability Company Agreement, as it may be amended from time to time in accordance with its terms. "Majority Interest" means one or more Members having among them at least fifty-one percent (51%) of the Membership Interests of all Members. "Material Adverse Effect" means, with respect to any event, occurrence or condition, or series of events, occurrences or conditions, a material adverse effect on the operations, property or financial condition of the affected business or entity taken as a whole. "Material Breach" means a breach by GEOSP or PP, as the case may be, of this LLC Agreement which breach, if not cured, would have a Material Adverse Effect on the Company or the non-breaching party. A Material Breach shall not exist for purposes of this definition unless the non-breaching party has given written notice of such breach to the breaching party and (i) the party in Material Breach fails to cure the subject default within 120-days of the receipt of such notice or (ii) if such default cannot reasonably be cured within such 120-day period, (A) the party in Material Breach fails promptly to take and continue to take all reasonable steps to cure the default as promptly as practicable after receipt of such notice or (B) at the end of such 120-day period it appears that the breaching party will not be able to cure the Material Breach within a commercially reasonable time (not to exceed an additional 60 days); provided that the foregoing notice and cure periods shall not apply to a particular provision of this LLC Agreement if other such periods are specified in such provision. "Members" means GEOSP and PP and any Person hereafter admitted to the Company as a member as provided in this LLC Agreement. "Membership Interest" means the interest of a Member (expressed as a percentage) in the Company. Membership Interests will be varied only as specifically agreed by the parties and will not be affected by allocations of Profits and Losses or other changes in Members' Capital Accounts. "Officer" means any individual appointed to act as the President or any other officer appointed by the Committee pursuant to this LLC Agreement. -4- "Operating Plan" means the operating plan of the Company attached to this LLC Agreement in Exhibit 3. "PEM Fuel-Cell Powered Generator Set" means a proton exchange membrane ("PEM") fuel cell stack packaged with a fuel processor (to convert fuel at standard available pressure and quality to fuel usable by the fuel cell stack), with maximum continuous output no greater than 35 kW, and all of the ancillary components, systems, electronics, batteries, controls, protective relaying (e.g., over/under current, transfer switch), and enclosure(s) required to be ready for indoor or outdoor installation and operation for stand alone or grid interconnected stationary power applications. "Person" means an individual, a corporation, a partnership, a limited liability company, an association, a trust or other entity or organization, including a government or political subdivision or an agency or instrumentality thereof. "PP Disclosure Schedule" means the Disclosure Schedule provided by PP to GEOSP on the date of signing of this LLC Agreement. "Pre-Commercial Unit" means a 7kW output PEM Fuel Cell-Powered Generator Set manufactured by PP and meeting the specifications outlined in Schedule B to the Distributor Agreement, without changes or additions (other than standard installation materials - e.g., ducting, pipe, wire) by the Company and/or the Company's designated service provider. "Products" means the following items manufactured by or on behalf of PP: PEM Fuel-Cell Powered Generator Sets, without changes or additions (other than standard installation materials - e.g., ducting, pipe, wire), and components (e.g., fuel processor, fuel cell stack, power electronics), replacement parts, upgrades, accessories (e.g., combined power and hot water packages), and improvements, of various sizes no larger than 35kW of maximum continuous output that (A) meet the Commercial Unit specifications set forth in Schedule B of the Distributor Agreement, and (B) are designed for use in residential, commercial, and industrial stationary power applications (e.g., base load power, peaking power, emergency back-up power, enhanced power quality, cogeneration, trailer-mounted units for temporary stationary power and/or rental power use); and "Products" excludes the following, regardless of their manufacturer: (i) PEM Fuel-Cell Powered Generator Sets and/or components designed for use in transportation or vehicle applications; (ii) PEM Fuel-Cell Powered Generator Sets and/or components designed for use in extended run, uninterruptible power supply ("UPS") systems for data centers applications, where the PEM Fuel-Cell Powered Generator Set (A) produces DC or AC premium (i.e., superior power quality to the grid) power for data center supporting information technology ("IT") equipment, (B) does not provide power to the entire facility, (C) is installed at a sub-panel downstream from the Customer's main distribution panel, (D) is designed to enable remote IT equipment shutdown and power cycling -5- for IT equipment that is no longer responding to commands, and (E) is designed to promote reliability over efficiency; (iii) PEM Fuel-Cell Powered Generator Sets and/or components for rack-mounted equipment in telecommunications, cellular, or cable television applications; and (iv) PEM Fuel-Cell Powered Generator Sets and/or components that are integrated with another device that utilizes all of the electrical output of the Fuel-Cell Powered Generator Set for that specific device only (e.g., an air conditioner powered by a Fuel-Cell Powered Generator Set, but not a combined Fuel-Cell Powered Generator Set-chiller cogen unit). "Profits" and "Losses" mean, for each Fiscal Year or other period, an amount equal to the Company's taxable income or loss for such year or period, determined in accordance with Section 703(a) of the Code (for this purpose, all items of income, gain, loss, or deduction required to be stated separately pursuant to Section 703(a)(1) of the Code shall be included in taxable income or loss), with the following adjustments: (i) Any income of the Company that is exempt from federal income tax and not otherwise taken into account in computing Profits or Losses pursuant to this definition shall be added to such taxable income or loss and any related expenses not allowed as a deduction pursuant to Section 265 of the Code shall be subtracted from such taxable income or loss; (ii) Any expenditures of the Company described in Section 705(a)(2)(B) of the Code or treated as Section 705(a)(2)(B) of the Code expenditures pursuant to Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into account in computing Profits or Losses pursuant to this definition shall be subtracted from such taxable income or loss; and (iii) Notwithstanding any other provision of this definition, any items which are specially allocated pursuant to Exhibit B to this LLC Agreement shall not be taken into account in computing Profits or Losses. "Seconded Employees" means the employees of GEOSP (or an Affiliate of GEOSP) or PP who are seconded to the Company pursuant to Annex C to this LLC Agreement. "Secondment" means the temporary assignment of an employee of GEOSP, its Affiliate, or PP to work for the Company pursuant to Annex C without changing such employee's status as an employee of GEOSP, its Affiliate, or PP, as the case may be. "Services" means the following activities associated with the Products: installation; permitting; application engineering; operation; routine maintenance; unscheduled maintenance; repair; overhaul (e.g., stack replacement); upgrade; remote monitoring, diagnostics and/or control (i.e., dispatch); operator and customer training; customer service; customer support. "Strategic Plan" means the strategic plan of the Company attached to this LLC Agreement in Exhibit 3. -6- "Substitute Member" means any Person not a Member of the Company (prior to the transfer of a Membership Interest to such Person) to whom a Membership Interest in the Company has been transferred and who has been admitted to the Company as a Member pursuant to and in accordance with the provisions of Section 4.4 of this LLC Agreement. "Supermajority Transaction" means a Supermajority Transaction defined as such in Section 7.1 of this LLC Agreement. "Territory" means every country, province, territory or other principality in the world, except the States of Michigan, Indiana, Ohio, and Illinois in the United States of America while Edison Development Corporation has exclusive rights to market and sell products similar to Products and provide services similar to Services therein. In the event that Edison Development Corporation ("EDC") shall lose all of its rights to market and sell similar products and provide similar services in the States of Michigan, Indiana, Ohio and Illinois (the "EDC Territory"), this definition of "Territory" shall be expanded to include the EDC Territory. In the event that EDC shall lose its exclusive rights to market and sell similar products and provide similar services in the EDC Territory, the Company will have the rights to market and sell Products and provide Services in the EDC Territory on a non-exclusive basis. "Test & Evaluation Unit" means a pre-commercial version of the Product with performance (e.g., efficiency, emissions, size, noise, reliability) below that of a Pre-Commercial Unit, which is intended to demonstrate proof of concept and provide the manufacturer with field test data. (b) "To the best of an entity's knowledge" or "to the knowledge of an entity" (or any similar phrase) means (i) with respect to GEOSP, to the best of the knowledge of (or to the knowledge of, as the case may be) the President of GEOSP, and (ii) with respect to PP, to the best of the knowledge of (or to the knowledge of, as the case may be) the President and CEO and the General Counsel of PP. -7- Annex B ------- REPRESENTATIONS AND WARRANTIES ------------------------------ The following representations and warranties which relate to PP, its assets and businesses are made solely by PP to and in favor of GEOSP and the Company, and the representations and warranties which relate to GEOSP, its assets and businesses are made solely by GEOSP to and in favor of PP and the Company. Neither GEOSP nor PP makes any representation with respect to representations of the other party: 1. Existence and Power. Each of GEOSP and PP is duly formed, ------------------- validly existing and in good standing under the laws of the state of its formation and has all power and authority and all governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted, except where the failure to have such licenses, authorizations, consents and approvals would not, individually or in the aggregate, have a Material Adverse Effect on the Company. Each party is duly qualified to do business as a foreign limited liability company in each jurisdiction where the character of the property owned or leased by it or the nature of its activities makes such qualification necessary, except where the failure to be so qualified would not, individually or in the aggregate, have a Material Adverse Effect on the Company. 2. Authorization. The execution, delivery and performance by each ------------- party of this LLC Agreement and each of the Ancillary Agreements to which it is or will be a party and the consummation by such party of the Contemplated Transactions are within its corporate powers and have been duly authorized by all necessary corporate action on its part. This LLC Agreement and each of the Ancillary Agreements to which it is or will be a party constitutes a legal, valid and binding agreement of such party enforceable against such party in accordance with its terms, (i) except as limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to or affecting creditors' rights generally, including the effect of statutory and other laws regarding fraudulent conveyances and preferential transfers, and (ii) subject to the limitations imposed by general equitable principles (regardless of whether such enforceability is considered in a proceeding at law or in equity). 3. Governmental Authorization. The execution, delivery and -------------------------- performance by each party of this LLC Agreement and each of the Ancillary Agreements to which it is or will be a party require no action by or in respect of, or consent or approval of, or filing with, any Governmental Authority other than: (i) any actions, consents, approvals or filings otherwise expressly referred to in this LLC Agreement or in an Ancillary Agreement; or (ii) where the failure to take any such actions, obtain any such consents or approvals or make any such filings would not, individually or in the aggregate, have a Material Adverse Effect on the Company. 4. Non-Contravention. The execution, delivery and performance by ----------------- each party of this LLC Agreement and each of the Ancillary Agreements to which it is or will be a party and its completion of the Contemplated Transactions do not and will not (i) contravene or conflict with such party's organizational documents, (ii) assuming compliance with the matters referred to in Section 3 of this Annex B, contravene or conflict with or constitute a violation of any provision of any Applicable Law, (iii) assuming compliance with the matters referred to in Section 3 of this Annex B, constitute a default under, or give rise -1- to any right of termination, cancellation or acceleration of any right or obligation of GEOSP or PP, as the case may be, or to a loss of any benefit to which GEOSP or PP is entitled under, any agreement, contract or other instrument binding upon GEOSP or PP or by which any of its properties or assets is or may be bound or any license, franchise, permit or similar authorization held by GEOSP or PP except, in the case of clauses (ii) and (iii), for any such contravention, conflict, violation, default, termination, cancellation, acceleration or loss that would not, individually or in the aggregate, have a Material Adverse Effect on the Company. 5. Litigation; Disputes. There is no action, suit, investigation or -------------------- proceeding pending against, or, to the best of the knowledge of the applicable party, threatened against, or affecting PP or GEOSP before any court or arbitrator or any governmental body, agency, official or authority which, if adversely determined or resolved, may reasonably be expected to result in liability or loss to the Company in excess of $50,000 or which in any manner challenges or seeks to prevent, enjoin, alter or materially delay the Contemplated Transactions. No dispute or claim exists between PP or GEOSP and any of their respective customers, suppliers, packagers or distributors (including warranty claims) which is reasonably likely to have a Material Adverse Effect on the Company. 6. Distributor and Sales Representative Agreements. Except for the ----------------------------------------------- Distribution Agreement with Edison Development Corporation dated June 27, 1997, a true and complete copy of which has been delivered to GEOSP, PP has not entered into any distributor or sales representative agreements with respect to the Products or Pre-Commercial Units. Such agreement is in full force and effect, is a legal, valid and binding obligation of PP and, to the knowledge of PP, each other party thereto, enforceable against PP and, to the knowledge of PP, each such other party in accordance with its terms (except as limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to or affecting creditors' rights generally, including the effect of statutory and other laws regarding fraudulent conveyances and preferential transfers, and subject to the limitations imposed by general equitable principles regardless of whether such enforceability is considered in a proceeding at law or in equity), and neither PP nor, to the knowledge of PP, any other party thereto, is in material default or has failed to perform any material obligation thereunder, and there does not exist any event, condition or omission which would constitute a material breach or material default (whether by lapse of time or notice or both), except for any such default, failure or breach that would not have a Material Adverse Effect on either PP's fuel cell business or the Company. GEOSP has not entered into any distributor or sales representative agreements with respect to PEM Fuel Cell- Powered Generator Sets. 7. Finders' Fees. There is no investment banker, broker, finder or ------------- other intermediary which has been retained by or is authorized to act on behalf of such party who or which might be entitled to any fee or commission from such party or any of its Affiliates upon consummation of the Contemplated Transactions. 8. Compliance with Laws. Except for violations or infringements as -------------------- have not had and would not have a Material Adverse Effect on the Company, the operations of GEOSP's and PP's businesses have not violated or infringed, and do not violate or infringe, in any material respect, any Applicable Law or any order, writ, injunction or decree of any Governmental Authority. -2- 9. Investment Representation. Each party is acquiring its interest ------------------------- in the Company solely for investment purposes and not with a view to the distribution or resale thereof and acknowledges that its purchase of such interest is expressly subject to the conditions and limitations on transferability set forth in the LLC Agreement. 10. Ownership of PP. PP represents and warrants to GEOSP that (a) --------------- Edison Development Corporation and Mechanical Technology Incorporated ("MTI") own all of the outstanding membership interests in PP, free and clear of all liens, and (b) there is not outstanding any option or right of any party to acquire any equity interest in PP or any commitment to issue or deliver any such option or right or interest, except for (i) stock options issued to employees and board members (as of August 21, 1998, this amounted to 1,772,300 shares of Class B Membership Interest of PP) and (ii) options purchased by MTI to purchase 250,000 shares of Class A Membership Interest at $1.00 per share, which must be exercised by April 24, 1999, and to purchase 2,000,000 shares of Class A Membership Interest at $1.00 per share, which must be exercised by June 15, 1999. -3- Annex C ------- EMPLOYMENT AND SECONDMENT MATTERS --------------------------------- ARTICLE 1 DEFINED TERMS 1.1 Definitions. ----------- 1.1.1 Committee means the committee established by GEOSP and PP, in accordance with Section 7.2 of the Amended and Restated Limited Liability Company Agreement between GEOSP and PP dated February ___, 1999, to conduct the affairs of the Company on their behalf and as their representatives. 1.1.2 Employees means individuals employed directly by the Company itself, rather than individuals seconded to the Company, who remain employed by PP, GEOSP or their Affiliates (other than the Company). 1.1.3 GE, for purposes of this Annex C, means General Electric Company and its Affiliates, including GEOSP. 1.1.4 Governmental Regulations means any statute, rule, regulation, decree, executive order, preliminary or permanent injunction or court order issued by a Governmental Authority. A reference to a statutory provision includes the regulations and other instruments under it. 1.1.5 Party or Parties means, as the context may require, PP, GEOSP, or the Company or all of the foregoing. 1.1.6 Third Party means any Person other than a Party. 1.2 References to Exhibits, etc. The reference to Article, Exhibit or Schedule ---------------------------- shall be the Articles of this Annex C and the Exhibits and Schedules attached hereto which are incorporated as an integral part of this Annex C. 1.3 Other Capitalized Terms. Other capitalized terms used in this Annex C but ----------------------- not defined in this Article shall have the meanings given them in Annex A or wherever such terms first appear in this Annex C. ARTICLE 2 GENERAL PROVISIONS The purpose of this Annex C is to define the terms and conditions relating to the employment of Employees and the secondment of Seconded Employees by the Company. ARTICLE 3 RECRUITMENT AND SELECTION OF EMPLOYEES 3.1 Recruitment. PP and GEOSP may, if they desire, advertise open positions ----------- within their personnel management systems, route employment applications through appropriate channels in PP or GEOSP and forward such applications to the Company. In such cases the Company shall consult with PP or GEOSP about the job qualifications and service obligations of all such potential Company personnel. The Company may also advertise position openings in local newspapers and employment exchanges. The Persons listed on Exhibit A attached hereto are intended to constitute the initial management of the Company. GEOSP and PP shall use all reasonable efforts (which shall not require the incurrence of significant costs or expenses) to make such Persons available for employment by or secondment to the Company commencing on the Closing Date. 3.2 Selection of Employees and Seconded Employees. The Company President, or --------------------------------------------- his or her designee, shall be responsible for selecting job applicants from PP, GEOSP, their Affiliates, or from other sources to fill the open positions for Employees or Seconded Employees. Applicants for open positions shall be selected based on their qualifications for the positions. Prior to the secondment to the Company of any proposed Seconded Employee, such proposed Seconded Employee will be required to enter into a binding commitment in writing with PP or GEOSP (as the case may be) as trustee on behalf of the Company, in the form set forth in Exhibit B to this Annex C. 3.3 Termination of Employees and Seconded Employees. The Company President may ----------------------------------------------- terminate Employees, instruct PP to remove PP Seconded Employees and instruct GEOSP to remove GEOSP Seconded Employees; and, if so instructed, PP and GEOSP shall remove their respective Seconded Employees from the Company. 3.4 Transition. A transition plan will be developed and mutually agreed to by ---------- the Parties in order to provide an orderly transition of PP or GEOSP employees to the Company. ARTICLE 4 REMUNERATION OF COMPANY EMPLOYEES 4.1 Salaries of Company Employees. The Company shall remunerate its Employees ----------------------------- in accordance with a wage and salary structure which is competitive in the locality where the Employee will be working and consistent with the goals of the Company. An annual salary increase plan will be recommended by the Company President and implemented after approval of the Committee. 4.2 Benefits of Company Employees. Employees of the Company shall be entitled ----------------------------- to receive the benefits package recommended by the Company President and approved by the Committee. Such benefits package will be, at a minimum, that which is required by law and, where not required by law, in the Company's sole discretion. Changes in the benefits package shall be recommended by the Company President and implemented after approval of the Committee. -2- ARTICLE 5 COMPANY POLICIES AND TRAINING 5.1 Company Policies and Procedures. All personnel covered by this Annex C ------------------------------- shall be given written copies of all Company policies, and such policies of PP or GEOSP as required by PP or GEOSP, trained in the use and implementation of such policies, and required to agree that they will perform their duties in strict accordance with such policies. Similarly, all personnel covered by this Annex C shall have a written copy available to them of all Company procedures that may reasonably apply to such person and be trained in the use and implementation of such procedures 5.2 Training. The Parties agree that all personnel covered by this Annex C -------- shall be adequately trained to perform the duties of their job and to cooperate to assure that such training is provided by the Company. The Parties further agree that, in the event such training is not reasonably within the capability of the Company to provide, PP or GEOSP will provide such training and be reimbursed by the Company their reasonable or customary cost or fees, as the case may be, for such training. 5.3 Term of Employment. The Company shall enter employment agreements with ------------------ Employees who are designated to receive specialized training, which shall provide for a term of employment for a period equal to at least one year. ARTICLE 6 SECONDED EMPLOYEES 6.1 GEOSP Seconded Employees. GEOSP and each employee seconded from GEOSP or ------------------------ its Affiliate shall be responsible for resolving the manner in which the employee's period of secondment shall be treated with respect to that person's pension rights with GE or any of its Affiliates, years in service and what the seniority rights in GE or any of its Affiliates will be at the end of the secondment period. 6.1.2 Payment of GEOSP Seconded Employee's Salary and Benefits. During the -------------------------------------------------------- period of secondment, GEOSP shall be responsible for paying each GEOSP Seconded Employee's salary and benefits package, including employment taxes, to, in respect of, or on behalf of the GEOSP Seconded Employee consistent with the applicable salary and benefit payment policies of GE or any of its Affiliates. The Company shall pay GEOSP an amount equal to one hundred percent (100%) of each GEOSP Seconded Employee's salary (prior to the withholding of any taxes), benefits, and taxes paid by GEOSP to, in respect of, or on behalf of that employee during the period of the secondment. The foregoing amount paid for salary, benefits, and taxes shall be adjusted after actual increases in salary, benefits, and/or taxes paid by GE or any of its Affiliates to, in respect of, or on behalf of the GEOSP Seconded Employee, provided that GEOSP shall have produced evidence to the Company of any such actual increases in salary, benefits, and/or taxes paid by GE or any of its Affiliates. The Company shall make such payment at the end of the month for which the GEOSP Seconded Employee will be seconded to the Company. GEOSP shall deliver to the Company copies of the GEOSP Seconded Employee's most recent salary, benefit, and tax information at the beginning of the secondment period. GEOSP shall be responsible for filing all tax, social security and other similar statements for each GEOSP Seconded Employee as may be required under applicable Governmental Regulations. Upon request of the Company, GEOSP shall -3- provide the Company with copies of returns, receipts or similar documents showing that all the taxes and social security payments (if any) have been made to the applicable Governmental Authorities. GEOSP shall indemnify the Company against any claims by the GEOSP Seconded Employees or any applicable Governmental Authority with respect to the payment of wages, salaries, taxes, social security payments, other payments resulting from the termination of employment by GE or any of its Affiliates or the proper filing of returns with the applicable Governmental Authorities with respect to the foregoing. 6.1.3 GEOSP Right of Assignment. Rights and obligations with respect to the ------------------------- secondment of GEOSP Seconded Employees may be transferred (with appropriate notice to PP and the Company) from or to GEOSP or any of its Affiliates (other than the Company). 6.2.1 PP Seconded Employees. PP and each employee seconded from PP shall be --------------------- responsible for resolving the manner in which the employee's period of secondment shall be treated with respect to that person's pension rights with PP, years in service and what the seniority rights in PP will be at the end of the secondment period. 6.2.2 Term of Secondment. Seconded Employees shall be obligated to remain ------------------ seconded to the Company for a period of at least one year, unless agreed otherwise by the Parties. The Company, PP or GEOSP, as the case may be, and the Seconded Employee may agree to extend the secondment period for a mutually agreeable time upon completion of the first secondment period. 6.2.3 Payment of PP Seconded Employee's Salary and Benefits. During the period ----------------------------------------------------- of secondment, PP shall be responsible for paying the PP Seconded Employee's salary and benefits package, including employment taxes, to, in respect of, or on behalf of the PP Seconded Employee consistent with PP salary and benefits payment policies. The Company shall pay PP an amount equal to one hundred per cent (100%) of each PP Seconded Employee's salary (prior to withholding of any taxes), benefits, and taxes paid by PP to, in respect of, or on behalf of that employee during the period of the secondment. The foregoing amount paid for salary, benefits, and taxes shall be adjusted after actual increases in salary, benefits, and/or taxes paid by PP to, in respect of, or on behalf of the PP Seconded Employee, provided that PP shall have produced evidence to the Company of any such actual increases in salary, benefits, and/or taxes paid by PP. The Company shall make such payment at the end of the month for which the PP Seconded Employee will be seconded to the Company. The Company's benefit package shall not apply to Seconded Employees. PP shall deliver to the Company copies of the PP Seconded Employee's most recent salary, benefit, and tax information at the beginning of the secondment period. PP shall be responsible for filing all tax, social security and other statements for each PP Seconded Employee as may be required under applicable Governmental Regulations. Upon request of the Company, PP shall provide the Company with copies of returns, receipts or similar documents showing that all the taxes and social security payments (if any) have been made to the applicable Governmental Authorities. PP shall indemnify the Company against any claims by the PP Seconded Employees or any applicable Governmental Authority with respect to the payment of wages, salaries, taxes, social security payments, other payments resulting from the termination of employment by PP or the proper filing of returns with any applicable Governmental Authorities with respect to the foregoing. 6.2.4 PP Right of Assignment. PP shall have the right to assign its rights and ---------------------- obligations (with appropriate notice to GEOSP and the Company) with respect to the secondment of employees to one of its wholly owned Affiliates. -4- ARTICLE 7 LIMITATION OF LIABILITY 7.1 The Parties agree that each Seconded Employee to the Company by GEOSP or PP shall, in all respects, be acting for the Company and not GEOSP or PP, respectively. Nothing contained herein shall constitute or be construed to be or create a partnership or joint venture between the Company, GEOSP and/or PP. The debts and liabilities incurred by the Company are those of the Company and, subject to Clauses 6.1.2 and 6.2.3 above, neither GEOSP nor PP shall have any liability for them. 7.2 The Company hereby represents that in accepting the secondment of any GEOSP or PP employee to the Company, it has not relied on any projection of earnings, statements as to the possibility of future success or other similar matter which may have been prepared or presented by GEOSP, PP or their Affiliates, and understands that no guaranty is made or implied by GEOSP or PP as to the future financial success of the business of the Company. 7.3 Neither GEOSP nor PP shall have any liability to the Company or to any other Person for any act or omission of the Seconded Employees in connection with the operation or activities of the Company. Additionally, subject to Clauses 6.1.2 and 6.2.3 above, at GEOSP's or PP's request, the Company will, at its own cost and expense, assume the defense of any proceeding brought by any Third Party to establish any such liability and will indemnify and hold harmless GEOSP and PP from any such liability and all related costs and expenses, including attorney's fees. 7.4 As used in this Article, "liability" includes liability for any claim of any kind whether the claim is based on contract, indemnity, warranty, tort (including negligence of any degree), strict liability or otherwise for any loss or damage arising out of or connected with performance or breach of the provisions of this Annex C or operations of the Company. 7.5 As used in this Article, "GEOSP" and "PP" shall include GE or PP, as the case may be, and its respective Affiliates and any of their respective officers, employees or agents, including any officers, employees or agents also seconded to work in the Company as Seconded Employees. 7.6 The Company shall indemnify GEOSP and PP against Third Party claims arising out of the acts or omissions of its employees, including Employees and Seconded Employees. 7.7 The foregoing limitations and indemnity shall apply to the full extent permitted by law regardless of degree of fault or negligence, and, notwithstanding any other provisions of this Annex C, shall survive termination of this LLC Agreement. The limitations contained in Section 10.5(a) of this LLC Agreement shall also apply to all indemnity provisions of this Annex C, and the liability of GEOSP and the Company shall be considered together for purposes of the $1,000,000 limitation in Section 10.5(a). -5- EXHIBIT A Initial Management of the Company Barry Glickman President Frank Scovello Director of Sales Rick Robertson Director of Marketing -6- EXHIBIT B (Acknowledgment From Employees of GE and its Affiliates Concerning Secondment to the Company) _____________, 1999 _____________________________ _____________________________ _____________________________ RE: Secondment to GE Fuel Cell Systems, L.L.C. I refer to [our recent discussions/your letter dated _______] concerning my secondment to GE Fuel Cell Systems, L.L.C., for an initial period of ________. I hereby acknowledge and agree that I will not, by reason of my secondment, become an employee of GE Fuel Cell Systems, L.L.C., but shall, throughout my period of secondment, remain your employee. I hereby covenant with you (as trustee for and on behalf of GE Fuel Cell Systems, L.L.C.) that I shall not maintain any claim, nor institute any proceedings whatsoever against GE Fuel Cell Systems, L.L.C., whether in respect of breach of contract, redundancy, unfair dismissal, compensation for loss of office and any other ground whatsoever, whether under common law, statute or otherwise by reason of any termination of my secondment to GE Fuel Cell Systems, L.L.C., or the termination of my employment with you. I hereby confirm that I understand and have considered in full the effect of the foregoing (and in particular those provisions of this Acknowledgment which may deprive me of rights) and accept that this Acknowledgment is legally binding on me. I acknowledge that you have advised me to obtain independent legal advice prior to execution of this Acknowledgment and I confirm that I have had sufficient opportunity to take and that I have taken such advice or decided (without any influence having been brought to bear on me) not to obtain such advice. This Acknowledgment shall be governed by and construed in accordance with the Laws of the State of New York. Executed by: Witness: _____________________ _______________________________ -7- EXHIBIT B (Continued) (Acknowledgment From Employees of PP Concerning Secondment to the Company) ___________, 1999 Plug Power, L.L.C. 968 Albany-Shaker Road Albany, New York 12110 RE: Secondment to GE Fuel Cell Systems, L.L.C. I refer to [our recent discussions/your letter dated _______] concerning my secondment to GE Fuel Cell Systems, L.L.C., for an initial period of ________. I hereby acknowledge and agree that I will not, by reason of my secondment, become an employee of GE Fuel Cell Systems, L.L.C., but shall, throughout my period of secondment, remain an employee of Plug Power, L.L.C. I hereby covenant with Plug Power, L.L.C. (as trustee for and on behalf of GE Fuel Cell Systems, L.L.C.) that I shall not maintain any claim, nor institute any proceedings whatsoever against GE Fuel Cell Systems, L.L.C., whether in respect of breach of contract, redundancy, unfair dismissal, compensation for loss of office and any other ground whatsoever, whether under common law, statute or otherwise by reason of any termination of my secondment to GE Fuel Cell Systems, L.L.C., or the termination of my employment with Plug Power, L.L.C. I hereby confirm that I understand and have considered in full the effect of the foregoing (and in particular those provisions of this Acknowledgment which may deprive me of rights) and accept that this Acknowledgment is legally binding on me. I acknowledge that Plug Power, L.L.C., has advised me to obtain independent legal advice prior to execution of this Acknowledgment and I confirm that I have had sufficient opportunity to take and that I have taken such advice or decided (without any influence having been brought to bear on me) not to obtain such advice. This Acknowledgment shall be governed by and construed in accordance with the Laws of the State of New York. Executed by: Witness: ______________________ _______________________________ -8- EX-10.2 3 CONTRIBUTION AGREEMENT EXHIBIT 10.2 CONTRIBUTION AGREEMENT THIS CONTRIBUTION AGREEMENT (this "Agreement") is made and entered into as of this 3rd day of February, 1999, by and between GE ON-SITE POWER, INC., a Delaware corporation ("GEOSP") located at 1 River Road, Schenectady, New York 12345, and PLUG POWER, L.L.C., a Delaware limited liability company ("PP") located at 968 Albany-Shaker Road, Latham, New York 12110. W I T N E S S E T H: - - - - - - - - - - WHEREAS, GEOSP has formed a single-member Delaware limited liability company known as GE Fuel Cell Systems, L.L.C. ("GEFCS"), for the sole purpose of marketing and selling (as a distributor), in the Territory, certain Products, Pre-Commercial Units, and Test & Evaluation Units manufactured by PP and providing Services, all as defined in and in accordance with that certain Distributor Agreement between GEFCS and PP dated February 2, 1999 (the "Distributor Agreement"); and WHEREAS, PP and GEOSP now wish for PP to become a member of GEFCS on the terms set forth in that certain proposed Amended and Restated Limited Liability Agreement, of even date herewith, between PP and GEOSP (the "LLC Agreement"); and WHEREAS, PP and GEOSP have determined that PP's admission as a member of GEFCS should be accomplished by an exchange by GEOSP of a membership interest in GEFCS for certain securities in PP; NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements herein contained, the mutual benefits to be derived herefrom, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. GEOSP hereby transfers to PP 25% of its membership interest in GEFCS, and shall execute such documents as may be necessary under Delaware law to effect such transfer. 2. PP, in exchange for the 25% membership interest in GEFCS transferred to it by GEOSP, hereby grants and issues to GEOSP the following securities on the following terms: (a) 2,250,000 shares of the Class A membership interests of PP (the "Shares"). In the event that the LLC Agreement is terminated, GEOSP shall return a number of Shares to PP in accordance with the following schedule: (i) If termination occurs before the first anniversary of the LLC Agreement, then GEOSP shall return 1,500,000 Shares; (ii) if termination occurs on or after the first anniversary but before the second anniversary of the LLC Agreement, then GEOSP shall return 1,200,000 Shares; (iii) if termination occurs on or after the second anniversary but before the third anniversary of the LLC Agreement, then GEOSP shall return 900,000 Shares; (iv) if termination occurs on or after the third anniversary but before the fourth anniversary of the LLC Agreement, then GEOSP shall return 600,000 Shares; (v) if termination occurs on or after the fourth anniversary but before the fifth anniversary of the LLC Agreement, then GEOSP shall return 300,000 Shares; and (vi) on or after the fifth anniversary of the LLC Agreement, GEOSP shall not be required to return any Shares. Notwithstanding the foregoing schedule, if, at the time the LLC Agreement terminates, GEFCS has not incurred total expenses (including purchases of products and services) of at least $5 million, then GEOSP shall retain only that number of such shares equal to the quotient obtained by dividing the amount of operating expenses incurred by GEFCS through such date by $5.00, or the number of such shares to be retained according to the foregoing schedule, whichever is less. In the event that PP completes an initial public offering ("IPO"), GEOSP must hold all of its shares in PP until at least six months after the completion of the IPO. Otherwise, GEOSP may dispose of any of its shares in PP that are not subject to return to PP in accordance with this section. If GEOSP elects to dispose of any such shares, it shall first offer such shares to PP upon such terms as GEOSP has been offered by a third party purchaser ("Third Person"). GEOSP shall notify PP of the price and quantity of the shares proposed to be sold to the Third Person, and GEOSP shall provide PP with the first opportunity to purchase, valid for a period of 60 days, such quantity of shares at the price offered by the Third Person. If PP gives notice of its intent to exercise its right to purchase during the 60- day period, then it shall consummate the transaction on those terms within 30 days thereafter. If PP does not give notice of its intent to exercise its right to purchase during the 60-day period, then GEOSP can proceed with the offering to the Third Person. If, at any time during its continued negotiations with the Third Person, GEOSP offers a different price or different quantity of shares, or other materially different terms, then GEOSP will again provide PP with the first opportunity to purchase such shares at such price, and PP shall have the same 60-day notice and 30-day consummation periods. If, at any time, PP waives its right to purchase shares from GEOSP, then GEOSP shall have 120 days after such waiver to conclude its transaction with the Third Person. (b) An option to purchase up to 3,000,000 Shares, at an exercise price of $12.50 per Share (the "Option"). The Option will expire on the later of December 31, 2000, or the first anniversary of PP's IPO, but in any event the Option will expire no later than December 31, 2003. If the price per Share in the IPO exceeds $12.50, then GEOSP must exercise or surrender the Option in conjunction with such IPO. If the price per Share exceeds $12.50 in a private placement by PP concluded prior to December 31, 2000, with an aggregate value exceeding $10 million, then GEOSP must exercise or surrender the -2- Option by December 31, 2000. If GEFCS is dissolved, then GEOSP will have 30 days to exercise or surrender its Option. 3. The transfer by GEOSP referred to in Section 1 shall for tax purposes be treated as a contribution to PP of a 25% undivided interest in the assets of GEFCS and a contribution of those assets to GEFCS by PP. 4. PP represents and warrants to GEOSP and GEFCS that it is acquiring its interest in GEFCS solely for investment purposes and not with a view to the distribution or resale thereof and acknowledges that its purchase of such interest is expressly subject to the terms and conditions, including but not limited to limitations on transferability, set forth in the LLC Agreement. PP will refrain from transferring or otherwise disposing of its membership interest in GEFCS, or any interest therein, in such manner as to cause GEOSP or GEFCS to be in violation of the Securities Act of 1933, as amended, or applicable state securities or blue sky laws. 5. GEOSP represents and warrants to PP that it is acquiring the Shares in PP for its own account for the purpose of investment, it being understood that the right to dispose of such shares will be entirely governed by terms and conditions of this Agreement. GEOSP will refrain from transferring or otherwise disposing of any of the Shares, or any interest therein, in such manner as to cause PP to be in violation of the Securities Act of 1933, as amended, or applicable state securities or blue sky laws. GEOSP further agrees that any subsequent transfer by GEOSP or otherwise disposal of any of the Shares, other than as specifically allowed by this Agreement, will be subject to the transfer provisions of the Limited Liability Company Agreement, dated as of June 27, 1997, by and between Edison Development Corporation and Mechanical Technology Incorporated, as the same is amended from time to time (the "PP LLC Agreement"), and unless and until PP completes the IPO, shall cause the transferee of any such shares to agree in writing to be bound by the transfer provisions of the PP LLC Agreement. 6. All other provisions of the LLC Agreement, when executed by PP and GEOSP, shall be fully incorporated herein by this reference, including but not limited to the indemnification provisions of Section 10.5 thereof. A party's claims for indemnification hereunder shall be aggregated with such party's indemnification claims under the LLC Agreement for purposes of the indemnification limitations set forth in Section 10.5(a) thereof. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their authorized officers as of the day and year first written above. GE ON-SITE POWER, INC. PLUG POWER, L.L.C. By: /s/ Ricardo Artigas By: /s/ Gary Mittleman ------------------------------ ----------------------------------- Ricardo Artigas, President Gary Mittleman, President & CEO -3- EX-10.3 4 TRADEMARK AND TRADE NAME AGREEMENT CONFIDENTIAL INFORMATION HAS BEEN OMITTED PURSUANT TO RULE 406 UNDER THE SECURITIES ACT AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. THE LOCATIONS OF THE OMITTED INFORMATION HAVE BEEN INDICATED WITH ASTERISKS. Exhibit 10.3 GE TRADEMARK AND TRADE NAME AGREEMENT This Agreement is dated and effective as of February 2, 1999, between GENERAL ELECTRIC COMPANY ("LICENSOR"), a New York corporation, and GE FUEL CELL SYSTEMS, LLC ("LICENSEE"), a Delaware limited liability company. A. Whereas, LICENSOR owns, directly or indirectly, in excess of fifty percent (50%) of the membership interests of LICENSEE and has the right or power to exercise effectively all of the rights or powers of ownership therein; B. Whereas, LICENSOR owns the LICENSED MARKS (hereinafter defined) and LICENSOR has common law and/or statutory rights therein, including applications to register and registrations therefor in certain countries throughout the world for various goods and services; C. Whereas, LICENSEE desires to use the LICENSED MARKS on or in connection with PRODUCTS, PRE-COMMERCIAL UNITS and SERVICES (each hereinafter defined); D. Whereas, LICENSOR is willing to grant licenses to LICENSEE to use the LICENSED MARKS on PRODUCTS and PRE-COMMERCIAL UNITS marketed and sold by or on behalf of LICENSEE, and for SERVICES performed by or on behalf of LICENSEE, in strict accordance with STANDARDS OF QUALITY (hereinafter defined); E. Whereas, LICENSEE has adopted the corporate name "GE Fuel Cell Systems, LLC", which corporate name contains LICENSOR's trademark and trade name, "GE" ("LICENSED NAME"). F. Whereas, LICENSOR is willing to permit the use of the LICENSED MARKS and the LICENSED NAME under the terms and conditions hereinafter set forth. NOW THEREFORE, the parties agree as follows: ARTICLE I DEFINITIONS The following terms as used in this Agreement shall have the meaning set forth in this Article I: A. The term "LICENSED MARKS" shall mean and be limited to the trademarks, service marks, and logos shown in Exhibit A attached hereto. B. The terms "PRODUCTS", "PRE-COMMERCIAL UNITS", and "SERVICES" shall have the respective meanings set forth in the Distributor Agreement between LICENSEE and Plug Power, L.L.C., of even date herewith (the "Distributor Agreement"). C. The term "STANDARDS OF QUALITY" shall mean and be limited to the specifications for PRODUCTS, PRE-COMMERCIAL UNITS, and SERVICES set forth in the Distributor Agreement. D. The term "LICENSED TERRITORY" shall mean and be limited to every country, province, territory, or other principality in the world, except the states of Michigan, Indiana, Ohio and Illinois in the United States of America while Edison Development Corporation has exclusive rights to market and sell products similar to Products and provide services similar to Services therein. In the event that Edison Development Corporation ("EDC") shall lose any of its rights to market and sell similar products and provide similar services in the States of Michigan, Indiana, Ohio and Illinois (the "EDC Territory"), this definition of "LICENSED TERRITORY" shall be expanded to include the EDC Territory. ARTICLE II LICENSE GRANT A. LICENSOR hereby grants to LICENSEE, during the term of this Agreement, a royalty-bearing, non-exclusive license to use the LICENSED MARKS in the LICENSED TERRITORY on or in connection with the PRODUCTS, PRE-COMMERCIAL UNITS, and SERVICES, in strict accordance with the STANDARDS OF QUALITY. LICENSEE is authorized to use the LICENSED MARKS only on or in connection with PRODUCTS, PRE-COMMERCIAL UNITS, and SERVICES, including use in packaging, labeling, general publicity, letterheads, signs and other forms of advertising, instruction books, and other literature relating to PRODUCTS, PRE-COMMERCIAL UNITS, and SERVICES. In no event, however, shall LICENSEE use the LICENSED MARKS as part of a trade name or authorize others to do so, except as may be expressly provided for in this Agreement. B. LICENSOR hereby grants to LICENSEE, during the term of this Agreement, a worldwide, non-exclusive license to use the LICENSED NAME in its corporate name and trade names. C. Notwithstanding the foregoing grants of license, LICENSEE acknowledges that the use of the LICENSED MARKS and the LICENSED NAME in the United Kingdom and the Republic of Ireland may be limited or prohibited in connection with some or all of the PRODUCTS, PRE-COMMERCIAL UNITS, and SERVICES as a result of prior agreements entered into by and between LICENSOR and The General Electric Company, p.l.c., an unrelated British company of similar name. LICENSOR shall provide LICENSEE, and LICENSEE agrees to fully comply with, all guidelines adopted from time to time by LICENSOR for the purpose of distinguishing its trademarks, service marks, trade names, and the like, and preventing confusion with any other entity, including The General Electric Company, p.l.c., and its affiliates and licensees. -2- ARTICLE III EXAMINATION OF PRODUCTS, PRE-COMMERCIAL UNITS, AND SERVICES A. LICENSEE shall use the LICENSED MARKS only on and in connection with PRODUCTS, PRE-COMMERCIAL UNITS, and SERVICES, and then only to the extent that such use is in strict accordance with the STANDARDS OF QUALITY. B. LICENSOR or its authorized representative shall have the right at any time or times to conduct during regular business hours an examination of LICENSEE's manner of marketing and selling PRODUCTS and PRE-COMMERCIAL UNITS and performing SERVICES under the LICENSED MARKS and of the facilities where PRODUCTS and PRE-COMMERCIAL UNITS are marketed and sold and SERVICES are performed. LICENSEE shall furnish to LICENSOR, from time to time as requested, representative samples of PRODUCTS and PRE-COMMERCIAL UNITS to which it affixes the LICENSED MARKS and representative samples showing all other uses of the LICENSED MARKS by LICENSEE. If, at any time, PRODUCTS, PRE-COMMERCIAL UNITS, or SERVICES sold or performed under the LICENSED MARKS by LICENSEE fail, in the sole opinion of LICENSOR, to conform to any of the required STANDARDS OF QUALITY or any other requirement in this agreement, and LICENSOR notifies LICENSEE of such failure, LICENSEE shall promptly cease marketing and performing such non- conforming PRODUCTS, PRE-COMMERCIAL UNITS and SERVICES. ARTICLE IV USE OF THE LICENSED MARKS AND LICENSE NAME A. LICENSEE shall comply with LICENSOR's written guidelines and rules provided to LICENSEE from time to time by LICENSOR with respect to the appearance and manner of use of the LICENSED MARKS and the LICENSED NAME. Any form of use of the LICENSED MARKS and the LICENSED NAME not specifically provided for by such guidelines and rules shall be adopted by LICENSEE only upon prior approval in writing by LICENSOR. Representative specimens showing the use of the LICENSED MARK and LICENSED NAME by LICENSEE shall be sent to LICENSOR from time to time upon request by LICENSOR. LICENSEE specifically agrees that the LICENSED NAME contained in the corporate name and trade names will not appear in any type face differing from, or in a size, color or emphasis differing from, the other words and elements of the corporate name and trade names. B. LICENSEE shall comply with all applicable laws and regulations, including those pertaining to the proper use and designation of trademarks, corporate names and trade names in the LICENSED TERRITORY and pertaining to the sale of PRODUCTS and PRE-COMMERCIAL UNITS and the rendering of SERVICES in the LICENSED TERRITORY. C. LICENSEE shall immediately cease use of the LICENSED MARKS and/or any corporate name or trade name containing the LICENSED NAME upon notice from LICENSOR that, in the sole opinion of LICENSOR, such use of the LICENSED MARKS or the LICENSED NAME (i) is in violation of LICENSOR's guidelines, rules, or STANDARDS OF QUALITY, or (ii) results or is likely to result in an adverse claim against either LICENSOR or LICENSEE by a third party. -3- D. If, in the sole discretion of LICENSOR, it is required or advisable for the purpose of making this Agreement enforceable, or for the purpose of maintaining, enhancing, or protecting LICENSOR's rights in the LICENSED MARKS or the LICENSED NAME, to record this Agreement or to enter LICENSEE as registered or authorized user of the LICENSED MARKS or the LICENSED NAME, LICENSOR will attend (at LICENSEE's expense) to such recording or entry. LICENSEE will execute and deliver to LICENSOR such additional instruments or documentation as LICENSOR may reasonably request, including without limitation execution and delivery of substitute or short-form license agreements, with terms consistent with this Agreement, for recordation or registration in specified countries in the event that this Agreement shall be deemed to be unsuitable for recordation or entry in such countries. The terms and conditions of this Agreement (and not the terms and conditions of such substitute or short-form license agreements entered into for recording or entry purposes) shall be binding between the parties throughout the world and shall govern and control any controversy that should arise with respect to each party's rights and obligations hereunder; provided, however, -------- ------- that if specific terms and conditions of any such substitute or short-form agreement differ from the comparable terms and conditions of this Agreement and enforcement of the comparable terms and conditions of this Agreement pursuant to this provision either would be improper under the laws of the applicable country or would adversely affect LICENSOR's rights in the LICENSED MARKS and LICENSED NAME in such country, then the specific terms and conditions of the substitute or short-form agreement shall be controlling in such country. E. LICENSEE shall supply LICENSOR, with such information concerning the use of the LICENSED MARKS and the LICENSED NAME by LICENSEE on or in connection with the PRODUCTS, PRE-COMMERCIAL UNITS, and SERVICES as LICENSOR may reasonably request to aid LICENSOR in the acquisition, maintenance, and renewal of registrations of the LICENSED MARKS, to record this Agreement and to enter LICENSEE as a registered or authorized user of the LICENSED MARKS, or for any other purpose. ARTICLE V OWNERSHIP AND VALIDITY OF LICENSED MARKS AND LICENSED NAME A. LICENSEE admits the validity, and LICENSOR's ownership, of the LICENSED MARKS and the LICENSED NAME and agrees that any and all rights that might be acquired by the use of the LICENSED MARKS or the LICENSED NAME by LICENSEE shall inure to the sole benefit of LICENSOR. LICENSEE admits and agrees that, as between the parties, LICENSEE has been extended only a mere permissive right to use the LICENSED MARKS and LICENSED NAME as provided in this Agreement which is not coupled with any ownership interest. B. Other than as expressly set forth in this Agreement, LICENSEE further agrees not to use or file any application to register, in any class and in any country, any trademarks, service marks, trade names, or corporate names resembling, similar to, or containing, in whole or in part, the LICENSED MARKS or the LICENSED NAME. Whenever the attention of LICENSEE is called by LICENSOR to any such confusion or risk of confusion, LICENSEE agree to take appropriate steps immediately to remedy or avoid such confusion or risk of confusion. -4- C. LICENSEE shall give LICENSOR notice of any known or presumed infringements of the LICENSED MARKS or unauthorized use of the LICENSED NAME by others, and LICENSEE shall render LICENSOR full cooperation for the protection of the LICENSE MARKS and the LICENSED NAME. LICENSOR shall have and retain all rights to bring all actions and proceedings in connection with infringement or unauthorized use of the LICENSED MARKS and LICENSED NAME at its sole discretion, and LICENSEE shall have no rights to make any such claims or bring any actions or proceedings, whether in its own name or on behalf of LICENSOR, without the express prior written consent of LICENSOR. If LICENSOR decides to enforce its rights in the LICENSED MARKS or the LICENSED NAME against an infringer, all costs incurred and recoveries made shall be for the account of LICENSOR. ARTICLE VI ROYALTIES AND REPORTS A. LICENSEE shall pay LICENSOR royalties at the rate of [***] B. [***] CONFIDENTIAL INFORMATION HAS BEEN OMITTED PURSUANT TO RULE 406 UNDER THE SECURITIES ACT AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. THE LOCATIONS OF THE OMITTED INFORMATION HAVE BEEN INDICATED WITH ASTERISKS. -5- C. LICENSEE agrees to make written reports to LICENSOR quarterly within thirty (30) days after the first days of each January, April, July, and October during the term of this Agreement, and effective as of such dates, stating in each such report the description and aggregate net selling prices of PRODUCTS, PRE-COMMERCIAL UNITS, and SERVICES sold or otherwise disposed of or performed during the preceding three (3) calendar months and upon which royalties are payable hereunder. The first such report shall include all such PRODUCTS, PRE- COMMERCIAL UNITS, and SERVICES sold or otherwise disposed of or performed between the effective date of this Agreement and the date of such first report. LICENSEE also agrees to make a written report to LICENSOR within thirty (30) days after any expiration or termination of this Agreement, stating in such report the description and aggregate net selling prices of PRODUCTS, PRE- COMMERCIAL UNITS, and SERVICES sold or otherwise disposed of or performed and upon which royalties are payable hereunder, but which have not been previously reported to LICENSOR. D. Concurrently with the making of each report pursuant to Paragraph VI.C. hereof, LICENSEE shall pay to LICENSOR royalties at the rate specified by Paragraph VI.A. hereof on all PRODUCTS, PRE-COMMERCIAL UNITS, and SERVICES included therein. All payments to be made under this Agreement shall be made in the City of New York, State of New York, U.S.A. in United States Dollars by electronic transfer to an account designated by LICENSOR. Where the provisions of this Agreement require the conversion into United States Dollars of an amount initially computed in the currency of another country, the amount of United States Dollars payable under this Agreement shall be determined on the basis of the applicable exchange rate quoted by The Wall Street Journal, Eastern Edition, most recently prior to the date each such payment is made or due, whichever is earlier. If no exchange rate is quoted for any period, LICENSOR shall determine the rate in accordance with an alternative LICENSOR deems reasonable. E. LICENSEE shall keep records, in sufficient detail to enable the royalties payable hereunder by LICENSEE to be determined, for at least a period of two years following the expiration or termination of this Agreement. LICENSEE shall permit its books and records to be examined from time to time upon reasonable written notice to the extent necessary to verify the reports provided for hereunder, such examination to be made at the expense of LICENSOR by any auditor appointed by LICENSOR who shall be acceptable to LICENSEE, or, at the option and expense of LICENSEE, by a certified independent accountant appointed by LICENSOR and approved by LICENSEE, which approval shall not be unreasonably withheld. ARTICLE VII TERMINATION A. Until terminated pursuant to any provision of this Article VII, this Agreement shall have a term of five (5) years from its effective date and shall thereafter be automatically renewed from year to year for one (1) year terms each commencing upon the expiration of the previous term. This Agreement may be terminated at the end of any such term by either LICENSOR or LICENSEE giving notice of termination at least ninety (90) days prior to the expiration of said term. Notwithstanding the foregoing, this Agreement shall automatically terminate without further notice in the event that the Distributor Agreement terminates without being replaced by another such agreement between the parties thereto. -6- B. This Agreement shall automatically terminate without further notice on the date that LICENSOR ceases to own, directly or indirectly, in excess of fifty percent (50%) of the outstanding voting securities or other membership interests of LICENSEE or ceases to have the right and power to exercise effectively all of the rights and powers of ownership therein. C. This Agreement shall terminate as to a particular country with notice on a date established by either LICENSOR or LICENSEE if a controlling substitute or short-form agreement is required in such country pursuant to Paragraph IV.D. hereof and such controlling replacement agreement contains provisions unacceptable to the party giving notice hereunder. D. In the event LICENSEE does not comply with any provisions of this Agreement and LICENSOR elects to give LICENSEE written notice of such non- compliance, LICENSEE shall have twenty (20) days from the receipt of such notice to remedy such non-compliance. If such non-compliance is not remedied within said twenty (20) days, LICENSOR shall have the right to terminate this Agreement at any time thereafter by giving LICENSEE written notice of the effective date of such termination. E. Upon any termination of this Agreement for any reason, LICENSEE agrees to cease and discontinue completely further use of the LICENSED MARKS and the LICENSED NAME; provided, however, that LICENSEE shall have a period of three (3) months from the date of such termination to (i) fill any outstanding orders for PRODUCTS, PRE-COMMERCIAL UNITS, or SERVICES placed prior to the effective date of termination (provided, however, such terminal use shall comply with the other provisions of this Agreement) (ii) change its corporate name and trade names to exclude the LICENSED NAME therefrom. At the expiration of such three (3) month period, LICENSEE shall have no further right to use the LICENSED MARKS and LICENSED NAME, or any mark or name the same as, substantially similar to, or likely to cause confusion with the LICENSED MARKS and LICENSED NAME. F. The following provisions of this Agreement shall survive any termination: Paragraph IV.D., Paragraph IV.E., Paragraph V.A., Paragraph V.B., Paragraph V.C. Article VI, Paragraph VII.E., Paragraph VII.F, and Paragraphs VIII.A., C., D., E., and F. ARTICLE VIII MISCELLANEOUS PROVISIONS A. LICENSEE shall fully indemnify and hold harmless LICENSOR against any and all claims, losses, damages, expenses or liability asserted against or suffered by LICENSOR and arising out of or relating to this Agreement or the sale or disposition of PRODUCTS or PRE-COMMERCIAL UNITS, or performance of SERVICES, by LICENSEE under the LICENSED MARKS or the conduct of business activities by LICENSEE under the LICENSED NAME, whether or not such PRODUCTS, PRE-COMMERCIAL UNITS, and SERVICES conform to the required STANDARDS OF QUALITY and whether or not LICENSOR has specifically approved sale of PRODUCTS or PRE- COMMERCIAL UNITS or the performance of SERVICES or the conduct of the business activities under the LICENSED NAME. B. This Agreement or any rights hereunder may not be assigned or otherwise transferred or extended by LICENSEE to any party including without limitation subsidiaries and affiliates of LICENSEE -7- without the written consent of LICENSOR, and any attempted assignment, transfer or extension without such consent shall be null and void. C. Any notices or requests with reference to this Agreement shall be in writing and shall be directed by one party to the other at its respective address as follows: LICENSOR GENERAL ELECTRIC COMPANY Attention: General Counsel One River Road Schenectady, NY 12345 LICENSEE GE FUEL CELL SYSTEMS, LLC Attention: President One River Road Schenectady, NY 12345 Any party may change its address to which notices or requests shall be directed by notice to the other party, but until such change of address has been received, any notices or requests sent to the above addresses shall be effective upon transmittal and shall be considered as having been received. D. This instrument contains the entire agreement between the parties hereto regarding the use of the LICENSED MARKS and the LICENSED NAME, and this Agreement supersedes and cancels all previous, understandings or agreements in regard to the subject matter hereof. This Agreement may not be released or modified in any manner, orally or otherwise, except by an instrument in writing signed by duly authorized representatives of the parties hereto. E. This Agreement shall be governed by the laws of the State of New York, United States of America, without regard to its rules regarding the conflict of laws. F. Failure by LICENSOR at any time to enforce or require strict compliance with any provision of this Agreement shall not affect or impair that provision in any way or the rights of LICENSOR to avail itself of the remedies it may have in respect of any subsequent breach of that or any other provision. -8- IN WITNESS WHEREOF, LICENSOR and LICENSEE have caused this instrument to be executed in duplicate by their duly authorized representatives as of the date first written above. GENERAL ELECTRIC COMPANY ATTEST: /s/ illegible /s/ Ronald E. Myrick _________________________________ By: ___________________________________ Ronald E. Myrick Name: _________________________________ General Patent Counsel Title: ________________________________ GE FUEL CELL SYSTEMS, L.L.C. ATTEST: /s/ Barry Glickman _________________________________ By: ___________________________________ Barry Glickman, President -9- EXHIBIT A LICENSED MARK REGISTRATION NO. ------------- ---------------- -10- EX-10.4 5 TRADEMARK AGREEMENT CONFIDENTIAL INFORMATION HAS BEEN OMITTED PURSUANT TO RULE 406 UNDER THE SECURITIES ACT AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. THE LOCATIONS OF THE OMITTED INFORMATION HAVE BEEN INDICATED WITH ASTERISKS. EXHIBIT 10.4 PLUG POWER TRADEMARK AGREEMENT This Agreement is dated and effective as of February 2, 1999, between PLUG POWER, L.L.C. ("LICENSOR"), a Delaware limited liability company, and GE FUEL CELL SYSTEMS, LLC ("LICENSEE"), a Delaware limited liability company. A. Whereas, LICENSOR owns the LICENSED MARKS (hereinafter defined) and LICENSOR has common law and/or statutory rights therein, including applications to register and registrations therefor in certain countries throughout the world for various goods and services; C. Whereas, LICENSEE desires to use the LICENSED MARKS on or in connection with PRODUCTS, PRE-COMMERCIAL UNITS and SERVICES (each hereinafter defined); D. Whereas, LICENSOR is willing to grant licenses to LICENSEE to use the LICENSED MARKS on PRODUCTS and PRE-COMMERCIAL UNITS marketed and sold by or on behalf of LICENSEE, and for SERVICES performed by or on behalf of LICENSEE, in strict accordance with STANDARDS OF QUALITY (hereinafter defined); E. Whereas, LICENSEE has adopted the corporate name "GE Fuel Cell Systems, LLC". F. Whereas, LICENSOR is willing to permit the use of the LICENSED MARKS under the terms and conditions hereinafter set forth. NOW THEREFORE, the parties agree as follows: ARTICLE I DEFINITIONS The following terms as used in this Agreement shall have the meaning set forth in this Article I: A. The term "LICENSED MARKS" shall mean and be limited to the trademarks, service marks, and logos shown in Exhibit A attached hereto, as such exhibit may be modified by LICENSOR, from time to time, in its sole discretion. B. The terms "PRODUCTS", "PRE-COMMERCIAL UNITS", and "SERVICES" shall have the respective meanings set forth in the Distributor Agreement between LICENSEE and LICENSOR, of even date herewith (the "Distributor Agreement"). C. The term "STANDARDS OF QUALITY" shall mean and be limited to the specifications for PRODUCTS, PRE-COMMERCIAL UNITS, and SERVICES set forth in the Distributor Agreement. D. The term "LICENSED TERRITORY" shall mean and be limited to every country, province, territory, or other principality in the world, except the states of Michigan, Indiana, Ohio and Illinois in the United States of America while Edison Development Corporation has exclusive rights to market and sell products similar to Products and provide services similar to Services therein. In the event that Edison Development Corporation ("EDC") shall lose any of its rights to market and sell similar products and provide similar services in the States of Michigan, Indiana, Ohio and Illinois (the "EDC Territory"), this definition of "LICENSED TERRITORY" shall be expanded to include the EDC Territory. ARTICLE II LICENSE GRANT A. LICENSOR hereby grants to LICENSEE, during the term of this Agreement, a royalty-bearing, non-exclusive license to use the LICENSED MARKS in the LICENSED TERRITORY on or in connection with the PRODUCTS, PRE-COMMERCIAL UNITS, and SERVICES, in strict accordance with the STANDARDS OF QUALITY. LICENSEE is authorized to use the LICENSED MARKS only on or in connection with PRODUCTS, PRE-COMMERCIAL UNITS, and SERVICES, including use in packaging, labeling, general publicity, letterheads, signs and other forms of advertising, instruction books, and other literature relating to PRODUCTS, PRE-COMMERCIAL UNITS, and SERVICES. In no event, however, shall LICENSEE use the LICENSED MARKS as part of a trade name or authorize others to do so, except as may be expressly provided for in this Agreement. B. LICENSEE shall have the right to sub-license the use of the LICENSED MARKS to third parties with which LICENSEE enters into authorized written sub- contracts for the marketing, sale, and resale of PRODUCTS and PRE-COMMERCIAL UNITS and the provision of SERVICES, subject to the terms and conditions of this Agreement and the Distributor Agreement. ARTICLE III EXAMINATION OF PRODUCTS, PRE-COMMERCIAL UNITS, AND SERVICES A. LICENSEE shall use the LICENSED MARKS only on and in connection with PRODUCTS, PRE-COMMERCIAL UNITS, and SERVICES, and then only to the extent that such use is in strict accordance with the STANDARDS OF QUALITY. B. LICENSOR or its authorized representative shall have the right at any time or times to conduct during regular business hours an examination of LICENSEE's manner of marketing and selling PRODUCTS and PRE-COMMERCIAL UNITS and performing SERVICES under the LICENSED MARKS and of the facilities where PRODUCTS and PRE-COMMERCIAL UNITS are marketed and sold and SERVICES are performed. LICENSEE shall furnish to LICENSOR, from time to time as requested, representative samples of PRODUCTS and PRE-COMMERCIAL UNITS to which it affixes the LICENSED MARKS and representative samples showing all other uses of the LICENSED MARKS by LICENSEE. If, at any time, PRODUCTS, PRE-COMMERCIAL UNITS, or SERVICES sold or performed under the LICENSED MARKS by LICENSEE fail, in the sole opinion of LICENSOR, to conform to any of the required STANDARDS OF QUALITY or any other requirement in this agreement, and LICENSOR notifies LICENSEE of such failure, LICENSEE shall promptly cease marketing and performing such non- conforming PRODUCTS, PRE-COMMERCIAL UNITS and SERVICES. -2- ARTICLE IV USE OF THE LICENSED MARKS A. LICENSEE shall comply with LICENSOR's written guidelines and rules provided to LICENSEE from time to time by LICENSOR with respect to the appearance and manner of use of the LICENSED MARKS. Any form of use of the LICENSED MARKS not specifically provided for by such guidelines and rules shall be adopted by LICENSEE only upon prior approval in writing by LICENSOR. Representative specimens showing the use of the LICENSED MARK by LICENSEE shall be sent to LICENSOR from time to time upon request by LICENSOR. B. LICENSEE shall comply with all applicable laws and regulations, including those pertaining to the proper use and designation of trademarks, corporate names and trade names in the LICENSED TERRITORY and pertaining to the sale of PRODUCTS and PRE-COMMERCIAL UNITS and the rendering of SERVICES in the LICENSED TERRITORY. C. LICENSEE shall immediately cease use of the LICENSED MARKS upon notice from LICENSOR that, in the sole opinion of LICENSOR, such use of the LICENSED MARKS (i) is in violation of LICENSOR's guidelines, rules, or STANDARDS OF QUALITY, or (ii) results or is likely to result in an adverse claim against either LICENSOR or LICENSEE by a third party. D. If, in the sole discretion of LICENSOR, it is required or advisable for the purpose of making this Agreement enforceable, or for the purpose of maintaining, enhancing, or protecting LICENSOR's rights in the LICENSED MARKS, to record this Agreement or to enter LICENSEE as registered or authorized user of the LICENSED MARKS, LICENSOR will attend (at LICENSEE's expense) to such recording or entry. LICENSEE will execute and deliver to LICENSOR such additional instruments or documentation as LICENSOR may reasonably request, including without limitation execution and delivery of substitute or short-form license agreements, with terms consistent with this Agreement, for recordation or registration in specified countries in the event that this Agreement shall be deemed to be unsuitable for recordation or entry in such countries. The terms and conditions of this Agreement (and not the terms and conditions of such substitute or short-form license agreements entered into for recording or entry purposes) shall be binding between the parties throughout the world and shall govern and control any controversy that should arise with respect to each party's rights and obligations hereunder; provided, however, that if specific -------- ------- terms and conditions of any such substitute or short-form agreement differ from the comparable terms and conditions of this Agreement and enforcement of the comparable terms and conditions of this Agreement pursuant to this provision either would be improper under the laws of the applicable country or would adversely affect LICENSOR's rights in the LICENSED MARKS in such country, then the specific terms and conditions of the substitute or short-form agreement shall be controlling in such country. E. LICENSEE shall supply LICENSOR with such information concerning the use of the LICENSED MARKS by LICENSEE on or in connection with the PRODUCTS, PRE- COMMERCIAL UNITS, and SERVICES as LICENSOR may reasonably request to aid LICENSOR in the acquisition, maintenance, and renewal of registrations of the LICENSED MARKS, to record this Agreement and to enter LICENSEE as a registered or authorized user of the LICENSED MARKS, or for any other purpose. -3- ARTICLE V OWNERSHIP AND VALIDITY OF LICENSED MARKS A. LICENSEE admits the validity, and LICENSOR's ownership, of the LICENSED MARKS and agrees that any and all rights that might be acquired by the use of the LICENSED MARKS by LICENSEE shall inure to the sole benefit of LICENSOR. LICENSEE admits and agrees that, as between the parties, LICENSEE has been extended only a mere permissive right to use the LICENSED MARKS as provided in this Agreement which is not coupled with any ownership interest. B. Other than as expressly set forth in this Agreement, LICENSEE further agrees not to use or file any application to register, in any class and in any country, any trademarks, service marks, trade names, or corporate names resembling, similar to, or containing, in whole or in part, the LICENSED MARKS. Whenever the attention of LICENSEE is called by LICENSOR to any such confusion or risk of confusion, LICENSEE agree to take appropriate steps immediately to remedy or avoid such confusion or risk of confusion. C. LICENSEE shall give LICENSOR notice of any known or presumed infringements of the LICENSED MARKS by others, and LICENSEE shall render LICENSOR full cooperation for the protection of the LICENSE MARKS. LICENSOR shall have and retain all rights to bring all actions and proceedings in connection with infringement or unauthorized use of the LICENSED MARKS at its sole discretion, and LICENSEE shall have no rights to make any such claims or bring any actions or proceedings, whether in its own name or on behalf of LICENSOR, without the express prior written consent of LICENSOR. If LICENSOR decides to enforce its rights in the LICENSED MARKS against an infringer, all costs incurred and recoveries made shall be for the account of LICENSOR. ARTICLE VI ROYALTIES AND REPORTS A. [***] B. [***] CONFIDENTIAL INFORMATION HAS BEEN OMITTED PURSUANT TO RULE 406 UNDER THE SECURITIES ACT AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. THE LOCATIONS OF THE OMITTED INFORMATION HAVE BEEN INDICATED WITH ASTERISKS. -4- [***] C. LICENSEE agrees to make written reports to LICENSOR quarterly within thirty (30) days after the first days of each January, April, July, and October during the term of this Agreement, and effective as of such dates, stating in each such report the description and aggregate net selling prices of PRODUCTS, PRE-COMMERCIAL UNITS, and SERVICES sold or otherwise disposed of or performed during the preceding three (3) calendar months and upon which royalties are payable hereunder. The first such report shall include all such PRODUCTS, PRE- COMMERCIAL UNITS, and SERVICES sold or otherwise disposed of or performed between the effective date of this Agreement and the date of such first report. LICENSEE also agrees to make a written report to LICENSOR within thirty (30) days after any expiration or termination of this Agreement, stating in such report the description and aggregate net selling prices of PRODUCTS, PRE- COMMERCIAL UNITS, and SERVICES sold or otherwise disposed of or performed and upon which royalties are payable hereunder, but which have not been previously reported to LICENSOR. D. Concurrently with the making of each report pursuant to Paragraph VI.C. hereof, LICENSEE shall pay to LICENSOR royalties at the rate specified by Paragraph VI.A. hereof on all PRODUCTS, PRE-COMMERCIAL UNITS, and SERVICES included therein. All payments to be made under this Agreement shall be made in the City of New York, State of New York, U.S.A. in United States Dollars by electronic transfer to an account designated by LICENSOR. Where the provisions of this Agreement require the conversion into United States Dollars of an amount initially computed in the currency of another country, the amount of United States Dollars payable under this Agreement shall be determined on the basis of the applicable exchange rate quoted by The Wall Street Journal, Eastern Edition, most recently prior to the date each such payment is made or due, whichever is earlier. If no exchange rate is quoted for any period, LICENSOR shall determine the rate in accordance with an alternative LICENSOR deems reasonable. E. LICENSEE shall keep records, in sufficient detail to enable the royalties payable hereunder by LICENSEE to be determined, for at least a period of two years following the expiration or termination of this Agreement. LICENSEE shall permit its books and records to be examined from time to time upon reasonable written notice to the extent necessary to verify the reports provided for hereunder, such examination to be made at the expense of LICENSOR by any auditor appointed by LICENSOR who shall CONFIDENTIAL INFORMATION HAS BEEN OMITTED PURSUANT TO RULE 406 UNDER THE SECURITIES ACT AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. THE LOCATIONS OF THE OMITTED INFORMATION HAVE BEEN INDICATED WITH ASTERISKS. -5- be acceptable to LICENSEE, or, at the option and expense of LICENSEE, by a certified independent accountant appointed by LICENSOR and approved by LICENSEE, which approval shall not be unreasonably withheld. ARTICLE VII TERMINATION A. Until terminated pursuant to any provision of this Article VII, this Agreement shall have a term of five (5) years from its effective date. Notwithstanding the foregoing, this Agreement shall automatically terminate without further notice in the event that the Distributor Agreement terminates without being replaced by another such agreement between the parties thereto. B. This Agreement shall terminate as to a particular country with notice on a date established by either LICENSOR or LICENSEE if a controlling substitute or short-form agreement is required in such country pursuant to Paragraph IV.D. hereof and such controlling replacement agreement contains provisions unacceptable to the party giving notice hereunder. C. In the event LICENSEE does not comply with any provisions of this Agreement and LICENSOR elects to give LICENSEE written notice of such non- compliance, LICENSEE shall have twenty (20) days from the receipt of such notice to remedy such non-compliance. If such non-compliance is not remedied within said twenty (20) days, LICENSOR shall have the right to terminate this Agreement at any time thereafter by giving LICENSEE written notice of the effective date of such termination. D. Upon any termination of this Agreement for any reason, LICENSEE agrees to cease and discontinue completely further use of the LICENSED MARKS; provided, however, that LICENSEE shall have a period of three (3) months from the date of such termination to fill any outstanding orders for PRODUCTS, PRE-COMMERCIAL UNITS, or SERVICES placed prior to the effective date of termination (provided, however, such terminal use shall comply with the other provisions of this Agreement). At the expiration of such three (3) month period, LICENSEE shall have no further right to use the LICENSED MARKS, or any mark the same as, substantially similar to, or likely to cause confusion with the LICENSED MARKS. E. The following provisions of this Agreement shall survive any termination: Paragraph IV.D., Paragraph IV.E., Paragraph V.A., Paragraph V.B., Paragraph V.C. Article VI, Paragraph VII.D., Paragraph VII.E, and Paragraphs VIII.A., C., D., E., and F. ARTICLE VIII MISCELLANEOUS PROVISIONS A. LICENSEE shall fully indemnify and hold harmless LICENSOR against any and all claims, losses, damages, expenses or liability asserted against or suffered by LICENSOR and arising out of or relating to this Agreement or the sale or disposition of PRODUCTS or PRE-COMMERCIAL UNITS, or performance of SERVICES, by LICENSEE under the LICENSED MARKS, whether or not such -6- PRODUCTS, PRE-COMMERCIAL UNITS, and SERVICES conform to the required STANDARDS OF QUALITY. B. This Agreement or any rights hereunder may not be assigned or otherwise transferred or extended by LICENSEE to any party including without limitation subsidiaries and affiliates of LICENSEE without the written consent of LICENSOR, and any attempted assignment, transfer or extension without such consent shall be null and void. C. Any notices or requests with reference to this Agreement shall be in writing and shall be directed by one party to the other at its respective address as follows: LICENSOR Plug Power, L.L.C. Attention: President and CEO 968 Albany-Shaker Road Albany, New York 12110 LICENSEE GE FUEL CELL SYSTEMS, L.L.C. Attention: President One River Road Schenectady, NY 12345 Any party may change its address to which notices or requests shall be directed by notice to the other party, but until such change of address has been received, any notices or requests sent to the above addresses shall be effective upon transmittal and shall be considered as having been received. D. This instrument contains the entire agreement between the parties hereto regarding the use of the LICENSED MARKS, and this Agreement supersedes and cancels all previous, understandings or agreements in regard to the subject matter hereof. This Agreement may not be released or modified in any manner, orally or otherwise, except by an instrument in writing signed by duly authorized representatives of the parties hereto. E. This Agreement shall be governed by the laws of the State of New York, United States of America, without regard to its rules regarding the conflict of laws. F. Failure by LICENSOR at any time to enforce or require strict compliance with any provision of this Agreement shall not affect or impair that provision in any way or the rights of LICENSOR to avail itself of the remedies it may have in respect of any subsequent breach of that or any other provision. -7- IN WITNESS WHEREOF, LICENSOR and LICENSEE have caused this instrument to be executed in duplicate by their duly authorized representatives as of the date first written above. PLUG POWER, L.L.C. ATTEST: By: /s/ Gary Mittleman - --------------------------------- ------------------------------------- Gary Mittleman, President and CEO GE FUEL CELL SYSTEMS, LLC ATTEST: By: /s/ Barry Glickman - --------------------------------- ------------------------------------- Barry Glickman, President -8- EXHIBIT A LICENSED MARK REGISTRATION NO. ------------- ---------------- _______________ -9- EX-10.5 6 DISTRIBUTOR AGREEMENT CONFIDENTIAL INFORMATION HAS BEEN OMITTED PURSUANT TO RULE 406 UNDER THE SECURITIES ACT AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. THE LOCATIONS OF THE OMITTED INFORMATION HAVE BEEN INDICATED WITH ASTERISKS. EXHIBIT 10.5 DISTRIBUTOR AGREEMENT THIS DISTRIBUTOR AGREEMENT is made and entered into as of this 2nd day of February, 1999 (herein referred to as the "Effective Date"), between GE FUEL CELL SYSTEMS, L.L.C., a Delaware limited liability company located at 1 River Road, Schenectady, New York 12345 (hereinafter referred to as "DISTRIBUTOR"), and PLUG POWER, L.L.C., a Delaware limited liability company located at 968 Albany-Shaker Road, Latham, New York 12110 (hereinafter referred to as "SUPPLIER"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, DISTRIBUTOR and SUPPLIER intend to enter into this Agreement in order to set forth, in writing, DISTRIBUTOR's obligation to market and sell Products (defined below) and Pre-Commercial Units (defined below) and provide Services (defined below) in the Territory (defined below); and WHEREAS, the mission of DISTRIBUTOR and SUPPLIER through the term of this Agreement is to bring to customers the highest quality line of Products and Pre- Commercial Units and provide world-class Services for the purpose of increasing SUPPLIER's Product and Pre-Commercial Unit sales; NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements herein contained, the mutual benefits to be derived herefrom, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: ARTICLE I - DEFINITIONS 1.1 Affiliate. The term "Affiliate" when used herein shall mean, with --------- respect to any Person, any Person directly or indirectly controlling, controlled by, or under common control with such other Person, except that an Affiliate of SUPPLIER shall only include any Person directly or indirectly controlled by SUPPLIER. As used herein, control shall mean the ownership, either directly or by attribution, of more than 50% of the combined voting rights attributable to the equity interests of a Person or the ability, either direct or indirect, to control the composition of the majority of the Board of Directors or comparable management body of a Person. 1.2 Agreement. The term "Agreement" when used herein shall mean this --------- document and any annex, exhibit, attachment, schedule, addendum, or modification hereto, unless the context otherwise indicates. 1.3 Commencement Date. The term "Commencement Date" when used herein shall ----------------- have the meaning ascribed in Section 4.1 hereof. 1.4 Customer. The term "Customer(s)" when used herein shall mean any -------- purchaser or potential purchaser of the Products, Pre-Commercial Units, Test & Evaluation Units, or Services from DISTRIBUTOR, directly or indirectly through third parties. 1.5 GEPS. The term "GEPS" when used herein shall mean the GE Power Systems ---- business of General Electric Company. 1.6 GEPS Competitor. The term "GEPS Competitor" when used herein shall --------------- mean any of the following Persons, provided that DISTRIBUTOR may revise this list upon written notice to SUPPLIER to include additional Persons involved directly, or indirectly through an affiliate, in the manufacture, assembly, or provision of O&M services for, gas or steam turbines, regardless of origin or design: AAR Engine Group - USA; ABB - Switzerland; Advanced Materials Technologies, Inc. -USA; Aero & Industrial Technology - UK; Aetc Ltd./ - UK; Alfa Laval - UK; AlliedSignal - US; Bailey Automation PLC - UK; Baird Analtical -USA; Baker/MO Services Inc. - USA; Bales Scientific Inc. - USA; Bently Nevada -USA; Bosman Powersource B.V. - Netherlands; Boyce Engineering Int'l. Ltd. - UK; Boyce Engineering International - USA; Brush Electrical Machines Ltd. - UK; Chromalloy Gas Turbine - USA; Concepts ETI, Inc. - USA; Conmec, Inc. - USA; Cooper Energy Services - USA; Cooper Rolls - USA; Demag Delaval Turbomachinery Corp. - USA; Dresser Rand Turbo Products Division - USA; Ebara Corporation -Japan; Elbar BV- Netherlands; European Gas Turbines Ltd. - UK; Fern Engineering, Inc. - USA; Fiat Avio S.P.A. - Italy; Gas-Path Technology, Inc. - USA; Hickham Industries, Inc. - USA; Hitachi - Japan; Honeywell Solid State Electric Center -USA; HSDE -UK; IHI-Japan; John Brown / Kvearner Engineering - UK; Kawasaki -Japan; Liburdi Engineering Ltd. - Canada; Man Gutehoffnungshutte AG - Germany; Mannesmann Demag Veidichter - Germany; McGuffy Systems, Inc. - USA; Mitsubishi Heavy Industries -Japan; Moog Controls - USA; Natole Turbine Enterprises, Inc. -USA; Ormat Industries Ltd. - Israel; Petrotech, Inc. - USA; Polytec P.I. Inc. -USA; Powmat Ltd - USA; Pratt & Whitney -USA; Precision Castparts Corp. - USA; Preco Turbine Services Inc. - USA; Rolls-Royce Industrial & Marine - UK; Senior Thermal Engineering - UK; Sermatech International Inc. - USA; Siemens-Westinghouse Power Corp. - USA; Solar Turbines Incorporated - USA; SPE Mashproekt - Ukraine; Stork RMO BV - Netherlands; Sulzer Turbo - Germany; Thomassen International B.V. -Netherlands; Toshiba - Japan; Triconex Systems, Inc. - USA; Turbine Controls Ltd. - UK; Turbine Technology Services Corp. - USA; Wilson & Daleo Inc. -Canada; Wood Group Gas Turbines Ltd.- UK. 1.7 PEM Fuel Cell-Powered Generator Set. The term "PEM Fuel Cell-Powered ----------------------------------- Generator Set" when used herein shall mean a proton exchange membrane fuel cell stack packaged with a fuel processor (to convert fuel at standard available pressure and quality to fuel usable by the fuel cell stack), with a maximum continuous output no greater than 35 kW, and all of the ancillary components, systems, electronics, batteries, controls, protective relaying (e.g., over/under current, transfer switch), and enclosure(s) required to be ready for indoor or outdoor installation and operation for stand-alone or grid-interconnected stationary power applications. 1.8 Person. The term "Person" when used herein shall mean an individual, a ------ corporation, a partnership, a limited liability company, an association, a trust or other entity or organization, including a government or political subdivision or an agency or instrumentality thereof. 1.9 Pre-Commercial Unit. The term "Pre-Commercial Unit" when used herein ------------------- shall mean a 7kW output PEM Fuel Cell-Powered Generator Set manufactured by SUPPLIER and meeting the specifications outlined in Schedule B attached hereto. ---------- -2- 1.10 Product Quality and Safety Assurance Program. The term "Product -------------------------------------------- Quality and Safety Assurance Program" when used herein shall have the meaning ascribed in Section 6.8 of this Agreement. 1.11 Products. The term "Products" when used herein shall mean the PEM Fuel -------- Cell-Powered Generator Sets and other items manufactured by or on behalf of SUPPLIER described on Schedule A-1, attached hereto, and such other items which ------------ may, from time to time, be included on Schedule A-1 pursuant to the terms of ------------ this Agreement or by the mutual written consent of SUPPLIER and DISTRIBUTOR. 1.12 Proprietary Information. The term "Proprietary Information" when used ----------------------- herein shall have the meaning ascribed in Section 7.1 hereof. 1.13 Services. The term "Services" when used herein shall mean those -------- services listed on Schedule A-2 of this Agreement, attached hereto. ------------ 1.14 Term. The term "Term" when used herein shall mean the term of this ---- Agreement as defined pursuant to Section 4.1, including all extensions and renewals thereof. 1.15 Territory. The term "Territory" when used herein shall mean every --------- country, province, territory or other principality in the world, except the States of Michigan, Indiana, Ohio, and Illinois while Edison Development Corporation has exclusive rights to market and sell products similar to Products and provide services similar to Services therein. In the event that Edison Development Corporation ("EDC") shall lose all of its rights to market and sell similar products and provide similar services in the States of Michigan, Indiana, Ohio and Illinois in the United States of America (the "EDC Territory"), this definition of "Territory" shall be expanded to include the EDC Territory. In the event that EDC shall lose its exclusive rights to market and sell similar products and provide similar services in the EDC Territory, DISTRIBUTOR will have the rights to market and sell Products and provide Services in the EDC Territory on a non-exclusive basis. 1.16 Test & Evaluation Unit. The term "Test & Evaluation Unit" when used ---------------------- herein shall mean a pre-commercial version of the Product with performance (e.g., efficiency, emissions, size, noise, reliability) below that of a Pre- Commercial Unit, which is intended to demonstrate proof of concept and provide the manufacturer with field test data. ARTICLE II - APPOINTMENT AND SCOPE 2.1 Appointment. Subject to the terms and conditions and for the Term of ----------- this Agreement (as defined in Article IV hereof) SUPPLIER hereby appoints DISTRIBUTOR, and DISTRIBUTOR accepts such appointment, as SUPPLIER's distributor in the Territory to exclusively purchase, except as set forth in Section 2.2(a), Products, Pre-Commercial Units, and Test & Evaluation Units, and market and sell Products, Pre-Commercial Units, and Test & Evaluation Units to Customers for their own use or resale, and to provide Services to Customers. 2.2 Non-Compete. During the term of this Agreement and except as ----------- otherwise provided herein, -3- (a) SUPPLIER and its Affiliates shall not, directly or indirectly, market or sell PEM Fuel Cell-Powered Generator Sets, components, replacement parts, upgrades, accessories, or improvements that compete with Products, Pre- Commercial Units, or Test & Evaluation Units, market and sell the output of PEM Fuel Cell-Powered Generator Sets that compete with the Products, Pre-Commercial Units, or Test & Evaluation Units, or provide Services to Customers in the Territory, so long as, and to the extent that, DISTRIBUTOR is SUPPLIER's exclusive distributor in the Territory pursuant to this Agreement (except for sales of Test & Evaluation Units and Pre-Commercial Units to federal, state, municipal and other governmental entities, the Gas Research Institute, Electric Power Research Institute, and such other industry groups mutually agreed to by SUPPLIER and DISTRIBUTOR, to the extent such entities and groups are purchasing the units for their research and development, as opposed to purchasing the units for resale); (b) DISTRIBUTOR will utilize SUPPLIER as its sole supplier of PEM Fuel Cell-Powered Generator Sets, components, replacement parts, upgrades, accessories, and improvements therefor. 2.3 Third Parties. DISTRIBUTOR may appoint or contract with third parties ------------- (e.g., agents, distributors, sub-distributors) in connection with the marketing and sale of the Products, Pre-Commercial Units, and Test & Evaluation Units and the provision of Services, so long as any compensation to such third parties shall be the sole responsibility of DISTRIBUTOR. DISTRIBUTOR will use reasonable efforts to consult with SUPPLIER regarding any such appointments or contracts prior to entering into such appointments or contracts. 2.4 Independent Contractor Status. DISTRIBUTOR is an independent purchaser ----------------------------- and seller of the Products, Pre-Commercial Units, and Test & Evaluation Units. Nothing contained in this Agreement shall be construed to constitute DISTRIBUTOR as a partner, employee, agent or joint venturer of SUPPLIER, nor shall DISTRIBUTOR and SUPPLIER have any authority to bind the other in any respect, it being intended that each shall remain an independent contractor responsible for its own actions. Each party shall be responsible for all of its own expenses and employees, except as provided otherwise in this Agreement. 2.5 Provision of Services. To the extent SUPPLIER is engaged in providing --------------------- any Services, SUPPLIER hereby agrees to make available such Services requested by DISTRIBUTOR, in accordance with the provisions set forth in this Agreement, including Section 3.3 hereof. SUPPLIER hereby agrees that DISTRIBUTOR shall be the sole provider of Services to DISTRIBUTOR's Customers with respect to the Products and that DISTRIBUTOR may utilize any service provider to provide such Services. 2.6 Resale of Products by DISTRIBUTOR or Customer. Other than as expressly --------------------------------------------- set forth in this Agreement, the DISTRIBUTOR and its Customers shall not have any restrictions, in any manner, with respect to the resale of any Product, Pre- Commercial Unit, or Test & Evaluation Unit acquired pursuant to this Agreement, including restrictions as to the price at which they elect to resell any such Products, Pre-Commercial Units, or Test & Evaluation Units. -4- ARTICLE III - TERMS AND CONDITIONS OF SALE OF THE PRODUCTS 3.1 Product Purchase Orders; Terms and Conditions. The terms and --------------------------------------------- conditions for all orders for the Products and Pre-Commercial Units shall be subject to all of the provisions set forth in this Article III and in Schedules --------- B, C, and D, attached hereto. - ------------ 3.2 Service Orders; Terms and Conditions. The terms and conditions for all ------------------------------------ orders for the provision of Services shall be subject to all the provisions set forth in this Article III, in Schedule B, and as otherwise negotiated between ---------- the parties. 3.3 Prices; Products and Services. ----------------------------- (a) The prices charged to DISTRIBUTOR for all Products purchased hereunder shall be the lower of (i) those prices set forth on Schedule C, ---------- attached hereto, or (ii) the lowest prices charged by SUPPLIER to any other purchaser for the same such Product in similar quantities during the four months preceding an order. To the extent that SUPPLIER's direct cost per unit for the Products exceeds that set forth on Schedule C, SUPPLIER and DISTRIBUTOR shall ---------- agree to an increase in the price to DISTRIBUTOR and a decrease to DISTRIBUTOR's Sales Commitments. If SUPPLIER and DISTRIBUTOR cannot reach such agreements, then this Agreement shall terminate. The prices charged to DISTRIBUTOR for all Pre-Commercial Units purchased hereunder shall be those prices set forth on Schedule C, and such prices are not subject to adjustment even if SUPPLIER sells - ---------- Pre-Commercial Units to another purchaser at a lower price. (b) The prices charged to DISTRIBUTOR for all Services ordered hereunder shall be the lowest prices charged by SUPPLIER to any other person or entity, other than Edison Development Corporation or an affiliate thereof, for the same such Services in similar quantities during the four months preceding an order, provided, however, in the event that any Services are included in -------- ------- the price of a Product or Pre-Commercial Unit or are not charged for, a reasonable price allocation shall be made with respect to such Services for purposes of this pricing formula. (c) All prices for the Products, Pre-Commercial Units, Test & Evaluation Units, and Services shall be expressed in United States Dollars. All payments for Products, Pre-Commercial Units, Test & Evaluation Units, and Services shall be made in United States Dollars. (d) To the extent DISTRIBUTOR assists SUPPLIER in sourcing components for the manufacturing of Products or Pre-Commercial Units, DISTRIBUTOR will receive 50% of any savings realized by SUPPLIER, for components of like quality and quantity, where savings is defined as the difference between the best quote obtained by SUPPLIER and the quote obtained by DISTRIBUTOR. DISTRIBUTOR's share of any savings will be applied as a credit against DISTRIBUTOR's purchases of Products or Pre-Commercial Units from SUPPLIER. ARTICLE IV - TERM AND TERMINATION 4.1 Term. Except as otherwise provided in this Agreement, the term of this ---- Agreement shall begin thirty (30) days after the execution of this Agreement (the "Commencement Date") and shall continue -5- for a five (5) year term ending on the fifth anniversary of the Commencement Date. The parties intend to negotiate an amendment to this Agreement which shall set forth purchase prices for Products and DISTRIBUTOR's purchase commitments for the period beyond the initial term. SUPPLIER and DISTRIBUTOR will initiate negotiations on the amendment no later than January 1, 2002. 4.2 Termination for Cause. This Agreement shall terminate immediately in --------------------- the event that DISTRIBUTOR is dissolved or the Limited Liability Company Agreement under which DISTRIBUTOR is governed terminates, whichever occurs first. This Agreement may be terminated by a party hereto prior to expiration of the initial five (5) year term or any renewal term hereof by furnishing prior written notice to the other party, as follows: (a) Termination by a party, in the event the other party should fail to perform any of its obligations hereunder and such failure results in a material adverse effect to the terminating party, provided such other party shall fail to remedy any such nonperformance within 120 days after receiving written demand therefor, except as otherwise specified in Schedule D; ---------- (b) Termination by a party, if the other party should become a subject of any voluntary or involuntary bankruptcy, settlement, receivership, reorganization or other insolvency proceedings, unless such proceedings are terminated within one month from their formal opening; or (c) Termination by a party, if the other party should attempt to sell, assign (in violation of this Agreement), delegate or transfer any of its rights and obligations under this Agreement without having obtained the other party's prior written consent thereto. 4.3 Rights of Parties on Termination or Expiration. The following ---------------------------------------------- provisions shall apply on the termination or expiration of this Agreement (the date of termination or expiration being the "Termination Date"): (a) DISTRIBUTOR shall cease all purchases from SUPPLIER and shall return to SUPPLIER and immediately cease all use of Confidential Information previously furnished by SUPPLIER and then in DISTRIBUTOR's possession; provided, -------- however, notwithstanding the forgoing, (i) SUPPLIER shall fulfill any and all - ------- orders for Products, Pre-Commercial Units or Services firmly committed to by DISTRIBUTOR, in accordance with Schedule D, and (ii) DISTRIBUTOR shall have the ---------- right to continue to use such Confidential Information in connection with such orders. SUPPLIER shall return to DISTRIBUTOR and immediately cease all use of any Confidential Information previously furnished by DISTRIBUTOR, except as needed to fulfill orders for Products, Pre-Commercial Units or Services firmly committed to by DISTRIBUTOR, in accordance with Schedule D. ---------- (b) Except as otherwise provided herein, all rights granted to DISTRIBUTOR under or pursuant to this Agreement shall cease, and where appropriate, revert to SUPPLIER; similarly, all rights granted to SUPPLIER under or pursuant to this Agreement shall cease, and where appropriate, revert to DISTRIBUTOR. (c) The provisions of this Agreement that are expressed to survive this Agreement or to apply notwithstanding termination or expiration hereof shall be followed by the parties hereto. -6- (d) Termination or expiration of this Agreement shall not prejudice or otherwise affect the rights or liabilities of the parties with respect to the Products, Pre-Commercial Units or Services theretofore sold or rendered hereunder, or any indebtedness then owing by either party to the other; nor shall termination or expiration relieve the parties of any obligations imposed by the provisions of this Agreement which are expressed to survive the termination or expiration of this Agreement or any liability for damages resulting from breach of such provisions. ARTICLE V - OBLIGATIONS OF DISTRIBUTOR 5.1 Sales and Promotion; Services; Facilities, Personnel and Advertising. -------------------------------------------------------------------- DISTRIBUTOR shall (a) use best efforts to market and sell Products and Pre- Commercial Units and provide Services within the Territory; and (b) maintain, at its own expense, such office space and facilities, and hire and train such personnel as DISTRIBUTOR may deem necessary to carry out its obligations under this Agreement. DISTRIBUTOR will use its best efforts to market and sell Products and Pre-Commercial Units in the manner that its Affiliates market and sell similar products, and to provide Services to ensure a level of customer service consistent with that provided for other GE-branded products, taking into consideration the lower sales volumes of Products and Pre-Commercial Units. Within 60 days after the effective date of this Agreement, SUPPLIER and DISTRIBUTOR will mutually agree to a marketing and Services development schedule for the period ending December 31, 2000, which will include milestones and objective measures of progress towards the January 1, 2001, Product release. SUPPLIER and DISTRIBUTOR will meet not less than quarterly for the purpose of evaluating DISTRIBUTOR's progress against the development schedule. 5.2 Purchase Volume Goal. During the Term of this Agreement, DISTRIBUTOR -------------------- shall use its best efforts to achieve minimum Global Sales Commitments and Major Market Sales Commitments as defined and specified in Schedule D. DISTRIBUTOR ---------- shall provide SUPPLIER with a 12-month rolling forecast of monthly purchases in accordance with Schedule D. In the event that DISTRIBUTOR fails to achieve the ---------- minimum purchase volume goals set forth in Schedule D, SUPPLIER may appoint ----------- additional distributors and/or terminate this Agreement under the provisions specified in Schedule D. In the event that SUPPLIER appoints any additional ---------- distributors pursuant to the preceding sentence, DISTRIBUTOR may terminate this Agreement upon 120 days written notice. 5.3 Expenses. Except as otherwise provided in this Agreement, DISTRIBUTOR -------- shall bear all expenses associated with DISTRIBUTOR's marketing and sale of Products and Pre-Commercial Units and provision of Services under this Agreement. 5.4 DISTRIBUTOR Intelligence. DISTRIBUTOR shall make intelligence (e.g., ------------------------ Product applications, customer demand) related to the sale and use of Products and Pre-Commercial Units to Customers available to SUPPLIER (collectively, "DISTRIBUTOR Intelligence"). 5.5 Pre-Commercial Units. DISTRIBUTOR shall purchase, on a take or pay -------------------- basis, 485 Pre-Commercial Units, as specified in Schedule B, for delivery by ---------- December 31, 2000, at a purchase price of [***] per unit, with no more than 250 units to be delivered in any one quarter. One-fourth of the purchase price shall be paid to SUPPLIER as a deposit six months prior to delivery but no earlier than January 1, 2000, and the balance of the purchase price shall be paid on delivery. To the extent CONFIDENTIAL INFORMATION HAS BEEN OMITTED PURSUANT TO RULE 406 UNDER THE SECURITIES ACT AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. THE LOCATIONS OF THE OMITTED INFORMATION HAVE BEEN INDICATED WITH ASTERISKS. -7- DISTRIBUTOR elects to purchase units available prior to the Pre-Commercial Units, DISTRIBUTOR's purchases will be credited against its take-or-pay commitment on a dollar-for-dollar basis (e.g., if DISTRIBUTOR purchases $1,000,000 of Test & Evaluation Units available in 1999, DISTRIBUTOR'S take-or- pay commitment on the Pre-Commercial Units will be reduced by $1,000,000). DISTRIBUTOR will make reasonable efforts to have its Customers for Pre- Commercial Units perform certain testing as prescribed by SUPPLIER, provide SUPPLIER with all data generated by such testing, and provide SUPPLIER with reasonable on-site access to the Pre-Commercial Units. 5.6 Assistance. DISTRIBUTOR shall, if required by SUPPLIER, provide ---------- SUPPLIER with reasonable access to and assistance of its sales and marketing personnel. Such assistance shall be without charge to SUPPLIER except as may be otherwise mutually agreed. 5.7 Regulatory Approvals. In conjunction with SUPPLIER's obligations in -------------------- Section 6.6, DISTRIBUTOR shall be responsible for the administration and field work necessary to obtain any regulatory approvals for DISTRIBUTOR to conduct its operations in the Territory. DISTRIBUTOR shall provide assistance to SUPPLIER in order to assist SUPPLIER in complying with registration requirements in the Territory, obtain such other approvals from governmental authorities of the Territory as may be necessary to comply with any and all governmental laws, regulations, and orders that may be applicable to DISTRIBUTOR by reason of the execution of this Agreement, and assist SUPPLIER in taking those actions necessary for DISTRIBUTOR to be registered as SUPPLIER's independent distributor with any governmental authority. Without limiting the foregoing, DISTRIBUTOR shall furnish SUPPLIER with such documentation as SUPPLIER may request to confirm DISTRIBUTOR's compliance with this Section, and DISTRIBUTOR agrees that it shall not engage in any course of conduct that would cause SUPPLIER to be in violation of the laws of any jurisdiction within the Territory. DISTRIBUTOR shall comply fully with, and shall be solely responsible for, all safety standards, health code requirements and regulations, specifications, and other requirements imposed by law, regulation, or order in the Territory and applicable to the marketing and sale of the Products and Pre-Commercial Units, and to the provision of Services provided by DISTRIBUTOR. ARTICLE VI - OBLIGATIONS OF SUPPLIER 6.1 Sales Support. SUPPLIER shall, at its expense, provide DISTRIBUTOR ------------- with reasonable amounts of technical materials (e.g., drawings, schematics, installation manuals, operating procedures, available marketing materials, field test results, training materials) and available information regarding product applications and customer demand pertaining to the Products and Pre-Commercial Units as are requested by DISTRIBUTOR from time to time. All such information and materials will be furnished in the English language. 6.2 Notification of Changes. SUPPLIER shall notify DISTRIBUTOR of any ----------------------- material changes in or affecting the Products, Pre-Commercial Units, projected delivery dates and schedule changes that may reasonably be expected to affect the business of DISTRIBUTOR; provided, that no such notification shall relieve -------- SUPPLIER of any of its obligations hereunder. 6.3 Assistance. SUPPLIER shall, if required by DISTRIBUTOR, provide ---------- DISTRIBUTOR with reasonable access to and assistance of its technical support personnel. Such assistance shall be without charge to DISTRIBUTOR except as may be otherwise mutually agreed. -8- 6.4 Insurance. SUPPLIER shall maintain in effect at all times product --------- liability insurance with policy limits as described in Schedule E attached ---------- hereto, as such exhibit may be revised from time to time upon the mutual agreement of SUPPLIER and DISTRIBUTOR, and DISTRIBUTOR shall be named as an additional insured to each such policy. In the event that SUPPLIER cannot obtain such insurance on commercially reasonable terms, SUPPLIER shall notify DISTRIBUTOR, and DISTRIBUTOR may terminate this Agreement. 6.5 Third Party Inquiries. If SUPPLIER is contacted, or has been --------------------- contacted, by third parties concerning purchase of the Products by Customers in the Territory, SUPPLIER will use its best efforts to refer such persons to DISTRIBUTOR, provided that SUPPLIER has not named any additional distributors to the relevant market area in accordance with this Agreement. 6.6 Governmental Approvals; Compliance. SUPPLIER shall comply with all ---------------------------------- registration requirements in the Territory that are applicable to SUPPLIER, obtain such other approvals from governmental authorities of the Territory as may be necessary to comply with any and all governmental laws, regulations, and orders that may be applicable to SUPPLIER by reason of the execution of this Agreement, and take those actions necessary for DISTRIBUTOR to be registered as SUPPLIER's independent distributor with any governmental authority. At DISTRIBUTOR's request, SUPPLIER shall perform all tests for all certifications (regulatory or otherwise) required to certify use of the Products and Pre- Commercial Units sold by DISTRIBUTOR for stand-alone and/or grid-interconnected stationary power applications. Without limiting the foregoing, SUPPLIER shall furnish DISTRIBUTOR with such documentation as DISTRIBUTOR may request to confirm SUPPLIER's compliance with this Section, and SUPPLIER agrees that it shall not engage in any course of conduct that would cause DISTRIBUTOR to be in violation of the laws of any jurisdiction within the Territory. If the cost of compliance with regulatory requirements outside of the U.S. causes SUPPLIER's direct cost per unit to exceed SUPPLIER's direct cost as shown on Schedule C, ---------- then SUPPLIER and DISTRIBUTOR will mutually agree to adjust the prices as shown on Schedule C, and the Sales Commitments as shown on Schedule D, for any units ---------- ---------- purchased by DISTRIBUTOR for sale outside of the U.S. that require such compliance. 6.7 Production Capability; Minimum Volume. ------------------------------------- (a) SUPPLIER will use best efforts to maintain a minimum annual Product supply of [***] units per year in "2001," as defined in Schedule D, plus ---------- any additional capacity required to fill any of DISTRIBUTOR'S firm purchase orders; provided that DISTRIBUTOR stays on schedule, as determined in good faith by SUPPLIER, in developing the infrastructure necessary to market, sell, and provide Services to such volume of Products; and provided further that SUPPLIER will not be obligated to increase Product supply by more than 100% between any two quarters, and, in any event, SUPPLIER will not be obligated to increase Product supply beyond the Global Sales Commitments. (b) SUPPLIER will use best efforts to produce 485 Pre-Commercial Units during the year 2000, and use best efforts to front load production in the first half of the year. (c) [***] CONFIDENTIAL INFORMATION HAS BEEN OMITTED PURSUANT TO RULE 406 UNDER THE SECURITIES ACT AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. THE LOCATIONS OF THE OMITTED INFORMATION HAVE BEEN INDICATED WITH ASTERISKS. -9- 6.8 Legal Standards. SUPPLIER shall comply fully with, and shall be solely --------------- responsible for, all safety standards, health code requirements and regulations, specifications, and other requirements imposed by law, regulation, or order in the Territory, that are applicable to the design, manufacturing, and testing of the Products and Pre-Commercial Units and the provision of Services by SUPPLIER. SUPPLIER shall establish and maintain a program, to the mutual satisfaction of SUPPLIER and DISTRIBUTOR, in order to create ongoing product design, manufacturing, testing, inspection, and other safety and quality-related processes that are adequate to assure the safety and reliability of SUPPLIER's Products and Pre-Commercial Units (the "Product Quality and Safety Assurance Program"). 6.9 [***] 6.10 [***] ARTICLE VII - CONFIDENTIAL INFORMATION AND PROPRIETARY RIGHTS 7.1 Confidentiality. SUPPLIER and DISTRIBUTOR agree to follow the --------------- following requirements regarding confidentiality: (a) Each party hereto expects to furnish to the other party certain confidential information which will constitute trade secrets or other proprietary business or technical information belonging to the disclosing party (including, but not limited to, components, processes, financial information, drawings, specifications and other data, whether in written, printed, oral or other form) and will be marked "Confidential" or "Proprietary" (such information is hereinafter referred to as "Confidential Information") at the time it is disclosed. Oral information which is confidential or proprietary shall be reduced to writing by the disclosing party within ten (10) working days after disclosure, which writing shall CONFIDENTIAL INFORMATION HAS BEEN OMITTED PURSUANT TO RULE 406 UNDER THE SECURITIES ACT AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. THE LOCATIONS OF THE OMITTED INFORMATION HAVE BEEN INDICATED WITH ASTERISKS. -10- specifically reference the date of disclosure and otherwise conform to the requirements of this paragraph. Any information which is disclosed in any other manner shall be deemed to be non-confidential. The receiving party shall not disclose Confidential Information to anyone except its employees who have a need to know such Confidential Information in order to perform their work and shall inform such individuals of the confidential nature of the Confidential Information. Subject to the provisions of subsection (b), below, the receiving party shall use the Confidential Information only for the purpose of such work and shall use efforts to protect the confidentiality of such Confidential Information commensurate with those which it employs for the protection of its own confidential information, but it shall not be liable for unauthorized revelations of such Confidential Information which occur in spite of such efforts. (b) Notwithstanding the provisions of subsection (a) above, (i) the receiving party shall not be subject to any restriction hereunder with respect to any part of such Confidential Information which appears in issued patents or publications, which is known or becomes generally known to the relevant public through no fault of the receiving party, which is independently generated by the receiving party without use of the Confidential Information, which is furnished to others by the disclosing party without restriction on disclosure, which was or becomes known to the receiving party through other sources free of any confidentiality restriction, which must be disclosed by requirements of law or valid legal or regulatory process, in which case the party intending to make such disclosure shall notify the party which designated the material as confidential in advance of any such disclosure and reasonably cooperate with any attempt to maintain the confidentiality of such materials; and (ii) any and all restrictions with respect to Confidential Information provided hereunder will expire three (3) years after the date that such Confidential Information is disclosed to the receiving party. (c) When one party no longer desires to use the Confidential Information of another party, it shall return to the other party any such Confidential Information and shall destroy all copies of such Confidential Information with the exception of one copy which may be retained exclusively for the purpose of documenting the disclosures made hereunder. (d) The receiving party will restrict access to any Confidential Information made available or disclosed by the disclosing party to the receiving party hereunder only to those employees of the receiving party with a need to know such information in performance of their jobs with the receiving party. 7.2 SUPPLIER's Trademark. All of the Products and Pre-Commercial Units -------------------- sold by DISTRIBUTOR shall bear one or more of SUPPLIER's trademarks, copies of which are set forth on Schedule F, attached hereto. Such trademarks shall be ---------- affixed to the Products and Pre-Commercial Units by SUPPLIER, in a manner to be mutually determined, with the understanding that SUPPLIER's trademarks will be readily visible, but less prominent than DISTRIBUTOR's trademarks. All resulting use of SUPPLIER's trademarks shall inure solely to the benefit of SUPPLIER. DISTRIBUTOR shall not directly or indirectly use SUPPLIER's trademarks (or part thereof), or any mark or name confusingly similar thereto, as part of its corporate or business name, except that (a) DISTRIBUTOR shall co-brand (i.e., affixing DISTRIBUTOR's Trademark (defined below), a copy of which is also set forth on Schedule F, to a Product or Pre-Commercial Unit that also bears the ---------- trademark of SUPPLIER) each of the Products and Pre-Commercial Units with its own trademark or otherwise identify itself as an "authorized distributor" of SUPPLIER and (b) DISTRIBUTOR shall use SUPPLIER's trademarks relating to the Products and Pre-Commercial Units, for display, promotional, or advertising purposes in connection with solicitation of orders for Products and Pre- Commercial Units from -11- Customers in the Territory and in any other manner approved by SUPPLIER in writing. In addition, DISTRIBUTOR shall not register or attempt to register any of SUPPLIER's trademarks or any mark or name closely resembling them, unless requested to do so by SUPPLIER in writing. SUPPLIER represents and warrants to DISTRIBUTOR that (a) SUPPLIER's trademarks pertaining to the Products and Pre-Commercial Units are subject to and protected by United States trademark law, applications for registration of trademarks pertaining to the Products and Pre-Commercial Units have been filed in the United States, and similar applications will be filed by SUPPLIER in other countries of the Territory designated by DISTRIBUTOR; provided that in the event that SUPPLIER does not agree to file any such application in any country or other jurisdiction in the Territory, DISTRIBUTOR shall, in SUPPLIER's sole discretion, (i) sell the Products or Pre-Commercial Units in such country or other jurisdiction without SUPPLIER's trademark affixed, (ii) sell the Products or Pre-Commercial Units in such country or other jurisdiction with a different SUPPLIER trademark affixed (in which event, all of SUPPLIER's representations, warranties, covenants, and indemnities herein shall apply to such substitute trademark and the use thereof), or (iii) continue to sell the Products and Pre- Commercial Units in such country or other jurisdiction with SUPPLIER's trademark affixed (in which event, SUPPLIER shall indemnify DISTRIBUTOR against any and all damages resulting from such sale in accordance with Sections 7.4 and 8.1(f); (b) to SUPPLIER's knowledge, the trademarks set forth on Schedule F are owned by ---------- SUPPLIER; (c) to SUPPLIER's knowledge, SUPPLIER owns free and clear of any mortgage, security interest, financing statement, royalty obligation, lien, encumbrance, charge, option, equity or restriction, all right, title and interest in and to the trademarks set forth on Schedule F and all patents that ---------- it owns or uses in connection with the Products and Pre-Commercial Units as of the date hereof (except for a patent royalty obligation to the Los Alamos National Laboratory); and (d) to SUPPLIER's knowledge, none of such trademarks or patents infringes any existing intellectual property right of any third party and there are no trademarks or trademark applications included in such intellectual property rights which are invalid or unenforceable. 7.3 Intellectual Property. Each party's patents, trademarks, trade names, --------------------- inventions, copyrights, know-how, trade secrets, licensed rights or other intellectual property rights ("Intellectual Property") now in existence or - hereafter lawfully acquired or developed by such party shall not be deemed to be transferred to any other party by virtue of this Agreement. DISTRIBUTOR shall not have the right pursuant to this Agreement to manufacture, duplicate, or otherwise copy or reproduce any of the Products, Pre-Commercial Units, or any parts thereof. The use by either party of any Intellectual Property of the other party is authorized only for the purposes herein set forth; and upon termination of this Agreement for any reason, such authorization shall cease. Notwithstanding the foregoing provisions of this Section 7.3, DISTRIBUTOR hereby grants to SUPPLIER a perpetual non-exclusive, non-transferable, irrevocable, royalty-free, fully paid up license to use Product information regarding market size, demographics, demand, segmentation, design parameters sought by the market, and contact information (names, addresses, telephone numbers) for customers, resellers, service providers, code bodies, and similar information acquired or developed by DISTRIBUTOR under this Agreement. 7.4 DISTRIBUTOR's Trademark. At the election of DISTRIBUTOR, SUPPLIER ----------------------- shall (a) identify DISTRIBUTOR as an "authorized distributor" of SUPPLIER, (b) affix to the Products and Pre-Commercial Units the General Electric Company trademark licensed to DISTRIBUTOR ("DISTRIBUTOR's Trademark") as directed by DISTRIBUTOR for the purpose of co-branding Products and Pre-Commercial Units sold by DISTRIBUTOR (i.e., affixing DISTRIBUTOR's Trademark to a Product or Pre- Commercial Unit that also bears the trademark of SUPPLIER), and (c) permit DISTRIBUTOR's marketing and selling of co-branded Products -12- and Pre-Commercial Units. In the event that DISTRIBUTOR elects not to have SUPPLIER affix DISTRIBUTOR's Trademark to the Products and Pre-Commercial Units, DISTRIBUTOR will affix DISTRIBUTOR's Trademark to the Products and Pre- Commercial Units. DISTRIBUTOR shall use DISTRIBUTOR's Trademarks for display, promotional, or advertising purposes in connection with solicitation of orders for Products and Pre-Commercial Units from Customers in the Territory. The only Products and Pre-Commercial Units that may bear DISTRIBUTOR's Trademark are those that are sold by DISTRIBUTOR. SUPPLIER acknowledges that it is not authorized to use DISTRIBUTOR's Trademark for any purpose unless expressly permitted in writing to do so by DISTRIBUTOR. All resulting use of DISTRIBUTOR's Trademark shall inure solely to the benefit of General Electric Company. DISTRIBUTOR represents and warrants to SUPPLIER that (a) DISTRIBUTOR's Trademark is subject to and protected by United States trademark law; (b) to DISTRIBUTOR's knowledge, DISTRIBUTOR's Trademark is owned by General Electric Company, and DISTRIBUTOR has a valid license to use DISTRIBUTOR's Trademark; (c) to DISTRIBUTOR's knowledge, General Electric Company owns free and clear of any mortgage, security interest, financing statement, royalty obligation, lien, encumbrance, charge, option, equity or restriction, all right, title and interest in and to DISTRIBUTOR's Trademark set forth on Schedule F; and (d) to ---------- DISTRIBUTOR's knowledge, DISTRIBUTOR's Trademark does not infringe on any existing intellectual property right of any third party and is not invalid or unenforceable. 7.5 Protection of Intellectual Property. In addition to any obligation ----------------------------------- SUPPLIER may have under Article VIII hereof, SUPPLIER shall take all actions reasonably necessary to enforce and protect its trademarks, patents, and Intellectual Property Rights relating to the Products and Pre-Commercial Units. Without limiting the generality of the foregoing, SUPPLIER shall defend and indemnify DISTRIBUTOR against any suit, claim, or proceeding brought against DISTRIBUTOR that is based on a claim that any trademark owned or used by SUPPLIER directly in connection with any Product, Pre-Commercial Unit, or any part thereof (except for DISTRIBUTOR's Trademark), as such trademark was affixed to such Product, Pre-Commercial Unit, or part thereof in accordance with Section 7.2, infringes any intellectual property right of any third party in any country or other jurisdiction in the Territory, if notified promptly in writing and given authority, information, and assistance (at SUPPLIER's expense) for the defense of same, and provided that such infringement did not arise as a result of DISTRIBUTOR's unauthorized use of such trademark. SUPPLIER shall pay all damages and costs awarded with respect to any suit, claim, or proceeding for which SUPPLIER is required to provide indemnification pursuant to this Section 7.5. Without limiting the generality of the foregoing, SUPPLIER shall defend and indemnify DISTRIBUTOR against any suit, claim or proceeding brought against DISTRIBUTOR that is based on a claim that any Product or Pre-Commercial Unit, or any part thereof, furnished under this Agreement, as well as any device or process necessarily resulting from the use thereof, constitutes an infringement of any patent of the United States (or any other country or other jurisdiction in the Territory), if notified promptly in writing and given authority, information, and assistance (at SUPPLIER's expense) for the defense of same, and provided that such infringement did not arise as a result of (a) DISTRIBUTOR's developments, misuse, or modifications that were not approved by SUPPLIER, or (b) DISTRIBUTOR's combination, operation, or use with devices, data, equipment, systems, programs, or products not furnished by SUPPLIER, contemplated by the specifications in Schedule B, or approved by SUPPLIER, SUPPLIER shall pay all ---------- damages and costs awarded with respect to any suit, claim, or proceeding for which SUPPLIER is required to provide indemnification pursuant to this Section 7.5. In the event a claim is made or appears likely to be made that any Product or Pre-Commercial Unit, or any part thereof, furnished under this Agreement, as well as any device or process necessarily resulting from the use thereof, infringes upon a third party's patent, SUPPLIER shall, at its own expense and at its option, and in -13- addition to all other rights or remedies which the DISTRIBUTOR may have pursuant to this Agreement, (a) procure for DISTRIBUTOR the right to continue using said Product, Pre-Commercial Unit, part, device, or process; (b) replace same with a non-infringing equivalent; or (c) remove said Product, Pre-Commercial Unit, part, device, or process and refund the purchase price and the transportation and installation costs thereof. ARTICLE VIII - INDEMNIFICATION 8.1 SUPPLIER's Indemnification of DISTRIBUTOR. SUPPLIER agrees to ----------------------------------------- indemnify, defend and hold the DISTRIBUTOR, its officers, directors, employees, successors, and permitted assigns harmless against all third party claims, losses, costs, liabilities, judgments, damages, or expenses of whatever form or nature, including attorneys' fees and other costs of legal defense, whether direct or indirect, that they, or any of them, may sustain or incur as a result of any acts or omissions (except for acts or omissions caused by the acts or omissions of DISTRIBUTOR) of SUPPLIER or any of its directors, officers, employees, Affiliates, or agents, including, but not limited to, (a) material breach of any of the provisions of this Agreement; (b) negligence or other tortious conduct; (c) representations or warranties made by SUPPLIER herein; (d) violation by SUPPLIER or any of its directors, officers, employees, agents, dealers, or subdistributors of any applicable law, regulation, or order of the United States of America or of other countries in the Territory or other applicable law; (e) competition by SUPPLIER or any of its Affiliates in the Territory; (f) trademark infringement claims brought against DISTRIBUTOR pertaining to DISTRIBUTOR's use of SUPPLIER's trademarks in accordance with Section 7.5 hereof; or (g) patent infringement claims brought against DISTRIBUTOR in accordance with Section 7.5 hereof. 8.2 DISTRIBUTOR's Indemnification of SUPPLIER. DISTRIBUTOR agrees to ----------------------------------------- indemnify, defend and hold the SUPPLIER, its officers, directors, employees, successors, and permitted assigns harmless against all third party claims, losses, costs, liabilities, judgments, damages, or expenses of whatever form or nature, including attorneys' fees and other costs of legal defense, whether direct or indirect, that they, or any of them, may sustain or incur as a result of any acts or omissions (except for acts or omissions caused by the acts or omissions of SUPPLIER) of the DISTRIBUTOR or any of its directors, officers, employees, Affiliates, or agents, including, but not limited to, (a) material breach of any of the provisions of this Agreement; (b) negligence or other tortious conduct; (c) representations or warranties made by DISTRIBUTOR herein; (d) violation by DISTRIBUTOR or any of its directors, officers, employees or agents, agents, dealers, or sub-distributors of any applicable law, regulation, or order of the United States of America or of other countries in the Territory or other applicable law; (e) competition by DISTRIBUTOR in the Territory; or (f) trademark infringement claims brought against SUPPLIER pertaining to DISTRIBUTOR's Trademark. 8.3 Scope of Indemnity. The parties' foregoing obligations to indemnify ------------------ each other shall include, but not be limited to, indemnification against all expenses, including reasonable attorneys' and paralegals' fees at trial, on appeal or otherwise, incurred in investigating and/or defending against any claims, actions or liabilities for which indemnification is provided herein. Each party hereto agrees to defend the other party hereto against any and all claims, actions, and liabilities for which indemnification is provided herein, whether such claims or actions are rightfully or wrongfully brought or filed. Each party hereto further agrees to pay the amount of any compromise or settlement. No indemnifying party shall be required to pay the indemnified party any amount under this Article VIII unless and until the aggregate of such amounts payable to such indemnified party shall reach $25,000, at which time the indemnifying party shall become responsible for all such amounts (including the initial $25,000); and the indemnification obligations of each party hereunder shall -14- be limited to $1,000,000; provided, that this sentence shall not apply to the indemnification obligations set forth in Section 8.1 (f) and (g) and Section 8.2 (f). The foregoing indemnification shall not in any manner limit a party's legal remedies under applicable law against the other party for breaches of this Agreement. ARTICLE IX - GENERAL PROVISIONS 9.1 Disclosure. This Agreement may be discussed with, shown to, and filed ---------- with any government agency or official as determined to be appropriate by either party, so long as the party making such disclosure, filing or discussion of this Agreement provides the other party with ten (10) days prior written notice of such proposed action. 9.2 Waiver. Each party agrees that the failure of the other party at any ------ time to require performance of any of the provisions herein shall not operate as a waiver of the right of the other party to request strict performance of the same or like provisions, or any other provisions hereof, at a later time. 9.3 Expenses. Except as otherwise provided herein, each party hereto shall -------- bear its own costs and expenses associated with the negotiation, preparation, delivery and performance of this Agreement. 9.4 Notices and Consents. All notices or consents hereunder shall be in -------------------- the English language and shall be in writing and shall be deemed given (a) when delivered personally, (b) five (5) days after deposit, postage prepaid, if mailed by registered or certified mail, return receipt requested, or (c) upon transmission if transmitted by telex or facsimile (with an electronic confirmation thereof to the transmitter), to the parties at their respective addresses set forth in the preamble of this Agreement (or at such other address for a party as shall be specified by notice given hereunder): If to SUPPLIER: PLUG POWER, L.L.C. 968 Albany-Shaker Road Latham, New York 12110 Attn: Mr. Gary Mittleman If to DISTRIBUTOR: GE FUEL CELL SYSTEMS, L.L.C. 1 River Road Schenectady, New York 12345 Attn: Mr. Barry Glickman 9.5 Severability of Provisions. Wherever possible, each provision of this -------------------------- Agreement shall be interpreted in such manner as to be effective and valid, but if any provision of this Agreement shall be prohibited by applicable law, unenforceable in any jurisdiction or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition, unenforceability, or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement, or affecting the validity or enforceability of such provision in any other jurisdiction. 9.6 Survival. Sections 4.3, 6.6 and 6.8 and Articles VII, VIII and IX of -------- this Agreement shall continue and survive the termination hereof. -15- 9.7 Language. The English language text, and American usage thereof, shall -------- govern and control the interpretation of this Agreement and all writings between the parties. 9.8 Entire Agreement; Amendment. This Agreement (including the exhibits --------------------------- hereto and all documents and papers delivered pursuant hereto and any written amendments hereof executed by the parties to this Agreement, as specified herein) constitutes the entire agreement and supersedes all prior agreements and understandings, oral and written, among the parties hereto with respect to the subject matter hereof, it being understood and agreed that any business plan that may hereafter be compiled or delivered shall be for informational purposes only and shall not constitute any representation, warranty or covenant of DISTRIBUTOR or SUPPLIER and shall not be deemed to be a part of this Agreement. No course of prior dealings between the parties and no usage of trade shall be relevant or admissible to supplement, explain or vary any of the terms of this Agreement. This Agreement may be amended only by written agreement executed by all of the parties hereto. Time is of the essence of this Agreement and each of its provisions, and no extension of any time period shall be binding upon any of the parties hereto unless expressly provided herein or in writing and signed by all of the parties hereto. 9.9 Governing Law. The validity, construction, interpretation and ------------- performance of this Agreement and all transactions under it shall be governed by the laws of the State of New York exclusively (except that if any choice of law provision under New York law would result in the application of the law of a state or jurisdiction other than New York, such provision shall not apply). The parties hereto expressly agree and acknowledge that the United Nations Convention for the International Sale of Goods shall not apply to this Agreement. 9.10 Miscellaneous. This Agreement may be executed in any number of ------------- counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. The parties hereto shall execute and deliver, or cause to be executed and delivered, such additional or further transfers, assignments, endorsements or other instruments as the other party or its counsel may reasonably request from time to time for purposes of carrying out the transactions contemplated by this Agreement. The article and section headings contained herein are for reference only and shall not be considered as substantive parts of this Agreement. The use of the singular or plural form shall include the other form and the use of the masculine, feminine or neutered gender shall include the other gender. The words "hereof," "herein," and "hereunder" and words of similar import when used in this Agreement, shall refer to this Agreement as a whole, including all exhibits hereto, and not to any particular provision of this Agreement unless otherwise specified; all references herein to paragraphs, sections, schedules or exhibits shall refer to paragraphs or sections of this Agreement, or schedules or exhibits to this Agreement. The parties hereto acknowledge and agree that the recitals immediately following the preamble of this Agreement are true and correct and are incorporated herein as a part of this Agreement. This Agreement shall be binding upon the parties hereto and their successors and permitted assigns and shall inure to the benefit of their successors and permitted assigns. 9.12 Force Majeure. If the performance by either party of any non-monetary ------------- obligation under this Agreement is delayed or prevented in whole or in part by any cause not reasonably within its control (including, without limitation, acts of God, war, civil disturbances, accidents, damage to its facilities, labor disputes, acts of any governmental body not attributable to such party's failure to comply with this Agreement, or failure or delay of third parties), it shall be excused, discharged, and released of performance to the extent -16- such performance is so limited or prevented, without liability of any kind. Each party shall use its reasonable efforts to minimize the duration and consequences of any failure of or delay in performance resulting from a "Force Majeure" event. 9.13 Limitation of Liability. In no case will SUPPLIER or DISTRIBUTOR be ----------------------- liable to the other for special, incidental, or consequential damages, including, but not limited to, personal injury, property damage, loss of profit or revenues, or business interruption arising out of the manufacture, marketing, distribution, sale, or supplying of the Products, Pre-Commercial Units, or Services. IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. SUPPLIER: PLUG POWER, L.L.C. By:/s/ Gary Mittleman ------------------------------------------ Gary Mittleman, President & CEO DISTRIBUTOR: GE FUEL CELL SYSTEMS, L.L.C. By: /s/ Barry Glickman ------------------------------------------ Barry Glickman, President -17- TABLE OF SCHEDULES ------------------ Schedule A-1 - Products - ------------ Schedule A-2 - Services - ------------ Schedule B - Terms and Conditions of Purchase/Sale; Specifications - ---------- Schedule C - Product and Pre-Commercial Unit Prices - ---------- Schedule D - DISTRIBUTOR's Sales Commitments - ---------- Schedule E - SUPPLIER's Insurance - ---------- Schedule F - Trademark Registrations - ---------- -1- SCHEDULE A-1 ------------ DEFINITION OF PRODUCTS The term "Products" shall include the following items manufactured by or on behalf of SUPPLIER: Proton Exchange Membrane ("PEM") Fuel-Cell Powered Generator Sets, without changes or additions (other than standard installation materials - e.g., ducting, pipe, wire), and components (e.g., fuel processor, fuel cell stack, power electronics), replacement parts, upgrades, accessories (e.g., combined power and hot water packages), and improvements, of various sizes no larger than 35kW of maximum continuous output that (a) meet the Commercial Unit Specifications set forth in Schedule B, and (b) are designed for use in residential, commercial, and industrial stationary power applications (e.g., base load power, peaking power, emergency back-up power, enhanced power quality, cogeneration, trailer-mounted units for temporary stationary power and/or rental power use). The term "Products" excludes the following, regardless of their manufacturer: 1. PEM Fuel Cell-Powered Generator Sets and/or components designed for use in transportation or vehicle applications; 2. PEM Fuel Cell-Powered Generator Sets and/or components designed for use in extended run, uninterruptible power supply ("UPS") systems for data centers applications, where the PEM Fuel Cell-Powered Generator Set (a) produces DC or AC premium (i.e., superior power quality to the grid) power for data center supporting information technology ("IT") equipment, (b) does not provide power to the entire facility, (c) is installed at a sub-panel downstream from the customer's main distribution panel, (d) is designed to enable remote IT equipment shutdown and power cycling for IT equipment that is no longer responding to commands, and (e) is designed to promote reliability over efficiency; 3. PEM Fuel Cell-Powered Generator Sets and/or components for rack-mounted equipment in telecommunications, cellular, or cable television applications; and 4. PEM Fuel Cell-Powered Generator Sets and/or components that are integrated with another device that utilizes all of the electrical output of the Fuel Cell-Powered Generator Set for that specific device only (e.g., an air conditioner powered by a Fuel Cell-Powered Generator Set, but not a combined Fuel Cell-Powered Generator Set-chiller cogen unit). -2- SCHEDULE A-2 ------------ SERVICES -------- The term "Services" shall include the following activities associated with the Products and Pre-Commercial Units: Installation Permitting Application Engineering Operation Routine Maintenance Unscheduled Maintenance Repair Overhaul (e.g., stack replacement) Upgrade Remote monitoring, diagnostics, and/or control (i.e., dispatch) Operator and Customer Training Customer Service Customer Support -3- SCHEDULE B ---------- TERMS AND CONDITIONS OF PURCHASE/SALE [***] (18 pages) CONFIDENTIAL INFORMATION HAS BEEN OMITTED PURSUANT TO RULE 406 UNDER THE SECURITIES ACT AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. THE LOCATIONS OF THE OMITTED INFORMATION HAVE BEEN INDICATED WITH ASTERISKS. -4- [***] CONFIDENTIAL INFORMATION HAS BEEN OMITTED PURSUANT TO RULE 406 UNDER THE SECURITIES ACT AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. THE LOCATIONS OF THE OMITTED INFORMATION HAVE BEEN INDICATED WITH ASTERISKS. Current System Status -28- [***] CONFIDENTIAL INFORMATION HAS BEEN OMITTED PURSUANT TO RULE 406 UNDER THE SECURITIES ACT AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. THE LOCATIONS OF THE OMITTED INFORMATION HAVE BEEN INDICATED WITH ASTERISKS. -29- [***] CONFIDENTIAL INFORMATION HAS BEEN OMITTED PURSUANT TO RULE 406 UNDER THE SECURITIES ACT AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. THE LOCATIONS OF THE OMITTED INFORMATION HAVE BEEN INDICATED WITH ASTERISKS. -30- [***] CONFIDENTIAL INFORMATION HAS BEEN OMITTED PURSUANT TO RULE 406 UNDER THE SECURITIES ACT AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. THE LOCATIONS OF THE OMITTED INFORMATION HAVE BEEN INDICATED WITH ASTERISKS. -31- [***] CONFIDENTIAL INFORMATION HAS BEEN OMITTED PURSUANT TO RULE 406 UNDER THE SECURITIES ACT AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. THE LOCATIONS OF THE OMITTED INFORMATION HAVE BEEN INDICATED WITH ASTERISKS. -32- [***] CONFIDENTIAL INFORMATION HAS BEEN OMITTED PURSUANT TO RULE 406 UNDER THE SECURITIES ACT AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. THE LOCATIONS OF THE OMITTED INFORMATION HAVE BEEN INDICATED WITH ASTERISKS. -34- [***] CONFIDENTIAL INFORMATION HAS BEEN OMITTED PURSUANT TO RULE 406 UNDER THE SECURITIES ACT AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. THE LOCATIONS OF THE OMITTED INFORMATION HAVE BEEN INDICATED WITH ASTERISKS. -35- [***] CONFIDENTIAL INFORMATION HAS BEEN OMITTED PURSUANT TO RULE 406 UNDER THE SECURITIES ACT AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. THE LOCATIONS OF THE OMITTED INFORMATION HAVE BEEN INDICATED WITH ASTERISKS. -36- [***] CONFIDENTIAL INFORMATION HAS BEEN OMITTED PURSUANT TO RULE 406 UNDER THE SECURITIES ACT AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. THE LOCATIONS OF THE OMITTED INFORMATION HAVE BEEN INDICATED WITH ASTERISKS. -37- [***] CONFIDENTIAL INFORMATION HAS BEEN OMITTED PURSUANT TO RULE 406 UNDER THE SECURITIES ACT AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. THE LOCATIONS OF THE OMITTED INFORMATION HAVE BEEN INDICATED WITH ASTERISKS. -38- [***] CONFIDENTIAL INFORMATION HAS BEEN OMITTED PURSUANT TO RULE 406 UNDER THE SECURITIES ACT AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. THE LOCATIONS OF THE OMITTED INFORMATION HAVE BEEN INDICATED WITH ASTERISKS. -39- SCHEDULE C ---------- PCU AND PRODUCT PRICES [***] (6 Pages) CONFIDENTIAL INFORMATION HAS BEEN OMITTED PURSUANT TO RULE 406 UNDER THE SECURITIES ACT AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. THE LOCATIONS OF THE OMITTED INFORMATION HAVE BEEN INDICATED WITH ASTERISKS. -40- SCHEDULE D ---------- SALES COMMITMENTS {***} CONFIDENTIAL INFORMATION HAS BEEN OMITTED PURSUANT TO RULE 406 UNDER THE SECURITIES ACT AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. THE LOCATIONS OF THE OMITTED INFORMATION HAVE BEEN INDICATED WITH ASTERISKS. -41- [***] CONFIDENTIAL INFORMATION HAS BEEN OMITTED PURSUANT TO RULE 406 UNDER THE SECURITIES ACT AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. THE LOCATIONS OF THE OMITTED INFORMATION HAVE BEEN INDICATED WITH ASTERISKS. -42- [***] CONFIDENTIAL INFORMATION HAS BEEN OMITTED PURSUANT TO RULE 406 UNDER THE SECURITIES ACT AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. THE LOCATIONS OF THE OMITTED INFORMATION HAVE BEEN INDICATED WITH ASTERISKS. -43- [***] CONFIDENTIAL INFORMATION HAS BEEN OMITTED PURSUANT TO RULE 406 UNDER THE SECURITIES ACT AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. THE LOCATIONS OF THE OMITTED INFORMATION HAVE BEEN INDICATED WITH ASTERISKS. -44- [***] CONFIDENTIAL INFORMATION HAS BEEN OMITTED PURSUANT TO RULE 406 UNDER THE SECURITIES ACT AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. THE LOCATIONS OF THE OMITTED INFORMATION HAVE BEEN INDICATED WITH ASTERISKS. -45- [***] CONFIDENTIAL INFORMATION HAS BEEN OMITTED PURSUANT TO RULE 406 UNDER THE SECURITIES ACT AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. THE LOCATIONS OF THE OMITTED INFORMATION HAVE BEEN INDICATED WITH ASTERISKS. -46- SCHEDULE E ---------- SUPPLIER'S INSURANCE SUPPLIER shall maintain in effect at all times during the Term of this Agreement products liability insurance as set forth on the following certificate, with DISTRIBUTOR named as additional insured: (See Attached) -47- SCHEDULE F ---------- COPIES OF TRADEMARK REGISTRATIONS -48- DISTRIBUTOR's Trademark -49- SUPPLIER's Trademark -50- EX-10.6 7 SIDE LETTER AGREEMENT EXHIBIT 10.6 GE POWER SYSTEMS 1 RIVER ROAD SCHENECTADY, NEW YORK 12345 February 3, 1999 Plug Power, L.L.C. 968 Albany-Shaker Road Latham, New York 12110 Attn.: Mr. Gary Mittleman Re: GE Fuel Cell Systems, L.L.C. (the "Company") Dear Mr. Mittleman: General Electric Company, a New York corporation ("GE"), acting through its GE Power Systems business ("GEPS"), owns all of the outstanding capital stock of GE On-Site Power, Inc., a Delaware corporation ("GEOSP"). GEOSP has formed GE Fuel Cell Systems, L.L.C., a Delaware limited liability company (the "Company"), and GEOSP is the sole member of the Company. GEOSP has agreed to admit Plug Power, L.L.C., a Delaware limited liability company ("PP"), as a member of the Company and to transfer a 25% membership interest in the Company to PP. Such admission and transfer are to be effected pursuant to the terms and conditions set forth in that certain Amended and Restated Limited Liability Company Agreement (the "LLC Agreement") and in that certain Contribution Agreement, both of even date herewith, between GEOSP and PP. Unless otherwise specified, capitalized terms in this letter shall have the meanings ascribed to them in the LLC Agreement. Section 5.5(a) of the LLC Agreement obligates GEOSP to arrange for loans to the Company, which are to be provided by GE. In consideration of the benefits to be derived by GEOSP and, indirectly, by GE, from PP's participation in the Company and PP's entering into the LLC Agreement and the Ancillary Agreements, GE agrees to provide to the Company the loans contemplated by Section 5.5(a) of the LLC Agreement. Such loans shall be provided to the Company in accordance with the terms of the Promissory Note and Security Agreement contemplated by the LLC Agreement, forms of which are attached thereto as Exhibit 6. GE recognizes that the transactions contemplated by the LLC Agreement and the Ancillary Agreements will establish the Company as PP's exclusive distributor of Products, Pre-Commercial Units, and Test & Evaluation Units in the Territory. GE, therefore, agrees that, while the LLC Agreement is in effect and so long as the Company has not been dissolved, GEPS will be bound by the following restrictions: (a) GEPS will not sell PEM Fuel-Cell Powered Generator Sets, replacement parts, upgrades, accessories, and improvements that compete with the Products and Pre-Commercial Units in the Plug Power,L.L.C. February 3, 1999 Page 2 - ------------------- Territory, directly or through any entity other than the Company, provided that the Products are competitive, as determined pursuant to this paragraph (a), with non-PP manufactured PEM Fuel Cell-Powered Generator Sets. If GEOSP determines, in good faith, that the Products are not competitive, then PP will be allowed a period of 12 months to make the Products competitive, after which, if the products are still not competitive, GEPS shall not be bound by the non-compete provisions of this paragraph (a). If GEPS decides, in accordance with this paragraph (a), to sell PEM Fuel-Cell Powered Generator Sets, replacement parts, upgrades, accessories, and improvements that compete with the Products and Pre-Commercial Units in the Territory directly or through any entity, then either Member may terminate the LLC Agreement. GEOSP will consider the following factors, in good faith and as a whole, in determining whether the Products are competitive: (i) the wholesale price of Products is no more than 5% greater than such price for non-PP manufactured PEM Fuel Cell-Powered Generator Sets; (ii) the lifetime end user cost per kWh generated by the Products is no more than 5% greater than that for non-PP manufactured PEM Fuel Cell-Powered Generator Sets, where end user cost per kWh will be calculated as the wholesale price plus installation, lifetime operations and maintenance cost, divided by the kWh consumption over the operating life; (iii) the Product's emissions (NOx and CO measured in parts per million), noise (in Db), and size (in cubic feet) are no more than 10% greater than that for non-PP manufactured PEM Fuel Cell-Powered Generator Sets; and (iv) the Product's reliability is no more than 5% worse than that for non-PP manufactured PEM Fuel Cell-Powered Generator Sets. Notwithstanding the preceding paragraph, for any particular year beginning in "2001" (as defined in Schedule D of the Distributor Agreement), if the Company achieves at least 50% of its Major Market Sales Commitment (as defined in Schedule D of the Distributor Agreement) in any Major Market in any year, then the Products will be deemed to be competitive in such Major Market for such year. Notwithstanding the failure of the Company to achieve at least 50% of its Major Market Sales Commitment in any Major Market for such year, if the Company achieves at least 66% of its Global Sales Commitment (as defined in Schedule D of the Distributor Agreement) for such year, then the Products will be deemed to be competitive for the entire Territory for such year. In any part of the Territory outside of the Major Markets, the Products shall be deemed competitive for such part of the Territory for such year if the Company achieves at least 50% of its Global Sales Commitment for such year. However, paragraph (a) shall not (b) apply, with respect to GE, to any division or entity other than GEPS; however, in the event that GE sells a non-PP manufactured PEM Fuel Cell-Powered Generator Set that competes with the Products or Pre Commercial Units sold by the Company, PP may elect to name additional distributors in the Territory or terminate the LLC Agreement; (c) prohibit the acquisition (by merger or otherwise) of the securities or assets of a business where the gross revenues of such business attributable to activities that violate the non-compete provisions of paragraph (a) constitute less than 15% of the total gross revenues of such business and Plug Power,L.L.C. February 3, 1999 Page 3 - ------------------- where the entry into activities that violate the non-compete provisions of paragraph (a) is not the principal purpose of such acquisition, if the competing portion of such business is first offered for sale to the Company for the cost to the acquiror and the Member proposing to acquire such business cooperates to enable the Company to acquire it (including, if it remains a Member and is requested by the other Member, the provision of necessary funds in proportion to the then outstanding Membership Interests); (d) without limiting paragraph (b) above, restrict in any way General Electric Capital Services, Inc., and its subsidiaries, General Electric Investment Corporation, General Electric Investment Management Incorporated, or any other Affiliate of GE engaged primarily in the financial services business (including any account managed by any of them) from engaging in any activities, including, without limitation, holding an interest in any entity which, now or in the future, owns, operates or engages in a business that violates the non-compete provisions of paragraph (a), or foreclosing against or assuming operational control of such an entity or taking other enforcement actions; or (e) prevent compliance by GEPS with license agreements or other commitments entered into prior to the date hereof, or prevent GEPS from entering into future license agreements or other commitments not related to Products, Services or technology derived from PP or the Company. The laws of the State of New York shall govern the validity, interpretation, construction, performance, and enforcement of this letter agreement, provided that any provision of such laws (e.g., choice of law provisions) invalidating any provision hereof or modifying the intent of the parties as expressed herein shall not apply. This letter agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof, supersedes all prior agreements, understandings and negotiations, both written and oral, between the parties with respect to the subject matter hereof, and may not be assigned or modified without the written consent of both parties. No representation, inducement, promise, understanding, condition or warranty not set forth herein has been made or relied upon by any party hereto. No party will be liable to the other for special, incidental, or consequential damages, including, but not limited to, personal injury, property damage, loss of profit or revenues, or business interruption. Please indicate your acceptance of the terms of this letter agreement by executing it in the space provided below, returning the executed original to the address above, and retaining the executed copy for your records. Thank you. Very truly yours, GENERAL ELECTRIC COMPANY By: /s/ Ricardo Artigas ________________________________ Ricardo Artigas Plug Power,L.L.C. February 3, 1999 Page 4 - ------------------- President and CEO GE Energy Service Agreed and accepted this ____ day of February, 1999. PLUG POWER, L.L.C. By: /s/ Gary Mittleman ----------------------- Gary Mittleman President and CEO EX-10.7 8 MANDATORY CAPITAL CONTRIBUTION AGREEMENT Exhibit 10.7 MANDATORY CAPITAL CONTRIBUTION AGREEMENT This Mandatory Capital Contribution Agreement (the "Agreement") hereby restates and amends that certain agreement between Mechanical Technology Incorporated ("MTI") and Edison Development Corporation ("EDC") (individually, a "Member" collectively, the "Members") dated as of January 26, 1999. This Agreement, effective as of January 26, 1999, formally memorializes the initial and on-going commitment of MTI and EDC to fund Plug Power, LLC ("Plug Power") through commercialization. 1. Commitments to Make Capital Contributions. ------------------------------------------ In the event that Plug Power's Board of Managers determines that Plug Power is in need of capital contributions at any time from the effective date of this Agreement through December 31, 2000, Plug Power has the right to call upon the Members to make one or more capital contributions ("Capital Commitment"). The total of these capital contributions shall not exceed $22.5 million to each Member. Additionally, Plug Power cannot request each Member to make contributions of more than $7.5 million in 1999 and $15 million in 2000. Specific "Capital Commitment" terms are as follows: . In exchange for each $7.50 of capital contributed by each Member, Plug Power will grant each Member a share of class A membership interest ("Share") up to the full amount of its actual capital contribution. .Each Member will share equally in each capital contributions called pursuant to the Capital Commitment. . Each Member shall have sixty (60) days from the date of such call to tender its payment to Plug Power. 2. Commitment Fee. --------------- In exchange for the Capital Commitment, Plug Power agrees to permit each Member to make capital contributions on the Termination Date (see section 4), at a price of $7.50 per Share, to the extent the Member's Capital Commitment of $22.5 million has not previously been called in accordance with Section 1. 3. Defaults and Penalties. ----------------------- If Plug Power requests capital contributions from the Members pursuant to their Capital Commitments, and one or both Members fails to make such capital contribution ("Defaulting Member"), then such Defaulting Member shall forfeit the right to receive the Shares it would have received in the Capital Call at the fixed price of $7.50 per Share ("Defaulted Shares"). 1 Additionally, to the extent that there are Capital Commitments outstanding, the Defaulting Member will be required to forfeit the right to receive an additional number of Shares, at a fixed price of $7.50 per Share, equal to two times the Defaulted Shares ("Additional Defaulted Shares"). Such Defaulting Member's Capital Commitment shall be reduced by the sum of the Defaulted Shares plus the Additional Defaulted Shares, multiplied by $7.50 per Share. A non-Defaulting Member may fund the Defaulting Member's share of the Capital Call in exchange for Shares at the fixed price of $7.50 per Share. This will not reduce the non-Defaulting Member's Capital Commitment nor will it change the non-Defaulting Member's commitment fee set forth in section 2 of this Agreement. 4. Early Termination of Mandatory Capital Calls. -------------------------------------------- This Agreement shall terminate on December 31, 2000, or the date on which Plug Power, or its successor, sells securities to the public pursuant to an Initial Public Offering ("IPO") at a price per Share greater than $7.50 ("Qualified IPO"), whichever occurs first ("Termination Date"). 5. Transferability. --------------- All rights under this Agreement are non-transferable except among affiliates. /s/ Gary Mittleman --------------------------------- Gary Mittleman, President and CEO Plug Power Agreed & accepted: /s/ Larry G. Garderding /s/ Cynthia A. Scheuer - ------------------------------ -------------------------- Edison Development Corporation Mechanical Technology Inc. 2 PLUG POWER, LLC 968 Albany - Shaker Road Latham, New York 12110 518-782-7700 (Tel.) 518-782-7914 (Fax) August 25, 1999 Edison Development Corporation c/o DTE Energy 2000 2nd Avenue Room 2426 WCB Detroit, MI 48226-1279 Dear Sir or Madam: Reference is made to that certain Mandatory Capital Contribution Agreement (the "Agreement") effective as of January 26, 1999 by and among Plug Power, LLC (the "Company"), Mechanical Technology Incorporated and Edison Development Corporation ("EDC"). Notwithstanding any provision in the Agreement to the contrary, the Company and EDC agree that in the event of the consummation of an initial underwritten public offering of shares of class A membership interests in the Company (or shares of common stock issued in exchange for class A membership interests in any merger, recapitalization or similar transaction) registered under the Securities Act of 1933, as amended, pursuant to which the shares of class A membership interests or shares of common stock, as the case may be, are sold at a price to the public greater than $7.50 per share (subject to appropriate adjustment for share splits, reverse share splits, share dividends, recapitalizations, reclassifications and similar events), (i) EDC will, within three (3) business days from the execution of an underwriting agreement, make a payment to the Company, by bank or certified check, in the form of a capital contribution, in an amount equal to the full amount of EDC's Capital Commitment (as such term is defined in the Agreement), less any amount of EDC's Capital Commitment which is called and paid prior to such time and subject to reduction as provided in Section 3 of the Agreement, and (ii) in exchange for each $7.50 of capital contributed (subject to appropriate adjustment for share splits, reverse share splits, share dividends, recapitalizations, reclassifications and similar events), the Company will issue to EDC one share of Class A membership interest or one share of common stock in any successor to the Company, as the case may be (subject to appropriate adjustment for share splits, reverse share splits, share dividends, recapitalizations, reclassifications and similar events). Except to the extend modified by the terms of this letter agreement, the Agreement shall remain in full force and effect in accordance with its terms. Sincerely, PLUG POWER, LLC By: /s/ Ana Maria Galeano ------------------------------- Name: Ana-Maria Galeano Title: General Counsel Dated: August 25, 1999 Acknowledged and Agreed: EDISON DEVELOPMENT CORPORATION By: /s/ Larry G. Garberding ------------------------------- Name: Larry G. Garberding Title: President 2 PLUG POWER, LLC 968 Albany - Shaker Road Latham, New York 12110 518-782-7700 (Tel.) 518-782-7914 (Fax) August 26, 1999 Cynthia A. Scheuer Vice President and Chief Financial Officer Mechanical Technology Incorporated 968 Albany-Shaker Road Latham, NY 12110 Dear Sir or Madam: Reference is made to that certain Mandatory Capital Contribution Agreement (the "Agreement") effective as of January 26, 1999 by and among Plug Power, LLC (the "Company"), Mechanical Technology Incorporated ("MTI") and Edison Development Corporation. Notwithstanding any provision in the Agreement to the contrary, the Company and MTI agree that in the event of the consummation of an initial underwritten public offering of shares of class A membership interests in the Company (or shares of common stock issued in exchange for class A membership interests in any merger, recapitalization or similar transaction) registered under the Securities Act of 1933, as amended, pursuant to which the shares of class A membership interests or shares of common stock, as the case may be, are sold at a price to the public greater than $7.50 per share (subject to appropriate adjustment for share splits, reverse share splits, share dividends, recapitalizations, reclassifications and similar events), (i) MTI will, within three (3) business days from the execution of an underwriting agreement, make a payment to the Company, by bank or certified check, in the form of a capital contribution, in an amount equal to the full amount of MTI's Capital Commitment (as such term is defined in the Agreement), less any amount of MTI's Capital Commitment which is called and paid prior to such time and subject to reduction as provided in Section 3 of the Agreement, and (ii) in exchange for each $7.50 of capital contributed (subject to appropriate adjustment for share splits, reverse share splits, share dividends, recapitalizations, reclassifications and similar events), the Company will issue to MTI one share of Class A membership interest or one share of common stock in any successor to the Company, as the case may be (subject to appropriate adjustment for share splits, reverse share splits, share dividends, recapitalizations, reclassifications and similar events). Except to the extent modified by the terms of this letter agreement, the Agreement shall remain in full force and effect in accordance with its terms. Sincerely, PLUG POWER, LLC By: /s/ Ana Maria Galeano -------------------------------------- Name: Ana-Maria Galeano Title: General Counsel Dated: August 26, 1999 Acknowledged and Agreed: MECHANICAL TECHNOLOGY INCORPORATED By: /s/ Cynthia A. Scheuer -------------------------------- Name: Cynthia A. Scheuer Title: Vice President & CFO 2 EX-10.8 9 LLC INTEREST PURCHASE AGREEMENT EXHIBIT 10.8 - -------------------------------------------------------------------------------- PLUG POWER, LLC ------------------------- LLC INTEREST PURCHASE AGREEMENT ------------------------- Dated as of February 16, 1999 - -------------------------------------------------------------------------------- LLC INTEREST PURCHASE AGREEMENT AGREEMENT, dated as of February 16,1999, between PLUG POWER, LLC, a Delaware limited liability company (the "Company"), and Michael J. Cudahy (the "Investor"). WHEREAS, the Company proposes to issue and sell to the Investor an aggregate of 1,440,000 Shares of Class A Membership Interests (the "Investor Interest") and a warrant (the "Warrant") to purchase 400,000 Shares of Class A Membership Interests (together, the Investor Interest and Warrant shall be referred to as the "Purchased Securities") for an aggregate purchase price of $9.6 million; WHEREAS, the Investor desires to purchase the Purchased Securities; NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein and for good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the parties hereto agree as follows: 1. Definitions. Unless otherwise defined in context or the context otherwise requires, capitalized terms used in this Agreement are defined on Schedule I hereto, which is incorporated herein by reference and made a part of this Agreement. Such terms shall be applicable to both the singular and plural forms of any of the terms therein defined. 2. Sale and Purchase. Upon the terms and subject to the conditions herein ----------------- contained, the Company agrees to sell to the Investor, and the Investor agrees to purchase from the Company, on the Closing Date, the Purchased Securities. The Investor shall pay to the Company $9.6 million for the Purchased Securities. 3. Closing. ------- (a) The Closing shall occur at the offices of Plug Power, 968 Albany- Shaker Road, Latham, New York 12110, at the hour of 10:00 A.M., Eastern Standard Time, on the Closing Date. (b) At the Closing, the Company shall deliver to the Investor a certificate evidencing the Investor Interest and a certificate evidencing the Warrant, which certificates shall be registered in the Investor's name, against delivery to the Company of payment by check or wire transfer of immediately available funds to an account specified in writing by the Company on or before the Closing Date in an amount equal to $9.6 million. (c) At the Closing, the Investor shall execute the Limited Liability Company Agreement as a Class A Member. 4. Restrictions on Transfer of Securities: Removal of Restrictions on ------------------------------------------------------------------ Transfer of Securities. - ---------------------- (a) The Investor understands and agrees that the Purchased Securities have not been registered under the Securities Act, and that accordingly they will not be fully transferable except as permitted under various exemptions contained in or promulgated by the Commission under the Securities Act, or upon satisfaction of the registration and prospectus delivery requirements of the Securities Act. The Investor acknowledges that he must bear the economic risk of his investment in the Purchased Securities for an indefinite period of time since they has not been registered under the Securities Act and therefore cannot be sold unless they are subsequently registered or an exemption from registration is available. (b) The Investor hereby agrees with the Company as follows: (i) The certificates evidencing the Purchased Securities, and each certificate issued in transfer thereof, will bear a legend to the following effect: "The securities evidenced by this certificate have not been registered under the Securities Act of 1933 and have been taken for investment purposes only and not with a view to the distribution thereof, and such securities may not be sold or transferred unless there is an effective registration statement under such Act covering such securities or the issuer corporation receives an opinion of counsel (which may be counsel for the issuer corporation) stating that such sale or transfer is exempt from the registration and prospectus delivery requirements of such Act." (ii) The certificates representing the Purchased Securities, and each certificate issued in transfer thereof, will also bear any legend required under any applicable state securities law. (iii) Absent an effective registration statement under the Securities Act, covering the disposition of such securities, the Investor shall not sell, transfer, assign, pledge, hypothecate or otherwise dispose of any of the Purchased Securities without first providing the Company with an opinion of counsel (which may be counsel for the Company) to the effect that such sale, transfer, assignment, pledge, hypothecation or other disposition will be exempt from the registration and the prospectus delivery requirements of the Securities Act and the registration or qualification requirements of any applicable state securities laws, except that no such registration or opinion shall be required with respect to (A) a transfer not involving a change in beneficial ownership or (B) a sale to be effected in accordance with Rule 144 of the 2 Commission under the Securities Act (or any comparable exemption). (iv) The Investor consents to the Company's making a notation on its records or giving instructions to any transfer agent of the Purchased Securities in order to implement the restrictions on transfer of the Purchased Securities set forth in this subsection (c). 5. Representations and Warranties by the Company. In order to induce the --------------------------------------------- Investor to enter into this Agreement and to purchase the Purchased Securities, the Company hereby represents and warrants to the Investor as follows: 5.1 Organization, Standing, etc. The Company is a limited liability ---------------------------- company duly formed, validly existing and in good standing under the laws of the State of Delaware and has all requisite power and authority to carry on its business, to own and hold its properties and assets, to enter into this Agreement, to issue the Purchased Securities and to carry out the provisions hereof. The copies of the Certificate of Formation and Limited Liability Company Agreement of the Company, which have been delivered to the Investor prior to the execution of this Agreement are true and complete and have not been amended or repealed. 5.2 Qualification. The Company is duly qualified or licensed as a ------------- foreign limited liability company in good standing in each jurisdiction wherein the nature of its activities or its properties owned or leased makes such qualification, licensing or domestication necessary. 5.3 Capitalization. The authorized capitalization of the Company -------------- consists of 25,000,000 Shares of Class A Membership Interests and 3,000,000 Shares of Class B Membership Interests. As of the Closing Date, and prior to the issuance of the Investor Interest, the Company has 20,000,000 Shares of Class A Membership Interests and no Shares of Class B Membership Interests outstanding. All of the issued and outstanding Shares of the Company have been, and all of the Shares to be sold to the Investor will be, upon payment therefor, duly authorized and validly issued and fully paid and nonassessable. As of the Closing Date, and prior to the issuance of the Warrant, the Company has warrants and options outstanding, which upon exercise and payment of an aggregate of $89,100,900 to the Company, will entitle the holders of such warrants and options to an aggregate of 11,250,000 Shares of Class A Membership Interests and 2,033,900 Shares of Class B Membership Interests. Other than such warrants and options, and the Warrant, there are no convertible securities with respect to the Company or agreements, arrangements or understandings to issue convertible securities with respect to the Company. 5.4 Company Authority. The Company has the power and authority to ----------------- execute and deliver this Agreement. The execution and delivery of this Agreement has been duly authorized by all necessary Company action. 5.5 Binding Obligations. This Agreement constitutes the legal, valid ------------------- and 3 binding obligation of the Company and is enforceable against the Company in accordance with its terms, except as such enforcement is limited by bankruptcy, insolvency and other similar laws affecting the enforcement of creditors' rights generally. 5.6 Brokers or Finders. No Person has or will have, as a result of ------------------ the transactions contemplated herein and any action or omission of the Company, any right or valid claim against the Company or any Investor for any commission, fee or other compensation as a finder or broker, or in any similar capacity. 5.7 Legal Proceedings. There are no actions, proceedings or claims ----------------- pending or, to the knowledge of the Company, threatened against, relating to or affecting the Company or any of its assets or property, which, if determined adversely to the Company, would have a material adverse effect on the results of operations, financial condition or business of the Company. 5.8 Class A Membership Interests. The holders of Shares of Class A ---------------------------- Membership Interests and the number of Shares held by such holders are as set forth on Schedule 5.8. 5.9 Warrants and Options. The holders of options and warrants to -------------------- purchase Shares of Class A Membership Interests, the number of Shares underlying such options and warrants, the exercise price for such warrants and options and the expiration dates of such options and warrants are as set forth on Schedule 5.9. 6. Representatives and Warranties by the Investor. In order to induce the ---------------------------------------------- Company to enter into this Agreement and to sell the Purchased Securities, the Investor hereby represents and warrants to the Company as follows: 6.1 Binding Obligation. The Investor has the legal capacity to ------------------ execute and deliver this Agreement and to perform his obligations hereunder and to consummate the transactions contemplated hereby. This Agreement has been duly and validly executed and delivered by the Investor and constitutes a legal, valid and binding obligation of the Investor enforceable against the Investor in accordance with its terms, except as such enforcement is limited by bankruptcy, insolvency, and other similar laws affecting the enforcement of creditors' rights generally. 6.2 Purchase For Investment. The Investor hereby represents and ----------------------- warrants to the Company that he is acquiring the Purchased Securities for investment purposes only, for his own account, and not as nominee or agent for any other Person, and not with the view to, or for resale in connection with, any distribution thereof within the meaning of the Securities Act. The Investor represents and warrants that he is an "accredited investor," as such term is defined in Rule 501 of Regulation D as promulgated by the Securities and Exchange Commission under the Securities Act, or is not a resident of, or domiciled in, the United States or any territory or possession thereof, and the Investor shall submit to the Company such 4 further assurances of such status as may be reasonably requested by the Company. 7. Covenants. --------- 7.1 Manager Appointment. The Company agrees to use its reasonable ------------------- best efforts to have the Investor appointed as a Manager of the Company. 7.2 Fuel Cell Delivery. The Company agrees that as part of its Test ------------------ and Evaluation Program, it will deliver a seven kilowatt Test and Evaluation fuel cell system to the Investor's primary residence in Milwaukee, Wisconsin by December 31, 1999. 8. Miscellaneous ------------- 8.1 Amendment. This Agreement may be amended, supplemented or --------- modified only by a written instrument duly executed by or on behalf of each party hereto. 8.2 Notices. All notices, receipts, consents, instructions, approvals ------- and other communications required or permitted hereunder shall be validly given, if in writing and delivered personally, by confirmed telecopy or sent by registered or certified mail or nationally recognized air courier service or overnight courier service, postage prepaid: (a) If to the Investor, at the following address or at such other address as the Investor may specify by written notice to the Company: 8200 West Tower Avenue Milwaukee, Wisconsin 53223 With a copy to: Schoenberg, Fisher, Newman & Rosenberg, Ltd. 222-.S. Riverside Plaza Chicago, IL 60606 Attn: Melvin S. Newman (b) If to the Company, at the following address or at such other address as the Company may specify by written notice to Investor: Plug Power, LLC 968 Albany-Shaker Road Latham, NY 12110 Attention: Ana-Mafia Galeano, Esq. With a copy to: Morgan, Lewis & Bockius LLP 5 101 Park Avenue New York, NY 10 178 Attention: David W. Pollak, Esq. and each such notice, request, consent, instruction, approval and other communication shall for all purposes of the Agreement be treated as being effective or having been given when delivered, if delivered personally, or, if sent by mail, at the earlier of its actual receipt or three (3) days after the same has been deposited in a regularly maintained receptacle for the deposit of United States mail, addressed and postage prepaid as aforesaid, or if sent by telecopier, when confirmed, or if sent by air courier, two (2) days after the same has been deposited with such air courier, or if sent by overnight courier, one (1) day after the same has been deposited with such overnight courier. 8.3 Survival of Representations and Warranties, etc. All representations ------------------------------------------------ and warranties made in this Agreement shall survive the execution and delivery of this Agreement, and the sale and purchase of the Purchased Securities and payment therefor. 8.4 Severability. Should any one or more of the provisions of this ------------ Agreement or of any agreement entered into pursuant to this Agreement be determined to be illegal or unenforceable, all other provisions of this Agreement and of each other agreement entered into pursuant to this Agreement shall be given effect separately from the provision or provisions determined to be illegal or unenforceable and shall not be affected thereby. 8.5 Headings. The headings of the Sections and paragraphs of this -------- Agreement have been inserted for convenience of reference only and do not constitute a part of this Agreement. 8.6 Choice of Law. It is the intention of the parties that the internal ------------- substantive laws, and not the laws of conflicts, of the State of New York should govern the enforceability and validity of this Agreement, the construction of its terms and the interpretation of the rights and duties of the parties. 8.7 Fees and Expenses. The fees and expenses arising in connection with ----------------- the negotiation and execution of this Agreement and the Warrant and consummation of the transactions contemplated hereby and thereby, shall be paid by the party incurring such fees. 8.8 Confidentiality. The Investor will hold in strict confidence from any --------------- Person, unless compelled to disclose by judicial or administrative process or by other requirements of any law all documents and information concerning the Company furnished to it by or on behalf of the Company in connection with or pursuant to this Agreement or the transactions contemplated hereby and thereby, except to the extent that such documents or information can be shown to have been in the public domain through no fault of the Investor. 8.9 No Assignment. Neither this Agreement nor any right, interest or ------------- obligation hereunder may be assigned (by operation of law or otherwise) by any party hereto without the 6 prior written consent of the other party hereto and any attempt to do so will be void. 8. 10 Counterparts. This Agreement may be executed in any number of ------------ counterparts, each of which shall be deemed an original, but all such counterparts shall together constitute one and the same instrument. 7 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered as of the date first above written. PLUG POWER, LLC By: /s/ Gary Mittleman ---------------------------- Name: Title: /s/ Michael J. Cudahy -------------------------------- Michael J. Cudahy SCHEDULE 1 TO THE LLC INTEREST PURCHASE AGREEMENT ------------------------------------------------- This Schedule 1 to that certain LLC Interest Purchase Agreement (the "Agreement"), dated as of February 16, 1999, between Plug Power, LLC and the Investor set forth therein, defines certain of the terms used therein and is made a part thereof. "Class A Membership Interests" means the Class A Membership Interests as ---------------------------- defined in the Company's Limited Liability Company Agreement. "Class B Membership Interests" means the Class B Membership Interests as ---------------------------- defined in the Company's Limited Liability Company Agreement. "Closing" means the closing of the sale and purchase by the Investor of the ------- Purchased Securities on the Closing Date. "Closing Date" means February 16, 1999, or such different time or day as ------------ the Investor and the Company shall agree. "Commission" means the United States Securities and Exchange Commission or ---------- any similar agency then having jurisdiction to enforce the Securities Act. "Limited Liability Company Agreement" means the Limited Liability Company ----------------------------------- Agreement of the Company, dated as of June 27, i 997, as amended by the First, Second, Third and Fourth Amendments thereto, respectively dated April 24, 1998, June 10, 1998, November 30, 1998 and January 29, 1999. "Person" shall include any natural person, corporation, trust, association, ------ company, partnership, joint venture and other entity and any Governmental Authority. "Securities Act" means the Securities Act of 1933, as amended. -------------- "Shares" means units of Class A Membership Interests or Class B Membership ------ Interests. "Test and Evaluation Program" means the Company's program for producing --------------------------- test and evaluation fuel cell systems in 1999 for the purpose of demonstrating residential fuel cell system technology and providing the Company with field test data. 9 Schedule 5.8 Class A Membership Interests As of February 15, 1999 GE On-Site Edison Development Mechanical Power, Corp. Technology Inc. Inc. Total - --------------------------------------------------------------------- 10,000,000 7,750,000 2,250,000 20,000,000 Schedule 5.9 Warrants and Options for Class A Membership Interests As of February 15, 1999
Option/Warrant Type of Date of Expiration Date No. Of Shares Exercise price Holder Agreement Agreement of Agreement per share - ----------------------------------------------------------------------------------------------------------------- MTI Option 4/24/98 4/23/99 250,000 $1.00 MTI Option 6/15/98 6/14/99 2,000,000 $1.00 MTI & EDC Equity None *1,000,000 Each for CY $7.50 Contribution & Period Ending Warrant 12/31/99 *2,000,000 Each for CY Period Ending 12/31/00 GE On-Site Call Option 2/5/99 Later of 3,000,000 $12.50 Power, Inc. 12/31/00 or 1st anniversary of Plug Power's IPO. Not later than 12/31/03
*If the Board of Managers determines that Plug Power requires additional funding. EX-10.9 10 WARRANT AGREEMENT EXHIBIT 10.9 THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. IT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED EXCEPT PURSUANT TO A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITY UNDER SUCH ACT OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS UNDER SUCH ACT. LLC INTEREST PURCHASE WARRANT ----------------------------- Date of Issuance: February 16, 1999 Certificate No. ___ For value received, PLUG POWER, LLC, a Delaware limited liability company (the "Company"), hereby grants to Michael J. Cudahy, or his registered assigns (the "Registered Holder"), the right to purchase from the Company, at the Exercise Price therefor, 400,000 Shares of Class A Membership Interests of the Company, as adjusted from time to time pursuant to Section 2 hereof (the "Warrant Shares"). This Warrant is issued pursuant to the LLC Interest Purchase Agreement. The Exercise Price and number of Warrant Shares (and the amount and kind of other securities) for which this Warrant is exercisable shall be subject to adjustment as provided herein. Certain capitalized terms used herein are defined in Section 3 hereof. This Warrant is subject to the following provisions: SECTION 1. Exercise of Warrant. ------------------- 1A. Exercise Period. The purchase rights represented by this Warrant may --------------- be exercised, in whole or in part, at any time and from time to time, following the Date of Issuance until the earliest of (i) December 31, 2001, (ii) a Qualifying Offering and (iv) 18 months after an initial public offering of the Company's Shares of Class A Membership Interests other than a Qualifying Offering (the "Exercise Period"). 1B. Exercise Procedure. ------------------ (i) This Warrant shall be deemed to have been exercised when all of the following items have been delivered to the Company (the "Exercise Time"): (a) a completed Exercise Agreement, in substantially the form set forth in Exhibit I hereto, executed by the Registered Holder; (b) this Warrant; and (c) a certified or bank check payable to the Company in an amount equal to the Exercise Price multiplied by the number of Warrant Shares being purchased upon such exercise (the "Aggregate Exercise Price"). ------------------------ (ii) Certificates for Warrant Shares (including, without limitation, fractional shares) purchased upon exercise of this Warrant shall be delivered by the Company to the Purchaser within seven business days after the date of the Exercise Time together with any cash payable in lieu of a fraction of a share pursuant to Section IC below. Unless this Warrant has expired or all of the purchase rights represented hereby have been exercised, the Company shall prepare a new Warrant, substantially identical hereto, representing the rights formerly represented by this Warrant which have not expired or been exercised and shall, within such seven-day period, deliver such new Warrant to the Registered Holder. (iii) The Warrant Shares issuable upon the exercise of this Warrant shall be deemed to have been issued to the Registered Holder at the Exercise Time. (iv) The Company shall not close its books against the transfer of this Warrant of any Warrant Shares issued or issuable upon the exercise of this Warrant in any manner which interferes with the timely exercise of this Warrant. (v) Notwithstanding any other provision hereof, if an exercise of any portion of this Warrant is to be made in connection with a public offering or a Sale of the Company, then such exercise may at the election of the Registered Holder be conditioned upon the consummation of such transaction, in which case such exercise shall not be deemed to be effective until immediately prior to the consummation of such transaction. (vi) If the Warrant Shares issuable by reason of exercise of this Warrant are convertible into or exchangeable for any other stock or securities, then the Company shall, at the Registered Holder's option and upon surrender of this Warrant by the Registered Holder as provided above together with any notice, statement, payment and other requirement required to effect such conversion or exchange of Warrant Shares, deliver to the Registered Holder a certificate or certificates representing the stock or securities into which the Warrant Shares issuable by reason of such conversion are convertible or exchangeable. 1C. Fractional Shares. If a fractional share of a Warrant Share would, but ----------------- for the provisions of Section 1A, be issuable upon exercise of the rights represented by this Warrant, the Company may, but should not be required, in lieu of such fractional share, within five business days after the date of the Exercise Time, deliver to the Purchaser a check payable to the Purchaser in lieu of such fractional share in an amount equal to the difference between the Fair Market Value of such fractional share as of the date of the Exercise Time and the Exercise Price of such fractional share. SECTION 2. Adjustments: Notices. -------------------- 2A. Subdivision or Combination of Class A Membership Interests. If the ---------------------------------------------------------- Company at any time subdivides (by any share split, dividend, recapitalization or otherwise) the Shares of Class A Membership Interests into a greater number of shares or pays a dividend or makes a distribution to holders of the Shares of Class A Membership Interests in the form of Shares of 2 Class A Membership Interests, then the Exercise Price in effect immediately prior to such subdivision shall be proportionately reduced and the number of Warrant Shares obtainable upon exercise of this Warrant (whether or not then acquirable or subject to a contingency), as the case may be, shall be proportionately increased. If the Company at any time combines (by reverse share split or otherwise) the Shares of Class A Membership Interests into a smaller number of shares, then the Exercise Price in effect immediately prior to such combination shall be proportionately increased and the number of Warrant Shares obtainable upon exercise of this Warrant (whether or not then acquirable or subject to a contingency), as the case may be, shall be proportionately decreased. 2B. Organic Change. Any recapitalization, reorganization, -------------- reclassification, consolidation, merger, sale of all or substantially all of the Company's assets or other transaction which is effected in such a way that holders of Shares of Class A Membership Interests are entitled to receive (either directly or upon subsequent liquidation) stock, securities or assets with respect to or in exchange for Shares of Class A Membership Interests is referred to herein as an "Organic Change." Prior to the consummation of any -------------- Organic Change, the Company shall make appropriate provision (in form and substance reasonably satisfactory to the Required Holders) to provide that the Registered Holder shall have upon consummation thereof the right to acquire and receive upon exercise hereof such shares of stock, securities or assets as may be issued or payable with respect to or in exchange for the number of Warrant Shares immediately theretofore acquirable and receivable upon exercise of such Registered Holder's Warrants had such Organic Change not taken place. 2C. Notices. ------- (i) Promptly upon any adjustment of the Exercise Price, the Company shall give written notice thereof to the Registered Holder, setting forth in reasonable detail and certifying the calculation of such adjustment. (ii) The Company shall also give written notice to the Registered Holder at least 30 days prior to the date on which any Organic Change or Liquidity Event shall take place. 2D. Minimum Adjustment. No adjustment in the Exercise Price shall be made ------------------ if such adjustment is less than $0.01; provided, however , that any adjustments which by reason of this Section 2D are not required to be made shall be carried forward and taken into account in any subsequent adjustment. SECTION 3. Definitions. The following terms have the meanings set forth ----------- below: "Affiliate" means, as applied to any Person, (i) any other Person directly --------- or indirectly controlling, controlled by or under common control with, that Person, (ii) any other Person that owns or controls 10% or more of any class of equity securities (including any equity securities issuable upon the exercise of any Option or the conversion or exchange of any 3 Convertible Securities) of that Person or any of its Affiliates, or (iii) any member, director, partner, officer, agent, employee or relative of such Person or any of its direct or indirect Affiliates. For the purposes of this definition, "control" (including with correlative meanings, the terms "controlling", "controlled by", and "under common control with") as applied to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of that Person, whether through ownership of voting securities or by contract or otherwise. With respect to a natural person, the term "Affiliate" also shall include such person's spouse and lineal descendants. "Aggregate Exercise Price" has the meaning ascribed to it in Section 1B(i). ------------------------ "Class A Membership Interests" means the Class A Membership Interests of ---------------------------- the Company as defined in the Limited Liability Company Agreement. "Convertible Securities" means any right, option or security exercisable ---------------------- for, or convertible or exchangeable into, Shares of Class A Membership Interests. "Date of Issuance" means the date the Company initially issues this Warrant ---------------- regardless of the number of times new certificates representing the unexpired and unexercised rights formerly represented by this Warrant shall be issued. "Exercise Period" has the meaning ascribed to it in Section 1A. --------------- "Exercise Price" means $8.50 for each Warrant Share as such price may be -------------- adjusted from time to time pursuant to Section 2 hereof. "Exercise Time" has the meaning ascribed to it in Section 1B(i). ------------- "Fair Market Value" means, as to any security, as of a particular date (i) ----------------- the average of the closing sales prices on such date of such security on all domestic securities exchanges on which such security is listed, or (ii) if there have been no sales on any such exchange on any day, the average of the highest bid and lowest asked prices on all such exchanges at the end of such day, or (iii) if on any day such security is not so listed, the sales price for such security as of 4:00 P.M., New York time, as reported on the Nasdaq Stock Market, or (iv) if such security is not reported on the Nasdaq Stock Market, the average of the representative bid and asked quotations for such security as of 4:00 P.M., New York time, as reported on the Nasdaq interdealer quotation system, or any similar successor organization, in each such case averaged over a period of 21 trading days consisting of the day before "Fair Market Value" is being determined and the immediately prior 20 trading days prior to such day during which such security was traded. Notwithstanding the foregoing, if at any time of determination such security is not registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended, and either listed on a national securities exchange or authorized for quotation in the Nasdaq Stock Market, then Fair Market Value shall mean the price that would be paid per 4 share for the entire common equity interest in the issuer thereof in an orderly sale transaction between a willing buyer and a willing seller, using valuation techniques then prevailing in the securities industry and assuming full disclosure of all relevant information and a reasonable period of time for effectuating such sale, without discount for lack of liquidity, or minority position. Fair Market Value shall be determined by the Company's Management Committee in its good faith judgment. "Liquidity Event" means (i) a liquidation, dissolution or winding-up of the --------------- Company or (ii) a Sale of the Company. "Limited Liability Company Agreement" means the Limited Liability Company ----------------------------------- Agreement of the Company dated June 27, 1997, as amended. "LLC Interest Purchase Agreement" means the LLC Interest Purchase ------------------------------- Agreement, dated as of February 16, 1999, between the Company and Michael Cudahy, as such agreement may be amended, modified or restated from time to time. "Person" means any individual, corporation, joint stock corporation, ------ limited liability company or partnership, general partnership, limited partnership, proprietorship, joint venture, other business organization, trust, union, association or governmental or regulatory authority. "Qualifying Offering" means the consummation of an initial underwritten ------------------- public offering of Shares of Class A Membership Interests registered under the Securities Act of 1933, as amended, pursuant to which the Shares of Class A Membership Interests are sold at a price per share of at least $8.50 (subject to appropriate adjustment for share splits, reverse share splits, share dividends, recapitalizations, reclassifications and similar events). "Sale of the Company" means the sale of the Company (whether by merger, ------------------- consolidation, recapitalization, reorganization, sale of securities, sale of assets or otherwise) in one transaction or a series of related transactions to a Person or Persons, pursuant to which such Person or Persons (together with its Affiliates) acquires (i) securities representing at least a majority of the voting power of all securities of the Company, assuming the conversion, exchange or exercise of all securities convertible, exchangeable or exercisable for or into voting securities, or (ii) a material portion of the Company's consolidated assets other than in the ordinary course of business. "Shares" means units of Class A Membership Interests. ------ "Warrant Shares" has the meaning ascribed thereto in the first paragraph of -------------- this Warrant; provided, that if the securities issuable upon exercise of the Warrants are issued by an entity other than the Company or there is a change in the class of securities so issuable, then the term "Warrant Shares" shall mean shares of the security issuable upon exercise of the Warrants if such security is issuable in shares, or shall mean the equivalent units in which such 5 security is issuable if such security is not issuable in shares. SECTION 4. No Voting Rights: Limitations of Liability. This Warrant shall ------------------------------------------ not entitle the Registered Holder hereof to any voting rights or other rights as a member of the Company. No provision hereof, in the absence of affirmative action by the Registered Holder to purchase Warrant Shares, and no enumeration herein of the rights or privileges of the Registered Holder shall give rise to any liability of such Registered Holder for the Exercise Price of Warrant Shares acquirable by exercise hereof or as a stockholder of the Company. SECTION 5. Restrictions. The Registered Holder agrees that it will not ------------ sell, transfer or otherwise dispose of this Warrant or any Warrant Shares, in whole or in part, except pursuant to an effective registration statement under the Securities Act of 1933, as amended, or an exemption from registration thereunder and then only in accordance with the terms of the Limited Liability Company Agreement. Each certificate evidencing Warrant Shares and each Warrant issued upon such transfer shall bear the restrictive legend required by the LLC Interest Purchase Agreement. The Company may require, as a condition of allowing the transfer or exchange of this Warrant, that the Registered Holder furnish to the Company an opinion of counsel reasonably acceptable to the Company to the effect that such transfer or exchange is permitted under the Securities Act of 1933, as amended, and applicable state securities laws. SECTION 6. Warrant Exchangeable for Different Denominations. This Warrant ------------------------------------------------ is exchangeable, upon the surrender hereof by the Registered Holder at the principal office of the Company, for new Warrants of like tenor representing in the aggregate the purchase rights hereunder, and each of such new Warrants shall represent such portion of such rights as is designated by the Registered Holder at the time of such surrender. All Warrants representing portions of the rights hereunder are also referred to herein as "Warrants." SECTION 7. Replacement. Upon receipt of evidence reasonably satisfactory to ----------- the Company (an affidavit of the Registered Holder shall be satisfactory) of the ownership and the loss, theft, destruction or mutilation of any certificate evidencing this Warrant, and in the case of any such loss, theft or destruction, upon receipt of indemnity reasonably satisfactory to the Company or, in the case of any such mutilation upon surrender of such certificate, the Company shall execute and deliver in lieu of such certificate a new certificate of like kind representing the same rights represented by such lost, stolen, destroyed or mutilated certificate and dated the date of such lost, stolen, destroyed or mutilated certificate. SECTION 8. Notices. Except as otherwise expressly provided herein, all ------- notices and deliveries-referred to in this Warrant shall be in writing, shall be delivered personally, sent by registered or certified mail, return receipt requested and postage prepaid or sent via nationally recognized overnight courier or via facsimile, and shall be deemed to have been given when so delivered (or when received, if delivered by any other method) if sent (i) to the Company, at its principal executive offices and (ii) to a Registered Holder, at such Registered Holder's 6 address as it appears in the records of the Company (unless otherwise indicated by any such Registered Holder). SECTION 9. Amendment and Waiver. Except as otherwise provided herein, the -------------------- provisions of this Warrant may be amended and the Company may take any action herein prohibited, or omit to perform any act herein required to be performed by it, only if the Company has obtained the prior written consent of the Registered Holder. SECTION 10. Warrant Register. The Company shall maintain at its principal ---------------- executive offices books for the registration and the registration of transfer of Warrants. The Company may deem and treat the Registered Holder as the absolute owner hereof (notwithstanding any notation of ownership or other writing thereon made by anyone) for all purposes and shall not be affected by any notice to the contrary. SECTION 11. Descriptive Headings, Governing Law. The descriptive headings ----------------------------------- of the several Sections and paragraphs of this Warrant are inserted for convenience only and do not constitute a part of this Warrant. THE CORPORATION LAWS OF THE STATE OF DELAWARE SHALL GOVERN ALL ISSUES CONCERNING THE RELATIVE RIGHTS OF THE COMPANY AND ITS STOCKHOLDERS. ALL OTHER QUESTIONS CONCERNING THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE DOMESTIC LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE STATE OF NEW YORK OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF NEW YORK. 7 IN WITNESS WHEREOF, the Company has caused this Warrant to be signed and attested by its duly authorized officers under its corporate seal and to be dated as of the date hereof. PLUG POWER, LLC By: /s/ Gary Mittleman ---------------------------- Name: Gary Mittleman Title: President and CEO Attest: /s/ Ana Maria Galeano - ------------------------------ Name: Ana-Maria Galeano Title: General Counsel AMENDMENT NO. 1 TO LLC INTEREST PURCHASE WARRANT This amendment ("Amendment") is entered into as of July 26, 1999 between Plug Power, LLC, a Delaware limited liability company (the "Company"), and Michael J. Cudahy ("Holder"). WHEREAS, the Company and Holder are parties to an LLC Interest Purchase Warrant dated February 16, 1999 (the "Existing Warrant"); and WHEREAS, the Company and Holder desire to amend the Existing Warrant as provided herein. NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. The Existing Warrant is hereby amended by adding a new Section 1D, which shall immediately follow Section 1C, and which shall read in its entirety as follows: 1D. Automatic Exercise. Notwithstanding any provision in this ------------------ Warrant to the contrary, in the event of the consummation of an initial underwritten public offering of Shares of Class A Membership Interests (or shares of common stock issued in exchange for Class A Membership Interests in any merger, recapitalization or similar transaction) registered under the Securities Act of 1933, as amended, pursuant to which the Shares of Class A Membership Interests or shares of common stock, as the case may be, are sold at a price to the public of at least $8.50 per share (subject to appropriate adjustment for share splits, reverse share splits, share dividends, recapitalizations, reclassifications and similar events), then (i) this Warrant shall be automatically exercised in full immediately prior to the consummation of such offering, (ii) the Exercise Time shall be deemed to occur immediately prior to the consummation of such offering and (iii) Holder shall deliver to the Company at the Exercise Time a completed Exercise Agreement, this Warrant and a certified or bank check payable to the Company in an amount equal to the Exercise Price multiplied by the total number of Warrant Shares. 2. Except as amended hereby, the Existing Warrant shall remain in full force and effect in accordance with its terms. 3. Capitalized terms used but not defined herein shall have the meanings ascribed thereto in the Existing Warrant. 4. This Amendment may be executed in two or more counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same document. PLUG POWER, LLC By: /s/ Gary Mittleman ----------------------------------------- Gary Mittleman, President and Chief Executive Officer /s/ Micheal J. Cudahy -------------------------------------------- Michael J. Cudahy EX-10.10 11 LLC INTEREST PURCHASE AGREEMENT (02/16/99) EXHIBIT 10.10 - -------------------------------------------------------------------------------- PLUG POWER, LLC ------------------------------ LLC INTEREST PURCHASE AGREEMENT ------------------------------ Dated as of February 16, 1999 - -------------------------------------------------------------------------------- Exhibit 10.10 LLC INTEREST PURCHASE AGREEMENT AGREEMENT, dated as of February 16,1999, between PLUG POWER, LLC, a Delaware limited liability company (the "Company"), and Kevin Lindsay (the "Investor"). WHEREAS, the Company proposes to issue and sell to the Investor an aggregate of 60,000 Shares of Class A Membership Interests (the "Purchased Securities") for an aggregate purchase price of $400,000; WHEREAS, the Investor desires to purchase the Purchased Securities; NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein and for good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the parties hereto agree as follows: 1. Definitions. Unless otherwise defined in context or the context ----------- otherwise requires, capitalized terms used in this Agreement are defined on Schedule I hereto, which is incorporated herein by reference and made a part of this Agreement. Such terms shall be applicable to both the singular and plural forms of any of the terms therein- defined. 2. Sale and Purchase. Upon the terms and subject to the conditions herein ----------------- contained, the Company agrees to sell to the Investor, and the Investor agrees to purchase from the Company, on the Closing Date, the Purchased Securities. The Investor shall pay to the Company $400,000 for the Purchased Securities. 3. Closing. ------- (a) The Closing shall occur at the offices of Plug Power, 968 Albany- Shaker Road, Latham, New York 12110, at the hour of 10:00 A.M., Eastern Standard Time, on the Closing Date. (b) At the Closing, the Company shall deliver to the Investor a certificate evidencing the Purchased Securities, which certificate shall be registered in the Investor's name, against delivery to the Company of payment by check or wire transfer of immediately available funds to an account specified in writing by the Company on or before the Closing Date in an amount equal to $400,000. (c) At the Closing, the Investor shall execute the Limited Liability Company Agreement as a Class A Member. 4. Restrictions on Transfer of Securities. Removal of Restrictions on ------------------------------------------------------------------ Transfer of Securities. - ---------------------- (a) The Investor understands and agrees that the Purchased Securities have not been registered under the Securities Act, and that accordingly they will not be fully transferable except as permitted under various exemptions contained in or promulgated by the Commission under the Securities Act, or upon satisfaction of the registration and prospectus delivery requirements of the Securities Act. The Investor acknowledges that he must bear the economic risk of his investment in the Purchased Securities for an indefinite period of time since they has not been registered under the Securities Act and therefore cannot be sold unless they are subsequently registered or an exemption from registration is available. (b) The Investor hereby agrees with the Company as follows: (i) The certificates evidencing the Purchased Securities, and each certificate issued in transfer thereof, will bear a legend to the following effect: "The securities evidenced by this certificate have not been registered under the Securities Act of 1933 and have been taken for investment purposes only and not with a view to the distribution thereof, and such securities may not be sold or transferred unless there is an effective registration statement under such Act covering such securities or the issuer corporation receives an opinion of counsel (which may be counsel for the issuer corporation) stating that such sale or transfer is exempt from the registration and prospectus delivery requirements of such Act." (ii) The certificates representing the Purchased Securities, and each certificate issued in transfer thereof, will also bear any legend required under any applicable state securities law. (iii) Absent an effective registration statement under the Securities Act, covering the disposition of such securities, the Investor shall not sell, transfer, assign, pledge, hypothecate or otherwise dispose of any of the Purchased Securities without first providing the Company with an opinion of counsel (which may be counsel for the Company) to the effect that such sale, transfer, assignment, pledge, hypothecation or other disposition will be exempt from the registration and the prospectus delivery requirements of the Securities Act and the registration or qualification requirements of any applicable state securities laws, except that no such registration or opinion shall be required with respect to (A) a transfer not involving a change in beneficial ownership or (B) a sale to be effected in accordance with Rule 144 of the Commission under the Securities Act (or any comparable exemption). (iv) The Investor consents to the Company's making a notation on its records or giving instructions to any transfer agent of the Purchased Securities in order to implement the restrictions on transfer of the Purchased Securities set forth in this subsection (c). 5. Representations and Warranties by the Company. In order to induce --------------------------------------------- the Investor to enter into this Agreement and to purchase the Purchased Securities, the Company 2 hereby represents and warrants to the Investor as follows: 5.1 Organization. Standing. etc. The Company is a limited liability ---------------------------- company duly formed, validly existing and in good standing under the laws of the State of Delaware and has all requisite power and authority to carry on its business, to own and hold its properties and assets, to enter into this Agreement, to issue the Purchased Securities and to carry out the provisions hereof. The copies of the Certificate of Formation and Limited Liability Company Agreement of the Company, which have been delivered to the Investor prior to the execution of this Agreement are true and complete and have not been amended or repealed. 5.2 Qualification. The Company is duly qualified or licensed as a ------------- foreign limited liability company in good standing in each jurisdiction wherein the nature of its activities or its properties owned or leased makes such qualification, licensing or domestication necessary. 5.3 Capitalization. The authorized capitalization of the Company -------------- consists of 25,000,000 Shares of Class A Membership Interests and 3,000,000 Shares of Class B Membership Interests. As of the Closing Date, and prior to the issuance of the Investor Interest, the Company has 20,000,000 Shares of Class A Membership Interests and no Shares of Class B Membership Interests outstanding. All of the issued and outstanding Shares of the Company have been, and all of the Shares to be sold to the Investor will be, upon payment therefor, duly authorized and validly issued and fully paid and nonassessable. As of the Closing Date, and prior to the issuance of the Warrant, the Company has warrants and options outstanding, which upon exercise and payment of an aggregate of $89,100,000 to the Company, will entitle the holders of such warrants and options to an aggregate of 11,250,000 Shares of Class A Membership Interests and 2,033,900 Shares of Class B Membership Interests. Other than such warrants and- options, and the Warrant, there are no convertible securities with respect to the Company or agreements, arrangements or understandings to issue convertible securities with respect to the Company. 5.4 Company Authority. The Company has the power and authority to ----------------- execute and deliver this Agreement. The execution and delivery of this Agreement has been duly authorized by all necessary Company action. 5.5 Binding Obligations. This Agreement constitutes the legal, valid ------------------- and binding obligation of the Company and is enforceable against the Company in accordance with its terms, except as such enforcement is limited by bankruptcy, insolvency and other similar laws affecting the enforcement of creditors' rights generally. 5.6 Brokers or Finders. No Person has or will have, as a result of ------------------ the transactions contemplated herein and any action or omission of the Company, any right or valid claim against the Company or any Investor for any commission, fee or other compensation as a finder or broker, or in any similar capacity. 3 5.7 Legal Proceedings. There are no actions, proceedings or claims ----------------- pending or, to the knowledge of the Company, threatened against, relating to or affecting the Company or any of its assets or property, which, if determined adversely to the Company, would have a material adverse effect on the results of operations, financial condition or business of the Company. 5.8 Class A Membership Interests. The holders of Shares of Class A ---------------------------- Membership Interests and the number of Shares held by such holders are as set forth on Schedule 5.8. 5.9 Warrants and Options. The holders of options and warrants to -------------------- purchase Shares of Class A Membership Interests, the number of Shares underlying such options and warrants, the exercise price for such warrants and options and the expiration dates of such options and warrants are as set forth on Schedule 5.9. 6. Representatives and Warranties by the Investor. In order to induce the ---------------------------------------------- Company to enter into this Agreement and to sell the Purchased Securities, the Investor hereby represents and warrants to the Company as follows: 6.1 Binding Obligation. The Investor has the legal capacity to ------------------ execute and deliver this Agreement and to perform his obligations hereunder and to consummate the transactions contemplated hereby. This Agreement has been duly and validly executed and delivered by the Investor and constitutes a legal, valid and binding obligation of the Investor enforceable against the Investor in accordance with its terms, except as such enforcement is limited by bankruptcy, insolvency, and other similar laws affecting the enforcement of creditors' rights generally. 6.2 Purchase For Investment. The Investor hereby represents and ----------------------- warrants to the Company that he is acquiring the Purchased Securities for investment purposes only, for his own account, and not as nominee or agent for any other Person, and not with the view to, or for resale in connection with, any distribution thereof within the meaning of the Securities Act. The Investor represents and warrants that he is an "accredited investor," as such term is defined in Rule 501 of Regulation D as promulgated by the Securities and Exchange Commission under the Securities Act, or is not a resident of, or domiciled in, the United States or any territory or possession thereof, and the Investor shall submit to the Company such further assurances of such status as may be reasonably requested by the Company. 7. Miscellaneous ------------- 7.1 Amendment. This Agreement may be amended, supplemented or --------- modified only by a written instrument duly executed by or on behalf of each party hereto. 7.2 Notices. All notices, receipts, consents, instructions, approvals ------- and other communications required or permitted hereunder shall be validly given, if in writing and 4 delivered personally, by confirmed telecopy or sent by registered or certified mail or nationally recognized air courier service or overnight courier service, postage prepaid: (a) If to the Investor, at the following address or at such other address as the Investor may specify by written notice to the Company: 8435 Jackson Park Boulevard Wauwatosa, Wisconsin 533226 With a copy to: Schoenberg, Fisher, Newman & Rosenberg, Ltd. 222 S. Riverside Plaza Chicago, IL 60606 Attn: Melvin S. Newman (b) If to the Company, at the following address or at such other address as the Company may specify by written notice to Investor: Plug Power, LLC 968 Albany-Shaker Road Latham, NY 12110 Attention: Ana-Maria Galeano, Esq. With a copy to: Morgan, Lewis & Bockius LLP 101 Park Avenue New York, NY 10178 Attention: David W. Pollak, Esq. and each such notice, request, consent, instruction, approval and other communication shall for all purposes of the Agreement be treated as being effective or having been given when delivered, if delivered personally, or, if sent by mail, at the earlier of its actual receipt or three (3) days after the same has been deposited in a regularly maintained receptacle for the deposit of United States mail, addressed and postage prepaid as aforesaid, or if sent by telecopier, when confirmed, or if sent by air courier, two (2) days after the same has been deposited with such air courier, or if sent by overnight courier, one (1) day after the same has been deposited with such overnight courier. 7.3 Survival of Representations and Warranties, etc. All ------------------------------------------------ representations and warranties made in this Agreement shall survive the execution and delivery of this Agreement, and the sale and purchase of the Purchased Securities and payment therefor. 5 7.4 Severability. Should any one or more of the provisions of this ------------ Agreement or of any agreement entered into pursuant to this Agreement be determined to be illegal or unenforceable, all other provisions of this Agreement and of each other agreement entered into pursuant to this Agreement shall be given effect separately from the provision or provisions determined to be illegal or unenforceable and shall not be affected thereby. 7.5 Headings. The headings of the Sections and paragraphs of this -------- Agreement have been inserted for convenience of reference only and do not constitute a part of this Agreement. 7.6 Choice of Law. It is the intention of the parties that the ------------- internal substantive laws, and not the laws of conflicts, of the State of New York should govern the enforceability and validity of this Agreement, the construction of its terms and the interpretation of the rights and duties of the parties. 7.7 Fees and Expenses. The fees and expenses arising, in connection ----------------- with the negotiation and execution of this Agreement and the Warrant and consummation of the transactions contemplated hereby and thereby, shall be paid by the party incurring such fees. 7.8 Confidentiality. The Investor will hold in strict confidence --------------- from any Person, unless compelled to disclose by judicial or administrative process or by other requirements of any law all documents and information concerning the Company furnished to it by or on behalf of the Company in connection with or pursuant to this Agreement or the transactions contemplated hereby and thereby, except to the extent that such documents or information can be shown to have been in the public domain through no fault of the Investor. 7.9 No Assignment. Neither this Agreement nor any right, interest or ------------- obligation hereunder may be assigned (by operation of law or otherwise) by any party hereto without the prior written consent of the other party hereto and any attempt to do so will be void. 7.10 Counterparts. This Agreement may be executed in any number ------------ of counterparts, each of which shall be deemed an original, but all such counterparts shall together constitute one and the same instrument. 6 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered as of the date first above written. PLUG POWER, LLC By: /s/ Gary Mittleman -------------------------------------- Name: Title: /s/ Kevin Lindsey ------------------------------- Kevin Lindsay 7 SCHEDULE 1 TO THE LLC INTEREST PURCHASE AGREEMENT ------------------------------------------------- This Schedule 1 to that certain LLC Interest Purchase Agreement (the "Agreement"), dated as of February 16, 1999, between Plug Power, LLC and the Investor set forth therein, defines certain of the terms used therein and is made a part thereof. "Class A Membership Interests" means the Class A Membership Interests as ---------------------------- defined in the Company's Limited Liability Company Agreement. "Class B Membership Interests" means the Class B Membership Interests as ---------------------------- defined in the Company's Limited Liability Company Agreement. "Closing" means the closing of the sale and purchase by the Investor of the ------- Purchased Securities on the Closing Date. "Closing Date" means February 16, 1999, or such different time or day as ------------ the Investor and the Company shall agree. "Commission" means the United States Securities and Exchange Commission or ---------- any similar agency then having jurisdiction to enforce the Securities Act. "Limited Liability Company Agreement" means the Limited Liability Company ----------------------------------- Agreement of the Company, dated as of June 27, i 997, as amended by the First, Second, Third and Fourth Amendments thereto, respectively dated April 24, 1998, June 10, 1998, November 30, 1998 and January 29, 1999. "Person" shall include any natural person, corporation, trust, association, ------ company, partnership, joint venture and other entity and any Governmental Authority. "Securities Act" means the Securities Act of 1933, as amended. -------------- "Shares" means units of Class A Membership Interests or Class B Membership ------ Interests. 8 Schedule 5.8 Class A Membership Interests As of February 15, 1999 Edison Development Mechanical GE On-Site Power, Corp. Technology Inc. Inc. Total - ----------------------------------------------------------------------------- 10,000,000 7,750,000 2,250,000 20,000,000 9 Schedule 5.9 Warrants and Options for Class A Membership Interests As of February 15, 1999
Option/Warrant Type of Date of Expiration Date No. Of Shares Exercise price Holder Agreement Agreement of Agreement per share - -------------------------------------------------------------------------------------------------------------------------- MTI Option 4/24/98 4/23/99 250,000 $ 1.00 MTI Option 6/15/98 6/14/99 2,000,000 $ 1.00 MTI & EDC Equity None *1,000,000 Each for CY $ 7.50 Contribution & Period Ending Warrant 12/31/99 *2,000,000 Each for CY Period Ending 12/31/00 GE On-Site Call Option 2/5/99 Later of 3,000,000 $ 12.50 Power, Inc. 12/31/00 or 1st anniversary of Plug Power's IPO. Not later than 12/31/03
*If the Board of Managers determines that Plug Power requires additional funding. 10 EX-10.11 12 LLC INTEREST PURCHASE AGREEMENT (04/01/99) EXHIBIT 10.11 PLUG POWER, LLC LLC INTEREST PURCHASE AGREEMENT Dated as of April 11, 1999 LLC INTEREST PURCHASE AGREEMENT AGREEMENT, dated as of April 1, 1999, between PLUG POWER, LLC, a Delaware limited liability company (the "Company"), and Antaeus Enterprises, Inc., a Delaware corporation (the "Investor"). WHEREAS, the Company proposes to issue and sell to the Investor an aggregate of 299,850 Shares of Class A Membership Interests (the "Purchased Securities") for an aggregate purchase price of $2.0 million; WHEREAS, the Investor desires to purchase the Purchased Securities; NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein and for good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the parties hereto agree as follows: 1. Definitions. Unless otherwise defined in context or the context otherwise requires, capitalized terms used in this Agreement are defined on Schedule I hereto, which is incorporated herein by reference and made a part of this Agreement. Such terms shall be applicable to both the singular and plural forms of any of the terms therein defined. 2. Sale and Purchase. Upon the terms and subject to the conditions herein contained, the Company agrees to sell to the Investor, and the Investor agrees to purchase from the Company, on the Closing Date, the Purchased Securities. The Investor shall pay to the Company $2.0 million for the Purchased Securities. 3. Closing. (a) The Closing shall occur at the offices of Plug Power, 968 Albany- Shaker Road, Latham, New York 12110, at the hour of 10:00 A.M., Eastern Standard Time, on the Closing Date. (b) At the Closing, the Company shall deliver to the Investor a certificate evidencing the Purchased Securities, which certificate shall be registered in the Investor's name, against delivery to the Company of payment by wire transfer of immediately available funds to an account specified in writing by the Company on or before the Closing Date in an amount equal to $2.0 million. (c) At the Closing, the Investor shall execute the Limited Liability Company Agreement as a Class A Member. 4. Restrictions on Transfer of Securities, Removal of Restrictions on Transfer of Securities. (a) The Investor understands and agrees that the Purchased Securities have not been registered under the Securities Act, and that accordingly they will not be fully transferable except as permitted under various exemptions contained in or promulgated by the Commission under the Securities Act, or upon satisfaction of the registration and prospectus delivery requirements of the Securities Act. The Investor acknowledges that it must bear the economic risk of its investment in the Purchased Securities for an indefinite period of time since they have not been registered under the Securities Act and therefore cannot be sold unless they are subsequently registered or an exemption from registration is available. (b) The Investor hereby agrees with the Company as follows: (i) The certificates evidencing the Purchased Securities, and each certificate issued in transfer thereof, will bear a legend to the following effect: "The securities evidenced by this certificate have not been registered under the Securities Act of 19331 and have been taken for investment purposes only and not with a view to the distribution thereof, and such securities may not be sold or transferred unless there is an effective registration statement under such Act covering such securities, or such sale or transfer is exempt from the registration and prospectus delivery requirements of such Act, and if requested by the issuer corporation, the Investor delivers to it a satisfactory opinion of counsel to such effect." (ii) The certificates representing the Purchased Securities, and each certificate issued in transfer thereof, will also bear any legend required under any applicable state securities law. (iii) Absent an effective registration statement under the Securities Act covering the disposition of such securities, the Investor shall not sell, transfer, assign, pledge, hypothecate or otherwise dispose of any of the Purchased Securities unless such sale, transfer, assignment, pledge, hypothecation or other disposition will be exempt from the registration and the prospectus delivery requirements of the Securities Act and the registration or qualification requirements of any applicable state securities laws, and, if requested by the issuer corporation, the Investor delivers to it a satisfactory opinion of counsel to such effect. Notwithstanding the foregoing, no such registration or opinion shall be required with respect to a transfer not involving a change in beneficial ownership. (iv) The Investor consents to the Company's making a notation on its records or giving instructions to any transfer agent of the Purchased Securities in order to implement the restrictions on transfer of the Purchased Securities set forth in this subsection (b). 2 5. Representations and Warranties by the Company. In order to induce the Investor to enter into this Agreement and to purchase the Purchased Securities, the Company hereby represents and warrants to the Investor as follows: 5.1 Organization, Standing, etc. The Company is a limited liability company duly formed, validly existing and in good standing under the laws of the State of Delaware and has all requisite power and authority to carry on its business, to own and hold its properties and assets, to enter into this Agreement, to issue the Purchased Securities and to carry out the provisions hereof. The copies of the Certificate of Formation and Limited Liability Company Agreement of the Company, which have been delivered to the Investor prior to the execution This Agreement, are true and complete and have not been amended or repealed. 5.2 Qualification. The Company is duly qualified or licensed as a foreign limited liability company in good standing in each jurisdiction wherein the nature of its activities or its properties owned or leased makes such qualification, licensing or domestication necessary. 5.3 Capitalization. The authorized capitalization of the Company consists of 40,000,000 Shares of Class A Membership Interests and 3,000,000 Shares of Class B Membership Interests. As of the Closing Date, and prior to the issuance of the Investor Interest, the Company has 21,500,000 Shares of Class A Membership Interests and no Shares of Class B Membership Interests outstanding. All of the issued and outstanding Shares of the Company have been, and all of the Shares to be sold to the Investor will be, upon payment therefor, duly authorized and validly issued and fully paid and nonassessable. As of the Closing Date, the Company has warrants and options outstanding, which upon exercise and payment of an aggregate of $90,500,000 to the Company, will entitle the holders of such warrants and options to an aggregate of 11,650,000 Shares of Class A Membership Interests and, as of February 12, 1999, 2,033,900 Shares of Class B Membership Interests. Other than such warrants and options, there are no convertible securities with respect to the Company or agreements, arrangements or understandings to issue convertible securities with respect to the Company. 5.4 Company Authority. The Company has the power and authority to execute and deliver this Agreement. The execution and delivery of this Agreement has been duly authorized by all necessary Company action. 5.5 Binding Obligations. This Agreement constitutes the legal, valid and binding obligation of the Company and is enforceable against the Company in accordance with its terms, except as such enforcement is limited by bankruptcy, insolvency and other similar laws affecting the enforcement of creditors' rights generally. 5.6 Brokers or Finders. No Person has or will have, as a result of the transactions contemplated herein and any action or omission of the Company, any right or 3 valid claim against the Company or any Investor for any commission, fee or other compensation as a finder or broker, or in any similar capacity. 5.7 Legal Proceedings. There are no actions, proceedings or claims pending or, to the knowledge of the Company, threatened against, relating to or affecting the Company or any of its assets or property, which, if determined adversely to the Company, would have a material adverse effect on the results of operations, financial condition or business of the Company. 5.8 Class A Membership Interests. The holders of Shares of Class A Membership Interests and the number of Shares held by each such holder are as set forth on Schedule 5.8. 5.9 Warrants and Options. The holders of options and warrants to purchase Shares of Class A Membership Interests, the number of Shares underlying such options and warrants, the exercise price for such warrants and options are as set forth on Schedule 5.9. 6. Representations and Warranties by the Investor. In order to induce the Company to enter into this Agreement and to sell the Purchased Securities, the Investor hereby represents and warrants to the Company as follows: 6.1 Binding Obligation. The Investor has the power and authority to execute and deliver this Agreement. The execution and delivery of this Agreement has been duly authorized by all necessary corporate action of the Investor. This Agreement constitutes a legal, valid and binding obligation of the Investor enforceable against the Investor in accordance with its terms, except as such enforcement is limited by bankruptcy, insolvency, and other similar laws affecting the enforcement of creditors' rights generally. 6.2 Purchase For Investment. The Investor hereby represents and warrants to the Company that it is acquiring the Purchased Securities for investment purposes only, for its own account, and not as nominee or agent for any other Person, and not with the view to, or for resale in connection with, any distribution thereof within the meaning of the Securities Act. The Investor represents and warrants that it is an "accredited investor," as such term is defined in Rule 501 of Regulation D as promulgated by the Securities and Exchange Commission under the Securities Act, or is not a resident of, or domiciled in, the United States or any territory or possession thereof, and the Investor shall submit to the Company such further assurances of such status as may be reasonably requested by the Company. 7. Miscellaneous. 7.1 Amendment. This Agreement may be amended, supplemented or modified only by a written instrument duly executed by or on behalf of each party hereto. 4 7.2 Notices. All notices, receipts, consents, instructions, approvals and other communications required or permitted hereunder shall be validly given, if in writing and delivered personally, by confirmed telecopy or sent by registered or certified mail or nationally recognized air courier service or overnight courier service, postage prepaid: (a) If to the Investor, at the following address or at such other address as the Investor may specify by written notice to the Company: Antaeus Enterprises, Inc. 99 Park Avenue New York, NY 10016-1601 Attention: Robert J. Barletta Treasurer With a copy to: (b) If to the Company, at the following address or at such other address as the Company may specify by written notice to Investor: Plug Power, LLC 968 Albany-Shaker Road Latham, NY 12110 Attention: Ana-Maria Galeano, Esq. With a copy to: Morgan, Lewis & Bockius LLP 101 Park Avenue New York, NY 10178 Attention: David W. Pollak, Esq. and each such notice, request, consent, instruction, approval and other communication shall for all purposes of the Agreement be treated as being effective or having been given when delivered, if delivered personally, or, if sent by mail, at the earlier of its actual receipt or three (3) days after the same has been deposited in a regularly maintained receptacle for the deposit of United States mail, addressed and postage prepaid as aforesaid, or if sent by telecopier, when confirmed, or if sent by air courier, two (2) days after the same has been deposited with such air courier, or if sent by overnight courier, one (1) day after the same has been deposited with such overnight courier. 7.3 Survival of Representations and Warranties. etc. All representations and warranties made in this Agreement shall survive the execution and delivery of this Agreement, and the sale and purchase of the Purchased Securities and payment therefor, for a period of one year. 5 7.4 Severability. Should any one or more of the provisions of this Agreement or of any agreement entered into pursuant to this Agreement be determined to be illegal or unenforceable, all other provisions of this Agreement and of each other agreement entered into pursuant to this Agreement shall be given effect separately from the provision or provisions determined to be illegal or unenforceable and shall not be affected thereby. 7.5 Headings. The headings of the Sections and paragraphs of this Agreement have been inserted for convenience of reference only and do not constitute a part of this Agreement. 7.6 Choice of Law. It is the intention of the parties that the internal substantive laws, and not the laws of conflicts, of the State of New York should govern the enforceability and validity of this Agreement, the construction of its terms and the interpretation of the rights and duties of the parties. 7.7 Fees and Expenses. The fees and expenses arising in connection with the negotiation and execution of this Agreement and the Warrant and consummation of the transactions contemplated hereby and thereby, shall be paid by the party incurring such fees. 7.8 Confidentiality. The Investor will hold in strict confidence from any Person, unless compelled to disclose by Judicial or administrative process or by other requirements of any law all documents and information concerning the Company furnished to it by or on behalf of the Company in connection with or pursuant to this Agreement or the transactions contemplated hereby and thereby, except to the extent that such documents or information can be shown to have been in the public domain through no fault of the Investor. 7.9 No Assignment. Neither this Agreement nor any right, interest or obligation hereunder may be assigned (by operation of law or otherwise) by any party hereto without the prior written consent of the other party hereto and any attempt to do so will be void. 7.10 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all such counterparts shall together constitute one and the same instrument. 6 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered as of the date first above written. PLUG POWER, LLC By: /s/ Gary Mittleman ------------------ Name: Gary Mittleman Title: President & CEO ANTAEUS ENTERPRISES, INC. By: /s/ Frederick W. Beinecke ------------------------- Name: Frederick W. Beinecke Title: President 7 SCHEDULE I TO THE LLC INTEREST PURCHASE AGREEMENT This Schedule I to that certain LLC Interest Purchase Agreement (the "Agreement"), dated as of April _, 1999, between Plug Power, LLC and the Investor set forth therein, defines certain of the terms used therein and is made a part thereof. "Class A Membership Interests" means the Class A Membership Interests as defined in the Company's Limited Liability Company Agreement. "Class B Membership Interests" means the Class B Membership Interests as defined in the Company's Limited Liability Company Agreement. "Closing " means the closing of the sale and purchase by the Investor of the Purchased Securities on the Closing Date. "Closing Date" means April 1, 1999, or such different time or day as the Investor and the Company shall agree. "Commission" means the United States Securities and Exchange Commission or any similar agency then having jurisdiction to enforce the Securities Act. "Limited Liability Company Agreement" means the Limited Liability Company Agreement of the Company, dated as of June 27, 1997, as amended by the First, Second, and Third Amendments thereto, respectively dated April 24, 1998, June 10, 1999, November 30, 199S and the Minutes of the Special Meeting dated January 29, 1999. "Person" shall include any natural person, corporation, trust, association, company, partnership, joint venture and other entity and any Governmental Authority. "Securities Act" means the Securities Act of 1933, as amended. "Shares" means units of Class A Membership Interests or Class B Membership Interests. 8 SCHEDULE 5.8 TO THE LLC INTEREST PURCHASE AGREEMENT Class A Membership Interest
Holder Number EDC 10,000,000 MTI 7,750,000 GE 2,250,000 Cudahy 1,440,000 Lindsay 60,000 Total outstanding: 21,500,000
9 SCHEDULE 5.9 TO THE LLC INTEREST PURCHASE AGREEMENT Options for Class A Membership Interest
$ to Company Holder Number Exercise Price Upon Exercise MT1 2,250,000 $ 1.00 $ 2,250,000 MTI 33,000,000 $ 7.50 $ 22,500,000 EDC 33,000,000 $ 7.50 $ 22,500,000 GE 3,000,000 $ 12.50 $ 37,500,000 Total/Avg: 11,250,000 $ 7.53 $ 84,750,000 Warrants for Class A Membership Interest Cudahy 400,000 $ 8.50 $ 3,400,000 Options for Class B Membership Interest Employees 2,033,900 $ 1.00-$5.00 $ 4,350,000
10 EX-10.12 13 LLC INTEREST PURCHASE AGREEMENT (04/09/99) EXHIBIT 10.12 PLUG POWER, LLC LLC INTEREST PURCHASE AGREEMENT Dated as of April 9, 1999 LLC INTEREST PURCHASE AGREEMENT AGREEMENT, dated as of April 9, 1999, between PLUG POWER, LLC, a Delaware limited liability company (the "Company"), and Southern California Gas Company, a California corporation (the "Investor"). WHEREAS, the Company proposes to issue and sell to the Investor an aggregate of 1,000,000 Shares of Class A Membership Interests (the "Investor Interest") and a warrant (the "Warrant") to purchase 350,000 Shares of Class A Membership Interests (together, the Investor Interest and Warrant shall be referred to as the "Purchased Securities") for an aggregate purchase price of $6.67 million; WHEREAS, the Investor desires to purchase the Purchased Securities; NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein and for good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the parties hereto agree as follows: 1. Definitions. Unless otherwise defined in context or the context otherwise requires, capitalized terms used in this Agreement are defined on Schedule I hereto. Such terms shall be applicable to both the singular and plural forms of any of the terms therein defined. 2. Sale and Purchase. Upon the terms and subject to the conditions herein contained, the Company agrees to sell to the Investor, and the Investor agrees to purchase from the Company, on the Closing Date, the Purchased Securities. The Investor shall pay to the Company $6.67 million for the Purchased Securities and engage in the services set forth in Section 9. 3. Closing. (a) The Closing shall occur at the offices of Plug Power, 968 Albany- Shaker Road, Latham, New York 12110, at the hour of 10:00 A.M., Eastern Standard Time, on the Closing Date. (b) At the Closing, the Company shall deliver to the Investor a certificate evidencing the Investor Interest and a certificate evidencing the Warrant, which certificates shall be registered in the Investor's name, against delivery to the Company of payment by cashier's check or wire transfer of immediately available funds to an account specified in writing by the Company on or before the Closing Date in an amount equal to $6.67 million. (c) At the Closing, the Investor shall execute the Limited Liability Company Agreement attached hereto as Schedule 3(c) as a Class A Member. 4. Restrictions on Transfer of Securities; Removal of Restrictions on Transfer of Securities. (a) The Investor understands and agrees that the Purchased Securities have not been registered under the Securities Act, and that accordingly they will not be fully transferable except as permitted under various exemptions contained in or promulgated by the Commission under the Securities Act, or upon satisfaction of the registration and prospectus delivery requirements of the Securities Act. The Investor acknowledges that it must bear the economic risk of its investment in the Purchased Securities for an indefinite period of time since they have not been registered under the Securities Act and therefore cannot be sold unless they are subsequently registered or an exemption from registration is available. (b) The Investor hereby agrees with the Company as follows: (i) The certificates evidencing the Purchased Securities, and each certificate issued in transfer thereof, will bear a legend to the following effect: "The securities evidenced by this certificate have not been registered under the Securities Act of 1933 and have been taken for investment purposes only and not with a view to the distribution thereof. and such securities may not be sold or transferred unless there is an effective registration statement under such Act covering, such securities or the issuer corporation receives a reasonably satisfactory opinion of counsel stating that such sale or transfer is exempt from the registration and prospectus delivery requirements of such Act." (ii) The certificates representing the Purchased Securities, and each certificate issued in transfer thereof, will also bear any legend required under any applicable state securities law. (iii) Absent an effective registration statement under the Securities Act, covering the disposition of such securities, the Investor shall not sell, transfer, assign, pledge, hypothecate or otherwise dispose of any of the Purchased Securities without first providing the Company with a reasonably satisfactory opinion of counsel to the effect that such sale, transfer, assignment, pledge, hypothecation or other disposition will be exempt from the registration and the prospectus delivery requirements of the Securities Act and the registration or qualification requirements of any applicable state securities laws, except that no such registration or opinion shall be required with respect to (A) a transfer not involving a change in beneficial ownership or (B) a sale to be effected in accordance with Rule 144 of the Commission under the Securities Act (or any comparable exemption). (iv) The Investor consents to the Company's making a notation on its records or giving instructions to any transfer agent of the Purchased Securities in order to 2 implement the restrictions on transfer of the Purchased Securities set forth in this subsection (c). 5. Representations and Warranties by the Company. In order to induce the Investor to enter into this Agreement and to purchase the Purchased Securities, the Company hereby represents and warrants to the Investor as follows: 5.1 Organization, Standing etc. The Company is a limited liability company duly formed, validly existing and in good standing under the laws of the State of Delaware and has all requisite power and authority to carry on its business, to own and hold its properties and assets, to enter into this Agreement, to issue the Purchased Securities and to carry out the provisions hereof. The copies of the Certificate of Formation and Limited Liability Company Agreement of the Company, which have been delivered to the Investor prior to the execution of this Agreement, are true and complete and have not been amended or repealed. 5.2 Qualification. The Company is duly qualified or licensed as a foreign limited liability company in good standing in each jurisdiction wherein the nature of its activities or its properties owned or leased makes such qualification, licensing, or domestication necessary. 5.3 Capitalization. The authorized capitalization of the Company consists of 40,000,000 Shares of Class A Membership Interests and 3 ),000,000 Shares of Class B Membership Interests. As of the Closing., Date, and prior to the issuance of the Investor Interest, the Company has 24,049,850 Shares of Class A Membership Interests and no Shares of Class B Membership Interests outstanding. All of the issued and outstanding Shares of the Company have been, and all of the Shares to be sold to the Investor will be, upon payment therefor, duly authorized and validly issued and fully paid and nonassessable. As of the Closing Date, and prior to the issuance of the Warrant, the Company has warrants and options outstanding, which upon exercise and payment of an aggregate of $90,250,900 to the Company, will entitle the holders of such warrants and options to an aggregate of 9,400,000 Shares of Class A Membership Interests and, as of February 12, 1999, 2,033,900 Shares of Class B Membership Interests. Other than such warrants and options, and the Warrant, there are no convertible securities with respect to the Company or agreements, arrangements or understandings to issue convertible securities with respect to the Company. 5.4 Company Authority. The Company has the power and authority to execute and deliver this Agreement. The execution and delivery of this Agreement has been duly authorized by all necessary Company action. 5.5 Binding Obligations. This Agreement constitutes the legal, valid and binding obligation of the Company and is enforceable against the Company in accordance with its terms, except as such enforcement is limited by bankruptcy, insolvency and other similar laws affecting the enforcement of creditors' rights generally. 3 5.6 Brokers or Finders. No Person has or will have, as a result of the transactions contemplated herein and any action or omission of the Company, any right or valid g claim against the Company or any Investor for any commission, fee or other compensation as a finder or broker, or in any similar capacity. 5.7 Legal Proceedings. There are no actions, proceedings or claims pending or, to the knowledge of the Company, threatened against, relating to or affecting the Company or any of its assets or property, which, if determined adversely to the Company, would have a material adverse effect on the results of operations, financial condition or business of the Company. 5.8 Class A Membership Interests. The holders of Shares of Class A Membership Interests and the number of Shares held by such holders are as set forth on Schedule 5.8. 5.9 Warrants and Options. The holders of options and warrants to purchase Shares of Class A Membership Interests, the number of Shares underlying such options and warrants, the exercise price for such warrants and options and the expiration dates of such options and warrants are as set forth on Schedule 5.9. 5.10 The Company has not been charged, nor to the best of its knowledge is it threatened to be charged, with infringement of, nor to the best of its knowledge has it infringed, any existing patent, or pending application therefor, any registered or unregistered trademark, service mark, trade name, common-law or registered copyright, or other proprietary right of any property in connection with its business. The consummation of the transactions contemplated hereby will not alter or impair any of such rights. Use of the Company's PEM fuel cell system (the "Product") does not, and sale in the future would not, to the best knowledge of the Company, infringe upon any existing patent, or pending application therefor, agreement or right or claim of any party. A true and correct listing of all patents, trademarks, service marks, trade names, copyrights and licenses held by, and patent and trademark applications filed by the Company is attached as Schedule 5.10. 5.11 The Company is not (and to the best knowledge of the Company no other party is) and shall not be in breach or violation of, or default under, and there is no valid basis for a claim of breach or violation of, or default under, any agreement, instrument, or other obligation of any type to which the Company or GE Fuel Cell Systems, L.L.C. is a party or is bound (a "Material Contract") which involves a commitment or forbearance which could reasonably exceed $25,000 during a 12-month period and (a) relates to its business including, without limitation, the Product or (b) to which any of the Company's assets is subject, and no event has occurred which constitutes or, with the lapse of time or the giving of notice or both, would constitute such a breach, violation or default by the Company thereunder. Each Material Contract is listed on Schedule 5.11. 5.12 The Company has complied with, and is not in violation of, applicable federal, 4 state and local laws, rules and regulations materially affecting the operation of its business. 5.13 The Company has duly and timely filed all federal, state and local tax reports and returns required to be filed by it, and withheld and, if payable, paid, all taxes required to be withheld from or paid relating to salaries paid to its employees. 5.14 While they have not been audited, all of the financial statements, books and records of the Company for the calendar years 1997 and 1998, as made available to the Investor and its advisors for inspection prior to the Closing Date, have been prepared in accordance with generally accepted accounting principles, consistently applied throughout the periods covered thereby, and fairly and accurately present the financial condition of the Company. 5.15 No Reqistration Riehts. No securities issued by the Company to date, nor securities subject to warrants issued by the Company to date, are subject to registration rights, whether "demand rights," "piggyback rights" or otherwise. 6. Representations and Warranties by the Investor. In order to induce the Company to enter into this Agreement and to sell the Purchased Securities, the Investor hereby represents and warrants to the Company as follows: 6.1 Binding Obligation. The Investor has the power and authority to execute and deliver this Agreement. The execution and delivery of this Agreement has been duly authorized by all necessary corporate action of Investor. This Agreement constitutes a legal, valid and bindina oblication of the Investor enforceable against the Investor in accordance with its terms, except as such enforcement is limited by bankruptcy, insolvency, and other similar laws affecting the enforcement of creditors' rights generally. 6.2 Purchase For Investment. The Investor hereby represents and warrants to the Company that it is acquiring the Purchased Securities for investment purposes only, for its own account, and not as nominee or agent for any other Person, and not with the view to, or for resale in connection with, any distribution thereof within the.meaning of the Securities Act. The Investor represents and warrants that it is an "accredited investor," as such term is defined in Rule 501 of Regulation D as promulgated by the Securities and Exchange Commission under the Securities Act, or is not a resident of, or domiciled in, the United States or any territory or possession thereof, and the Investor shall submit to the Company such further assurances of such status as may be reasonably requested by the Company. 7. Indemnity Remedies 7.1 Indemnity. The Company shall indemnify, defend and hold Investor (and its directors, officers, direct and indirect parent companies, employees and agents) harmless from and against any and all claims, demands, losses, costs, expenses, obligations, liabilities, 5 damages, recoveries and deficiencies, including interest, penalties and reasonable attorneys fees (collectively, "Claims") that the Investor shall incur or suffer which arise, result from or relate to any material breach of warranty or materially inaccurate or materially erroneous representation made by the Company. The Investor shall indemnify, defend and hold the Company (and its directors, officers, direct and indirect parent companies, Class A Members, employees and agents) harmless from and against any and all Claims that the Company shall incur or suffer which arise, result from or relate to any material breach of warranty or materially inaccurate or materially erroneous representation made by the Investor. 7.2 Investor's Right of Offset. If Investor in good faith determines that it has properly incurred any Claims for which Investor is entitled to indemnification from the Company under Section 7.1, the Investor may, at its option and without prejudice to any right of the Investor to proceed directly against the Company under Section 7.1, be entitled to offset all or any portion of the amount of any liability, loss, damage or expense to which the Company shall be entitled to hereunder against any amount owing to the Company by Investor, including, without limitation, under any LLC Interest Purchase Warrant in connection with the exercise of warrants subject thereto. The exercise of such right of offset by the Investor hereunder shall be evidenced by such means of a notice to such effect given by the Investor to the Company which sets forth all details relating to and the basis for such offset. Upon the exercise by the Investor of its right to offset hereunder, the amount to which the Investor is entitled to offset shall be, and is deemed to be, applied in reduction of such amounts due to the extent specified in the notice of offset. 7.3 Indemnification Procedures. The indemnified party shall promptly notify the indemnifying party of any liability, breach of warranty, inaccuracy, misrepresentation or any other Claim arising under the foregoing indemnification provisions. If any third party shall notify either the Investor or the Company (the "Indemnified Party") with respect to any matter (a "Third Party Claim") that may give rise to a claim for indemnification against the other (the "Indemnifying Party") under this Section 7, then the Indemnifying Party may contest and defend in good faith any Third Party Claim covered by this section., provided such contest is made without cost or prejudice to the Indemnified Party, and provided that within ten (10) days of the Indemnifying Party's receipt of notice of such claim, the Indemnifying Party notifies the Indemnified Party of its desire to defend and contest such claim. If the Indemnifying, Party does not so notify the Indemnified Party of its desire to contest the claim, the Indemnifying Party shall reimburse tiie Indemnified Party for any payment actually made by the Indemnified P"arty at any time after the Closing Date with respect to any Claims to which the foregoing indemnity relates. 7.4 Other Remedies. In addition to any other remedy which the Investor may have available to it at law or in equity, the Investor shall be entitled to exercise any remedy in connection with any Claims which it may have against the Company which any other member of the Company may have against the Company with respect to events or circumstances similar to such claims. This right shall be broadly construed to be quantifiably equivalent to such other 6 members' remedies even where such remedies would not be directly applicable or practicable under this Agreement. 8. Anti-dilution Rights. 8.1 Attached hereto as Exhibit A is a proposed amendment to the Company's Limited Liability Company Agreement that the Company intends to submit to its interestholders. 8.2 The Company covenants that it will not grant anti-dilution rights to any person more favorably than those set out in Exhibit A hereto. 9. Investor Services. 9.1 Services. Over a period of two years from the date hereof, the Investor shall expend an aggregate of $840.000 for (a) market research on behalf of and for the direct benefit of the Company and (b) related services as part of its overall ongoing efforts to advance the utilization of distributed power generation technologies, including natural gas fueled residential sized PEM fuel cell systems. 9.2 Consequences of Non-Performance. By April 7, 2001, the Investor shall have delivered to the Company a certificate, sworn to and executed by a duly authorized officer of the Investor, representing that the services set forth in Section 9.1 herein have been rendered. If such services have not been rendered, the Investor shall have an additional 12-month period to either (a) expend an additional amount of money so that the Investor has spent an aggregate of $840,000 for the services it was to provide pursuant to Section 9.1; (b) pay cash to the Company in an amount equal to the difference between $840,000 and the amount the Investor incurred for services already rendered; or (c) return the appropriate number of Shares to the Company so that the total number of Shares actually retained by the Investor will equal $7.51 per Share, based on $6.67 million purchase price paid plus the value of the services rendered for the Investor Interest on the date hereof. 10. Miscellaneous. 10.1 Amendment. This Agreement may be amended, supplemented or modified only by a written instrument duly executed by or on behalf of each party hereto. 10.2 Notices. All notices, receipts, consents, instructions, approvals and other communications required or permitted hereunder shall be validly given, if in writing and delivered personally, by confirmed telecopy or sent by registered or certified mail or nationally recognized air courier service or overnight courier service, postage prepaid: (a) If to the Investor, at the following address or at such other address as the 7 Investor may specify by written notice to the Company: Southern California Gas Company 555 West Fifth Street Los Angeles, CA 90013-1001 Attn: David A. Berokoff With a copy to: SEMPRA Energy 101 Ash Street, 11th Floor San Diego., CA 92101 Attn: Gary Perlmutter, Esq. (b) If to the Company, at the following address or at such other address as the Company may specify by written notice to Investor: Plug Power, LLC 968 Albany-Shaker Road Latham, NY 12110 Attention: Ana-Maria Galeano, Esq. With a copy to: Morgan, Lewis & Bocklus LLP 101 Park Avenue New York, NY 10178 Attention: David W. Pollak, Esq. and each such notice, request, consent, instruction, approval and other communication shall for all purposes of the Agreement be treated as being effective or having been given when delivered if delivered personally, or, if sent by mail, at the earlier of its actual receipt or three (3) days after the same has been deposited in a regularly maintained receptacle for the deposit of United States mail, addressed and postage prepaid as aforesaid, or if sent by telecopier, when confirmed, or if sent by-air courier, two (2) days after the same has been deposited with such air courier, or if sent by overnight courier, one (1) day after the same has been deposited with such overnight courier. 10.3 Survival of Representations and Warranties, etc. All representations and warranties made in this Agreement shall survive the execution and delivery of this Agreement, and the sale and purchase of the Purchased Securities and payment therefor, for a period of two years. 8 10.4 Severability. Should any one or more of the provisions of this Agreement or of any agreement entered into pursuant to this Agreement be determined to be illegal or unenforceable, all other provisions of this Agreement and of each other agreement entered into pursuant to this Agreement shall be given effect separately from the provision or provisions determined to be illegal or unenforceable and shall not be affected thereby. 10.5 Construction: Headings. Each Schedule to this Agreement is incorporated herein by this reference. The headings of the Sections and paragraphs of this Agreement have been inserted for convenience of reference only and do not constitute a part of this Agreement. 10.6 Choice of Law. It is the intention of the parties that the internal substantive laws, and not the laws of conflicts, of the State of New York should govern the enforceability and validity of this Agreement, the construction of its terms and the interpretation of the rights and duties of the parties. Such choice of law shall have no bearing upon determination of the proper venue or jurisdiction for resolution of any dispute hereunder. 10.7 Fees and Expenses. The fees and expenses arising in connection with the negotiation and execution of this Agreement and the Warrant and consummation of the transactions contemplated hereby and thereby, shall be paid by the party incurring such fees. 10.8 Confidentiality. The Investor will hold in strict confidence from any Person, unless compelled to disclose by judicial or administrative process or by other requirements of any law all documents and information concerning the Company furnished to it by or on behalf of the Company in connection with or pursuant to this Agreement or the transactions contemplated hereby and thereby, except to the extent that such documents or information can be shown to have been in the public domain through no fault of the Investor. 10.9 No Assignment. Neither this Agreement nor any right, interest or be assigned (by operation of law or otherwise) by any party hereto without the prior written consent of the other party hereto and any attempt to do so will be void. 10.10 Counterparts. This Agreement maybe executed in any number of counterparts, each of which shall be deemed an original, but all such counterparts shall together constitute one and the same instrument. 9 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered as of the date first above written. PLUG POWER, LLC By: /s/ Gary Mittleman ---------------------------- Name: Gary Mittleman Title: President & CEO SOUTHERN CALIFORNIA GAS COMPANY By:_____________________________ Name: Title: 10 SCHEDULE 1 TO THE LLC INTEREST PURCHASE AGREEMENT This Schedule 1 to that certain LLC Interest Purchase Agreement (the "Agreement"), dated as of April 7, 1999, between Plug Power, LLC and the Investor set forth therein, defines certain of the terms used therein and is made a part thereof. "Class A Membership Interests" means the Class A Membership Interests as defined in the Company's Limited Liability Company Agreement. "Class B Membership Interests" means the Class B Membership Interests as defined in the Company's Limited Liability Company Agreement. "Closing" means the closing of the sale and purchase by the Investor of the Purchased Securities on the Closing Date. "Closing Date" means April 1999, or such different time or day as the Investor and the Company shall agree. "Commission" means the United States Securities and Exchange Commission or any similar agency then having jurisdiction to enforce the Securities Act. "Limited Liability Company Agreement" means the Limited Liability Company Agreement of the Company, dated as of June 27, 1997, as amended by the First, Second and Third Amendments thereto, respectively dated April 24, 1998, June 10, 1998, November 30, 1998 and the minutes of the Special Meeting dated January 29. 1999, attached hereto as Schedule 3(c). "Person" shall include any natural person, corporation, trust, association, company, partnership, joint venture and other entity and any Governmental Authority. "Securities Act" means the Securities Act of 1933, as amended. "Shares" means units of Class A Membership Interests or Class B Membership Interests. 11 SCHEDULE 5.8 TO THE LLC INTEREST PURCHASE AGREEMENT Class A Membership Interest Holder Number EDC 10,000,000 MT1 10,000,000 GE 2,250,000 Cudahy 1,440,000 Lindsay 60,000 Antaeus 299,850 Total outstanding: 24,049,850 12 SCHEDULE 5.9 TO THE LLC INTEREST PURCHASE AGREEMENT Options for Class A Membership Interest
$ to Company Holder Number Exercise Price Upon Exercise MTI 3,000,000 $ 7.50 $22,500,000 EDC 3,000,000 $ 7.50 $22,500,000 GE 3,000,000 $12.50 $37,500,000 Total/Avg: 9,000,000 $ 7.53 $82,500,000
Warrants for Class A Membership Interest Cudahy 400,000 $ 8.50 $ 3,400,000 Options for Class B Membership Interest Employees 2,033,900 $1.00-$5.00 $ 4,350,000 13 EXHIBIT 5.10 Applicant's Name: Plug Power, L.L.C. Applicant's Address: 968 Albany-Shaker Road Latham, New York 12110 Goods: Fuel cell systems, namely, fuel cell stacks, fuel processors, reformers, power controllers, power inverters, power Conditioners and energy storage devices, namely, barteries. Plug Power 14 EXHIBIT A TO THE LLC INTEREST PURCHASE AGREEMENT AMENDMENT TO THE LIMITED LIABILITY COMPANY AGREEMENT OF PLUG POWER, L.L.C. April 12.1999 A. Section 4.3 shall be amended and restated in its entirety, as follows: 4.3 Additional Capital Financing. (a) In the event a majority of the Management Committee determines that the Company needs additional financing, the Management Committee shall determine the structure and the pricing of the debt/equity offering necessary to raise such additional financing. If the Management Committee cannot agree on the structure and pricing of such financin2, such determination shall be made by a reputable, nationally recognized investment banking form, experienced in structuring and pricing debt and/or equity offerings in similar industries, selected by the Management Committee. (b) Sale to a Non-Member. If equity and/or debt financing is determined to be necessary pursuant to (a) above and the Company sells additional Shares of Class A Membership Interests ("New Securities") to a non- Member ("Purchasing Non-Member"), the Company will offer to sell to each Class A Member additional Shares of Class A Membership Interests ("Additional Securities"). The number of Additional Securities each Class A Member may purchase is calculated as follows: the product of the New Securities multiplied by the percentage of Shares of Class A Membership Interests held by such Class A Member prior to the sale of the New Securities. The Class A Members shall be entitled to purchase such Additional Securities at the same price as such New Securities are sold to the Purchasing Non-Member. The rights granted to the Class A Members pursuant to this paragraph shall be referred to as "Dilution Mitigation Rights." (1) Following the sale of the New Securities, the Company shall give the Class A Members written notice of such sale, describing the type of New Securities and the price upon which the Company sold such securities. Each Class A Member shall have twenty (20) days after receipt of written notice ("Offering Period") to decide whether or not to purchase, and, in the event the Class A Member decides to purchase, then it must complete the purchase of the Additional Securities within the 20 day period, for the price and upon the terms specified in the notice by giving, written notice to the Company and stating therein the quantity of Additional Securities to be purchased. In no event shall the Purchasing Non-Member be entitled to purchase Additional Securities during the Offering Period. (2) The rights granted pursuant to this Section 4.3(b) shall not apply to the granting of New Securities (a) in connection with any transaction the predominate 15 purpose of which is to acquire all or part of a Person or any of its business or assets, whether structured as an asset purchase or a purchase of stock or other equity (b) in exchange for services rendered in connection with any debt and/or equity financim, pursuant to this Section 4.33 (c) upon exercise of warrants or options exercisability into Shares of Class A Membership Interests or (d) in relationship to a Public offering of shares. (3) No Class A Member shall have the right to purchase Additional Securities not purchased by another Class A Member pursuant to this Section 4(b). (c) Sale to a Non-Member. If equity and,/or debt financing is determined to be necessary pursuant to (a) above and the Company sells additional Shares of Class A Membership Interests ("New Securities") to a Class A Member(s) ("Purchasing Member(s)"), each other Class A Member shall be entitled to purchase a sufficient number of Shares of Class A Membership Interest so that each Class A Member maintains the same proportionate ownership interest in the Company it had prior to the sale of the New Securities ("Additional Securities"). If one or more Class A Members elect not to exercise their right to purchase all or a portion of the Additional Securities, the proportionate ownership interest in the Company of all the Class A Members shall be adjusted to reflect each such Member's proportionate interest following the sale of New Securities to the Purchasing, Member. The rights granted to the Class A Members pursuant to this paragraph shall be referred to as "Anti- Dilution Rights." (1) Following the sale of the New Securities, the Company shall give the Class A Members written notice of such sale, describing the type of New Securities and the price upon which the Company sold such secunities. Each Class A Member shall have twenty (20) days after receipt of written notice to decide whether or not to purchase, and, in the event the Class A Member decides to purchase, then it must complete the purchase of the Additional Securities within the 20 day period, for the price and upon the terms specified in the notice by giving written notice to the Company and stating therein the quantity of Additional Securities to be purchased. (2) The rights granted pursuant to this Section 4.3(c) shall not apply to the granting of New Securities upon exercise of warrants or options exercisable into Shares of Class A Membership Interests. (3) No Class A Member shall have the right to purchase Additional Securities not purchased by another Class A Member pursuant to this Section 4.3(c). B. All other provisions of the Agreement, as amended, shall remain in full force and effect. 16 EXHIBIT I EXERCISE AGREEMENT Dated: To: Plug Power, LLC (1) The undersigned, pursuant to the provisions set forth in the attached Warrant (Certificate No. ___), hereby agrees to subscribe for the purchase of [all of the] [Insert number] Warrant Shares covered by such Warrant and makes payment herewith in full therefor at the price per share and in the manner provided by such Warrant. (2) In exercising this Warrant, the undersigned hereby confirins and acknowledges that the Warrant Shares are being acquired solely for the account of the undersigned and not as a nominee for any other party, and for investment, and that the undersigned will not offer, sell or otherwise dispose of any such Shares of Class A Membership Interests except under circumstances that will not result in a violation of the Securities Act of 1933, as amended (the "Act"), or any applicable state securities laws. Further, the undersigned acknowledges (1) that the purchase of the Shares of Class A Membership Interests is a long term investment, (ii) that the undersigned must bear the economic risk of the investment for an indefinite period of time because the shares have not been registered under the. Act or any state securities laws and that the undersigned's financial condition is such that it is not likely that it will be necessary to dispose of any such shares in the foreseeable future and (iii) that the certificates representing the securities purchased will bear appropriate legends as to the foregoing. (3) The undersigned has such experience and knowledge in financial and business matters to be capable of evaluating the merits and risks of the investment contemplated hereby and has reviewed the merits of such investment with tax and legal counsel and other advisors to the extent deemed advisable. The undersigned has been given the opportunity to ask questions of, and receive answers from, the Company concerning the investment and to obtain any additional information the undersigned deemed necessary. The undersigned is an "accredited investor" as defined in Rule 501 under the Act. (4) Please issue a certificate or certificates representing said Shares of Class A Membership Interests in the name of the undersigned. [Name] Signature Address 17 EX-10.13 14 WARRANT AGREEMENT (04/09/99) EXHIBIT 10.13 THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. IT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED EXCEPT PURSUANT TO A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITY UNDER SUCH ACT OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS UNDER SUCH ACT. LLC INTEREST PURCHASE WARRANT ----------------------------- Date of Issuance: April ___, 1999 Certificate No.____ For value received, PLUG POWER, LLC, a Delaware limited liability company (the "Company"), hereby grants to Southern California Gas Company, or its registered assigns (the "Registered Holder"), the right to purchase from the Company, at the Exercise Price therefor, 350,000 Shares of Class A Membership Interests of the Company, as adjusted from time to time pursuant to Section 2 hereof (the "Warrant Shares"). This Warrant is issued pursuant to the LLC interest Purchase Agreement. The Exercise Price and number of Warrant Shares (and the amount and kind of other securities) for which this Warrant is exercisable shall be subject to adjustment as provided herein. Certain capitalized terms used herein are defined in Section 3) hereof. This Warrant is subject to the following provisions: SECTION 1. Exercise of Warrant. ------------------- 1A. Exercise Period. The purchase rights represented by this Warrant may --------------- be exercised, in whole or in part, at any time and from time to time, following the Date of Issuance until the earliest of (i) December 31, 2001, (ii) a Qualifying Offering or (iii) 12 months after an initial public offering of the Company's Shares of Class A Membership Interests other than a Qualifying Offering (the "Exercise Period"). 1B. Exercise Procedure. ------------------ (i) This Warrant shall be deemed to have been exercised when all of the following items have been delivered to the Company (the "Exercise Time"): (a) a completed Exercise Agreement, in substantially the form set forth in Exhibit I hereto, executed by the Registered Holder; (b) this Warrant; and (c) a certified or bank check or wire transfer payable to the Company in an amount equal to the Exercise Price multiplied by the number of Warrant Shares being purchased upon such exercise (the "Aggregate Exercise Price"). (ii) Certificates for Warrant Shares (including, without limitation, fractional shares) purchased upon exercise of this Warrant shall be delivered by the Company to the Purchaser within seven business days after the date of the Exercise Time together with any cash payable in lieu of a fraction of a share pursuant to Section IC below. Unless this Warrant has expired or all of the purchase rights represented hereby have been exercised, the Company shall prepare a new Warrant, substantially identical hereto, representing the rights formerly represented by this Warrant which have not expired or been exercised and shall, within such seven-day period, deliver such new Warrant to the Registered Holder. (iii) The Warrant Shares issuable upon the exercise of this Warrant shall be deemed to have been issued to the Registered Holder at the Exercise Time. (iv) The Company shall not close its books against the transfer of this Warrant or of any Warrant Shares issued or issuable upon the exercise of this Warrant in any manner which Interferes with the timely exercise of this Warrant. (v) Notwithstanding any other provision hereof, if an exercise of any portion of this Warrant is to be made in connection with a public offering or a Sale of the Company, then such exercise may at the election of the Registered Holder be conditioned upon the consummation of such transaction, in which case such exercise shall not be deemed to be effective until immediately prior to the consummation of such transaction. (vi) If the Warrant Shares issuable by reason of exercise of this Warrant are convertible into or exchangeable for any other stock or securities, then the Company shall, at the Registered Holder's option and upon surrender of this Warrant by the Registered Holder as provided above together with any notice, statement, payment and other requirement required to effect such conversion or exchange of Warrant Shares, deliver to the Registered Holder a certificate or certificates representing the stock or securities into which the Warrant Shares issuable by reason of such conversion are convertible or exchangeable. IC. Fractional Shares. If a fractional share of a Warrant Share would, ----------------- but for the provisions of Section IA, be issuable upon exercise of the rights represented by this Warrant, the Company may, but should not be required, in lieu of such fractional share, within five business days after the date of the Exercise Time, deliver to the Purchaser a check payable to the Purchaser in lieu of such fractional share in an amount equal to the difference between the Fair Market Value of such fractional share as of the date of the Exercise Time and the Exercise Price of such fractional share. 2 SECTION 2. Adjustments; Notices. -------------------- 2A. Subdivision or Combination of Class A Membership Interests. If the ---------------------------------------------------------- Company at any time subdivides (by any share split, dividend, recapitalization or otherwise) the Shares of Class A Membership Interests into a greater number of shares or pays a dividend or makes a distribution to holders of the Shares of Class A Membership Interests in the form of Shares of Class A Membership Interests, then the Exercise Price in effect immediately prior to such subdivision shall be proportionately reduced and the number of Warrant Shares obtainable upon exercise of this Warrant (whether or not then acquirable or subject to a contingency), as the case may be, shall be proportionately increased. If the Company at any time combines (by reverse share split or otherwise) the Shares of Class A Membership Interests into a smaller number of shares, then the Exercise Price in effect immediately prior to such combination shall be proportionately increased and the number of Warrant Shares obtainable upon exercise of this Warrant (whether or not then acquirable or subject to a contingency), as the case may be, shall be proportionately decreased. 2B Organic Change. Any recapitalization, reorganization, -------------- reclassification, consolidation, merger, sale of all or substantially all of the Company's assets or other transaction which is effected in such a way that holders of Shares of Class A Membership Interests are entitled to receive (either directly or upon subsequent liquidation) stock, securities or assets with respect to or in exchange for Shares of Class A Membership Interests is referred to herein as an "Organic Change." Prior to the consummation of any Organic Change, the Company shall make appropriate provision (in form and substance reasonably satisfactory to the Required Holders) to that the Registered Holder shall have upon consummation thereof the right to acquire and receive upon exercise hereof such shares of stock, securities or assets as may be issued or payable with respect to or in exchange for the number of Warrant Shares immediately theretofore acquirable and receivable upon exercise of such Registered Holder's Warrants had such Organic Change not taken place. 2C. Notices. ------- (i) Promptly upon any adjustment of the Exercise Price, the Company shall give written notice thereof to the Registered Holder, setting forth in reasonable detail and certifying the calculation of such adjustment. (ii) The Company shall also give written notice to the Registered Holder at least 30 days prior to the date on which any Organic Change or Liquidity Event shall take place. 2D. Minimum Adjustment. No adjustment in the Exercise Price shall be made ------------------ if such adjustment is less than $.01; provided, however, that any adjustments -------- ------- which by reason of this Section 2D are not required to be made shall be carried forward and taken into account in any subsequent adjustment. 3 SECTION 3. Definitions. The following terms have the meanings set forth ----------- below: "Affiliate" means, as applied to any Person, (i) any other Person directly or indirectly controlling, controlled by or under common control with, that Person, (ii) any other Person that owns or controls 10% or more of any class of equity securities (including any equity securities issuable upon the exercise of any Option or the conversion or exchange of any Convertible Securities) of that Person or any of its Affiliates, or (iii) any member, director, partner, officer, agent, employee or relative of such Person or any of its direct or indirect Affiliates. For the purposes of this definition, "control" (including with correlative meanings, the terms "controlling", "controlled by", and "under common control with") as applied to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of that Person, whether through ownership of voting securities or by contract or otherwise. With respect to a natural person, the term"Affiliate" also shall include such person's spouse and lineal descendants. "Aggregate Exercise Price" has the meaning ascribed to it in Section IB(i). ------------------------ "Class A Membership Interests" means the Class A Membership Interests of ---------------------------- the Company as defined in the Limited Liability Company Agreement. "Convertible Securities" means any right, option or security exercisable ---------------------- for, or convertible or exchangeable into, Shares of Class A Membership Interests. "Date of Issuance" means the date the Company initially issues this Warrant ---------------- regardless of the number of times new certificates representing the unexpired and unexercised rights formerly represented by this Warrant shall be issued. "Exercise Period" has the meaning ascribed to it in Section IA. --------------- "Exercise Price" means $8.50 for each Warrant Share as such price ma be -------------- adjusted from time to time pursuant to Section 2 hereof. "Exercise Time" has the meaning ascribed to it in Section IB(i). ------------- "Fair Market Value" means, as to any security, as of a particular date (i) ----------------- the average of the closing sales prices on such date of such security on all domestic securities exchanges on which such security is listed, or (ii) if there have been no sales on any such exchange on any day, the average of the highest bid and lowest asked prices on all such exchanges at the end of such day, or (iii) if on any day such security is not so listed, the sales price for such security as of 4:00 P.M., New York time, as reported on the Nasdaq Stock Market, or (iv) if such security is not reported on the Nasdaq Stock Market, the average of the representative bid and asked quotations for such securities of 4:00 P.M., New York time, as reported on the Nasdaq interdealer quotation system, or any similar successor organization, in each such case averaged over a period of 21 trading days consisting of the day before "Fair Market Value" is being 4 determined and the immediately prior 20 trading days prior to such day during which such security was traded. Notwithstanding the foregoing, if at any time of determination such security is not registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended, and either listed on a national securities exchange or authorized for quotation in the Nasdaq Stock Market, then Fair Market Value shall mean the price that would be paid per share for the entire common equity interest in the issuer thereof in an orderly sale transaction between a willing buyer and a willing seller, using valuation techniques then prevailing in the securities industry and assuming full disclosure of all relevant information and a reasonable period of time for effectuating such sale, without discount for lack of liquidity, or minority position. Fair Market Value shall be determined by the Company's Management Committee in its good faith judgment. "Liquidity Event" means (1) a liquidation, dissolution or winding-up of the --------------- Company or (ii) a Sale of the Company. "Limited Liability Company Agreement" means the Limited Liability Company ----------------------------------- Agreement of the Company, dated June 27, 1997, as amended. "LLC Interest Purchase Agreement" means the LLC Interest Purchase ------------------------------- Agreement, dated as of April __, 1999, between the Company and Southern California Gas Company, as such agreement may be amended, modified or restated from time to time. "Person" means any individual, corporation, joint stock corporation, ------ limited liability company or partnership, general partnership, limited partnership, proprietorship, joint venture, other business organization, trust, union, association or government or regulatory authority. "Qualifying Offering" means the consummation of an initial underwritten ------------------- public offering of Shares of Class A Membership Interests registered under the Securities Act of 1933, as amended, pursuant to which the Shares of Class A Membership Interests are sold at a price per share of at least $8.50 (subject to appropriate adjustment for share splits, reverse share splits, share dividends, recapitalizations, reclassifications and similar events). "Sale of the Company" means the sale of the Company (whether by merger, ------------------- consolidation, recapitalization, reorganization, sale of securities, sale of assets or otherwise) in one transaction or a series of related transactions to a Person or Persons, pursuant to which such Person or Persons (together with its Affiliates) acquires (i) securities representing at least a majority of the voting, power of all securities of the Company, assuming the conversion, exchange or exercise of all securities convertible, exchangeable or exercisable for or into voting securities, or (ii) a material portion of the Company's consolidated assets other than in the ordinary course of business. "Shares" means units of Class A Membership Interests. ------ 5 "Warrant Shares" has the meaning ascribed thereto in the first paragraph of -------------- this Warrant; provided, that if the securities issuable upon exercise of the -------- Warrants are issued by an entity other than the Company or there is a change in the class of securities so issuable, then the term "Warrant Shares" shall mean shares of the security issuable upon exercise of the Warrants if such security is issuable in shares, or shall mean the equivalent units in which such security is issuable if such security is not issuable in shares. SECTION 4. No Voting Rights: Limitations of Liability. This Warrant shall ------------------------------------------ not entitle the Registered Holder hereof to any voting rights or other rights as a member of the Company. No provision hereof, in the absence of affirmative action by the Registered Holder to purchase Warrant Shares, and no enumeration herein of the rights or privileges of the Registered Holder shall give rise to any liability of such Registered Holder for the Exercise Price of Warrant Shares acquirable by exercise hereof or as a stockholder of the Company. SECTION 5. Restrictions. The Registered Holder agrees that it will not ------------ sell, transfer or otherwise dispose of this Warrant or any Warrant Shares, in whole or in part, except pursuant to an effective registration statement under the Securities Act of 1933, as amended, or an exemption from registration thereunder and then only in accordance with the terms of the Limited Liability Company Agreement. Each certificate evidencing Warrant Shares and each Warrant issued upon such transfer shall bear the restrictive legend required by the LLC Interest Purchase Agreement. The Company may require, as a condition of allowing the transfer or exchange of this Warrant, that the Registered Holder furnish to the Company an opinion of counsel reasonably acceptable to the Company to the effect that such transfer or exchange is permitted under the Securities Act of 1933, as amended, and applicable state securities laws. SECTION 6. Warrant Exchangeable for Different Denominations. This Warrant ------------------------------------------------ is exchangeable, upon the surrender hereof by the Registered Holder at the principal office of the Company, for new Warrants of like tenor representing in the aggregate the purchase rights hereunder, and each of such new Warrants shall represent such portion of such rights as is designated by the Registered Holder at the time of such surrender. All Warrants representing portions of the rights hereunder are also referred to herein as "Warrants." SECTION 7. Replacement. Upon receipt of evidence reasonably satisfactory ----------- to the Company (an affidavit of the Registered Holder shall be satisfactory) of the ownership and the loss, theft, destruction or mutilation of any certificate evidencing this Warrant, and in the case of any such loss, theft or destruction, upon receipt of indemnity reasonably satisfactory to the Company or, in the case of any such mutilation upon surrender of such certificate, the Company shall execute and deliver in lieu of such certificate a new certificate of like kind representing the same rights represented by such lost, stolen, destroyed or mutilated certificate and dated the date of such lost, stolen, destroyed or mutilated certificate. SECTION 8. Notices. Except as otherwise expressly provided herein, all ------- notices and deliveries referred to in this Warrant shall be in writing shall be delivered personally, sent by 6 registered or certified mail, return receipt requested and postage prepaid or sent via nationally recognized overnight courier or via facsimile, and shall be deemed to have been given when so delivered (or when received, if delivered by any other method) if sent (i) to the Company, at its principal executive offices and (ii) to a Registered Holder, at such Registered Holder's address as it appears in the records of the Company (unless otherwise indicated by any such Registered Holder). SECTION 9. Amendment and Waiver. Except as otherwise provided herein, the -------------------- provisions of this Warrant may be amended and the Company may take any action herein prohibited, or omit to perform any act herein required to be performed by it, only if the Company has obtained the prior written consent of the Registered Holder. SECTION 10. Warrant Register. The Company shall maintain at its principal ---------------- executive offices books for the registration and the registration of transfer of Warrants. The Company may deem and treat the Registered Holder as the absolute owner hereof (notwithstanding any notation of ownership or other writing thereon made by anyone) for all purposes and shall not be affected by any notice to the contrary. SECTION 11. Descriptive Headings: Governing Law. The descriptive headings ----------------------------------- of the several Sections and paragraphs of this Warrant are inserted for convenience only and do not constitute a part of this Warrant. THE CORPORATION LAWS OF THE STATE OF DELAWARE SHALL GOVERN ALL ISSUES CONCERNING THE RELATIVE RIGHTS OF THE COMPANY AND ITS STOCKHOLDERS. ALL OTHER QUESTIONS CONCERNING THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE DOMESTIC LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE STATE OF NEW YORK OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF NEW YORK. * * * * 7 IN WITNESS WHEREOF, the Company has caused this Warrant to be signed and attested by its duty authorized officers under its corporate seal and to be dated as of the date hereof. PLUG POWER, LLC By: /s/ Gary Mittleman ---------------------------- Name: Title: Attest: /s/ Ana-Maria Galeano - --------------------------- Name: Title: 8 EXHIBIT I EXERCISE AGREEMENT Dated: To: Plug Power, LLC (1) The undersigned, pursuant to the provisions set forth in the attached Warrant (Certificate No.___), hereby agrees to subscribe for the purchase of [all of the] [Insert number] Warrant Shares covered by such Warrant and makes payment herewith in full therefor at the price per share and in the manner provided by such Warrant. (2) In exercising this Warrant, the undersigned hereby confirms and acknowledges that the Warrant Shares are being acquired solely for the account of the undersigned and not as a nominee for any other party, and for investment, and that the undersigned will not offer, sell or otherwise dispose of any such Shares of Class A Membership Interests except under circumstances that will not result in a violation of the Securities Act of 1933 ), as amended (the "Act"), or any applicable state securities laws. Further, the undersigned acknowledges (i) that the purchase of the Shares of Class A Membership Interests is a long term investment (ii) that the undersigned must bear the economic risk of the investment for an indefinite period of time because the shares have not been registered under the Act or any state securities laws and that the undersigned's financial condition is such that it is not likely that it will be necessary to dispose of any such shares in the foreseeable future and (ill) that the certificates representing the Securities purchased will bear appropriate legends as to the foregoing. (3) The undersigned has such experience and knowledge in financial and business matters to be capable of evaluating the merits and risks of the investment contemplated hereby and has reviewed the merits of such investment with tax and legal counsel and other advisors to the extent deemed advisable. The undersigned has been given the opportunity to ask questions of, and receive answers from, the Company concerning the investment and to obtain any additional information the undersigned deemed necessary. The undersigned is an "accredited investor" as defined in Rule 501 under the Act. (4) Please issue a certificate or certificates representing said Shares of Class A Membership Interests in the name of the undersigned. ------------------------------ [Name] ------------------------------ Signature Address ----------------------- 9 EXHIBIT 10.13 AMENDMENT NO. 1 TO LLC INTEREST PURCHASE WARRANT This amendment ("Amendment") is entered into as of August 26, 1999 between Plug Power, LLC, a Delaware limited liability company (the "Company"), and Southern California Gas Company ("Holder"). WHEREAS, the Company and Holder are parties to an LLC Interest Purchase Warrant dated April 9, 1999 (the "Existing Warrant"); and WHEREAS, the Company and Holder desire to amend the Existing Warrant as provided herein. NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. The Existing Warrant is hereby amended by adding a new Section 1D, which shall immediately follow Section 1C, and which shall read in its entirety as follows: 1D. Automatic Exercise. Notwithstanding any provision in this ------------------ Warrant to the contrary, in the event of the consummation of an initial underwritten public offering of Shares of Class A Membership Interests (or shares of common stock issued in exchange for Class A Membership Interests in any merger, recapitalization or similar transaction) registered under the Securities Act of 1933, as amended, pursuant to which the Shares of Class A Membership Interests or shares of common stock, as the case may be, are sold at a price to the public of at least $8.50 per share (subject to appropriate adjustment for share splits, reverse share splits, share dividends, recapitalizations, reclassifications and similar events), then (i) this Warrant shall be automatically exercised in full immediately prior to the consummation of such offering, (ii) the Exercise Time shall be deemed to occur immediately prior to the consummation of such offering and (iii) Holder shall deliver to the Company at the Exercise Time a completed Exercise Agreement, this Warrant and a certified or bank check payable to the Company in an amount equal to the Exercise Price multiplied by the total number of Warrant Shares. 2. Except as amended hereby, the Existing Warrant shall remain in full force and effect in accordance with its terms. 3. Capitalized terms used but not defined herein shall have the meanings ascribed thereto in the Existing Warrant. 4. This Amendment may be executed in two or more counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same document. PLUG POWER, LLC By: /s/ Gary Mittleman ---------------------------------------------- Gary Mittleman, President and Chief Executive Officer SOUTHERN CALIFORNIA GAS COMPANY By : /s/ Lee Stewart ------------------------------------------- Name: Lee Stewart Title: President - Energy Transportation Services EX-10.14 15 AGREEMENT (06/26/99) CONFIDENTIAL INFORMATION HAS BEEN OMITTED PURSUANT TO RULE 406 UNDER THE SECURITIES ACT AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. THE LOCATIONS OF THE OMITTED INFORMATION HAVE BEEN INDICATED WITH ASTERISKS. EXHIBIT 10.14 Agreement No: 4633-ERTER-TR-99 Amount: $1,191,478 Type: Cost-Sharing RESTATED AGREEMENT This Restated Agreement dated this 26th day of June, 1997 by and between the NEW YORK STATE ENERGY RESEARCH AND DEVELOPMENT AUTHORITY ("NYSERDA"), a New York public benefit corporation having its principal office and place of business at Corporate Plaza West, 286 Washington Avenue Extension, Albany, New York 12203-6399, and MECHANICAL TECHNOLOGY, INC., a New York corporation having its principal office and place of business at 968 Albany-Shaker Road, Latham, New York (the "Contractor"). WHEREAS, NYSERDA and the Contractor have previously worked together under NYSERDA and MECHANICAL TECHNOLOGY, INC. Agreements 1791-ERER-ER-92, 4087-ERTER- TR-95 and 4540-ERTER-TR-97 to support the development, demonstration and commercialization of the Proton Exchange Membrane ("PEM") Fuel Cell (the "Project"); WHEREAS, in an effort to streamline and consolidate all of the rights and obligations under the aforementioned Project, NYSERDA and the Contractor desire to terminate Agreements 1791-ERER-ER-92, 4087-ERTER-TR-95, and 4540-ERTER-TR-97 and have all of the rights and obligations of NYSERDA and the Contractor under the aforementioned Agreements contained in this Agreement No. 4633-ERTER-TR-98; and WHEREAS, NYSERDA and the Contractor desire to continue to work together to support the successful commercialization of the Project. NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements hereinafter set forth, the parties do hereby agree as follows: Article I Definitions ----------- Section 1.01. Definition. Unless the context otherwise requires, the terms ---------- defined below shall have, for all purposes of this Agreement, the respective meanings set forth below, the following definitions to be equally applicable to both the singular and plural forms of any of the terms defined. (a) General Definitions: ------------------- Agreement: This Agreement and Exhibits A, B, C, and D hereto, all of which --------- are made a part hereof as though herein set forth in full. Budget: The Budget set forth in Exhibit A hereto. ------ Contract Administration: NYSERDA's Director of Contract Management, Robert ----------------------- G. Callender, or such other person who may be designated, in writing, by NYSERDA. Effective Date: The effective date of this Agreement shall be the date in -------------- the first paragraph of page one, above. Final Report: The Final Report required by the Statement of Work hereof. ------------ Person: An individual, a corporation, an association or partnership, an ------ organization, a business or a government or political subdivision thereof, or any governmental agency or instrumentality. Progress Reports: The Progress Reports required by the Statement of Work ---------------- hereof. Statement of Work: The Statement of Work attached hereto as Exhibit. A. ----------------- Subcontract: An agreement for the performance of Work by a Subcontractor, ----------- including any purchase order for the procurement of permanent equipment or expendable supplies in connection with the Work. Subcontractor: A person who performs Work directly or indirectly for or on ------------- behalf of the Contractor (and whether or not in privity of contract with the Contractor) but not including any employees of the Contractor or the Subcontractors. Work: The Work described in the Exhibit A (including the procurement of ---- equipment and supplies in connection therewith) and the performance of all other requirements imposed upon the Contractor under this Agreement. (b) Data Rights and Patents Definitions: ----------------------------------- Contract Data: Technical Data first produced in the performance of the ------------- Agreement or Agreements numbered 1791-ERER-ER-92, 4087-ERTER-TR-95, or 4540- ERTER-TR-97, or Technical Data actually delivered in connection with the Agreement or Agreements numbered 1791-ERER-ER-92, 4087-ERTER-TP-95, or 4540- ERTER-TR-97. Practical Application: To manufacture in the case of a composition or --------------------- product, to practice in the case of a process or method, or to operate in the case of a machine or system, and under conditions which indicate that the benefits of the invention are available to the public on reasonable terms. Proprietary Data: Technical Data which embody trade secrets developed at ---------------- private 2 expense, such as design procedures or techniques. chemical composition of materials, or manufacturing methods, processes, or treatments, including minor modifications thereof, provided that such data: (i) are not generally known or available from other sources without obligation concerning their confidentiality, (ii) have not been made available by the owner to others without obligation concerning its confidentiality; and (iii) are not already available to NYSERDA without obligation concerning their confidentiality. Subject Invention: Any invention or discovery of the Contractor conceived ----------------- or first actually reduced to practice in the course of or under this Agreement or Agreements numbered 1791-ERER-ER-92, 4087-ERTER-TR-95 or 4540-ERTER-TR-97, and includes any art, method, process, machine, manufacture, design, or composition of matter, or any new and useful improvement thereof, or any variety of plants, whether patented or unpatented, under the Patent Laws of the United States of America or any foreign country. Technical Data: Recorded information regardless of form or characteristic, -------------- of a scientific or technical nature. It may, for example, document research, experimental or developmental, or demonstration, or engineering work, or be usable or used to define a design or process, or to procure, produce, support, maintain, or operate material. The data may be graphic or pictorial delineations in media such as drawings or photographs, text in specifications or related performance or design type documents or computer software (including computer software programs, computer software data bases, and computer software documentation.). Examples of Technical Data include research and engineering data, engineering drawings and associated lists, specifications, standards, process sheets, manuals, technical reports, catalog item identification, and related information. Technical Data as used herein does not include financial reports, cost analyses, and other information incidental to contract administration. Unlimited Rights: Rights to use, duplicate, or disclose Technical Data, in ---------------- whole or in part, in any manner and for any purpose whatsoever, and to permit others to do so. (c) Payments to NYSERDA Definitions: ------------------------------- PEM Fuel Cell: The Proton Exchange Membrane ("PEM") Fuel Cell is a ------------- electrochemical device designed to convert hydrogen and oxygen to electricity with high efficiency and is characterized by high power density in terms of weight and size and as designed, developed, assembled and tested pursuant to this Agreement. 3 PEM Fuel Cell Stack: The PEM Fuel Cell Stack consists of multiple PEM fuel ------------------- cells arranged in a layer manner to provide an integrated structure. Product: The Product includes the PEM Fuel Cell and the PEM Fuel Stack, ------- whether used individually or together and regardless of application. New York State Manufacturer: Any manufacturer which provides (1) in excess --------------------------- of 25% value added to the manufacture of the Product, or (2) provides in excess of 75% value added for the assembly and R&D required for the manufacture of the Product and/or (3) any manufacturer which provides in excess of 25% of value added to the manufacture of a Subject Invention, or (4) provides in excess of 75% value added for the assembly and R&D required for manufacture of the Subject Invention as developed in this Project, within the geographical boundaries of the State of New York. Such value added shall be capable of being proven by an audit conducted in accordance with generally accepted auditing standards. "Value added" for manufacturing means any separable component of the Product or a Subject Invention, paid for by the Contractor to others, for parts, components, and services, all manufacturing costs, including but not limited to labor, labor overhead, materials, and G&A, but excluding profit. "Value added" for assembly and R&D means all assembly and R&D costs, including but not limited to assembly and R&D labor, assembly and R&D labor overhead and general and administrative services, excluding profit, assembly and R&D materials, and all manufactured component costs used in the manufacturing process. Sale: A sale or lease of a Product. ---- Sale Price: The Contractor's manufacturing cost of the Product, including ---------- the cost of all materials, direct labor, manufacturing overhead, and general and administrative expenses, excluding returns, and allowances such as sales tax, freight, commissions and insurance, if applicable, derived from a Sale. Seller: The Contractor, or any franchisee, licensee or assignee thereof. ------ Article II Performance of Work ------------------- Section 2.01. Manner of Performance. Subject to the provisions of Article --------------------- XII hereof, the Contractor shall perform all of the Work described in the Statement of Work, or cause such Work to be performed in an efficient and expeditious manner and in accordance with all of the terms and provisions of this Agreement. The Contractor shall perform the Work in accordance with the current professional standards and with the diligence and skill expected for the performance of work of the type described in the Statement of Work. The Contractor shall furnish such personnel and shall procure such materials, machinery, supplies, tools, equipment and other items as may reasonably be necessary or appropriate to perform the Work in accordance with this Agreement. 4 Section 2.02. Project Personnel. It is understood and agreed that ----------------- Mr. William Ernst shall serve as Project Director and as such shall have the responsibility of the overall supervision and conduct of the Work on behalf of the Contractor and that the persons described in the Statement of Work shall serve in the capacities described therein. Any change of Project Director by the Contractor shall be subject to the prior written approval of NYSERDA. Such approval shall not be unreasonably withheld, and, in the event that notice of approval or disapproval is not received by the Contractor within thirty days after receipt of request for approval by NYSERDA, the requested change in Project Director shall be considered approved. Article III Deliverables ------------ Section 3.01. Deliverables. All deliverables shall be provided in ------------ accordance with the Exhibit A Statement of Work. Article IV Compensation ------------ Section 4.01. Cost-Sharing. It is understood and agreed that NYSERDA and ------------ the Contractor are sharing the costs for the Work to be performed. In consideration for this Agreement and as full compensation for NYSERDA's share of the costs for the performance of all Work, and in respect of all other direct and indirect costs, charges or expenses incurred in connection therewith, NYSERDA shall pay to the Contractor a maximum amount of $1,191,478 for the cost elements identified in the Budget to be funded with NYSERDA funds, subject to the provisions and restrictions contained herein. Such amount shall be paid only to the extent that costs are incurred by the Contractor in performance of the Work in accordance with the provisions of this Agreement, the Budget and the following: (a) Staff Charges: The Contractor shall be compensated for the services ------------- performed by its employees under the terms of this Agreement at the employee's actual wage rate. In the event that any of the Contractor's rates are reduced to the benefit of any client of the Contractor as a result of any audit or for any other reason, the Contractor shall so notify NYSERDA and the appropriate reductions shall be made to the rates utilized hereunder. (b) Direct Charges: The Contractor shall be reimbursed for reasonable and -------------- necessary actual direct costs incurred (e.g., equipment, supplies, travel and other costs directly associated with the performance of the Agreement) to the extent required in the performance of the Work in accordance with the provisions of the Budget. Travel, lodging, meals and 5 incidental expenses shall be reimbursed for reasonable and necessary costs incurred. Costs should generally not exceed the daily per diem rates, published in the Federal Travel Regulations. Reimbursement for the use of personal vehicles shall be limited to the Internal Revenue Service business standard mileage rate. (c) Indirect Costs: The Contractor shall he reimbursed for fringe -------------- benefits, overhead, general and administrative (G&A), and other indirect costs and profit included in the Budget at such rates as the Contractor may periodically calculate, consistent with appropriate federal guidelines or generally accepted accounting principles. (d) Remaining Funds: NYSERDA and the Contractor agree that the cost to --------------- complete all of the Work under this Agreement is $1,191,478. NYSERDA and the Contractor agree that the Contractor has completed Work under the Project and has been reimbursed by NYSERDA. NYSERDA and the Contractor agree that $317,633 is available to complete the Work under this Agreement. Section 4.02. Title to Equipment. Title shall vest in the Contractor to all ------------------ equipment purchased hereunder. Section 4.03. Progress Payments. The Contractor may submit invoices for ----------------- progress payment no more than once each month or no less than once each calendar quarter for Work performed during such period. Invoices shall be addressed to NYSERDA, "Attention: Accounts Payable." Such invoices shall make reference to the Agreement number shown on the upper right hand corner of page one of the Agreement. Invoices shall set forth total project costs incurred. These shall be broken down into NYSERDA's Funding share and into the Cost-Share and other Cofunding share, and they shall be in a format consistent with the cost categories set forth in the Budget. Invoices shall provide reasonable documentation for the above to provide evidence of costs incurred, including: (a) Staff charges: for each employee, the name, title, number of hours worked, hourly rate and labor extension; (b) Direct charges: all direct costs shall be itemized on the invoice and supported by documentation, such as vendor invoices, travel vouchers or other documentation; and (c) Indirect charges: indirect cost rates and method by which rates are applied. The Contractor shall be notified by NYSERDA in accordance with Section 5.04.4 (b)(2) of NYSERDA's Prompt Payment Policy Statement, attached hereto as Exhibit D, of any such information or documentation which the Contractor did not include with such invoice. In accordance with and subject to the provisions of such Exhibit D, NYSERDA shall pay to the Contractor, within the prescribed time after receipt of an invoice for a progress 6 payment, 90% of NYSERDA's share of the amount so requested, unless NYSERDA should determine that any such payment or any part thereof is otherwise not properly payable pursuant to the terms of the Agreement or the Budget. Section 4.04. Final Payment. Upon final acceptance by NYSERDA of the Final ------------- Report and all other deliverables contained in Exhibit A, Statement of Work, pursuant to Section 6.02 hereof, the Contractor shall submit an invoice for final payment with respect to the Work, together with such supporting information and documentation as, and in such form as, NYSERDA may require. An invoice for final payment shall include, in addition to the material required pursuant to Section 4.03 hereof, a statement as to whether any invention or patentable devices have resulted from the performance of the Work. All invoices for final payment hereunder must, under any and all circumstances, be received by NYSERDA prior to September 30, 1998. In accordance with and subject to the provisions of NYSERDA's Prompt Payment Policy Statement, attached hereto as Exhibit D, NYSERDA shall pay to the Contractor within the prescribed time after receipt of such invoice for final payment, the total amount payable pursuant to Section 4.01 hereof, less all progress payments previously made to the Contractor with respect thereto and subject to the maximum commitment of $1,191,478 set forth in Section 4.07 hereof. Section 4.05. Release by the Contractor. The acceptance by the Contractor ------------------------- of final payment shall release NYSERDA from all claims and liability that the Contractor, its representatives and assigns might otherwise have relating to this Agreement. Section 4.06. Maintenance of Records. The Contractor shall keep, maintain, ---------------------- and preserve at its principal office throughout the term of the Agreement and for a period of three years after acceptance of the Work, full and detailed books, accounts, and records pertaining to the performance of the Agreement, including without limitation, all bills, invoices, payrolls, subcontracting efforts and other data evidencing, or in any material way related to, the direct and indirect costs and expenses incurred by the Contractor in the course of such performance. Further, the Contractor shall keep, maintain, and preserve at its principal office until such time as the Contractor's payment obligations to NYSERDA pursuant to Section 8.03 of the Agreement have been met, full and detailed books, accounts, and records in connection with Sales, and shall require licensees to maintain records of Sales. Section 4.07. Maximum Commitment. The maximum aggregate amount payable by ------------------ NYSERDA to the Contractor hereunder is $1,191,478. NYSERDA shall not be liable for any costs or expenses in excess of such amount incurred by the Contractor in the performance and completion of the Work. Section 4.08. Audit. NYSERDA shall have the right from time to time and at ----- all reasonable times during the term of the Agreement and such period thereafter to inspect and audit any and all books, accounts, and records at the office or offices of the Contractor where they are then being kept, maintained and preserved pursuant to Section 4.06 hereof. Any 7 payment made under the Agreement shall be subject to retroactive reduction for amounts included therein which are found by NYSERDA on the basis of any audit of the Contractor by an agency of the United States, State of New York or NYSERDA not to constitute an allowable charge or cost hereunder. Further, the Contractor shall provide to NYSERDA, on a reasonable basis, access to its books and records and those of any parent, subsidiary, affiliate, franchisee, licensee, or assignee to assure compliance with the payment provisions contained in Section 8.03 of the Agreement. Article V Assignments, Subcontracts and Purchase Orders --------------------------------------------- Section 5.01. General Restrictions. Except as specifically provided -------------------- otherwise in this Article, the assignment, transfer, conveyance, subcontracting or other disposal of this Agreement or any of the Contractor's rights, obligations, interests or responsibilities hereunder, in whole or in part, without the express consent in writing of NYSERDA shall be void and of no effect as to NYSERDA. Such consent shall not be unreasonably withheld, and, in the event that notice of approval or disapproval is not received by the Contractor within thirty days of receipt of the request for approval, the assignment, transfer, conveyance, subcontracting or other disposal of this Agreement or any of the Contractor's rights, obligations, interests, or responsibilities hereunder. in whole or in part, shall be considered approved. In the event that NYSERDA requires additional time for considering approval, NYSERDA shall notify the Contractor within thirty days of receipt of the request for approval that additional time is required and shall specify the additional amount of time necessary up to sixty (60) days. Section 5.02. Subcontract Procedures. Without relieving it of, or in any ---------------------- way limiting, its obligations to NYSERDA under this Agreement, the Contractor may enter into Subcontracts for the performance of Work or for the purchase of materials or equipment. Except for a subcontractor or supplier specified in a team arrangement with the Contractor in the Contractor's original proposal, and except for any subcontract or order for equipment, supplies or materials from a single subcontractor or supplier totaling under $10.000, the Contractor shall select all subcontractors or suppliers through a process of competitive bidding or multi-source price review. A team arrangement is one where a subcontractor or supplier specified in the Contractor's proposal is performing a substantial portion of the Work and is making a substantial contribution to the management and/or design of the Project. In the event that a competitive bidding or multi- source price review is not feasible, the Contractor shall document an explanation for, and justification of, a sole source selection. The Contractor shall document the process by which a subcontractor or supplier is selected by making a record summarizing the nature and scope of the work, equipment, supplies or materials sought, the name of each person or organization submitting, or requested to submit, a bid or proposal, the price or fee bid, and the basis for selection of the 8 subcontractor or supplier. An explanation for, and justification of, a sole source selection must identify why the work, equipment, supplies or materials involved are obtainable from or require a subcontractor with unique or exceptionally scarce qualifications or experience, specialized equipment, or facilities not readily available from other sources, or patents, copyrights, or proprietary data. All Subcontracts shall contain provisions comparable to those set forth in this Agreement applicable to a subcontractor or supplier, and those set forth in Exhibit B to the extent required by law, and all other provisions now or hereafter required by law to be contained therein. The Contractor shall submit to NYSERDA's Contract Administrator for review and written approval any subcontract(s) specified in the Statement of Work as requiring NYSERDA approval. The Contractor shall submit to NYSERDA a copy of all fully executed subcontracts and purchase orders that total greater than $10,000. Section 5.03. Performance. The Contractor shall promptly and diligently ----------- comply with its obligations under each Subcontract and shall take no action which would impair its rights thereunder. The Contractor shall not assign, cancel or terminate any Subcontract without the prior written approval of the Contract Administrator as long as this Agreement remains in effect. Such approval shall not be unreasonably withheld and, in the event that notice of approval or disapproval is not received by the Contractor within thirty days after receipt of request for approval by NYSERDA, the requested assignment, cancellation, or termination of the Subcontract shall be considered approved by NYSERDA. In the event that NYSERDA requires additional time for considering approval, NYSERDA shall notify the Contractor within thirty days of receipt of the request for approval that additional time is required and shall specify the additional amount of time necessary up to sixty (60) days. Section 5.04. Assignment to Plug Power, L.L.C. NYSERDA hereby expressly ------------------------------- consents, in writing, to the assignment of this Agreement, NYSERDA Agreements 1791-ERER-ER-92, 4087-ERTER-TR-95, and 4540-ERTER-ER-97, as modified and restated by this Agreement, and any and all rights, title, interests, duties, liabilities and obligations in connection therewith, to Plug Power, L.L.C. NYSERDA agrees to take any and all action requested by the Contractor or Plug Power, L.L.C., to effect such transfer as a matter of law. Article VI Schedule: Acceptance of Work ---------------------------- Section 6.01. Schedule. The Work shall be performed as expeditiously as -------- possible in conformity with the schedule requirements contained herein and in the Statement of Work. The draft and final versions of the Final Report shall be submitted by the dates specified in the Exhibit A Schedule. It is understood and agreed that the delivery of the draft and final versions 9 of such reports by the Contractor shall occur in a timely manner and in accordance with the requirements of the Exhibit A Schedule. Section 6.02. Acceptance of Work. The completion of the Work shall be ------------------ subject to acceptance by NYSERDA in writing of the Final Report and all other deliverables as defined in Exhibit A, Statement of Work. Article VII Force Majeure ------------- Section 7.0.1. Force Majeure. Neither party hereto shall be liable for any ------------- failure or delay in the performance of its respective obligations hereunder if and to the extent that such delay or failure is due to a cause or circumstance beyond the reasonable control of such party, including, without limitation, acts of God or the public enemy, expropriation or confiscation of land or facilities, compliance with any law, order or request of any Federal, State, municipal or local governmental authority, acts of war, rebellion or sabotage or damage resulting therefrom, fires, floods, storms, explosions, accidents, riots, strikes, or the delay or failure to perform by any Subcontractor by reason of any cause or circumstance beyond the reasonable control of such Subcontractor. Article VIII Technical Data: Patents- Payments to NYSERDA -------------------------------------------- Section 8.01. Rights in Technical Data ------------------------ (a) Technical Data: Rights in Technical Data shall be allocated as follows: (1) NYSERDA shall have: (i) rights in Contract Data and Proprietary Data in order to exercise license rights, as provided in paragraph (a)(2)(iii) below; and (ii) no rights under this Agreement in any Technical Data which are not Contract Data. (2) The Contractor shall have: (i) unlimited rights in all Technical Data, Contract Data and Proprietary Data subject to paragraph (iii) below; (ii) the right to withhold Proprietary Data except as otherwise provided in paragraph (iii) below; and 10 (iii) the right to make, use and sell the Product. In the event the Contractor fails to make, use, or sell any Subject Invention within 10 years from the Contractor's receipt of Final Payment as described in Section 4.04 hereof, so that the benefits of such Subject Invention are available to the public and after written notice to the Contractor and a period of not less than six months in which the parties shall negotiate in good faith in order to resolve any disputes, NYSERDA shall be granted a royalty-free, non-exclusive, worldwide license sufficient in scope to allow NYSERDA to make, use or sell the Subject Invention and to allow others to do so. NYSERDA shall keep any Proprietary Data concerning such Subject Invention confidential, and may disclose such Proprietary Data to its sublicensees who have agreed to keep such Proprietary Data confidential. The Contractor agrees that to the extent it receives or is given access to Proprietary Data or other technical, business or financial data in the form of recorded information from NYSERDA or a NYSERDA contractor or subcontractor, the Contractor shall treat such data in accordance with any restrictive legend contained thereon, unless another use is specifically authorized by prior written approval of the Contract Administrator. Section 8.02. Patents. ------- (a) The Contractor retains the entire right, title and interest throughout the world in each Subject Invention of the Contractor conceived or first actually reduced to practice in the performance of the Work under the Agreement; except, that with respect to any Subject Invention in which the Contractor elects to retain title, NYSERDA shall have a non-exclusive, non-transferrable, irrevocable, paid-up license for itself, the State of New York and all political subdivisions and other instrumentalities of the State of New York, to practice or have practiced for or on their behalf the Subject Invention throughout the world, exclusively for their own use of the Subject Invention. (b) Effective on the date of this Agreement, the Contractor shall submit to NYSERDA, not less frequently than annually, written reports which indicate the status of utilization of Subject Inventions. The reports shall include information regarding the status of development, date of first commercial sale or use, and gross royalties received by the Contractor. Such report shall be furnished to NYSERDA not later than February 1 following the calendar year covered by the report. The Contractor may include the information required by this Section in the Annual Report required by Section 8.03 of this Agreement. Section 8.03. Payments to NYSERDA. -------------------- (a) (1) [***] (2) [***] CONFIDENTIAL INFORMATION HAS BEEN OMITTED PURSUANT TO RULE 406 UNDER THE SECURITIES ACT AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. THE LOCATIONS OF THE OMITTED INFORMATION HAVE BEEN INDICATED WITH ASTERISKS. 11 amounts: [***] (b) Annual Reports. The Contractor shall provide NYSERDA an annual report -------------- detailing, by manufacturer, the number of items sold or leased, or the payment or other CONFIDENTIAL INFORMATION HAS BEEN OMITTED PURSUANT TO RULE 406 UNDER THE SECURITIES ACT AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. THE LOCATIONS OF THE OMITTED INFORMATION HAVE BEEN INDICATED WITH ASTERISKS. 12 receipts received, and the resultant amount earned by, and paid to, NYSERDA in accordance with paragraph (a) hereof. Such report shall be furnished to NYSERDA not later than February 1 following the calendar year covered by the report. The Contractor's obligation to provide Annual Reports shall commence on February 1 of the calendar year following either the Contractor's receipt of Final Payment pursuant to Section 4.04 hereto, or upon the first Sale, whichever event occurs first. In the event that, for a period of five consecutive years, the annual reports indicate that no Sales are made and no payment is due to NYSERDA, the Contractor may cease submittal of annual reports. If, however, Sales are made in subsequent years, the Contractor's obligation to submit annual reports shall resume. (c) Licensing or Franchise Agreements. The Contractor shall not enter into --------------------------------- any agreement with any party with respect to the licensing, franchising, or assignment of rights in the Product or any Subject Invention which contains provisions inconsistent with the Contractor's obligation as set forth in this Section. The Contractor shall provide copies of any proposed licensing or franchise agreements to NYSERDA and shall not execute any such agreements without the prior written consent of NYSERDA. Such consent shall not be unreasonably withheld, and, in the event that notice of consent or disapproval is not received by the Contractor within thirty days after receipt of request for approval by NYSERDA, such licensing or franchise agreement shall be considered approved. Article IX Warranties and Guarantees ------------------------- Section 9.01. Warranties and Guarantees. The Contractor warrants and ------------------------- guarantees that: (a) it is financially and technically qualified to perform the Work; (b) it is familiar with and will comply with all general and special Federal, State, municipal and local laws, ordinances and regulations, if any, that may in any way affect the performance of this Agreement; (c) the design, supervision and workmanship furnished with respect to performance of the Work shall be in accordance with sound and currently accepted scientific standards and engineering practices; (d) all materials, equipment and workmanship furnished by it and by Subcontractors in performance of the Work or any portion thereof shall be free of defects in design, material and workmanship, and all such materials and equipment shall be of first-class quality, shall conform with all applicable codes, specifications, standards and ordinances and shall have service lives and maintenance characteristics suitable for their intended purposes in accordance with sound and currently accepted scientific standards and engineering practices; 13 (e) neither the Contractor nor any of its employees, agents, representatives or servants has actual knowledge of any patent issued under the laws of the United States or any other matter which could constitute a basis for any claim that the performance of the Work or any part thereof infringes any patent or otherwise interferes with any other right of any Person; (f) there are no existing undisclosed or threatened legal actions, claims, or encumbrances, or liabilities that may adversely affect the Work or NYSERDA's rights hereunder; and (g) it has no actual knowledge that any information or document or statement furnished by the Contractor in connection with this Agreement contains any untrue statement of a material fact or omits to state a material fact necessary to make the statement not misleading, and that all facts have been disclosed that would materially adversely affect the Work. Article X Indemnification --------------- Section 10.01. Indemnification. The Contractor shall protect, indemnify and --------------- hold harmless NYSERDA and the State of New York from and against all liabilities, losses, claims, damages, judgments, penalties, causes of action, costs and expenses (including, without limitation, attorneys' fees and expenses) imposed upon or incurred by or asserted against NYSERDA or the State of New York resulting from, arising out of or relating to the performance of this Agreement. The obligations of the Contractor under this Article shall survive any expiration or termination of this Agreement, and shall not be limited by any enumeration herein of required insurance coverage. Article XI Insurance --------- Section 11.01. Maintenance of Insurance Policy Provisions. The Contractor, ------------------------------------------ at no additional cost to NYSERDA, shall maintain or cause to be maintained throughout the term of this Agreement, insurance of the types and in the amounts specified in the Section hereof entitled Types of Insurance. All such insurance shall be evidenced by insurance policies, each of which shall: (a) name or be endorsed to cover NYSERDA, the State of New York and the Contractor as insureds, as their respective interests may appear; (b) provide that such policy may not be cancelled or modified until at least 30 days after receipt by NYSERDA of written notice thereof; and 14 (c) be reasonably satisfactory to NYSERDA in all other respects. Section 11.02. Types of Insurance. The types and amounts of insurance ------------------ required to be maintained under this Article are as follows: (a) Commercial general liability insurance for bodily injury liability, including death, and property damage liability, incurred in connection with the performance of this Agreement, with minimum limits of $1,000,000 in respect of claims arising out of personal injury or sickness or death of any one person, $1,000,000 in respect of claims arising out of personal injury, sickness or death in any one accident or disaster, and $1,000,000 in respect of claims arising out of property damage in any one accident or disaster; (b) Commercial automobile liability insurance in respect of motor vehicles owned, licensed or hired by the Contractor and the Subcontractors for bodily injury liability, including death and property damage, incurred in connection with the performance of this Agreement, with minimum limits of $500,000 in respect of claims arising out of personal injury, or sickness or death of any one person, $1,000,000 in respect of claims arising out of personal injury, sickness or death in any one accident or disaster, and $500,000 in respect of claims arising out of property damage in any one accident or disaster; and (c) Upon commencement of marketing of the Product, product liability insurance for bodily injury liability, including death, and property damage liability, arising out or the use of the Product with minimum limits of $1,000,000 in respect of claims arising out of personal injury or sickness or death of any one person, $1,000,000 in respect of claims arising out of personal injury, sickness or death in any one accident or disaster, and $1,000,000 in respect of claims arising out of property damage in any one accident or disaster. Product liability insurance naming the NYSERDA and State of New York as additional insureds required under This Agreement shall remain in effect for as long as the payment obligation pursuant to Section 8.03 of this Agreement is in effect. Section 11.03. Delivery of Policies; Insurance Certificates. Prior to -------------------------------------------- commencing the Work, the Contractor shall deliver to NYSERDA certificates of insurance issued by the respective insurers, indicating the Agreement number thereon, evidencing the insurance required by Sections 11.02 (a) and (b) hereof and bearing notations evidencing the payment of the premiums thereon or accompanied by other evidence of such payment satisfactory to NYSERDA. Upon commencement of marketing of the Product, the Contractor shall deliver to NYSERDA certificates of insurance issued by the respective insurers, indicating the Agreement number thereon, evidencing the insurance required by Section 11.02 (c) hereof and bearing notations evidencing the payment of the premiums thereon or accompanied by other evidence of such payment satisfactory to NYSERDA. In the event any policy furnished or carried pursuant to this Article will expire on a date prior to acceptance of the Work by NYSERDA pursuant to the section hereof entitled Acceptance of Work, the Contractor, not less than 15 days prior to such expiration date, shall deliver to NYSERDA certificates of 15 insurance evidencing the renewal of such policies, and the Contractor shall promptly pay all premiums thereon due. In the event of threatened legal action, claims, encumbrances, or liabilities that may affect NYSERDA hereunder, or if deemed necessary by NYSERDA due to events rendering a review necessary, upon request the Contractor shall deliver to NYSERDA a certified copy of each policy. Article XII Stop Work Order; Termination ---------------------------- Section 12.01. Stop Work Order. --------------- (a) NYSERDA may at any time, by written Order to the Contractor, require the Contractor to stop all or any part of the Work called for by this Agreement for a period of up to 90 days after the Stop Work Order is delivered to the Contractor, and for any further period to which the parties may agree. Any such order shall be specifically identified as a Stop Work Order issued pursuant to this Section. Upon receipt of Such an Order, the Contractor shall forthwith comply with its terms and take all reasonable steps to minimize the incurrence of costs allocable to the Work covered by the Order during the period of work stoppage consistent with public health and safety. Within a period of 90 days after a Stop Work Order is delivered to the Contractor, or within any extension of that period to which the parties shall have agreed, NYSERDA shall either: (i) by written notice to the Contractor, cancel the Stop Work Order, which shall be effective as provided in such cancellation notice, or if not specified therein, upon receipt by the Contractor, or (ii) terminate the Work covered by such order as provided in the Termination Section of this Agreement. (b) If a Stop Work Order issued under this Section is cancelled or the period of the Order or any extension thereof expires, the Contractor shall resume Work. An equitable adjustment shall be made in the delivery schedule, the estimated cost, the fee, if any, or a combination thereof, and in any other provisions of the Agreement that may be affected, and the Agreement shall be modified in writing accordingly, if: (i) the Stop Work Order results in an increase in the time required for, or in the Contractor's cost properly allocable to, the performance of any part of this Agreement, and (ii) the Contractor asserts a claim for such adjustments within 30 days after the end of the period of Work stoppage; provided that, if NYSERDA decides the facts justify such action, NYSERDA may receive and act 16 upon any such claim asserted at any time prior to final payment under this Agreement. (c) If a Stop Work Order is not cancelled and the Work covered by such Order is terminated, the reasonable costs resulting from the Stop Work Order shall be allowed by equitable adjustment or otherwise. (d) Notwithstanding the provisions of this Section 12.01, the maximum amount payable by NYSERDA to the Contractor pursuant to this Section 12.01 shall not be increased or deemed to be increased except by specific written amendment hereto. Section 12.02. Termination. ----------- (a) This Agreement may be terminated by NYSERDA at any time during the term of this Agreement with or without cause, upon 30 days prior written notice to the Contractor. In such event, compensation shall be paid to the Contractor for Work performed and expenses incurred prior to the effective date of termination in accordance with the provisions of the Article hereof entitled Compensation and in reimbursement of any amounts required to be paid by the Contractor pursuant to Subcontracts; provided, however, that upon receipt of any such notice of termination, the Contractor shall cease the performance of Work, shall make no further commitments with respect thereto and shall reduce insofar as possible the amount of outstanding commitments (including, to the extent requested by NYSERDA, through termination of subcontracts containing provisions therefor). Articles VIII, IX, and X shall survive any termination of this Agreement, and Article XVI shall survive until the payment obligations pursuant to Article VIII have been met. (b) In the event of termination, the Contractor's payment obligations set forth in Section 8.03 of the Agreement shall be adjusted as of the effective date of termination, with such payment obligations being calculated as follows: Total NYSERDA funds actually paid to the Contractor X Payments defined - ---------------------------------------- in Section 8.03 of the NYSERDA total maximum Agreement commitment set forth in Section 4.07 of the Agreement (c) Nothing in this Article shall preclude the Contractor from continuing to carry out the Work called for by the Agreement after receipt of a Stop Work Order or termination notice at its own election, provided that, if the Contractor so elects, (i) any such continuing Work after receipt of the Stop Work Order or termination notice shall be deemed not to be Work-pursuant to the Agreement and (ii) NYSERDA shall have no liability to the Contractor for any 17 costs of the Work continuing after receipt of the Stop Work Order or termination notice. Article XIII Independent Contractor ---------------------- Section 13.01. Independent Contractor. The status of the Contractor under ---------------------- this Agreement shall be that of an independent contractor and not that of an agent, and in accordance with such status, the Contractor, the Subcontractors, and their respective officers, agents, employees, representatives and servants shall at all times during the term of this Agreement conduct themselves in a manner consistent with such status and by reason of this Agreement shall neither hold themselves out as, nor claim to be acting in the capacity of, officers, employees, agents, representatives or servants of NYSERDA nor make any claim, demand or application for any right or privilege applicable to NYSERDA, including, without limitation, rights or privileges derived from workers' compensation coverage, unemployment insurance benefits, social security coverage and retirement membership or credit. Article XIV Compliance with Certain Laws ---------------------------- Section 14.01. Laws of the State of New York. The Contractor shall comply ----------------------------- with all of the requirements set forth in Exhibit B hereto. Section 14.02. All Legal Provisions Deemed Included. It is the intent and ------------------------------------ understanding of the Contractor and NYSERDA that each and every provision of law required by the laws of the State of New York to be contained in this Agreement shall be contained herein, and if, through mistake, oversight or otherwise, any such provision is not contained herein, or is not contained herein in correct form, this Agreement shall, upon the application of either NYSERDA or the Contractor, promptly be amended so as to comply strictly with the laws of the State of New York with respect to the inclusion in this Agreement of all such provisions. Section 14.03. Other Legal Requirements. The references to particular laws ------------------------ of the State of New York in this Article, in Exhibit B and elsewhere in this Agreement are not intended to be exclusive and nothing contained in such Article, Exhibit and Agreement shall be deemed to modify the obligations of the Contractor to comply with all legal requirements. Article XV Notices, Entire Agreement, Amendment, Counterparts -------------------------------------------------- Section 15.01. Notices. All notices, requests, consents, approvals and ------- other 18 communications which may or are required to be given by either party to the other under this Agreement shall be deemed to have been sufficiently given for all purposes hereunder when delivered or mailed by registered or certified mail, postage prepaid, return receipt requested, (i) if to NYSERDA, at Corporate Plaza West, 286 Washington Avenue Extension, Albany, New York 12203-6399 or at such other address as NYSERDA shall have furnished to the Contractor in writing, and (ii) if to the Contractor, at 968 Albany-Shaker Road, Latham, New York 12110-1487, or such other address as the Contractor shall have furnished to NYSERDA in writing. Section 15.02. Entire Agreement: Amendment. This Agreement embodies the --------------------------- entire agreement and understanding between NYSERDA and the Contractor and supersedes all prior agreements and understandings relating to the subject matter hereof. Except as otherwise expressly provided for herein, this Agreement may be changed, waived, discharged or terminated only by an instrument in writing, signed by the party against which enforcement of such change, waiver, discharge or termination is sought. Section 15.03. Counterparts. This Agreement may be executed in counterparts ------------ each of which shall be deemed an original, but all of which taken together will constitute one and the same instrument. Article XVI Business Reorganizations ------------------------ Section 16.01. Business Reorganizations. In the event the Contractor ------------------------ proposes to consolidate or merge into or with another corporation or entity, or to sell or dispose of all or a majority of the assets of the Contractor, or to otherwise undertake a reorganization which alters or changes the rights of NYSERDA as provided in this Agreement, before any such action shall be taken, the Contractor shall either: (a) buy out its obligation to make payments to NYSERDA as described in Section 8.03 of this Agreement by paying NYSERDA an amount equal to three times the amount of funds actually paid by NYSERDA to the Contractor under this Agreement; or (b) assign or otherwise transfer to a new entity the Contractor's obligations under this Agreement, including, but not limited to, the obligation to make payments to NYSERDA as described in Section 8.03 of this Agreement. Such assignment or transfer shall be subject to the prior written approval of NYSERDA. Such approval shall not be unreasonably withheld, and, in the event that notice of approval or disapproval is not received by the Contractor within thirty days after receipt of request for approval, the assignment or transfer shall be considered approved. In the event that NYSERDA requires additional time for considering approval, NYSERDA shall notify the Contractor within thirty days of receipt of the request for approval that additional time is required and shall specify the additional amount of time necessary up to sixty (60) days. 19 Article XVII Publicity --------- Section 17.01. Publicity. --------- (a) The Contractor shall collaborate with NYSERDA's Manager of Technical Communications to prepare any press release and to plan for any news conference concerning the Work. In addition the Contractor shall notify NYSERDA's Manager of Technical Communications regarding any media interview in which the Work is referred to or discussed. (b) It is recognized that during the course of the Work under this Agreement, the Contractor or its employees may from time to time desire to publish information regarding scientific or technical developments made or conceived in the course of or under this Agreement. In any such information, the Contractor shall credit NYSERDA's funding participation in the Project, and shall state that "NYSERDA has not reviewed the information contained herein, and the opinions expressed in this report do not necessarily reflect those of NYSERDA or the State of New York." Notwithstanding anything to the contrary contained herein, the Contractor shall have the right to use and freely disseminate project results for educational purposes, if applicable, consistent with the Contractor's policies. (c) Commercial promotional materials or advertisements produced by the Contractor shall credit NYSERDA, as stated above, and shall be submitted to NYSERDA for review and recommendations to improve their effectiveness prior to use. The wording of such credit can be approved in advance by NYSERDA, and, after initial approval, such credit may be used in subsequent promotional materials or advertisements without additional approvals for the credit, provided, however, that all such promotional materials or advertisements shall be submitted to NYSERDA prior to use for review, as stated above. Such approvals shall not be unreasonably withheld, and, in the event that notice of approval or disapproval is not received by the Contractor within thirty days after receipt of request for approval, the promotional materials or advertisement shall be considered approved. In the event that NYSERDA requires additional time for considering approval, NYSERDA shall notify the Contractor within thirty days of receipt of the request for approval that additional time is required and shall specify the additional amount of time necessary up to 60 days. If NYSERDA and the Contractor do not agree on the wording of such credit in connection with such materials, the Contractor may use such materials, but agrees not to include such credit. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day, month and year first above written. MECHANICAL TECHNOLOGY, INC. NEW YORK STATE ENERGY 20 RESEARCH AND DEVELOPMENT AUTHORITY By: /s/ Martin J. Mastroianni By /s/ F. William Valentino ----------------------------- ----------------------------------- F. William Valentino President Name: Martin J. Mastroianni --------------------------- Title: President -------------------------- (Seal) 21 STATE OF NEW YORK ) ) SS: COUNTY OF ALBANY ) On this 24th day of June , 1997, before me personally came ------ ------------------ ----- Martin J. Mastroianni , to me known, who being duly sworn, did depose and - ---------------------------- say that he resides at Saratoga Springs, N.Y. that he is the --------------------------------------- President of Mechanical Technology, Inc. , the - ---------------------------------------------------------------- corporation described in and which executed the foregoing instrument; that he knew the seal of said corporation; that the seal affixed to said instrument was such corporate seal; that it was so affixed by the order of the Board of Directors of said corporation, and that he signed his name thereto by like order. /s/ Gloria M. Edmund - ------------------------------- Notary Public State of New York Gloria M. Edmund Notary Public State of New York No. 4522548 Qualified in Albany County Commission Expires 1/31/99 ---------- 22 [NEW YORK STATE ENERGY RESEARCH AND DEVELOPMENT AUTHORITY LETTERHEAD] December 17, 1997 Mr. William P. Sumigray Contract Manager Plug Power, L.L.C. 966 Albany-Shaker Road Latham, New York 12203-6399 Dear Mr. Sumigray: Subject: Modification No. 1 to Agreement No. 4633-ERTER-TR-98 - PEM Fuel Cell Power System Project Reference is made to the subject Agreement between us dated June 26, 1997 (the "Agreement"). WHEREAS, Plug Power, L.L.C. submitted a proposal to NYSERDA under competitive solicitation 380-97 to request NYSERDA's continued support of the Project; and WHEREAS, NYSERDA desires to provide additional funding in the amount of $256,578 under this Modification to support the Phase II effort delineated in the attached Exhibit A-1, Statement of Work, Budget, and Schedule attached hereto and made a part hereof. NOW, THEREFORE, the Agreement is hereby modified as follows: 1. Agreement, upper right-hand corner, Amount: Delete the amount "$1,191,478" ------ ------ and Substitute the amount "$1,448,046". ---------- 2. Article I, Definitions, Section 1.01, Definitions, (a) General Definitions, ----------- ----------- ------------------- Agreement: Delete the words "Exhibit A" and Substitute the words "Exhibits A, --------- ------ ---------- A-l". 3. Article I, Definitions, Section 1.01, Definitions, (a) General Definitions, ----------- ----------- ------------------- Budget: Delete the words "Exhibit A" and Substitute the words "Exhibits A ------ ------ ---------- and A-l". 4. Article I, Definitions, Section 1.01, Definitions, (a) General Definitions, ----------- ----------- ------------------- Statement of Work: Delete the words "Exhibit A" and Substitute the words ----------------- ------ ---------- "Exhibits A and A-l". 5. Article I, Definitions, Section 1.01, Definitions, (a) General Definitions, ----------- ----------- ------------------- Work: Delete the words "Exhibit A" and Substitute the words "Exhibits A and ---- ------ ---------- A". 6. Article III, Deliverables, Section 3.05, Deliverables. Delete the words ------------ ------------ ------ "Exhibit A, Statement of Work" and Substitute the words "Exhibits A and A-1, ---------- Statements of Work". 7. Article IV, Compensation, Section 4.01, Cost-Sharing. Delete the amount ------------ ------------ ------ "$1,191,478" and Substitute the amount "$1,448,056". ---------- 8. Article IV, Compensation, Section 4.01, Cost-Sharing, (d) Remaining Funds. ------------ ------------ --------------- . first sentence. Delete the amount "$1,191,478" and Substitute the amount ------ ---------- "$1,448,056". . third sentence. Delete the amount "$317,633" and Substitute the amount ------ ---------- "$256,578". 9. Article IV, Compensation, Section 4.04, Final Payment. ------------ ------------- . first sentence. Delete the words "Exhibit A, Statement of Work" and ------ Substitute the words "Exhibits A and A-1, Statements of Work". ---------- . third sentence. Delete the date "September 30, 1998" and Substitute the ------ ---------- date "December 31, 2000". . last sentence. Delete the amount "$1,191,478" and Substitute the amount ------ ---------- "$1,448,056". 10. Article IV, Compensation, Section 4.07, Maximum Commitment. Delete the ------------ ------------------ ------ amount "$1,191,478" and Substitute the amount "$1,448,056". ---------- 11. Article VI, Schedule; Acceptance of Work, Section 6.01, Schedule. ---------------------------- -------- . first sentence. Delete the words "Statement of Work" and Substitute the ------ ---------- words "Statements of Work". . second sentence and third sentence. Delete the words "Exhibit A Schedule" ------ and Substitute the words "Exhibits A and A-1 Schedules". ---------- !2. Article VI, Schedule; Acceptance of Work, Section 6.02, Acceptance of Work. ---------------------------- ------------------ Delete the words "Exhibit A, Statement of Work" and Substitute the words ------ ---------- "Exhibits A and A-1, Statements of Work". 13. Exhibit A, Statement of Work, Schedule and Budget. Add the attached Ex A-1, --- Statement of Work, Schedule and Budget dated December 17, 1997. No other provision of the Agreement is otherwise changed or modified. The parties hereto do hereby indicate their acceptance of and agreement to the foregoing by causing their duly authorized representatives to execute this Modification No. 1 in the respective spaces provided below. PLUG POWER, L. L.C. NEW YORK STATE ENERGY RESEARCH AND DEVELOPMENT AUTHORITY By /s/ Gary Mittleman By /s/ F. William Valentino -------------------------- --------------------------------------- Name Gary Mittleman F. William Valentino ------------------------- President Title Pres & CEO. ----------------------- Jean M. Woodard Vice President and Treasurer [stamped] EXHIBIT A-1 ----------- [***] (9 Pages) FUEL PROCESSOR INTEGRATION PROGRAM FOR TRANSPORTATION FUEL CELL POWER SYSTEMS A PROPOSAL TO THE NEW YORK STATE ENERGY RESEARCH AND DEVELOPMENT AUTHORITY Prepared by: Plug Power L.L.C. 968 Albany Shaker Road Latham, New York 12110 March 18, 1998 This proposal contains proprietary information that may not be divulged outside the NYSERDA organization without prior written consent from Plug Power L.L.C. CONFIDENTIAL INFORMATION HAS BEEN OMITTED PURSUANT TO RULE 406 UNDER THE SECURITIES ACT AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. THE LOCATIONS OF THE OMITTED INFORMATION HAVE BEEN INDICATED WITH ASTERISKS. Plug Power L.L.C. EXECUTIVE SUMMARY [***] CONFIDENTIAL INFORMATION HAS BEEN OMITTED PURSUANT TO RULE 406 UNDER THE SECURITIES ACT AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. THE LOCATIONS OF THE OMITTED INFORMATION HAVE BEEN INDICATED WITH ASTERISKS. 1 - -------------------------------------------------------------------------------- Plug Power L.L.C. PROGRAM GOALS AND OBJECTIVES [***] CONFIDENTIAL INFORMATION HAS BEEN OMITTED PURSUANT TO RULE 406 UNDER THE SECURITIES ACT AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. THE LOCATIONS OF THE OMITTED INFORMATION HAVE BEEN INDICATED WITH ASTERISKS. 2 - -------------------------------------------------------------------------------- Plug Power L.L.C. BACKGROUND [***] CONFIDENTIAL INFORMATION HAS BEEN OMITTED PURSUANT TO RULE 406 UNDER THE SECURITIES ACT AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. THE LOCATIONS OF THE OMITTED INFORMATION HAVE BEEN INDICATED WITH ASTERISKS. 3 - -------------------------------------------------------------------------------- [NEW YORK STATE ENERGY RESEARCH AND DEVELOPMENT AUTHORITY LETTERHEAD] March 30, 1999 Mr. William P. Sumigray Contract Manager Plug Power,-L.L.C. 968 Albany-Shaker Road Latham, New York 12203-6399 SUBJECT: MODIFICATION NO. 2 TO AGREEMENT NO. 4633-ERTER-TR-98 -- PEM Fuel Cell Power System Project Dear Mr. Sumigray: Reference is made to the Agreement between us dated June 26, 1997 and Modification No. 1 dated December 17, 1997 ("the Agreement"), wherein the following changes are hereby incorporated: WHEREAS, NYSERDA has provided Plug Power L.L.C. with $1,448,056 for the development of the PEM Fuel Cell Power System under the Referenced Agreement and subsequent Modification; and WHEREAS, NYSERDA desires to provide additional funding from the 1996 Clean Water/Clean Air Bond Act in the amount of $3,000,000 under Agreement Number 4870-ERTER-BA-99 to undertake an air quality project and to support the Phase III effort; and WHEREAS, PLUG Power L.L.C. has a certain payment obligation to NYSERDA under Section 8.03 of the Subject Agreement. NOW, THEREFORE, the Agreement is hereby modified as follows: 1. Article VIII, Technical Data: Patents: Payments to NYSERDA. Section 8.03, -------------------------------------------- Payments to NYSERDA, (a), Payments to NYSERDA, subparagraph (1), second ------------------- ------------------- paragraph Delete the first sentence and Substitute the following sentence, ------ ---------- "The Contractor's obligation to make payments to NYSERDA under this subparagraph (1) shall extend for a period of 15 years thereafter or until the Contractor has paid to NYSERDA $4,200,000, whichever occurs first, commencing with the date of the filing of the Final Report to NYSERDA." 2. Article VIII, Technical Data: Patents: Payments to NYSERDA. Section 8.03, -------------------------------------------- Payments to NYSERDA, (a), Payments to NYSERDA, subparagraph (2), second ------------------- ------------------- paragraph. . Delete the first sentence and Substitute the following sentence, "The ------ ---------- Contractor's obligation to make payments to NYSERDA under this subparagraph (2) shall extend for a period of 10 years thereafter or until the Contractor has paid to NYSERDA $5,400,000, whichever occurs first, commencing with the date of the filing of the Final Report to NYSERDA." . Delete the amount "$2,400,000" from the last sentence and Substitute the ------ ---------- amount "$5,400,000." 3. Article VIII, Technical Data: Patents: Payments to NYSERDA. Section 8.03, -------------------------------------------- Payments to NYSERDA, (a), Payments to NYSERDA, sixth paragraph. Delete the ------------------- ------------------- ------ amount "$200,000" from the last sentence and Substitute the amount ---------- "$540,000." No other provision of this Agreement is otherwise modified or changed. The parties hereto do hereby indicate their acceptance of and agreement to the foregoing by causing their duly authorized representatives to execute this Modification No. 2 in the respective spaces provided below. PLUG POWER L.L.C. NEW YORK STATE ENERGY RESEARCH AND DEVELOPMENT AUTHORITY By /s/Gary Mittleman By /s/ Jean M. Woodard ------------------------ -------------------------- Jean M. Woodard Name Gary Mittleman Vice President & Treasurer ---------------------- Title Pres & CEO --------------------- EX-10.15 16 AGREEMENT (01/25/99) CONFIDENTIAL INFORMATION HAS BEEN OMITTED PURSUANT TO RULE 406 UNDER THE SECURITIES ACT AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. THE LOCATIONS OF THE OMITTED INFORMATION HAVE BEEN INDICATED WITH ASTERISKS. EXHIBIT 10.15 Agreement No: 4870-ERTER-BA-99 Amount: $3,000,000 Type: Cost-Sharing Agreement Agreement dated this 25th day of January, 1999 by and between the NEW YORK STATE ENERGY RESEARCH AND DEVELOPMENT AUTHORITY ("NYSERDA"), a New York public benefit corporation having its principal office and place of business at Corporate Plaza West 286 Washington Avenue Extension, Albany, New York 12203- 6399. and PLUG POWER L.L.C., having its principal office and place of business at 968 Albany-Shaker Road, Albany, New York 12110 (the "Contractor"). Whereas, the New York State Public Authorities Law empowers NYSERDA to develop and implement new energy technologies consistent with economic, social and environmental objectives, to develop and encourage energy conservation technologies, and to promote, develop encourage and assist special energy projects and thereby advance job opportunities, health, general prosperity and the economic welfare of the people of the State of New York; and Whereas, The New York State Department of Environmental Conservation ("NYSDEC"). pursuant to the 1996 Clean Water/Clean Air Bond Act, as specifically set forth in Environmental Conservation Law Section 56-0607 is authorized, in consultation with other state agencies as may be necessary, to make state assistance payments for projects which will enhance the quality of the State's environment and the State's air quality; and Whereas, in accordance with the requirements of the Environmental Conservation Law Section 56-0607, the NYSDEC in consultation with NYSERDA, has developed a program to improve air quality in New York State, by improving the performance of, or lowering product cost to accelerate the widespread use of ultra-clean, innovative, and advanced power-generation technologies; and Whereas, in an effort to implement this program, NYSERDA, in conjunction with the NYSDEC issued Program Opportunity Notice 425-98 entitled "Power- Generation Technologies Demonstrating Improvements to Air Quality" to solicit proposals under the Program; and Whereas, the Contractor submitted a proposal to manufacture, test, and evaluate pre-production prototype residential fuel cell systems based upon Plug Power's prototype 7000 PEM Fuel Cell (the "Project") and to demonstrate the practical applications of such technology for the purpose of providing air quality benefits through the accelerated deployment of the technology; and Whereas, NYSERDA and the NYSDEC desire to co-sponsor the further development of the Plug Power 7000 PEM Fuel Cell as described in the attached Exhibit A, Statement of Work of this Agreement, which shall be considered a continuation, enhancement, modification, and improvement to the Plug Power 7000 PEM Fuel Cell that the Contractor is continuing to develop. NOW, THEREFORE, in consideration of the premises and of the mutual promises of the parties herein expressed, the parties agree as follows: Article I Definitions Section 1.01. Definitions. Unless the context otherwise requires, the terms defined below shall have, for all purposes of this Agreement, the respective meanings set forth below, the following definitions to be equally applicable to both the singular and plural forms of any of the terms defined. (a) General Definition. Agreement: This Agreement and Exhibits A, B, C, and D hereto, all of which are made a part hereof as though herein set forth in full. Budget: The Schedule and Milestone Payments set forth in Exhibit A hereto. Contract Administrator: NYSERDA's Director of Contract Management, Robert G. Callender, or such other person who may be designated, in writing, by NYSERDA. Effective Date: The effective date of this Agreement shall be the date in the first paragraph of page one, above. Final Report: The Final Report required by the Statement of Work hereof. MWBE Goal Plan: The Plan required under Section 3.02 of this Agreement. MWBE Reports: The Reports required under Section 3.03 of this Agreement. Person: An individual, a corporation, an association or partnership, an organization, a business or a government or political subdivision thereof, or any governmental agency or instrumentality. Progress Reports: The Progress Reports required by the Statement of Work hereof. Statement of Work: The Statement of Work attached hereto as Exhibit A. Subcontract: An agreement for the performance of Work by a Subcontractor, including any purchase order for the procurement of permanent equipment or expendable supplies in connection with the Work. Subcontractor: A person who performs Work directly or indirectly for or on 2 behalf of the Contractor (and whether or not in privity of contract with the Contractor) but not including any employees of the Contractor or the Subcontractors. Work: The Work described in the Exhibit A (including the procurement of equipment and supplies in connection therewith) and the performance of all other requirements imposed upon the Contractor under this Agreement. (b) Data Rights and Patents Definition. Contract Data: Technical Data first produced in the performance of the contract, Technical Data which are specified to be delivered under the contract, or Technical Data actually delivered in connection with the contract. Practical Application: To manufacture in the case of a composition or product, to practice in the case of a process or method, or to operate in the case of a machine or system and under conditions which indicate that the benefits of the invention are available to the public on reasonable terms. Proprietary Data: Technical Data which embody trade secrets developed at private expense, such as design procedures or techniques, chemical composition of materials, or manufacturing methods, processes, or treatments, including minor modifications thereof provided that such data: (i) are not generally known or available from other sources without obligation concerning their confidentiality; (ii) have not been made available by the owner to others without obligation concerning its confidentiality; and (iii) are not already available to NYSERDA without obligation concerning their confidentiality. Subject Invention: Any invention or discovery of the Contractor conceived or first actually reduced to practice in the course of or under this Agreement, and includes any art, method, process, machine, manufacture, design, or composition of matter, or any new and useful improvement thereof, or any variety of plants, whether patented or unpatented, under the Patent Laws of the United States of America or any foreign country. Technical Data: Recorded information regardless of form or characteristic, of a scientific or technical nature. It may, for example, document research, experimental or developmental, or demonstration, or engineering work, or be usable or used to define a design or process, or to procure, produce, support, maintain, or operate material. The data may be graphic or pictorial delineations in media such as drawings or photographs, text in specifications or related performance or design type documents or computer software 3 (including computer software programs, computer software data bases, and computer software documentation). Examples of Technical Data include research and engineering data, engineering drawings and associated lists, specifications, standards, process sheets, manuals, technical reports, catalog item identification, and related information. Technical Data as used herein does not include financial reports, cost analyses, and other information incidental to contract administration. Unlimited Rights: Rights to use, duplicate, or disclose Technical Data, in whole or in part, in any manner and for any purpose whatsoever, and to permit others to do so. Article II Performance of Work Section 2.01. Manner of Performance. Subject to the provisions of Article XII hereof, the Contractor shall perform all of the Work described in the Statement of Work, or cause such Work to be performed in an efficient and expeditious manner and in accordance with all of the terms and provisions of this Agreement. The Contractor shall perform the Work in accordance with the current professional standards and with the diligence and skill expected for the performance of work of the type described in the Statement of Work. The Contractor shall furnish such personnel and shall procure such materials, machinery, supplies, tools, equipment and other items as may reasonably be necessary or appropriate to perform the Work in accordance with this Agreement. Section 2.02. Project Personnel. It is understood and agreed that Mr. John Law shall serve as Project Director and as such shall have the responsibility of the overall supervision and conduct of the Work on behalf of the Contractor and that the persons described in the Statement of Work shall serve in the capacities described therein. Any change of Project Director by the Contractor shall be subject to the prior written approval of NYSERDA. Such approval shall not be unreasonably withheld, and, in the event that notice of approval or disapproval is not received by the Contractor within thirty days after receipt of request for approval by NYSERDA, the requested change in Project Director shall be considered approved. In the event that NYSERDA requires additional time for considering approval, NYSERDA shall notify the Contractor within thirty days of receipt of the request for approval that additional time is required and shall specify the additional amount of time necessary up to 180 days. Article III Deliverables Section 3.01. Deliverables. All deliverables shall be provided in accordance with the Exhibit A Statement of Work. Section 3.02. MWBE Goal Plan. The Contractor shall deliver to NYSERDA its Plan to implement NYSERDA's goal of providing minority and women-owned subcontractors and 4 suppliers with at least 8.8% of subcontracts required to complete the Work as described in Exhibit A of this Agreement. Such Plan shall be approved by NYSERDA and NYSDEC and upon approval delivered to NYSERDA prior to commencing the Work set forth in Exhibit A of this Agreement. Section 3.03. MWBE Report. The Contractor shall deliver to NYSERDA quarterly reports outlining the Contractor's progress at meeting the goal described in Section 3.02 above. Article IV Compensation Section 4.01. Payments. The Contractor will be paid upon submission of proper invoices, the prices stipulated in the Budget for Work delivered or rendered and accepted, less deductions, if any, as herein provided. The total price NYSERDA shall pay to the Contractor provisions of Article XII hereof, as represents the price of the Work. Subject to the limiting, NYSERDA's price of the Work, NYSERDA shall pay the Contractor the total price of $3,000,000, according to the Budget, subject to the provisions, restrictions contained herein. Such amount shall be paid only to the extent that costs are incurred by the Contractor in performance of the Work in accordance with the provisions of this Agreement the Budget and the following: (a) Staff Charges: The Contractor shall be compensated for the services performed by its employees under the terms of this Agreement at the employee's actual wage rate. The Contractor represents and warrants to NYSERDA that such rates are, and during the period of this Agreement shall remain, the lowest rates being offered or charged by the Contractor to others for the performance of generally similar services. In the event that any of the Contractor's rates are reduced to the benefit of any client of the Contractor as a result of any audit or for any other reason, the Contractor shall so notify NYSERDA and the appropriate reductions shall be made to the rates utilized hereunder. (b) Direct Charges: The Contractor shall be reimbursed for reasonable and necessary actual direct costs incurred (e.g., equipment, supplies, travel and other costs directly associated with the performance of the Agreement) to the extent required in the performance of the Work in accordance with the provisions of the Budget. Travel, lodging, meals and incidental expenses shall be reimbursed for reasonable and necessary costs incurred. Costs should generally not exceed the daily per diem rates published in the Federal Travel Regulations. Reimbursement for the use of personal vehicles shall be limited to the Internal Revenue Service business standard mileage rate. (c) Indirect Costs: The Contractor shall be reimbursed for fringe benefits, overhead, general and administrative (G&A), and other indirect costs included in the Budget at such rates as the Contractor may periodically calculate, consistent with appropriate federal guidelines or generally accepted accounting principles. 5 Section 4.02. Schedule of Payment. At the completion of each Milestone Billing Event so identified in Exhibit A, the Contractor may submit invoices requesting payment by NYSERDA of the amounts corresponding to the amount identified in the Budget. NYSERDA shall make payment to the Contractor in accordance with and subject to its Prompt Payment Policy Statement attached hereto as Exhibit D. The Contractor shall be notified by NYSERDA in accordance with Section 5.04.4 (b)(2) of such Exhibit D, of any information or documentation which the Contractor did not include with such invoice. Section 4.03. Title to Equipment. Title shall vest in the Contractor to all equipment purchased hereunder subject to the provisions of the Demonstration Agreements required in Exhibit A, Statement of Work. Section 4.04. Final Payment. Upon final acceptance by NYSERDA of the Final Report and all other deliverables contained in Exhibit A, Statement of Work, pursuant to Section 6.02 hereof, the Contractor shall submit an invoice for final payment with respect to the Work together with such supporting information and documentation as, and in such form as, NYSERDA may require. An invoice for final payment shall include, in addition to the material required pursuant to Section 4.04 hereof, a statement as to whether any invention or patentable devices have resulted from the performance of the Work. All invoices for final payment hereunder must, under any and all circumstances, be received by NYSERDA prior to October 1, 2001. In accordance with and subject to the provisions of NYSERDA's Prompt Payment Policy Statement, attached hereto as Exhibit D, NYSERDA shall pay to the Contractor within the prescribed time after receipt of such invoice for final payment, the total amount payable pursuant to Section 4.01 hereof, less all progress payments previously made to the Contractor with respect thereto and subject to the maximum commitment of $3,000,000 set forth in Section 4.07 hereof. Section 4.05. Release by NYSDEC and the Contractor. The acceptance by the Contractor of final payment shall release NYSERDA, NYDEC, and the State of New York from all claims and liability that the Contractor, its representatives and assigns might otherwise have relating to this Agreement. Section 4.06. Maintenance of Records. The Contractor shall keep, maintain, and preserve at its principal office throughout the term of the Agreement and for a period of seven years after acceptance of the Work, full and detailed books, accounts, and records pertaining to the performance of the Agreement, including without limitation, all bills, invoices, payrolls, subcontracting efforts and other data evidencing, or in any material way related to, the direct and indirect costs and expenses incurred by the Contractor in the course of such performance. Section 4.07. Maximum Commitment. The maximum aggregate amount payable by NYSERDA to the Contractor hereunder is $3,000,000. NYSERDA shall not be liable for any costs or expenses in excess of such amount incurred by the Contractor in the performance and completion of the Work. 6 Section 4.08. Audit. NYSERDA shall have the right from time to time and at all reasonable times during the term of the Agreement and such period thereafter to inspect and audit any and all books, accounts and records at the office or offices of the Contractor where they are then being kept, maintained and preserved pursuant to Section 4.06 hereof. Any payment made under the Agreement shall be subject to retroactive reduction for amounts included therein which are found by NYSERDA on the basis of any audit of the Contractor by an agency of the United States, State of New York or NYSERDA not to constitute an allowable charge or cost hereunder. Article V Assignments, Subcontracts and Purchase Orders Section 5.01. General Restriction. Except as specifically provided otherwise in this Article, the assignment, transfer, conveyance, subcontracting or other disposal of this Agreement or any of the Contractor's rights, obligations, interests or responsibilities hereunder, in whole or in part, without the express consent in writing of NYSERDA shall be void and of no effect as to NYSERDA. Section 5.02. Subcontract Procedure . Without relieving it of, or in any way limiting, its obligations to NYSERDA under this Agreement, the Contractor may enter into Subcontracts for the performance of Work or for the purchase of materials or equipment. Except for a subcontractor or supplier specified in a team arrangement with the Contractor in the Contractor's original proposal, and except for any subcontract or order for equipment, supplies or materials from a single subcontractor or supplier totaling, under $5,000, the Contractor shall select all subcontractors or suppliers through a process of competitive bidding or multi-source price review. A team arrangement is one where a subcontractor or supplier specified in the Contractor's proposal is performing a substantial portion of the Work and is making a substantial contribution to the management and/or design of the Project. In the event that a competitive bidding or multi-source price review is not feasible, the Contractor shall document an explanation for, and justification of, a sole source selection. The Contractor shall document the process by which a subcontractor or supplier is selected by making a record summarizing the nature and scope of the work, equipment, supplies or materials sought, the name of each person or organization submitting, or requested to submit, a bid or proposal, the price or fee bid, and the basis for selection of the subcontractor or supplier. An explanation for, and justification of, a sole source selection must identify why the work, equipment, supplies or materials involved are obtainable from or require a subcontractor with unique or exceptionally scarce qualifications or experience, specialized equipment, or facilities not readily available from other sources, or patents, copyrights, or proprietary data. All Subcontracts shall contain provisions comparable to those set forth in this Agreement applicable to a subcontractor or supplier, and those set forth in Exhibit B to the extent required by law, and all other provisions now or hereafter required by law to be 7 contained therein. The Contractor shall submit to NYSERDA's Contract Administrator for review and written approval all subcontracts including the Phase II subcontracts, deemed necessary by NYSERDA, based on the results and accomplishments of Phase 1. NYSERDA's maximum commitment to the Project shall not be affected by costs incurred in subcontracting any of the Phase 11 tasks. The Contractor shall submit to NYSERDA a copy of all fully executed subcontracts and purchase orders that total greater than $5,000. Section 5.03. Performance. The Contractor shall promptly and diligently comply with its obligations under each Subcontract and shall take no action which would impair its rights thereunder. The Contractor shall not assign, cancel or terminate any Subcontract without the prior written approval of the Contract Administrator as long as this Agreement remains in effect. Such approval shall not be unreasonably withheld and, in the event that notice of approval or disapproval is not received by the Contractor within thirty days after receipt of request for approval by NYSERDA, the requested assignment, cancellation, or termination of the Subcontract shall be considered approved by NYSERDA. In the event that NYSERDA requires additional time for considering approval, NYSERDA shall notify the Contractor within thirty days of receipt of the request for approval that additional time is required and shall specify the additional amount of time necessary up to 180 days. Article VI Schedule: Acceptance of Work Section 6.01. Schedule. The Work shall be performed as expeditiously as possible in conformity with the schedule requirements contained herein and in the Statement of Work. The draft and final versions of the Final Report shall be submitted by the dates specified in the Exhibit A Schedule. It is understood and agreed that the delivery of the draft and final versions of such reports by the Contractor shall occur in a timely manner and in accordance with the requirements of the Exhibit A Schedule. Section 6.02. Acceptance of Work. The completion of the Work shall be subject to acceptance by NYSERDA in writing of the Final Report and all other deliverables as defined in Exhibit A, Statement of Work. Article VII Force Majeure Section 7.01. Force Majeure. Neither party hereto shall be liable for any failure or delay in the performance of its respective obligations hereunder if and to the extent that such delay or failure is due to a cause or circumstance beyond the reasonable control of such party, including, without limitation, acts of God or the public enemy, expropriation or confiscation of land or facilities, compliance with any law, order or request of any Federal, State, municipal or local governmental authority, acts of war, rebellion or sabotage or damage resulting 8 therefrom, fires, floods, storms, explosions, accidents, riots, strikes, or the delay or failure to perform by any Subcontractor by reason of any cause or circumstance beyond the reasonable control of such Subcontractor. Article VIII Technical Data, Patents Section 8.01. Rights in Technical Data. (a) Technical Data: Rights in Technical Data shall be allocated as follows: (1) NYSERDA shall have: (i) unlimited rights in Contract Data except as otherwise provided below with respect to Proprietary Data; and (ii) no rights under this Agreement in any Technical Data which are not Contract Data. (2) The Contractor shall have: (i) the right to withhold Proprietary Data in accordance with the provisions of this clause; and (ii) the right to make, use and sell the 7000 PEM Fuel Cell. If the Contractor fails to make, use, and sell the 7000 PEM Fuel Cell within five years from the Contractor's receipt of Final Payment as described in Section 4.04 hereof, under conditions which indicate that the benefits of the 7000 PEM Fuel Cell are available to the public on reasonable terms, NYSERDA shall have a royalty-free, exclusive, worldwide license sufficient in scope to allow NYSERDA to make, use or sell the 7000 PEM Fuel Cell and to allow others to do so, including a non-exclusive right in Proprietary Data incorporated into or necessary for use in connection with the making, use, or sale of the 7000 PEM Fuel Cell by NYSERDA or its sublicensees. The Contractor agrees to disclose such Proprietary Data to NYSERDA, and NYSERDA may disclose such Proprietary Data to its sublicensees who have agreed to keep such Proprietary Data confidential; and (iii) the right to use for its private purposes subject to patent, or other provisions of this Agreement, Contract Data it first produces in the performance of this Agreement provided the data requirements of this Agreement have been met as of the date of the private use of such data. The Contractor agrees that to the extent it receives or is given access to Proprietary 9 Data or other technical, business or financial data in the form of recorded information from NYSERDA or a NYSERDA contractor or subcontractor, the Contractor shall treat such data in accordance with any restrictive legend contained thereon, unless another use is specifically authorized by prior written approval of the Contract Administrator. Section 8.02. Patents. (a) The Contractor may elect to retain the entire right, title and interest throughout the world to each Subject Invention of the Contractor conceived or first actually reduced to practice in the performance of the Work under the Agreement; except, that with respect to any Subject Invention in which the Contractor elects to retain title, NYSERDA shall have a non-exclusive, non- transferrable, irrevocable, paid-up license for itself, the State of New York and all political subdivisions and other instrumentalities of the State of New York, to practice or have practiced for or on their behalf the Subject Invention throughout the world, exclusively for their own use of the Subject Invention. (b) Within six months of the time a Subject Invention is made, or as part of the request for final payment, whichever shall occur first, the Contractor shall submit to NYSERDA a written invention disclosure. Within twelve months of the time a Subject Invention is made, or as part of the request for final payment, whichever shall occur first, the Contractor shall advise NYSERDA in writing whether the Contractor elects to retain principal rights in the Subject Invention. The Contractor shall file the patent application for a Subject Invention within two years of the date of election. If the Contractor fails to disclose a Subject Invention, fails to elect to retain principal rights thereto, or to file a patent application within the time specified in this paragraph, or if the Contractor elects not to retain principal rights in a Subject Invention, the Contractor shall convey to NYSERDA title to the Subject Invention unless NYSERDA shall waive in writing its right to take title. In the event the Contractor elects not to retain principal rights in a Subject Invention, the Contractor shall retain a non-exclusive, royalty-free license throughout the world in such Subject Invention transferable only with the written approval of NYSERDA. Such approval shall not be unreasonably withheld, and, in the event that notice of approval or disapproval is not received by the Contractor within thirty days after receipt of request for approval, the requested transfer shall be considered approved. In the event that NYSERDA requires additional time for considering approval, NYSERDA shall notify the Contractor within thirty days of receipt of the request for approval that additional time is required and shall specify the additional amount of time necessary up to 180 days. (c) The Contractor shall submit to NYSERDA, not less frequently than annually, written reports which indicate the status of utilization of Subject Inventions in which the Contractor retains principal rights. The reports shall include information regarding the status of development, date of first commercial sale or use, and gross royalties received by the Contractor. Such report shall be furnished to NYSERDA not later than February 1 following the calendar year covered by the report. In the event the Contractor fails to demonstrate that the Contractor has taken effective steps within three years after a patent is issued to bring the 10 Subject Invention to the point of Practical Application, then NYSERDA shall have the right to grant a non-exclusive or exclusive license to responsible applicants under terms that are reasonable under the circumstances, or to require the Contractor to do so. (d) The Contractor shall include the foregoing patent clauses, suitably modified to identify the parties, in all subcontracts which involve the performance of Work under this Agreement. The Subcontractor shall retain all rights provided for the Contractor, and the Contractor shall retain all rights provided for NYSERDA, as set forth above. Article IX Warranties and Guarantees Section 9.01. Warranties and Guarantees. The Contractor warrants and guarantees that: (a) it is financially and technically qualified to perform the Work; (b) it is familiar with and will comply with all general and special Federal, State, municipal and local laws, ordinances and regulations, if any, that may in any way affect the performance of this Agreement; (c) the design, supervision and workmanship furnished with respect to performance of the Work shall be in accordance with sound and currently accepted scientific standards and engineering practices; (d) all materials, equipment and workmanship furnished by it and by Subcontractors in performance of the Work or any portion thereof shall be free of defects in material and workmanship, and all such materials and equipment shall be of first-class quality, shall conform with all applicable codes, specifications, standards and ordinances and shall have service lives and maintenance characteristics suitable for their intended purposes in accordance with sound and currently accepted scientific standards and engineering practices; (e) neither the Contractor nor any of its employees, agents, representatives or servants has actual knowledge of any patent issued under the laws of the United States or any other matter which could constitute a basis for any claim that the performance of the Work or any part thereof infringes any patent or otherwise interferes with any other right of any Person; (f) there are no existing undisclosed or threatened legal actions, claims, or encumbrances, or liabilities that may adversely affect the Work or NYSERDA's rights hereunder; and (g) it has no actual knowledge that any information or document or statement furnished by the Contractor in connection with this Agreement contains any untrue statement of a material fact or omits to state a material fact necessary to make the statement not 11 misleading, and that all facts have been disclosed that would materially adversely affect the Work. Article X Indemnification Section 10.01. Indemnification. The Contractor shall protect, indemnify and hold harmless NYSERDA, NYSDEC, and the State of New York from and against all liabilities, losses, claims, damages, judgments, penalties, causes of action, costs and expenses (including, without limitation, attorneys' fees and expenses) imposed upon or incurred by or asserted against NYSERDA, NYSDEC, or the State of New York resulting from, arising out of or relating to the performance of this Agreement. The obligations of the Contractor under this Article shall survive any expiration or termination of this Agreement and shall not be limited by any remuneration herein of required insurance coverage. Article XI Insurance Section 11.01. Maintenance of Insurance: Policy Provision . The Contractor, at no additional cost to NYSERDA and NYSDEC, shall maintain or cause to be maintained throughout the term of this Agreement, insurance of the types and in the amounts specified in the Section hereof entitled Types of Insurance. All such insurance shall be evidenced by insurance policies, each of which shall: (a) name or be endorsed to cover NYSERDA, NYSDEC, the State of New York and the Contractor as insureds, as their respective interests may appear; (b) provide that such policy may not be cancelled or modified until at least 30 days after receipt by NYSERDA of written notice thereof, and (c) be reasonably satisfactory to NYSERDA in all other respects. Section 11.02. Types of Insurance. The types and amounts of insurance required to be maintained under this Article are as follows: (a) Commercial general liability insurance for bodily injury liability, including death, and property damage liability, incurred in connection with the performance of this Agreement, with minimum limits of $1,000,000 in respect of claims arising out of personal injury or sickness or death of any one person, $1,000,000 in respect of claims arising out of personal injury, sickness or death in any one accident or disaster, and $1,000,000 in respect of claims arising out of property damage in any one accident or disaster; and (b) Commercial automobile liability insurance in respect of motor vehicles owned, licensed or hired by the Contractor and the Subcontractors for bodily injury liability, 12 including death and property damage, incurred in connection with the performance of this Agreement, with minimum limits of $500,000 in respect of claims arising out of personal injury, or sickness or death of any one person, $1,000,000 in respect of claims arising out of personal injury, sickness or death in any one accident or disaster, and $500,000 in respect of claims arising out of property damage in any one accident or disaster. Section 11.03. Delivery of Policies: Insurance Certificate. Prior to commencing the Work, the Contractor shall deliver to NYSERDA certificates of insurance issued by the respective insurers, indicating the Agreement number thereon, evidencing the insurance required by this Article and bearing notations evidencing the payment of the premiums thereon or accompanied by other evidence of such payment satisfactory to NYSERDA. In the event any policy furnished or carried pursuant to this Article will expire on a date prior to acceptance of the Work by NYSERDA pursuant to the section hereof entitled Acceptance of Work. The Contractor, not less than 15 days prior to such expiration date, shall deliver to NYSERDA certificates of insurance evidencing the renewal of such policies, and the Contractor shall promptly pay all premiums thereon due. In the event of threatened legal action, claims. encumbrances, or liabilities that may affect NYSERDA hereunder. or if deemed necessary by NYSERDA due to events rendering a review necessary, upon request the Contractor shall deliver to NYSERDA a certified copy of each policy. Article XII Stop Work Order: Termination Section 12.01. Stop Work Order. (a) NYSERDA may at any time, by written Order to the Contractor, require the Contractor to stop all or any part of the Work called for by this Agreement for a period of up to 90 days after the Stop Work Order is delivered to the Contractor, and for any further period to which the parties may agree. Any such order shall be specifically identified as a Stop Work Order issued pursuant to this Section. Upon receipt of such an Order, the Contractor shall forthwith comply with its terms and take all reasonable steps to minimize the incurrence of costs allocable to the Work covered by the Order during the period of work stoppage consistent with public health and safety. Within a period of 90 days after a Stop Work Order is delivered to the Contractor, or within any extension of that period to which the parties shall have agreed. NYSERDA shall either: (i) by written notice to the Contractor, cancel the Stop Work Order, which shall be effective as provided in such cancellation notice, or if not specified therein, upon receipt by the Contractor, or (ii) terminate the Work covered by such order as provided in the Termination Section of this Agreement. (b) If a Stop Work Order issued under this Section is cancelled or the period 13 of the Order or any extension thereof expires, the Contractor shall resume Work. An equitable adjustment shall be made in the delivery schedule, the estimated cost, the fee, if any, or a combination thereof, and in any other provisions of the Agreement that may be affected, and the Agreement shall be modified in writing accordingly, if: (i) the Stop Work Order results in an increase in the time required for, or in the Contractor's cost properly allocable to, the performance of any part of this Agreement, and (ii) the Contractor asserts a claim for such adjustments within 30 days after the end of the period of Work stoppage; provided that, if NYSERDA decides the facts justify such action, NYSERDA may receive and act upon any such claim asserted at any time prior to final payment under this Agreement. (c) If a Stop Work Order is not cancelled and the Work covered by such Order is terminated, the reasonable costs resulting from the Stop Work Order shall be allowed by equitable adjustment or otherwise. (d) Notwithstanding the provisions of this Section 12.01, the maximum amount payable by NYSERDA to the Contractor pursuant to this Section 12.01 shall not be increased or deemed to be increased except by specific written amendment hereto. Section 12.02. Termination. (a) This Agreement may be terminated by NYSERDA at any time during the term of this Agreement with or without cause, upon 30 days prior written notice to the Contractor. In such event, compensation shall be paid to the Contractor for Work performed and expenses incurred prior to the effective date of termination in accordance with the provisions of the Article hereof entitled Compensation and in reimbursement of any amounts required to be paid by the Contractor pursuant to Subcontracts; provided, however, that upon receipt of any such notice of termination, the Contractor shall cease the performance of Work, shall make no further commitments with respect thereto and shall reduce insofar as possible the amount of outstanding commitments (including, to the extent requested by NYSERDA, through termination of subcontracts containing provisions therefor). (b) Nothing in this Article shall preclude the Contractor from continuing to carry out the Work called for by the Agreement after receipt of a Stop Work Order or termination notice at its own election, provided that, if the Contractor so elects, (i) any such continuing Work after receipt of the Stop Work Order or termination notice shall be deemed not to be Work pursuant to the Agreement and (ii) NYSERDA shall have no liability to the Contractor for any costs of the Work continuing after receipt of the Stop Work Order or termination notice. Article XIII 14 Independent Contractor Section 13.01. Independent Contractor. The status of the Contractor under this Agreement shall be that of an independent contractor and not that of an agent, and in accordance with such status, the Contractor, the Subcontractors, and their respective officers, agents, employees, representatives and servants shall at all times during the term of this Agreement conduct themselves in a manner consistent with such status and by reason of this Agreement shall neither hold themselves out as, nor claim to be acting in the capacity of, officers, employees, agents, representatives or servants of NYSERDA nor make any claim, demand or application for any right or privilege applicable to NYSERDA, including, without limitation, rights or privileges derived from workers' compensation coverage, unemployment insurance benefits, social security coverage and retirement membership or credit. Article XIV Compliance with Certain Law Section 14.01. Laws of the State of New York. The Contractor shall comply with all of the requirements set forth in Exhibit B hereto. Section 14.02. All Legal Provisions Deemed Included. It is the intent and understanding of the Contractor and NYSERDA that each and every provision of law required by the laws of the State of New York to be contained in this Agreement shall be contained herein, and if, through mistake, oversight or otherwise, any such provision is not contained herein, or is not contained herein in correct form, this Agreement shall, upon the application of either NYSERDA or the Contractor, promptly be amended so as to comply strictly with the laws of the State of New York with respect to the inclusion in this Agreement of all such provisions. Section 14.03. Other Legal Requirements. The references to particular laws of the State of New York in this Article, in Exhibit B and elsewhere in this Agreement are not intended to be exclusive and nothing contained in such Article, Exhibit and Agreement shall be deemed to modify the obligations of the Contractor to comply with all legal requirements. Article XV Severability Section 15.01. Severability. This Agreement is intended to be performed in accordance with, and only to the extent permitted by, all applicable laws, ordinances, rules and regulations, and is intended, and shall for all purposes to be deemed to be, a single, integrated document setting forth all of the agreements and understandings of the parties hereto, and superseding all prior negotiations, understandings and agreements of such parties. If any term or provision of this Agreement or the application thereof to any person or circumstance shall for any reason and to any extent be held to be invalid or unenforceable, then such term or provision shall be ignored, and to the maximum extent possible, this Agreement shall continue 15 in full force and effect, but without giving effect to such term or provision. Article XVI Notices, Entire Agreement, Amendment, Counterpart Section 16.01. Notices. All notices, requests, consents, approvals and other communications; which may or are required to be given by either party to the other under this Agreement shall be deemed to have been sufficiently given for all purposes hereunder when delivered or mailed by registered or certified mail, postage prepaid, return receipt requested, (i) if to NYSERDA, at Corporate Plaza West 286 Washington Avenue Extension, Albany, New York 12203-6399 or at such other address as NYSERDA shall have furnished to the Contractor in writing, and (ii) if to the Contractor at 968 Albany-Shaker Road, Albany, New York 12110, or such other address as the Contractor shall have furnished to NYSERDA in writing. Section 16.02. Entire Agreement: Amendment. This Agreement embodies the entire agreement and understanding between NYSERDA and the Contractor and supersedes all prior agreements and understandings relating to the subject matter hereof. Except as otherwise expressly provided for herein, this Agreement may be changed, waived, discharged or terminated only by an instrument in writing, signed by the party against which enforcement of such change, waiver, discharge or termination is sought. Section 16.03. Counterparts. This Agreement may be executed in counterparts each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument. Article XVII Publicity Section 17.01. Publicity. (a) For a period of fifteen years from the date of execution of this Agreement, the Contractor shall collaborate with NYSERDA's Manager of Technical Communications to prepare any press release and to plan for any news conference concerning the Work. In addition, the Contractor shall notify in advance NYSERDA's Manager of Technical Communications regarding any media interview in which the Work is referred to or discussed. Subsequent to the fifteen year period, the Contractor shall make every good faith effort to provide prompt notification to NYSERDA's Manager of Technical Communications of any press releases and media events. (b) In connection with any scientific or technical publications, the Contractor may from time to time desire to publish information regarding scientific or technical developments made or conceived in the course of or under this Agreement. In any such information the Contractor shall credit NYSERDA's funding participation in the Project, and 16 shall state that NYSERDA has not reviewed the information contained herein, and the opinions expressed in this report do not necessarily reflect those of NYSERDA or the State of New York. Notwithstanding anything to the contrary contained herein, the Contractor shall have the right to use and freely disseminate project results for educational purposes, if applicable, consistent with the Contractor's policies. (c) For a period of fifteen years from the date of execution of this Agreement, commercial promotional materials or advertisements produced by the Contractor concerning the Work shall credit NYSERDA, as stated above, and shall be submitted to NYSERDA for review and recommendations to improve their effectiveness prior to use. The wording of such credit can be approved in advance by NYSERDA and, after initial approval, such credit may be used in subsequent promotional materials or advertisements without additional approvals for the credit, provided, however, that all such promotional materials or advertisements shall be submitted to NYSERDA prior to use for review, as stated above. Such approvals shall not be unreasonably withheld, and, in the event that notice of approval or disapproval is not received by the Contractor within thirty days after receipt of request for approval, the promotional materials or advertisement shall be considered approved. In the event that NYSERDA requires additional time for considering approval, NYSERDA shall notify the Contractor within thirty days of receipt of the request for approval that additional time is required and shall specify the additional amount of time necessary up to 180 days. If at any time NYSERDA and the Contractor do not agree on the wording of such credit in connection with such materials, the Contractor may use such materials, but agrees not to include such credit. Article XVIII Availability of Funds Section 18.01. Availability of Funds. This Agreement is conditioned upon the continued availability of funds for its purposes. Should such funds become unavailable, the Contractor and NYSERDA shall be relieved of any obligations hereunder beyond the period for which funds have actually been obligated; provided, however, that the Contractor shall in all events remain responsible for the completion of all reporting and record retention requirements under this Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day, month and year first above written. PLUG POWER, L.L.C. By: /s/ Gary Mittleman ----------------------- Title: President and CEO 17 NEW YORK STATE ENERGY RESEARCH AND DEVELOPMENT AUTHORITY By: /s/ F. William Valentino ---------------------------- Title: President 18 Exhibit A ---------- *** (8 Pages) CONFIDENTIAL INFORMATION HAS BEEN OMITTED PURSUANT TO RULE 406 UNDER THE SECURITIES ACT AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. THE LOCATIONS OF THE OMITTED INFORMATION HAVE BEEN INDICATED WITH ASTERISKS. 19 EXHIBIT B REVISED 6/98 STANDARD TERMS AND CONDITIONS FOR ALL NYSERDA AGREEMENTS (Based on Standard Clauses for New York State Contracts) The parties to the attached agreement, contract, license, lease, amendment, modification or other agreement of any kind (hereinafter, "the Agreement" or "this Agreement") agree to be bound by the following clauses which are hereby made a part of the Agreement (the word "Contractor" herein refers to any party other than NYSERDA, whether a contractor, licensor, licensee, lessor, lessee or any other party): 1. NON-DISCRIMINATION REQUIREMENTS. In accordance with Article 15 of the Executive Law (also known as the Human Rights Law) and all other State and Federal statutory and constitutional non-discrimination provisions, the Contractor will not discriminate against any employee or applicant for employment because of race, creed, color, sex, national origin, age, disability or marital status. Furthermore, in accordance with Section 220-e of the Labor Law, if this is an Agreement for the construction, alteration or repair of any public building or public work or for the manufacture, sale or distribution of materials, equipment or supplies, and to the extent that this Agreement shall be performed within the State of New York, Contractor agrees that neither it nor its subcontractors shall, by reason of race, creed, color, disability, sex or national origin: (a) discriminate in hiring against any New York State citizen who is qualified and available to perform the work; or (b) discriminate against or intimidate any employee hired for the performance of work under this Agreement. If this is a building service Agreement as defined in Section 230 of the Labor Law, then, in accordance with Section 239 thereof, Contractor agrees that neither it nor its subcontractors shall, by reason of race, creed, color, national origin, age, sex or disability: (a) discriminate in hiring against any New York State citizen who is qualified and available to perform the work; or (b) discriminate against or intimidate any employee hired for the performance of work under this contract. Contractor is subject to fines of $50.00 per person per day for any violation of Section 220-e or Section 239 as well as possible termination of this Agreement and forfeiture of all moneys due hereunder for a second subsequent violation. 2. WAGE AND HOURS PROVISION. If this is a public work Agreement covered by Article 8 of the Labor Law or a building service Agreement covered by Article 9 thereof, neither Contractor's employees nor the employees of its subcontractors may be required or permitted to work more than the number of hours or days stated in said statutes, except as otherwise provided in the Labor Law and as set forth in prevailing wage and supplement schedules issued by the State Labor Department. Furthermore, Contractor and its subcontractors must pay at least the prevailing wage rate and pay or provide the prevailing supplements, including the premium rates for overtime pay, as determined by the State Labor Department in accordance with the Labor Law. 3. NON-COLLUSIVE BIDDING REQUIREMENT. In accordance with Section B-1 2878 of the Public Authorities Law, if this Agreement was awarded based upon the submission of bids, Contractor warrants, under penalty of perjury, that its bid was arrived at independently and without collusion aimed at restricting competition. Contractor further warrants that, at the time Contractor submitted its bid, an authorized and responsible person executed and delivered to NYSERDA a non-collusive bidding certification on Contractor's behalf. 4. INTERNATIONAL BOYCOTT PROHIBITION. If this Agreement exceeds $5,000, the Contractor agrees, as a material condition of the Agreement, that neither the Contractor nor any substantially owned or affiliated person, firm, partnership or corporation has participated, is participating, or shall participate in an international boycott in violation of the Federal Export Administration Act of 1979 (50 USC App. Sections 2401 et seq.) or regulations thereunder. If such Contractor, or any of the aforesaid affiliates of Contractor, is convicted or is otherwise found to have violated said laws or regulations upon the final determination of the United States Commerce Department or any other appropriate agency of the United States subsequent to the Agreement's execution, such Agreement, amendment or modification thereto shall be rendered forfeit and void. The Contractor shall so notify NYSERDA within five (5) business days of such conviction, determination or disposition of appeal. (See and compare Section 220-f of the Labor Law, Section 139-h of the State Finance Law, and 2 NYCRR 105.4). 5. SET-OFF RIGHTS. NYSERDA shall have all of its common law and statutory rights of set-off. These ri2hts shall include, but not be limited to, NYSERDA's option to withhold for the purposes of set-off any moneys due to the Contractor under this Agreement up to any amounts due and owing to NYSERDA with regard to this Agreement, any other Agreement, including any Agreement for a term commencing prior to the term of this Agreement. plus any amounts due and owing to NYSERDA for any other reason including, without limitation, tax delinquencies, fee delinquencies or monetary penalties relative thereto. 6. CONFLICTING TERMS. In the event of a conflict between the terms of the Agreement (including any and all attachments thereto and amendments thereof) and the terms of this Exhibit B, the terms of this Exhibit B shall control. 7. GOVERNING LAW. This Agreement shall be governed by the laws of the State of New York except where the Federal supremacy clause requires otherwise. 8. NO ARBITRATION. Disputes involving this Agreement, including the breach or alleged breach thereof, may not be submitted to binding arbitration (except where statutorily required) without the NYSERDA's written consent, but must, instead, be heard in a court of competent jurisdiction of the State of New York. 9. SERVICE OF PROCESS. In addition to the methods of service allowed by the State Civil Practice Law and Rules ("CPLR"), Contractor hereby consents to service of process upon it by registered or certified mail, return receipt requested. Service hereunder B-2 shall be complete upon Contractor's actual receipt of process or upon NYSERDA's receipt of the return thereof by the United States Postal Service as refused or undeliverable. Contractor must promptly notify NYSERDA, in writing, of each and every change of address to which service of process can be made. Service by NYSERDA to the last known address shall be sufficient. Contractor will have thirty (30) calendar days after service hereunder is complete in which to respond. 10. CRIMINAL ACTIVITY. If subsequent to the effectiveness of this Agreement, NYSERDA comes to know of any allegation previously unknown to it that the Contractor or any of its principals is under indictment for a felony, or has been, within five (5) years prior to submission of the Contractor's proposal to NYSERDA, convicted of a felony, under the laws of the United States or Territory of the United States, then NYSERDA may exercise its stop work right under this Agreement. If subsequent to the effectiveness of this Agreement, NYSERDA comes to know of the fact, previously unknown to it, that Contractor or any of its principals is under such indictment or has been so convicted, then NYSERDA may exercise its right to terminate this Agreement. If the Contractor knowingly withheld information about such an indictment or conviction, NYSERDA may declare the Agreement null and void and may seek legal remedies against the Contractor and its principals. The Contractor or its principals may also be subject to penalties for any violation of law which may apply in the particular circumstances. For a Contractor which is an association, partnership, corporation. or other organization, the provisions of this paragraph apply to any such indictment or conviction of the organization itself or any of its officers, partners, or directors or members of any similar governing body, as applicable. 11. PERMITS. It is the responsibility of the Contractor to acquire and maintain, at its own cost, any and all permits, licenses, easements, waivers and permissions of every nature necessary to perform the work. 12. PROHIBITION ON PURCHASE OF TROPICAL HARDWOOD . The Contractor certifies and warrants that all wood products to be used under this Agreement will be in accordance with, but not limited to, the specifications and provisions of State Finance Law Section 165 (Use of Tropical Hardwoods), which prohibits purchase and use of tropical hardwoods, unless specifically exempted by NYSERDA. B-3 EXHIBIT C REPORT FORMAT AND STYLE GUIDE PURPOSE This document explains how to prepare a technical report for the New York State Energy Research and Development Authority (NYSERDA). It describes editorial and production procedures and gives electronic data-transfer information. NYSERDA's contractors prepare the reports describing NYSERDA research and development projects that NYSERDA publishes. Please direct questions about format and style to Paula Rosenberg of NYSERDA's Technical Publications unit: (518) 862-1090, ext. 3270; fax (518) 862-1091 - e-mail prlgnvserda.org COPYRIGHTS All material borrowed or adapted from other sources should be properly identified (i.e., document, source, date, and page). The contractor must obtain the copyright owner's written permission to use copyrighted illustrations, tables, or substantial amounts of text from another publication. REPORT FORMAT AND SEQUENCE The following items are required in all technical reports and should be paginated in the following sequence: Title page (no page number) Notice (no page number) Abstract (iii) Acknowledgments (optional) (iv) Table of Contents including listings of figures and tables (v or vii) Summary (S- 1) NOTE: the Abstract, Table of Contents, and each section begin on right-hand, odd-numbered pages. The following information is required (see sample on last page): Report title and type of report (i.e., final, interim or summary) Name of NYSERDA project manager(s) Corporate name, city, and state of contractor(s), including contact person(s) or project manager(s) Project cosponsors, including contact person(s) or project manager(s) Contract number (e.g., 3178-ERTER-MW-94) C-1 Notices One of these legal notices or disclaimers is required: When NYSERDA is the project's sole sponsor, this notice must be used: NOTICE This report was prepared by in the course of performing work contracted for and sponsored by the New York State Energy Research and Development Authority (hereafter "NYSERDA"). The opinions expressed in this report do not necessarily reflect those of NYSERDA or the State of New York, and reference to any specific product., service, process, or method does not constitute an implied or expressed recommendation or endorsement of it. Further, NYSERDA, the State of New York, and the contractor make no warranties or representations, expressed or implied, as to the fitness for particular purpose or merchantability of product, apparatus, or service, or the usefulness, completeness, or accuracy of any processes, methods, or other information contained, described, disclosed, or referred to in this report. NYSERDA, the State of New York, and the contractor make no representation that the use of any product, apparatus, process, method, or other information will not infringe privately owned rights and will assume no liability for any loss, injury, or damage resulting from, or occurring in connection with, the use of information contained, described, disclosed, or referred to in this report. When there are other project cosponsors, use the following notice instead: NOTICE This report was prepared by in the course of performing work contracted for and sponsored by the New York State Energy Research and Development Authority and the (hereafter the "Sponsors"). The opinions expressed in this report do not necessarily reflect those of the Sponsors or the State of New York. and reference to any specific product, service, process, or method does not constitute an implied or expressed recommendation or endorsement of it. Further, the Sponsors and the State of New York make no warranties or representations. expressed or implied, as to the fitness for particular purpose or merchantability of any product, apparatus. or service, or the usefulness, completeness, or accuracy of any processes, methods, or other information contained, described, disclosed, or referred to in this report. The Sponsors, the State of New York, and the contractor make no representation that the use of any product, apparatus, process, method, or other information will not infringe privately owned rights and will assume no liability for any loss. injury, or damage resulting from, or occurring, in connection with, the use of information contained, described. disclosed, or referred to in this report. Abstract and Key Words - right-hand, odd-numbered page [iii]. An abstract is a brief, 200-word description of project objectives, investigative methods used, and research C-2 conclusions or applications. This information will be used when NYSERDA registers the report with the National Technical Information Service (NTIS). A list of key words that describe the project and identify the major research concept should be submitted with the report. Four to six precise descriptors are generally sufficient and will be used for indexing, registering, and distributing the report through NTIS. Acknowledgments (optional) - left-hand, even-numbered page [iv] Acknowledgments precede the contents and should be no longer than two paragraphs. Table of Contents and Lists of Figures and Tables - begin on odd-numbered, right-hand pages [v. vii. ix, etc.]] The Table of Contents should list section numbers, titles, second-level headings, and their page numbers. Third-level headings also may be listed. If the report contains five or more figures or tables, they should be listed using the style of the Table of Contents. The following samples are boxed only to set them apart in this document. Summary - right-hand, odd-numbered page entitled The Summary, which immediately precedes the body of the text, should be written for a general audience. The Summary may be the only part of the technical report closely read by a number of people, many of whom lack a technical background. These may include industry and utility executives, government officials, legislators. the general public, and media representatives. The Summary should be 500-1000 words long. TABLE OF CONTENTS
Section Page SUMMARY................................................................ S-I I DESCRIPTION OF STUDY................................................. 1-1 Sources of Information................................................. 1-5 Bases of Evaluation................................................... 1-9 2 EXISTING CONDITIONS.................................................. 2-1 Architecture........................................................... 2-3 Mechanical and Electrical Systems...................................... 2-13 3 ANALYSIS OF PRESENT ENERGY USE....................................... 3-1 Analysis of Use by Systems............................................. 3-3
C-3 Analysis of Use by Hospital Services..................................... 3-17 APPENDIX A Comparison of Expenses for NYS Hospitals...................... A-1 APPENDIX B Forms for Energy Audits in Hospitals.......................... B-1 FIGURES Page 1-1 Comparative Energy Use Per Cubic Foot in Hospitals Under 200 Beds.... 1-2 2-1 View of Community Hospital from South................................ 2-1 2-2 Site Plan............................................................ 2.5
GENERAL INFORMATION The first reference to NYSERDA should read "the New York State Energy Research and Development Authority (NYSERDA)." Subsequent references should read simply "NYSERDA." When it is clear that you are referring to New York State, use State; otherwise, use New York State or the State of New York. COPY 9 Page format: . Margins should be 1.25 inches left and right; 1 inch top and bottom. . Use left-hand justification only. . Text should be in a 10-point serif font (i.e., Times Roman, Bookman, etc.); captions, tables, and figures should be in a sans-serif font (i.e., Helvetica, Arial, etc.). . Spacing should be 1.5 lines, printed on one side of the paper. . Block-style paragraphs should be used, with no indentation (except for fifth-level headings, which should be blocked on the left; see Heading Styles, below). . There should be two returns between a paragraph and the next heading. Material borrowed or extracted from external sources must be identified by document, C-4 source, date, and page). Written permission to use copyrighted illustrations, tables. or text taken from another publication must be submitted with the report. Avoid half-page and one-sentence paragraphs. Do not use contractions. When referring to a specific figure or table, spell out and capitalize the words "Figure" and "Table." Indented lists of material should be set off with bullets: . If a typographical bullet is unavailable, the bullet is a lower case "o," not zero. . One blank line should precede and follow a list. . Bulleted items should be indented left and right. All new sections should begin on a right-hand, odd-numbered page (e.g., 1- 1, 2-1, A-1, etc.). . Percentages should be written as follows: 1%, 76%, etc. . Acronyms must be spelled out the first time used, followed by the acronym in parentheses. HEADING STYLES The heading styles illustrated below should be used. (Only section headings should be numbered.) FIRST-LEVEL HEADING Section I INTRODUCTION The heading is upper case, centered, and boldfaced: the text is below the heading at the left margin. SECOND-LEVEL HEADING The heading is upper case, at the left margin, and boldfaced: the text is at the left margin. C-5 Third-Level Heading The heading is upper and lower case, at the left margin, boldfaced and underscored; the text is at the left margin. Fourth-Level Heading. The heading is upper and lower case, at the left margin, boldfaced, and underscored. with a period at the end. The text continues on the same line as the heading. The remaining text goes back out to the left margin. Fifth-Level Heading. The heading, is upper and lower case, indented, boldfaced, and underscored with a period at the end. The text continues on the same line, with the remaining text indented left and right. TABLES AND FIGURES Tables and figures must be numbered sequentially and titled individually. Place tables and figures as close as possible to the text in which they are mentioned. Distinguish tabular material from the text. Cite a source if the tabular material or figure content has not been generated by the contractor. Figure captions should be complete sentences when appropriate. Use "Figure I," not "Fig. I," or "Table I." in the text, as well as for captions. Examples: . Table I details demand-side management options. As shown in Figure 1, the demand-side management program offers numerous options. . Figure captions should be typed in boldface. - Figure 1. Demand-Side Management Options in New York State. . Unless generated by the contractor, a source should always be cited. The figure source should appear after the caption (e.g., Source: Lawrence Berkeley Laboratory); the table source should be noted with an asterisk and footnoted. C-6 . Photographs and drawings should be limited in number, with the following guidelines: - Black-and-white line drawings or good-quality, clear halftones (black-and-white photographs) may be used. Color artwork and photos will be printed in black-and-white. - Slides should be converted to black-and-white photos before being submitted. - Photographs should be printed on glossy stock, preferably 5"x7" REFERENCES AND BIBLIOGRAPHIES The format in Manual of Style (University of Chicago Press, Chicago. Illinois) should be used for reference listings and bibliographies. Bibliographic entries should be listed alphabetically by author, as follows: Hawkins, R.R. Scientific, Medical, and Technical Books Published in the United States of America. 2d ed. New York: Bowker, 1958. REPORT REQUIREMENTS Two hard copies of the draft final report must be submitted to NYSERDA's Manager of Technical Publications. After review by the Project Manager and Technical Publications staff, the draft will be returned to the contractor for final corrections. The contractor is responsible for satisfactorily addressing technical comments from NYSERDA and other co-funders. When making editorial corrections, the contractor must ensure that technical content is not compromised. After editorial corrections have been made, the contractor must submit two hard copies of the final report (one a camera-ready original and the other a photocopy) and the report on a PC-formatted computer diskette to NYSERDA'S Manager of Technical Publications. Diskette Requirements Material must be submitted on an IBM personal computer-compatible 3.5-inch, double-sided (DS), high-density (HD) diskette that has been formatted for 1.44 megabytes (MB) of storage. A 3.5-inch IBM-PC-compatible diskette, double-sided, double-density, formatted for 720 kilobytes is acceptable only when the above requirements cannot be met. C-7 Textual material should be created in a format compatible with WordPerfect 6.1.While other word-processing programs may be able to be converted, results may vary. Characteristics such as underlining, bold, italics, and many special characters that often appear in equations may be lost if WordPerfect 6.1 is not used. If you are unable to meet these electronic transfer requirements, before submitting your report please contact Paula Rosenberg of NYSERDA's Technical Publications unit at (518) 862-1090, ext. 3270; fax (518) 862-1091; e-mail prl@nyserda.org CITY OF LOCKPORT INFLUENT HYDROPOWER FEASIBILITY STUDY Final Report Prepared for THE NEW YORK STATE ENERGY, RESEARCH AND DEVELOPMENT AUTHORITY Albany, NY Lawrence J. Pakenas, P.E. Senior Project Manager Prepared by, CITY OF LOCKPORT Lockport, NY Michael Die, Project Manager and INIALCOLM PIPUNIE, INC. Buffalo, NY Vincent J. Funipiello. P.E. Project Manager Sample title page. Font is a serif font (Times Roman). Bold-faced text is 13 pt., small caps. The rest of the type is 11 pt., plain text. 4311 -ERTER-NfW-97 NYSERDA Report 98-11 July 1998 New York State Energy Research and Development Authority Technical Publications Corporate Plaza West 286 Washington Avenue Extension Albany, New York 12203-6399 November 1998 C-8 EXHIBIT D PROMPT PAYMENT POLICY STATEMENT Section 504.1 Purpose and applicability. (a) The purpose of this Part is to implement section 2880 of the Public Authorities Law by detailing NYSERDA's policy for making payment promptly on amounts properly due and owing by NYSERDA under contracts. This Part constitutes NYSERDA's prompt payment policy statement as required by that section. (b) This Part generally applies to payments due and owing by NYSERDA to a person or business in the private sector under a contract it has entered into with NYSERDA on or after May 1, 1988. This Part does not apply to payments due and owing: (1) under the Eminent Domain Procedure Law; (2) as interest allowed on judgments rendered by a court pursuant to any provision of law except Section 2880 of the Public Authorities Law; (3) to the Federal Government; to any state agency or its instrumentalities, to any duly constituted unit of local government, including but not limited to counties, cities, towns, villages, school districts, special districts or any of their related instrumentalities or any other public authority or public benefit corporation or to its employees when acting in, or incidental to, their public employment capacity; (4) if NYSERDA is exercising a legally authorized set-off against all or part of the payment; or (5) if other State or Federal law or rule or regulation specifically requires otherwise. Section 504.2 Definitions. As used in this Part, the following terms shall have the following meanings, unless the context shall indicate another or different meaning or intent: (a) "NYSERDA" means the New York State Energy Research and Development Authority. (b) "Contract" means an enforceable agreement entered into between NYSERDA and a contractor. (c) "Contractor" means any person, partnership, private corporation, or association: C-9 (1) selling materials, equipment or supplies or leasing property or equipment to NYSERDA pursuant to a contract; (2) constructing, reconstructing, rehabilitating or repairing buildings, highways or other improvements for, or on behalf of, NYSERDA pursuant to a contract; or (3) rendering or providing services to NYSERDA pursuant to a contract. (d) "Date of payment" means the date on which NYSERDA requisitions a check from its statutory fiscal agent, the Department of Taxation and Finance, to make a payment. (e) "Designated payment office" means the Office of NYSERDA's Controller, located at Corporate Plaza West, 286 Washington Avenue Extension, Albany, New York 12203-6399. (f) "Payment" means provision by NYSERDA of funds in an amount sufficient to satisfy a debt properly due and owing to a contractor and payable under all applicable provisions of a contract to which this Part applies and of law, including but not limited to provisions for retained amounts or provisions which may limit NYSERDA's power to pay, such as claims, liens, attachments or judgments against the contractor which have not been properly discharged, waived or released. (g) "Prompt payment" means a payment within the time periods applicable pursuant to Sections 504.3 through 504.5 of this Part in order for NYSERDA not to be liable for interest pursuant to Section 504.6. (h) "Payment due date" means the date by which the date of payment must occur, in accordance with the provisions of Sections 504.3 through 504.5 of this Part, in order for NYSERDA not to be liable for interest pursuant to Section 506. (i) "Proper invoice" means a written request for a contract payment that is submitted by a contractor setting forth the description, price or cost, and quantity of goods, property or services delivered or rendered, in such form, and supported by such other substantiating documentation. as NYSERDA may reasonably require, including but not limited to any requirements set forth in the contract; and addressed to NYSERDA's Controller, marked "Attention: Accounts Payable." at the designated payment office. (1) "Receipt of an invoice" means: (i) if the payment is one for which an invoice is required, the later of: C-10 (a) the date on which a proper invoice is actually received in the designated payment office during normal business hours; or (b) the date by which, during normal business hours, NYSERDA has actually received all the purchased goods, property or services covered by a proper invoice previously received in the designated payment office. (ii) if a contract provides that a payment will be made on a specific date or at a predetermined interval, without having to submit a written invoice the 30th calendar day, excluding legal holidays, before the date so specified or predetermined. (2) For purposes of this subdivision, if the contract requires a multifaceted, completed or working system, or delivery of no less than a specified quantity of goods, property or services and only a portion of such systems or less than the required goods, property or services are working, completed or delivered, even though the Contractor has invoiced NYSERDA for the portion working, completed or delivered, NYSERDA will not be in receipt of an invoice until the specified minimum amount of the systems, goods, property or services are working, completed or delivered. (k) "Set-off" means the reduction by NYSERDA of a payment due a contractor by an amount equal to the amount of an unpaid legally enforceable debt owed by the contractor to NYSERDA. Section 504.3 Prompt payment schedule. Except as otherwise provided by law or regulation or in Sections 504.4 and 504.5 of this Part, the date of payment by NYSERDA of an amount properly due and owing under a contract shall be no later than 30 calendar days, excluding legal holidays, after such receipt. Section 504.4 Payment procedures. (a) Unless otherwise specified by a contract provision, a proper invoice submitted by the contractor to the designated payment office shall be required to initiate payment for goods, property or services. As soon as any invoice is received in the designated payment office during normal business hours, such invoice shall be date-stamped. The invoice shall then promptly be reviewed by NYSERDA. (b) NYSERDA shall notify the contractor within 15 calendar days after receipt of an invoice of: (1) any defects in the delivered goods, property or services; C-11 (2) any defects in the invoice, and (3) suspected improprieties of any kind. (c) The existence of any defects or suspected improprieties shall prevent the commencement of the time period specified in Section 504.3 until any such defects or improprieties are corrected or otherwise resolved. (d) If NYSERDA fails to notify a contractor of a defect or impropriety within the fifteen calendar day period specified in subdivision (b) of this section, the sole effect shall be that the number of days allowed for payment shall be reduced by the number of days between the 15th day and the day that notification was transmitted to the contractor. If NYSERDA fails to provide reasonable grounds for its contention that a defect or impropriety exists, the sole effect shall be that the payment due date shall be calculated using the original date of receipt of an invoice. (e) In the absence of any defect or suspected impropriety, or upon satisfactory correction or resolution of a defect or suspected impropriety, NYSERDA shall make payment, consistent with any such correction or resolution and the provisions of this Part. Section 504.5 Exceptions and extension of payment due date. NYSERDA has determined that, notwithstanding the provisions of Sections 504.3 and 504.4 of this Part, any of the following facts or circumstances, which may occur concurrently or consecutively, reasonably justify extension of the payment due date: (a) If the case of a payment which a contract provides will be made on a specific date or at a predetermined interval, without having to submit a written invoice, if any documentation, supporting data, performance verification, or notice specifically required by the contract or other State or Federal mandate has not been submitted to NYSERDA on a timely basis, then the payment due date shall be extended by the number of calendar days from the date by which all such matter was to be submitted to NYSERDA and the date when NYSERDA has actually received such matter. (b) If an inspection or testing period, performance verification, audit or other review or documentation independent of the contractor is specifically required by the contract or by other State or Federal mandate, whether to be performed by or on behalf of NYSERDA or another entity, or is specifically permitted by the contract or by other State or Federal provision and NYSERDA or other entity with the right to do so elects to have such activity or documentation undertaken, then the payment due date shall be extended by the number of calendar days from the date of receipt of an invoice to the date when any such activity or documentation has been completed, NYSERDA has actually received the results of such activity or documentation conducted by another entity, and any deficiencies identified or issues raised as a result of such activity or documentation have been corrected or otherwise C-12 resolved. (c) If an invoice must be examined by a State or Federal agency, or by another party contributing to the funding of the contract, prior to payment, then the payment due date shall be extended by the number of calendar days from the date of receipt of an invoice to the date when the State or Federal agency, or other contributing party to the contract, has completed the inspection, advised NYSERDA of the results of the inspection, and any deficiencies identified or issues raised as a result of such inspection have been corrected or otherwise resolved. (d) If appropriated funds from which payment is to be made have not yet been appropriated or, if appropriated, not yet been made available to NYSERDA, then the payment due date shall be extended by the number of calendar days from the date of receipt of an invoice to the date when such funds are made available to NYSERDA. Section 504.6 Interest eligibility and computation. If NYSERDA fails to make prompt payment, NYSERDA shall pay interest to a contractor on the payment when such interest computed as provided herein is equal to or more than ten dollars. Interest shall be computed and accrue at the daily rate in effect on the date of payment, as set by the New York State Tax Commission for corporate taxes pursuant to Section 1096(e)(1) of the Tax Law. Interest on such a payment shall be computed for the period beginning on the day after the payment due date and ending on the date of payment. Section 504.7 Sources of funds to pay interest. Any interest payable by NYSERDA pursuant to this Part shall be paid only from the same accounts, funds, or appropriations that are lawfully available to make the related contract payment. Section 504.8 Incorporation of prompt payment policy statement into contracts. The provisions' of this Part in effect at the time of the creation of a contract shall be incorporated into and made a part of such contract and shall apply to all payments as they become due and owing pursuant to the terms and conditions of such contract, notwithstanding that NYSERDA may subsequently amend this Part by further rulemaking. Section 504.9 Notice of objection. Unless a different procedure is specifically prescribed in a contract, a contractor may object to any action taken by NYSERDA pursuant to this Part which prevents the commencement of the time in which interest will be paid by submitting a written notice of objection to NYSERDA. Such notice shall be signed and dated and concisely and clearly set forth the basis for the objection and be addressed to the Vice President, New York State Energy Research and Development Authority, Corporate Plaza West, 286 Washington Avenue Extension, Albany, New York 12203-6399. The Vice President of NYSERDA, or his or her designee, shall review the objection for purposes of affirming or modifying NYSERDA's action. Within 15 working days of the receipt of the objection, the Vice President, or his or her designee, shall notify the contractor either that NYSERDA's action is affirmed or that it is modified or that, due to the complexity of the issue, additional C-13 time is needed to conduct the review; provided, however, in no event shall the extended review period exceed 30 working days. Section 504.10 Judicial Review. Any determination made by NYSERDA pursuant to this Part which prevents the commencement of the time in which interest will be paid is subject to judicial review in a proceeding pursuant to Article 78 of the Civil Practice Law and Rules. Such proceedings shall be commenced upon completion of the review procedure specified in Section 504.9 of this Part or any other review procedure that may be specified in the contract or by other law, rule, or regulation. Section 504.11 Court action or other legal processes. (a) Notwithstanding any other law to the contrary, the liability of NYSERDA to make an interest payment to a contractor pursuant to this Part shall not extend beyond the date of a notice of intention to file a claim, the date of a notice of a claim, or the date commencing a legal action for the payment of such interest, whichever occurs first. (b) With respect to the court action or other legal processes referred to in subdivision (a) of this section, any interest obligation incurred by NYSERDA after the date specified therein pursuant to any provision of law other than Public Authorities Law Section 2880 shall be determined as prescribed by such separate provision of law, shall be paid as directed by the court, and shall be paid from any source of funds available for that purpose. Section 504.12 Amendments. These regulations may be amended by resolution of NYSERDA, provided that the Chair, upon written notice to the other Members of NYSERDA, may from time to time promulgate nonmaterial amendments of these regulations. C-14 EX-10.16 17 AGREEMENT (09/30/97) EXHIBIT 10.16 CONFIDENTIAL INFORMATION HAS BEEN OMITTED PURSUANT TO RULE 406 UNDER THE SECURITIES ACT AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. THE LOCATIONS OF THE OMITTED INFORMATION HAVE BEEN INDICATED WITH ASTERISKS. ADDITIONAL SPECIAL PROVISIONS I. COST SHARE CONTRIBUTIONS It is the intention of the Government and the Participant to share the allowable and allocable costs of performance of the work during this Agreement as set forth herein. The Government's contribution and support for this Agreement during the project period September 30, 1997 through March 31, 2000 will be $11,178,423.00. The Participant will contribute $3,726,141.00 toward the aforementioned budget period. It is the intention of the Government and the Participant to share the total allowable and allocable costs of performance during the project period on a 75.0 percent (Government) and 25.0 percent (Participant) based on total cost of the project, see Block No. 16a.(6) of the Notice of Financial Assistance Award, face page. It is understood by the parties that the DOE share of this budget period is $11,178,423.00 and no additional Federal funding will be provided notwithstanding the total cost of the project at completion. The cost sharing formula zero percent (Government) and 100 percent (Participant) shall apply to any increase in the Total Approved Budget. 2. INDIRECT COST APPLIED TO TEAMING PARTNERS' COSTS Notwithstanding applicable cost principals, and allowable and allocable costs for performance of the work under this Agreement, indirect costs charged by the Participant to subaward(s) (Teaming Partners) shall not exceed 5% of the subaward total costs. Any indirect costs above the ceiling restriction shall be unallowable and shall be absorbed by the Applicant without reimbursement by the Government under any other Government contract, financial assistance or any subcontract under any other Government prime contract or financial assistance. 3. FEE No fee shall be paid to the Recipient or any subaward for performance under this Agreement. 4. ADEQUATE RECOGNITION It is agreed that the Participant shall obtain adequate recognition of the United States support for the technology developed under this cooperative agreement in any contract, licenses, or other agreements which involve the transfer to foreign entities of the fuel cell technology developed in whole or in part at Government expense. The Participant agrees to notify and obtain concurrence from the Assistant Secretary for Energy Efficiency and Renewable Energy or designee in writing of the adequate recognition obtained prior to entering into any such contracts, licenses, or other agreements. The Awardee shall not enter into any such contracts, licenses, or other agreements without the concurrence of the Assistant Secretary for Energy Efficiency and Renewable Energy or designee. The determination of whether to grant such concurrence shall be at the sole discretion of the Assistant Secretary for Energy Efficiency and Renewable Energy or designee and is not subject to litigation under 10 CFR (S)600.22, Disputes and Appeals. The determination shall be in writing and shall be furnished to the Awardee by the Contracting Officer. Examples of such an adequate recognition could include: (1) a commitment to manufacture in the U.S.A.; (2) a requirement to reimburse the U.S. Government for its R&D costs; and/or (3) a commitment to jointly sponsor the R&D program. 5. STATEMENT OF SUBSTANTIAL INVOLVEMENT The Department of Energy. (Department, DOE) will be substantially involved in all Tasks of the Statement of Work. The Department will collaborate with the participant in evaluating, accepting, and achieving the milestones for research as proposed by the respondent. The Department will provide technical direction to the overall program, as well as the individual program elements as it is determined to be necessary and appropriate by DOE. The Department will participate during the full duration of the project, and will have continuing rights to conduct ongoing negotiations with the participant regarding the technical direction of the work conducted under this Agreement. The Department staff members will attend meetings and participate in the formation and direction of scope of the key development activities. The DOE Project Officer, all participate in the development, review and approval of all proposed statements of work, including subcontractor statements of work, prior to the execution of any subcontract. The Department will review technical progress reports and provide input to these reports as deemed necessary. In addition, the Department will have the right to have National Laboratories or selected private organizations perform independent tests and evaluations of the cooperative agreement's deliverables, thus providing an additional measure of technical progress. The Department may collaborate with the participant in the allocation of funds budgeted for this Agreement. Further, as work progresses, funding needs may change and depending upon availability of funds, the Department may collaborate with the participant to reallocate funds budgeted between the different programs and projects. The Department will thus be actively monitoring all phases of the participant's research and development activities, including participation in the participant's reviews of its contractor's activities and review of the contractor's reports to the participant. The Department will actively participate in the participant's process of reviewing and approving each phase of the proposed programs and projects. The substantial involvement by the Department under this Agreement will remain in effect for the term of the cooperative agreement award unless otherwise requested in writing by the Contracting Officer. Moreover, this statement of substantial involvement by the Department does not increase the Department of Energy's liability under the Agreement award. 2 6. TECHNICAL DIRECTION A. The work to be performed by the Participant under this Cooperative Agreement is subject to the surveillance and written Technical Direction of a "DOE Project Officer," identified in block II of the face page. The term "Technical Direction" is defined to include, without limitation, the following: 1. Directions to the Participant which redirects the work effort, shifts work emphasis between work areas or tasks, require pursuit of certain lines of inquiry, fill in details or otherwise provide technical guidance to the Participant in order to accomplish the tasks and requirements stated in the Statement of Work as contained in the agreement. 2. Provision of information to the Participant which assists in the interpretation of drawings, specifications or technical portions of the Statement of Work as contained in the Agreement. 3. Review and, where required by the Cooperative Agreement, approval of technical reports, drawings, specifications or technical information to be delivered by the Participant to DOE under the Cooperative Agreement. 4. The DOE Project Officer shall monitor the Participant's performance with respect to compliance with the requirements of this Cooperative Agreement. B. Technical direction and management surveillance shall not impose tasks or requirements upon the Participant additional to or different from the tasks and requirements stated in the Statement of Work of this Agreement. The Technical Direction to be valid: 1. Must be issued in writing consistent with the tasks and requirements stated in the Statement of Work of this Agreement; and 2. May not: a. constitute an assignment of additional work outside the tasks and requirements stated in the Statement of Work of this Agreement; b. in any manner cause an increase or decrease in the total estimated project cost or the time required for project performance; c. change any of the expressed terms, conditions or specification of the Cooperative Agreement; or d. accept non-conforming work. 3 C. The Participant shall proceed promptly with the performance of Technical Directions duly issued by the DOE Project Officer in the manner prescribed by paragraph B. above and which are within his authority under the provisions of paragraph A. above; provided, however, that the Participant shall immediately cease the performance of any Technical Direction upon receipt of a written instruction to that effect from the Contracting Officer. D. If in the opinion of the Participant any Technical Direction issued by the DOE Project Officer is within one of the categories as defined in B.2. (a) through (d) above, the Participant shall not proceed but shall notify the Contracting Officer in writing within five working days after the receipt of any such Technical Direction and shall request the Contracting Officer to rescind such direction or mutually agree to modify the agreement accordingly. E. The only persons authorized to give Technical Direction to the Participant under this Agreement are the Contracting Officer and any "DOE Project Officer" as listed in Block II of the face page. Any action taken by the Participant in response to any direction given by any person other than the Contracting Officer or DOE Project Officer shall not be binding upon the Government. 4 Intellectual Property Provisions - Assistance LARGE BUSINESS, STATE AND LOCAL GOVERNMENTS OR FOREIGN ORGANIZATIONS (Research, Development or Demonstration)
CLAUSE REFERENCE TITLE PAGE - ------ --------- ----- ---- 01. 48 C.F.R. 52.227-1 Authorization and Consent (JUL 1995), Alternate ii 1 02. 48 C.F.R. 52.227-2 Notice and Assistance Regarding Patent and Copyright 1 Infringement (AUG 1996) This clause is not applicable if the award is for less then $100,000. 03. 48 C.F.R. 952.227-9 Refund or Royalties (FEB 1995) 04. 48 C.F.R. 952.227-13 Patent Rights - Acquisition by the Government 1 (FEB 1995) 05. 48 C.F.R. 52.227-14 Rights in Data - General (JUN 1987), with 10 Alternates ii and V, and paragraph (d)(3) as supplemented by 10 C.F.R. Part 600.27 If this award requires the use or delivery of limited data And/or restricted computer software, Alternates II and III are incorporated, unless modified upon recommendation Of Patent Counsel. 06. 48 C.F.R. 52.227.16 Additional Data Requirements (JUN 1987) 15 07. 48 C.F.R. 52.227-23 Rights to Proposal Data (Technical) (JUN 1987) 16 Attachment 1 (for reference): Patent Rights - Retention By Contractor (Short Form) (FED 1995); 48 C.F.R. 952.227-11
5 52.227-1 Authorization and Consent; Alternate ii (APR 1984) AUTHORIZATION AND CONSENT (a) The Government authorizes and consents to all use and manufacture of any invention described in and covered by a United States patent in the performance of this contract or any subcontract at any tier. (b) The Contractor agrees to include and require inclusion of, this clause, suitably modified to identify the parties, in all subcontracts at any tier for supplies or services (including construction, architect-engineer services, and materials, supplies, models, samples, and design or testing services expected to exceed the simplified acquisition threshold)--however, omission of this clause from any subcontract, including those at or below the simplified acquisition threshold, does not affect this authorization and consent. (End of clause) 52.227-2 Notice and Assistance Regarding Patent and Copyright Infringement. NOTICE AND ASSISTANCE REGARDING PATENT AND COPYRIGHT INFRINGEMENT (AUG 1996) (a) The Contractor shall report to the Contracting Officer, promptly and in reasonable written detail, each notice or claim of patent or copyright infringement based on the performance of this contract of which the Contractor has knowledge. (b) In the event of any claim or suit against the Government on account of any alleged patent or copyright infringement arising out of the performance of this contract or out of the use of any supplies furnished or work or services performed under this contract, the Contractor shall furnish to the Government, when requested by the Contracting Officer, all evidence and information in possession of the Contractor pertaining to such suit or claim. Such evidence and information shall be furnished at the expense of the Government except where the Contractor has agreed to indemnify the Government. (c) The Contractor agrees to include, and require inclusion of, this clause in all subcontracts at any tier for supplies or services (including construction and architect-engineer subcontracts and those for material, supplies, models, samples, or design or testing services) expected to exceed the simplified acquisition threshold at FAR 2.10 1. (End of clause) 6 952.227-9 Refund of Royalties REFUND OF ROYALTIES (FEB 1995) (a) The contract price includes certain amounts for royalties payable by the Contractor or subcontractors or both, which amounts have been reported to the Contracting Officer. (b) The term "royalties" as used in this clause refers to any costs or charges in the nature of royalties, license fees, patent or license amortization costs, or the like, for the use of or for rights in patents and patent applications in connection with performing this contract or any subcontract hereunder. The term also includes any costs or charges associated with the access to, use of, or other right pertaining to data that is represented to be proprietary and is related to the performance of this contract or the copying of such data or data that is copyrighted. (c) The Contractor shall furnish to the Contracting Officer, before final payment under this contract, a statement of royalties paid or required to be paid in connection with performing this contract and subcontracts hereunder together with the reasons. (d) The Contractor will be compensated for royalties reported under paragraph (c) of this clause, only to the extent that such royalties were included in the contract price and are determined by the Contracting Officer to be property chargeable to the Government and allocable to the contract. To the extent that any royalties that are included in the contract price are not, in fact, paid by the Contractor or are determined by the Contracting Officer not to be properly chargeable to the government and allocable to the contract, the contract price shall be reduced. Repayment or credit to the Government shall be made as the Contracting Officer directs. The approval by DOE of any individual payments or royalties shall not prevent the Government from contesting at any time the enforceability, validity, scope of, or title to, any patent or the proprietary nature of data pursuant to which a royalty or other payment is to be or has been made. (e) If, at any time within 3 years after final payment under this contract, the Contractor for any reason is relieved in whole or in part from the payment of the royalties included in the final contract price as adjusted pursuant to paragraph (d) of this clause, the Contractor shall promptly notify the Contracting Officer of that fact and shall reimburse the Government in a corresponding amount. (f) The substance of this clause, including, this paragraph (f), shall be included in any subcontract in which the amount of royalties reported during negotiation of the subcontract exceeds $250. (End of clause) 952.227-13 Patent Rights - Acquisition by the Government 7 PATENT RIGHTS-ACQUISITION BY THE GOVERNMENT (FEB 1995) (a) Definitions. "Invention", as used in this clause, means any invention or discovery which is or may be patentable or otherwise protectable under title 35 of the United States Code or any novel variety of plant that is or may be protectable under the Plant Variety Protection Act (7 U.S.C. 232 1, et seq.). "Practical application", as used in this clause, means to manufacture, in the case of a composition or product; to practice, in the case of a process or method; or to operate, in the case of a machine or system; and, in each case, under such conditions as to establish that the invention is being utilized and that its benefits are, to the extent permitted by law or Government regulations, available to the public on reasonable terms. "Subject invention", as used in this clause, means any invention of the Contractor conceived or first actually reduced to practice in the course of or under this contract. "Patent Counsel", as used in this clause, means the Department of Energy Patent Counsel assisting the procuring activity. "DOE patent waiver regulations", as used in this clause, means the Department of Energy patent waiver regulations at 41 CFR 9-9.109-6 or successor regulations. "Agency licensing regulations" and "applicable agency licensing regulations", as used in this clause, mean the Department of Energy patent licensing regulations at 10 CFR Part 781. (b) Allocations of principal rights. (1) Assignment to the Government. The Contractor agrees to assign to the Government the entire right, title, and interest throughout the world in and to each subject invention, except to the extent that rights are retained by the Contractor under subparagraph (b)(2) and paragraph (d) of this clause. (2) Greater rights determinations. (1) The contractor, or an employee-inventor after consultation with the Contractor, may request greater rights than the non-exclusive license and the foreign patent rights provided in paragraph (d) of this clause on identified inventions in accordance with the DOE patent waiver regulations. A request for a determination of whether the Contractor or the employee- inventor is entitled to acquire such greater rights must be submitted to the Patent Counsel with a copy to the Contracting Officer at the time of the first disclosure of the invention pursuant to subparagraph (e)(2) of this clause, or not later than 8 months thereafter, unless a longer period is authorized in writing by the 8 Contracting Officer for good cause shown in writing by the Contractor. Each determination of greater rights under this contract shall be subject to paragraph (c) of this clause, unless otherwise provided in the greater rights determination, and to the reservations and conditions deemed to be appropriate by the Secretary of Energy or designee. (ii) Within two (2) months after the filing of a patent application, the Contractor shall provide the filing date, serial number and title, a copy of the patent application (including an English-language version if filed in a language other than English), and, promptly upon issuance of a patent, provide the patent number and issue date for any subject invention in any country for which the Contractor has been granted title or the right to file and prosecute on behalf of the United States by the Department of Energy. (iii) Not less than thirty (30) days before the expiration of the response period for any action required by the Patent and Trademark Office, notify the Patent Counsel of any decision not to continue prosecution of the application. (iv) Upon request, the Contractor shall furnish the Government an irrevocable power to inspect and make copies of the patent application file. (c) Minimum rights acquired by the Government. With respect to each subject invention to which the Department of Energy grants the Contractor principal or exclusive rights, the Contractor agrees as follows: (ii) The Contractor hereby grants to the Government a nonexclusive, nontransferable, irrevocable, paid-up license to practice or have practiced each subject invention throughout the world by or on behalf of the Government of the United States (including any Government agency). (ii) The Contractor agrees that with respect to any subject invention in which DOE has granted it title, DOE has the right in accordance with the procedures in the DOE patent waiver regulations to require the Contractor, an assignee, or exclusive licensee of a subject invention to grant a nonexclusive, partially exclusive, or exclusive license in any field of use to a responsible applicant or applicants, upon terms that are reasonable under the circumstances, and if the Contractor, assignee, or exclusive licensee refuses such a request, DOE has the right to grant such a license itself if it determines that-- (A) Such action is necessary because the Contractor or assignee has not taken, or is not expected to take within a reasonable time, effective steps to achieve practical application of the subject invention in such field of use; (B) Such action is necessary to alleviate health or safety needs which are not reasonably satisfied by the Contractor, assignee, or their licensees; 9 (C) Such action is necessary to meet requirements for public use specified by Federal regulations and such requirements are not reasonably satisfied by the Contractor, assignee, or licensees; or (D) Such action is necessary because the agreement required by paragraph (ii) of this clause has neither been obtained nor waived or because a licensee of the exclusive right to use or sell any subject invention in the United States is in breach of such agreement. (iii) The Contractor agrees to submit on request periodic reports no more frequently than annually on the utilization of a subject invention or on efforts at obtaining such utilization of a subject invention or on efforts at obtaining such utilization that are being made by the Contractor or its licensees or assignees. Such reports shall include information regarding, the status of development, date of first commercial sale or use, gross royalties received by the Contractor, and such other data and information as DOE may reasonably specify. The Contractor also agrees to provide additional reports as may be requested by DOE in connection with any march-in proceedings undertaken by that agency in accordance with subparagraph (c)(1)(ii) of this clause. To the extent data or information supplied under this section is considered by the Contractor, its licensee, or assignee to be privileged and confidential and is so marked, the Department of Energy agrees that, to the extent permitted by law, it will not disclose such information to persons outside the Government. (iv) The Contractor agrees, when licensing a subject invention, to arrange to avoid royalty charges on acquisitions involving Government funds, including funds derived through a Military Assistance Program of the Government or otherwise derived through the Government, to refund any amounts received as royalty charges on a subject invention in acquisitions for, or on behalf of, the Government, and to provide for such refund in any instrument transferring rights in the invention to any party. (v) The Contractor agrees to provide for the Government's paid-up license pursuant to subparagraph (c)(1)(ii) of this clause in any instrument transferring rights in a subject invention and to provide for the granting of licenses as required by subparagraph (c)(1)(ii) of this clause, and for the reporting of utilization information as required by subparagraph (c)(1)(iii) of this clause, whenever the instrument transfers principal or exclusive rights in a subject invention. (2) Nothing contained in this paragraph (c) shall be deemed to grant to the Government any rights with respect to any invention other than a subject invention. (d) Minimum rights to the Contractor. (1) The Contractor is hereby granted a revocable, nonexclusive, royalty-free license in each patent application filed in any country on a subject invention and any resulting patent in which the Government obtains title, unless the Contractor fails to disclose the subject invention within the times specified in subparagraph (e)(2) of this clause. The Contractor's license extends to its domestic subsidiaries and affiliates, if any, within the corporate structure of which the 10 Contractor is a part and includes the right to grant sublicenses of the same scope to the extent the Contractor was legally obligated to do so at the time the contract was awarded. The license is transferable only with the approval of DOE except when transferred to the successor of that part of the Contractor's business to which the invention pertains. (2) The Contractor's domestic license may be revoked or modified by DOE to the extent necessary to achieve expeditious practical application of the subject invention pursuant to an application for an exclusive license submitted in accordance with applicable provisions in 37 CFR Part 404 and agency licensing regulations. This license will not be revoked in that field of use or the geographical areas in which the Contractor has achieved practical applications and continues to make the benefits of the invention reasonably accessible to the public. The license in any foreign country may be revoked or modified at the discretion of DOE to the extent the Contractor, its licensees or its domestic subsidiaries or affiliates have failed to achieve practical application in that foreign country. (3) Before revocation or modification of the license, DOE will furnish the Contractor a written notice of its intention to revoke or modify the license, and the Contractor will be allowed 30 days (or such other time as may be authorized by DOE for good cause shown by the Contractor) after the notice to show cause why the license should not be revoked or modified. The Contractor has the right to appeal, in accordance with applicable agency licensing regulations and 37 CFR Part 404 concerning the licensing of Government-owned inventions, any decision concerning the revocation or modification of its license. (4) The Contractor may request the right to acquire patent rights to a subject invention in any foreign country where the Government has elected not to secure such rights, subject to the conditions in subparagraphs (d)(4)(ii) through (d)(4)(vii) of this clause. Such request must be made in writing to the Patent Counsel as part of the disclosure required by subparagraph (e)(2) of this clause, with a copy to the DOE Contracting Officer. DOE approval, if given, will be based on a determination that this would best serve the national interest. (ii) The recipient of such rights, when specifically requested by DOE, and three years after issuance of a foreign patent disclosing the subject invention, shall furnish DOE a report stating: (A) The commercial use that is being made, or is intended to be made, of said invention, and (B) The steps taken to bring the invention to the point of practical application or to make the invention available for licensing. (ii) The Government shall retain at least an irrevocable, nonexclusive, paid-up license to make, use, and sell the invention throughout the world by or on behalf of the Government (including any Government agency) and States and domestic municipal governments, unless the Secretary of Energy or designee determines that it would not be in the public interest to acquire the license for the States and domestic municipal governments. 11 (iii) If noted elsewhere in this contract as a condition of the grant of an advance waiver of the Government's title to inventions under this contract, or, if no advance waiver was granted but a waiver of the Government's title to an identified invention is granted pursuant to subparagraph (b)(2) of this clause upon a determination by the Secretary of Energy that it is in the Government's best interest, this license shall include the right of the Government to sublicense foreign governments pursuant to any existing or future treaty or agreement with such foreign governments. (iv) Subject to the rights granted in subparagraphs (d)(1), (2), and (3) of this clause, the Secretary of Energy or designee shall have the right to terminate the foreign patent rights granted in this subparagraph (d)(4) in whole or in part unless the recipient of such rights demonstrates to the satisfaction of the Secretary of Energy or designee that effective steps necessary to accomplish substantial utilization of the invention have been taken or within a reasonable time will be taken. (v) Subject to the rights granted in subparagraphs (d)(1), (2), and (3) of this clause, the Secretary of Energy or designee shall have the right, commencing four years after foreign patent rights are accorded under this subparagraph (d)(4), to require the granting of a nonexclusive or partially exclusive license to a responsible applicant or applicants, upon terms reasonable under the circumstances, and in appropriate circumstances to terminate said foreign patent rights in whole or in part, following a hearing upon notice thereof to the public, upon a petition by an interested person justifying such hearing: (A) If the Secretary of Energy or designee determines, upon review of such material as he deems relevant, and after the recipient of such rights or other interested person has had the opportunity to provide such relevant and material information as the Secretary or designee may require, that such foreign patent rights have tended substantially to lessen competition or to result in undue market concentration in any section of the United States in any line of commerce to which the technology relates; or (B) Unless the recipient of such rights demonstrates to the satisfaction of the Secretary of Energy or designee at such hearing that the recipient has taken effective steps, or within a reasonable time thereafter is expected to take such steps, necessary to accomplish substantial utilization of the invention. (vi) If the contractor is to file a foreign patent application on a subject invention, the Government agrees, upon written request, to use its best efforts to withhold publication of such invention disclosures for such period of time as specified by Patent Counsel, but in no event shall the Government or its employees be liable for any publication thereof. (vii) Subject to the license specified in subparagraphs (d)(1), (2), and (3) of this clause, the contractor or inventor agrees to convey to the Government, upon request, the entire right, title, and interest in any foreign country in which the contractor or inventor fails to have a patent application filed in a timely manner or decides not to continue prosecution or to pay any 12 maintenance fees covering the invention. To avoid forfeiture of the patent application or patent, the contractor or inventor shall, not less than 60 days before the expiration period for any action required by any patent office, notify the Patent Counsel of such failure or decision, and deliver to the Patent Counsel, the executed instruments necessary for the conveyance specified in this paragraph. (e) Invention identification, disclosures, and reports. (1) The Contractor shall establish and maintain active and effective procedures to assure that subject inventions are promptly identified and disclosed to Contractor personnel responsible for patent matters within 6 months of conception and/or first actual reduction to practice, whichever occurs first in the performance of work under this contract. These procedures shall include the maintenance of laboratory notebooks or equivalent records and other records as are reasonably necessary to document the conception and/or the first actual reduction to practice of subject inventions, and records that show that the procedures for identifying and disclosing the inventions are followed. Upon request, the Contractor shall furnish the Contracting Officer a description of such procedures for evaluation and for determination as to their effectiveness. (2) The Contractor shall disclose each subject invention to the DOE Patent Counsel with a copy to the Contracting Officer within 2 months after the inventor discloses it in writing to Contractor personnel responsible for patent matters or, if earlier, within 6 months after the Contractor becomes aware that a subject invention has been made, but in any event before any on sale, public use, or publication of such invention known to the Contractor. The disclosure to DOE shall be in the form of a written report and shall identify the contract under which the invention was made and the inventor(s). It shall be sufficiently complete in technical detail to convey a clear understanding, to the extent known at the time of the disclosure, of the nature, purpose, operation, and physical, chemical, biological, or electrical characteristics of the invention. The disclosure shall also identify any publication, on sale, or public use of the invention and whether a manuscript describing the invention has been submitted for publication and, if so, whether it has been accepted for publication at the time of disclosure. In addition, after disclosure to DOE, the Contractor shall promptly notify Patent Counsel of the acceptance of any manuscript describing the invention for publication or of any on sale or public use planned by the Contractor. The report should also include any request for a greater rights determination in accordance with subparagraph (b)(2) of this clause. When an invention is disclosed to DOE under this paragraph, it shall be deemed to have been made in the manner specified in Sections (a)(1) and (a)(2) of 42 U.S.C. 5908, unless the Contractor contends in writing at the time the invention is disclosed that is was not so made. (3) The Contractor shall furnish the Contracting Officer the following: (ii) Interim reports every 12 months (or such longer period as may be specified by the Contracting Officer) from the date of the contract, listing subject inventions during that period, and certifying that all subject inventions have been disclosed (or that there are not such 13 inventions) and that the procedures required by subparagraph (e)(1) of this clause have been followed. (ii) A final report, within 3 months after completion of the contracted work listing all subject inventions or certifying that there were no such inventions, and listing all subcontracts at any tier containing a patent rights clause or certifying that there were no such subcontracts. (4) The Contractor agrees to require, by written agreement, its employees, other than clerical and nontechnical employees, to disclose promptly in writing to personnel identified as responsible for the administration of patent matters and in a format suggested by the Contractor each subject invention made under contract in order that the Contractor can comply with the disclosure provisions of paragraph (c) of this clause, and to execute all papers necessary to file patent applications on subject inventions and to establish the Government's rights in the subject inventions. This disclosure format should require, as a minimum, the information required by subparagraph (e)(2) of this clause. (5) The Contractor agrees, subject to FAR 27.3020), that the Government may duplicate and disclose subject invention disclosures and all other reports and papers furnished or required to be furnished pursuant to this clause. (f) Examination of records relating to inventions. (1) The Contracting Officer or any authorized representative shall, until 3 years after final payment under this contract, have the right to examine any books (including laboratory notebooks), records, and documents of the Contractor relating, to the conception or first actual reduction to practice of inventions in the same field of technology as the work under this contract to determine whether: (ii) Any such inventions are subject inventions; (ii) The Contractor has established and maintains the procedures required by subparagraphs (e)(1) and (4) of this clause; (iii) The Contractor and its inventors have complied with the procedures. (2) If the Contracting Officer learns of an unreported Contractor invention which the Contracting Officer believes may be a subject invention, the Contractor may be required to disclose the invention to DOE for a determination of ownership rights. (3) Any examination of records under this paragraph will be subject to appropriate conditions to protect the confidentiality of the information involved. (g) Withholding of payment (NOTE: This paragraph does not apply to subcontracts). 14 (1) Any time before final payment under this contract, the Contracting Officer may, in the Government's interest withhold payment until a reserve not exceeding $50,000 or 5 percent of the amount of this contract, whichever is less, shall have been set aside if, in the Contracting Officer's opinion, the Contractor fails to: (i) Convey to the Government, using a DOE-approved form, the title and/or rights of the Government in each invention as required by this clause. (ii) Establish, maintain, and follow effective procedures for identifying and disclosing subject inventions pursuant to subparagraph (e)(1) of this clause; (iii) Disclose any subject invention pursuant to subparagraph (e)(2) of this clause; (iv) Deliver acceptable interim reports pursuant to subparagraph (e)(3)(ii) of this clause; or (v) Provide the information regarding subcontracts pursuant to subparagraph (h)(4) of this clause. (2) Such reserve or balance shall be withheld until the Contracting Officer has determined that the Contractor has rectified whatever deficiencies exist and has delivered all reports, disclosures, and other information required by this clause. (3) Final payment under this contract shall not be made before the Contractor delivers to the Contracting Officer all disclosures of subject inventions required by subparagraph (e)(2) of this clause, and acceptable final report pursuant to subparagraph (e)(3)(ii) of this clause, and the Patent Counsel has issued a patent clearance certification to tile Contracting Officer. (4) The Contracting Officer may decrease or increase the sums withheld up to the maximum authorized above. No amount shall be withheld under this paragraph while the amount specified by this paragraph is being withheld under other provisions of the contract. The withholding of any amount or the subsequent payment thereof shall not be construed as a waiver of any Government rights. (h) Subcontracts. (1) The contractor shall include the clause at 48 CFR 952.227-11 (suitably modified to identify the parties) in all subcontracts, regardless of tier, for experimental, developmental, demonstration, or research work to be performed by a small business firm or domestic nonprofit organization, except where the work of the subcontract is subject to an Exceptional Circumstances Determination by DOE. In all other subcontracts, regardless of tier, for experimental, developmental, demonstration, or research work, the contractor shall include this clause (suitably modified to identify the parties). The contractor shall not, as part of the consideration for awarding the subcontract, obtain rights in the subcontractor's subject inventions. 15 (2) In the event of a refusal by a prospective subcontractor to accept such a clause the Contractor--- (ii) Shall promptly submit a written notice to the Contracting Officer setting forth the subcontractor's reasons for such refusal and other pertinent information that may expedite disposition of the matter; and (ii) Shall not, proceed with such subcontract without the written authorization of the Contracting Officer. (3) In the case of subcontracts at any tier, DOE, the subcontractor, and Contractor agree that the mutual obligations of the parties created by this clause constitute a contract between the subcontractor and DOE with respect to those matters covered by this clause. (4) The Contractor shall promptly notify the Contracting Officer in writing upon the award of any subcontract at any tier containing a Patent rights clause by identifying the subcontractor, the applicable patent rights clause, the work to be performed under the subcontract, and the dates of award and estimated completion. Upon request of the Contracting Officer the Contractor shall furnish a copy of such subcontract, and, no more frequently than annually, a listing of the subcontracts that have been awarded. (5) The contractor shall identify all subject inventions of the subcontractor of which it acquires knowledge in the performance of this contract and shall notify the Patent Counsel, with a copy to the contracting officer, promptly upon identification of the inventions. (ii) Preference United States industry, Unless provided otherwise, no Contractor that receives title to any subject invention and no assignee of any such Contractor shall grant to any person the exclusive right to use or sell any subject invention in the United States unless such person agrees that any products embodying the subject invention will be manufactured substantially in the United States. However, in individual cases, the requirement may be waived by the Government upon a showing by the Contractor or assignee that reasonable but unsuccessful efforts have been made to grant licenses on similar terms to potential licensees that would be likely to manufacture substantially in the United States or that under the circumstances domestic manufacture is not commercially feasible. (j) Atomic energy (1) No claim for pecuniary award of compensation under the provisions of the Atomic Energy Act of 1954, as amended, shall be asserted with respect to any invention or discovery made or conceived in the course of or under this contract. (2) Except as otherwise authorized in writing by the Contracting Officer, the Contractor will obtain patent agreements to effectuate the provisions of subparagraph (e)(1) of this clause from 16 all persons who perform any part of the work under this contract, except nontechnical personnel, such as clerical employees and manual laborers. (k) Background Patents. (1) Background Patent means a domestic patent covering an invention or discovery which is not a subject invention and which is owned or controlled by the Contractor at any time through the completion of this contract: (i) Which the contractor, but not the Government, has the right to license to others without obligation to pay royalties thereon, and (ii) Infringement of which cannot reasonably be avoided upon the practice of any specific process, method, machine, manufacture, or composition of matter (including relatively minor modifications thereof) which is a subject of the research, development, or demonstration work performed under this contract. (2) The Contractor agrees to and does hereby grant to the Government a royalty- free, nonexclusive license under any background patent for purposes of practicing a subject of this contract by or for the Government in research, development, and demonstration work only. (3) The Contractor also agrees that upon written application by DOE, it will grant to responsible parties, for purposes of practicing a subject of this contract, nonexclusive licenses under any background patent on terms that are reasonable under the circumstances. If, however, the Contractor believes that exclusive rights are necessary to achieve expeditious commercial development or utilization, then a request may be made to DOE for DOE approval of such licensing by the Contractor. (4) Notwithstanding subparagraph (k)(3) of this clause, the contractor shall not be obligated to license any background patent if the Contractor demonstrates to the satisfaction of the Secretary of Energy or designee that: (i) a competitive alternative to the subject matter covered by said background patent is commercially available or readily introducible from one or more other sources; or (ii) the Contractor or its licensees are supplying the subject matter covered by said background patent in sufficient quantity and at reasonable prices to satisfy market needs, or have taken effective steps or within a matter. Reasonable time are expected to take effective steps to so supply the subject (1) Publication. It is recognized that during the course of the work under this contract, the Contractor or its employees may from time to time desire to release or publish information regarding scientific or technical developments conceived or first actually reduced to practice in 17 the course of or under this contract. In order that public disclosure of such information will not adversely affect the patent interests of DOE or the Contractor, patent approval for release of publication shall be secured from Patent Counsel prior to any such release or publication. (m) Forfeiture of rights in unreported subject inventions. (1) The Contractor shall forfeit and assign to the Government, at the request of the Secretary of Energy or designee all rights in any subject invention which the Contractor fails to report to Patent Counsel within six months after the time the Contractor: (i) Files or causes to be filed a United States or foreign patent application thereon; or (ii) Submits the final report required by subparagraph (e)(2)(ii) of this clause, whichever is later. (2) However, the Contractor shall not forfeit rights in a subject invention if, within the time specified in subparagraph (m)(1) of this clause, the Contractor: (i) Prepares a written decision based upon a review of the record that the invention was neither conceived nor first actually reduced to practice in the course of or under the contract and delivers the decision to Patent Counsel, with a copy to the Contracting Officer; or (ii) Contending that the invention is not a subject invention, the Contractor nevertheless discloses the invention and all facts pertinent to this contention to the Patent Counsel, with a copy to the Contracting Officer; or (iii) Establishes that the failure to disclose did not result from the Contractor's fault or negligence. (3) Pending written assignment of the patent application and patents on a subject invention determined by the Secretary of Energy or designee to be forfeited (such determination to be a final decision under the Disputes clause of this contract), the Contractor shall be deemed to hold the invention and the patent applications and patents pertaining thereto in trust for the Government. The forfeiture provision of this paragraph (m) shall be in addition to and shall not supersede other rights and remedies which the Government may have with respect to subject inventions. (End of clause) 52.227-14 Rights in Data - General, with Alternates I and V, and paragraph (d)(3) 18 RIGHTS IN DATA - GENERAL (JUN 1987) (a) Definitions. "Computer software" as used in this clause, means computer programs, computer data bases, and documentation thereof. "Data," as used in this clause, means recorded information, regardless of form or the media on which it may be recorded. The term includes technical data and computer software. The terms does not include information incidental to contract administration such as financial, administrative, cost or pricing, or management information. "Form, fit, and function data," as used in this clause, means data relating to items, components, or processes that are sufficient to enable physical and functional interchange ability, as well as data identifying source, size, configuration, mating, and attachment characteristics, functional characteristics, and performance requirements; except that for computer software it means data identifying source, functional characteristics, and performance requirements but specifically excludes the source code, algorithm, process, formula, and flow charts of the software. "Limited rights data," as used in this clause, means data (other than computer software) developed at private expense that embody trade secrets or are commercial or financial and confidential or privileged. "Technical data," as used in this clause, means data (other than computer software) which are of a scientific or technical nature. "Restricted computer software," as used in this clause, means computer software developed at private expense and that is a trade secret; is commercial or financial and is confidential or privileged; or is published copyrighted computer software; including minor modifications of such computer software. "Unlimited rights," as used in this clause, means the right of the Government to use, disclose, reproduce, prepare derivative works, distribute copies to the public, and perform publicly and display publicly, in any manner and for any purpose, and to have or permit others to do so. "Limited rights," as used in this clause, means the rights of the Government in limited rights data as set forth in the Limited Rights Notice of subparagraph (a) (2) if included in this clause. "Restricted rights," as used in this clause, means the rights of the Government in restricted computer software, as set forth in a Restricted Rights Notice of subparagraph (g)(3) if included in this clause, or as otherwise may be provided in a collateral agreement incorporated in and made part of this contract, including minor modifications of such computer software. 19 (b) Allocation of rights. (1) Except as provided in paragraph (c) below regarding copyright, the Government shall have unlimited rights in: (i) Data first produced in the performance of this contract; (ii) Form, fit, and function data delivered under this contract; (iii) Data delivered under this contract (except for restricted computer software) that constitute manuals or instructional and training material for installation, operation, or routine maintenance and repair items, components, or processes delivered or furnished for use under this contract; and (iv) All other data delivered under this contract unless provided otherwise for limited rights data or restricted computer software in accordance with paragraph (g) below. (2) The Contractor shall have the right to: (i) Use, release to others, reproduce, distribute, or publish any data, first produced or specifically used by the Contractor in the performance of this contract, unless provided otherwise in paragraph (d) below; (ii) Protect from unauthorized disclosure and use those data which are limited rights data or restricted computer software to the extent provided in paragraph (g) below; (iii) Substantiate use of, add or correct limited rights, restricted rights, or copyright notices and to take other appropriate action, in accordance with paragraphs (e) and (f) below; and (iv) Establish claim to copyright subsisting in data first produced in the performance of this contract to the extent provided in subparagraph (c)(1) below. (c) Copyright --------- (1) Data first produced in the performance of this contract. Unless provided otherwise in subparagraph (d) below, the Contractor may establish, without prior approval of the Contracting Officer, claim to copyright subsisting in scientific and technical articles based on or containing data first produced in the performance of this contract and published in academic, technical or professional journals, symposia proceedings or similar works. The prior, express written permission of the Contracting Officer is required to establish claim to copyright subsisting in all other data first produced in the performance of this contract. When claim to copyright is made, the Contractor shall affix the applicable copyright notices of 17 U.S.C. 401 or 402 and acknowledgment of Government sponsorship (including contract number) to the data when such data are delivered to the Government, as well as when the data 20 are published or deposited for registration as a published work in the U.S. Copyright Office. For data other than computer software the Contractor grants to the Government, and others acting on its behalf, a paid-up, nonexclusive, irrevocable worldwide license in such copyrighted data to reproduce, prepare derivative works, distribute copies to the public, and perform publicly and display publicly, by or on behalf of the Government. For computer software, the Contractor grants to the Government and others acting in its behalf, a paid-up nonexclusive, irrevocable worldwide license in such copyrighted computer software to reproduct, prepare derivative works, and perform publicly and display publicly by or on behalf of the Government. (2) Data not first produced in the performance of this contract. The Contractor shall not, without prior written permission of the Contracting Officer, incorporate in data delivered under this contract any data not first produced in the performance of this contract and which contains the copyright notice of 17 U.S.C. 401 and 402, unless the Contractor identifies such data and grants to the Government, or acquires on its behalf, a license of the same scope as set forth in subparagraph (1) above; provided, however, that if such data are computer software the Government shall acquire a copyright license as set forth in subparagraph (g)(3) below if included in this contract or as otherwise may be provided in a collateral agreement incorporated in or made part of this contract. (3) Removal of copyright notices. The Government agrees not to remove any copyright notices place on data pursuant to this paragraph (c), and to include such notices on all reproductions of the data. (d) Release, publication and use of data. (1) The Contractor shall have the right to use, release to others, reproduce, distribute, or publish any data first produced or specifically used by the Contractor in the performance of this contract, except to the extent such data may be subject to the Federal export control or national security laws or regulations, or unless otherwise provided below in this paragraph or expressly set forth in this contract. (2) The Contractor agrees that to the extent it receives or is given access to data necessary for the performance of this contract which contain restrictive markings, the Contractor shall treat the data in accordance with such markings. Unless otherwise specifically authorized in writing by the Contracting Officer. (3) The Contractor agrees not to establish claim to copyright in computer software first produced in the performance of this contract without prior written permission of the Contracting Officer. When such permission is granted the Contracting Officer shall specify appropriate terms to assure dissemination of the software. The Contractor shall promptly deliver to the Contracting Officer or to the Patent Counsel designated by the Contracting Officer a duly executed and approved instrument fully confirmatory of all rights to which the 21 Government is entitled and other terms pertaining to the computer software to which claim to copyright is made. (e) Unauthorized marking of data. ---------------------------- (1) Notwithstanding any other provisions of this contract concerning inspection or acceptance, if any data delivered under this contract are marked with the notices specified in subparagraphs (g)(2) or (g)(3) below and use of such is not authorized by this clause, or if such data bears any other restrictive or limiting markings not authorized by this contract, the Contracting Officer may at any time either return the data to the Contractor, or cancel or ignore the markings. However, the following procedures shall apply prior to canceling or ignoring the markings. (i) The Contracting Officer shall make written inquiry to the contractor affording the Contractor 30 days from receipt of the inquiry to provide written justification to substantiate the propriety of the markings; (ii) If the Contractor fails to respond or fails to provide written justification to substantiate the propriety of the markings within the 30-day period (or a longer time not exceeding 90 days approved in writing by the Contracting Officer for good cause shown), the Government shall have the right to cancel or ignore the markings at any time after said period and the data will not longer be made subject to any disclosure prohibitions. (iii) If the Contractor provides written justification to substantiate the propriety of the markings within the period set in subdivision (i) above, the Contracting Officer shall consider such written justification and determine whether or not the markings are to be canceled or ignore. If the Contracting Officer determines that the markings are authorized, the Contractor shall be so notified in writing. If the Contracting Officer determines, with concurrence of the Head of the Contracting Activity, that the markings are not authorized, the Contracting Officer shall furnish the Contractor a written determination, which determination shall become the final agency decision regarding the appropriateness of the markings unless the Contractor files suit in a court of competent jurisdiction within 90 days of receipt of the Contracting Officer's decision. The Government shall continue to abide by the markings under this subdivision (iii) until final resolution of the matter either by the Contracting Officer's determination becoming final (in which instance the Government shall thereafter have the right to cancel or ignore the markings at any time and the data will no longer be made subject to any disclosure prohibitions), or by final disposition of the matter by court decision if suit is filed. (2) The time limits in the procedures set forth in subparagraph (1) above may be modified in accordance with agency regulations implementing the Freedom of Information Act (5 U.S.C. 552) if necessary to respond to a request thereunder. (3) This paragraph (e) does not apply if this contract is for a major system or for support of a major system by a civilian agency other than NASA and the U.S. Coast Guard subject to the provisions of Title III of the Federal Property and Administrative Services Act of 1949. 22 (4) Except to the extent the Government's action occurs as the result of final disposition of the matter by a court of competent jurisdiction, the Contractor is not precluded by this paragraph (e) from bringing a claim under the Contract Disputes Act, including pursuant to the Disputes clause of this contract, as applicable, that may arise as the result of the Government removing or ignoring authorized markings on data delivered under this contract. (f) Omitted or incorrect markings. ----------------------------- (1) Data delivered to the Government without either the limited rights or restricted rights notice as authorized by paragraph (g) below, or the copyright notice required by paragraph (c) above, shall be deemed to have been furnished with unlimited rights, and the Government assumes no liability for disclosure, use, or reproduction of such data. However, to the extent the data has not been disclosed without restriction outside the Government, the Contractor may request, within 6 months (or a longer time approved by the Contracting Officer for good cause shown) after delivery of such data, permission to have notices placed on qualifying data at the Contractor's expense, and the Contracting Officer may agree to do so if the Contractor: (i) Identifies the data to which the omitted notice is to be applied; (ii) Demonstrates that the omission of the notice was inadvertent; (iii) Establishes that the use of the proposed notice is authorized; and (iv) Acknowledges that the Government has no liability with respect to the disclosure, use, or reproduction of any such data made prior to the addition of the notice or resulting from the omission of the notice. (2) The Contracting Officer may also (i) permit correction at the Contractor's expense of incorrect notices if the Contractor identifies the data on which correction of the notice is to be made, and demonstrates that the correct notice is authorized, or (ii) correct any incorrect notices. (g) Protection of limited rights data and restricted computer software. (1) When data other than that-listed in subparagraphs (b)(1)(i), (ii), and (iii) above are specified to be delivered under this contract and qualify as either limited rights data or restricted computer software, if the Contractor desires to continue protection of such data, the Contractor shall withhold such data and not furnish them to the Government under this Contract. As a condition to this withholding, the Contractor shall identify the data being withheld and furnish form, fit, and function data in lieu thereof. Limited rights data that are formatted as a computer data base for delivery to the Government is to be treated as limited rights data and not restricted computer software. (2) [Reserved.] 23 (3) [Reserved.] (h) Subcontracting. -------------- The Contractor has the responsibility to obtain from its subcontractors all data and rights therein necessary to fulfill the Contractor's obligations to the Government under this contract. If a subcontractor refuses to accept terms affording the Government such rights, the Contractor shall promptly bring such refusal to the attention of the Contracting Officer and not proceed with subcontract award without further authorization. (i) Relationship to patents. Nothing contained in this clause shall imply a license to the Government under any patent or be construed as affecting the scope of any license or other right otherwise granted to the Government. The Contractor agrees, except as may be otherwise specified in this contract for specific data items listed as not, subject to this paragraph, that the Contracting Officer or an authorized representative may, up to three years after acceptance of all items to be delivered under this contract, inspect at the Contractor's facility any data withheld pursuant to paragraph (g)(1) above, for purposes of verifying the Contractor's assertion pertaining to the limited rights or restricted rights status of the data or for evaluating work performance. Where the Contractor whose data are to be inspected demonstrates to the Contracting Officer that there would be a possible conflict of interest if the inspection where made by a particular representative, the Contracting Officer shall designate an alternate inspector. (End of clause) ALTERNATE II (g)(2) Notwithstanding subparagraph (g)(1) of this clause, the contract may identify and specify the delivery of limited rights data, or the Contracting Officer may require by written request the delivery of limited rights data that has been withheld or would otherwise be withholdable. If delivery of such data is so required, the Contractor may affix the following "Limited Rights Notice" to the data and the Government will thereafter treat the data, subject to the provisions of paragraphs (e) and (f) of this clause, in accordance with such Notice: LIMITED RIGHTS NOTICE (JUN 1987) (a) These data are submitted with limited rights under Government contract No. ______ (and subcontract No. ______ if appropriate). These data may be reproduced and used by the Government with the express limitation that they will not, without written permission of the Contractor, be used for purposes of manufacture nor disclosed outside the Government; except that the Government may disclose these data outside the Government for the following, 24 purposes, if any, provided that the Government makes such disclosure subject to prohibition against further use and disclosure: [Agencies may list additional, purposes as set forth in 27.404(d)(1) or if none, so state] (b) This Notice shall be marked on any reproduction of these data, in whole or in part. (End of notice) ALTERNATE III (g)(3)(i) Notwithstanding subparagraph (g)(1) of this clause, the contract may identify and specify the delivery of restricted computer software, or the Contracting Officer may require by written request the delivery of restricted computer software that has been withheld or would otherwise be withholdable. If delivery of such computer software is so required, the Contractor may affix the following "Restricted Rights Notice" to the computer software and the Government will thereafter treat the computer software, subject to paragraphs (e) and (f) of this clause, in accordance with the Notice: RESTRICTED RIGHTS NOTICE (JUN 1987) (a) This computer software is submitted with restricted rights under Government Contract No. _____ (and subcontract, if appropriate). It may not be used, reproduced, or disclosed by the Government except as provided in paragraph (b) of this Notice or as otherwise expressly stated in the contract. (b) This computer software may be: (1) Used or copied for use in or with the computer or computers for which it was acquired, including use, at any Government installation to which such computer or computers may be transferred; (2) Used or copied for use in a backup computer if any computer for which it was acquired is inoperative; (3) Reproduced for safekeeping (archives) or backup purposes; (4) Modified, adapted, or combined with other computer software, provided that the modified, combined, or adapted portions of the derivative software incorporating restricted computer software are made subject to the same restricted rights; (5) Disclosed to and reproduced for use by support service Contractors in accordance with subparagraphs (b)(1) through (4) of this clause, provided the Government makes such disclosure or reproduction subject to these restricted rights; and 25 (6) Used or copied for use in or transferred to a replacement computer. (c) Notwithstanding the foregoing, if this computer software is published copyrighted computer software, it is licensed to the Government, without disclosure prohibitions, with the minimum rights set forth in paragraph (b) of this clause. (d) Any others rights or limitations regarding the use, duplication, or disclosure of this computer software are to be expressly stated in, or incorporated in, the contract. (e) This Notice shall be marked on any reproduction of this computer software, in whole or in part. (End of notice) (ii) Where it is impractical to include the Restricted Rights Notice on restricted computer software, the following short-form Notice may be used in lieu thereof: RESTRICTED RIGHTS NOTICE SHORT FORM (JUN 1987) Use, reproduction, or disclosure is subject to restrictions set forth in Contract No. _____ (and subcontract ___, if appropriate) with __________________ (name of Contractor and subcontractor). (End of notice) (iii) If restricted computer software is delivered with the copyright notice of 17 U.S.C. 401, it will be presumed to be published copyrighted computer software licensed to the Government without disclosure prohibitions, with the minimum rights set forth in paragraph (b) of this clause, unless the Contractor includes the following statement with such copyright notice: "Unpublished-rights reserved under the Copyright Laws of the United States." (End of Clause) 48 CFR 52.227-16 Additional Data Requirements ADDITIONAL DATA REQUIREMENTS (JUN 1987) (a) In addition to the data (as defined in the clause at 52.227-14 Rights in Data-General clause or other equivalent include in this contract) specified elsewhere in this contract to be delivered, the Contracting Officer may, at any time during contract performance or within a period of 3 years after acceptance of all items to be delivered under this contract, order any data first produced or specifically used in the performance of this contract. 26 (b) The Rights in Data-General clause or other equivalent included in this contract is applicable to all data ordered under this Additional Data Requirements clause. Nothing contained in this clause shall require the Contractor to deliver any data the withholding of which is authorized by the Rights in Data-General or other equivalent clause of this contract, or data which are specifically identified in this contract as not subject to this clause. (c) When data are to be delivered under this clause, the Contractor will be compensated for converting the data into the prescribed form, for reproduction, and for delivery. (d) The Contracting Officer may release the Contractor from the requirements of this clause for specifically identified data items at any time during the 3-year period set forth in paragraph (a) of this clause. (End of clause) 48 CFR 52.227-23 Rights to Proposal Data RIGHTS TO PROPOSAL DATA (TECHNICAL) (JUN, 1987) Except for data contained on pages ____ it is agreed that as a condition of award of this contract, and notwithstanding the conditions of any notice appearing thereon, the Government shall have unlimited rights (as defined in the "Rights in Data--General" clause contained in this contract) in and to the technical data contained in the proposal dated 3-13-97 upon which this contract is based. 3 through 22 Attachment 1: 952.227-11 Patent Rights - Retention by the Contractor (short form) PATENT RIGHTS - RETENTION BY THE CONTRACTOR (SHORT FORM) (FEB 1995) (a) Definitions. (1) "Invention" means any invention or discovery which is or may be patentable or otherwise protectable under title 35 of the United States Code, or any novel variety of plant which is or may be protected under the Plant Variety Protection Act (7 U.S.C. 2321, et seq.). (2) "Made" when used in relation to any invention means the conception of first actual reduction to practice of such invention. (3) "Nonprofit organization" means a university or other institution of higher education or an organization of the type described in section 501(c)(3) of the Internal Revenue Code of 1954 27 (26 U.S.C. 501(c)) and exempt from taxation under section 501(a) of the Internal Revenue Code (26 U.S.C. 501(a)) or any nonprofit scientific or educational organization qualified under a state nonprofit organization statute. (4) "Practical application" means to manufacture, in the case of a composition or product; to practice, in the case of a process or method; or to operate, in the case of a machine or system; and, in each case, under such conditions as to establish that the invention is being utilized and that is benefits are, to the extent permitted by law or Government regulations, available to the public on reasonable terms. (5) "Small business firm" means a small business concern as defined at section 2 of Pub. L. 85-536 (15 U.S.C. 632) and implementing regulations of the Administrator of the Small Business Administration. For the purpose of this clause, the size standards for small business concerns involved in Government procurement and subcontracting at 13 CFR 121.3-8 and 13 CFR 121.3-12, respectively, will be used. (6) "Subject invention" means any invention of the contractor conceived or first actually reduced to practice in the performance of work under this contract, provided that in the case of a variety of plant, the date of determination (as defined in section 4 I(d) of the Plant Variety Protection Act, 7 U.S.C. 2401(d)) must also occur during the period of contract performance. (7) "Agency licensing regulations" and "agency regulations concerning the licensing of Government-owned inventions" mean the Department of Energy patent licensing regulations at 10 CFR Part 781. (b) "Allocation of principal rights." The Contractor may retain the entire right, title, and interest throughout the world to each subject invention subject to the provisions of this clause and 35 U.S.C. 20. With respect to any subject invention in which the Contractor retains title, the Federal Government shall have a nonexclusive, nontransferable, irrevocable, paid-up license to practice or have practiced for or on behalf of the United States the subject invention throughout the world. (c) Invention disclosure, election of title, and filing of patent application by Contractor. (1) The Contractor will disclose each subject invention to the Department of Energy (DOE) within 2 months after the inventor discloses it in writing to Contractor personnel responsible for patent matters. The disclosure to DOE shall be in the form of a written report and shall identify the contract under which the invention was made and the inventor(s). It shall be sufficiently complete in technical detail to convey a clear understanding to the extent known at the time of the disclosure, of the nature, purpose, operation, and the physical, chemical, biological or electrical characteristics of the invention. The disclosure shall also identify any publication, on sale or public use of the invention and whether a manuscript describing the invention has been submitted for publication and, if so, whether it has been accepted for publication at the time of 28 disclosure. In addition, after disclosure to the DOE, the Contractor will promptly notify that agency of the acceptance of any manuscript describing the invention for publication or of any on sale or public use planned by the Contractor. (2) The Contractor will elect in writing whether or not to retain title to any such invention by notifying DOE within 2 years of disclosure to DOE. However, in any case where publication, on sale or public use has initiated the 1-year statutory period wherein valid patent protection can still be obtained in the United States, the period for election of title may be shortened by DOE to a date that is no more than 60 days prior to the end of the statutory period. (3) The Contractor will file its initial patent application on a subject invention to which it elects to retain title within 1 year after election of title or, if earlier, prior to the end of any statutory period wherein valid patent protection can be obtained in the United States after a publication, on sale, or public use. The Contractor will file patent applications in additional countries or international patent offices within either 10 months of the corresponding initial patent application or 6 months from the date permission is granted by the Commissioner of Patents and Trademarks to file foreign patent applications where such filing has been prohibited by a Secrecy Order. (4) Requests for extension of the time for disclosure, election, and filing under subparagraphs (c)(1), (2), and (3) of this clause may, at the discretion of the agency, be granted. (d) Conditions when the Government may obtain title. The Contractor will convey to the Federal agency, upon written request, title to any subject invention: (1) If the Contractor fails to disclose or elect title to the subject invention within the times specified in paragraph (c) of this clause, or elects not to retain title; provided, that DOE may only request title within 60 days after learning of the failure of the Contractor to disclose or elect within the specified times. (2) In those countries in which the Contractor fails to file patent applications within the times specified in paragraph (c) of this clause; provided, however, that if the Contractor has filed a patent application in a country after the times specified in paragraph (c) of this clause, but prior to its receipt of the written request of the Federal agency, the Contractor shall continue to retain title in that country. (3) In any country in which the Contractor decides not to continue the prosecution of any application for, to pay the maintenance fees on, or defend in reexamination or opposition proceeding on, a patent on a subject invention. (e) Minimum rights to Contractor and protection of the Contractor right to file. 29 (1) The Contractor will retain a nonexclusive royalty-free license throughout the world in each subject invention to which the Government obtains title, except if the Contractor fails to disclose the invention within the times specified in paragraph (c) of this clause. The Contractor's license extends to its domestic subsidiary and affiliates, if any, within the corporate structure of which the Contractor is a party and included the right to grant sublicenses of the same scope to the extent the Contractor was legally obligated to do so at the time the contract was awarded. The license is transferable only with the approval of the Federal agency, except when transferred to the successor of that part of the Contractor's business to which the invention pertains. (2) The Contractor's domestic license may be revoked or modified by DOE to the extent necessary to achieve expeditious practical application of subject invention pursuant to an application for an exclusive license submitted in accordance with applicable provisions at 37 CFR Part 404 and agency licensing regulations. This license will not be revoked in that field of use or the geographical areas in which the Contractor has achieved practical application and continues to make the benefits of the invention reasonably accessible to the public. The license in any foreign country may be revoked or modified at the discretion of DOE to the extent the Contractor, its licensees, or the domestic subsidiaries or affiliates have failed to achieve practical application in that foreign country. (3) Before revocation or modification of the license, DOE will furnish the Contractor a written notice of its intention to revoke or modify the license, and the Contractor will be allowed 30 days (or such other time as may be authorized by DOE for good cause shown by the Contractor) after the notice to show cause why the license should not be revoked or modified. The Contractor has the right to appeal, in accordance with applicable regulations in 37 CFR Part 404 and actual regulations concerning the licensing of Government owned inventions, any decision concerning the revocation or modification of the license. (f) Contractor action to protect the Government's interest. (1) The Contractor agrees to execute or to have executed and promptly deliver to DOE all instruments necessary to (i) establish or confirm the rights the Government has throughout the world in those subject inventions to which the Contractor elects to retain title, and (ii) convey title to DOE when requested under paragraph (d) of this clause and to enable the government to obtain patent protection throughout the world in that subject invention. (2) The Contractor agrees to require, by written agreement, its employees, other than clerical and nontechnical employees, to disclose promptly in writing to personnel identified as responsible for the administration of patent matters and in a format suggested by the Contractor each subject invention made under contract in order that the Contractor can comply with the disclosure provisions of paragraph (c) of this 30 clause, and to execute all papers necessary to file patent applications on subject inventions and to establish the Government's rights in the subject inventions. This disclosure format should require, as a minimum, the information required by subparagraph (c)(1) of this clause. The Contractor shall instruct such employees, through employee agreements or other suitable educational programs, on the importance of reporting inventions in sufficient time to permit the filing of patent applications prior to U.S. or foreign statutory bars. (3) The Contractor will notify DOE of any decision not to continue the prosecution of a patent application, pay maintenance fees, or defend in a reexamination or opposition proceeding on a patent, in any country, not less than 30 days before the expiration of the response period required by the relevant patent office. (4) The Contractor agrees to include, within the specification of any United States patent application and any patent issuing thereon covering a subject invention, the following statement, "This invention was made with Government support under (identify the contract) awarded by the United States Department of Energy. The Government has certain rights in the invention." (g) Subcontracts. (1) The Contractor will include this clause, suitably modified to identify the parties, in all subcontracts, regardless of tier, for experimental, developmental, or research work to be performed by a small business firm or domestic nonprofit organization. The subcontractor will retain all rights provided for the Contractor in this clause, and the Contractor will not, as part of the consideration for awarding the subcontract, obtain rights in the subcontractor's subject inventions. (2) The contractor shall include in all other subcontracts, regardless of tier, for experimental, developmental, demonstration, or research work the patent rights clause at 952.227-13. (3) In the case of subcontracts, at any tier, DOE, subcontractor, and the Contractor agree that the mutual obligations of the parties created by this clause constitute a contract between the subcontractor and DOE with respect to the matters covered by the clause; provided, however, that nothing in this paragraph is intended to confer any jurisdiction under the Contract Disputes Act in connection with proceedings under paragraph (j) of this clause. (h) Reporting on utilization of subject inventions. The Contractor agrees to submit, on request, periodic reports no more frequently than annually on the utilization of a subject invention or on efforts at obtaining such utilization that are being made by the Contractor or its licensees or assignees. Such reports shall include information regarding the Development, date of first commercial sale or use, gross royalties received, by the Contractor, and such other data and 31 information as DOE may reasonably specify. The Contractor also agrees to provide additional reports as may be requested by DOE in connection with any march-in proceeding undertaken by that agency in accordance with paragraph (h) of this clause. As required by 35 U.S.C. 202(c)(5), DOE agrees it will not disclose such information to persons outside the Government without permission of the Contractor. (i) Preference for United States industry. Notwithstanding any other provision of this clause, the Contractor agrees that neither it nor any assignee will grant to any person the exclusive right to use or sell any subject invention in the United States unless such person agrees that any product embodying the subject invention or produced through the use of the subject invention will be manufactured substantially in the United States. However, in individual cases, the requirement for such an agreement may be waived by DOE upon a showing by the Contractor or its assignee that reasonable but unsuccessful efforts have been made to grant licenses on similar terms to potential licensees that would be likely to manufacture substantially in the United States or that under the circumstances domestic manufacture is not commercially feasible. (j) March-in rights. The Contractor agrees that, with respect to any subject invention in which it has acquired title, DOE has the right in accordance with the procedures in 37 CFR 461.6 and any supplemental regulations of the agency to require the Contractor, an assignee or exclusive licensee of a subject invention to grant a nonexclusive, partially exclusive, or exclusive license in any field of use to a responsible applicant or applicants, upon terms that are reasonable under the circumstances, and, if the Contractor, assignee, or exclusive licensee refuses such a request, DOE has the right to grant such a license itself if DOE determines that-- (1) Such action is necessary because the Contractor or assignee has not taken, or is not expected to take within a reasonable time, effective steps to achieve practical application of the subject invention in such field of use; (2) Such action is necessary to alleviate health or safety needs which are not reasonably satisfied by the Contractor, assignee, or their licensees; (3) Such action is necessary to meet requirements for public use specified by Federal regulations and such requirements are not reasonably satisfied by the Contractor, assignee, or licensees; or (4) such action is necessary because the agreement required by paragraph (i) of this clause has not been obtained or waived or because a licensee of the exclusive right to use or sell any subject invention in the United States is in breach of such agreement. (k) Special provisions for contracts-with nonprofit organizations. If the Contractor is a nonprofit organization, it agrees that-- (1) Rights to a subject invention in the United States may not be assigned without the approval of the Federal agency, except where such assignment is made to an organization which has as one of its primary functions the management of inventions; provided, that such assignee will be subject to the same provisions as the Contractor; (2) The Contractor will share royalties collected on a subject invention with the inventor, including Federal employee co-inventors (when DOE deems it appropriate) 32 when the subject invention is assigned in accordance with 35 U.S.C. 202(e) and 37 CFR 401.10; (3) The balance of any royalties or income earned by the Contractor with respect to subject inventions, after payment of expenses (including payments to inventors) incidental to the administration of subject inventions will be utilized for the support of scientific research or education; and (4) It will make efforts that are reasonable under the circumstances to attract licensees of subject inventions that are small business firms, and that it will give a preference to a small business Finn when licensing a subject invention if the Contractor determines that the small business firm has a plan or proposal for marketing the invention which, if executed, is equally as likely to bring the invention to practical application as any plans or proposals from applicants that are not small business firms; provided, that the Contractor is also satisfied that the small business firm has the capability and resources to carry out its plan or proposal. The decision whether to give a preference in any specific case will be at the discretion of the contractor. However, the Contractor agrees that the Secretary of Commerce may review the Contractor's licensing program and decisions regarding small business applicants, and the Contractor will negotiate changes to its licensing, policies, procedures, or practices with the Secretary of Commerce when that Secretary's review discloses that the Contractor could take reasonable steps to more effectively implement the requirements of this subparagraph (k)(4). (1) Communications. (1) The contractor shall direct any notification, disclosure, or request to DOE provided for in this clause to the DOE patent counsel assisting the DOE contracting, activity, with a copy of the communication to the Contracting Officer. (2) Each exercise of discretion or decision provided for in this clause, except subparagraph (k)(4), is reserved for the DOE Patent Counsel and is not a claim or dispute and is not subject to the Contract Disputes Act of 1978. (3) Upon request of the DOE Patent Counsel or the contracting officer, the contractor shall provide any or all of the following: (i) a copy of the patent application, filing date, serial number and title, patent number, and issue date for any subject invention in any country in which the contractor has applied for a patent; (ii) a report, not more often than annually, summarizing, all subject inventions which were disclosed to DOE individually during the reporting period specified; or 33 (iii) a report, prior to closeout of the contract, listing all subject inventions or stating that there were none. (End of clause) 34 MECHANICAL TECHNOLOGY INC. March 13,1997 U.S. Department of Energy Chicago Operations Office 9800 South Cass Avenue Argonne, Illinois 60439 ATT: Mr. Brian Cass Executive Secretary Building 201, Room 3E-19 Dear Mr. Cass: SUBJ: PRDA DE-RA02-97EE50443 Mechanical Technology Incorporated is pleased to submit herewith its proposal, "Integrated Power System for Transportation". Enclosed are eight (8) copies each of the cost and technical proposal, including all the supporting details required in the PRDA DE-RA02-97EE50443. Any technical matters pertaining to this proposal should be directed to Dr. William D. Ernst (518-785-2859); all other matters should be directed to Mr. William P. Surnigray (518- 785-2276). Very truly yours, Dr. William D. Ernst, Manager Power & Energy Systems Enclosures MECHANICAL TECHNOLOGY INC. 96 ALBANY-SHAKER ROAD LATHAM, NEW YORK 12110518f785.2211 FAX (518) 785-2420 or 2l27 36 EXHIBIT A [***] (24 Pages) STATEMENT OF WORK CONFIDENTIAL INFORMATION HAS BEEN OMITTED PURSUANT TO RULE 406 UNDER THE SECURITIES ACT AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. THE LOCATIONS OF THE OMITTED INFORMATION HAVE BEEN INDICATED WITH ASTERISKS. Mechanical Technology Incorporated SPECIAL TERMS AND CONDITIONS FOR FINANCIAL ASSISTANCE AWARDS ------------------------------------------------------------ The requirements of this attachment take precedence over all other requirements of this award found in regulations, the general terms and conditions, DOE orders, etc., except requirements of statutory law. Any apparent contradiction of statutory law stated herein should be presumed to be in error until recipient has sought and received clarification from the Contracting Officer. 1. PAYMENT OFFICE -------------- CR-54/CHO Account Payable Division U. S. Department of Energy P.O. Box 500 Germantown, MD 20874-0500 2. FINANCE OFFICE -------------- U. S. Department of Energy Chicago Operations Office Financial Services Group 9800 South Cass Avenue Argonne, Illinois 60439 3. PAYMENT - Advance Payment under this award will be made by: ------- [ ] Department of Health & Human Services (DHHS) Payment Management System (PMS), formerly DOE Letter of Credit. The recipient shall request cash only as needed for immediate disbursements, shall report cash disbursements in a timely manner, and shall impose the same standards of timing and amount, including reporting requirements, on secondary recipients. [X] Treasury Check An original Request for Advance or Reimbursement, SF 270, shall be submitted as necessary to the Payment Office specified in Section 1. above, and one copy of the SF 270 shall be submitted to the Contract Specialist specified in Block 12 of the Notice of Financial Assistance Award (DOE F 4600.1). The timing and amount of advances shall be as close as is administratively feasible to the actual disbursements. Such requests shall not be made in excess of reasonable estimates of cash outlays for a 30 day period. An electronic funds transfer will be accomplished if the Finance Office has an Automated Clearing House (ACH) Vendor Miscellaneous Payment Enrollment Form on file for your organization. 37 Mechanical Technology Incorporated 4. DECONTAMINATION AND/OR DECOMMISSIONING D&D COSTS ------------------------------------------------ Notwithstanding any other provisions of this Agreement, including but not limited to FAR 31.205-31, when applicable, as incorporated by Financial Assistance Rule 600.127(a), the Government shall not be responsible for or have any obligation to the recipient for (i) Decontamination and/or Decommissioning (D&D) of any of the Recipient's facilities, or (ii) any costs which may be incurred by the Recipient in connection with the D&D of any of its facilities due to the performance of the work under this Agreement, whether said work was performed prior to or subsequent to the effective date of this Agreement. 5. FEDERALLY-OWNED PROPERTY ------------------------ If you acquire federally-owned property under this award whether fabricated, furnished or purchased With Capital Equipment Funds, then a listing of such property shall be submitted on DOE F 4300.3, Summary Report of DOE-Owned Plant & Capital Equipment, to the Contracting Officer within 30 days after February 28 of each year and within 30 days after the project period ends. The report must separately identify items which were fabricated, furnished, or purchased with Capital Equipment funds under this award. 6. PURCHASE OF AMERICAN-MADE EQUIPMENT AND PRODUCTS - SENSE OF CONGRESS - ---------------------------------------------------------------------- FISCAL YEAR 1998 ---------------- It is the sense of the Congress that, to the greatest extent practicable, all equipment and products purchased with funds made available under this award should be American-made. 7. NOTICE REGARDING UNALLOWABLE COSTS AND LOBBYING ACTIVITIES ---------------------------------------------------------- Recipients of financial assistance are cautioned to carefully review the allowable cost and other provisions applicable to expenditures under their particular award instruments. If financial assistance funds are spent for purposes or in amounts inconsistent with the allowable cost or any other provisions governing expenditures in an award instrument, the government may pursue a number of remedies against the recipient, including in appropriate circumstances, recovery of such funds, termination of the award, suspension or debarment of the recipient from future awards, and criminal prosecution for false statements. Particular care should be taken by the recipient to comply with the provisions prohibiting the expenditure of funds for lobbying and related activities. Financial assistance awards may be used to describe and promote the understanding of scientific and technical aspects of specific energy technologies, but not to encourage or support political activities such as the collection and dissemination of information related to potential, planned or pending legislation. 38 Mechanical Technology Incorporated 8. ADDITIONAL PROVISIONS If the appropriation symbol contained in Block 14.a. of the Notice of Financial Assistance Award for this award is listed below, paragraph 8.a. is applicable to this award, otherwise paragraph 8.b. applies: 89XO213.91 8990216.91 89MO216.91 89MO217.91 89X9219.91 89XO215.91 8900216.91 89XO216.91 89XO218.91 89MO219.91 89XO214.91 8910216.91 8990217.91 89MO218.91 89XO235.91 a. Department of Interior Appropriations Act Funding: ------------------------------------------------- 1. Lobbying Restriction -------------------- The contractor or awardee agrees that none of the funds obligated on this award shall be made available for any activity or the publication or distribution of literature that in any way tends to promote public support or opposition to any legislative proposal on which Congressional action is not complete. This restriction is in addition to those prescribed elsewhere in statute and regulation. 2. Compliance With Buy American Act -------------------------------- In accepting this award, the recipient agrees to comply with sections 2 through 4 of the Act of March 3, 1933 (41 U.S.C. 10a-10c, popularly known as the "Buy American Act"). The recipient should review the provisions of the Act to ensure that expenditures made under this award are in accordance with it. b. Energy & Water Development Appropriations Act Funding: ----------------------------------------------------- Lobbying Restriction - -------------------- The contractor or awardee agrees that none of the funds obligated on this award shall be expended, directly or indirectly, to influence congressional action on any legislation or appropriation matters pending before Congress, other than to communicate to Members of Congress as described in IS U.S.C. 1913. This restriction is in addition to those prescribed elsewhere in statute and regulation. 39 Mechanical Technology Incorporated 9. REPORTING --------- Failure to comply with the reporting requirements contained in this award will be considered a material noncompliance with the terms of the award. Noncompliance may result in a withholding of future payments, suspension or termination of the current award, and withholding of future awards. A willful failure to perform, a history of failure to perform or of unsatisfactory performance of this and/or other financial assistance awards, may also result in a debarment action to preclude future awards by Federal agencies. 10. PARTIAL FUNDING --------------- This cooperative agreement is partially funded on a cost reimbursement basis without fee or profit. The total estimated cost of the project to be conducted during the current budget period is $14,904,564.00 of which the estimated cost to DOE is $11,178,423.00 and the estimated cost to the Participant is $3,726,141.00. The Cumulative DOE Obligation for the current budget period is $3,601,816.00 and, subject to the availability of additional funds, DOE anticipates obligating an additional $7,576,607.00 hereunder for the current budget period. The Participant shall not be obligated to continue performance of the project beyond the total of: (a) the amount of funds set forth as the Cumulative DOE Obligation for the current budget period in Block 16.b.(I) of the face page, (b) the amount, if any, set forth as DOE Funds Authorized for Carry Over in Block 16.a.(2) of the face page, and (c) the amount of the Participant's corresponding obligation for the current budget period, viz., $1,200,563.00; provided, however, that once the Cumulative DOE Obligations for the current budget period have been increased by DOE to $11,178,423.00, the Participants obligation for the current budget period shall be increased to a total of $3,726,141.00, and the Participant shall be expected to bring the project (covered by the current budget period) to its conclusion within the amount of $14,904,564.00, and there is no commitment by DOE to provide any additional funding to the Participant. This cooperative agreement is subject to a refund of unexpended funds to DOE. 40 ADDITIONAL SPECIAL PROVISIONS TABLE OF CONTENTS
CLAUSE SUBJECT PAGE - ------ ------- ---- I. Cost Share Contributions ....................................... 1 2. Indirect Cost Applied to Teaming Partners' Costs ................ 1 3. Fee I .......................................................... 1 4. Adequate Recognition ............................................ 1 5. U.S. Competitiveness ............................................ 5. Statement of Substantial Involvement ............................ 2 6. Technical Direction ............................................. 3
41 ADDITIONAL SPECIAL PROVISIONS 1. COST SHARE CONTRIBUTIONS ------------------------ It is the intention of the Government and the Participant to share the allowable and allocable costs of performance of the work during this Agreement as set forth herein. The Government's contribution and support for this Agreement during the project period September 30, 1997 through March 31, 2000 will be $11,178,423.00. The Participant will contribute $3,726,141.00 toward the aforementioned budget period. It is the intention of the Government and the Participant to share the total allowable and allocable costs of performance during the project period on a 75.0 percent (Government) and 25.0 percent (Participant) based on total cost of the project, see Block No. 16a.(6) of the Notice of Financial Assistance Award, face page. It is understood by the parties that the DOE share of this budget period is $11,178,423.00 and no additional Federal funding will be provided notwithstanding the total cost of the project at completion. The cost sharing formula zero percent (Government) and 100 percent (Participant) shall apply to any increase in the Total Approved Budget. 2. INDIRECT COST APPLIED TO TEAMING PARTNERS' COSTS ------------------------------------------------ Notwithstanding applicable cost principals, and allowable and allocable costs for performance of the work under this Agreement, indirect costs charged by the Participant to subaward(s) (Teaming Partners) shall not exceed 5% of the subaward total costs. Any indirect costs above the ceiling restriction shall be unallowable and shall be absorbed by the Applicant without reimbursement by the Government under any other Government contract, financial assistance or any subcontract under any other Government prime contract or financial assistance. 3. FEE --- No fee shall be paid to the Recipient or any subaward for performance under this Agreement. 4. ADEQUATE RECOGNITION -------------------- It is agreed that the Participant shall obtain adequate recognition of the United States support for the technology developed under this cooperative agreement in any contracts, licenses, or other agreements which involve the transfer to foreign entities of the fuel cell technology developed in whole or in part at Government expense. The Participant agrees to notify and obtain concurrence from the Assistant Secretary for Energy Efficiency and Renewable Energy or designee in writing of the adequate recognition obtained prior to entering into any such contracts, licenses, or other agreements. The Awardee shall not enter into any such contracts, licenses, or other agreements without the concurrence of the Assistant Secretary for Energy Efficiency and Renewable Energy or designee. The determination of whether to grant such concurrence shall be at the sole discretion of the Assistant Secretary for Energy Efficiency and Renewable Energy or designee and is not subject to litigation under 10 CFR (S)600.22, Disputes 42 and Appeals. The determination shall be in writing and shall be furnished to the Awardee by the Contracting Officer. Examples of such an adequate recognition could include: (1) a commitment to manufacture in the U.S.A.; (2) a requirement to reimburse the U.S. Government for its R&D costs; and/or (3) a commitment to jointly sponsor the R&D program. 5. U.S. COMPETITIVENESS -------------------- The Contractor agrees that any products embodying any waived invention or produced through the use of any waived invention will be manufactured substantially in the United States, unless the Contractor can show to the satisfaction of DOE that it is not commercially feasible to do so. The Contractor further agrees to make the above condition binding on any assignee or licensee or any entity otherwise acquiring rights to any waived invention, including subsequent assignees or licensees. Should the Contractor or other such entity receiving rights in any waived invention undergo a change in ownership amounting to a controlling interest, then the waiver, assignment, license, or other transfer of rights in the waived invention is suspended until approved in writing by DOE. 6. STATEMENT OF SUBSTANTIAL INVOLVEMENT ------------------------------------ The Department of Energy (Department, DOE) will be substantially involved in all Tasks of the Statement of Work. The Department will collaborate with the participant in evaluating, accepting, and achieving the milestones for research as proposed by the respondent. The Department will provide technical direction to the overall program, as well as the individual program elements as it is determined to be necessary and appropriate by DOE. The Department will participate during the full duration of the project, and will have continuing rights to conduct ongoing negotiations with the participant regarding the technical direction of the work conducted under this Agreement. The Department staff members will attend meetings and participate in the formation and direction of scope of the key development activities. The DOE Project Officer will participate in the development, review and approval of all proposed statements of work, including subcontractor statements of work, prior to the execution of any subcontract. The Department will review technical progress reports and provide input to these reports as deemed necessary. In addition, the Department will have the right to have National Laboratories or selected private organizations perform independent tests and evaluations of the cooperative agreement's deliverables, thus providing an additional measure of technical progress. The Department may collaborate with the participant in the allocation of funds budgeted for this Agreement. Further, as work progresses, funding needs may change and depending upon availability of funds, the Department may collaborate with the participant to reallocate funds budgeted between the different programs and projects. The Department will thus be actively monitoring all phases of the participant's research and development activities, including participation in the participant's reviews of its contractor's 43 activities and review of the contractor's reports to the participant. The Department will actively participate in the participant's process of reviewing and approving each phase of the proposed programs and projects. The substantial involvement by the Department under this Agreement will remain in effect for the term of the cooperative agreement award unless otherwise amended in writing by the Contracting Officer. Moreover, this statement of substantial involvement by the Department does not increase the Department of Energy's liability under the Agreement award. 7. TECHNICAL DIRECTION ------------------- A. The work to be performed by the Participant under this Cooperative Agreement is subject to the surveillance and written Technical Direction of a "DOE Project Officer," identified in block 11 of the face page. The term "Technical Direction" is defined to include, without limitation, the following: 1. Directions to the Participant which redirects the work effort, shifts work emphasis between work areas or tasks, require pursuit of certain lines of inquiry, fill in details or otherwise provide technical guidance to the Participant in order to accomplish the tasks and requirements stated in the Statement of Work as contained in the agreement. 2. Provision of information to the Participant which assists in the interpretation of drawings, specifications or technical portions of the Statement of Work as contained in the Agreement. 3. Review and, where required by the Cooperative Agreement, approval of technical reports, drawings, specifications or technical information to be delivered by the Participant to DOE under the Cooperative Agreement. 4. The DOE Project Officer shall monitor the Participant's performance with respect to compliance with the requirements of this Cooperative Agreement. B. Technical direction and management surveillance shall not impose tasks or requirements upon the Participant additional to or different from the tasks and requirements stated in the Statement of Work of this Agreement. The Technical Direction to be valid: 1. Must be issued in writing consistent with the tasks and requirements stated in the Statement of Work of this Agreement; and 2. May not: a. constitute an assignment of additional work outside the tasks and requirements stated in the Statement of Work of this Agreement; 44 b. in any manner cause an increase or decrease in the total estimated project cost or the time required for project performance; C. change any of the expressed terms, conditions or specification of the Cooperative Agreement; or d. accept non-conforming work. C. The Participant shall proceed promptly with the performance of Technical Directions duly issued by the DOE Project Officer in the manner prescribed by paragraph B. above and which are within his authority under the provisions of paragraph A. above; provided, however, that the Participant shall immediately cease the performance of any Technical Direction upon receipt of a written instruction to that effect from the Contracting Officer. D. If in the opinion of the Participant any Technical Direction issued by the DOE Project Officer is within one of the categories as defined in B.2. (a) through (d) above, the Participant shall not proceed but shall notify the Contracting Officer in writing within five working days after the receipt of any such Technical Direction and shall request the Contracting Officer to rescind such direction or mutually agree to modify the agreement accordingly. E. The only persons authorized to give Technical Direction to the Participant under this Agreement are the Contracting Officer and any "DOE Project Officer" as listed in Block 11 of the face page. Any action taken by the Participant in response to any direction given by any person other than the Contracting Officer or DOE Project Officer shall not be binding upon the Government. 45 Replaces Clause No. 04., 48 C.F.R. 952.227-13 Patent Rights 47 52.227-12 Patent Rights - Waiver (JUL 1996), as modified by 10 C.F.R. 784, DOE Patent Waiver Regulations PATENT RIGHTS - WAIVER (JUL 1996) (a) Definitions. As used in this clause: "Background patent" means a domestic patent covering an invention or discovery which is not a Subject Invention and which is owned or controlled by the Contractor at any time through the completion of this contract: (i) Which the Contractor, but not the Government, has the right to license to others without obligation to pay royalties thereon, and (ii) Infringement of which cannot reasonably be avoided upon the practice of any specified process, method, machine. manufacture or composition of matter (including relatively minor modifications thereof) which is a subject of the research, development, or demonstration work performed under this contract. "Contract" means any contract, grant, agreement, understanding, or other arrangement, which includes research, development, or demonstration work, and includes any assignment or substitution of parties. "DOE Patent Waiver regulations" means the Department of Energy patent waiver regulations at 10 CFR Part 784. "Invention" as used in this clause, means any invention or discovery which is or may be patentable or otherwise protectable under Title 33 J5 of the United States Code or any novel variety of plant that is or may be protectable under, the Plant Variety Protection Act (7 U.S. 2321 et seq.) "MADE" when used In relation to any invention means the conception or first actual reduction to the practice of such invention. Nonprofit Organization means a university or other institution of higher education or an organization of the type described in section .501(c)(3) of the Internal Revenue Code of 195426 U.S.C. 501(c) and exempt from taxation under section 301(a) of the Internal Revenue Code (26 U.S.C. 501 (a)) or any nonprofit scientific or educational organization qualified under a state nonprofit organization statute. Patent Counsel means the Department of Energy Patent Counsel assisting the procuring activity. Practical application means to manufacture, in the case of a composition or product; to practice in the case of a process or method, or to operate, in the case of a machine or system: and, in each case, under such conditions as to establish that the invention is being utilized and that its 48 benefits are, to the extent permitted by law or Government regulations, available to the public on reasonable terms. Secretary means the Secretary of Energy. Small business firm means a small business concern as defined at Section 2 of the Pub. L. 85-536 (15 U.S.C. 632) and implementing regulations of the Administrator of the Small Business Administration. For the purpose of this clause, the size standards for small business concerns involved in Government procurement and subcontracting at 13 CFR 121.3-8 and 13 CFR 121.3-12, respectively, will be used. Subject invention means any invention of the Contractor conceived or first actually reduced to practice in the course of or under this contract, provided that in the case of a variety of plant, the date of determination (as defined in section 4 1 (d) of the Plant Variety Protection Act (17 U.S.C. 21,10 1 (d)) must also occur during the period of contract performance. (b) Allocation of principal rights. Whereas DOE has granted a waiver of rights to subject inventions to the Contractor, the Contractor may elect to retain the entire right, title, and interest throughout he world to each subject invention subject to the provisions of this clause and 35 U.S.C. (S)(S)202 and 203. With respect to any subject invention in which the Contractor elects to retain title, the Federal Government shall have a nonexclusive, nontransferable, irrevocable. paid-up license to practice or have practiced for or on behalf of the United States the subject invention throughout the world. (c) Invention disclosure, election of title, and filing of patent applications by Contractor. (1) The Contractor shall disclose each subject invention to the Patent Counsel within six months after conception or first actual reduction to practice, whichever occurs first in the course of or under this contract, but in any event, prior to any sale, public use, or public disclosure of such invention known to the Contractor. The disclosure to the Patent Counsel shall be in the form of a written report and shall identify the inventors and the contract under which the invention was made. It shall be sufficiently complete in technical detail to convey a clear understanding, to the extent known at the time of the disclosure, of the patent, operation, and physical, chemical, biological, or electrical characteristics of the invention. The disclosure shall also identify any publication, on sale, or public use of the invention and whether a manuscript describing the invention has been submitted for publication and, if so, whether it has been accepted for publication at the time of disclosure. In addition, after disclosure to the Patent Counsel, the Contractor shall promptly notify the Patent Counsel of the acceptance of any manuscript describing the invention for publication or of any or, sale or public use planned by the contractor. (2) The Contractor shall elect in writing whether or not to retain title to any such invention by notifying the Patent Counsel at the time of disclosure or within 8 months of disclosure, as to those countries (including the United States), in which the Contractor will retain title; 49 provided, that in any case where publication, on sale, or public use has initiated the 1-year statutory period wherein valid patent protection can still be obtained in the United States, the period of election of title may be shortened by the Agency to a date that is no more than 60 days prior to the end of the statutory period. The Contractor shall notify the Patent Counsel as to those countries (including the United States) in which the Contractor will retain title not later than 60 days prior to the end of the statutory period. (3) The Contractor shall file its United States patent application within 1-year after election, but not later than at least 60 days prior to the end of any statutory period wherein valid patent protection can be obtained in the United States after a publication, on sale, or public use. The Contractor shall file patent applications in additional countries (including the European Patent Office and under the Patent Cooperation Treaty) within either 10 months of the corresponding initial patent application or 6 months from the date permission is granted by the Commissioner of Patents and Trademarks to file foreign patent applications where foreign filing has been prohibited by a Secrecy Order. (4) Requests for extension of the time for disclosure to the Patent Counsel, election, and filing may, at the discretion of DOE, be granted, and will normally be granted unless the Patent Counsel has reason to believe that a particular extension would prejudice the Governments interest. (d) Condition when the Government may obtain title notwithstanding an existing waiver. The Contractor shall convey to DOE, upon written request, title to any subject invention. (1) If the Contractor elects not to retain title to a subject invention. (2) If the Contractor fails to disclose or elect the subject invention within the times specified in paragraph (c) of this clause (provided that DOE may only request title within 60 days after learning of the Contractor's failure to report or elect within the specified times). (3) In those countries in which the Contractor falls to file patent applications within the times specified in paragraph (c) of this clause provided, however, that if the Contractor has filed, a patent application in a country after the times specified in paragraph (c) of this clause, but prior to its receipt of the written request of DOE, the Contractor shall continue to retain title in that country. (4) In any country in which the Contractor decides not to continue the prosecution of any application for, to pay the maintenance fees on, or defend in re-examination or opposition proceeding on, a patent on a subject invention, or (5) If the waiver authorizing the use of this clause is terminated as provided in paragraph (p) of this clause. 50 (e) Minimum Rights Contractor when the Government retains title. (1) The Contractor shall retain a non-exclusive Royalty-Free license throughout the world each subject invention to which the Government obtains title under paragraph (d) of this clause except if the Contractor fails to disclose the subject invention within times specified in paragraph (c) of this clause. The Contractor's license extends to its domestic subsidiaries and affiliates if any, within the corporate Structure of which the Contract or is a part and includes the right to grant sublicenses of the same scope to the extent the Contractor was legally obligated to do so at the time the contract was Awarded. The license is transferable only with the approval of DOE except when transferred to the successor of the part of the Contractor's business to which the invention pertains. (2) The Contractor's domestic license may be revoked or modified by DOE to the extent necessary to achieve expeditious practical application of the subject invention pursuant to an application for an exclusive license submitted in accordance with applicable provisions in 37 CFR part 404 and DOE licensing regulations. This license shall not be revoked in that field of use or the geographical areas in which the Contractor has achieved practical application and continues to make the benefits of the invention reasonably accessible to the public. The license in any foreign country may be revoked or modified at the discretion of DOE to the extent the Contractor, its licensees, or its domestic subsidiaries or affiliates have failed to achieve practical application in that foreign country. (3) Before revocation or modification of the license, DOE shall furnish the Contractor a written notice of its intention to revoke or modify the license, and the Contractor shall be allowed 30 days (or such other time as may be authorized by DOE for good cause shown by the Contractor) after the notice to show cause why the license should not be revoked or modified. The Contractor has the right to appeal, in accordance with applicable agency licensing regulations and 37 CFR part 404 concerning the licensing of Government-owned inventions, any decision concerning the revocation or modification of its license. (f) Contractor action to protect the Government's interest. (1) The Contractor agrees to execute or to have executed and promptly deliver to DOE all instruments necessary to: (i) establish or confirm the rights the Government has throughout the world in those subject inventions to which the Contractor elects to retain title, and (ii) convey title to DOE when requested under paragraphs (d) and (n)(2) of this clause, and to enable the Government to obtain patent protection throughout the world in that subject invention. (2) The Contractor agrees to require, by written agreement, its employees, other than clerical and nontechnical employees, to disclose promptly in writing to personnel identified as responsible for the administration of patent matters and in a format suggested by the Contractor 51 each subject invention made under contract in order that the Contractor can comply with the disclosure provisions of paragraph (c) of this clause, and to execute all papers necessary to file patent applications on subject inventions and establish the Government's right in the subject inventions. This disclosure format should require, as a minimum, the information required by paragraph (c)(1) of this clause. The Contractor shall instruct such employees through employee agreements or other suitable educational programs on the importance of reporting inventions in sufficient time to permit the filing of patent applications prior to U.S. Foreign statutory bars. (3) The Contractor shall notify DOE of any decision not to continue the prosecution of a patent Application, pay maintenance fees, or defend in a reexamination or opposition on a patent, in any Country, not less than 330 days before the expiration of the response period required by the relevant patent office. (4) The Contractor agrees to include, within the specification of any United States patent application and any patent issuing thereon Covering a subject invention, the following statement: this invention was made with Government support under (identify its Contract) awarded by DOE. The Government has certain rights in this invention. (5) The Contractor shall establish and maintain active and effective procedures to assure that subject, inventions are promptly identified and disclosed to Contractor personnel responsible for patent matters within 6 months of conception and/or first actual reduction to practice, whichever occurs first in the course of or under this contract. These procedures shall include the maintenance of laboratory notebooks or equivalent records and other records as are reasonably necessary to document the conception and/or the first actual reduction to practice of subject inventions, and records that show that the procedures for identifying and disclosing the inventions are followed. Upon request, the Contractor shall furnish the Patent Counsel a description of such procedures for evaluation and for determination as to their effectiveness. (6) The Contractor agrees, when licensing a subject invention, to arrange to avoid royalty charges on acquisitions involving Government funds, including funds derived through Military Assistance Program of the Government or otherwise derived through the Government; to refund any amounts received as royalty charges on the subject invention in acquisitions for, or on behalf of, the Government; and to provide for such refund in any instrument transferring rights in the invention to any party. (7) The Contractor shall furnish the Patent Counsel the following: (i) Interim reports every 12 months (or such longer period as may be specified by the Patent Counsel) from the date of the contract, listing subject inventions during that period and certifying that all subject inventions have been disclosed or that there are no such inventions. 52 (ii) A final report, within 3 months after completion of the contracted work, listing all subject inventions or certifying that there were no such inventions, and listing all subcontracts at any tier containing a patent rights clause or certifying that there were no such subcontracts. (8) The Contractor shall promptly notify the Patent Counsel in writing upon the award of any subcontract at any tier containing a patent rights clause by identifying the subcontractor, the applicable patent rights clause, the work to be performed under the subcontract, and the dates of award and estimated completion. Upon request of the Patent Counsel, the Contractor shall furnish a copy of such subcontract, and no more frequently than annually, a listing of the subcontracts that have been awarded. (9) The Contractor shall provide, upon request, the filing date, serial number and title, a copy of the patent application (including an English-language version if filed in a language other than English), and patent number and issue date for any subject invention for which the Contractor has retained title. (10) Upon request, the Contractor shall furnish the Government an irrevocable power to inspect and make copies of the patent application file. (g) Subcontracts. (1) Unless otherwise directed by the Contracting Officer, the Contractor shall include the Clause at 4S CM 952.227-T 1, suitably modified to identify the parties, in all subcontracts regardless of the tier for experimental, developmental, or research work to be performed by a small business firm or nonprofit organization except where the work of the subcontract is subject to Exceptional Circumstances Determination by DOE. In all other subcontracts, regardless of tier, for experimental, developmental, demonstrative or research work, the Contractor shall include the patent rights clause at 48 CFR 952.227-13 (suitably modified to identify the parties). (2) The Contractor shall not, as part of the consideration for awarding the subcontract, obtain rights in the subcontractor's subject inventions. (3) In the case of subcontractors at any tier, the Department, the subcontractor, and Contractor agree that the mutual obligations of the parties created by this clause constitute a contract between the subcontractor and the Department with respect to those matters covered by this clause. (4) The Contractor shall promptly notify the Contracting Officer in writing upon the award of any subcontract at any tier containing a patent rights clause by identifying the subcontractor, the applicable patent rights clause, the work to be performed under the subcontract, and the dates of award and estimated completion. Upon request of the Contracting Officer, the Contracting Officer shall furnish a copy of such subcontract, and, no more frequently than annually, a listing of the subcontracts that have been awarded. 53 (h) Reporting on utilization of subject inventions. The Contractor agrees to submit on request periodic reports no more frequently than annually on the utilization of a subject invention or on efforts at obtaining such utilization that are being made by the Contractor and any of its licensees or assignees. Such reports shall include information regarding the status of development, date of first commercial sale or use, gross royalties received by the Contractor, and such other data and information as DOE may reasonably specify. The Contractor also agrees to provide additional reports as may be requested by DOE in connection with any march-in proceedings undertaken by DOE in accordance with paragraph (0) of this clause. To the extent data or information supplied under this paragraph is considered by the Contractor, its licensee or assignee to be privileged and confidential and is so marked, DOE agrees that, to the extent permitted by law, it shall not disclose such information to persons outside the Government. (i) Preference for United States industry. Notwithstanding any other provision of this clause, the Contractor agrees that neither it nor any assignee will grant to any person the exclusive right to use or sell any subject invention in the United States unless such person agrees that any products embodying the subject invention will be manufactured substantially in the United States. However, in individual cases, the requirement for such an agreement may be waived by DOE upon a showing by the Contractor or its assignee that reasonable but unsuccessful efforts have been made to grant licenses on similar terms to potential licensees that would be likely to manufacture substantially in the United States or that under the circumstances domestic manufacture is not commercially feasible. (j) March-lin rights. The Contractor agrees that with respect to any subject invention in which it has acquired title, DOE has the right in accordance with the procedures in 48 CFR 27.304-1 (g) to require the Contractor, an assignee, or exclusive licensee of a subject invention to grant a nonexclusive, partially exclusive, or exclusive license in any field of use to a responsible applicant or applicants upon terms that are reasonable under the circumstances, and if the Contractor, assignee, or exclusive licensee refuses such a request. DOE has the right to grant such a license itself if DOE determines that the Contractor or assignee has not taken, or is (1) Such action is necessary because the Contractor or assignee has not taken or is not expected to take within a reasonable time, effective steps to achieve practical application of the subject Invention in such field of use; (2) Such action is necessary to alleviate health or safety needs which are not reasonably satisfied by the Contractor, assignee, or their licensees or (3) Such action is necessary to meet requirements for public use specified by Federal regulations and such requirements are not reasonably satisfied by the Contractor, assignee, or licensees; or 54 (4) Such action is necessary because the agreement required by paragraph (1) of this clause has not been obtained or waived or because a licensee of the exclusive right to use or sell any subject invention in the United States is in breach of such agreement. (k) Background Patents. (1) The Contractor agrees: (i) to grant to the Government a royalty-free, nonexclusive license under any Background Patent for purposes of practicing a subject of this contract by or for the Government in research, development, and demonstration work only. (ii) that, upon written application by DOE, it will grant to responsible parties for purposes of practicing a subject of this contract, nonexclusive licenses under any Background Patent on terms that are reasonable under the circumstances. If, however, the Contractor believes that exclusive or partially exclusive rights are necessary to achieve expeditious commercial development or utilization, then a request may be made to DOE for DOE approval of such licensing by the Contractor. (2) Notwithstanding paragraph (k)(1)(ii), the Contractor shall not be obligated to license any Background Patent if the Contractor demonstrates to the satisfaction of the Secretary or his designee that: (i) a competitive alternative to the subject matter covered by said Background Patent is commercially available from one or more other sources, or (ii) the Contractor or its licensees are supplying the subject matter covered by said Background Patent in sufficient quantity and at reasonable prices to satisfy market needs, or have taken effective steps or within a reasonable time are expected to take effective steps to so supply the subject matter. (1) Communications. All reports and notifications required by this clause shall be submitted to the Patent Counsel unless otherwise instructed. (m) Other Inventions. Nothing contained in this clause shall be deemed to grant to the Government any rights with respect to any invention other than a subject invention, except, with respect to Background Patents, above. (n) Examination of records relating to inventions. (1) The Contracting Officer or any authorized representative shall, until 3 years after final payment under this contract, have the right to examine any books (Including laboratory notebooks), records, and documents of the Contractor relating to the conception or first actual 55 reduction to practice of inventions in the same field of technology as the work under this contract to determines whether (ii) The Contractor has established and maintains the procedures required by paragraphs (f)(2) and (f)(5) of this clause, and (iii) The Contractor and its inventor have complied with the procedures. (2) If the Contracting Officer determines that an inventor has not disclosed a subject invention to the Contractor in accordance with the procedures required by paragraph (f)(5) of this clause, the Contracting Officer may, within 60 days after the determination, request title in accordance with paragraphs (d)(2) and (d)(3) of this clause. However, if the Contractor establishes that the failure to disclose did not result from the Contractor's fault or negligence, the Contracting Officer shall not request title. (3) If the Contracting Officer learns of an unreported Contractor invention which the Contracting Officer believes may be a subject invention, the Contractor may be required to disclose the invention to DOE for a determination of ownership rights. (4) Any examination of records under this paragraph shall be conducted in such a mariner as to protect the confidentiality of the information involved. (o) Withholding of payment. NOTE: This paragraph does not apply to subcontracts or grants. (1) Any time before final payment under this contract, the Contracting Officer may, in the Government's interest, withhold payment until a reserve nor exceeding $50,000 or 5 percent of the amount of the contract, whichever is less, shall have been set aside if, in the Contracting Officer's opinion, the Contractor fails to-- (i) Establish, maintain, and follow effective procedures for identifying and disclosing subject inventions pursuant to paragraph (f)(5) of this clause-, (ii) Disclose any subject invention pursuant to paragraph (c) (17) of this clause-, (iii) Deliver acceptable interim reports pursuant to paragraph (f)(7)(I) of this clause-, or (iv) Provide the information regarding subcontracts pursuant to paragraph (f)(6) of this clause, (v) Convey to the Government, using a DOE approved form, the title and/or rights of the Government in each subject invention as required by this clause. (2) Such reserve or balance shall be withheld until the Contracting Officer has determined that the Contractor has rectified whatever deficiencies exist and has delivered all reports, disclosures, and other information required by this clause. (3) Final payment under this contract shall not be made before the Contractor delivers to the Patent Counsel all disclosures of subject inventions required by paragraph (c)(1) of this clause, an acceptable final report pursuant to paragraph (ff)(7) 56 (ii) of this clause, and all past "DOE confirmatory instruments," and the Patent Counsel has issued a patent clearance certification to the Contracting Officer. (4) The Contracting Officer may decrease or increase the sums withheld up to the maximum authorized above. If the maximum amount authorized above is already being withheld under other provisions of the contract, no additional amount shall be withheld under this paragraph. The withholding of any amount or the subsequent payment thereof shall not be construed as a waiver of any Government right. (5) Waiver Terminations. Any waiver granted to the Contractor authorizing the use of this clause (including any retention of rights pursuant thereto by the Contractor under paragraph (b) of this clause) may be terminated at the discretion of the Secretary or his designee in whole or in part if the request for waiver by the Contractor is found to contain false material statements or nondisclosure of material facts, and such were specifically relied upon by DOE in reaching the waiver determination. Prior to any such termination, the Contractor will be given written notice stating the extent of such proposed termination and the reasons therefor, and a period of 30 days, or such longer period as the Secretary or his designee shall determine for good cause shown in writing, to show cause why the waiver of rights should not be so terminated. Any waiver termination shall be subject to the Contractor's minimum license as provided in paragraph (e) of this clause. (q) Atomic Energy. No claim for pecuniary award or compensation under the provisions of the Atomic Energy Act of 1954, as amended, shall be asserted by the Contractor or its employees with respect to any invention or discovery made or conceived in the course of or under this contract. (r) Publication. It is recognized that during the course of work under this contract, the contractor or its employees may from time to time desire to release or publish information regarding Scientific or technical developments conceived or first actually reduced to practice in the course of or under this contract. In order that public disclosure of such information will not adversely affect the patent interests of DOE or the contractor, approval for release of publication shall be secured from Patent Counsel prior to any such release or publication. In appropriate circumstances, and after consultation with the contractor, Patent Counsel, may waive the rights of prepublication review. (s) Forfeiture of rights in unreported subject inventions. (1) The contractor shall forfeit and assign to the Government, at the request of the Secretary of Energy or designee, all rights in any subject invention which the contractor fails to report to Patent Counsel within six months after the time the contractor: (i) Files or causes to be filed a United States or foreign patent application thereon, or (ii) Submits the final report required by paragraph (e)(2)(ii) of this clause, whichever is later. 57 (2) However, the Contractor shall not forfeit rights in a subject invention if, within the time specified in paragraph (m)(1) of this clause, the contractor: (i) Prepares a written decision based upon a review of the record that the invention was neither conceived nor first actually reduced to practice in the course of or under the contract and delivers the decision to the Patent Counsel, with a copy to the Contracting Officer; or (ii) Contending that the subject invention is not a subject invention, the contractor nevertheless discloses the subject invention and all facts pertinent to this contention to the Patent Counsel, with a copy to the Contracting Officer, or (iii) Establishes that the failure to disclose did not result from the contractor's fault or negligence. (3) Pending written assignment of the Patent application and patents on a subject invention determined by the Contracting Officer to be forfeited (such determination to be a Final Decision under the Dispute clause of this contract), the contractor shall be deemed to, hold the invention and patent applications and patents pertaining thereto in trust for the Government. The forfeiture provision of this paragraph shall be in addition to and shall not supersede any other rights and remedies which the Government may have with respect to subject inventions. (t) U.S. Competitiveness. The Contractor agrees that any products embodying and waive invention. The produced through the use of any waived invention will be manufactured substantially in the United States unless the Contractor can show to the satisfaction of the DOE that it is not commercially feasible to do so. The Contractor further agrees to make the above condition binding on any assignees or licensees or any entity otherwise acquiring rights to any waived invention Subsequent assignees or licensees. Should the Contractor or other such entity receiving rights in any waived invention undergo a change in ownership amounting to a controlling Interest, then the waiver, assignment, license or other transfer of rights in the waived invention is suspended until approved in writing by DOE. In the event DOE agrees to foreign manufacture, there will be a requirement that the Government's support of the technology be recognized in some appropriate manner, e.g., recoupment of the government's investment, etc. (End of clause) 58 Amendment No. A003 to Cooperative Agreement No. DE-FC02-97EE50472 Page No. 2 of 2 19. REMARKS (continued) 1. The following revisions are effective for performance under this grant on or after the effective date of this amendment: a. The Cumulative DOE Obligations for this budget period as reflected in Block No. b.(1) of the NFAA face page is increased by $2,000,000.00 from $3,601,816.00 to $5,601,816.00; b. Provision No. 10, PARTIAL FUNDING, of the Special Terms and Conditions for --------------- Financial Assistance Awards, coded SPRG-0498/APM modified, is revised in its entirety to read as follows: 10. PARTIAL FUNDING --------------- This cooperative agreement is partially funded on a cost reimbursement basis without fee or profit. The total estimated cost of the project to be conducted during the current budget period is $14,904,564.00 of which the estimated cost to DOE is $11,178,423.00 and the estimated cost to the Participant is $3,726,141.00. The Cumulative DOE Obligation for the current budget period is $5,601,816.00 and, subject to the availability of additional funds, DOE anticipates obligating an additional $5,576,607.00 hereunder for the current budget period. The Participant shall not be obligated to continue performance of the project beyond the total of: (a) the amount of funds set forth as the Cumulative DOE Obligation for the current budget period in Block 16.b.(1) of the face page, (b) the amount, if any, set forth as DOE Funds Authorized for Carry Over in Block 16.a.(2) of the face page, and (c) the amount of the Participant's corresponding obligation for the current budget period, viz., $1,867,169.00; provided, however, that once the Cumulative DOE Obligations for the current budget period have been increased by DOE to $11,178,423.00, the Participant's obligation for the current budget period shall be increased to a total of $3,726,141.00, and the Participant shall be expected to bring the project (covered by the current budget period) to its conclusion within the amount of $14,904,564.00, and there is no commitment by DOE to provide any additional funding to the Participant. This cooperative agreement is subject to a refund of unexpended funds to DOE." c. The Federal Assistance Reporting Checklist, dated 12/22/97, attached hereto, is substituted for the Federal Assistance Reporting Checklist, dated 12-22-97, previously incorporated into this Cooperative Agreement at A002; d. Alternate VI, Contractor Licensing, Alternate H paragraph (g)(2), and Alternate III paragraph (g)(3), attached hereto, are added to Clause No. 05, 48 C.F.R. 52.227-14, Rights in Data - General, of the Intellectual Property Provisions - Assistance Large Business, State and Local Governments, or Foreign Organizations (Research, Development or Demonstration), coded GLB-697, previously incorporated into this Cooperative Agreement at AOOO. 60 2. All other terms and conditions remain unchanged. 61 Clause No. 05, 48 C.F.R. 52.227-14, Rights in Data - General 63 ALTERNATE V1, CONTRACTOR LICENSING As prescribed at 48 CFR 92,404(1) insert Alternate VI to require the contractor to license data regarded as limited rights data or restricted computer software to DOE and third parties at reasonable royalties upon request by the Department of Energy. (j) Contractor Licensing. Except as may be otherwise specified in this contract as data not subject to this paragraph, the contractor agrees that upon written application by DOE, it will grant to the Government and responsible third parties, for purposes of practicing a subject of this contract, a nonexclusive license in any limited rights data or restricted rights software on terms and conditions reasonable under the circumstances including appropriate provisions for confidentiality, provided, however, the contractor shall not be obligated to license any such data if the contractor demonstrates to the satisfaction of the Secretary of Energy or designee that: (1) Such data are not essential to the manufacture or practice of hardware designed or fabricated, or processes developed, under this contract; (2) Such data, in the form of results obtained by their use, have a commercially competitive alternate available or readily introducible from one or more other sources; (3) Such data, in the form of results obtained by their use, are being supplied by the contractor or its licensees in sufficient quantity and at reasonable prices to satisfy market needs, or the contractor or its licensees have taken effective steps or within a reasonable time are expected to take effective steps to so supply such data in the form of results obtained by their use; or (4) Such data, in the form of results obtained by their use, can be furnished by another firm skilled in the art of manufacturing items or performing processes of the same general type and character necessary to achieve the contract results. This paragraph (J) will be included in all subcontracts for research, development or demonstration at any tier, other than subcontracts with domestic small businesses and nonprofit organizations. 64 ALTERNATE II (g)(2) Notwithstanding subparagraph (g)(1) of this clause, the contract may identify and specify the delivery of limited rights data, or the Contracting Officer may require by written request the delivery of limited rights data that has been withheld or would otherwise be withholdable. If delivery of such data is so required, the Contractor may affix the following "Limited Rights Notice" to the data and the Government will thereafter treat the data, subject to the provisions of paragraphs (e) and (f) of this clause, in accordance with such Notice: LIMITED RIGHTS NOTICE (JUN 1987) (a) These data are submitted with limited rights under Government contract No. (and subcontract No., if appropriate). These data may be reproduced and used by the Government with the express limitation that they will not, without written permission of the Contractor, be used for purposes of manufacture nor disclosed outside the Government, except that the Government may disclose these data outside the Government for the following purposes, if any, provided that the Government makes such disclosure subject to prohibition against further use and disclosure: (i) Use (except for manufacture) by support service Contractors (ii) Evaluation by Now Government evaluators (iii) Use (except for manufacture) by other Contractors participating in its Government's Program of which specific contract is part for information and use in connection with the work performed under each contract. (b) This Notice shall be marked on any reproduction of these data, in whole or in part. (End of notice) ALTERNATE III (g)(3)(i) Notwithstanding subparagraph (g)(1) of this clause, the contract may identify, and specify the delivery of restricted computer software, or the Contracting Officer may require by written request the delivery of restricted computer software that has been withheld or would otherwise be withholdable. If delivery of such computer software is so required, the Contractor may affix the following "Restricted Rights Notice" to the computer software and the Government will thereafter treat the computer software, subject to paragraphs (e) and (f) of this clause, in accordance with the Notice: 65 RESTRICTED RIGHTS NOTICE (JUN 1987) (a) This computer software is submitted with restricted rights under Government Contract No. (and subcontract, if appropriate). It may not be used, reproduced, or disclosed by the Government except as provided in paragraph (b) of this Notice or as otherwise expressly stated in the contract. (b) This computer software may be: (1) Used or copied for use in or with the computer or computers for which it was acquired, including use at any Government installation to which such computer or computers may be transferred; (2) Used or copied for use in a backup computer if any computer for which it was acquired is inoperative; (3) Reproduced for safekeeping (archives) or backup purposes; (4) Modified, adapted, or combined with other computer software, provided that the modified, combined, or adapted portions of the derivative software incorporating restricted computer software are made subject to the same restricted rights; (5) Disclosed to and reproduced for use by support service Contractors in accordance with subparagraphs (b)(1) through (4) of this clause, provided the Government makes such disclosure or reproduction subject to these restricted rights; and (6) Used or copied for use in or transferred to a replacement computer. (c) Notwithstanding the foregoing, if this computer software is published copyrighted computer software, it is licensed to the Government, without disclosure prohibitions, with the minimum rights set forth in paragraph (b) of this clause. (d) Any others rights or limitations regarding the use, duplication, or disclosure of this computer software are to be expressly stated in, or incorporated in, the contract. (e) This Notice shall be marked on any reproduction of this computer software, in whole or in part. (End of notice) (ii) Where it is impractical to include the Restricted Rights Notice on restricted computer software, the following short form. Notice may be used in lieu thereof. 66 RESTRICTED RIGHTS NOTICE SHORT FORM (JUN 1987) Use, reproduction, or disclosures subject to restrictions set forth in Contract No. (and subcontract if appropriate will (name of Contractor and subcontractor). (End of notice) (iii) If restricted computer software is delivered with the copyright notice of 17 U.S.C. 401, it will, be presumed to be published copyrighted computer software licensed to the Government without disclosure prohibitions, with the minimum rights set forth in paragraph (b) of this clause, unless the Contractor includes the following statement with such copyright notice: "Unpublished rights reserved under the Copyright Laws of the United States." 67 Amendment No. A004 to Cooperative Agreement No. DE-FC02-97EE50472 Page No. 2 of 2 19. REMARKS (continued) 1. The following revisions are effective for performance under this grant on or after the effective date of this amendment: a. The Cumulative DOE Obligations for this budget period as reflected in Block No. 16b.(1) of the NFAA face page is increased by $4,200,000.00 from $5,601,816.00 to $9,801,816.00; b. In Block No. 11, DOE PROJECT OFFICER, of the NFAA, the name "Donna Lee-Ho" is substituted for the name "JoAnn Milliken" and the telephone No. is changed from "(202) 586-2480" to "(202) 586-8000." c. In Block No. 5.C. of the Federal Assistance Reporting Checklist, previously incorporated into this Cooperative Agreement at Amendment No. A003, the name "Donna Lee-Ho" is substituted for the name "JoAnn Milliken." d. Provision No. 10, PARTIAL FUNDING of the Special Terms and Conditions for Financial Assistance Awards, coded SPRG-0498/APM modified, is revised in its entirety to read as follows: 10. PARTIAL FUNDING This cooperative agreement is partially funded on a cost reimbursement basis without fee or profit. The total estimated cost of the project to be conducted during the current budget period is $14,904,564.00 of which the estimated cost to DOE is $11,178,423.00 and the estimated cost to the Participant is $3,726,141.00. The Cumulative DOE Obligation for the current budget period is $9,801,816.00 and, subject to the availability of additional funds, DOE anticipates obligating an additional $1,376,607.00 hereunder for the current budget period. The Participant shall not be obligated to continue performance of the project beyond the total of: (a) the amount of funds set forth as the Cumulative DOE Obligation for the current budget period in Block 16.b.(l) of the face page, (b) the amount, if any, set forth as DOE Funds Authorized for Carry Over in Block 16.a.(2) of the face page, and (c) the amount of the Participant's corresponding obligation for the current budget period, viz., $3,267,305.00; provided, however, that once the Cumulative DOE Obligations for the current budget period have been increased by DOE to $11,178,423.00, the Participants obligation for the current budget period shall be increased to a total of $3,726,141.00, and the Participant shall be expected to bring the project (covered by the current budget period) to its conclusion within the amount of $14,904,564.00, and there is no commitment by DOE to provide any additional funding to the Participant. This cooperative agreement is subject to a refund of unexpended funds to DOE." 69 2. All other terms and conditions remain unchanged. 70 EX-10.17 18 COOPERATIVE AGREEMENT (09/30/98) CONFIDENTIAL INFORMATION HAS BEEN OMITTED PURSUANT TO RULE 406 UNDER THE SECURITIES ACT AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. THE LOCATIONS OF THE OMITTED INFORMATION HAVE BEEN INDICATED WITH ASTERISKS. Exhibit 10.17 - -------------------------------------------------------------------------------- FORM CD-450 U.S. DEPARTMENT OF COMMERCE (REV. 10-93) COOPERATIVE DAO 203-26 |_| GRANT |X| AGREEMENT -------------------------- FINANCIAL ASSISTANCE AWARD ACCOUNTING CODE **SEE BELOW - -------------------------------------------------------------------------------- RECIPIENT NAME AWARD NUMBER Plug Power, LLC 70NANB8H4039 - -------------------------------------------------------------------------------- STREET ADDRESS FEDERAL SHARE OF COST 968 Albany-Shaker Road $ 4,737,848.00 - -------------------------------------------------------------------------------- CITY, STATE, ZIP CODE RECIPIENT SHARE OF COST Latham, NY 12110 $ 5,000,000.00 - -------------------------------------------------------------------------------- AWARD PERIOD TOTAL ESTIMATED COST 01/01/1999 - 12/31/2000 $ 9,737,848.00 - -------------------------------------------------------------------------------- DEPARTMENT OF COMMERCE OPERATING UNIT NATIONAL INSTITUTE OF STANDARDS AND TECHNOLOGY GRANTS OFFICE BUILDING 301, ROOM B129, GAITHERSBURG, MARYLAND 20899-0001 - -------------------------------------------------------------------------------- AUTHORITY P.L.100-418, Section 5131 (codified at 15 USC 278n) as modified by P.L.102-245 - -------------------------------------------------------------------------------- PROJECT TITLE Distributed Premium Power Fuel Cell Systems Incorporating Novel Materials and Assembly Techniques under Advanced Technology Program (ATP) 98-03 - -------------------------------------------------------------------------------- This Award approved by the Grants Officer is issued in triplicate and constitutes an obligation of Federal funding. By signing the three documents, the Recipient agrees to comply with the Award provisions checked below and attached. Upon acceptance by the Recipient, two signed Award documents shall be returned to the Grants Officer and the third document shall be retained by the Recipient. If not signed and returned by the Recipient within 15 days of receipt, the Grants Officer may declare this Award null and void. |X| Department of Commerce Financial Assistance Standard Terms and Conditions |X| Special Award Conditions |X| Line Item Budget PLEASE RETAIN FOR YOUR RECORDS |_| 0MB Circular A-21, Cost Principles for Educational Institutions |_| 0MB Circular A-87, Cost Principles for State and Local Governments |X| 0MB Circular A-110, Grants and Agreements with Institutions of Higher Education, Hospitals, and Other Nonprofit Organizations Uniform Administrative Requirements |_| 0MB Circular A-122, Cost Principles for Nonprofit Organizations |_| 15 CFR Part 24, Uniform Administrative Requirements for Grants and Cooperative Agreements to State and Local Governments |_| 15 CFR Part 29a, Audit Requirements for State and Local Governments |_| 15 CFR Part 29b, Audit Requirements for Institutions of Higher Education and Nonprofit Organizations |X| 48 CFR Part 31, Contract Cost Principles and Procedures |X| Other(s): General Terms and Conditions Advanced Technology Program-9/98, Program- Specific Audit Guidelines for Advanced Technology Program - Joint Venture - 11/96 **ACCOUNTING CODE: CC:8/474-0342 Obj. Cl. 4110 Req. No. 8/474-4273 $2,760,011.00 B-AE93-N-C-F-N-A-36-41399 EIN: 16-1528998 474/G. Ceasar - -------------------------------------------------------------------------------- SIGNATURE OF DEPARTMENT OF COMMERCE GRANT OFFICER TITLE DATE Shamim A. Shaikh /s/ Shamim A. Shaikh Grants Officer 9/30/98 - -------------------------------------------------------------------------------- TYPED NAME AND SIGNATURE OF AUTHORIZED RECIPIENT OFFICIAL TITLE DATE /s/ [ILLEGIBLE] Pres & CEO - -------------------------------------------------------------------------------- ELECTRONIC FORM 3 SPECIAL AWARD CONDITIONS ADVANCED TECHNOLOGY PROGRAM - JOINT VENTURE Plug Power, LLC COOPERATIVE AGREEMENT NO. 70NANB8H4039 1. RECIPIENT JOINT VENTURE ADMINISTRATOR CONTACT The Recipient Joint Venture Administrator Contacts' name, title, address, and telephone number are: (Technical) Dr. William Ernst Vice President & Technical Director Plug Power, LLC 968 Albany-Shaker Road Latham, NY 12110 (518) 785-2859 (Administrative) John Law Manager of Mobile & Government Programs Plug Power, LLC 968 Albany-Shaker Road Latham, NY 12110 (518) 785-2137 2. JOINT VENTURE MEMBER(S) The organization(s) named below have been approved as joint venture member(s) to conduct research described in the Recipient's proposal which is incorporated into this award. Any changes or new member(s) must be approved in writing by the Grants Officer: 1) Plug Power, LLC, Latham, NY 2) W.L. Gore & Associates, Inc., Elkton, MD 3. GRANTS OFFICER The Grants Officers name, address, and telephone number are: Shamim Shaikh National Institute of Standards and Technology Bldg. 301, Room B129 Gaithersburg, MD 20899-0001 (301) 975-6558 4. GRANTS SPECIALIST The Grants Specialist's name, address, and telephone number are: Timothy M. Lynch National Institute of Standards and Technology Bldg. 301, Room B129 Gaithersburg, MD 20899-0001 (301) 975-6621 5. PROJECT MANAGEMENT a. The Technical Project Manager's name, address, and telephone number are: Gerald Ceasar National Institute of Standards and Technology Bldg. 101, Room A225 Gaithersburg, MD 20899-0001 (301) 975-5069 b. The Business Project Manager's name, address, and telephone number are: Frank Power National Institute of Standards and Technology Bldg. 101, Room A225 Gaithersburg, MD 20899-0001 (301) 975-5057 6. PROJECT DESCRIPTION All research shall be conducted in accordance with the Recipient's proposal dated April 7, 1 998, and revised budget dated August 12, 1998. 7. FUNDING LIMITATIONS The scope of work and budget incorporated into this award covers a two-year period (referred to as the "project period") for a total amount of $4,737,848.00 in Federal funds. However, Federal funding available at this time is limited to $2,760,011.00 for the first year period (referred to as the "budget period"). Receipt of any additional funding up to the level projected under this award is contingent upon the availability of funds from Congress, satisfactory performance, and will be at the sole discretion the National Institute of Standards and Technology (NIST). The Recipient may not obligate, incur any expenditures, nor engage in any commitments which involve any amount in excess of the Federal amount presently available. No legal liability exists or will result on the part of the Federal Government for payment of any portion of the remaining funds which have not been made available under the award. If additional funds are not made available, any expenses incurred related to closeout activities must be funded from the amount already made available under this award. The notice of availability or non-availability of additional funding for the second and final year(s) will be made in writing by the Grants Officer. Only the Grants Officer is authorized to obligate funds. No other verbal or written notice should be relied upon by the Recipient. The Grants Officer's written notification shall be made prior to or no later than 30 days Special Award Conditions/ATP-JV/09-98 after the expiration of each year's activities. Anticipated Future Funding: Year 2: $1,977,837.00 (From 01/01/00 to 12/31/00) 8. JV CONTINGENCY: NO costs (Federal or Non-Federal) shall be incurred or charged to this cooperative agreement until the Grants Officer has received and approved in writing the following: A. The Joint Venture (JV) Agreement which must include, but is not limited to, the following provisions: (a) a Power of Attorney clause, which designates an organization to serve as the collaboration's Administrator and to enter into this cooperative agreement for and on behalf of the entire JV; (b) an Intellectual Property Plan, which delineates the disposition of the collaboration's intellectual property; (c) a Governmental Use License, which grants to the Government a right to use the intellectual property created under the ATP-sponsored project; (d) a Precedence clause, which relegates the terms of the JV agreement to those of the NIST cooperative agreement; (e) Addition, Withdrawal and Termination provisions, outlining the collaboration's intended mechanisms for each action; and (f) a Liability and/or Indemnification clause(s), stating the ways in which liability issues will be handled by the collaboration. B. A copy of the notification letter sent to both the Department of Justice and the Federal Trade Commission regarding the JV and its membership and proposed area of technical collaboration. The above documentation must be submitted to the Grants Office within ninety (90) days from the date of the execution of this cooperative agreement award by the Grants Officer. This cooperative agreement may be terminated by the Grants Officer for cause if the fully executed JV agreement is not submitted timely. 9. COST SHARE For the first year period, the cost sharing ratio applicable to this award is the Recipient's contribution of 51.24% ($2,900,000) and NIST's contribution of 48.76% ($2,760,011). Recipients must meet or exceed the cost share ratio on a quarterly financial reporting basis. Special Award Conditions/ATP-JV/09-98 GENERAL TERMS AND CONDITIONS ADVANCED TECHNOLOGY PROGRAM September 1998 1. Order of Precedence of Terms and Conditions of Award 2. Referenced Requirements 3. Modifications of the Award 4. Requirements for Continuing Financial Assistance 5. NIST Project Management Team 6. Substantial Involvement 7. Technical/Business Reports & Plan 8. Prior Approval Requirements 9. Unallowable Costs 10. Purchase of American-Made Equipment and Products 11. Non-Expendable Property 12. Termination 13. Refunds 14. Audits 15. Closeout of Cooperative Agreement 16. Use of Name or Endorsements 17. Publication Guidelines 18. Protection of Human Subjects 19. Care and Use of Vertebrate Animals 20. Bureau of Export Administration (BXA) Clearance 21. North American Free Trade Agreement Patent Notification Procedures 22. Liability 23. Intellectual Property GENERAL TERMS AND CONDITIONS ADVANCED TECHNOLOGY PROGRAM This document applies to all Recipients of the Advanced Technology Program (ATP) Cooperative Agreements. ATP Recipient is defined to include all single company Recipients and each individual company that is identified in the Special Award Conditions and is a signatory to the Joint Venture agreement (approved in writing by the NIST Grants Officer). 1. ORDER OF PRECEDENCE OF TERMS AND CONDITIONS OF AWARD Where the terms of the award and proposal differ, the terms of the award shall prevail. The Recipient is obligated to bring to the attention of the Grants Specialist any perceived difference between any terms and conditions and the proposal. 2. REFERENCED REQUIREMENTS The ATP Rule, 15 CFR Part 25; the ATP Notice of Availability of Funds, 62 Fed. Reg. 65679 (December 15, 1997); and the ATP Proposal Preparation Kit (December 1997), are hereby incorporated into the award by reference. 3. MODIFICATIONS OF THE AWARD The Grants Officer is the ONLY authorized agent at NIST with the authority to bind the Federal Government; and to take actions to amend, suspend, and terminate the cooperative agreement. If either party desires a modification to this award, the parties shall, upon reasonable notice of the proposed modification by the party desiring the change, confer in good faith to determine the desirability of such modification. Such modification shall not be effective until a written award amendment is signed by the Grants Officer and counter-signed by the Recipient. 4. REQUIREMENTS FOR CONTINUING FINANCIAL ASSISTANCE a. With respect to any technology arising from assistance provided by NIST under this award, the Recipient shall promote the manufacture of products resulting from that technology within the United States and shall procure parts and materials from competitive United States suppliers to the extent practical. b. At any time within the life of this award should the Recipient cease to have a majority control or ownership by individuals who are citizens of the United States, the Recipient shall notify the NIST Grants Officer of that fact, in writing, within FIFTEEN (15) days. c. NIST may, within thirty (30) days after notice to Congress, suspend a company from continued assistance under this award if NIST determines that the company or a parent company has failed to satisfy any of the criteria contained in paragraphs a. and b. of this term, and that it is in the national interest of the United States to do so. 5. NIST PROJECT MANAGEMENT TEAM The NIST Project Management Team (PMT) includes an ATP Project Manager, a NIST Grants Specialist, and one or more ATP technical and business specialists. The ATP Project Manager is responsible for working with the Recipient, including making recommendations to the NIST Grants Officer throughout the life of the project to ensure that the project progresses towards the objectives stated in the proposal in an optimal way. The ATP Project Manager (and other members of the PMT as appropriate) shall participate in a project start or kickoff meeting, annual reviews, and a close-out meeting prior to the expiration of the award. The ATP Project Manager is responsible for: a. General oversight and project management functions associated with this cooperative agreement. b. Arranging kickoff meetings, annual review meetings, and final closeout meetings. c. Monitoring the project to ensure that it is executed in accordance with the proposal and this award. Analyzing the quarterly, annual, and final reports, and consulting with other members of the team on issues so as to be able to assess progress or lack thereof. d. Recommending appropriate action to the NIST Grants Officer if the project is failing to meet its objectives or needs administrative assistance to propose modifications to this agreement for evaluation by the Project Team. 6. SUBSTANTIAL INVOLVEMENT A cooperative agreement has been selected as the funding instrument for this project, because of the planned substantial involvement of NIST in the following areas: a. Approval of go/no go decision points at various project stages before subsequent stages of a project may continue; b. Concurrence with subcontract plans in excess of $100,000; c. Approval of key personnel (including such positions as President, Chief Financial Officer, Principal Investigator, and/or Project Manager); d. Approval of changes in Joint Venture membership. General Terms and Conditions/ATP/09-98 7. TECHNICAL/BUSINESS REPORTS AND PLANS The Recipient shall provide access to information throughout the project life cycle that is required to assess the project's progress or lack thereof. In addition to monitoring the technical work, NIST requires business information, pertaining to the project during its life. In addition to monitoring the technical work, NIST requires business information, pertaining to the project during the course and for six years after its end in order to assess progress towards commercialization, the degree of adoption of the technology, and the impact of the project on the economy. When special economic studies or case studies are carried out that involve the Recipient, the ATP Project Manager may delegate the responsibility for coordinating the participation of the Recipient in such studies to a business specialist or the ATP Economic Assessment Office. a. TECHNICAL REPORTING: The Recipient shall submit technical performance reports in triplicate (one original and two copies). Two copies shall be submitted to the ATP Project Manager and the original report to the Grants Officer in the same frequency as the Financial Status Report (SF 269). Technical performance reports shall contain information as prescribed in OMB Circular A-110 Section ___.51. See Attachment A for an optional structure or format for compiling the technical report. The final technical report may not be consolidated with the technical report for the final quarter. b. BUSINESS REPORTING: The Recipient shall submit business reports in accordance with the "Guidelines for Reporting on Business Progress and Economic Impacts" (see Attachment B). 8. PRIOR APPROVAL REQUIREMENTS In addition to the requirements specified in OMB Circular A-110 Section __.25, the following changes require prior written approval from the NIST Grants Officer : a. The transfer of funds among direct cost categories exceeding 10% of the approved total annual budget for each single Recipient or joint venture participant for each approved project year. Recipients are not authorized to create new budget categories without prior approval. b. Revisions to Ownership and/or Dissolution of Recipients (Recipients include the single applicant company and all participants under a Joint Venture Agreement). These changes include but are not limited to: 1) when a company is acquired by, or merges with, any other company, including a foreign company; 2) when the company is no longer majority-owned by U.S. citizens; and 3) when only two for profit companies are participating in a JV and one of them ceases participation. In the first case, the Recipient should include in the written notification to the NIST Grants Officer the following information: date of final acquisition or merger; name and address of any new foreign parent and amount of ownership; whether the Recipient intends to complete its assigned tasks with the same commitment and at the same location; and how this change in ownership will affect the project's projected benefits to the United States. The NIST Grants Officer reserves the right to ask for clarification and/or additional information. In the second case, the Recipient should provide details of the change in ownership and whether it affects the Recipient's assigned tasks in any way. In the third case, the Recipient shall provide details regarding the circumstances of the departure, and plans for replacing the departing company with another for-profit organization. In the event a Recipient requests prior approval for any of the above, the Recipient must provide documentation of the Recipient's intent to notify the Department of Justice and the Federal Trade Commission of these changes and/or deletion of members. 9. UNALLOWABLE COSTS a. Construction of new buildings or extensive renovations of existing laboratory buildings. However, construction of experimental research and development facilities to be located within a new or existing building are allowable provided that the equipment or facilities are essential for carrying out the proposed scientific and technical project and are approved by the Grants Officer. b. Indirect costs for single companies. (However, if a joint venture proposer, indirect costs are allowable. If the company's indirect cost rate is over 100 percent of direct costs, NIST reserves the right to limit such costs.) c. Profit, management fees, interest on borrowed funds, or facilities capital cost of money. d. Bid and proposal (B&P) costs, tuition costs, marketing surveys or commercialization studies, and general business planning unless they are incorporated into a Federally approved indirect cost rate for a joint venture participant. (However, a university participating in an ATP project as a subcontractor or as a joint venture partner may charge ATP for tuition remission or other forms of compensation in lieu of wages paid to General Terms and Conditions/ATP/09-98 2 university students working on ATP projects only as provided in OMB Circular A-21, section J.41.) e. Single company and joint venture participants may not subcontract to another part of the same company or to another company with identical or nearly identical ownership. Work proposed by another part of the same company or by another company with identical or nearly identical ownership should be shown as funded through inter-organizational transfers that do not contain profit. Inter-organizational transfers should be broken down by budget categories in a similar manner to all other tasks. 10. PURCHASE OF AMERICAN-MADE EQUIPMENT AND PRODUCTS Recipients are encouraged, to the greatest extent practicable, to purchase American-made equipment and products with funding provided under this award. 11. NON-EXPENDABLE PROPERTY For Joint Venture awards, title to any equipment purchased under the award that may be in the name of a departing participant and that continues to be needed on the project shall be transferred to the Joint Venture Administrator for continued use on the project. The departing participant shall be compensated by the Joint Venture for its contribution to the purchase of the equipment by applying its percentage of the cost of the equipment to the current fair market value of the equipment. Should the equipment no longer be needed on the project, the departing participant shall request disposition instructions in accordance with OMB Circular A-110, Section __.34. 12. TERMINATION In accordance with OMB Circular A-110, Sections __.61(a)(2) and __.62, this award may be terminated by the mutual consent of NIST and the Recipient, in which case the parties shall agree upon the termination conditions, including the effective end date. In accordance with OMB Circular A-110, Section __.61(a)(1), NIST may also terminate this award if NIST determines that the statutory purposes under 15 USC 278n(a) of the research and technical development funded under the award can no longer be served or the recipient has been determined to be otherwise in material non-compliance with the terms and conditions of the award. 13. REFUNDS The Recipient shall submit all refund checks to the DoC accounting office identified below and notify the Grants Office upon submission. All checks must identify on their face that NIST is funding the award, the award number, and no more than a two-word description to identify the reason for the refund. Submit to: National Institute of Standards and Technology Accounts Receivable Bldg. 101, Room A825 Gaithersburg, MD 20899-0001 14. AUDITS a. ALL ATP Recipients are required to provide sufficient funds in the project multi-year budget to have project audits performed, including audits of all joint venture participants. Subrecipients and subcontractors, including universities, who receive funding under the ATP project totaling more than $300,000 each are also subject to audit to determine the appropriateness of direct and indirect costs charged to the ATP project. b. It is the responsibility of the Recipient to ensure that audits are performed within 90 days of the end of the project period to be audited. The audits may be performed by the Recipient's CPA firm. However, the Department of Commerce Office of Inspector General (DoC/OIG) reserves the right to carry out audits at any time it deems necessary and appropriate. ATP Recipients are required, when requested, to undergo audits (e.g., audits of cost-accounting systems, direct-cost expenditures, indirect cost rates, or other periodic reviews) by the DoC/OIG or a cognizant or oversight Federal agency. c. All audits shall be performed in accordance with the following: (1) For awards less than 24 months, an audit is required within 90 days from the project expiration date. (2) For 2-, 3-, or 4-year awards, an audit is required after the first year and within 90 days from the project expiration date. (3) For 5-year awards, an audit is required after the first year, third year, and within 90 days of the project expiration date. (4) Audits of withdrawing participants must be completed within 90 days of the last date of participation. Audits of all Recipients shall be conducted pursuant to: (1) For both single company and joint venture Recipients, the Government Auditing Standards (GAS), issued by the Comptroller General of the United States (the Yellow Book), in conjunction with two (2) or three (3) below. (2) For single company Recipients only, the NIST Program- General Terms and Conditions/ATP/09-98 3 Specific Audit Guidelines for Advanced Technology Program (ATP) Cooperative Agreements with Single Companies, issued by the DoC/OIG dated November 1996. (3) For joint venture Recipients, the NIST Program-Specific Audit Guidelines for Advanced Technology Program (ATP) Cooperative Agreements with Joint Ventures, issued by the DoC/OIG dated November 1996. The NIST ATP Audit Guidelines are designed to focus on the compliance element of the audit and on information needed by the financial and program managers of the ATP. The internal control element is similar to the requirement under Generally Accepted Government Auditing Standards (GAGAS) and a separate report on Internal Controls will not be required. The Recipient shall submit two copies of the audit report to the NIST Grants Officer and one copy to the Office of the Inspector General as identified in the ATP Audit Guidelines. In the event that the submission of the reporting of the audit conflicts the with Recipient's accounting schedules the Recipient may submit a proposal to the NIST Grants Officer for consideration of an alternative project audit schedule in order to complement the scheduling of commercial audits. The Recipient must submit an alternative schedule within ninety 90 days from the start date for the first budget year. Acceptance of an alternative audit schedule is at the discretion of the NIST Grants Officer and will be evaluated on a case by case basis. 15. CLOSEOUT OF COOPERATIVE AGREEMENT In accordance with the guidelines established in OMB Circular A-110, Subpart D-.71, and the Department of Commerce Standard Terms and Conditions dated November 1998, item number A.06, only those costs associated with compiling the final reports (technical, business, financial, patent, equipment inventory, and closeout audit), shall be allowed during the ninety (90) day closeout period. The closeout meeting with the ATP is not considered a closeout-related activity. Therefore, the Recipient must participate in a closeout (end-of-project) meeting with NIST officials prior to the expiration date of the award. The Recipient must provide adequate funds in the project budget to ensure participation by all appropriate members in the closeout meeting. The NIST Technical Project Manager will provide the Recipient with instructions for the closeout meeting. 16. USE OF NAME OR ENDORSEMENTS a. The Recipient or its subcontractors shall not, without the prior approval of NIST, use the name of NIST or the Department of Commerce on any product or service which is directly or indirectly related to either this award or any patent license or assignment agreement which relates to this award. b. By entering into this award, NIST does not directly or indirectly endorse any product or service provided or to be provided by the Recipient, its successors, assignees, or licensees. The Recipient, or its subcontractors, shall not in any way imply that this award is an endorsement of any such product or service. 17. PUBLICATION GUIDELINES In any publications, the Recipient shall acknowledge support of the technology development by NIST. Normally this is done by a footnote reading, "This work was performed under the support of the U.S. Department of Commerce, National Institute of Standards and Technology, Advanced Technology Program, Cooperative Agreement Number 70NANBXHXXXX," or words to that effect. 18. PROTECTION OF HUMAN SUBJECTS No research involving human subjects is permitted under this award unless expressly authorized by Special Award Condition or otherwise in writing by the Grants Officer. In accordance with Federal policy, a human subject is defined as a living individual about whom an investigator conducting research obtains 1) data through intervention or interaction with the individual, or 2) identifiable private information. Research means a systematic investigation, including research and development, testing and evaluation, designed to develop or contribute to generalizable knowledge. Department of Commerce Regulations, 15 CFR Part 27, require that recipients maintain appropriate policies and procedures for the protection of human subjects. In the event it becomes evident that human subjects may be involved in this project, the Recipient shall submit appropriate documentation to the Grants Officer for review and approval. This documentation may take the form of : a) Documentation establishing approval of the project by an Institutional Review Board qualified under Section 27.103 of Title 15 of the CFR; or b) Documentation to support an exemption for the project from 15 CFR Part 27. No work may be undertaken or conducted, or costs incurred or charged to the project, until the NIST Grants Officer's approval of the above documentation is provided in writing. Failure to meet the above requirements prior to the conduct of activities involving human subjects shall be considered material non-compliance with the terms of the award. The Grants Officer may take appropriate action under Article L.01 General Terms and Conditions/ATP/09-98 4 of the Department of Commerce Financial Assistance Standard Terms and Conditions, including termination of the award. 19. CARE AND USE OF VERTEBRATE ANIMALS No research involving vertebrate animals is permitted under this award unless expressly authorized by Special Award Condition or otherwise in writing by the Grants Officer. The Department of Commerce requires Recipients of financial assistance awards to comply, as applicable, with the Animal Welfare Act as amended, and implementing regulations (7 USC 2131 et seq., 9 CFR parts 1, 2, and 3), and other Federal statutes and regulations relating to animals. In the event it becomes evident that vertebrate animals may be involved in this project, the Recipient shall submit appropriate documentation to the ATP Program Manager: (1) A completed Extramural Animal Study Proposal Form (NIST-1258). (2) Copies of other governmental approvals for Recipient's animal care and use procedures showing the current status and expiration dates of Recipient's USDA Animal Welfare Act registration. A copy of the Animal Welfare assurance from the Office of Protection from Research Risk (OPRR) of the Public Health Service/National Institutes of Health (PHS/NIH) should be provided if available. [NOTE: Recipients housing only rodents or birds within their facilities may not have these assurances and must submit evidence of Association for the Assessment and Accreditation of Laboratory Animal Care (AAALAC) accreditation.] (3) A copy of the Institutional Animal Care and Use Committee (IACUC) approved Animal Study Proposal (ASP) with expiration date. Certification that the Principal Investigator and other personnel involved in the care and use of the animals are trained as required by NIST and the PHS/NIH Guide for the Care and Use of Laboratory Animals should be included in the ASP. No work involving vertebrate animals may be undertaken or conducted, or costs incurred or charged to the project until the NIST Grants Officer's approval of the above documentation is provided in writing. The Recipient must inform the ATP Project Manager in writing of any proposed deviation from procedures involving animals described in Form NIST-1258, any change in personnel and their training, and change in the status of their PHS/NIH assurance or other government inspecting bodies, and the results of any inspections of their animal care facilities that take place during the course of the award. 20. BUREAU OF EXPORT ADMINISTRATION (BXA) CLEARANCE a. The Recipient agrees to adhere to the U.S. Export Administration laws and regulations and shall not export or re-export, directly or indirectly, any technical data created with Government funding under this award to any country for which the United States Government or any agency thereof, at the time of such export or re-export requires an export license or other Governmental approval without first obtaining such licenses or approval and the written clearance of the NIST Grants Officer. b. The Bureau of Export Administration (BXA) shall conduct an annual review for any relevant information about the Recipient. NIST reserves the right to take appropriate action in accordance with Article L.01 of the Department of Commerce Financial Assistance Standard Terms and Conditions, in the event that significant adverse information about the Recipient is reported to the NIST Grants Officer by BXA. 21. NORTH AMERICAN FREE TRADE AGREEMENT PATENT NOTIFICATION PROCEDURES Pursuant to Executive Order 12889, the DoC is required to notify the owner of any valid patent covering technology whenever the DoC or its financial assistance Recipient, without making a patent search, knows (or has demonstrable reasonable grounds to know) that technology covered by a valid United States patent has been or will be used without a license from the owner. To ensure proper notification, if the Recipient uses or has used patented technology under this award without a license or permission from the owner, the Recipient must notify the DoC Patent Counsel at the following address, with a copy to the NIST Grants Officer: Department of Commerce Office of Chief Counsel for Technology Patent Counsel 14th Street and Constitution Avenue, NW Room H-4610 Washington, D.C. 20230 The notification shall include the following information: a. The award number b. The name of the DoC awarding agency c. A copy of the patent d. A description of how the patented technology was used e. The name of the Recipient contact, including an address and telephone number General Terms and Conditions/ATP/09-98 5 22. LIABILITY a. Property The U.S. Government shall not be responsible for damage to or resulting from any property provided to the Recipient, or its subrecipients and subcontractors, or acquired by the Recipient, or its subrecipients and subcontractors, pursuant to this award. b. No Warranty NIST makes no express or implied warranty as to any matter whatsoever, including the conditions of the research or any invention or product, whether tangible or intangible, made, or developed under this award, or the ownership, merchantability, or fitness for a particular purpose of the research or any invention or product made or developed under this award. c. Disclaimer (1) The United States expressly disclaims any and all responsibility to the Recipients or third persons for the actions of the Recipient or third persons resulting in death, bodily injury, property damage, or any other losses resulting in any way from the performance of this award or any subaward or subcontract under this award. (2) The acceptance of this award by the Recipient does not in any way constitute an agency relationship between the United States and the Recipient. d. Force Majeure Neither party shall be liable for any unforeseeable event beyond its reasonable control not caused by the fault or negligence of such party, which causes such party to be unable to perform its obligations under this award (and which it has been unable to overcome by the exercise of due diligence), including, but not limited to: flood, drought, earthquake, storm, fire, pestilence, lightning and other natural catastrophes, epidemic, war, riot, civic disturbance or disobedience, strikes, labor dispute, or failure, threat of failure, or sabotage of the Recipient or subcontractor facilities, or any order or injunction made by a court or public agency. In the event of the occurrence of such a force majeure event, the party unable to perform shall promptly notify the other party. It shall further use its best efforts to resume performance as quickly as possible and shall suspend performance only for such period of time as is necessary as a result of the force majeure event. 23. INTELLECTUAL PROPERTY a. Rights in Data (1) The Government shall have certain rights to use data first produced in the performance of the award, whether or not the data is copyrighted. The Recipient may establish claim to copyright subsisting in any data first produced in the performance of the award. When claim is made to copyright, the Recipient shall affix the applicable copyright notice of 17 U.S.C. 401 or 402 and acknowledgment of Government sponsorship to the data when and if the data are delivered to the Government, are published, or are deposited for registration as a published work in the U.S. Copyright Office. The Recipient shall grant to the Government, and others acting on its behalf, a paid up, nonexclusive, irrevocable, worldwide license for all such data to reproduce, prepare derivative works, perform and display publicly, and for data other than computer software to distribute to the public by or on behalf of the Government. (2) The licenses granted to the Government under this Term shall not be considered as a waiver of the publication of research results requirements of Section 278 n(d)6 of Title 15 of the United States Code: "Intellectual property owned or developed by any business receiving funding may not be disclosed by any officer or employee of the federal government except in accordance with a written agreement between the owner or developer and the Program." b. Patent Rights 1. Definitions a. "Company" means a for-profit organization, including sole proprietors, partnerships or corporations. b. "Invention" means any invention or discovery which is or may be patentable or otherwise protectable under Title 35 of the United States Code. c. "Made" means, when used in relation to any Invention, the conception or first actual reduction to practice of such invention. d. "Practical Application" means to manufacture in the case of a composition or product, to practice in the case of a process or method, or to operate in the case of a machine or system; and, in each case, under such conditions as to establish that the invention is being utilized and that its benefits are, to the extent permitted by law or government regulations, available to the public on reasonable terms. e. "Subject Invention" means any invention of the Recipient conceived or first actually reduced to practice in the performance of work under this award. (2) Ownership of Inventions The Recipient or, if appropriate, its contractor(s) and/or subcontractor(s), shall have the entire right, title, and interest throughout the world to each Subject Invention according to the provisions of this clause, provided that this party is a company or companies organized in the United States. Joint ventures shall provide to NIST a copy of their written General Terms and Conditions/ATP/09-98 6 agreement which defines the disposition of ownership rights among the members of the joint venture, and their contractor and/or subcontractors as appropriate, in accordance with the first sentence of this paragraph. However, the United States hereby reserves a nonexclusive, nontransferable, irrevocable paid-up license, to have practiced for or on behalf of the United States, in connection with any such invention. Title to any such invention shall not be transferred or passed, except to a company organized in the United States, until the expiration of the first patent obtained in connection with such invention. (3) Invention Disclosure, United State License and Filing of Patent Application by Recipient (a) The Recipient shall disclose each subject invention to NIST within two months after the inventor discloses it in writing to Recipient personnel responsible for patent matters. The disclosure to NIST shall be in the form of a written report and shall identify the award under which the invention was made and the inventor(s). It shall, at a minimum, contain the following information: o the title of the invention; o the names of all inventors; o the name and address of the assignee (if any; o an acknowledgement that the United States has rights in the subject invention (i.e., the Governmental Use License); o the filing date of the present invention; o an abstract of the disclosure; o a description or summary of the present invention; o the background of the present invention or the prior art; o a description of the preferred embodiments; and o what matter is claimed One original and two copies of all patent reports shall be submitted to: NIST Grants Office Bldg., 301 Room B129 Gaithersburg, MD 20899-0001 Cooperative Agreement No: ______________ Each report shall also include the use of the invention and whether a manuscript describing the invention has been submitted for publication and, if so, whether it has been accepted for publication at the time of disclosure. In addition, after disclosure to NIST, the Recipient will promptly notify NIST of acceptance of any manuscript describing the invention for publication or of any sale or public use planned by the Recipient. (b) The Recipient shall notify NIST within two years of disclosure to NIST whether or not the Recipient intends to file a patent application on any subject invention. In the event a patent application is filed on a subject invention, upon issuance of the patent, the Recipient shall promptly notify NIST, providing the Grants Officer with the Serial Number of the patent as issued, the date of issuance, a copy of the disclosure as issued, and if appropriate, the name, address, and telephone number(s) of an assignee. (c) Requests for extension of the time for disclosure, election, and filing under paragraphs b.(3)(a) and b.(3)(b) of this Term may be permitted at the discretion of NIST. (4) Recipient Action to Protect the Government's Interest (a) The Recipient agrees to execute or to have executed and promptly deliver to NIST all instruments necessary to establish or confirm the rights the United States Government has throughout the world in those subject inventions to which the Recipient has filed a patent application in which the United States has reserved a non-exclusive license. (b) The Recipient shall require, by written agreement, its employees, other than clerical and nontechnical employees, to disclose promptly in writing to personnel identified as responsible for the administration of patent matters and in a format suggested by the Recipient, each subject invention made under the award in order that the Recipient can comply with the disclosure provisions of paragraph b.3. of this Term, and to execute all papers necessary to file patent applications on subject inventions and to establish the Government's rights in the subject inventions. This disclosure format should require, as a minimum, the information required by b.3.(a) of this Term. The Recipient shall instruct such employees through employee agreements or other suitable education programs on the importance of reporting inventions in sufficient time to permit the filing of patent applications prior to United States or foreign statutory bars. (c) The Recipient shall promptly notify NIST of any decisions not to continue the prosecution of a patent application, the payment of maintenance fees, or the defense in a reexamination or opposition proceeding on a patent in any country. (d) The Recipient agrees to include, within the specification of any United States patent application and any patent issuing thereon covering a subject invention, the following statements: This invention was made with United States Government support under (identify the cooperative agreement number) awarded by NIST. The United States Government has certain rights in the invention. General Terms and Conditions/ATP/09-98 7 (5) Subcontracts The Recipient shall include in all subcontracts, regardless of tier , for experimental, developmental, or research work, a patent rights clause, as appropriately modified, comparable to this term. However, if the subcontractor is not a company or companies organized in the United States, the patent rights clause shall provide that title to each subject invention made by the subcontractor shall vest with the Recipient. (6) Reporting on Utilization of Subject Inventions The Recipient agrees to submit on request, no more frequently than annually, periodic reports on the utilization of a subject invention or on efforts at obtaining such utilization that are being made by the Recipient or its licensees or assignees. Such reports shall include information regarding the status of development, date of first commercial sale or use, gross royalties received by the Recipient, and such other data and information as NIST may reasonably specify. The Recipient also agrees to provide additional reports as may be requested by NIST in connection with any march-in proceeding undertaken by NIST in accordance with paragraph b.7. of this Term. Such information shall be treated by NIST as commercial and financial information and thus as privileged and confidential and not subject to disclosure under section 552 of Title 5 of the United States Code. (7) Preference for United States Industry Notwithstanding any other provision of this Term, the Recipient agrees that neither it nor any assignee will grant to any person the exclusive right to use or sell any subject inventions in the United States unless such person agrees that any products embodying the inventions will be manufactured substantially in the United States. However, in individual cases, the requirement for such an agreement may be waived by NIST upon a showing by the Recipient or its assignee that reasonable but unsuccessful efforts have been made to grant licenses on similar terms to potential licensees that would be likely to manufacture substantially in the United States or that, under the circumstances, domestic manufacture is not commercially feasible. (8) March-in Rights The Recipient agrees that, with respect to any subject invention in which it has acquired title, NIST has the right, in accordance with procedures in 37 CFR 401.6 and any supplemental regulations of NIST, to require the Recipient, an assignee, or an exclusive licensee of a subject invention to grant a nonexclusive, partially exclusive, or exclusive license in any field of use to a responsible applicant or applicants, upon terms that are reasonable under the circumstances. If the Recipient, assignee, or exclusive licensee refuses such a request, NIST has the right to grant such a license itself if NIST determines that: (a) Such action is necessary because the Recipient or assignee has not taken, or is not expected to take within a reasonable time, effective steps to achieve practical application of the subject invention in such field of use; (b) Such action is necessary to alleviate health or safety needs which are not reasonably satisfied by the Recipient, assignee, or licensees; (c) Such action is necessary to meet requirements for public use specified by Federal regulations and such requirements are not reasonably satisfied by the Recipient, assignee, or licensees; or (d) Such action is necessary because the agreement required by paragraph b.7. of this Term has not been obtained or waived or because a licensee of the exclusive right to use or sell any subject invention in the United States is in breach of the agreement required by paragraph b.7 of this Term. General Terms and Conditions/ATP/09-98 8 ESTIMATED MULTI-YEAR BUDGET - JOINT VENTURE YEAR: 1 [***] CONFIDENTIAL INFORMATION HAS BEEN OMITTED PURSUANT TO RULE 406 UNDER THE SECURITIES ACT AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. THE LOCATIONS OF THE OMITTED INFORMATION HAVE BEEN INDICATED WITH ASTERISKS. ESTIMATED MULTI-YEAR BUDGET - JOINT VENTURE YEAR: 2 [***] CONFIDENTIAL INFORMATION HAS BEEN OMITTED PURSUANT TO RULE 406 UNDER THE SECURITIES ACT AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. THE LOCATIONS OF THE OMITTED INFORMATION HAVE BEEN INDICATED WITH ASTERISKS. ESTIMATED MULTI-YEAR BUDGET - JOINT VENTURE YEAR: TOTAL [***] CONFIDENTIAL INFORMATION HAS BEEN OMITTED PURSUANT TO RULE 406 UNDER THE SECURITIES ACT AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. THE LOCATIONS OF THE OMITTED INFORMATION HAVE BEEN INDICATED WITH ASTERISKS. ATTACHMENT A NIST ADVANCED TECHNOLOGY PROGRAM OPTIONAL GUIDELINES FOR QUARTERLY R&D PERFORMANCE REPORTS OVERVIEW The Cooperative Agreement between your organization(s) and the Advanced Technology Program (ATP) calls for quarterly R&D performance reports which are the main source of information provided to the ATP. The content of these reports, as requested by ATP, is consistent with Office of Management and Budget (OMB) Circular A110, dated 11/29/93 (1). A suggested structure is outlined below and is designed to not be overly burdensome to your organization. This specific structure or format is optional, but the content is required. If your organization has its own format for such reports and all the requested information is provided, ATP will accept your format. ATP relies on these quarterly R&D performance reports to monitor technical developments in projects. In addition, we use them in preparing quick-response derivative reports to Congress and Executive Agencies of the Government which oversee ATP. ATP policy prohibits release of these reports and limits internal distribution to those directly involved in management and administration of the specific cooperative agreement. Information abstracted from the reports by ATP will be cleared through your organization in advance of release by ATP. The report format outlined here provides for a systematic and logical structuring of key progress elements, and promotes tracking of developments. For each performance year, a core report is initially established, and subsequent reports simply update this core. Besides keeping the ATP Project Manager up to date on progress, these reports will provide a history of the project over its life. CONTENT The quarterly R&D performance report should: a) Identify project objectives, the initial "baseline" for tracking project developments, and milestones through the end of the current performance year; b) Provide evidence that projects are attaining technical milestones necessary to meet the objectives of the original proposal; c) Identify and explain changes in the composition, direction, or key personnel associated with the project; d) Identify problems or special opportunities which are critical to the progress of the research, and areas which may benefit from consultation with specialists at NIST. - ---------- 1. OMB Circular A110 can be found through the ATP web site (http://www.atp.nist.gov) or directly at http://www.whitehouse.gov/WH/EOP/OMB/html/circulars/a110/a110.html 1 In the following sections, each element of the quarterly R&D performance report is discussed. PROJECT OBJECTIVES The first section of each quarterly R&D performance report should state the overall technical goal of the project and list specific objectives. These should be drawn from the proposal with amplification as required to provide quantitative bases for success, or additional detail. The objectives should remain unchanged throughout the project unless results dictate a shift or major technical problems require re-planning a portion of the work. Changes should be addressed in the section entitled Summary of Project Changes. PROJECT BASELINE In order to contrast the state of the art before and after completion of each ATP project, establish a baseline to describe the status of key elements of the technology at the project outset. Define the baseline in the context of specific targets which are expected to constitute success, and are consistent with project objectives. These may include initial per-unit-costs, physical performance characteristics, or specific technical capabilities. If quantitative measures are not applicable, provide qualitative statements describing the state of the art at the time of project initiation. Identify any changes since the proposal was prepared. The ATP Project Manager will assist you in identifying appropriate baseline characterization as part of the project kickoff. TECHNICAL MILESTONES The quarterly reports should present appropriate milestones through the current performance year and relate the contribution of current year milestones to the overall project milestones. Current year milestones are generally presented and/or modified during the kickoff meeting, and subsequently extended as part of each annual review. The level of detail will depend on the nature of each project, and the concurrence of the principal investigator and the ATP Project Manager. A time line chart of the current year and the overall project milestones may be included in this section with clear identification of major decision points. Once established, this list of milestones with appropriate due dates should not be changed unless technical results or new opportunities dictate. Such changes should be addressed in the section entitled Summary of Project Changes. TECHNICAL PROGRESS AND IMPACT This section includes a discussion of technical progress for the specific performance quarter for each of the current performance year milestones identified in the preceding section. This is the heart of the quarterly R&D performance report, and will occupy the majority of the text. Sufficient discussion should be provided to allow an accurate assessment of progress, and identification of both successes and technical difficulties. Discussion of progress (and technical setbacks) should include implications for the overall objectives of the project. At the end of this section please identify the most significant technical advance to date in the project, and include a short discussion of its significance. Please list any patent applications as well as major equipment purchases. Progress against milestones is to be keyed to each reporting quarter. This requires the identification of the reporting period (mm/yy to mm/yy) before each new field of reporting for each milestone. If no work is directed to a particular milestone for a given quarter, then this should be noted and appropriately dated. 2 SUMMARY OF PROJECT CHANGES In this section, succinctly summarize substantive changes in project planning, personnel, or execution which have occurred over the reporting quarter. These should be derived from the main elements of the report as this section is intended only as a summary. If approval of a change is being requested please note that specifically. All substantive changes to the technical scope of work or budget changes must be discussed in advance with the ATP Project Manager, who must recommend an amendment to the award by the NIST Grants Officer. Quoting from Section 7. Prior Approval Requirements, of the ATP General Terms and Conditions which were part of your original award: 8. Prior Approval Requirements The following change requests require prior written approval from the NIST Grants Officer: a. Budget transfers among direct cost categories or between major technical tasks exceeding 10% of the total annual budget for each approved project year. b. Capital expenditures in excess of $100,000. c. Changes to key personnel (as identified in the application or as named in ATP Special Award Conditions). d. Changes to the technical scope of work or the application focus of the technology. e. Revisions to Ownership and/or Dissolution of Recipients (this includes everyone participating under a Joint Venture Agreement). This includes but is not limited to for example 1) when a company is acquired by a foreign company; 2) when only two for profit companies are participating in a JV and one of the for profit companies ceases participation; or 3) when the two for profit companies are acquired by another company or merge. Therefore, in the event a Recipient requests prior approval, the Recipient must provide documentation of the Recipients intent to notify the Department of Justice and the Federal Trade Commission of any changes in the JV including new members, substantial changes in scope of work, and/or deletion of members. PROBLEMS AND OPPORTUNITIES This section should provide a synopsis of technical problems which must be resolved as well as developing technical and business opportunities. Please also make us aware of areas which may benefit from consultation with specialists at NIST. BUSINESS ISSUES This section is for any business developments that have arisen since your last Business Report. UPCOMING MEETINGS If you wish to set up a meeting at NIST, or to request the attendance of either or both of the ATP 3 Technical or Business Project Managers at any meeting, you may use this section to make the request and to provide an overview of the meeting. It is often helpful to present a proposed project coordination meeting schedule for the year in this section, to note when subcontractors progress will be reviewed, when input from "commercialization units" may occur, etc. The meeting calendar could include formal or informal meetings of the project principals, or formal technical meetings where work which is related to the project is addressed. It should include a planned general time frame and expected location for the annual project review, which is to be scheduled during the last quarter of the project year (not the calendar year). FORMAT The requested format for the ATP Quarterly R&D performance reports is that of a sequential series of updates. Thus, each report is to contain the information submitted in the previous report(s) as well as that provided for the quarter of interest. Each quarterly report is intended to comprise 6-10 single spaced pages of new information. This means that the length of the report may grow to 25-40 pages by the end of the performance year, but each submission will usually comprise only 6 to 10 pages of original text. Because each quarterly report will include the previous information for the entire performance year, the last will provide a complete record of progress and accomplishments. If the 4th quarter report does not include the report of previous quarters, please provide a summary of the year's work. If you wish to submit a more extensive report of technical progress for a given quarter, you may append it to the formal report. If there is no additional progress to report under a given heading, a statement to that effect should be included for the performance period. Please date all additions to the text file, and mark each page of the report "Proprietary." There may be a need in the future to have an electronic copy of project quarterly reports. If an interim electronic copy is needed the program manager will request it directly, otherwise a single electronic copy of the reports at the end of the project year is sufficient. The file should be readable by WordPerfect 6.1 for Windows or Microsoft Word. ASCII text is also acceptable. Please mark all diskettes as proprietary. 4 ATP Quarterly R&D Performance Report Date of Summary: mm/dd/yy -------- Project Title: Cooperative Agreement Number: Performing Organization(s): Address(es) Subcontractor(s): Address(es) Project Manager: Administrative Contact: Title: Title: Telephone Number: Telephone Number: Facsimile Number: Facsimile Number: Electronic Mail Address: Electronic Mail Address: Type of Project: Single Business _____ Joint Venture _____ Date Initiated mm/yy Duration months ----------- --------- Total ATP Funding Requested: ($M) Total Industry Funding Committed: ($M) Current Performance Year mm/yy-mm/yy Quarterly Report Period mm/yy-mm/yy ------------- ------------- ATP Project Manager: Project Objectives: Project Baseline: Technical Milestones: Technical Progress and Impact: (including Most Significant Technical Advance to Date) Summary of Project Changes: Problems and Opportunities: Business Issues: (not covered on business diskette) Upcoming Meetings: 5 ATTACHMENT B September 1997 GUIDELINES FOR REPORTING ON BUSINESS PROGRESS AND ECONOMIC IMPACTS The following reports should be prepared by the persons with primary responsibility for developing and executing business strategies leading to commercialization of the technologies resulting from the ATP-funded project. A questionnaire format is used to facilitate efficient reporting and analysis. Because members of a joint venture have different business goals and different roles in commercialization and diffusion of the ATP-funded technology, each member of a joint venture, as well as each single applicant, has a business reporting responsibility and must file a separate report. The Economic Assessment Office, ATP, will provide materials customized for the individual reporting organizations in time for preparation of the reports on a timely basis. Baseline Report When Due: Thirty days after the end of the first calendar quarter of ATP funding. If you begin your project during a calendar quarter, the Baseline Report is due thirty days after the end of that quarter. Contents: In this report we ask you to identify potential areas of application of the technology (e.g., consumer electronics, avionics, medical devices), key attributes of the technology needed to achieve these goals (e.g., quantitative cost, size, performance characteristics) and planned strategies for commercialization (e.g., in-house production, licensing, strategic alliances, etc.); to identify strategies for protecting intellectual property; and to identify plans for dissemination of non-proprietary information. Format: Electronic diskette containing ATP Business Reporting System software. Quarterly Short-Form Reports When Due: Thirty days after the end of the second, third, and fourth quarters annually. No Short-Form Report is due for the Baseline or Anniversary quarters. Contents: In this brief report we ask you to review the organization address/telephone/contact information currently recorded in the ATP database and to report significant business developments related to the ATP project for the quarter. Format: Hard copy, fax, or e-mail. Anniversary Report When Due: One year after the Baseline Report and subsequently on an annual basis over the duration of the ATP project. Contents: In this report, we ask you to update information provided in the Baseline or prior Anniversary Reports. The Anniversary Report expands upon the Baseline Report to cover progress towards implementing commercialization strategies (e.g., an agreement with company X--an end user--for testing laboratory prototypes); early economic impacts of the ATP project; collaboration experiences; attraction of new funding; new intellectual property created; dissemination of information through conferences, publications, and other mechanisms; and a summary of company financial data. Format: Electronic diskette containing ATP Business Reporting System software. Close-out Report When Due: Ninety days after end of ATP project performance period. Contents: In this part we ask you to review and update information presented in prior anniversary reports in light of your technical accomplishments. In addition, we ask you to identify anticipated remaining technical and business barriers to commercialization of the technology, to define your specific business goals related to the ATP funded technology for the five-year period following the end of ATP funding, and to consider future effects of the ATP project outside your organization. Format: Electronic diskette containing ATP Business Reporting System software. Post-Project Reports When Due: Report three times--once every two years following the end of ATP funding. Contents: In this report we ask you to report your actual progress in commercializing the technology, and the related impacts inside and outside your organization. Format: Electronic diskette containing ATP Business Reporting System software. DEPARTMENT OF COMMERCE FINANCIAL ASSISTANCE STANDARD TERMS AND CONDITIONS DEPARTMENT OF COMMERCE [SEAL] UNITED STATES OF AMERICA NOVEMBER 1993 DEPARTMENT OF COMMERCE FINANCIAL ASSISTANCE STANDARD TERMS AND CONDITIONS Page A. FINANCIAL REQUIREMENTS ............................................... 1 .01 Financial Reports ................................................ 1 .02 Award Payments ................................................... 1 .03 Federal and Non-Federal Sharing .................................. 2 .04 Budget Changes and Transfer of Funds Among Categories ............ 2 .05 Indirect Costs ................................................... 2 .06 Incurring Costs or Obligating Federal Funds Beyond the ........... Expiration Date .................................................. 4 .07 Tax Refunds ...................................................... 4 B. PROGRAMMATIC REQUIREMENTS ............................................ 4 .01 Performance (Technical) Reports .................................. 4 .02 Unsatisfactory Performance ....................................... 4 .03 Programmatic Changes ............................................. 5 .04 Other Federal Awards with Similar Programmatic Activities ........ 5 C. NON-DISCRIMINATION REQUIREMENTS ...................................... 5 .01 Statutory Provisions ............................................. 5 .02 Other Provisions ................................................. 6 D. AUDITS ............................................................... 6 .01 Organization-Wide and Project Audits ............................. 6 .02 Audit Resolution Process ......................................... 7 E. DEBTS ................................................................ 8 .01 Payment of Debts Owed the Federal Government ..................... 8 .02 Late Payment Charges ............................................. 8 F. NAME CHECK ........................................................... 9 .01 Results of Name Check ............................................ 9 .02 Action(s) Taken as a Result of Name Check Review ................. 9 G. GOVERNMENTWIDE DEBARMENT AND SUSPENSION (NONPROCUREMENT) ............. 9 H. DRUG-FREE WORKPLACE .................................................. 10 I. LOBBYING RESTRICTIONS ................................................ 10 .01 Statutory Provisions ............................................. 10 .02 Disclosure of Lobbying Activities ................................ 10 i 11/93 J. SUBAWARD, CONTRACT, AND SUBCONTRACT .................................. 10 .01 Applicability of Award Provisions to Subrecipients ............... 10 .02 Applicability of Provisions to Subawards, Contracts, and Subcontracts ................................................. 11 .03 Minority and Women-Owned Business Enterprise ..................... 12 .04 Subcontracting Reports ........................................... 12 .05 Subaward and/or Contract to a Federal Agency ..................... 12 K. PROPERTY ............................................................. 12 .01 Standards ........................................................ 12 .02 Rights to Inventions ............................................. 13 L. MISCELLANEOUS REQUIREMENTS ........................................... 13 .01 Non-Compliance With Award Provisions ............................. 13 .02 Prohibition Against Assignment ................................... 13 .03 Internal Revenue Service (IRS) Information ....................... 13 .04 Foreign Travel ................................................... 14 ii 11/93 A. FINANCIAL REQUIREMENTS .01 Financial Reports a. The Recipient shall submit a "Financial Status Report" (SF-269) on a calendar quarter basis for the periods ending March 31, June 30, September 30, and December 31, or any portion thereof, unless otherwise specified in a special award condition. Reports are due no later than 30 days following the end of each reporting period. A final SF-269 shall be submitted within 90 days after the expiration date of the award. b. The Recipient shall submit a "Federal Cash Transactions Report" (SF-272) for each award where funds are advanced to Recipients. The SF-272 is due 15 working days following the end of each calendar quarter for awards under $1 million dollars; or 15 working days following the end of each month for awards over $1 million dollars; or unless otherwise specified in a special award condition. c. All financial reports shall be submitted in triplicate (one original and two copies) to the Grants Officer. .02 Award Payments a. Unless otherwise specified in a special award condition, the method of payment for the award shall be through advance or reimbursement. b. The Recipient shall submit a "Request for Advance or Reimbursement" (SF-270) no more frequently than monthly to request payment. The SF-270 shall be submitted in triplicate (an original and two copies) to the Grants Officer. c. Payments will be made via wire transfer which transfers funds directly to a Recipient's bank account. The Recipient must complete the enclosed payment information form and return it to the Grants Officer. The award number must be included on the payment information form. If wire transfer is not available, payments shall be made by direct Treasury check. d. Advances shall be limited to the minimum amounts necessary to meet immediate disbursement needs. Advanced funds not disbursed in a timely manner will be promptly returned to the Department of Commerce (DoC). Advances shall be approved for periods not to exceed 30 days. The Grants Officer determines the appropriate method of payment. If a Recipient demonstrates an unwillingness or inability to establish procedures which will minimize the time elapsing between the transfer of funds and disbursement, the Grants Officer may change the method of payment to reimbursement only. 1 11/93 .03 Federal and Non-Federal Sharing a. Awards which include Federal and non-Federal sharing incorporate an estimated budget of shared allowable costs. If actual allowable costs are less than the total approved estimated budget, the Federal and non-Federal cost share ratio as reflected in the approved estimated budget shall apply. If actual allowable costs are greater than the total approved estimated budget, the Federal share shall not exceed the total Federal dollar amount as reflected in the Financial Assistance Award (CD-450) and Amendment to Financial Assistance Award (CD-451). b. The non-Federal share, whether in cash or in in-kind, is expected to be paid out at the same general rate as the Federal share. Exceptions to this requirement may be granted by the Grants Officer based on sufficient documentation demonstrating previously determined plans for or later commitment of cash or in-kind contributions. .04 Budget Changes and Transfer of Funds Among Categories a. Requests for budget changes to the approved estimated budget in accordance with the provision noted below must be submitted to the Federal Program Officer who shall review them and make a recommendation to the Grants Officer. The Grants Officer shall make the final determination on such requests and notify the Recipient in writing. b. For awards where the Federal share exceeds $100,000, transfer of funds by the Recipient among direct cost categories are permitted when the cumulative amount of such transfers does not exceed 10 percent of the current total budget. Cumulative transfers of funds of an amount above 10 percent of the total award must be approved by the Grants Officer in writing. The same criteria applies to the cumulative amount of transfer of funds among projects, functions, and activities when budgeted separately within an award, except transfers will not be permitted if such transfers would cause any Federal appropriation, or part thereof, to be used for purposes other than those intended. c. The Recipient is not authorized at any time to transfer amounts budgeted for direct costs to the indirect costs line item or vice versa, without written prior approval of the Grants Officer. .05 Indirect Costs a. Indirect costs will not be allowable charges against the award unless specifically included as a line item in the approved budget incorporated into the award. 2 Rev 03/95 b. Any actual indirect costs incurred by the Recipient which are greater than the indirect cost line item in the budget will not be treated as a cost of the award by the DoC for the purpose of final cost settlement. c. Excess indirect costs may not be used to offset unallowable direct costs. d. If the Recipient has not previously established an indirect cost rate with a Federal agency, the negotiation and approval of a rate is subject to the procedures in the applicable cost principles and the following subparagraphs: 1. The Office of Inspector General (OIG) is authorized to negotiate indirect cost rates on behalf of the DoC for those organizations for which the DoC is cognizant. The OIG will negotiate only fixed rates. The Recipient shall submit to the OIG within 90 days of the award start date, documentation (indirect cost proposal, cost allocation plan, etc.) necessary to establish such rates. The Recipient shall provide the Grants Officer with a copy of the transmittal letter to the OIG. 2. When a cognizant Federal agency other than the DoC has responsibility for establishing an indirect cost rate, the Recipient shall submit to that cognizant Federal agency within 90 days of the award start date the documentation (indirect cost proposal, cost allocation plan, etc.) necessary to establish such rates. The Recipient shall provide both the Grants Officer and the DoC OIG with a copy of the transmittal letter to the cognizant Federal agency. 3. If the Recipient fails to submit the required documentation to the OIG or other cognizant Federal agency within 90 days of the award start date, the Grants Officer shall amend the award to preclude the recovery of any indirect costs under the award. If the DoC OIG or cognizant Federal agency determines there is a finding of good and sufficient cause to excuse the Recipient's delay in submitting the documentation, an extension of the 90-day due date may be approved by the Grants Officer. 4. Regardless of any approved indirect cost rate applicable to the award at the time of award, the maximum dollar amount of allocable indirect costs for which the DoC will reimburse the Recipient shall be the lesser of: (a) The line item amount for the Federal share of indirect costs contained in the approved budget of the award; or (b) The Federal share of the total allocable indirect costs of the award based on the negotiated rate with the cognizant Federal agency as established by audit or negotiation. 3 11/93 .06 Incurring Costs or Obligating Federal Funds Beyond the Expiration Date a. The Recipient shall not incur costs or obligate funds for any purpose pertaining to the operation of the program or activities beyond the expiration date stipulated in the award. The only costs which are authorized for a period of up to 90 days following the award expiration date are those strictly associated with closeout activities. Closeout activities are limited to the preparation of final reports. b. Any extension of the award period can only be authorized by the Grants Officer. Verbal or written assurances of funding from other than the Grants Officer shall not constitute authority to obligate funds for programmatic activities beyond the expiration date. c. The DoC has no obligation to provide any additional prospective funding. Any renewal of the award to increase funding and to extend the period of performance is at the sole discretion of the DoC. .07 Tax Refunds Refunds of FICA/FUTA taxes received by the Recipient during or after the award period must be refunded or credited to the DoC where the benefits were financed with Federal funds under the award. The Recipient agrees to contact the Grants Officer immediately upon receipt of these refunds. The Recipient further agrees to refund portions of FICA/FUTA taxes determined to belong to the Federal Government, including refunds received after the expiration of the award. B. PROGRAMMATIC REQUIREMENTS .01 Performance (Technical) Reports a. The Recipient shall submit performance (technical) reports in triplicate (one original and two copies) to the Federal Program Officer in the same frequency as the Financial Status Report (SF-269). b. Unless otherwise specified in the award provisions, performance (technical) reports shall contain brief information as prescribed in the applicable uniform administrative requirements incorporated into the award. .02 Unsatisfactory Performance Failure to perform the work in accordance with the terms of the award and maintain at least a satisfactory performance rating may result in designating the Recipient as high risk and assigning 4 11/93 special award conditions or taking further action as specified in the standard term and condition entitled "Non-Compliance With Award Provisions." .03 Programmatic Changes a. The Recipient shall not make any programmatic changes to the award without prior written approval by the Grants Officer. b. Any requests by the Recipient for programmatic changes must be submitted to the Federal Program Officer who shall review and make recommendations to the Grants Officer. The Grants Officer shall make the final determination and notify the Recipient in writing. .04 Other Federal Awards with Similar Programmatic Activities The Recipient shall immediately provide written notification to the Federal Program Officer and the Grants Officer in the event that, subsequent to receipt of the DoC award, other Federal financial assistance is received relative to the scope of work of the DoC award. C. NON-DISCRIMINATION REQUIREMENTS No person in the United States shall, on the ground of race, color, national origin, handicap, religion, or sex, be excluded from participation in, be denied the benefits of, or be subject to discrimination under any program or activity receiving Federal financial assistance. The Recipient agrees to comply with the non-discrimination requirements below: .01 Statutory Provisions a. Title VI of the Civil Rights Act of 1964 (42 USC ss.ss. 2000d et seq.) and DoC implementing regulations published at 15 CFR Part 8 which prohibit discrimination on the grounds of race, color, or national origin under programs or activities receiving Federal financial assistance; b. Title IX of the Education Amendments of 1972 (20 USC ss.ss. 1681 et seq.) prohibiting discrimination on the basis of sex under Federally assisted education programs or activities; c. Section 504 of the Rehabilitation Act of 1973, as amended (29 USC ss. 794) and DoC implementing regulations published at 15 CFR Part 8b prohibiting discrimination on the basis of handicap under any program or activity receiving or benefitting from Federal assistance; 5 11/93 d. The Age Discrimination Act of 1975, as amended (42 USC ss.ss. 6101 et seq.) and DoC implementing regulations published at 15 CFR Part 20 prohibiting discrimination on the basis of age in programs or activities receiving Federal financial assistance; e. The Americans with Disabilities Act of 1990 (42 USC ss.ss. 12101 et seq.) prohibiting discrimination on the basis of disability under programs, activities, and services provided or made available by state and local governments or instrumentalities or agencies thereto, as well as public or private entities that provide public transportation; f. Any other non-discrimination provisions of statutory law. .02 Other Provisions Parts II and III of Executive Order 11246 (30 F.R. 12319, 1965) as amended by Executive Orders 11375 (32 F.R. 14303, 1967) and 12086 (43 F.R. 46501, 1978) requiring Federally assisted construction contracts to include the nondiscrimination provisions of ss.ss. 202 and 203 of that Executive Order and Department of Labor regulations implementing Executive Order 11246 (41 CFR ss. 60-1.4(b), 1991). D. AUDITS Under the Inspector General Act of 1978, as amended, 5 USC App. I, section 1 et seq., an audit of the award may be conducted at any time. The Inspector General of the DoC, or any of his or her duly authorized representatives, shall have access to any pertinent books, documents, papers and records of the Recipient, whether written, printed, recorded, produced or reproduced by any mechanical, magnetic or other process or medium, in order to make audits, inspections, excerpts, transcripts or other examinations as authorized by law. The OIG will usually make the arrangements to audit the award, whether the audit is performed by OIG personnel, an independent accountant under contract with the DoC, or any other Federal, state or local audit entity. .01 Organization-Wide and Project Audits a. Organization-wide audits shall be performed in accordance with 15 CFR Part 29a, "Audit Requirements for State and Local Governments," for Recipients that are state or local governments; and 15 CFR Part 29b, "Audit Requirements for Institutions of Higher Education and Other Nonprofit Organizations," for Recipients that are educational or nonprofit institutions. Additionally, when required under a special award condition, a project audit shall be performed in accordance with Federal Government auditing standards. 6 11/93 b. For-profit Recipients shall have a project audit performed no less than once every two years in accordance with Federal Government auditing standards. c. The Recipient shall submit copies of audits to each Federal agency that directly provides funds. Audits shall be submitted to the DoC OIG at the following address with a copy of the transmittal letter to the Grants Officer: Office of Inspector General U.S. Department of Commerce Atlanta Regional Office of Audits 401 West Peachtree Street, N.W., Suite 2342 Atlanta, GA 30308 d. Recipients receiving Federal awards over $100,000 shall also submit a copy of organization-wide audits to the Bureau of the Census, which has been designated by OMB as a central clearinghouse. The address is: Federal Audit Clearinghouse Bureau of the Census 1201 E. 10th Street Jeffersonville, IN 47132 .02 Audit Resolution Process a. An audit of the award may result in the disallowance of costs incurred by the Recipient and the establishment of a debt (account receivable) due DoC. For this reason, the Recipient should take seriously its responsibility to respond to all audit findings and recommendations with adequate explanations and supporting evidence whenever audit results are disputed. b. A Recipient whose award is audited has the following opportunities to dispute the proposed disallowance of costs and the establishment of a debt: 1. Unless the Inspector General determines otherwise, the Recipient has 30 days from the date of the transmittal of the draft audit report to submit written comments and documentary evidence. 2. The Recipient has 30 days from the date of the transmittal of the final audit report to submit written comments and documentary evidence. There will be no extension of this deadline. 3. The DoC shall review the documentary evidence submitted by the Recipient and shall notify the Recipient of the results in an Audit Resolution Determination Letter. The Recipient has 30 days from the date of receipt of the Audit Resolution Determination 7 11/93 Letter to submit a written appeal. There will be no extension of this deadline. The appeal is the last opportunity for the Recipient to submit written comments and documentary evidence that dispute the validity of the audit resolution determination. In addition, an appeal does not preclude the Recipient's obligation to pay a debt that may be established nor does the appeal preclude the accrual of interest on a debt. 4. The DoC shall review the Recipient's appeal and notify the Recipient of the results in an Appeal Determination Letter. After the opportunity to appeal has expired or after the appeal determination has been rendered, DoC will not accept any further documentary evidence from the Recipient. There will be no other administrative appeals available in DoC. E. DEBTS .01 Payment of Debts Owed the Federal Government Any debts determined to be owed the Federal Government shall be paid promptly by the Recipient. A debt will be considered delinquent if it is not paid within 30 days of the due date. Failure to pay a debt by the due date shall result in the imposition of late payment charges as noted below. In addition, failure to pay the debt or establish a repayment agreement by the due date will also result in the referral of the debt for collection action and may result in DoC taking further action as specified in the standard term and condition entitled "Non-Compliance With Award Provisions." The Recipient may also be suspended or debarred from further Federal financial and non-financial assistance and benefits, as provided in 15 CFR Part 26, "Governmentwide Debarment and Suspension (Nonprocurement) and Governmentwide Requirements for Drug-Free Workplace (Grants)" until the debt has been paid in full or until a repayment agreement has been approved and payments are made in accordance with the agreement. Payment of a debt may not come from other Federally sponsored programs. Verification that other Federal funds have not been used will be made during future program visits and audits. .02 Late Payment Charges a. An interest charge shall be assessed on the delinquent debt (over 30 days) as established by the Debt Collection Act of 1982. The minimum annual interest rate to be assessed is the Department of the Treasury's Current Value of Funds Rate. This rate is published in the Federal Register by the Department of the Treasury. The assessed rate shall remain fixed for the duration of the indebtedness. 8 11/93 b. A penalty charge shall be assessed on any portion of a debt that is delinquent for more than 90 days, although the charge will accrue and be assessed from the date the debt became delinquent. c. An administrative charge shall be assessed to cover processing and handling the amount due. d. State and local governments are not subject to penalty and administrative charges. F. NAME CHECK A name check review shall be performed by the OIG on key individuals associated with non-profit and for-profit organizations, unless an exemption has been authorized by the Inspector General. .01 Results of Name Check DoC reserves the right to take any of the actions described in section F.02 if any of the following occurs as a result of the name check review: a. A key individual fails to submit the required form "Identification - Applicant for Funding Assistance (CD-346); b. A key individual made an incorrect statement or omitted a material fact on the CD-346; or c. The name check reveals significant adverse findings that reflect on the integrity or responsibility of the Recipient and/or key individual. .02 Action(s) Taken as a Result of Name Check Review If any situation noted in F.01 occurs, DoC, at its discretion, may take one or more of the following actions: a. Terminate the award immediately for cause; b. Require the removal of any key individual from association with the management of and/or implementation of the award; and/or c. Make appropriate provisions or revisions at DoC's discretion with respect to the method of payment and/or financial reporting requirements. G. GOVERNMENTWIDE DEBARMENT AND SUSPENSION (NONPROCUREMENT) The Recipient shall comply with the provisions of Executive Order 12549, "Debarment and Suspension" and DoC's implementing 9 11/93 regulations published at 15 CFR Part 26, Subparts A through E, "Governmentwide Debarment and Suspension (Nonprocurement)," which generally prohibit entities that have been debarred, suspended, or voluntarily excluded from participating in Federal nonprocurement transactions either through primary or lower tier covered transactions. H. DRUG-FREE WORKPLACE The Recipient shall comply with the provisions of Public Law 100-690, Title V, Subtitle D, "Drug-Free Workplace Act of 1988," and DoC implementing regulations published at 15 CFR Part 26, Subpart F, "Governmentwide Requirements for Drug-Free Workplace (Grants)," which require that the Recipient take steps to provide a drug-free workplace. I. LOBBYING RESTRICTIONS .01 Statutory Provisions The Recipient shall comply with the provisions of Section 319 of Public Law 101-121, which added Section 1352 to Chapter 13 of Title 31 of the United States Code, and DoC implementing regulations published at 15 CFR Part 28, "New Restrictions on Lobbying." These provisions generally prohibit the use of Federal funds for lobbying the Executive or Legislative Branches of the Federal government in connection with the award, and require the disclosure of the use of non-Federal funds for lobbying. .02 Disclosure of Lobbying Activities The Recipient receiving in excess of $100,000 in Federal funding shall submit a completed "Disclosure of Lobbying Activities" (SF-LLL) regarding the use of non-Federal funds for lobbying. The SF-LLL shall be submitted within 30 days following the end of the calendar quarter in which there occurs any event that requires disclosure or that materially affects the accuracy of the information contained in any disclosure form previously filed. The Recipient must submit the SF-LLLs, including those received from subrecipients, contractors, and subcontractors, to the Grants Officer. J. SUBAWARD, CONTRACT, AND SUBCONTRACT .01 Applicability of Award Provisions to Subrecipients The Recipient shall require all subrecipients, including lower tier subrecipients, under the award to comply with the provisions of the award including applicable cost principles, administrative, and audit requirements. 10 11/93 .02 Applicability of Provisions to Subawards, Contracts, and Subcontracts a. The Recipient shall include the following notice in each request for applications or bids: Applicants/bidders for a lower tier covered transaction (except for goods and services under the $25,000 small purchase threshold and where the lower tier Recipient will have no critical influence on or substantive control over the award) are subject to 15 CFR Part 26, Subparts A through E, "Governmentwide Debarment and Suspension (Nonprocurement). In addition, applicants/bidders for a lower tier covered transaction for a subaward, contract, or subcontract greater than $100,000 of Federal funds at any tier are subject to 15 CFR Part 28, "New Restrictions on Lobbying." Applicants/bidders should familiarize themselves with these provisions, including the certification requirements. Therefore, applications for a lower tier covered transaction must include a "Certifications Regarding Debarment, Suspension, Ineligibility and Voluntary Exclusion--Lower Tier Covered Transactions and Lobbying" (CD-512) completed without modification. b. The Recipient shall include a statement in all lower tier covered transactions (subawards, contracts, and subcontracts), that the award is subject to Executive Order 12549, "Debarment and Suspension" and DoC implementing regulations published at 15 CFR Part 26, Subparts A through E, "Governmentwide Debarment and Suspension (Nonprocurement)." c. The Recipient shall include a statement in all lower tier covered transactions (subawards, contracts, and subcontracts) exceeding $100,000 in Federal funds, that the subaward, contract, or subcontract is subject to Section 319 of Public Law 101-121, which added Section 1352, regarding lobbying restrictions, to Chapter 13 of Title 31 of the United States Code as implemented at 15 CFR Part 28, "New Restrictions on Lobbying." The Recipient shall further require the subrecipient, contractor, or subcontractor to submit a completed "Disclosure of Lobbying Activities" (SF-LLL) regarding the use of non-Federal funds for lobbying. The SF-LLL shall be submitted within 15 days following the end of the calendar quarter in which there occurs any event that requires disclosure or that materially affects the accuracy of the information contained in any disclosure form previously filed. The SF-LLL shall be submitted from tier to tier until received by the Recipient. The Recipient must submit all disclosure forms received, including those that report lobbying activity on its own behalf, to the Grants Officer within 30 days following the end of the calendar quarter. 11 11/93 .03 Minority and Women-Owned Business Enterprise DoC encourages Recipients to utilize minority and women-owned firms and enterprises in contracts under financial assistance awards. The Office of Program Development, Minority Business Development Agency, will assist Recipients in matching qualified minority and women-owned enterprises with contract opportunities. For further information contact: U.S. Department of Commerce Minority Business Development Agency Office of Program Development Herbert C. Hoover Building 14th Street and Constitution Avenue, N.W. Washington, D.C. 20230 .04 Subcontracting Reports Recipients of awards which involve both Federal funding valued at $500,000 or more and procurement of supplies, equipment, construction, or services, shall submit the "MBE/WBE Utilization Under Federal Grants, Cooperative Agreements, and Other Federal Financial Assistance" (SF-334). The SF-334 shall be submitted quarterly for the periods ending March 31, June 30, September 30, and December 31. Reports are due no later than 30 days following the end of the reporting period during which any procurement in excess of $10,000 is executed under the award. The SF-334 shall be submitted in duplicate to the Federal Program Officer. .05 Subaward and/or Contract to a Federal Agency a. The Recipient, subrecipient, contractor, and/or subcontractor shall not sub-grant or sub-contract any part of the approved project to any agency of the DoC and/or other Federal department, agency or instrumentality, without the prior written approval of the Grants Officer. b. Requests for approval of such action must be submitted to the Federal Program Officer who shall review and make a recommendation to the Grants Officer. The Grants Officer shall make the final determination with the concurrence of legal counsel of the DoC agency making the award, and legal counsel of the other Federal department, agency or instrumentality receiving the subaward and/or contract. The Grants Officer will notify the Recipient in writing of the final determination. K. PROPERTY .01 Standards The Recipient shall comply with the property standards as stipulated in the applicable uniform administrative requirements. 12 11/93 Any inventory listings stipulated under the applicable uniform administrative requirements shall be submitted on the "Report of Government Property in Possession of Contractor" (CD-281). The CD-281 shall be submitted in triplicate (an original and two copies) to the Grants Officer. .02 Rights to Inventions The policy and procedures set forth in DoC regulations 37 CFR Part 401, "Rights to Inventions made by Nonprofit Organizations and Small Business Firms under Government Grants, Contracts, and Cooperative Agreements," shall apply to all grants and cooperative agreements made to nonprofit organizations and small business firms where the purpose of the award is to accomplish experimental, developmental, or research work. L. MISCELLANEOUS REQUIREMENTS 01. Non-Compliance With Award Provisions Failure to comply with any or all of the provisions of the award may be considered grounds for any or all of the following actions: establishment of an account receivable, withholding payments under any DoC awards to the Recipient, changing the method of payment from advance or reimbursement to reimbursement only, termination of any DoC active awards, and may have a negative impact on future funding by the DoC. .02 Prohibition Against Assignment Notwithstanding any other provision of the award, the Recipient shall not transfer, pledge, mortgage, or otherwise assign the award, or any interest therein, or any claim arising thereunder, to any party or parties, bank trust companies, or other financing or financial institutions. .03 Internal Revenue Service (IRS) Information a. A Recipient classified for tax purposes as an individual, partnership, proprietorship, or medical corporation is required to submit a taxpayer identification number (TIN) (either social security number or employer identification number as applicable) on Form W-9, "Payer's Request for Taxpayer Identification Number." Tax-exempt organizations and corporations (with the exception of medical corporations) are excluded from this requirement. Form W-9 shall be submitted to the Grants Officer within 60 days of the award start date. The TIN will be provided to the IRS by DoC on Form 1099-G, "Statement for Recipients of Certain Government Payments." Applicable Recipients who either fail to provide their TIN or provide an incorrect TIN may have funding suspended until the requirement is met. 13 Rev 02/94 b. Disclosure of a Recipient's TIN is mandatory for Federal income tax reporting purposes under the authority of 26 USC, Section 6011 and 6109(d), and 26 CFR, Section 301.6109-1. This is to ensure the accuracy of income computation by the IRS. This information will be used to identify an individual who is compensated with DoC funds or paid interest under the Prompt Payment Act. .04 Foreign Travel a. The Recipient shall comply with the provisions of the Fly America Act. The Fly America Act refers to provisions enacted by Section 5 of the International Air Transportation Fair Competitive Practices Act of 1974 (Public Law 93-623, January 3, 1975, 49 USC App. 1517), as amended by Section 21 of the International Air Transportation Competition Act of 1979 (Public Law 96-192, February 15, 1980, 94 Stat. 43). The implementing Federal Travel Regulations are published at 41 CFR Part 301-3.6. b. The Fly America Act requires that Federal travelers and others performing U.S. Government-financed foreign air travel must use U.S. flag air carriers, to the extent that service by such carriers is available. Foreign air carriers may be used only when a U.S. flag air carrier is unavailable, or use of U.S. flag air carrier service will not accomplish the agency's mission. c. Use of foreign air carriers may also be used only if bilateral agreements permit such travel pursuant to 49 USC App. S 1517(c) (1982). DoC is not aware of any bilateral agreements which meet these requirements, therefore, it is the responsibility of the Recipient to provide the Grants Officer with a copy of the applicable bilateral agreement if use of a foreign air carrier is anticipated. d. If a foreign air carrier is anticipated to be used for any part of foreign travel, the Recipient must receive prior approval from the Grants Officer. The Recipient must submit a justification to the Federal Program Officer explaining why service by a U.S. flag air carrier is not available, why it would be necessary to use a foreign air carrier, or if a bilateral agreement permits such travel and provide a copy of the agreement. The Federal Program Officer will review and make a recommendation to the Grants Officer. The Grants Officer shall make the final determination and notify the Recipient in writing. Failure to adhere to the provisions of the Fly America Act will result in the disallowance of the Recipient's air carrier expenses in an amount comparable to the loss of revenues suffered by the U.S. flag air carriers as a result of the Recipient's actions. This amount will be based on a formula in the Federal Travel Regulations. 14 11/93 federal register ================================================================================ Monday November 29, 1993 - -------------------------------------------------------------------------------- Part IV Office of Management and Budget - -------------------------------------------------------------------------------- Uniform Administrative Requirements for Grants and Agreements With Institutions of Higher Education, Hospitals and Other Non-Profit Organizations; Notice 62992 Federal Register / Vol. 58, No. 227 / Monday, November 29, 1993 / Notices ================================================================================ OFFICE OF MANAGEMENT AND BUDGET Uniform Administrative Requirements for Grants and Agreements With Institutions of Higher Education, Hospitals and Other Non-Profit Organizations AGENCY: Office of Management and Budget. ACTION: Final Revision to OMB Circular A-110. Uniform Administrative Requirements for Grants and Agreements With Institutions of Higher Education, Hospitals and Other Non-Profit Organizations." - -------------------------------------------------------------------------------- SUMMARY: Office of Management and Budget (OMB) Circular A-110 provides standards for obtaining consistency and uniformity among Federal agencies in the administration of grants and agreements with institutions of higher education, hospitals, and other nonprofit organizations. OMB issued Circular A-110 in 1976 and, except for a minor revision in February 1987, the Circular contains its original provisions. To update the Circular, OMB established an interagency task force to review the Circular. The task force solicited suggestions for changes to the Circular from university groups, non-profit organizations and other interested parties and compared, for consistency, the provisions of similar provisions applied to State and local governments. The revised Circular reflects the results of these efforts. DATES: Provisions that affect Federal agencies are effective December 29, 1993. Provisions that affect grantees will be adopted by agencies in codified regulations by May 30, 1994. Earlier implementation is encouraged. ADDRESSES: Office of Management and Budget. Office of Federal Financial Management, Financial Standards and Reporting Branch, room 10235, New Executive Office Building, Washington, DC 20503. For a copy of this Circular, contact Office of Administration. Publication Office, room 2200, New Executive Office Building. Washington, DC 20503, or telephone (202) 395-7332. FOR FURTHER INFORMATION CONTACT: Palmer Marcantonio, Financial Standards and Reporting Branch, Office of Federal Financial Management, Office of Management and Budget (telephone: 202-395-3993). SUPPLEMENTARY INFORMATION: A. Background OMB published a notice in the Federal Register (57 FR 39018) on August 27, 1992, requesting comments on proposed revisions to OMB Circular A-110. Interested parties were invited to submit comments. OMB received over 200 comments from Federal agencies, non-profit organizations, professional organizations and others. All comments were considered in developing this final revision. The following section presents a summary of the major comments, grouped by subject, and a response to each comment. Other changes have been made to increase clarity and readability. B. Comments and Responses General Comment: Provide Federal agendas the necessary discretion to grant waivers on a case-by-case basis. Response: Amended Circular to provide Federal agencies the authority to grant exceptions on a case-by-case basis. Comment: Clarify the provisions concerning the allowability of fees or profits. Response: No change. Generally fees and profits are not paid to recipients unless authorized by legislation. Fees and profits are discussed in the various cost principles. Pre-Award Requirements Comment: Delete or revise section on "Advance Public Notice and Priority Setting." Response: Amended the section to give Federal agencies more flexibility. Comment: Amend the section on "Special Award Conditions" to: (1) include quantifiable, objective measures which may trigger special award conditions; (2) provide for an appeals process; and, (3) conform to the grants management common rule covering State and local governments to the extent practicable. Response: OMB expanded this section to require Federal agencies to provide more information to recipients including an explanation of how recipients may request reconsideration of additional requirements. However, OMB does not believe it is practical to provide quantifiable measures. Most of the additional requirements are based on qualitative considerations rather than quantitative ones. Also, OMB amended this section to conform to the grants management common rule to the extent practicable. Post-Award Requirements Comment: The definition of "in-kind contribution" is not the same as the one used in the grants management common rule for State and local governments. Response: Redefined third party in-kind contributions to mean the value of non-cash contributions from third parties. All grantee contributions whether in the form of property or cash are referred to as "contributions" and are subject to the respective cost principles. This change is consistent with the provisions of the Common Rule. Comment: Allow grantees to use unrecovered indirect cost as cost sharing or matching. Response: Added a provision to the Circular which provides that unrecovered in direct cost may be included as part of cost sharing or matching with the Federal agency's prior approval. Comment: In identifying contributed services to federally-funded programs, university recipients should be entitled to assign fringe benefits on the same basis as they would if services were compensated, as long as such costs meet all other stated criteria. Response: No change. The Circular provides that paid fringe benefits for volunteer services that are reasonable, allowable and allocable may be included in the valuation of the services. This is a liberalization of the current Circular. It recognizes that some donated services originate from third parties that pay fringe benefits. Comment: The requirement to develop unit cost information is not applicable to scientific research and related activities. Response: No change. The Circular covers many programs, other than research where unit cost data are useful. The Circular does not require the development of unit cost data for those programs where it is not practical to do so. Comment: The criteria for informing the Federal agency of unneeded property should be changed to conform to the criteria in the grants management common rule for State and local governments. Response: Changed the criteria used for reporting unneeded property. The Circular now provides for recipients to use the fair market value of unneeded property rather than its acquisition cost to determine whether the property must be reported to the Federal agency. This change is consistent with the provisions of the Common Rule. Comment: Interest earned on Federal advances of grant funds should be returned to a single entity (e.g.. the Department of the Treasury) rather than each individual Federal awarding agency. Response: Amended Circular to provide that all interest earned on Federal Register / Vol. 58, No. 227 / Monday, November 29, 1993 / Notices 62993 ================================================================================ Federal advances shall be remitted to the Department of Health and Human Services (DHHS). DHHS is the largest granting agency and administers a sophisticated payment management System. Comment: The definition of program income should provide for deduction of costs incidental to program income. Response: No change. Because of the different amounts and types of program income, OMB believes the accounting for costs incurred in connection with program income should be considered on a program-by-program basis. Comment: All program income regardless of whether the deductive, matching, or additive alternative is authorized, should be used by recipients before they request additional cash payments. Response: Amended the Circular to clarify that all program income should be used by recipients before they request additional cash payments. Comment: The requirement for recipients to "... follow a procedure to avoid purchasing unnecessary or duplicative items" is resulting in costly delays in purchasing research equipment. Federal auditors have interpreted this requirement to mean recipients must establish a costly equipment screening process. Response: Amended the Circular to provide that recipients must determine, through an appropriate process, that existing equipment is not available to meet the new requirement. The original requirement was not intended to establish a costly equipment screening process. Comment: Authority to incur pre-award costs, to initiate one time extensions of assistance agreements, and to carry forward unobligated balances should not require prior approval unless specifically required by the Federal agency. Response: Amended the Circular to provide that recipients of research awards, because of the nature of the programs, are not required to obtain prior approval to: (1) incur pre-award costs; (2) extend an assistance program; or (3) carry forward unobligated balances unless specifically required by the Federal agency. After-the-Award Requirements Comment: The Circular allows Federal agencies to recover funds on the basis of a later audit or review. A number of commenters said the only way funds should be recovered after the closeout of an award is on the basis of an audit. Response: No change. Grantees which certify that rate agreements contain no unallowable cost are required to reimburse the Federal Government for any cost that is later found to be unallowable through legal means other than audit. John B. Arthur. Assistant Director for Administration Circular No. A-110 Revised To the Heads of Executive Departments and Establishments SUBJECT: Uniform Administrative Requirements for Grants and Agreements With Institutions of Higher Education, Hospitals, and Other Non-Profit Organizations 1. Purpose. This Circular sets forth standards for obtaining consistency and uniformity among Federal agencies in the administration of grants to and agreements with institutions of higher education, hospitals, and other non-profit organizations. 2. Authority. Circular A-110 is issued under the authority of 31 U.S.C. 503 (the Chief Financial Officers Act), 31 U.S.C. 1111, 41 U.S.C. 405 (the Office of Federal Procurement Policy Act), Reorganization Plan No. 2 of 1970, and E.O. 11541 ("Prescribing the Duties of the Office of Management and Budget and the Domestic Policy Council in the Executive Office of the President"). 3. Policy. Except as provided herein, the standards set forth in this Circular are applicable to all Federal agencies. If any statute specifically prescribes policies or specific requirements that differ from the standards provided herein, the provisions of the statute shall govern. The provisions of the sections of this Circular shall be applied by Federal agencies to recipients. Recipients shall apply the provisions of this Circular to subrecipients performing substantive work under grants and agreements that are passed through or awarded by the primary recipient, if such subrecipients are organizations described in paragraph 1. This Circular does not apply to grants, contracts, or other agreements between the Federal Government and units of State or local governments covered by OMB Circular A-102, "Grants and Cooperative Agreements with State and Local Governments," and the Federal agencies' grants management common rule which standardized and codified the administrative requirements Federal agencies impose on State and local grantees. In addition, subawards and contracts to State or local governments are not covered by this Circular. However, this Circular applies to subawards made by State and local governments to organizations covered by this Circular. Federal agencies may apply the provisions of this Circular to commercial organizations, foreign governments, organizations under the jurisdiction of foreign governments, and international organizations. 4. Definitions. Definitions of key terms used in this Circular are contained in Section ___.2 in the Attachment. 5. Required Action. The specific requirements and responsibilities of Federal agencies and institutions of higher education, hospitals, and other non-profit organizations are set forth in this Circular. Federal agencies responsible for awarding and administering grants to and other agreements with organizations described in paragraph 1 shall adopt the language in the Circular unless different provisions are required by Federal statute or are approved by OMB. 6. OMB Responsibilities. OMB will review agency regulations and implementation of this Circular, and will provide interpretations of policy requirements and assistance to insure effective and efficient implementation. Any exceptions will be subject to approval by OMB, as indicated in Section ___.4 in the Attachment. Exceptions will only be made in particular cases where adequate justification is presented. 7. Information Contact. Further information concerning this Circular may be obtained by contacting the Office of Federal Financial Management, Office of Management and Budget, Washington, DC 20503, telephone (202) 395-3993. 8. Termination Review Date. This Circular will have a policy review three years from date of issuance. 9. Effective Date. The standards set forth in this Circular which affect Federal agencies will be effective 30 days after publication of the final revision in the Federal Register. Those standards which Federal agencies impose on grantees will be adopted by agencies in codified regulations within six months after publication in the Federal Register. Earlier implementation is encouraged. Leon E. Panetta Director. Grants and Agreements with Institutions of Higher Education, Hospitals, and Other Non-Profit Organizations Subpart A - General Sec. ___.1 Purpose. ___.2 Definitions. ___.3 Effect on other issuances. ___.4 Deviations. ___.5 Subawards. Subpart B - Pre-award Requirements ___.10 Purpose. ___.11 Pre-award policies. ___.12 Forms for applying for Federal assistance. ___.13 Debarment and suspension. ___.14 Special award conditions. ___.15 Metric system of measurement. ___.16 Resource Conservation and Recovery Act. ___.17 Certifications and representations. Subpart C - Post-award Requirements Financial and Program Management ___.20 Purpose of financial and program management. ___.21 Standards for financial management systems. ___.22 Payment. ___.23 Cost sharing or matching. ___.24 Program income. ___.25 Revision of budget and program plans. 62994 Federal Register / Vol. 58, No. 227 / Monday, November 29, 1993 / Notices ================================================================================ ___.26 Non-Federal audits. ___.27 Allowable costs. ___.28 Period of availability of funds. Property Standards ___.30 Purpose of property standards. ___.31 Insurance coverage. ___.32 Real property. ___.33 Federally-owned and exempt property. ___.34 Equipment. ___.35 Supplies and other expendable property. ___.36 Intangible property. ___.37 Property trust relationship. Procurement Standards ___.40 Purpose of procurement standards. ___.41 Recipient responsibilities. ___.42 Codes of conduct. ___.43 Competition. ___.44 Procurement procedures. ___.45 Cost and price analysis. ___.46 Procurement records. ___.47 Contract administration. ___.48 Contract provisions. Reports and Records ___.50 Purpose of reports and records. ___.51 Monitoring and reporting program performance. ___.52 Financial reporting. ___.53 Retention and access requirements for records. Termination and Enforcement ___.60 Purpose of termination and enforcement. ___.61 Termination. ___.62 Enforcement. Subpart D - After-The-Award Requirements ___.70 Purpose. ___.71 Closeout procedures. ___.72 Subsequent adjustments and continuing responsibilities. ___.73 Collection of amounts due. Appendix A - Contract Provisions Subpart A - General ___.1 Purpose. This Circular establishes uniform administrative requirements for Federal grants and agreements awarded to institutions of higher education, hospitals, and other non-profit organizations. Federal awarding agencies shall not impose additional or inconsistent requirements, except as provided in Sections ___.4, and ___.14 or unless specifically required by Federal statute or executive order. Non-profit organizations that implement Federal programs for the States are also subject to State requirements. ___.2 Definitions. (a) Accrued expenditures means the charges incurred by the recipient during a given period requiring the provision of funds for: (1) goods and other tangible property received; (2) services performed by employees, contractors, subrecipients, and other payees; and, (3) other amounts becoming owed under programs for which no current services or performance is required. (b) Accrued income means the sum of: (1) earnings during a given period from (i) services performed by the recipient, and (ii) goods and other tangible property delivered to purchasers, and (2) amounts becoming owed to the recipient for which no current services or performance is required by the recipient. (c) Acquisition cost of equipment means the net invoice price of the equipment, including the cost of modifications, attachments, accessories, or auxiliary apparatus necessary to make the property usable for the purpose for which it was acquired. Other charges, such as the cost of installation, transportation, taxes, duty or protective in-transit insurance, shall be included or excluded from the unit acquisition cost in accordance with the recipient's regular accounting practices. (d) Advance means a payment made by Treasury check or other appropriate payment mechanism to a recipient upon its request either before outlays are made by the recipient or through the use of predetermined payment schedules. (e) Award means financial assistance that provides support or stimulation to accomplish a public purpose. Awards include grants and other agreements in the form of money or property in lieu of money, by the Federal Government to an eligible recipient. The term does not include: technical assistance, which provides services instead of money; other assistance in the form of loans, loan guarantees, interest subsidies, or insurance; direct payments of any kind to individuals; and, contracts which are required to be entered into and administered under procurement laws and regulations. (f) Cash contributions means the recipient's cash outlay, including the outlay of money contributed to the recipient by third parties. (g) Closeout means the process by which a Federal awarding agency determines that all applicable administrative actions and all required work of the award have been completed by the recipient and Federal awarding agency. (h) Contract means a procurement contract under an award or subaward, and a procurement subcontract under a recipient's or subrecipient's contract. (i) Cost sharing or matching means that portion of project or program costs not borne by the Federal Government. (j) Date of completion means the date on which all work under an award is completed or the date on the award document, or any supplement or amendment thereto, on which Federal sponsorship ends. (k) Disallowed costs means those charges to an award that the Federal awarding agency determines to be unallowable, in accordance with the applicable Federal cost principles or other terms and conditions contained in the award. (l) Equipment means tangible nonexpendable personal property including exempt property charged directly to the award having a useful life of more than one year and an acquisition cost of $5000 or more per unit. However, consistent with recipient policy, lower limits may be established. (m) Excess property means property under the control of any Federal awarding agency that, as determined by the head thereof, is no longer required for its needs or the discharge of its responsibilities. (n) Exempt property means tangible personal property acquired in whole or in part with Federal funds, where the Federal awarding agency has statutory authority to vest title in the recipient without further obligation to the Federal Government. An example of exempt property authority is contained in the Federal Grant and Cooperative Agreement Act (31 U.S.C. 6306), for property acquired under an award to conduct basic or applied research by a non-profit institution of higher education or non-profit organization whose principal purpose is conducting scientific research. (o) Federal awarding agency means the Federal agency that provides an award to the recipient. (p) Federal funds authorized means the total amount of Federal funds obligated by the Federal Government for use by the recipient. This amount may include any authorized carryover of unobligated funds from prior funding periods when permitted by agency regulations or agency implementing instructions. (q) Federal share of real property, equipment, or supplies means that percentage of the property's acquisition costs and any improvement expenditures paid with Federal funds. (r) Funding period means the period of time when Federal funding is available for obligation by the recipient. (s) Intangible property and debt instruments means, but is not limited to, trademarks, copyrights, patents and patent applications and such property as loans, notes and other debt instruments, lease agreements, stock and other instruments of property ownership, whether considered tangible or intangible. (t) Obligations means the amounts of orders placed, contracts and grants awarded, services received and similar transactions during a given period that require payment by the recipient during the same or a future period. (u) Outlays or expenditures means charges made to the project or program. They may be reported on a cash or accrual basis. For reports prepared on a cash basis, outlays are the sum of cash disbursements for direct charges for goods and services, the amount of indirect expense charged, the value of third party in-kind contributions applied and the amount of cash advances and payments made to subrecipients. For reports prepared on an accrual basis, outlays are the sum of cash disbursements for direct charges for goods and services, the amount of indirect expense incurred, the value of in-kind contributions applied, and the net increase (or decrease) in the amounts owed by the recipient for goods and other property received, for services performed by employees, contractors, subrecipients and other payees and other amounts becoming owed under programs for which no current services or performance are required. (v) Personal property means property of any kind except real property. It may be tangible, having physical existence, or intangible, having no physical existence, such as copyrights, patents, or securities. Federal Register / Vol. 58, No. 227 / Monday, November 29, 1993 / Notices 62995 ================================================================================ (w) Prior approval means written approval by an authorized official evidencing prior consent. (x) Program income means gross income earned by the recipient that is directly generated by a supported activity or earned as a result of the award (see exclusions in paragraphs ___.24 (e) and (h)). Program income includes, but is not limited to, income from fees for services performed, the use or rental of real or personal property acquired under federally-funded projects, the sale of commodities or items fabricated under an award, license fees and royalties on patents and copyrights, and interest on loans made with award funds. Interest earned on advances of Federal funds is not program income. Except as otherwise provided in Federal awarding agency regulations or the terms and conditions of the award, program income does not include the receipt of principal on loans, rebates, credits, discounts, etc., or interest earned on any of them. (y) Project costs means all allowable costs, as set forth in the applicable Federal cost principles, incurred by a recipient and the value of the contributions made by third parties in accomplishing the objectives of the award during the project period. (z) Project period means the period established in the award document during which Federal sponsorship begins and ends. (aa) Property means, unless otherwise stated, real property, equipment, intangible property and debt instruments. (bb) Real property means land, including land improvements, structures and appurtenances thereto, but excludes movable machinery and equipment. (cc) Recipient means an organization receiving financial assistance directly from Federal awarding agencies to carry out a project or program. The term includes public and private institutions of higher education, public and private hospitals, and other quasi-public and private non-profit organizations such as, but not limited to, community action agencies, research institutes, educational associations, and health centers. The term may include commercial organizations, foreign or international organizations (such as agencies of the United Nations) which are recipients, subrecipients, or contractors or subcontractors of recipients or subrecipients at the discretion of the Federal awarding agency. The term does not include government-owned contractor-operated facilities or research centers providing continued support for mission-oriented, large-scale programs that are government-owned or controlled, or are designated as federally-funded research and development centers. (dd) Research and development means all research activities, both basic and applied, and all development activities that are supported at universities, colleges, and other non-profit institutions. "Research" is defined as a systematic study directed toward fuller scientific knowledge or understanding of the subject studied. "Development" is the systematic use of knowledge and understanding gained from research directed toward the production of useful materials, devices, systems, or methods, including design and development of prototypes and processes. The term research also includes activities involving the training of individuals in research techniques where such activities utilize the same facilities as other research and development activities and where such activities are not included in the instruction function. (ee) Small awards means a grant or cooperative agreement not exceeding the small purchase threshold fixed at 41 U.S.C. 403(11) (currently $25,000). (ff) Subaward means an award of financial assistance in the form of money, or property in lieu of money, made under an award by a recipient to an eligible subrecipient or by a subrecipient to a lower tier subrecipient. The term includes financial assistance when provided by any legal agreement, even if the agreement is called a contract, but does not include procurement of goods and services nor does it include any form of assistance which is excluded from the definition of "award" in paragraph ___(e). (gg) Subrecipient means the legal entity to which a subaward is made and which is accountable to the recipient for the use of the funds provided. The term may include foreign or international organizations (such as agencies of the United Nations) at the discretion of the Federal awarding agency. (hh) Supplies means all personal property excluding equipment, intangible property, and debt instruments as defined in this section, and inventions of a contractor conceived or first actually reduced to practice in the performance of work under a funding agreement ("subject inventions"), as defined in 37 CFR part 401, "Rights to Inventions Made by Nonprofit Organizations and Small Business Firms Under Government Grants, Contracts, and Cooperative Agreements." (ii) Suspension means an action by a Federal awarding agency that temporarily withdraws Federal sponsorship under an award, pending corrective action by the recipient or pending a decision to terminate the award by the Federal awarding agency. Suspension of an award is a separate action from suspension under Federal agency regulations implementing E.O.s 12549 and 12689, "Debarment and Suspension." (jj) Termination means the cancellation of Federal sponsorship, in whole or in part, under an agreement at any time prior to the date of completion. (kk) Third party in-kind contributions means the value of non-cash contributions provided by non-Federal third parties. Third party in-kind contributions may be in the form of real property, equipment, supplies and other expendable property, and the value of goods and services directly benefiting and specifically identifiable to the project or program. (ll) Unliquidated obligations, for financial reports prepared on a cash basis, means the amount of obligations incurred by the recipient that have not been paid. For reports prepared on an accrued expenditure basis, they represent the amount of obligations incurred by the recipient for which an outlay has not been recorded. (mm) Unobligated balance means the portion of the funds authorized by the Federal awarding agency that has not been obligated by the recipient and is determined by deducting the cumulative obligations from the cumulative funds authorized. (nn) Unrecovered indirect cost means the difference between the amount awarded and the amount which could have been awarded under the recipient's approved negotiated indirect cost rate. (oo) Working capital advance means a procedure where by funds are advanced to the recipient to cover its estimated disbursement needs for a given initial period. ___.3 Effect on other issuances. For awards subject to this Circular, all administrative requirements of codified program regulations, program manuals, handbooks and other nonregulatory materials which are inconsistent with the requirements of this Circular shall be superseded, except to the extent they are required by statute, or authorized in accordance with the deviations provision in Section ___.4. ___.4 Deviations. The Office of Management and Budget (OMB) may grant exceptions for classes of grants or recipients subject to the requirements of this Circular when exceptions are not prohibited by statute. However, in the interest of maximum uniformity, exceptions from the requirements of this Circular shall be permitted only in unusual circumstances. Federal awarding agencies may apply more restrictive requirements to a class of recipients when approved by OMB. Federal awarding agencies may apply less restrictive requirements when awarding small awards, except for those requirements which are statutory. Exceptions on a case-by-case basis may also be made by Federal awarding agencies. ___.5 Subawards. Unless sections of this Circular specifically exclude subrecipients from coverage, the provisions of this Circular shall be applied to subrecipients performing work under awards if such subrecipients are institutions of higher education, hospitals or other non-profit organizations. State and local government subrecipients are subject to the provisions of regulations implementing the grants management common rule,"Uniform Administrative Requirements for Grants and Cooperative Agreements to State and Local Governments," published at 53 FR 8034 (3/11/88). Subpart B - Pre-Award Requirements ___.10 Purpose. Sections ___.11 through ___.17 prescribes forms and instructions and other pre-award matters to be used in applying for Federal awards. ___.11 Pre-award policies. (a) Use of Grants and Cooperative Agreements, and Contracts. In each instance, the Federal awarding agency shall decide on the appropriate award instrument (i.e., grant, cooperative agreement, or contract). The Federal Grant and Cooperative Agreement Act (31 U.S.C. 6301-08) governs the use of grants, cooperative agreements and contracts. A grant or cooperative agreement shall be used only when the principal purpose of a transaction is to accomplish a public purpose of support or stimulation authorized by 62996 Federal Register / Vol. 58, No. 227 / Monday, November 29, 1993 / Notices ================================================================================ Federal statute. The statutory criterion for choosing between grants and cooperative agreements is that for the latter, "substantial involvement is expected between the executive agency and the State, local government, or other recipient when carrying out the activity contemplated in the agreement." Contracts shall be used when the principal purpose is acquisition of property or services for the direct benefit or use of the Federal Government. (b) Public Notice and Priority Setting. Federal awarding agencies shall notify the public of its intended funding priorities for discretionary grant programs, unless funding priorities are established by Federal statute. ___.12 Forms for applying for Federal assistance. (a) Federal awarding agencies shall comply with the applicable report clearance requirements of 5 CFR part 1320, "Controlling Paperwork Burdens on the Public," with regard to all forms used by the Federal awarding agency in place of or as a supplement to the Standard Form 424 (SF-424) series. (b) Applicants shall use the SF-424 series or those forms and instructions prescribed by the Federal awarding agency. (c) For Federal programs covered by E.O. 12372, "Intergovernmental Review of Federal Programs," the applicant shall complete the appropriate sections of the SF-424 (Application for Federal Assistance) indicating whether the application was subject to review by the State Single Point of Contact (SPOC). The name and address of the SPOC for a particular State can be obtained from the Federal awarding agency or the Catalog of Federal Domestic Assistance. The SPOC shall advise the applicant whether the program for which application is made has been selected by that State for review. (d) Federal awarding agencies that do not use the SF-424 form should indicate whether the application is subject to review by the State under E.O. 12372. ___.13 Debarment and suspension. Federal awarding agencies and recipients shall comply with the nonprocurement debarment and suspension common rule implementing E.O.s 12549 and 12689, "Debarment and Suspension." This common rule restricts subawards and contracts with certain parties that are debarred, suspended or otherwise excluded from or ineligible for participation in Federal assistance programs or activities. ___.14 Special award conditions. If an applicant or recipient: (a) has a history of poor performance, (b) is not financially stable, (c) has a management system that does not meet the standards prescribed in this Circular, (d) has not conformed to the terms and conditions of a previous award, or (e) is not otherwise responsible, Federal awarding agencies may impose additional requirements as needed, provided that such applicant or recipient is notified in writing as to: the nature of the additional requirements, the reason why the additional requirements are being imposed, the nature of the corrective action needed, the time allowed for completing the corrective actions, and the method for requesting reconsideration of the additional requirements imposed. Any special conditions shall be promptly removed once the conditions that prompted them have been corrected. ___.15 Metric system of measurement. The Metric Conversion Act, as amended by the Omnibus Trade and Competitiveness Act (15 U.S.C. 205) declares that the metric system is the preferred measurement system for U.S. trade and commerce. The Act requires each Federal agency to establish a date or dates in consultation with the Secretary of Commerce, when the metric system of measurement will be used in the agency's procurements, grants, and other business-related activities. Metric implementation may take longer where the use of the system is initially impractical or likely to cause significant inefficiencies in the accomplishment of federally-funded activities. Federal awarding agencies shall follow the provisions of E.O. 12770, "Metric Usage in Federal Government Programs." ___.16 Resource Conservation and Recovery Act (RCRA) (Pub. L. 94-580 codified at 42 U.S.C. 6962). Under the Act, any State agency or agency of a political subdivision of a State which is using appropriated Federal funds must comply with Section 6002. Section 6002 requires that preference be given in procurement programs to the purchase of specific products containing recycled materials identified in guidelines developed by the Environmental Protection Agency (EPA) (40 CFR parts 247-254). Accordingly, State and local institutions of higher education, hospitals, and non-profit organizations that receive direct Federal awards or other Federal funds shall give preference in their procurement programs funded with Federal funds to the purchase of recycled products pursuant to the EPA guidelines. ___.17 Certifications and representations. Unless prohibited by statute or codified regulation, each Federal awarding agency is authorized and encouraged to allow recipients to submit certifications and representations required by statute, executive order, or regulation on an annual basis, if the recipients have ongoing and continuing relationships with the agency. Annual certifications and representations shall be signed by responsible officials with the authority to ensure recipients' compliance with the pertinent requirements. Subpart C - Post-Award Requirements Financial and Program Management ___.20 Purpose of financial and program management. Sections ___.21 through ___.28 prescribe standards for financial management systems, methods for making payments and rules for: satisfying cost sharing and matching requirements, accounting for program income, budget revision approvals, making audits, determining allowability of cost, and establishing fund availability. ___.21 Standards for financial management systems. (a) Federal awarding agencies shall require recipients to relate financial data to performance data and develop unit cost information whenever practical. (b) Recipients' financial management systems shall provide for the following. (1) Accurate, current and complete disclosure of the financial results of each federally-sponsored project or program in accordance with the reporting requirements set forth in Section ___.52. If a Federal awarding agency requires reporting on an accrual basis from a recipient that maintains its records on other than an accrual basis, the recipient shall not be required to establish an accrual accounting system. These recipients may develop such accrual data for its reports on the basis of an analysis of the documentation on hand. (2) Records that identify adequately the source and application of funds for federally-sponsored activities. These records shall contain information pertaining to Federal awards, authorizations, obligations, unobligated balances, assets, outlays, income and interest. (3) Effective control over and accountability for all funds, property and other assets. Recipients shall adequately safeguard all such assets and assure they are used solely for authorized purposes. (4) Comparison of outlays with budget amounts for each award. Whenever appropriate, financial information should be related to performance and unit cost data. (5) Written procedures to minimize the time elapsing between the transfer of funds to the recipient from the U.S. Treasury and the issuance or redemption of checks, warrants or payments by other means for program purposes by the recipient. To the extent that the provisions of the Cash Management Improvement Act (CMIA) (Pub. L. 101-453) govern, payment methods of State agencies, instrumentalities, and fiscal agents shall be consistent with CMIA Treasury-State Agreements or the CMIA default procedures codified at 31 CFR part 205, "Withdrawal of Cash from the Treasury for Advances under Federal Grant and Other Programs." (6) Written procedures for determining the reasonableness, allocability and allowability of costs in accordance with the provisions of the applicable Federal cost principles and the terms and conditions of the award. (7) Accounting records including cost accounting records that are supported by source documentation. (c) Where the Federal Government guarantees or insures the repayment of money borrowed by the recipient, the Federal awarding agency, at its discretion, may require adequate bonding and insurance if the bonding and insurance requirements of the recipient are not deemed adequate to protect the interest of the Federal Government. (d) The Federal awarding agency may require adequate fidelity bond coverage where the recipient lacks sufficient coverage to protect the Federal Government's interest. (e) Where bonds are required in the situations described above, the bonds shall be obtained from companies holding certificates of authority as acceptable sureties, as prescribed in 31 CFR part 223, "Surety Companies Doing Business with the United States." ___.22 Payment. (a) Payment methods shall minimize the time elapsing between the transfer of funds Federal Register / Vol. 58, No. 227 / Monday, November 29, 1993 / Notices 62997 ================================================================================ from the United States Treasury and the issuance or redemption of checks, warrants, or payment by other means by the recipients. Payment methods of State agencies or instrumentalities shall be consistent with Treasury-State CMIA agreements or default procedures codified at 31 CFR part 205. (b) Recipients are to be paid in advance, provided they maintain or demonstrate the willingness to maintain: (1) written procedures that minimize the time elapsing between the transfer of funds and disbursement by the recipient, and (2) financial management systems that meet the standards for fund control and accountability as established in Section ___.21. Cash advances to a recipient organization shall be limited to the minimum amounts needed and be timed to be in accordance with the actual, immediate cash requirements of the recipient organization in carrying out the purpose of the approved program or project. The timing and amount of cash advances shall be as close as is administratively feasible to the actual disbursements by the recipient organization for direct program or project costs and the proportionate share of any allowable indirect costs. (c) Whenever possible, advances shall be consolidated to cover anticipated cash needs for all awards made by the Federal awarding agency to the recipient. (1) Advance payment mechanisms include, but are not limited to, Treasury check and electronic funds transfer. (2) Advance payment mechanisms are subject to 31 CFR part 205. (3) Recipients shall be authorized to submit requests for advances and reimbursements at least monthly when electronic fund transfers are not used. (d) Requests for Treasury check advance payment shall be submitted on SF-270, "Request for Advance or Reimbursement," or other forms as may be authorized by OMB. This form is not to be used when Treasury check advance payments are made to the recipient automatically through the use of a predetermined payment schedule or if precluded by special Federal awarding agency instructions for electronic funds transfer. (e) Reimbursement is the preferred method when the requirements in paragraph (b) cannot be met. Federal awarding agencies may also use this method on any construction agreement, or if the major portion of the construction project is accomplished through private market financing or Federal loans, and the Federal assistance constitutes a minor portion of the project. (1) When the reimbursement method is used, the Federal awarding agency shall make payment within 30 days after receipt of the billing, unless the billing is improper. (2) Recipients shall be authorized to submit request for reimbursement at least monthly when electronic funds transfers are not used. (f) If a recipient cannot meet the criteria for advance payments and the Federal awarding agency has determined that reimbursement is not feasible because the recipient lacks sufficient working capital, the Federal awarding agency may provide cash on a working capital advance basis. Under this procedure, the Federal awarding agency shall advance cash to the recipient to cover its estimated disbursement needs for an initial period generally geared to the awardee's disbursing cycle. Thereafter, the Federal awarding agency shall reimburse the recipient for its actual cash disbursements. The working capital advance method of payment shall not be used for recipients unwilling or unable to provide timely advances to their subrecipient to meet the subrecipient's actual cash disbursements. (g) To the extent available, recipients shall disburse funds available from repayments to and interest earned on a revolving fund, program income, rebates, refunds, contract settlements, audit recoveries and interest earned on such funds before requesting additional cash payments. (h) Unless otherwise required by statute, Federal awarding agencies shall not withhold payments for proper charges made by recipients at any time during the project period unless (1) or (2) apply. (1) A recipient has failed to comply with the project objectives, the terms and conditions of the award, or Federal reporting requirements. (2) The recipient or subrecipient is delinquent in a debt to the United States as defined in OMB Circular A-129, "Managing Federal Credit Programs." Under such conditions, the Federal awarding agency may, upon reasonable notice, inform the recipient that payments shall not be made for obligations incurred after a specified date until the conditions are corrected or the indebtedness to the Federal Government is liquidated. (i) Standards governing the use of banks and other institutions as depositories of funds advanced under awards are as follows. (1) Except for situations described in paragraph (i)(2), Federal awarding agencies shall not require separate depository accounts for funds provided to a recipient or establish any eligibility requirements for depositories for funds provided to a recipient. However, recipients must be able to account for the receipt, obligation and expenditure of funds. (2) Advances of Federal funds shall be deposited and maintained in insured accounts whenever possible. (j) Consistent with the national goal of expanding the opportunities for women-owned and minority-owned business enterprises, recipients shall be encouraged to use women-owned and minority-owned banks (a bank which is owned at least 50 percent by women or minority group members). (k) Recipients shall maintain advances of Federal funds in interest bearing accounts, unless (1), (2) or (3) apply. (1) The recipient receives less than $120,000 in Federal awards per year. (2) The best reasonably available interest bearing account would not be expected to earn interest in excess of $250 per year on Federal cash balances. (3) The depository would require an average or minimum balance so high that it would not be feasible within the expected Federal and non-Federal cash resources. (l) For those entities where CMIA and its implementing regulations do not apply, interest earned on Federal advances deposited in interest bearing accounts shall be remitted annually to Department of Health and Human Services, Payment Management System, Rockville, MD 20852. Interest amounts up to $250 per year may be retained by the recipient for administrative expense. State universities and hospitals shall comply with CMIA, as it pertains to interest. If an entity subject to CMIA uses its own funds to pay pre-award costs for discretionary awards without prior written approval from the Federal awarding agency, it waives its right to recover the interest under CMIA. (m) Except as noted elsewhere in this Circular, only the following forms shall be authorized for the recipients in requesting advances and reimbursements. Federal agencies shall not require more than an original and two copies of these forms. (1) SF-270, Request for Advance or Reimbursement. Each Federal awarding agency shall adopt the SF-270 as a standard form for all nonconstruction programs when electronic funds transfer or predetermined advance methods are not used. Federal awarding agencies, however, have the option of using this form for construction programs in lieu of the SF-271, "Outlay Report and Request for Reimbursement for Construction Programs." (2) SF-271, Outlay Report and Request for Reimbursement for Construction Programs. Each Federal awarding agency shall adopt the SF-271 as the standard form to be used for requesting reimbursement for construction programs. However, a Federal awarding agency may substitute the SF-270 when the Federal awarding agency determines that it provides adequate information to meet Federal needs. ___.23 Cost sharing or matching. (a) All contributions, including cash and third party in-kind, shall be accepted as part of the recipient's cost sharing or matching when such contributions meet all of the following criteria. (1) Are verifiable from the recipient's records. (2) Are not included as contributions for any other federally-assisted project or program. (3) Are necessary and reasonable for proper and efficient accomplishment of project or program objectives. (4) Are allowable under the applicable cost principles. (5) Are not paid by the Federal Government under another award, except where authorized by Federal statute to be used for cost sharing or matching. (6) Are provided for in the approved budget when required by the Federal awarding agency. (7) Conform to other provisions of this Circular, as applicable. (b) Unrecovered indirect costs may be included as part of cost sharing or matching only with the prior approval of the Federal awarding agency. (c) Values for recipient contributions of services and property shall be established in accordance with the applicable cost principles. If a Federal awarding agency authorizes recipients to donate buildings or land for construction/facilities acquisition 62998 Federal Register / Vol. 58, No. 227 / Monday, November 29, 1993 / Notices ================================================================================ projects or long-term use, the value of the donated property for cost sharing or matching shall be the lesser of (1) or (2). (1) The certified value of the remaining life of the property recorded in the recipient's accounting records at the time of donation. (2) The current fair market value. However, when there is sufficient justification, the Federal awarding agency may approve the use of the current fair market value of the donated property, even if it exceeds the certified value at the time of donation to the project. (d) Volunteer services furnished by professional and technical personnel, consultants, and other skilled and unskilled labor may be counted as cost sharing or matching if the service is an integral and necessary part of an approved project or program. Rates for volunteer services shall be consistent with those paid for similar work in the recipient's organization. In those instances in which the required skills are not found in the recipient organization, rates shall be consistent with those paid for similar work in the labor market in which the recipient competes for the kind of services involved. In either case, paid fringe benefits that are reasonable, allowable, and allocable may be included in the valuation. (e) When an employer other than the recipient furnishes the services of an employee, these services shall be valued at the employee's regular rate of pay (plus an amount of fringe benefits that are reasonable, allowable, and allocable, but exclusive of overhead costs), provided these services are in the same skill for which the employee is normally paid. (f) Donated supplies may include such items as expendable equipment, office supplies, laboratory supplies or workshop and classroom supplies. Value assessed to donated supplies included in the cost sharing or matching share shall be reasonable and shall not exceed the fair market value of the property at the time of the donation. (g) The method used for determining cost sharing or matching for donated equipment, buildings and land for which title passes to the recipient may differ according to the purpose of the award, if (1) or (2) apply. (1) If the purpose of the award is to assist the recipient in the acquisition of equipment, buildings or land, the total value of the donated property may be claimed as cost sharing or matching. (2) If the purpose of the award is to support activities that require the use of equipment, buildings or land, normally only depreciation or use charges for equipment and buildings may be made. However, the full value of equipment or other capital assets and fair rental charges for land may be allowed, provided that the Federal awarding agency has approved the charges. (h) The value of donated property shall be determined in accordance with the usual accounting policies of the recipient, with the following qualifications. (1) The value of donated land and buildings shall not exceed its fair market value at the time of donation to the recipient as established by an independent appraiser (e.g., certified real property appraiser or General Services Administration representative) and certified by a responsible official of the recipient. (2) The value of donated equipment shall not exceed the fair market value of equipment of the same age and condition at the time of donation. (3) The value of donated space shall not exceed the fair rental value of comparable space as established by an independent appraisal of comparable space and facilities in a privately-owned building in the same locality. (4) The value of loaned equipment shall not exceed its fair rental value. (5) The following requirements pertain to the recipient's supporting records for in-kind contributions from third parties. (i) Volunteer services shall be documented and, to the extent feasible, supported by the same methods used by the recipient for its own employees. (ii) The basis for determining the valuation for personal service, material, equipment, buildings and land shall be documented. ___.24 Program income. (a) Federal awarding agencies shall apply the standards set forth in this section in requiring recipient organizations to account for program income related to projects financed in whole or in part with Federal funds. (b) Except as provided in paragraph (h) below, program income earned during the project period shall be retained by the recipient and, in accordance with Federal awarding agency regulations or the terms and conditions of the award, shall be used in one or more of the ways listed in the following. (1) Added to funds committed to the project by the Federal awarding agency and recipient and used to further eligible project or program objectives. (2) Used to finance the non-Federal share of the project or program. (3) Deducted from the total project or program allowable cost in determining the net allowable costs on which the Federal share of costs is based. (c) When an agency authorizes the disposition of program income as described in paragraphs (b)(1) or (b)(2), program income in excess of any limits stipulated shall be used in accordance with paragraph (b)(3). (d) In the event that the Federal awarding agency does not specify in its regulations or the terms and conditions of the award how program income is to be used, paragraph (b)(3) shall apply automatically to all projects or programs except research. For awards that support research, paragraph (b)(1) shall apply automatically unless the awarding agency indicates in the terms and conditions another alternative on the award or the recipient is subject to special award conditions, as indicated in Section ___.14. (e) Unless Federal awarding agency regulations or the terms and conditions of the award provide otherwise, recipients shall have no obligation to the Federal Government regarding program income earned after the end of the project period. (f) If authorized by Federal awarding agency regulations or the terms and conditions of the award, costs incident to the generation of program income may be deducted from gross income to determine program income, provided these costs have not been charged to the award. (g) Proceeds from the sale of property shall be handled in accordance with the requirements of the Property Standards (See Sections ___.30 through ___.37). (h) Unless Federal awarding agency regulations or the terms and condition of the award provide otherwise, recipients shall have no obligation to the Federal Government with respect to program income earned from license fees and royalties for copyrighted material, patents, patent applications, trademarks, and inventions produced under an award. However, Patent and Trademark Amendments (35 U.S.C. 18) apply to inventions made under an experimental, developmental, or research award. ___.25 Revision of budget and program plans. (a) The budget plan is the financial expression of the project or program as approved during the award process. It may include either the Federal and non-Federal share, or only the Federal share, depending upon Federal awarding agency requirements. It shall be related to performance for program evaluation purposes whenever appropriate. (b) Recipients are required to report deviations from budget and program plans, and request prior approvals for budget and program plan revisions, in accordance with this section. (c) For nonconstruction awards, recipients shall request prior approvals from Federal awarding agencies for one or more of the following program or budget related reasons. (1) Change in the scope or the objective of the project or program (even if there is no associated budget revision requiring prior written approval). (2) Change in a key person specified in the application or award document. (3) The absence for more than three months, or a 25 percent reduction in time devoted to the project, by the approved project director or principal investigator. (4) The need for additional Federal funding. (5) The transfer of amounts budgeted for indirect costs to absorb increases in direct costs, or vice versa, if approval is required by the Federal awarding agency. (6) The inclusion, unless waived by the Federal awarding agency, of costs that require prior approval in accordance with OMB Circular A-21, "Cost Principles for Educational Institutions," OMB Circular A-122, "Cost Principles for Non-Profit Organizations," or 45 CFR part 74 Appendix E, "Principles for Determining Costs Applicable to Research and Development under Grants and Contracts with Hospitals," or 48 CFR part 31, "Contract Cost Principles and Procedures," as applicable. (7) The transfer of funds allotted for training allowances (direct payment to trainees) to other categories of expense. (8) Unless described in the application and funded in the approved awards, the subaward, transfer or contracting out of any work under an award. This provision does not apply to the purchase of supplies, material, equipment or general support services. Federal Register / Vol. 58, No. 227 / Monday, November 29, 1993 / Notices 63005 ================================================================================ the Federal awarding agency shall retain the right to recover an appropriate amount after fully considering the recommendations on disallowed costs resulting from the final audit. ___.72 Subsequent adjustments and continuing responsibilities. (a) The closeout of an award does not affect any of the following. (1) The right of the Federal awarding agency to disallow costs and recover funds on the basis of a later audit or other review. (2) The obligation of the recipient to return any funds due as a result of later refunds, corrections, or other transactions. (3) Audit requirements in Section ___.26. (4) Property management requirements in Sections ___.31 through ___.37. (5) Records retention as required in Section ___.53. (b) After closeout of an award, a relationship created under an award may be modified or ended in whole or in part with the consent of the Federal awarding agency and the recipient, provided the responsibilities of the recipient referred to in paragraph ___.73(a), including those for property management as applicable, are considered and provisions made for continuing responsibilities of the recipient, as appropriate. ___.73 Collection of amounts due. (a) Any funds paid to a recipient in excess of the amount to which the recipient is finally determined to be entitled under the terms and conditions of the award constitute a debt to the Federal Government. If not paid within a reasonable period after the demand for payment, the Federal awarding agency may reduce the debt by (1), (2) or (3). (1) Making an administrative offset against other requests for reimbursements. (2) Withholding advance payments otherwise due to the recipient. (3) Taking other action permitted by statute. (b) Except as otherwise provided by law, the Federal awarding agency shall charge interest on an overdue debt in accordance with 4 CFR Chapter II, "Federal Claims Collection Standards." Appendix A - Contract Provisions All contracts, awarded by a recipient including small purchases, shall contain the following provisions as applicable: 1. Equal Employment Opportunity - All contracts shall contain a provision requiring compliance with E.O. 11246, "Equal Employment Opportunity," as amended by E.O. 11375, "Amending Executive Order 11246 Relating to Equal Employment Opportunity," and as supplemented by regulations at 41 CFR part 60, "Office of Federal Contract Compliance Programs, Equal Employment Opportunity, Department of Labor." 2. Copeland "Anti-Kickback" Act (18 U.S.C. 874 and 40 U.S.C. 276c) - All contracts and subgrants in excess of $2000 for construction or repair awarded by recipients and subrecipients shall include a provision for compliance with the Copeland "Anti-Kickback" Act (18 U.S.C. 874), as supplemented by Department of Labor regulations (29 CFR part 3, "Contractors and Subcontractors on Public Building or Public Work Financed in Whole or in Part by Loans or Grants from the United States"). The Act provides that each contractor or subrecipient shall be prohibited from inducing, by any means, any person employed in the construction, completion, or repair of public work, to give up any part of the compensation to which he is otherwise entitled. The recipient shall report all suspected or reported violations to the Federal awarding agency. 3. Davis-Bacon Act, as amended (40 U.S.C. 276a to a-7) - When required by Federal program legislation, all construction contracts awarded by the recipients and subrecipients of more than $2000 shall include a provision for compliance with the Davis-Bacon Act (40 U.S.C. 276a to a-7) and as supplemented by Department of Labor regulations (29 CFR part 5, "Labor Standards Provisions Applicable to Contracts Governing Federally Financed and Assisted Construction"). Under this Act, contractors shall be required to pay wages to laborers and mechanics at a rate not less than the minimum wages specified in a wage determination made by the Secretary of Labor. In addition, contractors shall be required to pay wages not less than once a week. The recipient shall place a copy of the current prevailing wage determination issued by the Department of Labor in each solicitation and the award of a contract shall be conditioned upon the acceptance of the wage determination. The recipient shall report all suspected or reported violations to the Federal awarding agency. 4. Contract Work Hours and Safety Standards Act (40 U.S.C. 327-333) - Where applicable, all contracts awarded by recipients in excess of $2000 for construction contracts and in excess of $2500 for other contracts that involve the employment of mechanics or laborers shall include a provision for compliance with Sections 102 and 107 of the Contract Work Hours and Safety Standards Act (40 U.S.C. 327-333), as supplemented by Department of Labor regulations (29 CFR part 5). Under Section 102 of the Act, each contractor shall be required to compute the wages of every mechanic and laborer on the basis of a standard work week of 40 hours. Work in excess of the standard work week is permissible provided that the worker is compensated at a rate of not less than 1 1/2 times the basic rate of pay for all hours worked in excess of 40 hours in the work week. Section 107 of the Act is applicable to construction work and provides that no laborer or mechanic shall be required to work in surroundings or under working conditions which are unsanitary, hazardous or dangerous. These requirements do not apply to the purchases of supplies or materials or articles ordinarily available on the open market, or contracts for transportation or transmission of intelligence. 5. Rights to Inventions Made Under a Contract or Agreement - Contracts or agreements for the performance of experimental, developmental, or research work shall provide for the rights of the Federal Government and the recipient in any resulting invention in accordance with 37 CFR part 401, "Rights to Inventions Made by Nonprofit Organizations and Small Business Firms Under Government Grants, Contracts and Cooperative Agreements," and any implementing regulations issued by the awarding agency. 6. Clean Air Act (42 U.S.C. 7401 et seq.) and the Federal Water Pollution Control Act (33 U.S.C. 1251 et seq.), as amended - Contracts and subgrants of amounts in excess of $100,000 shall contain a provision that requires the recipient to agree to comply with all applicable standards, orders or regulations issued pursuant to the Clean Air Act (42 U.S.C. 7401 et seq.) and the Federal Water Pollution Control Act as amended (33 U.S.C. 1251 et seq.). Violations shall be reported to the Federal awarding agency and the Regional Office of the Environmental Protection Agency (EPA). 7. Byrd Anti-Lobbying Amendment (31 U.S.C. 1352) - Contractors who apply or bid for an award of $100,000 or more shall file the required certification. Each tier certifies to the tier above that it will not and has not used Federal appropriated funds to pay any person or organization for influencing or attempting to influence an officer or employee of any agency, a member of Congress, officer or employee of Congress, or an employee of a member of Congress in connection with obtaining any Federal contract, grant or any other award covered by 31 U.S.C. 1352. Each tier shall also disclose any lobbying with non-Federal funds that takes place in connection with obtaining any Federal award. Such disclosures are forwarded from tier to tier up to the recipient. 8. Debarment and Suspension (E.O.s 12549 and 12689) - No contract shall be made to parties listed on the General Services Administration's List of Parties Excluded from Federal Procurement or Nonprocurement Programs in accordance with E.O.s 12549 and 12689, "Debarment and Suspension." This list contains the names of parties debarred, suspended, or otherwise excluded by agencies, and contractors declared ineligible under statutory or regulatory authority other than E.O. 12549. Contractors with awards that exceed the small purchase threshold shall provide the required certification regarding its exclusion status and that of its principal employees. [FR Doc. 93-29077 Filed 11-26-93; 8:45 am] BILLING CODE 3110-01-P FAC 97-02 OCTOBER 10, 1997 PART 31--CONTRACT COST PRINCIPLES AND PROCEDURES Sec. 31.000 Scope of part. 31.001 Definitions. 31.002 Availability of accounting guide. Subpart 31.1--Applicability 31.100 Scope of subpart. 31.101 Objectives. 31.102 Fixed-price contracts. 31.103 Contracts with commercial organizations. 31.104 Contracts with educational institutions. 31.105 Construction and architect-engineer contracts. 31.106 Facilities contracts. 31.106-1 Applicable cost principles. 31.106-2 Exceptions to general rules on allowability and allocability. 31.106-3 Contractor's commercial items. 31.107 Contracts with State, local, and federally recognized Indian tribal governments. 31.108 Contracts with nonprofit organizations. 31.109 Advance agreements. 31.110 Indirect cost rate certification and penalties on unallowable costs. Subpart 31.2--Contracts with Commercial Organizations 31.201 General. 31.201-1 Composition of total cost. 31.201-2 Determining allowability. 31.201-3 Determining reasonableness. 31.201-4 Determining allocability. 31.201-5 Credits. 31.201-6 Accounting for unallowable costs. 31.201-7 Construction and architect-engineer contracts. 31.202 Direct costs. 31.203 Indirect costs. 31.204 Application of principles and procedures. 31.205 Selected costs. 31.205-1 Public relations and advertising costs. 31.205-2 [Reserved] 31.205-3 Bad debts. 31.205-4 Bonding costs. 31.205-5 Civil defense costs. 31.205-6 Compensation for personal services. 31.205-7 Contingencies. 31.205-8 Contributions or donations. 31.205-9 [Reserved] 31.205-10 Cost of money. 31.205-11 Depreciation. 31.205-12 Economic planning costs. 31.205-13 Employee morale, health, welfare, food service, and dormitory costs and credits. 31.205-14 Entertainment costs. 31.205-15 Fines, penalties, and mischarging costs. 31.205-16 Gains and losses on disposition or impairment of depreciable property or other capital assets. 31.205-17 Idle facilities and idle capacity costs. 31.205-18 Independent research and development and bid and proposal costs. 31.205-19 Insurance and indemnification. 31.205-20 Interest and other financial costs. 31.205-21 Labor relations costs. 31.205-22 Lobbying and political activity costs. 31.205-23 Losses on other contracts. 31.205-24 Maintenance and repair costs. 31.205-25 Manufacturing and production engineering costs. 31.205-26 Material costs. 31.205-27 Organization costs. 31.205-28 Other business expenses. 31.205-29 Plant protection costs. 31.205-30 Patent costs. 31.205-31 Plant reconversion costs. 31.205-32 Precontract costs. 31.205-33 Professional and consultant service costs. 31.205-34 Recruitment costs. 31.205-35 Relocation costs. 31.205-36 Rental costs. 31.205-37 Royalties and other costs for use of patents. 31.205-38 Selling costs. 31.205-39 Service and warranty costs. 31.205-40 Special tooling and special test equipment costs. 31.205-41 Taxes. 31.205-42 Termination costs. 31.205-43 Trade, business, technical, and professional activity costs. 31.205-44 Training and education costs. 31.205-45 Transportation costs. 31.205-46 Travel costs. 31.205-47 Costs related to legal and other proceedings. 31.205-48 Deferred research and development costs. 31.205-49 Goodwill. 31.205-50 [Reserved] 31.205-51 Costs of alcoholic beverages. 31.205-52 Asset valuations resulting from business combinations. Subpart 31.3--Contracts with Educational Institutions 31.301 Purpose. 31.302 General. 31.303 Requirements. Subparts 31.4 and 31.5--[Reserved] Subpart 31.6--Contracts with State, Local, and Federally Recognized Indian Tribal Governments 31.601 Purpose. 31.602 General. 31.603 Requirements. Subpart 31.7--Contracts with Nonprofit Organizations 31.701 Purpose. 31.702 General. 31.703 Requirements. 31.000 Scope of part. This part contains cost principles and procedures for-- (a) The pricing of contracts, subcontracts, and modifications to contracts and subcontracts whenever cost analysis is performed (see 15.404-1(c)), and 31-1 31.001 FEDERAL ACQUISITION REGULATION - -------------------------------------------------------------------------------- (b) The determination, negotiation, or allowance of costs when required by a contract clause. 31.001 Definitions. "Accrued benefit cost method" means an actuarial cost method under which units of benefit are assigned to each cost accounting period and are valued as they accrue; i.e., based on the services performed by each employee in the period involved. The measure of normal cost under this method for each cost accounting period is the present value of the units of benefit deemed to be credited to employees for service in that period. The measure of the actuarial liability at a plan's inception date is the present value of the units of benefit credited to employees for service prior to that date. (This method is also known as the unit credit cost method.) "Accumulating costs" means collecting cost data in an organized manner, such as through a system of accounts. "Actual cash value" means the cost of replacing damaged property with other property of like kind and quality in the physical condition of the property immediately before the damage. "Actual costs," as used in this part (other than Subpart 31.6), means amounts determined on the basis of costs incurred, as distinguished from forecasted costs. Actual costs include standard costs properly adjusted for applicable variances. "Actuarial assumption" means a prediction of future conditions affecting pension costs; e.g., mortality rate, employee turnover, compensation levels, pension fund earnings, and changes in values of pension funds assets. "Actuarial cost method" means a technique which uses actuarial assumptions to measure the present value of future pension benefits and pension fund administrative expenses, and which assigns the cost of such benefits and expenses to cost accounting periods. "Actuarial gain and loss" means the effect on pension cost resulting from differences between actuarial assumptions and actual experience. "Actuarial liability" means pension cost attributable, under the actuarial cost method in use, to years before the date of a particular actuarial valuation. As of such date, the actuarial liability represents the excess of the present value of the future benefits and administrative expenses over the present value of future contributions, for the normal cost for all plan participants and beneficiaries. The excess of the actuarial liability over the value of the assets of a pension plan is the unfunded actuarial liability. "Actuarial valuation" means the determination, as of a specified date, of the normal cost, actuarial liability, value of the assets of a pension fund, and other relevant values for the pension plan. "Allocate" means to assign an item of cost, or a group of items of cost, to one or more cost objectives. This term includes both direct assignment of cost and the reassignment of a share from an indirect cost pool. "Business unit" means any segment of an organization, or an entire business organization which is not divided into segments. "Compensated personal absence" means any absence from work for reasons such as illness, vacation, holidays, jury duty, military training, or personal activities for which an employer pays compensation directly to an employee in accordance with a plan or custom of the employer. "Cost input" means the cost, except general and administrative (G&A) expenses, which for contract costing purposes is allocable to the production of goods and services during a cost accounting period. "Cost objective," as used in this part (other than Subpart 31.6), means a function, organizational subdivision, contract, or other work unit for which cost data are desired and for which provision is made to accumulate and measure the cost of processes, products, jobs, capitalized projects, etc. "Cost of capital committed to facilities" means an imputed cost determined by applying a cost of money rate to facilities capital. "Deferred compensation" means an award made by an employer to compensate an employee in a future cost accounting period or periods for services rendered in one or more cost accounting periods before the date of the receipt of compensation by the employee. This definition shall not include the amount of year end accruals for salaries, wages, or bonuses that are to be paid within a reasonable period of time after the end of a cost accounting period. "Defined-benefit pension plan" means a pension plan in which the benefits to be paid, or the basis for determining such benefits, are established in advance and the contributions are intended to provide the stated benefits. "Defined-contribution pension plan" means a pension plan in which the contributions to be made are established in advance and the benefits are determined thereby. "Directly associated cost" means any cost which is generated solely as a result of the incurrence of another cost, and which would not have been incurred had the other cost not been incurred. "Estimating costs" means the process of forecasting a future result in terms of cost, based upon information available at the time. "Expressly unallowable cost" means a particular item or type of cost which, under the express provisions of an applicable law, regulation, or contract, is specifically named and stated to be unallowable. 31-2 (FAC 97-02) FAC 97-09 DECEMBER 29, 1998 PART 31--CONTRACT COST PRINCIPLES AND PROCEDURES 31.001 - -------------------------------------------------------------------------------- "Facilities capital" means the net book value of tangible capital assets and of those intangible capital assets that are subject to amortization. "Final cost objective" as used in this part (other than Subparts 31.3 and 31.6), means a cost objective that has allocated to it both direct and indirect costs and, in the contractor's accumulation system, is one of the final accumulation points. "Fiscal year" as used in this part, means the accounting period for which annual financial statements are regularly prepared, generally a period of 12 months, 52 weeks, or 53 weeks. "Funded pension cost" means the portion of pension cost for a current or prior cost accounting period that has been paid to a funding agency. "General and administrative (G&A) expense" means any management, financial, and other expense which is incurred by or allocated to a business unit and which is for the general management and administration of the business unit as a whole. G&A expense does not include those management expenses whose beneficial or causal relationship to cost objectives can be more directly measured by a base other than a cost input base representing the total activity of a business unit during a cost accounting period. "Home office" means an office responsible for directing or managing two or more, but not necessarily all, segments of an organization. It typically establishes policy for, and provides guidance to, the segments in their operations. It usually performs management, supervisory, or administrative functions, and may also perform service functions in support of the operations of the various segments. An organization which has intermediate levels, such as groups, may have several home offices which report to a common home office. An intermediate organization may be both a segment and a home office. "Immediate-gain actuarial cost method" means any of the several actuarial cost methods under which actuarial gains and losses are included as part of the unfunded actuarial liability of the pension plan, rather than as part of the normal cost of the plan. "Independent research and development (IR&D) cost" means the cost of effort which is neither sponsored by a grant, nor required in performing a contract, and which falls within any of the following four areas-- (a) Basic research, (b) Applied research, (c) Development, and (d) Systems and other concept formulation studies. "Indirect cost pools," as used in this part (other than Subparts 31.3 and 31.6), means groupings of incurred costs identified with two or more cost objectives but not identified specifically with any final cost objective. "Insurance administration expenses" means the contractor's costs of administering an insurance program; e.g., the costs of operating an insurance or risk-management department, processing claims, actuarial fees, and service fees paid to insurance companies, trustees, or technical consultants. "Intangible capital asset" means an asset that has no physical substance, has more than minimal value, and is expected to be held by an enterprise for continued use or possession beyond the current accounting period for the benefits it yields. "Job" as used in this part, means a homogeneous cluster of work tasks, the completion of which serves an enduring purpose for the organization. Taken as a whole, the collection of tasks, duties, and responsibilities constitutes the assignment for one or more individuals whose work is of the same nature and is performed at the same skill/responsibility level--as opposed to a position, which is a collection of tasks assigned to a specific individual. Within a job, there may be pay categories which are dependent on the degree of supervision required by the employee while performing assigned tasks which are performed by all persons with the same job. "Job class of employees" as used in this part, means employees performing in positions within the same job. "Labor cost at standard" means a preestablished measure of the labor element of cost, computed by multiplying labor-rate standard by labor-time standard. "Labor market," as used in this part, means a place where individuals exchange their labor for compensation. Labor markets are identified and defined by a combination of the following factors-- (1) Geography, (2) Education and/or technical background required, (3) Experience required by the job, (4) Licensing or certification requirements, (5) Occupational membership, and (6) Industry. "Labor-rate standard" means a preestablished measure, expressed in monetary terms, of the price of labor. "Labor-time standard" means a preestablished measure, expressed in temporal terms, of the quantity of labor. "Material cost at standard" means a preestablished measure of the material elements of cost, computed by multiplying material-price standard by material-quantity standard. "Material-price standard" means a preestablished measure, expressed in monetary terms, of the price of material. "Material-quantity standard" means a preestablished measure, expressed in physical terms, of the quantity of material. "Moving average cost" means an inventory costing method under which an average unit cost is computed after each acquisition by adding the cost of the newly acquired units to the cost of the units of inventory on hand and dividing this figure by the new total number of units. "Nonqualified pension plan" means any pension plan other than a qualified pension plan as defined in this part. "Normal cost" means the annual cost attributable, under the actuarial cost method in use, to current and future years 31-3 FAC 97-09 DECEMBER 29, 1998 31.001 FEDERAL ACQUISITION REGULATION - -------------------------------------------------------------------------------- as a particular valuation date excluding any payment in respect of an unfunded actuarial liability. "Original complement of low cost equipment" means a group of items acquired for the initial outfitting of a tangible capital asset or an operational unit, or a new addition to either. The items in the group individually cost less than the minimum amount established by the contractor for capitalization for the classes of assets acquired but in the aggregate they represent a material investment. The group, as a complement, is expected to be held for continued service beyond the current period. Initial outfitting of the unit is completed when the unit is ready and available for normal operations. "Pay-as-you-go cost method" means a method of recognizing pension cost only when benefits are paid to retired employees or their beneficiaries. "Pension plan" means a deferred compensation plan established and maintained by one or more employers to provide systematically for the payment of benefits to plan participants after their retirements, provided that the benefits are paid for life or are payable for life at the option of the employees. Additional benefits such as permanent and total disability and death payments, and survivorship payments to beneficiaries of deceased employees, may be an integral part of a pension plan. "Pension plan participant" means any employee or former employee of an employer or any member or former member of an employee organization, who is or may become eligible to receive a benefit from a pension plan which covers employees of such employer or members of such organization who have satisfied the plan's participation requirements, or whose beneficiaries are receiving or may be eligible to receive any such benefit. A participant whose employment status with the employer has not been terminated is an active participant of the employer's pension plan. "Pricing" means the process of establishing a reasonable amount or amounts to be paid for supplies or services. "Profit center," as used in this part (other than Subparts 31.3 and 31.6), means the smallest organizationally independent segment of a company charged by management with profit and loss responsibilities. "Projected average loss" means the estimated long-term average loss per period for periods of comparable exposure to risk of loss. "Projected benefit cost method" means either -- (1) Any of the several actuarial cost methods that distribute the estimated total cost of all of the employees' prospective benefits over a period of years, usually their working careers; or (2) A modification of the accrued benefit cost method that considers projected compensation levels. "Proposal" means any offer or other submission used as a basis for pricing a contract, contract modification, or termination settlement or for securing payments thereunder. "Qualified pension plan" means a pension plan comprising a definite written program communicated to and for the exclusive benefit of employees that meets the criteria deemed esstial by the Internal Revenue Service as set forth in the Internal Revenue Code for preferential tax treatment regarding contributions, investments, and distributions. Any other plan is a nonqualified pension plan. "Residual value" means the proceeds, less removal and disposal costs, if any, realized upon disposition of a tangible capital asset. It usually is measured by the net proceeds from the sale or other disposition of the asset, or its fair value if the asset is traded in on another asset. The estimated residual value is a current forecast of the residual value. "Segment" means one of two or more divisions, product departments, plants, or other subdivisions of an organization reporting directly to a home office, usually identified with responsibility for profit and/or producing a product or service. The term includes Government-owned contractor-operated (GOCO) facilities, and joint ventures and subsidiaries (domestic and foreign) in which the organization has a majority ownership. The term also includes those joint ventures and subsidiaries (domestic and foreign) in which the organization has less than a majority of ownership, but over which it exercises control. "Self-insurance" means the assumption or retention of the risk of loss by the contractor, whether voluntarily or involuntarily. Self-insurance includes the deductible portion of purchased insurance. "Self-insurance charge" means a cost which represents the projected average loss under a self-insurance plan. "Service life" means the period of usefulness of a tangible capital asset (or group of assets) to its current owner. The period may be expressed in units of time or output. The estimated service life of a tangible capital asset (or group of assets) is a current forecast of its service life and is the period over which depreciation cost is to be assigned. "Spread-gain actuarial cost method" means any of the several projected benefit actuarial cost methods under which actuarial gains and losses are included as part of the current and future normal costs of the pension plan. "Standard cost" means any cost computed with the use of preestablished measures. "Tangible capital asset" means an asset that has physical substance, more than minimal value, and is expected to be held by an enterprise for continued use or possession beyond the current accounting period for the services it yields. "Termination of employment gain or loss" means an actuarial gain or loss resulting from the difference between the assumed and actual rates at which pension plan participants separate from employment for reasons other than retirement, disability, or death. 31-4 FAC 97-02 OCTOBER 10, 1997 PART 31--CONTRACT COST PRINCIPLES AND PROCEDURES 31.104 - -------------------------------------------------------------------------------- "Unfunded pension plan," as used in this part, means a defined benefit pension plan for which no funding agency is established for the accumulation of contributions. "Variance" means the difference between a preestablished measure and an actual measure. "Weighted average cost" means an inventory costing method under which an average unit cost is computed periodically by dividing the sum of the cost of beginning inventory plus the cost of acquisitions by the total number of units included in these two categories. 31.002 Availability of accounting guide. Contractors needing assistance in developing or improving their accounting systems and procedures may request a copy of the guide entitled "Guidance for New Contractors" (DCAAP 7641.90). The guide is available from: Headquarters, Defense Contract Audit Agency Operating Administrative Office 8725 John J Kingman Road, Suite 2135 Fort Belvoir VA 22060-6219 Telephone No. (703) 767-1066 Telefax No. (703) 767-1061 Subpart 31.1--Applicability 31.100 Scope of subpart. This subpart describes the applicability of the cost principles and procedures in succeeding subparts of this part to various types of contracts and subcontracts. It also describes the need for advance agreements. 31.101 Objectives. In recognition of differing organizational characteristics, the cost principles and procedures in the succeeding subparts are grouped basically by organizational type; e.g., commercial concerns and educational institutions. The overall objective is to provide that, to the extent practicable, all organizations of similar types doing similar work will follow the same cost principles and procedures. To achieve this uniformity, individual deviations concerning cost principles require advance approval of the agency head or designee. Class deviations for the civilian agencies require advance approval of the Civilian Agency Acquisition Council. Class deviations for the National Aeronautics and Space Administration require advance approval of the Associate Administrator for Procurement. Class deviations for the Department of Defense require advance approval of the Director of Defense Procurement, Office of the Under Secretary of Defense for Acquisition and Technology. 31.102 Fixed-price contracts. The applicable subparts of Part 31 shall be used in the pricing of fixed-price contracts, subcontracts, and modifications to contracts and subcontracts whenever (a) cost analysis is performed, or (b) a fixed-price contract clause requires the determination or negotiation of costs. However, application of cost principles to fixed-price contracts and subcontracts shall not be construed as a requirement to negotiate agreements on individual elements of cost in arriving at agreement on the total price. The final price accepted by the parties reflects agreement only on the total price. Further, notwithstanding the mandatory use of cost principles, the objective will continue to be to negotiate prices that are fair and reasonable, cost and other factors considered. 31.103 Contracts with commercial organizations. This category includes all contracts and contract modifications for supplies, services, or experimental, developmental, or research work negotiated with organizations other than educational institutions (see 31.104), construction and architect-engineer contracts (see 31.105), State and local governments (see 31.107) and nonprofit organizations (see 31.108) on the basis of cost. (a) The cost principles and procedures in Subpart 31.2 and agency supplements shall be used in pricing negotiated supply, service, experimental, developmental, and research contracts and contract modifications with commercial organizations whenever cost analysis is performed as required by 15.404-1(c). (b) In addition, the contracting officer shall incorporate the cost principles and procedures in Subpart 31.2 and agency supplements by reference in contracts with commercial organizations as the basis for-- (1) Determining reimbursable costs under-- (i) Cost-reimbursement contracts and cost-reimbursement subcontracts under these contracts performed by commercial organizations and (ii) The cost-reimbursement portion of time-and-materials contracts except when material is priced on a basis other than at cost (see 16.601(b)(3)); (2) Negotiating indirect cost rates (see Subpart 42.7); (3) Proposing, negotiating, or determining costs under terminated contracts (see 49.103 and 49.113); (4) Price revision of fixed-price incentive contracts (see 16.204 and 16.403); (5) Price redetermination of price redetermination contracts (see 16.205 and 16.206); and (6) Pricing changes and other contract modifications. 31.104 Contracts with educational institutions. This category includes all contracts and contract modifications for research and development, training, and other work performed by educational institutions. 31-5 FAC 97-02 OCTOBER 10, 1997 31.105 FEDERAL ACQUISITION REGULATION - -------------------------------------------------------------------------------- (a) The contracting officer shall incorporate the cost principles and procedures in Subpart 31.3 by reference in cost-reimbursement contracts with educational institutions as the basis for-- (1) Determining reimbursable costs under the contracts and cost-reimbursement subcontracts thereunder performed by educational institutions; (2) Negotiating indirect cost rates; and (3) Settling costs of cost-reimbursement terminated contracts (see Subpart 49.3 and 49.109-7). (b) The cost principles in this subpart are to be used as a guide in evaluating costs in connection with negotiating fixed-price contracts and termination settlements. 31.105 Construction and architect-engineer contracts. (a) This category includes all contracts and contract modifications negotiated on the basis of cost with organizations other than educational institutions (see 31.104), State and local governments (see 31.107), and nonprofit organizations except those exempted under OMB Circular A-122 (see 31.108) for construction management or construction, alteration or repair of buildings, bridges, roads, or other kinds of real property. It also includes architect-engineer contracts related to construction projects. It does not include contracts for vessels, aircraft, or other kinds of personal property. (b) Except as otherwise provided in (d) below, the cost principles and procedures in Subpart 31.2 shall be used in the pricing of contracts and contract modifications in this category if cost analysis is performed as required by 15.404-1(c). (c) In addition, the contracting officer shall incorporate the cost principles and procedures in Subpart 31.2 (as modified by (d) below by reference in contracts in this category as the basis for-- (1) Determining reimbursable costs under cost-reimbursement contracts, including cost-reimbursement subcontracts thereunder; (2) Negotiating indirect cost rates; (3) Proposing, negotiating, or determining costs under terminated contracts; (4) Price revision of fixed-price incentive contracts; and (5) Pricing changes and other contract modifications. (d) Except as otherwise provided in this paragraph (d), the allowability of costs for construction and architect-engineer contracts shall be determined in accordance with Subpart 31.2. (1) Because of widely varying factors such as the nature, size, duration, and location of the construction project, advance agreements as set forth in 31.109, for such items as home office overhead, partners' compensation, employment of consultants, and equipment usage costs, are particularly important in construction and architect-engineer contracts. When appropriate, they serve to express the parties' understanding and avoid possible subsequent disputes or disallowances. (2) "Construction equipment," as used in this section, means equipment (including marine equipment) in sound workable condition, either owned or controlled by the contractor or the subcontractor at any tier, or obtained from a commercial rental source, and furnished for use under Government contracts. (i) Allowable ownership and operating costs shall be determined as follows: (A) Actual cost data shall be used when such data can be determined for both ownership and operations costs for each piece of equipment, or groups of similar serial or series equipment, from the contractor's accounting records. When such costs cannot be so determined, the contracting agency may specify the use of a particular schedule of predetermined rates or any part thereof to determine ownership and operating costs of construction equipment (see subdivisions (d)(2)(i)(B) and (C) of this section). However, costs otherwise unallowable under this part shall not become allowable through the use of any schedule (see 31.109(c)). For example, schedules need to be adjusted for Government contract costing purposes if they are based on replacement cost, include unallowable interest costs, or use improper cost of money rates or computations. Contracting officers should review the computations and factors included within the specified schedule and ensure that unallowable or unacceptably computed factors are not allowed in cost submissions. (B) Predetermined schedules of construction equipment use rates (e.g., the Construction Equipment Ownership and Operating Expense Schedule, published by the U.S. Army Corps of Engineers, industry sponsored construction equipment cost guides, or commercially published schedules of construction equipment use cost) provide average ownership and operating rates for construction equipment. The allowance for operating costs may include costs for such items as fuel, filters, oil, and grease; servicing, repairs, and maintenance; and tire wear and repair. Costs of labor, mobilization, demobilization, overhead, and profit are generally not reflected in schedules, and separate consideration may be necessary. (C) When a schedule of predetermined use rates for construction equipment is used to determine direct costs, all costs of equipment that are included in the cost allowances provided by the schedule shall be identified and eliminated from the contractor's other direct and indirect costs charged to the contract. If the contractor's accounting system provides for site or home office overhead allocations, all costs which are included in the equipment allowances may need to be included in any cost input base before computing the contractor's overhead rate. In periods 31-6 FAC 97-02 OCTOBER 10, 1997 PART 31--CONTRACT COST PRINCIPLES AND PROCEDURES 31.106-2 - -------------------------------------------------------------------------------- of suspension of work pursuant to a contract clause, the allowance for equipment ownership shall not exceed an amount for standby cost as determined by the schedule or contract provision. (ii) Reasonable costs of renting construction equipment are allowable (but see paragraph (C) of this subsection). (A) Costs, such as maintenance and minor or running repairs incident to operating such rented equipment, that are not included in the rental rate are allowable. (B) Costs incident to major repair and overhaul of rental equipment are unallowable. (C) The allowability of charges for construction equipment rented from any division, subsidiary, or organization under common control, will be determined in accordance with 31.205-36(b)(3). (3) Costs incurred at the job site incident to performing the work, such as the cost of superintendence, timekeeping and clerical work, engineering, utility costs, supplies, material handling, restoration and cleanup, etc., are allowable as direct or indirect costs, provided the accounting practice used is in accordance with the contractor's established and consistently followed cost accounting practices for all work. (4) Rental and any other costs, less any applicable credits incurred in acquiring the temporary use of land, structures, and facilities are allowable. Costs, less any applicable credits, incurred in constructing or fabricating structures and facilities of a temporary nature are allowable. 31.106 Facilities contracts. 31.106-1 Applicable cost principles. The cost principles and procedures applicable to the evaluation and determination of costs under facilities contracts (as defined in 45.301), and subcontracts thereunder, will be governed by the type of entity to which a facilities contract is awarded. Except as otherwise provided in 31.106-2 of this section, Subpart 31.2 applies to facilities contracts awarded to commercial organizations; Subpart 31.3 applies to facilities contracts awarded to educational institutions; and 31.105 applies to facilities contracts awarded to construction contractors. Whichever cost principles are appropriate will be used in the pricing of facilities contracts and contract modifications if cost analysis is performed as required by 15.404-1(c). In addition, the contracting officer shall incorporate the cost principles and procedures appropriate in the circumstances (e.g., Subpart 31.2; Subpart 31.3; or 31.105) by reference in facilities contracts as the basis for-- (a) Determining reimbursable costs under facilities contracts, including cost-reimbursement subcontracts thereunder; (b) Negotiating indirect cost rates; and (c) Determining costs of terminated contracts when the contractor elects to "voucher out" costs (see Subpart 49.3), and for settlement by determination (see 49.109-7). 31.106-2 Exceptions to general rules on allowability and allocability. (a) A contractor's established accounting system and procedures are normally directed to the equitable allocation of costs to the types of products which the contractor produces or services rendered in the course of normal operating activities. The acquisition of, or work on, facilities for the Government normally does not involve the manufacturing processes, plant departmental operations, cost patterns of work, administrative and managerial control, or clerical effort usual to production of the contractor's normal products or services. (b) Advance agreements (see 31.109) should be made between the contractor and the contracting officer as to indirect cost items to be applied to the facilities acquisition. A contractor's normal accounting practice for allocating indirect costs to the acquisition of contractor facilities may range from charging all these costs to this acquisition to not charging any. When necessary to produce an equitable result, the contractor's usual method of allocating indirect cost shall be varied, and appropriate adjustment shall be made to the pools of indirect cost and the bases of their distribution. (c) The purchase of completed facilities (or services in connection with the facilities) from outside sources does not involve the contractor's direct labor or indirect plant maintenance personnel. Accordingly, indirect manufacturing and plant overhead costs, which are primarily incurred or generated by reason of direct labor or maintenance labor operations, are not allocable to the acquisition of such facilities. (d) Contracts providing for the installation of new facilities or the rehabilitation of existing facilities may involve the use of the contractor's plant maintenance labor, as distinguished from direct labor engaged in the production of the company's normal products. In such instances, only those types of indirect manufacturing and plant operating costs that are related to or incurred by reason of the expenditures of the classes of labor used for the performance of the facilities work may be allocated to the facilities contract. Thus, a facilities contract which involves the use of plant maintenance labor only would not be subject to an allocation of such cost items as direct productive labor supervision, depreciation, and maintenance expense applicable to productive machinery and equipment, or raw material and finished goods storage costs. (e) Where a facilities contract calls for the construction, production, or rehabilitation of equipment or other items (FAC 97-04) 31-7 FAC 97-04 APRIL 24, 1998 31.106-3 FEDERAL ACQUISITION REGULATION - -------------------------------------------------------------------------------- that are involved in the regular course of the contractor's business by the use of the contractor's direct labor and manufacturing processes, the indirect costs normally allocated to all that work may be allocated to the facilities contract. 31.106-3 Contractor's commercial items. If facilities constituting the contractor's usual commercial items (or only minor modifications thereof) are acquired by the Government under the contract, the Government shall not pay any amount in excess of the contractor's most favored customer price or the price of other suppliers for like quantities of the same or substantially the same items, whichever is lower. 31.107 Contracts with State, local, and federally recognized Indian tribal governments. (a) Subpart 31.6 provides principles and standards for determining costs applicable to contracts with State, local, and federally recognized Indian tribal governments. They provide the basis for a uniform approach to the problem of determining costs and to promote efficiency and better relationships between State, local, and federally recognized Indian tribal governments, and Federal Government entities. They apply to all programs that involve contracts with State, local, and federally recognized Indian tribal governments, except contracts with-- (1) Publicly financed educational institutions subject to Subpart 31.3; or (2) Publicly owned hospitals and other providers of medical care subject to requirements promulgated by the sponsoring Government agencies. (b) The Office of Management and Budget will approve any other exceptions in particular cases when adequate justification is presented. 31.108 Contracts with nonprofit organizations. Subpart 31.7 provides principles and standards for determining costs applicable to contracts with nonprofit organizations other than educational institutions, State and local governments, and those nonprofit organizations exempted under OMB Circular No. A-122. 31.109 Advance agreements. (a) The extent of allowability of the costs covered in this part applies broadly to many accounting systems in varying contract situations. Thus, the reasonableness, the allocability and the allowability under the specific cost principles at Subparts 31.2, 31.3, 31.6, and 31.7 of certain costs may be difficult to determine. To avoid possible subsequent disallowance or dispute based on unreasonableness, unallocability or unallowability under the specific cost principles at Subparts 31.2, 31.3, 31.6, and 31.7, contracting officers and contractors should seek advance agreement on the treatment of special or unusual costs. However, an advance agreement is not an absolute requirement and the absence of an advance agreement on any cost will not, in itself, affect the reasonableness, allocability or the allowability under the specific cost principles at Subparts 31.2, 31.3, 31.6, and 31.7 of that cost. (b) Advance agreements may be negotiated either before or during a contract but should be negotiated before incurrence of the costs involved. The agreements must be in writing, executed by both contracting parties, and incorporated into applicable current and future contracts. An advance agreement shall contain a statement of its applicability and duration. (c) The contracting officer is not authorized by this 31.109 to agree to a treatment of costs inconsistent with this part. For example, an advance agreement may not provide that, notwithstanding 31.205-20, interest is allowable. (d) Advance agreements may be negotiated with a particular contractor for a single contract, a group of contracts, or all the contracts of a contracting office, an agency, or several agencies. (e) The cognizant administrative contracting officer (ACO), or other contracting officer established in Part 42, shall negotiate advance agreements except that an advance agreement affecting only one contract, or class of contracts from a single contracting office, shall be negotiated by a contracting officer in the contracting office, or an ACO when delegated by the contracting officer. When the negotiation authority is delegated, the ACO shall coordinate the proposed agreement with the contracting officer before executing the advance agreement. (f) Before negotiating an advance agreement, the Government negotiator shall-- (1) Determine if other contracting offices inside the agency or in other agencies have a significant unliquidated dollar balance in contracts with the same contractor; (2) Inform any such office or agency of the matters under consideration for negotiation; and (3) As appropriate, invite the office or agency and the responsible audit agency to participate in prenegotiation discussions and/or in the subsequent negotiations. (g) Upon completion of the negotiation, the sponsor shall prepare and distribute to other interested agencies and offices, including the audit agency, copies of the executed agreement and a memorandum providing the information specified in 15.406-3, as applicable. (h) Examples of costs for which advance agreements may be particularly important are-- (1) Compensation for personal services, including but not limited to allowances for off-site pay, incentive pay, location allowances, hardship pay, cost of living differential, and termination of defined benefit pension plans; 31-8 PART 31--CONTRACT COST PRINCIPLES AND PROCEDURES 31.201-3 - -------------------------------------------------------------------------------- (2) Use charges for fully depreciated assets; (3) Deferred maintenance costs; (4) Precontract costs; (5) Independent research and development and bid and proposal costs; (6) Royalties and other costs for use of patents; (7) Selling and distribution costs; (8) Travel and relocation costs, as related to special or mass personnel movements, as related to travel via contractor-owned, -leased, or - -chartered aircraft; or as related to maximum per diem rates; (9) Costs of idle facilities and idle capacity; (10) Severance pay to employees on support service contracts; (11) Plant reconversion; (12) Professional services (e.g., legal, accounting, and engineering); (13) General and administrative costs (e.g., corporate, division, or branch allocations) attributable to the general management, supervision, and conduct of the contractor's business as a whole. These costs are particularly significant in construction, job-site, architect-engineer, facilities, and Government-owned contractor operated (GOCO) plant contracts (see 31.203(f)); (14) Costs of construction plant and equipment (see 31.105(d)); (15) Costs of public relations and advertising; and (16) Training and education costs (see 31.205-44(h)). 31.110 Indirect cost rate certification and penalties on unallowable costs. (a) Certain contracts require certification of the indirect cost rates proposed for final payment purposes. See 42.703-2 for administrative procedures regarding the certification provisions and the related contract clause prescription. (b) If unallowable costs are included in final indirect cost settlement proposals, penalties may be assessed. See 42.709 for administrative procedures regarding the penalty assessment provisions and the related contract clause prescription. Subpart 31.2--Contracts with Commercial Organizations 31.201 General. 31.201-1 Composition of total cost. (a) The total cost of a contract is the sum of the direct and indirect costs allocable to the contract, incurred or to be incurred, less any allocable credits, plus any allocable cost of money pursuant to 31.205-10. In ascertaining what constitutes a cost, any generally accepted method of determining or estimating costs that is equitable and is consistently applied may be used, including standard costs properly adjusted for applicable variances. See 31.201-2(b) and (c) for Cost Accounting Standards (CAS) requirements. (b) While the total cost of a contract includes all costs properly allocable to the contract, the allowable costs to the Government are limited to those allocable costs which are allowable pursuant to Part 31 and applicable agency supplements. 31.201-2 Determining allowability. (a) The factors to be considered in determining whether a cost is allowable include the following: (1) Reasonableness. (2) Allocability. (3) Standards promulgated by the CAS Board, if applicable; otherwise, generally accepted accounting principles and practices appropriate to the particular circumstances. (4) Terms of the contract. (5) Any limitations set forth in this subpart. (b) Certain cost principles in this subpart incorporate the measurement, assignment, and allocability rules of selected CAS and limit the allowability of costs to the amounts determined using the criteria in those selected standards. Only those CAS or portions of standards specifically made applicable by the cost principles in this subpart are mandatory unless the contract is CAS-covered (see Part 30). Business units that are not otherwise subject to these standards under a CAS clause are subject to the selected standards only for the purpose of determining allowability of costs on Government contracts. Including the selected standards in the cost principles does not subject the business unit to any other CAS rules and regulations. The applicability of the CAS rules and regulations is determined by the CAS clause, if any, in the contract and the requirements of the standards themselves. (c) When contractor accounting practices are inconsistent with this Subpart 31.2, costs resulting from such inconsistent practices shall not be allowed in excess of the amount that would have resulted from using practices consistent with this subpart. (d) A contractor is responsible for accounting for costs appropriately and for maintaining records, including supporting documentation, adequate to demonstrate that costs claimed have been incurred, are allocable to the contract, and comply with applicable cost principles in this subpart and agency supplements. The contracting officer may disallow all or part of a claimed cost which is inadequately supported. 31.201-3 Determining reasonableness. (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent 31-9 31.201-4 FEDERAL ACQUISITION REGULATION - -------------------------------------------------------------------------------- person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer's representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable. (b) What is reasonable depends upon a variety of considerations and circumstances, including-- (1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor's business or the contract performance; (2) Generally accepted sound business practices, arm's-length bargaining, and Federal and State laws and regulations; (3) The contractor's responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and (4) Any significant deviations from the contractor's established practices. 31.201-4 Determining allocability. A cost is allocable if it is assignable or chargeable to one or more cost objectives on the basis of relative benefits received or other equitable relationship. Subject to the foregoing, a cost is allocable to a Government contract if it-- (a) Is incurred specifically for the contract; (b) Benefits both the contract and other work, and can be distributed to them in reasonable proportion to the benefits received; or (c) Is necessary to the overall operation of the business, although a direct relationship to any particular cost objective cannot be shown. 31.201-5 Credits. The applicable portion of any income, rebate, allowance, or other credit relating to any allowable cost and received by or accruing to the contractor shall be credited to the Government either as a cost reduction or by cash refund. See 31.205-6(j)(4) for rules related to refund or credit to the Government upon termination of an over-funded defined benefit pension plan. 31.201-6 Accounting for unallowable costs. (a) Costs that are expressly unallowable or mutually agreed to be unallowable, including mutually agreed to be unallowable directly associated costs, shall be identified and excluded from any billing, claim, or proposal applicable to a Government contract. A directly associated cost is any cost which is generated solely as a result of incurring another cost, and which would not have been incurred had the other cost not been incurred. When an unallowable cost is incurred, its directly associated costs are also unallowable. (b) Costs which specifically become designated as unallowable or as unallowable directly associated costs of unallowable costs as a result of a written decision furnished by a contracting officer shall be identified if included in or used in computing any billing, claim, or proposal applicable to a Government contract. This identification requirement applies also to any costs incurred for the same purpose under like circumstances as the costs specifically identified as unallowable under either this paragraph or paragraph (a) above. (c) The practices for accounting for and presentation of unallowable costs will be those as described in 48 CFR 9904.405, Accounting for Unallowable Costs. (d) If a directly associated cost is included in a cost pool which is allocated over a base that includes the unallowable cost with which it is associated, the directly associated cost shall remain in the cost pool. Since the unallowable costs will attract their allocable share of costs from the cost pool, no further action is required to assure disallowance of the directly associated costs. In all other cases, the directly associated costs, if material in amount, must be purged from the cost pool as unallowable costs. (e)(1) In determining the materiality of a directly associated cost, consideration should be given to the significance of-- (i) The actual dollar amount, (ii) The cumulative effect of all directly associated costs in a cost pool, or (iii) The ultimate effect on the cost of Government contracts. (2) Salary expenses of employees who participate in activities that generate unallowable costs shall be treated as directly associated costs to the extent of the time spent on the proscribed activity, provided the costs are material in accordance with subparagraph (e)(1) above (except when such salary expenses are, themselves, unallowable). The time spent in proscribed activities should be compared to total time spent on company activities to determine if the costs are material. Time spent by employees outside the normal working hours should not be considered except when it is evident that an employee engages so frequently in company activities during periods outside normal working hours as to indicate that such activities are a part of the employee's regular duties. (3) When a selected item of cost under 31.205 provides that directly associated costs be unallowable, it is intended that such directly associated costs be unallowable only if determined to be material in amount in accordance with the criteria provided in subparagraphs (e)(1) and (e)(2) 31-10 PART 31--CONTRACT COST PRINCIPLES AND PROCEDURES 31.203 - -------------------------------------------------------------------------------- of this section, except in those situations where allowance of any of the directly associated costs involved would be considered to be contrary to public policy. 31.201-7 Construction and architect-engineer contracts. Specific principles and procedures for evaluating and determining costs in connection with contracts and subcontracts for construction, and architect-engineer contracts related to construction projects, are in 31.105. The applicability of these principles and procedures is set forth in 31.000 and 31.100. 31.202 Direct costs. (a) A direct cost is any cost that can be identified specifically with a particular final cost objective. No final cost objective shall have allocated to it as a direct cost any cost, if other costs incurred for the same purpose in like circumstances have been included in any indirect cost pool to be allocated to that or any other final cost objective. Costs identified specifically with the contract are direct costs of the contract and are to be charged directly to the contract. All costs specifically identified with other final cost objectives of the contractor are direct costs of those cost objectives and are not to be charged to the contract directly or indirectly. (b) For reasons of practicality, any direct cost of minor dollar amount may be treated as an indirect cost if the accounting treatment-- (1) Is consistently applied to all final cost objectives; and (2) Produces substantially the same results as treating the cost as a direct cost. 31.203 Indirect costs. (a) An indirect cost is any cost not directly identified with a single, final cost objective, but identified with two or more final cost objectives or an intermediate cost objective. It is not subject to treatment as a direct cost. After direct costs have been determined and charged directly to the contract or other work, indirect costs are those remaining to be allocated to the several cost objectives. An indirect cost shall not be allocated to a final cost objective if other costs incurred for the same purpose in like circumstances have been included as a direct cost of that or any other final cost objective. (b) Indirect costs shall be accumulated by logical cost groupings with due consideration of the reasons for incurring such costs. Each grouping should be determined so as to permit distribution of the grouping on the basis of the benefits accruing to the several cost objectives. Commonly, manufacturing overhead, selling expenses, and general and administrative (G&A) expenses are separately grouped. Similarly, the particular case may require subdivision of these groupings, e.g., building occupancy costs might be separable from those of personnel administration within the manufacturing overhead group. This necessitates selecting a distribution base common to all cost objectives to which the grouping is to be allocated. The base should be selected so as to permit allocation of the grouping on the basis of the benefits accruing to the several cost objectives. When substantially the same results can be achieved through less precise methods, the number and composition of cost groupings should be governed by practical considerations and should not unduly complicate the allocation. (c) Once an appropriate base for distributing indirect costs has been accepted, it shall not be fragmented by removing individual elements. All items properly includable in an indirect cost base should bear a pro rata share of indirect costs irrespective of their acceptance as Government contract costs. For example, when a cost input base is used for the distribution of G&A costs, all items that would properly be part of the cost input base, whether allowable or unallowable, shall be included in the base and bear their pro rata share of G&A costs. (d) The contractor's method of allocating indirect costs shall be in accordance with standards promulgated by the CAS Board, if applicable to the contract; otherwise, the method shall be in accordance with generally accepted accounting principles which are consistently applied. The method may require examination when-- (1) Substantial differences occur between the cost patterns of work under the contract and the contractor's other work; (2) Significant changes occur in the nature of the business, the extent of subcontracting, fixed-asset improvement programs, inventories, the volume of sales and production, manufacturing processes, the contractor's products, or other relevant circumstances; or (3) Indirect cost groupings developed for a contractor's primary location are applied to offsite locations. Separate cost groupings for costs allocable to offsite locations may be necessary to permit equitable distribution of costs on the basis of the benefits accruing to the several cost objectives. (e) A base period for allocating indirect costs is the cost accounting period during which such costs are incurred and accumulated for distribution to work performed in that period. The criteria and guidance in 30.406 for selecting the cost accounting periods to be used in allocating indirect costs are incorporated herein for application to contracts subject to full CAS coverage. For contracts subject to modified CAS coverage and for non-CAS-covered contracts, the base period for allocating indirect costs will normally be the contractor's fiscal year. But a shorter period may be appropriate (1) for contracts in which performance involves only a minor portion of the fiscal year, or (2) when it is general 31-11 FAC 97--02 OCTOBER 10, 1997 31.204 FEDERAL ACQUISITION REGULATION - -------------------------------------------------------------------------------- practice in the industry to use a shorter period. When a contract is performed over an extended period, as many base periods shall be used as are required to represent the period of contract performance. (f) Special care should be exercised in applying the principles of paragraphs (b), (c), and (d) above when Government-owned contractor-operated (GOCO) plants are involved. The distribution of corporate, division, or branch office G&A expenses to such plants operating with little or no dependence on corporate administrative activities may require more precise cost groupings, detailed accounts screening, and carefully developed distribution bases. 31.204 Application of principles and procedures. (a) Costs shall be allowed to the extent they are reasonable, allocable, and determined to be allowable under 31.201, 31.202, 31.203, and 31.205. These criteria apply to all of the selected items that follow, even if particular guidance is provided for certain items for emphasis or clarity. (b) Costs incurred as reimbursements or payments to a subcontractor under a cost-reimbursement, fixed-price incentive, or price redeterminable type subcontract of any tier above the first firm-fixed-price subcontract or fixed-price subcontract with economic price adjustment provisions are allowable to the extent that allowance is consistent with the appropriate subpart of this Part 31 applicable to the subcontract involved. Costs incurred as payments under firm-fixed-price subcontracts or fixed-price subcontracts with economic price adjustment provisions or modifications thereto, when cost analysis was performed under 15.404-1(c), shall be allowable only to the extent that the price was negotiated in accordance with 31.102. (c) Section 31.205 does not cover every element of cost. Failure to include any item of cost does not imply that it is either allowable or unallowable. The determination of allowability shall be based on the principles and standards in this subpart and the treatment of similar or related selected items. When more than one subsection in 31.205 is relevant to a contractor cost, the cost shall be apportioned among the applicable subsections, and the determination of allowability of each portion shall be based on the guidance contained in the applicable subsection. When a cost, to which more than one subsection in 31.205 is relevant, cannot be apportioned, the determination of allowability shall be based on the guidance contained in the subsection that most specifically deals with, or best captures the essential nature of, the cost at issue. 31.205 Selected costs. 31.205-1 Public relations and advertising costs. (a) "Public relations" means all functions and activities dedicated to-- (1) Maintaining, protecting, and enhancing the image of a concern or its products; or (2) Maintaining or promoting reciprocal understanding and favorable relations with the public at large, or any segment of the public. The term public relations includes activities associated with areas such as advertising, customer relations, etc. (b) "Advertising" means the use of media to promote the sale of products or services and to accomplish the activities referred to in paragraph (d) of this subsection, regardless of the medium employed, when the advertiser has control over the form and content of what will appear, the media in which it will appear, and when it will appear. Advertising media include but are not limited to conventions, exhibits, free goods, samples, magazines, newspapers, trade papers, direct mail, dealer cards, window displays, outdoor advertising, radio, and television. (c) Public relations and advertising costs include the costs of media time and space, purchased services performed by outside organizations, as well as the applicable portion of salaries, travel, and fringe benefits of employees engaged in the functions and activities identified in paragraphs (a) and (b) of this subsection. (d) The only allowable advertising costs are those that are-- (1) Specifically required by contract, or that arise from requirements of Government contracts and that are exclusively for-- (i) Recruiting personnel required for performing contractual obligations, when considered in conjunction with all other recruitment costs (but see 31.205-34); (ii) Acquiring scarce items for contract performance; or (iii) Disposing of scrap or surplus materials acquired for contract performance. (2) Costs of activities to promote sales of products normally sold to the U.S. Government, including trade shows, which contain a significant effort to promote exports from the United States. Such costs are allowable, notwithstanding subparagraphs (f)(1), (f)(3), (f)(4)(ii), and (f)(5) of this subsection. However, such costs do not include the costs of memorabilia (e.g., models, gifts, and souvenirs), alcoholic beverages, entertainment, and physical facilities which are primarily used for entertainment rather than product promotion. (e) Allowable public relations costs include the following: (1) Costs specifically required by contract. (2) Costs of-- (i) Responding to inquiries on company policies and activities; (ii) Communicating with the public, press, stockholders, creditors, and customers; and 31-12 PART 31--CONTRACT COST PRINCIPLES AND PROCEDURES 31.205-6 - -------------------------------------------------------------------------------- (iii) Conducting general liaison with news media and Government public relations officers, to the extent that such activities are limited to communication and liaison necessary to keep the public informed on matters of public concern such as notice of contract awards, plant closings or openings, employee layoffs or rehires, financial information, etc. (3) Costs of participation in community service activities (e.g., blood bank drives, charity drives, savings bond drives, disaster assistance, etc.). (4) Costs of plant tours and open houses (but see subparagraph (f)(5) of this subsection). (5) Costs of keel laying, ship launching, commissioning, and roll-out ceremonies, to the extent specifically provided for by contract. (f) Unallowable public relations and advertising costs include the following: (1) All public relations and advertising costs, other than those specified in paragraphs (d) and (e) of this subsection, whose primary purpose is to promote the sale of products or services by stimulating interest in a product or product line (except for those costs made allowable under 31.205-38(c)), or by disseminating messages calling favorable attention to the contractor for purposes of enhancing the company image to sell the company's products or services. (2) All costs of trade shows and other special events which do not contain a significant effort to promote the export sales of products normally sold to the U.S. Government. (3) Costs of sponsoring meetings, conventions, symposia, seminars, and other special events when the principal purpose of the event is other than dissemination of technical information or stimulation of production. (4) Costs of ceremonies such as-- (i) Corporate celebrations and (ii) New product announcements. (5) Costs of promotional material, motion pictures, videotapes, brochures, handouts, magazines, and other media that are designed to call favorable attention to the contractor and its activities. (6) Costs of souvenirs, models, imprinted clothing, buttons, and other mementos provided to customers or the public. (7) Costs of memberships in civic and community organizations. 31.205-2 [Reserved] 31.205-3 Bad debts. Bad debts, including actual or estimated losses arising from uncollectible accounts receivable due from customers and other claims, and any directly associated costs such as collection costs, and legal costs are unallowable. 31.205-4 Bonding costs. (a) Bonding costs arise when the Government requires assurance against financial loss to itself or others by reason of the act or default of the contractor. They arise also in instances where the contractor requires similar assurance. Included are such bonds as bid, performance, payment, advance payment, infringement, and fidelity bonds. (b) Costs of bonding required pursuant to the terms of the contract are allowable. (c) Costs of bonding required by the contractor in the general conduct of its business are allowable to the extent that such bonding is in accordance with sound business practice and the rates and premiums are reasonable under the circumstances. 31.205-5 Civil defense costs. (a) Civil defense costs are those incurred in planning for, and protecting life and property against, the possible effects of enemy attack. Costs of civil defense measures (including costs in excess of normal plant protection costs, first-aid training and supplies, fire fighting training and equipment, posting of additional exit notices and directions, and other approved civil defense measures) undertaken on the contractor's premises pursuant to suggestions or requirements of civil defense authorities are allowable when allocated to all work of the contractor. (b) Costs of capital assets acquired for civil defense purposes are allowable through depreciation (see 31.205-11). (c) Contributions to local civil defense funds and projects are unallowable. 31.205-6 Compensation for personal services. (a) General. Compensation for personal services includes all remuneration paid currently or accrued, in whatever form and whether paid immediately or deferred, for services rendered by employees to the contractor during the period of contract performance (except as otherwise provided for in other paragraphs of this subsection). It includes, but is not limited to, salaries; wages; directors' and executive committee members' fees; bonuses (including stock bonuses); incentive awards; employee stock options, and stock appreciation rights; employee stock ownership plans; employee insurance; fringe benefits; contributions to pension, other postretirement benefits, annuity, and employee incentive compensation plans; and allowances for off-site pay, incentive pay, location allowances, hardship pay, severance pay, and cost of living differential. Compensation for personal services is allowable subject to the following general criteria and additional requirements contained in other parts of this cost principle: 31-13 31.205-6 FEDERAL ACQUISITION REGULATION - -------------------------------------------------------------------------------- (1) Compensation for personal services must be for work performed by the employee in the current year and must not represent a retroactive adjustment of prior years' salaries or wages (but see 31.205-6(g), (h), (j), (k), (m), and (o) of this subsection). (2) The compensation in total must be reasonable for the work performed; however, specific restrictions on individual compensation elements must be observed where they are prescribed. (3) The compensation must be based upon and conform to the terms and conditions of the contractor's established compensation plan or practice followed so consistently as to imply, in effect, an agreement to make the payment. (4) No presumption of allowability will exist where the contractor introduces major revisions of existing compensation plans or new plans and the contractor-- (i) Has not notified the cognizant ACO of the changes either before their implementation or within a reasonable period after their implementation, and (ii) Has not provided the Government, either before implementation or within a reasonable period after it, an opportunity to review the allowability of the changes. (5) Costs that are unallowable under other paragraphs of this Subpart 31.2 shall not be allowable under this subsection 31.205-6 solely on the basis that they constitute compensation for personal services. (b) Reasonableness. The compensation for personal services paid or accrued to each employee must be reasonable for the work performed. Compensation will be considered reasonable if each of the allowable elements making up the employee's compensation package is reasonable. This paragraph addresses the reasonableness of compensation, except when the compensation is set by provisions of a labor-management agreement under terms of the Federal Labor Relations Act or similar state statutes. The tests for reasonableness of labor-management agreements are set forth in paragraph (c) of this subsection. In addition to the provisions of 31.201-3, in testing the reasonableness of individual elements for particular employees or job classes of employees, consideration should be given to factors determined to be relevant by the contracting officer. (1) Among others, factors which may be relevant include general conformity with the compensation practices of other firms of the same size, the compensation practices of other firms in the same industry, the compensation practices of firms in the same geographic area, the compensation practices of firms engaged in predominantly non-Government work, and the cost of comparable services obtainable from outside sources. The appropriate factors for evaluating the reasonableness of compensation depend on the degree to which those factors are representative of the labor market for the job being evaluated. The relative significance of factors will vary according to circumstances. In administering this principle, it is recognized that not every compensation case need be subjected in detail to the tests described in this cost principle. The tests need be applied only when a general review reveals amounts or types of compensation that appear unreasonable or unjustified. Based on an initial review of the facts, contracting officers or their representatives may challenge the reasonableness of any individual element or the sum of the individual elements of compensation paid or accrued to particular employees or job classes of employees. In such cases, there is no presumption of reasonableness and, upon challenge, the contractor must demonstrate the reasonableness of the compensation item in question. In doing so, the contractor may introduce, and the contracting officer will consider, not only any circumstances surrounding the compensation item challenged, but also the magnitude of other compensation elements which may be lower than would be considered reasonable in themselves. However, the contractor's right to introduce offsetting compensation elements into consideration is subject to the following limitations: (i) Offsets will be considered only between the allowable elements of an employee's (or a job class of employees') compensation package or between the compensation packages of employees in jobs within the same job grade or level. (ii) Offsets will be considered only between the allowable portion of the following compensation elements of employees or job classes of employees: (A) Wages and salaries. (B) Incentive bonuses. (C) Deferred compensation. (D) Pension and savings plan benefits. (E) Health insurance benefits. (F) Life insurance benefits. (G) Compensated personal absence benefits. However, any of the above elements or portions thereof, whose amount is not measurable, shall not be introduced or considered as an offset item. (iii) In considering offsets, the magnitude of the compensation elements in question must be taken into account. In determining the magnitude of compensation elements, the timing of receipt by the employee must be considered. (2) Compensation costs under certain conditions give rise to the need for special consideration. Among such conditions are the following: (i) Compensation to (A) owners of closely held corporations, partners, sole proprietors, or members of their immediate families, or (B) persons who are contractually committed to acquire a substantial financial interest in the contractor's enterprise. Determination should be made that 31-14 PART 31--CONTRACT COST PRINCIPLES AND PROCEDURES 31.205-6 - -------------------------------------------------------------------------------- salaries are reasonable for the personal services rendered rather than being a distribution of profits. Compensation in lieu of salary for services rendered by partners and sole proprietors will be allowed to the extent that it is reasonable and does not constitute a distribution of profits. For closely held corporations, compensation costs covered by this subdivision shall not be recognized in amounts exceeding those costs that are deductible as compensation under the Internal Revenue Code and regulations under it. (ii) Any change in a contractor's compensation policy that results in a substantial increase in the contractor's level of compensation, particularly when it was concurrent with an increase in the ratio of Government contracts to other business, or any change in the treatment of allowability of specific types of compensation due to changes in Government policy. Contracting officers or their representatives should normally challenge increased costs where major revisions of existing compensation plans or new plans are introduced by the contractor, and the contractor-- (A) Has not notified the cognizant ACO of the changes either before their implementation or within a reasonable period after their implementation; and (B) Has not provided the Government, either before implementation or within a reasonable period after it, an opportunity to review the reasonableness of the changes. (iii) The contractor's business is such that its compensation levels are not subject to the restraints that normally occur in the conduct of competitive business. (iv) The contractor incurs costs for compensation in excess of the amounts which are deductible under the Internal Revenue Code and regulations issued under it. (c) Labor-management agreements. If costs of compensation established under "arm's length" negotiated labor-management agreements are otherwise allowable, the costs are reasonable if, as applied to work in performing Government contracts, they are not determined to be unwarranted by the character and circumstances of the work or discriminatory against the Government. The application of the provisions of a labor-management agreement designed to apply to a given set of circumstances and conditions of employment (e.g, work involving extremely hazardous activities or work not requiring recurrent use of overtime) is unwarranted when applied to a Government contract involving significantly different circumstances and conditions of employment (e.g., work involving less hazardous activities or work continually requiring use of overtime). It is discriminatory against the Government if it results in employee compensation (in whatever form or name) in excess of that being paid for similar non-Government work under comparable circumstances. Disallowance of costs will not be made under this paragraph (c) unless-- (1) The contractor has been permitted an opportunity to justify the costs; and (2) Due consideration has been given to whether unusual conditions pertain to Government contract work, imposing burdens, hardships, or hazards on the contractor's employees, for which compensation that might otherwise appear unreasonable is required to attract and hold necessary personnel. (d) Form of payment. (1) Compensation for personal services includes compensation paid or to be paid in the future to employees in the form of cash, corporate securities, such as stocks, bonds, and other financial instruments (see paragraph (d)(2) of this subsection regarding valuation), or other assets, products, or services. (2) When compensation is paid with securities of the contractor or of an affiliate, the following additional restrictions apply: (i) Valuation placed on the securities shall be the fair market value on the measurement date (i.e., the first date the number of shares awarded is known) determined upon the most objective basis available. (ii) Accruals for the cost of securities before issuing the securities to the employees shall be subject to adjustment according to the possibilities that the employees will not receive the securities and that their interest in the accruals will be forfeited. (e) Domestic and foreign differential pay. (1) When personal services are performed in a foreign country, compensation may also include a differential that may properly consider all expenses associated with foreign employment such as housing, cost of living adjustments, transportation, bonuses, additional Federal, State, local or foreign income taxes resulting from foreign assignment, and other related expenses. (2) Differential allowances for additional Federal, State, or local income taxes resulting from domestic assignments are unallowable. (f) Bonuses and incentive compensation. (1) Incentive compensation for management employees, cash bonuses, suggestion awards, safety awards, and incentive compensation based on production, cost reduction, or efficient performance are allowable provided the awards are paid or accrued under an agreement entered into in good faith between the contractor and the employees before the services are rendered or pursuant to an established plan or policy followed by the contractor so consistently as to imply, in effect, an agreement to make such payment and the basis for the award is supported. (2) When the bonus and incentive compensation payments are deferred, the costs are subject to the requirements of subparagraph (f)(1) of this subsection and of paragraph (k) of this subsection. 31-15 31.205-6 FEDERAL ACQUISITION REGULATION - -------------------------------------------------------------------------------- (g) Severance pay. (1) Severance pay, also commonly referred to as dismissal wages, is a payment in addition to regular salaries and wages by contractors to workers whose employment is being involuntarily terminated. Payments for early retirement incentive plans are covered in paragraph (j)(7). (2) Severance pay to be allowable must meet the general allowability criteria in subdivision (g)(2)(i) of this subsection, and, depending upon whether the severance is normal or abnormal, criteria in subdivision (g)(2)(ii) for normal severance pay or subdivision (g)(2)(iii) for abnormal severance pay also apply. In addition, paragraph (g)(3) of this subsection applies if the severance cost is for foreign nationals employed outside the United States. (i) Severance pay is allowable only to the extent that, in each case, it is required by (A) law; (B) employer-employee agreement; (C) established policy that constitutes, in effect, an implied agreement on the contractor's part; or (D) circumstances of the particular employment. Payments made in the event of employment with a replacement contractor where continuity of employment with credit for prior length of service is preserved under substantially equal conditions of employment, or continued employment by the contractor at another facility, subsidiary, affiliate, or parent company of the contractor are not severance pay and are unallowable. (ii) Actual normal turnover severance payments shall be allocated to all work performed in the contractor's plant, or where the contractor provides for accrual of pay for normal severances, that method will be acceptable if the amount of the accrual is reasonable in light of payments actually made for normal severances over a representative past period and if amounts accrued are allocated to all work performed in the contractor's plant. (iii) Abnormal or mass severance pay is of such a conjectural nature that measurement of costs by means of an accrual will not achieve equity to both parties. Thus, accruals for this purpose are not allowable. However, the Government recognizes its obligation to participate, to the extent of its fair share, in any specific payment. Thus, allowability will be considered on a case-by-case basis. (3) Notwithstanding the reference to geographical area in 31.205-6(b)(1), under 10 U.S.C. 2324(e)(1)(M) and 41 U.S.C. 256(e)(1)(M), the costs of severance payments to foreign nationals employed under a service contract performed outside the United States are unallowable to the extent that such payments exceed amounts typically paid to employees providing similar services in the same industry in the United States. Further, under 10 U.S.C. 2324(e)(1)(N) and 41 U.S.C. 256(e)(1)(N), all such costs of severance payments which are otherwise allowable are unallowable if the termination of employment of the foreign national is the result of the closing of, or the curtailment of activities at, a United States facility in that country at the request of the government of that country; this does not apply if the closing of a facility or curtailment of activities is made pursuant to a status-of-forces or other country-to-country agreement entered into with the government of that country before November 29, 1989. 10 U.S.C. 2324(e)(3) and 41 U.S.C. 256(e)(2) permit the head of the agency, or designee, to waive these cost allowability limitations under certain circumstances (see 37.113 and the solicitation provision at 52.237-8). (h) Backpay. (1) Backpay resulting from violations of Federal labor laws or the Civil Rights Act of 1964. Backpay may result from a negotiated settlement, order, or court decree that resolves a violation of Federal labor laws or the Civil Rights Act of 1964. Such backpay falls into two categories: one requiring the contractor to pay employees additional compensation for work performed for which they were underpaid, and the other resulting from other violations, such as when the employee was improperly discharged, discriminated against, or other circumstances for which the backpay was not additional compensation for work performed. Backpay resulting from underpaid work is compensation for the work performed and is allowable. All other backpay resulting from violation of Federal labor laws or the Civil Rights Act of 1964 is unallowable. (2) Other backpay. Backpay may also result from payments to employees (union and nonunion) for the difference in their past and current wage rates for working without a contract or labor agreement during labor management negotiations. Such backpay is allowable. Backpay to nonunion employees based upon results of union agreement negotiations is allowable only if-- (i) A formal agreement or understanding exists between management and the employees concerning these payments, or (ii) An established policy or practice exists and is followed by the contractor so consistently as to imply, in effect, an agreement to make such payment. (i) Compensation based on changes in the prices of corporate securities or corporate security ownership, such as stock options, stock appreciation rights, phantom stock plans, and junior stock conversions. (1) Any compensation which is calculated, or valued, based on changes in the price of corporate securities is unallowable. (2) Any compensation represented by dividend payments or which is calculated based on dividend payments is unallowable. (3) If a contractor pays an employee in lieu of the employee receiving or exercising a right, option, or benefit which would have been unallowable under this paragraph (i), such payments are also unallowable. 31-16 PART 31--CONTRACT COST PRINCIPLES AND PROCEDURES 31.205-6 - -------------------------------------------------------------------------------- (j) Pension costs. (1) A pension plan is a deferred compensation plan that is established and maintained by one or more employers to provide systematically for paying benefits to plan participants after their retirement, provided that the benefits are paid for life or are payable for life at the option of the employee. Additional benefits such as permanent and total disability and death payments and survivorship payments to beneficiaries of deceased employees may be treated as pension costs, provided the benefits are an integral part of the pension plan and meet all the criteria pertaining to pension costs. (2) Pension plans are normally segregated into two types of plans: defined benefit or defined contribution pension plans. The cost of all defined benefit pension plans shall be measured, allocated, and accounted for in compliance with the provisions of 48 CFR 9904.412, Composition and Measurement of Pension Costs, and 48 CFR 9904.413, Adjustment and Allocation of Pension Cost. The costs of all defined contribution pension plans shall be measured, allocated, and accounted for in accordance with the provisions of 48 CFR 9904.412. Pension costs are allowable subject to the referenced standards and the cost limitations and exclusions set forth in subdivision (j)(2)(i) and in subparagraphs (j)(3) through (8) of this subsection. (i) Except for unfunded pension plans as defined in 31.001, to be allowable in the current year, pension costs must be funded by the time set for filing of the Federal income tax return or any extension thereof. Pension costs assigned to the current year, but not funded by the tax return time, shall not be allowable in any subsequent year. (ii) Pension payments must be reasonable in amount and be paid pursuant to (A) an agreement entered into in good faith between the contractor and employees before the work or services are performed and (B) the terms and conditions of the established plan. The cost of changes in pension plans which are discriminatory to the Government or are not intended to be applied consistently for all employees under similar circumstances in the future are not allowable. (iii) Except as provided for early retirement benefits in subparagraph (j)(7) of this subsection, one-time-only pension supplements not available to all participants of the basic plan are not allowable as pension costs unless the supplemental benefits represent a separate pension plan and the benefits are payable for life at the option of the employee. (iv) Increases in payments to previously retired plan participants covering cost-of-living adjustments are allowable if paid in accordance with a policy or practice consistently followed. (3) Defined benefit pension plans. This subparagraph covers pension plans in which the benefits to be paid or the basis for determining such benefits are established in advance and the contributions are intended to provide the stated benefits. The cost limitations and exclusions pertaining to defined benefit plans are as follows: (i)(A) Except for unfunded pension plans as defined in 31.001, normal costs of pension plans not funded in the year incurred, and all other components of pension costs (see 48 CFR 9904.412-40(a)(1)) assignable to the current accounting period but not funded during it, shall not be allowable in subsequent years (except that a payment made to a fund by the time set for filing the Federal income tax return or any extension thereof is considered to have been made during such taxable year). However, any part of a pension cost that is computed for a cost accounting period that is deferred pursuant to a waiver granted under the provisions of the Employee's Retirement Income Security Act of 1974 (ERISA) (see 48 CFR 9904.412-50(c)(3)), will be allowable in those future accounting periods in which the funding does occur. The allowability of these deferred contributions will be limited to the amounts that would have been allowed had the funding occurred in the year the costs would have been assigned except for the waiver. (B) Allowable costs for unfunded pension plans, as defined in 31.001, are limited to the amount computed in accordance with 48 CFR 9904.412 and 48 CFR 9904.413. (ii) Any amount paid or funded before the time it becomes assignable and allowable shall be applied to future years, in order of time, as if actually paid and deductible in those years. The interest earned on such premature funding, based on the valuation rate of return, may be excluded from future years' computations of pension costs in accordance with 48 CFR 9904.412-50(a)(7). (iii) Increased pension costs caused by delay in funding beyond 30 days after each quarter of the year to which they are assignable are unallowable. If a composite rate is used for allocating pension costs between the segments of a company and if, because of differences in the timing of the funding by the segments, an inequity exists, allowable pension costs for each segment will be limited to that particular segment's calculation of pension costs as provided for in 48 CFR 9904.413-50(c)(5). Determination of unallowable costs shall be made in accordance with the actuarial method used in calculating pension costs. (iv) Allowability of the cost of indemnifying the Pension Benefit Guaranty Corporation (PBGC) under ERISA Section 4062 or 4064 arising from terminating an employee deferred compensation plan will be considered on a case-by-case basis; provided that if insurance was required by the PBGC under ERISA Section 4023, it was so obtained and the indemnification payment is not recoverable under the insurance. Consideration under the foregoing circumstances will be primarily for the purpose of appraising the extent to which the indemnification payment is allocable to Government work. If a beneficial or other equi- (FAC 97-02) 31-17 FAC 97--02 OCTOBER 10, 1997 31.205-6 FEDERAL ACQUISITION REGULATION - -------------------------------------------------------------------------------- table relationship exists, the Government will participate, despite the requirements of 31.205-19(a)(3) and (b), in the indemnification payment to the extent of its fair share. (v) Increased pension costs resulting from the withdrawal of assets from a pension fund and transfer to another employee benefit plan fund are unallowable except to the extent authorized by an advance agreement. The advance agreement shall: (A) State the amount of the Government's equitable share in the gross amount withdrawn; and (B) Provide that the Government receive a credit equal to the amount of the Government's equitable share of the gross withdrawal. If a transfer is made without such an agreement, paragraph (j)(4) of this subsection will apply to the transfer as a constructive withdrawal and receipt of the funds by the contractor. (4) Termination of defined benefit pension plans. When excess or surplus assets revert to the contractor as a result of termination of a defined benefit pension plan, or such assets are constructively received by it for any reason, the contractor shall make a refund or give a credit to the Government for its equitable share of the gross amount withdrawn. The Government's equitable share shall reflect the Government's participation in pension costs through those contracts for which cost or pricing data (see 15.403-4) were submitted or which are subject to Subpart 31.2. (5) Defined contribution pension plans. This subparagraph covers those pension plans in which the contributions to be made are established in advance and the level of benefits is determined by the contributions made. It also covers profit sharing, savings plans, and other such plans provided the plans fall within the definition of a pension plan in subparagraph (j)(1) of this subsection. (i) The pension cost assignable to a cost accounting period is the net contribution required to be made for that period after taking into account dividends and other credits, where applicable. However, any portion of pension cost computed for a cost accounting period that is deferred pursuant to a waiver granted under the provisions of ERISA (see 48 CFR 9904.412-50(c)(3)) will be allowable in those future accounting periods when the funding does occur. The allowability of these deferred contributions will be limited to the amounts that would have been allowed had the funding been made in the year the costs would have been assigned except for the waiver. (ii) Any amount paid or funded to the trust before the time it becomes assignable and allowable shall be applied to future years, in order of time, as if actually paid and deductible in such years. (iii) The provisions of subdivision (j)(3)(iv) of this subsection concerning payments to PBGC apply to defined contribution plans. (6) Pension plans using pay-as-you-go methods. [Reserved] (7) Early retirement incentive plans. An early retirement incentive plan is a plan under which employees receive a bonus or incentive, over and above the requirement of the basic pension plan, to retire early. These plans normally are not applicable to all participants of the basic plan and do not represent life income settlements, and as such would not qualify as pension costs. However, for contract costing purposes, early retirement incentive payments are allow-able subject to the pension cost criteria contained in subdivisions (j)(3)(i) through (iv) provided-- (i) The costs are accounted for and allocated in accordance with the contractor's system of accounting for pension costs; (ii) The payments are made in accordance with the terms and conditions of the contractor's plan; (iii) The plan is applied only to active employees. The cost of extending the plan to employees who retired or were terminated before the adoption of the plan is unallowable; and (iv) The total of the incentive payments to any employee may not exceed the amount of the employee's annual salary for the previous fiscal year before the employee's retirement. (8) Employee stock ownership plans (ESOP). (i) An ESOP is an individual stock bonus plan designed specifically to invest in the stock of the employer corporation. The contractor's contributions to an Employee Stock Ownership Trust (ESOT) may be in the form of cash, stock, or property. Costs of ESOP's are allowable subject to the following conditions: (A) Contributions by the contractor in any one year may not exceed 15 percent (25 percent when a money purchase plan is included) of salaries and wages of employees participating in the plan in any particular year. (B) The contribution rate (ratio of contribution to salaries and wages of participating employees) may not exceed the last approved contribution rate except when approved by the contracting officer based upon justification provided by the contractor. When no contribution was made in the previous year for an existing ESOP, or when a new ESOP is first established, and the contractor proposes to make a contribution in the current year, the contribution rate shall be subject to the contracting officer's approval. (C) When a plan or agreement exists wherein the liability for the contribution can be compelled for a specific year, the expense associated with that liability is assignable only to that period. Any portion of the contribution not funded by the time set for filing of the Federal income tax return for that year or any extension thereof shall not be allowable in subsequent years. 31-18 PART 31--CONTRACT COST PRINCIPLES AND PROCEDURES 31.205-6 - -------------------------------------------------------------------------------- (D) When a plan or agreement exists wherein the liability for the contribution cannot be compelled, the amount contributed for any year is assignable to that year provided the amount is funded by the time set for filing of the Federal income tax return for that year. (E) When the contribution is in the form of stock, the value of the stock contribution shall be limited to the fair market value of the stock on the date that title is effectively transferred to the trust. Cash contributions shall be allowable only when the contractor furnishes evidence satisfactory to the contracting officer demonstrating that stock purchases by the ESOT are or will be at a fair market price; e.g., makes arrangements with the trust permitting the contracting officer to examine purchases of stock by the trust to determine that prices paid are at fair market value. When excessive prices are paid, the amount of the excess will be credited to the same indirect cost pools that were charged for the ESOP contributions in the year in which the stock purchase occurs. However, when the trust purchases the stock with borrowed funds which will be repaid over a period of years by cash contributions from the contractor to the trust, the excess price over fair market value shall be credited to the indirect cost pools pro rata over the period of years during which the contractor contributes the cash used by the trust to repay the loan. When the fair market value of unissued stock or stock of a closely held corporation is not readily determinable, the valuation will be made on a case-by-case basis taking into consideration the guidelines for valuation used by the IRS. (ii) Amounts contributed to an ESOP arising from either-- (A) An additional investment tax credit (see 1975 Tax Reduction Act--TRASOP's); or (B) A payroll-based tax credit (see Economic Recovery Tax Act of 1981) are unallowable. (iii) The requirements of subdivision (j)(3)(ii) of this subsection are applicable to Employee Stock Ownership Plans. (k) Deferred compensation. (1) Deferred compensation is an award given by an employer to compensate an employee in a future cost accounting period or periods for services rendered in one or more cost accounting periods before the date of receipt of compensation by the employee. Deferred compensation does not include the amount of year-end accruals for salaries, wages, or bonuses that are paid within a reasonable period of time after the end of a cost accounting period. Subject to 31.205-6(a), deferred awards are allowable when they are based on current or future services. Awards made in periods subsequent to the period when the work being remunerated was performed are not allowable. (2) The costs of deferred awards shall be measured, allocated, and accounted for in compliance with the provisions of 48 CFR 9904.415, Accounting for the Cost of Deferred Compensation. (3) Deferred compensation payments to employees under awards made before the effective date of 48 CFR 9904.415 are allowable to the extent they would have been allowable under prior acquisition regulations. (l) Compensation incidental to business acquisitions. The following costs are unallowable: (1) Payments to employees under agreements in which they receive special compensation, in excess of the contractor's normal severance pay practice, if their employment terminates following a change in the management control over, or ownership of, the contractor or a substantial portion of its assets. (2) Payments to employees under plans introduced in connection with a change (whether actual or prospective) in the management control over, or ownership of, the contractor or a substantial portion of its assets in which those employees receive special compensation, which is contingent upon the employee remaining with the contractor for a specified period of time. (m) Fringe benefits. (1) Fringe benefits are allowances and services provided by the contractor to its employees as compensation in addition to regular wages and salaries. Fringe benefits include, but are not limited to, the cost of vacations, sick leave, holidays, military leave, employee insurance, and supplemental unemployment benefit plans. Except as provided otherwise in Subpart 31.2, the costs of fringe benefits are allowable to the extent that they are reasonable and are required by law, employer-employee agreement, or an established policy of the contractor. (2) That portion of the cost of company-furnished automobiles that relates to personal use by employees (including transportation to and from work) is unallowable regardless of whether the cost is reported as taxable income to the employees (see 31.205-46(f)). (n) Employee rebate and purchase discount plans. Rebates and purchase discounts, in whatever form, granted to employees on products or services produced by the contractor or affiliates are unallowable. (o) Postretirement benefits other than pensions (PRB). (1) PRB covers all benefits, other than cash benefits and life insurance benefits paid by pension plans, provided to employees, their beneficiaries, and covered dependents during the period following the employees' retirement. Benefits encompassed include, but are not limited to, postretirement health care; life insurance provided outside a pension plan; and other welfare benefits such as tuition assistance, day care, legal services, and housing subsidies provided after retirement. (2) To be allowable, PRB costs must be reasonable and incurred pursuant to law, employer-employee agreement, or an established policy of the contractor. In addition, to be allowable, PRB costs must also be calculated in accordance with paragraphs (o)(2)(i), (ii), or (iii) of this section. (FAC 97-04) 31-19 FAC 97-04 FEBRUARY 23, 1998 31.205-7 FEDERAL ACQUISITION REGULATION - -------------------------------------------------------------------------------- (i) Cash basis. Cost recognized as benefits when they are actually provided, must be paid to an insurer, provider, or other recipient for current year benefits or premiums. (ii) Terminal funding. If a contractor elects a terminal-funded plan, it does not accrue PRB costs during the working lives of employees. Instead, it accrues and pays the entire PRB liability to an insurer or trustee in a lump sum upon the termination of employees (or upon conversion to such a terminal-funded plan) to establish and maintain a fund or reserve for the sole purpose of providing PRB to retirees. The lump sum is allowable if amortized over a period of 15 years. (iii) Accrual basis. Accrual costing other than terminal funding must be measured and assigned according to Generally Accepted Accounting Principles and be paid to an insurer or trustee to establish and maintain a fund or reserve for the sole purpose of providing PRB to retirees. The accrual must also be calculated in accordance with generally accepted actuarial principles and practices as promulgated by the Actuarial Standards Board. (3) To be allowable, costs must be funded by the time set for filing the Federal income tax return or any extension thereof. PRB costs assigned to the current year, but not funded or otherwise liquidated by the tax return time, shall not be allowable in any subsequent year. (4) Increased PRB costs caused by delay in funding beyond 30 days after each quarter of the year to which they are assignable are unallowable. (5) Costs of postretirement benefits in subdivision (o)(2)(iii) of this subsection attributable to past service ("transition obligation") as defined in Financial Accounting Standards Board Statement 106, paragraph 110, are allowable subject to the following limitation: The allowable amount of such costs assignable to a contractor fiscal year cannot exceed the amount of such costs which would be assigned to that contractor fiscal year under the delayed recognition methodology described in paragraphs 112 and 113 of Statement 106. (6) The Government shall receive an equitable share of any amount of previously funded PRB costs which revert or inure to the contractor. Such equitable share shall reflect the Government's previous participation in PRB costs through those contracts for which certified cost or pricing data were required or which were subject to Subpart 31.2. (p) Limitation on allowability of compensation for certain contractor personnel. (1) Costs incurred after January 1, 1998, for compensation of a senior executive in excess of the benchmark compensation amount determined applicable for the contractor fiscal year by the Administrator, Office of Federal Procurement Policy (OFPP), under Section 39 of the OFPP Act (41 U.S.C. 435) are unallowable (10 U.S.C. 2324(e)(1)(P) and 41 U.S.C. 256(e)(1)(P)). This limitation is the sole statutory limitation on allowable senior executive compensation costs incurred after January 1, 1998, under new or previously existing contracts. This limitation applies whether or not the affected contracts were previously subject to a statutory limitation on such costs. (2) As used in this paragraph: (i) "Compensation" means the total amount of wages, salary, bonuses, deferred compensation (see paragraph (k) of this subsection), and employer contributions to defined contribution pension plans (see paragraphs (j)(5) and (j)(8) of this subsection), for the fiscal year, whether paid, earned, or otherwise accruing, as recorded in the contractor's cost accounting records for the fiscal year. (ii) "Senior executive" means-- (A) The contractor's Chief Executive Officer (CEO) or any individual acting in a similar capacity; (B) The contractor's four most highly compensated employees in management positions, other than the CEO; and (C) If the contractor is intermediate home offices or segments that report directly to the contractor's corporate headquarters, the five most highly compensated employees in management positions at each such intermediate home office or segment. (iii) "Fiscal year" means the fiscal year established by the contractor for accounting purposes. 31.205-7 Contingencies. (a) "Contingency," as used in this subpart, means a possible future event or condition arising from presently known or unknown causes, the outcome of which is indeterminable at the present time. (b) Costs for contingencies are generally unallowable for historical costing purposes because such costing deals with costs incurred and recorded on the contractor's books. However, in some cases, as for example, terminations, a contingency factor may be recognized when it is applicable to a past period to give recognition to minor unsettled factors in the interest of expediting settlement. (c) In connection with estimates of future costs, contingencies fall into two categories: (1) Those that may arise from presently known and existing conditions, the effects of which are foreseeable within reasonable limits of accuracy; e.g., anticipated costs of rejects and defective work. Contingencies of this category are to be included in the estimates of future costs so as to provide the best estimate of performance cost. (2) Those that may arise from presently known or unknown conditions, the effect of which cannot be measured so precisely as to provide equitable results to the contractor and to the Government; e.g., results of pending litigation. Contingencies of this category are to be excluded from cost estimates under the several items of cost, but should be disclosed separately (including the basis upon which the contingency is computed) to facilitate the negotiation of 31-20 FAC 97-04 APRIL 24, 1998 PART 31--CONTRACT COST PRINCIPLES AND PROCEDURES 31.205-10 - -------------------------------------------------------------------------------- appropriate contractual coverage. (See, for example, 31.205-6(g), 31.205-19, and 31.205-24.) 31.205-8 Contributions or donations. Contributions or donations, including cash, property and services, regardless of recipient, are unallowable, except as provided in 31.205-1(e)(3). 31.205-9 [Reserved] 31.205-10 Cost of money. (a) Facilities capital cost of money--(1) General. (i) Facilities capital cost of money (cost of capital committed to facilities) is an imputed cost determined by applying a cost-of-money rate to facilities capital employed in contract performance. A cost-of-money rate is uniformly imputed to all contractors (see subdivision (a)(1)(ii) of this subsection). Capital employed is determined without regard to whether its source is equity or borrowed capital. The resulting cost of money is not a form of interest on borrowings (see 31.205-20). (ii) 48 CFR 9904.414, Cost of Money as an Element of the Cost of Facilities Capital, establishes criteria for measuring and allocating, as an element of contract cost, the cost of capital committed to facilities. Cost-of-money factors are developed on Form CASB-CMF, broken down by overhead pool at the business unit, using-- (A) Business-unit facilities capital data, (B) Overhead allocation base data, and (C) The cost-of-money rate, which is based on interest rates specified by the Secretary of the Treasury under Public Law 92-41. (2) Allowability. Whether or not the contract is otherwise subject to CAS, facilities capital cost of money is allowable if-- (i) The contractor's capital investment is measured, allocated to contracts, and costed in accordance with 48 CFR 9904.414; (ii) The contractor maintains adequate records to demonstrate compliance with this standard; (iii) The estimated facilities capital cost of money is specifically identified or proposed in cost proposals relating to the contract under which this cost is to be claimed; and (iv) The requirements of 31.205-52, which limit the allowability of facilities capital cost of money, are observed. (3) Accounting. The facilities capital cost of money need not be entered on the contractor's books of account. However, the contractor shall-- (i) Make a memorandum entry of the cost, and (ii) Maintain, in a manner that permits audit and verification, all relevant schedules, cost data, and other data necessary to support the entry fully. (4) Payment. Facilities capital cost of money that is-- (i) Allowable under subparagraph (2) of this subsection; and (ii) Calculated, allocated, and documented in accordance with this cost principle shall be an "incurred cost" for reimbursement purposes under applicable cost-reimbursement contracts and for progress payment purposes under fixed-price contracts. (5) The requirements of 31.205-52 shall be observed in determining the allowable cost of money attributable to including asset valuations resulting from business combinations in the facilities capital employed base. (b) Cost of money as an element of the cost of capital assets under construction--(1) General. (i) Cost of money as an element of the cost of capital assets under construction is an imputed cost determined by applying a cost-of-money rate to the investment in tangible and intangible capital assets while they are being constructed, fabricated, or developed for a contractor's own use. Capital employed is determined without regard to whether its source is equity or borrowed capital. The resulting cost of money is not a form of interest on borrowing (see 31.205-20). (ii) 48 CFR 9904.417, Cost of Money as an Element of the Cost of Capital Assets Under Construction, establishes criteria for measuring and allocating, as an element of contract cost, the cost of capital committed to capital assets under construction, fabrication, or development. (2) Allowability. (i) Whether or not the contract is otherwise subject to CAS, and except as specified in subdivision (ii) of this section, the cost of money for capital assets under construction, fabrication, or development is allowable if-- (A) The cost of money is calculated, allocated to contracts, and costed in accordance with 48 CFR 9904.417; (B) The contractor maintains adequate records to demonstrate compliance with this standard; (C) The cost of money for tangible capital assets is included in the capitalized cost that provides the basis for allowable depreciation costs, or, in the case of intangible capital assets, the cost of money is included in the cost of those assets for which amortization costs are allowable; and (D) The requirements of 31.205-52, which limit the allowability of cost of money for capital assets under construction, fabrication, or development, are observed. (ii) Actual interest cost in lieu of the calculated imputed cost of money for capital assets under construction, fabrication, or development is unallowable. (3) Accounting. The cost of money for capital assets under construction need not be entered on the contractor's books of account. However, the contractor shall (i) make a 31-21 31.205-11 FEDERAL ACQUISITION REGULATION - -------------------------------------------------------------------------------- memorandum entry of the cost and (ii) maintain, in a manner that permits audit and verification, all relevant schedules, cost data, and other data necessary to support the entry fully. (4) Payment. The cost of money for capital assets under construction that is allowable under subparagraph (2) above of this cost principle shall be an "incurred cost" for reimbursement purposes under applicable cost-reimbursement contracts and for progress payment purposes under fixed-price contracts. 31.205-11 Depreciation. (a) Depreciation is a charge to current operations which distributes the cost of a tangible capital asset, less estimated residual value, over the estimated useful life of the asset in a systematic and logical manner. It does not involve a process of valuation. Useful life refers to the prospective period of economic usefulness in a particular contractor's operations as distinguished from physical life; it is evidenced by the actual or estimated retirement and replacement practice of the contractor. (b) Contractors having contracts subject to 48 CFR 9904.409, Depreciation of Tangible Capital Assets, must adhere to the requirement of that standard for all fully CAS-covered contracts and may elect to adopt the standard for all other contracts. All requirements of 48 CFR 9904.409 are applicable if the election is made, and its requirements supersede any conflicting requirements of this cost principle. Once electing to adopt 48 CFR 9904.409 for all contracts, contractors must continue to follow it until notification of final acceptance of all deliverable items on all open negotiated Government contracts. Paragraphs (c) through (e) below apply to contracts to which 48 CFR 9904.409 is not applied. (c) Normal depreciation on a contractor's plant, equipment, and other capital facilities is an allowable contract cost, if the contractor is able to demonstrate that it is reasonable and allocable (but see paragraph (i) of this section). (d) Depreciation shall be considered reasonable if the contractor follows policies and procedures that are-- (1) Consistent with those followed in the same cost center for business other than Government; (2) Reflected in the contractor's books of accounts and financial statements; and (3) Both used and acceptable for Federal income tax purposes. (e) When the depreciation reflected on a contractor's books of accounts and financial statements differs from that used and acceptable for Federal income tax purposes, reimbursement shall be based on the asset cost amortized over the estimated useful life of the property using depreciation methods (straight line, sum of the years' digits, etc.) acceptable for income tax purposes. Allowable depreciation shall not exceed the amounts used for book and statement purposes and shall be determined in a manner consistent with the depreciation policies and procedures followed in the same cost center on non-Government business (but see paragraph (o) of this subsection). (f) Depreciation for reimbursement purposes in the case of tax-exempt organizations shall be determined on the basis described in paragraph (e) of this section. (g) Special considerations are required for assets acquired before the effective date of this cost principle if, on that date, the undepreciated balance of these assets resulting from depreciation policies and procedures used previously for Government contracts and subcontracts is different from the undepreciated balance on the books and financial statements. The undepreciated balance for contract cost purposes shall be depreciated over the remaining life using the methods and lives followed for book purposes. The aggregate depreciation of any asset allowable after the effective date of this 31.205-11 shall not exceed the cost basis of the asset less any depreciation allowed or allowable under prior acquisition regulations. (h) Depreciation should usually be allocated to the contract and other work as an indirect cost. The amount of depreciation allowed in any accounting period may, consistent with the basic objectives in paragraph (a) above, vary with volume of production or use of multishift operations. (i) In the case of emergency facilities covered by certificates of necessity, a contractor may elect to use normal depreciation without requesting a determination of "true depreciation," or may elect to use either normal or "true depreciation" after a determination of "true depreciation" has been made by an Emergency Facilities Depreciation Board (EFDB). The method elected must be followed consistently throughout the life of the emergency facility. When an election is made to use normal depreciation, the criteria in paragraphs (c), (d), (e), and (f) of this section shall apply for both the emergency period and the post-emergency period. When an election is made to use "true depreciation", the amount allowable as depreciation-- (1) With respect to the emergency period (five years), shall be computed in accordance with the determination of the EFDB and allocated rateably over the full five year emergency period; provided no other allowance is made which would duplicate the factors, such as extraordinary obsolescence, covered by the Board's determination; and (2) After the end of the emergency period, shall be computed by distributing the remaining undepreciated portion of the cost of the emergency facility over the balance of its useful life provided the remaining undepreciated portion of such cost shall not include any amount of unrecovered "true depreciation." (j) No depreciation, rental, or use charge shall be allowed on property acquired at no cost from the 31-22 (FAC 97-04) PART 31--CONTRACT COST PRINCIPLES AND PROCEDURES 31.205-13 - -------------------------------------------------------------------------------- Government by the contractor or by any division, subsidiary, or affiliate of the contractor under common control. (k) The depreciation on any item which meets the criteria for allowance at a "price" under 31.205-26(e) may be based on that price, provided the same policies and procedures are used for costing all business of the using division, subsidiary, or organization under common control. (l) No depreciation or rental shall be allowed on property fully depreciated by the contractor or by any division, subsidiary, or affiliate of the contractor under common control. However, a reasonable charge for using fully depreciated property may be agreed upon and allowed (but see 31.109(h)(2)). In determining the charge, consideration shall be given to cost, total estimated useful life at the time of negotiations, effect of any increased maintenance charges or decreased efficiency due to age, and the amount of depreciation previously charged to Government contracts or subcontracts. (m) 48 CFR 9904.404, Capitalization of Tangible Assets, applies to assets acquired by a "capital lease" as defined in Statement of Financial Accounting Standard No. 13 (FAS-13), Accounting for Leases, issued by the Financial Accounting Standards Board (FASB). Compliance with 48 CFR 9904.404 and FAS-13 requires that such leased assets (capital leases) be treated as purchased assets; i.e., be capitalized and the capitalized value of such assets be distributed over their useful lives as depreciation charges, or over the leased life as amortization charges as appropriate. Assets whose leases are classified as capital leases under FAS-13 are subject to the requirements of 31.205-11 while assets acquired under leases classified as operating leases are subject to the requirements on rental costs in 31.205-36. The standards of financial accounting and reporting prescribed by FAS-13 are incorporated into this principle and shall govern its application, except as provided in subparagraphs (1), (2), and (3) of this paragraph. (1) Rental costs under a sale and leaseback arrangement shall be allowable up to the amount that would have been allowed had the contractor retained title to the property. (2) Capital leases, as defined in FAS-13, for all real and personal property, between any related parties are subject to the requirements of this subparagraph 31.205-11(m). If it is determined that the terms of the lease have been significantly affected by the fact that the lessee and lessor are related, depreciation charges shall not be allowed in excess of those which would have occurred if the lease contained terms consistent with those found in a lease between unrelated parties. (3) Assets acquired under leases that the contractor must capitalize under FAS-13 shall not be treated as purchased assets for contract purposes if the leases are covered by 31.205-36(b)(4). (n) Whether or not the contract is otherwise subject to CAS, the requirements of 31.205-52, which limit the allowability of depreciation, shall be observed. (o) In the event of a write-down from carrying value to fair value as a result of impairments caused by events or changes in circumstances, allowable depreciation of the impaired assets shall be limited to the amounts that would have been allowed had the assets not been written down (see 31.205-16(g)). However, this does not preclude a change in depreciation resulting from other causes such as permissible changes in estimates of service life, consumption of services, or residual value. 31.205-12 Economic planning costs. (a) This category includes costs of generalized long-range management planning that is concerned with the future overall development of the contractor's business and that may take into account the eventual possibility of economic dislocations or fundamental alterations in those markets in which the contractor currently does business. Economic planning costs do not include organization or reorganization costs covered by 31.205-27. (b) Economic planning costs are allowable as indirect costs to be properly allocated. (c) Research and development and engineering costs designed to lead to new products for sale to the general public are not allowable under this principle. 31.205-13 Employee morale, health, welfare, food service, and dormitory costs and credits. (a) Aggregate costs incurred on activities designed to improve working conditions, employer-employee relations, employee morale, and employee performance (less income generated by these activities) are allowable, except as limited by paragraphs (b), (c), and (d) of this subsection. Some examples of allowable activities are house publications, health clinics, wellness/fitness centers, employee counseling services, and food and dormitory services, which include operating or furnishing facilities for cafeterias, dining rooms, canteens, lunch wagons, vending machines, living accommodations, or similar types of services for the contractor's employees at or near the contractor's facilities. (b) Costs of gifts are unallowable. (Gifts do not include awards for performance made pursuant to 31.205-6(f) or awards made in recognition of employee achievements pursuant to an established contractor plan or policy.) (c) Costs of recreation are unallowable, except for the costs of employees' participation in company sponsored sports teams or employee organizations designed to improve company loyalty, team work, or physical fitness. (d) Losses from operating food and dormitory services may be included as costs only if the contractor's objective is to operate such services on a break-even basis. Losses sus- 31-23 31.205-14 FEDERAL ACQUISITION REGULATION - -------------------------------------------------------------------------------- tained because food services or lodging accommodations are furnished without charge or at prices or rates which obviously would not be conducive to the accomplishment of the above objective are not allowable. A loss may be allowed, however, to the extent that the contractor can demonstrate that unusual circumstances exist (e.g., where the contractor must provide food or dormitory services at remote locations where adequate commercial facilities are not reasonably available; or where charged but unproductive labor costs would be excessive but for the services provided or where cessation or reduction of food or dormitory operations will not otherwise yield net cost savings) such that even with efficient management, operating the services on a break-even basis would require charging inordinately high prices, or prices or rates higher than those charged by commercial establishments offering the same services in the same geographical areas. Costs of food and dormitory services shall include an allocable share of indirect expenses pertaining to these activities. (e) When the contractor has an arrangement authorizing an employee association to provide or operate a service, such as vending machines in the contractor's plant, and retain the profits, such profits shall be treated in the same manner as if the contractor were providing the service (but see paragraph (f) of this subsection). (f) Contributions by the contractor to an employee organization, including funds from vending machine receipts or similar sources, may be included as costs incurred under paragraph (a) of this subsection only to the extent that the contractor demonstrates that an equivalent amount of the costs incurred by the employee organization would be allowable if directly incurred by the contractor. 31.205-14 Entertainment costs. Costs of amusement, diversions, social activities, and any directly associated costs such as tickets to shows or sports events, meals, lodging, rentals, transportation, and gratuities are unallowable. Costs made specifically unallowable under this cost principle are not allowable under any other cost principle. Costs of membership in social, dining, or country clubs or other organizations having the same purposes are also unallowable, regardless of whether the cost is reported as taxable income to the employees. 31.205-15 Fines, penalties, and mischarging costs. (a) Costs of fines and penalties resulting from violations of, or failure of the contractor to comply with, Federal, State, local, or foreign laws and regulations, are unallowable except when incurred as a result of compliance with specific terms and conditions of the contract or written instructions from the contracting officer. (b) Costs incurred in connection with, or related to, the mischarging of costs on Government contracts are unallowable when the costs are caused by, or result from, alteration or destruction of records, or other false or improper charging or recording of costs. Such costs include those incurred to measure or otherwise determine the magnitude of the improper charging, and costs incurred to remedy or correct the mischarging, such as costs to rescreen and reconstruct records. 31.205-16 Gains and losses on disposition or impairment of depreciable property or other capital assets. (a) Gains and losses from the sale, retirement, or other disposition (but see 31.205-19) of depreciable property shall be included in the year in which they occur as credits or charges to the cost grouping(s) in which the depreciation or amortization applicable to those assets was included (but see paragraph (d) of this subsection). However, no gain or loss shall be recognized as a result of the transfer of assets in a business combination (see 31.205-52). (b) Gains and losses on disposition of tangible capital assets, including those acquired under capital leases (see 31.205-11(m)), shall be considered as adjustments of depreciation costs previously recognized. The gain or loss for each asset disposed of is the difference between the net amount realized, including insurance proceeds from involuntary conversions, and its undepreciated balance. The gain recognized for contract costing purposes shall be limited to the difference between the acquisition cost (or for assets acquired under a capital lease, the value at which the leased asset is capitalized) of the asset and its undepreciated balance (except see subdivisions (c)(2)(i) or (ii) of this section). (c) Special considerations apply to an involuntary conversion which occurs when a contractor's property is destroyed by events over which the owner has no control, such as fire, windstorm, flood, accident, theft, etc., and an insurance award is recovered. The following govern involuntary conversions: (1) When there is a cash award and the converted asset is not replaced, gain or loss shall be recognized in the period of disposition. The gain recognized for contract costing purposes shall be limited to the difference between the acquisition cost of the asset and its undepreciated balance. (2) When the converted asset is replaced, the contractor shall either-- (i) Adjust the depreciable basis of the new asset by the amount of the total realized gain or loss; or (ii) Recognize the gain or loss in the period of disposition, in which case the Government shall participate to the same extent as outlined in subparagraph (c)(1) of this subsection. (d) Gains and losses on the disposition of depreciable property shall not be recognized as a separate charge or credit when-- 31-24 FAC 97-03 FEBRUARY 9, 1998 PART 31--CONTRACT COST PRINCIPLES AND PROCEDURES 31.205-18 - -------------------------------------------------------------------------------- (1) Gains and losses are processed through the depreciation reserve account and reflected in the depreciation allowable under 31.205-11; or (2) The property is exchanged as part of the purchase price of a similar item, and the gain or loss is taken into consideration in the depreciation cost basis of the new item. (e) Gains and losses arising from mass or extraordinary sales, retirements, or other disposition other than through business combinations shall be considered on a case-by-case basis. (f) Gains and losses of any nature arising from the sale or exchange of capital assets other than depreciable property shall be excluded in computing contract costs. (g) With respect to long-lived tangible and identifiable intangible assets held for use, no loss shall be allowed for a write-down from carrying value to fair value as a result of impairments caused by events or changes in circumstances (e.g., environmental damage, idle facilities arising from a declining business base, etc.). If depreciable property or other capital assets have been written down from carrying value to fair value due to impairments, gains or losses upon disposition shall be the amounts that would have been allowed had the assets not been written down. 31.205-17 Idle facilities and idle capacity costs. (a) "Costs of idle facilities or idle capacity," as used in this subsection, means costs such as maintenance, repair, housing, rent, and other related costs; e.g., property taxes, insurance, and depreciation. "Facilities," as used in this subsection, means plant or any portion thereof (including land integral to the operation), equipment, individually or collectively, or any other tangible capital asset, wherever located, and whether owned or leased by the contractor. "Idle capacity," as used in this subsection, means the unused capacity of partially used facilities. It is the difference between that which a facility could achieve under 100 percent operating time on a one-shift basis, less operating interruptions resulting from time lost for repairs, setups, unsatisfactory materials, and other normal delays, and the extent to which the facility was actually used to meet demands during the accounting period. A multiple-shift basis may be used in the calculation instead of a one-shift basis if it can be shown that this amount of usage could normally be expected for the type of facility involved. "Idle facilities," as used in this subsection, means completely unused facilities that are excess to the contractor's current needs. (b) The costs of idle facilities are unallowable unless the facilities-- (1) Are necessary to meet fluctuations in workload; or (2) Were necessary when acquired and are now idle because of changes in requirements, production economies, reorganization, termination, or other causes which could not have been reasonably foreseen. (Costs of idle facilities are allowable for a reasonable period, ordinarily not to exceed 1 year, depending upon the initiative taken to use, lease, or dispose of the idle facilities (but see 31.205-42)). (c) Costs of idle capacity are costs of doing business and are a factor in the normal fluctuations of usage or overhead rates from period to period. Such costs are allowable provided the capacity is necessary or was originally reasonable and is not subject to reduction or elimination by subletting, renting, or sale, in accordance with sound business, economics, or security practices. Widespread idle capacity throughout an entire plant or among a group of assets having substantially the same function may be idle facilities. (d) Any costs to be paid directly by the Government for idle facilities or idle capacity reserved for defense mobilization production shall be the subject of a separate agreement. 31.205-18 Independent research and development and bid and proposal costs. (a) Definitions. "Applied research," as used in this subsection, means that effort which (1) normally follows basic research, but may not be severable from the related basic research, (2) attempts to determine and exploit the potential of scientific discoveries or improvements in technology, materials, processes, methods, devices, or techniques, and (3) attempts to advance the state of the art. Applied research does not include efforts whose principal aim is design, development, or test of specific items or services to be considered for sale; these efforts are within the definition of the term "development," defined in this subsection. "Basic research," as used in this subsection, means that research which is directed toward increase of knowledge in science. The primary aim of basic research is a fuller knowledge or understanding of the subject under study, rather than any practical application thereof. "Bid and proposal (B&P) costs," as used in this subsection, means the costs incurred in preparing, submitting, and supporting bids and proposals (whether or not solicited) on potential Government or non-Government contracts. The term does not include the costs of effort sponsored by a grant or cooperative agreement, or required in the performance of a contract. "Company," as used in this subsection, means all divisions, subsidiaries, and affiliates of the contractor under common control. "Development," as used in this subsection, means the systematic use, under whatever name, of scientific and technical knowledge in the design, development, test, or evaluation of a potential new product or service (or of an improvement in an existing product or service) for the pur- 31-25 FAC 97-03 FEBRUARY 9, 1998 31.205-18 FEDERAL ACQUISITION REGULATION - -------------------------------------------------------------------------------- pose of meeting specific performance requirements or objectives. Development includes the functions of design engineering, prototyping, and engineering testing. Development excludes-- (1) Subcontracted technical effort which is for the sole purpose of developing an additional source for an existing product, or (2) Development effort for manufacturing or production materials, systems, processes, methods, equipment, tools, and techniques not intended for sale. "Independent research and development (IR&D)," as used in this subsection, means a contractor's IR&D cost that consists of projects falling within the four following areas: (1) basic research, (2) applied research, (3) development, and (4) systems and other concept formulation studies. The term does not include the costs of effort sponsored by a grant or required in the performance of a contract. IR&D effort shall not include technical effort expended in developing and preparing technical data specifically to support submitting a bid or proposal. "Systems and other concept formulation studies," as used in this subsection, means analyses and study efforts either related to specific IR&D efforts or directed toward identifying desirable new systems, equipment or components, or modifications and improvements to existing systems, equipment, or components. (b) Composition and allocation of costs. The requirements of 48 CFR 9904.420, Accounting for independent research and development costs and bid and proposal costs, are incorporated in their entirety and shall apply as follows-- (1) Fully-CAS-covered contracts. Contracts that are fully-CAS-covered shall be subject to all requirements of 48 CFR 9904.420. (2) Modified CAS-covered and non-CAS-covered contracts. Contracts that are not CAS-covered or that contain terms or conditions requiring modified CAS coverage shall be subject to all requirements of 48 CFR 9904.420 except 48 CFR 9904.420-50(e)(2) and 48 CFR 9904.420-50(f)(2), which are not then applicable. However, non-CAS-covered or modified CAS-covered contracts awarded at a time the contractor has CAS-covered contracts requiring compliance with 48 CFR 9904.420, shall be subject to all the requirements of 48 CFR 9904.420. When the requirements of 48 CFR 9904.420-50(e)(2) and 48 CFR 9904.420-50(f)(2) are not applicable, the following apply: (i) IR&D and B&P costs shall be allocated to final cost objectives on the same basis of allocation used for the G&A expense grouping of the profit center (see 31.001) in which the costs are incurred. However, when IR&D and B&P costs clearly benefit other profit centers or benefit the entire company, those costs shall be allocated through the G&A of the other profit centers or through the corporate G&A, as appropriate. (ii) If allocations of IR&D or B&P through the G&A base do not provide equitable cost allocation, the contracting officer may approve use of a different base. (c) Allowability. Except as provided in paragraphs (d) and (e) of this subsection, or as provided in agency regulations, costs for IR&D and B&P are allowable as indirect expenses on contracts to the extent that those costs are allocable and reasonable. (d) Deferred IR&D costs. (1) IR&D costs that were incurred in previous accounting periods are unallowable, except when a contractor has developed a specific product at its own risk in anticipation of recovering the development costs in the sale price of the product provided that-- (i) The total amount of IR&D costs applicable to the product can be identified; (ii) The proration of such costs to sales of the product is reasonable; (iii) The contractor had no Government business during the time that the costs were incurred or did not allocate IR&D costs to Government contracts except to prorate the cost of developing a specific product to the sales of that product; and (iv) No costs of current IR&D programs are allocated to Government work except to prorate the costs of developing a specific product to the sales of that product. (2) When deferred costs are recognized, the contract (except firm-fixed-price and fixed-price with economic price adjustment) will include a specific provision setting forth the amount of deferred IR&D costs that are allocable to the contract. The negotiation memorandum will state the circumstances pertaining to the case and the reason for accepting the deferred costs. (e) Cooperative arrangements. (1) IR&D costs may be incurred by contractors working jointly with one or more non-Federal entities pursuant to a cooperative arrangement (for example, joint ventures, limited partnerships, teaming arrangements, and collaboration and consortium arrangements). IR&D costs also may include costs contributed by contractors in performing cooperative research and development agreements, or similar arrangements, entered into under-- (i) Section 12 of the Stevenson-Wydler Technology Transfer Act of 1980 (15 U.S.C. 3710(a)); (ii) Sections 203(c)(5) and (6) of the National Aeronautics and Space Act of 1958, as amended (42 U.S.C. 2473(c)(5) and (6)); (iii) 10 U.S.C. 2371 for the Defense Advanced Research Projects Agency; or (iv) Other equivalent authority. (2) IR&D costs incurred by a contractor pursuant to these types of cooperative arrangements should be consid- 31-26 FAC 97-03 FEBRUARY 9, 1998 PART 31--CONTRACT COST PRINCIPLES AND PROCEDURES 31.205-19 - -------------------------------------------------------------------------------- ered as allowable IR&D costs if the work performed would have been allowed as contractor IR&D had there been no cooperative arrangement. (3) Costs incurred in preparing, submitting, and supporting offers on potential cooperative arrangements are allowable to the extent they are allocable, reasonable, and not otherwise unallowable. 31.205-19 Insurance and indemnification. (a) Insurance by purchase or by self-insuring includes coverage the contractor is required to carry, or to have approved, under the terms of the contract and any other coverage the contractor maintains in connection with the general conduct of its business. Any contractor desiring to establish a program of self-insurance applicable to contracts that are not subject to 48 CFR 9904.416, Accounting for Insurance Costs, shall comply with the self-insurance requirements of that standard as well as with Part 28 of this Regulation. However, approval of a contractor's insurance program in accordance with Part 28 does not constitute a determination as to the allowability of the program's cost. The amount of insurance costs which may be allowed is subject to the cost limitations and exclusions in the following subparagraphs. (1) Costs of insurance required or approved, and maintained by the contractor pursuant to the contract, are allowable. (2) Costs of insurance maintained by the contractor in connection with the general conduct of its business are allowable, subject to the following limitations: (i) Types and extent of coverage shall follow sound business practice, and the rates and premiums must be reasonable. (ii) Costs allowed for business interruption or other similar insurance must be limited to exclude coverage of profit. (iii) The cost of property insurance premiums for insurance coverage in excess of the acquisition cost of the insured assets is allowable only when the contractor has a formal written policy assuring that in the event the insured property is involuntarily converted, the new asset shall be valued at the book value of the replaced asset plus or minus adjustments for differences between insurance proceeds and actual replacement cost. If the contractor does not have such a formal written policy, the cost of premiums for insurance coverage in excess of the acquisition cost of the insured asset is unallowable. (iv) Costs of insurance for the risk of loss of or damage to Government property are allowable only to the extent that the contractor is liable for such loss or damage and such insurance does not cover loss or damage that results from willful misconduct or lack of good faith on the part of any of the contractor's directors or officers or other equivalent representatives. (v) Contractors operating under a program of self-insurance must obtain approval of the program when required by 28.308(a). (vi) Costs of insurance on the lives of officers, partners, or proprietors are allowable only to the extent that the insurance represents additional compensation (see 31.205-6). (3) Actual losses are unallowable unless expressly provided for in the contract, except--(i) Losses incurred under the nominal deductible provisions of purchased insurance, in keeping with sound business practice, are allowable for contracts not subject to 48 CFR 9904.416 and when the [The next page is 31-29] 31-27 PART 31--CONTRACT COST PRINCIPLES AND PROCEDURES 31.205-22 - -------------------------------------------------------------------------------- contractor did not establish a self-insurance program. Such contracts are not subject to the self-insurance requirements of 48 CFR 9904.416. For contracts subject to 48 CFR 9904.416, and for those made subject to the self-insurance requirements of that Standard as a result of the contractor's having established a self-insurance program (see paragraph (a) of this section), actual losses may be used as a basis for charges under a self-insurance program when the actual amount of losses will not differ significantly from the projected average losses for the accounting period (see 48 CFR 9904.416.50(a)(2)(ii)). In those instances where an actual loss has occurred and the present value of the liability is determined under the provisions of 48 CFR 9904.416-50(a)(3)(ii), the allowable cost shall be limited to an amount computed using as a discount rate the interest rate determined by the Secretary of the Treasury pursuant to 50 U.S.C. App. 1215(b)(2) in effect at the time the loss is recognized. However, the full amount of a lump-sum settlement to be paid within a year of the date of settlement is allowable. (ii) Minor losses, such as spoilage, breakage, and disappearance of small hand tools that occur in the ordinary course of doing business and that are not covered by insurance are allowable. (4) The cost of insurance to protect the contractor against the costs of correcting its own defects in materials or workmanship is unallowable. However, insurance costs to cover fortuitous or casualty losses resulting from defects in materials or workmanship are allowable as a normal business expense. (5) Premiums for retroactive or backdated insurance written to cover occurred and known losses are unallowable. (b) If purchased insurance is available, the charge for any self-insurance coverage plus insurance administration expenses shall not exceed the cost of comparable purchased insurance plus associated insurance administration expenses. (c) Insurance provided by captive insurers (insurers owned by or under the control of the contractor) is considered self-insurance, and charges for it must comply with the self-insurance provisions of 48 CFR 9904.416. However, if the captive insurer also sells insurance to the general public in substantial quantities and it can be demonstrated that the charge to the contractor is based on competitive market forces, the insurance will be considered purchased insurance. (d) The allowability of premiums for insurance purchased from fronting insurance companies (insurance companies not related to the contractor but who reinsure with a captive insurer of the contractor) shall not exceed the amount (plus reasonable fronting company charges for services rendered) which the contractor would have been allowed had it insured directly with the captive insurer. (e) Self-insurance charges for risks of catastrophic losses are not allowable (see 28.308(e)). (f) The Government is obligated to indemnify the contractor only to the extent authorized by law, as expressly provided for in the contract, except as provided in paragraph (a)(3) of this section. (g) Late premium payment charges related to employee deferred compensation plan insurance incurred pursuant to Section 4007 (29 U.S.C. 1307) or Section 4023 (29 U.S.C. 1323) of the Employee Retirement Income Security Act of 1974 are unallowable. 31.205-20 Interest and other financial costs. Interest on borrowings (however represented), bond discounts, costs of financing and refinancing capital (net worth plus long-term liabilities), legal and professional fees paid in connection with preparing prospectuses, costs of preparing and issuing stock rights, and directly associated costs are unallowable except for interest assessed by State or local taxing authorities under the conditions specified in 31.205-41 (but see 31.205-28). 31.205-21 Labor relations costs. Costs incurred in maintaining satisfactory relations between the contractor and its employees, including costs of shop stewards, labor management committees, employee publications, and other related activities, are allowable. 31.205-22 Lobbying and political activity costs. (a) Costs associated with the following activities are unallowable: (1) Attempts to influence the outcomes of any Federal, State, or local election, referendum, initiative, or similar procedure, through in kind or cash contributions, endorsements, publicity, or similar activities; (2) Establishing, administering, contributing to, or paying the expenses of a political party, campaign, political action committee, or other organization established for the purpose of influencing the outcomes of elections; (3) Any attempt to influence-- (i) The introduction of Federal, state, or local legislation, or (ii) The enactment or modification of any pending Federal, state, or local legislation through communication with any member or employee of the Congress or state legislature (including efforts to influence state or local officials to engage in similar lobbying activity), or with any government official or employee in connection with a decision to sign or veto enrolled legislation; (4) Any attempt to influence-- 31-29 31.205-23 FEDERAL ACQUISITION REGULATION - -------------------------------------------------------------------------------- (i) The introduction of Federal, state, or local legislation, or (ii) The enactment or modification of any pending Federal, state, or local legislation by preparing, distributing or using publicity or propaganda, or by urging members of the general public or any segment thereof to contribute to or participate in any mass demonstration, march, rally, fund raising drive, lobbying campaign or letter writing or telephone campaign; (5) Legislative liaison activities, including attendance at legislative sessions or committee hearings, gathering information regarding legislation, and analyzing the effect of legislation, when such activities are carried on in support of or in knowing preparation for an effort to engage in unallowable activities; or (6) Costs incurred in attempting to improperly influence (see 3.401), either directly or indirectly, an employee or officer of the Executive branch of the Federal Government to give consideration to or act regarding a regulatory or contract matter. (b) The following activities are excepted from the coverage of (a) of this section: (1) Providing a technical and factual presentation of information on a topic directly related to the performance of a contract through hearing testimony, statements or letters to the Congress or a state legislature, or subdivision, member, or cognizant staff member thereof, in response to a documented request (including a Congressional Record notice requesting testimony or statements for the record at a regularly scheduled hearing) made by the recipient member, legislative body or subdivision, or a cognizant staff member thereof; provided such information is readily obtainable and can be readily put in deliverable form; and further provided that costs under this section for transportation, lodging or meals are unallowable unless incurred for the purpose of offering testimony at a regularly scheduled Congressional hearing pursuant to a written request for such presentation made by the Chairman or Ranking Minority Member of the Committee or Subcommittee conducting such hearing. (2) Any lobbying made unallowable by paragraph (a)(3) of this subsection to influence state or local legislation in order to directly reduce contract cost, or to avoid material impairment of the contractor's authority to perform the contract. (3) Any activity specifically authorized by statute to be undertaken with funds from the contract. (c) When a contractor seeks reimbursement for indirect costs, total lobbying costs shall be separately identified in the indirect cost rate proposal, and thereafter treated as other unallowable activity costs. (d) Contractors shall maintain adequate records to demonstrate that the certification of costs as being allowable or unallowable (see 42.703-2) pursuant to this subsection complies with the requirements of this subsection. (e) Existing procedures should be utilized to resolve in advance any significant questions or disagreements concerning the interpretation or application of this subsection. 31.205-23 Losses on other contracts. An excess of costs over income under any other contract (including the contractor's contributed portion under cost-sharing contracts) is unallowable. 31.205-24 Maintenance and repair costs. (a) Costs necessary for the upkeep of property (including Government property, unless otherwise provided for) that neither add to the permanent value of the property nor appreciably prolong its intended life, but keep it in an efficient operating condition, are to be treated as follows (but see 31.205-11): (1) Normal maintenance and repair costs are allowable. (2) Extraordinary maintenance and repair costs are allowable, provided those costs are allocated to the applicable periods for purposes of determining contract costs (but see 31.109). (b) Expenditures for plant and equipment, including rehabilitation which should be capitalized and subject to depreciation, according to generally accepted accounting principles as applied under the contractor's established policy or, when applicable, according to 48 CFR 9904.404, Capitalization of Tangible Assets, are allowable only on a depreciation basis. 31.205-25 Manufacturing and production engineering costs. (a) The costs of manufacturing and production engineering effort as described in (1) through (4) of this paragraph are all allowable: (1) Developing and deploying new or improved materials, systems, processes, methods, equipment, tools and techniques that are or are expected to be used in producing products or services; (2) Developing and deploying pilot production lines; (3) Improving current production functions, such as plant layout, production scheduling and control, methods and job analysis, equipment capabilities and capacities, inspection techniques, and tooling analysis (including tooling design and application improvements); and (4) Material and manufacturing producibility analysis for production suitability and to optimize manufacturing processes, methods, and techniques. (b) This cost principle does not cover-- (1) Basic and applied research effort (as defined in 31.205-18(a)) related to new technology, materials, sys- 31-30 FAC 97-02 OCTOBER 10, 1997 PART 31--CONTRACT COST PRINCIPLES AND PROCEDURES 31.205-28 - -------------------------------------------------------------------------------- tems, processes, methods, equipment, tools and techniques. Such technical effort is governed by 31.205-18, Independent research and development and bid and proposal costs; and (2) Development effort for manufacturing or production materials, systems, processes, methods, equipment, tools, and techniques that are intended for sale is also governed by 31.205-18. (c) Where manufacturing or production development costs are capitalized or required to be capitalized under the contractor's capitalization policies, allowable cost will be determined in accordance with the requirements of 31.205-11, Depreciation. 31.205-26 Material costs. (a) Material costs include the costs of such items as raw materials, parts, sub-assemblies, components, and manufacturing supplies, whether purchased or manufactured by the contractor, and may include such collateral items as inbound transportation and intransit insurance. In computing material costs, consideration shall be given to reasonable overruns, spoilage, or defective work (unless otherwise provided in any contract provision relating to inspecting and correcting defective work). These costs are allowable, subject to the requirements of paragraphs (b) through (e) of this section. (b) Costs of material shall be adjusted for income and other credits, including available trade discounts, refunds, rebates, allowances, and cash discounts, and credits for scrap, salvage, and material returned to vendors. Such income and other credits shall either be credited directly to the cost of the material or be allocated as a credit to indirect costs. When the contractor can demonstrate that failure to take cash discounts was reasonable, lost discounts need not be credited. (c) Reasonable adjustments arising from differences between periodic physical inventories and book inventories may be included in arriving at costs; provided, such adjustments relate to the period of contract performance. (d) When materials are purchased specifically for and are identifiable solely with performance under a contract, the actual purchase cost of those materials should be charged to the contract. If material is issued from stores, any generally recognized method of pricing such material is acceptable if that method is consistently applied and the results are equitable. When estimates of future material costs are required, current market price or anticipated acquisition cost may be used, but the basis of pricing must be disclosed. (e) Allowance for all materials, supplies, and services that are sold or transferred between any divisions, subdivisions, subsidiaries, or affiliates of the contractor under a common control shall be on the basis of cost incurred in accordance with this subpart. However, allowance may be at price when it is the established practice of the transferring organization to price interorganizational transfers at other than cost for commercial work of the contractor or any division, subsidiary, or affiliate of the contractor under a common control, and when the item being transferred qualifies for an exception under 15.403-1(b) and the contracting officer has not determined the price to be unreasonable. (f) When a commercial item under paragraph (e) of this subsection is transferred at a price based on a catalog or market price, the price should be adjusted to reflect the quantities being acquired and may be adjusted to reflect the actual cost of any modifications necessary because of contract requirements. 31.205-27 Organization costs. (a) Except as provided in paragraph (b) of this subsection, expenditures in connection with (1) planning or executing the organization or reorganization of the corporate structure of a business, including mergers and acquisitions, (2) resisting or planning to resist the reorganization of the corporate structure of a business or a change in the controlling interest in the ownership of a business, and (3) raising capital (net worth plus long-term liabilities), are unallowable. Such expenditures include but are not limited to incorporation fees and costs of attorneys, accountants, brokers, promoters and organizers, management consultants and investment counselors, whether or not employees of the contractor. Unallowable "reorganization" costs include the cost of any change in the contractor's financial structure, excluding administrative costs of short-term borrowings for working capital, resulting in alterations in the rights and interests of security holders, whether or not additional capital is raised. (b) The cost of activities primarily intended to provide compensation will not be considered organizational costs subject to this subsection, but will be governed by 31.205-6. These activities include acquiring stock for-- (1) Executive bonuses, (2) Employee savings plans, and (3) Employee stock ownership plans. 31.205-28 Other business expenses. The following types of recurring costs are allowable when allocated on an equitable basis: (a) Registry and transfer charges resulting from changes in ownership of securities issued by the contractor. (b) Cost of shareholders' meetings. (c) Normal proxy solicitations. (d) Preparing and publishing reports to shareholders. (e) Preparing and submitting required reports and forms to taxing and other regulatory bodies. (f) Incidental costs of directors' and committee meetings. (g) Other similar costs. 31-31 FAC 97-02 OCTOBER 10, 1997 31.205-29 FEDERAL ACQUISITION REGULATION - -------------------------------------------------------------------------------- 31.205-29 Plant protection costs. Costs of items such as-- (a) Wages, uniforms, and equipment of personnel engaged in plant protection, (b) Depreciation on plant protection capital assets, and (c) Necessary expenses to comply with military requirements, are allowable. 31.205-30 Patent costs. (a) The following patent costs are allowable to the extent that they are incurred as requirements of a Government contract (but see 31.205-33): (1) Costs of preparing invention disclosures, reports, and other documents. (2) Costs for searching the art to the extent necessary to make the invention disclosures. (3) Other costs in connection with the filing and prosecution of a United States patent application where title or royalty-free license is to be conveyed to the Government. (b) General counseling services relating to patent matters, such as advice on patent laws, regulations, clauses, and employee agreements, are allowable (but see 31.205-33). (c) Other than those for general counseling services, patent costs not required by the contract are unallowable. (See also 31.205-37.) 31.205-31 Plant reconversion costs. Plant reconversion costs are those incurred in restoring or rehabilitating the contractor's facilities to approximately the same condition existing immediately before the start of the Government contract, fair wear and tear excepted. Reconversion costs are unallowable except for the cost of removing Government property and the restoration or rehabilitation costs caused by such removal. However, in special circumstances where equity so dictates, additional costs may be allowed to the extent agreed upon before costs are incurred. Care should be exercised to avoid duplication through allowance as contingencies, additional profit or fee, or in other contracts. 31.205-32 Precontract costs. Precontract costs are those incurred before the effective date of the contract directly pursuant to the negotiation and in anticipation of the contract award when such incurrence is necessary to comply with the proposed contract delivery schedule. Such costs are allowable to the extent that they would have been allowable if incurred after the date of the contract (see 31.109). 31.205-33 Professional and consultant service costs. (a) Definition. "Professional and consultant services", as used in this subpart, are those services rendered by persons who are members of a particular profession or possess a special skill and who are not officers or employees of the contractor. Examples include those services acquired by contractors or subcontractors in order to enhance their legal, economic, financial, or technical positions. Professional and consultant services are generally acquired to obtain information, advice, opinions, alternatives, conclusions, recommendations, training, or direct assistance, such as studies, analyses, evaluations, liaison with Government officials, or other forms of representation. (b) Costs of professional and consultant services are allowable subject to this paragraph and paragraphs (c) through (f) of this subsection when reasonable in relation to the services rendered and when not contingent upon recovery of the costs from the Government (but see 31.205-30 and 31.205-47). (c) Costs of professional and consultant services performed under any of the following circumstances are unallowable: (1) Services to improperly obtain, distribute, or use information or data protected by law or regulation (e.g., 52.215-1(e), Restriction on Disclosure and Use of Data). (2) Services that are intended to improperly influence the contents of solicitations, the evaluation of proposals or quotations, or the selection of sources for contract award, whether award is by the Government, or by a prime contractor or subcontractor. (3) Any other services obtained, performed, or otherwise resulting in violation of any statute or regulation prohibiting improper business practices or conflicts of interest. (4) Services performed which are not consistent with the purpose and scope of the services contracted for or otherwise agreed to. (d) In determining the allowability of costs (including retainer fees) in a particular case, no single factor or any special combination of factors is necessarily determinative. However, the contracting officer shall consider the following factors, among others: (1) The nature and scope of the service rendered in relation to the service required. (2) The necessity of contracting for the service, considering the contractor's capability in the particular area. (3) The past pattern of acquiring such services and their costs, particularly in the years prior to the award of Government contracts. (4) The impact of Government contracts on the contractor's business. (5) Whether the proportion of Government work to the contractor's total business is such as to influence the contractor in favor of incurring the cost, particularly when the services rendered are not of a continuing nature and have little relationship to work under Government contracts. 31-32 PART 31--CONTRACT COST PRINCIPLES AND PROCEDURES 31.205-35 - -------------------------------------------------------------------------------- (6) Whether the service can be performed more economically by employment rather than by contracting. (7) The qualifications of the individual or concern rendering the service and the customary fee charged, especially on non-Government contracts. (8) Adequacy of the contractual agreement for the service (e.g., description of the service, estimate of time required, rate of compensation, termination provisions). (e) Retainer fees, to be allowable, must be supported by evidence that-- (1) The services covered by the retainer agreement are necessary and customary; (2) The level of past services justifies the amount of the retainer fees (if no services were rendered, fees are not automatically unallowable); (3) The retainer fee is reasonable in comparison with maintaining an in-house capability to perform the covered services, when factors such as cost and level of expertise are considered; and (4) The actual services performed are documented in accordance with paragraph (f) of this subsection. (f) Fees for services rendered shall be allowable only when supported by evidence of the nature and scope of the service furnished. (See also 31.205-38(f).) However, retainer agreements generally are not based on specific statements of work. Evidence necessary to determine that work performed is proper and does not violate law or regulation shall include-- (1) Details of all agreements (e.g., work requirements, rate of compensation, and nature and amount of other expenses, if any) with the individuals or organizations providing the services and details of actual services performed; (2) Invoices or billings submitted by consultants, including sufficient detail as to the time expended and nature of the actual services provided; and (3) Consultants' work products and related documents, such as trip reports indicating persons visited and subjects discussed, minutes of meetings, and collateral memoranda and reports. 31.205-34 Recruitment costs. (a) Subject to paragraphs (b) and (c) below, and provided that the size of the staff recruited and maintained is in keeping with workload requirements, the following costs are allowable: (1) Costs of help-wanted advertising. (2) Costs of operating an employment office needed to secure and maintain an adequate labor force. (3) Costs of operating an aptitude and educational testing program. (4) Travel costs of employees engaged in recruiting personnel. (5) Travel costs of applicants for interviews. (6) Costs for employment agencies, not in excess of standard commercial rates. (b) Help-wanted advertising costs are unallowable if the advertising-- (1) Is for personnel other than those required to perform obligations under a Government contract; (2) Does not describe specific positions or classes of positions; (3) Is excessive relative to the number and importance of the positions or to the industry practices; (4) Includes material that is not relevant for recruitment purposes, such as extensive illustrations or descriptions of the company's products or capabilities; (5) Is designed to "pirate" personnel from another Government contractor; or (6) Includes color (in publications). (c) Excessive compensation costs offered to prospective employees to "pirate" them from another Government contractor are unallowable. Such excessive costs may include salaries, fringe benefits, or special emoluments which are in excess of standard industry practices or the contractor's customary compensation practices. 31.205-35 Relocation costs. (a) Relocation costs are costs incident to the permanent change of duty assignment (for an indefinite period or for a stated period, but in either event for not less than 12 months) of an existing employee or upon recruitment of a new employee. The following types of relocation costs are allowable as noted, subject to paragraphs (b) and (f) of this subsection: (1) Cost of travel of the employee and members of the immediate family (see 31.205-46) and transportation of the household and personal effects to the new location. (2) Cost of finding a new home, such as advance trips by employees and spouses to locate living quarters, and temporary lodging during the transition periods not exceeding separate cumulative totals of 60 days for employees and 45 days for spouses and dependents, including advance trip time. (3) Closing costs (i.e., brokerage fees, legal fees, appraisal fees, points, finance charges, etc.) incident to the disposition of actual residence owned by the employee when notified of transfer, except that these costs when added to the costs described in subparagraph (a)(4) of this section shall not exceed 14 percent of the sales price of the property sold. (4) Continuing costs of ownership of the vacant former actual residence being sold, such as maintenance of building and grounds (exclusive of fixing up expenses), utilities, taxes, property insurance, mortgage interest, after settlement date or lease date of new permanent residence, 31-33 31.205-35 FEDERAL ACQUISITION REGULATION - -------------------------------------------------------------------------------- except that these costs when added to the costs described in subparagraph (a)(3) of this section, shall not exceed 14 percent of the sales price of the property sold. (5) Other necessary and reasonable expenses normally incident to relocation, such as disconnecting and connecting household appliances; automobile registration; driver's license and use taxes; cutting and fitting rugs, draperies, and curtains; forfeited utility fees and deposits; and purchase of insurance against damage to or loss of personal property while in transit. (6) Costs incident to acquiring a home in a new location, except that-- (i) These costs will not be allowable for existing employees or newly recruited employees who, before the relocation, were not homeowners and (ii) The total costs shall not exceed 5 percent of the purchase price of the new home. (7) Mortgage interest differential payments, except that these costs are not allowable for existing or newly recruited employees who, before the relocation, were not homeowners and the total payments are limited to an amount determined as follows: (i) The difference between the mortgage interest rates of the old and new residences times the current balance of the old mortgage times 3 years. (ii) When mortgage differential payments are made on a lump sum basis and the employee leaves or is transferred again in less than 3 years, the amount initially recognized shall be proportionately adjusted to reflect payments only for the actual time of the relocation. (8) Rental differential payments covering situations where relocated employees retain ownership of a vacated home in the old location and rent at the new location. The rented quarters at the new location must be comparable to those vacated, and the allowable differential payments may not exceed the actual rental costs for the new home, less the fair market rent for the vacated home times 3 years. (9) Cost of canceling an unexpired lease. (b) The costs described in paragraph (a) of this section must also meet the following criteria to be considered allowable: (1) The move must be for the benefit of the employer. (2) Reimbursement must be in accordance with an established policy or practice that is consistently followed by the employer and is designed to motivate employees to relocate promptly and economically. (3) The costs must not otherwise be unallowable under Subpart 31.2. (4) Amounts to be reimbursed shall not exceed the employee's actual expenses, except that for miscellaneous costs of the type discussed in subparagraph (a)(5) of this section, a flat amount, not to exceed $1,000, may be allowed in lieu of actual costs. (c) The following types of costs are not allowable: (1) Loss on sale of a home. (2) Costs incident to acquiring a home in a new location as follows: (i) Real estate brokers fees and commissions. (ii) Cost of litigation. (iii) Real and personal property insurance against damage or loss of property. (iv) Mortgage life insurance. (v) Owner's title policy insurance when such insurance was not previously carried by the employee on the old residence (however, cost of a mortgage title policy is allowable). (vi) Property taxes and operating or maintenance costs. (3) Continuing mortgage principal payments on residence being sold. (4) Payments for employee income or FICA (social security) taxes incident to reimbursed relocation costs. (5) Payments for job counseling and placement assistance to employee spouses and dependents who were not employees of the contractor at the old location. (6) Costs incident to furnishing equity or nonequity loans to employees or making arrangements with lenders for employees to obtain lower-than-market rate mortgage loans. (d) If relocation costs for an employee have been allowed either as an allocable indirect or direct cost, and the employee resigns within 12 months for reasons within the employee's control, the contractor shall refund or credit the relocation costs to the Government. (e) Subject to the requirements of paragraphs (a) through (d) of this section, the costs of family movements and of personnel movements of a special or mass nature are allowable. The cost, however, should be assigned on the basis of work (contracts) or time period benefited. (f) Relocation costs (both outgoing and return) of employees who are hired for performance on specific contracts or long-term field projects are allowable if-- (1) The term of employment is not less than 12 months; (2) The employment agreement specifically limits the duration of employment to the time spent on the contract or field project for which the employee is hired; (3) The employment agreement provides for return relocation to the employee's permanent and principal home immediately prior to the outgoing relocation,or other location of equal or lesser cost; and (4) The relocation costs are determined under the rules of paragraphs (a) through (d) of this section. However, the costs to return employees, who are released from employment upon completion of field assignments pursuant to their employment agreements, are not subject to the refund or credit requirement of paragraph (d). 31-34 PART 31--CONTRACT COST PRINCIPLES AND PROCEDURES 31.20-38 - -------------------------------------------------------------------------------- 31.205-36 Rental costs. (a) This subsection is applicable to the cost of renting or leasing real or personal property acquired under "operating leases" as defined in Statement of Financial Accounting Standards No. 13 (FAS-13), Accounting for Leases. Compliance with 31.205-11(m) requires that assets acquired by means of capital leases, as defined in FAS-13, shall be treated as purchased assets; i.e., be capitalized and the capitalized value of such assets be distributed over their useful lives as depreciation charges, or over the lease term as amortization charges, as appropriate (but see subparagraph (b)(4) of this section). (b) The following costs are allowable: (1) Rental costs under operating leases, to the extent that the rates are reasonable at the time of the lease decision, after consideration of-- (i) Rental costs of comparable property, if any; (ii) Market conditions in the area; (iii) The type, life expectancy, condition, and value of the property leased; (iv) Alternatives available; and (v) Other provisions of the agreement. (2) Rental costs under a sale and leaseback arrangement only up to the amount the contractor would be allowed if the contractor retained title. (3) Charges in the nature of rent for property between any divisions, subsidiaries, or organizations under common control, to the extent that they do not exceed the normal costs of ownership, such as depreciation, taxes, insurance, facilities capital cost of money, and maintenance (excluding interest or other unallowable costs pursuant to Part 31), provided that no part of such costs shall duplicate any other allowed cost. Rental cost of personal property leased from any division, subsidiary, or affiliate of the contractor under common control, that has an established practice of leasing the same or similar property to unaffiliated lessees shall be allowed in accordance with subparagraph (b)(1) of this subsection. (4) Rental costs under leases entered into before March 1, 1970 for the remaining term of the lease (excluding options not exercised before March 1, 1970) to the extent they would have been allowable under Defense Acquisition Regulation (formerly ASPR) 15-205.34 or Federal Procurement Regulations section 1-15.205-34 in effect January 1, 1969. (c) The allowability of rental costs under unexpired leases in connection with terminations is treated in 31.205-42(e). 31.205-37 Royalties and other costs for use of patents. (a) Royalties on a patent or amortization of the cost of purchasing a patent or patent rights necessary for the proper performance of the contract and applicable to contract products or processes are allowable unless-- (1) The Government has a license or the right to a free use of the patent; (2) The patent has been adjudicated to be invalid, or has been administratively determined to be invalid; (3) The patent is considered to be unenforceable; or (4) The patent is expired. (b) Care should be exercised in determining reasonableness when the royalties may have been arrived at as a result of less-than-arm's-length bargaining; e.g., royalties-- (1) Paid to persons, including corporations, affiliated with the contractor; (2) Paid to unaffiliated parties, including corporations, under an agreement entered into in contemplation that a Government contract would be awarded; or (3) Paid under an agreement entered into after the contract award. (c) In any case involving a patent formerly owned by the contractor, the royalty amount allowed should not exceed the cost which would have been allowed had the contractor retained title. (d) See 31.109 regarding advance agreements. 31.205-38 Selling costs. (a) "Selling" is a generic term encompassing all efforts to market the contractor's products or services, some of which are covered specifically in other subsections of 31.205. Selling activity includes the following broad categories: (1) Advertising. (2) Corporate image enhancement including broadly-targeted sales efforts, other than advertising. (3) Bid and proposal costs. (4) Market planning. (5) Direct selling. (b) Advertising costs are defined at 31.205-1(b) and are subject to the allowability provisions of 31.205-1(d) and (f). Corporate image enhancement activities are included within the definitions of public relations at 31.205-1(a) and entertainment at 31.205-14 and are subject to the allowability provisions at 31.205-1(e) and (f) and 31.205-14, respectively. Bid and proposal costs are defined at 31.205-18 and have their allowability controlled by that subsection. Market planning involves market research and analysis and generalized management planning concerned with development of the contractor's business. The allowability of long-range market planning costs is controlled by the provisions of 31.205-12. Other market planning costs are allowable to the extent that they are reasonable and not in excess of the limitations of subparagraph (c)(2) of this subsection. Costs of activities which are correctly classified and disallowed under cost principles referenced in this paragraph (b) are not to be reconsidered for reimbursement under any other provision of this subsection. 31-35 31.205-39 FEDERAL ACQUISITION REGULATION - -------------------------------------------------------------------------------- (c)(1) Direct selling efforts are those acts or actions to induce particular customers to purchase particular products or services of the contractor. Direct selling is characterized by person-to-person contact and includes such activities as familiarizing a potential customer with the contractor's products or services, conditions of sale, service capabilities, etc. It also includes negotiation, liaison between customer and contractor personnel, technical and consulting activities, individual demonstrations, and any other activities having as their purpose the application or adaptation of the contractor's products or services for a particular customer's use. The cost of direct selling efforts is allowable if reasonable in amount. (2) The costs of broadly targeted and direct selling efforts and market planning other than long-range, that are incurred in connection with a significant effort to promote export sales of products normally sold to the U.S. Government, including the costs of exhibiting and demonstrating such products, are allowable on contracts with the U.S. Government provided the costs are allocable, reasonable, and otherwise allowable under this Subpart 31.2. (d) The costs of any selling efforts other than those addressed in paragraphs (b) or (c) of this subsection are unallowable. (e) Costs of the type identified in paragraphs (b), (c), and (d) of this subsection are often commingled on the contractor's books in the selling expense account because these activities are performed by the sales departments. However, identification and segregation of unallowable costs is required under the provisions of 31.201-6 and 30.405, and such costs are not allowable merely because they are incurred in connection with allowable selling activities. (f) Notwithstanding any other provision of this subsection, sellers' or agents' compensation, fees, commissions, percentages, retainer or brokerage fees, whether or not contingent upon the award of contracts, are allowable only when paid to bona fide employees or established commercial or selling agencies maintained by the contractor for the purpose of securing business. 31.205-39 Service and warranty costs. Service and warranty costs include those arising from fulfillment of any contractual obligation of a contractor to provide services such as installation, training, correcting defects in the products, replacing defective parts, and making refunds in the case of inadequate performance. When not inconsistent with the terms of the contract, such service and warranty costs are allowable. However, care should be exercised to avoid duplication of the allowance as an element of both estimated product cost and risk. 31.205-40 Special tooling and special test equipment costs. (a) The terms "special tooling" and "special test equipment" are defined in 45.101. (b) The cost of special tooling and special test equipment used in performing one or more Government contracts is allowable and shall be allocated to the specific Government contract or contracts for which acquired, except that the cost of-- (1) Items acquired by the contractor before the effective date of the contract (or replacement of such items), whether or not altered or adapted for use in performing the contract, and (2) Items which the contract schedule specifically excludes, shall be allowable only as depreciation or amortization. (c) When items are disqualified as special tooling or special test equipment because with relatively minor expense they can be made suitable for general purpose use and have a value as such commensurate with their value as special tooling or special test equipment, the cost of adapting the items for use under the contract and the cost of returning them to their prior configuration are allowable. 31.205-41 Taxes. (a) The following types of costs are allowable: (1) Federal, State, and local taxes (see Part 29), except as otherwise provided in paragraph (b) of this section that are required to be and are paid or accrued in accordance with generally accepted accounting principles. Fines and penalties are not considered taxes. (2) Taxes otherwise allowable under subparagraph (a)(1) of this section, but upon which a claim of illegality or erroneous assessment exists; provided the contractor, before paying such taxes-- (i) Promptly requests instructions from the contracting officer concerning such taxes; and (ii) Takes all action directed by the contracting officer arising out of subparagraph (2)(i) of this section or an independent decision of the Government as to the existence of a claim of illegality or erroneous assessment, to-- (A) Determine the legality of the assessment or (B) Secure a refund of such taxes. (3) Pursuant to subparagraph (a)(2) of this section, the reasonable costs of any action taken by the contractor at the direction or with the concurrence of the contracting officer. Interest or penalties incurred by the contractor for non-payment of any tax at the direction of the contracting officer or by reason of the failure of the contracting officer to ensure timely direction after a prompt request. (4) The Environmental Tax found at section 59A of the Internal Revenue Code, also called the "Superfund Tax." (b) The following types of costs are not allowable: 31-36 FAC 97--02 OCTOBER 10, 1997 PART 31--CONTRACT COST PRINCIPLES AND PROCEDURES 31.205-42 - -------------------------------------------------------------------------------- (1) Federal income and excess profits taxes. (2) Taxes in connection with financing, refinancing, refunding operations, or reorganizations (see 31.205-20 and 31.205-27). (3) Taxes from which exemptions are available to the contractor directly, or available to the contractor based on an exemption afforded the Government, except when the contracting officer determines that the administrative burden incident to obtaining the exemption outweighs the corresponding benefits accruing to the Government. When partial exemption from a tax is attributable to Government contract activity, taxes charged to such work in excess of that amount resulting from application of the preferential treatment are unallowable. These provisions intend that tax preference attributable to Government contract activity be realized by the Government. The term "exemption" means freedom from taxation in whole or in part and includes a tax abatement or reduction resulting from mode of assessment, method of calculation, or otherwise. (4) Special assessments on land that represent capital improvements. (5) Taxes (including excises) on real or personal property, or on the value, use, possession or sale thereof, which is used solely in connection with work other than on Government contracts (see paragraph (c) of this section). (6) Any excise tax in subtitle D, chapter 43 of the Internal Revenue Code of 1986, as amended. That chapter includes excise taxes imposed in connection with qualified pension plans, welfare plans, deferred compensation plans, or other similar types of plans. (7) Income tax accruals designed to account for the tax effects of differences between taxable income and pretax income as reflected by the books of account and financial statements. (c) Taxes on property (see subparagraph (b)(5) of this section) used solely in connection with either non-Government or Government work should be considered directly applicable to the respective category of work unless the amounts involved are insignificant or comparable results would otherwise be obtained; e.g., taxes on contractor-owned work-in-process which is used solely in connection with non-Government work should be allocated to such work; taxes on contractor-owned work-in-process inventory (and Government-owned work-in-process inventory when taxed) used solely in connection with Government work should be charged to such work. The cost of taxes incurred on property used in both Government and non-Government work shall be apportioned to all such work based upon the use of such property on the respective final cost objectives. (d) Any taxes, interest, or penalties that were allowed as contract costs and are refunded to the contractor shall be credited or paid to the Government in the manner it directs. If a contractor or subcontractor obtains a foreign tax credit that reduces its U.S. Federal income tax because of the payment of any tax or duty allowed as contract costs, and if those costs were reimbursed by a foreign government, the amount of the reduction shall be paid to the Treasurer of the United States at the time the Federal income tax return is filed. However, any interest actually paid or credited to a contractor incident to a refund of tax, interest, or penalty shall be paid or credited to the Government only to the extent that such interest accrued over the period during which the contractor had been reimbursed by the Government for the taxes, interest, or penalties. 31.205-42 Termination costs. Contract terminations generally give rise to the incurrence of costs or the need for special treatment of costs that would not have arisen had the contract not been terminated. The following cost principles peculiar to termination situations are to be used in conjunction with the other cost principles in Subpart 31.2: (a) Common items. The costs of items reasonably usable on the contractor's other work shall not be allowable unless the contractor submits evidence that the items could not be retained at cost without sustaining a loss. The contracting officer should consider the contractor's plans and orders for current and planned production when determining if items can reasonably be used on other work of the contractor. Contemporaneous purchases of common items by the contractor shall be regarded as evidence that such items are reasonably usable on the contractor's other work. Any acceptance of common items as allocable to the terminated portion of the contract should be limited to the extent that the quantities of such items on hand, in transit, and on order are in excess of the reasonable quantitative requirements of other work. (b) Costs continuing after termination. Despite all reasonable efforts by the contractor, costs which cannot be discontinued immediately after the effective date of termination are generally allowable. However, any costs continuing after the effective date of the termination due to the negligent or willful failure of the contractor to discontinue the costs shall be unallowable. (c) Initial costs. Initial costs, including starting load and preparatory costs, are allowable as follows: (1) Starting load costs not fully absorbed because of termination are nonrecurring labor, material, and related overhead costs incurred in the early part of production and result from factors such as-- (i) Excessive spoilage due to inexperienced labor; (ii) Idle time and subnormal production due to testing and changing production methods; (iii) Training; and 31-37 31.205-43 FEDERAL ACQUISITION REGULATION - -------------------------------------------------------------------------------- (iv) Lack of familiarity or experience with the product, materials, or manufacturing processes. (2) Preparatory costs incurred in preparing to perform the terminated contract include such costs as those incurred for initial plant rearrangement and alterations, management and personnel organization, and production planning. They do not include special machinery and equipment and starting load costs. (3) When initial costs are included in the settlement proposal as a direct charge, such costs shall not also be included in overhead. Initial costs attributable to only one contract shall not be allocated to other contracts. (4) If initial costs are claimed and have not been segregated on the contractor's books, they shall be segregated for settlement purposes from cost reports and schedules reflecting that high unit cost incurred during the early stages of the contract. (5) If the settlement proposal is on the inventory basis, initial costs should normally be allocated on the basis of total end items called for by the contract immediately before termination; however, if the contract includes end items of a diverse nature, some other equitable basis may be used, such as machine or labor hours. (d) Loss of useful value. Loss of useful value of special tooling, and special machinery and equipment is generally allowable, provided-- (1) The special tooling, or special machinery and equipment is not reasonably capable of use in the other work of the contractor; (2) The Government's interest is protected by transfer of title or by other means deemed appropriate by the contracting officer; and (3) The loss of useful value for any one terminated contract is limited to that portion of the acquisition cost which bears the same ratio to the total acquisition cost as the terminated portion of the contract bears to the entire terminated contract and other Government contracts for which the special tooling, or special machinery and equipment was acquired. (e) Rental under unexpired leases. Rental costs under unexpired leases, less the residual value of such leases, are generally allowable when shown to have been reasonably necessary for the performance of the terminated contract, if-- (1) The amount of rental claimed does not exceed the reasonable use value of the property leased for the period of the contract and such further period as may be reasonable; and (2) The contractor makes all reasonable efforts to terminate, assign, settle, or otherwise reduce the cost of such lease. (f) Alterations of leased property. The cost of alterations and reasonable restorations required by the lease may be allowed when the alterations were necessary for performing the contract. (g) Settlement expenses. (1) Settlement expenses, including the following, are generally allowable: (i) Accounting, legal, clerical, and similar costs reasonably necessary for-- (A) The preparation and presentation, including supporting data, of settlement claims to the contracting officer; and (B) The termination and settlement of subcontracts. (ii) Reasonable costs for the storage, transportation, protection, and disposition of property acquired or produced for the contract. (iii) Indirect costs related to salary and wages incurred as settlement expenses in (i) and (ii); normally, such indirect costs shall be limited to payroll taxes, fringe benefits, occupancy costs, and immediate supervision costs. (2) If settlement expenses are significant, a cost account or work order shall be established to separately identify and accumulate them. (h) Subcontractor claims. Subcontractor claims, including the allocable portion of the claims common to the contract and to other work of the contractor, are generally allowable. An appropriate share of the contractor's indirect expense may be allocated to the amount of settlements with subcontractors; provided, that the amount allocated is reasonably proportionate to the relative benefits received and is otherwise consistent with 31.201-4 and 31.203(c). The indirect expense so allocated shall exclude the same and similar costs claimed directly or indirectly as settlement expenses. 31.205-43 Trade, business, technical and professional activity costs. The following types of costs are allowable: (a) Memberships in trade, business, technical, and professional organizations. (b) Subscriptions to trade, business, professional, or other technical periodicals. (c) When the principal purpose of a meeting, convention, conference, symposium, or seminar is the dissemination of trade, business, technical or professional information or the stimulation of production or improved productivity-- (1) Costs of organizing, setting up, and sponsoring the meetings, conventions, symposia, etc., including rental of meeting facilities, transportation, subsistence, and incidental costs; (2) Costs of attendance by contractor employees, including travel costs (see 31.205-46); and (3) Costs of attendance by individuals who are not employees of the contractor, provided-- (i) Such costs are not also reimbursed to the individual by the employing company or organization, and 31-38 (FAC 97-02) PART 31--CONTRACT COST PRINCIPLES AND PROCEDURES 31.205-45 - -------------------------------------------------------------------------------- (ii) The individuals attendance is essential to achieve the purpose of the conference, meeting, convention, symposium, etc. 31.205-44 Training and education costs. (a) Allowable costs. Training and education costs are allowable to the extent indicated below. (b) Vocational training. Costs of preparing and maintaining a noncollege level program of instruction, including but not limited to on-the-job, classroom, and apprenticeship training, designed to increase the vocational effectiveness of employees, are allowable. These costs include-- (1) Salaries or wages of trainees (excluding overtime compensation), (2) Salaries of the director of training and staff when the training program is conducted by the contractor, (3) Tuition and fees when the training is in an institution not operated by the contractor, and/or (4) Training materials and textbooks. (c) Part-time college level education. Allowable costs of part-time college education at an undergraduate or postgraduate level, including that provided at the contractor's own facilities, are limited to-- (1) Fees and tuition charged by the educational institution, or, instead of tuition, instructors' salaries and the related share of indirect cost of the educational institution, to the extent that the sum thereof is not in excess of the tuition that would have been paid to the participating educational institution; (2) Salaries and related costs of instructors who are employees of the contractor; (3) Training materials and textbooks; and (4) Straight-time compensation of each employee for time spent attending classes during working hours not in excess of 156 hours per year where circumstances do not permit the operation of classes or attendance at classes after regular working hours. In unusual cases, the period may be extended (see paragraph (h) of this subsection). (d) Full-time education. Costs of tuition, fees, training materials and textbooks (but not subsistence, salary, or any other emoluments) in connection with full-time education, including that provided at the contractor's own facilities, at a postgraduate but not undergraduate college level, are allowable only when the course or degree pursued is related to the field in which the employee is working or may reasonably be expected to work and are limited to a total period not to exceed 2 school years or the length of the degree program, whichever is less, for each employee so trained. (e) Specialized programs. Costs of attendance of up to 16 weeks per employee per year at specialized programs specifically designed to enhance the effectiveness of managers or to prepare employees for such positions are allowable. Such costs include enrollment fees and related charges and employees' salaries, subsistence, training materials, textbooks, and travel. Costs allowable under this paragraph do not include costs for courses that are part of a degree-oriented curriculum, which are only allowable pursuant to paragraphs (c) and (d) of this subsection. (f) Other expenses. Maintenance expense and normal depreciation or fair rental on facilities owned or leased by the contractor for training purposes are allowable in accordance with 31.205-11, 31.205-17, 31.205-24, and 31.205-36. (g) Grants. Grants to educational or training institutions, including the donation of facilities or other properties, scholarships, and fellowships are considered contributions and are unallowable. (h) Advance agreements. (1) Training and education costs in excess of those otherwise allowable under paragraphs (c) and (d) of this subsection, including subsistence, salaries or any other emoluments, may be allowed to the extent set forth in an advance agreement negotiated under 31.109. To be considered for an advance agreement, the contractor must demonstrate that the costs are consistently incurred under an established managerial, engineering, or scientific training and education program, and that the course or degree pursued is related to the field in which the employees are now working or may reasonably be expected to work. Before entering into the advance agreement, the contracting officer shall give consideration to such factors as-- (i) The length of employees' service with the contractor; (ii) Employees' past performance and potential; (iii) Whether employees are in formal development programs; and (iv) The total number of participating employees. (2) Any advance agreement must include a provision requiring the contractor to refund to the Government training and education costs for employees who resign within 12 months of completion of such training or education for reasons within an employee's control. (i) Training or education costs for other than bona fide employees. Costs of tuition, fees, textbooks, and similar or related benefits provided for other than bona fide employees are unallowable, except that the costs incurred for educating employee dependents (primary and secondary level studies) when the employee is working in a foreign country where public education is not available and where suitable private education is inordinately expensive may be included in overseas differential. (j) Employee dependent education plans. Costs of college plans for employee dependents are unallowable. 31.205-45 Transportation costs. Allowable transportation costs include freight, express, cartage, and postage charges relating to goods purchased, in (FAC 97-03) 31-39 FAC 97-03 DECEMBER 9, 1997 31.205-46 FEDERAL ACQUISITION REGULATION - -------------------------------------------------------------------------------- process, or delivered. When these costs can be identified with the items involved, they may be directly costed as transportation costs or added to the cost of such items. When identification with the materials received cannot be made, inbound transportation costs may be charged to the appropriate indirect cost accounts if the contractor follows a consistent and equitable procedure. Outbound freight, if reimbursable under the terms of the contract, shall be treated as a direct cost. 31.205-46 Travel costs. (a) Costs for transportation, lodging, meals, and incidental expenses. (1) Costs incurred by contractor personnel on official company business are allowable, subject to the limitations contained in this subsection. Costs for transportation may be based on mileage rates, actual costs incurred, or on a combination thereof, provided the method used results in a reasonable charge. Costs for lodging, meals, and incidental expenses may be based on per diem, actual expenses, or a combination thereof, provided the method used results in a reasonable charge. (2) Except as provided in subparagraph (a)(3) of this subsection, costs incurred for lodging, meals, and incidental expenses (as defined in the regulations cited in (a)(2)(i) through (iii) of this subparagraph) shall be considered to be reasonable and allowable only to the extent that they do not exceed on a daily basis the maximum per diem rates in effect at the time of travel as set forth in the-- (i) Federal Travel Regulations, prescribed by the General Services Administration, for travel in the conterminous 48 United States, available on a subscription basis from the: Superintendent of Documents U.S. Government Printing Office Washington DC 20402 Stock No. 922-002-00000-2 (ii) Joint Travel Regulation, Volume 2, DoD Civilian Personnel, Appendix A, prescribed by the Department of Defense, for travel in Alaska, Hawaii, The Commonwealth of Puerto Rico, and territories and possessions of the United States, available on a subscription basis from the-- Superintendent of Documents U.S. Government Printing Office Washington DC 20402 Stock No. 908-010-00000-1; or (iii) Standardized Regulations (Government Civilians, Foreign Areas), Section 925, "Maximum Travel Per Diem Allowances for Foreign Areas," prescribed by the Department of State, for travel in areas not covered in (a)(2)(i) and (ii) of this subparagraph, available on a subscription basis from the-- Superintendent of Documents U.S. Government Printing Office Washington, DC 20402 Stock No. 744-008-00000-0 (3) In special or unusual situations, actual costs in excess of the above-referenced maximum per diem rates are allowable provided that such amounts do not exceed the higher amounts authorized for Federal civilian employees as permitted in the regulations referenced in (a)(2)(i), (ii), or (iii) of this subsection. For such higher amounts to be allowable, all of the following conditions must be met: (i) One of the conditions warranting approval of the actual expense method, as set forth in the regulations referenced in paragraphs (a)(2)(i), (ii), or (iii) of this subsection, must exist. (ii) A written justification for use of the higher amounts must be approved by an officer of the contractor's organization or designee to ensure that the authority is properly administered and controlled to prevent abuse. (iii) If it becomes necessary to exercise the authority to use the higher actual expense method repetitively or on a continuing basis in a particular area, the contractor must obtain advance approval from the contracting officer. (iv) Documentation to support actual costs incurred shall be in accordance with the contractor's established practices, subject to paragraph (a)(7) of this subsection, and provided that a receipt is required for each expenditure of $75.00 or more. The approved justification required by paragraph (a)(3)(ii) and, if applicable, paragraph (a)(3)(iii) of this subsection must be retained. (4) Subparagraphs (a)(2) and (a)(3) of this subsection do not incorporate the regulations cited in subdivisions (a)(2)(i), (ii), and (iii) of this subsection in their entirety. Only the maximum per diem rates, the definitions of lodging, meals, and incidental expenses, and the regulatory coverage dealing with special or unusual situations are incorporated herein. (5) An advance agreement (see 31.109) with respect to compliance with subparagraphs (a)(2) and (a)(3) of this subsection may be useful and desirable. (6) The maximum per diem rates referenced in subparagraph (a)(2) of this subsection generally would not constitute a reasonable daily charge-- (i) When no lodging costs are incurred; and/or (ii) On partial travel days (e.g., day of departure and return). Appropriate downward adjustments from the maximum per diem rates would normally be required under these circumstances. While these adjustments need not be calculated in 31-40 PART 31--CONTRACT COST PRINCIPLES AND PROCEDURES 31.205-47 - -------------------------------------------------------------------------------- accordance with the Federal Travel Regulation or Joint Travel Regulations, they must result in a reasonable charge. (7) Costs shall be allowable only if the following information is documented-- (i) Date and place (city, town, or other similar designation) of the expenses; (ii) Purpose of the trip; and (iii) Name of person on trip and that person's title or relationship to the contractor. (b) Travel costs incurred in the normal course of overall administration of the business are allowable and shall be treated as indirect costs. (c) Travel costs directly attributable to specific contract performance are allowable and may be charged to the contract under 31.202. (d) Airfare costs in excess of the lowest customary standard, coach, or equivalent airfare offered during normal business hours are unallowable except when such accommodations require circuitous routing, require travel during unreasonable hours, excessively prolong travel, result in increased cost that would offset transportation savings, are not reasonably adequate for the physical or medical needs of the traveler, or are not reasonably available to meet mission requirements. However, in order for airfare costs in excess of the above standard airfare to be allowable, the applicable condition(s) set forth above must be documented and justified. (e)(1) "Cost of travel by contractor-owned, -leased, or -chartered aircraft," as used in this paragraph, includes the cost of lease, charter, operation (including personnel), maintenance, depreciation, insurance, and other related costs. (2) The costs of travel by contractor-owned, -leased, or -chartered aircraft are limited to the standard airfare described in paragraph (d) of this subsection for the flight destination unless travel by such aircraft is specifically required by contract specification, term, or condition, or a higher amount is approved by the contracting officer. A higher amount may be agreed to when one or more of the circumstances for justifying higher than standard airfare listed in paragraph (d) of this subsection are applicable, or when an advance agreement under subparagraph (e)(3) of this subsection has been executed. In all cases, travel by contractor-owned, -leased, or -chartered aircraft must be fully documented and justified. For each contractor-owned, - -leased, or -chartered aircraft used for any business purpose which is charged or allocated, directly or indirectly, to a Government contract, the contractor must maintain and make available manifest/logs for all flights on such company aircraft. As a minimum, the manifest/log shall indicate-- (i) Date, time, and points of departure; (ii) Destination, date, and time of arrival; (iii) Name of each passenger and relationship to the contractor; (iv) Authorization for trip; and (v) Purpose of trip. (3) Where an advance agreement is proposed (see 31.109), consideration may be given to the following: (i) Whether scheduled commercial airlines or other suitable, less costly, travel facilities are available at reasonable times, with reasonable frequency, and serve the required destinations conveniently. (ii) Whether increased flexibility in scheduling results in time savings and more effective use of personnel that would outweigh additional travel costs. (f) Costs of contractor-owned or -leased automobiles, as used in this paragraph, include the costs of lease, operation (including personnel), maintenance, depreciation, insurance, etc. These costs are allowable, if reasonable, to the extent that the automobiles are used for company business. That portion of the cost of company-furnished automobiles that relates to personal use by employees (including transportation to and from work) is compensation for personal services and is unallowable as stated in 31.205-6(m)(2). 31.205-47 Costs related to legal and other proceedings. (a) Definitions. "Conviction," as used in this subsection, is defined in 9.403. "Costs" include, but are not limited to, administrative and clerical expenses; the costs of legal services, whether performed by in-house or private counsel; the costs of the services of accountants, consultants, or others retained by the contractor to assist it; costs of employees, officers, and directors; and any similar costs incurred before, during, and after commencement of a judicial or administrative proceeding which bears a direct relationship to the proceeding. "Fraud," as used in this subsection, means-- (1) Acts of fraud or corruption or attempts to defraud the Government or to corrupt its agents, (2) Acts which constitute a cause for debarment or suspension under 9.406-2(a) and 9.407-2(a) and (3) Acts which violate the False Claims Act, 31 U.S.C., sections 3729-3731, or the Anti-Kickback Act, 41 U.S.C., sections 51 and 54. "Penalty," does not include restitution, reimbursement, or compensatory damages. "Proceeding," includes an investigation. (b) Costs incurred in connection with any proceeding brought by a Federal, State, local or foreign government for violation of, or a failure to comply with, law or regulation by the contractor (including its agents or employees) are unallowable if the result is-- (1) In a criminal proceeding, a conviction; 31-41 31.205-47 FEDERAL ACQUISITION REGULATION - -------------------------------------------------------------------------------- (2) In a civil or administrative proceeding, either a finding of contractor liability where the proceeding involves an allegation of fraud or similar misconduct or imposition of a monetary penalty where the proceeding does not involve an allegation of fraud or similar misconduct; (3) A final decision by an appropriate official of an executive agency to-- (i) Debar or suspend the contractor; (ii) Rescind or void a contract; or (iii) Terminate a contract for default by reason of a violation or failure to comply with a law or regulation. (4) Disposition of the matter by consent or compromise if the proceeding could have led to any of the outcomes listed in subparagraphs (b)(1) through (3) of this subsection (but see paragraphs (c) and (d) of this subsection); or (5) Not covered by subparagraphs (b)(1) through (4) of this subsection, but where the underlying alleged contractor misconduct was the same as that which led to a different proceeding whose costs are unallowable by reason of subparagraphs (b)(1) through (4) of this subsection. (c) To the extent they are not otherwise unallowable, costs incurred in connection with any proceeding under paragraph (b) of this subsection commenced by the United States that is resolved by consent or compromise pursuant to an agreement entered into between the contractor and the United States, and which are unallowable solely because of paragraph (b) of this subsection, may be allowed to the extent specifically provided in such agreement. (d) To the extent that they are not otherwise unallowable, costs incurred in connection with any proceeding under paragraph (b) of this subsection commenced by a State, local, or foreign government may be allowable when the contracting officer (or other official specified in agency procedures) determines, that the costs were incurred either: (1) As a direct result of a specific term or condition of a Federal contract; or (2) As a result of compliance with specific written direction of the cognizant contracting officer. (e) Costs incurred in connection with proceedings described in paragraph (b) of this subsection, but which are not made unallowable by that paragraph, may be allowable to the extent that: (1) The costs are reasonable in relation to the activities required to deal with the proceeding and the underlying cause of action; (2) The costs are not otherwise recovered from the Federal Government or a third party, either directly as a result of the proceeding or otherwise; and (3) The percentage of costs allowed does not exceed the percentage determined to be appropriate considering the complexity of procurement litigation, generally accepted principles governing the award of legal fees in civil actions involving the United States as a party, and such other factors as may be appropriate. Such percentage shall not exceed 80 percent. However, if an agreement reached under paragraph (c) of this subsection has explicitly considered this 80 percent rule, then the full amount of costs resulting from that agreement shall be allowable. (f) Costs not covered elsewhere in this subsection are unallowable if incurred in connection with: (1) Defense against Federal Government claims or appeals or the prosecution of claims or appeals against the Federal Government (see 33.201). (2) Organization, reorganization, (including mergers and acquisitions) or resisting mergers and acquisitions (see also 31.205-27). (3) Defense of antitrust suits. (4) Defense of suits brought by employees or ex-employees of the contractor under section 2 of the Major Fraud Act of 1988 where the contractor was found liable or settled. (5) Costs of legal, accounting, and consultant services and directly associated costs incurred in connection with the defense or prosecution of lawsuits or appeals between contractors arising from either-- (1) An agreement or contract concerning a teaming arrangement, a joint venture, or similar arrangement of shared interest; or (2) Dual sourcing, coproduction, or similar programs, are unallowable, except when (i) Incurred as a result of compliance with specific terms and conditions of the contract or written instructions from the contracting officer, or (ii) When agreed to in writing by the contracting officer. (6) Patent infringement litigation, unless otherwise provided for in the contract. (7) Representation of, or assistance to, individuals, groups, or legal entities which the contractor is not legally bound to provide, arising from an action where the participant was convicted of violation of a law or regulation or was found liable in a civil or administrative proceeding. (8) Protests of Federal Government solicitations or contract awards, or the defense against protests of such solicitations or contract awards, unless the costs of defending against a protest are incurred pursuant to a written request from the cognizant contracting officer. (g) Costs which may be unallowable under 31.205-47, including directly associated costs, shall be segregated and accounted for by the contractor separately. During the pendency of any proceeding covered by paragraph (b) and subparagraphs (f)(4) and (f)(7) of this subsection, the contracting officer shall generally withhold payment of such costs. However, if in the best interests of the Government, 31-42 FAC 97-04 APRIL 24, 1998 PART 31--CONTRACT COST PRINCIPLES AND PROCEDURES 31.602 - -------------------------------------------------------------------------------- the contracting officer may provide for conditional payment upon provision of adequate security, or other adequate assurance, and agreement by the contractor to repay all unallowable costs, plus interest, if the costs are subsequently determined to be unallowable. 31.205-48 Deferred research and development costs. "Research and development," as used in this subsection, means the type of technical effort which is described in 31.205-18 but which is sponsored by, or required in performance of, a contract or grant. Research and development costs (including amounts capitalized) that were incurred before the award of a particular contract are unallowable except when allowable as precontract costs. In addition, when costs are incurred in excess of either the price of a contract or amount of a grant for research and development effort, such excess may not be allocated as a cost to any other Government contract. 31.205-49 Goodwill. Goodwill, an unidentifiable intangible asset, originates under the purchase method of accounting for a business combination when the price paid by the acquiring company exceeds the sum of the identifiable individual assets acquired less liabilities assumed, based upon their fair values. The excess is commonly referred to as goodwill. Goodwill may arise from the acquisition of a company as a whole or a portion thereof. Any costs for amortization, expensing, write-off, or write-down of goodwill (however represented) are unallowable. 31.205-50 [Reserved] 31.205-51 Costs of alcoholic beverages. Costs of alcoholic beverages are unallowable. 31.205-52 Asset valuations resulting from business combinations. (a) For tangible capital assets, when the purchase method of accounting for a business combination is used, whether or not the contract or subcontract is subject to CAS, the allowable depreciation and cost of money shall be based on the capitalized asset values measured and assigned in accordance with 48 CFR 9904.404-50(d), if allocable, reasonable, and not otherwise unallowable. (b) For intangible capital assets, when the purchase method of accounting for a business combination is used, allowable amortization and cost of money shall be limited to the total of the amounts that would have been allowed had the combination not taken place. Subpart 31.3--Contracts with Educational Institutions 31.301 Purpose. This subpart provides the principles for determining the cost of research and development, training, and other work performed by educational institutions under contracts with the Government. 31.302 General. Office of Management and Budget (OMB) Circular No. A-21, Cost Principles for Educational Institutions, revised, provides principles for determining the costs applicable to research and development, training, and other work performed by educational institutions under contracts with the Government. 31.303 Requirements. (a) Contracts that refer to this Subpart 31.3 for determining allowable costs under contracts with educational institutions shall be deemed to refer to, and shall have the allowability of costs determined by the contracting officer in accordance with, the revision of OMB Circular A-21 in effect on the date of the contract. (b) Agencies are not expected to place additional restrictions on individual items of cost. Subparts 31.4 and 31.5--[Reserved] Subpart 31.6--Contracts with State, Local, and Federally Recognized Indian Tribal Governments 31.601 Purpose. This subpart provides the principles for determining allowable cost of contracts and subcontracts with State, local, and federally recognized Indian tribal governments. 31.602 General. Office of Management and Budget (OMB) Circular No. A-87, Cost Principles for State and Local Governments, Revised, sets forth the principles for determining the allowable costs of contracts and subcontracts with State, local, and federally recognized Indian tribal governments. These principles are for cost determination and are not intended to identify the circumstances or dictate the extent of Federal and State or local participation in financing a particular contract. 31-43 31.603 FEDERAL ACQUISITION REGULATION - -------------------------------------------------------------------------------- 31.603 Requirements. (a) Contracts that refer to this Subpart 31.6 for determining allowable costs under contracts with State, local and Indian tribal governments shall be deemed to refer to, and shall have the allowability of costs determined by the contracting officer in accordance with, the revision of OMB Circular A-87 which is in effect on the date of the contract. (b) Agencies are not expected to place additional restrictions on individual items of cost. However, under 10 U.S.C. 2324(e) and 41 U.S.C. 256(e), the following costs are unallowable: (1) Costs of entertainment, including amusement, diversion, and social activities, and any costs directly associated with such costs (such as tickets to shows or sports events, meals, lodging, rentals, transportation, and gratuities). (2) Costs incurred to influence (directly or indirectly) legislative action on any matter pending before Congress, a State legislature, or a legislative body of a political subdivision of a State. (3) Costs incurred in defense of any civil or criminal fraud proceeding or similar proceeding (including filing of any false certification) brought by the United States where the contractor is found liable or has pleaded nolo contendere to a charge of fraud or similar proceeding (including filing of a false certification). (4) Payments of fines and penalties resulting from violations of, or failure to comply with, Federal, state, local, or foreign laws and regulations, except when incurred as a result of compliance with specific terms and conditions of the contract or specific written instructions from the contracting officer authorizing in advance such payments in accordance with applicable regulations in the FAR or an executive agency supplement to the FAR. (5) Costs of any membership in any social, dining, or country club or organization. (6) Costs of alcoholic beverages. (7) Contributions or donations, regardless of the recipient. (8) Costs of advertising designed to promote the contractor or its products. (9) Costs of promotional items and memorabilia, including models, gifts, and souvenirs. (10) Costs for travel by commercial aircraft which exceed the amount of the standard commercial fare. (11) Costs incurred in making any payment (commonly known as a "golden parachute payment") which is-- (i) In an amount in excess of the normal severance pay paid by the contractor to an employee upon termination of employment; and (ii) Is paid to the employee contingent upon, and following, a change in management control over, or ownership of, the contractor or a substantial portion of the contractor's assets. (12) Costs of commercial insurance that protects against the costs of the contractor for correction of the contractor's own defects in materials or workmanship. (13) Costs of severance pay paid by the contractor to foreign nationals employed by the contractor under a service contract performed outside the United States, to the extent that the amount of the severance pay paid in any case exceeds the amount paid in the industry involved under the customary or prevailing practice for firms in that industry providing similar services in the United States, as determined by regulations in the FAR or in an executive agency supplement to the FAR. (14) Costs of severance pay paid by the contractor to a foreign national employed by the contractor under a service contract performed in a foreign country if the termination of the employment of the foreign national is the result of the closing of, or curtailment of activities at, a United States facility in that country at the request of the government of that country. (15) Costs incurred by a contractor in connection with any criminal, civil, or administrative proceedings commenced by the United States or a State, to the extent provided in 10 U.S.C. 2324(k) or 41 U.S.C. 256(k). Subpart 31.7--Contracts with Nonprofit Organizations 31.701 Purpose. This subpart provides the principles for determining the cost applicable to work performed by nonprofit organizations under contracts with the Government. A nonprofit organization, for purpose of identification, is defined as a business entity organized and operated exclusively for charitable, scientific, or educational purposes, of which no part of the net earnings inure to the benefit of any private shareholder or individual, of which no substantial part of the activities is carrying on propaganda or otherwise attempting to influence legislation or participating in any political campaign on behalf of any candidate for public office, and 31-44 (FAC 97-04) PART 31--CONTRACT COST PRINCIPLES AND PROCEDURES 31.703 - -------------------------------------------------------------------------------- which are exempt from Federal income taxation under section 501 of the Internal Revenue Code. 31.702 General. Office of Management and Budget (OMB) Circular No. A-122, Cost Principles for Nonprofit Organizations, sets forth principles for determining the costs applicable to work performed by nonprofit organizations under contracts (also applies to grants and other agreements) with the Government. 31.703 Requirements. (a) Contracts which refer to this Subpart 31.7 for determining allowable costs shall be deemed to refer to, and shall have the allowability of costs determined by the contracting officer in accordance with, the revision of OMB Circular A-122 in effect on the date of the contract. (b) Agencies are not expected to place additional restrictions on individual items of cost. However, under 10 U.S.C. 2324(e) and 41 U.S.C. 256(e), the costs cited in 31.603(b) are unallowable. * * * * * * (FAC 97-04) 31-45 [GRAPHIC] U.S. DEPARTMENT OF COMMERCE [LOGO] Office of Inspector General --------------------------- National Institute of Standards and Technology Program-Specific Audit Guidelines for Advanced Technology Program (ATP) Cooperative Agreements with Joint Ventures November 1996 Office of Audits, Atlanta Regional Office TABLE OF CONTENTS Chapter 1 - General Guidance Audit Requirements ..................................................... 1 Objectives ............................................................. 2 Frequency .............................................................. 2 Engagement Letter ...................................................... 2 Protection of Confidential Information ................................. 2 Criteria ............................................................... 2 Chapter 2 - Reporting Requirements Report Package ......................................................... 4 Submission of Reports .................................................. 5 Chapter 3 - The Schedule of Fund Sources and Project Costs .................. 6 Chapter 4 - Auditor's Opinion on the Schedule of Fund Sources and Project Costs Overview ............................................................... 7 Cost Principles ........................................................ 7 Cost Limitations ....................................................... 7 Indirect Costs ......................................................... 8 Suggested Audit Procedures ............................................. 8 Chapter 5 - The Attestation Engagement Overview ............................................................... 11 Management Assertions, Compliance Requirements and Suggested Examination Procedures 1. Matching or Cost-Sharing ....................................... 11 2. Property Management ............................................ 12 3. Procurement .................................................... 13 4. Federal Reporting .............................................. 13 5. Subcontractors ................................................. 14 Appendices Appendix A ............................................................. 15 Appendix B ............................................................. 16 Appendix C ............................................................. 17 Chapter 1. General Guidance Audit Requirements: The Advanced Technology Program (ATP) is a cost-sharing program designed to assist United States industry and businesses pursue high risk, enabling technologies with significant commercial and economic potential. The statutory authority for ATP, incorporated into Section 28, Subpart C of the National Institute of Standards and Technology (NIST) Act of 1988, and as amended in 1991, requires that NIST establish procedures regarding financial reporting and auditing to ensure that cooperative agreements are used for their specified purposes. Federal legislation requires that all audits of financial assistance be performed in accordance with Government Auditing Standards issued by the Comptroller General of the United States. These audit requirements can be met by conducting an audit of the ATP financial statement, "Schedule of Fund Sources and Project Costs" and an examination-level attestation engagement of management's assertions regarding compliance with laws and regulations. The ATP financial statement will be audited using generally accepted auditing standards which have been incorporated into the Government Auditing Standards. The examination-level compliance attestation engagement will be conducted in accordance with Government Auditing Standards and the standards contained in the Statement on Standards for Attestation Engagement (SSAE) No. 3, Compliance Attestation, issued by the American Institute of Certified Public Accountants (AICPA). An engagement conducted in accordance with SSAE No. 3, Compliance Attestation, is a type of financial-related audit under Government Auditing Standards. With two exceptions, these guidelines are to be used by independent auditors to perform the required program-specific audit. The first exception is for ATP recipients covered under the Single Audit Act of 1984 and Office of Management and Budget (OMB) Circular A-128, "Audits of State and Local Governments." The second exception is for ATP recipients covered under the audit requirements of OMB Circular A-133, "Audits of Institutions of Higher Education and Other Nonprofit Institutions." For recipients covered by OMB Circular A-128 or OMB Circular A-133 audit requirements, these guidelines identify the allowability of specific cost elements and other programmatic compliance requirements that should be tested. These guidelines are not intended to be a complete manual of procedures, nor are they intended to supplant the auditor's judgment of the work required to meet the program-specific audit objectives. These guidelines may not cover all circumstances encountered while performing the program-specific audit, similarly not all procedures will apply to every situation. Auditors must use their professional judgment in determining the work necessary to render the required opinions. Different guidelines will be used by joint venture participants from those used by single companies because of differing requirements for each of these types of award recipients. The term joint venture refers to at least two separately owned for-profit companies, both of which are substantially involved in the R&D and contributing toward the cost-sharing or matching requirement per the terms of the cooperative agreement. The joint venture need not be a legally constituted entity. Each joint venture participant is considered to be a direct recipient of the ATP 1 award. As a result, each joint venture participant is required to have an examination conducted in accordance with these guidelines. All federal programs are assigned a number in the Catalog of Federal Domestic Assistance (CFDA). The CFDA number for the Advanced Technology Program is 11.612. Objectives: The opinions on the program financial statement and management's assertions regarding compliance will be used as a tool by program managers and grant officials in meeting their responsibilities for ensuring that federal funds were spent for their intended purposes and in accordance with laws and regulations. Frequency: ATP recipients shall have a program-specific audit performed in accordance with the following schedule: o For awards less than 24 months, a program-specific audit is required only at the end of the project. o For 2-, 3-, and 4-year awards, a program-specific audit is required after the first year and at the end of the project. o For 5-year awards, a program-specific audit is required after the first year, again after the third year, and at the end of the project. The program-specific audit is to cover the period elapsed since the last audit of the joint venture participant or since the project began if the audit is the initial audit. In the case of a no-cost extension to the first year of an award, the audit should include project funds and project costs for the first year and extension period. In the case of a no-cost extension to the third year of a 5-year award, the audit should include project funds and project costs since the last audit and the extension period. Engagement Letter: A letter of engagement between the joint venture participant and the auditor conducting the program-specific audit shall specifically include a provision that the auditor is required to provide the Secretary of Commerce, the Office of Inspector General, and the U.S. General Accounting Office or their representatives access to working papers or related documents. Access to working papers includes making necessary photocopies. Protection of Confidential Information: Certain information obtained in this engagement is exempt from disclosure under the Freedom of Information Act (FOIA). Exempt from FOIA disclosure is information on the business operation of any member of the business or joint venture; and trade secrets possessed by any business or any member of the joint venture. Criteria: The auditor should review the cooperative agreement which stipulates all required awards terms and conditions including the applicable administrative requirements and cost 2 principles. In addition, the following documents should be available: Department of Commerce Requirements Department of Commerce (DOC) Financial Assistance Standard Terms and Conditions. Financial Assistance Award (Form CD-450) and any amendment to the Financial Assistance Award (Form CD-451) which incorporates the approved budget, as described on Form NIST-1263. General Terms and Conditions - Advanced Technology Program. Special Award Conditions - Advanced Technology Program Advanced Technology Program Proposal Preparation Kit which includes: o Advanced Technology Program (ATP) Public Law 100-418 as amended by Public Law 102-245 o Advanced Technology Program (ATP) Rule - Title 15, CFR Part 295 Administrative Requirements (As Applicable) Office of Management and Budget (OMB), Circular A-110, "Uniform Administrative Requirements for Grants and Agreements with Institutions of Higher Education, Hospitals and Other Nonprofit Organizations." "Uniform Administrative Requirements for Grants and Cooperative Agreements to State and Local Governments," (Common Rule) Title 15, CFR Part 24. Cost Principles (As Applicable) Federal Acquisition Regulations (FAR) System, Part 31, "Contract Cost Principles and Procedures." Office of Management and Budget (OMB), Circular A-21, "Cost Principles for Educational Institutions." Office of Management and Budget (OMB), Circular A-87, "Cost Principles for State, Local and Indian Tribal Governments." Office of Management and Budget (OMB), Circular A-122, "Cost Principles for Nonprofit Organization." 3 Chapter 2. Reporting Requirements Report Package: The report package should include the following: 1. A Schedule of Fund Sources and Project Costs including disclosure notes prepared by the NIST joint venture participant. The Schedule should include the most recently approved project budget. The budget information is found on Form NIST-1263. Chapter 3 of these guidelines provides further details on the preparation of the Schedule. Appendix A provides an illustrative example. 2. An opinion on the Schedule of Fund Sources and Project Costs of the ATP award. Chapter 4 of these guidelines includes a discussion of the cost principles governing the project costs. The auditor's opinion should be issued in accordance with the AICPA's Codification of Statement of Auditing Standards, Section 623, Paragraph 22, Special Purpose Financial Presentation to Comply with Contractual Agreement or Regulatory Provisions. Appendix B provides an illustrative example. 3. An opinion on management's assertions on the entity's compliance with specified requirements applicable to the ATP program. The practitioner's opinion should be issued in accordance with the AICPA's Statement on Standards for Attestation Engagements No. 3, Compliance Attestation. The management assertions are found in Chapter 5 of these guidelines. Appendix C provides an illustrative example. 4. A written communication of any reportable conditions or material weaknesses which were noted in the audit of the Schedule of Fund Sources and Project Costs or during the compliance attestation engagement that could adversely affect the entity's ability to report financial data or comply with the specified compliance requirements. AICPA Statement of Auditing Standards (SAS) No. 60, Communication of Internal Control Structure Related Matters Noted in an Audit, requires these internal control deficiencies be communicated to management. These guidelines require the communication be in writing. A report on the Internal Controls prepared in accordance with Government Auditing Standards is not required for financial-related audits. 5. A Schedule of Findings and Questioned Costs when applicable. This schedule will include all material findings and questioned costs resulting from the compliance testing or identified through the audit of the Schedule of Fund Sources and Project Costs. The findings should be developed with information necessary to facilitate the audit resolution process (i.e., the size of the universe and corresponding dollar amount, size and dollar amount of the sample, and number and corresponding dollar amount of the instances of noncompliance). Because independent auditors do not disallow costs, questioned costs are identified for possible disallowance by the Department of Commerce. 6. A Corrective Action Plan when applicable. Management should describe the corrective action taken or planned in response to the findings and questioned costs identified by the auditor. The plan should also include the status of corrective actions 4 taken on prior findings resulting from independent audits or audits performed by the Office of Inspector General. Submission of Reports: The report package should be submitted within 90 days of the end of the reporting period. The joint venture participants should submit with the report package the joint venture participant's most recent audited or reviewed financial statements. Two copies should be submitted to the Department of Commerce. One copy should be submitted to the NIST Grants Officer at the following address: NIST Grants Office Cooperative Agreement No. ______________ Building 301, Room B129 Gaithersburg, Maryland 20899-0001 The other copy should be forwarded to the Office of Inspector General at the following address: U.S. Department of Commerce Office of Inspector General ATTN: ATP Program-Specific Audit Report 401 West Peachtree Street, NW, Suite 2342 Atlanta, Georgia 30308 In the accompanying transmittal letter, please provide the name and phone number of the joint venture participant's designated contact person in the event of questions about the submitted reports. 5 Chapter 3. The Schedule of Fund Sources and Project Costs The Schedule of Fund Sources and Project Costs as presented in Appendix A will be prepared by the joint venture participant from their accounting records. The Schedule should report the latest approved budget as identified on Form NIST-1263, the total fund sources, and project costs for the reporting period. Projects costs include costs allowable under the applicable cost principles subject to all limitations and exclusions set forth in the award including the award's special and general terms and conditions, and DOC's financial assistance standard terms and conditions. In addition, the joint venture participant should review the guidance included in ATP's Proposal Preparation Kit for the allowability or valuation of a specific cost element. If the aforementioned documents are silent on the accounting for a specific item of cost, then generally accepted accounting principles should be used. The joint venture participant should prepare adequate disclosure notes to describe the basis of the schedule's presentation and any significant accounting policies used in preparing the schedule. In addition, the notes should include a general description of the company receiving the ATP award, a general project description, basic award terms such as the amount of federal funding, the recipient's required match and a list of the other joint venture members. When appropriate, disclosure notes should also include related party transactions, subsequent events, and material questioned costs. 6 4. The Auditor's Opinion on the Schedule of Fund Sources and Project Costs Overview: The Schedule of Fund Sources and Project Costs is the ATP financial statement. This program financial statement should be audited under generally accepted auditing standards incorporated into Government Auditing Standards. The opinion on the Schedule of Fund Sources and Project Costs should be prepared in accordance with the AICPA's Codification of Statement of Auditing Standards, Section 623, Paragraph 22, Special Purpose Financial Presentation to Comply with Contractual Agreement or Regulatory Provisions. The Schedule of Fund Sources and Project Costs is prepared in conformance with the terms of the award and consistent with the cost principles which govern the expenditures of funds. This presentation of project income and expenditures is referred to as an other comprehensive basis of accounting. If material questioned costs are found while the auditor is forming an opinion of the ATP financial statement or during the attestation engagement, the Schedule of Fund Sources and Project Costs should remain unchanged and include the total project costs incurred, including the material questioned costs. The costs questioned should be disclosed in the accompanying notes to the ATP financial statement. With adequate note disclosure, the auditor can issue an unqualified opinion with an explanatory paragraph following the opinion, as appropriate. Cost Principles: There are federal cost principles for each type of recipient receiving federal assistance. The cost principles applicable to the recipient are stated in the award document. Allowability of costs is determined as follows: For-profit organizations - Federal Acquisition Regulations (FAR) Part 31, "Contract Cost Principles and Procedures" Non-profit organizations - OMB Circular A-122, "Cost Principles for Nonprofit Organizations" Educational organizations - OMB Circular A-21, "Cost Principles for Educational Organizations" Government organizations - OMB Circular A-87, "Cost Principles for State, Local and Indian Tribal Governments" The ATP program was created as a cost reimbursement research and development vehicle. NIST built the cost reimbursement theory into the ATP regulation and cooperative agreements by requiring compliance with applicable federal administrative requirements and cost principles. Reimbursement claims to NIST using a basis other than cost (e.g., GSA Schedule, commercial price, list price, etc.) are not allowable under the terms of ATP cooperative agreements. The cost principles apply to the total ATP project cost, regardless of whether the cost element is part of the federal or nonfederal share. ATP recipients may not claim as part of their nonfederal cost share, the difference between actual cost and market price of products contributed to the joint venture. Cost Limitations: The following costs are not allowable under the ATP program regardless of whether they are allowable under the FAR or OMB cost principles: 7 1. Cost of tuition for students working on the ATP project. 2. Profit, management fees, interest on borrowed funds, and facilities capital cost of money 3. Marketing surveys, pre-commercialization or commercialization studies. 4. Bid and proposal costs. 5. Costs incurred in prior time periods, i.e. "sunk" costs. 6. Independent Research and Development (IR&D) costs when funded from Federal sources.. 7. Direct charges for the construction of new buildings or extensive renovations of existing laboratory buildings. Refer to the ATP Proposal Preparation Kit for further details regarding the unallowable costs cited above. The award terms and conditions stipulate prior approval requirements. As of the date of these guidelines, the following are allowable ONLY IF prior approval is obtained from the NIST Grants Officer. 1. All sole source subcontracts over $100,000. 2. Budget transfers among direct cost categories exceeding 10 percent of the total budget. 3. Capital expenditures in excess of $100,000. 4. Changes to key personnel. 5. Changes to the scope of work. 6. Changes in matching funds. 7. Changes to or new members of the joint venture. Indirect Costs: Costs claimed as indirect costs are subject to all the same limitations and prior approval requirements as direct costs. In order to be reimbursed for indirect costs, each joint venture participant must have an indirect cost rate or proposal approved by its federal cognizant agency. The indirect cost rate proposals provide a basis for allocating indirect costs to federal programs. They should be submitted by the joint venture participant to its cognizant federal agency within 90 days of receiving the ATP award. Costs claimed as indirect costs are subject to all the same limitations and prior approval requirements as direct costs. If the entity has received a final rate from its cognizant agency, there is no need for end of the year adjustments to reflect actual costs. However, if the entity has a negotiated provisional rate or approved indirect cost proposal allowing the organization to charge at their calculated provisional rate, then the indirect cost claimed should be adjusted to reflect actual indirect costs incurred and allocable to the award during the year. If the indirect costs were based on a fixed rate with carryover provisions, management must determine the correct carryforward adjustment based on any differences between costs claimed and actual costs incurred for the year. Regardless of any approved indirect cost rate applicable to the award, the maximum dollar amount of allocable indirect costs will not exceed the line item for indirect costs contained in the approved budget. Suggested Audit Procedures - The following are the suggested audit procedures for determining the allowability of costs in accordance with the cost principles: 8 1. Obtain the latest approved budget (Form NIST-1263) for the project period under audit. 2. Test that the costs are within the approved budget. 3. Test that the costs are allocable to the ATP award in accordance with the applicable cost principles. 4. Test that the cost conforms to any limitations or exclusions set forth in the cooperative agreement award, applicable terms and conditions incorporated in the award, i.e., Special Award Conditions, ATP General Terms and Conditions or DOC Financial Assistance Standard Terms and Conditions. 5. Ascertain that the cost has been given consistent accounting treatment within and between accounting periods. 6. Test on a sample basis that the cost charged to ATP is a net cost, i.e., all applicable credits, volume or cash discounts, refunds, rental income, trade-ins, scrap sales, etc., have been subtracted. 7. Examine on a sample basis the underlying documentation, i.e., time and attendance payroll records, time and effort records for employees charged to more than one activity, approved purchase orders, vendor invoices, canceled checks, etc., as appropriate, and determine that the cost is correctly charged as to project, account, amount and period. 8. For wages, salaries and fringe benefits, test on a sample basis that the employee's total compensation is consistent with established company practices for that category of employee. 9. For wages, salaries and fringe benefits, compare a representative sample of individual compensation levels to prior years and test that the escalation clause in the approved budget is not exceeded. 10. Test, on a sample basis, that charges for fringe benefits including sick leave, vacation leave, life and health insurance, and pension plans are supported by a plan and these benefits are distributed allocably to the ATP program. 11. Test, on a sample basis, that depreciation is not being claimed on assets or a portion of the assets purchased with federal funds. 12. Inquire of management, the valuation method used for software development costs and for valuation of software or other company assets contributed to the joint venture, or sold, given or exchanged to other joint venture members. NOTE: Any valuation in excess of cost should be questioned in the Schedule of Findings and Questioned Costs unless there was an advance financial understanding or other written approval from the NIST Grants 9 Office. If the Grants Office provided written approval for a valuation method other than cost, the valuation method should be disclosed in the notes to the financial statements. 13. Determine whether software development and other project expenses charged to the award are valued at cost; determine that the costs were incurred during the award period and are in conformance with the applicable cost principles. 10 Chapter 5. The Attestation Engagement Overview: The practitioner is required to obtain written assertions from management as part of the compliance attestation engagement performed in accordance with the AICPA's Statement on Standards for Attestation Engagement (SSAE) No. 3, Compliance Attestation. In addition to the five specific assertions that follow, management's written representations should include the general matters required by paragraph 70 of SSAE No. 3, Compliance Attestation. Management's written assertions are an integral part of the engagement. Materiality relates to each specific management assertion. Management Assertions, Compliance Requirements and Suggested Examination Procedures: 1. Matching or Cost-sharing Management Assertion. The matching funds required by the ATP award have been provided. These funds are not from a subcontractor or other federal sources. The matching funds claimed as ATP project costs were not also used as matching funds on other federally supported activities. The matching funds meet the definition provided in OMB Circular A-110, Subpart C, Paragraph 23 and conform to the limitations in Title 15, CFR Part 295.2(l). Compliance Requirement - The ATP statute and implementing regulations require joint ventures to provide a match that is more than 50 percent of the total project costs. ATP regulation has defined the term "matching funds" to include the following: 1) dollar contributions from state, county, city, company or other non-federal sources, 2) in-kind contributions of persons employed full time by the joint venture, 3) in-kind contributions of a pro-rata share of part-time personnel that the program deems essential and who devote at least 50 percent of their time to the program, and 4) in-kind value of equipment that the program deems essential and can be either the cost of new equipment or the depreciated value of previously purchased equipment. The value of equipment will be further pro-rated according to the share of total use dedicated to carrying out the proposed ATP work program. ATP has placed two additional dollar limits on the allowability of matching funds which is 1) the total in-kind value of part-time personnel cannot exceed 20 percent of the applicant's total annual share of matching funds, and 2) the total in-kind value of equipment expenditures cannot exceed 30 percent of the applicant's total annual share of matching funds. ATP requires that there are at least two separately owned for-profit members in a joint venture and the joint venture participants contribute toward the cost-sharing or matching requirement per the terms of the cooperative agreements. Subcontractors may not contribute towards the matching fund requirement. The joint venture participant cannot use funds received from other federal programs for the matching share to the ATP award. The joint venture participant cannot use the same cost as a charge or required match to two separate federal programs. 11 Suggested Examination Procedures 1. Ascertain the amount of match provided by the joint venture participant. Determine whether the recipient met the required match specified in the cooperative agreement. 2. Ascertain that the match provided did not come from a subcontractor to the project or from other federal sources. 3. Inquire of management whether the costs charged to the ATP project have been used to meet cost-sharing or matching requirements of other federally supported activities. 4. If in-kind contributions are part of the match, trace these contributions to the joint venture participant's accounting and summary records to determine that the value of the in-kind contribution is in accordance with OMB Circular A-110, Subpart C, Paragraph 23 and conforms to the limitations in ATP regulations. 2. Property Management Management Assertion. Equipment acquired with the ATP funds has been accounted for in accordance with federal property management standards found in OMB Circular A-110, Subpart C, Paragraphs 30-37. Compliance Requirement - Title to equipment acquired using federal financial assistance vests with the recipient. The recipient agrees to use the equipment for the authorized purpose of the project as long as it is needed and will not encumber the asset. There are no requirements pertaining to equipment with a cost of less than $5,000. NIST has disposition authority as described in OMB Circular A-110, Subpart C, Paragraph 34. While title to property and equipment vests with the recipient, the recipient has no cost basis in the assets purchased with government funds. The recipient's fixed asset system, therefore, must clearly identify that federal funds are the source of funding for the assets. The company is neither entitled to a depreciation deduction on their corporate tax return nor the R & D credit based on federal expenditures under this program. Suggested Examination Procedures 1. Ascertain that the recipient has a fixed asset system to identify equipment purchased, including the source of funds for equipment, percentage of federal ownership, location, cost and other pertinent information. 2. Ascertain that a physical inventory is conducted at least once every two years. 3. Inquire as to the disposal of ATP funded equipment during the award period. Ascertain whether disposition instructions were requested from NIST and, if so, were they followed. If disposition instructions were not requested, did the disposition of property meet the 12 requirements of OMB A-110, Subpart C, Paragraph 34. 3. Procurement Management Assertion. Federal procurement standards described in OMB Circular A-110, Subpart C, Paragraphs 40-48 have been incorporated into the purchasing policies and adhered to for ATP award expenditures. Compliance Requirement - The purpose of federal procurement requirements is to provide to the maximum extent practical open and free competition. Recipients will use their own written procurement procedures provided these procedures conform to federal law and regulations identified in OMB Circular A-110 Subpart C, Paragraphs 40-48. Suggested Examination Procedures 1. Review the recipient's written procurement policies. If the previous program-specific audit did not disclosed any problems with the recipient's procurement policies then examine only changes to those policies since the previous audit. 2. Test a representative sample of procurement transactions. Evaluate whether the contract files maintain sufficient detail to document the significant history of the procurement, including the rationale for method of procurement, selection of contract type, contractor selection or rejection, including contract modifications. 3. Inquire about the rationale for any procurement with limited competition. 4. Review correspondence to determine that documentation for procurement transactions exceeding $100,000 was submitted to the NIST grants officer for approval if any of the following conditions exist: 1) the award was made by noncompetitive negotiation, 2) only a single bid or offer was received, 3) the award was made to other than the apparent low bidder, or 4) a brand name product was specified. 4. Federal Reporting Management Assertion. The amounts in the quarterly financial status reports and the monthly and quarterly requests for reimbursements agree with the underlying accounting records and summary records. Compliance Requirement - Quarterly financial status report (SF 269) and a monthly or quarterly request for reimbursement (SF 270) are required. The financial status report and claims for reimbursement contain information that can be reconciled to the accounting records from which the Schedule of Fund Sources and Project Costs was prepared. A report of federal cash transactions (SF 272) is required if federal funds are provided under a cash advance. 13 Suggested Examination Procedures 1. Test that required reports are filed on a timely basis. 2. Obtain an understanding of the awardee's procedures for preparing and reviewing the financial status reports and the request for reimbursement. 3. Select a sample of financial status reports and requests for reimbursement to determine that the reports are prepared according to DOC instructions. For the sample, trace significant data to supporting documentation, i.e. summary worksheets, ledgers, etc. Report all material differences between financial reports and the company's accounting records. 4. Review the company's system for monitoring payment requests from subcontractors. Test for controls which will limit payments to actual reimbursements. 5. Review significant adjustments made to the general ledger accounts or other accounting records affecting the ATP award and evaluate for propriety. Ascertain whether amended federal reports were submitted for these adjustments. 5. Subcontractors Management Assertion. The contracts entered into with subcontractors, as defined below, require that the subcontractors adhere to federal laws and regulations as specified by the ATP award and sanctions are specified for the subcontractor's noncompliance. Compliance Requirement - The joint venture is ultimately responsible to NIST for funds passed to a subcontractor. For the purpose of these guidelines, a subcontractor is defined as an organization which receives a portion of the financial assistance from the awardee and assists the ATP awardee in meeting the project's goals. A subcontractor is not a joint venture recipient. The ATP awardee should include in each subcontract adherence to the federal laws and regulations required by the ATP project. Suggested Examination Procedures 1. Test subcontracts to determine that the ATP awardee required adherence to federal laws and regulations as specified by the ATP award. 2. Test subcontracts to determine that there are sanctions in place for noncompliance with laws and regulations as specified by the ATP award and if noncompliance was found that the sanctions were enforced. 3. Ascertain whether the ATP awardee received the subcontractor's audit reports and/or has performed other monitoring of the subcontractor. 14 Appendix A Schedule of Fund Sources and Project Costs for NIST's Cooperative Agreement 70xxxx#x#### CFDA 11.612 For the Period of xx/xx/xx - xx/xx/xx Approved Actual Receipts Budget & Project Costs ======== =============== Fund Sources ATP Award Funds --------------- --------------- Recipient's Contribution --------------- --------------- Program Income --------------- --------------- Other --------------- --------------- Total Fund Sources =============== =============== Project Costs Direct Costs Personnel Salaries Technical --------------- --------------- Administrative --------------- --------------- Fringe Benefits Technical --------------- --------------- Administrative --------------- --------------- Travel --------------- --------------- Equipment --------------- --------------- Materials/Supplies --------------- --------------- Subcontracts --------------- --------------- Other --------------- --------------- Total Direct Costs --------------- --------------- Total Indirect Costs --------------- --------------- Total Project Costs =============== =============== 15 Appendix B Independent Auditor's Report on The Schedule of Fund Sources and Project Costs for NIST ATP Cooperative Agreement Number 70xxxx#x#### For the Period of xx/xx/xx to xx/xx/xx Independent Auditor's Report [Addressee] We have audited the accompanying Schedule of Fund Sources and Project Costs of [joint venture participant] as of [date of this report]. This Schedule of Fund Sources and Project Costs is the responsibility of [joint venture participant's] management. Our responsibility is to express an opinion on the Schedule of Fund Sources and Project Costs based on our audit. We conducted our audit in accordance with generally accepted auditing standards and Government Auditing Standards issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Schedule of Fund Sources and Project Costs are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Schedule of Fund Sources and Project Costs. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Schedule of Fund Sources and Project Costs. We believe that our audit provides a reasonable basis for our opinion. The accompanying Schedule of Fund Sources and Project Costs was prepared for the purpose of complying with the award requirements of the ATP cooperative agreement number 70xxxx#x#### entered into by [joint venture participant] and the U.S. Department of Commerce as described in Note X. This Schedule was prepared in conformance with the award requirements which is a comprehensive basis of accounting other than generally accepted accounting principles. In our opinion, the Schedule of Fund Sources and Project Costs referred to above presents fairly, in all material respects(1), the source of funds and project costs of [joint venture participant] for the period [year end (date)/period from (date) to (date)] in conformity with the basis of accounting described in Note X. This report is intended solely for the information and use of the audit committee, management and the U.S. Department of Commerce and should not be used for any other purpose. [Signature] [Date] - ---------- (1) The auditor should modify the standard report and issue a qualified, adverse or disclaimer of opinion, as appropriate, in the following circumstances: - - The joint venture participant does not adjust the Schedule of Fund Sources and Project Cost or disclose the material questioned costs in the accompanying notes. - - In forming an opinion on the Schedule of Fund Sources and Project Costs the extent of other potentially unallowable costs in transactions not tested should be considered. 16 Appendix C Opinion on Management's Assertions on Compliance with Specified Requirements Applicable to the NIST Advanced Technology Program Cooperative Agreement Number 70xxxxx#x#### Independent Accountant's Report [Addressee] We have examined management's assertions included in its representation letter dated [date], that [joint venture participant] complied with [list specified compliance requirements or attach in accompanying schedule], relative to [joint venture participant' s] Schedule of Fund Sources and Project Costs which is part of this report package. As discussed in that representation letter, management is responsible for [joint venture participant's] compliance with those requirements. Our responsibility is to express an opinion on management's assertions about [joint venture participants] compliance based on our examination. Our examination was made in accordance with Government Auditing Standards, issued by the Comptroller General of the United States; standards established by the American Institute of Certified Public Accountants; and the NIST Program-Specific Audit Guidelines for Advanced Technology Program (ATP) Cooperative Agreements with Joint Ventures, issued by the U.S. Department of Commerce, Office of Inspector General, dated October 1996 and, accordingly, included examining, on a test basis, evidence about [joint venture participant's] compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our examination provides a reasonable basis for our opinion. Our examination does not provide a legal determination on [joint venture participant's] compliance with specified requirements. In our opinion, management's assertions that [joint venture participant] complied with the aforementioned requirements relative to the [joint venture participant's] ATP Award Cooperative Agreement No. 70xxxx#x#### during the [year ended (date)/period from(date) to (date)] are fairly stated, in all material respects(2). This report is intended solely for the information of the audit committee, management, and the U.S. Department of Commerce. [Signature] [Date] - ---------- (2) The practitioner should modify the standard report if any of the following conditions exist: - - There is a material noncompliance with specified requirements; - - There is a matter involving a material uncertainty; - - There is a restriction on the scope of the engagement, or - - The practitioner decides to refer to the report of another practitioner as the basis, in part, for the practitioner's report. When an examination of management's assertions about an entity's compliance with specified requirements discloses material noncompliance, the practioner should follow the guidance in paragraph 62 through 68 of SSAE No. 3. 17 - -------------------------------------------------------------------------------- FORM CD-451 U.S. DEPARTMENT OF COMMERCE (REV. 10-93) DAO 203-26 AMENDMENT TO FINANCIAL ASSISTANCE AWARD - -------------------------------------------------------------------------------- RECIPIENT NAME Plug Power, LLC - -------------------------------------------------------------------------------- STREET ADDRESS 968 Albany-Shaker Road - -------------------------------------------------------------------------------- CITY, STATE, ZIP CODE Latham, NY 12110 - -------------------------------------------------------------------------------- |_| GRANT |X| COOPERATIVE AGREEMENT - -------------------------------------------------------------------------------- ACCOUNTING CODE **SEE BELOW - -------------------------------------------------------------------------------- AWARD NUMBER 70NANB8H4039 - -------------------------------------------------------------------------------- AMENDMENT NUMBER 01 - -------------------------------------------------------------------------------- EFFECTIVE DATE JAN 11 1999 - -------------------------------------------------------------------------------- EXTEND WORK COMPLETION TO - -------------------------------------------------------------------------------- DEPARTMENT OF COMMERCE OPERATING UNIT NATIONAL INSTITUTE OF STANDARDS AND TECHNOLOGY GRANTS OFFICE BUILDING 301, ROOM B129, GAITHERSBURG, MARYLAND 20899-0001 - -------------------------------------------------------------------------------- PREVIOUS TOTAL COSTS ARE REVISED AS FOLLOWS: ESTIMATED COSTS ADD DEDUCT ESTIMATED COST - -------------------------------------------------------------------------------- FEDERAL SHARE OF COST $4,737,848 $-0- $-0- $4,737,848 - -------------------------------------------------------------------------------- RECIPIENT SHARE OF COST $5,000,000 $-0- $-0- $5,000,000 - -------------------------------------------------------------------------------- TOTAL ESTIMATED COST $9,737,848 $-0- $-0- $9,737,848 - -------------------------------------------------------------------------------- REASON(S) FOR AMENDMENT Project Title: Distributed Premium Power Fuel Cell Systems Incorporating Novel Materials and Assembly Techniques under Advanced Technology Program (ATP) 98-03 This cooperative agreement is being amended to (1) change the project period from 01/01/99 - 12/31/00 to 02/28/99 - 02/27/01, per Recipient's requests dated 12/23/98 & 01/05/99; (2) provide Recipient a twenty-nine (29) day extension until 01/29/99, to submit documentation required under Article Eight (8) JV Contingency of the ATP Special Award Conditions; and (3) indicate on the attached, those terms and conditions affected by this action, and any administrative or statutory requirements. - -------------------------------------------------------------------------------- This Amendment approved by the Grants Officer is issued in triplicate and constitutes an obligation of Federal funding. By signing the three documents, the Recipient agrees to comply with the Amendment provisions checked below and attached, as well as previous provisions incorporated into the Award. Upon acceptance by the Recipient, two signed Amendment documents shall be returned to the Grants Officer and the third document shall be retained by the Recipient. If not signed and returned by the Recipient within 15 days of receipt, the Grants Officer may declare this Amendment null and void. |X| Special Award Conditions |_| Line Item Budget |_| Other(s): ----------------------------------------------------------- - ------------------------------------------------------------------------- - ------------------------------------------------------------------------- **ACCOUNTING CODE: cc: 8/474-0342 Obj. Cl. 4110 Req. No. 8/474-4273 $0.00 - ------------------------------------------------------------------------- B-AE93-N-H-F-N-A-36-41399 EIN: 16-1528998 474/G. Ceasar - -------------------------------------------------------------------------------- SIGNATURE OF DEPARTMENT OF COMMERCE GRANTS OFFICER TITLE DATE Lois McDuffee /s/ Lois McDuffee Grants Officer 1/11/99 - -------------------------------------------------------------------------------- TYPED NAME AND SIGNATURE OF AUTHORIZED RECIPIENT OFFICIAL TITLE DATE /s/ [ILLEGIBLE] President & CEO 1/22/99 - -------------------------------------------------------------------------------- ELECTRONIC FORM 3 8. JV CONTINGENCY: No costs (Federal or Non-Federal) shall be incurred or charged to this cooperative agreement until the Grants Officer has received and approved in writing the following: A. By 01/29/99 the designation of a qualified replacement Joint Venture (JV) Partner, and an executed Joint Venture (JV) Agreement. B. The Joint Venture (JV) Agreement which must include, but is not limited to, the following provisions: (a) a Power of Attorney clause, which designates an organization to serve as the collaboration's Administrator and to enter into this cooperative agreement for and on behalf of the entire JV; (b) an Intellectual Property Plan, which delineates the disposition of the collaboration's intellectual property: (c) a Governmental Use License, which grants to the Government a right to use the intellectual property created under the ATP-sponsored project; (d) a Precedence clause, which relegates the terms of the JV agreement to those of the NIST cooperative agreement; (e) Addition, Withdrawal and Termination provisions, outlining the collaboration's intended mechanisms for each action; and (f) a Liability and/or Indemnification clause(s), stating the ways in which liability issues will be handled by the collaboration. C. A copy of the notification letter sent to both the Department of Justice and the Federal Trade Commission regarding the JV and its membership and proposed area of technical collaboration. D. In accordance with the ATP Proposal Preparation Kit (December 1997) the replacement Joint Venture (JV) Partner is required to submit the following executed forms -- accessible at http://www.atp.nist.gov/atp/kit-98/99pdfkit.htm: 1) SF-424B, 2) CD-346 (proposed technical and business project managers, as well as the key officer who will have fiduciary responsibility is required to complete), 3) CD-511, 4) NIST-1263 (working together with Joint Venture (JV) Partner, Plug Power, LLC) for entire project period, and 5) SF-LLL (if applicable) to all proposed joint venture participants. The above documentation must be submitted to the Grants Office within twenty-nine (29) days from the date of the execution of this amendment to the cooperative agreement award by the Grants Officer. This amendment to the cooperative agreement may be terminated by the Grants Officer for cause if the fully executed JV agreement is not submitted timely. Special Award Conditions/ATP-JV/01-99 [LOGO] Plug Power ================================================================================ 968 Albany-Shaker Rd, Latham, NY 12110 Gary Mittleman President and Chief Executive Officer ADDENDUM TO U.S. DEPARTMENT OF COMMERCE FINANCIAL ASSISTANCE AWARD By signing below, Plug Power, LLC ("Plug") concurs with the NIST Grants Office request to amend the U.S. Department of Commerce Financial Assistance Award Number 70NANB8H4039 such the proposal start date will be February 28, 1999. Signed: /s/ Gary Mittleman Date: Jan 5, 1999 ------------------ ----------- Gary Mittleman President and Chief Executive Officer Plug Power LLC - -------------------------------------------------------------------------------- FORM CD-451 U.S. DEPARTMENT OF COMMERCE (REV. 10-93) DAO 203-26 AMENDMENT TO FINANCIAL ASSISTANCE AWARD - -------------------------------------------------------------------------------- RECIPIENT NAME Plug Power, LLC - -------------------------------------------------------------------------------- STREET ADDRESS 968 Albany-Shaker Road - -------------------------------------------------------------------------------- CITY, STATE, ZIP CODE Latham, NY 12110 - -------------------------------------------------------------------------------- |_| GRANT |X| COOPERATIVE AGREEMENT - -------------------------------------------------------------------------------- ACCOUNTING CODE **SEE BELOW - -------------------------------------------------------------------------------- AWARD NUMBER 70NANB8H4039 - -------------------------------------------------------------------------------- AMENDMENT NUMBER 02 - -------------------------------------------------------------------------------- EFFECTIVE DATE May 10, 1999 - -------------------------------------------------------------------------------- EXTEND WORK COMPLETION TO - -------------------------------------------------------------------------------- DEPARTMENT OF COMMERCE OPERATING UNIT NATIONAL INSTITUTE OF STANDARDS AND TECHNOLOGY, GRANTS OFFICE BUILDING 411, ROOM A143, 100 BUREAU DRIVE, STOP 3576, GAITHERSBURG, MARYLAND 20899-3576 - -------------------------------------------------------------------------------- PREVIOUS TOTAL COSTS ARE REVISED AS FOLLOWS: ESTIMATED COSTS ADD DEDUCT ESTIMATED COST - -------------------------------------------------------------------------------- FEDERAL SHARE OF COST $4,737,848 $-0- $-0- $4,737,848 - -------------------------------------------------------------------------------- RECIPIENT SHARE OF COST $5,000,000 $-0- $2,204 $4,997,796 - -------------------------------------------------------------------------------- TOTAL ESTIMATED COST $9,737,848 $-0- $2,204 $9,735,644 - -------------------------------------------------------------------------------- REASON(S) FOR AMENDMENT Project Title: Distributed Premium Power Fuel Cell Systems Incorporating Novel Materials and Assembly Techniques under Advanced Technology Program (ATP) 98-03 This cooperative agreement is being amended to (1) approve the substitution of Polyfuel, Inc. and SRI International for W.L. Gore as joint venture partners, as requested by Plug Power, LLC; (2) change the project date from 02/28/99 - 02/27/01 to 05/10/99 - 5/09/01, per the Recipient's request dated 05/05/99; (3) approve the changes to the statement of work (SOW) specified in the Recipient's 02/05/99 submission; (4) remove contingency A-D established in Article (8) JV Contingency of the ATP Special Award Conditions; (5) approve revised budgets for years one and two, per the Recipient's request dated April 16, 1999; and (6) indicate on the attached, those terms and conditions affected by this action, and any administrative or statutory requirements. - -------------------------------------------------------------------------------- This Amendment approved by the Grants Officer is issued in triplicate and constitutes an obligation of Federal funding. By signing the three documents, the Recipient agrees to comply with the Amendment provisions checked below and attached, as well as previous provisions incorporated into the Award. Upon acceptance by the Recipient, two signed Amendment documents shall be returned to the Grants Officer and the third document shall be retained by the Recipient. If not signed and returned by the Recipient within 15 days of receipt, the Grants Officer may declare this Amendment null and void. |X| Special Award Conditions |X| Line Item Budget PLEASE RETAIN FOR YOUR RECORDS |_| Other(s): ----------------------------------------------------------- - ------------------------------------------------------------------------- - ------------------------------------------------------------------------- **ACCOUNTING CODE: cc: 8/474-0342 Obj. Cl. 4110 Req. No. 8/474-4273 $0.00 - ------------------------------------------------------------------------- B-AE93-N-H-F-N-A-36-41399 EIN: 16-1528998 474/G. Ceasar - -------------------------------------------------------------------------------- SIGNATURE OF DEPARTMENT OF COMMERCE GRANTS OFFICER TITLE DATE Lois McDuffee /s/ Lois McDuffee Grants Officer 5/18/99 - -------------------------------------------------------------------------------- TYPED NAME AND SIGNATURE OF AUTHORIZED RECIPIENT OFFICIAL TITLE DATE William Acker /s/ William Acker Vice President 6/21/99 - -------------------------------------------------------------------------------- ELECTRONIC FORM 3 SPECIAL AWARD CONDITIONS ADVANCED TECHNOLOGY PROGRAM - JOINT VENTURE PLUG POWER, LLC COOPERATIVE AGREEMENT NO. 70NANB8H4039 AMENDMENT NO. 2 THE FOLLOWING SPECIAL AWARD CONDITIONS ARE AMENDED: 2. JOINT VENTURE MEMBER(S) The organization(s) named below have been approved as joint venture member(s) to conduct research described in the Recipient's proposal which is incorporated into this award. Any changes or new member(s) must be approved in writing by the Grants Officer: 1) Plug Power, LLC, Latham, NY 2) SRI International 333 Ravenswood Avenue Menlo Park, CA 94025 3) Polyfuel, Inc. 333 Ravenswood Avenue Menlo Park, CA 94025 7. FUNDING LIMITATIONS The scope of work and budget incorporated into this award covers a two-year period (referred to as the "project period") for a total amount of $4,737,848.00 in Federal funds. However, Federal funding available at this time is limited to $2,529,644.00 for the first year period (referred to as the "budget period"). Receipt of any additional funding up to the level projected under this award is contingent upon the availability of funds from Congress, satisfactory performance, and will be at the sole discretion the National Institute of Standards and Technology (NIST). The Recipient may not obligate, incur any expenditures, nor engage in any commitments which involve any amount in excess of the Federal amount presently available. No legal liability exists or will result on the part of the Federal Government for payment of any portion of the remaining funds which have not been made available under the award. If additional funds are not made available, any expenses incurred related to closeout activities must be funded from the amount already made available under this award. The notice of availability or non-availability of additional funding for the second and final year(s) will be made in writing by the Grants Officer. Only the Grants Officer is authorized to obligate funds. No other verbal or written notice should be relied upon by the Recipient. Anticipated Future Funding: Year 2: $2,208,204.00* (From 05/10/00 to 05/09/01) 8. JV CONTINGENCY: The final executed Joint Venture Agreement is hereby approved by the Grants Officer: In addition the notification requirements are fulfilled: Accordingly, contingencies A.-D., shown in amendment number one (1) are deleted. 9. COST SHARE For the first year period, the cost sharing ratio applicable to this award is the Recipient's contribution of 51.25 ($2,659,370) and NIST's contribution of 48.75 ($2,529,644). Recipients must meet or exceed the cost share ratio on a quarterly financial reporting basis. - ---------- * Of this amount $230,367 was previously obligated in the original award. Special Award Conditions/ATP-JV/05-99 ESTIMATED MULTI-YEAR BUDGET - JOINT VENTURE [***] (4 Pages) CONFIDENTIAL INFORMATION HAS BEEN OMITTED PURSUANT TO RULE 406 UNDER THE SECURITIES ACT AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. THE LOCATIONS OF THE OMITTED INFORMATION HAVE BEEN INDICATED WITH ASTERISKS. EX-10.18 19 JOINT VENTURE AGREEMENT (06/14/99) Exhibit 10.18 JOINT VENTURE AGREEMENT BETWEEN POLYFUEL, INC., SRI INTERNATIONAL AND PLUG POWER, L.L.C. THIS JOINT VENTURE AGREEMENT is entered into by and between the parties identified in Exhibit A (the "Parties"). WHEREAS, the Parties have been selected for participation in the Advanced Technology Program administered by the National Institute of Standards and Technology ("NIST") as a joint venture to conduct certain specified research; WHEREAS, the Parties wish to enter into a joint venture agreement to define their respective roles and responsibilities and thus successfully satisfy the objectives of the Program; and WHEREAS, the Parties have selected Plug Power, L.L.C., to serve as the Administrator (the "Administrator") for the joint venture and wish to authorize that organization to perform those functions set forth on Exhibit B, specifically including executing the NIST Cooperative Agreement and thereby binding the joint venture to the terms and conditions of that Agreement; NOW, THEREFORE, the Parties agree as follows: 1. DEFINITIONS 1.1 "Agreement" means this Joint Venture Agreement. --------- 1.2 "Invention" means any invention that is not a Subject Invention. --------- 1.3 "Background Patent" means all patents and patent applications that are ----------------- not Subject Patents. 1.4 "Background Technology" means any technical information generated by --------------------- the Parties that is not Subject Technology. 1.5 "Government-Use License" means a nonexclusive, nontransferable, ---------------------- irrevocable, paid-up license to practice or have practiced by or on behalf of the United States throughout the world any Subject Invention. 1.6 "NIST Cooperative Agreement" means the funding agreement entered -------------------------- into between the Advanced Technology Program of the National Institute of Standards and Technology (NIST) and the joint venture (as executed by the 1 Administrator) for the conduct of the Research Program. 1.7 "Party" or "Parties" means the parties identified in the Form NIST- ----- ------- 1263 contained in the Proposal and attached to this Agreement as Exhibit A. 1.8 "Program" or "Research Program" means the research program set forth ------- ---------------- in the Statement of Work attached hereto as Exhibit C. 1.9 "Program Expense" means use of funds by the Parties pursuant to the --------------- NIST Cooperative Agreement. 1.10 "Proposal" means the proposal submitted by the Parties to the -------- Advanced Technology Program, and which has been accepted by the NIST for funding. 1.11 "Subject Invention" means any invention conceived or first reduced to ----------------- practice by a party or the Parties at Program Expense during the course of the Program. 1.12 "Subject Patents" shall mean all patents and patent applications --------------- claiming Subject Inventions. 1.13 "Subject Technology" shall mean any technical information ------------------ generated by a party or the Parties at Program Expense during the course of the Program. 2. ADMINISTRATION AND GOVERNANCE 2.1 Obligations of the Parties. The parties agree to work together to -------------------------- accomplish the objectives of the Program by performing research directly and through the use of contracts, and to that end agree to carry out their responsibilities as set forth in the Program and the NIST Cooperative Agreement. The Parties agree to contribute funds or in-kind services substantially in the amounts set forth in the Form NIST-1263 contained in the Proposal, attached hereto as Exhibit D. 2.2 Program Management. The Administrator shall perform the day-to-day ------------------ management and administration of the Program in accordance with all legal and regulatory requirements, including the NIST Cooperative Agreement. 2.3 Management Committee. The Management Committee shall direct the -------------------- conduct of the Program in all respects, through the Administrator. 3. PROPRIETARY INFORMATION 3.1 Proprietary Information. Unless otherwise agreed in writing, each of ----------------------- the Parties 2 agrees that it will not, either during the term of this Agreement or at any time after its termination, use Subject Technology, Subject Inventions, Subject Patents, Background Inventions, Background Patents or Background Technology of any other Party for any purpose except the Program. 3.2 Exclusions. Background Technology, Subject Inventions, Background ---------- Inventions and Subject Technology shall not be considered proprietary, and thus is not subject to the provisions of Paragraph 3.1 above, which: (a) is in the public domain at the time of disclosure or thereafter enters the public domain other than through a breach of this Agreement; or (b) is in the possession of the receiving Party prior to its receipt from the disclosing Party; or (c) is lawfully obtained from a non-Party under circumstances permitting the receiving Party to use or disclose the information without restrictions; or (d) is independently developed by the receiving Party without reference to the disclosed information; or (e) is required to be disclosed as a result of governmental or judicial action. 4. INTELLECTUAL PROPERTY The protection, allocation and commercialization of intellectual property rights, including Subject Inventions, Subject Patents and Subject Technology under the Research Program, will be as set forth on Exhibit E, attached hereto, and will be in accordance with the NIST Cooperative Agreement and the Proposal, and shall include provisions regarding the required Government Use License. 5. TERM This Agreement may be terminated by any party, without penalty, upon five (5) days prior written notice prior to the incurrence of Program Expense. After either party has incurred expenses at Program Expense, the Agreement shall continue in full force and effect until the Parties' obligations as set forth in this Agreement and the NIST Cooperative Agreement have been completed, or until the NIST Cooperative Agreement has been terminated. An individual Party may cease participation in the Program only in a manner consistent with the NIST Cooperative Agreement. 3 6. LIABILITY, WARRANTY, INSURANCE 6.1 Indemnification. Each Party ("Indemnifying, Party") hereby agrees to --------------- indemnify, defend and hold the other Party, its employees, officers, directors and agents ("Indemnified Party"), harmless from and against any and all damages, liabilities, losses, costs and expenses, including reasonable attorneys' fees, (collectively, "Damages") to any third party, suffered or actually incurred by such Indemnified Party as the result of any action, suit, proceeding, arbitration or demand incurred in connection with or arising from breach of this Agreement or any representation or warranty contained herein by the Indemnifying Party. Each Party further agrees to indemnify and hold the other Party harmless from any Damages suffered or actually incurred by such other Party as the result of any action, suit, proceeding, arbitration or demand incurred in connection with or arising from breach of this Agreement, to the extent, a court of competent jurisdiction determines that such breach was in whole, or in part, the responsibility of the Party from whom indemnification is sought. Any Party or Indemnified Party claiming indemnification pursuant to this provision shall immediately upon notice or knowledge of any such action, suit, proceeding, arbitration or demand provide notice to the Party from whom indemnification is sought. Each Party shall immediately notify the other Party of any infringement or potential infringement on the intellectual property rights of any Party by any third party. Each Party shall be responsible for all defense and other costs associated with its own filing and maintenance of Subject Technology, Subject Patents, Subject Inventions, Background Patents, Background Inventions and Background Technology. Joint and several liability will not attach to the Parties; no Party is responsible for the actions of any other Party, but is only responsible for those tasks assigned to it and to which it agrees in the NIST Cooperative Agreement. The Parties agree that in no event will consequential or punitive damages be applicable or awarded with respect to any dispute that may arise between the Parties in connection with this Agreement. This Section 6.1 shall survive termination of this Agreement. 6.2 Insurance. Each Party agrees to obtain and maintain appropriate public --------- liability and casualty insurance, or adequate levels of self-coverage, to cover any liability caused by that Party's obligations under this Agreement and the NIST Cooperative Agreement. 7. NOTICES Any notice or request with reference to this Agreement shall be made by first class mail postage prepaid, telex, or facsimile to the addresses shown in Exhibit F. 4 8. GENERAL PROVISIONS 8.1 Amendments. No amendment or modification of this agreement shall be ---------- valid unless made in writing and signed by the Parties. 8.2 Assignment. This Agreement shall not be assigned by any Party without ---------- the express written consent of each Party to this Agreement, which consent shall not be unreasonably withheld. This provision shall not apply in the event a Party changes its name or as part of the sale of the Party's business. 8.3 Effective Date. This Agreement shall be effective as of the date of -------------- the last signature below. 8.4 Force Majeure. No Party shall be liable for any delay in completion ------------- of work hereunder or of the non-performance of any term or condition of this Agreement directly or indirectly resulting from delays caused by Acts of God; acts of the public enemy; strikes; lockouts; epidemic and riots; power failure; water shortage or adverse weather conditions; or other causes beyond the control of the Parties. In the event of any of the foregoing, the time for performance shall be equitably and immediately adjusted, and in no event shall any Party be liable for any consequential or incidental damages from its performance or non-performance of any term or condition of this Agreement. The Parties shall resume the completion of work under this Agreement as soon as possible subsequent to any delay due to force majeure. 8.5 Governing Law. This Agreement shall be governed by and interpreted in ------------- accordance with the laws of New York. 5 8.6 Headings. Section headings contained in this Agreement are included -------- for convenience only and form no part of the agreement among the parties. 8.7 Authorization to Execute the NIST Cooperative Agreement. By signing ------------------------------------------------------- this Agreement, each Party authorizes the Administrator to execute the NIST Cooperative Agreement on behalf of the joint venture. 8.8 Precedence. Should there be any conflict between the terms and ---------- conditions of this Agreement and the NIST Cooperative Agreement, the NIST Cooperative Agreement shall take precedence. 8.9 Severability. If any Provision of this Agreement is declared invalid ------------ by any court or government agency, all other provisions shall remain in full force and effect. 8.10 Use of Names. No Party shall use in any advertising, promotional ------------ or sales literature the name of the other Party without prior written consent. 8.11 Waivers. Waiver by any Party of any breach or failure to comply with ------- any provision of this Agreement by the other Party shall not be construed as, or constitute, a continuing waiver of such provision or a waiver of any other breach of or failure to comply with any other provision of this Agreement. IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed by their duly authorized officers or representatives on the dates shown below. PLUG POWER, L.L.C. POLYFUEL, INC. a Delaware Limited Liability Company a Delaware Corporation Name: /s/ Gary Mittleman Name: /s/ Harold L. ------------------------------- -------------------------------- Title: President and CEO Title: President Date: June 14, 1995 Date: April 6, 1999 SRI INTERNATIONAL a California nonprofit public benefit Corporation Name: /s/ Valerie J. ----------------------------- Title: Contracts Manager Date: April 6, 1999 6 EXHIBITS - -------- Exhibit A: Parties to the Agreement Exhibit B: Functions of Administrators Exhibit C: Research Program Exhibit D: Contributions of the Parties Exhibit E: Intellectual Property Plan Exhibit F: List of Names and Addresses for Notices Concerning this Agreement 7 EXHIBIT A ---------- PARTIES TO THE AGREEMENT Polyfuel, Inc. Plug Power, L.L.C. SRI International 8 EXHIBIT B --------- FUNCTIONS OF ADMINISTRATOR 1. DEFINITIONS All terms, not otherwise defined herein, shall have the meaning set forth in the Joint Venture Agreement between the Parties, as of the date hereof ("Agreement"). 2. DUTIES OF ADMINISTRATOR The Parties hereby appoint Plug as administrator of the joint venture and the Program, and hereby grant Plug the absolute authority and discretion to act on behalf of the joint venture to do the following: 2.1 Execute the NIST Cooperative Agreement, and, at the discretion of the Management Committee, any amendments thereto; 2.2 Take responsibility for all primary contact with NIST, its employees and agents in connection with the NIST Cooperative Agreement and the Program: 2.3 With the assistance and cooperation of the Parties, prepare and submit all necessary financial reports, including but not limited to quarterly "Financial Status Report" (Form SF-269), quarterly "Federal Cash Transactions Report" (Form SF-272), monthly "Schedule of Fund Sources and Project Costs" (Form SF-270) and Final Financial Reports (Form SF-269-A); 2.4 With the assistance and cooperation of the Parties, schedule projects, tasks and deliverables, including delivery of technical progress and budget reports; assign and authorize tasks; schedule weekly telephone conversations; review biweekly e-mail reports summarizing current activities; 2.5 With the assistance and cooperation of the Parties, review and respond to technical progress and budget reports; integrate reports from Polyfuel., SRI and Plug, for submission to NIST; 2.6 Review and report deviations from planned objectives to the Management Committee, and, with the consent of the Management Committee, develop and implement a corrective action plan; 2.7 At the direction of the Management Committee, report any material deviations from planned objectives to NIST; 2.8 With the assistance and cooperation of the Parties, supervise procurement of 9 services, materials and equipment; 2.9 Collate and analyze monthly bills from the Parties and submit any bills that are consistent with the budgets contained in the Proposal to NIST for payment; 2.10 At the direction of the Management Committee, submit bills from the Parties that are inconsistent with the budgets contained in the Proposal to NIST for payment; 2.11 Remit payments to the Parties after receipt of funds from NIST; 2.12 With the assistance and cooperation of the Parties, authorize payment for services, materials and equipment from Program funds; 2.13 Verify and monitor contract performance to assure compliance with contractual obligations (i.e., reporting requirements, delivery schedules, tests, inspections, budget, etc.); prepare monthly reports to contract file regarding same; 2.14 Ensure that all vendor contracts and subcontractor contracts are in place; 2.15 Coordinate submission of all relevant subject invention disclosures to NIST; 2.16 Coordinate maintenance and update of government agency contract procedures and procurement practices; 2.17 At the direction of the Management Committee, notify NIST of the addition or substitution of Joint venture partners; and 2.18 Notwithstanding the foregoing, Plug shall have all power and authority necessary or advisable to carry out its legal and ethical responsibilities under the Program and/or the NIST Cooperative Agreement. 3. DUTIES OF THE PARTIES Each of the Parties shall individually be responsible for the following: 3.1 Provide a detailed monthly accounting of actual direct costs (direct labor and direct materials) incurred on the Project, including a comparison to the approved budget in accordance with the terms and conditions of the award; 3.2 Calculate indirect costs, using an established indirect cost rate with a Federal agency or negotiated as part of the award (note indirect costs will not be allowable charges unless specifically included in the approved budget); 10 3.3 Prepare and submit all data necessary or requested by the Administrator in connection with preparation of forms or documents requested or required by NIST, including, but not limited to Form SF- 269, Form SF-272, Form SF-270 and Form SF-269-A; 3.4 Coordinate internal procedures (including administrative, legal, purchasing receiving) to assure compliance with provisions of the NIST Cooperative Agreement; 3.5 Ensure that all vendor or subcontractor contracts are in place; 3.6 Prepare all relevant Subject invention disclosures; maintain subject invention disclosure database, continue to follow-up, in a timely manner, on subject invention disclosure reporting requirements; 3.7 Maintain and update a current listing of all government property inventory and its location; 3.8 Comply with all budgetary requirements and legal and ethical standards pertaining to the Program and/or the NIST Cooperative Agreement; and 3.9 Maintain and update government agency contract procedures and procurement practices. 4. MANAGEMENT COMMITTEE The Management Committee shall have four (4) members, one appointed by Polyfuel, one appointed by SRI, and two appointed by Plug. Each member of the Management Committee shall serve until replaced by the appointing entity. All actions of the Management Committee shall require approval by a majority of its members. In the event the Management Committee is deadlocked or otherwise unable to reach a decision on any of the matters set forth below, the Management Committee shall refer the matter to the Chief Executive Officer of Plug, who shall have the authority to make binding decisions for the Management Committee provided that such decisions are consistent with the Agreement and the NIST Cooperative Agreement. The Management Committee shall have authority to do the following: 4.1 Establish overall program and project objectives, including individual tasks; 4.2 Approve amendments to the NIST Cooperative Agreement and the Program 4.3 Assess administrator reports of deviations from planned objectives and determine when and whether deviations should be reported to NIST; 4.4 Develop and implement corrective action plans to correct any deviations from 11 planned objectives; 4.5 Determine when bills that are inconsistent with the budgets contained in the Proposal should be submitted to NIST; 4.6 Determine whether, when and the terms under which additional or replacement joint venture partners should be added; and 4.7 Determine when a joint venture party should be replaced, and who will be admitted as a replacement joint venture partner, if any. 12 EXHIBIT E ---------- INTELLECTUAL PROPERTY PLAN WHEREAS, Polyfuel, Inc. ("Polyfuel"), SRI International ("SRI"), and Plug Power, L.L.C. ("Plug", collectively, the "Parties"), have been selected for participation in the Advanced Technology Program administered by the National Institute of Standards and Technology ("NIST") as a joint venture to conduct certain specified research; and WHEREAS, this Intellectual Property Plan ("IP Plan") is entered into between Polyfuel, SRI and Plug, as of this 29th day of January, 1999, and shall be included as an exhibit and incorporated by reference into the Joint Venture Agreement ("Agreement") between the Parties. NOW, THEREFORE, Polyfuel, SRI and Plug agree as follows: 1. DEFINITIONS 1.1 "Agreement" means the Joint Venture Agreement between the Parties --------- executed as of the date hereof. 1.2 "Background Invention" means any invention that is not a Subject -------------------- Invention. 1.3 "Background Patent" means all patents and patent applications that ----------------- are not Subject Patents. 1.4 "Background Technology" means any technical information generated by --------------------- the Parties that is not Subject Technology. 1.5 "Confidential Information" means any proprietary information marked as ------------------------ proprietary or identified as proprietary, whether of a business or technical nature relating to the Program. Confidential Information shall not include information that (a) is or becomes public through no breach of this IP Plan or the Agreement by the receiving party; (b) is known by the receiving party at the time of disclosure, as shown by competent written evidence; (c) is rightfully received from a third party without a similar restriction and without breach of this IP Plan; (d) is independently developed by the receiving party without reference to disclosed information; or (e) is required to be disclosed with result of governmental or judicial action. 1.6 "Gas Diffusion Layer" or "GDL" shall mean a component located between ------------------- --- the membrane and anode or cathode plates which is used to diffuse and distribute reactants and products and may have catalyst applied thereto. 13 1.7 "Fuel Cell System" means an electrochemical device that includes a ---------------- Stack, MEA, fuel process and/or other systems to convert chemical energy into electrical energy through the use of a catalyst. 1.8 "Membrane Electrode Assembly" or "MEA" shall mean an assembly of a --------------------------- --- membrane and electrodes (if not applied to the GDL and other components integral to the membrane as well as the components comprising such components and the methods of using such MEAs and components. 1.9 "MEA Invention" is defined in Section 2.3.2, herein. ------------- 1.10 "NIST Cooperative Agreement" means the funding agreement entered -------------------------- into between the Advanced Technology Program of the National Institute of Standards and Technology (NIST) and the Parties (as executed by the Administrator) for the conduct of the Research Program. 1.11 "IP Plan" means this Intellectual Property Plan. ------- 1.12 "Plug Competitor" means any manufacturer of PEM fuel cells, --------------- including but not limited to Energy Partners, Ballard, International Fuel Cells, Analytic Power Corporation, Avista Corporation, Alta Vista Labs, H Power Corp., Northwest Power Systems, Allied Signal. 1.13 "Product" shall mean a PEM fuel cell or any of its component ------- parts that use or rely upon a Subject Invention. 1.14 "Program" or "Research Program" means the research program set ------- ---------------- forth in the Statement of Work attached to the Agreement as Exhibit B. 1.15 "Program Expense" means use of funds by the Parties pursuant to --------------- the NIST Cooperative Agreement. 1.16 "Proposal" means the proposal submitted by the Parties to the -------- Advanced Technology Program, and which has been accepted by NIST for funding. 1.17 "SRI" means SRI International. --- 1.18 "Stack" shall mean end plates, anode and cathode plates, coolant ----- plates, humidification plates and current collector plates (the "Plates"), including ancillary components thereto, such as GDL, screens, supports, and gaskets (the "Ancillary Components"), including the materials comprising the Stack, Plates and the Ancillary Components, and the methods of using the Stack, Plates and Ancillary Components and the design, use, assembly, process, configuration and know-how thereof, and the design, use, assembly, process, configuration and know-how of sealing, compressing and operating the plates and ancillary components, and the design, use, assembly, process, configuration and 14 know-how of interfacing the plates and ancillary components with the fuel system, air system, power conditioning system, and control system. 1.19 "Stack Invention" is defined in Section 2.2.2, herein. --------------- 1.20 "Subject Invention" means any invention conceived or first ----------------- reduced to practice by a party or the Parties at Program Expense during the course of the Program. 1.21 "Subject Patents" shall mean all patents and patent applications --------------- claiming, Subject Inventions. 1.22 "Subject Technology" shall mean any technical information ------------------ generated by a party or the Parties at Program Expense during the course of the Program. 2. ALLOCATION OF INTELLECTUAL PROPERTY RIGHTS 2.1 Background Technology. Plug shall retain all rights to its Background --------------------- Technology, Background Patents and Background Inventions. Polyfuel shall retain all rights to its Back-round Technology, Background Patents and Background Inventions. SRI shall retain all rights to its Background Technology, Background Patents and Background Inventions. Polyfuel shall not transfer any Polyfuel Invention or MEA Invention to any Plug Competitor, or any affiliate thereof, under circumstances that could allow tile Plug Competitor to refuse to make or delay in making such inventions publicly available. SRI shall not transfer any SRI Invention or MEA Invention to any Plug Competitor, or any affiliate thereof, under circumstances that could allow the Plug Competitor to refuse to make or delay in making such inventions publicly available. 2.2 Plug's Rights. Subject to Section 2.5, below, Plug shall ------------- 2.2.1 retain the entire right, title and interest throughout the world in each Subject Invention, Subject Patent and Subject Technology that is solely the invention of an employee, consultant or intern of Plug ("Plug Invention"); 2.2.2 retain the entire right, title and interest throughout the world in each Subject Invention, Subject Patent and Subject Technology that is not a Polyfuel Invention, an SRI Invention, or an MEA Invention ("Stack Invention") whether or not jointly invented. 2.2.3 be granted from Polyfuel, SRI and any transferee or licensee of Polyfuel 15 or SRI, the right to purchase any Products manufactured by Polyfuel, SRI or such transferees or licensees of Polyfuel or SRI, that include MEA Inventions, Polyfuel Inventions or SRI Inventions ("MEA Products"), at the best per unit cash price offered by Polyfuel, SRI or any transferee or licensee of either of them to any of its customers or agents for the number of units being purchased by Plug under any purchase order ("Best Price") for the period of two (2) years commencing as of the date of the first commercial sale of the MEA Products ("Preferred Pricing Term"). Best Price available to Plug hereunder shall be expressly limited to cash sales payable in full at delivery and shall not include pricing arrangements offered by Polyfuel, SRI or their transferees or licensees, to others involving the leasing or financing of the MEA Products, revenue sharing, or other hybrid arrangements with such customers. Provided, however, that during the Preferred Pricing Term, Plug may not sell any MEA Products purchased at a discount to an unrelated third party unless it is sold as part of a Fuel Cell System. The Parties further agree that prior to commercialization of any MEA Products, they will negotiate in good faith, a discount to Best Price or a profit share to reflect Plug's contribution to development of the MEA Products. 2.2.4 be granted from Polyfuel and SRI and any transferee or licensee of Polyfuel or SRI, an irrevocable light to purchase a non- exclusive, transferable, irrevocable, fully paid up license to make, use and sell MEA Inventions, SRI Inventions, Polyfuel Inventions for use with Plug Products or any inventions including Plug Inventions or Stack Inventions ("Transfer License"), if Polyfuel, SRI or their Affiliates or transferees or licensees fail to make Products that include Polyfuel Inventions, SRI Inventions or MEA Inventions publicly available within six (6) months of notice from Plug ("Plug Notice") that it will have Products including Plug Inventions or Stack Inventions commercially available within three (3) months of the notice date provided, however, that Plug may not issue any Plug Notice until one (1) calendar year after termination of the Program. The Parties agree that if it is technologically impossible to produce a Product within six (6) months, and substantial progress (as determined by Plug in their sole discretion) is being made toward production, the date on which production must commence will be extended. In no event will the extension exceed twelve (12) months from the notice date. The Purchase Price for the Transfer License shall equal all costs of the Program incurred by Polyfuel and/or SRI, as applicable, including but not limited to out of pocket costs, cost sharing funds spent by Polyfuel and/or SRI on the Program, reimbursement for labor and overhead costs, and patent, trademark and copyright fees paid or payable by Polyfuel and/or SRI. For purposes of this section, a Product will not 16 be deemed to be publicly available unless Polyfuel, SRI and their transferees and licensees agree to sell Products to Plug consistent with Plug's specifications (which must be consistent with Program specifications) at the price set forth in Section 2.2.3, above, f~r the duration of the Preferred Pricing, Term. 2.3 Polyfuel's Rights. Subject to Section 2.5, below, Polyfuel shall ----------------- 2.3.1 retain the entire right, title and interest throughout the world in each Subject Invention, Subject Patent and Subject Technology that is solely the invention of an employee, consultant or intern of Polyfuel ("Polyfuel Invention"); 2.3.2 retain the entire right, title and interest throughout the world in each Subject Invention, Subject Patent and Subject Technology that is not a Plug Invention or an SRI Invention and is solely a part of or integral to the MEA ("MEA Invention"). 2.4 SRI's Rights. Subject to Section 2.5, below, SRI shall retain the entire ------------ right, title and interest throughout the world in each Subject Invention, Subject Patent and Subject Technology that is solely the invention of an employee, consultant or intern of SRI ("SRI Invention"). 2.5 NIST's Rights. ------------- 2.5.1 In accordance with the Advanced Technology Program (ATP) statute and regulation, specifically 15 USC (S)278n(d)(11)(A) and 15 CFR ------------------------ ------ (S)295.8(u)(1), title to Subject Invention(s) will vest in a company -------------- or companies incorporated in the United States. Title to any such Subject Invention shall not be transferred or passed, except to a company incorporated in the Unites States of America until the expiration of the first patent obtained in connection with such Subject Invention(s). Nothing in this section shall be construed to prohibit the licensing to any company of intellectual property rights arising from assistance provided under this section. 2.5.2 The United States reserves a non-exclusive, non-transferable, irrevocable, paid up license to use for government purposes any Subject Invention, but shall not, in the exercise of such license, publicly disclose proprietary information related to such Subject Invention. 3. CONFIDENTIALITY 3.1 Plug. Plug will, for a period of three (3) years from termination of ---- the Agreement, maintain the confidentiality of all Confidential Information provided to it by Polyfuel ("Polyfuel Confidential Information") and SRI ("SRI Confidential Information") and will assure that Polyfuel Confidential 17 Information and SRI Confidential Information is not disclosed or otherwise disseminated to any person, firm, corporation or other entity, without first obtaining the prior written permission of a duly authorized officer of Polyfuel or SRI, as applicable, provided however, that Plug may distribute Polyfuel Confidential Information and SRI Confidential Information to NIST, if required to do by the NIST Cooperative Agreement or the Agreement and to its employees and authorized agents for the purpose of reviewing and analyzing Polyfuel Confidential Information and SRI Confidential Information, but Plug, shall at all times remain responsible for maintaining the confidentiality of Polyfuel Confidential Information and SRI Confidential Information. Plug will retain Polyfuel Confidential Information and SRI Confidential Information on its premises and the Polyfuel Confidential Information and SRI Confidential Information will not be moved off Plug's premises or copied without the express prior written consent of Polyfuel or SRI, as applicable. Plug will use reasonable means, not less than those used to protect its own proprietary information, to safeguard the Polyfuel Confidential Information and SRI Confidential Information. Plug will promptly return all Polyfuel Confidential Information and all but one (1) copy of the Polyfuel Confidential Information or documents created based upon the Polyfuel Confidential Information (to be retained solely to monitor compliance with this section), to Polyfuel, upon termination of the Agreement, or sooner, upon Polyfuel's request. Plug will promptly return all SRI Confidential Information and any copies of the SRI Confidential Information or documents based on the SRI Confidential Information to SRI upon termination of the Agreement, or sooner upon SRI's request. Plug agrees and represents that no portion of the Polyfuel Confidential Information, the SRI Confidential Information or any other confidential information concerning Polyfuel or SRI will be disclosed except as expressly permitted by this IP Plan and the Agreement and that Plug will not use the Polyfuel Confidential Information, the SRI Confidential Information or any portion of them or any other Confidential Information concerning Polyfuel or SRI for any purpose other than the Program. In the event of a breach or threatened breach by Plug of the provisions of this Section 3, Polyfuel and SRI shall each be entitled to an injunction restraining Plug from disclosing, in whole or in part, Polyfuel Confidential Information and SRI Confidential Information. Nothing herein shall be construed as limiting Polyfuel or SRI from pursuing any other remedies available to them for breach or threatened breach of this Section 3, including the recovery of damages from Plug. The provisions of this Section 3 shall survive the termination of this IP Plan and the Agreement. 18 3.2 Polyfuel. Polyfuel will, for a period of three (3) years from -------- termination of the Agreement, maintain the confidentiality of all Confidential Information provided to it by Plug ("Plug Confidential Information") and all SRI Confidential Information and will assure that Plug Confidential Information and SRI Confidential Information is not disclosed or otherwise disseminated to any person, firm, corporation or other entity, without first obtaining the prior written permission of a duly authorized officer of Plug or SRI, as applicable, provided however, that Polyfuel may distribute Plug Confidential Information and SRI Confidential Information to NIST, if required to do by the NIST Cooperative Agreement or the Agreement and to its employees and authorized agents for the purpose of reviewing, and analyzing Plug Confidential Information and SRI Confidential Information, but Polyfuel shall at all times remain responsible for maintaining the confidentiality of Plug Confidential Information and SRI Confidential Information. Polyfuel will retain Plug Confidential Information and SRI Confidential Information on its premises and the Plug Confidential Information and SRI Confidential Information will not be moved off Polyfuel's premises or copied without the express prior written consent of Plug or SRI, as applicable. Polyfuel will use reasonable means, not less than those used to protect its own proprietary information, to safeguard the Plug Confidential Information and SRI Confidential Information. Polyfuel will promptly return all Plug Confidential Information and all but one (1) copy of the Plug Confidential Information or documents created based upon the Plug Confidential Information (to be retained solely to monitor compliance with this section), to Plug, upon termination of the Agreement, or sooner, upon Plug's request, Polyfuel will promptly return all SRI Confidential Information and any copies of the SRI Confidential Information or documents based on the SRI Confidential Information to SRI upon termination of the Agreement, or sooner upon SRI's request. Polyfuel agrees and represents that no portion of the Plug, Confidential Information, the SRI Confidential Information or any other confidential information concerning Plug or SRI will be disclosed except as expressly permitted by this IP Plan and the Agreement and that Polyfuel will not use the Plug Confidential Information, the SRI Confidential Information or any portion of them or any other Confidential Information concerning, Plug or SRI for any purpose other than the Program. In the event of a breach or threatened breach by Polyfuel of the provisions of this Section 3, Plug and SRI shall each be entitled to an injunction restraining Polyfuel from disclosing, in whole or in part, Plug Confidential Information and SRI Confidential Information. Nothing herein shall be construed as limiting Plug or SRI from pursuing any other remedies available to them for breach or threatened breach of this Section 3, including the recovery of damages from Polyfuel. The provisions of this Section 3 shall survive the termination of this IP Plan and the Agreement. 3.3 SRI. SRI will, for a period of three (3) years from termination of the --- Agreement, maintain the confidentiality of all Confidential Information provided 19 to it by Polyfuel and Plug and will assure that Polyfuel Confidential Information and Plug Confidential Information is not disclosed or otherwise disseminated to any person, firm, corporation or other entity, without first obtaining the prior written permission of a duly authorized officer of Polyfuel or Plug, as applicable, provided however, that SRI may distribute Polyfuel Confidential Information and Plug Confidential Information to NIST, if required to do by the NIST Cooperative Agreement or the Agreement and to its employees and authorized agents for the purpose of reviewing and analyzing Polyfuel Confidential Information and Plug Confidential Information, but SRI shall at all times remain responsible for maintaining the confidentiality of Polyfuel Confidential Information and Plug Confidential Information. SRI will retain Polyfuel Confidential Information and Plug Confidential Information on its premises and the Polyfuel Confidential Information and Plug Confidential Information will not be moved off SRI's premises or copied without the express prior written consent of Polyfuel or Plug, as applicable. SRI will use reasonable means, not less than those used to protect its own proprietary information, to safeguard the Polyfuel Confidential Information and Plug, Confidential Information. SRI will promptly return all Polyfuel Confidential Information and all but one (1) copy of the Polyfuel Confidential Information or documents created based upon the Polyfuel Confidential Information (to be retained solely to monitor compliance with this section), to Polyfuel, upon termination of the Agreement, or sooner, upon Polyfuel's request. SRI will promptly return all Plug Confidential Information and any copies of the Plug Confidential Information or documents based on the Plug Confidential Information to Plug upon termination of the Agreement, or sooner upon Plug's request. SRI agrees and represents that no portion of the Polyfuel Confidential Information, the Plug Confidential Information or any other confidential Information concerning Polyfuel or Plug will be disclosed except as expressly permitted by this IP Plan and the Agreement and that SRI will not use the Polyfuel Confidential Information, the Plug Confidential Information or any portion of them or any other Confidential Information concerning Polyfuel or Plug for any purpose other than the Program. In the event of a breach or threatened breach by SRI of the provisions of this Section 3, Polyfuel and Plug shall each be entitled to an injunction restraining SRI from disclosing, in whole or in part, Polyfuel Confidential Information and Plug Confidential Information. Nothing herein shall be construed as limiting Polyfuel or Plug from pursuing any other remedies available to them for breach or threatened breach of this Section 3, including the recovery of damages from SRI. The provisions of this Section 3, shall survive the termination of this IP Plan and the Agreement. 4. MISCELLANEOUS 4.1 Subcontractor Restrictions. Polyfuel and Plug may enter into -------------------------- subcontracts in connection with the Agreement. Each subcontractor must agree to be bound by 20 Section 3, above, and agree to enter into a subcontractor agreement that is consistent with the Agreement, the NIST Cooperative Agreement and the allocation of intellectual property rights set forth in this IP Plan. 4.2 Term. This IP Plan shall continue in full force and effect until the ---- Parties' obligations as set forth in the Agreement and the NIST Cooperative Agreement have been completed, or until the NIST Cooperative Agreement has been terminated. 4.3 Amendments. No amendment or modification of this IP Plan shall be ---------- valid unless made in writing and signed by Polyfuel, SRI and Plug. 4.4 Assignment. This IP Plan shall not be assigned by any party ---------- without the express written consent of the other parties hereto, which consent shall not be unreasonably withheld. This provision shall not apply in the event a party changes its name or as part of the sale of the party's business. 4.5 Effective Date. This IP Plan shall be effective as of the date of the -------------- last signature below. 4.6 Governing Law. This IP Plan shall be governed by and interpreted in ------------- accordance with the laws of New York. 4.7 Headings. Section headings contained in this IP Plan are included for -------- convenience only and form no part of the agreement among the Parties. 4.8 Severability. If any provision of this IP Plan is declared invalid by ------------ any court or government agency, all other provisions shall remain in full force and effect. 4.9 Waivers. Waiver by any Party of any breach or failure to comply with ------- any provision of this IP Plan by the other Party shall not be construed as, or constitute, a continuing waiver of such provision or a waiver of any other breach of or failure to comply with any other provision of this IP Plan. 21 IN WITNESS WHEREOF, the Parties have caused this IP Plan to be executed by their duly authorized officers or representatives on the dates shown below. PLUG POWER, L.L.C. POLYFUEL, INC. a Delaware Limited Liability Company a Delaware Corporation Name: Name: ----------------------- ----------------------- Title: Title: President ----------------------- ----------------------- Date: Date: April 6, 1999 ----------------------- ----------------------- SRI INTERNATIONAL a California nonprofit public benefit Corporation Name: --------------------------------- Title: Contracts Manager ----------------------------- Date: April 6, 1999 ------------------------- 22 EX-10.19 20 COOPERATIVE RESEARCH AND DEVELOPMENT AGREEMENT CONFIDENTIAL INFORMATION HAS BEEN OMITTED PURSUANT TO RULE 406 UNDER THE SECURITIES ACT AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. THE LOCATIONS OF THE OMITTED INFORMATION HAVE BEEN INDICATED WITH ASTERISKS. Exhibit 10.19 A COOPERATIVE RESEARCH AND DEVELOPMENT AGREEMENT Between PLUG POWER, L.L.C. and U. S. ARMY BENET LABORATORIES A. Whereas, the Federal Technology Transfer Act of 1986, 15 USC3710a, provides each Federal agency with the authority to permit the Directors of Government-operated Federal Laboratories to enter into Cooperative Research and Development Agreements (CRADA's) with Federal and non-Federal entities, including private firms and organizations. This authority allows Federal laboratories to accept, retain, and use funds, personnel, services, and property from collaborating parties and to provided personnel services, and property to collaborating parties. This authority also includes the disposition of patent rights in any inventions, which may result from such collaboration, or by delegation of the Assistant Secretary of the Army for Research, Development and Acquisition, other patent rights which are owned by the Government. B. Whereas, the U.S. Army BENET Laboratories (BENET) has an installation and extensive state-of-the art infrastructure required to support an array of unique technologies, in Armaments, Munitions and in enabling technologies. BENET has the responsibility to make its procedures, processes and technologies available for use and transfer to the private sector. BENET has unique technologies and facilities in specialized materials, simulation and analysis for prototype fabrication, which PLUG POWER desires to adapt for commercial application. C. Whereas, PLUG POWER, L.L.C. (PLUG POWER) desires to collaborate with BENET in the business of research, development, and engineering for the purpose of transferring unique process technologies from the United States Army for use and application by PLUG POWER for a commercial application. NOW, THEREFORE, the parties agree as follows: Article 1. Definitions. As used in this Agreement, the following terms shall have the following meanings, and such meanings should be equally applicable to both the singular and plural forms of the terms defined: 1.1 "Agreement" means this Cooperative Research and Development Agreement. 1.2 "Invention" means any invention or discovery, which is or may be patentable or otherwise protected, under Title 35 of the United States Code. 1.3 "Made" in relation to any Invention means the conception or first actual reduction to practice of such Invention. 1.4 "Proprietary Information" means any patent rights, copyrights, trademark rights, trade secrets, mask works, proprietary information or data, moral rights, and know-how developed by PLUG POWER prior to, in the course of or subsequent to, this Agreement that: (i) is not generally known or available from other sources without obligation concerning its confidentiality; (ii) has not been made available by the owners to others without obligation concerning its confidentiality; and (iii) is not already available to the Government without obligation concerning its confidentiality, and does not constitute a Subject Invention, Subject Data or Protected CRADA Information. 1.5 "Subject Data" means all recorded information first produced in the performance of this Agreement. 1.6 "Subject Invention" means any invention made in the performance of work under this Agreement. 1.7 "Protected CRADA Information" means any patent rights, copyrights, trademark rights, trade secrets, mask works, proprietary information or data, moral rights, and know-how, developed in the course of this Agreement and directly related to the Statement of Work, by a BENET or PLUG POWER employee assigned to this project by his or her employer. Article 2. Cooperate Research. 2.1 Statement of Work. Cooperative research performed under this Agreement shall be performed in accordance with the Statement of Work (SOW), incorporated as a part of this Agreement as Appendix A. Each party agrees to participate in the cooperative research and to utilize such personnel, resources, facilities, equipment, skills, know-how and information, as it considers necessary, consistent with its own policies, missions, and requirements. Work tasks will be added to Statement of Work and will become part of this Agreement and recorded as part of Appendix A. The work will be task-or-performance oriented. 2.2 Multiple Parties and Separate Technologies: BENET has unique technologies in several related but distinct areas to include, but not limited to: Mounts, Fire Control, and the enabling sciences and discipline. In addition, BENET has expertise located within Watervliet Arsenal. 2.3 Review of Work. Periodic conferences shall be held between BENET personnel and PLUG POWER personnel for the purpose of reviewing the progress of the work. It is understood that the nature of this cooperative research is such that completion within the limit of financial support allocated, cannot be guaranteed. Accordingly, it is agreed that all sponsored research is to be performed on a best efforts basis. It is agreed that individual work 2 tasks incorporated into the Statement of Work will make use of project management techniques detailing where appropriate, cost, schedule and technical milestone considerations to mitigate and control risk. 2.4 Change in Scope. The parties shall make a good faith effort to agree on any necessary changes to the SOW and make the changes by written notice. The parties agree that increases and decreases in effort may by mutual agreement not be considered a change in scope, minimizing administrative delays in the execution of effort. 2.5 Research and Development (R&D) Team. To the extent that the conduct of sponsored research requires a joint technical effort, PLUG POWER and BENET agree to establish a joint research and development team (the "TEAM"). The Team shall conduct cooperative research in accordance with the SOW. Each party shall pledge to make available to the Team such resources, facilities, equipment, skills, know-how, and information, as it considers necessary and appropriate. Both parties pledge to support the Team in a mutually cooperative manner, on a best effort basis, consistent with their respective policies, missions, and requirements. Each party may support changes to the SOW or to the scope and direction of the effort which, if agreed to by the other party, shall first be made to the SOW, and then implemented by the Team. While assigned to the Team, members shall continue to remain employed by their respective employers with full benefits and salary, and will not be considered to be employees of the other party for any reason. Each parties shall be solely responsible for the composition their of Team members. Article 3. Reports. 3.1 Progress Reports. After this Agreement enters into force, BENET and PLUG POWER shall exchange periodic written reports during the term of this Agreement on the progress of their work, and the results being obtained, and shall make available to the extent reasonably requested, other project information in sufficient detail to explain the progress of the work. Specific report content and timing will be defined in the Statement of Work. 3.2 Final Report. BENET and PLUG POWER shall prepare a written report within three (3) months after expiration of this Agreement. This report shall set forth the technical progress made, identifying such problems as may have been encountered, and establishing goals and objectives requiring further effort. Inclusion of Proprietary Information or Subject Information in deliverable reports shall be subject to the provisions of Article 7.2. In addition, a portion of the results not including Proprietary Information, may be prepared for publication in a journal or conference, as appropriate, by BENET or PLUG POWER, with co-authorship, as appropriate, subject to the provisions of 7.4. Article 4. Financial Obligation Salary and Travel. BENET and PLUG POWER shall provide support to their respective personnel in performance of this Agreement. Attached Statements of Work set forth 3 in Appendix A will detail financial terms and conditions. If or when appropriate and required by a scope of work, reimbursement required by BENET will be provided by PLUG POWER. It is noted that reimbursement does not constitute a sale or transfer of ownership of property. Article 5. Title to Property. 5.1 Equipment. All equipment first acquired under this Agreement, and all Government Furnished Equipment (GFE), if any, shall be the property of BENET except that title to items of equipment developed or purchased by PLUG POWER, or provided to BENET by PLUG POWER or acquired by BENET with funds supplied by PLUG POWER, shall remain or vest in PLUG POWER. ANY GFE shall be used solely for the performance of the effort contemplated by this Agreement. Upon completion of research under this Agreement, PLUG POWER shall be responsible for all costs attendant to the maintenance, removal, storage, and shipping of their equipment to their own facility. Prototype hardware, designed, produced and transferred by the Government to PLUG POWER will be considered GFE, with the Government retaining title. The applicable sections of Part 45 of the Federal Acquisition Regulations shall apply to PLUG POWER's management and disposition of GFE furnished under this Agreement. 5.2. Software 5.2.1. PLUG POWER Employee Software. Title to any copyright in software written by PLUG POWER employees necessary to perform this Agreement shall be held by PLUG POWER. PLUG POWER agrees to grant to the U.S. Government a non-exclusive, irrevocable, paid-up license for military applications only, to use or have used, throughout the world by, or on behalf of the U.S. Government, the copyright covering said software. 5.2.2. Joint Employee Software. Title to any copyright in software written jointly by BENET and PLUG POWER employees in the course of performance of this Agreement, shall be held by PLUG POWER. PLUG POWER agrees to grant to the U.S. Government a nonexclusive, irrevocable, paid-up license for military applications only, to use or have used, throughout the world by, or on behalf of the U.S. Government, the copyright covering said software. 5.2.3 Limited Scope. PLUG POWER shall retain ownership in any software or algorithms to which PLUG POWER has title prior to this Agreement, or written for its own requirements during the course of this Agreement which are not necessary for the performance of work under this Agreement. 5.2.4. BENET Employee Software. The U.S. Government hereby grants to PLUG POWER an exclusive, irrevocable, transferable, worldwide, paid-up license to make, use or sell any software written by BENET employees in the performance of this Agreement. 4 5.2.5 BENET Laboratories may provide interface drawings and other technical data to collaborators as required or negotiated for purposes other than for production of Large Caliber Cannon. In this instance Cannon is defined as consisting of the Cannon Tube, to include thermal management assembles, the Breech, Mechanism, to include breech actuation assemblies, the Bore evacuator and the Muzzle Break. Article 6. Inventions and Patents. 6.1 Reporting. The parties shall promptly report to each other all Subject Inventions made in the performance of work under this Agreement. All Subject Inventions made in the performance of work under this Agreement shall be listed in the Final Report required by this Agreement. 6.2 Employee Inventions. BENET, on behalf of the U.S. Government, agrees that PLUG POWER shall retain title to any PLUG POWER employee Subject Invention. PLUG POWER may file patent applications on such Subject Inventions at its own expense. PLUG POWER further agrees to grant to the U.S. Government on PLUG POWER Subject inventions a nonexclusive, irrevocable, paid-up license in the patents covering a Subject Invention, to practice or have practiced, throughout the world by, or on behalf of the U.S. Government, the Subject Inventions which are covered by a resulting patent except for any application related to fuel cells. Such non-exclusive license shall be evidenced by a confirmatory license agreement prepared by PLUG POWER in a form satisfactory to BENET. 6.3. BENET Employee Inventions. BENET, on behalf of the U.S. Government, shall have the initial option to retain title to, and file patents on, each Subject Invention made by its employees. BENET may file patent applications thereon at its own expense. BENET, on behalf of the U.S. Government, agrees to grant to PLUG POWER on those BENET employee Subject Inventions upon which the U.S. Government has exercised the option to retain title to, a nonexclusive, irrevocable, transferable, paid-up license in the patents covering a Subject Invention, to practice or have practiced, throughout the world by, or on behalf of PLUG POWER, the Subject Inventions, which are covered by a resulting patent. The license on Subject Inventions excludes the right to produce or have produced Large Caliber Cannon at any facility other than Watervliet Arsenal. 6.4 Joint Employee Inventions. PLUG POWER have the initial option to file patent applications at its own expense on joint inventions, subject to the conditions specified in Paragraph 6.5. PLUG POWER is hereby granted all rights to patents filed in its name for joint inventions for all applications related to fuel cells, and the U.S. Government is hereby granted an exclusive, irrevocable, paid-up U.S. Government license to practice or have practiced, throughout the world by, or on behalf of the U.S. Government, the invention which is covered by a resulting patent for all applications except those related to fuel cell applications. 5 6.5 Filing of Patent Applications. The party having the right to retain title and file patent applications on a specific Subject Invention may elect not to file patent applications, provided it so advises the other party within 300 days from the date it reports the Subject Inventions to the other party. Thereafter, the other party may elect to file patent applications on the Subject Invention and the party initially reporting the Subject Invention agrees to assign its right, title, and interest in the Subject Invention to the other party. The assignment of the entire right, title, and interest to the other party, pursuant to this paragraph, shall be subject to the retention by the party assigning title of a nonexclusive, irrevocable, transferable, paid-up license to practice, or have practiced, the Subject Invention the world. 6.6 Patent Expenses. The expenses attendant to the filing of patent applications shall be borne by the party filing the patent applications. Each party shall provide the other party with copies of the patent applications it files on any Subject Invention along with the power to inspect and make copies of all documents retained in the official patent application files by the applicable patent office. The parties agree to reasonably cooperate with each other in the preparation and filing of patent applications resulting from this Agreement. 6.7 Maintenance Fees. The fees payable to the U.S. Patent and Trademark Office, in order to maintain the patent's enforcement, will be payable by the owner of the patent, at that party's option. In the event that BENET is the owner of the patent and PLUG POWER holds an exclusive license in said patent, PLUG POWER shall pay all maintenance fees for said patent, but shall not be required to pay any litigation fees for said patent. If deciding not to pay the maintenance fee, PLUG POWER must relinquish their exclusive license rights in said patent and must give BENET reasonable notification so as to permit BENET the option of paying said fee. In the event that PLUG POWER elects not to pay the maintenance fees and BENET elects to exercise it's option to pay said fee, PLUG POWER will retain a non-exclusive, irrevocable, transferable, paid-up license in said patent 6.8 Exclusive License 6.8.1 BENET, on behalf of the U.S. Government, agrees to grant to PLUG POWER a limited term exclusive, transferable, worldwide license in each U.S. patent application, and patents issued thereon, covering a BENET employee Subject Invention, which is filed by BENET on behalf of the U.S. Government subject to the reservation of a non-exclusive, irrevocable, paid-up license to practice and have practiced the Subject Invention on behalf of the U.S. Government. 6.8.2 Exclusive License Terms. PLUG POWER shall elect or decline to exercise its rights to acquire a limited term exclusive license to any Subject Invention(s) within six (6) months of being informed by BENET of the Subject Invention(s). A reasonable royalty rate and other terms of license shall be negotiated promptly in good faith and in conformance with the laws of the United States. Such exclusive license shall be for an initial term ending seven (7) years from the date of each patent and with respect to each such patent shall be 6 automatically renewable for successive seven (7) year periods provided PLUG POWER or any PLUG POWER sublicensee: (i) is then conducting related research, or (ii) continues to commercialize the subject matter covered by such patent(s). 6.8.3 Other BENET Inventions. This Agreement does not grant an implied license to PLUG POWER with respect to any other government inventions, including any BENET inventions not covered by Article 6.8.2. BENET agrees to grant an exclusive, transferable, worldwide license to PLUG POWER to such other BENET Inventions if requested by PLUG POWER at fair and reasonable terms, if such an exclusive license is necessary for PLUG POWER to practice, or have practice, any BENET Subject Invention under this Agreement, but only to the extent that BENET has an unencumbered right and/or authority to do so. Nothing in this Agreement shall be construed as a grant or an agreement to grant any license with respect to any invention made by any other U.S. Army laboratory or any other Government agency or laboratory. 6.8.4 Subsidiaries and Affiliates. The license to PLUG POWER under this Agreement also extend to PLUG POWER's United States subsidiaries. 6.8.5 Other PLUG POWER Inventions. This Agreement does not grant an implied license to BENET with respect to any other PLUG POWER inventions, including any PLUG POWER inventions not covered by Section 6 of this Agreement. PLUG POWER agrees to grant a nonexclusive, transferable, worldwide license to BENET to such other PLUG POWER inventions if requested by BENET at fair and reasonable terms, if such an nonexclusive license is necessary for BENET to practice, or have practiced, any PLUG POWER Subject Invention under this Agreement, but only to the extent that PLUG POWER has an unencumbered right and/or authority to do so. Nothing in this Agreement shall be construed as a grant or an agreement to grant any license with respect to any invention made by PLUG POWER. Article 7. Data and Publication 7.1 Rights. Subject Data shall be individually owned by the parties hereto. Either party shall, upon request, have the right to review all Subject Data first produced under this Agreement which has not been delivered to the other party, except to the extent that such Subject Data is subject to a claim of confidence or privilege by a third party. 7.2 Proprietary Information. BENET agrees that any Proprietary Information furnished by PLUG POWER to BENET under this Agreement, or in contemplation of this Agreement, shall be used, reproduced and disclosed by BENET only for the purpose of carrying out this Agreement, and shall not be released by BENET to third parties unless 7 consent to the release is obtained from PLUG POWER. Proprietary Information which is disclosed verbally by PLUG POWER shall be identified as proprietary at the time of disclosure and then summarized in writing. Such summary shall be marked as Proprietary information and provided to BENET within ten (10) days after the verbal disclosure. PLUG POWER shall place a proprietary notice on all information it delivers to BENET under this Agreement which it asserts is proprietary. All Proprietary Information shall be protected for a period of five (5) years from disclosure to BENET. 7.3 Release Restrictions. BENET shall have the right to use all Subject Data for military purposes only, and shall not release such Subject Data publicly except when: (i) BENET in reporting results of sponsored research, may publish Subject Data in technical articles and other documents to the extent it determines to be appropriate unless such disclosure will adversely affect PLUG POWER's rights; and (ii) BENET may release such Subject Data where such release is required by law or court order provided that prior notice is provided to PLUG POWER to allow Plug POWER to obtain a Protective Order. 7.4 Publication. BENET and PLUG POWER agree to confer prior to the publication of Subject Data to assure that no Proprietary Information or protected CRADA information are released and that patent rights are not jeopardized. Prior written approval is required from the other party before a party hereto can submit a manuscript for review, which contains the results of the research under this Agreement, or prior to publication if no such review is made. Each party shall be offered an ample opportunity to review such proposed manuscript and to file patent applications in a timely manner. 7.5 Obligations as to Protected CRADA Information. Each party hereto may designate as Protected CRADA Information, as defined in Article 1, any Subject Data produced by its employees, and with the agreement of the other party, mark any Subject Data produced by the other party's employees. All such designated Protected CRADA Information shall be appropriately marked. For a period of five (5) years from the date Protected CRADA Information is produced, the parties hereto agree not to further disclose such Protected CRADA Information except: (1) as necessary to perform this CRADA; (2) as necessary for PLUG POWER to conduct its business; (3) as necessary for BENET to provide to other Government facilities, and only at those Government facilities with the same protection in place, or (4) as mutually agreed by the parties hereto in advance in writing. The obligations of the parties with respect to Protected CRADA Information, shall end sooner for any Protected CRADA Information which shall: (1) become publicly known without fault 8 of either party; (2) come into a party's possession without breach by that party of the obligations set forth in this Article; or (3) be independently developed by a party's employees who did not have access to the Protected CRADA Information. Article 8. Representations and Warranties. 8.1 Representations and Warranties of BENET. BENET hereby represents and warrants as follows: 8.1.1 Organization. BENET is a federal laboratory and is wholly owned by the Government of the United States and whose substantial purpose is the performance of research, development, and engineering. 8.1.2 Mission. The performance of the activities specified by this Agreement are consistent with the mission of BENET. 8.1.3 Authority. All prior reviews and approvals required by regulations or law have been obtained by BENET prior to the execution of this Agreement. The BENET official executing this Agreement has the requisite authority to do so. Notwithstanding the delegation of authority to execute this Agreement to the individual designated, that is the Director of BENET, the Secretary of the Army has reserved to the Assistant Secretary of the Army (Research, Development and Acquisition) the opportunity provided by 15 USC Sect. 3710a(c)(5)(A), to disapprove or require the modification of this Agreement within 30 days of the date it is presented to him or her by BENET. 8.2. Statutory Compliance. The BENET Director, prior to entering into this Agreement, has given special consideration to entering into CRADA's with small business firms and consortia involving small business firms. 8.3 Representations and Warranties. PLUG POWER hereby represents and warrants to BENET as follows: 8.3.1 POWER of Authority. PLUG POWER has the requisite power and authority to enter into this Agreement- and to perform according to terms thereof; 8.3.3 Due Authorization. PLUG POWER has taken all actions required to be taken by law, to authorize the execution and delivery of this Agreement; 8.3.4 No Violation. The execution and delivery of this Agreement does not contravene any material provision of, or constitute a material default under any material agreement binding on PLUG POWER or any valid order of any court, or any regulatory agency or other body having authority to which PLUG POWER is subject. 9 Article 9. Termination. 9.1 Termination by Mutual Consent. PLUG POWER and BENET may elect to terminate this Agreement, or portions thereof, at any time by mutual consent. 9.2 Termination by Unilateral Action. Either party may unilaterally terminate this entire Agreement at any time by giving the other party written notice, no less than 30 days prior to the desired termination date. Termination will consider any work in process and the financial effects on the parties. 9.3 Termination Procedures. In the event of termination, the parties shall specify by written notice the disposition of all property, patents, and other results of work accomplished or in progress, arising from or performed under this Agreement. Upon the receipt of written termination notice, the parties shall not take any new commitments that relate to this Agreement. Article 10. Disputes. 10.1 Settlement. Any dispute arising under this Agreement which is not disposed of by agreement of the co-principal investigators, shall be submitted jointly to the signatories of this Agreement. A joint decision of the signatories or their designees shall be the disposition of such dispute. However, nothing in this section shall prevent any party from pursuing any and all administrative and/or judicial remedies, which may be allowable. Article 11. Liability. 11.1 Property. Neither party shall be responsible for damages to any property provided to, or acquired by, the other party pursuant to this Agreement. 11.2 PLUG POWER Employees. PLUG POWER agrees to indemnify and hold harmless the U.S. Government for any loss, claim, damage, or liability of any kind involving any employee of PLUG POWER arising in connection with this Agreement, except to the extent that such loss, claim, damage, or liability is due to the negligence of BENET under the provision of the Federal Torts Claims Act. 11.3 No Warranty. Except as specifically stated elsewhere in this Agreement, BENET makes no express or implied warranty as to any matter whatsoever, including the conditions of the research or any invention or product, whether tangible or intangible; made, or developed under this Agreement, or the ownership, merchantability, or fitness for a particular purpose of the research or any invention or product. 11.4 Product and Other Liability as to the U.S. Government. PLUG POWER holds the U.S. Government harmless and indemnifies the U.S. government for all liabilities, demands, damages, expenses, and losses arising out of use by PLUG POWER of BENET's 10 research and technical developments or out of any use, sale, or other disposition by PLUG POWER of products made by the use of BENET's technical developments. 11.5 Indemnification. The U.S. government and PLUG POWER makes no express or implied warranty as to the conditions of the research or any intellectual property or product made, or developed under this Agreement, or the ownership, merchantability or fitness for a particular purpose of the research or resulting product. Neither the U.S. Government or PLUG POWER shall be liable for special, consequential, or incidental damages. Article 12. Miscellaneous 12.1 No benefits. No member of, or delegate to the United States congress, or resident commissioner, shall be admitted to any share or part of this Agreement, nor to any benefit that may arise therefrom; but this provision shall not be construed to extend to this Agreement, if made with a corporation for its general benefit. 12.2 Governing Law. This Agreement shall be governed by the laws of the United States Government. 12.3. Fair Access. This Agreement shall not restrict either party from entering into similar agreements. 2.4.a Notices. All notices pertaining to or required by this Agreement, shall be in writing and shall be signed by an authorized representative, and shall be delivered by hand or sent by certified mail, return receipt requested, with postage prepaid. 2.4.b Independent Contractors. The relationship of PLUG POWER to BENET/to this Agreement is-that of independent contractors and not as agents of-each or as joint ventures or partners. 12.5 Use of Name or Endorsement: (i) PLUG POWER shall not use the name of BENET, BENET Laboratories, Watervliet Arsenal or the Department of the Army, on any product or service which is directly or indirectly related to either this Agreement or any patent license or assignment agreement, which implements this Agreement without the prior approval of BENET; (ii) by entering into this Agreement, BENET does not directly or indirectly endorse any product or service provided, or to be provided, by PLUG POWER, its successors, assignees, or licensees. PLUG POWER shall not in any way imply that this Agreement is any endorsement of such products or service. 12.6 The rights specified in provision of this Agreement covering Inventions and Patents", "Exclusive License", "Data and Publication", "Product and Other Liability as to the U.S. Government" and "Indemnification" shall survive the termination or expiration of this Agreement. 11 Article 13. Duration of Agreement and Effective Date 13.1 Expiration of Agreement. This Agreement will automatically expire on 1 December 2003, unless it is revised by written notice and mutual consent. 13.2 Effective Date. This Agreement shall enter into force as of the date it is signed by -the last authorized representative of the parties. IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed by their duly authorized representatives as follows: For: PLUG POWER, L.L.C. ___________________________ Mr. Gary Mittleman President and Chief Executive Officer Date:_______________________ For: BENET and the U.S. Government ___________________________ Mr. Russell Fiscella Acting Director US Army BENET Laboratories Date:_______________________ 12 APPENDIX A STATEMENT OF WORK (SOW) The overall purpose of this CRADA is for PLUG POWER, L.L.C. to acquire from the US Army BENET Laboratories unique technology and services which will be applied by PLUG POWER for commercial applications. PLUG POWER desires to work with scientists and engineers of BENET to develop and commercialize new and innovative energy products. BENET scientists have unique knowledge in simulation and analysis, design and the application of- advanced materials. PLUG POWER is engaged in a commercial enterprise, which can apply BENET's technology to enhance product functionality, reliability and durability. This Agreement does not commit PLUG POWER to any expenditure of funds. Detailed work tasks and associated costs will be agreed to by the parties in advance of commencing work. Increases or decreases to this Agreement will be accomplished by a written amendment to this statement of Work, authorized by representatives of both PLUG POWER and BENET. 13 [***] (19 Pages) EX-10.20 21 NONEXCLUSIVE LICENSE AGREEMENT Exhibit 10.20 CONFIDENTIAL INFORMATION HAS BEEN OMITTED PURSUANT TO RULE 406 UNDER THE SECURITIES ACT AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. THE LOCATIONS OF THE OMITTED INFORMATION HAVE BEEN INDICATED WITH ASTERISKS. NONEXCLUSIVE PATENT LICENSE AGREEMENT BETWEEN THE REGENTS OF THE UNIVERSITY OF CALIFORNIA AND MECHANICAL TECHNOLOGY INC. TABLE OF CONTENTS 1. DEFINITIONS...............................................1 2. GRANT.....................................................2 3. LICENSE FEE AND ROYALTY PAYMENTS..........................3 4. REPORTS...................................................4 5. BOOKS AND RECORDS.........................................4 6. TERM OF THE AGREEMENT.....................................4 7. TERMINATION OR MODIFICATION BY THE UNIVERSITY.............5 8. TERMINATION BY THE LICENSEE...............................5 9. USE OF NAMES, TRADENAMES, AND TRADEMARKS..................5 10. WARRANTY BY THE UNIVERSITY................................5 11. INFRINGEMENT..............................................6 12. ASSIGNABILITY AND SUBLICENSING............................6 13. INDEMNITY - PRODUCT LIABILITY.............................7 14. LATE PAYMENTS.............................................7 15. NOTICES...................................................7 16. FORCE MAJEURE.............................................8 17. EXPORT CONTROL LAWS.......................................8 18. PREFERENCE FOR UNITED STATES INDUSTRY.....................8 19. DISPUTE RESOLUTION........................................8 20. MISCELLANEOUS.............................................8 i NONEXCLUSIVE PATENT LICENSE AGREEMENT MECHANICAL TECHNOLOGY INC. THIS LICENSE AGREEMENT is entered into by and between THE REGENTS OF THE UNIVERSITY OF CALIFORNIA, a nonprofit educational institution and a public corporation of the State of California, hereinafter referred to as the "University;" and MECHANICAL TECHNOLOGY INC., 968 Albany-Shaker Road, Latham, New York 12110, a New York Corporation, hereinafter referred to as the "Licensee," the parties to this License Agreement being referred to individually as a "Party," and collectively as "Parties." BACKGROUND The University conducts research and development at the Los Alamos National Laboratory (LANL) for the U.S. Government under Contract No. W-7405-ENG-36 with the U.S. Department of Energy (DOE). Rights in inventions and technical data made in the course of the University's research and development at LANL are governed by the terms and conditions of said Contract. Certain Technology relating to Catalyst Layer Structure for PEM Fuel Cells has been developed in the course of the University's research and development at LANL. It is the policy of the University and the Department of Energy that such Technology be developed and utilized to the fullest extent possible so as to enhance the accrual of economic and technological benefits to the U.S. domestic economy, and the University is therefore willing to grant a nonexclusive license to Licensee for that part of the Technology to which the University has title. The Licensee desires to obtain from the University certain rights for the commercial development, manufacture, use, or sale of the Technology. NOW, THEREFORE, the Parties agree as follows: 1. DEFINITIONS 1.1 "Technology" as used herein, means technical information, know-how and data owned or controlled by the University and relating to catalyst loadings for solid polymer electrolyte fuel cells as applied in U.S. Patent Application Serial Number 07/656,329 (filed February 19, 1991) and U.S. Patent Application Serial Number 07/736,876 (filed February 19, 1991). 1.2 "Patent Rights" means the University's rights arising from the following: (1) U.S. Patent Application Serial Number 07/656,329, continuation-in-part, filed February 19, 1991, Membrane Catalyst Layer for Fuel Cells by Mahlon S. Wilson; and (2) U.S. Patent Application Serial Number 07/736,876, continuation-in-part, which is a continuation-in-part of U.S. Patent Application Serial Number 07/656,329, filed February 19, 1991, Membrane Catalyst Layer for Fuel Cells by Mahlon S. Wilson. including any continuation, divisional, reexamination or reissue thereof; and including any corresponding foreign patents issued prior to the effective date of this Agreement. 1.3 "Licensed Method" means any method, procedure or process covered by any subsisting claim of any patent identified in paragraph 1.2. 1.4 "Licensed Product" means any article of manufacture, machine or composition of matter covered by any subsisting claim of any patent identified in paragraph 1.2, and any article of manufacture, machine or composition of matter produced through the practice of a Licensed Method. 1.5 "Licensed Invention" means any Licensed Product or Licensed Method. 1.6 "Net Income" means the gross revenue from sales of Licensed Products or from the sales of services utilizing a Licensed Method by Licensee and sublicensees, less the following deductions where applicable: (a) sales returns; (b) allowances; (c) trade discounts, (d) transportation charges; (e) sales and excise taxes, and; (f) duties and tariffs. 2. GRANT 2.1 Subject to the reservations and conditions set forth elsewhere in this Agreement, the University hereby grants to the Licensee a nonexclusive, nontransferable license to make, use and sell, and have made for Licensee, Licensed Products and to practice Licensed Methods covered by the University's Patent Rights throughout the United States and its territories and in any foreign country for which the University has obtained patent protection as provided in paragraph 1.2 above. 2.2 The Licensee acknowledges and agrees that the U.S. Government has a nonexclusive, nontransferable, irrevocable, paid-up license to practice or have practiced throughout the world, for or on behalf of the United States, inventions covered by the University's Patent Rights, and has certain other rights under 35 USC 200-212 and applicable implementing regulations. 2 3. LICENSE FEE AND ROYALTY PAYMENTS 3.1 [***] 3.2 [***] 3.3 Notwithstanding Paragraph 3.1 above, Licensee shall have no obligation to pay any earned royalty on any sale of any Licensed Product to, or on the practice of any Licensed Method for,,the U.S. Government or any agency thereof, or any U.S. Government contractor who certifies that its use of the Licensed Product or Licensed Method is on behalf of the U.S. Government; and Licensee agrees that its selling price to any of the foregoing entities shall not include any royalty under this Agreement. 3.4 The first earned royalty payment due under this Agreement shall be calculated based on Net Income received by Licensee from the effective date of this Agreement through December 31 of the same calendar year, and shall be due and payable within one month from the end of such period. Subsequent earned royalty payments shall be calculated based on Net Income received by Licensee during the semiannual periods extending from January I through June 30 and from July 1 through December 31 of each year, for as long as this Agreement remains in effect. Such royalty payments shall be due and payable within one month from the end of the respective semiannual period. 3.5 In the event that any patent claim included within the University's Patent Rights shall be held invalid by a decision of a court of competent jurisdiction in any country, the obligation to pay earned royalties on sales in that country of products or methods covered by the invalidated claim and not covered by valid patent claims subsisting under the University's Patent Rights shall cease as of the date of such decision. Licensee shall not, however, be relieved from paying any earned royalties that have accrued before such decision or which are based on another patent claim within the University's Patent Rights which is not held invalid by such decision. 3.6 All payments due the University shall be payable in United States funds to the University of California, Los Alamos National Laboratory, at the address set forth in Paragraph 15. Net Income received in foreign currencies shall be converted into equivalent United States funds at the exchange rate for the foreign currency prevailing as of the last day of the reporting period, as reported in the Wall Street Journal. CONFIDENTIAL INFORMATION HAS BEEN OMITTED PURSUANT TO RULE 406 UNDER THE SECURITIES ACT AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. THE LOCATIONS OF THE OMITTED INFORMATION HAVE BEEN INDICATED WITH ASTERISKS. 3 4. REPORTS 4.1 Progress Reports. Licensee agrees to submit on request, but no more frequently than annually, a report on Licensee's utilization of the Licensed Invention, including information on the status of any development efforts of the Licensee, the date of first sale or commercial use, and any other information the University may reasonably request. 4.2 Financial Reports. If earned royalty payments are required under this Agreement, Licensee agrees to submit a financial report on the dates that such payments are due, and shall submit such reports regardless of whether any payment is actually made. Such reports shall ' be certified by an officer of the Licensee, shall cover the period for which royalty payments are calculated, and shall show total sales or commercial uses made of Licensed Products or Licensed Methods by Licensee during the reporting period. If no sale or use of Licensed Products or Licensed Methods has been made during a reporting period, a statement to this effect shall be made. Reports marked by Licensee as proprietary financial or business information of the Licensee shall be treated as such by the University. 5. BOOKS AND RECORDS 5.1 The Licensee shall keep books and records accurately showing all sales of Licensed Products or practice of the-Licensed Method by Licensee under the terms of this License Agreement. Such books and records shall be open to inspection and audit on a proprietary basis by representatives of the University at reasonable times, but in no event more frequently than annually, for the purpose of verifying the accuracy of the financial reports and the royalties due. The fees and expenses of the representatives performing such an examination shall be borne by the University. Licensee may request that any such inspection and audit be conducted by an independent auditor, in which event, Licensee shall pay the reasonable costs of such auditor. 5.2 The books and records required by this article shall be preserved for at least three years from the date of the royalty payment to which they pertain. 6. TERM OF THE AGREEMENT 6.1 This License Agreement shall be effective as of the -later of the dates of execution by the Parties. 6.2 This License Agreement shall be in full force and effect from the effective date and shall remain in effect until the expiration of the last to expire of the patents included within the University's Patent Rights, unless sooner terminated by operation of law or by acts of the Parties in accordance with the terms of this License Agreement. 4 7. TERMINATION OR MODIFICATION BY THE UNIVERSITY 7.1 It is expressly agreed that, notwithstanding the provisions of Article 14 concerning late payments, if the Licensee should fail to deliver to the University any report when due, or fail to pay any royalty or fee when due, or if the Licensee should breach any material term of this License Agreement, the University may give written notice of default to the Licensee. If the Licensee fails to cure such default within ninety (90) days from the date of delivery of such notice to Licensee, the University shall have the right to terminate this License Agreement, and this License Agreement shall terminate upon delivery of written notice of termination to the Licensee. Such termination shall not relieve the Licensee of its obligation to pay any license fee or royalty due or owing at the time of such termination and shall not impair any accrued right of the University. 8. TERMINATION BY THE LICENSEE 8.1 The Licensee may terminate this License Agreement by giving written notice to the University. Such termination shall be effective ninety (90) days from the date of delivery of such notice, and the Licensee's rights under this Agreement shall cease as of the effective date of termination. 8.2 Any termination pursuant to the above paragraph shall not relieve the Licensee of any obligation or liability accrued hereunder prior to the effective date of such termination. 9. USE OF NAMES, TRADENAMES, AND TRADEMARKS 9.1 Nothing contained in this License Agreement shall be construed as conferring any right to the Licensee to use the name of the University of California or the name of any facility or campus of the University of California in advertising, publicity, or other promotional activities. 9.2 The University may disclose to third parties the existence of this License Agreement and the extent of the grant. in Article 2, but shall upon the request of Licensee withhold the amount of consideration paid for the license granted hereunder, except where the University is required to release such information under the California Public Records Act, University policy, the University's prime contract with DOE, or other applicable law. 10. WARRANTY BY THE UNIVERSITY 10.1 The University warrants that it has the lawful right to grant this license, subject to DOE assignment of rights in the Technology to the University in the event such rights have not yet been assigned to the University. 10.2 This license and the associated Technology and Patent Rights are provided WITHOUT warranty of merchantability or fitness for a particular purpose or any other 5 warranty, express or implied. The University makes no representation or warranty that any Licensed Products or Licensed Methods will not infringe any patent or other proprietary right of any third party. 10.3 IN NO EVENT WILL THE UNIVERSITY BE LIABLE FOR ANY INCIDENTAL, SPECIAL, OR CONSEQUENTIAL DAMAGES RESULTING FROM EXERCISE OF THIS LICENSE OR THE USE OF LICENSED PRODUCTS OR LICENSED METHODS. 10.4 Nothing in this License Agreement shall be construed as: (a) a warranty or representation by the University as to the validity or scope of University's Patent Rights; or (b) an obligation to bring or prosecute actions or suits against third parties for patent infringement; or (c) conferring by implication, estoppel, or otherwise any license or rights under any patents of the University other than University's Patent Rights as defined herein; or (d) an obligation by University to furnish any know-how, technical assistance, or technical data that is unrelated or unnecessary to the transfer of the Technology to the Licensee -for the purpose of implementing this License Agreement. 11. INFRINGEMENT 11.1 In the event the Licensee shall learn of the substantial infringement of any of the University's Patent Rights by a third party, Licensee shall inform the University and shall provide the University with available evidence of such infringement. - The University shall use its best efforts to terminate such infringement without litigation, and may in its sole discretion initiate litigation at its own expense, but shall be under no obligation under this Agreement to bring any such legal action. 12. ASSIGNABILITY AND SUBLICENSING 12.1 This License Agreement is binding upon I and shall inure to the benefit of the University and Licensee, and their respective successors and assigns. This License Agreement shall be assignable by Licensee providing Licensee's assignee agrees, in writing, to assume all the outstanding obligations of the Licensee under this Agreement. 12.2 In the event that a controlling interest in Licensee is obtained by a foreign entity, the University may terminate this License Agreement at its discretion, which discretion 6 shall not be exercised unreasonably. Licensee agrees to notify the University of any such change in controlling interest within thirty days of its occurrence. 12.3 The Licensee may not grant sublicenses under this Agreement except with the prior written authorization of the University. 13. INDEMNITY - PRODUCT LIABILITY 13.1 The Licensee agrees to indemnify the U.S. Government and the University, their officers, employees, and agents, against any damages, costs and expenses, including attorneys' fees, arising from the commercialization and utilization of the Technology, by Licensee, including but not limited to the making, using, selling or exporting, by Licensee, of products, processes, or services derived therefrom. This indemnification will include, but will not be limited to, any product liability. 13.2 Licensee agrees that the U.S. Government is neither a party to this Agreement nor assumes any liability for activities of the University in connection with this Agreement. 14. LATE PAYMENTS 14.1 In the event any royalty payments or fees due under this Agreement are not received by the University within thirty (30) days of when due, the Licensee shall pay to the University interest charges at the rate of ten percent (10%) per annum on the amount of such royalties or fees overdue. 15. NOTICES 15.1 Any payment, notice, or other communication required or permitted to be given to either party hereto shall be deemed to have been properly given and to be effective on the date of delivery if delivered in person or by first-class certified mail, postage paid, to the respective address given below, or to such other address as it shall designate by written notice given to the other party as follows: In the case of the Licensee: Mechanical Technology Inc. 968 Albany-Shaker Road Latham, NY 12110 Attn: William P. Surnigray 7 In the case of the University: Los Alamos National Laboratory Industrial Partnership Center P.O.-Box 1663, Mail Stop M899 Los Alamos, New Mexico 87545 Attn: Licensing Coordinator 16. FORCE MAJEURE 16.1 Neither party shall be responsible for delay or failure in performance of any of the obligations imposed by this License Agreement, provided such failure shall be occasioned by fire, flood, explosion, lightning, windstorm, earthquake, subsidence of soil, court order or government interference, civil commotion, riot, war, or by any cause of like or unlike nature beyond the control and without fault or negligence of such party. 17. EXPORT CONTROL LAWS 17.1 Licensee acknowledges and understands that the export of certain goods or technical data from the United States requires an export control license from the United States Government, and that failure to obtain such export control license may result in violation of U.S. laws. 18. PREFERENCE FOR UNITED STATES INDUSTRY 18.1 Licensee agrees that any products embodying Licensed Products or produced through the use of a Licensed Method will be manufactured substantially in the United States. 19. DISPUTE RESOLUTION 19.1 The Parties agree to exert their best efforts to resolve disputes arising from this Agreement. Any dispute that cannot be resolved by the Parties shall be resolved in accordance with the rules and procedures of the American Arbitration Association, acting in the state of New Mexico, and shall be enforceable in accordance with New Mexico law. 20. MISCELLANEOUS 20.1 The headings of the several sections of this Agreement are included for convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this License Agreement. 20.2 No amendment or modification of this Agreement shall be binding on the Parties unless made in a writing executed by duly authorized representatives of the Parties. 8 20.3 This License Agreement embodies the entire understanding of the Parties and shall supersede all previous agreements, communications, representations, or understandings, either oral or written, between the Parties relating to the subject matter hereof. 20.4 In the event any one or more of the provisions of this License Agreement shall for any reason be held to be invalid, illegal, or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other provisions hereof, and this License Agreement shall be construed as if such invalid or illegal or unenforceable provisions had never been contained herein. 20.5 This License Agreement shall be interpreted and construed in accordance with the laws of the New Mexico. IN WITNESS WHEREOF, both the University and the Licensee have executed this License Agreement, in duplicate originals, by their respective officers on the day and year hereinafter written. THE REGENTS OF THE UNIVERSITY OF CALIFORNIA By______________________________ Siegfried S. Hecker, Director Los Alamos National Laboratory Date______________________________ MECHANICAL TECHNOLOGY INC. By_______________________________ Printed Name:_____________________ Title:_____________________________ Date:_____________________________ 9 NONEXCLUSIVE PATENT LICENSE AGREEMENT MECHANICAL TECHNOLOGY INC. MODIFICATION NO. I THIS MODIFICATION to the License Agreement between THE REGENTS OF THE UNIVERSITY OF CALIFORNIA, a nonprofit educational institution and a public corporation of the State of California, hereinafter referred to as the "University" and MECHANICAL TECHNOLOGY INC., 968 Albany-Shaker Road, Latham, New York 12110, a New York Corporation, hereinafter referred to as the "Licensee," the parties to this License Agreement being referred to individually as a "Party" and collectively as "Parties." BACKGROUND The Parties have entered into a Nonexclusive License Agreement, hereinafter referred to as the "Agreement,", executed April 30, 1993, to grant to Licensee certain rights for t-he commercial development, manufacture, use, or sale of the Technology, as defined in the Agreement. The Parties desire that the Agreement be amended to include all of the Technology related to Catalyst Layer Structure for PEM Fuel Cells as covered by patent applications and patents subsisting on the effective date of t~e Agreement. NOW THEREFORE, the Parties agree to amend the Agreement as follows: AMENDMENTS 1. Amend Paragraph 1.1: 1.1 "Technology" as used herein, means technical information, know-how and data owned or controlled by the University and relating to catalyst loadings for solid polymer electrolyte fuel cells as applied in U.S. Patent Application Serial Number 07/656,329 (filed February 19, 1991), U.S. Patent Application Serial Number 07/736,876 (filed July 29, 1993, now U.S. Patent 5,234,777, issued August 10, 1993) and U.S. Patent 5,211,984 (issued May 18, 1993). 2. Amend Paragraph 1.2 1.2 "Patent Rights" means the University's rights arising from the following: (1) U.S. Patent Application serial Number 07/656,329, filed February 19, 1991, Membrane Catalyst Layer for Fuel Cells, by Mahlon S. Wilson, and now abandoned; (2) U.S. Patent Application Serial Number 07/736,876, filed July 29, 1991, which is a continuation-in-part of U.S. Patent Application 07/656,329, Membrane 10 Catalyst Layer for Fuel Cells, by Mahlon S. Wilson, now U.S. Patent 5,234,777, issued August 10, 1993; and (3) U.S. Patent Application Serial Number 07/811,220, filed December 20, 1991, Membrane Catalyst Layer for Fuel Cells, by Mahlon S. Wilson, and now U.S. Patent 5,211,984, issued May 18, 1992 including any continuation, divisional, reexamination, or reissue thereof; and including any corresponding foreign patents issued prior to the effective date of this Agreement. IN WITNESS WHEREOF, both the University and the Licensee have executed this License Agreement, in duplicate originals, by their respective officers on the day and year hereinafter written. THE REGENTS OF THE UNIVERSITY OF CALIFORNIA By____________________________ Kay V. Adams Industrial Partnership Center Los Alamos National Laboratory Date_____________________________ MECHANICAL TECHNOLOGIES INC. By:______________________________ Printed Name:_______________________ Title:_____________________________ Date:_____________________________ 11 EX-10.21 22 DEVELOPMENT COLLABORATION AGREEMENT (07/30/99) EXHIBIT 10.21 CONFIDENTIAL INFORMATION HAS BEEN OMITTED PURSUANT TO RULE 406 UNDER THE SECURITIES ACT AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. THE LOCATIONS OF THE OMITTED INFORMATION HAVE BEEN INDICATED WITH ASTERISKS. DEVELOPMENT COLLABORATION AGREEMENT This DEVELOPMENT COLLABORATION AGREEMENT (this "Agreement") is entered into as of July 30,1999, by and between JOH. VAILLANT GMBH U. CO., a German kommanditgesellschaft ("Vaillant"), having its principal place of business at Berghauser StraBe 40, 42859 Remscheid, Federal Republic of Germany, and PLUG POWER, LLC, a Delaware limited liability company ("PP"), having its principal place of business at 968 Albany-Shaker Road, Latham, New York 12110, USA. WHEREAS, Vaillant and PP are contemplating entering into an Umbrella Agreement (the "Umbrella Agreement") by and among Vaillant, PP and GE Fuel Cell Systems, LLC, a Delaware limited liability company ("GEFCS"), pursuant to which, among other things, Vaillant, PP and GEFCS would collaborate to develop, manufacture, sell, install and service certain FCHAs (as defined in Section 1 below) for providing heat, electricity and hot water for residential applications worldwide; and WHEREAS, in anticipation of entering into the Umbrella Agreement and the other agreements contemplated thereby, the parties hereto desire to confirm herein their understandings and agreements in respect to such collaboration and matters related to the development of FCHAs. NOW, THEREFORE, in consideration of the recitals and the mutual covenants and agreements contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows. 1. Definitions. For purposes of this Agreement, capitalized terms used but not otherwise defined herein shall have the following meanings: "Effective Date" shall mean the date of this Agreement. "Energy Management System" shall mean a controller which communicates with the following: the FCHA subsystems (Fuel Cell Subsystem and Heater Subsystem), the components of the domestic heating system and the communication interface for the customer to ensure a technically and economically optimized operation of the FCHA. "Europe" shall mean those countries listed on Exhibit A attached hereto. "FCHA" shall mean a fuel-cell driven system that generates both usable heat and electricity, [***] "Fuel Cell Subsystem" shall mean a subsystem of an FCHA comprised of the fuel cell stack, fuel processor, auxiliaries and subsystem controls to convert natural gas into unregulated DC current. "Heater Subsystem" shall mean a subsystem of an FHCA comprised of the heating components, subsystem controls, energy management system, inverter and auxiliaries. "IP" shall mean any invention, discovery, concept, expression or work, whether or not patented or patentable, including, but not limited to, discoveries, compositions, know-how, procedures, technical information, processes, methods, devices, formulas, protocols, techniques, designs and drawings, any physical embodiment thereof, and any patent (and applications therefor), trademark (and applications therefor), copyright (and applications therefor), trade name, trade secret, know-how or other intellectual property right related thereto. "Party" or "Parties" shall mean Vaillant or PP, or Vaillant and PP. "Product" shall mean the Initial Product, the Ultimate Product and any Additional Products (as each is defined in Section 2). "Prototype" shall mean a pre-commercial version of the Initial Product. "Regulatory Approval" shall mean, with respect to any country, filing, for and receipt of all regulatory agency registrations and approvals required for the marketing, installation and sale of a product for the application for which it is being marketed in such country. "Regulatory Filings" shall mean all applications, filings, materials, studies, data and documents of any nature whatsoever filed with, prepared in connection with or necessary to support any Regulatory Approval process in any country or territory. 2. Objectives; Relationship to Other Agreements. 2.1 [***] 2.2 [***] 2.3 Relationship to Other Agreements. The Parties contemplate that all Products (including the Prototypes described in Section 4.1) to be manufactured pursuant to this Agreement will be marketed, distributed, sold, installed and serviced in accordance with the Umbrella Agreement and any ancillary agreements to the Umbrella Agreement. PP acknowledges that Vaillant shall be the exclusive manufacturer of FCHAs for distribution in Europe. Vaillant hereby acknowledges that GEFCS is the exclusive distributor of PP fuel cell CONFIDENTIAL INFORMATION HAS BEEN OMITTED PURSUANT TO RULE 406 UNDER THE SECURITIES ACT AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. THE LOCATIONS OF THE OMITTED INFORMATION HAVE BEEN INCLUDED WITH ASTERISKS. systems for certain specified stationary applications under 35kW. PP shall sell Fuel Cell Subsystems to GEFCS pursuant to a Distributor Agreement, dated as of February 2, 1999 (the "GEFCS Distribution Agreement"), between GEFCS and PP, and Vaillant shall purchase such Fuel Cell Subsystems from GEFCS. PP represents and warrants that (i) the sale of Fuel Cell Subsystems hereunder are subject to the terms and conditions of the GEFCS Distribution Agreement, pursuant to which GEFCS has exclusive worldwide distribution rights (with the exception of four states in the United States) and (ii) the Fuel Cell Subsystems supplied to GEFCS under the GEFCS Distribution Agreement are to be competitively priced. 3. Project Management. 3.1 Steering Committee. The activities of the collaboration shall be conducted under the direction of a steering committee (the "Steering Committee") comprised of two (2) named representatives of each Party. Each Party shall appoint its respective representatives to the Steering Committee from time to time, and may substitute one or more of its representatives, in its sole discretion, effective upon notice of such change to the other Party. The Steering Committee shall meet, in person or by telephone conference, not less than once each calendar quarter, on such date and at such times and places as agreed to by the Parties. At such meetings, the Steering Committee shall discuss and endeavor to resolve any issues that are acting as barriers to progress and achievement of milestones under the development program. The decisions of the Steering Committee shall be by unanimous vote, each member of the Steering Committee having one vote, provided that at least one representative of each Party is present at such meeting. The approval of the Steering Committee shall be required for the following actions: (1) any modification or amendment to this Agreement; (2) any modification to the development program outlined in Sections 4 and 5, the budget plans outlined in Section 7 or the Prototype Specifications or Initial Product Specifications as outlined in Section 4.3; or (3) any other decisions presented to the Steering Committee by either Party. 3.2 Project Managers. Each Party will designate a project manager (such person or his/her successor referenced herein as a "Project Manager"). The Project Managers will share overall responsibility for the coordination of the development of the Initial Product. Each Party's Project Manager will be the other Party's point of contact for the resolution of any problems which may arise in connection with this Agreement. Each Party will notify the other Party within 30 days after the execution of this Agreement of the appointment of its Project Manager and will notify the other Party as soon as practical upon changing such appointment. The Project Managers will report to and act on the direction of the Steering Committee. 4. Development Program. Project Phases. The development and production program will be conducted in accordance with the following two phases: 4.1 Phase I Prototype Development. Phase I will begin on October 1, 1999. Phase I will cover the development effort for a Prototype and production, sale, installation, service and field testing of [***] Prototype units. 4.2 Phase 2 Commercial Production. Phase 2 will begin after the successful field testing of the [***] Prototype units described in Phase 1. Phase 2 will include the production, sale, installation and servicing of commercial Initial Products. 4.3 Initial Product Specifications. Preliminary specifications for the Prototypes (the "Prototypes Specifications") shall be agreed upon by the Parties on or before July 1, 2000 and attached hereto as Exhibit Al. Specifications for the commercial Initial Products (the "Initial Product Specifications") shall be agreed upon by the Parties on or before January 1, 2001 and attached hereto as Exhibit A2. 5. Development Responsibilities. 5.1 Phase 1 Responsibilities. (1) PP will develop, manufacture and test the Fuel Cell Subsystem for the Prototypes and provide such test results to Vaillant. On or before November 30, 1999, PP shall prepare a detailed work plan for PP's development of the Fuel Cell Subsystem, including a timetable for achieving milestones under Phase 1 and a budget therefor pursuant to Section 7.1, which shall be attached hereto as Exhibit B (the "FCS Development Plan"). (2) Vaillant will develop, manufacture and test a Heater Subsystem for the Prototypes and provide such test results to PP. On or before November 30, 1999, Vaillant shall prepare a detailed work plan for Vaillant's development of the Heater Subsystem, including a timetable for achieving milestones under Phase I and a budget therefor pursuant to Section 7.1, which shall be attached hereto as Exhibit C (the "HS Development Plan"). (3) PP and Vaillant will cooperate to integrate the Fuel Cell Subsystem and the Heater Subsystem into the Prototypes. Vaillant will test the Prototypes and provide such test results to PP. On or before November 30, 1999, PP and Vaillant shall prepare a detailed work plan for the joint effort by PP and Vaillant to integrate the Fuel Cell Subsystem and the Heater Subsystem into the Prototypes, including a timetable for achieving milestones under Phase I and a budget therefor pursuant to Section 7.1, which shall be attached hereto as Exhibit D (the "Integration Development Plan"). 5.2 Phase 2 Responsibilities. The Parties shall conduct the activities below in order to produce the quantities of Initial Products set forth in the ancillary agreements to the Umbrella Agreement, CONFIDENTIAL INFORMATION HAS BEEN OMITTED PURSUANT TO RULE 406 UNDER THE SECURITIES ACT AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. THE LOCATIONS OF THE OMITTED INFORMATION HAVE BEEN INDICATED WITH ASTERISKS. (1) PP shall manufacture and quality test the Fuel Cell Subsystem for the Initial Product and provide such test results to Vaillant. On or before January 1, 2001, a detailed work plan for PP's development of manufacturing facilities for the Fuel Cell Subsystem, including a timetable for achieving milestones under Phase 2 and a budget therefor pursuant to Section 7.2, shall be attached hereto as Exhibit E (the "FCS Production Plan"). (2) Vaillant shall manufacture and quality test the Heater Subsystem for the Initial Product and provide such test results to PP. On or before January 1, 2001, Vaillant shall prepare a detailed work plan for Vaillant's development of manufacturing facilities for the Heater Subsystem, including a timetable for achieving milestones under Phase 2 and a budget therefor pursuant to Section 7.2, which shall be attached hereto as Exhibit F (the "HS Production Plan"). (3) (i) Vaillant shall manufacture the Initial Product by assembling the Fuel Cell Subsystem and the Heater Subsystem into the Initial Product. Vaillant shall quality, test the Initial Product and provide such test results to PP. On or before January 1, 2001, Vaillant shall prepare a detailed work plan for the development of manufacturing facilities for the Initial Product, including a timetable for achieving milestones under Phase 2 and a budget therefor pursuant to Section 7.2, which shall be attached hereto as Exhibit G (the "Initial Product Production Plan"). (ii) Vaillant's responsibility to sell, install and service Initial Products in Germany, Austria, The Netherlands and Switzerland shall be set forth in the ancillary agreements to the Umbrella Agreement. 5.3 Revisions to Work Plans. Revisions to any of the work plans listed in this Section 5 shall require the approval of the Steering Committee. 6. Representations and Warranties. 6.1 PP represents and warrants that the IP owned by PP prior to the Effective Date with regard to the Fuel Cell Subsystem belongs to PP and is free of any third party rights. 6.2 Vaillant represents and warrants that the IP owned by Vaillant prior to the Effective Date with regard to the Heater Subsystem belongs to Vaillant and is free from any third party rights. 6.3 Neither Party makes any representations or warranties concerning its developmental efforts hereunder, including, without limitation, any warranties of fitness or warranties of merchantability with respect to any particular use or purpose. However both Parties undertake to make commercially reasonable efforts in order to achieve the objectives of this collaboration. 6.4 To achieve the defined milestones, (i) PP undertakes to spend at least the total budgeted amount provided for in Exhibit B, Exhibit E and portion allocated to it in Exhibit D and (ii) Vaillant undertakes to spend at least the total budgeted amount provided for in Exhibit C, Exhibit F, Exhibit G and the portion allocated to it in Exhibit D, unless: (1) all material objectives in reference to the work plans mentioned above can be achieved with lower expenditure; (ii) a Party intends not to spend the total budgeted amount, having determined that the milestone in issue is not commercially or technically practicable, such determination being based on reasonable substantiation; or (iii) a Party determines that the expenditure determined to be necessary to reach the milestone exceeds the budgeted amount by more than ten percent (10%). In such cases, as a result of such determination by a Party, the Steering Committee will promptly meet in order to decide whether to continue the collaboration. If the Steering Committee fails to reach a decision by unanimous vote within ten weeks from the date of the first such meeting of the Steering Committee, thereby resulting in a deadlock of the Steering Committee for purposes hereof, each Party shall be entitled to terminate this Agreement by notice to the other Party pursuant to clause (ii) of Section 16.3. 7. Development Budget. 7.1 Phase I Budget. (1) [***] (2) [***] (3) On or before November 30, 1999, PP and Vaillant shall cooperate to develop a budget for the Initial Product Production Plan, which shall be included in Exhibit D. 7.2 Phase 2 Budget. (1) On or before September 30, 1999, PP shall provide Vaillant with an estimate, which estimate shall be nonbinding, of the amount of money required to fund the FCS Production Plan. On or before January 1, 2001, PP shall provide to Vaillant a detailed budget for the FCS Production Plan, which shall be included in Exhibit E. (2) [***] CONFIDENTIAL INFORMATION HAS BEEN OMITTED PURSUANT TO RULE 406 UNDER THE SECURITIES ACT AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. THE LOCATIONS OF THE OMITTED INFORMATION HAVE BEEN INDICATED WITH ASTERISKS. budget for the HS Production Plan and the Initial Product Production Plan, which shall be included in Exhibits F and G, respectively. 7.3 Phase I Funding Sources. PP shall obtain funding for the manufacture of [***] Fuel Cell Subsystems for Prototypes by selling such subsystems to GEFCS. Vaillant shall agree to purchase such subsystems from GEFCS. All prices, terms and conditions for such sale shall be determined among PP, Vaillant and GEFCS in the ancillary agreements to the Umbrella Agreement. Either Party may use government grants or subsidies to meet its own funding obligations. The Parties shall make reasonable efforts to support one another in obtaining such government grants or subsidies. Upon the completion of the detailed budgets completed by the Parties on or before November 30, 1999, PP may request that Vaillant fund a portion of its development cost. Any such funding will be mutually agreed upon on or before December 31, 1999. 8. Recovery of Investments. Vaillant and PP shall fund the development to achieve the objectives of this collaboration in accordance with the provisions stipulated herein. Both Parties consider this collaboration to be an entrepreneurial undertaking. Thus both Parties shall recover their funds by selling the Products and Prototypes resulting from this collaboration. Vaillant intends to recover its investment by manufacturing and selling FCHAs in accordance with the Umbrella Agreement and the ancillary agreements to the Umbrella Agreement. PP intends to recover its investment by manufacturing and selling Fuel Cell Subsystems through GEFCS in accordance with the Umbrella Agreement, the ancillary agreements to the Umbrella Agreement and the GEFCS Distributor Agreement. 9. Reporting. 9.1 Project Status Reports. The Project Manager of each Party shall provide quarterly written reports to the Steering Committee outlining the work performed during the preceding quarter, and the work to be completed during the succeeding quarter, in connection with such Party's development efforts under this Agreement. 9.2 IP Disclosure. During the term of this Agreement, each Party shall promptly disclose to the other Party any IP to be owned by or licensed to such other Party under this Agreement, the Umbrella Agreement or the ancillary agreements to the Umbrella Agreement. 10. Intellectual Property. 10.1 Any IP owned by either Party prior to the Effective Date or developed outside of the scope of this Agreement shall remain the sole property of such Party. 10.2 The ownership of any IP developed by either Party during the course of and directly as a result of the performance of this Agreement ("Developed IP"), regardless of the identity of the inventing Party, shall be allocated as follows: CONFIDENTIAL INFORMATION HAS BEEN OMITTED PURSUANT TO RULE 406 UNDER THE SECURITIES ACT AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. THE LOCATIONS OF THE OMITTED INFORMATION HAVE BEEN INDICATED WITH ASTERISKS. (1) Developed IP that relates to the Fuel Cell Subsystem, including, without limitation, the fuel cell stack and the fuel processor, and internal integration and control within such Fuel Cell Subsystem, shall be owned by PP. (2) Developed IP that relates to the Heater Subsystem, including, without limitation, the heater components, Energy Management System, inverter and internal integration and control within such Heater Subsystem shall be owned by Vaillant. Vaillant shall grant PP a non-exclusive license to make, have made, use, sell and service Energy Management Systems worldwide. The license fee for such license shall not exceed [***] of the net sales price of the Heater Subsystem and shall be mutually agreed upon by the Parties by January 1, 2001, taking into account the Parties' respective contributions to the development of such Energy Management System. (3) Developed IP that relates to the integration of the Fuel Cell Subsystem and the Heater Subsystem into the FCHA shall be jointly owned by PP and Vaillant ("Joint IP"). Each of PP and Vaillant may use and license the use of the Joint IP without any obligation to the other to account for profits, royalties or other revenue relating thereto. 10.3 Each Party agrees to assign, grant and convey to the appropriate Party all rights, title and interest to any Developed IP which is to be owned by the assignee Party pursuant to Section 10.2 (the "Owner"). Each Party shall execute and deliver (and have executed and delivered by its employees) any and all declarations, assignments and other documents, and provide all other reasonable assistance, that the Owner reasonably determines may be necessary or desirable to establish the Owner's ownership of, and to enforce thereafter any intellectual property rights in, such Developed IP. 10.4 PP hereby grants to Vaillant a royalty-free license, during the term of this Agreement, to incorporate the Fuel Cell Subsystems supplied by PP as components of FCHAs to be manufactured by Vaillant pursuant to the Umbrella Agreement and the ancillary agreements to the Umbrella Agreement. 11. Limitations on Liability. 11.1 Subject to Section 11.2, the liability of each Party to the other Party for damages, for any cause whatsoever, regardless of form of action, whether in contract or tort, including negligence, shall not exceed $ 1,000,000 and shall be limited to direct damages suffered by the injured Party and neither Party shall be liable to the other Party for any special, indirect or consequential damage, including lost profits, lost revenues, failure to realize expected savings, or other commercial or economic losses of any kind. 11.2 The foregoing limitation of liability shall not apply with respect to: (1) any loss, claim, demand, damage or cost arising as a result of any infringement of any IP; CONFIDENTIAL INFORMATION HAS BEEN OMITTED PURSUANT TO RULE 406 UNDER THE SECURITIES ACT AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. THE LOCATIONS OF THE OMITTED INFORMATION HAVE BEEN INDICATED WITH ASTERISKS. (2) any disclosure or use by either Party of the other Party's confidential information in violation of this Agreement; or (3) any willful misconduct or gross negligence by either Party in its performance under this Agreement. 12. Trademarks. During the term of this Agreement, Vaillant shall affix, in addition to the Vaillant trademark but separate from the Vaillant trademark and smaller than the Vaillant trademark, the Mark (as defined below) on all FCHAs manufactured by Vaillant and include the Mark in all of Vaillant's FCHA marketing literature, in each case subject to PP's reasonable quality control guidelines and procedures. The details shall be agreed upon by unanimous resolution of the Steering Committee, which shall take into account PP's standing in the business and the quality of the Mark. Upon the expiration or termination of this Agreement, Vaillant shall make no further use of the Mark. Except as set forth in this paragraph, this Agreement shall not grant to Vaillant any right, title or interest in the Mark. All use of the Mark by Vaillant shall inure to the benefit of PP. At no time during or after the term of this Agreement will Vaillant challenge or assist others to challenge PP's intellectual property rights in the Mark or attempt to register any trademarks, trade names or other proprietary indicia confusingly similar to the Marks. For the purposes of this Agreement, "Mark" will mean any proprietary indicia, trademark, trade name, symbol, logo or brand name that PP has adopted to identify it and/or its products and services. 13. Confidentiality. 13.1 Confidential Information. During the term and for a period ending five (5) years after expiration or termination of this Agreement, each Party shall maintain in confidence and not disclose to any third party or use for any purpose except for the purposes of performing under this Agreement, all confidential and proprietary information of the other Party ("Confidential Information"). Confidential Information shall include any information which is disclosed by a Party to the other Party in connection with the performance of this Agreement. The foregoing use and confidentiality restrictions shall not apply to (i) information that is or becomes a matter of public knowledge through no fault of the receiving Party; (ii) information which is obtained lawfully from a third party not bound to obligations of secrecy to the disclosing party; (iii) information known to the recipient at the time of disclosure as substantiated by documented evidence predating the disclosure; or (iv) information which is required to be disclosed by law or governmental order; provided that the Party seeking to retain the confidentiality of such information shall be given a reasonable opportunity to contest any such disclosure. 13.2 Disclosure of Confidential Information in Regulatory Filings. Nothing contained herein is intended to prevent either Party from using the Confidential Information to make Regulatory Filings and to obtain necessary or appropriate Regulatory Approvals or in disclosure documents prepared by either Party to comply with applicable securities laws. Either Party making such a disclosure shall provide the other Party a reasonable opportunity to review such disclosure. 13.3 Return of Confidential Information. Upon termination or expiration of this Agreement or upon the disclosing Party's request, whichever is earlier, the receiving Party shall return to the disclosing Party or, at the disclosing Party's request, destroy, all materials containing the Confidential Information of the disclosing Party (including, without limitation, any and all copies extracts and compilations thereof). 13.4 Disclosure of Confidential Information Not A License. The furnishing of the Confidential Information of the disclosing Party to the receiving Party shall not constitute any grant or license to the receiving Party under any legal rights now or hereinafter held-by the disclosing Party. 13.5 Subcontractors. Notwithstanding the foregoing, each Party may disclose to third party subcontractors Confidential Information for the purpose of performing such Party's obligations under this Agreement, provided that all such third party subcontractors shall have entered into a confidentiality agreement providing protection to Confidential Information at least equivalent to that contained in this Agreement. 14. Exclusive Arrangement; Non-Competition. 14.1 Exclusive Arrangement. During the term of this Agreement, neither Party shall collaborate, directly or indirectly, with any third party, or otherwise participate in any business involved in the development or production of FCHAs, except to the extent provided in this Agreement, the Umbrella Agreement or the ancillary agreements to the Umbrella Agreement. 14.2 No Sale Outside Certain Countries. Vaillant shall not, directly or indirectly, market, sell, service or have serviced FCHAs outside of Germany, Austria, The Netherlands and Switzerland. Vaillant shall not be deemed to sell or market, directly or indirectly, FCHAs outside of Germany, Austria, The Netherlands and Switzerland provided that Vaillant sells FCHAs to wholesalers or resellers subject to a condition which prohibits such wholesalers and resellers from offering FCHAs for sale outside the four countries listed above. Vaillant shall terminate its business relationship with any such wholesaler or reseller, if permitted by law, if such wholesaler or reseller breaches the aforementioned restriction. 15. Regulatory Approvals. 15.1 Regulatory Approvals. Vaillant shall be responsible for obtaining all Regulatory Approvals for all Products and Prototypes to be installed in Germany, Austria, The Netherlands and Switzerland and for ensuring compliance with present and future applicable statutes, laws, ordinances and regulations of European national, federal, state and local governments or other European regulatory authorities relating to the manufacture, marketing, sale, shipment and use of such Products and Prototypes in Germany, Austria, The Netherlands and Switzerland. 15.2 Fuel Cell Subsystem. PP shall be responsible for ensuring that the Fuel Cell Subsystem complies in all material respects with present and future applicable statutes, laws, ordinances and regulations of European national, federal, state and local governments or other European regulatory authorities relating to the manufacture of the Fuel Cell Subsystem that are identified in writing by Vaillant. In particular, PP will provide reasonable assistance to Vaillant with regard to research and negotiations with regulatory authorities and product certification bodies. 16. Term and Termination. 16.1 Term. The term of the Collaboration Agreement shall commence as of the Effective Date and shall continue in force until March 2, 2004 unless terminated earlier pursuant to this Section 16. The Parties hereto may, however, extend the term of this Agreement for additional periods under mutually agreeable terms and conditions evidenced in a written amendment to this Agreement. 16.2 Termination for Cause. If either Party commits any material breach of or default in any of the terms, conditions or provisions of this Agreement, and fails to remedy such breach or default within 60 days after receipt of written notice thereof from the other Party, the Party giving notice, at its option and in addition to any other remedies which it may have at law or in equity, may terminate this Agreement by sending written notice of termination to the breaching or defaulting Party, and such termination shall be effective as of the date such notice is received. 16.3 Other Termination. This Agreement shall terminate (i) automatically (x) in the event the Umbrella Agreement and the ancillary agreements thereto (as described in that certain Memorandum of Understanding dated as of July 2, 1999, among PP, Vaillant and GEFCS) are not entered into by the parties thereto on or before September 30, 1999, unless otherwise mutually agreed, or (y) upon the filing of a petition in bankruptcy, insolvency or reorganization against or by either Party, or either Party going into receivership or otherwise becoming insolvent or (ii) upon notice by either Party to the other that it desires to terminate this Agreement as a result of Steering Committee deadlock pursuant to Section 6.4. 16.4 Change of Control. Either Party may terminate this Agreement immediately upon giving notice in writing to the other Party of its intent to terminate if any direct competitor of the terminating Party acquires (whether by merger, consolidation, sale, assignment, lease, transfer or otherwise, in one transaction or a series of related transactions), or otherwise beneficially owns 20% or more of the outstanding voting securities of the other Party. 16.5 Survival. Sections 10.3, 13 and 17 shall survive the expiration or termination of this Agreement. 17. Miscellaneous. 17.1 Good Faith Negotiation. Both Parties shall negotiate in good faith in order to negotiate and execute the Umbrella Agreement and the ancillary agreements to the Umbrella Agreement on or before September 30, 1999. 17.2 Arbitration. (1) All disputes between the Parties arising out of or in connection with this Agreement shall be subject to arbitration by one or more arbitrators in accordance with the ICC arbitration rules. Arbitration shall take place in London, England. (2) Any award rendered by the arbitrators shall be final and binding upon the Parties hereto. Judgment upon the award may be entered in any court of record of competent jurisdiction. Each Party shall pay its own expenses of arbitration and the expenses of the arbitrators shall be equally shared unless the arbitrators assess as part of their award all or any part of the arbitration expenses of one Party (including reasonable attorneys' fees) against the other Party. 17.3 Compliance with Laws. Subject to Section 15, each Party shall perform all of their obligations under this Agreement in accordance with all applicable laws, rules and regulations. 17.4 Publicity. Without the prior written consent of the other Party hereto, neither Party shall, and each of the Parties will cause their respective representatives not to, make any release to the press or other public disclosure, or make any statement to any other person other than their respective representatives, with respect to either the fact that discussions or negotiations are taking place concerning the collaborations between the Parties hereto or the existence or contents of this Agreement, except for such public disclosure as may be necessary for the disclosing Party not to be in violation of or in default under any applicable law, regulation, government order or as may be necessary to apply for subsidies or to prepare and execute a collaboration with development partners of subsystems for the Heater Subsystem and/or Fuel Cell Subsystem. 17.5 Notice. Any notice or other communication required or permitted under this Agreement shall be sent by recognized international courier service, charges pre-paid, or by facsimile transmission, to the address or facsimile number specified below: If to Vaillant: Joh. Vaillant GmbH u. Co. Berghauser StraBe 40 42859 Remscheide Federal Republic of Germany Attn: Fax: If to PP: Plug Power, LLC 968 Albany-Shaker Road Latham, New York 12110 USA Attn: Ana Galeano Fax: (518) 782-7914 or to such other address or facsimile number as the person may specify in a notice duly given to the sender as provided herein. A notice will be deemed to have been given upon receipt. 17.6 Independent Contractors. The Parties hereto shall be independent contractors with respect to each other, and neither shall be deemed to be the agent, principal, employee, servant, joint venturer or partner of the other for any purpose which could impose liability upon one Party for the act or failure to act of the other Party. 17.7 Sole Agreement. Subject to the Umbrella Agreement and any ancillary agreements thereto, this Agreement and any Exhibits attached hereto constitute the entire agreement between the Parties concerning the subject matter hereof and supersedes all prior understandings and agreements, whether written or oral. 17.8 No Implied Licenses. No rights or licenses with respect to a Party's IP, Confidential Information, Trademarks or other proprietary rights are granted or deemed granted to the other Party hereunder or in connection herewith, other than those rights expressly granted in this Agreement. 17.9 Severability. In the event that any provision of this Agreement shall be held illegal, void or ineffective, the remaining portions hereof shall remain in full force and effect so long as such remaining portions do not materially change the intent of this Agreement or the right or obligations of the Parties hereunder. If any term or provision of this Agreement is in conflict with any applicable statute or law in any jurisdiction, then such term or provision shall be deemed inoperative in such jurisdiction to the extent of such conflict and the Parties will renegotiate the affected terms and conditions of this Agreement to resolve any inequities. It is the intention of the Parties that, if any court or other tribunal construes any provision or clause of this Agreement, or any portion thereof, to be illegal, void or unenforceable because of the duration of such provision or the area or matter covered thereby; such court shall reduce the duration, area or matter of such provision and enforce such provision in its reduced form. 17.10 No Third Party Benefits. Nothing in this Agreement, express or implied, is intended to confer on any person other than the Parties hereto or their permitted assigns, any benefits, rights or remedies. 17.11 Governing Law. This Agreement shall be governed and construed in the accordance with the laws of England without giving effect to any conflicts of laws or other principles of any jurisdiction which would result in the application of any law other than the law of England. 17.12 Assignments. Neither Party shall assign or transfer any right and/or obligation under this Agreement to any other third party, whether voluntarily or by operation of law, without the prior written consent of the other Party, provide that a Party, except in the case of an assignment to a competitor of the other Party, may assign this Agreement without the consent of the other Party in connection with a merger, consolidation or other change in control of such Party or a sale of all or substantially all of such Party's assets. Any prohibited assignment shall be null and void. Subject to the foregoing, this Agreement will inure to the benefit of the Parties and their respective permitted successors and assigns. 17.13 No Waiver. A waiver by either Party of a breach or violation of any provision of this Agreement will not constitute or be construed as a waiver of any subsequent breach or violation of that provision or as a waiver of any breach or violation of any other provision of this Agreement. 17.14 Amendments. This Agreement may not be amended, supplemented or otherwise modified except by an instrument in writing signed by both Parties. 17.15 Specific Performance. The Parties agree that breach by either Party of Sections 10, 12, 13 and 14 could result in irreparable harm to the other Party. Accordingly, in the event that either Party breaches its obligations hereunder, the other Party shall be entitled to enjoin any further breach in addition to any other rights such Party may have at law or in equity. 17.16 Headings. Any headings and captions included herein are for convenience of reference only and shall not be used to construe this Agreement. 17.17 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute but one in the same instrument. IN WITNESS WHEREOF, the Parties hereto, by their duly authorized officers, have executed this Agreement as of the date first above written. JOH. VAILLANT GMBH U. CO. By: /s/ Manfred Ahle ---------------------------------- Title: Managing Director PLUG POWER, LLC By: /s Gary Mittleman ---------------------------------- Title: President and CEO Exhibit A List of Countries Comprising Europe Albania Macedonia (The Former Yugoslav Republic of Macedonia) Andorra Malta Austria Moldova Belarus Monaco Belgium Netherlands Bosnia and Herzegovina Norway Bulgaria Poland Croatia Portugal Czech Republic Romania Denmark Russia Estonia San Marino Finland Slovakia France Slovenia Germany Spain Greece Sweden Hungary Switzerland Iceland Turkey Ireland Turkmenistan Italy Ukraine Latvia United Kingdom Liechtenstein Vatican City Lithuania Yugoslavia (Serbia and Montenegro) Luxembourg Exhibit A1 Prototype Specifications [To be attached on or before July 1, 2000.] Exhibit A2 Initial Product Specifications [To be attached on or before January 1, 2001.] Exhibit B FCS Development Plan [To be attached on or before November 30, 1999.] Exhibit C HS Development Plan [To be attached on or before November '30, 1999.] Exhibit D Integration Development Plan [To be attached on or before November 30, 1999.1 Exhibit E FCS Production Plan [To be attached on or before January 1, 2001.] Exhibit F HS Production Plan [To be attached on or before January 1, 2001.] Exhibit G Initial Product Production Plan [To be attached on or before January 1, 2001.] EX-10.22 23 AGREEMENT OF SALE (06/23/99) EXHIBIT 10.22 AGREEMENT OF SALE ----------------- THIS AGREEMENT OF SALE (this "Agreement"), is effective as of the 23rd day of June, 1999, by and between MECHANICAL TECHNOLOGY INCORPORATED ("MTI") a New York Corporation ("Seller"), and PLUG POWER, LLC, a Delaware Limited Liability Company ("Purchaser"). W I T N E S S E T H: ------------------- 1. PURCHASE AND SALE. Purchaser agrees to purchase and Seller agrees to sell at the price of Nine Million Seven Hundred Thousand and No/100 Dollars ($9,700,000.00) (the "Purchase "Price"), that certain property commonly known as 968 Albany-Shaker Road and 950 Albany-Shaker Road in the Town of Colonie, Latham, New York and more particularly described as follows, subject only to the "Permitted Exceptions" (hereinafter defined); 1.1. that certain tract of real estate consisting of approximately 35.6 acres, on which is situated two (2) office/manufacturing buildings, which real estate is legally described in the attached Exhibit A, together with any and all and --------- singular easements, covenants, agreements, rights, privileges, tenements, hereditaments, rights of way, licenses, interests and appurtenances of any kind thereunto now or hereafter owned by Seller and belonging or appertaining thereto including, but not limited to, all right, title and interest of Seller in and to any adjacent vaults, alleys, strips or gores of land, and any air, zoning or development rights appurtenant thereunto and all right, title and interest of Seller in and to any land lying in the bed of any street, highway, alley, road access way, easement of avenue (whether open, closed or proposed) within, in front of, behind, aside or otherwise adjoining the real estate legally described in Exhibit A, and all right, title and interest of Seller in and to any award made of to be made as a result or in lieu of condemnation (subject to the provisions of Paragraph 6 hereof) (collectively the "968 Land"); and 1.1.2 that certain tract of real estate consisting of approximately .37 acres, on which is situated one (1) house, which real estate is legally described in the attached Exhibit B, together with any and all and singular --------- easements, covenants, agreements, rights, privileges, tenements, hereditaments, rights of way, licenses, interests and appurtenances of any kind thereunto now or hereafter owned by Seller and belonging or appertaining thereto including, but not limited to, all right, title and interest of Seller in and to any adjacent vaults, alleys, strips or gores of land, and any air, zoning or development rights appurtenant thereunto and all right, title and interest of Seller in and to any land lying in the bed of any street, highway, alley, road access way, easement of avenue (whether open, closed or proposed) within, in front of, behind, aside or otherwise adjoining the real estate legally described in Exhibit B, and all right, title and interest of Seller in and to any award made of to be made as a result or in lieu of condemnation (subject to the provisions of Paragraph 6 hereof) (collectively the "950 Land"), (the "968 Land" and the "950 Land" collectively the "Land"); 1.2. all right, title and interest of Seller in and to all of the buildings, structures and other improvements now or hereafter in, on, over or under the Land, and to any award for damage to such buildings and improvements or any part thereof by reason of casualty, exclusive of any furniture, furnishings, fixtures, equipment, machinery or other personal property (subject to the provisions of Paragraph 6 hereof) (collectively, the "Improvements"; the Land and Improvements being collectively referred to as the "Premises"); and 1.3 all right, title and interest of Seller in and to all existing contracts, permits, guarantees, bonds, certificates of occupancy, warranties, surveys, blue prints, drawings, plans and specifications, to the extent available and in Seller's possession or control (excluding computer software) related to the Premises (the "Contracts"). 2. PURCHASE PRICE. The Purchase Price shall be paid by Purchaser as follows: 2.1. On the "Closing Date" (as hereinafter defined), the Purchase Price, adjusted in accordance with the prorations, shall be paid as follows: a) Purchaser shall transfer shares of Purchaser's class A membership interest units (the "Class A Shares") in an amount equal to $4,697,782 based upon a par unit valuation of $6.67 per unit; b) Purchaser shall assume all obligations of Seller under that certain installment sale agreement by and between Seller and the Town of Colonie Industrial Development Agency (the "IDA"), dated December 1, 1998, (the "Installment Sale Agreement") and all other obligations of Seller in connection with the Land, Premises and Contracts; and c) Seller shall transfer all remaining research credits as is defined in Purchaser's Limited Liability Company Agreement, dated June 27, 1997, as amended. 3. TITLE COMMITMENT, SURVEY AND APPRAISAL 3.1. Attached hereto Exhibit E is a copy of a title commitment for an --------- owners' standard title insurance policy issued by D'Agostino, Hoblock, Greisler & Siegel, P.C. as agent for the Chicago Title Insurance Company (such company is hereinafter referred to as "Initial Title Insurer") dated June 10, 1999 for the Premises (the "Title Commitment"). For purposes of this Agreement, "Permitted Exceptions" shall mean: (a) those matters listed on Exhibit F attached hereto; --------- (b) general real estate taxes, assessments, special assessments, special district taxes and related charges not yet due and payable; and (c) matters caused by the actions of Purchaser. On the Closing Date, as a condition to Purchaser's obligations hereunder, Seller shall deliver to Purchaser a 1992 ATLA title policy in conformance with the previously delivered "Title Commitment", subject to 2 Permitted Exceptions (the "Title Policy"). Purchaser shall pay for the premiums for the Title Policy and Purchaser shall pay for the premiums for any endorsements to, or extended coverage on the Title Policy. 3.2 Purchaser has received a survey of the Premises prepared by C.T. Male & Associates, dated November 30, 1998. 3.3. The obligation of Purchaser to pay various costs set forth in Paragraphs 3.1 and 3.2 shall survive the consummation of the within transaction (the "Closing") and termination of this Agreement unless this Agreement is terminated by reason of Seller's default. 3.4. Purchaser has received an appraisal of the Premises prepared for Key Bank dated, October 31, 1998 (the "Appraisal"). 4. PAYMENT OF CLOSING COSTS. 4.1 Purchaser shall pay for the costs of the documentary or transfer stamps to be paid with reference to the "Deed" (hereinafter defined) and all other stamps, intangible, transfer, documentary, recording, sales tax and surtax imposed by law with reference to any other sale documents delivered in connection with the sale of the Premises to Purchaser. 5. CONDITION OF TITLE. 5.1 Seller agrees to convey fee simple title to the Premises to Purchaser by a warranty deed (the "Deed") in recordable form. 6. CONDEMNATION, EMINENT DOMAIN, DAMAGE AND CASUALTY 6.1 Except as provided in the indemnity provisions contained in Paragraph 7 of this Agreement, Seller shall bear all risk of loss with respect to the Premises up to the time title is transferred to Purchaser in accordance with this Agreement. Notwithstanding the foregoing, in the event of damage to the Premises by fire or other casualty that is neither the direct nor indirect fault of Purchaser, prior to the Closing Date, repair of which would cost less than or equal to $500,000 (as reasonably determined by Seller in good faith) Purchaser shall not have the right to terminate its obligations under this Agreement by reason thereof, but Seller shall have the right to elect to either repair and restore the Premises (in which case the Closing shall be adjourned by up to 90 days until completion of such restoration) or to assign and transfer to Purchaser on the Closing Date all of Seller's right, title and interest in and to all insurance proceeds paid or payable to Seller on account of such fire or casualty and allow as a credit against the Purchase Price an 3 amount equal to the applicable insurance deductible. Seller shall promptly notify Purchaser in writing of any such fire or other casualty and Seller's determination of the cost to repair the damage caused thereby. In the event of damage to the Premises by fire or other casualty not caused either directly or indirectly by Purchaser, prior to the Closing Date, repair of which would cost in excess of $500,000 (as reasonably determined by Seller in good faith), then this Agreement may be terminated at the option of Purchaser, which option shall be exercised, if at all, by Purchaser's written notice thereof to Seller within fifteen (15) business days after Purchaser receives written notice of such fire or other casualty, and Seller's determination of the amount of such damages, and upon the exercise of such option by Purchaser this Agreement shall become null and void, and neither party shall have any further liability or obligations hereunder except for those obligations expressly stated to survive termination. In the event that Purchaser does not exercise the option set forth in the preceding sentence, the Closing shall take place on the scheduled Closing Date and Seller shall deliver, assign and transfer to Purchaser on the Closing Date all insurance proceeds theretofore received by Seller and all of Seller's right, title and interest in and to all insurance proceeds payable to Seller on account of the fire or casualty and allow as a credit against the Purchase Price an amount equal to the applicable insurance deductible. In the event of damage to the Premises by fire or other casualty that is caused either directly or indirectly by Purchaser, Purchaser shall proceed to closing on the Closing Date set forth herein. Any insurance proceeds due to Seller in connection with the Premises shall be paid in the following priority: (1) to compensate Seller for its loss; (2) the remainder, if any, to Purchaser. 6.2 If between the date of this Agreement and the Closing Date, any condemnation or eminent domain proceedings are initiated which might result in the taking of any part of the Premises or the taking or closing of any right of access to the Premises, Seller shall immediately notify Purchaser of such occurrence. In the event that the taking of any part of the Premises shall: (i) adversely and materially impair access to the Premises; (ii) adversely and materially impair the use of the Premises; or (iii) affect the value of the Premises in an amount greater than $100,000 (hereinafter collectively referred to as a "Material Event"), Purchaser may: 6.2.l terminate this Agreement by written notice to Seller, in which event all rights and obligations of the parties hereunder with respect to the closing of this transaction will cease; or 6.2.2 proceed with the Closing, in which event Seller shall deliver, transfer and assign to Purchaser all amounts previously paid to Seller on account thereof and all of Seller's right, title and interest in and to any award payable in connection with such condemnation or eminent domain proceedings. 6.3 Purchaser shall then notify Seller, within ten (10) business days after Purchaser's receipt of Seller's notice, whether Purchaser elects to exercise its rights under Paragraph 6.2.1 or Paragraph 6.2.2. Closing shall be delayed, if necessary, until Purchaser makes such election. If Purchaser fails to make an election within such ten (10) business day period, Purchaser shall be deemed to have elected to exercise its rights under Paragraph 6.2.1. Except as otherwise provided in this Agreement, if between the date of this 4 Agreement and the Closing Date, any condemnation or eminent domain proceedings are initiated which do not constitute a Material Event, Purchaser shall be required to proceed with the Closing, in which event Seller shall deliver, transfer and assign to Purchaser all of Seller's right, title and interest in and to any award payable in connection with such condemnation or eminent domain proceedings. 7 INSPECTION, ENVIRONMENTAL WARRANITES AND CONDITIONS PRECEDENT TO CLOSING 7.1 In connection with Purchaser's review of the Premises, Seller agrees to deliver to Purchaser copies of the most recent tax and insurance bills, utility account numbers, and service contracts. 7.2 Seller makes no representations or warranties concerning Purchaser's use, storage, disposal, treatment or handling of hazardous or toxic wastes (the "Purchaser's Use"). The Seller hereby makes the following representations, warranties; and covenants concerning Hazardous Substances: (i)(A) Except for Purchaser's Use, no portion of the Premises or any property owned by the Seller which is adjacent to the Premises is being used, or has ever been used at any previous time to generate, treat, store, handle or dispose of hazardous or toxic substances, as such term is defined by applicable federal, state or local laws and regulations relating to hazardous waste, except in compliance with Environmental Laws (hereinafter defined); (B) To the best of Seller's knowledge, the soil and surface water and ground water which are a part of the Premises are free from any solid wastes, hazardous or toxic substances or contaminant and any discharge of sewage or effluent; and (C) To the best of Seller's knowledge, no lien has been attached to the Premises, or any revenues therefrom as a result of a violation of any federal, state or local laws and regulations governing hazardous waste removal and clean-up, nor are there any governmental, judicial or administrative actions with respect to environmental matters pending, or the best of the Seller's knowledge threatened, which involve the Premises; (ii) Except for Purchaser's Use, there have been no summons, citations, directives, letters or other written communication received from any federal, state or local agency charged with the enforcement of any environmental protection laws or regulations which has resulted from the releasing, spilling, leaking, pumping, pouring, emitting, emptying or dumping of hazardous substances, as such term is currently defined by applicable federal, state and local laws or regulations relating to hazardous waste at the Premises; (iii) Except for Purchaser's Use, the Premises are in compliance in all material respects with all applicable federal, state, or local laws and regulations, including, without limitation, those relating to hazardous and toxic substances and other environmental laws. 7.2.1 Except for Purchaser's Use, the Seller agrees to comply in all material respects with all applicable laws, rules, regulations, and orders, relating to hazardous waste applicable to the Premises. 7.2.2 At no expense to the Purchaser, the Seller shall promptly supply the Purchaser with any written notices, correspondence and submissions made by the Seller to the New 5 York State Department of Environmental Conservation, the United States Environmental Protection Agency, the United States Occupational Safety and Health Administration, or any other local, state or federal authority that regulates wastes. This shall not include routine correspondence or submissions to any agency or authority. 7.2.3 Except for any claims, actions, demands, penalties, fines, liabilities, settlements, damages, costs or expenses (including, without limitation, attorney and consultant fees, investigations or laboratory fees, court costs and litigation expenses of whatever kind or nature known or unknown, contingent or otherwise) arising out of or in any way related to Purchaser's use of the Premises, the Seller agrees to defend, indemnify and hold harmless Purchaser, its employees, agents, officers and directors from and against any claims, actions, demands, penalties, fines, liabilities, settlements, damages, costs or expenses (including, without limitation, attorney and consultant fees, investigations or laboratory fees, court costs and litigation expenses of whatever kind or nature known or unknown, contingent or otherwise) arising out of or in any way related to: (i) the past or present disposal, release or threatened release of any hazardous or toxic substances on the Premises; (ii) any personal injury (including wrongful death or property damage, real or personal) arising out of or related to such hazardous or toxic substances; (iii) any lawsuit brought or threatened, settlement reached or government order given relating to such hazardous or toxic substances; and/or (iv) any violation of law, order, regulation, requirement, or demand of any government authority, which are based upon or in any way related to such hazardous or toxic substances. 7.2.4. The Seller knows of no on-site or off-site locations where hazardous or toxic substances from the operation of any improvement or otherwise have been stored, treated, recycled or disposed of. 7.2.5 The provisions of this Section shall be in addition to any other obligations and liabilities the Seller may have to the Purchaser or Purchaser may have to Seller at common law, and shall survive the transactions contemplated herein; 7.2.6. Purchaser shall indemnify and hold harmless Seller for any claims, actions, demands, penalties, fines, liabilities, settlements, damages, costs or expenses (including, without limitation, attorney and consultant fees, investigations or laboratory fees, court costs and litigation expenses of whatever kind or nature known or unknown, contingent or otherwise) arising out of or in any way related to Purchaser's Use of the Premises. 7.2.7. The term "Environmental Laws" shall include all federal, state and local statutes, codes, regulations, rules, ordinances, orders, standards, permits, licenses, policies and requirements (including consent decrees, judicial decisions and administrative orders) relating to the protection, preservation, remediation or conservation of the environment or worker health or safety, all as amended or reauthorized, or as hereafter amended or reauthorized, including without limitation, the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), 42 U.S.C. (S) 9601 et seq., the -- --- Resource Conservation and Recovery Act of 1976 ("RCRA"), 42 U.S.C. 6901 et seq., -- --- the Emergency Planning and Community Right-to-Know Act ("Right-to-Know Act"), 42 U.S.C. (S) 11001 et seq., the Clean Air Act ("CAA"), 42 U.S.C. (S) 7401 et seq., -- --- -- --- the Federal 6 Water Pollution Control Act ("Clean Water Act"), 33 U.S.C. (S) 1251 et seq. -- --- the Toxic Substances Control Act ("TSCA"), 15 U.S.C. (S) 2601 et seq., the -- --- Safe Drinking Water Act ("Safe Drinking Water Act"), 42 U.S.C. (S) 300f et -- seq., the Atomic Energy Act ("AEA"), 42 U.S.C. (S) 2011 et seq., the - --- -- --- Occupational Safety and Health Act ("OSHA"), 29 U.S.C. (S) 651 et seq., and the -- --- Hazardous Materials Transportation Act (the "Transportation Act"), 49 U.S.C. (S) 1802 et seq. -- --- 7.2.8. The term "hazardous substance" shall include, without limit, any substance or material defined in 42 U.S.C. Section 9601 (as the same may be amended from time to time), the Hazardous Materials Transportation Act (as amended from time to time), and the New York Environmental Conservation Law or the Resource Conservation and Recovery Act (as each may be amended from time to time) and in any regulations adopted or publications promulgated pursuant to any of the foregoing. 7.3 Seller has provided to Purchaser the following existing report: Phase I Environmental Site Assessment, prepared for Seller and Key Bank by Rust Environment & Infrastructure, dated July, 1998 (the "Existing Report"). Purchaser hereby releases Seller and the Affiliates of Seller from any liability whatsoever with respect to the Existing Report, or, including, without limitation, the accuracy and/or completeness of the Existing Report. Furthermore, Purchaser acknowledges that it will be purchasing the Premises with all faults disclosed in the Existing Report. Notwithstanding anything contained herein to the contrary, the terms of this Paragraph 7.3 shall survive the Closing and the delivery of the Deed and termination of this Agreement. 7.4 If Purchaser's consultants reasonably determine that, based upon their examination of the Existing Report, a Phase II examination is necessary with respect to all or part of the Premises, Purchaser may elect to perform a Phase II examination, at Purchaser's sole expense. Purchaser may also elect to examine the structural, mechanical, electrical, HVAC, plumbing and other physical characteristics and condition of the new building constructed in 1998, commonly known as Building One ("Building One"); and the compliance of Building One with all housing, zoning, land-use, subdivision, life safety, and fire codes, and codes with respect to access for persons with disabilities, including, without limitation, the Americans with Disabilities Act, together with building and construction laws and regulations restricting or regulating or otherwise affecting the use, occupancy or enjoyment of the Premises. Such examinations will be completed not later than June 18, 1999, and if not completed will be deemed waived. The successful assignment to, and assumption by the Purchaser of Seller's obligations under the Installment Sale Agreement including, but not limited to Seller's debt of approximately Six Million Dollars ($6,000,000) of IDA Taxable Industrial Development Revenue Bonds (the "IDA Loan"), is a condition precedent to Closing ("Condition Precedent"). Purchaser has a commitment to provide a back-up letter of credit from Key Bank N.A. (the "Key Term Sheet") to secure the IDA Loan. Purchaser agrees to complete the assignment and assumption of the IDA Loan on terms not less favorable than those set forth on the Key Term Sheet. 7 8. CLOSING. 8.1 The Closing shall take place when the foregoing Conditions Precedent have occurred, and the following conditions have been met, but not later than July 6, 1999 (the "Closing Date"), at which time Seller shall deliver possession of the Premises to Purchaser. Notwithstanding anything contained herein to the contrary, Purchaser shall have the right to extend the Closing Date for a period not to exceed two (2) weeks. In the event that the Conditions Precedent do not occur, or the following conditions are not met due to Seller's Default, the provisions set forth in Section 11 of this Agreement shall take effect. Prior to the release of the Purchase Price to Seller, Purchaser shall receive the Title Policy or marked-up commitment dated the date of the Closing Date. 8.2. On or prior to the Closing Date, Seller and Purchaser shall execute and deliver to one another a joint closing statement and such other documents as may be reasonably required by the Title Insurer in order to consummate the transaction as set forth in this Agreement. 8.3. On the Closing Date, Seller shall execute and acknowledge (if appropriate) and deliver to Purchaser the following: 8.3.1. A Warranty Deed (in the form of Exhibit G attached hereto), subject only --------- to the Permitted Exceptions expressly consented to by the Purchaser; 8.3.2. An assignment of the Contracts and the intangible property, if any; 8.3.3. All documents necessary or convenient to effectuate the assumption by Purchaser of Seller's obligations under the Installment Sale Agreement and the Bank Documents as that term is defined in the Installment Sale Agreement; 8.3.4. All documents and instruments reasonably required by the Title Insurer to issue the Title Policy; 8.3.5. Possession of the Premises to Purchaser; 8.3.6. Evidence of the termination of any and all management and leasing agreements affecting the Premises, other than Permitted Exceptions; 8.3.7. Plans and specifications of the Improvements within the possession or control of Seller prepared in connection with the construction, maintenance, repair, management or operation of the Premises; 8.3.8. All lease files and expense records maintained at the Premises by or on behalf of Seller in connection with the Premises; 8.3.9. The keys in Seller's possession to all entrance doors, tenant spaces, offices and store rooms; 8 8.3.10. An opinion of counsel as to the following: (i) Seller's due incorporation; (ii) Seller's power, authority, and due authorization to enter into this Agreement and to consummate the transactions contemplated herein; and (iii) no action, suit, proceeding, inquiry or investigation before any court, public board or body is pending or, to Seller's knowledge, threatened, wherein an unfavorable decision, ruling or finding would materially and adversely affect the validity or enforceability of this Agreement. 8.4. On the Closing Date Purchaser shall deliver: (i) $4,697,782 worth of Purchaser's Class A Shares at $6.67 per share; (ii) the assignment documents related to the IDA Loan; (iii) the lease for Building One, top floor, the term of which shall run to December 31, 1999 and the lease for Building One, bottom floor, the term of which shall run to December 31, 2000, in the form attached hereto as Exhibit C; and (iv) an opinion of counsel as to the authority of --------- Purchaser to enter into the transactions contemplated by this Agreement and to issue the Class A Shares and assume the IDA Loan contemplated hereby. 9. [RESERVED] 10. PURCHASER'S DEFAULT. IF THIS SALE IS NOT COMPLETED BECAUSE OF PURCHASER'S DEFAULT, PURCHASER SHALL (i) COMPLETE CONSTRUCTION OF THE PREMISES AND SELLER SHALL CREDIT THE PURCHASER AS PRE-PAID LEASE PAYMENTS ALL EXPENDITURES ASSOCIATED WITH THE CONSTRUCTION; (ii) ENTER INTO A LONG-TERM LEASE WITH SELLER FOR THE PREMISES (OTHER THAN BUILDING ONE); AND (iii) ISSUE $4,697,782 WORTH OF PURCHASER'S CLASS A SHARES AT $6.67 PER SHARE IN EXCHANGE FOR CASH. 11. SELLER'S DEFAULT. IF THIS SALE IS NOT COMPLETED BECAUSE OF SELLER'S DEFAULT, AND PURCHASER HAS COMMENCED CONSTRUCTION ON THE PREMISES: (i) THE PURCHASER SHALL COMPLETE CONSTRUCTION OF THE PREMISES AND THE SELLER SHALL CREDIT THE PURCHASER AS PRE- PAID LEASE PAYMENTS ALL EXPENDITURES ASSOCIATED WITH THE CONSTRUCTION; (ii) SELLER WILL EXECUTE A LEASE IN THE FORM ATTACHED HERETO AS EXHIBIT D; AND (iii) --------- SELLER SHALL PURCHASE IN CASH $4,697,782 WORTH OF PURCHASER'S CLASS A SHARES AT $6.67 PER SHARE. 12. PRORATIONS. 12.1. The items described in this Paragraph shall be prorated between the parties on a per diem basis (on the basis of actual calendar days in the relevant calendar year) so that credits and charges preceding, or on 11:59 pm on the day preceding the Closing Date, 9 shall be allocated to Seller and credits and charges for the period after 11:59 pm on the day preceding the Closing Date and all days thereafter shall be allocated to Purchaser. 12.1.1 Real Estate and Personal Property Taxes and Special Assessments. General real estate and personal property taxes payable for all calendar years prior to the year in which Closing occurs shall be paid by Seller. General real estate and personal property taxes payable for the calendar year in which Closing occurs shall be prorated between Seller and Purchaser on the Closing Date, with taxes attributable to the day of Closing to be paid by Purchaser. If the Closing shall occur before the tax rate and assessment is fixed, the apportionment of such general real estate personal property taxes at the Closing shall be upon the basis of the latest tax rate applied to the most recently assessed value of the Premises. Purchaser shall receive a credit against the Purchase Price equal to Seller's prorated portion of such estimated general real estate and personal property taxes payable for the calendar year in which the Closing occurs. Seller shall pay on or before Closing the full amount of any bonds or assessments against the Premises including interest payable therewith, including any bonds or assessments that may be payable after the Closing Date as a result of or in relation to the construction or operation of any improvements or any public improvements that took place, or for which any assessment was levied prior to the Closing Date. Purchaser shall pay the full amount of any bonds or assessments incurred after the Closing Date that are not subject to the immediately preceding sentence. Purchaser shall notify Seller in writing promptly after such information is available to Purchaser in the event Purchaser's credit described above is insufficient to pay Seller's share of the actual general real estate or personal taxes for the calendar year in which Closing occurs, and Seller shall promptly pay such deficiency to Purchaser together with, if payment is not made within thirty (30) days after delivery of such notification, interest thereon at the lesser of two percent (2%) over the "prime rate" (as announced from time to time in the Wall Street Journal) per annum or the maximum rate allowed by law, from the date Purchaser notified Seller of the deficiency. In the event Purchaser's credit described above is in excess of Seller's share of the actual general real estate or personal property taxes for the calendar year in which Closing occurs, Purchaser shall promptly pay such excess to Seller together with, if payment is not made within thirty (30) days after the delivery of such notification, interest thereon at the lesser of two percent (2%) over the "prime rate" (as announced from time to time in the Wall Street Journal) per annum or the maximum rate allowed by law, from the date Purchaser notified Seller of the excess. 12.1.2. Utility and fuel charges, including, without limitation, charges for water, electricity, gas, gasoline, steam, oil and telephones used in connection with the heating, cooling, lighting, maintenance and operation of the Premises and any personal property included therein or used in connection therewith shall be prorated as of the Closing Date. Seller shall obtain readings of all utility meters no earlier than 30 days prior to Closing Date. 12.1.3. Annual fees for those permits and licenses disclosed in Exhibit J shall --------- be prorated as of the Closing Date. 12.2. The interest on the IDA Loan shall be prorated as of the Closing Date. 10 12.2.1. All other reasonable expenses normal to the operation and maintenance of the Premises which require payments either in advance or in arrears for periods which begin prior to the Closing Date or end thereafter shall be apportioned between Seller and Purchaser as of 11:59 P.M. on the day preceding the Closing Date. 12.3. Seller shall prepare or cause to be prepared statements in reasonable detail showing separately each item prorated or adjusted pursuant to this Agreement and a detailed reconciliation showing separately each item prorated or adjusted pursuant to this Agreement and a detailed reconciliation of the Prorations and Adjustments, such statements to be delivered three (3) business days prior to the Closing and adjusted as necessary at the Closing. The parties shall mutually agree after review thereof by Purchaser that such closing statement accurately reflects the method of proration set forth in this Agreement. 13. [RESERVED] 14. [RESERVED] 15. BROKER. Each of the parties hereto represents and warrants that no broker commission, finder fee or advisory fee is due and payable in connection with this transaction by reason of any act of the representing party. Purchaser and Seller shall indemnify, defend and hold the other party hereto harmless from any claim whatsoever (including without limitation, reasonable attorney's fees, court costs and costs of appeal) from anyone claiming by or through the indemnifying party any fee, commission or compensation on account of this Agreement, its negotiation or the sale hereby contemplated. The indemnifying party shall undertake its obligations set forth in this Paragraph 15 using attorneys selected by the indemnifying party and reasonably acceptable to the indemnified party. The provisions of this Paragraph 15 will survive the Closing and delivery of the Deed. 16. REPRESENTATIONS AND WARRANTIES. 16.1 Seller's Representations and Warranties. Seller hereby represents and warrants to Purchaser, as follows: 16.1.1 This Agreement is in all respects a valid and legally binding obligation, enforceable in accordance with its respective terms; 16.1.2. Seller is a New York corporation, duly organized and validly existing under the laws of the State of New York. Seller has the power and authority to enter into this Agreement, to perform its obligations under this Agreement, and to consummate the transactions contemplated herein. The execution and delivery hereof and the 11 performance by Seller of its obligations hereunder will not violate or constitute an event of default under any material term or material provision of any agreement, document, instrument, judgment, order or decree to which Seller is a party or by which Seller is bound. No petition in bankruptcy (voluntary or otherwise), assignment for the benefit of creditors, or petition seeking reorganization or arrangement or other action under federal or state bankruptcy laws is pending against or contemplated by Seller; 16.1.3. Seller has caused all actions required to be taken by or on behalf of Seller to authorize Seller to make, deliver and carry out the terms of this Agreement. No consent to the execution, delivery and performance of this Agreement by Seller is required from any partner, board of directors, shareholder, creditor, investor, judicial or administrative body, government authority (excluding any governmental authority solely applicable to Purchaser) or other person or entity, other than any such consent which already has been unconditionally given. This Agreement is a valid and binding obligation of Seller, enforceable in accordance with its terms, except as the same may be affected by bankruptcy, insolvency, moratorium or similar laws, or by legal or equitable principles relating to or limited the rights of contracting parties generally; 16.1.4. The execution and delivery of this Agreement by the Seller does not, and the performance and observance by the Seller of its obligations thereunder will not, contravene or result in a breach of (i) the Seller's corporate charter or by-laws, (ii) any governmental requirements, or (iii) any decree or judgment binding on the Seller, or (iv) any agreement or instrument binding on the Seller or any of its properties, nor will the same result in the creation of any lien or security interest under any such agreement or instrument; 16.1.5. There are no legal actions, suits, or other legal or administrative proceedings, including condemnation cases, pending or, to the best of Seller's knowledge, threatened against or affecting the Premises and Seller, or affecting the validity or enforceability of this Agreement or which will affect the Seller's ability to carry-out its obligations under this Agreement, at law or in equity or before or by any government authority, other than the Albany-Shaker Road extension project. Seller is not aware of any facts presently existing or which, with the passage of time or the giving of notice, or both, which might result in any such action, suit or other proceeding, except as disclosed to Purchaser; 16.1.6. That there exist no violations of law or municipal ordinances affecting Building One. Notwithstanding the foregoing, Seller covenants to cure any and all such violations affecting Building One prior to the Closing Date; 16.1.7. The utility services necessary and sufficient for the operation of Building One for its current use are presently available to the Premises through dedicated public rights of way or through perpetual private easements, including but not limited to water supply, storm and sanitary sewer, gas, electric and telephone facilities and drainage; 16.1.8. That neither Building One nor any portion thereof is now damaged or injured as a result of any fire, explosion, flood or other casualty or has been the subject of any taking, and to the knowledge of the Seller, no taking is pending or contemplated; 12 16.1.9. That all federal, state and other tax returns of the Seller required by law to be filed have been filed, that all federal, state and other taxes, assessments and other governmental charges upon the Seller or their properties that are due have been paid, or are being challenged through appropriate means, and that the Seller has set aside on their books, provisions reasonably adequate for the payment of all taxes for periods subsequent to the periods for which such returns have been filed; 16.1.10. (a) To Seller's knowledge, there are no service contracts, landscaping contracts, maintenance agreements or other contracts for the provision of labor, services, materials or supplies to or for the benefit of the Premises which will affect or be obligations of Purchaser or of the Premises or any portion thereof following the Closing Date, other than those listed on Exhibit H, (the "Service --------- Contracts"), to Seller's knowledge, true and complete copies of which have been provided to Purchaser; (b) to Seller's knowledge, except as shown on the copies of the Service Contracts heretofore delivered there are no amendments to said Service Contracts; and (c) to Seller's knowledge, no material uncured default exists under any Service Contract; 16.1.11. Except as set forth on Exhibit I hereto, to Seller's knowledge, Seller --------- has not received any written notice from any Governmental Authority that Building One is in violation of any law, regulation, ordinance, order or other requirements materially affecting the Premises or any portion thereof, which notice remains uncured; 16.1.12. To Seller's knowledge, Seller has not received any written notice that the Premises or any portion thereof is or will be imminently subject to or affected by any condemnation, eminent domain or similar proceedings; 16.1.13. Building One is free and clear of any and all mechanics and other liens. All contractors, subcontractors, laborers and materialmen performing work upon or furnishing labor or materials to improve or benefit Building One at Seller's request have been or will be paid in full by the Seller. Accordingly, Seller agrees to indemnify and hold Purchaser harmless from any claims, liabilities, damages or expenses that Purchaser, or its successors and assigns, may incur by reason of any mechanic's, materialmen's, or similar liens being lodged against Building One for work performed or materials furnished by or at the request of Seller prior to the Closing Date. Seller will execute the necessary affidavits and indemnities required by the title insurance company to eliminate from the title policy or abstract of title any exception for unfiled mechanic's liens; 16.1.14. To the best of Seller's knowledge, Building One is free from latent defects; 16.1.15. The occupancy of Building One is within the current zoning; 16.1.16. The Premises are, as of the Closing Date, free of all encumbrances, except the Permitted Exceptions; 16.1.17. All oil burners and other fuel-burning devices in Building One comply with all applicable federal, state, and municipal governmental or quasi- governmental bodies having jurisdiction as well as any applicable insurance or fire underwriter requirements. 13 Where required, all heating devices have been properly upgraded to comply with all pollution control laws, orders, rules and regulations, and certificates of operation current as of the Closing Date will be delivered to Purchaser; 16.1.18. There are no tenancies affecting the Premises other than those occupancies identified in the Permitted Exceptions; 16.1.19. The Premises consist of two (2) parcels and there is sufficient parking with respect to Building One to meet all applicable zoning or other codes; 16.1.20. Purchaser shall have for itself, its successors and assigns, unrestricted access by foot or by any vehicle to and from the Premises, to and from any all unrestricted access streets, highways, alleys and ways bordering the Premises; 16.1.21. To Seller's knowledge, there are no options or rights of first refusal affecting the Premises or Seller's rights to complete the transactions contemplated by this Agreement; 16.1.22. Seller has not received any written notice from any insurance company requiring or recommending that Seller make any repairs or perform any work on or at the Land or Building One, which has not been completed; 16.1.23. To Seller's knowledge, annexed hereto as Exhibit J is a true, accurate --------- and complete copy of the Certificate of Occupancy in Seller's possession for Building One; 16.1.24. To Seller's knowledge, annexed hereto as Exhibit K is a true, accurate --------- and complete schedule of the permits and licenses (collectively, "Permits") in Seller's possession for Building One. To Seller's knowledge, Seller has received no notice of revocation, which revocation has not been cured or rescinded, from any issuer of a Permit, and, Seller has no knowledge of any facts which would lead Seller to believe that said permits will not be re-issued in the ordinary course; 16.1.25. That the rights of way for all roads necessary for the full utilization of Building One for its current use has either been acquired by the Seller, the appropriate governmental authority or have been dedicated for public use and accepted by such governmental authority to assure the complete construction and installation thereof prior to the date upon which access to Building One via such roads shall be necessary. All curb cuts, driveway permits and traffic signals necessary for access to Building One are existing or have been fully approved by the appropriate government authority; 16.1.26. The Premises have not been acquired with any proceeds from a transaction or activity that would cause the Premises to be subject to forfeiture, and the Seller does not know of any act or omission by any prior owner, that would cause the Premises to be subject to forfeiture pursuant to any law, rule or regulation. 14 16.2. Purchaser hereby represents and warrants to Seller as follows: 16.2.1. Purchaser is a Limited Liability Company, duly organized, validly existing and in good standing under the laws of the State of Delaware; Purchaser has the power and authority to enter into this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated herein; neither the execution and delivery hereof by Purchaser nor the performance by Purchaser of Purchaser's obligations hereunder will violate or constitute an event of default under any material terms or material provision of any decree to which Purchaser is a party or by which Purchaser is bound. No petition in bankruptcy (voluntary or otherwise), assignment for the benefit of creditors, or petition seeking reorganization or arrangement or other action under federal or state bankruptcy laws is pending against or contemplated by Purchaser; 16.2.2. All action required to be taken by or on behalf of Purchaser to authorize Purchaser to execute and deliver this Agreement have been duly taken and all action required to be taken by or on behalf of Purchaser to authorize Purchaser to carry out the terms of this Agreement and the transactions contemplated hereby; including assumption of the Installment Sale Agreement and the IDA Loan represented thereby, pursuant to the terms of the Key Term Sheet, will be taken not later than July 6, 1999, subject to extension at the option of the Purchaser, which extension shall not exceed two (2) weeks. No consent to the execution, delivery and performance of this Agreement by Purchaser is required from any partner, member, board of directors, shareholder, creditor, investor, judicial or administrative body, Governmental Authority or other Person, other than any such consents which already have been unconditionally given. This Agreement is a valid and binding obligation of Purchaser, enforceable in accordance with its terms, except as the same may be affected by bankruptcy, insolvency, moratorium or similar laws, or by legal or equitable principles relating to or limiting the rights of contracting parties generally. 16.2.3. This Agreement is in all respects a valid and legally binding obligation, enforceable in accordance with its respective terms; 16.2.4. The execution and delivery of this Agreement by the Purchaser does not, and the performance and observance by the Purchaser of its obligations thereunder will not, contravene or result in a breach of (i) the Purchaser's certificate of formation or operating agreement; (ii) any governmental requirements, or (iii) any decree or judgment binding on the Purchaser. The execution and delivery hereof and the performance by Purchaser of its obligations hereunder will not violate or constitute an event of default under any material term or material provision of any agreement, document, instrument, judgment, order or decree to which Purchaser is a party or by which Purchaser is bound. No petition in bankruptcy (voluntary or otherwise), assignment for the benefit of creditors, or petition seeking reorganization or arrangement or other action under federal or state bankruptcy laws is pending against or contemplated by Purchaser; 16.2.5. There are no legal actions, suits, or other legal or administrative proceedings, pending or, to the best of Purchaser's knowledge, threatened against or affecting Purchaser, or affecting the validity or enforceability of the Agreement or which will 15 affect the Purchaser's ability to carry-out its obligations under this Agreement, at law or in equity or before or by any government authority. Purchaser is not aware of any facts presently existing or which, with the passage of time or the giving of notice, or both, that might result in any such action, suit or other proceeding, except as disclosed to Purchaser. 16.3 On the Closing Date, Seller shall tender possession of the Premises to Purchaser in accordance with this Agreement. 16.4. Seller covenants and agrees that from and after the date of this Agreement until the Closing Date or earlier termination of this Agreement: 16.4.1 Seller will not, without the prior written consent of Purchaser, enter into any new employment, management, service, maintenance or union agreements relating to the Premises or renew or extend any contracts, unless such new agreements and such contracts, as renewed or extended, will be cancelable by Purchaser on not more than thirty (30) days prior notice without any costs for such cancellation; 16.4.2. No alterations to the physical condition of the Premises will be made without the prior written consent of Purchaser, except for (a) work required (if any) to be performed by Seller at the request of Purchaser, and (b) restoration work in connection with a casualty; 16.4.3. All necessary diligence will be used to keep in full force and effect (or to renew, when necessary) all Permits, except Permits in the control or the responsibility of the Purchaser; 16.4.4. Seller shall promptly notify Purchaser of any written notices received by Seller from any governmental authority regarding the violation of any law relating to Building One. 17. INDEMNIFICATION, SUBROGATION 17.1(a) The Seller shall at all times prior to the Closing Date protect and hold the Purchaser and any director, member, officer, employee, servant or agent thereof and persons under the Purchaser's control or supervision (collectively, the "Purchaser's Indemnified Parties" and each a "Purchaser Indemnified Party") harmless of, from and against any and all claims (whether in tort, contract or otherwise), demands, expenses and liabilities for losses, damage, injury and liability of every kind and nature and however caused, and taxes (of any kind and by whomsoever imposed), resulting from, arising out of or in any way related to the breach by Seller of its representations and warranties set forth in this Agreement, other than, with respect to each Purchaser Indemnified Party, losses arising from the gross negligence or willful misconduct of such Purchaser Indemnified Party. The Purchaser's Indemnified Parties, jointly or severally, shall not be liable for any damage or injury to the person or property of the Seller or its respective directors, officers, partners, employees, agents or servants or persons under the control or supervision of the Seller or any other Person who may be about the Premises, due to any 16 breach by Seller of its representations and warranties set forth herein, other than, with respect to any Purchaser Indemnified Party, the gross negligence or willful misconduct of such Purchaser Indemnified Party. Each Purchaser Indemnified Party, as the case may be, shall promptly notify the Seller in writing of any claim or action brought against such Purchaser Indemnified Party in which indemnity may be sought against the Purchaser pursuant to this Section; such notice shall be given in sufficient time to allow the Purchaser to defend or participate in such claim or action, but the failure to give such notice in sufficient time shall not constitute a defense hereunder nor in any way impair the obligations of the Seller under this Section. (b) The indemnification and protections set forth in this Section shall be extended to the Purchaser and its members, directors, officers, employees, agents and servants and persons under the Purchaser's control or supervision. 17.2(a) The Purchaser shall at all times prior to the Closing Date protect and hold the Seller and any director, member, officer, employee, servant or agent thereof and persons under the Seller's control or supervision (collectively, the "Seller's Indemnified Parties" and each a "Seller Indemnified Party") harmless of, from and against any and all claims (whether in tort, contract or otherwise), demands, expenses and liabilities for losses, damage, injury and liability of every kind and nature and however caused, and taxes (of any kind and by whomsoever imposed), resulting from, arising out of or in any way related to the breach by Purchaser of its representations and warranties set forth in this Agreement, other than, with respect to each Seller Indemnified Party, losses arising from the gross negligence or willful misconduct of such Seller Indemnified Party. The Seller's Indemnified Parties, jointly or severally, shall not be liable for any damage or injury to the person or property of the Purchaser or its respective directors, officers, partners, employees, agents or servants or persons under the control or supervision of the Purchaser or any other Person who may be about the Premises, due to any breach by Purchaser of its representations and warranties set forth herein, other than, with respect to any Seller Indemnified Party, the gross negligence or willful misconduct of such Seller Indemnified Party. Each Seller Indemnified Party, as the case may be, shall promptly notify the Purchaser in writing of any claim or action brought against such Seller Indemnified Party in which indemnity may be sought against the Seller pursuant to this Section; such notice shall be given in sufficient time to allow the Seller to defend or participate in such claim or action, but the failure to give such notice in sufficient time shall not constitute a defense hereunder nor in any way impair the obligations of the Purchaser under this Section. (b) The indemnification and protections set forth in this Section shall be extended to the Seller and its members, directors, officers, agents and servants and persons under the Seller's control or supervision. 17.3 A waiver of subrogation shall be obtained by the Seller from its insurance carrier and, consequently, the Seller waives any and all right to claim or recover against Purchaser, its officers, employees, agents and representatives, for loss of or damage to the Seller, the Premises, the Seller's property or the property of others under the Seller's 17 control from any cause insured against or required to be insured against by the provisions of this Agreement. 18. TIME OF ESSENCE. Time is of the essence with respect to each and every covenant, agreement and obligation of the Seller under this Agreement, subject to Purchaser's right to extend the Closing Date to a date no later than July __, 1999 as specifically set forth in Paragraph 8 herein. 19. NOTICES. Any notice or demand which either party hereto is required or may desire to give or deliver to or make upon the other party shall be in writing and may be personally delivered or given or made by overnight courier such as Federal Express, by facsimile transmission addressed as follows: TO SELLER: Mechanical Technology Incorporated - --------- 968 Albany-Shaker Road Latham, New York 12110 Attention: Cynthia Scheuer TO PURCHASER: Plug Power, L.L.C. - ------------ 968 Albany-Shaker Road Latham, New York 12210 Attention: Gary Mittleman and one copy to: Plunkett & Jaffe, P.C. 111 Washington Avenue Albany, New York 12210 Attention: John S. Harris, Esq. (518) 462-1800 (518) 462-4875 (FAX) subject to the right of either party to designate a different address for itself by notice similarly given. Any notice or demand so given shall be deemed to be delivered or made on the next business day or if sent by overnight courier, or the same day as given if personally delivered or if sent by facsimile transmission and received by 5:00 p.m. Eastern Standard Time. Any such notice, demand or document may be given by each party's attorneys. 20. EXECUTION OF AGREEMENT AND LEASE. Purchaser will execute two (2) copies of this Agreement, and forward them to Seller for execution. Seller will forward one (1) copy of the executed Agreement to Purchaser. 21. GOVERNING LAW. The provisions of this Agreement shall be governed by the laws of the State of New York. 18 22. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between the parties and supersedes all other negotiations, understandings and representations made by and between the parties and the agents, servants and employees. 23. COUNTERPARTS. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original but all of which shall constitute one and the same instrument. 24. CAPTIONS. Paragraph titles or captions contained herein are inserted as a matter of convenience and for reference, and in no way define, limit, extend or describe the scope of this Agreement or any provision hereof. 25. AMENDMENT. No provision of this Agreement or of any documents or instruments entered into, given or made pursuant to this Agreement may be amended, charged, waived, discharged, or terminated except by an instrument in writing signed by the party against whom enforcement of the amendment, change, waiver, discharge or termination is sought. 26. PARTIES. The covenants and agreements herein contained shall extend to and be obligatory upon the heirs, executors, administrators, successors and assigns of the respective parties hereto. 27. NUMBER AND GENDER OF WORDS. Words of any gender used in this Agreement shall be held and construed to include any other gender , and words of a singular number shall be held to include the plural and vice versa, unless the context requires otherwise. 28. THIRD PARTIES. Nothing in this Agreement, express or implied, is intended to confer upon any person, other than the parties hereto and their respective heirs, executors, administrators, successors and assigns, any rights or remedies under or by reason of this Agreement. 29. FURTHER ASSURANCE. Each of Seller and Purchaser will, at any time and from time to time after the Closing Date, upon the request of the other, execute, acknowledge and deliver or will cause to be done, executed, acknowledged and delivered all such further acts, deeds, assignments, transfers, conveyance, and assurance as may reasonably be required to consummate the transactions described herein. The provisions of this Paragraph shall survive the Closing. 19 30. EXHIBITS. All exhibits described in this Agreement and attached hereto are by this reference incorporated fully herein. The term "this Agreement" shall be considered to include all such exhibits. 31. SEVERABILITY. If any provision of this Agreement is held to be illegal, invalid or unenforceable under present or future laws, such provisions shall be fully severable; this Agreement shall be construed and enforced as if such illegal, invalid or unenforceable provisions had never comprised a part of this Agreement; and the remaining provisions of this Agreement shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or buy it severance from this Agreement. Furthermore, in lieu of such illegal, invalid, or unenforceable provision, there shall be added automatically as a part of this Agreement a provision as similar in terms to such illegal, invalid or unenforceable provision as may be possible and be legal, valid and enforceable. 32. INTERPRETATION. The parties agree that each party and its counsel have reviewed and revised this Agreement and that the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Agreement or any amendments hereto. 33. NO WAIVER. No failure of any party to exercise any power given such party hereunder to insist upon strict compliance by the other party with its obligations hereunder shall constitute a waiver of such party's right thereafter to demand strict compliance with the terms of this Agreement. 34. ATTORNEYS' FEES. In the event of a dispute in connection with this Agreement involving an action for damages in which the prevailing party recovers a final judgment, the prevailing party shall be entitled to reasonable attorneys' fees and all other expenses of litigation, up to an aggregate maximum amount of $100,000.00 for all actions for damages arising under this Agreement, and the attorneys' fees and all other expenses of litigation shall be included in and made part of any such judgment. 35. WAIVER OF JURY TRIAL. The Seller hereby waives trial by jury in any litigation in any court with respect to, in connection with, or arising out of this Agreement, or any instrument or document delivered in connection with the transaction, or the validity, protection, interpretation, collection or enforcement thereof, or the relationship between the Seller and Purchaser, or any other claim or dispute howsoever arising between the Seller and Purchaser. 20 IN WITNESS WHEREOF, Seller and Purchaser respectively have signed this Agreement, and this Agreement is effective as of the date first written above. MECHANICAL TECHNOLOGY INCORPORATED By: /s/ Cynthia A. Scheuer -------------------------- Name: Cynthia A. Scheuer Title: Vice President and Chief Financial Officer PLUG POWER, L.L.C. By: /s/ Gary Mittlema -------------------------- Name: Gary Mittlema Title: President and Chief Executive Officer 21 STATE OF NEW YORK ) ) ss.: COUNTY OF ALBANY ) On this ____ day of _________________ in the year 1999 before me, the undersigned, a Notary Public in and for said State, personally appeared ___________________________ ____________________________________________, personally known to me or proved to me on the basis of satisfactory evidence to be the individual(s) whose name is (are) subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their capacity(ies), and that by his/her/their signature(s) on the instrument, the individual(s), or the person upon behalf of which the individual(s) acted, executed the instrument. ______________________________ NOTARY PUBLIC STATE OF NEW YORK ) ) ss.: COUNTY OF ALBANY ) On this ____ day of _________________ in the year 1999 before me, the undersigned, a Notary Public in and for said State, personally appeared ___________________________ ____________________________________________, personally known to me or proved to me on the basis of satisfactory evidence to be the individual(s) whose name is (are) subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their capacity(ies), and that by his/her/their signature(s) on the instrument, the individual(s), or the person upon behalf of which the individual(s) acted, executed the instrument. ______________________________ NOTARY PUBLIC 22 EXHIBIT C PLUG POWER, L.L.C./MECHANICAL TECHNOLOGY INCORPORATED LEASE FOR SPACE LOCATED IN BUILDING 1 THIS AGREEMENT made this _____ day of July, 1999, between Plug Power, L.L.C., a Delaware Limited Liability company, as Landlord, and Mechanical Technology, Incorporated, a New York corporation, as Tenant, and WITNESSETH: The Landlord hereby leases to Tenant and Tenant hereby hires from Landlord the top floor of the building known as Building 1 (the "Building"), located on approximately 35.6 acres of land at 968 Albany-Shaker Road, Latham, New York (the "Premises") and more fully described on the floor plan designated as Exhibit "A" attached hereto (the "Top Floor Space"), for the term of approximately six (6) months, to commence on July ___, 1999, and to end on December 31, 1999, unless terminated earlier, as provided below (the "Top Floor Term"). The Tenant may terminate the Lease for the Top Floor Space at any time prior to the expiration of the Top Floor Term by providing the Landlord with thirty (30) days prior written notice of termination; WITNESSETH: The Landlord hereby leases to Tenant and Tenant hereby hires from Landlord the bottom floor of the Building and more fully described on the floor plan designated as Exhibit "B" attached hereto (the "Bottom Floor Space"), for the term of approximately eighteen (18) months, to commence on July ___, 1999, and to end on December 31, 2000, unless terminated earlier, as provided below (the "Bottom Floor Term"). (The Top Floor Term and the Bottom Floor Term, collectively, the "Term"). The Tenant may terminate the Lease for the Bottom Floor Space at any time prior to the expiration of the Bottom Floor Term by providing the Landlord with thirty (30) days prior written notice of termination; 1. RENT. Tenant shall pay the annual rent equal to $17.00 per square foot gross for office space in the Top Floor Space (the "Top Floor Rent"), commencing as of the closing of the transfer of the IDA debt to Plug Power from MTI. The rent for the Top Floor Space shall be made in equal monthly installments of Nine Thousand Eight Hundred and Ninety-One Dollars and 17/100 ($9,891.17) in advance on or before the first day of each and every month during the Top Floor Term. Tenant shall pay the annual rent equal to $10.00 per square foot gross for manufacturing/laboratory/office space actually occupied (the "Bottom Floor Rent") commencing ___________, 1999. The rent for the Bottom Floor Space shall be made in equal monthly installments of Nine Thousand Six Hundred and Seventy- One Dollars and 67/100 ($9,671.67) in advance on or before the first day of each and every month during the Bottom Floor Term. -24- All rent shall be paid to Landlord without notice, demand, counterclaim, setoff, deduction or defense, and nothing shall suspend, defer, diminish, abate or reduce any rent, except as otherwise specifically provided in this Lease. If Tenant surrenders any space in Building 1 during the term of this Agreement, Tenant's rent shall be adjusted downward based on the amount of usable space actually occupied. Landlord shall be responsible for payment of property, school and other taxes, sewer and water charges, heat, air- conditioning, gas, electricity, oil, maintenance and repair, cleaning/janitorial services, and garbage removal. Tenant shall be responsible for its own internal security system. 2. LANDLORD DUTIES. Landlord at its sole cost and expense shall be responsible for the following: cleaning and maintenance of common areas, snow removal, cleaning and maintenance of roadway, walks, and parking areas and the care and maintenance of landscaping and grounds. As used in this Lease, the term "common areas" means driveways, walkways, trash facilities, and all other areas and facilities that are provided and designated from time to time by Landlord for the general nonexclusive use and convenience of Tenant with Landlord and other Tenants and their respective employees, invitees, licensees, or other visitors. Landlord grants Tenant, its employees, invitees, licensees and other visitors a nonexclusive license for the Term to use the common areas in common with others entitled to use the common areas, subject to the terms and conditions of this Lease. Without advance written notice to Tenant, and without any liability to Tenant in any respect, provided Landlord will take no action permitted under this paragraph in such a manner as to materially impair or adversely affect Tenant's substantial benefit and enjoyment of the Building, Landlord will have the right to: 1) Temporarily close any of the common areas for maintenance, alteration or improvement purposes; and 2) Change the size, use, shape or nature of any such common areas, so long as it does not materially interfere or adversely impact Tenant's business. Landlord, at its sole cost and expense, shall be responsible for the care and maintenance of 1) the exterior of the Building and 2) the roof, plumbing and electricity. Provided, however, that Landlord shall not be responsible for any maintenance that is due to the negligence or neglect of Tenant. 3. OCCUPANCY. Tenant shall use and occupy the Building for no purpose other than the conduct of Tenant's business. 4. PARKING. Landlord and Tenant shall cooperate to assure that sufficient parking is available to Tenant, at Landlord's cost. Tenant will be entitled to use the parking spaces around the Building in common with other tenants during the Term subject to the rules and -25- regulations set forth herein, and any amendments or additions to them. The Tenant uses the parking spaces at its own risk, and the Landlord will not be liable for loss or damage to any vehicle or any contents of such vehicle or accessories to any such vehicle, or any property left in any of the parking areas. 5. REQUIREMENTS OF LAW. Tenant shall promptly execute and comply with all statutes, ordinances, rules, orders, regulations and requirements of the Federal, State and City Government and of any and all their departments and bureaus applicable to Tenant's particular use of the Premises, for the correction, prevention, and abatement of nuisances or other grievances, in, upon, or connected with Tenant's particular use of the Premises during the Term. 6. TENANT ALTERATIONS AND IMPROVEMENTS: TRADE FIXTURES; TENANT REPAIRS: Tenant shall obtain prior consent from Landlord for any major Tenant alterations and improvements and any alterations, improvements or work of any kind. All Tenant alterations and improvements must be done in good, workmanlike and orderly fashion, and shall be of such nature that as not to affect the safety or structural soundness of the Building. Any and all alterations, improvements, additions and partitions, including the installation of trade fixtures, which may be made by Landlord upon the Premises or the Building, shall be the sole and absolute property of Landlord and shall remain upon and be surrendered with the Premises, as a part thereof, at the termination of this Lease (whether by default or otherwise), without disturbance, molestation or injury, with the exception that any such alterations, improvements, additions, partitions, or trade fixtures which relate specifically to Tenant's business may be removed from the Premises or the Building by Tenant upon termination of the Lease, provided that Tenant can accomplish such removal without damage to the Premises or the Building. Any and all improvements, additions and partitions, including the installation of Trade Fixtures made by Tenant, shall remain the sole and absolute property of Tenant. Subject to all other terms of this Lease, Tenant shall take good care of the Premises, the Building, and fixtures, make good any injury or breakage done by Tenant or Tenant's agents, employees or visitors, and shall quit and surrender the Premises and the Building, at the end of the Term, in as good condition as the reasonable use thereof will permit. 7. ASSIGNMENT. Tenant, successors, heirs, executors or administrators shall not assign this agreement, or underlet or underlease the Building, or any part thereof, without Landlord's prior consent in writing. Notwithstanding any such permitted sublease, Tenant shall remain fully and primarily liable for the payment of all rent and additional rent, and the performance of all the terms, covenants and conditions contained in this Lease Agreement, jointly and severally with such assignee or sublessee. Tenant shall not occupy, or permit or suffer the Premises or the Building to be occupied for any business or purpose deemed disreputable or extra-hazardous, under the penalty of damages and forfeiture, and in the event of -26- a breach thereof, the Term herein shall immediately cease and determine at the option of Landlord as if it were the expiration of the original Term. 8. SIGNS. No sign, advertisement, notice or other lettering shall be exhibited, inscribed, painted or affixed by Tenant on any part of the Premises or Building without the prior written approval and consent of Landlord, which shall not be unreasonably withheld. Should Landlord deem it necessary to remove the same in order to paint, alter, or remodel any part of the Premises, Landlord may remove and replace same at Landlord's expense. Landlord shall not remove the existing "MTI" sign in front of the building until Tenant has vacated the Premises. Landlord shall supply the exterior monument sign for the Building to which Tenant may affix its name. All signage must conform to applicable Town of Colonie Sign Law. 9. DEFAULT OF TENANT. Each of the following shall be an "Event of Default" under this Lease: (a) any failure of Tenant to pay any rent when due and such failure continues uncured for fifteen (15) days after Landlord gives Tenant notice of such failure; (b) any failure of Tenant to perform any other of the terms, conditions or covenants of this Lease to be performed by Tenant and such failure continues uncured for thirty (30) days after written notice from Landlord specifying such failure, except that in cases where Tenant cannot reasonably cure within said thirty (30) day period, only if Tenant fails to commence to cure within such thirty (30) day period and thereafter to diligently continue to cure the same until fully corrected; and (c) if both (i) Tenant's estate created by this Lease shall be taken upon execution, attachment or other process of law, and any such execution, attachment or other process be not vacated or set aside within thirty (30) days thereafter, or if Tenant shall be adjudged as bankrupt, or if Tenant shall file a voluntary petition in bankruptcy, or if an involuntary petition in bankruptcy be filed and not vacated or set aside within ninety (90) days thereafter, and (ii) there otherwise occurs an Event of Default as specifi ed in subparagraphs "(a)" and "(b)" above. 10. REMEDIES. Upon an event of Default, Landlord may immediately, or at any time thereafter, re-enter the Premises and the Building and remove all persons and all or any property therefrom, either by summary dispossession proceedings, or by any suitable action or proceeding at law, and repossess and enjoy the Premises and the Building together with all additions, alterations and improvements. In any such case, Landlord may either relet the Building or any part or parts thereof for Landlord's own account, or may at Landlord's option, relet the Building or any part or parts thereof, as the agent of Tenant, and receive the Rents therefor, applying the same first to the payment of such expenses as Landlord may have incurred, -27- and then to the fulfillment of the covenants of Tenant herein, and the balance, if any, at the expiration of the Term, shall be paid to Tenant. In the event that the Term shall terminate by summary proceedings or otherwise, and if Landlord shall not relet the Building for Landlord's own account, then, whether or not the Building be relet, Tenant shall remain liable for, and Tenant hereby agrees to pay to Landlord, until the time when this Lease would have expired but for such termination or expiration, the equivalent of the amount of all of the Rent and "additional Rent" reserved herein, less the avails of reletting, if any, and the same shall be due and payable by Tenant to Landlord on the several Rent days above specified; that is, upon each of such Rent days Tenant shall pay to Landlord the amount of deficiency then existing. Tenant hereby expressly waives any and all right of redemption in case Tenant shall be dispossessed by judgment or warrant of any court or judge, and Tenant waives and will waive all right to trial by jury in any summary proceedings hereafter instituted by Landlord against Tenant in respect to the Building or any action to recover Rent or damages hereunder. 11. ACCESS TO BUILDING. Tenant agrees that Landlord and Landlord's agents and other representatives shall have the right to enter into and upon the Building, or any part thereof, at all reasonable hours and upon twenty-four (24) hours reasonable notice (except in the case of emergencies) for the purpose of examining the same, or for making such repairs, alterations, additions, or improvements therein as may be necessary or deemed advisable by Landlord. 12. INABILITY TO PERFORM. Except as set forth herein, this Lease and the obligation of Tenant to pay Rent hereunder and perform all of the other covenants and agreements hereunder on part of Tenant to be performed shall in no way be affected, impaired or excused because Landlord is unable to supply or is delayed in supplying any service expressly or impliedly to be supplied or is unable to make, or is delayed in making any repairs, additions, alterations or decorations or is unable to supply or is delayed in supplying any equipment or fixtures or Landlord is prevented or delayed from so doing, by reason of governmental preemption in connection with any National Emergency declared by the President of the United States or in connection with any rule, order or regulation of any department or subdivision thereof of any governmental agency or by reason of the condition of supply and demand which have been or are affected by war or other emergency. 13. DESTRUCTION. In the case of damage, by fire or other action of the elements, to the Building, without the fault of Tenant or of Tenant's agents or employees, if the damage is so extensive as to amount practically to the total destruction of the Building, or if Landlord shall within a reasonable time decide not to rebuild, this Lease shall cease and come to an end, and the Rent shall be apportioned to the time of the damage. In all other cases where the Building is damaged by fire without the fault of Tenant or of Tenant's agents or employees, Landlord promptly shall repair the damage after notice of damage, and if the damage has rendered the Building untenantable, in whole or in part, there shall be an apportionment of the Rent until the -28- damage has been repaired. Consideration shall be given to delays caused by strikes, adjustment of insurance and other causes beyond Landlord's control. If the fire or other casualty is caused by an act or negligence of Tenant, Tenant's employees or invitees, then all repairs will be made at Tenant's expense and Tenant must pay the full rent with no adjustment. The cost of the repairs will be added rent. Landlord has the right to demolish or rebuild the Building if there is substantial damage by fire or other casualty. Landlord or Tenant may cancel this Lease within 30 days after the substantial fire or casualty by giving Landlord/Tenant notice of Landlord's/Tenant's intention to demolish or rebuild. The Lease will end 30 days after Landlord's/Tenant's cancellation notice to Landlord/Tenant. Tenant must deliver the Building to Landlord on or before the cancellation date in the notice and pay all Rent due to the date of the fire or casualty. If the Lease is canceled, Landlord is not required to repair the Premises or Building. The cancellation does not release the Tenant or Landlord of liability in connection with the fire or casualty. This section is intended to replace the terms of New York Real Property Law Section 227. 14. CONDEMNATION. Should the land whereon all or part of the Building stands be condemned for public use, then in that event, upon the taking of the same for such public use, this Lease shall become null and void, and the Term shall cease and come to an end upon the date when the same shall be taken and the Rent and all other charges shall be apportioned as of said date. Tenant shall have no claim against Landlord for the value of any unexpired Term of this Lease. No part of any award, however, shall belong to Tenant, except as permitted by law. 15. LIABILITY. Tenant is exempt from any and all liability for any damage or injury to person or property caused by or resulting from steam, electricity, gas, water, rain, ice or snow, or any leak or flow from or into any part of said Building or from any damage or injury resulting or arising from any other cause or happening whatsoever unless said damage or injury (i) be caused by or be due to the negligence of Tenant, its agents or employees, or (ii) is attributable to a breach of a representation or warranty of Tenant under that certain Agreement of Sale dated as of June __, 1999 by and between Landlord, as purchaser, and Tenant as seller, relating to the conveyance of the Premises. 16. INDEMNIFICATION. Except for any injury or damage to persons or property on the Premises or Building that is caused by or results from the negligence or deliberate act of Landlord, its employees or agents, and subject to the provisions of paragraph 18, Tenant will not hold Landlord, its employees or agents liable for, and Tenant will indemnify and hold harmless Landlord, its employees and agents from and against any and all demands, claims, causes of action, fines, penalties, damages (including consequential damages), liabilities, judgments and expenses (including without limitation reasonable attorneys' fees) incurred in connection with or arising from: -29- 1) the use or occupancy of the Premises and Building by Tenant or any person claiming under Tenant; 2) any activity, work or thing done or permitted by Tenant in or about the Premises or the Building; 3) any breach by Tenant or its employees, agents, contractors or invitees of this Lease; and 4) any injury or damage to the person, property or business of Tenant, its employees, agents, contractors or invitees entering upon the Premises or the Building under the express or implied invitation of Tenant. If any action or proceeding is brought against Landlord, its employees or agents by reason of any such claim for which Tenant has indemnified Landlord, Tenant, upon written notice from Landlord, will defend the same at Tenant's expense, with counsel reasonably satisfactory to Landlord. 17. TENANT'S INSURANCE. At all times during the Term, Tenant will carry and maintain, at Tenant's expense, the following insurance, in the amounts specified below or such other amounts as Landlord may from time to time reasonably request, with insurance companies and on forms satisfactory to Landlord: 1) Bodily injury and property damage liability insurance, with a combined single occurrence limit of not less than Three Million Dollars ($3,000,000). All such insurance will be equivalent to coverage offered by a commercial general liability form, including without limitation personal injury and contractual liability coverage for the performance by Tenant of the indemnity agreements set forth in this Lease; 2) Workers' compensation insurance satisfying Tenant's obligations and liabilities under the workers' compensation laws of the State of New York, including employer's liability insurance in the limits required by the laws of the State of New York; and 3) If Tenant operates owned, hired or non-owned vehicles on the project, comprehensive automobile liability at a limit of liability not less than $500,000 combined bodily injury and property damage. -30- Certificate of insurance, naming the Landlord as additional insured, will be delivered to the Landlord prior to the Tenant's occupancy of the Building. All commercial general liability or comparable policies maintained by Tenant will name Landlord as additional insured. All commercial general liability and property policies maintained by Tenant will be written as primary policies, not contributing with and supplemental to the coverage that the Landlord may carry. 18. LIABILITY INSURANCE. Tenant shall carry public liability insurance in the amounts of not less than One Million Dollars ($1,000,000) per accident or occurrence on account of injury to persons and Two Million Dollars ($2,000,000) aggregate on account of injury to the Building or property of others and shall name Landlord as an additional insured therein and shall furnish to Landlord a certificate of said insurance. 19. WAIVER OF CLAIMS AND SUBROGATION. Landlord shall be exempt from, and the Tenant agrees to accept the risk of loss by fire or other casualty covered by insurance as to the contents, leasehold improvements or fixtures of the Building ensuing by reason of fire or other casualty covered by insurance. Tenant shall be exempt from, and Landlord agrees to accept the risk of loss by fire or other casualty covered by insurance as to the building, equipment, fixtures and appurtenances of the Building during the Term or any renewal thereof. Landlord and Tenant shall each cause each insurance policy carried by each respectively, insuring the Building or the Premises, its contents, Leasehold improvements or fixtures, to be written in a manner so as to provide that the insurance companies waive all right or recovery by way of subrogation against the other party in connection with any loss or damage covered by any such policies. 20. NO WAIVER. The failure of Landlord or Tenant to insist upon a strict performance of any of the Terms, conditions and covenants herein, shall not be deemed a waiver of any rights or remedies that Landlord or Tenant may have, and shall not be deemed a waiver of any subsequent breach or default in the Terms, conditions and covenants herein contained. This instrument may not be changed, modified or discharged orally. 21. SUBORDINATION. This instrument shall not be a lien against the Premises or the Building with respect to any bank, insurance company or other lending institution mortgages that are now on or that hereafter may be placed against the Premises or the Building, and that the recording of such mortgage or mortgages shall have preference and precedence and be superior and prior in lien of this Lease, irrespective of the date of recording and Tenant agrees to execute any such instrument without cost, that may be reasonably necessary or desirable to further effect the subordination of this Lease to any such mortgage or mortgages, provided any such mortgagee shall first execute and deliver to Tenant a nondisturbance agreement in a form reasonably satisfactory to Tenant, by which the mortgagee agrees not to cut off this Lease in foreclosure. Tenant's refusal to execute such instrument shall entitle Landlord, or Landlord's assigns and legal -31- representatives, to cancel this Lease without incurring any expense or damage and the Term hereby granted is expressly limited accordingly. 22. ESTOPPEL CERTIFICATE. Tenant shall from time to time, upon Landlord's reasonable request, deliver a written instrument ("Estoppel Certificate") to Landlord or to any other person or firm specified by Landlord, duly executed and acknowledged, certifying to the best of its knowledge, information or belief that this Lease is unmodified and in full force and effect or, if there has been any modification, that the Lease is in full force and effect as modified, and stating any and all such modifications; specifying the dates to which Rent and additional rent provided for herein have been paid, and whether there exists any default in the performance of any covenant agreement, term, provision or condition contained in this Lease. 23. QUIET ENJOYMENT. Tenant, upon payment of the rent, additional rent and other required charges, and the performance by Tenant under this Lease, shall have the peaceful and quiet enjoyment of the Building without hindrance or disturbance by Landlord or those claiming by, through or under Landlord, or any other person or entity whatsoever. 24. LATE CHARGES. A late charge of five (5) percent shall be assessed to any rental payment not made within fifteen (15) days of the due date and shall be considered additional rent. 25. NOTICES. Any notice given Tenant shall be in writing and sent by registered or certified mail to Tenant at: Mechanical Technology, Incorporated 968 Albany-Shaker Road Latham, New York 12110 -32- Tenant may change the address at which notices shall be given at any time by like notice to Landlord. Any notices to be given Landlord shall be given in writing and sent by certified mail to Landlord at: Plug Power, L.L.C. 968 Albany-Shaker Road Latham, New York 12110 Landlord may change the address at which notices shall be given any time by like notice to Tenant. 26. ATTACHMENTS TO LEASE. The covenants and agreements in the Lease, addendums, exhibits and attachments shall be binding upon the parties hereto and upon their respective successors, heirs, executors and administrators. 27. MISCELLANEOUS. Notwithstanding anything to the contrary contained in this Lease, any monies due Landlord under this Lease in addition to the rent shall be deemed to be additional rent. Any default on the payment of such additional rent shall give Landlord the same rights and remedies as are provided herein with respect to a default in the payment of rent. Tenant's obligations to pay rent and additional rent shall survive the expiration of the Term, or earlier termination of this Lease. The failure of Landlord or Tenant to insist upon a strict performance of any term, covenant or condition herein shall not be deemed a waiver of any rights or remedies that Landlord or Tenant may have or a waiver of any subsequent breach or default. If any provision of this Lease shall be unenforceable or invalid, such unenforceability or invalidity shall not affect any other provision of this Lease. -33- IN WITNESS WHEREOF, Landlord and Tenant respectively have signed and sealed this Lease as of the day and year first above written. PLUG POWER, L.L.C. By: ______________________________ Name: Title: MECHANICAL TECHNOLOGY, INCORPORATED By: ______________________________ Its: -34- STATE OF NEW YORK ) ) ss.: COUNTY OF ALBANY ) On this ____ day of _________________ in the year 1999 before me, the undersigned, a Notary Public in and for said State, personally appeared ___________________________ ____________________________________________, personally known to me or proved to me on the basis of satisfactory evidence to be the individual(s) whose name is (are) subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their capacity(ies), and that by his/her/their signature(s) on the instrument, the individual(s), or the person upon behalf of which the individual(s) acted, executed the instrument. ______________________________ NOTARY PUBLIC STATE OF NEW YORK ) ) ss.: COUNTY OF ALBANY ) On this ____ day of _________________ in the year 1999 before me, the undersigned, a Notary Public in and for said State, personally appeared ___________________________ ____________________________________________, personally known to me or proved to me on the basis of satisfactory evidence to be the individual(s) whose name is (are) subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their capacity(ies), and that by his/her/their signature(s) on the instrument, the individual(s), or the person upon behalf of which the individual(s) acted, executed the instrument. ______________________________ NOTARY PUBLIC EXHIBIT D MECHANICAL TECHNOLOGY INCORPORATED/PLUG POWER, L.L.C. LEASE FOR THE PREMISES LOCATED AT 968 ALBANY-SHAKER ROAD THIS AGREEMENT made this _____ day of July, 1999, between Mechanical Technology Incorporated, a New York corporation, as Landlord, and Plug Power, L.L.C., a Delaware Limited Liability company, as Tenant, and WITNESSETH: That pursuant to an Agreement of Sale dated June ___, 1999, Plug Power, L.L.C. (the "Tenant") agreed to purchase and Mechanical Technology Incorporated (the "Landlord") agreed to sell that certain property commonly known as 968 Albany-Shaker Road in the Town of Colonie, Latham, New York, which consists of approximately 35.6 acres, on which is situated two (2) office/manufacturing buildings (the "Premises"). WITNESSETH: That the transfer as contemplated in the Agreement of Sale cannot be completed; WITNESSETH: The Landlord hereby leases to Tenant and Tenant hereby hires from Landlord the building to be constructed by Tenant at 968 Albany-Shaker Road, commonly known as Building 2 ("Building 2"), as more fully described in Exhibit A attached hereto, for the term of twenty (20) years, to commence on ________, 1999, and to end on December 31, 2019, unless terminated earlier, as provided below ("Term"), upon the following terms and conditions; 1. RENT. Tenant shall pay an annual base rent of Five Dollars and 40/100 ($5.40) per square foot for the use of Building 2 and the use of approximately four (4) acres of land on which Building 2 and the parking associated with Building 2 shall be located (the "Land"). Tenant and Landlord have agreed that the Base Rent shall be calculated on the basis of Fifty Thousand (50,000) square feet ($270,000 per annum) (the "Base Rent"), commencing _________, 1999, for the Term of the Lease. In addition to the Base Rent, the Tenant shall pay the additional Expenses (as hereinafter defined), relating to Building 2. "Expenses" shall include Utilities; Taxes; Parking; Landscaping; Snow Removal; and Garbage Removal. ("Base Rent" and "Expenses," collectively "Lease Payments"). For purposes of this Agreement, except where otherwise indicated, "Pro Rata Share" shall be determined by multiplying the applicable Expense by the following ratio: -36- Number of employees of Tenant* - -------------------------------------------------------------------------------- Number of employees of Tenant + Number of employees of Landlord* *The "Number of employees of Tenant" and the "Number of employees of Landlord" shall mean the number of employees working a single shift, in a single day. A. UTILITIES. Tenant shall arrange for service and pay its actual gas and electric charges only, based on separate meters to be installed to meter Tenant's use, exclusive of any use by the Landlord. Tenant shall pay for the installation of meters in the space actually used by Tenant. Landlord shall pay for the installation of meters on the space actually used by Landlord. B. TAXES: Until Building 2 is reassessed, Tenant shall pay its share of the real property taxes attributable to the former Building 2. For the remainder of the Lease Term, Tenant shall pay its share of the actual real property taxes attributable to Building 2, based upon the assessed valuation of Building 2, as provided by the Town Assessor for the Town of Colonie. Nothing shall prevent the Tenant from challenging such assessment. Landlord agrees to cooperate in pursuing any challenge to the assessed value of Building 2. C. PARKING. Tenant shall pay for its Pro Rata Share of the actual costs for maintenance of the parking on the Premises. D. LANDSCAPING. Tenant shall pay for its Pro Rata Share of actual costs necessary for the basic groundskeeping relating to the Premises. E. SNOW REMOVAL: Tenant shall pay for its Pro Rata Share of snow removal expenses. In the event that Tenant adds a second or third shift, in addition to the employees that work at the Premises on a daily basis, the number of employees in the second and third shifts, if any, will be added to the number of employees working at the Premises on a daily basis, in order to calculate the Tenant's Pro Rata Share of snow removal expenses. F. GARBAGE REMOVAL: Tenant shall arrange for and pay for waste removal services for Building 2. G. To the extent not provided herein, Tenant shall pay its Pro Rata Share of Landlord's actual expenses relating to Tenant's use of Building 2. 2. LANDLORD DUTIES. Landlord shall be responsible for the following: cleaning and maintenance of common areas, snow removal, cleaning and maintenance of roadway, walks, and parking areas and the care and maintenance of landscaping and grounds. As used in this Lease, the term "common areas" means driveways, walkways, trash facilities, and all -37- other areas and facilities that are provided and designated from time to time by Landlord for the general nonexclusive use and convenience of Tenant with Landlord and other tenants and their respective employees, invitees, licensees, or other visitors. Landlord grants Tenant, its employees, invitees, licensees and other visitors a nonexclusive license for the Term to use the common areas in common with others entitled to use the common areas, subject to the terms and conditions of this Lease. Without advance written notice to Tenant, and without any liability to Tenant in any respect, provided Landlord will take no action permitted under this paragraph in such a manner as to materially impair or adversely affect Tenant's substantial benefit and enjoyment of the Premises, Landlord will have the right to: 1) Temporarily close any of the common areas for maintenance, alteration or improvement purposes; and 2) Change the size, use, shape or nature of any such common areas, so long as it does not materially interfere or adversely impact Tenant's business. Tenant, at its sole cost and expense, shall be responsible for the care and maintenance of Building 2. Provided, however, that Tenant shall not be responsible for the costs of any maintenance that results from the negligence of, or is caused by Landlord. 3. OBLIGATION OF LANDLORD TO REIMBURSE TENANT FOR CONSTRUCTION EXPENDITURES. Landlord shall have the following obligations with respect to Tenant's construction of Building 2 and other alterations and improvements of the Premises: (a) Landlord acknowledges that Tenant has heretofore commenced construction of Building 2, as more fully described in Exhibit A attached hereto, and further acknowledges that Tenant shall complete the construction of Building 2. Landlord will credit Tenant for the actual costs of the construction of Building 2, as provided herein, excepting any specialized fit-up. Specialized fit-up shall be undertaken at Tenant's expense; (b) Landlord acknowledges that Tenant has heretofore made considerable expenditures to construct Building 2. Upon execution of this Lease, Landlord agrees to credit Tenant as pre-paid Lease Payments, all expenditures associated with the construction of Building 2 to the date of execution of the Lease; -38- (c) Landlord acknowledges that Tenant shall continue to make considerable expenditures to complete the construction of Building 2 and/or to make other alterations and improvements to Building 2. Landlord agrees to credit Tenant as pre-paid Lease Payments, all expenditures associated with the construction of Building 2, excluding any specialized fit-up; (d) Tenant acknowledges that Landlord shall own Building 2 and Tenant shall transfer all of its right, title and ownership interest, subject to the terms of this Agreement, in Building 2 to Landlord. 4. OCCUPANCY. Tenant shall use and occupy the Premises for no purpose other than the conduct of Tenant's business. Tenant shall have the right to terminate this Agreement upon Ninety (90) days prior written notice, with or without cause. 5. PARKING. Tenant shall pay for its Pro Rata Share of any required parking lot maintenance, including re-surfacing of the parking lots and lighting repairs/modification. Tenant shall construct sufficient parking, as defined by the Town of Colonie Building Code, for the use of Building 2, as well as the replacement of parking lot space lost upon the construction of Building 2, at its sole cost and expense. Landlord will be responsible for the maintenance of such parking lots and will be reimbursed for such maintenance as provided herein. Tenant will be entitled to use the parking spaces around Building 2, and Landlord will be responsible for maintaining sufficient parking for the Premises. The Tenant uses the parking spaces at its own risk, and the Landlord will not be liable for loss or damage to any vehicle or any contents of such vehicle or accessories to any such vehicle, or any property left in any of the parking areas. 6. REQUIREMENTS OF LAW. Tenant shall promptly execute and comply with all statutes, ordinances, rules, orders, regulations and requirements of the Federal, State and City Government and of any and all their departments and bureaus applicable to Tenant's particular use of the Premises, for the correction, prevention, and abatement of nuisances or other grievances, in, upon, or connected with the Premises during the Term. Tenant shall provide Landlord with copies of any government orders or notices that it receives connected with the Premises. Tenant will not occupy Building 2 until Building 2 complies with local building codes and a temporary certificate of occupancy for Building 2 has been issued. 7. TENANT ALTERATIONS AND IMPROVEMENTS: TRADE FIXTURES; TENANT REPAIRS: In addition to those alterations and improvements provided for in Section 3 above, Tenant shall have the right to adapt from time to time Building 2 to its use and, in that connection, shall have the right to install manufacturing facilities, laboratory facilities, test centers, showcases, counters, electrical, telephone and other communications connections and -39- other trade fixtures necessary to accommodate Tenant's business operation. Tenant shall obtain prior consent from Landlord for any major Tenant alterations and improvements and any alterations, improvements or work of any kind with respect to the roof, which consent shall not be unreasonably withheld. All Tenant alterations and improvements must be done in good, workmanlike and orderly fashion, and shall be of such nature that as not to affect the safety or structural soundness of the Building 2. Tenant shall not make any alterations or improvements to the roof that are inconsistent with or void Landlord's warranty for the roof. Landlord's warranty shall permit the use of multiple contractors. Any and all alterations, improvements, additions and partitions, including the installation of trade fixtures, which may be made by Landlord or by Tenant upon the Premises, shall be the sole and absolute property of Landlord and shall remain upon and be surrendered with the Premises, as a part thereof, at the termination of this Lease (whether by default or otherwise), without disturbance, molestation or injury, with the exception that any such alterations, improvements, additions, partitions, or trade fixtures which relate specifically to Tenant's business may be removed from the Premises by Tenant upon termination of the Lease, provided that Tenant can accomplish such removal without damage to the Premises. Subject to all other terms of this Lease, Tenant shall take good care of Building 2 and fixtures, make good any injury or breakage done by Tenant or Tenant's agents, employees or visitors, and shall quit and surrender Building 2, at the end of the Term, in as good condition as the reasonable use thereof will permit. 8. ASSIGNMENT. Tenant, successors, heirs, executors or administrators shall not assign this agreement, or underlet or underlease Building 2, or any part thereof, without Landlord's prior consent in writing. Notwithstanding any such permitted sublease, Tenant shall remain fully and primarily liable for the payment of all rent and additional rent, and the performance of all the terms, covenants and conditions contained in this Lease Agreement, jointly and severally with such assignee or sublessee. Tenant shall not occupy, or permit or suffer the Premises to be occupied for any business or purpose deemed disreputable or extra-hazardous, under the penalty of damages. and forfeiture, and in the event of a breach thereof, the Term herein shall immediately cease and determine at the option of Landlord as if it were the expiration of the original Term. 9. SIGNS. No sign, advertisement, notice or other lettering shall be exhibited, inscribed, painted or affixed by Tenant on any part of the Premises or Building without the prior written approval and consent of Landlord, which shall not be unreasonably withheld. Should Landlord deem it necessary to remove the same in order to paint, alter, or remodel any part of the Building, Landlord may remove and replace same at Landlord's expense. Landlord shall supply the exterior monument sign for the Building to which Tenant may affix its name. All costs -40- associated with affixing Tenant's name to the exterior monument sign or Tenant's entry door shall be borne by Tenant. Tenant must have its name placed on its entry door within one month of its occupancy date. Any temporary signage may be displayed only on prior written approval by Landlord, which approval shall not be unreasonably withheld. All signage must conform to applicable Town of Colonie Sign Law. 10. DEFAULT OF TENANT. Each of the following shall be an "Event of Default" under this Lease: (a) any failure of Tenant to pay any rent when due and such failure continues uncured for fifteen (15) days after Landlord gives Tenant notice of such failure; (b) any failure of Tenant to perform any other of the terms, conditions or covenants of this Lease to be performed by Tenant and such failure continues uncured for thirty (30) days after written notice from Landlord specifying such failure, except that in cases where Tenant cannot reasonably cure within said thirty (30) day period, only if Tenant fails to commence to cure within such thirty (30) day period and thereafter to diligently continue to cure the same until fully corrected; and (c) if both (i) Tenant's estate created by this Lease shall be taken upon execution, attachment or other process of law, and any such execution, attachment or other process be not vacated or set aside within thirty (30) days thereafter, or if Tenant shall be adjudged as bankrupt, or if Tenant shall file a voluntary petition in bankruptcy, or if an involuntary petition in bankruptcy be filed and not vacated or set aside within ninety (90) days thereafter, and (ii) there otherwise occurs an Event of Default as specified in subparagraphs "(a)" and "(b)" above. 11. REMEDIES. Upon an Event of Default, Landlord may immediately, or at any time thereafter, re-enter the Premises and remove all persons and all or any property therefrom, either by summary dispossession proceedings, or by any suitable action or proceeding at law, and repossess and enjoy the Premises together with all additions, alterations and improvements. In any such case, Landlord may either relet the Premises or any part or parts thereof for Landlord's own account, or may at Landlord's option, relet the Premises or any part or parts thereof, as the agent of Tenant, and receive the Rents therefor, applying the same first to the payment of such expenses as Landlord may have incurred, and then to the fulfillment of the covenants of Tenant herein, and the balance, if any, at the expiration of the Term, shall be paid to Tenant. In the event that the Term shall terminate by summary proceedings or otherwise, and if Landlord shall not relet the Premises for Landlord's own account, then, whether or not the Premises be relet, Tenant shall remain liable for, and Tenant hereby agrees to pay to Landlord, until the time when this Lease would have expired but for such termination or expiration, the equivalent of the amount of all of the Rent and "additional Rent" reserved herein, less the avails of reletting, if any, and the -41- same shall be due and payable by Tenant to Landlord on the several Rent days above specified; that is, upon each of such Rent days Tenant shall pay to Landlord the amount of deficiency then existing. Tenant hereby expressly waives any and all right of redemption in case Tenant shall be dispossessed by judgment or warrant of any court or judge, and Tenant waives and will waive all right to trial by jury in any summary proceedings hereafter instituted by Landlord against Tenant in respect to the Premises or any action to recover Rent or damages hereunder. 12. DEFAULT BY LANDLORD. In the event that the Landlord shall sell or otherwise dispose of Building 2, Landlord shall apply the proceeds of such sale (less expenses) to the fulfillment of the covenants of Tenant herein and the balance, if any, shall be paid to Tenant up to an amount equal to any credit due to Tenant in consideration for the construction of Building 2 as set forth in paragraph 3 herein. In the event of a breach or default or threatened breach or default by the Landlord of any term or condition of this Agreement, the Tenant, in addition to any other rights and remedies available at law or in equity and without the necessity of proving actual damages or posting a bond or similar security, shall have the immediate right to cancel this Agreement without further obligation to the Landlord, and shall be entitled to injunctive relief including, but not limited to, specific performance with respect to the breach or default or threatened breach or default, and shall also be entitled to receive damages, including but not limited to consequential, compensatory, and incidental damages resulting therefrom. A breach or default or threatened breach or default by the Landlord of any term or condition of this Agreement shall not relieve the Landlord of its obligations to provide compensation to the Tenant pursuant to this Agreement. Upon termination of this Agreement resulting from a breach by the Landlord of any term or condition of this Agreement, in addition to damages, specific performance and/or other equitable relief, the Landlord shall pay the Tenant any credit due to Tenant in consideration for the construction of Building 2 as set forth in paragraph 2 herein. 13. ACCESS TO PREMISES. Tenant agrees that Landlord and Landlord's agents and other representatives shall have the right to enter into and upon the Premises, or any part thereof, at all reasonable hours and upon twenty-four (24) hours reasonable notice (except in the case of emergencies) for the purpose of examining the same, or for making such repairs, alterations, additions, or improvements therein as may be necessary or deemed advisable by Landlord. 14. INABILITY TO PERFORM. Except as set forth herein, this Lease and the obligation of Tenant to pay Lease Payments hereunder and perform all of the other covenants and agreements hereunder on part of Tenant to be performed shall in no way be affected, impaired or excused because Landlord is unable to supply or is delayed in supplying any service expressly or impliedly to be supplied or is unable to make, or is delayed in making any repairs, additions, alterations or decorations or is unable to supply or is delayed in supplying any equipment or -42- fixtures or Landlord is prevented or delayed from so doing, by reason of governmental preemption in connection with any National Emergency declared by the President of the United States or in connection with any rule, order or regulation of any department or subdivision thereof of any governmental agency or by reason of the condition of supply and demand which have been or are affected by war or other emergency. 15. DESTRUCTION. In the case of damage, by fire or other action of the elements, to Building 2, without the fault of Tenant or of Tenant's agents or employees, if the damage is so extensive as to amount practically to the total destruction of the Premises or of the Building, or if Landlord shall within a reasonable time decide not to rebuild, this Lease shall cease and come to an end, and the Base Rent shall be apportioned to the time of the damage and Tenant shall be reimbursed for for any prepaid Lease Payments for the remainder of the Term. In all other cases where the Premises are damaged by fire without the fault of Tenant or of Tenant's agents or employees, Landlord promptly shall repair the damage after notice of damage, and if the damage has rendered Building 2 untenantable, in whole or in part, there shall be an apportionment of the Rent until the damage has been repaired. Consideration shall be given to delays caused by strikes, adjustment of insurance and other causes beyond Landlord's control. Landlord is not required to repair or replace any equipment, fixtures, furnishings or decorations, unless originally installed by Landlord. If the fire or other casualty is caused by an act or negligence of Tenant, Tenant's employees or invitees, then all repairs will be made at Tenant's expense and Tenant must pay the full rent with no adjustment. The cost of the repairs will be added rent. Landlord has the right to demolish or rebuild Building 2 if there is substantial damage by fire or other casualty. Landlord or Tenant may cancel this Lease within Thirty (30) days after the substantial fire or casualty by giving Landlord/Tenant notice of Landlord's/Tenant's intention to demolish or rebuild. The Lease will end Thirty (30) days after Landlord's/Tenant's cancellation notice to Landlord/Tenant. Tenant must deliver the Building 2 to Landlord on or before the cancellation date in the notice and pay all Lease Payments due to the date of the fire or casualty, and Tenant shall be reimbursed for any prepaid Lease Payments for the remainder of the Term. If the Lease is canceled, Landlord is not required to repair the Premises or Building. The cancellation does not release the Tenant or Landlord of liability in connection with the fire or casualty. This section is intended to replace the terms of New York Real Property Law Section 227. 16. CONDEMNATION. Should the land whereon all or part of the Building stands be condemned for public use, then in that event, upon the taking of the same for such public use, this Lease shall become null and void, and the Term shall cease and come to an end upon the date when the same shall be taken and the Rent and all other charges shall be apportioned as of -43- said date. Tenant shall have no claim against Landlord for the value of any unexpired Term of this Lease, except for any prepaid Lease Payments for the remainder of the Term. 17. LIABILITY. Landlord is exempt from any and all liability for any damage or injury to person or property caused by or resulting from steam, electricity, gas, water, rain, ice or snow, or any leak or flow from or into any part of said Building 2 or from any damage or injury resulting or arising from any other cause or happening whatsoever unless said damage or injury be caused by or be due to the negligence of Landlord. 18. INDEMNIFICATION. Except for any injury or damage to persons or property on the Premises that is caused by or results from the negligence or deliberate act of Landlord, its employees or agents, and subject to the provisions of paragraph 20, Tenant will not hold Landlord, its employees or agents liable for, and Tenant will indemnify and hold harmless Landlord, its employees and agents from and against any and all demands, claims, causes of action, fines, penalties, damages (including consequential damages), liabilities, judgments and expenses (including without limitation reasonable attorneys' fees) incurred in connection with or arising from: 1) the use or occupancy or manner of use or occupancy of the Building 2 by Tenant or any person claiming under Tenant; 2) any activity, work or thing done or permitted by Tenant in or about the Premises, or Building 2; 3) any breach by Tenant or its employees, agents, contractors or invitees of this Lease; and 4) any injury or damage to the person, property or business of Tenant, its employees, agents, contractors or invitees entering upon the Premises under the express or implied invitation of Tenant. If any action or proceeding is brought against Landlord, its employees or agents by reason of any such claim for which Tenant has indemnified Landlord, Tenant, upon written notice from Landlord, will defend the same at Tenant's expense, with counsel reasonably satisfactory to Landlord. 19. TENANT'S INSURANCE. At all times during the Term, Tenant will carry and maintain, at Tenant's expense, the following insurance, in the amounts specified below or such other amounts as Landlord may from time to time reasonably request, with insurance companies and on forms satisfactory to Landlord: -44- 1) Bodily injury and property damage liability insurance, with a combined single occurrence limit of not less than Three Million Dollars ($3,000,000) or the appraised value of the Premises, whichever is greater. All such insurance will be equivalent to coverage offered by a commercial general liability form, including without limitation personal injury and contractual liability coverage for the performance by Tenant of the indemnity agreements set forth in this Lease; 2) Workers' compensation insurance satisfying Tenant's obligations and liabilities under the workers' compensation laws of the State of New York, including employer's liability insurance in the limits required by the laws of the State of New York; and 3) If Tenant operates owned, hired or non-owned vehicles on the project, comprehensive automobile liability at a limit of liability not less than Five Hundred Thousand Dollars ($500,000) combined bodily injury and property damage. A certificate of insurance, naming the Landlord as additional insured, will be delivered to the Landlord prior to the Tenant's occupancy of the Premises. All commercial general liability or comparable policies maintained by Tenant will name Landlord as additional insured. All commercial general liability and property policies maintained by Tenant will be written as primary policies, not contributing with and supplemental to the coverage that the Landlord may carry. 20. LIABILITY INSURANCE. Tenant shall carry public liability insurance in the amount of One Million Dollars ($1,000,000) per occurrence and Two Million Dollars ($2,000,000) aggregate covering the Premises and shall name Landlord as an additional insured therein and shall furnish to Landlord a certificate of said insurance. 21. WAIVER OF CLAIMS AND SUBROGATION. Landlord shall be exempt from, and the Tenant agrees to accept the risk of loss by fire or other casualty covered by insurance as to the contents, leasehold improvements or fixtures of the Building 2 ensuing by reason of fire or other casualty covered by insurance. Tenant shall be exempt from, and Landlord agrees to accept the risk of loss by fire or other casualty covered by insurance as to the building, equipment, fixtures and appurtenances of the Premises during the Term or any renewal thereof. Landlord and Tenant shall each cause each insurance policy carried by each respectively, insuring Building 2 or the Premises, its contents, Leasehold improvements or fixtures, to be written in a manner so as to provide that the insurance companies waive all right or recovery by way of subrogation against the other party in connection with any loss or damage covered by any such policies. -45- 22. NO WAIVER. The failure of Landlord or Tenant to insist upon a strict performance of any of the Terms, conditions and covenants herein, shall not be deemed a waiver of any rights or remedies that Landlord or Tenant may have, and shall not be deemed a waiver of any subsequent breach or default in the Terms, conditions and covenants herein contained. This instrument may not be changed, modified or discharged orally. 23. SUBORDINATION. This instrument shall not be a lien against the Premises in respect to any bank, insurance company or other lending institution mortgages that are now on or that hereafter may be placed against the Premises, and that the recording of such mortgage or mortgages shall have preference and precedence and be superior and prior in lien of this Lease, irrespective of the date of recording and Tenant agrees to execute any such instrument without cost, that may be reasonably necessary or desirable to further effect the subordination of this Lease to any such mortgage or mortgages, provided any such mortgagee shall first execute and deliver to Tenant a nondisturbance agreement in a form reasonably satisfactory to Tenant, by which the mortgagee agrees not to cut off this Lease in foreclosure. Tenant's refusal to execute such instrument shall entitle Landlord, or Landlord's assigns and legal representatives, to cancel this Lease without incurring any expense or damage and the Term hereby granted is expressly limited accordingly. 24. ESTOPPEL CERTIFICATE. Tenant shall from time to time, upon Landlord's reasonable request, deliver a written instrument ("Estoppel Certificate") to Landlord or to any other person or firm specified by Landlord, duly executed and acknowledged, certifying to the best of its knowledge, information or belief that this Lease is unmodified and in full force and effect or, if there has been any modification, that the Lease is in full force and effect as modified, and stating any and all such modifications; specifying the dates to which Lease Payments provided for herein have been paid, and whether there exists any default in the performance of any covenant agreement, term, provision or condition contained in this Lease. 25. QUIET ENJOYMENT. Tenant, upon payment of the rent, additional rent and other required charges, and the performance by Tenant under this Lease, shall have the peaceful and quiet enjoyment of Building 2 without hindrance or disturbance by Landlord or those claiming by, through or under Landlord, or any other person or entity whatsoever. 26. LATE CHARGES. A late charge of five (5) percent shall be assessed to any rental payment not made within fifteen (15) days of the due date and shall be considered additional rent. 27. NOTICES. Any notice given Tenant shall be in writing and sent by registered or certified mail to Tenant at: -46- Plug Power, L.L.C. 968 Albany-Shaker Road Latham, New York 12110 Tenant may change the address at which notices shall be given at any time by like notice to Landlord. Any notices to be given Landlord shall be given in writing and sent by certified mail to Landlord at: Mechanical Technology, Incorporated 968 Albany-Shaker Road Latham, New York 12110 Landlord may change the address at which notices shall be given any time by like notice to Tenant. 28. ATTACHMENTS TO LEASE. The covenants and agreements in the Lease, addendums, exhibits and attachments shall be binding upon the parties hereto and upon their respective successors, heirs, executors and administrators. 29. MISCELLANEOUS. Notwithstanding anything to the contrary contained in this Lease, any monies due Landlord under this Lease in addition to the rent shall be deemed to be additional rent. Any default on the payment of such additional rent shall give Landlord the same rights and remedies as are provided herein with respect to a default in the payment of rent. Tenant's obligations to pay rent and additional rent shall survive the expiration of the Term, or earlier termination of this Lease. The failure of Landlord or Tenant to insist upon a strict performance of any term, covenant or condition herein shall not be deemed a waiver of any rights or remedies that Landlord or Tenant may have or a waiver of any subsequent breach or default. If any provision of this Lease shall be unenforceable or invalid, such unenforceability or invalidity shall not affect any other provision of this Lease. -47- IN WITNESS WHEREOF, Landlord and Tenant respectively have signed and sealed this Lease as of the day and year first above written. MECHANICAL TECHNOLOGY, INCORPORATED By: ___________________________ Its: PLUG POWER, L.L.C. By: ___________________________ Name: Title: -48- STATE OF NEW YORK ) ) ss.: COUNTY OF ALBANY ) On this ____ day of _________________ in the year 1999 before me, the undersigned, a Notary Public in and for said State, personally appeared ___________________________ ____________________________________________, personally known to me or proved to me on the basis of satisfactory evidence to be the individual(s) whose name is (are) subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their capacity(ies), and that by his/her/their signature(s) on the instrument, the individual(s), or the person upon behalf of which the individual(s) acted, executed the instrument. ______________________________ NOTARY PUBLIC STATE OF NEW YORK ) ) ss.: COUNTY OF ALBANY ) On this ____ day of _________________ in the year 1999 before me, the undersigned, a Notary Public in and for said State, personally appeared ___________________________ ____________________________________________, personally known to me or proved to me on the basis of satisfactory evidence to be the individual(s) whose name is (are) subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their capacity(ies), and that by his/her/their signature(s) on the instrument, the individual(s), or the person upon behalf of which the individual(s) acted, executed the instrument. ______________________________ NOTARY PUBLIC EXHIBIT F Permitted Exceptions -------------------- The Permitted Exceptions are listed in Schedule B of the Commitment for Title Insurance, Exhibit "B" attached hereto. This Indenture Made the day of June Nineteen Hundred and Ninety-Nine Between MECHANICAL TECHNOLOGY INCORPORATED, a Corporation organized under the laws of the State of New York, located at 968 Albany-Shaker Road, Town of Colonie, County of Albany and State of New York, the party of the first part, and PLUG POWER, LLC, a Limited Liability Corporation organized under the laws of the State of Delaware, located at 968 Albany-Shaker Road, Town of Colonie, County of Albany and State of New York, the party of the second part. Witnesseth, that the party of the first part, in consideration of ONE and No/100 Dollar ($1.00) lawful money of the United States, and other good and valuable consideration paid by the party of the second part, does hereby grant and release unto the party of the second part, the successors and assigns of the party of the second part forever, ALL that certain tract, piece or parcel of land with the buildings thereon erected, situate, lying and being in the Town of Colonie, County of Albany, State of New York, bounded and described as follows: BEGINNING at a point in the westerly line of the Albany-Shaker Road (County Road No. 151) at a point of intersection of the division line between the herein described lands on the North and the lands now or formerly of Mechanical Technology, Inc. (Book 2214 Page 845) on the South, and running thence South 79 degrees 44' West 161.40 feet to a point; thence South 11 degrees 59' East 195.00 feet to a point; thence South 11 degrees 36' East 152.84 feet to a point in the northerly line of lands now or formerly of British American Development Corp. (Tax ID No. 18.00-1-17.1); thence North 86 degrees 15' West 1,023.97 feet to a point in the easterly line of lands now or formerly of Richard A. Willig and David L. Willig (Book 2364 Page 652); thence North 19 degrees 17' East 425.54 feet to a point; thence North 42 degrees North 11' West 739.06 feet to a point in the easterly line of lands now or formerly of Pepper Woods Inc. (Book 2448 Page 600); thence North 35 degrees 40' East 507.58 feet to a point in the southerly line of lands now or formerly of James Paul Faddegon & Patricia Ann Faddegon (Book 2331 Page 645); thence North 82 degrees 29' East 271.04 feet to a point; thence North 80 degrees 11' East 149.78 feet to a point; thence North 74 degrees 23' East 104.24 feet to a point in the southerly line of lands now or formerly of William Bebout & Helen Bebout (Book 2235 Page 1139); thence South 56 degrees 05' East 762.30 feet to a point in the westerly line of Albany Shaker Road (1990 Boundary); thence along the westerly line of Albany Shaker Road the following four courses; 1) South 20 degrees 58' West 29.21 feet, 2) South 03 degrees 07' West 70.98 feet, 3) South 02 degrees 14' West 92.82, 4) South 04 degrees 06' East 533.52 feet to the point and place of beginning; BEING AND INTENDED TO BE the same premises as were conveyed to the said Mechanical Technology Incorporated by deed from Industrial Park Development Corporation dated September ______, 1974 and recorded in the Albany County Clerk's Office on October 16, 1974 in Book 2089 of Deeds at Page 299. SUBJECT TO covenants and restrictions of record affecting the premises. TOGETHER with all right, title and interest, if any, of the party of the first part in and to any streets and roads abutting the above described premises to the center lines thereof; TOGETHER with the appurtenances and all the estate and rights of the party of the first part in and to said premises; TO HAVE AND TO HOLD the premises herein granted unto the party of the second part, the heirs or successors and assigns of the party of the second part forever. AND the party of the first part, in compliance with Section 13 of the Lien Law, covenants that the party of the first part will receive the consideration for this conveyance and will hold the right to receive such consideration as a trust fund to be applied first for the purpose of paying the cost of the improvement and will apply the same first to the payment of the cost of the improvement before using any part of the total of the same for any other purpose. AND the party of the first part covenants as follows: that said party of the first part is seized of the said premises in fee simple, and has good right to convey the same; that the party of the second part shall quietly enjoy the said premises; that the said premises are free from encumbrances, except as aforesaid; that the party of the first part will execute or procure any further necessary assurance of the title to said premises; and that said party of the first part will forever warrant the title to said premises. The word "party" shall be construed as if it read "parties" whenever the sense of this indenture so requires. IN WITNESS WHEREOF, the party of the first part has duly executed this deed the day and year first above written. Corporation: MECHANICAL TECHNOLOGY INCORPORATED By: __________________________________________ Cynthia A. Scheuer Title: Vice President and Chief Financial Officer Corporation: PLUG POWER, L.L.C By: ___________________________________ Gary Mittleman Title: Chief Executive Officer STATE OF NEW YORK COUNTY OF ALBANY On this ___ day of ____________, 1999, before me came CYNTHIA A. SCHEUER, to me personally known, who being duly sworn, did depose and say that she resides at Castleton in the County of Rensselaer and that she is the CHIEF FINANCIAL OFFICER of MECHANICAL TECHNOLOGY INCORPORATED, the corporation described in and which executed the above instrument, that she signed her name thereto by order of the Board of Directors of said Corporation. ___________________________________ Notary Public STATE OF NEW YORK COUNTY OF ALBANY On this ___ day of ____________, 1999, before me came GARY MITTLEMAN, to me personally known, who being duly sworn, did depose and say that he resides at __________ in the County of Albany and that he is the CHIEF EXECUTIVE OFFICER of PLUG POWER, L.L.C., the Limited Liability Company described in and which executed the above instrument, that he signed his name thereto by order of the Board of Directors of said Company. ___________________________________ Notary Public "EXHIBIT H" This Indenture Made the day of June Nineteen Hundred and Ninety-Nine Between MECHANICAL TECHNOLOGY INCORPORATED, a Corporation organized under the laws of the State of New York, located at 968 Albany-Shaker Road, Town of Colonie, County of Albany and State of New York, the party of the first part, and PLUG POWER, LLC, a Limited Liability Corporation organized under the laws of the State of Delaware, located at 968 Albany-Shaker Road, Town of Colonie, County of Albany and State of New York, the party of the second part. Witnesseth, that the party of the first part, in consideration of ONE and No/100 Dollar ($1.00) lawful money of the United States, and other good and valuable consideration paid by the party of the second part, does hereby grant and release unto the party of the second part, the successors and assigns of the party of the second part forever, ALL THAT TRACT PIECE OR PARCEL OF LAND, situate in the Town of Colonie, Albany County, New York, lying along the Westerly side of the Albany-Shaker Road, and further bounded and described as follows: BEGINNING at an iron pipe in the westerly line of the Albany-Shaker Road distant North 11 degrees 21' West, 95 feet from an iron pipe in the northeasterly corner of the lands now or formerly of Edward McNeil and runs thence along the westerly side of the Albany-Shaker Road, north 11 degrees 21' West, 100.0 feet to an elm tree; thence along the southerly line of lands now or formerly of Kate Male, south 80 degrees 22' West, 163.0 feet to an iron pipe, thence south 11 degrees 21' East, 100.0 feet to an iron pipe; thence through the lands now or formerly of Eugene LeMoine, north 80 degrees 22' East, 163.0 feet to the point or place of beginning and containing about 0.374 of an acre of land. The above bearings being as surveyed by C.T. Male Associates, Charles T. Male, Jr. L.S., June 7, 1956. SUBJECT TO covenants and restrictions of record affecting the premises. TOGETHER with all right, title and interest, if any, of the party of the first part in and to any streets and roads abutting the above described premises to the center lines thereof; TOGETHER with the appurtenances and all the estate and rights of the party of the first part in and to said premises; TO HAVE AND TO HOLD the premises herein granted unto the party of the second part, the heirs or successors and assigns of the party of the second part forever. AND the party of the first part, in compliance with Section 13 of the Lien Law, covenants that the party of the first part will receive the consideration for this conveyance and will hold the right to receive such consideration as a trust fund to be applied first for the purpose of paying the cost of the improvement and will apply the same first to the payment of the cost of the improvement before using any part of the total of the same for any other purpose. AND the party of the first part covenants as follows: that said party of the first part is seized of the said premises in fee simple, and has good right to convey the same; that the party of the second part shall quietly enjoy the said premises; that the said premises are free from encumbrances, except as aforesaid; that the party of the first part will execute or procure any further necessary assurance of the title to said premises; and that said party of the first part will forever warrant the title to said premises. The word "party" shall be construed as if it read "parties" whenever the sense of this indenture so requires. IN WITNESS WHEREOF, the party of the first part has duly executed this deed the day and year first above written. Corporation: MECHANICAL TECHNOLOGY INCORPORATED By: __________________________________ Cynthia A. Scheuer Title: Vice President and Chief Financial Officer Corporation: PLUG POWER, L.L.C By: __________________________________ Gary Mittleman Title: Chief Executive Officer STATE OF NEW YORK COUNTY OF ALBANY On this ____ day of ___________, 1999, before me came CYNTHIA A. SCHEUER, to me personally known, who being duly sworn, did depose and say that she resides at Castleton in the County of Rensselaer and that she is the CHIEF FINANCIAL OFFICER of MECHANICAL TECHNOLOGY INCORPORATED, the corporation described in and which executed the above instrument, that she signed her name thereto by order of the Board of Directors of said Corporation. ________________________ Notary Public STATE OF NEW YORK COUNTY OF ALBANY On this ____ day of __________, 1999, before me came GARY MITTLEMAN, to me personally known, who being duly sworn, did depose and say that he resides at ________ in the County of Albany and that he is the CHIEF EXECUTIVE OFFICER of PLUG POWER, L.L.C., the Limited Liability Company described in and which executed the above instrument, that he signed his name thereto by order of the Board of Directors of said Company. ________________________ Notary Public EX-10.23 24 ASSIGNMENT AND ASSUMPTION AGREEMENT (07/01/99) EXHIBIT 10.23 ASSIGNMENT AND ASSUMPTION AGREEMENT THIS ASSIGNMENT AND ASSUMPTION AGREEMENT dated as of July 1, 1999 is by and among TOWN OF COLONIE INDUSTRIAL DEVELOPMENT AGENCY, a public benefit corporation of the State of New York having an office at The Public Operations Center, 347 Old Niskayuna Road, Latham, New York, 12205 (the "Agency"), MECHANICAL TECHNOLOGY INCORPORATED, a business corporation organized and existing under the laws of the State of New York, having its principal place of business at 968 Albany-Shaker Road, Latham, New York 12110 ("MTI"), PLUG POWER, L.L.C., a limited liability company organized and existing under the laws of the State of Delaware, having its principal place of business located at 968 Albany- Shaker Road, Latham, New York 12110 ("Plug Power"), KEYBANK NATIONAL ASSOCIATION, a national banking association organized and existing under the laws of the United States having an office located at 66 South Pearl Street, Albany, New York, 12207 (the "Bank") and FIRST ALBANY CORPORATION, a business corporation organized and existing under the laws of the State of New York having an office at 30 South Pearl Street, Albany, New York 12207 (the "Underwriter"); WITNESSETH: WHEREAS, on December 17, 1998, the Agency issued its Industrial Development Revenue Bonds (Mechanical Technology Incorporated - Letter of Credit Secured), Series 1998A in the original aggregate principal amount of $6,000,000 (the "Bonds") to finance a portion of the Project (as hereinafter defined), which were issued under and secured by a trust indenture dated as of December 1, 1998 by and between the Agency and Manufacturers and Traders Trust Company, as trustee; and WHEREAS, the Project consisted of (A)(1) the acquisition of a leasehold interest in a parcel of land containing approximately 35.6 acres located at 968 Albany-Shaker Road in the Town of Colonie, Albany County, New York (the "Land"), together with the existing buildings located thereon which contained approximately 98,000 square feet in the aggregate (such buildings known individually as Building I, Building II and Building III and hereinafter collectively referred to as the "Existing Facility"), (2) the demolition of Building I which contained approximately 14,105 square feet of space, (3) the construction of a new building to replace Building I and which contains approximately 32,000 square feet of space (the "New Facility") (the Existing Facility and the New Facility hereinafter collectively referred to as the "Facility"), (4) the renovation of Building III and (5) the acquisition of and installation therein and thereon of certain machinery and equipment (the "Equipment") (the Land, the Facility and the Equipment being hereinafter collectively referred to as the "Project Facility"); all of the foregoing occupied by MTI and operated as a manufacturing facility, a portion of which was leased by MTI to Plug Power and operated as a facility for the manufacture, research and development of fuel cells for residential and automotive applications and related products and any other related activities; (B) the financing of all or a portion of the costs of the foregoing by the issuance of the Bonds; (C) the granting of certain other "financial assistance" (within the meaning of Section 854(14) of the Act) with respect to the foregoing, including exemption from certain sales taxes, deed transfer taxes, mortgage recording taxes and real property taxes; and (D) the sale of the Project Facility to MTI or such other person as may be designated by MTI and agreed upon by the Issuer; and WHEREAS, in connection with the issuance of the Bonds, the Agency and MTI executed and delivered an installment sale agreement dated as of December 1, 1998 (the "Installment Sale Agreement") pursuant to which the Agency agreed to sell the Project Facility to MTI and a payment in lieu of tax agreement dated as of December 1, 1998 (the "PILOT Agreement"); and WHEREAS, Ling Electronics, Inc. ("Ling") executed and delivered to the Agency a Guaranty dated December 16, 1998 (the "Ling Guaranty") pursuant to which Ling guaranteed to the Agency the payment and performance by MTI of all of MTI's covenants and obligations under the Installment Sale Agreement and the PILOT Agreement; and WHEREAS, as security for the Bonds, MTI entered into an irrevocable letter of credit reimbursement agreement dated as of December 1, 1998 (the "Reimbursement Agreement") with the Bank, pursuant to which the Bank has issued in favor of the Trustee an irrevocable transferable direct-pay letter of credit; and WHEREAS, in connection with the issuance of the Bonds, MTI also entered into a remarketing agreement with the Underwriter (the "Remarketing Agreement"); and WHEREAS, MTI has agreed to sell its interest in the Project Facility to Plug Power and to assign to Plug Power the Installment Sale Agreement, the PILOT Agreement and the Remarketing Agreement; and WHEREAS, Section 9.1 of the Installment Sale Agreement provides that MTI may not assign the Installment Sale Agreement without the prior written consent of the Agency and the Bank, which consent may not be unreasonably withheld; and WHEREAS, Section 9.4 of the Installment Sale Agreement provides that MTI may not sell the Project Facility without the prior written consent of the Agency and the Bank, which consent may not be unreasonably withheld; NOW, THEREFORE, for good and valuable consideration, the parties hereto hereby agree as follows: SECTION 1. ASSIGNMENT. MTI assigns to Plug Power, as of July 1, 1999 (the "Substitution Date"), all benefits under and all of MTI's right, title and interest in the Installment Sale -2- Agreement, the PILOT Agreement and the Remarketing Agreement on the terms and conditions set forth in the Agreement of Sale dated as of June 23, 1999. SECTION 2. ASSUMPTION. (A) Plug Power will pay, or cause to be paid, (1) all principal of the Bonds when and as the same shall become due, whether at the stated maturity thereof or by acceleration or call for prepayment or otherwise, and (2) all interest on the Bonds when and as the same shall become due. (B) Plug Power assumes and will pay, or cause to be paid, all payments or sums now or hereafter owing by MTI, and will perform and observe all covenants, agreements and other obligations to be performed or observed by MTI, under: (1) the Installment Sale Agreement (including, without limitation, Section 8.2 of the Installment Sale Agreement); (2) the PILOT Agreement; (3) the Reimbursement Agreement, as amended and restated by a Replacement Reimbursement Agreement dated as of the Substitution Date by and between Plug Power and the Bank; (4) the Remarketing Agreement; (5) the mortgage and security agreement dated as of December 1, 1998 from the Agency and MTI to the Bank; (6) the pledge and security agreement dated December 1, 1998 by and between MTI and the Bank; and (7) the lease to issuer dated as of December 1, 1998, between the Agency and MTI (all of the foregoing being hereinafter referred to as the "Bond Documents"). SECTION 3. REPRESENTATIONS AND COVENANTS OF PLUG POWER. Plug Power represents to and covenants with each of the parties to this Agreement as follows: (A) Plug Power is authorized transact business in the State of New York. (B) Plug Power will take no action that would cause the Project Facility to fail to continue to constitute a "project" under the Act (as defined under the Installment Sale Agreement). -3- SECTION 4. CONSENT AND RELEASE. (A) The Agency and the Bank: (1) consent to the assignment by MTI to Plug Power of the Installment Sale Agreement, the sale by MTI to Plug Power of MTI's interest in the Project Facility and the assumption by Plug Power of MTI's obligations under the Bond Documents; (2) release MTI, as of the Substitution Date, from all of its liabilities and obligations under the Bond Documents, except for those liabilities and obligations which accrued on or before the Substitution Date; and (3) release Ling from all of its obligations under the Ling Guaranty. (B) The Underwriter consents to the assignment by MTI to Plug Power of the Remarketing Agreement and releases MTI, as of the Substitution Date, from all of its obligations under the Remarketing Agreement. SECTION 5. MISCELLANEOUS. (A) This Assignment and Assumption Agreement shall be binding upon and inure to the benefit of the Agency, the Bank, the Underwriter, MTI, Plug Power, and their respective successors and assigns. (B) This Assignment and Assumption Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. (C) This Assignment and Assumption Agreement shall be governed by and construed in accordance with the law of the State of New York. -4- IN WITNESS WHEREOF, the parties have caused this Assignment and Assumption Agreement to be duly executed as the date first above written. TOWN OF COLONIE INDUSTRIAL DEVELOPMENT AGENCY BY: Peter J. Hess, Chairman MECHANICAL TECHNOLOGY INCORPORATED BY: Authorized Officer PLUG POWER, L.L.C. BY: Authorized Officer KEYBANK NATIONAL ASSOCIATION BY: Authorized Officer FIRST ALBANY CORPORATION BY: Authorized Officer -5- STATE OF NEW YORK ) ss.: COUNTY OF ALBANY ) On the _____ day of July, in the year 1999, before me, the undersigned, a notary public in and for said state, personally appeared Peter J. Hess, personally known to me or proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his capacity, and that by his signature on the instrument, the individual, or the person upon behalf of which the individual acted, executed the instrument. _____________________________________ Notary Public STATE OF NEW YORK ) ss.: COUNTY OF ALBANY ) On the _____ day of July, in the year 1999, before me, the undersigned, a notary public in and for said state, personally appeared ____________________________, personally known to me or proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his capacity, and that by his signature on the instrument, the individual, or the person upon behalf of which the individual acted, executed the instrument. _____________________________________ Notary Public STATE OF NEW YORK ) ss.: COUNTY OF ALBANY ) On the _____ day of July, in the year 1999, before me, the undersigned, a notary public in and for said state, personally appeared ____________________________, personally known to me or proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his capacity, and that by his signature on the instrument, the individual, or the person upon behalf of which the individual acted, executed the instrument. _____________________________________ Notary Public -6- STATE OF NEW YORK ) ss.: COUNTY OF ALBANY ) On the _____ day of July, in the year 1999, before me, the undersigned, a notary public in and for said state, personally appeared ____________________________, personally known to me or proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his capacity, and that by his signature on the instrument, the individual, or the person upon behalf of which the individual acted, executed the instrument. _____________________________________ Notary Public STATE OF NEW YORK ) ss.: COUNTY OF ALBANY ) On the _____ day of July, in the year 1999, before me, the undersigned, a notary public in and for said state, personally appeared ____________________________, personally known to me or proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his capacity, and that by his signature on the instrument, the individual, or the person upon behalf of which the individual acted, executed the instrument. _____________________________________ Notary Public -7- EX-10.24 25 REPLACEMENT REIMBURSEMENT AGREEMENT (07/01/99) EXHIBIT 10.24 REPLACEMENT REIMBURSEMENT AGREEMENT ----------------------- This REPLACEMENT REIMBURSEMENT AGREEMENT ("Agreement"), dated as of the 1st day of July, 1999, is by and among PLUG POWER, LLC, a Delaware limited liability company (the "Company") and KEYBANK NATIONAL ASSOCIATION, a national banking association (the "Bank"). WHEREAS, in order to provide financing for the construction of a building, renovation of a building and installation in the buildings of machinery and equipment and for the costs related thereto, Mechanical Technology Incorporated ("MTI") requested that the Town of Colonie Industrial Development Agency (the "Agency") issue its Taxable Industrial Development Revenue Bonds in the aggregate principal amount of Six Million Dollars ($6,000,000) (the "Bonds") under the terms and conditions more fully set forth in the Trust Indenture dated as of December 1, 1998 (the "Indenture"), by and between the Agency and Manufacturers And Traders Trust Company as Trustee (the "Trustee"); and WHEREAS, to enhance the marketability of the Bonds the Bank issued an Irrevocable Transferable Direct Pay Letter of Credit No. NSL892571 (the "Letter of Credit") at the request of MTI in favor of the Trustee in an aggregate amount of Six Million One Hundred Sixty Thousand Two Hundred Seventy Four and no/100ths Dollars ($6,160,274.00) to secure the payment of the principal of and accrued interest on the Bonds; and WHEREAS, the Company has agreed to assume the obligations of MTI under the Financing Documents (as that term is defined in the Indenture) pursuant to the terms of the Assignment and Assumption Agreement dated as of July 1, 1999 among the Company, MTI, the Bank, the Underwriter (as defined in the Indenture), Ling Electronics, Inc. and the Agency (the "Assumption Agreement"); and WHEREAS, it is the purpose of this Agreement to set forth the terms pursuant to which the Bank will allow the Company to assume the obligations of MTI to the Bank including MTI's agreement to reimburse the Bank for any and all payments made by the Bank pursuant to the Letter of Credit; and NOW THEREFORE, in consideration of the mutual agreements made herein and other good and valuable consideration, receipt of which is hereby acknowledged, the parties hereto agree as follows: SECTION ONE ----------- DEFINITIONS ----------- Section 1.1. Terms Defined. Unless otherwise defined herein, capitalized ------------- terms shall be defined as set forth in the Indenture. As used in this Agreement, the following terms have the following respective meanings. Any accounting term used but not specifically defined herein shall be construed in accordance with GAAP. The definition of each agreement, document, and instrument set forth in this Section 1.1 shall be deemed to mean and include such agreement, document, or instrument as amended, restated, or modified from time to time: "Agency" shall mean the Town of Colonie Industrial Development Agency, a ------ public benefit corporation of the State of New York. "Bank Obligation" shall mean an amount equal to the aggregate outstanding --------------- liability of the Bank from time to time under the Letter of Credit. "Bank" shall mean KeyBank National Association, its successors and assigns. ---- "Bank Documents" shall have the meaning set forth in the Indenture. -------------- "Bonds" shall mean the Six Million Dollars ($6,000,000) Town of Colonie ----- Industrial Development Agency Taxable Industrial Development Revenue Bonds (Mechanical Technology Incorporated Project - Letter Of Credit Secured) Series 1998A, issued by the Agency pursuant to the Indenture. "Building Loan Agreement" shall mean the building loan agreement among the ----------------------- Agency, MTI and the Bank dated as of December 1, 1998 as the same may be modified on or about the date hereof. "Business Day" shall mean any day of the year other than (i) a Saturday or ------------ Sunday, (ii) any day on which banks located in either Albany, New York, or the principal corporate trust office of the Trustee is located are required or authorized by law to remain closed, or (iii) any day on which the New York Stock Exchange is closed. "Closing Date" shall mean such date agreed upon by the Company and the ------------ Bank. "Company" shall mean, Plug Power, LLC, a Delaware limited liability ------- company. "Completion Date" shall mean April 30, 1999. --------------- "Contract Assignment" shall mean the Assignment Of Contract Rights, dated ------------------- as of December 1, 1998 given by MTI to the Bank. "Coverage Percentage" shall mean the percentage obtained at any time by ------------------- dividing the maximum amount that can be drawn under the Letter of Credit by the Market Value of the Securities Collateral (as determined in accordance with the Securities Collateral Pledge And Security Agreement). "Date of Issuance" shall mean the date of issuance of the Letter of Credit. ---------------- "Default Rate" shall mean an interest rate per annum equal to four percent ------------ (4%) in excess of the Prime Rate, with each change in the Prime Rate automatically changing the Default Rate. "Drawing" shall mean any drawing under the Letter of Credit. ------- "Environmental Law" shall mean any federal, state, or local statute, law, ----------------- ordinance, code, rule, regulation, order or decree regulating, relating to, or imposing liability upon a Person in connection with the use, release or disposal of any hazardous, toxic or dangerous substance, waste 2 or material. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as ----- the same may from time to time be amended or supplemented, and all regulations thereunder. "Event of Default" shall have the meaning assigned thereto in Section Six ---------------- hereof. "Expiration Date" shall mean April 30, 1999. --------------- "Financing Documents" shall have the meaning set forth in the Indenture. ------------------- "Fiscal Quarter" shall mean a fiscal quarter of a Fiscal Year. --------------- "Fiscal Year" shall mean the fiscal year of the Company and its ----------- Subsidiaries, which period shall be the 12-month period ending on December 31 of each year. References to a Fiscal Year with a number corresponding to any calendar year (e.g., "Fiscal Year 1998") refer to the Fiscal Year ending on December 31 of such calendar year. "GAAP" shall mean generally accepted accounting principles set forth from ---- time to time in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board (or agencies with similar functions of comparable stature and authority within the U.S. accounting profession), which are applicable to the circumstances as of the date of determination. "General Contract" shall mean the construction contract with respect to the ---------------- Project being constructed on the Premises, between MTI and the general contractor for such construction. "Indenture" shall mean the Trust Indenture, dated as of December 1, 1998 --------- between the Agency and the Trustee. "Indenture Default" shall mean an Event of Default under and pursuant to ----------------- the Indenture. "Interest Commitment" shall have the meaning set forth in the Letter of ------------------- Credit. "Interest Payment Date" shall have the meaning set forth in the Indenture. --------------------- "Interest Payment Rate" shall mean the Prime Rate plus two (2%) percent. --------------------- "Letter of Credit" shall mean the Irrevocable Transferable Direct Pay ---------------- Letter of Credit No. NSL892571 issued by the Bank on December 16, 1998. "Letter of Credit Commitment" shall have the meaning set forth in the --------------------------- Letter of Credit. "Letter of Credit Fee" shall have the meaning set forth in Section 2.2(b) -------------------- of this Agreement. "Lien" shall mean, with respect to any Person, any interest granted by such ----- Person in any real or personal property, asset or other right owned or being purchased or acquired by such Person which secures payment or performance of any obligation and shall include any mortgage, lien, encumbrance, charge or other security interest of any kind, whether arising by contract, as a matter 3 of law, by judicial process or otherwise. "Material Adverse Effect" shall mean (a) a material adverse change in, or a ------------------------- material adverse effect upon, the financial condition, operations, assets, business, properties or prospects of either the Company or its Subsidiaries taken as a whole, or (b) a material adverse effect upon any substantial portion of the collateral under the Bank Documents or upon the legality, validity, binding effect or enforceability against the Company of any Bank Document. "Mortgage" shall mean the Mortgage and Security Agreement creating a good -------- and valid first mortgage lien on the Mortgaged Property as that term is defined therein, given by the Agency and MTI to the Bank, dated as of November 1, 1998 and recorded in the Albany County Clerk's office on December 18, 1998 in Liber 3666 at Page 137. "Organizational Documents" shall mean with respect to a corporation, its ------------------------ certificate of incorporation and bylaws, with respect to a limited liability company, its articles of organization and operating agreement, with respect to a partnership, its partnership agreement, with respect to other entities such documents as create and continue the existence of the entity and specify the manner in which its affairs are governed. "PBGC" shall mean the Pension Benefit Guaranty Corporation established ---- pursuant to Title IV of ERISA. "Permitted Encumbrances" shall have the meaning set forth in the Indenture. ---------------------- "Person" means any natural person, corporation (which shall be deemed to ------ include business trust), association, partnership, political entity, or political subdivision thereof. "Plan" shall mean any plan defined in Section 4021(a) of ERISA in respect ---- of which Company is an "employer" or a "substantial employer" as defined in Section 3(5) and 4001(a)(2) of ERISA, respectively. "Plans and Specification" shall mean the detailed plans and specifications ----------------------- for the Project prepared by the architect for the Project and approved by the Bank. "Pledge And Security Agreement" shall mean the Pledge And Security ----------------------------- Agreement, dated as of December 1, 1998 among MTI, the Bank, and the Trustee. "Pledged Collateral" shall mean the collateral in which: (i) MTI has given ------------------ the Bank a mortgage lien pursuant to the Mortgage or a security interest pursuant to the Security Agreement and/or the Pledge And Security Agreement and (ii) the Company has given the Bank a security interest pursuant to the Securities Collateral Pledge And Security Agreement. "Premises" shall mean that certain premises owned by the Agency and located -------- at 968 Albany-Shaker Road, Town of Colonie, Albany County, New York as more fully described in the Mortgage. "Prime Rate" shall mean that interest rate established from time to time by ---------- the Bank as the Bank's Prime Rate, whether or not such rate is publicly announced. The Prime Rate may not be the lowest rate charged by the Bank for commercial or other extensions of credit. 4 "Principal Commitment" shall have the meaning set forth in the Letter of -------------------- Credit. "Prohibited Transaction" shall mean any prohibited transaction as that term ---------------------- is defined for purposes of ERISA. "Project" shall mean the building to be constructed on the Premises. ------- "Purchaser" shall mean the original purchaser or purchasers of the Bonds. --------- "Remarketing Agent" shall mean, initially, First Albany Corporation. ----------------- "Remarketing Drawing" shall have the meaning set forth in the Letter of ------------------- Credit. "Reportable Event" shall mean any reportable event as that term is defined ---------------- in ERISA. "Security Agreement" shall mean the Security Agreement, dated as of ------------------ December 1, 1998, given by the Agency and MTI to the Bank. "Securities Collateral" shall mean marketable securities pledged by the --------------------- Company to the Bank as security for the obligations of the Company hereunder. "Securities Collateral Pledge And Security Agreement" shall mean the --------------------------------------------------- Securities Collateral Pledge And Security Agreement dated as of June 1, 1999 between the Company and the Bank. "Subsidiary" shall mean with respect to any Person, a corporation of which ---------- such Person and/or its other Subsidiaries own, directly or indirectly, an interest of at least 25% (whether by share holding, partnership interests or otherwise). "Tender Agent" shall mean the Trustee or any successor Trustee under the ------------ Indenture. "Title Company" shall mean Chicago Title Insurance Company. ------------- "Title Policy" shall mean the ALTA Loan Policy issued by the Title Company ------------ with respect to the Premises on or about December 16, 1998, endorsed by the Title Company to reflect the Company's ownership of the Premises and assumption of obligations under the Financing Documents. "Trustee" means Manufacturers And Traders Trust Company, or any successor ------- Trustee under the Indenture. "Unmatured Event of Default" means any event that, if it continues uncured, ---------------------------- will, with lapse of time or notice or both, constitute an Event of Default. 5 SECTION TWO ----------- ISSUANCE OF LETTER OF CREDIT ---------------------------- Section 2.1. Issuance of Letter of Credit. The Bank delivered the Letter of ---------------------------- Credit to the Trustee on December 16, 1998 for the benefit of MTI. Upon assumption by the Company of the obligations of MTI under the Installment Sale Agreement and the other Financing Documents, the Letter Of Credit shall be considered to have been issued for the benefit of the Company. The obligations of the Bank under the Letter of Credit shall be absolute and irrevocable and shall be performed strictly in accordance with the terms of the Letter of Credit and this Agreement. Section 2.2. Fees and Reimbursement for Letter of Credit ------------------------------------------- (a) The Company hereby agrees to pay the following to the Bank: (i) Before 2:00 p.m., Albany, New York time, on each date that any Drawing under the Letter of Credit pursuant to Section 408 of the Indenture is made, the Company shall pay a sum equal to the amount of the drawing under the Letter of Credit, plus (x) interest accrued, if any, on the amount so drawn under the Letter of Credit as determined pursuant to clause (iii) of this subsection (a) of this Section 2.2, plus (y) any and all charges and expenses which the Bank may pay or incur relative to such Drawing under the Letter of Credit, plus (z) a fee in the amount of Two Hundred Dollars ($200) for that Drawing under the Letter of Credit. (ii) Upon each transfer of the Letter of Credit in accordance with its terms and as a condition thereto, the Company shall pay $500 to cover the costs and expenses to the Bank incurred in connection with such transfer. (iii) The Company shall pay interest at the Interest Rate, payable on demand on any and all amounts of any not paid by the Company when due under any section of this Agreement from the date such amounts become due until payment in full. (iv) For any payment of principal and/or interest not paid within ten (10) days when due, the Company shall pay a late charge of an amount equal to the greater of fifty dollars ($50) or four percent (4%) of the amount of the payment. (v) The Company shall pay on demand, reasonable costs, fees and expenses incurred by the Bank in connection with the issuance of the Letter of Credit and the preparation or execution of any documents or opinions related thereto. (vi) The Company shall pay on demand, any and all reasonable expenses incurred by the Bank in enforcing any of its rights under the Bank Documents. 6 (b) The Company hereby also agrees to pay to the Bank: (i) A commitment fee (the "Commitment Fee") of $15,000.00, $7,500.00 payable on the date of execution of this Agreement and the balance payable on or before December 31, 1999; and (ii) A commission (the "Letter of Credit Fee") equal to an amount calculated by multiplying the "Applicable Percentage" set forth below times the maximum amount available to be drawn under the Letter Of Credit at the time of calculation. The Letter of Credit Fee shall be payable annually on the date of execution of this Agreement and thereafter on each anniversary of the Date of Issuance until the Expiration Date of the Letter of Credit. The Applicable Percentage shall be determined in accordance with the following table:
Coverage Percentage Applicable Percentage Category - -------------------------------- ---------------------------- -------- Less than or equal to 80% forty (40) basis points 1 Greater than 80% but less fifty-five (55) basis points 2 than or equal to 90% Greater than 90% seventy (70) basis points 3
(iii) If the Company has paid a Letter Of Credit Fee based on a Coverage Percentage calculation at the time of said payment and the Coverage Percentage subsequently changes, the following shall apply: (1) If the Coverage Percentage improves (i.e. moves from a higher percentage category to a lower percentage category), there shall be no adjustment in the amount of the Letter Of Credit Fee. (2) If the Coverage Percentage moves from a lower percentage to a higher percentage, the Company shall have ten (10) days to add Securities Collateral to restore the Coverage Percentage to its prior level, provided, however, if the Company does not restore the Coverage Percentage to its prior level, the Company shall pay an additional fee of $750.00 per month if the change in Coverage Percentage from that on which the Letter Of Credit Fee paid was based is a single category change and $1,500.00 per month if the Coverage Percentage change is a double category change. (3) Any additional fee payable pursuant to (2) above shall be payable for each month or fraction thereof that the Coverage Percentage change remains in effect. (iv) If the Letter of Credit is terminated prior to the Expiration Date, the most recently paid Letter of Credit Fee shall be refunded to the Company on the 7 following basis: Termination Date Percentage of Letter of Credit Fee ---------------- ---------------------------------- to be Refunded -------------- Within 3 months after sixty (60%) percent most recent anniversary of Date of Issuance From the first day of the 4/th/ thirty (30%) percent month following the most recent anniversary of the Date of Issuance through and including the 5/th/ month after the most recent anniversary of the Date of Issuance From the first day of the 6/th/ fifteen (15%) percent month following the most recent anniversary of the Date of Issuance through and including the 8/th/ month after the most recent anniversary of the Date of Issuance In the 9/th/ month or later No refund (c) If any change in any law or regulation or in the interpretation thereof by any court or administrative or governmental authority charged with the administration thereof shall impose, modify or deem applicable any reserve, special deposit or similar requirement which would increase or decrease the Bank's costs (i) generally upon the issuance or maintenance of letters of credit by the Bank, (ii) specifically in respect of this Agreement or the Letter of Credit, or (iii) in respect of any capital adequacy requirement (including, without limitation, a requirement which affects the manner in which the Bank allocates capital resources to its commitments), and the result of such an increase or decrease in costs as described in clause (i), (ii), or (iii) above shall be to increase or decrease the costs to the Bank of issuing or maintaining the Letter of Credit (which increase or decrease in costs shall be the result of the Bank's reasonable allocation, of the aggregate of such cost increases or decreases resulting from such events), then, (x) within thirty (30) days of the Bank's obtaining knowledge of such change in law, regulations or interpretation thereof, the Bank shall so notify the Company and (y) upon receipt of such notice from the Bank, accompanied by a certificate as to such increased or decreased cost, the Company shall pay or receive a refund as of the effective date of such change or interpretation all additional amounts which are necessary to compensate the Bank or the Company for such increased or decreased cost incurred by the Bank. 8 (d) The Company's obligations to make payments to the Bank under this Section 2.2 shall be deemed satisfied to the extent of payments made by the Trustee to the Bank from funds on deposit with and held by the Trustee pursuant to the Indenture. Section 2.3. Company's Obligations Unconditional. The payment obligations ----------------------------------- of the Company under this Agreement shall be absolute, unconditional and irrevocable and shall be satisfied strictly in accordance with the terms of this Agreement, under all circumstances whatsoever, including, without limitation, the following circumstances: (a) Any lack of validity or enforceability of the Bank Documents, the Financing Documents or any other agreement or instrument relating thereto; (b) Any amendment or waiver of or any consent to departure from the terms of the Letter of Credit, the Bank Documents, the Financing Documents or any other agreement or instrument relating thereto; (c) The existence of any claim, setoff, defense or right which the Company may have at any time against any beneficiary or any transferee of the Letter of Credit (or any persons or entities for whom any such beneficiary or any such transferee may be acting), the Bank, or any other person or entity, whether in connection with this Agreement, the transactions contemplated by the Bank Documents, the Financing Documents, or any unrelated transaction; (d) Any statement or any other document presented under the Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect whatsoever; or (e) Payment by the Bank under the Letter of Credit against presentation of a request which on its face appears to be in accordance with the terms of the Letter of Credit. Section 2.4. Payments. The payments and amounts due the Bank under -------- Section 2.2 above shall be made at 66 South Pearl Street or by the Bank's debiting the Company's operating account with the Bank presently identified as Account No. 325490037141 (the "Operating Account"). The Company covenants and agrees that on the date any payment or other amount is due under Section 2.2 above, the Company will have unrestricted funds in the Operating Account in an amount no less than the amount then due. Section 2.5 Extension of Expiration Date. The Expiration Date ---------------------------- automatically will be extended for one year periods to successive anniversaries of the Expiration Date unless not fewer than ninety (90) days prior to the currently operative Expiration Date, the Bank notifies the Company, the Agency and the Trustee that the Bank will not extend the Expiration Date. 9 SECTION THREE ------------- REPRESENTATIONS AND WARRANTIES ------------------------------ The Company expressly represents and warrants that: Section 3.1. Existence and Legal Authority. The Company is a limited ----------------------------- liability company, duly formed, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to own its property and to carry on its business as now being conducted, to enter into the Bank Documents to which it is a party and the other agreements referred to herein and transactions contemplated thereby, and to carry out the provisions and conditions of such Bank Documents to which it is a party. The Company is duly qualified to do business and is in good standing in every jurisdiction where the failure to so qualify would have a material adverse effect on its business. Section 3.2. Due Execution and Delivery. The Company has full power, -------------------------- authority and legal right to incur the obligations provided for in, and to execute and deliver and to perform and observe the terms and provisions of, the Bank Documents to which it is a party, and each of the Bank Documents to which it is a party has been duly executed and delivered by it and authorized, by all required corporate action, and the Company has obtained all requisite consents to the transactions contemplated thereby under any instrument to which it is a party, and the Bank Documents to which it is a party constitute its legal, valid and binding obligations enforceable against it in accordance with their respective terms, except as the enforceability thereof may be limited by applicable bankruptcy, insolvency or other similar laws affecting creditors' rights generally. Section 3.3. No Breach of Other Instruments. Neither the execution and ------------------------------ delivery of the Bank Documents to which the Company is a party, nor the compliance by the Company with the terms and conditions of the Bank Documents to which it is a party, nor the consummation of the transactions contemplated thereby, will conflict with or result in a breach of its Organizational Documents, or any of the terms, conditions or provisions of any agreement or instrument or any charter or other organizational restriction or law, regulation, rule or order of any governmental body or agency to which the Company is now a party or is subject, or imposition of a lien, charge or encumbrance of any nature whatsoever upon any of the property or assets of the Company pursuant to the terms of any such agreement or instrument. Section 3.4. Government Authorization. No consent, approval, authorization ------------------------ or order of any court or governmental agency or body not heretofore obtained is required for the consummation by the Company of the transactions contemplated by the Bank Documents other than any state or federal securities or "blue sky laws". Section 3.5. Pledged Collateral. The Company has good fee simple title to ------------------ the Premises, free and clear of all liens, pledges, security interests, charges, claims and other encumbrances, except the Permitted Encumbrances. Upon proper recording and/or filing with the appropriate authorities, the Mortgage, the Security Agreement and any financing statements executed in conjunction with the Security Agreement, the Securities Collateral Pledge And Security Agreement and the Pledge And Security Agreement create valid and prior perfected security interests and liens in favor of the Bank, subject to no other liens or encumbrances arising by, through or under the 10 Company or any other Person, except for Permitted Encumbrances or as otherwise provided in the Financing Documents. Section 3.6. Absence of Defaults, etc. The Company is not (i) in material ------------------------ default under any indenture or contract or agreement to which it is a party or by which it is bound, (ii) in violation of its Organizational Documents, (iii) in default with respect to any order, writ, injunction or decree of any court, or (iv) in default under any order or license of any federal or state governmental department, which default or violation in any of the aforesaid cases materially and adversely affects its business or property. There exists no condition, event or act which constitutes, or after notice or lapse of time or both would constitute, an Event of Default. Section 3.7. Indebtedness of Company. The Company does not have ----------------------- outstanding on the date hereof, any Indebtedness for borrowed money, except for such Indebtedness reflected on the financial statements referred to in Section 3.8 hereof. Section 3.8. Financial Condition. The Company has furnished to the Bank ------------------- true and correct financial statements audited by a certified public accountant as of its December 31, 1998 year end which financial statements present fairly its financial condition at such date, and there has been no material adverse change in its financial condition since that date. Section 3.9. No Adverse Change. Subsequent to the date of the financial ----------------- statements referred to in Section 3.8 hereof, except as disclosed in interim statements previously submitted to the Bank, the Company has not incurred any liabilities or obligations, direct or contingent, not in the ordinary course of business and there has not been any increase in the aggregate amount of its Indebtedness, or any change in its business, properties or condition, financial or otherwise, except for changes arising in the ordinary course of business or in connection with the issuance and sale of the Bonds or as may be otherwise disclosed in writing to the Bank prior to the date hereof. Section 3.10. Taxes. The Company has filed all tax returns which are to ----- be filed and has paid, or has made adequate provision for the payment of, all taxes which have or may become due pursuant to said returns or to assessments received by it. The provisions for taxes reflected in the most recent balance sheet included in the financial statements referred to in Section 3.8 are believed adequate to cover any and all accrued and unpaid taxes for which the Company is liable for the period ended on the date of such balance sheet and all prior periods. The Company knows of no deficiency assessment or proposed deficiency assessment of taxes against it, except as may be otherwise disclosed in writing to the Bank prior to the date hereof. Section 3.11. Litigation. Except as set forth on Schedule 3.11 attached ---------- hereto, there are no actions, suits or proceedings pending, or to the knowledge of the Company, threatened against or affecting the Company property in any court, or before or by any federal, state or municipal or other governmental department, commission, board, bureau, agency or other instrumentality, domestic or foreign, which could result in any adverse change in the business, property or assets, or in the condition, financial or otherwise, except for actions, suits or proceedings of a character normally incident to the kind of business conducted by it, none of which, either individually or in the aggregate, if adversely determined, would materially impair the right or ability of it to carry on its business substantially as now conducted or materially adversely affect its financial position or operations. 11 Section 3.12. Ownership of Property. Except for Permitted Encumbrances or --------------------- as otherwise permitted in any of the Bank Documents to each of which the Company is a party, the Company has good and marketable fee title to, or valid leasehold interests in, its real properties in accordance with the laws of the jurisdiction where located, respectively, and good and marketable title to substantially all its other property and assets , subject, however, in the case of real property, to title defects and restrictions which do not materially interfere with its operations conducted thereon. Except for Permitted Encumbrances, the real property and all other property and assets of the Company are free from any liens or encumbrance securing Indebtedness and from any other liens, encumbrances, charges or security interests of any kind. Each lease, if any, to which the Company is a party is in full force and effect, and no material default on its part or, to its knowledge, any other party thereto exists. Section 3.13. Environmental Matters. The Company is in compliance with all --------------------- Environmental Laws and all applicable federal, state and local health and safety laws, regulations, ordinances or rules, except to the extent that any non- compliance will not, in the aggregate, have a materially adverse effect on it or its ability to fulfill its obligations under this Agreement or any of the other Bank Documents to which it is a party. SECTION FOUR ------------ COVENANTS --------- The Company covenants and agrees that, from the date of this Agreement and until the obligations of the Company to the Bank hereunder are satisfied in full, it will comply with the following provisions: Section 4.1. Accounting; Financial Statements and Other Information. The ------------------------------------------------------ Company will maintain, and will cause each Subsidiary to maintain, a standard system of accounting, established and administered in accordance with GAAP consistently followed through out the periods involved, and will set aside on its books, for each fiscal year, the proper amounts for depreciation, obsolescence, amortization, bad debts, current and deferred taxes, and other purposes as shall be required by GAAP. The Company, unless the Bank shall otherwise consent in writing, will deliver to the Bank or cause to be delivered to the Bank: (a) Audit Report. Promptly when available and in any event within 120 ------------ days after the close of each Fiscal Year: (i) a copy of the annual audit report of the Company and its Subsidiaries for such Fiscal Year, including therein consolidated balance sheets of the Company and its Subsidiaries as of the end of such Fiscal Year and consolidated statements of earnings and cash flow of the Company and its Subsidiaries for such Fiscal Year in the form of the 10-K submitted by the Company to the SEC, certified without qualification by independent auditors of recognized standing selected by the Company and reasonably acceptable to the Bank and (ii) consolidating balance sheets of the Company and its Subsidiaries as of the end of such Fiscal Year and a consolidating statement of earnings for the Company and its Subsidiaries for such Fiscal Year, certified by the Chief Executive Officer, the Chief Financial Officer or any Vice President of the Company. (b) Quarterly Reports. Promptly when available and in any event within 60 ----------------- days after the end of each Fiscal Quarter (except the last Fiscal Quarter) of each Fiscal Year, internally prepared consolidated and consolidating balance sheets of the Company and its Subsidiaries as of 12 the end of such Fiscal Quarter together with consolidated and consolidating statements of earnings and a consolidated and consolidating statement of cash flows for such Fiscal Quarter and for the period beginning with the first day of such Fiscal Year and ending on the last day of such Fiscal Quarter, certified by the Chief Executive Officer, the Chief Financial Officer or any Vice President of the Company. (c) Compliance Certificates. Contemporaneously with the furnishing of a ----------------------- copy of each set of quarterly statements pursuant to subparagraph (c), a duly completed compliance certificate in form acceptable to the Bank, dated the date of such quarterly statements and signed by the Chief Executive Officer, the Chief Financial Officer or any Vice President of the Company, containing a statement to the effect that such officer has not become aware of any Event of Default or Unmatured Event of Default that has occurred and is continuing or, if there is any such event, describing it and the steps, if any, being taken to cure it. (d) Reports to SEC and to Shareholders. Promptly upon the filing or ---------------------------------- sending thereof, copies of all regular, periodic or special reports of the Company or any Subsidiary filed with the SEC; and copies of all registration statements of the Company or any Subsidiary filed with the SEC; and copies of all proxy statements or other communications made to security holders generally concerning adverse material developments in the business of the Company or any Subsidiary. (e) Notice of Default, Litigation and ERISA Matters. Promptly upon ----------------------------------------------- becoming aware of any of the following, written notice describing the same and the steps being taken by the Borrower or the Subsidiary affected thereby with respect thereto: (i) the occurrence of an Event of Default or an Unmatured Event of Default; (ii) any litigation, arbitration or governmental investigation or proceeding not previously disclosed by the Company to the Bank which has been instituted or, to the knowledge of the Company, is threatened against either the Borrower or any Subsidiary or to which any of the properties of any thereof is subject which, if adversely determined, might reasonably be expected to have a Material Adverse Effect; (iii) the institution of any steps by any member of a "controlled group"or any other Person to terminate any Pension Plan, or the failure of any member of the controlled group to make a required contribution to any Pension Plan (if such failure is sufficient to give rise to a lien under Section 302(f) of ERISA) or to any Multiemployer Pension Plan, or the taking of any action with respect to a Pension Plan which could result in the requirement that the Company furnish a bond or other security to the PBGC or such Pension Plan, or the occurrence of any event with respect to any Pension Plan or Multiemployer Pension Plan which could result in the incurrence by any member of the controlled group of any material liability, fine or penalty (including any claim or demand for withdrawal liability or partial withdrawal from any Multiemployer Pension Plan), or any material increase in the contingent liability of the Company with respect to any post-retirement Welfare Plan benefit, or any notice that any Multiemployer Pension Plan is in reorganization, that increased contributions may be required to avoid a reduction in plan benefits or the 13 imposition of an excise tax, that any such plan is or has been funded at a rate less than that required under Section 412 of the Code, that any such plan is or may be terminated, or that any such plan is or may become insolvent; (iv) any cancellation or material change in any insurance maintained by the Company or any Subsidiary; (v) any event (including (i) any violation of any Environmental Law or the assertion of any Environmental Claim or (ii) the enactment or effectiveness of any law, rule or regulation) which might reasonably be expected to have a Material Adverse Effect; or (vi) any setoff, claims, withholdings or other defenses to which any of the Pledged Collateral, or the Bank's, rights with respect to the Pledged Collateral, are subject. (f) Subsidiaries. Promptly upon any change in the list of its ------------ Subsidiaries, a written report of such change. (g) Management Reports. Promptly upon the request of the Bank, copies of ------------------ all detailed financial and management reports submitted to the Company by independent auditors in connection with each annual or interim audit made by such auditors of the books of the Company. (h) Budgets. As soon as practicable and in any event within 60 days after ------- the commencement of each Fiscal Year, divisional and consolidated budgets for the Company and its Subsidiaries for such Fiscal Year prepared in a manner reasonably satisfactory to the Bank. (i) Securities Collateral Information. At such times as the Bank may --------------------------------- request and no less frequently than monthly, reports in such form and detail as the Bank may require showing the composition and market value of the Securities Collateral. (j) Other Information. From time to time such other information ----------------- concerning the Company and its Subsidiaries as the Bank may reasonably request. Section 4.2. Insurance and Maintenance of Properties and Business. The ---------------------------------------------------- Company shall, and shall cause each of its Subsidiaries to, maintain insurance in responsible companies in such amounts and against such risks as is satisfactory to the Bank, and, in the case of all policies insuring property in which Bank shall have a lien or security interest of any kind, all such policies shall provide that the proceeds thereof shall be payable to it and Bank, as their respective interests may appear. All said policies or certificates thereof, including the endorsements, shall be deposited with the Bank; and such policies shall contain provisions that no such insurance may be canceled or decreased without thirty (30) days prior written notice to the Bank. In the event of acquisition by the Company of additional insurable Pledged Collateral, it shall cause such insurance coverage to be increased or amended in such manner and to such extent as prudent business judgment would dictate. If the Company shall at any time or times hereafter fail to obtain and/or maintain any of the policies of insurance required herein, or fail to pay any premium in whole or in part relating to such policies, Bank may, but shall not be obligated to, obtain and/or cause to be maintained insurance coverage with respect to the Pledged Collateral, including, at Bank's option, the coverage provided by all or any of the policies of the Company, and pay all or any part of the premium therefor, 14 without waiving any default by Company; any sums disbursed by Bank shall be additional loans to Company by Bank payable on demand. Bank shall have the right to settle and compromise any and all claims under any of the policies required to be maintained by Company hereunder and the Company hereby appoints Bank as its attorney-in-fact, with power to demand, receive, and receipt for all monies payable thereunder, to execute in its name or the name of the Bank or both any proof of loss, notice, draft, or other instruments in connection with such policies or any loss thereunder and generally to do and perform any and all acts as Company, but for this appointment, might or could perform. The Company will, upon request, furnish to the Bank a schedule of all insurance carried by it, setting forth in detail the amount and type of such insurance. The Company will maintain, in good repair, working order and condition, all properties used or useful in its the business. Section 4.3. Payment of Indebtedness and Taxes. The Company will pay (a) --------------------------------- all of its Indebtedness (not required to be subordinated hereunder) and other obligations in accordance with normal terms or any applicable grace periods and (b) all taxes, assessments, and other governmental charges levied upon any of its respective properties or assets or in respect of its respective franchises, business, income, or profits before the same become delinquent, except that no such Indebtedness, obligations, taxes, assessments, or other charges need be paid if contested by the Company in good faith and by appropriate proceedings promptly initiated and diligently conducted and if appropriate provision, if any, as shall be required by GAAP, shall have been made therefor. Section 4.4. Litigation; Adverse Changes. The Company will promptly notify --------------------------- the Bank in writing of (a) any event which, if existing at the date hereof, would require a material qualification of the representations and warranties set forth in Section 3.6 and (b) any material adverse change in the condition, business, or prospects, financial or otherwise, of the Company. Section 4.5. Notice of Default. The Company will promptly notify the Bank ----------------- of (a) any Event of Default or event which with the passage of time or service of notice or both would constitute an Event of Default hereunder and (b) any demands made upon the Company by any Person for the acceleration and immediate payment of any material Indebtedness owed to such Person. Section 4.6. Inspection. The Company will make available for inspection by ---------- duly authorized representatives of the Bank, its books, records, and properties, and will furnish the Bank such information regarding its respective business affairs and financial condition within a reasonable time after written request therefor. Section 4.7. Environmental Matters. The Company: --------------------- (a) Shall comply in all material respects with all Environmental Laws. (b) Shall deliver promptly to the Bank (i) copies of any documents received from the United States Environmental Protection Agency or any state, county or municipal environmental or health agency, and (ii) copies of any documents submitted by the Company to the United States Environmental Protection Agency or any state, county or municipal environmental or health agency concerning its operations. 15 (c) Shall indemnify and hold Bank harmless from all liability or loss arising out of the application of any Environmental Law to the Bank or to any collateral (including without limitation the Premises) for any loan to the Company, including, without limitation, any Environmental Law creating a lien upon property or imposing any liability upon Bank for any clean up costs; provided, however, that this indemnity shall not apply to liability arising out of willful violation of Environmental laws by the Bank. Section 4.8. Payments Under Installment Sale Agreement. The Company shall ----------------------------------------- make the payments required pursuant to Section 5.3 of the Installment Sale Agreement. Section 4.9. Existence; Business. The Company will do all things ------------------- reasonably necessary to preserve and keep in full force and effect its existence and rights, to conduct its business in a prudent manner, to maintain in full force and effect, and renew from time to time, its franchises, permits, licenses, patents, and trademarks that are necessary to operate its business. The Company will comply in all material respects with all valid laws and regulations now in effect or hereafter promulgated by any properly constituted governmental authority having jurisdiction; provided, however, the Company shall not be required to comply with any law or regulation which it is contesting in good faith by appropriate proceedings as long as either the effect of such law or regulation is stayed pending the resolution of such proceedings or the effect of not complying with such law or regulation is not to jeopardize any franchise, license, permit, patent, or trademark necessary to conduct its business. Section 4.10. Licenses. The Company shall have all licenses, permits and -------- approvals required under any federal, state, or local statutes, regulation, ordinance, rule, or other legal requirement relating to the establishment, ownership or operation of any business conducted by it, including, without limitation, appropriate environmental approvals. Section 4.11. Title. The Company will keep the title to the Pledged ----- Collateral owned by it free and clear of all liens, encumbrances, easements, restrictions and claims, except for (a) the Permitted Encumbrances, (b) any lien, restriction or encumbrance created in connection with any Credit Document to which it is a party or otherwise approved by the Bank, and (c) real estate taxes and installment of special assessments, if any, which are a lien but not yet due and payable. SECTION FIVE ------------ NEGATIVE COVENANTS The Company further covenants and agrees that, from the date of this Agreement and until the obligations of the Company to the Bank hereunder are satisfied in full, the Company will, unless the Bank shall otherwise consent or agree, comply with the following provisions: Section 5.1. Sale, Purchase of Assets. The Company will not, directly or ------------------------ indirectly, (a) purchase, lease, or otherwise acquire any assets, including without limitation shares of corporate stock or other equity interests in entities, except in the ordinary course of business or as otherwise permitted under this Agreement, or (b) sell, lease, transfer, or otherwise dispose of any plant or other assets in an amount that exceeds Five Thousand Dollars ($5,000.00) per transaction, except for (i) assets sold for full and adequate consideration in the reasonable judgment of the Company 16 which the Company has determined to be worn out or obsolete or not useful in the ordinary course of its business, and (ii) assets sold in the ordinary course of business provided that the Company receives full and adequate consideration in its reasonable judgment in exchange for such assets sold. Section 5.2. Liens. The Company will not, and will not permit any ----- Subsidiary to, create or permit to exist any Lien on any of its real or personal properties, assets or rights of whatsoever nature (whether now owned or hereafter acquired), except: (a) Liens for taxes or other governmental charges not at the time delinquent or thereafter payable without penalty or being contested in good faith by appropriate proceedings and, in each case, for which it maintains adequate reserves; (b) Liens arising in the ordinary course of business (such as (i) Liens of carriers, warehousemen, mechanics and materialmen and other similar Liens imposed by law and (ii) Liens incurred in connection with worker's compensation, unemployment compensation and other types of social security (excluding Liens arising under ERISA) or in connection with surety bonds, bids, performance bonds and similar obligations) for sums not overdue or being contested in good faith by appropriate proceedings and not involving any deposits or advances or borrowed money or the deferred purchase price of property or services, and, in each case, for which it maintains adequate reserves; (c) Liens identified in Schedule 5.2; ------------ (d) Liens that constitute purchase money security interests on any property securing debt incurred for the purpose of financing all or any part of the cost of acquiring such property, provided that any such Lien -------- attaches to such property within 60 days of the acquisition thereof and such Lien attaches solely to the property so acquired; (e) attachments, appeal bonds, judgments and other similar Liens, for sums not exceeding $250,000 arising in connection with court proceedings, provided the execution or other enforcement of such Liens is effectively stayed and the claims secured thereby are being actively contested in good faith and by appropriate proceedings; (f) easements, rights of way, restrictions, minor defects or irregularities in title and other similar Liens not interfering in any material respect with the ordinary conduct of the business of the Company or any Subsidiary; (g) Liens in favor of the Bank; and (h) Liens granted to secure repayment of the Bonds. Section 5.3. Reserved. -------- 17 Section 5.4. Advances and Other Investments. The Company will not, and ------------------------------ not permit any Subsidiary to, make, incur, assume or suffer to exist any Investment in any other Person. Section 5.5. Assumptions; Guaranties. The Company will not assume, ----------------------- guarantee, endorse, or otherwise become directly or contingently liable for (including, without limitation, liable by way of agreement, contingent or otherwise, to purchase, to provide funds for payment, to supply funds to, or otherwise invest in any debtor or otherwise to assure the creditor against loss) any obligation or indebtedness of any other Person, except guaranties by endorsement of negotiable instruments for deposit, collection, or similar transactions in the ordinary course of business. Section 5.6. Mergers; Consolidation. The Company will not and will not ----------------------- permit any Subsidiary to merge or consolidate with any Person, dissolve, wind up its affairs, or sell, assign, lease, or otherwise dispose of (whether in one transaction or in a series of transactions), all or substantially all of its assets (whether now owned or hereafter acquired) to any Person without the consent of the Bank which shall not be unreasonably withheld, provided, however, that this Section shall not prohibit the intended reorganization of the Company from a limited liability company to a corporation. Section 5.7. Reserved. -------- Section 5.8. Bond Documents. The Company will not enter into an amendment -------------- of the Bond Documents, without the prior written consent of the Bank. SECTION SIX ----------- EVENTS OF DEFAULT ----------------- Section 6.1. Events of Default. The occurrence of any one or more of the ----------------- following events shall constitute an Event of Default under this Agreement: (a) Payments. The Company fails to make or cause to be made any payment -------- to the Bank required to be made pursuant to the terms of this Agreement or any of the other Bank Documents to which it is a party for a period of ten (10) Business Days, or (b) Representations; Warranties. If any representation or warranty made --------------------------- herein by the Company, in any other written statement, certificate, report, or financial statement at any time furnished by or for the Company in connection herewith, proves to be incorrect in any material respect when made, or (c) Covenant Defaults. If the Company fails to perform or observe any ----------------- other provision, covenant, or agreement contained in this Agreement or in any other of the Bank Documents, to which it is a party and such failure remains unremedied for thirty (30) calendar days after the Bank shall have given written notice thereof to the Company, or (d) Other Indebtedness. If the Company (i) fails to pay any indebtedness ------------------ for borrowed money (other than as arising under the Bank Documents) owing by the Company when due, whether at maturity, by acceleration, or otherwise or (ii) fails to perform any term, covenant, or agreement on its part to be performed under any agreement or instrument (other than the Bank Documents) evidencing, securing or relating to such indebtedness when required to be performed, 18 or is otherwise in default thereunder, if the effect of such failure is to accelerate, or to permit the holder(s) of such indebtedness or the trustee(s) under any such agreement or instrument to accelerate, the maturity of such indebtedness, whether or not such failure shall be waived by such holder(s) or trustee(s), or (e) Indenture. An Indenture Default shall have occurred, or --------- (f) Adverse Change. If the Company discontinues business, or if there -------------- occurs a material adverse change in its business, property, or its condition or operations, financial or otherwise, or (g) ERISA. If any of the following events occur: (i) any Reportable Event ----- which the Bank determines in good faith might constitute grounds for the termination of any Plan or for the appointment by the appropriate United States district court of a trustee to administer any Plan, continues for thirty (30) days after the Bank has given written notice thereof to the Company, (ii) any Plan incurs any "accumulated funding deficiency" (as such term is defined in ERISA) whether waived or not, (iii) the Company engages in any Prohibited Transaction, (iv) a trustee is appointed by an appropriate United States district court to administer any Plan, or (v) the PBGC institutes proceedings to terminate any Plan or to appoint a trustee to administer any Plan, or (h) Insolvency. If the Company (i) is adjudicated a debtor or insolvent, ---------- or ceases, is unable, or admits in writing its inability to pay its debts as they mature, or makes an Assignments for the benefit of creditors, (ii) applies for, or consents to, the appointment of any receiver, trustee, or similar officer for it or for all or any substantial part of its property, or any such receiver, trustee, or similar officer is appointed without the application or consent of the Company, (iii) institutes, or consents to the institution of, by petition, application, or otherwise, any bankruptcy reorganization, arrangement, readjustment of debt, dissolution, liquidation, or similar proceeding relating to it under the laws of any jurisdiction, (iv) has any such proceeding described in clause (iii) instituted against it which remains thereafter undismissed for a period of one hundred twenty (120) days or (v) has any judgment, writ, warrant of attachment or execution or similar process issued or levied against a substantial part of its property and such judgment, writ, or similar process is not released, vacated, or fully bonded within one hundred twenty (120) days after its issue or levy. (i) Other Bank Documents. If an event of default occurs under any of the -------------------- other Bank Documents (other than this Agreement). Section 6.2. No Waiver; Remedies. If an Event of Default occurs, the Bank ------------------- may exercise any and all remedies, legal or equitable on behalf of the Bank, to collect the amounts due from the Company pursuant to this Agreement, and, in its sole discretion, may instruct the Trustee to redeem the Bonds. Upon receipt by the Trustee of such instructions from the Bank, the Bonds shall be redeemed pursuant to the Indenture. No failure on the part of the Bank to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right or remedy. The remedies herein provided are cumulative and not exclusive of any remedies provided by law or equity. 19 SECTION SEVEN ------------- TRANSFER, REDUCTION OR TERMINATION OF LETTER OF CREDIT ------------------------------------------------------ Section 7.1. Transfer of Letter of Credit and Termination of Letter of --------------------------------------------------------- Credit and Related Matters. - -------------------------- (a) Transfer. The Letter of Credit may be transferred in accordance with -------- the provisions set forth therein. (b) Termination. The Letter of Credit shall terminate automatically on the ----------- earliest of (i) the payment by the Bank to the Trustee of the final drawing available to be made under the Letter of Credit; (ii) receipt by the Bank of the Letter of Credit and a certificate signed by an officer of the Trustee and an authorized representative of Company stating that no Bonds remain outstanding; (iii) receipt by the Bank of the Letter of Credit and a certificate signed by an officer of the Trustee and an authorized representative of Company stating that "An Alternate Credit Facility in substitution for the Letter of Credit has been accepted by the Trustee and is in effect"; or (iv) the stated Expiration Date. SECTION EIGHT ------------- MISCELLANEOUS ------------- Section 8.1. Liability of the Bank. Between the Company and the Bank, the --------------------- Company assumes all risks of the acts or omissions of the Trustee and any transferee of the Letter of Credit with respect to its use of the Letter of Credit or its proceeds. Neither the Bank nor any of its officers or directors shall be liable or responsible for: (a) the use which may be made of the Letter of Credit or any of the proceeds thereof, or for any acts or omissions of the Trustee and any transferee in connection therewith; (b) the validity, sufficiency or genuineness of documents, inaccuracy of any of the statements or representations contained therein or of any endorsement(s) thereon, even if such documents should in fact prove to be in any or all respects invalid, insufficient, fraudulent or forged; (c) payment by the Bank against presentation of documents which do not strictly comply with the terms of the Letter of Credit, including any failure of any documents to bear any reference or adequate reference to the Letter of Credit; or (d) any other circumstances whatsoever in making or failing to make payment under the Letter of Credit, except the Company shall have a claim against the Bank, and the Bank shall be liable to the Company, to the extent, but only to the extent of any direct, as opposed to consequential, damages suffered by the Company which the Company proves were caused by (i) the Bank's willful misconduct or gross negligence in honoring a draft under the Letter of Credit, or (ii) the Bank's willful failure to pay under the Letter of Credit after presentation to it by the Trustee (or a successor trustee under the Indenture to whom the Letter of Credit has been transferred in accordance with its terms) of a sight draft and certificate strictly complying with the terms and conditions of the Letter of Credit. In furtherance and not in limitation of the foregoing, the Bank may accept documents that appear on their face to be in order, and may assume the genuineness and rightfulness of any signature thereon, without responsibility for further investigation, regardless of any notice or information to the contrary unless actually received by the Bank; provided, that if the Bank shall receive written notification from both the Trustee and the 20 Company that documents conforming to the terms of the Letter of Credit to be presented to the Bank are not to be honored, the Bank agrees that it will not honor such documents and the Company shall indemnify and hold the Bank harmless from such failure to honor. Section 8.2. Right to Set-Off. Upon the occurrence of any Event of Default ---------------- hereunder the Bank is hereby irrevocably authorized at any time and from time to time without notice to the Company, any such notice being expressly waived by the Company, to set-off and appropriate and apply any and all deposits (general or special, time or demand, provisional or final), in any currency, any other credits, indebtedness or claims, in any currency, in each case whether direct or indirect or contingent or matured or unmatured, at any time held or owing by the Bank to or for the credit or the account of the Company, or any part thereof in such amounts as such Bank may elect, against and on account of the obligations and liabilities of the Company to the Bank hereunder and claims of every nature and description of the Bank against the Company, whether arising hereunder or otherwise, as the Bank may elect, whether or not the Bank has made any demand for payment and although such obligations, liabilities and claims may be contingent or unmatured. The Bank agrees to notify the Company promptly of any such set-off and the application made by the Bank, provided that the failure to give such notice shall not affect the validity of such set-off and application. The rights of the Bank under this subsection are in addition to other rights and remedies (including, without limitation, other rights of set-off) which the Bank may have. Section 8.3. Additional Collateral. As additional security for this --------------------- Agreement, the Company agrees that in the event that Trustee shall, at any time or from time to time, in response to an acceleration of the Bonds, draw upon the Letter of Credit, the Bank shall be and become the assignee of all rights and interests of the Company and the Trustee. The Company does hereby consent to such Assignments, and agrees to execute any and all such documents, instruments and certificates in connection therewith as the Bank shall deem appropriate. Section 8.4. Notices. All notices, requests, consents and other ------- communications hereunder shall be in writing and shall be deemed to have been made when delivered, or mailed first-class postage prepaid, or sent by wire, telex, telecopier or similar electronic means of communication or delivered to a telegraph office for transmission, addressed to the appropriate address set forth below, if to the Bank, at: KeyBank National Association 66 South Pearl Street Albany, New York 12207-1501 Attention: William B. Palmer Vice President Fax Number: (518) 487-4285 With a copy to: Edward J. Trombly, Esq. Hiscock & Barclay, llp 40 Beaver Street Albany, New York 12207-3411 Fax Number: (518) 434-2621 21 or at such other address as may have been furnished for such purpose to the Company by the Bank in writing; or if to the Company, at: Plug Power, LLC 968 Albany-Shaker Road Latham, New York 12110 Attention: Gary Mittleman with a copy to: John S. Harris, Esq. Plunkett & Jaffe, P.C. 11 Washington Avenue Albany, New York 12210 or at such other address as may have been furnished for such purpose to the Bank by the Company in writing. Section 8.5. Survival of Representations and Warranties. All agreements, ------------------------------------------ representations and warranties contained in the Bank Documents shall survive the execution and delivery of this Agreement, any investigation at any time made by or on behalf of the Bank and the issuance and acceptance of the Letter of Credit. All statements contained in any certificates or other instruments delivered by the Company pursuant hereto shall constitute representations and warranties by the Company under this Agreement. Section 8.6. Payments on Holidays. Whenever any payment to be made -------------------- pursuant to this Agreement shall be stated to be due on a day other than a Business Day, such payment may be made on the next succeeding Business Day and such extension of time shall in such case be included in computing interest, if any, in connection with such payment. Section 8.7. Computation of Interest. Except as otherwise provided, all ----------------------- computations of interest with respect to the Letter of Credit hereunder shall be made on the basis of a three hundred sixty-five (365) day year. Section 8.8. Entire Agreement. The Bank Documents and the Letter of Credit ---------------- embody the entire agreement and understanding among the parties hereto and supersede all prior agreements and understandings relating to the subject matter hereof. Section 8.9. Parties in Interest. All the terms and provisions of this ------------------- Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective successors and assigns of the parties hereto. Section 8.10. Expenses. The Company agrees, regardless of whether or not -------- the Bonds are eventually issued and sold and regardless of whether or not the transactions contemplated hereby shall be consummated, to pay all reasonable expenses incurred by the Bank incident to such transactions in the preparation of documentation relating thereto, including all reasonable fees and disbursement of the counsel (whether special outside counsel or attorneys in its Law Group) of the 22 Bank, for services to the Bank. The Company further agree to pay all like expenses incurred by the Bank in connection with any amendments of or waivers or consents requested by the Company under or with respect to the Bank Documents. Section 8.11. Counterparts. This Agreement may be executed in any number ------------ of counterparts, all of which taken together shall constitute one and the same instrument and any of the parties hereto may execute this Agreement by signing any such counterpart. Section 8.12. New York Contract. This Agreement shall be construed and ----------------- enforced in accordance with and be governed by the laws of the State of New York. 23 IN WITNESS WHEREOF, the undersigned have caused this Agreement to be executed as of the date first above written. PLUG POWER, LLC By: ----------------------------- Name: Gary S. Mittleman Title: President KEYBANK NATIONAL ASSOCIATION By: ----------------------------- Name: William B. Palmer Title: Vice President 24 STATE OF NEW YORK ) ) ss.: COUNTY OF ALBANY ) On the ___ day of July in the year 1999 before me, the undersigned, a notary public in and for said state, personally appeared Gary S. Mittleman, personally known to me or provided to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their capacity, and that by his/her/their signature on the instrument, the individual or the person upon behalf of which the individual acted, executed this instrument. -------------------------------- NOTARY PUBLIC STATE OF NEW YORK ) ) ss.: COUNTY OF ALBANY ) On the ___ day of July in the year 1999 before me, the undersigned, a notary public in and for said state, personally appeared William B. Palmer, personally known to me or provided to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their capacity, and that by his/her/their signature on the instrument, the individual or the person upon behalf of which the individual acted, executed this instrument. -------------------------------- NOTARY PUBLIC 25 EX-10.26 26 TRUST INDENTURE (12/01/98) EXHIBIT 10.26 CLOSING ITEM NO.: A-3 _______________________________________________________________________________ TOWN OF COLONIE INDUSTRIAL DEVELOPMENT AGENCY AND MANUFACTURERS AND TRADERS TRUST COMPANY, AS TRUSTEE ________________________________ TRUST INDENTURE ________________________________ DATED AS OF DECEMBER 1, 1998 ________________________________ RELATING TO TOWN OF COLONIE INDUSTRIAL DEVELOPMENT AGENCY $6,000,000 AGGREGATE PRINCIPAL AMOUNT TAXABLE INDUSTRIAL DEVELOPMENT REVENUE BONDS (MECHANICAL TECHNOLOGY INCORPORATED PROJECT - LETTER OF CREDIT SECURED), SERIES 1998A. _______________________________________________________________________________ THIS INSTRUMENT IS INTENDED TO CONSTITUTE A SECURITY AGREEMENT UNDER THE UNIFORM COMMERCIAL CODE OF THE STATE OF NEW YORK. TABLE OF CONTENTS (This Table of Contents is not part of this Trust Indenture and is for convenience of reference only.) PARTIES 1 RECITALS 1 GRANTING CLAUSES 4 ARTICLE I DEFINITIONS SECTION 101. DEFINITIONS 6 SECTION 102. INTERPRETATION 21 SECTION 103. CONDITIONS PRECEDENT SATISFIED 22 ARTICLE II THE BONDS SECTION 201. RESTRICTION ON ISSUANCE OF BONDS 23 SECTION 202. LIMITED OBLIGATIONS 23 SECTION 203. EXECUTION 23 SECTION 204. AUTHENTICATION 24 SECTION 205. MUTILATED, LOST, STOLEN OR DESTROYED BONDS 24 SECTION 206. TRANSFER AND EXCHANGE OF BONDS; PERSONS TREATED AS OWNERS 24 SECTION 207. PAYMENT PROVISIONS 25 SECTION 208. TEMPORARY BONDS 27 SECTION 209. SPECIFIC DETAILS OF THE BONDS 27
SECTION 210. DELIVERY OF THE INITIAL BONDS 31 SECTION 211. CANCELLATION OF BONDS 31 SECTION 212. PAYMENTS DUE ON SATURDAYS, SUNDAYS AND HOLIDAYS 32 SECTION 213. BOOK ENTRY BONDS 32 SECTION 214. ADDITIONAL BONDS 33 ARTICLE III REDEMPTION OF BONDS PRIOR TO MATURITY SECTION 301. REDEMPTION OF BONDS PRIOR TO MATURITY 36 SECTION 302. COMPANY'S ELECTION TO REDEEM 38 SECTION 303. NOTICE OF REDEMPTION; PAYMENT OF REDEEMED BONDS 38 SECTION 304. MANDATORY TENDER; NOTICE 39 SECTION 305. DEMAND PURCHASE OPTION 40 SECTION 306. FUNDS FOR PURCHASE OF BONDS 42 SECTION 307. DELIVERY OF PURCHASED BONDS 42 SECTION 308. DUTIES OF TRUSTEE AND TENDER AGENT WITH RESPECT TO PURCHASE OF BONDS 42 ARTICLE IV FUNDS AND APPLICATION OF PROCEEDS OF BONDS AND REVENUES SECTION 401. ESTABLISHMENT OF FUNDS 44 SECTION 402. APPLICATION OF PROCEEDS OF BONDS 44 SECTION 403. PROJECT FUND 45 SECTION 404. TRANSFERS OF TRUST REVENUES TO FUNDS 46 SECTION 405. BOND FUND 46 SECTION 406. INSURANCE AND CONDEMNATION FUND 46 SECTION 407. [INTENTIONALLY OMITTED] 48 SECTION 408. DRAWING BY THE TRUSTEE ON THE LETTER OF CREDIT 48 SECTION 409. NON-PRESENTMENT OF BONDS 50 SECTION 410. INVESTMENT OF FUNDS 50 SECTION 411. FINAL DISPOSITION OF MONEYS 51 SECTION 412. PERIODIC REPORTS BY TRUSTEE 51 ARTICLE V GENERAL COVENANTS SECTION 501. AUTHORITY OF ISSUER; VALIDITY OF INDENTURE AND BONDS 52 SECTION 502. PAYMENT OF PRINCIPAL AND INTEREST 52 SECTION 503. PROCESSING OF TRANSFERS 52 SECTION 504. PERFORMANCE OF COVENANTS; AUTHORITY OF ISSUER 52 SECTION 505. PRIORITY OF LIEN OF INDENTURE 52 SECTION 506. INSTRUMENTS OF FURTHER ASSURANCE 52 SECTION 507. INSPECTION OF PROJECT BOOKS 53 SECTION 508. NO MODIFICATION OF SECURITY; LIMITATION ON LIENS 53 SECTION 509. DAMAGE OR DESTRUCTION 53 SECTION 510. CONDEMNATION 53 SECTION 511. ACCOUNTS AND AUDITS 53 SECTION 512. RECORDATION; FINANCING STATEMENTS 54 SECTION 513. [INTENTIONALLY OMITTED] 54 SECTION 514. COVENANT REGARDING ADJUSTMENT OF DEBTS 54 SECTION 515. [INTENTIONALLY OMITTED] 54 SECTION 516. LIMITATION ON OBLIGATIONS OF THE ISSUER 54 SECTION 517. AGREEMENT TO PROVIDE INFORMATION 55
ARTICLE VI DEFAULT PROVISIONS AND REMEDIES OF TRUSTEE AND BONDHOLDERS SECTION 601. EVENTS OF DEFAULT 56 SECTION 602. ACCELERATION 57 SECTION 603. ENFORCEMENT OF REMEDIES 57 SECTION 604. APPOINTMENT OF RECEIVERS 58 SECTION 605. RIGHTS OF BONDHOLDERS TO OBLIGATE TRUSTEE TO PROTECT BONDHOLDERS 58 SECTION 606. REMEDIES NOT EXCLUSIVE; WAIVER AND NON-WAIVER OF EVENT OF DEFAULT 58 SECTION 607. RIGHTS OF BONDHOLDERS TO DIRECT PROCEEDINGS 59 SECTION 608. WAIVER BY ISSUER 59 SECTION 609. APPLICATION OF MONEYS 59 SECTION 610. REMEDIES VESTED IN TRUSTEE 61 SECTION 611. RIGHTS AND REMEDIES OF BONDHOLDERS 61 SECTION 612. TERMINATION OF PROCEEDINGS 61 SECTION 613. WAIVERS OF EVENTS OF DEFAULT 62 SECTION 614. NOTICE OF DEFAULTS; OPPORTUNITY TO CURE 62 SECTION 615. STATEMENT OF INCOME AND EXPENDITURES 62 ARTICLE VII THE TRUSTEE SECTION 701. ACCEPTANCE OF TRUSTS 64 SECTION 702. FEES, CHARGES AND EXPENSES OF TRUSTEE 66 SECTION 703. NOTICE TO BONDHOLDERS OF DEFAULT 67 SECTION 704. INTERVENTION BY TRUSTEE 67 SECTION 705. SUCCESSOR TRUSTEE 67 SECTION 706. RESIGNATION BY TRUSTEE 67 SECTION 707. REMOVAL OF TRUSTEE 67 SECTION 708. APPOINTMENT OF SUCCESSOR TRUSTEE BY BONDHOLDERS; TEMPORARY TRUSTEE 68 SECTION 709. CONCERNING ANY SUCCESSOR TRUSTEE 68 SECTION 710. TRUSTEE PROTECTED IN RELYING UPON RESOLUTIONS, ETC. 68 SECTION 711. SUCCESSOR TRUSTEE AS TRUSTEE, PAYING AGENT AND BOND REGISTRAR 68 SECTION 712. TRUST MAY BE VESTED IN SEPARATE OR CO-TRUSTEE 69 SECTION 713. TRUSTEE TO EXERCISE POWERS OF STATUTORY TRUSTEE 69 SECTION 714. NEW YORK REAL PROPERTY LAW 69 SECTION 715. CONFLICTS OF INTEREST 71 SECTION 716. DESIGNATION OF SUCCESSION OF TENDER AGENTS 74 SECTION 717. QUALIFICATIONS OF TENDER AGENT 75 ARTICLE VIII SUPPLEMENTAL INDENTURES SECTION 801. SUPPLEMENTAL INDENTURES NOT REQUIRING CONSENT OF BONDHOLDERS 76 SECTION 802. SUPPLEMENTAL INDENTURES REQUIRING CONSENT OF BONDHOLDERS 76 SECTION 803. SUPPLEMENTAL INDENTURES; CONSENT OF BANK 77 SECTION 804. SUPPLEMENTAL INDENTURES; CONSENT OF COMPANY 77 SECTION 805. EFFECT OF SUPPLEMENTAL INDENTURES 78
ARTICLE IX AMENDMENT TO INSTALLMENT SALE AGREEMENT, LETTER OF CREDIT, MORTGAGE, OR OTHER FINANCING DOCUMENTS SECTION 901. AMENDMENTS TO INSTALLMENT SALE AGREEMENT, MORTGAGE OR OTHER FINANCING DOCUMENTS NOT REQUIRING CONSENT OF BONDHOLDERS 79 SECTION 902. AMENDMENTS TO INSTALLMENT SALE AGREEMENT, MORTGAGE OR OTHER FINANCING DOCUMENTS REQUIRING CONSENT OF BONDHOLDERS 79 SECTION 903. AMENDMENTS TO INSTALLMENT SALE AGREEMENT, MORTGAGE OR OTHER FINANCING DOCUMENTS; CONSENT OF BANK 80 SECTION 904. AMENDMENTS TO LETTER OF CREDIT 80 SECTION 905. AMENDMENTS REQUESTED BY BANK 80 ARTICLE X SATISFACTION AND DISCHARGE OR ASSIGNMENT OF INDENTURE SECTION 1001. SATISFACTION AND DISCHARGE OR ASSIGNMENT OF LIEN 81 ARTICLE XI MISCELLANEOUS SECTION 1101. CONSENTS AND OTHER INSTRUMENTS OF BONDHOLDERS 83 SECTION 1102. LIMITATION OF RIGHTS 83 SECTION 1103. NOTICES 84 SECTION 1104. TRUSTEE AS PAYING AGENT AND BOND REGISTRAR 85 SECTION 1105. COUNTERPARTS 85 SECTION 1106. SUCCESSORS AND ASSIGNS 85 SECTION 1107. INFORMATION UNDER UNIFORM COMMERCIAL CODE 85 SECTION 1108. APPLICABLE LAW 85 SECTION 1109. NO RECOURSE; SPECIAL OBLIGATION 85 SECTION 1110. ASSIGNMENT TO BANK 87 SECTION 1111. NOTICES TO RATING AGENCY 87 TESTIMONIUM 88 SIGNATURES 88 ACKNOWLEDGEMENTS 89
EXHIBIT A - Form of Bond Prior to Conversion Date A-1 EXHIBIT B - Form of Bond After Conversion Date B-1 EXHIBIT C-1 - Form of Notice of Mandatory Tender or Conversion Date C-1-1 EXHIBIT C-2 - Form of Notice of Bondholder's Election Regarding Conversion Date C-2-1 EXHIBIT C-3 - Form of Notice of Mandatory Tender or Alternate Security Date C-3-1 EXHIBIT C-4 - Form of Notice of Bondholder's Election Regarding Alternate Security Date C-4-1 EXHIBIT C-5 - Form of Tender Notice C-5-1 EXHIBIT D - Description of Land D-1 EXHIBIT E - Description of Equipment E-1 EXHIBIT F - Form of Request for Disbursement F-1 TRUST INDENTURE THIS TRUST INDENTURE dated as of December 1, 1998 (the "Indenture") by and between TOWN OF COLONIE INDUSTRIAL DEVELOPMENT AGENCY, a public benefit corporation of the State of New York (the "State") having an office for the transaction of business located at 347 Old Niskayuna Road, Latham, New York (the "Issuer") and MANUFACTURERS AND TRADERS TRUST COMPANY, a trust company organized and existing under the laws of the State of New York having an office for the transaction of business located at One M & T Plaza, 7th Floor, Buffalo, New York 14203, as trustee (the "Trustee") for the holders of the Issuer's Industrial Development Revenue Bonds (Mechanical Technology Incorporated Project - Letter of Credit Secured), Series 1998A in the aggregate principal amount of $6,000,000 (the "Bonds") issued by the Issuer hereunder; W I T N E S S E T H : WHEREAS, Title 1 of Article 18-A of the General Municipal Law of the State (the "Enabling Act") was duly enacted into law as Chapter 1030 of the Laws of 1969 of the State; and WHEREAS, the Enabling Act authorizes and provides for the creation of industrial development agencies for the benefit of the several counties, cities, villages and towns in the State and empowers such agencies, among other things, to acquire, construct, reconstruct, lease, improve, maintain, equip and dispose of land and any building or other improvement, and all real and personal properties, including, but not limited to, machinery and equipment deemed necessary in connection therewith, whether or not now in existence or under reconstruction, which shall be suitable for manufacturing, warehousing, research, civic, commercial or industrial purposes, in order to advance the job opportunities, health, general prosperity and economic welfare of the people of the State and to improve their standard of living; and WHEREAS, the Enabling Act further authorizes each such agency to lease or sell any or all of its facilities, to issue its bonds, for the purpose of carrying out any of its corporate purposes and, as security for the payment of the principal and redemption price of and interest on any such bonds so issued and any agreements made in connection therewith, to mortgage and pledge any or all of its facilities, whether then owned or thereafter acquired, and to pledge the revenues and receipts from the lease or sale thereof to secure the payment of such bonds and interest thereon; and WHEREAS, the Issuer was created, pursuant to and in accordance with the provisions of the Enabling Act, by Chapter 232 of the Laws of 1977 of the State (collectively, with the Enabling Act, the "Act") and is empowered under the Act to undertake the Project (as hereinafter defined) in order to so advance the job opportunities, health, general prosperity and economic welfare of the people of the State and improve their standard of living; and WHEREAS, the Issuer, by resolution adopted on May 4, 1998 (the "Inducement Resolution"), determined to issue its revenue bonds for the purpose of financing a portion of the costs of a certain project consisting of the following: (A) (1) the acquisition of a leasehold interest in a parcel of land containing approximately 35.6 acres located at 968 Albany- Shaker Road in the Town of Colonie, Albany County, New York (the "Land"), together with the existing buildings located thereon which contain approximately 98,000 square feet in the aggregate (such buildings known individually as Building I, Building II and Building III and hereinafter collectively referred to as the "Existing Facility"), (2) the demolition of Building I which contains approximately 14,105 square feet of space, (3) the construction of a new building to replace Building I and which will contain approximately 32,000 square feet of space (the "New Facility") (the Existing Facility and the New Facility hereinafter collectively referred to as the "Facility"), (4) the renovation of Building III and (5) the acquisition of and installation therein and thereon of certain machinery and equipment (the "Equipment") (the Land, the Facility and the Equipment being hereinafter collectively referred to as the "Project Facility"), all of the foregoing to be occupied by Mechanical Technology Incorporated (the "Company") and operated as a manufacturing facility, a portion of which will be leased by the Company to Plug Power, LLC and operated as a facility for the manufacture, research and development of fuel cells for residential and automotive applications and related products and any other related activities; (B) the financing of all or a portion of the costs of the foregoing by the issuance of the Bonds; (C) the granting of certain other "financial assistance" (within the meaning of Section 854(14) of the Act) with respect to the foregoing, including exemption from certain sales taxes, deed transfer taxes, mortgage recording taxes and real property taxes (collectively with the Bonds, the "Financial Assistance"); and (D) the lease (with an obligation to purchase) or sale of the Project Facility to the Company or such other person as may be designated by the Company and agreed upon by the Agency; and WHEREAS, the Issuer and the Company have entered into an installment sale agreement dated as of December 1, 1998 (the "Installment Sale Agreement") specifying the terms and conditions pursuant to which the Issuer agrees to acquire, construct and install the Project Facility and to sell the Project Facility to the Company; and WHEREAS, the Issuer, by resolution adopted on November 23, 1998 (the "Bond Resolution"), determined to issue its $6,000,000 aggregate principal amount of Taxable Industrial Development Revenue Bonds (Mechanical Technology Incorporated Project - Letter of Credit Secured), Series 1998A (the "Bonds") for the purpose of financing the costs of undertaking the Project; and WHEREAS, the Issuer, by the terms of this Indenture and as security for the Bonds, will grant the Trustee a first security interest in the Trust Revenues (as hereinafter defined); and WHEREAS, as security for the Bonds, the Company has entered into an irrevocable letter of credit reimbursement agreement dated as of December 1, 1998 (the "Reimbursement Agreement") with KeyBank National Association (the "Bank"), pursuant to which the Bank has issued in favor of the Trustee an irrevocable transferable direct-pay letter of credit (the "Letter of Credit") in an amount equal to the principal amount of the Bonds Outstanding and sixty-five (65) days' interest thereon, under which the Bank is obligated to pay to the Trustee, upon presentation of a sight draft and required accompanying documentation, the amount necessary to pay the principal of and interest on the Bonds then due and payable; and WHEREAS, as security for all amounts payable to the Bank pursuant to the Reimbursement Agreement, the Issuer and the Company have granted the Bank a mortgage Lien (as hereinafter defined) on and security interest in the Project Facility pursuant to a mortgage dated as of December 1, 1998 (the "Mortgage"); and WHEREAS, as further security for the Bonds the Issuer has assigned to the Trustee certain of the Issuer's rights and remedies under the Installment Sale Agreement, including the right to receive installment purchase payments and other amounts payable thereunder, but not including the Unassigned Rights (as hereinafter defined), pursuant to a pledge and assignment dated as of December 1, 1998 (the "Pledge and Assignment") from the Issuer to the Trustee; and WHEREAS, the Trustee has the power to enter into this Indenture and to execute the trusts hereby created and in evidence thereof has joined in the execution hereof; and WHEREAS, the execution and delivery of the Indenture and the issuance of the Bonds under the Act as herein provided have been in all respects approved and duly and validly authorized by the Bond Resolution; and WHEREAS, the providing of the Project Facility is for a proper purpose, to wit, to promote the job opportunities, the health and the general prosperity and economic welfare of the inhabitants of the State pursuant to the provisions of the Act; and WHEREAS, the Issuer deems it appropriate and necessary that the proceeds of the sale of the Bonds shall be deposited with the Trustee, and that, upon satisfaction of the requirements set forth herein, the Trustee shall disburse such proceeds to pay the Cost of the Project (as hereinafter defined); and WHEREAS, the Bonds shall be payable solely from the Trust Revenues, which include, without limitation, installment purchase payments made by the Company under the Installment Sale Agreement and payments made by the Bank pursuant to the Letter of Credit; and WHEREAS, the Bonds and the Trustee's certificate of authentication to be endorsed on the Bonds are to be in substantially the forms attached hereto as Exhibits A and B and made a part hereof, with necessary and appropriate variations, omissions and insertions as permitted or required by this Indenture; and WHEREAS, all things necessary to make the Bonds, when authenticated by the Trustee and issued as in this Indenture provided, the valid, binding and legal special obligations of the Issuer according to the import thereof, and to constitute this Indenture a valid pledge of and Lien (as hereinafter defined) on the Trust Revenues herein pledged to the payment of the Bonds, have been done and performed, and the creation, execution and delivery of this Indenture, and the execution and issuance of the Bonds, subject to the terms hereof, have in all respects been duly authorized; GRANTING CLAUSES NOW, THEREFORE, the Issuer, in consideration of the premises and the acceptance by the Trustee of the trusts hereby created and of the purchase and acceptance of the Bonds by the holders and owners thereof, and for other good and valuable consideration, the receipt of which is hereby acknowledged, and in order to secure the payment of the principal of, premium, if any, and interest on the Bonds according to their tenor and effect and the performance and observance by the Issuer of all the covenants expressed or implied herein and in the Bonds, does hereby unto the Trustee and its successors and assigns, for the benefit of the holders and all future holders of the Bonds, GRANT A SECURITY INTEREST IN, PLEDGE AND ASSIGN the following (hereinafter referred to as the "Trust Estate"): I All right, title and interest of the Issuer in and to the Trust Revenues, including any payment made by the Bank pursuant to the Letter of Credit; II Any and all moneys and securities from time to time held by the Trustee under the terms of the Indenture except (A) moneys deposited with or paid to the Trustee for the redemption of Bonds, notice of which has been duly given, and (B) moneys deposited with the Trustee or the Tender Agent (as hereinafter defined) for the purchase of Tendered Bonds (as hereinafter defined) pursuant to Section 305 hereof; III Any and all other Property (as hereinafter defined) of every name and nature from time to time hereafter by delivery or by writing of any kind conveyed, mortgaged, pledged, assigned or transferred, as and for additional security hereunder, by the Issuer or by anyone in its behalf or with its written consent in favor of the Trustee; The Indenture is also intended to constitute a security agreement under the Uniform Commercial Code of the State so that the Trustee shall have and may enforce a security interest, to secure payment of all sums due or to become due under the Bonds and the Indenture, in so much of the Property (as hereinafter defined) described in Granting Clauses "I", "II" and "III" above as may be made subject to such a security interest, including the moneys held by the Trustee hereunder, such security interest to attach at the earliest moment permitted by law and also to include and attach to all additions and accessions thereto, all substitutions and replacements therefor and all proceeds thereof, and all other contract rights and general intangibles of the Issuer (except the Unassigned Rights [as hereinafter defined]) obtained in connection with or relating to the Project Facility, as well as any and all items of property in the foregoing classifications which are hereafter acquired; SUBJECT, HOWEVER, to Permitted Encumbrances (as hereinafter defined); EXCEPTING THEREFROM, the Unassigned Rights (as hereinafter defined); TO HAVE AND TO HOLD all the same with all privileges and appurtenances hereby pledged and assigned or agreed, or intended so to be, unto the Trustee and its successors in said trust and to it and its assigns forever; IN TRUST NEVERTHELESS, upon the terms and trusts herein set forth for the equal and proportionate benefit, security and protection of all holders and owners of the Bonds issued under and secured by this Indenture without privilege, priority or distinction as to the Lien or otherwise of any of the Bonds over any other Bonds; and PROVIDED, HOWEVER, that if the Issuer or its successors or assigns shall well and truly pay, or cause to be paid, to the holders and owners of the Bonds the principal of, premium, if any, and interest due or to become due on the Bonds at the times and in the manner provided herein and in the Bonds, or shall provide for the payment thereof by depositing with the Trustee the entire amount due or to become due thereon as permitted by and in the manner provided in Article X hereof, and shall well and truly cause to be kept, performed and observed all of its covenants contained in this Indenture, and shall pay or cause to be paid to the Trustee all sums of money due or to become due to it in accordance with the terms and provisions of this Indenture, then upon such final payment, these presents and the Lien upon the Property described in Granting Clauses "I", "II" and "III" above and the pledge of the Trust Revenues and rights hereby granted shall (except and only to the extent the Lien upon the Property described in Granting Clauses "I", "II" and "III" above and the pledge of the Trust Revenues is assigned to the Bank as provided in Section 1001(B) hereof in the event the Trustee draws upon the Letter of Credit) cease, terminate and be void, and thereupon the Trustee shall execute and deliver to the Person (as hereinafter defined) or Persons designated in Article X such instruments in writing as shall be requisite to satisfy the Lien hereof upon the Property described in Granting Clauses "I", "II" and "III" above, and convey to the Person or Persons designated in Article X the moneys and other Property, if any, then held by the Trustee, except moneys held by the Trustee for the payment of interest on, premium, if any, and principal of the Bonds and except as expressly provided in this Indenture; otherwise this Indenture shall remain in full force and effect, upon the trusts and subject to the covenants and conditions hereinafter set forth. THIS INDENTURE FURTHER WITNESSETH, and it is expressly declared, that all Bonds issued and secured hereunder are to be issued, authenticated and delivered and the Lien on all of the Property described in Granting Clauses "I", "II" and "III" above and all Trust Revenues, including without limitation the revenues, receipts and other moneys hereby assigned and pledged, are to be dealt with and disposed of under, upon and subject to the terms, conditions, stipulations, covenants, agreements, trusts, uses and purposes as hereinafter expressed, and the Issuer hereby agrees and covenants with the Trustee and with the respective holders and owners, from time to time, of the Bonds, as follows: ARTICLE I DEFINITIONS SECTION 101. DEFINITIONS. The following words and terms used in this Indenture shall have the respective meanings set forth below unless the context or use indicates another or different meaning or intent: "Accountant" shall mean an independent certified public accountant or a firm of independent certified public accountants selected by the Company and acceptable to the Bank. "Act" shall mean Title 1 of Article 18-A of the General Municipal Law of the State, as amended from time to time, together with Chapter 232 of the Laws of 1977 of the State, as amended from time to time. "Act of Bankruptcy" shall mean the filing of a petition in bankruptcy (or the other commencement of a bankruptcy or similar proceeding) by or against the Company or the Issuer under any applicable bankruptcy, insolvency, reorganization or similar law, now or hereafter in effect. "Additional Bonds" shall mean any bonds issued by the Issuer pursuant to Section 214 of the Indenture. "Adjustable Rate" shall mean the variable interest rate on the Bonds as determined in accordance with the Indenture, from and including the original date of issuance of the Bonds through but not including the Fixed Rate Conversion Date. "Adjustable Rate Period" shall mean that period during which the Bonds shall bear interest at an Adjustable Rate. "Adjustment Date" shall mean (i) during the Adjustable Rate Period, every Thursday in each week of each year, and (ii) the Fixed Rate Conversion Date, provided that if any such date shall not be a Business Day, the Adjustment Date shall be the next succeeding Business Day. "Adjustment Period" shall mean each period beginning on an Adjustment Date and ending on the day immediately preceding the immediately succeeding Adjustment Date, except that the first Adjustment Period shall be the period from and including the date of original delivery of the Bonds to and including the day immediately preceding the first Adjustment Date. "Alternate Letter of Credit" shall mean a Substitute Letter of Credit which does not satisfy the requirements of Section 5.8(A)(1) of the Installment Sale Agreement with respect to the rating of the Substitute Letter of Credit or the Substitute Bank delivering such Substitute Letter of Credit. "Alternate Security Date" shall mean the date upon which an Alternate Letter of Credit shall be effective and available to be drawn upon by the Trustee, provided that if any such date shall not be a Business Day, such date shall be the next succeeding Business Day. "Applicable Laws" shall mean all statutes, codes, laws, acts, ordinances, orders, judgments, decrees, injunctions, rules, regulations, permits, licenses, authorizations, directions, policies and Requirements of all Governmental Authorities (including without limitation, Local Authorities), foreseen or unforeseen, ordinary or extraordinary, which now or at any time hereafter may be applicable to or affect the Project Facility or any part thereof or the conduct of work on the Project Facility or any part thereof or to the operation, use, manner of use or condition of the Project Facility or any part thereof (the applicability of such statutes, codes, laws, acts, ordinances, orders, rules, regulations, directions, policies and requirements to be determined both as if the Issuer were the owner of the Project Facility and as if the Company and not the Issuer were the owner of the Project Facility), including but not limited to (1) applicable building, zoning, environmental, planning and subdivision laws, ordinances, rules and regulations of Governmental Authorities (including without limitation, Local Authorities) having jurisdiction over the Project Facility, (2) restrictions, conditions or other Requirements applicable to any permits, licenses or other governmental authorizations issued with respect to the foregoing, and (3) judgments, decrees or injunctions issued by any court or other judicial or quasi-judicial Governmental Authority (including without limitation, any Local Authority). "Authorized Investments" shall mean any of the following: (A) direct obligations of the United States of America or of any agency or instrumentality thereof when such obligations are backed by the full faith and credit of the United States, including, but not limited to, United States Treasury obligations, (B) Federal Home Loan Mortgage Corporation and Farm Credit Banks (Federal Land Banks, Federal Intermediate Credit Banks for Cooperatives) participation certificates and senior debt obligations, (C) Federal National Mortgage Association mortgage backed securities and senior debt obligations, (D) Student Loan Marketing Association (Sallie Mae) letter of credit backed issues and senior debt obligations, (E) federal funds, certificates of deposit, time deposits and bankers' acceptances (having original maturities of not more than 365 days) of any bank, the debt obligations of which (or, in the case of the principal bank in a bank holding company, debt obligations of the bank holding company) have been rated "A-1+" or better by Standard & Poors, (F) commercial paper (having original maturities of not more than 365 days) rated "A-1+" or better by Standard & Poors, (G) deposits which are fully insured by Federal Deposit Insurance Corporation or its successors ("FDIC"), (H) repurchase agreements with any banks insured by FDIC, provided (1) the collateral level, the valuation and the cure period are acceptable to the Bank, (2) the Trustee or a third party acting solely as agent for the Trustee has possession of the collateral, (3) the Trustee has a perfected first priority security interest in the collateral, (4) the collateral is free and clear of third party Liens, and (5) failure to maintain the requisite collateral percentage in (1) above will require the Trustee to liquidate the collateral, (I) obligations of any state or political subdivision thereof which bear an investment grade rating from Standard & Poor's or Moody's, (J) any money market funds customarily invested in by the Trustee, or (K) any other investment with the prior written consent of the Bank. "Authorized Representative" shall mean the Person or Persons at the time designated to act in behalf of the Issuer, the Bank or the Company, as the case may be, by written certificate furnished to the Trustee containing the specimen signature of each such Person and signed on behalf of (A) the Issuer by its Chairman or Vice-Chairman, or such other person as may be authorized by resolution of the Issuer, (B) the Bank by a Vice President or an Assistant Vice President, or such other person as may be authorized by the Bank, and (C) the Company by its President or any Vice President, or such other person as may be authorized by the Company. "Bank" shall mean (A) KeyBank National Assocation, a national banking association having an office for the transaction of business located at 66 South Pearl Street, Albany, New York, as issuer of the Letter of Credit, and (B) any Substitute Bank. "Bank Documents" shall mean the Letter of Credit, the Reimbursement Agreement, the Mortgage, the Building Loan Contract and the Pledge and Security Agreement and any other document now or hereafter executed by the Issuer, the Company in favor of the Bank which affects the rights of the Bank in or to the Project Facility, in whole or in part, or which secures or guarantees any sum due under any Bank Document. "Bank Rate" shall mean, as the case may be, (A) the rate of interest being charged the Company by the Bank under Section 2 of the Reimbursement Agreement or (B) the applicable rate of interest being charged the Company by a Substitute Bank in connection with the issuance by a Substitute Bank of a Substitute Letter of Credit under a Substitute Reimbursement Agreement. "Bill of Sale to Company" shall mean the bill of sale from the Issuer to the Company conveying the Issuer's interest in the Equipment to the Company and being substantially in the form attached as Exhibit D to the Installment Sale Agreement. "Bill of Sale to Issuer" shall mean the bill of sale dated as of the Closing Date from the Company to the Issuer conveying the Company's interest in the Equipment to the Issuer. "Bond" shall mean the Issuer's $6,000,000 aggregate principal amount of Taxable Industrial Development Revenue Bonds (Mechanical Technology Incorporated Project - Letter of Credit Secured), Series 1998A, issued pursuant to the Resolution and Article II of the Indenture and sold to the Underwriter pursuant to the Bond Purchase Agreement, and any Bonds issued in exchange or substitution thereof. "Bond Counsel" shall mean the law firm of Hodgson, Russ, Andrews, Woods & Goodyear, LLP, Albany, New York or such other attorney or firm of attorneys located in the State whose experience in matters relating to the issuance of obligations by states and their political subdivisions is nationally recognized and who are acceptable to the Issuer. "Bond Fund" shall mean the fund so designated established pursuant to Section 401(A)(2) of the Indenture. "Bond Fund Non-Preference Moneys Subaccount" shall mean the account so designated within the Bond Fund established pursuant to Section 401 of the Indenture. "Bond Payment Date" shall mean each Interest Payment Date and each date on which principal, interest or premium shall be payable on the Bonds according to their terms and the Indenture, including without limitation, scheduled mandatory redemption dates, unscheduled mandatory redemption dates, optional redemption dates and stated maturity, so long as any Bonds shall be Outstanding. "Bond Purchase Agreement" shall mean the bond purchase agreement dated December 16, 1998 by and among the Issuer, the Company and the Underwriter, as original purchaser of the Bonds, as the same may be supplemented or amended from time to time. "Bond Rate" shall mean with respect to any Bond, the applicable rate of interest on such Bond, as set forth in such Bond. "Bond Registrar" shall mean the Trustee. "Bond Resolution" shall mean the Resolution. "Bond Year" shall mean each one (1) year period ending on the anniversary of the Closing Date. "Bondholder" or "holder" or "owner of the Bonds" shall mean the registered owner of any Bond as indicated on the bond register maintained by the Bond Registrar. "Book Entry Bonds" shall mean the Bonds with respect to which the procedures set forth in Section 213 of the Indenture shall apply. "Building Loan Contract" shall mean the building loan contract dated as of December 1, 1998 by and among the Issuer, the Company and the Bank, as said building loan contract may be supplemented or amended from time to time. "Business Day" shall mean any day of the year other than a Saturday or Sunday or a day on which banking institutions located in the city in which the Office of the Trustee is located are authorized by law, regulation or executive order to remain closed. "Certificate of Authentication" shall mean the certificate of authentication in substantially the form attached to the forms of Bond attached as Exhibits A and B to the Indenture. "Closing Date" shall mean (A) with respect to the Bonds, the date on which authenticated Bonds are delivered to or upon the order of the Underwriter and payment is received therefor by the Trustee on behalf of the Issuer, and (B) with respect to any Additional Bonds, the date on which Bonds are authenticated and delivered to the purchaser thereof and payment therefor is received by the Trustee on behalf of the Issuer. "Code" shall mean the Internal Revenue Code of 1986, as amended, including, when appropriate, the statutory predecessor of said Code, and the applicable regulations (whether proposed, temporary or final) of the United States Treasury Department promulgated under said Code and the statutory predecessor of said Code. "Company" shall mean Mechanical Technology Incorporated, a business corporation organized and existing under the laws of the State of New York having an office for the transaction of business located at 968 Albany-Shaker Road, Latham, New York and its successors and assigns, to the extent permitted by Section 8.4 of the Installment Sale Agreement. "Completion Date" shall mean the earlier of (A) April 30, 1999 or (B) the date of substantial completion of the Project Facility as evidenced in the manner provided in Section 4.4 of the Installment Sale Agreement. "Condemnation" shall mean the taking of title to, or the use of, Property under the exercise of the power of eminent domain by any Governmental Authority. "Construction Contract" shall mean the contract by and between the Contractor and the Company for the construction of the Facility. "Construction Period" shall mean the period (A) beginning on May 25, 1998 and (B) ending on the Completion Date. "Contractor" shall mean such Person with whom the Company contracts from time to time for the acquisition, construction and/or installation of the Project Facility. "Conversion Date" shall mean the Fixed Rate Conversion Date. "Conversion Option" shall mean the option to convert the interest rate on the Bonds from the Adjustable Rate to the Fixed Rate on a Fixed Rate Conversion Date. "Corporate Guarantor" shall mean Ling Electronics, Inc. "Cost of the Project" shall mean all those costs and items of expense enumerated in Section 4.3 of the Installment Sale Agreement. "Debt Service Payment" shall mean, with respect to any Bond Payment Date, (A) the interest payable on the Bonds on such Bond Payment Date, plus (B) the principal, if any, payable on the Bonds on such Bond Payment Date, plus (C) the premium, if any, payable on the Bonds on such Bond Payment Date. "Defaulted Payments" shall have the meaning ascribed to such term in Section 207(C) of the Indenture. "Demand Purchase Option" shall mean the option granted to the owners of the Bonds to require that Bonds be purchased in accordance with Section 305 of this Indenture. "Depository" shall mean The Depository Trust Company, New York, New York, a limited purpose trust company organized under the laws of the State, or its nominee, or any other Person designated in any supplemental resolution of the Issuer to serve as securities depository for the Bonds. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time. "Equipment" shall mean all materials, machinery, equipment, fixtures or furnishings intended to be acquired with the proceeds of the Bonds or any payment made by the Company pursuant to Section 4.5 of the Installment Sale Agreement, and such substitutions and replacements therefor as may be made from time to time pursuant to the Installment Sale Agreement, including, without limitation, all the Property described in Exhibit B attached to the Installment Sale Agreement. "Event of Default" shall mean (A) with respect to the Indenture, any of those events defined as Events of Default by the terms of Article VI of the Indenture; (B) with respect to the Installment Sale Agreement, any of those events defined as Events of Default by the terms of Article X of the Installment Sale Agreement; (C) with respect to the Mortgage, any of those events defined as Events of Default by the terms of Article VI of the Mortgage; and (D) with respect to any other Financing Document, any of those Events of Default defined therein. "Existing Facility" shall mean the three existing buildings containing, in the aggregate, approximately 98,000 square feet of space and located at 968 Albany-Shaker Road in the Town of Colonie, New York. "Extraordinary Services" and "Extraordinary Expenses" shall mean all services rendered and all expenses incurred by the Trustee or any paying agent under the Indenture, other than Ordinary Services and Ordinary Expenses, including, but not limited to, reasonable attorneys fees and any services rendered and any expenses incurred with respect to an Event of Default or with respect to the occurrence of an event which upon the giving of notice or the passage of time would ripen into an Event of Default under any of the Financing Documents. "Facility" shall mean, collectively, the Existing Facility and the New Facility, and any other buildings, improvements, structures and other related facilities (A) affixed to or attached to the Land, (B) financed with the proceeds of the sale of the Bonds or any payment made by the Company pursuant to Section 4.5 of the Installment Sale Agreement, and (C) not constituting a part of the Equipment, all as they may exist from time to time. "Financial Institution" shall mean (A) any national bank, or banking institution, whether acting in its individual or fiduciary capacity, organized under the laws of the United States, any state, any territory or the District of Columbia, the business of which is substantially confined to banking and is supervised by the Comptroller of the Currency or a comparable state or territorial official or agency; banking commission or similar official; (B) an insurance company which is organized as an insurance company whose primary and predominant business activity is the writing of insurance or the reinsuring of risks underwritten by insurance companies and which is subject to supervision by the insurance commissioner or a similar official or agency of a state or a territory or the District of Columbia; (C) an investment company registered under the Investment Company Act of 1940 or a business development company as described in Section 2(a)(48) of that Act; (D) an employee benefit plan, including an individual retirement account, which is subject to the provisions of the Employee Retirement Income Security Act of 1974, if the investment decision is made by a plan fiduciary, as defined in Section 3(21) of such Act, which is either a bank, insurance company or registered investment company; or (E) institutional investors or other entities who customarily purchase commercial paper or tax-exempt securities in large denominations. "Financing Documents" shall mean the Bonds, the Indenture, the Installment Sale Agreement, the Mortgage, the Bond Purchase Agreement, the Bank Documents, the Remarketing Agreement and any other document now or hereafter executed by the Issuer, the Company or the Bank in favor of the Bondholders, the Trustee or the Bank which affects the rights of the Bondholders, the Trustee or the Bank in or to the Project Facility, in whole or in part, or which secures or guarantees any sum due under the Bonds or any other Financing Document, each as amended from time to time, and all documents related thereto and executed in connection therewith. "Fixed Rate" shall mean the fixed interest rate on the Bonds as determined in accordance with the Indenture, from and including the Fixed Rate Conversion Date. "Fixed Rate Conversion" shall mean the conversion of the interest rate on the Bonds from an Adjustable Rate to a Fixed Interest Rate. "Fixed Rate Conversion Date" shall mean the date on which the Bonds shall commence to bear interest at the Fixed Rate as provided in the Indenture, provided that if any such date shall not be a Business Day, such date shall be the next succeeding Business Day. "Fixed Rate Period" shall mean that period during which the Bonds shall bear interest at the Fixed Rate. "Government Obligations" shall mean direct obligations of, or obligations the principal of and interest on which are fully and unconditionally guaranteed as full faith and credit obligations by, the United States of America which are not subject to redemption by the issuer thereof prior to their stated maturity. "Governmental Authority" shall mean the United States, the State, any other state and any political subdivision thereof, and any agency, department, commission, board, bureau or instrumentality of any of them. "Gross Proceeds" shall mean one hundred percent (100%) of the proceeds of the transaction in question, including, but not limited to, the settlement of any insurance claim or Condemnation award. "Guaranty" shall mean the guaranty dated as of December 1, 1998 from the Corporate Guarantor to the Trustee, as said guaranty may be supplemented or amended from time to time. "Hazardous Materials" shall mean all hazardous materials including, without limitation, any flammable explosives, radioactive materials, radon, asbestos, urea formaldehyde foam insulation, polychlorinated byphenyls, petroleum, petroleum products, methane, hazardous materials, hazardous wastes, hazardous or toxic substances, or related materials as set forth in the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended (42 U.S.C. Sections 6901, et seq.), the Hazardous Materials Transportation Act, as amended (49 U.S.C. Sections 1801, et seq.), the Resource Conservation and Recovery Act, as amended (42 U.S.C. Sections 9601, et seq.), Articles 15 or 27 of the State Environmental Conservation Law, or in the regulations adopted and publications promulgated pursuant thereto, or any other Federal, state or local environmental law, ordinance, rule or regulation. "Immediate Notice" shall mean same-day notice by telephone, telecopy or telex, followed by prompt written confirmation sent by overnight delivery. "Indebtedness" shall have the meaning assigned to such term in Section 2.01 of the Mortgage. "Indenture" shall mean the trust indenture dated as of December 1, 1998 by and between the Issuer and the Trustee, as said trust indenture may be supplemented or amended from time to time. "Independent Counsel" shall mean an attorney or firm of attorneys duly admitted to practice law before the highest court of any state and approved by the Bank and not a full-time employee of the Company or the Issuer. "Installment Sale Agreement" shall mean the installment sale agreement dated as of December 1, 1998 by and between the Issuer and the Company, as said installment sale agreement may be supplemented or amended from time to time. "Insurance and Condemnation Fund" shall mean the fund so designated established pursuant to Section 401(A) of the Indenture. "Insurance and Condemnation Fund Non-Preference Moneys Subaccount" shall mean the account so designated within the Insurance and Condemnation Fund established pursuant to Section 401(A) of the Indenture. "Interest Payment Date" shall mean (A) prior to the Conversion Date, the first (1st) Thursday of each month, and (B) after the Conversion Date, such dates as may be determined in accordance with Section 209(B)(2)(e)(ii)(B) of the Indenture. "Issuer" shall mean (A) Town of Colonie Industrial Development Agency and its successors and assigns, and (B) any public benefit corporation or political subdivision resulting from or surviving any consolidation or merger to which Town of Colonie Industrial Development Agency or its successors or assigns may be a party. "Land" shall mean the parcel of land containing approximately 35.6 acres and located at 968 Albany-Shaker Road in the Town of Colonie, Albany County, New York. "Lease to Issuer" shall mean the lease agreement dated the Closing Date from the Company to the Issuer conveying a leasehold interest in a portion of the Land and the Facility to the Issuer. "Letter of Credit" shall mean (A) the irrevocable transferable direct-pay letter of credit dated the Closing Date, issued by the Bank in favor of the Trustee, in a maximum amount (which shall decline at fixed intervals) equal to the principal of the Bonds Outstanding, and sixty-five (65) days' interest on all Outstanding Bonds (computed at the maximum interest rate equal to 15%) and (B) any Substitute Letter of Credit. "Lien" shall mean any interest in Property securing an obligation owed to a Person, whether such interest is based on the common law, statute or contract, and including but not limited to a security interest arising from a mortgage, encumbrance, pledge, conditional sale or trust receipt or a lease, consignment or bailment for security purposes. The term "Lien" includes reservations, exceptions, encroachments, projections, easements, rights of way, covenants, conditions, restrictions, leases and other similar title exceptions and encumbrances, including but not limited to mechanics', materialmen's, warehousemen's and carriers' liens and other similar encumbrances affecting real property. For purposes hereof, a Person shall be deemed to be the owner of any Property which it has acquired or holds subject to a conditional sale agreement or other arrangement pursuant to which title to the Property has been retained by or vested in some other Person for security purposes. "Lien Law" shall mean the Lien Law of the State. "Local Authority" shall mean any Governmental Authority which exercises jurisdiction over the Land or the acquisition, construction or installation of the Project Facility. "Mandatory Tender" shall mean the mandatory tender of Bonds by the owner thereof upon (A) the Company's exercise of the Conversion Option pursuant to Section 209 of the Indenture, or (B) the delivery by the Company of an Alternate Letter of Credit pursuant to Section 304 of the Indenture. "Maturity Date" shall mean, with respect to any Bond, the final Stated Maturity of the principal of such Bond. "Moody's" shall mean Moody's Investors Service, Inc., and its successors and assigns. "Mortgage" shall mean the mortgage dated as of December 1, 1998 from the Issuer and the Company to the Bank, as said mortgage may be supplemented or amended from time to time. "Mortgaged Property" shall mean all Property which may from time to time be subject to the Lien of the Mortgage. "Net Proceeds" shall mean so much of the Gross Proceeds with respect to which that term is used as remain after payment of all fees for services, expenses, costs and taxes (including attorneys' fees) incurred in obtaining such Gross Proceeds. "Non-Preference Moneys" shall mean (A) proceeds of the Bonds deposited on the Closing Date in the Bond Fund, (B) (1) proceeds from the issuance and sale of bonds issued to refund the Bonds, which proceeds (a) are deposited directly with the Trustee upon the issuance of such refunding bonds, and (b) are at all times after their receipt by the Trustee held separately and not commingled with other moneys, and (2) proceeds from the investment thereof (provided, however, that proceeds of bonds issued to refund the Bonds shall not be considered "Non-Preference Moneys" unless the Trustee shall receive an opinion of nationally recognized counsel acceptable to it and experienced in bankruptcy matters to the effect that the payment of such proceeds to an owner of Bonds would not constitute a "preferential payment" subject to avoidance under the United States Bankruptcy Code in the event of a filing by or against the Company or Related Person to either the Company as debtor under Title 11 of the United States Code), (C) moneys paid by the Bank under the Letter of Credit, (D) moneys or Authorized Investments derived directly or indirectly from the Company or a Related Person to either the Company, but only if such moneys or Authorized Investments have been on deposit with the Trustee for a period of not less than three hundred sixty-seven (367) days; provided, however, that if on the date in question a petition had previously been filed by or against the Company, or a Related Person to either the Company in a case under Title 11 of the United States Code and such case has not been dismissed, "Non-Preference Moneys" will not include any moneys or Authorized Investments derived directly or indirectly from the Person against or by whom such petition was filed that were deposited with the Trustee fewer than three hundred sixty-seven (367) days prior to the date such petition was filed, and (E) moneys on deposit in the Project Fund or in the Insurance and Condemnation Fund, provided that such moneys shall have been on deposit with the Trustee for three hundred and sixty-seven (367) days following the date on which the Company shall have no further right to draw on the same, and provided further that during such period there shall not have occurred a filing by or against the Company or Related Person to either the Company as debtor under Title 11 of the United States Code. "Office of the Trustee" shall mean the principal corporate trust office of the Trustee, presently located at One M & T Plaza, 7th Floor, Buffalo, New York 14203. "Optional Redemption Premium" shall mean the maximum applicable premium payable upon an optional redemption of the Bonds after the Conversion Date, as determined by the Remarketing Agent pursuant to Section 301(D)(2) of the Indenture. "Ordinary Services" and "Ordinary Expenses" shall mean those services normally rendered with those expenses, including reasonable attorneys' fees, normally incurred by a trustee or a paying agent, as the case may be, under instruments similar to the Indenture. "Outstanding" shall mean, when used with reference to the Bonds as of any date, all Bonds which have been duly authenticated and delivered by the Trustee under the Indenture, except: (A) Bonds theretofore cancelled or deemed cancelled by the Trustee or theretofore delivered to the Trustee for cancellation; (B) Bonds the payment or redemption of which moneys or Government Obligations shall have been theretofore deposited with the Trustee (whether upon or prior to the maturity or redemption date of any such Bonds); provided that such moneys or obligations are Non-Preference Moneys; and provided that if such Bonds are to be redeemed prior to the maturity thereof, notice of such redemption shall have been given or arrangements satisfactory to the Trustee shall have been made therefor, or waiver of such notice satisfactory in form to the Trustee shall have been filed with the Trustee; and (C) Bonds in lieu of or in substitution for which other Bonds have been authenticated and delivered under the Indenture. If the Indenture shall be discharged pursuant to Article X thereof, no Bonds shall be deemed to be Outstanding within the meaning of this provision. "PBGC" shall mean the Pension Benefit Guaranty Corporation established under Title IV of ERISA, or any other governmental agency, department or instrumentally succeeding to the functions of said corporation. "Permitted Encumbrances" shall mean (A) utility, access and other easements, rights of way, restrictions, encroachments and exceptions that benefit or do not materially impair the utility or the value of the Property affected thereby for the purposes for which it is intended, (B) mechanics', materialmen's, warehousemen's, carriers' and other similar Liens to the extent permitted by Section 8.8(B) of the Installment Sale Agreement, (C) Liens for taxes, assessments and utility charges (1) to the extent permitted by Section 6.2(B) of the Installment Sale Agreement, or (2) at the time not delinquent, (D) any Lien on the Project Facility obtained through any Financing Document, (E) any Lien on the Project Facility in favor of the Trustee or the Bank, and (F) any Lien which is subordinate to the Lien of the Mortgage. "Person" shall mean an individual, partnership, corporation, trust, unincorporated organization or Governmental Authority. "PILOT Agreement" shall mean the payment in lieu of tax agreement dated as of December 1, 1998 by and among the Issuer and the Company, as said agreement may be supplemented or amended from time to time. "Plans and Specifications" shall mean the plans and specifications for the construction of the Facility prepared by the Company and approved by the Bank, and all amendments and modifications thereof made by approved change orders; and, if an item for the construction of the Facility is not specifically detailed in the aforementioned plans and specifications, but rather is described by way of manufacturer's or supplier's or contractor's shop drawings, catalog references or similar descriptions, the term also includes such shop drawings, catalog references and descriptions, all to be approved as required by the Building Loan Agreement. "Pledged Bonds" shall mean any Bonds at any time purchased, in whole or in part, with the proceeds of a draw on the Letter of Credit upon tender of each such Bond and held by the Trustee as nominee for the Bank pursuant to the Pledge and Security Agreement. "Predecessor Bonds" of any particular Bond shall mean every previous Bond evidencing all or a portion of the same debt as that evidenced by such particular Bond; and, for purposes of this definition, any Bond authenticated and delivered under Section 205 of the Indenture in lieu of a lost, destroyed or stolen Bond shall be deemed to evidence the same debt as the lost, destroyed or stolen Bond. "Principal Payment Date" shall mean, after the Conversion Date, the annual payment date for the payment of principal on the Bonds, the first such payment date being the second Interest Payment Date following the Fixed Rate Conversion Date, and on the same day annually thereafter. "Project" shall mean the project undertaken by the Issuer consisting of the following: (A) (1) the acquisition of a leasehold interest in a parcel of land containing approximately 35.6 acres located at 968 Albany-Shaker Road in the Town of Colonie, Albany County, New York (the "Land"), together with the existing buildings located thereon which contain approximately 98,000 square feet in the aggregate (such buildings known individually as Building I, Building II and Building III and hereinafter collectively referred to as the "Existing Facility"), (2) the demolition of Building I which contains approximately 14,105 square feet of space, (3) the construction of a new building to replace Building I and which will contain approximately 32,000 square feet of space (the "New Facility") (the Existing Facility and the New Facility hereinafter collectively referred to as the "Facility"), (4) the renovation of Building III and (5) the acquisition of and installation therein and thereon of certain machinery and equipment (the "Equipment") (the Land, the Facility and the Equipment being hereinafter collectively referred to as the "Project Facility"), all of the foregoing to be occupied by Mechanical Technology Incorporated (the "Company") and operated as a manufacturing facility, a portion of which will be leased by the Company to Plug Power, LLC and operated as a facility for the manufacture, research and development of fuel cells for residential and automotive applications and related products and any other related activities; (B) the financing of all or a portion of the costs of the foregoing by the issuance of the Bonds; (C) the granting of certain other "financial assistance" (within the meaning of Section 854(14) of the Act) with respect to the foregoing, including exemption from certain sales taxes, deed transfer taxes, mortgage recording taxes and real property taxes (collectively with the Bonds, the "Financial Assistance"); and (D) the lease (with an obligation to purchase) or sale of the Project Facility to the Company or such other person as may be designated by the Company and agreed upon by the Agency. "Project Facility" shall mean, collectively, the Land, the Facility and the Equipment. "Project Fund" shall mean the fund so designated established pursuant to Section 401(A) of the Indenture. "Project Fund Non-Preference Moneys Subaccount" shall mean the account so designated within the Project Fund established pursuant to Section 401(A) of the Indenture. "Property" shall mean any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible. "Purchase Date" shall mean (A) the Repurchase Closing Date, (B) the Conversion Date, and (C) the Alternate Security Date, in each case a date on which Bonds tendered or deemed tendered for purchase are to be purchased at the Purchase Price pursuant to the Indenture. "Purchase Price" shall mean an amount equal to one hundred percent (100%) of the principal amount of any Bond tendered or deemed tendered pursuant to Section 304 of the Indenture, plus accrued and unpaid interest thereon to the Purchase Date. "Record Date" shall mean either a Regular Record Date or a Special Record Date. "Redemption Price" shall mean, when used with respect to a Bond, the principal amount thereof plus the applicable premium, if any, payable upon the prior redemption thereof pursuant to the provisions of the Indenture and such Bond. "Regular Record Date" shall mean, with respect to the interest and any Sinking Fund Payment or principal payment due on the Bonds prior to maturity payable on any Bond payable on any Interest Payment Date, (A) prior to the Conversion Date, the Business Day next preceding any Interest Payment Date, and (B) after the Conversion Date, the fifteenth (15th) day (whether or not a Business Day) of the calendar month next preceding an Interest Payment Date. "Reimbursement Agreement" shall mean (A) the irrevocable letter of credit reimbursement agreement dated as of December 1, 1998 by and between the Company and the Bank, pursuant to which, among other things, the Bank agrees to issue the Letter of Credit and the Company agrees to reimburse the Bank for amounts drawn under the Letter of Credit, and (B) any agreement by and between the Company and a Substitute Bank pursuant to which a Substitute Letter of Credit shall be issued, in each case as said reimbursement agreement may be supplemented or amended from time to time. "Related Person" shall mean any Person constituting a "related person" within the meaning ascribed to such quoted term in Section 144(a)(3) of the Code, except when used in connection with the phrase "substantial user", in which case the phrase "Related Person" shall have the meaning set forth in Section 147(a) of the Code. "Remarketing Agent" shall mean First Albany Corporation, having an office at 30 South Pearl Street, Albany, New York 12207. "Remarketing Agreement" shall mean the remarketing agreement dated as of December 1, 1998 by and between the Company and the Remarketing Agent, as said agreement may be further amended or supplemented from time to time. "Repurchase Closing Date" shall mean the Business Day on which the owner of any Tendered Bond demands purchase of such Tendered Bond, which shall be not prior to seven (7) calendar days following receipt by the Tender Agent or the Trustee of a Tender Notice. "Request for Disbursement" shall mean a request from the Company, as agent of the Issuer, stating the amount of disbursement sought and containing the statements, representations and other items required by Section 4.3 of the Installment Sale Agreement and the Building Loan Agreement, in substantially the form of Exhibit F attached to the Indenture. "Requirement" or "Local Requirement" shall mean any law, ordinance, order, rule or regulation of a Governmental Authority or a Local Authority, respectively. "Resolution" shall mean the resolution of the Issuer adopted on November 23, 1998 authorizing the Issuer to undertake the Project, to issue and sell the Bonds and to execute and deliver the Financing Documents to which the Issuer is a party. "Sinking Fund Payments" shall mean (A) with respect to the Bonds, the sinking fund redemption payments due on the Bonds pursuant to Section 301(E) of the Indenture and (B) with respect to any Additional Bonds, the sinking fund redemption payments (if any) required pursuant to the supplemental Issuer Indenture authorizing issuance of such Additional Bonds. "Special Record Date" shall mean a date for the payment of any Defaulted Payments on the Bonds fixed by the Trustee pursuant to Section 207(C) of the Indenture. "Standard & Poor's" shall mean Standard & Poor's, and its successors and assigns. "State" shall mean the State of New York. "Stated Maturity" shall mean, when used with respect to any Bond or any installment of interest thereon, the date specified in such Bond as the fixed date on which the principal of such Bond or such installment of interest on such Bond is due and payable. "Substitute Bank" shall mean a commercial bank or savings and loan association which has issued a Substitute Letter of Credit. "Substitute Letter of Credit" shall mean a letter of credit, delivered to the Trustee in accordance with Section 5.8 of the Installment Sale Agreement, (A) issued by the Bank or a Substitute Bank, (B) replacing any existing Letter of Credit, (C) dated as of a date prior to the expiration date of the Letter of Credit for which the same is to be substituted, (D) which shall have a term of at least one year and expire on a date which is at least fifteen (15) days after an Interest Payment Date, and (E) issued on substantially identical terms and conditions as the then existing Letter of Credit, except that the stated amount of the Substitute Letter of Credit shall equal the sum of (1) the aggregate principal amount of Bonds at the time Outstanding, plus (2) an amount equal to (i) prior to the Conversion Date, at least sixty-five (65) days' interest on the Bonds at the time Outstanding computed at a rate of fifteen percent (15%) and (ii) after the Conversion Date, at least 210 days' interest on the Bonds, computed at the Fixed Rate in effect, together with the Optional Redemption Premium. "Substitute Reimbursement Agreement" shall mean a substitute reimbursement agreement by and between the Company and a Substitute Bank providing for the issuance by the Substitute Bank of a Substitute Letter of Credit. "Tender Agent" shall mean the Trustee or any successor Tender Agent under the Indenture. "Tender Notice" shall mean the notice, in substantially the form attached as Exhibit C-5 to the Indenture and complying with the requirements of Section 305 of the Indenture, pursuant to the delivery of which a Bondholder shall demand redemption of a Tendered Bond. A notice shall not be considered a validly delivered notice unless it complies with the requirements of the Indenture. "Tender Notice Date" shall mean the date on which the Tender Agent receives a Tender Notice. "Tendered Bond" shall mean any Bond or a portion thereof which has been the subject of (A) a Demand Purchase Option under Section 305 of the Indenture or (B) a Mandatory Tender under Section 304 of the Indenture. "Title Insurer" shall mean the issuer of the title insurance policy required by Section 210 of the Indenture. "Trust Estate" shall mean all Property which may from time to time be subject to a Lien in favor of the Trustee created by the Indenture or any other Financing Document. "Trust Revenues" shall mean (A) all payments of installment purchase payments made or to be made under the Installment Sale Agreement (except payments made with respect to the Unassigned Rights), (B) all other amounts pledged to the Trustee by the Issuer or the Company to secure the Bonds or performance of their respective obligations under the Installment Sale Agreement and the Indenture, (C) the Net Proceeds (except proceeds with respect to the Unassigned Rights) of insurance settlements and Condemnation awards with respect to the Project Facility, (D) the Net Proceeds (except proceeds with respect to the Unassigned Rights) from the disposition of the Project Facility upon foreclosure of the Lien of the Mortgage, (E) all payments received by the Trustee under the Letter of Credit, (F) moneys and investments held from time to time in each fund and account established under the Indenture and all investment income thereon, except (1) moneys deposited with or paid to the Trustee for the redemption of Bonds, notice of which has been duly given, (2) moneys deposited with the Trustee or the Tender Agent for the purchase of Tendered Bonds, and (3) as specifically otherwise provided, and (G) all other moneys received or held by the Trustee for the benefit of the Bondholders pursuant to the Indenture. "Trustee" shall mean Manufacturers and Traders Trust Company, a trust company organized and existing under the laws of the State of New York having an office for the transaction of business located at One M & T Plaza, 7th Floor, Buffalo, New York 14203, or any successor trustee or co-trustee, acting as trustee under the Indenture. "Unassigned Rights" shall mean (A) the rights of the Issuer granted pursuant to Sections 2.2, 3.1, 3.2, 3.3, 4.1(A), 4.1(B), 4.1(D), 4.1(E)(2), 4.1(F), 4.1(G), 4.4, 4.5, 4.6, 5.2(A), 5.3(B)(2), 5.3(B)(3), 5.4(B), 6.1(A), 6.1(B), 6.2, 6.3, 6.4, 6.5, 6.6, 7.1, 7.2, 8.1, 8.2, 8.3, 8.4, 8.5, 8.6, 8.7, 8.8, 8.9, 8.15, 9.1, 9.3, 9.4, 11.1, 11.4, 11.6, 11.8 and 11.10 of the Installment Sale Agreement, (B) the moneys due and to become due to the Issuer for its own account or the members, officers, agents and employees of the Issuer for their own account pursuant to Sections 2.2(F), 3.1, 3.3, 4.1(F), 5.3(B)(2), 5.3(B)(3), 5.3(C), 6.4(B), 8.2, 10.2 and 10.4 of the Installment Sale Agreement and the moneys due as payments in lieu of taxes under Section 6.6 of the Installment Sale Agreement and the PILOT Agreement, (C) the rights of the Issuer under Section 6.6 of the Installment Sale Agreement, and (D) the right to enforce the foregoing pursuant to Article X of the Installment Sale Agreement. Notwithstanding the preceding sentence, to the extent the obligations of the Company under the Sections of the Installment Sale Agreement listed in (A), (C) and (D) above do not relate to the payment of moneys to the Issuer for its own account or to the members, officers, directors, agents (other than the Company) and employees of the Issuer for their own account, such obligations, upon assignment of the Installment Sale Agreement by the Issuer to the Trustee pursuant to the Pledge and Assignment, shall be deemed to and shall constitute obligations of the Company to the Issuer and the Trustee, jointly and severally, and either the Issuer or the Trustee may commence an action to enforce the Company's obligations under the Installment Sale Agreement. "Underwriter" shall mean First Albany Corporation, having an office for the transaction of business located at 30 South Pearl Street, Albany, New York 12207, as original purchaser of the Bonds on the Closing Date. SECTION 102. INTERPRETATION. (A) In this Indenture, unless the context otherwise requires: (1) the terms "hereby", "hereof", "hereto", "herein", "hereunder", and any similar terms, as used in this Indenture, refer to this Indenture, and the term "heretofore" shall mean before, and the term "hereafter" shall mean after, the date of this Indenture; (2) words of masculine gender shall mean and include correlative words of the feminine and neuter genders; (3) words importing the singular number shall mean and include the plural number, and vice versa; (4) any headings preceding the texts of the several Articles and Sections of this Indenture, and any table of contents or marginal notes appended to copies hereof, shall be solely for convenience of reference and shall neither constitute a part of this Indenture nor affect its meaning, construction or effect; (5) words importing the redemption or redeeming of a Bond or the calling of a Bond for redemption do not include or connote the payment of such Bond at its Stated Maturity or the purchase of said Bond; (6) all references to time in this document refer to New York City time; and (7) any certificates, letters or opinions required to be given pursuant to this Indenture shall mean a signed document attesting to or acknowledging the circumstances, representations, opinions of law or other matters therein stated or set forth or setting forth matters to be determined pursuant to this Indenture. (B) Nothing in this Indenture expressed or implied is intended or shall be construed to confer upon, or to give to, any persons, other than the Issuer, the Trustee, the Bank and the holders of the Bonds, any right, remedy or claim under or by any reason of this Indenture or any covenant, condition or stipulation thereof. All the covenants, stipulations, promises and agreements herein contained by and on behalf of the Issuer shall be for the sole and exclusive benefit of the Issuer, the Trustee, the Bank and the holders of the Bonds. SECTION 103. CONDITIONS PRECEDENT SATISFIED. All acts, conditions and things required by law to exist, happen and be performed precedent to and in connection with the execution and entering into of this Indenture have happened and have been performed in regular and due time, form and manner as required by law, and the parties hereto are now duly empowered to execute and enter into this Indenture. ARTICLE II THE BONDS SECTION 201. RESTRICTION ON ISSUANCE OF BONDS. No Bonds may be authenticated and issued under the provisions of this Indenture except in accordance with this Article II. Except as provided in Section 205 and Section 214 hereof, the total aggregate principal amount of Bonds that may be issued and authenticated hereunder is expressly limited to $6,000,000. SECTION 202. LIMITED OBLIGATIONS. (A) The Bonds, together with the premium, if any, and the interest thereon, shall be limited obligations of the Issuer payable, with respect to the Issuer, solely from the Trust Revenues, which Trust Revenues are hereby pledged and assigned for the equal and ratable payment of all sums due under the Bonds, and shall be used for no other purpose than to pay the principal of, premium, if any, on and interest on the Bonds except as may be otherwise expressly provided herein. (B) THE BONDS ARE NOT AND SHALL NOT BE A DEBT OF THE STATE OR OF THE TOWN OF COLONIE, NEW YORK AND NEITHER THE STATE NOR THE TOWN OF COLONIE, NEW YORK SHALL BE LIABLE THEREON. THE BONDS DO NOT GIVE RISE TO A PECUNIARY LIABILITY OR CHARGE AGAINST THE GENERAL CREDIT OR TAXING POWERS OF THE STATE OR OF THE TOWN OF COLONIE, NEW YORK. (C) No recourse shall be had for the payment of the principal of or premium, if any, on or the interest on any Bond or for any claim based thereon or on this Indenture against any past, present or future member, officer, employee or agent (other than the Company), as such, of the Issuer or of any predecessor or successor corporation, either directly or through the Issuer or otherwise, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty, or otherwise. SECTION 203. EXECUTION. (A) The Bonds shall be executed on behalf of the Issuer by the manual or facsimile signature of its Chairman or its Vice Chairman, and the Issuer's corporate seal, or a reproduction thereof, shall be impressed, imprinted or otherwise reproduced thereon and attested by the manual or facsimile signature of its Secretary or its Assistant Secretary. All such facsimile signatures shall have the same force and effect as if said officers had manually signed the Bonds. The reproduction of the Issuer's corporate seal on the Bonds shall have the same force and effect as if the Issuer's corporate seal had been impressed on the Bonds. (B) In case any Authorized Representative of the Issuer whose signature shall appear on any Bond shall cease to be such Authorized Representative before the delivery of such Bond or the issuance of a new Bond following a transfer or exchange, such signature or such facsimile shall nevertheless be valid and sufficient for all purposes, the same as if such Authorized Representative had remained in office until delivery. SECTION 204. AUTHENTICATION. Only such Bonds as shall have endorsed thereon the Certificate of Authentication substantially in the forms set forth in the forms of Bond attached hereto as Exhibits A and B duly executed by the manual signature of an authorized officer of the Trustee shall be entitled to any right or benefit under this Indenture. No Bonds shall be valid or obligatory for any purpose unless and until such Certificate of Authentication shall have been duly executed by the Trustee; and such executed Certificate of Authentication upon any such Bond shall be conclusive evidence that such Bond has been authenticated and delivered under this Indenture. The Trustee's Certificate of Authentication on any Bond shall be deemed to have been executed by it if signed by an authorized officer of the Trustee, but it shall not be necessary that the same person sign the Certificate of Authentication on all of the Bonds. In the event of the appointment of a Tender Agent, other than the Trustee such Tender Agent may act as Co- Authenticating Agent with respect to the Tendered Bonds. SECTION 205. MUTILATED, LOST, STOLEN OR DESTROYED BONDS. (A) In the event any Bond is mutilated, lost, stolen or destroyed, the Issuer may execute and the Trustee may authenticate a new Bond, executed by the Issuer as provided in Section 203 hereof, of like maturity, interest rate and denomination as the Bond so mutilated, lost, stolen or destroyed. Any mutilated Bond shall first be surrendered to the Trustee; and in the case of any lost, stolen or destroyed Bond, there shall first be furnished to the Trustee evidence of such loss, theft or destruction satisfactory to the Trustee, together with indemnity satisfactory to the Trustee. The Issuer or the Trustee may charge the holder or owner of such Bond a sum sufficient to cover any tax or other governmental charge in connection with such exchange or substitution of such new Bond, together with any other reasonable fees and expenses incurred by the Issuer or the Trustee in connection therewith. (B) Every Bond issued pursuant to the provisions of this Section 205 shall be equally and proportionately entitled to the benefits of this Indenture with all other Bonds secured by the Indenture. However, the Trustee shall not be required to treat both the original Bond and any Bond issued in lieu thereof as being Outstanding for purposes of determining the principal amount of Bonds Outstanding under this Indenture or for the purpose of determining any percentage of Bonds Outstanding hereunder, but both the original Bond and the Bond issued in lieu thereof shall be treated as one and the same. (C) Notwithstanding any other provision of this Section 205, in lieu of delivering a new Bond for a Bond which has been mutilated, lost, stolen or destroyed and which has matured, upon receipt of evidence of such mutilation, loss, theft or destruction and indemnity satisfactory to the Trustee, the Trustee may make payment for such Bond. SECTION 206. TRANSFER AND EXCHANGE OF BONDS; PERSONS TREATED AS OWNERS. (A) The Trustee is designated and agrees to act as Bond Registrar and shall cause a bond register to be kept on behalf of the Issuer at the Office of the Trustee for the registration and transfer of Bonds. Except as provided in Section 213 hereof, any Bond, upon the surrender of such Bond to the Bond Registrar, may be transferred, but only upon delivery of an assignment duly executed by the registered owner or his duly authorized legal representative in the form imprinted on the Bond or in such other form as shall be satisfactory to the Bond Registrar. (B) Except as otherwise provided in Section 206(E) or Section 213 hereof, upon receipt of such Bond and upon satisfaction of the conditions set forth in Section 206(A) and Section 206(C) hereof, the Trustee shall immediately record the transfer of such bond on the bond register and cause the transferee or transferees to be the registered owner of such Bond. Upon any such registration of transfer, the Issuer shall execute and the Trustee shall authenticate and deliver in exchange for such Bond one or more new Bonds, executed by the Issuer as provided in Section 203 hereof, registered in the name of the designated transferee thereof, of any denomination or denominations authorized by this Indenture and for the same aggregate principal amount as the Bond or Bonds surrendered for transfer. (C) In the event of the appointment of a Tender Agent, other than the Trustee, such Tender Agent may act as Co-Bond Registrar with respect to Tendered Bonds. (D) No service charge shall be made for any transfer or exchange of Bonds, but in all cases in which Bonds shall be transferred or exchanged hereunder, the Issuer or the Trustee may make a charge for every transfer or exchange of Bonds sufficient to reimburse them for any tax, fee or other governmental charge required to be paid with respect to such transfer or exchange, and such charge shall be paid before any such new Bond shall be delivered. (E) The Person in whose name any Bond shall be registered shall be deemed and regarded as the absolute Owner thereof for all purposes, and payment of or on account of the principal of, or the premium if any or interest on, any such Bond shall be made only to or upon the order of the registered Holder thereof or his duly authorized legal representative, subject to the terms of Section 207(C) hereof. Such registration may be changed only as provided in this Section 206, and no other notice to the Issuer or the Trustee shall affect the rights or obligations with respect to the transference of any Bond or be effective to transfer any Bond. All payments to the Person in whose name any Bond shall be registered shall be valid and effectual to satisfy and discharge the liability upon such Bond to the extent of the sum or sums so paid. (F) The Trustee shall not be required to make any such transfer or exchange of (1) any Bond during the fifteen (15) days next preceding a Bond Payment Date or (2) any Bond selected for redemption in whole or in part under Article III hereof; provided, however, that in the event of a Bond selected for redemption in part, nothing in this paragraph shall prohibit exchange of the remaining portion of such Bond redeemed in part for a new Bond with a reduced principal amount or the transfer or exchange of any such new Bond; provided, further that the foregoing shall not apply to the registration or transfer of any Bond which has been tendered to the Tender Agent pursuant to Section 304 hereof, and in any such case, for purposes of selection for redemption, the Bond so tendered and the Bond issued to the transferee thereof shall be deemed and treated as the same Bond. SECTION 207. PAYMENT PROVISIONS. (A) Payment of the principal of, premium, if any, on and interest on the Bonds shall be made in lawful money of the United States of America. (B) Interest and any Sinking Fund Payment or principal payment due prior to maturity on any Bond which is payable, and which is punctually paid or duly provided for, on any Bond Payment Date shall be paid to the Person appearing on the bond register as the registered owner of that Bond (or one or more Predecessor Bonds) at the close of business on the Regular Record Date, by check or draft of the Trustee mailed by the Trustee on such Bond Payment Date to such registered owner at his address as it appears on the bond register; provided that at the option of any Holder of Bonds in an aggregate principal amount of $250,000 or greater, the Trustee shall cause such amounts to be transmitted on such Interest Payment Date by wire transfer at such owner's written request to the bank account number on file with the Trustee, provided such owner has delivered adequate instructions regarding same to the Trustee at least ten (10) Business Days prior to such Bond Payment Date. (C) Any interest and any Sinking Fund Payment or principal payment due prior to maturity on any Bond which is payable, but is not punctually paid or duly provided for, on any Bond Payment Date (herein called "Defaulted Payments") shall forthwith cease to be payable to the Person appearing on the bond register as the registered owner on the relevant Regular Record Date solely by virtue of such Person having been such registered owner; and the Trustee shall make payment of any Defaulted Payments on Bonds to the Persons in whose names such Bonds (or their respective Predecessor Bonds) are registered at the close of business on a Special Record Date for the payment of such Defaulted Payments, which shall be fixed in the following manner. The Trustee shall determine the amount of Defaulted Payments to be paid on each Bond and establish the date of the proposed payment (which date shall be such as will enable the Trustee to comply with the next sentence hereof), and money in the aggregate amount of the proposed Defaulted Payments shall be segregated by the Trustee to be held in trust for the benefit of the Persons entitled to such Defaulted Payments as in this Subsection provided and not to be deemed part of the Trust Revenues. Thereupon the Trustee shall fix a Special Record Date for the payment of such Defaulted Payments which shall be not more than fifteen (15) nor less than ten (10) days prior to the date of the proposed payment. The Trustee shall promptly notify the Issuer, the Bank and the Company of such Special Record Date and shall cause notice of the proposed payment of such Defaulted Payments and the Special Record Date therefor to be mailed one time, first-class postage prepaid, to each registered owner of a Bond at his address as it appears in the bond register not less than ten (10) days prior to such Special Record Date. Notice of the proposed payment of such Defaulted Payments and the Special Record Date therefor having been mailed as aforesaid, such Defaulted Payments shall be paid to the Persons in whose names the Bonds (or their respective Predecessor Bonds) are registered on such Special Record Date. (D) Subject to the foregoing provisions of this Section, each Bond delivered under this Indenture upon transfer of or in exchange for or in lieu of any other Bond shall carry all the rights to interest and any Sinking Fund Payments or principal payments due prior to maturity accrued and unpaid, and to accrue, which were carried by such other Bond, and each such Bond shall bear interest from such date so that neither gain nor loss in interest shall result from such transfer, exchange or substitution. (E) The principal of and premium, if any, on any Bonds due at maturity shall be payable at the Office of the Trustee, upon presentation and surrender of such Bond by the registered owner thereof or his duly authorized legal representative at the maturity of such Bond or such other date as such payments become due, by redemption or otherwise. Except as provided in subsection (B) hereof, in the event of a partial redemption of any Bond, payment of the redemption price shall be made to the registered owner or his duly authorized legal representative only upon surrender to the Trustee of such Bond, and upon such surrender the Trustee shall authenticate a new Bond executed by the Issuer as provided in Section 203 for the unredeemed portion of such Bond. (F) In NO EVENT shall the Trustee pay any portion of the principal of, premium, if any, or interest on any Bond from other than Non-Preference Moneys. SECTION 208. TEMPORARY BONDS. (A) Until definitive Bonds are ready for delivery, there may be executed, and upon the request of the Issuer the Trustee shall authenticate and deliver in lieu of definitive Bonds, temporary printed, lithographed or typewritten Bonds, in any authorized denomination, in substantially the tenor set forth in Exhibits A and B attached hereto and with such appropriate omissions, insertions and variations as may be required. (B) If the Bonds are no longer Book Entry Bonds and if temporary Bonds shall have been issued, the Issuer shall, at the sole cost and expense of the Company, cause the definitive Bonds to be prepared and to be executed and delivered to the Trustee, and the Trustee, upon presentation to it at the Office of the Trustee of any temporary Bond, shall cancel the same and authenticate and deliver in exchange therefor, without charge to the owner thereof, a definitive Bond or Bonds of an equal aggregate principal amount of the same maturity and bearing interest at the same rate as the temporary Bond surrendered. Until so exchanged, the temporary Bonds shall in all respects be entitled to the same benefit and security of this Indenture as the definitive Bonds to be issued and authenticated hereunder. SECTION 209. SPECIFIC DETAILS OF BONDS. (A) The Bonds shall be issued in the aggregate principal amount of $6,000,000, shall be designated "Town of Colonie Industrial Development Agency Taxable Industrial Development Revenue Bonds (Mechanical Technology Incorporated Project - Letter of Credit Secured), Series 1998A". The Bonds shall be numbered from one upward and prefixed "R". The Bonds shall be issued in the denomination of $100,000 or any integral multiple of $5,000 in excess thereof. Interest on the Bonds prior to the Conversion Date shall be payable on the first (1st) Thursday of each month, commencing January 7, 1999. (B) (1) The Bonds shall be dated the Closing Date and shall bear interest from the Closing Date, or from the most recent Interest Payment Date to which interest has been paid. The Bonds shall mature on December 1, 2013. (2) The Bonds shall bear interest as follows: (a) From the Closing Date through and including December 23, 1998, the Bonds shall bear interest at a rate per annum equal to five and fifty-five hundredths percent (5.55%). (b) Thereafter, except as provided in (e) below, the Bonds (other than Pledged Bonds) shall bear interest at the "Adjustable Rate". (i) The Adjustable Rate shall be the rate of interest established by the Remarketing Agent on the first Business Day prior to each Adjustment Date, which in the Remarketing Agent's reasonable judgment would result, as nearly as practicable, in the market value of the Bonds on an Adjustment Date being equal to one hundred percent (100%) of the principal amount thereof. The Adjustable Rate so determined shall be adjusted in accordance with the directions of the Remarketing Agent on the Adjustment Date and shall remain in effect through and including the day prior to the next following Adjustment Date. (ii) In determining the Adjustable Rate pursuant to the foregoing Section 209(B)(2)(b)(i), the Remarketing Agent shall take into account, to the extent applicable, (A) the market interest rates for comparable securities held by open-end municipal or other fixed income bond funds or other institutional or private investors with substantial portfolios (w) with interest rate adjustment periods and demand purchase options substantially identical to the Bonds, (x) bearing interest at a variable rate intended to maintain par value, (y) rated by a national credit rating agency in the same category as the Bonds or, if not rated, secured by substantially the same level of security as the Bonds, and (z) the interest on which is included in gross income of the holders thereof for federal income taxation purposes; (B) other financial market rates and indices which may have a bearing on the Adjustable Rate (including, but not limited to rates borne by commercial paper, Treasury bills, commercial bank prime rates, certificate of deposit rates, federal funds rates, the London Interbank Offered Rate, indices maintained by The Bond Buyer, and other publicly available taxable interest rate indices); (C) general financial market conditions (including current forward supply); (D) factors particular to the Project or the credit standing of the Company and the Bank; and (E) such other factors which the Remarketing Agent deems appropriate. (iv) The Fixed Rate shall be calculated based on a 360-day year of twelve 30-day months. The determination of the Fixed Rate by the Remarketing Agent pursuant to and in accordance with the terms of the Indenture and the terms of the Bonds shall be conclusive and binding on the Issuer, the Trustee, the Company, the Bank and the Holders of the Bonds. (v) To exercise the Conversion Option, the Company shall deliver at least sixty (60) days prior to the Conversion Date, written notice to the Trustee, the Issuer and the Bank of its election of the Conversion Option. On the Conversion Date, the Bonds shall be subject to a Mandatory Tender for purchase as provided in Section 304 of the Indenture. Notwithstanding anything to the contrary contained herein, such notice shall not be effective unless the Bank shall have consented thereto in writing and such notice is accompanied by: (A) a Substitute Letter of Credit with an expiration date of not earlier than fifteen (15) days following the Principal Payment Date which is at least three (3) years after the next succeeding Principal Payment Date and in an amount equal to the sum of the aggregate principal amount of the Bonds then Outstanding, 210 days' interest thereon computed at the Fixed Rate, together with the Optional Redemption Premium; provided, however, that if the Letter of Credit then in place has an expiration date of not earlier than fifteen (15) days following the Principal Payment Date which is at least three (3) years after the next succeeding Principal Payment Date and in an amount equal to the aggregate principal amount of the Bonds then Outstanding, 210 days' interest thereon computed at the Fixed Rate, together with the Optional Premium, no Substitute Letter of Credit need be obtained; (B) a statement as to whether the Bonds shall be serial bonds as set forth in Section 209(B)(2)(e)(ii) above; and (C) an opinion of Bond Counsel reasonably satisfactory to the Trustee, the Issuer and the Bank to the effect that the exercise of the Conversion Option is lawful under the Act and permitted by the Indenture. (f) Notwithstanding anything herein to the contrary, any Pledged Bond shall bear interest at a rate equal to the Bank Rate, as such rate shall change from time to time; provided, however, that at no time shall the interest rate in effect for any Pledged Bond exceed the maximum rate permitted by applicable usury laws. (g) Notwithstanding anything herein to the contrary, in no event will the rate of interest borne by any Bond (except any Bond constituting a Pledged Bond) exceed fifteen percent (15%) per annum. (h) The Issuer hereby appoints the Company to act as agent of the Issuer for purposes of exercising the Conversion Option, all as set forth in this Indenture, and subject to compliance with the terms and provisions of this Indenture. SECTION 210. DELIVERY OF THE BONDS. Upon the execution and delivery of this Indenture, the Issuer shall execute and deliver the Bonds (including a number of additional Bonds to be retained by the Trustee for authentication and delivery upon transfer or exchange of any Bond) to the Trustee, and the Trustee shall authenticate and deliver the Bonds to the purchasers thereof against payment of the purchase price therefor, plus accrued interest to the day preceding the date of delivery, upon receipt by the Trustee of the following: (A) a certified copy of the Resolution; (B) the executed original Letter of Credit; (C) executed counterparts of the Indenture and the other Financing Documents; (D) a request and authorization to the Trustee on behalf of the Issuer signed by an Authorized Representative of the Issuer to deliver the Bonds to the purchasers thereof upon payment to the Trustee for the account of the Issuer of the purchase price therefor; (E) signed copies of the opinions of counsel to the Issuer, the Company and the Bank, and of Bond Counsel, as required by the Bond Purchase Agreement; (F) the certificates and policies, if available, of the insurance required by the Installment Sale Agreement; (G) a current survey of the Land certified to the Issuer and the Trustee; (H) proof of compliance with the State Environmental Quality Review Act; (I) evidence that the Project Facility is not an area of special flood hazards, or a certificate and a policy, if available, of the insurance required by Section 6.3(D) of the Installment Sale Agreement; and (J) such other documents as the Trustee, the Bank or Bond Counsel may reasonably require. SECTION 211. CANCELLATION OF BONDS. All Bonds surrendered to the Trustee for payment, redemption, transfer or exchange shall be promptly cancelled by the Trustee. No Bond shall be authenticated in lieu of or in exchange for any Bond cancelled as provided in this Section 211, except as expressly provided by this Indenture. All Bonds cancelled by the Trustee shall be destroyed by the Trustee and shall not be reissued. At the request of the Company, certificates of destruction evidencing such destruction shall be furnished by the Trustee to the Issuer and the Company. SECTION 212. PAYMENTS DUE ON SATURDAYS, SUNDAYS AND HOLIDAYS. In any case where the date of maturity of interest or a Sinking Fund Payment on or the principal of any Bond or the date fixed for redemption of any Bond shall not be a Business Day, then payment of interest on or principal or Redemption Price of such Bond shall be made on the next succeeding Business Day with the same force and effect as if made on the date of maturity or the date fixed for redemption, and no interest shall accrue for the period after such date. SECTION 213. BOOK ENTRY BONDS. (A) Notwithstanding any other provision of this Indenture, the Bonds are hereby authorized to be issued in book entry form as Book Entry Bonds, with respect to which the following procedures shall apply. (B) For all purposes of this Indenture, the Depository shall be deemed to be holder of a Book Entry Bond and neither the Issuer, nor the Trustee shall have any responsibility or obligation to the beneficial owner of such Bond or to any direct or indirect participant in such Depository. Without limiting the generality of the foregoing, neither the Issuer nor the Trustee shall have any responsibility or obligation to any such participant or to the beneficial owner of a Book Entry Bond with respect to (1) the accuracy of the records of the Depository or any participant with respect to any beneficial ownership interest in such Book Entry Bond, (2) the delivery to any participant of the Depository, the beneficial owner of such Book Entry Bond or any other person, other than the Depository, of any notice with respect to such Book Entry Bond, including any notice of the redemption thereof, (3) the payment to any participant of the Depository, the beneficial owner of such obligation or any other person, other than the Depository, of any amount with respect to the principal or Redemption Price of, or interest or Sinking Fund Payments on, such Book Entry Bond or (4) any consent given or any other action taken by the Depository as Holder of the Book Entry Bonds. (C) The Issuer and the Trustee may treat the Depository of a Book Entry Bond as the absolute owner of such Book Entry Bond for purpose of (1) payment of the principal of, premium, if any, and interest on such Book Entry Bond, (2) giving notices of redemption and of other matters with respect to such Book Entry Bond, (3) registering transfers with respect to such Book Entry Bond, and (4) for all other purposes whatsoever. The Trustee shall pay all principal of, premium, if any, and interest and Sinking Fund Payments on, such Book Entry Bond only to or upon the order of the Depository, and all such payments shall be valid and effective to fully satisfy and discharge the Book Entry Bonds with respect to such principal of, premium, if any, Sinking Fund Payments and interest to the extent of the sum or sums so paid. No person other than the Depository shall receive a Book Entry Bond or other instrument evidencing the Issuer's obligation to make payments of the principal of, premium, if any, Sinking Fund Payments and interest thereon. (D) The Issuer, in its sole discretion, upon thirty (30) days prior written notice to the Trustee and without the consent of the Trustee or the beneficial owner of a Book Entry Bond or any other person, may terminate the services of the Depository with respect to a Book Entry Bond if the Issuer determines that (1) the Depository is unable to discharge its responsibilities with respect to such Book Entry Bond or (2) a continuation of the requirement that all of the Outstanding Bonds issued in book entry form be registered in the registration books of the Issuer in the name of the Depository, is not in the best interest of the beneficial owners of such Bonds, and the Issuer shall terminate the services of the Depository upon receipt by the Issuer and the Trustee of written notice from the Depository that it has received written requests that such Depository be removed from its participants having beneficial interests, as shown in the records of the Depository, in an aggregate amount of not less than fifty percent in principal amount of the then Outstanding Book Entry Bonds. (E) Upon the termination of the services of a Depository with respect to a Book Entry Bond, or upon the resignation of a Depository with respect to a Book Entry Bond, after which no substitute securities depository willing to undertake the functions of such Depository can be found which, in the opinion of the Issuer, is able to undertake such functions upon reasonable and customary terms, such Bonds shall no longer be registered in the registration books kept by the Trustee in the name of a Depository, but may be registered in the name of the beneficial owners of such Bonds, and such beneficial owners, upon registration of such Bonds in their names, shall become the holders of such Bonds. (F) Notwithstanding any other provisions of the Indenture, the Trustee shall have no liability for any inconsistency, if any, between a letter of representations that may be executed and delivered by the Issuer and/or the Trustee with the Depository and the provisions hereof, and with respect to any such inconsistency, the provisions of such letter of representations shall control. SECTION 214. ADDITIONAL BONDS. (A) So long as the Installment Sale Agreement is in effect and no Event of Default exists thereunder or hereunder (and no event exists which upon notice or lapse of time or both, would become an Event of Default thereunder), the Issuer may, upon request from the Company, issue one or more series of Additional Bonds to provide funds to pay any one or more of the following: (1) costs of completion of the Project Facility in excess of the amount in the Project Fund; (2) costs of refunding or advance refunding any or all of the Bonds previously issued; (3) costs of making any modifications, additions or improvements to the Project Facility; or (4) costs of the issuance and sale of the Additional Bonds, capitalized interest, funding debt service reserves, and other costs reasonably related to any of the foregoing. Additional Bonds may mature at different times, bear interest at different rates and otherwise vary from the Bonds as authorized under Article II of the Indenture, all as may be provided in the supplemental Indenture authorizing the issuance of such Additional Bonds. (B) Prior to the execution of a supplemental Indenture authorizing the issuance of Additional Bonds, the Issuer must deliver certain documents set forth in this Indenture to the Trustee, including: (1) an amendment to the Reimbursement Agreement and the Letter of Credit providing for issuance by the Bank of a Substitute Letter of Credit in the aggregate principal amount of all Bonds then Outstanding plus the principal amount of the proposed Additional Bonds, together with sixty-five (65) days' interest thereon and a written opinion of counsel to the Bank which shall state that the execution and delivery of each such Substitute Letter of Credit by the Bank has been duly authorized, executed and delivered by the Bank and that the Letter of Credit, as amended, constitutes the legal, valid and binding obligation of the Bank enforceable against the Bank in accordance with its terms, subject to the standard exceptions with respect to bankruptcy laws, equitable remedies and specific performance, or (b) a Substitute Letter of Credit issued by a Substitute Bank in the aggregate principal amount of all Bonds then Outstanding plus the principal amount of the proposed Additional Bonds, together with sixty-five (65) days' interest thereon and a written opinion of counsel to the Substitute Bank which shall state that the execution and delivery of such Substitute Letter of Credit by the Substitute Bank has been duly authorized, executed and delivered by the Substitute Bank and the Substitute Letter of Credit constitutes the legal, valid and binding obligation of the Substitute Bank enforceable against the Substitute Bank in accordance with its terms, subject to the standard exceptions with respect to bankruptcy laws, equitable remedies and specific performance; (2) a written opinion of counsel to the Bank which shall state that the execution and delivery of such Substitute Letter of Credit by the Bank has been duly authorized, executed and delivered by the Bank and that the Letter of Credit, as amended, constitutes the legal, valid and binding obligation of the Bank enforceable against the Bank in accordance with its terms, subject to the standard exceptions with respect to bankruptcy laws, equitable remedies and specific performance; (3) evidence that the Financing Documents, as amended or supplemented in connection with the issuance of the Additional Bonds, provide that (a) the Bonds referred to therein shall mean and include the Additional Bonds being issued as well as the Bonds originally issued under the Indenture and any Additional Bonds theretofore issued, and (b) the Project Facility referred to in the Financing Documents includes any Additional Facilities being financed; (4) a copy of the resolution of the Board of Directors of the Company, duly certified by the Secretary or Assistant Treasurer of the Company, which approves the issuance of the Additional Bonds and authorizes the execution and delivery by the Company of the amendments to the Financing Documents described in paragraph (3) above; (5) a written opinion of counsel to the Company which shall state that the execution and delivery of the amendments to the Financing Documents by the Company have been duly authorized, executed and delivered by the Company and that the Financing Documents, as amended, constitute legal, valid and binding obligations of the Company enforceable against the Company in accordance with their respective terms, subject to the standard exceptions with respect to bankruptcy laws, equitable remedies and specific performance; (6) a copy of the resolution, duly certified by the secretary or assistant secretary of the Issuer, authorizing the issuance of the Additional Bonds and the execution and delivery by the Issuer of any amendments to the Financing Documents to be executed in connection therewith; (7) an opinion of counsel to the Issuer stating that the supplements and amendments to the Financing Documents described above have been duly authorized and lawfully executed and delivered on behalf of the Issuer; that such amendments to the Financing Documents are in full force and effect and are valid and binding upon the Issuer; and that all conditions precedent provided for in the Indenture to the issuance, execution and delivery of the Additional Bonds have been complied with; (8) an opinion of Bond Counsel stating that, in the opinion of such Bond Counsel, the Issuer is duly authorized and entitled to issue such Additional Bonds and that, upon the execution, authentication and delivery thereof, such Additional Bonds will be duly and validly issued and will constitute valid and binding special obligations of the Issuer, subject to the standard exceptions with respect to bankruptcy laws, equitable remedies and specific performance; and that the issuance of the Additional Bonds will not, in and of itself, adversely affect the validity of the Bonds originally issued under the Indenture or any Additional Bonds theretofore issued; (9) written evidence from each rating agency, if any, by which the Bonds are then rated to the effect that the issuance of such Additional Bonds will not, by itself, result in a reduction of the rating(s) on the Outstanding Bonds applicable immediately prior to the issuance of the Additional Bonds; (10) a written order to the Trustee executed by an Authorized Officer of the Issuer requesting the Trustee to authenticate and deliver the Additional Bonds to the purchasers therein identified; and (11) such other documents as the Trustee may reasonably request. (C) Each series of Additional Bonds shall be equally and ratably secured under the Indenture with the Bonds issued on the Closing Date and with all other series of Additional Bonds, if any, previously issued under the Indenture, without preference, priority or distinction of any Bond over any other. (D) The consent of the Bondholders shall not be required prior to the issuance of Additional Bonds, or to the execution and delivery of any amendments to the Financing Documents required in connection therewith. The Trustee shall, however, notify in writing the Bondholders and each rating agency of the issuance of the Additional Bonds, detailing, at least, the aggregate principal amount of such Bonds, and summarizing the nature of the amendments to the Financing Documents proposed to be executed in connection therewith. ARTICLE III REDEMPTION OF BONDS PRIOR TO MATURITY SECTION 301. REDEMPTION OF BONDS PRIOR TO MATURITY. (A) The Bonds are subject to redemption prior to maturity (1) as a whole, without premium, as provided in Section 406 hereof, in the event of (a) a taking in Condemnation of, or failure of title to, all or substantially all of the Project Facility, (b) damage to or destruction of part or all of the Project Facility and election by the Company to redeem the Bonds in accordance with Section 7.1 of the Installment Sale Agreement, or (c) a taking in Condemnation of part of the Project Facility and election by the Company to redeem the Bonds in accordance with Section 7.2 of the Installment Sale Agreement, or (2) in part, without premium, (a) as provided in Section 406(G) hereof, in the event that (i) to the extent excess moneys remain in the Insurance and Condemnation Fund following damage or condemnation of a portion of the Project Facility and completion of the repair, rebuilding or restoration of the Project Facility by the Company, and (ii) such moneys are not paid to the Company pursuant to Section 406(G) hereof, or (b) as provided in Section 403 hereof, in the event that excess moneys remain in the Project Fund after the Completion Date. In any such event, the Bonds shall be redeemed, as a whole or in part, as the case may be, in the manner provided in this Article III, at such time as the Trustee determines, at a redemption price equal to the principal amount thereof, plus accrued interest to the redemption date, without premium. (B) The Bonds are also subject to redemption prior to maturity in the event of failure by the Company to provide a Substitute Letter of Credit at least forty-five (45) days prior to the Interest Payment Date immediately preceding the expiration date of the Letter of Credit then in effect. In any such event, the Bonds shall be redeemed, as a whole, on such Interest Payment Date at a redemption price equal to the principal amount to be redeemed, plus accrued interest to the redemption date, without premium. (C) The Bonds are also subject to redemption prior to maturity upon receipt by the Trustee of a written notice from the Bank of the occurrence and continuance of a default by the Company under the Reimbursement Agreement and the Bank's election to compel redemption of the Bonds. In either such event, the Bonds shall be redeemed, as a whole, in the manner provided in this Article III, on the earliest date for which the Trustee can give notice of redemption pursuant to Section 303 hereof, at a redemption price equal to the principal amount thereof, plus accrued interest to the redemption date, without premium. (D) (1) On or prior to the Conversion Date, the Bonds are also subject to redemption prior to maturity in denominations of $5,000 or any integral multiple of $5,000 in excess thereof at the option of the Company by exercise of its right to prepay the installment purchase payments payable under the Installment Sale Agreement as provided in Section 5.5 of the Installment Sale Agreement, on any Interest Payment Date, in the manner provided in this Article III, at a redemption price equal to the principal amount thereof, plus accrued interest to the redemption date, without premium. (2) After the Conversion Date, the Bonds are subject to redemption, at the option of the Company by exercise of its right to prepay the installment purchase payments under the Installment Sale Agreement as provided in Section 5.5 thereof, as a whole or in part on any Interest Payment Date occurring after the end of the applicable call protection period at the redemption prices, expressed as percentages of unpaid principal amount to be redeemed, plus accrued interest to the redemption date, determined as follows: the call protection period and redemption prices shall be determined by the Remarketing Agent, after taking into account the factors described in Section 209(B)(2)(e) hereof and such other factors which the Remarketing Agent deems appropriate. The determination of the call protection period and redemption prices by the Remarketing Agent pursuant to and in accordance with the terms of the Indenture shall be conclusive and binding on the Issuer, the Trustee, the Company, the Bank and the Holders of the Bonds. (E) The Bonds will also be subject to scheduled mandatory redemption, by lot in such manner as the Trustee shall deem fair and appropriate for random selection, prior to maturity, commencing December 1, 1999 and on each December and in the principal amounts set forth below:
YEAR SINKING FUND PAYMENT YEAR SINKING FUND PAYMENT 1999 $285,000 2006 $385,000 2000 $275,000 2007 $410,000 2001 $290,000 2008 $435,000 2002 $310,000 2009 $460,000 2003 $325,000 2010 $485,000 2004 $345,000 2011 $515,000 2005 $365,000 2012 $540,000
Following retirement by mandatory sinking fund redemption prior to their Stated Maturity, there will remain $575,000 principal amount of the Bonds maturing on December 1, 2013 to be paid at maturity. (F) In no event shall the Trustee, in connection with any redemption of Bonds under this Section 301, pay any portion of the principal of, premium, if any, or interest on any Bond from other than Non-Preference Moneys. Furthermore, the Trustee shall make such payments by first drawing on the Letter of Credit pursuant to Section 408 hereof. (G) In the event of any partial redemption, the particular Bonds or portions thereof to be redeemed shall be selected by the Trustee not more than sixty (60) days prior to the redemption date by lot. The Trustee shall apply any partial redemption payments (other than a scheduled mandatory redemption) to the schedule of mandatory redemption in inverse order of maturity. After the Conversion Date, if the Bonds are serial bonds as provided in Section 209(B)(2)(e)(ii) hereof, the Bonds shall be redeemed in inverse order of maturity selected by lot. Further, the Trustee may provide for the selection for redemption of portions (equal to $5,000 or any whole multiple thereof) of Bonds of a denomination larger than $5,000. In no event shall the principal amount of Bonds subject to any partial redemption be other than a whole multiple of $5,000; provided, however, that no $5,000 portion of a Bond shall be redeemed if it results in the unredeemed portion of the Bond being less than $100,000. SECTION 302. COMPANY'S ELECTION TO REDEEM. (A) The Company shall give written notice to the Trustee, the Bank and the Issuer of its election to cause redemption of Bonds prior to maturity pursuant to subsections (A) and (D) of Section 301 hereof and of the redemption date. (B) In the event of an election by the Company to redeem the Bonds pursuant to Section 301(D) hereof, such notice shall be given at the time the Company delivers to the Trustee either (1) the prepayment of installment purchase payments with which the Bonds are to be redeemed, or (2) the assurance from the Bank that the Letter of Credit may be drawn upon to pay the redemption price of the Bonds, described in Section 5.5 of the Installment Sale Agreement, and the redemption date specified in such notice shall be deemed to be (notwithstanding the actual date set forth therein) the first Interest Payment Date more than thirty (30) days after such payment or assurance, as the case may be, is received by the Trustee and on which any moneys delivered to the Trustee by the Company for such purpose shall be Non-Preference Moneys. SECTION 303. NOTICE OF REDEMPTION; PAYMENT OF REDEEMED BONDS. (A) Notice of the intended redemption of each Bond subject to redemption shall be given by the Trustee one time by first class mail postage prepaid to the registered Owner of such Bond at the address of such Owner shown on the Trustee's bond register and to the Bank at its address set forth of in Section 1103 hereof. All such redemption notices shall be given not less than thirty (30) days prior nor more than forty-five (45) days prior to the date fixed for redemption. A follow-up notice shall be given by the Trustee by registered or certified mail to each registered owner who has not submitted a Bond subject to redemption within ninety (90) to one hundred twenty (120) days following the redemption date. Each notice shall specify the redemption price, the principal amount of the Bonds to be redeemed, the numbers of the Bonds to be redeemed if less than all of the Bonds are to be redeemed, the redemption date and the place or places where amounts due upon such redemption will be payable. Such notice shall further state that payment of the applicable redemption price plus accrued interest to the redemption date will be made upon presentation and surrender of the Bonds or portions thereof to be redeemed; that upon presentation and surrender to the Trustee of any Bond being redeemed in part, a new Bond in the principal amount of the unredeemed portion of such Bond will be issued; and that the Bonds or portions thereof so called for redemption will be deemed redeemed and will cease to bear interest on the specified redemption date, provided Non-Preference Moneys for their redemption have been duly deposited in the Bond Fund and, except for the purpose of payment, that such Bonds will no longer be protected by this Indenture. The failure to give any such notice, or any defect therein, shall not affect the validity of any proceeding for the redemption of any Bond with respect to which no such failure to give notice, or defect therein, has occurred. Notwithstanding anything herein to the contrary, the Trustee shall not give any notice under this Section 303 in the case of an optional redemption pursuant to Section 301(D) hereof requiring the payment of a premium upon such redemption unless the Company shall have complied with the provisions of Section 302(B) hereof. (B) After notice shall have been given in the manner provided in Subsection (A) above, the Bonds or portions thereof called for redemption shall become due and payable on the redemption date so designated. Upon presentation and surrender of such Bonds at the Office of the Trustee, such Bonds shall be paid at the Redemption Price, plus accrued interest to the redemption date. If there shall be selected for redemption less than all of a Bond, the Issuer shall, upon the surrender of such Bond and with no charge to the Owner thereof, (1) pay the Redemption Price of the principal amount called for redemption, and (2) cause the Trustee to authenticate and deliver for the unredeemed balance of the principal amount of such Bond so surrendered a fully registered Bond of like maturity in any of the authorized denominations. (C) If, on the redemption date, moneys for the redemption of all Bonds or portions thereof to be redeemed, in an amount equal to the principal of such Bonds or portions thereof to be redeemed, together with any premium due thereon and interest thereon to the redemption date, shall be held by the Trustee so as to be available therefor on such date, the Bonds or portions thereof so called for redemption shall cease to bear interest, and such Bonds or portions thereof shall no longer be Outstanding hereunder or be secured by or be entitled to the benefits of this Indenture. If such moneys shall not be so available on the redemption date, such Bonds or portions thereof shall continue to bear interest until paid at the same rate as they would have borne had they not been called for redemption and shall continue to be secured by and be entitled to the benefits of this Indenture. SECTION 304. MANDATORY TENDER; NOTICE. (A) The Bonds are subject to Mandatory Tender upon the exercise by the Company of the Conversion Option or the delivery by the Company of an Alternate Letter of Credit. (B) Upon the exercise by the Company of the Conversion Option with respect to the Bonds, all such Bonds which have not been called for redemption shall be subject to Mandatory Tender by the owner thereof on the Conversion Date. Notwithstanding the foregoing, each Bondholder may, by delivery to the Trustee for receipt at least by twenty (20) days immediately preceding the Conversion Date of an irrevocable election not to tender, elect to continue to hold its Bonds (or portions thereof) past the Conversion Date at a Fixed Rate to be in effect at such time. Such notice shall be in substantially the form of Exhibit C-2 attached hereto. (C) Not earlier than sixty (60) days prior to the Conversion Date or later than thirty (30) days prior to the Conversion Date, the Trustee shall send a notice to the owners of all Outstanding Bonds which have not been called for redemption, in substantially the form of Exhibit C-1 attached hereto. Such notice shall describe (1) the terms of the Mandatory Tender, (2) the right of the owner to elect not to tender, (3) the Letter of Credit to be in effect following the Mandatory Tender, (4) the right of the owner of Bonds in an aggregate amount of $200,000 or more to elect not to tender the total principal amount and to continue to hold a portion of its Bonds (but in no event may either the amount tendered or the amount not tendered be any amount other than $100,000, or any integral multiple of $5,000 in excess thereof) and (5) that the rating then in effect with respect to the Bonds, if any, may be withdrawn or lowered. (D) In the event that prior to the Conversion Date of the Bonds the Company shall deliver notice to the Trustee at least sixty (60) days prior to the expiration of the Letter of Credit or Substitute Letter of Credit securing such Bonds of its intent to deliver an Alternate Letter of Credit pursuant to the terms of Section 5.8(A)(2) of the Installment Sale Agreement in substitution for such Letter of Credit or Substitute Letter of Credit, all Bonds secured by such Letter of Credit which have not been called for redemption shall be subject to Mandatory Tender by the owner thereof on the Alternate Security Date. Notwithstanding the foregoing, each Bondholder may, by delivery to the Trustee for receipt at least twenty (20) days immediately preceding any Alternate Security Date of an irrevocable election not to tender, elect to continue to hold its Bonds past the respective Alternate Security Date. Such notice shall be in substantially the form of Exhibit C-4 attached hereto. (E) Not earlier than sixty (60) days prior to the Alternate Security Date or later than thirty (30) days prior to the Alternate Security Date, the Trustee shall send a notice to the owners of all Outstanding Bonds which have not been called for redemption, in substantially the form of Exhibit C-3 attached hereto. Such notice shall describe (1) the terms of the Mandatory Tender, (2) the right of the owner to elect not to tender, (3) a brief description of the Alternate Letter of Credit and the identity of the Substitute Bank issuing the Alternate Letter of Credit, (4) the right of the owner of Bonds in an aggregate amount of $200,000 or more to elect not to tender the total principal amount and to continue to hold a portion of its Bonds (but in no event may either the amount tendered or the amount not tendered be any amount other than $100,000 or any integral multiple of $5,000 in excess thereof) and (5) that the rating then in effect with respect to the Bonds secured by such Alternate Letter of Credit will be withdrawn or lowered. (F) Owners of Bonds required to be tendered who do not provide the Trustee with the notice of their election not to tender as described in Section 304 hereof shall be required to deliver their Bonds to the Trustee for purchase at the Purchase Price on the Conversion Date or the Alternative Security Date, as the case may be, with an appropriate endorsement for transfer or accompanied by a bond power endorsed in blank. Any such Bonds not so delivered on such Conversion Date or the Alternate Security Date, as the case may be ("Undelivered Bonds"), for which there has been irrevocably deposited in trust with the Trustee an amount of moneys sufficient to pay the Purchase Price of the Undelivered Bonds, shall be deemed to have been purchased pursuant to this Section 304. IN THE EVENT OF A FAILURE BY AN OWNER OF BONDS REQUIRED TO BE TENDERED (OTHER THAN AN OWNER OF BONDS WHO HAS GIVEN NOTICE OF ITS ELECTION NOT TO TENDER AS PROVIDED ABOVE) TO DELIVER ITS BONDS ON OR PRIOR TO THE CONVERSION DATE OR THE ALTERNATE SECURITY DATE, SAID OWNER SHALL NOT BE ENTITLED TO ANY PAYMENT (INCLUDING ANY INTEREST TO ACCRUE ON OR SUBSEQUENT TO THE CONVERSION DATE OR THE ALTERNATE SECURITY DATE) OTHER THAN THE PURCHASE PRICE FOR SUCH UNDELIVERED BONDS, AND ANY UNDELIVERED BONDS SHALL NO LONGER BE ENTITLED TO THE BENEFITS OF THE INDENTURE, EXCEPT FOR THE PURPOSE OF PAYMENT OF THE PURCHASE PRICE THEREFOR. SECTION 305. DEMAND PURCHASE OPTION. (A) Prior to the Conversion Date, any Bond shall be purchased at the Purchase Price from the Owner thereof upon: (1) delivery to, and receipt by, the Tender Agent or the Trustee at the addresses set forth in Section 1103 hereof on a Business Day of a Tender Notice which requests the purchase of the Bond. The Tender Notice shall be in substantially the form of Exhibit C-5 attached hereto. Such Tender Notice shall provide the following information: (a) the principal amount of the Tendered Bond or portion thereof to be purchased, which portion shall be $100,000 or an integral multiple of $5,000 in excess thereof; provided, however, that no portion of a Tendered Bond shall be purchased if it results in the unpurchased portion of the Tendered Bond being less than $100,000, (b) the number of the Tendered Bond, (c) the date on which the Tendered Bond shall be purchased, which date shall be a Business Day at least seven (7) calendar days following the receipt by the Trustee or the Tender Agent of the Bondholder's Tender Notice (the "Repurchase Closing Date"), (d) the name and address of the Bondholder, (e) an irrevocable request of such purchase, and (f) an undertaking of the Bondholder to deliver the Bond to the Tender Agent or the Trustee in accordance with Section 305(A)(2) of the Indenture; (2) delivery of the Tendered Bond, at the office of the Trustee or Tender Agent at or prior to 10:00 a.m., New York City time on the Repurchase Closing Date with an appropriate endorsement for transfer or accompanied by a bond power endorsed in blank; provided, however, the Tendered Bond shall only be deemed properly tendered hereunder if the Tendered Bond delivered to the Tender Agent or the Trustee conforms in all respects to the description thereof in the Bondholder's Tender Notice; and (3) in the event the Tender Agent or the Trustee, as the case may be, determines that the Bondholder's Tender Notice is defective in any respect whatsoever, the Tender Agent or the Trustee, as the case may be, shall immediately notify the Bondholder tendering the Bond. (B) Immediately upon receipt of a Bondholder's Tender Notice, the Tender Agent or the Trustee, as the case may be, shall notify the Company, the Remarketing Agent, the Bank and the Trustee or the Tender Agent, as the case may be, by Immediate Notice and shall promptly send a copy of such Bondholder's Tender Notice to the Company, the Remarketing Agent and the Trustee or the Tender Agent, as the case may be. (C) (1) Bonds which are the subject of a Bondholder's Tender Notice described in (A)(1) above, but which are not tendered in accordance with (A)(2) above, shall be deemed tendered and all rights of the holder thereof shall be satisfied from the deposit with the Tender Agent or the Trustee of the Purchase Price thereof and the Tender Agent or the Trustee, as the case may be, shall hold such Purchase Price in trust for the benefit of such holder until the Bonds purchased with such moneys shall have been delivered to or for the account of such holder; and (2) Holders of Tendered Bonds which are not delivered to the Tender Agent or the Trustee by the holder thereof shall have no further rights with respect to such Bonds except to receive payment of the Purchase Price therefor upon surrender of such Bonds to the Tender Agent or the Trustee. (D) Notwithstanding the foregoing, the Bondholders shall have no Demand Purchase Option described in Section 305 hereof if (1) there shall have occurred and be continuing an Event of Default hereunder, except for an Event of Default under Section 601(I) hereof, or (2) the Fixed Rate is in effect for the Bonds being held by such Bondholder. (E) Furthermore, no Bondholder shall have the right to exercise a Demand Purchase Option pursuant to Section 305 hereof with respect to those Bonds for which a notice of redemption has been mailed by the Trustee. SECTION 306. FUNDS FOR PURCHASE OF BONDS. On any Purchase Date, the Tendered Bonds shall be purchased by the Trustee at the Purchase Price only from the funds listed below. Funds for payment of the Purchase Price of the Tendered Bonds shall be derived from the following sources in order of priority indicated: (A) The cash proceeds actually on hand with the Trustee from the sale of such Bonds which have been remarketed by the Remarketing Agent prior to 10:00 a.m. New York time, on the Business Day preceding the date such Bonds are to be purchased, to any entity other than the Company, the Issuer or the Corporate Guarantor, or a Related Person to any of the foregoing; (B) Moneys drawn by the Trustee under the Letter of Credit; (C) Any other Non-Preference Moneys (except amounts drawn under the Letter of Credit) held by the Trustee and available for such purpose; and (D) Any other moneys furnished to the Trustee and available for such purpose. SECTION 307. DELIVERY OF PURCHASED BONDS. (A) Bonds purchased with moneys described in Section 306(A) hereof shall be delivered by the Trustee, at its principal office, to or upon the order of the Remarketing Agent. (B) Bonds purchased with moneys described in Section 306(B) hereof shall be held by the Trustee as nominee for the Bank pursuant to the Pledge and Security Agreement. (C) Bonds purchased with moneys described in Section 306(C) and Section 306(D) hereof shall, at the direction of the Company, be (1) delivered as instructed by the Company or (2) delivered to the Trustee for cancellation; provided, however, that any Bonds so purchased after selection thereof by the Trustee for redemption shall be delivered to the Trustee for cancellation. (D) Bonds delivered as provided in Section 307 shall be registered in the manner directed by the recipient thereof (or the Remarketing Agent on the recipient's behalf). SECTION 308. DUTIES OF TRUSTEE AND TENDER AGENT WITH RESPECT TO PURCHASE OF BONDS. (A) The Tender Agent and the Trustee shall hold all Bonds delivered to them pursuant to Sections 304 or 305 hereof in trust for the benefit of the respective Bondholders delivering such Bonds until moneys representing the Purchase Price of such Bonds shall have been delivered to or for the account of or to the order of such Bondholders. (B) The Trustee and the Tender Agent shall hold all moneys delivered to them pursuant to this Indenture for the purchase of Bonds in a separate account, in trust for the benefit of the Person which shall have so delivered such moneys until the Bonds purchased with such moneys shall have been delivered to or for the account of such Person. (C) The Trustee shall, not later than 10:00 a.m., New York time, on the tenth (10th) day preceding a Conversion Date (or, if such tenth (10th) day is not a Business Day, on the next following Business Day) advise the Remarketing Agent by telephone of the principal amount of Bonds for which Bondholders delivered proper notice of election not to tender their Bonds and promptly thereafter deliver to the Company, the Bank and the Remarketing Agent a copy of each notice of a Bondholder's election not to tender delivered to it in accordance with Section 304(A) hereof. (D) The Trustee shall draw moneys under the Letter of Credit in accordance with the terms thereof to the extent required by Sections 306 and 408 hereof on the Business Day immediately preceding the Purchase Date to provide for timely payment of the Purchase Price of Bonds. (E) The Trustee shall cause arrangements satisfactory to it to be made and thereafter continued whereby funds from the sources described in Section 306 hereof will be available to the Trustee for the timely payment of the Purchase Price of Bonds. (F) The Trustee as nominee for the Bank under the Pledge and Security Agreement shall not release or deliver any Pledged Bonds unless the Trustee has received prior written notice from the Bank that the Letter of Credit has been reinstated for the amount drawn on the Letter of Credit at the time such Bonds became Pledged Bonds. ARTICLE IV FUNDS AND APPLICATION OF PROCEEDS OF BONDS AND REVENUES SECTION 401. ESTABLISHMENT OF FUNDS. (A) The Issuer hereby establishes and creates the following special separate trust funds: (1) Town of Colonie Industrial Development Agency - Mechanical Technology Incorporated Project - Project Fund (the "Project Fund") and, within the Project Fund, the following special account: Project Fund Non-Preference Moneys Subaccount; (2) Town of Colonie Industrial Development Agency - Mechanical Technology Incorporated Project - Bond Fund (the "Bond Fund") and, within the Bond Fund, the following special account: Bond Fund Non-Preference Moneys Subaccount; and (3) Town of Colonie Industrial Development Agency - Mechanical Technology Incorporated Project - Insurance and Condemnation Fund (the "Insurance and Condemnation Fund") and, within the Insurance and Condemnation Fund, the following special account: Insurance and Condemnation Fund Non-Preference Moneys Subaccount. (B) The funds created under the Indenture shall be maintained by the Trustee and shall be held in the custody of the Trustee. The Issuer authorizes and directs the Trustee to withdraw moneys from said funds for the purposes specified herein, which authorization and direction the Trustee hereby accepts. All moneys required to be deposited with or paid to the Trustee under any provision of the Indenture (1) shall be held by the Trustee in trust, and (2) except for moneys held by the Trustee (a) for the redemption of Bonds, notice of redemption of which has been duly given, or (b) for the purchase of Tendered Bonds, shall, while held by the Trustee constitute part of the Trust Revenues and be subject to the Lien hereof. Moneys which have been deposited with, paid to or received by the Trustee for the redemption of a portion of the Bonds or for the payment of Bonds or interest thereon due and payable otherwise than upon acceleration by declaration, shall be held in trust for and be subject to a Lien in favor of only the Holders of such Bonds so redeemed or so due and payable. SECTION 402. APPLICATION OF PROCEEDS OF BONDS. (A) The Issuer shall deposit with the Trustee all of the proceeds from the sale of the Bonds, including accrued interest payable on the Bonds. The Trustee shall deposit the proceeds from the sale of the Bonds as follows: (1) the portion of the proceeds of the Bonds representing accrued interest on the Bonds into the Bond Fund, and (2) the Trustee shall deposit the remainder of such proceeds into the Project Fund. (B) The proceeds of any Additional Bonds shall be deposited as provided in the supplement to this Indenture authorizing the issuance of such Additional Bonds. Any such proceeds required to be deposited in the Project Fund shall be deposited in the appropriate subaccount relating to such Additional Bonds within the Project Fund. SECTION 403. PROJECT FUND. (A) In addition to moneys deposited in the Project Fund from the proceeds of the Bonds pursuant to Section 402 hereof, there shall be deposited into the Project Fund all other moneys received by the Trustee under or pursuant to the Indenture or the other Financing Documents which, by the terms hereof or thereof, are to be deposited in the Project Fund. Moneys on deposit in the Project Fund shall be disbursed and applied by the Trustee to pay the Cost of the Project pursuant to the provisions of Section 4.3 of the Installment Sale Agreement, this Section 403, and the applicable provisions of the Building Loan Agreement. (B) The Trustee is hereby authorized and directed to disburse moneys from the Project Fund upon receipt by the Trustee of a Request for Disbursement, in substantially the form attached hereto as Exhibit F, certified to by an Authorized Representative of the Company. (C) (1) All earnings on amounts held in the Project Fund shall be deposited by the Trustee into the Project Fund. (2) All moneys which remain in the Project Fund for three hundred and sixty- seven (367) days following the date on which the Company shall have no further right to draw on the same shall be transferred to the Project Fund Non- Preference Moneys Subaccount. Any moneys in the Project Fund Non-Preference Moneys Subaccount which are transferred to the Bond Fund pursuant to Section 403(D) hereof shall be placed in the Bond Fund Non-Preference Moneys Subaccount. (D) (1) Except for any amount retained for the payment of incurred and unpaid items of the Cost of the Project, after the Completion Date, all moneys in the Project Fund, shall be transferred from the Project Fund to the Bond Fund and, to the extent such moneys constitute Non-Preference Moneys, applied as soon as possible to the redemption of Bonds in accordance with Article III hereof. (2) In the event the unpaid principal amount of the Bonds shall be accelerated upon the occurrence of an Event of Default, the balance in the Project Fund shall be transferred from the Project Fund to the Bond Fund as soon as possible and, to the extent such moneys constitute Non-Preference Moneys, shall be used to pay the principal of, premium, if any, on and interest on the Bonds. (E) The Trustee shall maintain adequate records pertaining to the Project Fund and all disbursements therefrom, and shall, upon request and within sixty (60) days after the Completion Date, file an accounting thereof with the Issuer, the Company and the Bank. SECTION 404. TRANSFERS OF TRUST REVENUES TO FUNDS. (A) Commencing the first date on which installment purchase payments are received from the Company pursuant to the Installment Sale Agreement, and from month to month thereafter, the Trustee shall deposit such payments, upon the receipt thereof, in the Bond Fund. (B) The Net Proceeds of any insurance settlement or Condemnation award received by the Trustee shall, upon receipt thereof, be deposited in the Insurance and Condemnation Fund. SECTION 405. BOND FUND. (A) In addition to the moneys deposited to the Bond Fund (1) from the proceeds of the Bonds pursuant to Section 402 hereof and (2) pursuant to Sections 403 and 404 hereof, there shall be deposited into the Bond Fund (a) all installment purchase payments received from the Company under the Installment Sale Agreement (except payments made with respect to the Unassigned Rights), (b) any amount in the Insurance and Condemnation Fund directed to be paid into the Bond Fund under Section 406 hereof, (c) all prepayments by the Company in accordance with Section 5.5 of the Installment Sale Agreement in connection with which notice has been given to the Trustee pursuant to Section 302 hereof, (d) any amounts received by the Trustee under the Letter of Credit, and (e) all other moneys received by the Trustee under and pursuant to the Indenture or the other Financing Documents which by the terms hereof or thereof are to be deposited to the Bond Fund, or are accompanied by directions from the Company or the Issuer that such moneys are to be paid into the Bond Fund. (B) (1) Moneys on deposit in the Bond Fund shall be invested in Authorized Investments in accordance with Section 410 hereof. All interest and other income accrued and earned on moneys on deposit in the Bond Fund shall be deposited by the Trustee into the Bond Fund. Any payment of interest due on the Bonds shall be made from amounts on deposit in the Bond Fund Non-Preference Moneys Subaccount. (2) All moneys in the Bond Fund which constitute or become Non- Preference Moneys shall be deposited by the Trustee into the Bond Fund Non-Preference Moneys Subaccount. Any drawings on the Letter of Credit will be deposited into the Bond Fund Non-Preference Moneys Subaccount. Moneys on deposit in the Bond Fund Non-Preference Moneys Subaccount shall be applied by the Trustee to pay the principal of, premium, if any, and interest on the Bonds as the same become due, whether at Stated Maturity, upon acceleration of the Bonds or upon redemption of the Bonds, except as provided in Section 411 and Section 408(E) hereof. (C) In NO EVENT shall the Trustee pay any portion of the principal of, premium, if any, on or interest on any Bond from other than Non-Preference Moneys. Furthermore, the Trustee shall make such payments by first drawing on the Letter of Credit pursuant to Section 408 hereof. SECTION 406. INSURANCE AND CONDEMNATION FUND. (A) The Net Proceeds of any insurance settlement or Condemnation award received by the Trustee in connection with damage to or destruction of or the taking of part or all of the Project Facility shall be deposited into the Insurance and Condemnation Fund. (B) If, pursuant to Sections 7.1(B) or 7.2(B) of the Installment Sale Agreement, the Company exercises its option not to repair, rebuild or restore the Project Facility and to require the redemption of the Bonds, or if a taking in Condemnation as described in Section 7.2(C) of the Installment Sale Agreement occurs, the Trustee shall transfer all moneys held in the Insurance and Condemnation Fund to the Bond Fund to be applied to the redemption of the Bonds then Outstanding pursuant to Section 301(A) hereof, except as provided in Section 411 and Section 408(E) hereof. (C) If the Company elects to repair, rebuild or restore the Project Facility, and provided no Event of Default has occurred and is continuing, moneys held in the Insurance and Condemnation Fund and attributable to the damage to or destruction of or the taking of the Project Facility shall be applied to pay the costs of such repairs, rebuilding or restoration in accordance with the terms and conditions set forth in Section 406(D) hereof. (D) The Trustee is hereby authorized to and shall make such disbursements, at the Company's request, either upon the completion of such repairs, rebuilding or restoration or periodically as such repairs, rebuilding or restoration progress, upon receipt by the Trustee of a certificate of an Authorized Representative of the Company, approved by the Bank, stating, with respect to each payment to be made: (1) the amount or amounts to be paid, the Person or Persons (which may include the Company for reimbursement of such costs) to whom an amount is to be paid and the total sum of all such amounts; (2) that the Company has expended, or is expending, concurrently with the delivery of such certificate, such amount or amounts on account of costs incurred in connection with the repair, rebuilding or restoration of the Project Facility; (3) that all contractors, workmen and suppliers have been or will be paid through the date of such certificate from the funds to be disbursed; (4) that there exists no Event of Default and no condition, event or act which, with notice or the lapse of time or both, would constitute an Event of Default; (5) that such Authorized Representative of the Company has no knowledge, after diligent inquiry and after searching the records of the appropriate state and local filing offices, of any vendor's Lien, mechanic's Lien or security interest which should be satisfied, discharged or bonded before the payment as requisitioned is made or which will not be discharged by such payment; (6) that no certificate with respect to such expenditures has previously been delivered to the Trustee; and (7) that there remain sufficient moneys in the Insurance and Condemnation Fund attributable to the damage to, destruction of, or taking of the Project Facility to complete the repair, rebuilding or restoration of the Project Facility. Each such requisition shall be accompanied by bills, invoices or other evidences reasonably satisfactory to the Bank. The Trustee shall be entitled to rely on such requisition. (E) Upon completion of the repair, rebuilding or restoration of the Project Facility, an Authorized Representative of the Company shall deliver to the Issuer, the Trustee and the Bank a certificate stating (1) the date of such completion, (2) that all labor, services, materials and supplies used therefor and all costs and expenses in connection therewith have been paid, (3) that the Project Facility has been restored to substantially its condition immediately prior to the damage or Condemnation thereof, or to a condition of at least equivalent value, operating efficiency and function, (4) that the Issuer or the Company has good and valid title to all Property constituting part of the restored Project Facility, and that the Project Facility is subject to the Installment Sale Agreement and the Liens and security interests of the Indenture and the Mortgage, and (5) that the restored Project Facility is ready for occupancy, use and operation for its intended purposes. Notwithstanding the foregoing, such certificate may state (a) that it is given without prejudice to any rights of the Company against third parties which exist at the date of such certificate or which may subsequently come into being, (b) that it is given only for the purposes of this Section 406, and (c) that no Person other than the Issuer, the Bank or the Trustee may benefit therefrom. Such certificate shall be accompanied by (i) a certificate of occupancy, if required, and any and all permissions, licenses or consents required of Governmental Authorities for the occupancy, operation and use of the Project Facility for its intended purposes, and (ii) an opinion of counsel to the Company addressed to the Issuer, the Trustee and the Bank that the Mortgage constitutes a valid first mortgage Lien on and a valid first perfected security interest in the Project Facility, subject only to Permitted Encumbrances. (F) (1) All earnings on amounts held in the Insurance and Condemnation Proceeds Fund shall be transferred by the Trustee to the Insurance and Condemnation Fund. (2) All moneys which remain in the Insurance and Condemnation Fund for three hundred and sixty-seven (367) days following the date on which the Company shall have no further right to draw on the same shall be transferred to the Insurance and Condemnation Fund Non-Preference Moneys Subaccount. Any moneys in the Insurance and Condemnation Fund Non-Preference Moneys Subaccount which are transferred to the Bond Fund pursuant to Section 406(G) hereof shall be placed in the Bond Fund Non- Preference Moneys Subaccount. (G) If the cost of the repairs, rebuilding or restoration of the Project Facility effected by the Company shall be less than the amount in the Insurance and Condemnation Fund, then on the completion of such repairs, rebuilding or restoration, the Trustee shall transfer such difference to the Company for its purposes if (1) the Company so requests, and (2) the Company obtains the prior written consent of the Bank; otherwise such difference shall be deposited by the Trustee in the Bond Fund and applied to redeem the Bonds in accordance with Article III hereof. (H) If the cost of the repair, rebuilding or restoration of the Project Facility shall be in excess of the moneys held in the Insurance and Condemnation Fund, the Company shall deposit such additional moneys in the Insurance and Condemnation Fund as are necessary to pay the cost of completing such repair, rebuilding or restoration. SECTION 407. [INTENTIONALLY OMITTED]. SECTION 408. DRAWING BY THE TRUSTEE ON THE LETTER OF CREDIT. (A) (1) The Trustee shall, without any further authorization or direction, timely present in person, by facsimile transmission or by tested telex on or before 11:00 o'clock a.m. on the Business Day immediately preceding a Bond Payment Date to the Bank a sight draft, together with all accompanying documentation as is required by the Letter of Credit by the terms thereof, in order to draw funds on the Letter of Credit in an amount which will be sufficient to pay in full when due (whether by reason of interest payment, maturity, redemption or otherwise) the principal of, premium, if any, and interest on the Bonds. (2) In addition, immediately upon a declaration under Section 602 hereof that the principal of and accrued interest on all the Bonds then Outstanding has become due and payable by virtue of acceleration, the Trustee shall, without any further authorization or direction, present to the Bank a sight draft, together with all accompanying documentation as is required under the Letter of Credit by the terms thereof, in order to draw funds under the Letter of Credit in an amount which shall be necessary to pay the principal of, premium, if any, and accrued interest on the Bonds then Outstanding due by virtue of such acceleration. (3) In addition, on or before 11:00 o'clock a.m. on the Business Day immediately preceding any Purchase Date, the Trustee shall, without any further authorization or direction, present to the Bank a sight draft, together with all accompanying documentation as is required under the Letter of Credit by the terms thereof, in order to draw funds under the Letter of Credit to the extent moneys described in Section 306(A) hereof are not available to pay when due the Purchase Price of Bonds tendered pursuant to Sections 304 and 305 hereof. (B) (1) The Trustee shall exercise any and all rights under the Letter of Credit, regardless of whether the Bank is in default under the Letter of Credit, in the manner provided therein and in the Indenture, and the Trustee shall bring such actions and proceedings under the Letter of Credit as shall be required for the enforcement thereof in accordance with its terms and the terms of the Indenture. (2) All funds received by the Trustee under the Letter of Credit shall be deposited by the Trustee in the Bond Fund Non-Preference Moneys Subaccount and used solely to pay the principal of, premium, if any, and interest on the Bonds. (C) Contemporaneously with the presentation of the sight draft required for a drawing on the Letter of Credit described in Section 408(A)(2) hereof, the Trustee shall transfer to the Bond Fund Non-Preference Moneys Subaccount all Non-Preference Moneys held by the Trustee under the Indenture as part of the Trust Revenues. (D) Except as provided below, any obligations of the Issuer under the Indenture and the Bonds or of the Company under the Installment Sale Agreement which are satisfied from the exercise of the Trustee's rights under the Letter of Credit or under this Section 408 shall be deemed to be satisfied, and no claim therefor shall be made by the Bondholders against the Issuer, the Trustee or the Company or by the Issuer, the Trustee or the Bondholders against the Company in respect of such obligations; provided, however, that to the extent the Bank has not been reimbursed for amounts paid under the Letter of Credit or under any other Financing Document, such obligations shall not be deemed satisfied, and the Bank shall be subrogated to the rights of the Issuer under the Installment Sale Agreement (except the Unassigned Rights) and the rights of the Trustee hereunder and under the other Financing Documents (except the rights of the Trustee to receive payments for fees, expenses, indemnifications or other amounts which are payable to the Trustee individually under the Financing Documents and are not to be subsequently delivered to the Bondholders), and, further, such subrogation shall not release the Company from its obligations under the Reimbursement Agreement or under the other Financing Documents or release the Company from its obligations under the Guaranty. (E) (1) After a drawing on the Letter of Credit described in Section 408(A)(1), any and all moneys held by the Trustee in the Bond Fund shall be paid to the Bank to be applied against the Company's obligations under the Reimbursement Agreement. (2) After a drawing on the Letter of Credit described in Section 408(A)(2), any and all moneys held by the Trustee in any fund or account established by the Indenture shall be paid to the Bank to be applied against the Company's obligations under the Reimbursement Agreement within three (3) days following such Bond Payment Date. SECTION 409. NON-PRESENTMENT OF BONDS. (A) Subject to the provisions of Sections 206 and 207 hereof, in the event any Bond shall not be presented for payment when the principal thereof becomes due, either at maturity or at the date fixed for redemption thereof or otherwise, if Non-Preference Moneys sufficient to pay such Bond shall have been deposited with the Trustee for the benefit of the Holder thereof, such Bond shall be deemed cancelled, redeemed or retired on such date even if not presented on such date and all liability of the Issuer to the Holder thereof for the payment of such Bond shall forthwith cease, determine and be completely discharged; and thereupon it shall be the duty of the Trustee to hold such funds, without liability for interest thereon, for the benefit of the Holder of such Bond who shall thereafter be restricted exclusively to such funds for any claim of whatever nature on his part under the Indenture or with respect to such Bond. (B) If any Bond shall not be presented for payment prior to the earlier of (1) two (2) years following the date when such Bond becomes due, either at maturity or at the date fixed for redemption or otherwise, or (2) the date on which such moneys would escheat to the State, such amounts shall be paid by the Trustee first to the Bank to the extent any amounts remain unpaid by the Company under the Reimbursement Agreement, with any balance to be paid to the Company. Thereafter, Bondholders shall be entitled to look only to the Company and/or the Bank, as the case may be, for payment, and then only to the extent of the amount so repaid to the respective parties, who shall not be liable for any interest thereon and shall not be regarded as trustees of such money. The Trustee shall, at least sixty (60) days prior to the expiration of the above described period, give notice to any Owner who has not presented any Bond for payment that any moneys held for the payment of any such Bond will be returned as provided in this Section 409 at the expiration of such period. The failure of the Trustee to give any such notice shall not affect the validity of any transfer of funds pursuant to this Section 409. SECTION 410. INVESTMENT OF FUNDS. Any moneys held as part of any fund created herein shall be continuously invested and reinvested, from time to time, by the Trustee in Authorized Investments at the written or oral direction of the Company, but, if oral, to be promptly confirmed in writing by the Company, or, in the absence of such direction, in Authorized Investments with the shortest available maturities. The Company shall direct that any moneys held in any fund shall be invested so that (1) all investments shall mature or be subject to mandatory redemption by the holder of such investments (at not less than the principal amount thereof, or the cost of acquisition, whichever is lower), and all deposits in time accounts shall be subject to withdrawal, without penalty, not later than the date when the amounts will foreseeably be needed for purposes of the Indenture, (2) investments of moneys on deposit in the Bond Fund shall mature or be subject to mandatory redemption by the holder (at not less than the principal amount thereof) not more than ninety (90) days from the date of acquisition, and in no event shall moneys on deposit in the Bond Fund be invested in investments described in clause (J) of the definition of Authorized Investments and (3) moneys received pursuant to a draw on the Letter of Credit and moneys in the Bond Fund Non-Preference Moneys Subaccount shall only be invested in cash or investments described in clause (A) of the definition of Authorized Investments which mature in not more than 30 days or as needed; provided, however, in the event moneys on deposit in the Bond Fund Non-Preference Moneys Subaccount are invested in investments described in clause (A) of the definition of Authorized Investments, such investments shall be non-callable. The investments so purchased shall be held by the Trustee and shall be deemed at all times to be a part of the fund in which such moneys were held. The Trustee is directed to sell and reduce to cash a sufficient amount of such investments whenever the cash balance in said fund shall be insufficient to cover a proper disbursement from said fund. The Trustee may make any investment permitted by this Section 410 through its own investment department. The Trustee shall not be liable (except for gross negligence or willful misconduct) for any depreciation in the value of any investment made pursuant to this Section 410 or for any loss arising from such investment. SECTION 411. FINAL DISPOSITION OF MONEYS. In the event there are no Bonds Outstanding, and subject to any applicable law to the contrary, after payment of all fees, charges and expenses, including, but not limited to reasonable attorney's fees, of the Issuer, the Trustee, the Company and the Bank and all other amounts required to be paid hereunder and under the other Financing Documents, all amounts remaining in any fund established under the Indenture shall be transferred to the Company (except amounts held with respect to the Unassigned Rights, which amounts shall be paid to the Issuer); provided, however, that, in the event that the Bonds are retired or redeemed, in whole or in part, from amounts drawn on the Letter of Credit and the Bank remains unreimbursed for such amounts, such remaining amounts shall be transferred to the Bank to be applied against the obligation of the Company to repay the Bank for amounts paid under the Letter of Credit or any other Financing Document, and any amounts in excess thereof shall be paid to the Company. SECTION 412. PERIODIC REPORTS BY TRUSTEE. Within fifteen (15) days after each January 1 and July 1, the Trustee shall furnish to the Issuer, the Company and the Bank, commencing on or before the fifteenth day of the first such date following the date in which the Bonds are delivered, a report on the status of each of the funds established under this Article IV, showing at least the balance in such fund as of the final day of the period with respect to which the last such report described (or, if such report is to first such report, as of the Closing Date), the total of deposits into (including interest on investments) and the total of disbursements from such fund, the dates of such deposits and disbursements, and the balance in such fund on the last day of the period to which such report relates (which date shall be not earlier than the last day of the calendar month preceding the date of such report). ARTICLE V GENERAL COVENANTS SECTION 501. AUTHORITY OF ISSUER; VALIDITY OF INDENTURE AND BONDS. The Issuer hereby represents, warrants and covenants that it is duly authorized under the Constitution and laws of the State, including particularly and without limitation the Act, to issue the Bonds authorized hereby, to execute this Indenture and to pledge the revenues and receipts in the manner necessary for the issuance of the Bonds authorized hereby; that the execution and delivery of this Indenture has been duly and effectively authorized; and that such Bonds in the hands of the owners thereof are and will be valid and enforceable special obligations of the Issuer according to the import thereof. SECTION 502. PAYMENT OF PRINCIPAL AND INTEREST. The Issuer covenants that it shall promptly pay the principal of, premium, if any, and interest on every Bond issued under the Indenture at the place, on the dates and in the manner provided herein and in the Bonds, according to the true intent and meaning thereof, subject to the provisions of Section 202 and Section 1109 hereof. SECTION 503. PROCESSING OF TRANSFERS. Subject to the provisions of Section 206(D) hereof, the Trustee represents to and covenants with the Issuer and the Bondholders that it will take all reasonable action required and capable of performance on its part to process transfers of Bonds within three (3) Business Days hours of receipt of a request therefor. SECTION 504. PERFORMANCE OF COVENANTS; AUTHORITY OF ISSUER. The Issuer covenants, and the Trustee by executing this Indenture covenants, that each will faithfully perform at all times any and all covenants, undertakings, stipulations and provisions contained in the Indenture, in any and every Bond executed, authenticated and delivered hereunder and in all proceedings pertaining thereto. The Issuer covenants and represents that it is duly authorized under the laws of the State to issue the Bonds authorized hereby and to execute and deliver the Indenture, to convey the interests described herein and conveyed hereby, to pledge the revenues, receipts and other moneys hereby pledged in the manner and to the extent herein set forth and to execute and deliver the Financing Documents to which it is a party; that all action on its part for the issuance of the Bonds and the execution and delivery of the Financing Documents to which it is a party has been duly and effectively taken; and that the Bonds in the hands of the holders and owners thereof are and will be valid and enforceable special obligations of the Issuer according to the import thereof. SECTION 505. PRIORITY OF LIEN OF INDENTURE. The Issuer hereby represents, warrants and covenants that this Indenture is and will be a first Lien upon the Trust Revenues and the Issuer agrees not to create or suffer to be created any Lien having priority or preference over the Lien of this Indenture upon the Trust Revenues or any part thereof, except as otherwise specifically provided herein. SECTION 506. INSTRUMENTS OF FURTHER ASSURANCE. The Issuer covenants that it will do, execute, acknowledge and deliver or cause to be done, executed, acknowledged and delivered such indentures supplemental hereto, and such further acts, instruments and transfers as the Trustee may reasonably require for the better assuring, transferring, conveying, pledging, assigning and confirming unto the Trustee all and singular its interest in all Property purported to be made subject to the Lien hereof by the Granting Clauses hereof, and in the Trust Estate herein described and pledged hereby to the payment of the principal of, premium, if any, and interest on the Bonds. Any and all interest in the Trust Estate or any other Property hereafter acquired which is of any kind or nature herein provided to be and become subject to the Lien hereof shall, without any further conveyance, assignment or act on the part of the Issuer or the Trustee, become and be subject to the Lien of the Indenture as fully and completely as though specifically described herein, but nothing in this sentence contained shall be deemed to modify or change the obligations of the Issuer under this Section. The Issuer covenants and agrees that, except as herein otherwise provided, it has not and will not sell, convey, mortgage, encumber or otherwise dispose of any part of its interest in the Trust Revenues. SECTION 507. INSPECTION OF PROJECT BOOKS. The Issuer covenants and agrees that all books and documents in its possession relating to the Project shall at all times be open to inspection by such accountants or other agencies as the Trustee or the Bank may from time to time reasonably designate. SECTION 508. NO MODIFICATION OF SECURITY; LIMITATION ON LIENS. The Issuer covenants that it will not, without the written consent of the Trustee and the Bank, alter, modify or cancel, or agree to alter, modify or cancel, the Installment Sale Agreement or any other Financing Document to which the Issuer is a party, or which has been assigned to the Issuer, and which relates to or affects the security for the Bonds, except as contemplated hereby or pursuant to the terms of such document. The Issuer further covenants that, except for the Financing Documents and other Permitted Encumbrances, the Issuer will not incur any mortgage, Lien, charge or encumbrance on or pledge of any of the Trust Revenues prior to or on a parity with the Lien of the Indenture. SECTION 509. DAMAGE OR DESTRUCTION. The rights and obligations of the Company, the Issuer, the Trustee and the Bank in the event of damage or destruction of the Project Facility or part thereof shall be determined by reference to Section 7.1 of the Installment Sale Agreement. SECTION 510. CONDEMNATION. The rights and obligations of the Company, the Issuer, the Trustee and the Bank in the event of a taking of part or all of the Project Facility by Condemnation shall be determined by reference to Section 7.2 of the Installment Sale Agreement and this Indenture. SECTION 511. ACCOUNTS AND AUDITS. The Trustee shall keep proper books of record and account (separate from all other records and accounts) in which complete and correct entries shall be made of its transactions relating to the Project Facility or any part thereof, and which, together with all other books and papers of the Trustee in connection with the Project Facility, shall at all reasonable times be subject to the inspection of the Company, the Bank and the Issuer, or the holder or holders of not less than five percent (5%) in aggregate principal amount of the Bonds then Outstanding or their representatives duly authorized in writing. SECTION 512. RECORDATION; FINANCING STATEMENTS. The Lien on the Project Facility created by the Mortgage and the other Financing Documents shall be perfected by the recording by the Issuer of the Mortgage and the other Financing Documents in the office of the County Clerk of Albany County, New York. The security interests of the Trustee created by the Indenture and the other Financing Documents and the security interests of the Issuer assigned to the Trustee shall be perfected by the filing by the Company in the office of the County Clerk of Albany County, New York, and the office of the New York State Department of State, Uniform Commercial Code Unit of financing and continuation statements required to be filed pursuant to the Uniform Commercial Code of the State in order to perfect and to maintain the perfection of the security interests created by this Indenture and the Financing Documents. The Company shall furnish, from time to time as reasonably requested by the Trustee, satisfactory evidence to the Trustee of the recording and filing of all financing statements, continuation statements and other instruments necessary to preserve, perfect and maintain the perfection of the Liens of the Mortgage and the other Financing Documents. The Issuer and the Company irrevocably appoint the Trustee as their lawful attorneys and agents to execute and file such financing statements and continuation statements on their behalf (and without their signature where allowed by law). SECTION 513. [INTENTIONALLY OMITTED]. SECTION 514. COVENANT REGARDING ADJUSTMENT OF DEBTS. In any case under Chapter 9 of Title 11 of the United States Code involving the Issuer as debtor, the Issuer, unless compelled by a court of competent jurisdiction, shall neither list the Trust Revenues or any part thereof or the Project Facility or any part thereof as an asset or property of the Issuer nor list any amounts owed upon the Bonds Outstanding as a debt of or claim against the Issuer. SECTION 515. [INTENTIONALLY OMITTED]. SECTION 516. LIMITATION ON OBLIGATIONS OF THE ISSUER. Notwithstanding any provision of this Indenture to the contrary, no order or decree of specific performance with respect to any of the obligations of the Issuer hereunder shall be sought or enforced against the Issuer unless (A) the party seeking such order or decree shall first have requested the Issuer in writing to take the action sought in such order or decree of specific performance, and ten (10) days shall have elapsed from the date of receipt of such request, and the Issuer shall have refused to comply with such request (or, if compliance therewith would reasonably be expected to take longer than ten [10] days, shall have failed to institute and diligently pursue action to cause compliance with such request within such ten [10] day period) or failed to respond within such notice period, (B) if the Issuer refuses to comply with such request and the Issuer's refusal to comply is based on its reasonable expectation that it will incur fees and expenses, the party seeking such order or decree shall have placed in an account with the Issuer an amount or undertaking sufficient to cover such reasonable fees and expenses, and (C) if the Issuer refuses to comply with such request and the Issuer's refusal to comply is based on its reasonable expectation that it or any of its members, directors, officers, agents or employees shall be subject to potential liability, the party seeking such order or decree shall (1) agree to indemnify and hold harmless the Issuer and its members, directors, officers, agents and employees against any liability incurred as a result of its compliance with such demand, and (2) if requested by the Issuer, furnish to the Issuer satisfactory security to protect the Issuer and its members, directors, officers, agents and employees against all liability expected to be incurred as a result of compliance with such request; provided, however, that no limitation on the obligations of the Issuer contained in this Section 516 by virtue of any lack of assurance provided in (B) or (C) hereof shall be deemed to prevent the occurrence and full force and effect of any Event of Default hereunder. SECTION 517. AGREEMENT TO PROVIDE INFORMATION. The Trustee agrees, whenever requested in writing by the Issuer or the Company, to provide such information that is known to the Trustee relating to the Bonds as the Issuer or the Company from time to time may reasonably request, including, but not limited to, such information as may be necessary to enable the Issuer or the Company to make any reports required by any Federal, state or local law or regulation. ARTICLE VI DEFAULT PROVISIONS AND REMEDIES OF TRUSTEE AND BONDHOLDERS SECTION 601. EVENTS OF DEFAULT. The following shall be "Events of Default" under this Indenture, and the terms "Event of Default" shall mean, when they are used in this Indenture, any one or more of the following events: (A) failure by the Issuer to make due and punctual payment of the interest or premium on any Bond; (B) failure by the Issuer to make due and punctual payment of the principal of any Bond, whether at the Stated Maturity thereof, or upon proceedings for the redemption thereof, or upon the maturity thereof by declaration; (C) failure of the Trustee to have on hand by 12:00 noon on a Purchase Date moneys sufficient to pay the Purchase Price of a Bond properly tendered for purchase on such date; (D) failure by the Bank to make any payment required to be made by the Bank under the Letter of Credit; (E) after a draw has been made under the Letter of Credit pursuant to the Interest Draft (as defined in the Letter of Credit), receipt by the Trustee of a written notice from the Bank that the Bank has not been reimbursed for such draw; (F) a decree or order of a court or agency or Governmental Authority having jurisdiction in the premises for the appointment of a conservator or receiver or liquidator in any insolvency, readjustment of debt, marshalling of assets and liabilities or similar proceeding, or for the winding-up or liquidation of its affairs, shall have been entered against the Bank; (G) the Bank shall consent to the appointment of a conservator or receiver or liquidator in any insolvency, readjustment of debt, marshalling of assets and liabilities or similar proceeding of or relating to the Bank or of or relating to all or substantially all of its Property; (H) the Bank shall admit in writing its inability to pay its debts generally as they become due, file a petition to take advantage of any applicable insolvency or reorganization statute, make an assignment for the benefit of its creditors or voluntarily suspend payment of its obligations; or (I) default in the performance or observance of any other covenant, agreement or condition on the part of the Issuer in the Indenture or in any Bond to be performed or observed and the continuance thereof for a period of thirty (30) days after written notice thereof is given to the Issuer and the Company by the Trustee or by the holders of at least twenty- five percent (25%) in the aggregate principal amount of the Bonds then Outstanding. SECTION 602. ACCELERATION. (A) Upon (1) the occurrence of an Event of Default under Section 601(A) through (H), the Trustee shall, or (2) the occurrence of an Event of Default under Section 601(I) hereof and so long as such Event of Default is continuing, the Trustee may, and upon the written request of the holders of not less than twenty-five percent (25%) in aggregate principal amount of Bonds then Outstanding the Trustee shall, by notice in writing delivered to the Company, with copies of such notice being sent to the Issuer and the Bank, declare the entire principal amount of all Bonds then Outstanding and the interest accrued thereon to be immediately due and payable, and such principal and interest shall thereupon become and be immediately due and payable. Upon any such declaration, the Trustee shall immediately declare an amount equal to all amounts then due and payable on the Bonds to be immediately due and payable under the Installment Sale Agreement. (B) Upon the occurrence of any declaration by the Trustee under this Section 602, the principal of the Bonds then Outstanding and the interest accrued thereon shall thereupon become and be immediately due and payable, and interest shall cease to accrue thereon, and the Trustee shall immediately draw upon the Letter of Credit to the extent and in the manner provided in Section 408 hereof. SECTION 603. ENFORCEMENT OF REMEDIES. (A) Upon the occurrence and continuance of any Event of Default, the Trustee shall exercise such of the rights and powers vested in the Trustee by the Indenture and use the same degree of care and skill in their exercise as a prudent person would exercise or use under the circumstances in the conduct of his own affairs. In considering what actions are or are not prudent in the circumstances, the Trustee shall consider whether or not to take such action as may be permitted to be taken by the Trustee under any of the Financing Documents. (B) Upon the occurrence and continuance of any Event of Default, the Trustee shall give such notices and take all actions necessary to cause payments to be made under the Letter of Credit and may proceed forthwith to protect and enforce its rights under the Act, the Letter of Credit, the Installment Sale Agreement and the other Financing Documents by such suits, actions or proceedings as the Trustee, being advised by counsel, shall deem expedient. (C) Upon the occurrence and continuance of any Event of Default, the Trustee may pursue any available remedy at law or in equity by suit, action, mandamus or other proceeding to enforce payment of and receive any amounts due or becoming due from the Issuer, the Bank or the Company under any of the provisions of this Indenture, the Installment Sale Agreement and the other Financing Documents, without prejudice to any other right or remedy of the Trustee or the Bondholders. (D) Regardless of the happening of an Event of Default, the Trustee may institute and maintain such suits and proceedings as it may be advised shall be necessary or expedient to prevent any impairment of the security under this Indenture and the other Financing Documents by any acts which may be unlawful or in violation of the Indenture or of any other Financing Document or of any resolution authorizing the Bonds, or to preserve or protect the interest of the Trustee and/or the Bondholders. (E) Notwithstanding anything to the contrary herein, so long as the Letter of Credit is in effect and the Bank is making all required payments with respect to the Letter of Credit in accordance with the terms of the Letter of Credit, the Trustee shall not exercise any remedies under this Article VI and the Trustee shall not, without the prior written consent of the Bank, take any actions which the Trustee is required or entitled to take under this Article VI unless and until the Trustee shall have accelerated the Bonds and drawn upon the Letter of Credit in accordance with Section 602 hereof and the Bank shall have defaulted in the performance of its obligations under the Letter of Credit, in which case the Bank shall have no authority to exercise any further rights hereunder. (F) In the event of a default by the Bank in the performance of its obligations under the Letter of Credit, notwithstanding the provisions of subparagraph (E) above, the Bank shall have no authority to exercise any further rights hereunder, unless and until said default shall have been cured by the Bank to the satisfaction of the Trustee. (G) Notwithstanding any other provision of this Indenture, failure of the Company or the Trustee to comply with the Continuing Disclosure Agreement shall not be considered an Event of Default; however, the Trustee may (and, at the request of any Underwriter or the Holders of at least twenty-five percent (25)% aggregate principal amount of Outstanding Bonds, shall) or any Bondholder may take such actions as may be necessary and appropriate, including seeking mandatory or specific performance by court order, to cause the Company to comply with its obligations under Section 8.5(B) of the Installment Sale Agreement or to cause the Trustee to comply with its obligations under Section 517(B) hereof. SECTION 604. APPOINTMENT OF RECEIVERS. Upon the occurrence and continuance of an Event of Default and upon the filing of a suit or commencement of other judicial proceedings to enforce the rights of the Trustee under the Indenture and the other Financing Documents, the Trustee shall be entitled, as a matter of right, to the appointment of a receiver or receivers of the Project Facility and of the revenues and receipts thereof, pending such proceedings, with such powers as the court making such appointment shall confer. SECTION 605. RIGHTS OF BONDHOLDERS TO OBLIGATE TRUSTEE TO PROTECT BONDHOLDERS. If an Event of Default shall have happened, and if requested so to do by the holders of not less than twenty-five percent (25%) in aggregate principal amount of Bonds then Outstanding, and if secured and indemnified as provided in Section 701(I) herein, the Trustee shall be obligated to proceed to protect its rights and the rights of the Bondholders under applicable law, the Installment Sale Agreement, the Bonds, the Letter of Credit, the Indenture and the other Financing Documents, as the Trustee, being advised by Independent Counsel, shall deem most expedient in the interest of the Bondholders. SECTION 606. REMEDIES NOT EXCLUSIVE; WAIVER AND NON-WAIVER OF EVENT OF DEFAULT. (A) No remedy by the terms of the Indenture conferred upon or reserved to the Trustee or to the Bondholders is intended to be exclusive of any other remedy, but each and every such remedy shall be cumulative and shall be in addition to any other remedy given to the Trustee or to the Bondholders hereunder or now or hereafter existing at law or in equity or by statute. (B) No delay or omission to exercise any right or power accruing upon any Event of Default shall impair any such right or power or shall be construed to be a waiver of any such Event of Default or acquiescence therein; and every such right and power may be exercised from time to time and as often as may be deemed expedient. (C) No waiver of any Event of Default hereunder, whether by the Trustee or by the Bondholders, shall extend to or shall affect any subsequent or concurrent Event of Default or shall impair any rights or remedies consequent thereto. SECTION 607. RIGHTS OF BONDHOLDERS TO DIRECT PROCEEDINGS. Anything in the Indenture to the contrary notwithstanding, the Holders of a majority in aggregate principal amount of Bonds then Outstanding shall have the right at any time, by an instrument in writing executed and delivered to the Trustee and upon offering the Trustee the security and indemnity provided for in Section 701(I) herein, to direct the time, method and place of conducting all proceedings to be taken in connection with the enforcement of the terms and conditions of the Indenture, the Letter of Credit, the Installment Sale Agreement or the other Financing Documents, or for the appointment of a receiver or any other proceedings hereunder, provided that such direction is in accordance with the provisions of law, and is not unduly prejudicial to the interests of the Bondholder not joining such direction. SECTION 608. WAIVER BY ISSUER. Upon the occurrence of an Event of Default, to the extent that such right may then lawfully be waived, neither the Issuer, nor anyone claiming through or under it, shall set up, claim or seek to take advantage of any appraisal, valuation, stay, extension or redemption laws now or hereafter in force, in order to prevent or hinder the enforcement of the Indenture or the foreclosure of the mortgage Lien on the Project Facility created by the Mortgage; and the Issuer, for itself and all who may claim through or under it, hereby waives, to the extent that it may lawfully do so, the benefit of all such laws and all rights of appraisal and redemption to which it may be entitled under the laws of the State. SECTION 609. APPLICATION OF MONEYS. (A) Except as provided in subsection (C) below, all moneys received by the Trustee pursuant to any right given or action taken under the provisions of this Article VI shall, after payment of the cost and expenses of the proceedings resulting in the collection of such moneys and of the fees, expenses, liabilities and advances incurred or made by the Trustee, be deposited into the Bond Fund; and all moneys in the Bond Fund shall be applied, together with the other moneys held by the Trustee hereunder, as follows: (1) Unless the principal of all the Bonds shall have become due or shall have been declared due and payable, all such moneys shall be applied: FIRST - to the payment to the Persons entitled thereto of all installments of interest then due on the Bonds, in the order of the maturity of the installments of such interest and, if the amount available shall not be sufficient to pay in full any particular installment, then to the payment ratably, according to the amounts due on such installment, to the Persons entitled thereto, without any discrimination or privilege; SECOND - to the payment to the Persons entitled thereto of the unpaid principal of and any premium on the Bonds (other than Bonds called for redemption for the payment of which moneys shall be held pursuant to the provisions of the Indenture) which shall have become due, in order of their maturities, with interest from the date upon which they became due and, if the amount available shall not be sufficient to pay in full the principal of and premium, if any, and interest on the Bonds due on any particular date, then to the payment ratably, according to amounts due respectively for principal, interest and premium, if any, to the Persons entitled thereto, without any discrimination or privilege; THIRD - to the payment to the Persons entitled thereto of the principal of, premium, if any, on, or interest on the Bonds which may thereafter become due and payable, and, if the amount available shall not be sufficient to pay in full Bonds due on any particular date, together with interest and premium, if any, then due and owing thereon, payment shall be made ratably according to the amount of interest, principal and premium, if any, due on such date to the Persons entitled thereto, without any discrimination or privilege; and FOURTH - to the Bank. (2) If the principal of all the Bonds shall have become due or shall have been declared due and payable, all such moneys shall be applied to the payment of the principal, premium, if any, and interest then due and unpaid upon the Bonds, without preference or priority of principal and premium over interest or of interest over principal and premium, or of any installment of interest over any other installment of interest, or of any Bonds over any other Bonds, ratably, according to the amounts due respectively for principal, premium, if any, and interest, to the Persons entitled thereto without any discrimination or privilege. (3) If the principal of all the Bonds shall have been declared due and payable, and if such declaration shall thereafter have been rescinded and annulled under the provisions of paragraph (A)(2) of this Section 609 in the event that the principal of all the Bonds shall later become due or be declared due and payable, the moneys shall be applied in accordance with the provisions of paragraph (A)(1) of this Section. (B) Whenever moneys are to be applied pursuant to the provisions of Section 609(A)(1) hereof, such moneys shall be applied at such times, and from time to time, as the Trustee shall determine, having due regard to the amount of such moneys available for such application and the likelihood of additional moneys becoming available in the future. Whenever the Trustee shall apply such moneys under Section 609(A)(1), it shall fix the date (which shall be an Interest Payment Date unless it shall deem another date more suitable) upon which such application is to be made, and upon such date interest on the amounts of principal to be paid on such date shall cease to accrue. Whenever moneys are to be applied pursuant to the provisions of Section 609(A)(2), such moneys shall be applied immediately upon receipt thereof. In either case, the Trustee shall give such notice as it may deem appropriate of the deposit with it of any such moneys and of the fixing of any such date, and shall not be required to make payment to the holder of any Bond until such Bond shall be presented to the Trustee and a new Bond is issued or the Bond is cancelled if fully paid. (C) Any moneys received by the Trustee from the Bank pursuant to the exercise of any rights granted hereunder or under the Letter of Credit shall first be applied in accordance with Section 408 hereof. SECTION 610. REMEDIES VESTED IN TRUSTEE. All rights of action, including the right to file proof of claims, under the Indenture or under any of the Bonds may be enforced by the Trustee without the possession of any of the Bonds or the production thereof in any trial or other proceedings relating thereto, and any such suit or proceeding instituted by the Trustee shall be brought in its name as Trustee without the necessity of joining as plaintiffs or defendants any holders of the Bonds. Subject to the provisions of Section 609 hereof and any recovery or judgment shall be for the equal benefit of the holders of the Outstanding Bonds. SECTION 611. RIGHTS AND REMEDIES OF BONDHOLDERS. No holder of any Bond shall have any right to institute any suit, action or proceeding in equity or at law for the enforcement of the Indenture or for the execution of any trust under the Indenture or for the appointment to the extent permitted by law of a receiver or any other remedy hereunder, unless an Event of Default under Section 601(A) through (H) hereof has occurred or a default under Section 601(I) hereof has occurred of which the Trustee has been notified as provided in Section 614 hereof; nor unless also (A) such default, in the case of a default under Section 601(I), shall have become an Event of Default, and (B) the holders of at least twenty-five percent (25%) in aggregate principal amount of Bonds then Outstanding shall have made written request to the Trustee and shall have offered reasonable opportunity either to proceed to exercise the powers hereinbefore granted or to institute such action, suit or proceeding in its own name; nor unless also they have offered to the Trustee indemnity as provided in Section 701(I) hereof; nor unless the Trustee shall thereafter fail or refuse to exercise the powers hereinbefore granted, or to institute such action, suit or proceeding; and such notification, request and offer of indemnity are hereby declared in every case at the option of the Trustee to be conditions precedent to the execution of the powers and trusts of the Indenture, and to any action or cause of action for the enforcement of the Indenture, or for the appointment to the extent permitted by law of a receiver or for any other remedy hereunder; it being understood and intended that no one or more holders of the Bonds shall have any right in any manner whatsoever to affect, disturb, or prejudice the Lien of the Indenture by any action or to enforce any right hereunder except in the manner herein provided, and that all proceedings at law or in equity shall be instituted, had and maintained in the manner herein provided and for the equal benefit of the holders of all Bonds then Outstanding. Nothing in the Indenture shall, however, affect or impair the right of any Bondholder to enforce the payment of the principal of and interest on any Bond at and after the maturity thereof, or the obligation of the Issuer to pay the principal of and interest on each of the Bonds issued hereunder to the respective holders thereof, at the time and place and from the source and in the manner in the Bonds expressed. SECTION 612. TERMINATION OF PROCEEDINGS. In case the Trustee shall have undertaken any proceedings to enforce any right under the Indenture and such proceedings shall have been discontinued or abandoned for any reason, or shall have been determined adversely, then and in every such case, the Issuer, the Company, the Bank and the Trustee shall be restored to their former positions and rights hereunder, and all rights, remedies and powers of the Trustee shall continue as if no such proceedings had been taken. SECTION 613. WAIVERS OF EVENTS OF DEFAULT. The Trustee, with the prior written consent of the Bank, shall waive any Event of Default hereunder and its consequences and rescind any declaration of maturity of principal of and interest on the Bonds upon the written request of the holders of a majority of the aggregate principal amount of all the Bonds then Outstanding; provided, however, that there shall not be waived (A) any default in the payment of the principal of any Outstanding Bond at the date of maturity specified therein, or upon proceedings for mandatory redemption, (B) any Event of Default requiring a draw under the Letter of Credit unless the Trustee shall have received written notice from the Bank that the Letter of Credit has been reinstated to its full stated amount, if there has been a reduction thereon, or (C) any default in the payment when due of the interest or premium on any such Bonds, unless prior to such waiver or rescission all arrears of interest, with interest (to the extent permitted by law) at the rate borne by the Bonds in respect of which such default shall have occurred on overdue installments of interest or all arrears of payments of principal when due (whether at the stated maturity thereof or upon proceedings for redemption) as the case may be, shall have been paid or provided for, and no such waiver or rescission shall extend to any subsequent or other default, or impair any right consequent thereto. The Trustee shall not grant any waiver or rescission hereunder unless all ordinary and extraordinary fees and expenses of the Trustee, including, but not limited to, reasonable attorneys' fees, incurred in connection with said default have been paid or provided for, and in case of any such waiver or rescission, or in case any proceeding taken by the Trustee on account of any such default shall have been discontinued or abandoned or determined adversely, then, and in every such case, the Issuer, the Trustee, the Bank and the Bondholders, respectively, shall be restored to their former positions and rights hereunder. SECTION 614. NOTICE OF DEFAULTS; OPPORTUNITY TO CURE. (A) Anything herein to the contrary notwithstanding, no default under Section 601(I) hereof shall constitute an Event of Default until the Trustee shall have received written notice thereof or shall have actual notice thereof and until actual notice of such default by registered or certified mail shall be given by the Trustee or by the holders of not less than twenty-five (25%) percent of the aggregate principal amount of Bonds then Outstanding to the Issuer, the Bank and the Company, and the Issuer, the Bank and the Company shall have had thirty (30) days after receipt of such notice to correct said default or cause said default to be corrected, and shall not have corrected said default or caused said default to be corrected within the applicable period; provided, however, if said default be such that it cannot be corrected within the applicable period, it shall not constitute an Event of Default if corrective action is instituted by the Issuer, the Bank or the Company within the applicable period and diligently pursued until the default is corrected. (B) The Trustee shall immediately notify the Issuer, the Company and the Bank of any Event of Default known to the Trustee. SECTION 615. STATEMENT OF INCOME AND EXPENDITURES. Upon the occurrence and continuance of an Event of Default, the Trustee shall render annually to the Bondholders a summarized statement of income and expenditures in connection with the Project Facility, but only to the extent, if any, that the Trustee can obtain such information without unreasonable effort or expense. ARTICLE VII THE TRUSTEE SECTION 701. ACCEPTANCE OF TRUSTS. The Trustee hereby accepts the trusts imposed upon it by the Indenture and agrees to perform said trusts upon the following terms and conditions: (A) The Trustee may execute any of the trusts or powers hereof and perform any of its duties hereunder by or through attorneys, agents, receivers or employees, but shall not be answerable for the conduct of the same if appointed with due care, and shall be entitled to advice of counsel concerning all matters of the trusts hereof and the duties hereunder, and may in all cases pay such reasonable compensation to all such attorneys, agents, receivers and employees as may be reasonably employed in connection with the trusts hereof. The Trustee may act upon the opinion or advice of any attorney, who may be the attorney or attorneys for the Issuer, and shall not be responsible for any loss or damage resulting from any action or nonaction in reliance upon any such opinion or advice. (B) Except as expressly provided herein, the Trustee shall not be responsible for any recital herein or in the Bonds (except in respect to the authentication certificate of the Trustee endorsed on the Bonds), or for the validity of the execution by the Issuer of the Indenture or of any supplements thereto or instruments of further assurance, or for the sufficiency of the security for the Bonds issued hereunder or intended to be secured hereby, or for insuring the Property subject to the Lien of the Financing Documents, or for the value or title of any of the Property subject to the Lien of the Financing Documents, or for the payment of, or for minimizing taxes, charges, assessments or Liens upon the same, or otherwise as to the maintenance of the security hereof, except as to the safekeeping of the pledged collateral and except that, in the event the Trustee enters into possession of part or all of the Property subject to the Lien of the Financing Documents pursuant to any provision thereof, it shall use due diligence in preserving the same, and the Trustee shall not be bound to ascertain or inquire as to the performance or observance of any covenant, condition or agreement on the part of the Issuer or the Company, but the Trustee may require of the Issuer and the Company full information and advice as to the performance of the covenants, conditions and agreements aforesaid and as to the condition of the Property subject to the Lien of the Financing Documents. (C) The Trustee may become the owner of Bonds secured hereby with the same rights which it would have if not the Trustee. (D) The Trustee shall be protected in acting upon any notice, request, consent, certificate, order, affidavit, letter, telegram or other paper or document reasonably believed to be genuine and correct and to have been signed or sent by the proper Person or Persons. Any action taken by the Trustee pursuant to the Indenture upon the request or authority or consent of any Person who at the time of making such request or giving such authority or consent is the owner of any Bond shall be conclusive and binding upon all future owners of the same Bond and of any Bond or Bonds issued in exchange therefore or in place thereof. (E) The Trustee may accept a certificate of the Secretary or Assistant Secretary of the Issuer under its corporate seal to the effect that a resolution in the form therein set forth has been adopted by the Issuer as conclusive evidence that such resolution has been duly adopted and is in full force and effect. As to the existence or nonexistence of any fact or as to the sufficiency or validity of any instrument, paper or proceeding, the Trustee shall be entitled to rely upon a certificate of the Company or the Bank signed by an Authorized Representative of the Company or the Bank, as the case may be, or a certificate of an Authorized Representative of the Issuer under seal, as sufficient evidence of the facts therein contained and, prior to the occurrence of a default of which it has been notified as provided in paragraph (M) of this Section or of which by said paragraph it is deemed to have notice, shall also be at liberty to accept a similar certificate to the effect that any particular dealing, transaction or action is or is not necessary or expedient, but may at its discretion, at the reasonable expense of the Company, in every case secure such further evidence as it may think necessary or advisable, but shall in no case be bound to secure the same. (F) The permissive right of the Trustee to do things enumerated in the Indenture shall not be construed as a duty unless so specified herein, and in doing or not doing so the Trustee shall not be answerable for other than its own gross negligence or willful misconduct. (G) At any and all reasonable times, the Trustee, and its duly authorized agents, attorneys, experts, accountants and representatives, shall have the right fully to inspect all books, papers and records of the Issuer pertaining to the Project Facility and the Bonds, and to take such memoranda from and in regard thereto as may be desired. (H) Notwithstanding anything elsewhere in the Indenture, the Trustee shall have the right, but shall not be required, to demand, in respect of the authentication of any Bonds, the withdrawal of any moneys, the release of any interest in Property or any action whatsoever, within the purview of the Indenture, any showings, certificates, opinions, appraisals or other information, or corporate action or evidence thereof, in addition to those required herein. (I) Before taking any action hereunder (except declaring an Event of Default or drawing under the Letter of Credit on an Interest Payment Date or a Bond Payment Date), the Trustee may require that a security and indemnity reasonably satisfactory to it be deposited with it for the reimbursement of all fees, costs and expenses including, but not limited to, reasonable attorney's fees to which it may be put and to protect it against all liability, except liability which is adjudicated to have resulted from its gross negligence or willful misconduct by reason of any action so taken. (J) All moneys received by the Trustee or any paying agent shall, until used or applied or invested as herein provided, be held in trust for the purposes for which they were received, but need not be segregated from other funds except to the extent required by law or by the Indenture. Neither the Trustee nor any paying agent shall be under any liability for interest on any moneys received hereunder except such as may be agreed upon with the Issuer. (K) The Trustee, prior to an Event of Default hereunder and after curing all Events of Default which may have occurred, undertakes to perform only such duties as are specifically set forth in the Indenture. In case an Event of Default has happened which has not been cured, the Trustee shall exercise the rights, duties and powers vested in it by the Indenture in good faith and with that degree of diligence, care and skill which ordinarily prudent persons would exercise under similar circumstances in handling their own affairs. (L) The Trustee shall furnish to the Issuer during the term of this Indenture upon the written request of the Issuer any reports or other account of the use of any of the Issuer's funds held by the Trustee that may be required by any governmental body. (M) The Trustee shall not be required to take notice or be deemed to have notice of the occurrence of any Event of Default other than an Event of Default under Section 601(A) through (H), unless the Trustee shall have actual notice of such Event of Default or unless the Trustee shall be specifically notified in writing of such Event of Default by the Issuer, the Bank or the Company or by the owners of at least twenty-five percent (25%) in aggregate principal amount of Bonds Outstanding hereunder, and all notices or other instruments required by this Indenture to be delivered to the Trustee must, in order to be effective, be delivered at the main office of the Trustee, and, in the absence of such notice so delivered, the Trustee may conclusively assume there is no Event of Default, except as aforesaid. (N) The Trustee shall not be personally liable for any debts contracted or for damages to Persons or to personal Property injured or damaged, or for salaries or nonfulfillment of contracts, during any period in which it may be in the possession of or managing any Property subject to the Lien of the Financing Documents as in this Indenture provided. (O) The Trustee shall not be required to give any bond or surety in respect of the execution of the said trusts and powers or otherwise in respect of the premises. (P) There shall be no additional fee charged by the Trustee for a draw under the Letter of Credit as contemplated by Section 408 hereof or by the terms of the Letter of Credit. Nothing in the foregoing sentence, however, shall limit the Trustee's right to charge additional fees in the event it is required to perform Extraordinary Services hereunder. (Q) Before taking any action hereunder, or under the Mortgage or any other Financing Document, which would result in the Trustee acquiring title to or taking possession of any portion or all of the Project Facility, the Trustee may require such environmental inspections and tests of the Project Facility and other environmental reviews as the Trustee deems necessary and if the Trustee determines that the taking of title or possession of all or any portion of the Project Facility will expose it to claims or damages resulting from environmental or ecological conditions in any way relating to the Project Facility or any activities at the Project Facility, the Trustee may decline to take title to or possession of the Project Facility. SECTION 702. FEES, CHARGES AND EXPENSES OF TRUSTEE. The Trustee shall be entitled to payment for its Ordinary Services and Ordinary Expenses, including, but not limited to, reasonable attorney's fees, rendered or incurred hereunder and, in the event that it should become necessary for the Trustee to perform Extraordinary Services, it shall be entitled to reasonable extra compensation therefor, and to reimbursement for reasonable and necessary Extraordinary Expenses, including, but not limited to, reasonable attorney's fees, in connection therewith; provided that, if such Extraordinary Services or Extraordinary Expenses are occasioned by the gross negligence or willful misconduct of the Trustee, it shall not be entitled to compensation or reimbursement therefor. SECTION 703. NOTICE TO BONDHOLDERS OF DEFAULT. If an Event of Default occurs of which the Trustee is, by Section 614 or paragraph (M) of Section 701 hereof, required to take notice or if notice of an Event of Default has been given to it as in said Section 614 or paragraph (M) provided, then the Trustee shall give written notice thereof by mail to all owners of Bonds then Outstanding as shown on the bond register maintained by the Trustee. SECTION 704. INTERVENTION BY TRUSTEE. In any judicial proceeding to which the Issuer is a party and which in the opinion of the Trustee and its counsel has a substantial bearing on the interests of Bondholders, the Trustee may intervene on behalf of Bondholders and shall do so if requested in writing by the owners of at least twenty-five percent (25%) in aggregate principal amount of all Bonds then Outstanding if offered the security and indemnity provided for in Section 701(I). The rights and obligations of the Trustee under this Section 704 are subject to the approval of a court of competent jurisdiction. SECTION 705. SUCCESSOR TRUSTEE. Any corporation or association into which the Trustee may be converted or merged, or with which it may be consolidated, or to which it may sell or transfer its trust business and assets as a whole or substantially as a whole, or any corporation or association resulting from any such conversion, sale, merger, consolidation or transfer to which it is a party, shall, ipso facto, be and become successor Trustee hereunder and vested with all of the title to the Trust Revenues and all the trusts, powers, discretions, immunities, privileges and all other matters as was its predecessor, without the execution or filing of any instruments or any further act, deed or conveyance on the part of any of the parties hereto, anything herein to the contrary notwithstanding. SECTION 706. RESIGNATION BY TRUSTEE. The Trustee and any successor Trustee may at any time resign from the trusts hereby created by giving sixty (60) days' written notice to the Issuer, the Bank and the Company and by registered or certified mail to each owner of Bonds then Outstanding and such resignation shall take effect at the end of such sixty (60) days, but not prior to the acceptance of appointment by a successor Trustee under Section 709 hereof. Such notice to the Issuer, the Bank and the Company may be served personally or sent by registered mail. If an instrument of acceptance by a successor Trustee shall not be delivered to the Trustee within sixty (60) days after the giving of such notice of resignation, the resigning trustee may petition any court of competent jurisdiction for the appointment of a successor Trustee. SECTION 707. REMOVAL OF TRUSTEE. (A) The Trustee may be removed at any time, by an instrument or concurrent instruments in writing delivered to the Trustee, the Issuer, the Bank and the Company, and signed by the owners of a majority in aggregate principal amount of all Bonds then Outstanding. Such notice shall specify the date that such removal shall take effect. (B) No removal of the Trustee under this Section 707 shall be effective until a successor Trustee shall have been appointed and shall have accepted the terms and conditions imposed hereby. SECTION 708. APPOINTMENT OF SUCCESSOR TRUSTEE BY BONDHOLDERS; TEMPORARY TRUSTEE. In case the Trustee hereunder shall resign or be removed, or be dissolved, or shall be in course of dissolution or liquidation, or otherwise become incapable of acting hereunder, or in case it shall be taken under the control of any public officer or officers, or of a receiver appointed by a court, a successor may be appointed by the owners of a majority in aggregate principal amount of Bonds then Outstanding, by an instrument or concurrent instruments in writing signed by such owners, or by their duly authorized attorneys; provided, nevertheless, that in case of vacancy, the Issuer by an instrument executed and signed by the Chairman or Vice Chairman and attested by the Secretary or Assistant Secretary of the Issuer under its seal, may appoint a temporary Trustee to fill such vacancy until a successor Trustee shall be appointed by such Bondholders in the manner above provided; and any such temporary Trustee so appointed by the Issuer shall immediately and without further act be superseded by the Trustee so appointed by such Bondholders. Every such successor or temporary Trustee appointed pursuant to the provisions of this Section 708 shall (A) be a trust company or bank organized under the laws of the United States of America or any state thereof and which is in good standing, (B) be located within or outside the State, (C) be duly authorized to exercise trust powers in the State, and (D) maintain a reported capital and surplus of not less than $5,000,000, or be a subsidiary of a bank holding company with such capital and surplus. SECTION 709. CONCERNING ANY SUCCESSOR TRUSTEE. Every successor Trustee appointed hereunder shall execute, acknowledge and deliver to its predecessor and also to the Issuer an instrument in writing accepting such appointment hereunder, and thereupon such successor, without any further act, deed or conveyance, shall become fully vested with all the estates, Properties, rights, powers, trusts, duties and obligations of its predecessor; but such predecessor shall, nevertheless, on the written request of the Issuer, or of its successor, and upon payment of all amounts due such predecessor, execute and deliver an instrument transferring to such successor Trustee all the estates, Properties, rights, powers and trusts of such predecessor hereunder; and every predecessor Trustee shall deliver all securities and moneys held by it as Trustee hereunder to its successor. Should any instrument in writing from the Issuer be required by a successor Trustee for more fully and certainly vesting in such successor the estates, Properties, rights, powers and duties hereby vested or intended to be vested in the predecessor, any and all such instruments in writing shall, on request, be executed, acknowledged and delivered by the Issuer. The resignation of any Trustee and the instrument or instruments removing any Trustee and appointing a successor hereunder, together with all other instruments provided for in this Article VII, shall be filed and/or recorded by the successor Trustee in each recording office where the Indenture shall have been filed and/or recorded. SECTION 710. TRUSTEE PROTECTED IN RELYING UPON RESOLUTIONS, ETC. The resolutions, opinions, certificates and other instruments provided for in the Indenture may be accepted by the Trustee as conclusive evidence of the facts and conclusions stated therein and shall be full warrant, protection and authority to the Trustee for the release of property and the withdrawal of moneys hereunder. SECTION 711. SUCCESSOR TRUSTEE AS TRUSTEE, PAYING AGENT AND BOND REGISTRAR. In the event of a change in the office of Trustee, the predecessor Trustee which has resigned or has been removed shall cease to be Trustee and paying agent on the Bonds and Bond Registrar, and the successor Trustee shall become such Trustee and paying agent and Bond Registrar. SECTION 712. TRUST MAY BE VESTED IN SEPARATE OR CO-TRUSTEE. (A) It is the purpose of the Indenture that there shall be no violation of any law of any jurisdiction, including particularly the law of the State, denying or restricting the right of banking corporations or associations to transact business as trustee in such jurisdiction. It is recognized that in case of litigation under the Indenture, and in particular in case of the enforcement of any such instrument on default, or in case the Trustee deems that by reason of any present or future law of any jurisdiction it may not exercise any of the powers, rights or remedies herein granted to the Trustee or hold title to the trust herein created, or take any other action which may be desirable or necessary in connection therewith, it may be necessary that the Trustee appoint an additional individual or institution as a separate or co-trustee. (B) In the event that the Trustee appoints an additional individual or institution as a separate or co-trustee, each and every remedy, power, right, claim, demand, cause of action, immunity, estate, title, interest and lien expressed or intended by the Indenture to be exercised by or vested in or conveyed to the Trustee with respect thereto shall be exercisable by and vest in such separate or co-trustee, but only to the extent necessary to enable such separate or co-trustee to exercise such powers, rights and remedies; and every covenant and obligation necessary to the exercise thereof by such separate or co-trustee shall run to and be enforceable by either of them. (C) Should any deed, conveyance or instrument in writing from the Issuer be required by the separate trustee or co-trustee so appointed by the Trustee for more fully and certainly vesting in and confirming to him or it such Properties, rights, powers, trusts, duties and obligations, any and all such deeds, conveyances and instruments in writing shall, on request, be executed, acknowledged and delivered by the Issuer. In case any separate trustee or co- trustee, or a successor to either, shall die, become incapable of acting, resign or be removed, all the estates, Properties, rights, powers, trusts, duties and obligations of such separate trustee or co- trustee, so far as permitted by law, shall vest in and be exercised by the Trustee until the appointment of a new trustee or successor to such separate trustee or co-trustee. SECTION 713. TRUSTEE TO EXERCISE POWERS OF STATUTORY TRUSTEE. The Trustee shall be and is hereby vested with all of the rights, powers and duties of a Trustee which could be appointed by the Bondholders pursuant to Section 878 of the Act, and the right of the Bondholders to appoint a Trustee pursuant to Section 878 of the Act is hereby abrogated in accordance with the provisions of the Act. SECTION 714. NEW YORK REAL PROPERTY LAW. (A) To the extent, if any, that Article 4-a of the New York Real Property Law, as in effect from time to time, may apply to this Indenture or the transactions contemplated hereby, then and in such event, notwithstanding any provision of this Indenture to the contrary, the following provisions of this Section 714 shall apply to this Indenture. (B) The Trustee shall have, without limitation, the following additional powers and duties: (1) To receive and collect directly and without the intervention or assistance of any fiscal agent or other intermediary all payments of monies required to be made under this Indenture and to disburse the same pursuant to the terms hereof. (2) To act as tax withholding agent, and to receive, collect and pay the necessary taxes and hold the surplus, if any, in trust for the rightful owner thereof. (3) In the event of a default in the payment or deposit of interest, amortization, taxes, assessments or principal (without any request from the Bondholders or any of them) with due diligence, prudence and care in its discretion: (a) to take such action as may be necessary or proper to sequester the rents and income from the Project Facility and otherwise from the Trust Estate; (b) to procure from the owner of the Project Facility and/or of the Trust Estate an assignment of rents and/or a consent to enter into possession of the Project Facility and/or the Trust Estate and to collect the rents and income therefrom; (c) to apply to any court of competent jurisdiction for the appointment of a receiver of the rents and income from the Project Facility and the Trust Estate; (d) to declare due and payable forthwith any principal amount remaining due and unpaid and commence an action to foreclose any Lien on the Project Facility and/or the Trust Estate; (e) to apply the moneys received as rents and income from the Project Facility and/or the Trust Estate as well as moneys received by the Trustee from any receiver appointed for the Project Facility and/or the Trust Estate in his discretion, to the maintenance and operation of such Trust Estate, the payment of taxes, water rents and assessments levied thereon and any arrears thereof, to the payment of underlying Liens, and to the creation and maintenance of a reserve or sinking fund, and after the commencement of an action to foreclose any Lien on the Project Facility and/or the Trust Estate, to distribute ratably among the Bondholders any moneys remaining in its hands; and (f) to render annually to the Bondholders, after the occurrence of an Event of Default, unless such Event of Default be previously cured, a summarized statement of income and expenditures in connection with the Trust Estate. (4) To permit the Issuer or other Person in possession or control of the Project Facility and/or the Trust Estate, or its successors in interest, to be free to select the insurance broker or agent through whom any insurance of any kind is to be placed or written on any property affected or covered by a mortgage held by such Trustee. (C) The powers and duties conferred and imposed in subsection (B) of this Section 714 shall be in addition to those conferred and imposed by other provisions of this Indenture and, in case of a conflict, the provisions of said subsection (B) shall prevail; provided, however, that if Article 4-A of the Real Property Law of the State (or any successor provision) or any portion thereof should at any time be repealed or should be construed by a non- appealable judicial decision of a State or Federal court specifically to be inapplicable to this Indenture, said subsection (B) or the corresponding provisions of said subsection (B), as the case may be, shall cease to have any further force and effect; provided, further, that any modification of the powers and duties of a trustee pursuant to Article 4-A of the Real Property Law of the State shall be incorporated by reference herein as part of said subsection (B). SECTION 715. CONFLICTS OF INTEREST. (A) To the extent, if any, that Article 4-A of the New York Real Property Law, as in effect from time to time, may apply to this Indenture or the transactions contemplated hereby, then and in such event, notwithstanding any provision of this Indenture to the contrary, the following provisions of this Section 715 shall apply to this Indenture. If the Trustee has or shall acquire any conflicting interest as hereinafter defined: (1) the Trustee shall, within ninety (90) days after ascertaining that it has such conflicting interest, either eliminate such conflicting interest or resign, such resignation to become effective upon the appointment of a successor trustee and such successor's acceptance of such appointment; and the Issuer shall take prompt steps to have a successor appointed in the manner provided in this Indenture; (2) in the event that the Trustee shall fail to comply with the provisions of paragraph (1) of this subsection (A), the Trustee shall, within ten (10) days after the expiration of such ninety-day period, transmit notice of such failure by mail (a) to all registered Holders of Bonds, as the names and addresses of such Holders appear upon the registration books of the Issuer, (b) to such Holders of Bonds as have, within the two (2) years preceding such transmission, filed their names and addresses with the Trustee for the purpose of receiving notices or reports to Holders of Bonds and (c) to all Holders of Bonds whose names and addresses are contained in information currently preserved by the Trustee for such purpose in accordance with subsection (G) of this Section 715; and (3) any Holder of Bonds who has been a bona fide Holder thereof for at least six (6) months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee, and the appointment of a successor, if the Trustee fails, after written request therefor by such Holder, to comply with the provisions of paragraph (1) of this subsection (A). (B) For purposes of subsection (A) of this Section 715, the Trustee shall be deemed to have a conflicting interest if: (1) the Trustee is trustee under another mortgage, deed of trust, trust indenture or other similar instrument (hereinafter in this Section 715 referred to as an "indenture") under which any other securities, or certificates of interest or participation in any other securities, of an obligor upon the Bonds are outstanding unless (1) such other indenture is a collateral trust indenture under which the only collateral consists of Bonds issued under this Indenture, or (2) such obligor has no substantial unmortgaged assets and is engaged primarily in the business of owning, or of owning and developing or operating, real estate, and this Indenture and such other indenture are secured by wholly separate and distinct parcels of real estate; provided, however, that there shall be excluded from the operation of this paragraph any other indenture or indentures which shall have been qualified with the United States Securities and Exchange Commission pursuant to the provisions of the Trust Indenture Act of 1939, as from time to time amended and in force; (2) the Trustee or any of its directors or executive officers is an obligor upon the Bonds or an underwriter for such an obligor; (3) the Trustee directly or indirectly controls, or is directly or indirectly controlled by or is under direct or indirect common control with, an obligor upon the Bonds or an underwriter for such an obligor; (4) the Trustee or any of its directors or executive officers is a director, officer, partner, employee, appointee or representative of an obligor upon the Bonds, or of an underwriter (other than the Trustee itself) for such an obligor who is currently engaged in the business of underwriting, except that (a) one individual may be a director or an executive officer of the Trustee and a director or an executive officer of such obligor, but may not be at the same time an executive officer of both the Trustee and of such obligor, and (b) if and so long as the number of directors of the Trustee in office is more than nine, one additional individual may be a director or an executive officer of the Trustee and a director of such obligor, and (c) the Trustee may be designated by any such obligor or by any underwriter for any such obligor to act in the capacity of transfer agent, registrar, custodian, paying agent, fiscal agent, escrow agent or depositary, or in any other similar capacity, or, subject to the provisions of paragraph (1) of this subsection (B), to act as trustee, whether under an indenture or otherwise; (5) ten per centum or more of the voting securities of the Trustee is beneficially owned either by an obligor upon the Bonds or by any director, partner or executive officer thereof, or twenty percentum or more of such voting securities is beneficially owned, collectively, by any two or more of such persons; or ten per centum or more of the voting securities of the Trustee is beneficially owned either by an underwriter for any such obligor or by any director, partner or executive officer thereof, or is beneficially owned, collectively, by any two or more such persons; (6) the Trustee is the beneficial owner of, or holds as collateral security for an obligation which is in default as hereinafter defined, (a) five per centum or more of the voting securities, or ten per centum or more of any other class of security, of an obligor upon the Bonds, not including the Bonds and securities issued under any other indenture under which the Trustee is also such trustee, or (b) ten per centum or more of any class of securities of an underwriter for any such obligor; (7) the Trustee is the beneficial owner of, or holds as collateral security for an obligation which is in default as hereinafter defined, five per centum or more of the voting securities of any person who, to the knowledge of the Trustee, owns ten per centum or more of the voting securities of, or controls directly or indirectly or is under direct or indirect control with, an obligor upon the Bonds; (8) the Trustee is the beneficial owner of, or holds as collateral security for an obligation which is in default as hereinafter defined, ten per centum or more of any class of securities of any person who, to the knowledge of the Trustee, owns fifty per centum or more of the voting securities of an obligor upon the Bonds; or (9) the Trustee owns, on May fifteenth in any calendar year, in the capacity of executor, administrator, testamentary or inter vivos trustee, guardian, committee or conservator, or in any other similar capacity, an aggregate of twenty-five per centum or more of the voting securities, or of any class of securities, of any person, the beneficial ownership of a specified percentage of which would have constituted a conflicting interest under paragraph (6), (7) or (8) of this subsection (B). As to any such securities of which the Trustee acquired ownership through becoming executor, administrator or testamentary trustee of an estate which included them, the provisions of the preceding sentence shall not apply, for a period of not more than two (2) years from the date of such acquisition, to the extent that such securities included in such estate do not exceed twenty-five per centum of such voting securities or twenty- five per centum of any such class of securities. Promptly after May fifteenth in each calendar year, the Trustee shall make a check of its holdings of such securities in any of the above-mentioned capacities as of such May fifteenth. If the Issuer fails to make payment in full of principal or interest under this Indenture when and as the same becomes due and payable, and such failure continues for thirty (30) days thereafter, the Trustee shall make a prompt check of its holdings of such securities in any of the above-mentioned capacities as of the date of the expiration of such thirty-day period, and after such date, notwithstanding the foregoing provisions of this paragraph, all such securities so held by the Trustee, with sole or joint control over such securities vested in it, shall be considered as though beneficially owned by the Trustee, for the purposes of paragraphs (6), (7) and (8) of this subsection (B). (C) The specification of percentages of paragraphs (5) through (9), inclusive, of subsection (B) of this Section 715 shall not be construed as indicating that the ownership of such percentages of the securities of a Person is or is not necessary or sufficient to constitute direct or indirect control for the purposes of paragraph (3) or (7) of subsection (B) of this Section 715. (D) For the purposes of paragraphs (6), (7), (8) and (9) of paragraph (B) of this Section 715, (1) the terms "security" and "securities" shall include only such securities as are generally known as corporate securities, but shall not include any note or other evidence of indebtedness issued to evidence an obligation to repay monies lent to a Person by one or more banks, trust companies or banking firms, or any certificate of interest or participation in any such note or evidence of indebtedness; (2) an obligation shall be deemed to be "in default" when a default in payment of principal shall have continued for thirty (30) days or more, and shall not have been cured; and (3) the Trustee shall not be deemed the owner or holder of (a) any security which it holds as collateral security (as trustee or otherwise) for an obligation which is not in default as above defined, or (b) any security which it holds as collateral security under this Indenture, irrespective of any default thereunder, or (c) any security which it holds as agent for collection, or as custodian, escrow agent or depositary, or in any similar representative capacity. (E) For the purposes of subsection (B) of this Section 715, the term "underwriter", when used with reference to an obligor upon the Bonds, means every Person who, within three (3) years prior to the time as of which the determination is made, was an underwriter of any security of such obligor outstanding at such time. (F) When used in subsections (B) through (E), inclusive, of this Section 715, unless the context otherwise requires: (1) The term "underwriter" means any Person who has purchased from an issuer with a view to, or offers or sells for an issuer in connection with, the distribution of any security, or participates or has a direct or indirect participation in any such undertaking, or participates or has a participation in the direct or indirect underwriting of any such undertaking; but such term shall not include a Person whose interest is limited to a commission from an underwriter or dealer not in excess of the usual and customary distributors' or sellers' commission. (2) The term "director" means any director of a corporation or any individual performing similar functions with respect to any organization, whether incorporated or unincorporated. (3) The term "executive officer" means the president, every vice president, every trust officer, the cashier, the secretary, and the treasurer of a corporation, and any individual customarily performing similar functions with respect to any organization, whether incorporated or unincorporated, but shall not include the chairman of the board of directors. (4) The term "obligor", when used with respect to the Bonds, means every person who is liable thereon. (5) The term "voting security" means any security presently entitling the owner or holder thereof to vote in the direction or management of the affairs of a person, or any security issued under or pursuant to any trust, agreement or arrangement whereby a trustee or trustees or agent or agents for the owner or holder of such security are presently entitled to vote in the direction or management of the affairs of a Person; and a specified percentage of the voting securities of a Person means such amount of the outstanding voting securities of such Person as entitles the holder or holders thereof to cast such specified percentage of the aggregate votes which the holders of all the outstanding voting securities of such Person are entitled to cast in the direction or management of the affairs of such Person. (G) The Issuer agrees that it will furnish or cause to be furnished to the Trustee as soon as reasonably practicable after receipt thereof and at such other times as the Trustee may request in writing all information in the possession or control of the Issuer as to the names and addresses of the Holders of the Bonds. The Trustee shall preserve, in as current a form as is reasonably practicable, all such information so furnished to it. SECTION 716. DESIGNATION AND SUCCESSION OF TENDER AGENTS. (A) (1) In the event a Tender Agent, other than the Trustee, is required in connection with the remarketing of the Bonds, the Company is hereby authorized to appoint a Tender Agent meeting the requirements set forth in Section 717 hereof. (2) Upon the appointment of a Tender Agent pursuant to Section 717 hereof, the Tender Agent shall agree to provide, as soon as practicable, the Trustee with copies of all written notices it receives in connection with its duties as Tender Agent. (B) Any corporation or association into which a Tender Agent may be merged, or with which it may be consolidated, or to which it may sell, lease or transfer its investment banking business and assets as a whole or substantially as a whole, shall be and become successor hereunder and shall be vested with all the powers, rights, obligations and duties hereunder as was its predecessor, without the execution or filing of any instrument by any party hereto. Any Tender Agent may at any time resign and be discharged of the duties and obligations created by this Indenture by giving at least sixty (60) days notice to the Issuer, the Company, the Bank and the Trustee; provided, that such resignation shall not take effect until a successor Tender Agent shall have accepted its duties and obligations hereunder. The Tender Agent may be removed at any time upon at least sixty (60) days' notice by an instrument, signed by the Issuer at the direction of the Company and delivered to the Tender Agent and filed with the Trustee. (C) In the event of the resignation or removal of a Tender Agent, or in the event the Tender Agent shall be dissolved, or if the property or affairs of a Tender Agent shall be taken under the control of any state or federal court or administrative body by reason of insolvency or bankruptcy, the Issuer shall, or for any other reason the Issuer may, with the consent of the Bank and the Company, appoint a successor Tender Agent, meeting the requirements set forth in Section 717 hereof. The former Tender Agent shall pay over, assign and deliver any moneys and Bonds held by it in such capacity to the successor Tender Agent when appointed, or, if there be no successor Tender Agent appointed with thirty (30) days, to the Trustee. In the event that (1) the Issuer shall fail to propose for the consent of the Bank and the Company a successor Tender Agent hereunder or, (2) the position of Tender Agent shall be vacant for any other reason, the Trustee, shall accept the assignment and delivery of the moneys and Bonds held by the former Tender Agent and shall hold and dispose of them as set forth in this Section. It is expressly understood hereunder that if in the event the position of Tender Agent is vacant for any reason, the Trustee shall assume the duties of Tender Agent hereunder. If the Issuer shall fail to propose a successor Tender Agent for the consent of the Bank and the Company within thirty (30) days after request, the Trustee may appoint a successor Tender Agent with the consent of the Bank and the Company. Neither the Issuer nor the Trustee shall incur any liability as a result of any appointment or failure to appoint the Tender Agent or a successor Tender Agent. SECTION 717. QUALIFICATIONS OF TENDER AGENT. Each Tender Agent shall be a bank or a trust company. ARTICLE VIII SUPPLEMENTAL INDENTURES SECTION 801. SUPPLEMENTAL INDENTURES NOT REQUIRING CONSENT OF BONDHOLDERS. (A) The Issuer and the Trustee, without the consent of, or notice to, any of the Bondholders, may enter into an indenture or indentures supplemental to the Indenture and not inconsistent with the terms and provisions hereof or materially adverse to the holders of the Bonds or to the Bank for any one or more of the following purposes: (1) to cure any ambiguity or formal defect or omission in the Indenture; (2) to grant to or confer upon the Trustee for the benefit of the Bondholders any additional rights, remedies, powers or authority that may lawfully be granted to or conferred upon the Bondholders or the Trustee or either of them; (3) to subject additional rights and revenues to the Lien of this Indenture, or to identify more precisely the Trust Estate; (4) to obtain or maintain a rating on the Bonds from Moody's or Standard & Poor's; or (5) to modify, amend or supplement the Indenture or any indenture supplemental hereto in such manner as to permit the qualification hereof and thereof under the Trust Indenture Act of 1939 or any similar Federal statute hereafter in effect or under any state Blue Sky Law. (B) The Issuer and the Trustee may rely on an opinion of Independent Counsel as conclusive evidence that the execution and delivery of any amendment or supplemental indenture has been effected in compliance with this Section 801. SECTION 802. SUPPLEMENTAL INDENTURES REQUIRING CONSENT OF BONDHOLDERS. (A) Except for supplemental indentures as provided in Section 801 hereof, the holders of not less than two-thirds in aggregate principal amount of the Bonds then Outstanding shall have the right, from time to time, anything in the Indenture to the contrary notwithstanding, to consent to and approve the execution by the Issuer and the Trustee of such indenture or indentures supplemental hereto as shall be deemed necessary and desirable by the Issuer or the Trustee for the purpose of modifying, altering, amending, adding to or rescinding, in any particular, any of the terms or provisions contained in the Indenture or in any supplemental indenture; provided, however, that nothing contained in this Section 802 shall permit or be construed as permitting (1) without the consent of the holder of such Bond, (a) a reduction in the rate, or extension of the time of payment, of interest on any Bond, (b) a reduction of any premium payable on the redemption of any Bond, or an extension of time for such payment, or (c) a reduction in the principal amount payable on any Bond, or an extension of time in which the principal amount of any Bond is payable, whether at the stated or declared maturity or redemption thereof, (2) the creation of any Lien prior to or on a parity with the Lien of this Indenture (other than that parity Lien created to secure the Additional Bonds), (3) a reduction in the aforesaid aggregate principal amount of Bonds, the holders of which are required to consent to any such supplemental indenture, without the consent of the holders of all the Bonds at the time Outstanding which would be affected by the action to be taken, (4) the modification of the rights, duties or immunities of the Trustee, without the written consent of the Trustee, or (5) a privilege or priority of any Bond or Bonds over any other Bond or Bonds. (B) If at any time the Issuer and the Trustee propose to enter into any such supplemental indenture for any of the purposes specified in this Section 802, the Trustee shall, upon being satisfactorily secured and indemnified as provided in Section 701(I) hereof with respect to fees, costs and expenses, including, but not limited to, reasonable attorneys' fees, cause notice of the proposed execution of such supplemental indenture to be mailed to each Bondholder. Such notice shall briefly set forth the nature of the proposed supplemental indenture and shall state that copies thereof are on file at the Office of the Trustee for inspection by all Bondholders. If, within sixty (60) days or such longer period as shall be prescribed by the Trustee following the mailing of such notice, the holders of not less than two- thirds in aggregate principal amount of the Bonds Outstanding at the time of the execution of any such supplemental indenture shall have consented to and approved the execution thereof as herein provided, no holder of any Bond shall have any right to object to any of the terms and provisions contained therein, or the operation thereof, or in any manner to question the propriety of the execution thereof, or to enjoin or restrain the Trustee or the Issuer from executing the same or from taking any action pursuant to the provisions thereof. Upon the execution of any such supplemental indenture as in this Section 802 permitted and provided, the Indenture shall be and be deemed to be modified and amended in accordance therewith. (C) The Issuer and the Trustee may rely upon an opinion of Independent Counsel as conclusive evidence that the execution and delivery of a supplemental indenture has been effected in compliance with the provisions of this Section 802. SECTION 803. SUPPLEMENTAL INDENTURES; CONSENT OF BANK. Notwithstanding anything to the contrary herein contained, the Issuer and the Trustee shall in no event enter into any indenture supplemental to the Indenture under Section 802 hereof without the prior written consent of the Bank and such other assurance from the Bank as counsel to the Trustee may require that the Bank's obligations under the Letter of Credit have not been diminished or otherwise affected by such supplemental indenture. The Issuer and the Trustee shall be entitled to rely upon such certificates or opinions delivered by the Bank or its counsel to such effect. SECTION 804. SUPPLEMENTAL INDENTURES; CONSENT OF COMPANY. Notwithstanding anything contained in this Indenture to the contrary, no supplemental indenture which affects any rights or liabilities of the Company shall become effective unless or until the Company shall have consented in writing to the execution and delivery of such supplemental indenture. In this regard, the Trustee shall cause notice of the proposed execution and delivery of any such supplemental indenture to be mailed by certified or registered mail to the Company at least fifteen (15) days prior to the proposed date of execution and delivery of any supplemental indenture. The Company shall be deemed to have consented to the execution and delivery of any supplemental indenture if the Trustee has not received a letter of protest or objection signed by the Company within fifteen (15) days after the mailing of said notice and a copy of the supplemental indenture. The Trustee may rely upon the opinion of Independent Counsel whether or not a supplemental indenture affects any rights or liabilities of the Company within the meaning of, and for the purposes of this Section 804. SECTION 805. EFFECT OF SUPPLEMENTAL INDENTURES. Any supplemental indenture executed in accordance with the provisions of this Article VIII shall thereafter form part of the terms and conditions of this Indenture for any and all purposes. ARTICLE IX AMENDMENT TO INSTALLMENT SALE AGREEMENT, LETTER OF CREDIT, MORTGAGE, OR OTHER FINANCING DOCUMENTS SECTION 901. AMENDMENTS TO INSTALLMENT SALE AGREEMENT, MORTGAGE, OR OTHER FINANCING DOCUMENTS NOT REQUIRING CONSENT OF BONDHOLDERS. (A) The Issuer, the Company and the Trustee may, without the consent of or notice to the Bondholders, consent to any amendment, change or modification of the Installment Sale Agreement or any other Financing Document (other than the Indenture) as may be required (1) by the provisions of any Financing Document, (2) for the purpose of curing any ambiguity or formal defect or omission therein, (3) so as to identify more precisely the Project Facility described in the Installment Sale Agreement, (4) in connection with any supplemental indenture entered into pursuant to Section 801 hereof, (5) to obtain or maintain a rating on the Bonds from Moody's or Standard & Poor's, (6) in connection with any other supplemental indenture, but only if any such amendment, change or modification, in the judgment of the Trustee, is not to the prejudice of the Trustee or the Bondholders, or (7) as may be requested by the Bank pursuant to Section 905 hereof. (B) The Trustee may rely upon an opinion of Independent Counsel as conclusive evidence that the execution and delivery of any amendment, change or modification to the Installment Sale Agreement or any other Financing Document has been effected in compliance with the provisions of this Section 901. SECTION 902. AMENDMENTS TO INSTALLMENT SALE AGREEMENT, MORTGAGE OR OTHER FINANCING DOCUMENTS REQUIRING CONSENT OF BONDHOLDERS. (A) Except for the amendments, changes or modifications as provided in Section 901 hereof, neither the Issuer, the Company nor the Trustee shall consent to any other amendment, change or modification of the Installment Sale Agreement or any other Financing Document (other than the Indenture) without mailing of notice and the written approval or consent of the holders of not less than two-thirds in aggregate principal amount of the Bonds at the time Outstanding given as in this Section 902 provided. (B) If at any time the Issuer and the Company shall request the consent of the Trustee to any such proposed amendment, change or modification of the Installment Sale Agreement or any other Financing Document (other than the Indenture) not authorized by Section 901 hereof, the Trustee shall, upon being satisfactorily secured and indemnified as provided in Section 701(I) hereof with respect to fees, costs and expenses including, but not limited to, reasonable attorney's fees, cause notice of such proposed amendment, change or modification to be given in the same manner as provided by Section 702 hereof with respect to supplemental indentures. Such notice shall briefly set forth the nature of such proposed amendment, change or modification and shall state that copies of the instrument embodying the same are on file at the Office of the Trustee for inspection by all Bondholders. SECTION 903. AMENDMENTS TO INSTALLMENT SALE AGREEMENT, MORTGAGE OR OTHER FINANCING DOCUMENTS; CONSENT OF BANK. Notwithstanding anything to the contrary herein contained, the Issuer and the Trustee shall in no event consent to any amendment, change or modification of the Installment Sale Agreement or any other Financing Document (other than the Indenture) without the prior written consent of the Bank and such other assurance from the Bank as counsel to the Trustee may require that the Bank's obligations under the Letter of Credit have not been diminished or otherwise affected by such amendment, change or modification of the Installment Sale Agreement. The Issuer and the Trustee shall be entitled to rely upon such certificates or opinions delivered by the Bank or its counsel to such effect. SECTION 904. AMENDMENTS TO LETTER OF CREDIT. The Trustee shall not consent or agree to the amendment to or substitution of any provision of the Letter of Credit which alters, to the detriment of the Bondholders, the security intended to be provided thereby to the Bondholders, and shall strictly enforce all of the provisions thereof. SECTION 905. AMENDMENTS REQUESTED BY BANK. The Issuer, the Company and the Trustee may, without the consent of or notice to the Bondholders, consent to any amendment, change or modification of the Installment Sale Agreement, the Mortgage or any other Financing Document (other than the Indenture) requested by the Bank, but only if such amendment, change or modification is requested in writing by the Bank, the Bank has not failed to make any payment required to be made by it under the Letter of Credit and the Trustee shall receive such assurance from the Bank as counsel to the Trustee may require that the Bank's obligations under the Letter of Credit have not been diminished or otherwise affected by such amendment, change or modification. ARTICLE X SATISFACTION AND DISCHARGE OR ASSIGNMENT OF INDENTURE SECTION 1001. SATISFACTION AND DISCHARGE OR ASSIGNMENT OF LIEN. (A) If the Issuer (1) shall pay or cause to be paid, from sources other than the proceeds of a draw under the Letter of Credit, but in all events in Non-Preference Moneys, to the holders and owners of the Bonds, the principal of the Bonds and premium, if any, due on the Bonds, at the times and in the manner stipulated therein and herein, (2) shall pay or cause to be paid from any source, but in all events in Non-Preference Moneys, to the holders and owners of Bonds, the interest to become due on the Bonds at the times and in the manner stipulated therein and herein, (3) shall have paid all fees, costs and expenses including, but not limited to, reasonable attorney's fees of the Trustee and each paying agent, and (4) shall pay or cause to be paid to the Bank any and all sums due under the Reimbursement Agreement, then these presents and the trust and rights hereby granted shall cease, determine and be void, and thereupon the Trustee shall (a) cancel and discharge the Lien of the Indenture upon the Trust Estate and the Trustee's rights under the other Financing Documents and execute and deliver to the Issuer such instruments in writing as shall be requisite to satisfy same, (b) reconvey to the Issuer the Installment Sale Agreement and the trust hereby conveyed, (c) assign and deliver to the Company any interest in Property at the time subject to the Lien of the Indenture which may then be in its possession, except amounts held by the Trustee for the payment of principal of, interest and premium, if any, on the Bonds, and (d) deliver to the Bank the Letter of Credit for cancellation. (B) If the Trustee draws on the Letter of Credit for payment of the entire principal of, premium, if any, and interest on the Bonds Outstanding in accordance with the provisions of the Indenture, then, simultaneously with the delivery to the Bank of a sight draft and required accompanying documentation, the Trustee shall deliver to the Bank, in escrow, an instrument or instruments in form for recording, executed by the Trustee evidencing the assignment to the Bank without recourse of the Lien of the Indenture and the rights of the Trustee under the other Financing Documents, together with instructions to the Bank that such instrument or instruments be released from escrow upon confirmation from a member bank of the Federal Reserve wire system that same day funds in the amount of the Trustee's draw on the Letter of Credit have been transmitted for the account of the Trustee, and the amount paid by the Bank under the Letter of Credit and any additional sums due the Bank pursuant to the Reimbursement Agreement shall thereafter constitute the debt secured by the Indenture. (C) All Outstanding Bonds shall, prior to the maturity or redemption date thereof and after the Bonds have been converted to the Fixed Rate, be deemed to have been paid within the meaning and with the effect expressed in Section 1001(A) if, the following conditions shall have been fulfilled: (1) in case any of the Bonds are to be redeemed on any date prior to their maturity, the provisions in Article III hereof relating to such redemption shall have been satisfied; and (2) there shall be on deposit with the Trustee Non-Preference Moneys, which shall be either cash or Government Obligations, in an amount sufficient, without the need for further investment or reinvestment, but including any scheduled interest on or increment to such obligations, to pay when due the principal, premium, if any, and interest due and to become due on the Bonds on and prior to the redemption date or maturity date thereof, as the case may be, and to pay the Trustee for its Ordinary Services and Ordinary Expenses and for its Extraordinary Services and Extraordinary Expenses. The Trustee may rely upon an opinion of an Accountant as to the sufficiency of the cash or such Government Obligations on deposit. ARTICLE XI MISCELLANEOUS SECTION 1101. CONSENTS AND OTHER INSTRUMENTS OF BONDHOLDERS. Any consent, request, direction, approval, waiver, objection, appointment or other instrument required by the Indenture to be signed and executed by the Bondholders may be signed and executed in any number of concurrent writings of similar tenor and may be signed or executed by such Bondholders in person or by agent appointed in writing. Proof of the execution of any such instrument, if made in the following manner, shall be sufficient for any of the purposes of the Indenture, and shall be conclusive in favor of the Trustee with regard to any action taken under such instrument, namely: (A) The fact and date of the execution by any Person of any such instrument may be proved by the affidavit of a witness of such execution or by the certificate of any notary public or other officer of any jurisdiction, authorized by the laws thereof to take acknowledgements of deeds, certifying to the execution thereof. Where such execution is by an officer of a corporation or association or a member of a partnership on behalf of such corporation, association or partnership, such affidavit or certificate shall also constitute sufficient proof of his authority. (B) The ownership of Bonds shall be proven by the bond register. (C) Any request, consent or vote of the holder of any Bond shall bind every future holder of the same Bond and the holder of every Bond issued in exchange therefor or in lieu thereof, in respect of anything done or permitted to be done by the Trustee or the Issuer pursuant to such request, consent or vote. (D) In determining whether the holders of the requisite aggregate principal amount of Bonds have concurred in any demand, request, direction, consent or waiver under the Indenture, Bonds which are owned by the Issuer, the Company, the Bank or by any Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Issuer, the Bank or the Company shall be disregarded and deemed not to be Outstanding for the purposes of determining whether the Trustee shall be protected in relying on any such demand, request, direction, consent or waiver. Only Bonds which the Trustee knows to be so owned shall be disregarded. Bonds so owned which have been pledged in good faith may be regarded as Outstanding for the purposes of this Section 1101 if the pledgee shall establish to the satisfaction of the Trustee the pledgee's right to vote such Bonds. In case of a dispute as to such right, any decision by the Trustee taken upon the advice of counsel shall be full protection to the Trustee. SECTION 1102. LIMITATION OF RIGHTS. With the exception of rights herein expressly conferred, nothing expressed or to be implied from the Indenture or the Bonds is intended or shall be construed to give to any person other than the parties hereto and the holders of the Bonds, any legal or equitable right, remedy or claim under or in respect to the Indenture or any covenants, conditions and provisions hereof. SECTION 1103. NOTICES. (A) All notices, certificates or other communications hereunder shall be in writing and shall be sufficiently given and shall be deemed given when (1) delivered to the applicable address stated below by registered or certified mail, return receipt requested, or by such other means as shall provide the sender with documentary evidence of such delivery, or (2) delivery is refused by the addressee, as evidenced by the Person who attempted to effect such delivery. The addresses to which notices, certificates and other communications hereunder shall be delivered are as follows: IF TO THE ISSUER: Town of Colonie Industrial Development Agency 347 Old Niskayuna Road Latham, New York 12110 Attention: Chairman WITH A COPY TO: Robert L. Sweeney, Esq. Shanley, Sweeney, Reilly & Allen, PC The Castle at Ten Thurlow Terrace Albany, New York 12203 IF TO THE COMPANY: Cynthia Scheuer, Vice President Mechanical Technology Incorporated 968 Albany-Shaker Road Latham, New York 12110 WITH A COPY TO: Harry D'Agostino, Esq. D'Agostino, Hoblock, Greisler & Siegal 39 North Pearl Street Albany, New York 12207 IF TO THE TRUSTEE: Leslie A. Boynton, Vice President Manufacturers and Traders Trust Company One M & T Plaza, 7th Floor Buffalo, New York 14203 WITH A COPY TO: Timothy R. McGill, Esq. St. John & Curtin, LLC 1530 First Federal Plaza Rochester, New York 14614 IF TO THE BANK: William B. Palmer, Vice President KeyBank National Association 66 South Pearl Street Albany, New York 12207 (B) A duplicate copy of each notice, certificate and other communication given hereunder by (1) the Company or the Issuer shall also be given to the Trustee, and (2) the Company, the Issuer or the Trustee shall also be given to the Bank. The Issuer, the Company, the Bank and the Trustee may, by notice given hereunder, designate any further or different addresses to which subsequent notices, certificate or other communications shall be sent. SECTION 1104. TRUSTEE AS PAYING AGENT AND BOND REGISTRAR. The Trustee is hereby designated and agrees to act as paying agent and the Bond Registrar for and in respect to the Bonds. SECTION 1105. COUNTERPARTS. The Indenture may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. SECTION 1106. SUCCESSORS AND ASSIGNS. All the covenants and representations contained in the Indenture, by or on behalf of the Issuer, shall bind and inure to the benefit of its successors and assigns, whether so expressed or not. SECTION 1107. INFORMATION UNDER UNIFORM COMMERCIAL CODE. The Issuer is the Debtor. The Trustee is the Secured Party. The address of the Trustee from which information concerning the security interest may be obtained and the address of the Issuer are set forth in Section 1103 of this Indenture. SECTION 1108. APPLICABLE LAW. The Indenture shall be governed exclusively by the applicable laws of the State. SECTION 1109. NO RECOURSE; SPECIAL OBLIGATION. (A) The obligations and agreements of the Issuer contained herein and in the other Financing Documents and any other instrument or document executed in connection therewith, and any other instrument or document supplemental hereto or thereto, shall be deemed the obligations and agreements of the Issuer, and not of any member, officer, director, agent (other than the Company) or employee of the Issuer in his individual capacity, and the members, officers, directors, agents (other than the Company) and employees of the Issuer shall not be liable personally hereon or be subject to any personal liability or accountability based upon or in respect hereof or thereof or of any transaction contemplated hereby or thereby. (B) The obligations and agreements of the Issuer contained herein shall not constitute or give rise to any obligations of the Town of Colonie, New York or the State and neither the Town of Colonie, New York nor the State shall be liable thereon, and further, such obligations and agreements shall not constitute or give rise to a general obligation of the Issuer, but rather shall constitute limited obligations of the Issuer payable solely from the revenues of the Issuer derived and to be derived from the sale or other disposition of the Project Facility (except for revenues derived by the Issuer with respect to the Unassigned Rights). (C) No order or decree of specific performance with respect to any of the obligations of the Issuer hereunder (other than pursuant to Section 602 hereof, and then only to the extent of the Issuer's obligations thereunder) shall be sought or enforced against the Issuer unless the party seeking such order or decree shall first have complied with Section 516 hereof. (D) The Issuer shall be entitled to the advice of counsel (who may be counsel to any party or to any Bondholder) and shall be wholly protected as to any action taken or omitted to be taken in good faith in reliance on such advice. The Issuer may rely conclusively on any notice, certificate or other document furnished to it under any Financing Document and reasonably believed by it to be genuine. The Issuer shall not be liable for any action taken by it in good faith and reasonably believed by it to be within the discretion or power conferred upon it, or in good faith omitted to be taken by it and reasonably believed to be beyond such discretion or power, or taken by it pursuant to any direction or instruction by which it is governed under any Financing Document, or omitted to be taken by it by reason of the lack of direction or instruction required for such action under any Financing Document, and shall not be responsible for the consequences of any error of judgment reasonably made by it. When any payment, consent or other action by the Issuer is called for by the Indenture, the Issuer may defer such action pending an investigation or inquiry or receipt of such evidence, if any, as it may require in support thereof. A permissive right or power to act shall not be construed as a requirement to act, and no delay in the exercise of a right or power shall affect the subsequent exercise thereof. The Issuer shall in no event be liable for the application or misapplication of funds or for other acts or defaults by any Person except by its own members, officers and employees. (E) In approving, concurring in or consenting to any action or in exercising any discretion or in making any determination under the Indenture, the Issuer may consider the interests of the public, which shall include the anticipated effect of any transaction on tax revenues and employment, as well as the interests of the other parties hereto and the Bondholders; provided, however, that nothing herein shall be construed as conferring on any Person other than the Trustee, the Bank and the Bondholders any right to notice, hearing or participation in the Issuer's consideration, and nothing in this Section 1109 shall be construed as conferring on any of them any right additional to those conferred elsewhere herein. Subject to the foregoing, the Issuer shall not unreasonably withhold any approval or consent to be given by it hereunder. SECTION 1110. ASSIGNMENT TO BANK. In the event the Trustee receives moneys drawn under the Letter of Credit in an amount sufficient to pay in full the principal of, premium, if any, and interest on the Bonds then Outstanding, the Trustee shall execute and deliver to the Bank an instrument assigning the Bank all of its right, title and interest to, in and under the Financing Documents. SECTION 1111. NOTICES TO RATING AGENCY. (A) The Trustee shall immediately notify Standard & Poor's if any of the following events occur: (1) any expiration, termination, substitution or extension relating to the Letter of Credit or any Substitute Letter of Credit; (2) any redemption or purchase of all Outstanding Bonds; (3) any amendment to any Financing Document entered into or consented to by the Trustee pursuant to Article VIII or Article IX hereof; or (4) the exercise by the Company of the Conversion Option. (B) All notices to Standard & Poor's required by this Section 1111 shall be sent to the following address: Standard & Poor's 25 Broadway, 13th Floor New York, New York 10004 Attention: LOC Surveillance Group Standard & Poor's may, by notice in writing to the Trustee, designate any further or different address to which subsequent notices under this Section 1111 shall be sent. IN WITNESS WHEREOF, the Issuer has caused these presents to be signed in its name and behalf by its Chairman, and to evidence its acceptance of the trusts hereby created, the Trustee has caused these presents to be signed in its name and behalf by one of its duly authorized trust officers, all as of the day and year first hereinabove written. TOWN OF COLONIE INDUSTRIAL DEVELOPMENT AGENCY BY: (Vice) Chairman MANUFACTURERS AND TRADERS TRUST COMPANY, as Trustee BY: Authorized Officer The Company hereby approves, consents to and agrees to be bound by all of the terms and provisions of the Indenture insofar as such terms or provisions, directly or indirectly, relate to, apply to, require or prohibit action by or deal with the Company, or Property of the Company, including, without limitation, the Project Facility, and including, but not limited to, all provisions for the deposit or payment of moneys to funds held by the Trustee under the Indenture. The Company hereby agrees, at its own expense, to do all things and take all actions as shall be necessary to enable the Issuer to perform its obligations under the Indenture. This paragraph shall bind the Company and its successors and assigns. MECHANICAL TECHNOLOGY INCORPORATED BY: Authorized Representative STATE OF NEW YORK ) ) ss: COUNTY OF ALBANY ) On the 14th day of December in the year 1998 before me, the undersigned, a notary public in and for said state, personally appeared PETER J. HESS, personally known to me or proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his capacity, and that by his signature on the instrument, the individual or the person upon behalf of which the individual acted, executed the instrument. ____________________________________ Notary Public STATE OF NEW YORK ) ) ss: COUNTY OF ALBANY ) On the 16th day of December in the year 1998 before me, the undersigned, a notary public in and for said state, personally appeared NANCY L. GEORGE, personally known to me or proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me that she executed the same in her capacity, and that by her signature on the instrument, the individual or the person upon behalf of which the individual acted, executed the instrument. ____________________________________ Notary Public STATE OF NEW YORK ) ) ss: COUNTY OF ALBANY ) On the 16th day of December in the year 1998 before me, the undersigned, a notary public in and for said state, personally appeared CYNTHIA A. SCHEUER, personally known to me or proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his capacity, and that by his signature on the instrument, the individual or the person upon behalf of which the individual acted, executed the instrument. ____________________________________ Notary Public TOWN OF COLONIE INDUSTRIAL DEVELOPMENT AGENCY (a public benefit corporation of the State of New York) TAXABLE INDUSTRIAL DEVELOPMENT REVENUE BOND (MECHANICAL TECNOLOGY INCORPORATED PROJECT - LETTER OF CREDIT SECURED), SERIES 1998A NO.: R-1 $6,000,000 MATURITY DATE: December 1, 2013 DATED: December 17, 1998 CUSIP: 196210 GN2 Town of Colonie Industrial Development Agency, a public benefit corporation of the State of New York (the "Issuer"), for value received, hereby promises to pay, solely from the sources hereinafter described, to Cede & Co. or registered assigns, on the Maturity Date identified above (subject to any right of prior redemption hereinafter provided for), the principal sum of Six Million Dollars (subject to reduction as hereinafter provided) and interest thereon (computed on the basis of a 365 or 366-day year for the actual number of days elapsed) from the date set forth above, or from the most recent Interest Payment Date to which interest has been paid, to the Maturity Date identified above (or such earlier date on which the principal hereof has been paid or duly provided for), at the rate described below, on the first Thursday of each month (each an "Interest Payment Date"), commencing January 7, 1999. The principal of this Bond shall be paid on the Maturity Date upon presentation and surrender hereof at the Office of Manufacturers and Traders Trust Company, as trustee (together with its successors in trust, the "Trustee") under the trust indenture dated as of December 1, 1998 (from time to time, as amended or supplemented, the "Indenture") by and between the Issuer and the Trustee, or at the duly designated office of any successor trustee under the Indenture. The installments of interest described above shall, as provided in the Indenture, be paid to the Person in whose name this Bond (or one or more Predecessor Bonds, as defined in the Indenture) is registered at the close of business on the Business Day next preceding any Interest Payment Date (the "Regular Record Date"), and shall be paid by check or draft of the Trustee mailed by the Trustee on such Interest Payment Date to such registered owner at his address appearing on the registration books of the Issuer, or at the option of any holder of Bonds in an aggregate principal amount of $250,000 or greater be transmitted on such Interest Payment Date by wire transfer at such owner's written request to the bank account number on file with the Trustee. Any such interest not so punctually paid or duly provided for shall forthwith cease to be payable to the registered owner on such Regular Record Date, and may be paid to the Person in whose name this Bond (or one or more Predecessor Bonds) is registered at the close of business on a date for the payment of such defaulted interest to be fixed by the Trustee (the "Special Record Date"), notice whereof being given to registered owners of the Bonds not less than ten (10) days prior to such Special Record Date, or may be paid in any other lawful manner as shall be determined by the Trustee. The principal of, premium, if any, on and interest on this Bond are payable in lawful money of the United States of America. (Calculation of Interest) This Bond shall bear interest as follows: (a) From the Closing Date through and including December 23, 1998, the Bonds shall bear interest at a rate per annum equal to five and fifty-five hundredths percent (5.55%). (b) Thereafter, except as provided in (e) below, this Bond (other than Pledged Bonds) shall bear interest at the "Adjustable Rate". (i) The Adjustable Rate shall be the rate of interest established by the Remarketing Agent on the first Business Day prior to each Adjustment Date, which in the Remarketing Agent's reasonable judgment would result, as nearly as practicable, in the market value of this Bond on an Adjustment Date being equal to one hundred percent (100%) of the principal amount thereof. The Adjustable Rate so determined shall be adjusted in accordance with the directions of the Remarketing Agent on the Adjustment Date and shall remain in effect through and including the day prior to the next following Adjustment Date. (ii) In determining the Adjustable Rate pursuant to the foregoing paragraph (b)(i), the Remarketing Agent shall take into account, to the extent applicable, (A) the market interest rates for comparable securities held by open-end municipal or other fixed income bond funds or other institutional or private investors with substantial portfolios (w) with interest rate adjustment periods and demand purchase options substantially identical to the Bonds, (x) bearing interest at a variable rate intended to maintain par value, (y) rated by a national credit rating agency in the same category as the Bonds or, if not rated, secured by substantially the same level of security as the Bonds, and (z) the interest on which is included in gross income of the holders thereof for federal income taxation purposes; (B) other financial market rates and indices which may have a bearing on the Adjustable Rate (including, but not limited to rates borne by commercial paper, commercial paper, Treasury bills, commercial bank prime rates, certificate of deposit rates, federal funds rates, the London Interbank Offered Rate, indices maintained by The Bond Buyer, and other publicly available taxable interest rate indices); (C) general financial market conditions (including current forward supply); (D) factors particular to the Project or the credit standing of the Company and the Bank; and (E) such other factors which the Remarketing Agent deems appropriate. (iii) On the Business Day prior to each Adjustment Date, the Remarketing Agent shall notify the Trustee, by Immediate Notice, of the Adjustable Rate. (c) If for any reason the position of Remarketing Agent is vacant or the Remarketing Agent fails to act, the Adjustable Rate shall be determined by a third party selected by the Company at the Company expense and shall be equal to one hundred percent (100%) of the yield applicable to 13 week United States Treasury bills determined by such third party on the basis of the average per annum discount rate at which such 13- week Treasury bills shall have been sold (1) at the most recent Treasury auction conducted during the immediately preceding Adjustment Period, (2) if no such auction shall have been conducted during the immediately preceding Adjustment Period, at the most recent Treasury auction conducted prior to such preceding Adjustment Period, plus fifty (50) basis points; provided, however, that in the event the Company notifies the Trustee that an index (as published in The Wall Street Journal) of seven-day yield evaluations at par of issuers of securities, the interest on which is includable in gross income for federal income tax purposes, and of comparable rating to the rating on the Bonds, published by any nationally recognized municipal securities evaluation service is available, the Adjustable Rate shall be determined by the Trustee and shall be equal to such index. (d) The Adjustable Rate shall be calculated based on a 365 or 366- day year for the actual number of days elapsed. Further, each determination of the Adjustable Rate pursuant to and in accordance with the foregoing terms of the Indenture and the terms of this Bond shall be conclusive and binding on the Issuer, the Trustee, the Company, the Bank, and the holder of this Bond. (e) (i) From and after the Conversion Date through the maturity or earlier redemption of the Bonds, this Bond shall bear interest at the Fixed Rate, which shall be a fixed rate (or rates) of interest established by the Remarketing Agent at least fifteen (15), but not more than thirty (30) days prior to the Conversion Date, which in the reasonable judgment of the Remarketing Agent would result, as nearly as practicable, in the market value of this Bond on the Conversion Date being equal to one hundred percent (100%) of the principal amount thereof. (ii) (A) At the Remarketing Agent's discretion, after the exercise of the Conversion Option, the Bonds may be converted into serial bonds, with a principal amount of Bonds maturing on a Principal Payment Date each year equal to the principal amount required to be redeemed as set forth in Section 301(E) of the Indenture. In such event, each maturity of Bonds may bear a different interest rate, each of which shall be determined by the Remarketing Agent in the same manner as the Fixed Rate (for convenience each such rate shall be referred to as the Fixed Rate); provided, however, that in no event shall the Remarketing Agent be permitted to convert the Bonds into serial bonds as described above without delivering to the Trustee an opinion of Bond Counsel that such conversion is lawful under the Act and permitted under the Indenture. (B) The Interest Payment Dates after the exercise of the Conversion Option shall be semi-annual, with one Interest Payment Date being the first day of the month preceding the Fixed Rate Conversion Date and the other Interest Payment Date being the first day of the month six (6) months later. Principal shall be payable annually thereafter in the amounts and the years set forth in Section 301(E) hereof on the Principal Payment Dates. (iii) In determining the Fixed Rate, the Remarketing Agent shall take into account, to the extent applicable, (A) market interest rates for comparable securities which are held by open-end municipal or other fixed income bond funds or other institutional or private investors with substantial portfolios (w) with a term equal to the period to maturity remaining on the Bonds, (x) the interest on which is included in the gross income of the holders thereof for federal income tax purposes, (y) rated by a national credit rating agency in the same rating category as the Bonds, or, if not rated, secured by substantially the same level of security as the Bonds, and (z) with redemption provisions similar to those which have bearing on the Fixed Rate; (B) other financial market rates and indices (including but not limited to rates borne by industrial development bonds, other taxable revenue bonds, Treasury obligations, commercial bank prime rates, certificate of deposit rates, federal funds rates, indices maintained by The Bond Buyer and other publicly available taxable interest rates and indices); (C) general financial market conditions (including current forward supply); (D) factors particular to the Project or the credit standing of the Company and the Bank; and (E) such other factors which the Remarketing Agent deems appropriate. (iv) The Fixed Rate shall be calculated based on a 360-day year of twelve 30-day months. The determination of the Fixed Rate by the Remarketing Agent pursuant to and in accordance with the terms of the Indenture and the terms of this Bond shall be conclusive and binding on the Issuer, the Trustee, the Company, the Bank and the holder of this Bond. (v) To exercise the Conversion Option, the Company shall deliver at least sixty (60) days prior to the Conversion Date, written notice to the Trustee, the Issuer and the Bank of its election of the Conversion Option. On the Conversion Date, this Bond shall be subject to a Mandatory Tender for purchase as provided in Section 304 of the Indenture. Notwithstanding anything to the contrary contained herein, such notice shall not be effective unless the Bank shall have consented thereto in writing and such notice is accompanied by: (A) a Substitute Letter of Credit with an expiration date of not earlier than fifteen (15) days following the Principal Payment Date which is at least three (3) years after the next succeeding Principal Payment Date and in an amount equal to the sum of the aggregate principal amount of the Bonds then Outstanding, 210 days' interest thereon computed at the Fixed Rate, together with the Optional Redemption Premium; provided, however, that if the Letter of Credit then in place has an expiration date of not earlier than fifteen (15) days following the Principal Payment Date which is at least three (3) years after the next succeeding Principal Payment Date and in an amount equal to the aggregate principal amount of the Bonds then Outstanding, 210 days' interest thereon computed at the Fixed Rate, together with the Optional Premium, no Substitute Letter of Credit need be obtained; (B) a statement as to whether the Bonds shall be serial bonds as set forth in paragraph (e)(ii) above; and (C) an opinion of Bond Counsel reasonably satisfactory to the Trustee, the Issuer and the Bank to the effect that the exercise of the Conversion Option is lawful under the Act and permitted by the Indenture. (f) Notwithstanding anything herein to the contrary, any Pledged Bond shall bear interest at a rate equal to the Bank Rate, as such rate shall change from time to time; provided, however, that at no time shall the interest rate in effect for any Pledged Bond exceed the maximum rate permitted by applicable usury laws. (g) Notwithstanding anything herein to the contrary, in no event will the rate of interest borne by any Bond (except any Bond constituting a Pledged Bond) exceed fifteen percent (15%) per annum. (h) The Issuer hereby appoints the Company to act as agent of the Issuer for purposes of exercising the Conversion Option, all as set forth in the Indenture, and subject to compliance with the terms and provisions of the Indenture. (Conversion Option) In the event the Company exercises the Conversion Option with respect to the Bonds, on the Conversion Date all Bonds which have not been called for redemption shall be subject to Mandatory Tender by the owners thereof on the Conversion Date. Notwithstanding the foregoing, each Bondholder may, by delivery to the Trustee for receipt at least twenty (20) days immediately preceding the Conversion Date of an irrevocable election not to tender, elect to continue to hold its Bonds (or portions thereof) past the Conversion Date at a Fixed Rate to be in effect at such time. Such notice shall be in substantially the form of Exhibit C-2 attached to the Indenture. Not earlier than sixty (60) days prior to the Conversion Date or later than thirty (30) days prior to the Conversion Date, the Trustee shall send a notice to the owners of all Outstanding Bonds which have not been called for redemption, in substantially the form of Exhibit C-1 attached to the Indenture. Such notice shall describe (a) the terms of the Mandatory Tender, (b) the right of the owner to elect not to tender, (c) the Letter of Credit to be in effect following the Mandatory Tender, (d) the right of the owner of Bonds in an aggregate amount of $200,000 or more to elect not to tender the total principal amount and to continue to hold a portion of its Bonds (but in no event may either the amount tendered or the amount not tendered be any amount other than $100,000, or any integral multiple of $5,000 in excess thereof), and (e) that the rating then in effect with respect to the Bonds, if any, may be withdrawn or lowered. In the event that prior to the Conversion Date of the Bonds the Company shall deliver notice to the Trustee at least sixty (60) days prior to the expiration of the Letter of Credit or Substitute Letter of Credit securing such Bonds of its intent to deliver an Alternate Letter of Credit in substitution for such Letter of Credit or Substitute Letter of Credit, all Bonds secured by such Letter of Credit which have not been called for redemption shall be subject to Mandatory Tender by the owner thereof on the Alternate Security Date. Notwithstanding the foregoing, each Bondholder may, by delivery to the Trustee for receipt at least twenty (20) days immediately preceding any Alternate Security Date of an irrevocable election not to tender, elect to continue to hold its Bonds past the respective Alternate Security Date. Such notice shall be in substantially the form of Exhibit C-4 attached to the Indenture. Not earlier than sixty (60) days prior to the Alternate Security Date or later than thirty (30) days prior to the Alternate Security Date, the Trustee shall send a notice to the owners of all Outstanding Bonds which have not been called for redemption, in substantially the form of Exhibit C-3 attached to the Indenture. Such notice shall describe (1) the terms of the Mandatory Tender, (2) the right of the owner to elect not to tender, (3) a brief description of the Alternate Letter of Credit and the identity of the Substitute Bank issuing the Alternate Letter of Credit, (4) the right of the owner of Bonds in an aggregate amount of $200,000 or more to elect not to tender the total principal amount and to continue to hold a portion of its Bonds (but in no event may either the amount tendered or the amount not tendered be any amount other than $100,000, or any integral multiple of $5,000 in excess thereof) and (5) that the rating then in effect with respect to the Bonds secured by such Alternate Letter of Credit will be withdrawn or lowered. Owners of Bonds required to be tendered who do not provide the Trustee with the notice of their election not to tender as described above shall be required to deliver their Bonds to the Trustee for purchase at the Purchase Price on the Conversion Date or the Alternate Security Date, as the case may be, with an appropriate endorsement for transfer or accompanied by a bond power endorsed in blank. Any such Bonds not so delivered on such Conversion Date or the Alternate Security Date, as the case may be ("Undelivered Bonds"), for which there has been irrevocably deposited in trust with the Trustee an amount of moneys sufficient to pay the Purchase Price of the Undelivered Bonds, shall be deemed to have been purchased. IN THE EVENT OF A FAILURE BY AN OWNER OF BONDS REQUIRED TO BE TENDERED (OTHER THAN AN OWNER OF BONDS WHO HAS GIVEN NOTICE OF ITS ELECTION NOT TO TENDER AS PROVIDED ABOVE) TO DELIVER ITS BONDS ON OR PRIOR TO THE CONVERSION DATE OR THE ALTERNATE SECURITY DATE, SAID OWNER SHALL NOT BE ENTITLED TO ANY PAYMENT (INCLUDING ANY INTEREST TO ACCRUE ON OR SUBSEQUENT TO SUCH CONVERSION DATE OR THE ALTERNATE SECURITY DATE) OTHER THAN THE PURCHASE PRICE FOR SUCH UNDELIVERED BONDS, AND ANY UNDELIVERED BONDS SHALL NO LONGER BE ENTITLED TO THE BENEFITS OF THE INDENTURE, EXCEPT FOR THE PURPOSE OF PAYMENT OF THE PURCHASE PRICE THEREFOR. (Demand Purchase Option) This Bond shall be purchased, at the option ("Demand Purchase Option") of the Owner hereof, at a price (the "Purchase Price") equal to one hundred percent (100%) of the principal amount hereof plus accrued and unpaid interest hereon to the Repurchase Closing Date (as hereinafter defined), upon: (A) Delivery to, and receipt by, the Tender Agent at its designated address, or the Trustee at the address set forth herein on a Business Day of a written notice ("Bondholder's Tender Notice") which requests the purchase of the Bond. The Tender Notice shall be in substantially the form of Exhibit C-5 to the Indenture. Such Tender Notice shall provide the following information: (1) the principal amount of such Bond or portion thereof to be purchased (the "Tendered Bond"), which portion shall be $100,000 or an integral multiple of $5,000 in excess thereof; provided, however, that no portion of a Tendered Bond shall be purchased if it results in the unpurchased portion of the Tendered Bond being less than $100,000, (2) the number of the Tendered Bond, (3) the date on which the Tendered Bond shall be purchased, which date shall be a Business Day at least seven (7) calendar days following the receipt by the Trustee or the Tender Agent of the Bondholder's Tender Notice (the "Repurchase Closing Date"), (4) the name and address of the Bondholder, (5) an irrevocable request of such purchase, and (6) an undertaking of the Bondholder to deliver the Bond to the Tender Agent or the Trustee in accordance with (B) below; and (B) Delivery of the Tendered Bond, at the office of the Trustee or Tender Agent at or prior to 10:00 a.m., New York City time, on the Repurchase Closing Date with an appropriate endorsement for transfer or accompanied by a bond power endorsed in blank; provided, however, the Tendered Bond shall only be deemed properly tendered hereunder if the Tendered Bond delivered to the Tender Agent or the Trustee conforms in all respects to the description thereof in the Bondholder's Tender Notice; and (C) In the event the Tender Agent or the Trustee, as the case may be, determines that the Bondholder's Tender Notice is defective in any respect whatsoever, the Tender Agent or the Trustee, as the case may be, shall immediately notify the Bondholder tendering the Bond; and (D) Bonds which are the subject of a Bondholder's Tender Notice described in (A) above, but which are not tendered in accordance with (B) above, shall be deemed tendered and all rights of the holder thereof shall be satisfied from the deposit with the Tender Agent or the Trustee of the Purchase Price thereof and the Tender Agent or the Trustee, as the case may be, shall hold such Purchase Price in trust for the benefit of such holder until the Bonds purchased with such moneys shall have been delivered to or for the account of such Holder. Holders of Tendered Bonds to be tendered which are not delivered to the Tender Agent or the Trustee by the holder thereof shall have no further rights with respect to such Bonds except to receive payment of the Purchase Price therefor upon surrender of such Bonds to the Tender Agent or the Trustee. Notwithstanding the foregoing, the Bondholders shall have no Demand Purchase Option described herein if (A) there shall have occurred and be continuing an Event of Default under the Indenture, except for an Event of Default under Section 601(I) of the Indenture or (B) the Fixed Rate is in effect for the Bonds being held by such Bondholder. Furthermore, no Bondholder shall have the right to exercise a Demand Purchase Option with respect to those Bonds for which a notice of redemption has been mailed by the Trustee. (Project Description) This Bond is one of a duly authorized issue of bonds of the Issuer designated "Town of Colonie Industrial Development Agency Taxable Industrial Development Revenue Bonds (Mechanical Technology Incorporated Project - Letter of Credit Secured), Series 1998A" in the aggregate principal amount of $6,000,000 (the "Bonds"). The Bonds are issued for the purpose of assisting in providing financing to the Issuer for a project (the "Project") consisting of the following: (A) (1) the acquisition of a leasehold interest in a parcel of land containing approximately 35.6 acres located at 968 Albany-Shaker Road in the Town of Colonie, Albany County, New York (the "Land"), together with the existing buildings located thereon which contain approximately 98,000 square feet in the aggregate (such buildings known individually as Building I, Building II and Building III and hereinafter collectively referred to as the "Existing Facility"), (2) the demolition of Building I which contains approximately 14,105 square feet of space, (3) the construction of a new building to replace Building I and which will contain approximately 32,000 square feet of space (the "New Facility") (the Existing Facility and the New Facility hereinafter collectively referred to as the "Facility"), (4) the renovation of Building III and (5) the acquisition of and installation therein and thereon of certain machinery and equipment (the "Equipment") (the Land, the Facility and the Equipment being hereinafter collectively referred to as the "Project Facility"), all of the foregoing to be occupied by Mechanical Technology Incorporated (the "Company") and operated as a manufacturing facility, a portion of which will be leased by the Company to Plug Power, LLC and operated as a facility for the manufacture, research and development of fuel cells for residential and automotive applications and related products and any other related activities; (B) the financing of all or a portion of the costs of the foregoing by the issuance of the Bonds; (C) the granting of certain other "financial assistance" (within the meaning of Section 854(14) of the Act) with respect to the foregoing, including exemption from certain sales taxes, deed transfer taxes, mortgage recording taxes and real property taxes (collectively with the Bonds, the "Financial Assistance"); and (D) the lease (with an obligation to purchase) or sale of the Project Facility to the Company or such other person as may be designated by the Company and agreed upon by the Agency. The Project Facility is to be sold by the Issuer to the Company pursuant to the provisions of an installment sale agreement dated as of December 1, 1998 (the "Installment Sale Agreement") by and between the Issuer and the Company. The Bonds are issued under and are equally and ratably secured by the Indenture. The Indenture grants the Trustee a first security interest in the Trust Revenues (as defined in the Indenture). In order to provide additional security for the Bonds, the Company has entered into an irrevocable letter of credit and reimbursement agreement dated as of December 1, 1998 (the "Reimbursement Agreement") with KeyBank National Assocation (the "Bank"), pursuant to which the Bank has issued in favor of the Trustee an irrevocable transferable direct pay letter of credit (the "Letter of Credit"), issued in an amount equal to the Credit Amount (as defined in the Reimbursement Agreement). Under the Letter of Credit, the Bank is obligated to pay to the Trustee, upon presentation of a sight draft and required accompanying documentation, the amount necessary to pay, the principal of, and interest on the Bonds then due and payable (whether by mandatory redemption or by maturity due to acceleration or otherwise). On each Bond Payment Date and immediately upon (1) a declaration that all the Bonds have become due and payable by acceleration, or (2) a mandatory redemption of all the Bonds Outstanding, the Trustee shall present to the Bank a sight draft and required accompanying documentation and draw upon the Letter of Credit for the principal amount, if any and accrued interest then due on the Bonds. The Letter of Credit provides that it shall expire on December 15, 2013 or earlier under certain circumstances. The Company may provide for delivery to the Trustee of a Substitute Letter of Credit or an Alternate Letter of Credit issued by another banking institution as provided in the Installment Sale Agreement. As additional security for the payment of principal of and interest on the Bonds, the Issuer has assigned to the Trustee all of the Issuer's rights and remedies under the Installment Sale Agreement (except the Unassigned Rights, as therein defined), including the right to receive installment purchase payments and other amounts payable thereunder pursuant to a pledge and assignment dated as of December 1, 1998 (the "Pledge and Assignment") from the Issuer to the Trustee. Further security for the payment of principal of and interest on the Bonds is provided by a guaranty dated as of December 1, 1998 (the "Guaranty") from Ling Electronics, Inc. (the "Corporate Guarantor") to the Trustee. The Assignment of Rents, the Pledge and Assignment and a memorandum relating to the Installment Sale Agreement are to be recorded in the office of the County Clerk of Albany County, New York. Reference is hereby made to the Indenture, the Installment Sale Agreement, the Reimbursement Agreement, the Pledge and Assignment, the Guaranty and the Letter of Credit, and to all amendments and supplements thereto, for a description of the nature and extent of the security for the Bonds, the terms and conditions upon which the Bonds are issued and secured and the rights, duties and obligations of the Issuer, the Trustee, the Company, the Bank and the Bondholders. Copies of such documents are on file in the Office of the Trustee. THE BONDS ARE LIMITED OBLIGATIONS OF THE ISSUER PAYABLE SOLELY FROM PAYMENTS MADE BY THE BANK UNDER THE LETTER OF CREDIT AND BY THE COMPANY UNDER THE INSTALLMENT SALE AGREEMENT, MONEYS AND SECURITIES HELD BY THE TRUSTEE UNDER THE INDENTURE, AND THE SECURITY PROVIDED BY THE PLEDGE AND ASSIGNMENT AND THE GUARANTY. (Extraordinary Redemption Without Premium) The Bonds are subject to redemption prior to maturity (1) as a whole, without premium, in the event of (a) a taking in Condemnation of, or failure of title to, all or substantially all of the Project Facility, (b) damage to or destruction of part or all of the Project Facility and election by the Company to redeem the Bonds, or (c) a taking in Condemnation of part of the Project Facility and election by the Company to redeem the Bonds, or (2) in part, without premium in the event that (a) to the extent excess moneys remain in the Insurance and Condemnation Fund following damage or condemnation of a portion of the Project Facility and completion of the repair, rebuilding or restoration of the Project Facility by the Company and, pursuant to the Indenture, such excess moneys are not paid to the Company or (b) in the event that excess moneys remain in the Project Fund after the Completion Date. In any such event, the Bonds shall be redeemed, as a whole or in part, at such time as the Trustee determines, at a redemption price equal to the principal amount thereof, plus accrued interest to the redemption date, without premium. (Redemption Without Premium for Failure to Obtain a Substitute Letter of Credit) The Bonds are also subject to redemption prior to maturity in the event of failure by the Company to provide a Substitute Letter of Credit at least forty-five (45) days prior to the Interest Payment Date immediately preceding the expiration date of the Letter of Credit then in effect. In any such event, the Bonds shall be redeemed, as a whole, on such Interest Payment Date, at a redemption price equal to the principal amount to be redeemed, plus accrued interest to the redemption date, without premium. (Extraordinary Redemption Without Premium at Election of Bank) The Bonds are also subject to redemption prior to maturity upon receipt by the Trustee of a written notice from the Bank of the occurrence and continuance of a default by the Company under the Reimbursement Agreement and the Bank's election to compel redemption of the Bonds. In such event, the Bonds shall be redeemed, as a whole, in the manner provided in Article III of the Indenture, on the earliest date for which the Trustee can give notice of redemption pursuant to Section 303 of the Indenture, at a redemption price equal to the principal amount thereof, plus accrued interest to the redemption date, without premium. (Redemption at Company's Option) The Bonds are also subject to redemption prior to maturity in denominations of $5,000 or any integral multiple of $5,000 in excess thereof at the option of the Company by exercise of its right to prepay the installment purchase payments payable under the Installment Sale Agreement as provided in Section 5.5 of the Installment Sale Agreement, on any Interest Payment Date, in the manner provided in this Article III, at a redemption price equal to the principal amount thereof, plus accrued interest to the redemption date, without premium. (Scheduled Mandatory Redemption Without Premium) The Bonds are also subject to scheduled mandatory redemption prior to maturity, commencing December 1, 1999 and on each December 1 thereafter, by the application of Sinking Fund Payments at a redemption price equal to the principal amount thereof, plus accrued interest to the redemption date, without premium, on December 1 of the years and in the principal amounts set forth below: YEAR SINKING FUND PAYMENT YEAR SINKING FUND PAYMENT 1999 $285,000 2006 $385,000 2000 $275,000 2007 $410,000 2001 $290,000 2008 $435,000 2002 $310,000 2009 $460,000 2003 $325,000 2010 $485,000 2004 $345,000 2011 $515,000 2005 $365,000 2012 $540,000 Following retirement by mandatory sinking fund redemption prior to their Stated Maturity, there will remain $575,000 principal amount of the Bonds maturing on December 1, 2013 to be paid at maturity. (Procedures for Redemption) Notice of the intended redemption of each Bond subject to redemption shall be given not less than thirty (30) days nor more than forty-five (45) days prior to the redemption date by the Trustee one time by first class mail postage prepaid to the registered owner at the address of such owner shown on the Trustee's bond register. The failure to give any such notice, or any defect therein, shall not affect the validity of any proceeding for the redemption of any Bond with respect to which no such failure to give notice, or defect therein, has occurred. In the event of any partial redemption, the particular Bonds or portions thereof to be redeemed shall be selected by the Trustee not more than sixty (60) days prior to the redemption date in order of maturity, and within each maturity by lot or by such other such method as the Trustee shall deem fair and appropriate. The Trustee may provide for the redemption of portions (equal to $5,000 or any whole multiple thereof) of Outstanding Bonds. In no event shall the principal amount of Bonds subject to any partial redemption be other than a whole multiple of $5,000; provided, however, that no $5,000 portion of a Bond shall be redeemed if it results in the unredeemed portion of the Bond being less than $100,000. Bonds (or portions thereof as aforesaid) for whose redemption and payment provision is made in accordance with the Indenture shall thereupon cease to be entitled to the Lien of the Indenture and shall cease to bear interest from and after the date fixed for redemption. The owner of this Bond shall have no right to enforce the provisions of the Indenture or to institute action to enforce the covenants therein, or to take any action with respect to any Event of Default under the Indenture, or to institute, appear in or defend any suit or other proceeding with respect thereto, except as provided in the Indenture. Modifications or alterations of the Indenture or of any indenture supplemental thereto may be made only to the extent and in the circumstances permitted by the Indenture. The principal hereof may be declared or may become due on the conditions and in the manner and at the time set forth in the Indenture upon the occurrence of an Event of Default as provided in the Indenture. The Bonds are issuable in the denomination of $100,000 or any multiple of $5,000 in excess thereof. As provided in the Indenture and subject to certain limitations therein set forth, this Bond, upon surrender for transfer at the principal office of the Trustee as Bond Registrar, is transferable upon an assignment duly executed by the registered owner hereof or his duly authorized legal representative, and, upon such transfer, one or more new Bonds of authorized denominations and for the same aggregate principal amount will be issued to the designated transferee or transferees. No service charge shall be made for any transfer or exchange of Bonds, but the Issuer or the Trustee may make a charge for transfer or exchange of Bonds sufficient to reimburse them for any tax, fee or other governmental charge required to be paid with respect to such transfer or exchange, and such charge shall be paid before any new Bond shall be delivered. NO RECOURSE SHALL BE HAD FOR THE PAYMENT OF THE PRINCIPAL OF OR REDEMPTION PRICE OF OR THE INTEREST ON THIS BOND OR FOR ANY CLAIM BASED HEREON OR ON THE INDENTURE, AGAINST ANY PAST, PRESENT OR FUTURE MEMBER, OFFICER, DIRECTOR, EMPLOYEE OR AGENT (EXCEPT THE COMPANY), AS SUCH, OF THE ISSUER OR OF ANY PREDECESSOR OR SUCCESSOR CORPORATION, EITHER DIRECTLY OR THROUGH THE ISSUER OR OTHERWISE, WHETHER BY VIRTUE OF ANY CONSTITUTION, STATUTE OR RULE OF LAW, OR BY THE ENFORCEMENT OF ANY ASSESSMENT OR PENALTY, OR OTHERWISE, ALL SUCH LIABILITY BEING, BY THE ACCEPTANCE HEREOF, EXPRESSLY WAIVED AND RELEASED. Capitalized terms used in this Bond and not defined herein shall have the meaning ascribed to such terms in the Indenture. This Bond shall not be entitled to any benefit under the Indenture or become valid or obligatory for any purpose until the certificate of the Trustee shall be endorsed hereon. THE BONDS DO NOT CONSTITUTE AND SHALL NOT BE A DEBT OF THE STATE OF NEW YORK OR THE TOWN OF COLONIE, NEW YORK AND NEITHER THE STATE OF NEW YORK NOR THE TOWN OF COLONIE, NEW YORK SHALL BE LIABLE THEREON. THE BONDS DO NOT GIVE RISE TO A PECUNIARY LIABILITY OR CHARGE AGAINST THE GENERAL CREDIT OR TAXING POWERS OF THE STATE OF NEW YORK OR THE TOWN OF COLONIE, NEW YORK. It is hereby certified, recited and declared that all acts, conditions and things required to exist, happen and be performed precedent to and in the execution and delivery of the Indenture, and the issuance of this Bond, do exist, have happened and have been performed in the time, form and manner as required by law, and that the issuance of the Bonds does not violate any constitutional or statutory limitation. IN WITNESS WHEREOF, Town of Colonie Industrial Development Agency has caused this Bond to be duly executed in its name by the manual or facsimile signature of its Chairman and its corporate seal to be impressed or reproduced hereon, attested by the manual or facsimile signature of its Secretary, all as of the date identified above. TOWN OF COLONIE INDUSTRIAL DEVELOPMENT AGENCY BY: (Vice) Chairman (SEAL) ATTEST: ______________________________ Secretary Certificate of Authentication This Bond is one of the Bonds of the issue described in the within- mentioned Indenture. MANUFACTURERS AND TRADERS TRUST COMPANY, as Trustee BY: Authorized Officer ______________________ Date of Authentication [Form of Assignment for Transfer] FOR VALUE RECEIVED, the undersigned sells, assigns and transfers unto (please insert name, address and social security or tax identification number of assignee): the within Bond and does hereby irrevocably constitute and appoint to transfer the said Bond on the books kept for registration thereof, with full power of substitution in the premises. Dated: ____________________ NOTICE: The signature(s) on this assignment must correspond with the name(s) as it (they) appear(s) on the face of the within Bond in every particular. In the presence of: ______________________________ EXHIBIT B FORM OF BOND AFTER CONVERSION DATE TOWN OF COLONIE INDUSTRIAL DEVELOPMENT AGENCY (a public benefit corporation of the State of New York) TAXABLE INDUSTRIAL DEVELOPMENT REVENUE BOND (MECHANICAL TECHNOLOGY INCORPORATED PROJECT - LETTER OF CREDIT SECURED), SERIES 1998A NO.: R-__ $_________ RATE: ___% per annum MATURITY DATE: December 1, ____ DATED: __________________ CUSIP: __________ Town of Colonie Industrial Development Agency, a public benefit corporation of the State of New York (the "Issuer"), for value received, hereby promises to pay, solely from the sources hereinafter described, to ________________ or registered assigns, on the Maturity Date identified above (subject to any right of prior redemption hereinafter provided for), the principal sum of Six Million Dollars (subject to reduction as hereinafter provided) and interest thereon (computed on the basis of a 360-day year of twelve 30-day months) from the date set forth above, or from the most recent Interest Payment Date to which interest has been paid, to the Maturity Date identified above (or such earlier date on which the principal hereof has been paid or duly provided for), at the rate identified above, on the first days of June and December of each year (each an "Interest Payment Date"), commencing _______________. The principal of this Bond shall be paid on the Maturity Date upon presentation and surrender hereof at the Office of Manufacturers and Traders Trust Company, as trustee (together with its successors in trust, the "Trustee") under the trust indenture dated as of December 1, 1998 (from time to time, as amended or supplemented, the "Indenture") by and between the Issuer and the Trustee, or at the duly designated office of any successor trustee under the Indenture. The installments of interest described above shall, as provided in the Indenture, be paid to the Person in whose name this Bond (or one or more Predecessor Bonds, as defined in the Indenture) is registered at the close of business on the Business Day next preceding any Interest Payment Date (the "Regular Record Date"), and shall be paid by check or draft of the Trustee mailed by the Trustee on such Interest Payment Date to such registered owner at his address appearing on the registration books of the Issuer, or at the option of any holder of Bonds in an aggregate principal amount of $250,000 or greater be transmitted on such Interest Payment Date by wire transfer at such owner's written request to the bank account number on file with the Trustee. Any such interest not so punctually paid or duly provided for shall forthwith cease to be payable to the registered owner on such Regular Record Date, and may be paid to the Person in whose name this Bond (or one or more Predecessor Bonds) is registered at the close of business on a date for the payment of such defaulted interest to be fixed by the Trustee (the "Special Record Date"), notice whereof being given to registered owners of the Bonds not less than ten (10) days prior to such Special Record Date, or may be paid in any other lawful manner as shall be determined by the Trustee. The principal of, premium, if any, on and interest on this Bond are payable in lawful money of the United States of America. (Project Description) This Bond is one of a duly authorized issue of bonds of the Issuer designated "Town of Colonie Industrial Development Agency Taxable Industrial Development Revenue Bonds (Mechanical Technology Incorporated Project - Letter of Credit Secured), Series 1998A" in the aggregate principal amount of $6,000,000 (the "Bonds"). The Bonds are issued for the purpose of assisting in providing financing to the Issuer for a project (the "Project") consisting of the following: (A) (1) the acquisition of a leasehold interest in a parcel of land containing approximately 35.6 acres located at 968 Albany-Shaker Road in the Town of Colonie, Albany County, New York (the "Land"), together with the existing buildings located thereon which contain approximately 98,000 square feet in the aggregate (such buildings known individually as Building I, Building II and Building III and hereinafter collectively referred to as the "Existing Facility"), (2) the demolition of Building I which contains approximately 14,105 square feet of space, (3) the construction of a new building to replace Building I and which will contain approximately 32,000 square feet of space (the "New Facility") (the Existing Facility and the New Facility hereinafter collectively referred to as the "Facility"), (4) the renovation of Building III and (5) the acquisition of and installation therein and thereon of certain machinery and equipment (the "Equipment") (the Land, the Facility and the Equipment being hereinafter collectively referred to as the "Project Facility"), all of the foregoing to be occupied by Mechanical Technology Incorporated (the "Company") and operated as a manufacturing facility, a portion of which will be leased by the Company to Plug Power, LLC and operated as a facility for the manufacture, research and development of fuel cells for residential and automotive applications and related products and any other related activities; (B) the financing of all or a portion of the costs of the foregoing by the issuance of the Bonds; (C) the granting of certain other "financial assistance" (within the meaning of Section 854(14) of the Act) with respect to the foregoing, including exemption from certain sales taxes, deed transfer taxes, mortgage recording taxes and real property taxes (collectively with the Bonds, the "Financial Assistance"); and (D) the lease (with an obligation to purchase) or sale of the Project Facility to the Company or such other person as may be designated by the Company and agreed upon by the Agency. The Project Facility is to be sold by the Issuer to the Company pursuant to the provisions of an installment sale agreement dated as of December 1, 1998 (the "Installment Sale Agreement") by and between the Issuer and the Company. The Bonds are issued under and are equally and ratably secured by the Indenture. The Indenture grants the Trustee a first security interest in the Trust Revenues (as defined in the Indenture). In order to provide additional security for the Bonds, the Company has entered into an irrevocable letter of credit and reimbursement agreement dated as of ________________ (the "Reimbursement Agreement") with ___________________________ (the "Bank"), pursuant to which the Bank has issued in favor of the Trustee an irrevocable transferable direct pay letter of credit (the "Letter of Credit"), issued in an amount equal to the aggregate principal amount of the Bonds Outstanding, plus at least 210 days' interest on the Bonds, computed at the Fixed Rate in effect, together with the Optional Redemption Premium. Under the Letter of Credit, the Bank is obligated to pay to the Trustee, upon presentation of a sight draft and required accompanying documentation, the amount necessary to pay, the principal of, and interest on the Bonds then due and payable (whether by mandatory redemption or by maturity due to acceleration or otherwise). On each Bond Payment Date and immediately upon (1) a declaration that all the Bonds have become due and payable by acceleration, or (2) a mandatory redemption of all the Bonds Outstanding, the Trustee shall present to the Bank a sight draft and required accompanying documentation and draw upon the Letter of Credit for the principal amount, if any and accrued interest then due on the Bonds. The Letter of Credit provides that it shall expire on _____________ or earlier under certain circumstances. The Company may provide for delivery to the Trustee of a Substitute Letter of Credit or an Alternate Letter of Credit issued by another banking institution as provided in the Installment Sale Agreement. As additional security for the payment of principal of and interest on the Bonds, the Issuer has assigned to the Trustee all of the Issuer's rights and remedies under the Installment Sale Agreement (except the Unassigned Rights, as therein defined), including the right to receive installment purchase payments and other amounts payable thereunder pursuant to a pledge and assignment dated as of December 1, 1998 (the "Pledge and Assignment") from the Issuer to the Trustee. Further security for the payment of principal of and interest on the Bonds is provided by a guaranty dated as of December 1, 1998 (the "Guaranty") from _______________ (the "Corporate Guarantor") to the Trustee. The Assignment of Rents, the Pledge and Assignment and a memorandum relating to the Installment Sale Agreement are to be recorded in the office of the County Clerk of Albany County, New York. Reference is hereby made to the Indenture, the Installment Sale Agreement, the Reimbursement Agreement, the Pledge and Assignment, the Guaranty and the Letter of Credit, and to all amendments and supplements thereto, for a description of the nature and extent of the security for the Bonds, the terms and conditions upon which the Bonds are issued and secured and the rights, duties and obligations of the Issuer, the Trustee, the Company, the Bank and the Bondholders. Copies of such documents are on file in the Office of the Trustee. THE BONDS ARE LIMITED OBLIGATIONS OF THE ISSUER PAYABLE SOLELY FROM PAYMENTS MADE BY THE BANK UNDER THE LETTER OF CREDIT AND BY THE COMPANY UNDER THE INSTALLMENT SALE AGREEMENT, MONEYS AND SECURITIES HELD BY THE TRUSTEE UNDER THE INDENTURE, AND THE SECURITY PROVIDED BY THE PLEDGE AND ASSIGNMENT AND THE GUARANTY. (Extraordinary Redemption Without Premium) The Bonds are subject to redemption prior to maturity (1) as a whole, without premium, in the event of (a) a taking in Condemnation of, or failure of title to, all or substantially all of the Project Facility, (b) damage to or destruction of part or all of the Project Facility and election by the Company to redeem the Bonds, or (c) a taking in Condemnation of part of the Project Facility and election by the Company to redeem the Bonds, or (2) in part, without premium in the event that (a) to the extent excess moneys remain in the Insurance and Condemnation Fund following damage or condemnation of a portion of the Project Facility and completion of the repair, rebuilding or restoration of the Project Facility by the Company and, pursuant to the Indenture, such excess moneys are not paid to the Company or (b) in the event that excess moneys remain in the Project Fund after the Completion Date. In any such event, the Bonds shall be redeemed, as a whole or in part, at such time as the Trustee determines, at a redemption price equal to the principal amount thereof, plus accrued interest to the redemption date, without premium. (Redemption Without Premium for Failure to Obtain a Substitute Letter of Credit) The Bonds are also subject to redemption prior to maturity in the event of failure by the Company to provide a Substitute Letter of Credit at least forty-five (45) days prior to the Interest Payment Date immediately preceding the expiration date of the Letter of Credit then in effect. In any such event, the Bonds shall be redeemed, as a whole, on such Interest Payment Date, at a redemption price equal to the principal amount to be redeemed, plus accrued interest to the redemption date, without premium. (Extraordinary Redemption Without Premium at Election of Bank) The Bonds are also subject to redemption prior to maturity upon receipt by the Trustee of a written notice from the Bank of the occurrence and continuance of a default by the Company under the Reimbursement Agreement and the Bank's election to compel redemption of the Bonds. In such event, the Bonds shall be redeemed, as a whole, in the manner provided in Article III of the Indenture, on the earliest date for which the Trustee can give notice of redemption pursuant to Section 303 of the Indenture, at a redemption price equal to the principal amount thereof, plus accrued interest to the redemption date, without premium. (Redemption at Company's Option) The Bonds are subject to redemption, at the option of the Company by exercise of its right to prepay the installment purchase payments under the Installment Sale Agreement as provided in Section 5.5 of the Installment Sale Agreement, as a whole or in part on any Interest Payment Date occurring after the end of the applicable call protection period at the redemption prices, expressed as percentages of unpaid principal amount to be redeemed, plus accrued interest to the redemption date. The call protection period and redemption prices shall be determined by the Remarketing Agent, after taking into account the factors described in Section 209(B)(2)(e) of the Indenture and such other factors which the Remarketing Agent deems appropriate. The determination of the call protection period and redemption prices by the Remarketing Agent pursuant to and in accordance with the terms of the Indenture shall be conclusive and binding on the Issuer, the Trustee, the Company, the Bank and the Holders of the Bonds. (Scheduled Mandatory Redemption Without Premium) The Bonds are also subject to scheduled mandatory redemption prior to maturity, commencing December 1, 1999 and on each December 1 thereafter, by the application of Sinking Fund Payments at a redemption price equal to the
YEAR SINKING FUND PAYMENT YEAR SINNKING FUND PAYMENT 1999 $285,000 2006 $385,000 2000 $275,000 2007 $410,000 2001 $290,000 2008 $435,000 2002 $310,000 2009 $460,000 2003 $325,000 2010 $485,000 2004 $345,000 2011 $515,000 2005 $365,000 2012 $540,000
Following retirement by mandatory sinking fund redemption prior to their Stated Maturity, there will remain $575,000 principal amount of the Bonds maturing on December 1, 2013 to be paid at maturity. (Procedures for Redemption) Notice of the intended redemption of each Bond subject to redemption shall be given not less than thirty (30) days nor more than forty-five (45) days prior to the redemption date by the Trustee one time by first class mail postage prepaid to the registered owner at the address of such owner shown on the Trustee's bond register. The failure to give any such notice, or any defect therein, shall not affect the validity of any proceeding for the redemption of any Bond with respect to which no such failure to give notice, or defect therein, has occurred. In the event of any partial redemption, the particular Bonds or portions thereof to be redeemed shall be selected by the Trustee not more than sixty (60) days prior to the redemption date in order of maturity, and within each maturity by lot or by such other such method as the Trustee shall deem fair and appropriate. The Trustee may provide for the redemption of portions (equal to $5,000 or any whole multiple thereof) of Outstanding Bonds. In no event shall the principal amount of Bonds subject to any partial redemption be other than a whole multiple of $5,000; provided, however, that no $5,000 portion of a Bond shall be redeemed if it results in the unredeemed portion of the Bond being less than $100,000. Bonds (or portions thereof as aforesaid) for whose redemption and payment provision is made in accordance with the Indenture shall thereupon cease to be entitled to the Lien of the Indenture and shall cease to bear interest from and after the date fixed for redemption. The owner of this Bond shall have no right to enforce the provisions of the Indenture or to institute action to enforce the covenants therein, or to take any action with respect to any Event of Default under the Indenture, or to institute, appear in or defend any suit or other proceeding with respect thereto, except as provided in the Indenture. Modifications or alterations of the Indenture or of any indenture supplemental thereto may be made only to the extent and in the circumstances permitted by the Indenture. The principal hereof may be declared or may become due on the conditions and in the manner and at the time set forth in the Indenture upon the occurrence of an Event of Default as provided in the Indenture. The Bonds are issuable in the denomination of $100,000 or any multiple of $5,000 in excess thereof. As provided in the Indenture and subject to certain limitations therein set forth, this Bond, upon surrender for transfer at the principal office of the Trustee as Bond Registrar, is transferable upon an assignment duly executed by the registered owner hereof or his duly authorized legal representative, and, upon such transfer, one or more new Bonds of authorized denominations and for the same aggregate principal amount will be issued to the designated transferee or transferees. No service charge shall be made for any transfer or exchange of Bonds, but the Issuer or the Trustee may make a charge for transfer or exchange of Bonds sufficient to reimburse them for any tax, fee or other governmental charge required to be paid with respect to such transfer or exchange, and such charge shall be paid before any new Bond shall be delivered. NO RECOURSE SHALL BE HAD FOR THE PAYMENT OF THE PRINCIPAL OF OR REDEMPTION PRICE OF OR THE INTEREST ON THIS BOND OR FOR ANY CLAIM BASED HEREON OR ON THE INDENTURE, AGAINST ANY PAST, PRESENT OR FUTURE MEMBER, OFFICER, DIRECTOR, EMPLOYEE OR AGENT (EXCEPT THE COMPANY), AS SUCH, OF THE ISSUER OR OF ANY PREDECESSOR OR SUCCESSOR CORPORATION, EITHER DIRECTLY OR THROUGH THE ISSUER OR OTHERWISE, WHETHER BY VIRTUE OF ANY CONSTITUTION, STATUTE OR RULE OF LAW, OR BY THE ENFORCEMENT OF ANY ASSESSMENT OR PENALTY, OR OTHERWISE, ALL SUCH LIABILITY BEING, BY THE ACCEPTANCE HEREOF, EXPRESSLY WAIVED AND RELEASED. Capitalized terms used in this Bond and not defined herein shall have the meaning ascribed to such terms in the Indenture. This Bond shall not be entitled to any benefit under the Indenture or become valid or obligatory for any purpose until the certificate of the Trustee shall be endorsed hereon. THE BONDS DO NOT CONSTITUTE AND SHALL NOT BE A DEBT OF THE STATE OF NEW YORK OR THE TOWN OF COLONIE, NEW YORK AND NEITHER THE STATE OF NEW YORK NOR THE TOWN OF COLONIE, NEW YORK SHALL BE LIABLE THEREON. THE BONDS DO NOT GIVE RISE TO A PECUNIARY LIABILITY OR CHARGE AGAINST THE GENERAL CREDIT OR TAXING POWERS OF THE STATE OF NEW YORK OR THE TOWN OF COLONIE, NEW YORK. It is hereby certified, recited and declared that all acts, conditions and things required to exist, happen and be performed precedent to and in the execution and delivery of the Indenture, and the issuance of this Bond, do exist, have happened and have been performed in the time, form and manner as required by law, and that the issuance of the Bonds does not violate any constitutional or statutory limitation. IN WITNESS WHEREOF, Town of Colonie Industrial Development Agency has caused this Bond to be duly executed in its name by the manual or facsimile signature of its Chairman and its corporate seal to be impressed or reproduced hereon, attested by the manual or facsimile signature of its Secretary, all as of the date identified above. TOWN OF COLONIE INDUSTRIAL DEVELOPMENT AGENCY BY: (Vice) Chairman (SEAL) ATTEST: ______________________________ Secretary Certificate of Authentication This Bond is one of the Bonds of the issue described in the within- mentioned Indenture. MANUFACTURERS AND TRADERS TRUST COMPANY, as Trustee BY: Authorized Officer ______________________ Date of Authentication [Form of Assignment for Transfer] FOR VALUE RECEIVED, the undersigned sells, assigns and transfers unto (please insert name, address and social security or tax identification number of assignee): the within Bond and does hereby irrevocably constitute and appoint to transfer the said Bond on the books kept for registration thereof, with full power of substitution in the premises. Dated: ____________________ NOTICE: The signature(s) on this assignment must correspond with the name(s) as it (they) appear(s) on the face of the within Bond in every particular. In the presence of: ______________________________ EXHIBIT C-1 (Form of Notice of Mandatory Tender on Conversion Date) NOTICE OF MANDATORY TENDER WITH RESPECT TO TOWN OF COLONIE INDUSTRIAL DEVELOPMENT AGENCY TAXABLE INDUSTRIAL DEVELOPMENT REVENUE BONDS (MECHANICAL TECHNOLOGY INCORPORATED PROJECT - LETTER OF CREDIT SECURED), SERIES 1998A DATE:_________________ TO: ________________________ FROM: MANUFACTURERS AND TRADERS TRUST COMPANY, as trustee (the "Trustee") under the trust indenture dated as of December 1, 1998 by and between Town of Colonie Industrial Development Agency (the "Issuer") and the Trustee, securing the Issuer's $6,000,000 aggregate principal amount Taxable Industrial Development Revenue Bonds (Mechanical Technology Incorporated Project - Letter of Credit Secured), Series 1998A (the "Bonds") Notice is hereby given in accordance with Section 304 of the Indenture that the Bonds with respect to which you are the registered owner are subject to mandatory tender as a result of the exercise by the Company (as defined in the Indenture) of the Conversion Option (as defined in the Indenture) to convert the interest rate on the Bonds to a fixed rate, and must be presented to the undersigned trustee for purchase at its office at _________________, __________________, on or before [Conversion Date], UNLESS, on or before [Twenty (20) days prior to the Conversion Date] at 5:00 p.m., New York time, we receive written notice of your election not to tender and to continue holding such Bonds using the form attached to this notice. If you own one or more Bonds having an aggregate total principal amount of $200,000 or more, you may elect not to tender the total principal amount of your Bonds and to continue to hold only a portion of your Bonds (but in no event any amount other than $100,000, or any integral multiple of $5,000 in excess thereof). If you elect not to tender and to continue to hold your Bonds, the interest rate on the Bonds is subject to change on [Conversion Date]. Pursuant to the terms of the Indenture, the Conversion Option has been elected. The rate established on the Bonds on [Conversion Date] will remain in effect from such date through the maturity of the Bonds. THE HOLDERS OF THE BONDS WILL NO LONGER HAVE THE RIGHT TO DEMAND PURCHASE OF THEIR BONDS. Pursuant to the terms of the Bonds and the Indenture, at least fifteen (15) days prior to [Conversion Date] the Remarketing Agent (as defined in the Indenture) will establish the rate of interest on the Bonds for the period beginning [Conversion Date] and ending on the Maturity Date (the "Fixed Rate"). The Fixed Rate to be established will be that rate which in the reasonable judgment of the Remarketing Agent is the minimum interest rate necessary to sell the Bonds at a price of 100% of the principal amount thereof, plus accrued interest. The determination of the Fixed Rate by the Remarketing Agent pursuant to and in accordance with the terms of the Indenture shall be conclusive and binding on the Bondholders. Pursuant to Section 5.8 of the Installment Sale Agreement, the Company has delivered a Substitute Letter of Credit issued by ____________________ which has an expiration date of ______________________________, [the existing rating on the Bonds has been withdrawn, however, [Standard & Poor's Corporation or Moody's Investors Service, Inc.] has delivered a notice to the Trustee indicating that such Letter of Credit would cause the Bonds to have a rating of __________.] MANUFACTURERS AND TRADERS TRUST COMPANY, as trustee BY: Authorized Representative EXHIBIT C-2 (Form of Notice of Bondholder's Election Regarding Conversion Date) TO: MANUFACTURERS AND TRADERS TRUST COMPANY, as trustee (the "Trustee") under the trust indenture dated as of December 1, 1998 by and between Town of Colonie Industrial Development Agency (the "Issuer") and the Trustee, securing the Issuer's $6,000,000 aggregate principal amount Taxable Industrial Development Revenue Bonds (Mechanical Technology Incorporated Project - Letter of Credit Secured), Series 1998A (the "Bonds") The undersigned hereby gives notice to you of its intention to tender on [Repurchase Closing Date] the following Bonds: Column Column Column (1) (2) (3) Total Principal Total Principal Amount Amount Not To Be To Be Bond No. Tendered Tendered (Please note that, if you wish to tender all of your Bonds, you must show the full principal amount of each Bond under column (2) above.) In making this election to tender the Bonds described above, the undersigned certifies the following: (1) the current interest rate on the Bonds is subject to adjustment on [Conversion Date]; (2) twenty (20) days prior to [Conversion Date], the Remarketing Agent will establish the interest rate on the Bonds for the period from [Conversion Date] through the maturity of the Bonds, as the interest rate at which the Bonds could be sold at 100% of the principal amount thereof, plus accrued interest. THE HOLDERS OF THE BONDS WILL NO LONGER HAVE THE RIGHT TO DEMAND PURCHASE OF THEIR BONDS AND THE RATE ESTABLISHED AS DESCRIBED IN THE PREVIOUS SENTENCE WILL REMAIN IN EFFECT THROUGH THE MATURITY OF THE BOND; (3) the determination of the Remarketing Agent as to the interest rate on the Bonds during such period shall be conclusive and binding upon the undersigned; and (4) that the rating then in effect with respect to the Bonds, if any, may be withdrawn or lowered. Dated: ______________________ ____________________________________ ____________________________________ NOTICE: The signature(s) on this notice must correspond with the name(s) as it (they) appear(s) on the face of the Bonds in every particular. EXHIBIT C-3 (Form of Notice of Mandatory Tender on Alternate Security Date) NOTICE OF MANDATORY TENDER WITH RESPECT TO TOWN OF COLONIE INDUSTRIAL DEVELOPMENT AGENCY TAXABLE INDUSTRIAL DEVELOPMENT REVENUE BONDS (MECHANICAL TECHNOLOGY INCORPORATED PROJECT - LETTER OF CREDIT SECURED), SERIES 1998A DATE:_________________ TO: ________________________ FROM: MANUFACTURERS AND TRADERS TRUST COMPANY, as trustee (the "Trustee") under the trust indenture dated as of December 1, 1998 by and between Town of Colonie Industrial Development Agency (the "Issuer") and the Trustee, securing the Issuer's $6,000,000 aggregate principal amount Taxable Industrial Development Revenue Bonds (Mechanical Technology Incorporated Project - Letter of Credit Secured), Series 1998A (the "Bonds") Notice is hereby given in accordance with Section 304 of the Indenture that the Bonds with respect to which you are the registered owner are subject to mandatory tender as a result of the delivery by the Company (as defined in the Indenture) of an Alternate Letter of Credit (as defined in the Indenture) pursuant to Section 5.8 of the Installment Sale Agreement (as defined in the Indenture) and must be presented to the undersigned trustee for purchase at its office at _________________, __________________, on or before [Alternate Security Date], UNLESS, on or before [Twenty (20) days prior to the Conversion Date] at 5:00 p.m., New York time, we receive written notice of your election not to tender and to continue holding such Bonds using the form attached to this notice. If you own one or more Bonds having an aggregate total principal amount of $__________ or more, you may elect not to tender the total principal amount of your Bonds and to continue to hold only a portion of your Bonds (but in no event any amount other than $100,000, or any integral multiple of $5,000 in excess thereof). If you elect not to tender and to continue to hold your Bonds, the credit rating on the Bonds is subject to change on [Alternate Security Date]. Pursuant to Section 5.8 of the Installment Sale Agreement, the Company has delivered a Alternate Letter of Credit issued by ____________________ which has an expiration date of ______________________________. [The existing rating on the Bonds has been withdrawn.] [Standard & Poor's Corporation or Moody's Investors Service, Inc.] has delivered a notice to the Trustee indicating that such Alternate Letter of Credit would cause the Bonds to have a rating of __________.] MANUFACTURERS AND TRADERS TRUST COMPANY, as trustee BY: Authorized Representative EXHIBIT C-4 (Form of Notice of Bondholder's Election Regarding Alternate Letter of Credit) TO: MANUFACTURERS AND TRADERS TRUST COMPANY, as trustee (the "Trustee") under the trust indenture dated as of December 1, 1998 by and between Town of Colonie Industrial Development Agency (the "Issuer") and the Trustee, securing the Issuer's $6,000,000 aggregate principal amount Taxable Industrial Development Revenue Bonds (Mechanical Technology Incorporated Project - Letter of Credit Secured), Series 1998A (the "Bonds") The undersigned hereby gives notice to you of its intention not to tender on [Alternate Security Date] and to continue to hold beyond that date, the following Bonds: Column Column Column (1) (2) (3) Total Principal Total Principal Amount Amount Not To Be To Be Bond No. Tendered Tendered (Please note that, if you wish not to tender and to continue to hold all or a portion of your Bonds, you must show the full principal amount of each Bond under column (3) above.) In making this election not to tender and to continue to hold the Bonds described above, the undersigned recognizes that: (1) the current interest rate on the Bonds is subject to adjustment on [Alternate Security Date]; and (2) that the rating then in effect with respect to the Bonds, if any, will be withdrawn or lowered. Dated: ______________________ _____________________________________ _____________________________________ NOTICE: The signature(s) on this notice must correspond with the name(s) as it (they) appear(s) on the face of the Bonds in every particular. IMPORTANT: To be effective, this notice must be received by the Trustee no later than 5:00 p.m., New York time, on _____________ (or, if ___________ is not a Business Day, on the next following Business Day). EXHIBIT C-5 (Form of Tender Notice) TO: MANUFACTURERS AND TRADERS TRUST COMPANY, as trustee (the "Trustee") under the trust indenture dated as of December 1, 1998 by and between Town of Colonie Industrial Development Agency (the "Issuer") and the Trustee, securing the Issuer's $6,000,000 aggregate principal amount Taxable Industrial Development Revenue Bonds (Mechanical Technology Incorporated Project - Letter of Credit Secured), Series 1998A (the "Bonds") The undersigned hereby gives notice to you of its intention to tender on [Repurchase Closing Date] the following Bonds: Column Column Column (1) (2) (3) Total Principal Total Principal Amount Amount Not To Be To Be Bond No. Tendered Tendered (Please note that, if you wish to tender all of your Bonds, you must show the full principal amount of each Bond under column (2) above.) In making this election to tender the Bonds described above, the undersigned certifies the following: (1) the principal amount of the Bonds to be tendered, the number of the Bonds to be tendered, and the Repurchase Closing Date are as described above; (2) the name and address of the Bondholder is described as follows: ; (3) the undersigned by delivery of this notice irrevocably requests the purchase of the Bonds described above; and (4) the undersigned undertakes to deliver the Bonds described above to the Tender Agent (as defined in the Indenture) or the Trustee in accordance with Section 305(A) of the Indenture. Dated: ______________________ ____________________________________ ____________________________________ NOTICE: The signature(s) on this notice must correspond with the name(s) as it (they) appear(s) on the face of the Bonds in every particular. EXHIBIT D DESCRIPTION OF LAND EXHIBIT E DESCRIPTION OF EQUIPMENT All articles of personal property and all appurtenances acquired with the proceeds of the Bonds or any payment made by Mechanical Technology Incorported (the "Company") pursuant to Section 4.5 of the installment sale agreement dated as of December 1, 1998 (the "Installment Sale Agreement") by and between Town of Colonie Industrial Development Agency and the Company and now or hereafter attached to, contained in or used in connection with the Land (as defined in the Installment Sale Agreement) or placed on any part thereof, though not attached thereto, including, but not limited to, pipes, screens, fixtures, heating, lighting, plumbing, ventilation, air conditioning, compacting and elevator plants, call systems, stoves, ranges, refrigerators and other lunch room facilities, rugs, movable partitions, cleaning equipment, maintenance equipment, shelving, flagpoles, signs, waste containers, outdoor benches, drapes, blinds and accessories, sprinkler systems and other fire prevention and extinguishing apparatus and materials, motors, machinery; and together with any and all products of any of the above, all substitutions, replacements, additions or accessions therefor, and any and all cash proceeds or non-cash proceeds realized from the sale, transfer or conversion of any of the above. EXHIBIT F FORM OF REQUEST FOR DISBURSEMENT To: Manufacturers and Traders Trust Company, as Trustee One M&T Plaza Buffalo, New York 14203 Attention: Corporate Trust Department Re: The Mechanical Technology Incorporated - Letter of Credit Secured Project Requisition Number: _______ Dated: _____________ You are hereby authorized and directed to make the following disbursement from the Project Fund as defined in the trust indenture dated as of December 1, 1998 (the "Indenture") by and between Town of Colonie Industrial Development Agency (the "Issuer") and Manufacturers and Traders Trust Company, as trustee: (A) (i) Name and address of the person to whom disbursement is to be made, and the amount to be paid: See Schedule A attached. (ii) Description of purpose for which the requested disbursement from the Project Fund is to be made. See Schedule A attached. (B) The disbursement is for a proper expenditure of moneys in the Project Fund under Section 4.3 of the Installment Sale Agreement (as defined in the Indenture); (C) With respect to the item(s) for which payment is to be made, the undersigned has no knowledge of any Lien (as defined in the Indenture) which should be satisfied or discharged before the payment as requested is made; (D) _______ percent of the work on the construction of the Facility (as defined in the Indenture) and the acquisition and installation of the Equipment (as defined in the Indenture) has been completed, and such percentage exceeds the percentage which all advances made to the date hereof represent of the total of Bond proceeds which can be disbursed from the Project Fund (as defined in the Indenture); (E) If the amount requested is to reimburse to the Company for costs or expenses of the Company incurred by reason of work performed or supervised by officers or employees of the Company, (1) such officers or employees were specifically employed or designated by the Company for such purpose, (2) the amount to be paid does not exceed the actual cost thereof to the Company, and (3) such costs or expenses will be treated by the Company on its books as capital expenditures in conformity with generally accepted accounting principles applied on a consistent basis (or would have been so treated either with an election by the Company or but for an election by the Company to deduct the amount of such payment); (F) No item(s) for which payment is requested has (have) been the basis for any prior disbursement from the Project Fund (requests for disbursement of retainage amounts under any contract relating to the construction of the Facility shall not be deemed made for an item which has been the basis of a prior disbursement by virtue of requests for disbursement of amounts covering the cost of such construction, less the retainage amounts); (G) All of the conditions set forth in the Indenture and the Reimbursement Agreement have been satisfied; (H) As of the date of this Request for Disbursement, the representations and covenants made in Section 2.2 of the Installment Sale Agreement are true and correct, there is no Event of Default (as defined in the Indenture) under any of the Financing Documents (as defined in the Indenture), nor any event, condition or act that, with the passage of time or the giving of notice or both, would ripen into such an event of default; (I) The Facility (as defined in the Indenture) has not been materially injured or damaged by fire or other casualty; (J) All sums due workmen and materialmen have been paid or will be paid from the proceeds of this disbursement; and (K) None of the items for which requisition is made constitutes personal property (including, without limitation, fixtures and equipment) other than that listed on all accompanying schedules sufficient for identification purposes in connection with the filing of UCC-1 and/or UCC-3 financing statements. MECHANICAL TECHNOLOGY INCORPORATED BY: Authorized Representative APPROVAL BY KEYBANK NATIONAL ASSOCIATION _________________________________ BY:______________________________ Authorized Representative SCHEDULE A Name and Address of Person to Whom Disbursement is Description to be Made Amount of Purpose 12050.0009/03:110172_5/01-28-99 12050.0009/03:110172_5/01-28-99 12050.0009/03:110172_5/01-28-99 12050.0009/03:110172_5/01-28-99 12050.0009/03:110172_5/01-28-99 12050.0009/03:110172_5/01-28-99 12050.0009/03:110172_5/01-28-99 12050.0009/03:110172_5/01-28-99 12050.0009/03:110172_5/01-28-99 12050.0009/03:110172_5/01-28-99 12050.0009/03:110172_5/01-28-99 12050.0009/03:110172_5/01-28-99 12050.0009/03:110172_5/01-28-99 12050.0009/03:110172_5/01-28-99 12050.0009/03:110172_5/01-28-99 12050.0009/03:110172_5/01-28-99 12050.0009/03:110172_5/01-28-99 12050.0009/03:110172_5/01-28-99 12050.0009/03:110172_5/01-28-99 12050.0009/03:110172_5/01-28-99 12050.0009/03:110172_5/01-28-99 12050.0009/03:110172_5/01-28-99 12050.0009/03:110172_5/01-28-99 12050.0009/03:110172_5/01-28-99 12050.0009/03:110172_5/01-28-99 12050.0009/03:110172_5/01-28-99 12050.0009/03:110172_5/01-28-99 12050.0009/03:110172_5/01-28-99 12050.0009/03:110172_5/01-28-99 12050.0009/03:110172_5/01-28-99 12050.0009/03:110172_5/01-28-99 EX-10.27 27 DISTRIBUTION AGREEMENT (06/27/99) CONFIDENTIAL INFORMATION HAS BEEN OMITTED PURSUANT TO RULE 406 UNDER THE SECURITIES ACT AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. THE LOCATIONS OF THE OMITTED INFORMATION HAVE BEEN INDICATED WITH ASTERISKS. EXHIBIT 10.27 DISTRIBUTION AGREEMENT ---------------------- This DISTRIBUTION AGREEMENT ("Agreement") is dated as of the 27th day of June, 1997, and entered into by and between Plug Power, L.L.C., a limited liability company organized and existing under the laws of the State of Delaware ("Company"), with its principal place of business at 968 Albany-Shaker Road, Latham, New York 12110, and Edison Development Corporation, a company organized and existing under the laws of the State of Michigan ("Distributor"), with its principal place of business at 2000 Second Avenue, Detroit, Michigan 48226. BACKGROUND STATEMENTS WHEREAS, the Company owns all right, title and interest in certain fuel cells with capacities of 2 kilowatts and higher, as is set out more fully in Exhibit 1 ("Products"); WHEREAS, the Distributor in consideration for and in reliance of the grant of the exclusive distributorship hereunder has or will expend considerable time and funds to establish a distribution network, plant and facilities and training its support and sales staff. WHEREAS, the parties desire Distributor to act in certain circumstances as Company's exclusive distributor for the Products to certain entities within the United States as hereinunder specified. NOW THEREFORE, in consideration of the mutual covenants and agreements hereinunder set forth, and other good and valuable consideration the receipt and sufficiency of which is acknowledged, the parties agree as follows: 1 . APPOINTMENT. ----------- a. Upon execution of this Agreement, Company hereby appoints Distributor as Company's exclusive independent distributor during the term of this Agreement to promote and assist Company in the sale of Products which are developed by Plug Power, to end-users for stationary applications in the Territory, as that term is defined below, and subject to the terms and conditions provided herein. b. Upon execution of this Agreement, Distributor hereby accepts the appointment, subject to the terms and conditions as provided herein. 2. TERRITORY. --------- a. Distributor's territory for this Agreement shall mean the states of Michigan, Ohio, Indiana and Illinois ("Territory"). b. Without the prior written consent of the Company, Distributor shall not solicit nor seek customers for the Products, or establish or maintain a branch facility or distribution facility for the sale, servicing, warehousing, or storage of the Products or spare parts thereof outside the Territory. c. Distributor may only sell the Products directly and not for resale. d. DISTRIBUTOR MAY NOT SELL OR DISTRIBUTE THE PRODUCTS TO ANY ENTITY FOR TRANSPORTATION APPLICATIONS. e. Distributor will be the sole person or entity acting in such capacity in the Territory; and Company shall not appoint any subdistributor, other agent or person to distribute or promote the Products, or otherwise undertake Distributor's obligations in the Territory. 3. EXCLUSIVITY. ----------- a. The term "Exclusive" means that under this Agreement as long as Distributor is in full compliance with its obligations, including the percentage sales requirements set forth in Section 5 herein, Company shall not appoint any other distributor, agent, representative, or dealer for promotion or sale of ~he Products to end users for stationary applications in the Territory and shall further refrain from selling Products to end users for stationary applications in the Territory directly, other than through Distributor. b. Company shall not be responsible for transgression of Distributor's exclusive rights hereunder by third parties not controlled by Company, but shall not sell or deliver Products to any other party outside of the Territory if Company has knowledge that the Products are to be sold or distributed by or through another party in the Territory. c. In the event that Distributor is in default of its obligations under this Agreement, or after January 1, 2010, then Company retains the right, in addition to any other rights and remedies, to engage another distributor, dealer, agent, or other such representative on a nonexclusive basis for all or part of the Territory. d. In the event that Distributor engages in the distribution of any fuel cell product to end users for stationary applications within the Territory that is competitive with the Products, then the Company retains the right, in addition to any other rights and remedies, to engage another distributor, dealer, agent, or other such representative on a nonexclusive basis for all or part of the Territory. 4. PRICE OF PRODUCT. ---------------- a. [***] CONFIDENTIAL INFORMATION HAS BEEN OMITTED PURSUANT TO RULE 406 UNDER THE SECURITIES ACT AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. THE LOCATIONS OF THE OMITTED INFORMATION HAVE BEEN INDICATED WITH ASTERISKS. b. Any and all orders from time to time submitted by Distributor shall be subject to Company's then-prevailing terms and conditions of sale, which may be changed or established from time to time by Company at its discretion on notice to Distributor, including late fees, and interest on any unpaid amounts. 5. MINIMUM SALES OBLIGATION. ------------------------ [***] 6. DISTRIBUTOR COVENANTS AND REPRESENTATIONS. ----------------------------------------- Distributor represents, warrants, to Company (its members, agents, officers, directors) and agrees: a. To provide Company with monthly nonbinding good-faith forecasts of its anticipated requirements and shipping dates for the three month period following each forecast (or, if shorter, the remaining term of this Agreement). b. Distributor shall not sell the Product outside the Territory. To ensure compliance with this requirement, each Product shall be identified by a unique serial number. This serial number will be used to identify Products sold outside the Territory. Should Company's review of a Product's serial number lead to the conclusion that a Product has been sold outside the Territory, such sale will be considered a breach of this Agreement. CONFIDENTIAL INFORMATION HAS BEEN OMITTED PURSUANT TO RULE 406 UNDER THE SECURITIES ACT AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. THE LOCATIONS OF THE OMITTED INFORMATION HAVE BEEN INDICATED WITH ASTERISKS. c. Not to (i) disassemble, decompile or otherwise reverse engineer the Product or otherwise attempt to learn the ideas underlying the Product; (ii) take any action contrary to Company's license granted to Distributor, except as expressly and unambiguously allowed under this Agreement; (iii) copy, modify or enhance the Product; or (iv) allow others to do any of the foregoing. d. Distributor shall advertise, promote and label the products with Company's name and trademarks ("Branding Materials"). Distributor shall provide Company with all such Branding Materials for Company's approval prior to their use. Company shall not unreasonably withhold its approval of the Branding Materials. Distributor shall not design the Branding Materials in such a way as to either imply or state that Distributor's relationship with Company is greater than that of an independent distributor. e. TO KEEP COMPANY INFORMED AS TO ANY PROBLEMS ENCOUNTERED WITH THE PRODUCTS AND ANY RESOLUTIONS ARRIVED AT FOR THOSE PROBLEMS, AND TO COMMUNICATE PROMPTLY TO COMPANY ANY AND ALL MODIFICATIONS, DESIGN CHANGES OR IMPROVEMENTS OF THE PRODUCT SUGGESTED BY ANY CUSTOMER, EMPLOYEE OR AGENT. DISTRIBUTOR FURTHER AGREES THAT COMPANY SHALL HAVE AND IS HEREBY ASSIGNED ANY AND ALL RIGHT, TITLE AND INTEREST IN AND TO ANY SUCH SUGGESTED MODIFICATIONS, DESIGN CHANGES, OR IMPROVEMENTS OF THE PRODUCT, WITHOUT THE PAYMENT OF ANY ADDITIONAL CONSIDERATION THEREFOR EITHER TO DISTRIBUTOR, OR ITS EMPLOYEES, AGENTS OR CUSTOMERS. DISTRIBUTOR WILL ALSO PROMPTLY NOTIFY COMPANY OF ANY INFRINGEMENT OF ANY TRADEMARKS OR OTHER PROPRIETARY RIGHTS RELATING TO THE PRODUCT. f. To accept returns in accordance with procedures specified from time to time by Company. g. Distributor shall carry out all sales promotion work and solicitation of sales for the Products diligently, using its reasonable efforts for the account of Company. These efforts shall include, but shall not in any way be limited to: (i) advertising and promoting the Products effectively; (ii) ordering and keeping a representative selection of Company's up-to-date promotional sales literature, technical bulletins, price lists, manuals, catalogues and other promotion materials in good condition; (iii) maintaining the equipment and facilities to enable Distributor to demonstrate the Products to potential new customers; and (iv) assisting Company in securing and protecting any property rights in connection with the Products in the Territory. h. Distributor shall not make any representations as to the Products other than those, if any, contained in written information and data provided by Company. Distributor shall be totally responsible for any of its representations and shall hold Company harmless from any claims and expenses, including, but not limited to, reasonable attorneys' fees, resulting from such unauthorized representations. i. Distributor shall not manufacture the Products, nor engage any entity other than Company to do so. 7. COMPANY'S OBLIGATIONS. --------------------- a. Company shall supply Distributor with copies of brochures, catalogues, technical specification sheets, and promotional sales literature and such other information or materials as Company, in its sole judgment, believes will assist Distributor in promoting and assisting in the sale and acceptance of the Products in the Territory. These items shall be conveyed in English, unless the parties otherwise agree from time to time. b. In the event that Company receives an inquiry for the Products from the end users in the Territory, Company will refer the prospect to Distributor. c. Company shall, at all times maintain an adequate level of inventory to timely meet all current and anticipated orders for the Products. 8. OPERATIONS AND EXPENSES. ----------------------- The detailed operations of the Distributor under this Agreement are subject to its sole control and management, subject to compliance with the terms hereof. Distributor shall be responsible for all of its own expenses and employees. Distributor agrees that it shall incur no expense chargeable to Company except as may be specifically authorized, in advance, in writing, in each case by Company nor shall any such expenses, including taxes, fees, or similar charges, be deducted from any amounts due hereunder. 9. TRADEMARK LICENSE AND USE. ------------------------- a. Company grants to Distributor a non-exclusive, non-transferable license to use trademark(s) described in Exhibit 2 to this Agreement ("Authorized Trademarks") only in connection with the sale and promotion of the Products in the Territory and during the term of and pursuant to the terms and conditions of the Agreement. No trademark, trade name or other designations may be used without the written consent of Company except as expressly provided in this section. Company expressly allows Distributor to represent that it is a distributor of the Products, including on the Products themselves, advertising materials, stationary and letterhead. b. Distributor shall not assign or sub-license its rights to the Authorized Trademarks to any other person or entity. c. Distributor shall not remove, change, obscure, or add to the labels, markings, names or trademarks that Company has affixed to any of the Products. d. Distributor shall not attempt to, or register any of the Authorized Trademarks in any jurisdiction without the express consent of Company. e. Distributor acknowledges and agrees that Company's remedy at law for any breach of Company's obligations under this paragraph would be inadequate, and agrees and consents that temporary and permanent injunctive relief may be granted in any action or proceeding which may be brought to enforce any provision hereof without the necessity of proof of actual damages. 10. CONFIDENTIALITY. --------------- a. Without the prior written consent of Company, Distributor shall not disclose to any third party any confidential business information or trade secrets of Company, including but not limited to: the content of this Agreement; customer lists; product specifications; product technical manuals; service records; financial or sales reports; price lists; and any materials related to Company's customers, financial performance, or design of the Products, except for or in connection with any assignment permitted under Section 16 hereof. b . Distributor hereby acknowledges and agrees that the Products are proprietary to Company. Distributor agrees to use utmost diligence to protect the trade secrets and other proprietary rights of Company in the Products from disclosure to third parties. Distributor shall also promote compliance with the terms and conditions of this Agreement by employees and others with access to the Products. c. Distributor acknowledges and agrees that Company's remedy at law for any breach of Company's obligations under this paragraph would be inadequate, and agrees and consents that temporary and permanent injunctive relief may be granted in any action or proceeding which may be brought to enforce any provision hereof without the necessity of proof of actual damages. d. Distributor's obligations under this confidentiality provision shall survive termination or expiration of this Agreement. 11. THIS SECTION INTENTIONALLY DELETED. ---------------------------------- 12. ETHICAL CONDUCT. --------------- Distributor expressly agrees that it shall not be entitled to any commissions, fees, discounts or other compensation if facts are known to Company that reasonably support a belief that Distributor is in violation of any of the terms and conditions of paragraph 18 of this Agreement. 13. LIMITED WARRANTY; DISCLAIMER: INDEMNITY. --------------------------------------- a. Company provides only the warranty set forth in its warranty policy, as modified by this Section 13(a). Distributor will handle and be responsible for all warranty returns from its direct customers. Products obtained from Company that do not comply with the warranty and are returned (by Distributor only) to Company during the warranty period (as shown by appropriate documentation) will be repaired or replaced at Company's option, provided Distributor bears the cost of freight and insurance to the point of repair. Company will bear the cost of freight and insurance for return of goods to Distributor. If Company cannot, or determines that it is not practical to, repair or replace the returned Product, the price therefor paid by Distributor will be refunded or, at the Company's discretion, credited against other Distributor obligations or toward future purchases. COMPANY MAKES NO OTHER WARRANTIES WITH RESPECT TO THE PRODUCTS OR ANY SERVICES AND DISCLAIMS ALL OTHER WARRANTIES, INCLUDING WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. ANY ACTION AGAINST COMPANY BASED ON THIS AGREEMENT MUST BE BROUGHT WITHIN ONE YEAR FOLLOWING INJURY. b. The above warranty does not extend to any Product that is modified or altered, is not maintained to Company's maintenance recommendations, is operated in a manner other than that specified by Company, has its serial number removed or altered or is treated with abuse, negligence or other improper treatment (including, without limitation, use outside the recommended environment). Distributor's sole remedy with respect to any warranty or defect is as stated above. c. Distributor may extend its own product warranty to its customers provided Distributor alone shall be responsible to such customer thereof and neither Distributor nor such customer shall have recourse against Company with respect thereto. Distributor hereby agrees to indemnify and hold Company harmless from any and against all claims, actions, losses, damages, costs, liabilities and expenses (including reasonable attorneys' fees) based upon any express or implied warranty made by Distributor to any customer. 14. LIMITED LIABILITY. ----------------- EXCEPT AS SET FORTH IN SECTION 13, COMPANY WILL NOT BE LIABLE TO DISTRIBUTOR OR THIRD PARTY WITH RESPECT TO ANY SUBJECT MATTER OF THIS AGREEMENT UNDER ANY CONTRACT, NEGLIGENCE, STRICT LIABILITY, OR OTHER LEGAL OR EQUITABLE THEORY FOR (I) ANY AMOUNTS IN EXCESS IN THE AGGREGATE, OF THE AMOUNTS PAID TO COMPANY HEREUNDER DURING THE TWELVE-MONTH PERIOD PRIOR TO DATE THE CAUSE OF ACTION AROSE OR (11) ANY INCIDENTAL OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS OR BUSINESS OPPORTUNITIES) OR (III) COST OF PROCUREMENT OF SUBSTITUTE GOODS, TECHNOLOGY, OR SERVICES. COMPANY SHALL HAVE NO LIABILITY FOR ANY FAILURE OR DELAY DUE TO MATTERS BEYOND ITS REASONABLE CONTROL. 15. RELATIONSHIP OF PARTIES. ----------------------- The parties hereto expressly understand and agree that Distributor is an independent contractor in the performance of each and every part of this Agreement, is solely responsible for all of its employees and agents and its labor costs and expenses arising in connection therewith and is responsible for and will indemnify, defend and hold Company harmless from any and all claims, liabilities, damages, debts, settlements, costs, attorneys' fees, expenses, and liabilities of any type whatsoever that may arise on account of Distributor's activities, or those of its employees or agents, including, without limitation, providing unauthorized representations or warranties (or failing to disclose all limitations on warranties and liabilities set forth herein on behalf of Company) to its customers or breaching any term, representation or warranty of this Agreement. Company is in no manner associated with or otherwise connected with the actual performance of this Agreement on the part of Distributor, nor with Distributor's employment of other persons or incurring of other expenses. Except as expressly provided herein, Company shall have no right to exercise any control whatsoever over the activities or operations of Distributor. 16. ASSIGNMENT. ---------- Distributor shall not assign this Agreement or its rights under this Agreement to any other third party nor may Distributor sublicense the distribution of the Product to any subdistributor for further distribution, except that Distributor may assign its rights to and obligations under this Agreement to any entity that is 80% or more owned or controlled by DTE Energy Company or by any other entity that in turn is 80% or more owned or controlled by DTE Energy Company, provided that any such entity shall be bound, in writing, to all restrictions on Distributor contained in this Agreement. 17. TERM AND TERMINATION. -------------------- This Agreement may be terminated by a party for cause immediately by written notice upon the occurrence of any of the following events: i. If the other ceases to do business, or otherwise terminates it business operations or if there is a material change in control of the other; or ii. If the other shall fail to promptly secure or renew any license, registration, permit, authorization or approval for the conduct of its business in the manner contemplated by this Agreement or if any such license, registration, permit, authorization or approval is revoked or suspended and not reinstated within sixty days; or iii. If the other materially breaches any material provision of this Agreement and fails to substantially cure such breach within thirty days (ten days in the case of a failure to pay) of written notice describing the breach; or iv. If the other becomes insolvent or seeks protection under any bankruptcy, receivership, trust deed, creditors arrangement, composition or comparable proceeding, or if any such proceeding is instituted against the other (and not dismissed within 90 days); or v. If Distributor breaches any other agreement or contract with Company. b. On termination or expiration of this Agreement for any reason whatsoever including, but not limited to, termination or expiration by passage of time or nonrenewal, the parties expressly agree that the following shall take effect: (i) all rights granted to Distributor under or pursuant to this Agreement shall immediately cease; (ii) all contracts and orders placed by Distributor for the Products and accepted, but not filled or delivered by Company as of the date of termination, shall be filled or delivered by Company subject to the terms and conditions of this Agreement; (iii) all contracts or orders for the Products not accepted by Company on or before the date of termination shall, at Company's sole option, be canceled; (iv) Distributor shall forthwith return to Company all promotional Sales information materials or demonstration products that have been furnished by Company to Distributor during the term of this Agreement, it being understood that no copies of these foregoing materials may be retained by Distributor subsequent to the date of termination or expiration of this Agreement; and (v) Company shall repurchase from Distributor, at the then fair market value in the Territory, any Products purchased from Company by Distributor for inventory or other purpose directly related to furthering the purposes of this Agreement. c. Distributor acknowledges and expressly agrees that Company shall not be liable to Distributor, and Distributor hereby waives any claims for compensation or damages of any kind or character whatsoever, whether on account of the loss by Distributor of present or prospective compensation or anticipated compensation, or of expenditures, investments or commitments made either in connection therewith or in connection with the establishment, development or maintenance of establishment, development or maintenance of Distributor's business, or on account of any other cause or thing whatsoever. d. Termination is not the sole remedy under this Agreement and, whether or not termination is affected, all other remedies will remain available. 18. NO EXPORT. --------- The Products shall not be distributed for export nor sold to the end users for use outside the Territory. The parties further acknowledge and agree that all actions taken by the parties in furtherance of fulfillment of this Agreement shall be in full compliance with all applicable U.S. export control laws and regulations, as they are amended from time to time. The parties recognize that such laws may require, among other things, applying for export licenses for the export of information ("Technical Data"). Failure to obtain such licenses or otherwise comply with such laws could subject the parties to criminal sanctions including imprisonment. It is further acknowledged that the export of Technical Data, including the Products, software, know-how and other proprietary information, is "deemed" by the U.S. government to be exported: (i) upon transmission from the United States; (ii) upon oral release by a U.S. citizen in a foreign country; or (iii) by release in the United States to non- U.S. nationals. 19. AMENDMENT AND WAIVER. -------------------- Except as otherwise expressly provided herein, any provision of this Agreement may be amended and the observance of any provision of this Agreement may be waived (either generally or any particular instance and either retroactively or prospectively) only with the written consent of the parties. 20. GOVERNING LAW AND LEGAL ACTIONS. ------------------------------- This Agreement shall be governed by and construed under the laws of the State of Michigan and the United States without regard to conflicts of law provisions. Unless waived by Company in writing for the particular instance (which Company may do at its option), the sole jurisdiction and venue for actions related to the subject matter hereof shall be the State of Michigan and U.S. federal court for the Eastern District of Michigan. Both parties consent to the exhibit jurisdiction and venue of such courts and agree that process may be served in the manner provided herein for giving of notices or otherwise as allowed by Michigan or federal law. In any action or proceeding to enforce rights under this Agreement, the prevailing party shall be entitled to recover costs and reasonable attorneys' fees. 21. FORCE MAJEURE. ------------- Neither party shall be liable under this Agreement for any loss or damage of any nature incurred as a result of any failures of delays in performance because of any cause or circumstances beyond its control. This includes, but is not limited to, any failure or delays in performance caused by any strikes, lockouts, labor disputes, fires, acts of God or the public enemy, riots, incendiaries, interference by civil or military authorities, compliance with the laws, orders or policies of any government authority, delays in transit or delivery on the part of transportation companies or failures of communication facilities or sources of raw materials. However, the party claiming a Force Majeure Event must notify the other in writing within ten days of the beginning of such an event, and no Force Majeure Event shall extend for a period of greater than 45 days. 22. HEADINGS. -------- Headings and captions are for convenience only and are not to be used in the interpretation of this Agreement. 23. NOTICES. ------- Any notices or other communications required or permitted hereunder shall be in writing and shall be deemed sufficiently given if (i) delivered in person, (ii) sent by recognized overnight courier, or (iii) by registered or certified mail, postage prepaid, to the respective party at the address set out above or to such other address any party shall have given notice in accordance with this Section 23. Notices hand-delivered shall be deemed given the same day as delivery-notices sent by overnight mail shall be deemed given the day following delivery, and notices sent by mail shall be deemed given three business days after the date posted, provided however, that any change of address shall be effective only upon receipt. 24. ENTIRE AGREEMENT. ---------------- This Agreement supersedes all proposals and agreements whether oral or written, all negotiations, conversations, or discussions between or among parties relating to the subject matter of this Agreement and all past dealing or industry custom. 25. SEVERABILITY. ------------ If any provision of this Agreement is held by a court of competent jurisdiction to be illegal, invalid or unenforceable, that provision shall be limited or eliminated to the minimum extent necessary so that this Agreement shall otherwise remain in full force and effect and enforceable. 26. CORPORATE AUTHORITY. ------------------- The individuals executing this Agreement on behalf of Company and Distributor do each hereby warrant and represent that they respectively have been and are on the date of this Agreement duly authorized by all necessary or appropriate corporate action to execute this Agreement. 27. COUNTERPARTS. ------------ To facilitate execution, this Agreement may be executed in more than one counterpart, each of which shall constitute an original and all of which shall constitute one and the same Agreement. 28. FACSIMILE. --------- Facsimile signatures to this Agreement shall be considered original signatures. 29. BASIS OF BARGAIN. ---------------- EACH PARTY RECOGNIZES AND AGREES THAT THE WARRANTY DISCLAIMERS AND LIABILITY AND REMEDY LIMITATIONS IN THIS AGREEMENT ARE MATERIAL, BARGAINED-FOR BASES OF THIS AGREEMENT, AND THAT THEY HAVE BEEN TAKEN INTO ACCOUNT AND REFLECTED IN DETERMINING THE CONSIDERATION TO BE GIVEN BY EACH PARTY UNDER THIS AGREEMENT AND IN THE DECISION BY EACH PARTY TO ENTER INTO THIS AGREEMENT. SIGNATURE PAGE FOLLOWS. EDISON DEVELOPMENT CORPORATION (a Michigan corporation) By: ____________________________________ Its: ____________________________________ "Distributor" PLUG POWER, L.L.C. (a Delaware limited liability company) By its Managing Member: ________________________________________ By: ____________________________________ Its: ____________________________________ "Company" Exhibit 1 "Products" The Products made by the Company are a range of fuel cell systems that are capable of generating electricity through electrochemical reactions. The components comprising the fuel cell systems include, but are not limited to, one or more of the following whether used alone or in combination: . A fuel processor that generates hydrogen gas and/or other gas(es). . A fuel cell stack(s) that generates electricity through electrochemical reactions. . An inverter system to convert direct current electricity to alternating current electricity. . A system controller for operation of the fuel cell system or any component thereof. . An energy storage system. . A heat exchanger. EXHIBIT 2 TO DISTRIBUTION AGREEMENT Authorized Trademarks Pursuant to the Plug Power, L.L.C. Distribution Agreement ("Agreement") dated ________________, _____, between Plug Power, L.L.C. ("Company") and Mechanical Technology, Inc., ("Distributor"), it is further agreed, effective________________, 1997 (the "Exhibit 2 Effective Date"), that the Authorized Trademarks of Plug Power which the Agreement grants Distributor a non-exclusive nontransferable license to use consists of the following names and graphic representations thereof: 1 . "Plug Power, L.L.C." 2. Stylized Plug Power Logo EX-10.35 28 AGREEMENT (08/27/99) Exhibit 10.35 CONFIDENTIAL INTORMATION HAS BEEN OMITTED PURSUANT TO RULE 406 UNDER THE SECURITIES ACT AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. THE LOCATIONS OF THE OMITTED INFORMATION HAVE BEEN INDICATED WITH ASTERISKS. AGREEMENT This Agreement is made and entered into as of August 27, 1999, among Plug Power, L.L.C., a Delaware limited liability company ("PP"), Plug Power Inc., a Delaware corporation and wholly-owned subsidiary of PP ("PP Inc."), GE On-Site Power, Inc., a Delaware corporation ("GEOSP"), GE Power Systems business of General Electric Company, a New York corporation ("GEPS"), and GE Fuel Cell Systems, L.L.C., a Delaware limited liability company ("GEFCS"). In consideration of the mutual covenants and agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: ARTICLE 1 1.1 GEOSP shall by written notice to PP exercise the option granted to it by PP (the "Option"), pursuant to Section 2(b) of that certain Contribution Agreement, dated as of February 3, 1999 (the "Contribution Agreement"), between GEOSP and PP, to purchase from PP 3,000,000 newly issued shares of the Class A membership interests of PP at an exercise price of $12.50 per share, concurrently with or prior to an initial public offering ("IPO") of PP's securities (or those of PP Inc. following the merger of PP with and into PP Inc. (the "Merger") as described in the Registration Statement filed with the United States Securities and Exchange Commission on the date hereof, a copy of which is attached hereto as Exhibit A; provided, that (i) the IPO shall have been consummated on or before December 31, 1999; (ii) the price per share to the public of the securities offered in such IPO is greater than $12.50 and (iii) GEOSP shall have received all applicable governmental authorizations, consents and approvals and made all necessary governmental filings necessary for the valid consummation of the transactions contemplated hereby, including, without limitation, filings under, and expiration of the applicable waiting period (or early termination thereof) imposed by, the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. 1.2 Failure by GEOSP to exercise the Option pursuant to Section 1.1 shall be deemed a surrender of such Option by GEOSP. ARTICLE 2 2.1 Effective upon the exercise by GEOSP of the Option: (A) PP shall (i) use its best efforts to cause one individual nominated by GEPS (the "GEPS Nominee") to be elected to the Management Committee of PP for an initial term of one (1) year and (ii) cause the GEPS Nominee to be elected to the Board of Directors of PP Inc. for an initial term of three (3) years; and (B) GEPS shall nominate Robert Nardelli or his successor as President and Chief Executive Officer of GEPS to serve as the GEPS Nominee; provided, however, that GEPS may nominate an individual other than Robert Nardelli or his successor as President and Chief Executive Officer of GEPS to serve as the GEPS Nominee, subject to the approval of PP and PP Inc., which approval shall not be unreasonably withheld. Each of PP and PP Inc. hereby agree to take all reasonable actions necessary to nominate the GEPS Nominee as a director, and to use best efforts to cause the election of the GEPS Nominee to the Board of Directors of PP Inc. following the IPO for so long as the Distributor Agreement (as defined below) remains in effect. Each of PP, PP, Inc. and GEPS agree to take all reasonable actions necessary to comply with the foregoing covenant. As used herein, the term "Management Committee" shall have the meanings ascribed to such term in the Limited Liability Company Agreement of Plug Power, L.L.C. made as of June 27, 1997, as amended (the "PP Operating Agreement"). 2.2 Effective as of the date hereof, the vesting/forfeiture provisions set forth in Section 2(a)(i)-(vi) of the Contribution Agreement shall be terminated and have no further force or effect and the 1,500,000 Shares (as defined in the Contribution Agreement) shall be fully vested, free of any restrictions set forth in the Contribution Agreement. Effective upon exercise by GEOSP of the Option, the Contribution Agreement shall be terminated. ARTICLE 3 3.1 Effective upon exercise by GEOSP of the Option, GEOSP shall have the right to include its shares of PP Class A membership interests or shares of common stock of PP Inc. (collectively, "Registrable Shares") in any of the first three registration statements (the "Piggyback Registration Statements") filed under the Securities Act of 1933 (the "Securities Act") by PP or PP Inc. after completion of the IPO (other than registration statements on Form S-4 or S-8 or any successor Form). The number of Registrable Shares sought to be included in any registration statement for an underwritten public offering shall be subject to reduction on a pro-rata basis with all other selling stockholders and before any shares sought to be registered by PP or PP Inc. are reduced, if in the reasonable judgment of the managing underwriters of such offering, marketing or other factors require such reduction in order to facilitate public distribution of the offering. In the event GEOSP is not permitted to include any Registrable Shares in a particular Piggyback Registration Statement as a result of the immediately preceding sentence, such Piggyback Registration Statement shall not be included in the three Piggyback Registration Statements in which GEOSP has the right to include Registrable Shares. In addition, effective upon exercise by GEOSP of the Option, GEOSP shall, at any time from and after the second anniversary of the consummation of the IPO, have the right on one occasion to require PP and PP Inc. to register for resale under the Securities Act up to 3,000,000 Registrable Shares (as appropriately adjusted for stock splits, stock dividends, mergers, recapitalizations and 2 similar transactions), less the total number of shares sold by GEOSP under the Piggyback Registration Statements. The parties shall, concurrently with or prior to the IPO, enter into a registration rights agreement substantially in the form of the August 24, 1999 draft provided to PP by GEOSP's counsel, provided that Section 2 of such draft shall be revised to reflect the terms hereof.. ARTICLE 4 4.1 Subject to the exercise by GEOSP of the Option and subject to Section 4.4 below, PP shall purchase a minimum of $12,000,000 of technical support services (e.g. engineering, testing, manufacturing, quality control) from GEOSP over a period of three years (the "Initial Period") in accordance with the Work Plan (as defined below) (the "PP Commitment") commencing on the earlier of (i) the date on which the Management Committee of GEFCS unanimously approves the Work Plan, as defined below, or (ii) September 30, 1999. Within 30 days of the date hereof, representatives of PP, GEFCS shall agree on the specific work scope, process for collaboration, resource/capability requirements and deliverables for a three-year period and submit such plan (the "Work Plan") to the Management Committee of GEFCS; provided, however, that each of PP and GEPS -------- ------- agree that the draft work plan dated July 23, 1999 submitted to PP by GEPS shall be the basis for the Work Plan and the Work Plan shall contain substantially the same fundamental terms (other than purchase commitments) as such draft work plan. PP shall purchase services from GEOSP only. GEOSP shall purchase services as needed by PP from other General Electric Company divisions and, except [***] 4.2 In providing the services set forth in the Work Plan, GEOSP need not provide services directly, and may utilize resources as necessary from other divisions and affiliates of General Electric Company. 4.3 If on March 31, 2002 PP reasonably believes that it will fail to both (i) satisfy the PP Commitment during the time period set forth in Section 4.1 above (including amounts credited toward the PP Commitment in accordance with Section 4.4 below), and (ii) complete the Work Plan in accordance with its terms, then PP may, by written notice to GEOSP (which notice must be received by April 30, 2002), request an extension of the time within which to complete the Work Plan until a date not later than March 31, 2003 (the "Work Plan Extension Period"). Such notice must set forth (i) the reason for PP's belief that it will fail to complete the Work Plan, and (ii) PP's timetable and methodology for completion of the Work Plan. Upon GEOSP's receipt of any such extension request, the time within which PP may complete the Work Plan shall be automatically extended until the date requested by PP (not later than March 31, 2003). During the Work Plan Extension Period PP shall continue to purchase services from GEOSP in accordance with the provisions of Section 4.1 until the earlier of satisfaction of the PP Commitment or completion of the Work Plan in accordance with its terms. If at the end of the Work Plan Extension Period PP fails to both (i) satisfy the PP Commitment and (ii) complete the Work Plan in accordance with its terms, then PP shall pay GEOSP, as liquidated damages for such failure, the difference between $12,000,000 and the amount purchased during the Initial Period and the Work Plan Extension Period (including amounts paid to third parties in accordance with Section 4.4). 3 4.4 PP recognizes that in order to meet its overall production development obligations, it may be necessary to spend more than $12,000,000. GEOSP recognizes that if it is unable to deliver support in conformity with the Work Plan, PP may obtain such services from a third party subject to the provisions of this Section 4.4. If PP believes, in good faith that GEOSP cannot deliver support in conformity with the Work Plan, and provides GEOSP with written notice of such good faith belief, GEOSP shall have thirty (30) days after GEOSP's receipt of such notice to demonstrate that it can provide the requisite support. If GEOSP fails to sufficiently demonstrate such ability within thirty (30) days, PP may obtain such services from a third-party at reasonable and prevailing costs and credit such costs to the PP Commitment. Any third-party costs must be based on customary commercial practices and PP must provide evidence of such costs to GEOSP. 4.5 Unless otherwise agreed to by PP and GEOSP, PP agrees that at least $1,000,000 of the PP Commitment shall be for quality related initiatives (e.g. training, design for six sigma (DFSS) implementation, design and use of quality scorecards, design for reliability). In addition, PP agrees that the members of PP's senior management team shall be trained by General Electric Company personnel on six sigma/DFSS tools within 60 days of the date hereof. 4.6 In order to promote improved integration of the product development and market development activities, the Management Committee of GEFCS shall meet monthly to review key product and market development activities, progress to date, obstacles and other related items. ARTICLE 5 5.1 Effective upon exercise by GEOSP of the Option, PP and GEFCS hereby amend that certain Distributor Agreement, dated as of February 2, 1999 (the "Distributor Agreement"), between GEFCS and PP, to extend the term of the Distributor Agreement by five years (the "Extension Period") from March 4, 2004 until March 4, 2009. In order to supplement the Distributor Agreement with product transfer prices and purchase commitments applicable to the Extension Period, GEFCS and PP agree to begin discussions on such terms on October 1, 2002 and engage in negotiations to conclude such discussions and resolve such points by March 1, 2003. [***] 5.2 PP and GEFCS shall use commercially reasonable efforts to be the most successful manufacturer, marketer and distributor of residential and small commercial fuel cell systems in every market in the world (other than Illinois, Indiana, Michigan and Ohio for so long as DTE Energy Company is the exclusive distributor for such states). 5.3 PP and GEFCS further agree that during the Extension Period: (a) GEFCS shall extend the distribution rights of John. Vaillant GMBH U. Co. ("Vaillant") for Vaillant manufactured fuel cell combined heat and power systems to include all countries that are included in the definitions of "Europe" as defined in the Vaillant Agreement (as defined below); provided, that (i) PP, Vaillant and GEFCS -------- complete the contemplated development, collaboration and distribution agreements contemplated by that certain memorandum of 4 understanding among PP and Vaillant (the "Vaillant Agreement"), (ii) Vaillant satisfies its obligations under the Vaillant Agreement and (iii) Vaillant and GEFCS mutually agree on transfer prices and purchase commitments for the time period; and (b) GEFCS shall retain its exclusive distribution rights pursuant to the Distribution Agreement in each year of the Extension Period, provided that GEFCS meets or exceeds the purchase commitment to be agreed upon for any given year during the Extension Period or GEFCS is one of the world's three largest sellers of PEM Fuel Cell-Powered Generator Sets as defined in the Distributor Agreement, based on the dollar value of new units and replacement parts actually sold by GEFCS for that year. However, any failure of GEFCS to meet its purchase commitment target in any year which is caused by PP's failure to deliver a competitive product, as defined under Section 9.3(b) of the Amended and Restated Limited Liability Company Agreement of GEFCS, dated February 3, 1999, between GEOSP and PP, for that year, shall not be grounds for PP to reduce or modify GEFCS's distribution rights in any way. ARTICLE 6 6.1 This Agreement shall be governed by and construed in accordance with the domestic laws of the State of New York without giving effect to any choice or conflict of law provision or rule (whether of the State of New York or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of New York. Each party agrees that any dispute relating to or arising from this Agreement or the transactions contemplated hereby shall be resolved only in the Courts of the State of New York. 6.2 In no case will any of the parties hereto be liable to any other party for special, incidental, or consequential damages, including, but not limited to, personal injury, property damage, loss of profit or revenues, or business interruption. 6.3 If the performance by any party hereto of any obligation under this Agreement is delayed or prevented in whole or in party by any cause not reasonably within its control (including, without limitation, acts of God, war, civil disturbances, accidents, damage to its facilities, labor disputes, acts of any governmental body not attributable to such party's failure to comply with this Agreement, or failure or delay of third parties), it shall be excused, discharged, and released or performance to the extent such performance is so limited or prevented, without liability of any kind. Each party shall use its reasonable efforts to minimize the duration and consequences of any failure of or delay in performance resulting from a "Force Majeure" event. 6.4 Each party agrees that the failure of any other party at any time to require performance of any of the provisions herein shall not operate as a waiver of the right of the other party to request strict performance of the same or like provisions, or any other provisions hereof, at a later time. 6.5 If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner adverse to any party. Upon 5 such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated hereby be consummated as originally contemplated to the greatest extent possible. 6.6 This Agreement may not be amended or modified except by an instrument in writing signed by the parties hereto. 6.7 This Agreement may be executed in one or more counterparts, and by the different parties hereto in separate counterparts, each of which when executed shall be deemed to be an original but all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Agreement by telecopier shall be effective as delivery of a manually executed counterpart of this Agreement. 6.8 This Agreement, the Distribution Agreement, the Contribution Agreement, the Registration Rights Agreement and the Operating Agreement constitute the entire agreement of the parties hereto with respect to the subject matter hereof. 6.9 This Agreement is for the sole benefit of the parties hereto and their permitted assigns and nothing herein, express or implied, is intended to or shall confer upon any other Person or entity any legal or equitable right, benefit or remedy of any nature whatsoever under or by reason of this Agreement. 6.10 Each party hereto shall bear its own costs and expenses associated with the negotiation, preparation, delivery and performance of this Agreement. 6.11 All notices or consents hereunder shall be in writing and shall be deemed given (a) when delivered personally, (b) five days after deposit, postage prepaid, if mailed by registered or certified mail, return receipt requested, or (c) upon transmission if transmitted by telex or facsimile (with an electronic confirmation thereof to the transmitter), to the parties at their respective addresses set forth below (or at such other address for a party as shall be specified by such party): If to PP or PP Inc. Plug Power, L.L.C. 968 Albany-Shaker Road Latham, New York 12110 Attn: Mr. Gary Mittleman Telecopy: (518) 782-7884 6 If to GEFCS: GE Fuel Cell Systems, L.L.C. 968 Albany-Shaker Road, Building 1 Latham, New York 12110 Attn: Mr. Barry Glickman Telecopy: (518) 785-2831 If to GEOSP: GE On-Site Power, Inc. 968 Albany-Shaker Road, Building 1 Latham, New York 12110 Attn: Mr. Barry Glickman Telecopy: (518) 785-2831 If to GEPS: GE Power Systems 4200 Wildwood Parkway Atlanta, Georgia 30339 Attn: Ms. Elizabeth K. Lanier Telecopy: (770) 859-7710 6.12 This Agreement shall be construed without regard to any presumption or rule requiring construction or interpretation against the party drafting or causing any instrument to be drafted. 6.13 To the extent permitted by applicable law, the parties hereto agree that irreparable damage will occur if any provision of this Agreement is not performed in accordance with the terms hereof and that the parties shall be entitled to specific performance of the terms hereof, in addition to any other remedy at law or equity; provided that each of the parties agrees to provide the -------- other with written notice at least two business days prior to filing any motion or other pleading seeking a temporary restraining order, a temporary or permanent injunction, specific performance, or any other equitable remedy and to give the other and its counsel a reasonable opportunity to attend and participate in any judicial or administrative hearing or other proceeding held to adjudicate or rule upon any such motion or pleading. [Signatures on next page.] 7 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. PLUG POWER, L.L.C. By: /s/ Gary Mittleman --------------------------------- Name: Gary Mittleman Title: President & CEO PLUG POWER INC. By: /s/ Gary Mittleman --------------------------------- Name: Gary Mittleman Title: President & CEO GE FUEL CELL SYSTEMS, L.L.C. By: /s/ Barry Glickman --------------------------------- Name: Barry Glickman Title: President GE ON-SITE POWER, INC. By: /s/ Ricardo Artigas --------------------------------- Name: Ricardo Artigas Title: President GE POWER SYSTEMS division of GENERAL ELECTRIC COMPANY By: /s/ Robert L. Nardelli --------------------------------- Name: Robert L. Nardelli Title: CEO, GE Power Systems 8 -----END PRIVACY-ENHANCED MESSAGE-----